Trex Company, Inc.
Q3 2008 Earnings Call Transcript

Published: 10 Nov 2008

[Operator:]

Welcome to the Trex company’s third quarter earnings report conference call. At this time, all participants are in a listen-only mode. Following management’s prepared remarks, we’ll hold a Q&A session. (Operator instructions) As a reminder, this conference is being recorded today, Wednesday, October 29th, 2008. I would now like to turn the conference over to Harriet Fried of LHA. Please go ahead, ma’am.

[Harriet Fried:]

Thank you everyone for joining us today. With us on the call are Ron Kaplan, President and Chief Executive Officer; and, Jim Cline, Chief Financial Officer. Joining Ron and Jim are Brad MacDonald, Controller; Brian Burtow [ph], Director of Financial Planning and Analysis; and Bill Gupp, General Counsel. The company issued a press release this morning containing financial results for the third quarter of 2008. This release is available on the company’s Web site as well as on various financial Web sites. The call is also being webcast on the Investor Relations page of the company’s Web site where it will be available for 30 days. With that introduction, I’d like to turn the call over to Bill Gupp, Trex’ General Counsel. Bill?

[Bill Gupp:]

Thank you, Harriet. Before we begin, let me remind everyone that statements on this call regarding the company’s expected sales performance and operating results; projection of net sales, net income, earnings per share, and costs; its anticipated financial condition; and, its business strategy constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements are subject to risks and uncertainties that could cause the company’s actual operating results to differ materially. Such risks and uncertainties include the extent of market acceptance of the company’s products, the sensitivity of the company’s business to general economic conditions, the company’s ability to obtain raw materials at acceptable prices, the company’s ability to maintain product quality and product performance at an acceptable cost, the level of expenses associated with product replacement and consumer relations expenses related to product quality, and the highly competitive market in which the company operates. The company’s report on 10-K filed with the SEC in March 2008 and its subsequent report on 10-Q, Form 10-Q filed on May 9th, 2008 and August 6th, 2008 discussed some of the important factors that could cause the company’s actual results to differ materially from those expressed or implied in these forward-looking statements. The company expressly disclaims any obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. To supplement the company’s consolidated financial statements, the company uses certain measures to find its non-GAAP financial measures by the SEC. A reconciliation of these results to GAAP is attached to today’s earnings release. With that introduction, I will turn the call over to Ron Kaplan.

[Ron Kaplan:]

Thank you, Bill. Good morning, everyone. As you know, this morning, we released the Trex company’s financial results for the 2008 third quarter. Net sales totaled $85.4 million, a slight increase over pro forma net sales for the 2007 third quarter. In the toughest market most of us have ever experienced, we are pleased with this performance. More importantly, for the third quarter of 2008, Trex reported net income of $6.7 million or $0.44 per diluted share, compared to a net loss of $41.2 million or $2.77 per diluted share for the 2007 period when the company’s results were negatively impacted by $65.8 million in charges. For the first nine months of 2008, our net sales of $229.9 million were 7.4% lower than pro forma 2007 net sales for the same period. But we generated net income of $23.5 million or $1.56 per diluted share, compared to a substantial net loss in the 2007 period. At this point, I’ll turn the call over to our Chief Financial Officer, Jim Cline, who will provide more detail on our numbers as well as this substantial improvement in gross margin and free cash flow we achieved for the quarter and full year to date. After that, I’ll come back on to give you more color on the actions we’ve taken and the strategy we’ve developed for 2009.

[Jim Cline:]

Thank you, Ron. Good morning. As Ron mentioned, our press release was issued this morning, and the numbers I will reference are contained in the table headed Condensed, Consolidated Statements of Operations, Balance Sheet, and Statements of Cash Flow. In addition, this is the magnitude of the non-recurring charges recognized in the 2007 and 2008 results. We have included pro forma profit loss statements to provide greater transparency to the company’s underlying financial performance. In the third quarter of 2008, net sales were $85.4 million, compared to net sales of $64 million in the third quarter of 2007, an increase of 33%. The company’s third quarter 2007 sales were adversely affected by $20.8 million in charges primarily related to the West Coast productions that exhibited surface flaking characteristics. Before giving effect to these charges, net sales for the third quarter of 2007 totaled $84.8 million. Volume shift during the third quarter of 2008 decreased by 4%, compared to the third quarter of 2007. The net sales were favorably impacted by a 7% price increase implemented in January of 2008 and improved sales mix. The favorable sales mix resulted from our two new product introductions for 2008, Trex Escapes and Trex Trim. For the nine months ended September 30th, 2008, net sales were $299.9 million, compared to $298.7 million in the first nine months of 2007. The company’s nine months 2007 sales were adversely affected by charges totaling $25.4 million primarily related to the West Coast surface flaking. Before giving effect to these charges, net sales for 2007 nine months’ period totaled $324 million. Volume for the first nine months of 2008 was 12% lower than in the 2007 period. But the decline in sale volume was partially offset by the effect of our 7% price increase and improved sales mix. Net income in third quarter of 2008 was $6.7 million or $0.44 per diluted share, compared to a net loss of $41.2 million or $2.77 per diluted share for the third quarter of 2007. Net income for the nine months ended September 30th, 2008 was $23.5 million or $1.56 per diluted share, compared to a net loss of $34.9 million or $2.35 per diluted share for the nine months ended September 30th, 2007. The company recognized charges for West Coast production that exhibited surface flaking characteristics of $56 million and $65.7 million for the three months and nine months 2007 periods, respectively. Gross profit for the 2008 third quarter was 28% of sales, compared to the third quarter 2007 gross margin of a negative 15%. The third quarter 2008 pro forma gross margin was 30.3%, a 600 basis points improvement compared to the pro forma margin for the 2007 period. We continue to enhance gross margins on a year-over-year basis through a combination of process and productivity improvements and reduced costs despite operating at reduced levels of capacity utilization. The lower capacity utilization was a result of increased productivity, reduced sales volume coupled with inventory reductions as part of our ongoing initiative to increase free cash flow. During the quarter, we continued to optimize our proprietary manufacturing process. As a result, the cost of our polyethylene material in the third quarter of 2008 was lower than the third quarter of 2007. In the third quarter of 2008, SG&A expenses totaled $15.1 million, compared to $52.1 million in the third quarter of 2007. Surface flaking costs recognized in SG&A from West Coast production was $35.5 million in the 2007 quarter. These costs have been recognized against the warranty reserve since October 1st, 2007. In addition, the company reduced branding expenses and staffing costs in the 2008 third quarter compared to 2007. The company’s lower staffing related expenses were primarily due to a reduction in force we implemented in the first quarter of 2008. The positive factors I just mentioned were partially offset by incurring costs of our idle Olive Branch, Mississippi facility. On a pro forma basis, SG&A represented 17.2% of revenue, which is a 230 basis point-reduction compared to the pro forma of 2007 period. The third quarter 2008 pro forma operating income was $11.2 million or 13.1% of net sales. This represents a $7.1 million increase over the third quarter of 2007 pro forma operating income. Net interest expense in the third quarter of 2008 amounted $2 million, and was comparable to the third quarter of 2007. Our company recognized an income tax benefit of $300,000 and $200,000 for the third – for the 2008 third quarter and year-to-date results, respectively, as a result of recognizing a decreased and evaluation allowance against the deferred tax assets and other favorable tax adjustments. The combined effect of these tax matters accounted for $0.17 and $0.56 of the increase in earnings per share for the 2008 third quarter and year-to-date financial results, respectively. As of September 30th, 2008, total net debt amounted to $90 million, which represents a $44 million reduction from the December 31 of 2007. Total net debt to total capitalization as of September 30th, 2008 was 43%, compared to 59% at December 31 of 2007. Total inventories were $49 million at September 30th, 2008, a $25 million year-over-year reduction. Free cash flow was $25.4 million for the 2008 third quarter, compared to $1.7 million for 2007, a $24 million improvement. The year-to-date free cash flow was $49.5 million favorable to 2007. The improvement was primarily a result of improved earnings and reduced capital spend. Capital expenditures during the third quarter of 2008 were $1.3 million, a $2.5 million reduction compared to last year’s third quarter. Our 2008 investment strategy was primarily focused on lower spend projects that support our process and productivity improvements and cost reduction initiatives, while improving our return on invested capital. We expect capital expenditures for the full year 2008 to be approximately $10 million, which is $15 million lower than 2007. Ron?

[Ron Kaplan:]

Thanks, Jim. As Jim’s commentary clearly shows Trex’ financial results for the third quarter represent another very strong step forward for the company, despite today’s extraordinarily difficult economic climate, we delivered another solid financial performance by following the strategy we outlined for you at the beginning of the year; implementing a wide array of manufacturing process improvements and cost controls throughout the organization. I think it’s now safe to say that our efforts have been successful, and that we’ve resolved the operational and manufacturing issues that weighed Trex down in 2006 and 2007. That’s not to say we aren’t continuing to identify new opportunities for process and productivity improvements. We are currently utilizing lien Six Sigma manufacturing principles to tap in our further cost reduction opportunities. At the same time, we’ve got to say the effectiveness of our approach to growing shareholder value based of four fundamental principles providing best in class product offering, expanding our distribution presence, increasing our brand leadership, and advancing our low cost competitive advantage. I’d like to give you an update on each of these. First, taking a look at our product offering, our full decking, railing, and fencing platform has delivered solid results in light of the economic conditions, which speaks to the power of the Trex brand. We are in the process of repositioning our railing product category to deliver unrivaled flexibility and choice to modular design. Demand for Escapes has exceeded supply throughout 2008, but we have taken action, and are now positioned to meet demand for this new decking product in 2009. Trex Trim, our ultra low maintenance trim product, has been impacted by the housing downturn. But we continue to think it’s an area that has a lot of promise, as I will discuss further in a moment. On the distribution side, we have a number of new opportunities that we’ve either put in place or in the final stages of pursuing. First, in September, we formed a partnership with one of our major distributors of building materials. This distributor will serve as a full line stocking distributor of Trex Trim. This partnership will be a significant platform for growth in the Trex Trim product line. Second, we parted ways with the distributor in the Pacific, Northwest, and California in the fall. The overwhelming response and enthusiasm of current distributors and potential new Trex product distributors to fill this open distribution footprint has been encouraging and again speaks to the power of the Trex brand. We are on track to complete the process of replacing of all open distributor locations in the Pacific, Northwest, and California by the end of the year. Finally, we had a very positive distributor meeting this month that, amongst other things, focused on the programs we have developed for 2009. Our distributor partners are very enthusiastic about the ’09 programs and prospects for the year despite today’s difficult economic conditions. With respect to brand leadership, we have a number of plans under way to support our position as the most well known and trusted name in high performance wood alternative products. We partnered with a new advertising agency, the Neiman Group, this year, and have developed a new ad campaign that we feel will be extremely effective across the trade and consumer spectrum. To support the new advertising campaign, we will increase branding spend in 2009 as we previously communicated. We will pursue an efficient branding campaign that will continue driving awareness and pull through demand for our industry leading product offering. I will personally participate in several high impact promotional activities directed at the trade. We will take assertive new steps in our relationships with the trade to make certain our commitments to quality and accountability are clearly understood. And to tackle head on any lingering questions. This is a personal priority for me as well as a company priority. As for advancing our low cost competitive advantage, that’s a very important factor at the time of this increased cost pressures and industry competition. In a period of escalating costs, including petrochemicals, our Q3 materials expenses were favorable the last year. We have continued to benefit from our cost containment initiatives while improving the quality of our product. Our eco friendly capability to utilize a wide stream of recycled poly sources have further strengthened our low cost advantage. Most of our competitors are not able to use lower cost plastic sources due to the constraints of their manufacturing process. We produced a gross margin of 28%, even though we are operating at less than 50% of our capacity utilization in the third quarter. So overall, we are very pleased with our financial performance for the first nine months of 2008, especially considering the challenging macroeconomic environment. The deck building season is now winding to a close. But we’re determined to keep up the good performance. Based on new orders, we currently have on hand, for the fourth quarter and the outlook for the remainder of the period, we project Q4 2008 revenue to be about $30 million. This is equal to the 2007 fourth quarter. We believe that we now have Trex on sound financial footing. And we’ll continue to strengthen the company’s financial performance. In prior earnings releases, I told you that our primary focus was turnaround. We will continue to stick to our knitting, and stay focused our operational and financial performance. But we are also now – are also now focusing on capitalizing our new positional strength with the creation of new opportunities to exert – to assert and exploit the company’s leadership, expertise, and competitive advantages. On a personal note, I want to recognize the contributions of this successful turnaround of two groups, the employees and the Board of Directors. The employees of Trex have been committed to success from the day I got here. They’ve been receptive to new ideas. Their energy, support, and technical competency have been the engine that drove us here. The Board of Directors has been supportive at every turn. Revolutionary ideas and challenges to the status quo have been received with collegiality and intellectual rigor. Without the support of these two constituencies, this turnaround would not have been successful. Operator, we are now ready to take questions.

[Operator:]

(Operator instructions) One moment please for the first question. Our first question comes from the line of John Baugh with Stifel, Nicolaus.

[John Baugh:]

Good morning, Ron.

[Ron Kaplan:]

Hi, John.

[John Baugh:]

Great quarter, a couple of questions. I was wondering if you could give us an update on inventories, obviously seasonal. But have you worked them down to the level where productivity or production can match your sales or are we still in a down mode there? I’m really more thinking about 2009 and the fourth quarter. And then the second question would relate to plastics. What’s the outlook for ’09 if we assume that we’re buying plastic at more or less the same price that you’re buying right now? Do we see further reductions in plastic costs year-over-year or flat, if again, we assume pricing is about the same as you’re currently buying plastic at right now?

[Ron Kaplan:]

Well, with respect to the first answer, John, we are not finished drawing down inventory. And we will continue to do so for at least another quarter or two, possibly more. But we’re not yet happy with the inventory level. If moving in the right direction, our efforts are meeting with success as evidenced by the numbers. But we think we can continue to drain the swamp. With respect to plastic prices, I’m going to decline to answer that question right now. Again, because it’s – I’m very sensitive to competitive implications.

[John Baugh:]

I’ll follow up on the inventory. So as we think about next year, the year, will you be closer though – will your capacity utilization increase if your volumes are flat in terms of sales next year? Or would you still see further utilization declines because you’re working on inventory?

[Ron Kaplan:]

We don’t see further utilization declines, but we do continue to see inventory reductions.

[John Baugh:]

Okay. And you mentioned branding, increasing branding expense. Can you give us some guidance on account of where ’08’s going to fall out, and then where ’09 would fall out?

[Ron Kaplan:]

Well I can tell you that ’09 will be higher than ’08. One of you guys want to help me in terms of ’08 versus ’07?

[Jim Cline:]

Yes. The level of branding spend that we’ve shown in reduction in ’08 versus ’07 thus far will continue for the remainder of the year. So it will be a couple of million dollars lower for ’08 compared to ’07.

[Ron Kaplan:]

But ’09 will be higher than ’08, but I’m not going to say how much.

[John Baugh:]

And I guess, last but not the least, in your distributor meetings, did you discuss pricing at all? Or when will you address that? How do we think about price per unit next year?

[Ron Kaplan:]

We discussed the format and the formula for our 2009 pricing program. But we did not reveal price increases per se. I don’t want my customers to hear about price increases on this conference call. So it’ll be revealed very shortly. Going back to earlier, to your comment about or your question about branding, I just want to add one thing, which is to say the obvious. Branding expenses will go up. This management team remains focused like a laser on shareholder value. Let’s leave it at that.

[John Baugh:]

Perfect job, and congratulations! Thanks.

[Ron Kaplan:]

Thank you.

[Operator:]

Our next question comes from the line of Jack Kasprzak with BB&T Capital Markets.

[Jack Kasprzak:]

Thanks. Good morning, everyone.

[Ron Kaplan:]

Hi, Jack.

[Jack Kasprzak:]

Hi, Ron. I just want to ask about gross margin, which has obviously been a bright spot all year, and you guys have done a tremendous turnaround on that line item. Excluding whether utilization goes up or goes down due to improved volume, how much more, as we sit here today, do you think you can squeeze out of gross margin?

[Jim Cline:]

We really aren’t going to be projecting gross margin numbers for the future. I think that what we’ve said in the past is we believe that the benefits we’ve seen are sustainable. And we’re very focused on that area as we have been since the first of the year.

[Ron Kaplan:]

We also indicated in my comments that we continue to prosecute lien manufacturing and Six Sigma principles in an ongoing basis. So I think there’s enough there for you to draw your own conclusions.

[Jack Kasprzak:]

Right. So without quantifying it, there are ongoing efforts to improve gross margin even without utilization rates going up?

[Ron Kaplan:]

For sure.

[Jack Kasprzak:]

Okay. And obviously, a lot has changed in the whole economy in the last six weeks, and I was just – you mentioned the tough sales environment, (inaudible) stating the obvious. I mean, we know that things generally have gotten tougher in the last six weeks or so, I guess. I mean, how quickly did things change, if you could just talk about the environment over the last couple of weeks that’s impacting your sales guidance?

[Ron Kaplan:]

Well, it’s a little difficult to answer that question because of the inherent seasonality of this business. I mean if you look back historically, I mean the fourth quarter usually is significantly depressed from the other quarters. So it’s a little bit to say, well, how much of the falloff in orders is due to the economy and how much is due to the seasonality. I mean I will tell you that the slope of the curve is a little bit steeper than it was in the prior year, but not as steep as I perceived the general economy is going.

[Jack Kasprzak:]

Okay. That’s fair enough. Good commentary there. Thanks. And last, I just want to ask about competition given a slower economy, more uncertainty. Are you seeing any more shake out off with regard to competitors?

[Ron Kaplan:]

Yes. And I’m not going to mention any names. But I mean as recently as this week, I got a phone call asking me to buyout one of my competitors.

[Jack Kasprzak:]

Okay. Great. Thanks, guys. Great quarter.

[Ron Kaplan:]

Thank you.

[Operator:]

Our next question comes from the line of Robert Kelley with Sidoti.

[Robert Kelley:]

Good morning. Thanks for taking my questions.

[Ron Kaplan:]

Good morning.

[Robert Kelley:]

If you would, if there – could you quantify the driver of – in the margin you posted in 3Q ’08 versus 1Q ’08, which is essentially flat gross margin despite of pretty heavy reduction sales? Is that all raw materials?

[Ron Kaplan:]

I’m looking at my colleagues here.

[Bill Gupp:]

We had an increase pricing that’s full effect coming out of our early four-month early buy program generated through April, through productivity. And those are two of the primary drivers.

[Jim Cline:]

And in the third quarter, the capacity utilization was lower than in the first quarter.

[Robert Kelley:]

So that’s offsetting the mix and productivity? Okay. Great. And then, if you would, maybe comment on kind of the inventory level that you’re distributor partners are seeing. You had talked about – in the Q2 call, inventories were pretty thin. Any change to that at this point?

[Ron Kaplan:]

No. I don’t see a change to that at this point. These distributors have been pretty heads up ball for at least the last year. And so, I don’t see any evidence that the channel is jammed.

[Robert Kelley:]

And then finally, with the Northwest distribution partner kind of falling off here, is that part of the pressure that you’re seeing in 4Q orders? And if you were to replace them, do you see upside of–?

[Ron Kaplan:]

Well, there are going to be some offsetting forces in play here. Clearly, the distributor that was buying inventory is not buying inventory now. But the new distributors that will be buying – that we’re going to replace them with are going to have to fill up their shelves. So at the end of the day, I think it’ll probably pretty much be a wash.

[Robert Kelley:]

You’ve lined up the new distributors at this point?

[Ron Kaplan:]

It’s in the process of being done. It’s not all being done, a lot of moving parts in motion right now.

[Robert Kelley:]

Okay. Great. And then, just on the tax rates, do we expect a low tax rate again in ’09.

[Ron Kaplan:]

Well if we told you that, we’d be giving a guidance.

[Robert Kelley:]

All right. I got you. Thank you.

[Operator:]

Our next question comes from the line of Keith Johnson with Morgan Keegan.

[Keith Johnson:]

Good morning.

[Ron Kaplan:]

Good morning.

[Keith Johnson:]

I just got a couple of questions, kind of covered most of them. Let me just revisit that tax rate question that was – that just came across. The 1% tax rate this year was due to some valuation adjustments taken in ’07. Not necessarily giving us earnings guidance, but does that roll off at the end of this year so theoretically you’d be backed up in ’09 to a higher tax rate or consistent with past years?

[Jim Cline:]

One second. At this point, we’re just going to decline to identify what that change will be. The principles basically are that we have to prove that the earnings are more likely than not to offset that. And it’s questionable when that roll off will occur.

[Keith Johnson:]

Okay. Let me make sure I heard your comment on operating rates correctly in the third quarter. You said you were around 50%. Is that the number, I guess, utilization rate?

[Ron Kaplan:]

Under 50, under 50.

[Keith Johnson:]

Okay. And then as we come and look into the fourth quarter, you expect to kind of be able to hold that? Or if I was understanding your comments in an earlier question, you’d so pull inventories down, but not necessarily have to affect utilization rates where you are?

[Ron Kaplan:]

I don’t utilization rates to substantially change over the near term.

[Keith Johnson:]

Okay.

[Jim Cline:]

Remember that we do build inventory for the early buy seasons so that absolute dollars in inventory are not necessarily going to go down, but year-over-year, we should see an improvement.

[Keith Johnson:]

Okay. Is there any way that you could give us a little color on kind of a third quarter ’08 versus third quarter ’07? How much did the lower utilization rate affect gross margin?

[Jim Cline:]

Well, the third quarter of ’07, basically, was slightly greater than 70% capacity utilization, we’re down under 50. So it’s a fairly sizeable impact related to that. Roughly, something north of 300 basis points would probably be a good estimate.

[Keith Johnson:]

And I guess, a question just kind of along the lines of the current credit situation and economic trends that we’re facing, have you picked up – I guess, in the marketplace, is there a greater concern, not – maybe your initial distributor, but essentially their customer level and the lumberyards out there, that this credit situation may potentially affect the way that they’re going to be able to manage their working capital inventory needs over the coming months?

[Ron Kaplan:]

I’ll answer that question.

[Keith Johnson:]

Okay.

[Ron Kaplan:]

The credit situation does not appear to really affect our distributors. Most of our distributors are well capitalized family businesses with low debt to cap ratios. That’s my general impression. I think if there are credit concerns affecting Trex, it would be more at the customer level and the availability of home equity loans, and so on. Although Trex customers are usually at the higher end of the income stream, are a little less relying on debt, then I think many of our competitors might.

[Keith Johnson:]

Okay. All right. Thanks a lot.

[Ron Kaplan:]

Sure.

[Operator:]

Our next question comes from the line of Eric Glover with Canaccord.

[Eric Glover:]

Good morning. I’m just wondering if you could comment about where you think your market share is currently in the composite wood market. Also, do you think the composite wood market overall is gaining or losing share versus traditional wood currently?

[Ron Kaplan:]

I can answer that. If you rely on some well know third party sources of information, it would indicate that the composite market continues to incrementally grow market share year-over-year against the wood market. And it would indicate that Trex continues to inch upward in terms of its share within the composite category. I don’t want to quote a specific number. You can look it up for yourselves. But I’ll just say that it’s now in the mid to high 30s.

[Eric Glover:]

Okay. Thank you very much.

[Operator:]

Our next question comes from the line of Kenneth Smith with Lenox Equity.

[Kenneth Smith:]

Ron, you mentioned that the Escapes product was – the availability that was less than demand all year, but you’ve taken steps to correct that. How significant has that shortfall been?

[Ron Kaplan:]

The shortfall against the demand, as a percentage of demand, has been very significant. And so we’re looking to solve that mid first quarter.

[Kenneth Smith:]

And then, can you talk about the fencing product. I don’t think you said much about how that’s doing relative to your expectations and in actuality.

[Ron Kaplan:]

Fencing is a relatively small portion of Trex’ overall business. We’re pushing it very hard. There is some traction. There is a wider distribution footprint for it now. But as a percentage of sales, it is higher than it was last year. And we do have a wider retail distribution footprint for the coming year.

[Kenneth Smith:]

And you think it’s being well received by the market place?

[Ron Kaplan:]

Yes, it is. And we’ll be having another lower price point product that we’re going to be introducing as well, which I think will facilitate the whole category.

[Kenneth Smith:]

I see. Okay. Congratulations on an excellent performance.

[Ron Kaplan:]

Thank you.

[Operator:]

(Operator instructions) One moment please for the next question. And there are no further questions at this time. Please proceed with your presentation or any closing remarks.

[Ron Kaplan:]

Well, thanks very much everyone for participating in our call in these very turbulent times. Although they’re especially challenging in the home building and remodeling industry, we think Trex stands out for the solid execution of our business turnaround strategy. We now have a very solid financial base, and are well positioned to continue our mission of turning the backyard into the next great room. Thank you everyone, and goodbye.

[Operator:]

Ladies and gentlemen, that concludes your conference call for today. We thank you for your participation. And ask that you please disconnect your lines.