Applied Industrial Technologies Inc (AIT) 2007 Q3 法說會逐字稿

Good day, everyone, welcome to the Applied Industrial Technologies third quarter 2007 financial earnings conference call. All lines will be in a listen-only mode until the formal question-and-answer session. At that time, instructions will be given. At the request of Applied Industrial Technologies, today's conference call is being recorded. If you should have any objection, you may disconnect at this time. Now, I would like to introduce Mr. Richard Shaw, Applied's Vice President of Communications and Learning.

Thank you, Melissa, and good morning. To all of our listeners, on behalf of Applied Industrial Technologies thank you for joining our call today. You should have already received our third-quarter earnings news release that was issued early this morning. If you have not received it, you can retrieved by visiting our Web site at Applied.com. A replay of today's broadcast will be available for the next two weeks and the archive information is contained in our news release.

Before we begin, I would like to remind everyone that we will discuss Applied's business outlook during this conference call and make statements that are forward-looking. Applied intends that all forward-looking statements be subject to the Safe Harbor of the Private Securities Litigation Act of 1995. All forward-looking statements are based on current expectations regarding important risk factors, including trends in the industrial sector of the economy, the success of our various marketing strategies, and other risk factors identified in the Applied's most recent periodic report and other filings made with the Securities and Exchange Commission. Accordingly, actual results may differ materially for those expressed in the forward-looking statements and the making of such statements should not be regarded as representation by Applied or any other person that the results expressed therein will be achieved.

Applied assumes no obligation to publicly update or revise any forward-looking statements, whether due to new information or events or otherwise, except as required by law. This conference call is copyrighted property of Applied Industrial Technologies. Any copying, rebroadcast, publication, posting, transcription, or distribution of any portion of this call without Applied's expressed prior written consent is prohibited.

Our speakers today include Dave Pugh, Chairman and CEO of Applied, who will discuss our overall performance during the quarter. We will also hear from Mark Eisele, Vice President and Chief Financial Officer, who will discuss our financial performance, and Bill Purser, President, who will discuss operational activities. Here to get us started is David Pugh.

Thanks, Rick. Good to have all of you with us this morning. We have a new member of our conference team sitting with us today. That is Ben Mondics. Ben is our new Executive Vice President and Chief Operating Officer. He is here to get a little bit of a feel for how this exchange transpires. He will take a more active role next quarter when he will discuss his fiscal year 2008 projections with you. As we have announced, Ben will also become our President when Bill Purser retires in December, so I just want to say welcome to Ben.

Thanks, Dave. I appreciate the opportunity to sit in on the teleconference and verbally meet some of our regular participants. It is a great opportunity to learn and I look forward to contributing my thoughts in the future. In the meantime, if anyone has any questions that you, Bill, or Mark can't handle, I will jump right in.

While we're on the subject of Bill's retirement and Ben's promotion, I would like to fill you in with just a little bit of a background. Bill's retirement announcement did not come as a surprise. We have been working with our Board of Directors for the last two years on a very thorough succession plan. Fortunately, we had several very good internal candidates for this key position.

It was a rigorous process and one that identified Ben with his strong leadership and field management skills as our best choice. The formal announcement that we issued in January detailed Ben's credentials for this position. It was part of our process to allow Bill to have ten months to work with his elected successor as we passed the baton. So we want to make sure that this happens flawlessly.

Now I will get on with our regular discussion of the quarterly results and, actually, it was a very uneventful period. The results came in right where we expected. As you saw in this morning's earnings announcement, our sales for the quarter rose 4.8%, which was a slight improvement over the growth late in December for the second quarter. Obviously, the economy is growing a little more slowly than it was a year ago when we saw sales grow at the rate of 11.4%. But we balanced this quarter's slower growth with a tightening of our operating expenditures and we posted a very healthy earnings per share of $0.49.

The big question out there on everybody's mind right now is where does the market go from here? We have the same question. If any of you have the answer, feel free to opine during the question-and-answer session. From our perspective, the economic indicators are still a bit murky. A lot of it is driven by the slump in housing, which affects a number of our end-use customers.

The consumer confidence, the leading indicators in auto sales all fell some in March. Movement in the manufacturing capacity utilization and purchasing managers indexes is somewhat flat. The last four or five months it has been around the low end of the expansion costs. Capital spending is soft. The increasing oil prices could negatively impact consumer spending in the near-term and that will have some effect in areas such as housing and automotive and textiles and that sort of thing.

Our best guess is that the economy is still settling out and the growth will be slow for the next few quarters. As you can see, we have taken the actions to control the operating costs in noncritical areas. We are continuing to invest in the essential areas -- the area that is essential to future growth that we have positioned for you. We're going to continue to fund the government plans and we are pleased with the way that is progressing. We earned some more recognition this quarter from the GSA as the 2007 Large Business Contractor of the Year. So we expect the government sales to come in around the $50 million mark that we had put out there for you before.

We are properly -- during this period, we're properly managing our assets, having reduced by $8 million some of the normal seasonal inventories that we purchased in our last quarter, in our second quarter. Consequently, our year-to-date cash generation showed strong improvement over the prior-year period. We expect to continue to decrease our inventory during the fourth quarter.

So in summary, we were able to achieve an excellent bottom line for the quarter despite the sluggishness in the U.S. economy. We continue to have the necessary disciplines in place to adapt to a changing economy, so we will be very flexible here as we read what is happening as we go on in the future months. Here is Mark to give you more of the details around our financials.

Thanks, Dave. Good morning, everyone. Let me provide some additional insight for our third-quarter financial performance. Sales for the third quarter ended at $521.1 million. This represents a 4.8% improvement over last year's third quarter. We had 64 selling days this quarter, which was the same as last year.

Total U.S. service center and fluid power operations sales for the quarter were up 4.8%. We estimate that approximately 1 percentage point of this increase relates to the impact of passing along supplier price increases on our sales.

Sales in our Canadian operations also improved by 4.8% in the quarter. This represents a 5.9% increase in volume, mix, and pricing, offset by a 1.1% negative impact due to currency translation. Our Mexican and Puerto Rican operations had a combined sales increase of 3.9%.

During the quarter, our number of operating facilities was stable at 451 locations. Our product mix during the quarter was 19% fluid power products and 81% industrial products. Our gross profit percentage for the quarter was 27.0%, about 50 basis points lower than last year's third quarter and 60 basis points lower than the second quarter. Our gross profit percentage of 27.0% for the quarter was in line with our expectations that we shared with you in our previous conference call.

Our expectations for our June 30 fourth quarter is for our gross profit to be in the range of 26.6 to 27.0%. We may experience a slight decline from our third quarter gross profit percentage run rate as we expect supplier purchasing incentives to be somewhat lower in the fourth quarter. In addition, at this time we do not anticipate having any LIFO inventory layer liquidation in the fourth quarter or for the entire fiscal year. As you may recall, in the prior year this did occur in the fourth quarter and resulted in an improvement in our prior year's fourth quarter gross profit percentage of 33 basis points.

Our selling, distribution, and administrative expense as a percent of sales was 20.4% for the quarter. This rates is slightly lower than what we have been experiencing over the past several quarters. The absolute dollar increase in SD&A for the quarter was 1.7% compared with sales increase of 4.8%. This increase primarily relates to expenses from the acquisition of Minnesota Bearing Co. as well as additional compensation and increased benefit costs.

Our third quarter operating margins had a slight increase to 6.54% compared to 6.45% in the prior year's third quarter. The effective tax rate for the quarter was 35.5%. The lower rate for the quarter was primarily due to state income tax adjustments recorded upon resolution of open issues from prior years and to a lesser extent, upon filing of our fiscal 2006 returns during the quarter. For the remainder of fiscal 2007, our expectation is for the quarterly effective tax rate to be in the range of 36.0 to the 36.5%.

Our balance sheet remains solid, with shareholders equity at $431.7 million and a current ratio of 2.5 to 1. We continue to classify $50 million of long-term debt that matures on December 2007 as current, as our plans are not to refinance this debt, but to pay it off with cash.

Our pretax return on assets rose to 18.3% for the quarter and 17.4% year-to-date, compared to 16% year-to-date for the prior year period. We began working down our inventory balances in the quarter and expect this decline in inventories to continue in the fourth quarter with additional decreases of up to $10 million. We do expect our June 30, 2007 inventory balances to be slightly higher than last June 30's levels.

Accounts receivable and days sales outstanding of 41 days remain competitive, but with room for improvement. Cash provided from operations for the quarter was a solid $28.9 million. We expect another positive quarter in cash provided for operating activities to finish out our year with levels approaching what we accomplished last year.

Two factors as to why we aren't exceeding the prior year are, one, we have changed our funding of the employee match for our 401(k) to a cash contribution instead of contributing treasury stock, and, two, certain supplier purchasing incentive programs were converted from a calendar year-end to a fiscal year-end, which in this transition year, pushes the receipt of these funds out until after our fiscal year.

During the quarter we were active in purchasing our common stock on the open market. Our available authorization is now down to 99,000 shares. Tomorrow at our Board meeting, will consider raising this amount.

We are maintaining our previous guidance on sales and earnings for all of fiscal 2007, although we now expect our sales to be at the lower end of the sales guidance range of 2.01 to $2.04 billion. Now, Bill Purser will comment on sales and operations.

Thanks Mark. Good morning, everyone. It is a pleasure to be with you this morning as we present our results from a good third quarter. As you already heard from Dave and Mark, our sales growth improved compared our December quarter by 4.8%. It was a far cry from last year's 11.4% growth rate. We are obviously not the same economic environment as last year, so all considered, I feel our associates have done a good job finding what growth was available.

Let's look at some of the industries that help us achieve growth as well as those that have had a negative impact. Of the 30 SICs that we track, 9 had sales growth at 8% or better. These were SICs such as primary metals, metal mining, amusement services, and utilities. Eleven of these SICs saw some level of moderating growth compared to the trailing quarter. For example, industrial machinery and equipment, rubber and miscellaneous plastic products, electric and electronic equipment, printing and publishing to name just a few.

As you might expect, lumber and wood products continue to slow and for the second straight quarter showed the largest dollar volume drop. Automotive has also shown a significant drop, although not as great as lumber and wood products. We have also showed a slowing of coal mining and petroleum and coal products due possibly to the warm weather. I would expect this recent blast of old man winter will more than likely change that situation.

During the quarter, government sales continued to expand in response to our sales and marketing efforts in this area. As Dave mentioned, we were delighted to learn that we have been selected as the GSA's best large contractor for 2007. This award and the recognition that comes with it shows me our government programs are on the right track.

Fluid power sales continue to grow and are now in excess of 19% of our total business. Our fluid power acquisitions continue to meet or beat expectations. As a matter-of-fact, do all of our recent acquisitions.

Mark gave you the details regarding our operations in Canada, Mexico, and Puerto Rico, so I will not make any further comments other than they continue to be a major contributor to our Company's success. Echoing Dave's remarks, we see the North American markets showing growth, although at a slower growth rate than earlier in our business year. We do feel, as we indicated in our press release, that we are on track to hit total sales for the year of 2.01 to $2.04 billion.

As I reported in last quarter's comments, many of our customers are in strong cash positions as a result of good business performance. I think the important question is will they use this cash for capital expenditures to improve their businesses? Many have been slow to do so and we are taking a wait-and-see -- and they are taking a wait-and-see attitude. Any investments in machinery and capital projects would obviously benefits Applied. We too will have to wait-and-see.

Now I am going to turn the call back over to Dave for some closing comments.

Thanks, Bill. As we look at it, this is the type of market that we have to monitor closely. It is not strong enough to generate the earnings growth that we have had for over the -- for the last four years, but then again it is not so weak that we feel we a need to take any drastic actions. I am comfortable with the results we're delivering considering what the market is offering. We're going to continue to invest in the actions to maintain our growth for the future. We will rely upon the proven fundamentals that we have been showing to deliver acceptable earnings. We are going to be patient as we seek opportunities for extraordinary results.

And now, we will field your questions.

(OPERATOR INSTRUCTIONS) Adam Uhlman, Cleveland Research.

Good quarter. Congratulations, Bill, on the retirement and, Ben, on the promotion. The first question I had for you guys is on the guidance for the year, unchanged from what we were talking about last quarter, backing into that a bit. It looks like you're looking for sales growth of 4 to 10% for the fourth quarter, but earnings anywhere from down 5% to up 7% and down from the third quarter level. Typically, earnings pick up in the fourth quarter from the third quarter, so could you walk me through what is unfolding here at the year-end?

Adam, I think we mentioned on the call that we expect the sales to be at the lower end of our sales guidance levels that we have provided out there as opposed to the top end, although we are keeping the guidance the same because at the present time it is still within our guidance levels that we had previously given. So unless something spectacular happens, I don't think we will see at the top end of that sales guidance. Obviously if sales increase dramatically, that will have a positive impact on our bottom-line from that point of view.

So when you say going up 4 to 10%, that is at the top end of that guidance and I don't think from a sales perspective we will be hitting that based upon current business conditions. Regarding the other part of the question, from our overall earnings per share perspective, we do not necessarily see fluctuations from a seasonality perspective in our quarterly earnings. A lot of that is driven based upon the sales numbers and I think the expectations are that the sales in the fourth quarter will be similar to what we saw in the third-quarter.

Okay, thanks. That's helpful. My second question here is could you provide a little bit more color regarding price realization in the quarter? With demands being a little less robust than we have seen in previous quarters, have you seen any change in the competitive dynamics out there? On the flipside, with nickel and some other commodities starting to rise again this year, have you heard anything from your suppliers lately regarding pending price increases for the remainder of the calendar year?

Adam, this is bill. As you might expect and as you have alluded, when the market is less robust, you can count on margin pressures in the marketplace. That is exactly what we're seeing. In regards to supplier increases, having checked with the marketing department recently, we have not been notified at this point in time of anything on the immediate horizon. Now, that is not to say that I could not given notice this afternoon, but at this point in time we do not have those notifications. There are some small suppliers that do have pending increases coming in the next quarter, but none of the major key suppliers at this point in time.

Adam, one of the other things you probably need to put into your model is that a piece of our growth, the mix has been in the strategic account, the national accounts side, which tends to be at a tougher margin. But the same time, it is maybe a little bit less of a cost to handle because of the scale. So that would give you an understanding of why both the gross margin might come down and our SD&A would come down.

Thanks, Dave. That is very helpful.

Matt Duncan, Stevens Inc.

Bill, again, congrats on the retirement and, Ben, welcome. Just a couple of question here. First, I know you normally don't talk about month-to-month trends in the quarter, but you did last time and I'm curious if you saw any differences on a month-to-month basis this quarter or was it kind of the status quo coming out of the December quarter into this quarter, everything still just same, basic on a month-to-month trend?

Matt, as we said, we don't normally give month-to-month but, since Dave broke that mold last conference, I guess we really have seen a slight uptick. I don't know if I am ready to say any kind of trends have been set, but yes, slight movement in the up direction.

Matt, you know, when you come off of what we saw in November and December and January, anything up feels good. We will call it up, but going from about 3.6% growth last quarter to 4.8 this quarter, it is nothing we would crow about. It is just -- it is not sinking.

Sure. What about customer inventory levels? I know that it was something you commented on last time. Has that situation alleviate itself somewhat or are you still a situation where customer inventories might be a little off right now?

Let's talk about two things. Customer inventory of our goods is one thing, but customer inventories of their own goods, which will slow down their shafts turning, is another thing. If you take a look at the markets that are impacted by the housing slump, their inventory-to-sales ratios are going up from what we're seeing. So it would indicate that we're not going to see an immediate improvement in demand for our product. We are planning our operational expense accordingly.

Hopefully we'll see that turnaround, but the housing and the automotive pieces are still down. You see some that are running around along about stable and their inventories -- their finished good inventories have not gone up, so they continue to run their processes. It is a mixed bag out there right now. In anything around that is dealing with the housing market, we have seen the inventory-to-sales ratios go up a little bit

Okay. The government sales, Bill, I think you said last quarter you were on a month-to-month run rate of probably about $2 million in revenue a month for those. Has that changed much this quarter? Has that gone up I would assume?

That was last year, yes. Like Dave said, we anticipate we will finished the business year, Matt, around $50 millionish, in that range.

Okay, fair enough. Last question here. Bill, just kind of broad strokes here, do you feel like what you are seeing from your customers at this point is more of a just sort of breather in the economy or is this really a directionality change? Or is it just too early to call it from your point of view?

Excellent question. I wish I had an excellent answer. Let me tell you my personal opinion, now, is because, as I mentioned in the remarks, many of our customers are in a pretty good cash position. I think it is more of a wait-and-see. They are trying to get a feel, as we all are, as to what the feds are going to do from an interest standpoint. They are trying to see if there are any other geopolitical issues that they are going to have to be looking at.

We have not seen the rush to projects that we were hoping that we would see. Like I say, the cash is there. If they start making the capital investments, that will be good for us. I do not see this as any milepost or a different direction. I just think they're just been very cautious right now.

Matt, the one concern that I have still out there is looking at what oil prices have done lately. And you've seen consumer confidence drop on a relative basis. That could have some impact as we continue out to the year. Again, it is not drastic, but certainly it is a negative impact right now.

Okay, I appreciate the insight.

Jeff Hammond, KeyBanc Capital Markets.

Just to clarify, there was an earlier caller kind of talking about fourth quarter implied guidance and it sounds like your bias was towards the low-end on the revenue range. Does that imply necessarily that your bias is towards the low-end of the earnings range or -- Because it seems like if you hit the gross margin targets you laid out in the fourth quarter and you kind of continue to control SG&A, you would come in towards the high-end.

Jeff, we didn't want to imply at all that we would come in at the low-end of our EPS range. The range is the range and we did not want to give any inferences for that. We feel very confident that we will be within the range and we feel that the numbers will be what the numbers will be. So whatever your analysis is implying, that is, obviously, that is still your analysis.

Right.

The offsets will be, again, as we see what the sales growth will do, we will continue to balance our expenditures to provide what we think are solid earnings. We're not going to hamstring our good initiatives that are going on for future growth in the Company.

Okay, so the band of earnings implied in the fourth quarter is not necessarily dependent on, you know, kind of low-end or high-end of revenue.

Correct.

I guess, Dave, in general, assuming that this more sluggish and cautious approach in terms of your customers continues into fiscal '08, can you just talk about different levels -- levers you guys are focusing on in terms of, even in a more muted growth environment, being able to drive maybe more notable margin improvement into fiscal '08?

Let's just go back to one of my final comments on my summary statement is we're going to be patient. We continue to quantify -- if the core economy is not giving us the growth potential, we're going to try to find that in other areas, be it acquisitions. We still think the government business has excellent upside for us, as restated that strategy to begin with in the early stages of government. Gaining awareness is going to be a great opportunity and challenge for us, having won national contractor of the year, having won newcomer of the year, it appears that the investments that we have been making there are getting us into those positions and we would expect to be able to leverage off of that in that area.

Government spending was one of those anticyclical initiatives that we went into for the very purpose of mitigating a slowdown in the core economy. So we think we have other areas out there to impact top line and, yes, we still do have operating costs opportunities if we need to pull triggers on those. But as I said earlier, we do not see this thing being so drastic right now that we're having to take that kind of drastic action. So I think we have some balanced opportunities to continue to drive earnings and to contribute to total shareholder return.

Okay, then segueing to acquisitions, given the slower environment, have valuations moved in your favorite at all? I guess along the same lines, has your appetite regarding acquisitions changed in anyway?

Jeff, this is Mark. I do not think we've seen much a change in the multiples on the valuations yet, although I think the inference you are making is a expectation that we would think may happen in the future. We continue to the active looking at acquisitions. Our appetite is still very strong for these. We believe that will continue to be a core strategy for us as we move into the future. And because of the economy potentially coming into more of the slower growth mode for awhile, there may be opportunities for us to be able to close more acquisitions in the future.

Okay, that is helpful. Thanks.

Andrea Sharkey, Sidoti & Co.

Most of my questions have actually been covered, so I really just have one small one for Mark. You mentioned on the gross margin in the fourth quarter that somewhat lower because supplier incentives would be lower in the quarter. I was just curious if that was because maybe you are going to hit a little bit of a lower sales number than you had expected or that you have been? Or if it was maybe more of a change in the supplier programs or supplier attitude?

We do expect supplier incentives to be lower in the fourth quarter than in our third quarter, which will be one of the drivers, potentially, for the margins being slightly lower. We continue to see the environment out there with our supplier base as being very difficult for purchasing incentives from them, so that continues to be a challenge for us as we look into the future for that.

Okay, so you do not really have any expectation then going into fiscal '08 that that environment will get any better? Maybe if the suppliers see that this slowing, kind of, in this economy, do you think they might come back and be a little bit more generous on those incentives?

That is obviously part of our strategy and what we're going to be talking with them and that is the negotiations that happen all the time with the suppliers. If the business gets softer for them, there may be opportunities for us there. But at the present time, we really have not seen that. It is still been a very difficult and challenging negotiations.

Okay, that was all I had. Thank you very much.

Brent Rakers, Morgan, Keegan.

Just want to re-address a couple comments that you have made throughout the call. I guess the first thing, just to clarify, the $50 million number for the government segment, is that obtaining a $50 million annualized run rates by Q4? Is that the way we look at that?

No, we have ramped up to the annual rate of $50 million, so our exit rate will be a higher rate and that.

Okay, so in last quarter it sounds like you did about $6 million in government business. Is what you are implying in the third quarter, you did about $10 million for the quarter. Is that the way we should look at?

I don't know where those numbers came from, Brent.

I think our expectation is that we will get for the fiscal year ended June of '07, we should be in the 45 to $50 million of total sales for the entire year. And sales have been continuing to ramp up throughout the year, so we would expect our exit rate of the end of the year would be slightly higher than, let's say, $4 million a month or right around that.

Again, I guess the statement, I think, was made last call. You were doing approximately $2 million a month last call, so again, I was just assuming that was a $6 million rate. Obviously that has accelerated and you expect it to continue to accelerate into the current quarter.

I think that $2 million a month was probably the run rate that we were at exiting last year is what our intent was.

We may have miscommunicated that because that is the second time that comment has been made.

Not last quarter, that would have been last fiscal year.

So you have been at a higher rate all through the year. It is not that kind of dramatic jump up here.

Exactly, exactly.

And then, and, again, I hate to revert back to the revenue and sales guidance, but obviously backing into the numbers for the fourth quarter, you're looking at 523 to $553 million in revenue. Essentially, Mark, what you're saying just ignore the $553 million. Just throw that out because that is probably too high. Is that correct?

We are expecting to be at the lower end of the sales guidance, but still within the guidance that we have previously given.

Okay. And then when you give guidance then, Mark, for EPS, it implies $0.42 to $0.47. If we're connecting the dots between the revenue and EPS, does that also assume you're guiding towards the low end of the EPS range as well?

No, that would not be the case at all. When we look at our forecasts for the fourth quarter, our anticipation is that the sales will be at the low end of the guidance from the sales perspective and we expect to be within our EPS guidance. But whether we are at the $1.80 or $1.85, there's lots of variables that will happen for that. I can't say that -- there is not a direct linkage, I guess, between where we end up on that EPS guidance for the lower end of the sales range. Obviously if sales come in much higher than the lower end of the range, then we will do better from an EPS perspective.

Okay, then you talked a little bit about, and obviously made some pretty good strides within SG&A in the quarter, I was wondering is there any one-timish kind of items that benefited the third quarter in terms of reducing SG&A? If you look at your normal pattern, kind of, sequential quarter basis, you really broke from that pretty significantly in this quarter. Could you maybe comment what that was the case and if there's anything unusual in that number?

Brent, this is Bill. I do not think there was any one-time event that would have driven that. I'm just running through my mind now. No, I think it was across the board several initiatives that we looked at, but no one that I could point to and say, well, that is a result of this happening.

Bill, maybe can you address some of these specific, and I know Dave talked earlier as well about some specific initiatives to address the operating cost side here entering the quarter. Can you talk about those and maybe even give us a sense of scale for what you saved in some of those things?

Let me jump in there, because I think the biggest thing that happened to us with regard to managing the third quarter operating expense was looking at second quarter operating expense and it was a real eye opener. And we had just said, hey, we had kind of lost control of it and so we asked our managers to get back in the game on that one. There was no one thing. It was across the board, it just said, hey, we have some critical initiatives for future growth that we have to continue to fund. We want to make sure we're putting our resources there, so make sure you tighten the purse strings on the noncritical issues. So that was one thing, just general tending to your knitting.

But the eye opener we got when we looked at the way SG&A had grown in second quarter, it was a little embarrassing to us. We told you that in the last teleconference, so we just wanted to show you we can get back and do this thing right.

Second thing is, as I mentioned earlier, when the mix of our business shifts over to the strategic accounts there is a lower SG&A expense per dollar of sales, thank goodness, because the margin is lower. So we had some mix issues in their as well as just tending to our knitting. I can't point to any one specific thing that would have changed this.

That's helpful. Then just last question on kind of housekeeping, in terms of the, I guess, it was 880,000 shares you bought back in the quarter, could you give us some perspective on kind of month-to-month when those were acquired? I know that will be available in the Q, but just wanted to get a sense for share count modeling in the next quarter.

Brent, I don't have that exact information here with me, but we started buying some time at the beginning part of February and we basically bought virtually throughout the entire month of March

It does sound like it was more back-end loaded there.

Yes, we generally do not start buying, obviously, until the insider window period closes after the quarterly earnings release, so that happened right near the end of January, beginning of February some time. So we would have started buying at that point in time.

Great. Thanks a lot, Mark.

Jason Rogers, Great Lakes Review.

This is Greg Halter on for Jason. One question for you regarding the receivables up about 6% year over year. I know you made a brief come there, but just wondering if you can provide a better level of insight into the increase relative to sales, the 6% increase and where you would like to see that number go?

Greg, this is Mark. We continue to monitor, obviously, the DSOs and our DSOs continued to be in a very slightly downward trend, so our DSOs right at the end of March were at 41 days, which was actually slightly lower than the DSOs we had at December perspective. So while we saw the absolute dollars in the receivables go up, our expectation is in the future that as we maintain the DSOs, we will continue to collect the monies from our customers in a reasonable time frame.

And we don't expect that to be going up any more. In the fourth quarter we expect our cash flows to continue to be positive in a good way, so one of the things that impacts the actual receivables, which I find interesting, is that the day of the week the month-end closes on, which is a Friday -- which in March was Friday, what I find interesting is that our lockbox deposits with our customers about one-half of normal week's deposits come in on Monday. So if a month-end closes on Friday, that's theoretically the situation where we would have the largest amount of just normal variability in the receivables. If it would close on a Monday, that's when have the lowest. So that is a part of it as well. That is a small part, but that is just the normal variability that happens quarter to quarter.

Okay, thank you. Looking at the calendar, June is a Friday and so is September, but December is a Monday. So we will see what happens.

Yes, we noticed that June was a Friday also

I will be looking for that also.

Thank you.

At this time, we have no further questions.

Okay, operator, thank you very much. If I just could close, I appreciate your participation with us today. As I mentioned, this is an interesting kind of a, I don't know, you maybe want to call it a [blah] quarter because there was nothing extraordinary that happened here. I feel good that we have balanced our operations. We continue to have the foresight to balance. We will monitor this market closely and I feel like we have the resources to continue to deliver good earnings. Thanks for being with us. We'll talk to you again at the end of our year.

Once again, that does conclude today's call. We do appreciate your participation. You may disconnect at this time.