American Vanguard Corp (AVD) 2012 Q2 法說會逐字稿

Greetings and welcome to the American Vanguard Corporation's second quarter 2012 conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Bill Kuser, Director of Investor Relations for American Vanguard Corporation. Thank you, Mr. Kuser; you may now begin.

Thank you very much, Rob, and welcome, everyone, to American Vanguard's second quarter and first half 2012 earnings review. Our speakers today will be Mr. Eric Wintemute, Chairman and CEO of American Vanguard and Mr. David Johnson, the Company's Chief Financial Officer. Before beginning, let's take a moment for our usual cautionary reminder.

In today's call the Company may discuss forward-looking information. This information and statements are based on estimates that may cause actual results to differ from management's current expectations. Such factors can include weather conditions, changes in regulatory policy, competitive pressures, and various other risks that are detailed in the Company's Securities and Exchange Commission reports and filings. All forward-looking statements represent the Company's best judgment as of the date of this call and such information will not necessarily be updated by the Company.

With that said, we turn the call over to Eric.

Thank you, Bill. Good morning, everyone, and welcome. Thank you for joining us as we report on a very successful second quarter and first half of 2012. David and I welcome this opportunity to tell you more about our excellent performance and the prospects that we see on our horizon. We will let David give you all of the operating and financial metrics, but I want to start by providing a brief overview.

Quarterly revenues were up 6%, gross profit margins expanded to 45%, operating expenses were held to 28% of sales, and the all important bottom line, net income, grew 46% over last year's second quarter. As David will describe, our balance sheet remains very strong at mid-year with $48 million in cash, reduced debt, and stockholders' equity increasing by over 10% in the first six months of 2012. So the main theme of our 2012 performance are follow top line growth, improve profitability, and a very strong balance sheet.

With that overview, I will now turn the call over to David who will cover the financial and operating details. I will then return with additional comments about the recent US drought conditions and other factors that we see shaping the balance of 2012 and beyond. David?

Thank you, Eric. As Eric has mentioned, and as you will read in our earnings announcement, sales for the second quarter of 2012 increased by 6% to $85 million, as compared to $80 million in 2011. Within this number, our crop sales were up nearly 3% to $75 million and our noncrop sales were up about 40% to $9.5 million. You will see in the 10-Q that our export sales continue to grow strongly and are up 18% quarter-on-quarter. In our 10-Q filing scheduled for tomorrow, you will see a detailed description of sales by product group.

In summary, insecticides recorded sales up approximately 32% in comparison to the same quarter of the prior year. This group was driven by a very strong demand for Thimet, Nemacur, and Bidrin. Our herbicides, fungicides, and fumigants product group was down 29% in the quarter since we largely sold out of inventory of our post-emergent herbicide, Impact, during the prior two quarters. This shortfall was somewhat offset by a strong increase in our specialty crops herbicide, Dacthal.

Within crop, our other sales were down by 17% quarter-over-quarter, largely due to lower Folex sales as a result of a supply limitation in the second quarter. This is being solved by putting in place additional manufacturing capacity at our Axis, Alabama facility that has come onstream at the start of Q3 of 2012. Our noncrop sales performed very well ending about 40% above last year at $9.5 million. The increase was due largely to sales of our mosquito adultricide, Dibrom, which (inaudible) in both the Mid-Atlantic and southeast regions.

Our gross margin in the quarter was 45% of net sales as compared to 40% during the second quarter of 2011. This is the result of improved pricing, a strong mix of sales, and factory performance that was in line with the strong prior year performance. Operating expenses increased in the quarter by 15% as compared to last year. This is largely attributable to general and administrative expenses, driven by higher legal costs, increased incentive compensation accruals as a result of the Company's strong financial performance, and costs related to establishing our new international structure. Our freight costs increased primarily as a result of our continued expanding international business.

As I have mentioned on previous calls, we track operating expenses as a percentage of sales. These costs are up 28% in the second quarter, which is in line with our 2011 full-year performance, though higher than the 26% recorded for the same quarter of the prior year. The net result of these dynamics is operating income of $14.2 million versus $10.7 million this time last year, an improvement of 33%. Our effective interest rate for the period is 4.2% as compared to 4.8% for the second quarter of 2011.

In our 10-Q statement, we have expanded the disclosure on this expense to provide greater insight into the key elements. You will see that our bank interest rate is higher than last year, primarily as a result of having in place the required fixed interest rate swap derivative for the full quarter as opposed to a partial quarter last year. In addition, other interest costs, primarily the amortization of discounting on deferred payments, are lower because we have made some of the related payments.

Income before tax improved to $13.6 million from $9.7 million, an increase of 40%. Our effective income tax rate is 35.8% compared to 38.2% last year. The primary driver for the reduction in the Company's effective tax rate is stronger financial performance which has in turn increased the benefit derived from the domestic manufacturing incentive, which is a result of our Made in America business model.

As noted by Eric in our earnings announcement, our net income has increased 46% and our earnings per share has increased to $0.30 per share from $0.22 last year. It is great to reflect for a moment that this is the best second quarter sales and net income performance in Company history.

Now, I would like to turn my attention to a brief review of the financial performance for the first six months of 2012. Year-to-date, our sales were up 18% at $172 million including export sales, which are up 51%. Eric will comment in a moment on the establishment of our new international structure in the Netherlands. We are expecting this new business unit to put us in a better position to drive even stronger international growth in the future.

During the first half of 2012, our performance on pricing has been firm, the mix of products has been positive, and further improvements in manufacturing performance has resulted in reporting gross margins of 44% as compared to 40% last year. Furthermore, we continue to focus on controlling operating costs and these have remained in line with the 27% of sales achieved last year. As a result, we have recorded operating income up 44% at $28.6 million.

Interest expense is reduced as we have continued to pay down both term debt and other deferred payments in the product line acquisitions. We are also pleased to report that we have now achieved a full 12 months without accessing our working capital revolving credit line. As you will have seen in our financial statements, our closing cash position as June 30, 2012 is $48 million, which is certainly a record for the Company. You will also see in the financial statements that income tax is at 36.1% year-to-date as compared to 37.4% for the same period of 2011. This is, again, as a result of our American manufacturing presence.

Net income is much improved at $17.4 million, which is an increase of 59% in comparison to last year. Our earnings per share is at $0.61 as compared to $0.40 last year. It is worth noting that our net income has increased to 10.2% of sales as compared to 7.5% last year. Our target has been to achieve 10%, so we are now figuring out our next target.

This half year sales and profit performance is significantly better than any previous first half performance recorded by the Company. Our balance sheet continues in very strong condition. This includes continued improvement in the shareholder equity, which grew about 10% during the first six months of 2012, ending at $206 million, including having made the $0.05 dividend payment. The key elements of our working capital are inventory and receivables, programs and payables. These are all performing well this year.

Our inventories ended the quarter marginally lower than last year at $80 million, as compared to $81 million, which given the very strong demand we are working through this year is a tribute to careful attention to detail across our organization. Our receivables ended at $73 million in comparison to $75 million this time last year, which we consider to be a good result given the strong growth in both domestic and export sales. It is also a tribute to the quality of our customer base that enables us to maintain this performance.

Our payables are in line with the level achieved last year, which underlines the comments I have made about carefully managing inventories. Finally, our program accruals are much higher this year, which is driven by the very strong demand we have seen in the season for our corn products. As you will see from the cash flow statement, we are spending capital in the early parts of the year. This is focused on equipping our manufacturing sites to produce additional steps in certain products acquired in 2010. Because of this careful management of cash, even during the early (inaudible-technical difficulties) start of our annual cycle, we have been able (inaudible-technical difficulties).

(Inaudible-technical difficulties) the time of planting in the spring. So long before the effects of this year's drought occurred, the sales and use of these products had already been completed. Looking forward, continued hot and dry weather could influence the sales in the third quarter if reduced pest pressure for above ground insects, such as plant bugs in cotton, causes lighter usage of our foliar cotton insecticide, Bidrin. Bidrin sales have been strong through the second quarter since early season pest pressure was significant.

During late June, such pressure subsided due to the tremendous heat, but in the last two weeks, pest pressure has increased and additional spring is underway. It is also clear that just like last year, several million acres of planted cotton in the US may not survive the drought and, therefore, will not be harvested. As a result, it is possible that demand for our harvest aid defoliant, Folex, could be reduced.

If weather throughout the southeast cotton region remains extremely hot and dry, cotton foliage tends to fall away from the cotton balls unless defoliant is required to facilitate mechanical harvesting. However, if the weather moderates to a more normal cool moist autumn trend, then higher concentrations and/or multiple applications of Folex would be required to remove the leaves. This is what happened last year in Georgia and the Carolinas, which resulted in a strong performance year for this product despite the reduced acreage caused by the drought of 2011.

So it is September's weather in this geographic region that will tell the story on Folex sales and usage as opposed to the current summer heat. As we mentioned in our press release, our third quarter performance will also be driven by two other factors, our shipments of metam soil fumigants and the amount of Dibrom, mosquito adulticide, that is used along the Gulf Coast region. Our leading soil fumigant franchise is not weather dependent but clearly tropical storm moisture in the southeast US will be a driver for our mosquito vector business control.

As we have indicated in previous conference calls, AMVAC's best of both worlds message for corn soil insecticides has gained significant traction in the Corn Belt over the last two seasons and our products are being purchased in increasing quantities as growers choose to supplement the use of ever-improving, genetically modified seeds with these traditional proven crop protection defenses. As a result of the ground swell of demand for our soil insecticide solutions, we are ramping up our production capacity again this year for those chemical products and our propriety closed delivery system.

At the Axis plant, our expanded -- it has expanded its operations to accommodate necessary production and our assembly of smart box systems will triple to supply the demand of 2013 planting season. We are running 24/7 presently and expect to continue that level of production through the first quarter of next year.

Our other major initiative in corn involves our post-emergent corn herbicide, Impact. As we have discussed previously, Impact has been selected by Monsanto based on efficacy and crop safety to participate in the Round-Up Ready Weed Management Program. This co-marketing arrangement provides a financial incentive to corn growers to use Impact with Round-Up and we are confident that the combined efforts of Monsanto and AMVAC sales and marketing teams will help promote a much wider use of AMVAC's Impact.

As we have indicated in earlier conference calls, the production of Impact is complex and requires a long lead time. As a result, our supply availability for the 2012 season was limited. However, we resolved that limitation and we will be able to address increased demand. We will begin supplying Impact in the end of the fourth quarter and most of the product moving to the market in the first quarter and early second quarter of 2013.

Together, these two corn initiatives, corn soil insecticides and Impact, constitute AMVAC's yield enhancement solution, YES, for corn. Given the drought-related diminished corn yields for 2012 and the elevated corn commodity prices that are already evident, we believe that demand for our products will continue to build. Most growers have the financial wherewithal and strong motivation to make up for 2012 shortfalls by striving for maximum yields in 2013. Our Company has many avenues to achieve growth but it is clear that our participation as a significant player in the US corn market is one of our main drivers.

A few other major topics. Our proprietary Thimet continues its strong market presence as a preferred insecticide in peanuts, sugar cane, and potatoes. We continue to benefit from the vacuum left by the withdrawal from the US market of a competitive insecticide Aldicarb, which has allowed Thimet to become preferred replacement in a number of crop applications.

Our noncrop business continues to develop well with (inaudible) sales outpacing 2011 so far and the opportunity to recapture PCMB fungicide sales in the US market during the second half of 2012. We are very enthusiastic about the new international structure, which we have established in the Netherlands under the leadership of Ad de Jong. This entity will serve to put greater emphasis on long-term international growth, give us improved access to foreign markets, and enhance level of interaction with local regulatory authorities.

We expect that in time this new structure will also enable us to achieve a more advantageous overall tax position. As David mentioned, our ratio of net income to net sales has improved to 10.2% in the first half of 2012, as compared to 7.5% for last year, and we anticipate that this new international structure will allow us to achieve further improvements in this key metric.

So to wrap up, AMVAC's product portfolio is well-positioned as a part of the integrated pest management approach that represents the future of modern agriculture in the United States and around the globe. We feel that the value of our offering is gaining wider recognition and our business has begun to reflect the demand that is emerging from our broad range of highly effective proven crop protection tools. Our growth is being driven by strong agriculture demand and our increasing profitability is being driven by improving gross profit margins and operating expense controls.

Gross margins are benefiting from firm demand and the efficiencies are higher volume manufacturing. Together, these growth margin gains and operating expense restraints have contributed to our significant net income acceleration. We have great confidence in our ability to identify and position ourselves to capitalize on many growth-oriented strategic possibilities. We hope that you share that confidence and benefit from our continued success.

I would now be happy to entertain any questions you may have. Rob?

Thank you. We will now be conducting a question-and-answer session. (Operator Instructions). Thank you. Our first question is from the line of Michael Cox of Piper Jaffray. Please proceed with your question. Mr. Cox, your line is open for questions.

Yes, hi, can you hear me now?

Yes, we can hear you.

Great. Thanks. And congrats on a nice quarter, guys. My first question is on the corn insecticide and herbicide portfolio. Now that you have the capacity expansion plans in place and you are producing for the 2013 season or preparing for that, what sort of feedback are you hearing from your distribution partners in terms of demand for 2013 considering that you were sold out this past year? How are they perceiving or indicating their thoughts on demand for the upcoming planting season, which will prove to be another big corn planting year?

Very good question, Michael. Actually, we have Jim Lehman, who is in charge of sales. So, Jim, you've had contact and discussion with our key distributors, what is the general thought process?

Absolutely, Eric. Good morning, Michael, how are you doing today?

I'm doing great, thanks.

Good, good. Hey, in regards to your question about distribution and the feedback that we are getting, the feedback has been very, very positive at this point in time. Initially, there were some concerns, as you well know, based on the drought effect that is taking place here in the Midwest. But as we look forward beyond 2012 into 2013, we actually see very strong demand for both corn soil insecticide and Impact coming from our distribution partners.

We are looking forward to the upcoming season and we believe that demand will continue to grow, not just for 2013 but also beyond 2013 with our portfolio. What we are really seeing is the effect of growers looking to maximize the yield potential of the crops they are putting out there and we believe that our traditional chemistry of our corn soil insecticides along with Impact are key components of helping them maximize those yields. So we see demand continuing to be strong and we are getting that feedback from our distribution partners.

Okay. That's very helpful. Another question on the product side. As I look at the cotton portfolio, you noted an uptick here Bidrin here recently, which is encouraging, what are some of the -- or maybe walk me through the timeline of how we should be evaluating your cotton business? When do we need the rain, when would you rather not have the rain? I just would appreciate sort of a bit of a brief lesson on how we should think about the flow of product in the channel?

So, from this step forward, and I assume your question is also for future seasons as well or are you just --?

That's correct. Yeah, just, as you are moving into the fall and in the harvest of cotton and Folex application specifically.

So basically the product Folex is used in combination with other defoliants. The season gets prolonged if -- as long as the cotton plant is generating new leaves, which as long as the weather conditions are I'll say normal, then you will wind up with a longer -- so you can't go in and harvest the cotton until you stripped away the leaves because you don't want the green to collate with the cotton fiber itself. So as they get -- and, of course, they have an incentive to let the cotton continue to mature to its full level. If you wound up with extreme burn down conditions and they go to harvest then that would wind up with the necessity of less Folex. But as the cotton gets harvested under normal conditions then you are continually mixing Folex with other defoliants and desiccants in order to get the cotton leaves on to the ground.

Okay. That's helpful. One question from a modeling standpoint. 3Q seasonality relative to the second quarter, last year you were down about 8% in revenue quarter-over-quarter. How should I think about the sequencing of seasonality this year by comparison to last year?

Well, I think we are projecting good growth for the second half of the year. The fact that some of it comes as far as placement of product I think we discussed this before that we tried to move product closer to use periods as our customers have looked for that approach, as well. We are -- as we are manufacturing this product, we are placing products with our customers plus that doesn't necessarily mean we would bill them at that time. But for the third quarter, again, I think we are expecting growth as a reflection. Again, this second quarter was a very strong quarter and I don't know that we are looking to exceed that number for this third quarter, but profitability also looks strong.

Okay. I guess I'm just still unclear, are you talk the growth would be year-on-year are but quarter-over-quarter or relative to Q2, I don't want to put words in your mouth, but flat to down is what you were describing?

Q3 versus Q2.

Relatively flat to up.

You're saying flat to up.

Flat to slightly up.

Flat to slightly up, okay.

Q3, okay. That's very helpful. And then I guess one last question, if I could. If you could comment on the M&A environment, what opportunities you might see out there that you can comment on?

Yeah, we continue to look at opportunities. We think the climate is strong. We are also a couple more licenses on products, new chemistry that we will be evaluating in this upcoming year. But I think there hasn't been any change in that climate, so to speak. As we've said before, we are constantly evaluating and negotiating and looking at opportunities.

Okay. Thank you very much.

Thank you. Our next question is from the line of Daniel Rizzo with Sidoti & Company. Please proceed with your question.

Hi, guys. You indicated that the adulticide sales next quarter is going to be dependent upon I guess the Gulf Coast and the southeast. Are you seeing the traditional demand or is it -- I don't think it is as warm there or at hot there as the rest of the country. Is that area going to affect it at all?

The Debbie depression storm that came through definitely heightened some use. The pressure is right now stronger than normal, so we are seeing a pretty robust season. Always, it becomes an issue of additional storms that may come through. Every time they come through, seven days later, you have adult mosquitoes that need to be treated. So it looks to be a good year on the weather side of it being that if there are additional storms that come through it will be even stronger.

Okay. And then with PCMB, I mean I know that is more of a later in the year type thing, but is that weather dependent at all?Do you need a cold or damp winter or anything like that?

It is generally -- it's preventative so it is applied before the snow actually occurs. So it is put down at the end of the season kind of September, October, November timeframe. So sales for that product are usually pretty strong in third quarter and then finishing up in fourth quarter. And that is for the golf course use.

Right, right. Okay, thank you, guys.

Our next question is coming from Mark Gulley of Gulley and Associates. Please proceed with your question.

A couple of questions, if I may. You certainly talked about the fact that many of your products are pre-plant products, Eric, but that would leave some that would be post-emergent. You addressed some of these issues briefly in your prepared remarks. Given the fact that some of these crops aren't worth saving, where do you see the most pressure in the demand trends for some of your product in the Corn Belt is what I'm talking about?

In the corn side, we are at plant as far as the corn soil insecticides. The herbicide Impact is essentially at or post application. Our Impact volume was limited this year as we have talked about and we don't see that there are any inventories left of that product so it keys up for a certainly strong 2013. And we don't have additional products that are major players in the corn market so.

Okay. You spoke optimistically about sales of Impact for next year in terms of corn soil insecticides. What was insect pressure like this year and to the extent that that could influence farmers' thinking about next year if they face limited pressure this year because of the droughts, are they going to be less interested in that product line again for next year?

Impact is an herbicide so, but if you are talking about our corn soil insecticide.

I'm sorry, I meant corn soil insecticide.

I think as Jim pointed out, the initial question would be "gee, are we thinking that this could have any influence on demand or slow down this rapidly driving demand for our soil insecticides", and the answer is no. Pest pressure increased the more are corn on corn acres that occur, again, it just keeps driving pressure up and it appears that pressure is not slowing down, so it is a strong pressure year even with the drought conditions. And going into 2013, again, this is a kind of a preventative prophylactic application and it is not easy to see if you have a pest pressure area that a $25 investment per acre in your crops seems pretty minor compared to the value that you are looking at given the commodity price.

Okay. That's very helpful. Thanks, Eric.

Our next question is from the line of Richard Paget with Imperial Capital. Please state your question.

Good morning, everyone.

Good morning.

Just to piggyback on an earlier question where you talk about the seasonality of sales. If we look at the third quarter versus the second quarter over the last couple of years, the gross margin improved sequentially. Just given pricing and mix and your expectations, should we think that trend continues or is second quarter probably the high point for the year in terms of gross margin?

You know, we are pleased with where the margins are in the -- at this level. At this point, I don't know if we are anticipating increasing -- seeing increased margins from this level in the third quarter. Our metam sodium is a large driver in the third quarter and those margins are slightly under the number that we did in the second quarter. So I think that will maybe temper any further growth. I mean that being said, we were very pleased where the margins is did come and I think a reflection of the fact that our plants are running at strong capacity and we have planned well for any raw material price increases that we have seen.

Okay. So while it might not necessarily be higher, it should be similar?

That would be a hope.

Yes.

Yeah.

And then with some of the capacity expansions, maybe if you could just give us an update on what you expect for CapEx for the year?

Well, I think we are at 13 so far this year, David?

Correct. And anticipating guessing somewhere close to the mid 20s by the end of the year.

I think we may be more than -- that may be more than halfway through but we may be another ten?

Yes.

Okay. And then finally, Eric, maybe you could comment a little bit more on the impact of the drought? I know you've already talked about the farmers wanting to maximize the next year and there might be more corn on corn acres, but does the drought do anything to the pest cycle where maybe it kills more bugs that were in the soil this year or anything else we should think about going forward?

It hasn't in the past and, as I said, the pressure was strong this year, so we don't see this dampening the momentum that we are gaining here for 2013, 2014 and 2015.

Thanks. I'll get back in queue.

Thank you. Our next question is from the line of Brent Rystrom of Feltl and Company. Please proceed with your question.

Yeah, thank you. My question is literally the opposite of all of these previous questions. Down in Iowa and Illinois the last couple of weeks talking to a lot of agronomists, they are saying that the rains have not been heavy enough to fully (inaudible) impact pursuit in the field and actually because of that you are going to see an even greater (inaudible) because you are not going be able to plant beans where you had any of these products next year because there is going to be latent capabilities. Is that reasonable to you?

Jim?

I think what you are talking about there is in talking to the agronomists is the fear is the potential carryover of the product to the following season. That potential is always there when you run into drought conditions like this. Now, what you are talking about there are post-emergent compounds which have limited to no residual control. So the life of the herbicide in the soil itself should be very short, but you still need moisture to have that take place, dissipation of the product. So the potential is there, and that potential could lead someone to make a decision to go corn-on-corn the following year. And if they make that decision to go corn on corn, it absolutely could increase the demand for corn soil insecticides going into next year.

Okay, there's little fields in Iowa where they have been tracking (inaudible) and so they are testing it and a couple of the fields they tested talked to said there's a lot of latent herbicides (inaudible) unless we really get a lot of moisture in the next six months, so.

Okay.

From that perspective, are the corn soil insecticides, do they have a residual capability to carry over in the same fields or are they pretty much --?

They dissipate fairly rapidly, so yes.

All right. From a timing of a pricing perspective Monsanto kind of changed the program this summer, they are generally taking the 3% to 5% (inaudible) previous years rather than announcing it and then taking the price up and everybody kind of jumps in before the price increase takes effect in the few months. Did you guys do any pricing changes when Monsanto changed prices?

No, we haven't. We have not announced any price change at this point in time for the 2013 season, but we do anticipate (inaudible) information out to our distribution partners here within the next 30 days.

Okay. And then finally out of curiosity, are you hearing any rumors of another resistant insect in corn?

Not that we are aware of unless you've heard of something out there in your discussions. I have not been made aware of anything of that nature.

I heard there's something that showed up in central Iowa (inaudible)?

Are you speaking about resistance to the [trait] technology?

To the [Bt trait], yep.

Okay. Hadn't heard about that. I knew there was some challenges in central Illinois that weren't there the year prior but I had not heard about that situation in Iowa. So we will certainly look into that.

Great. Thank you very much.

Our next question is from the line of Jay Harris with Goldsmith & Harris. Please proceed with your question.

Eric, coming into this season, you were limited on the amount of Impact that you could make available for sale and I suspect having sold out on corn soil insecticides you are laying plans to have much more available. Percentage-wise, what will happen to the availability for sale of Impact for the 2013 season and for your corn soil insecticides?

On Impact, again, Jay, I know you'd like an absolute number, but I would say it is in a multiple of this year. On the insecticides, we are looking somewhere at maybe a 50% kind of range.

Okay. Last year there was a -- in the last half of the year, you did business with farmers prebuying for this year to shelter their taxes. I suspect because of the drought, that business will substantially disappear. Do you think your early order business will more than mask that?

You know, this last year we, because we really are not (inaudible-technical difficulties) we are not looking for early (inaudible-technical difficulties).

(Inaudible-technical difficulties) It is a little bit. We did have structuring costs through our accountants and legal to get the organization established, so that did have some impact on our G&A for the year -- for the quarter.

Were there other reasons why the operating expenses might have been up in the second quarter versus the first?

Accrual for compensation.

They rose?

Um-hmm.

Okay. Well, you produced an outstanding quarter.

Thank you, Jay.

We all appreciate it.

Thank you very much.

(Operator Instructions). The next question is from Jeff Abraham. Please proceed with your question.

Hi, guys. How are you doing?

Good, Jeff, how are you?

Very good. Obviously, as a shareholder, very pleased with the results. And as you pointed out, you guys have a substantial cash position. As a long-time shareholder, I know you guys have paid dividends consistently even during some of the leaner times. I was just wondering if it would be a good idea to send a signal to the investment community that you are comfortable with this growth and the increased profitability bypassing some of that along in terms of an increased dividend. I think it would send a real strong signal that you're confident that the earnings are going to continue to grow and, obviously, it won't be to the extent of the growth that you've had passing some of that along I think would be a real show of confidence.

I appreciate the comment and it will definitely be a topic at our next Board meeting.

Thank you. Like I said, I have been a long-term shareholder and you guys have consistently paid a dividend in leaner times and the Company is in great financial shape and, obviously, it wouldn't be to the extent where as the earnings grow you pass along everything you make but even a higher degree of what you are doing presently would I think signify that you are very confident in the fact that the earnings are on this path not just for the short-term but for the long-term.

Good point. Thank you, Jeff.

Thanks a lot.

Thank you. There are no further questions at this time. I would like to turn the floor back over to management for closing comments.

Again, I would like to thank everybody for taking the time to join us today. We look forward to updating you as -- with our plan as we continue through the balance of the year and appreciate your support. Thank you very much.

This concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation.