AZZ Inc (AZZ) 2011 Q2 法說會逐字稿

Good afternoon, and welcome to the AZZ Incorporated second quarter fiscal year 2011 financial results conference call.

(Operator Instructions). Please note, this event is being recorded.

I would now like to turn the conference over to Joe Dorame. Please go ahead.

Good afternoon. Thank you for joining us today to review the financial results for AZZ Inc. for the second quarter fiscal year 2011 ended August 31, 2010. As Amy indicated, my name is Joe Dorame. I am with Lytham Partners, and we are the financial relations consulting firm for AZZ Incorporated. With us today on the call, representing the Company are Mr. David Dingus, President and Chief Executive Officer, and Mr. Dana Perry, Chief Financial Officer. At at the conclusion of today's prepared remarks, we will open the call for a Q&A session.

Before we begin, I would like to remind everyone this conference call includes statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Except for the statements of historical fact, this conference call may contain forward-looking statements that involve risks and uncertainties, some of which are detailed from time to time in documents filed by the Company with the SEC. Forward-looking statements are based on currently available competitive, financial, and economic data, and management's views and assumptions regarding future events. Such forward-looking statements are uncertain, and investors must recognize that actual results may differ from those expressed, or implied in the forward-looking statements.

Risks and uncertainties include, but are not limited to, changes in customer demand and response to products and services offered by the Company, including demand by the electrical power generation markets, electrical transmission and distribution markets, the industrial markets, and the hot-dip galvanizing markets, prices in raw material costs including zinc and natural gas which are used in the hot-dip galvanizing process, changes in the economic conditions of the various markets the Company serves, foreign and domestic, customer requested delays of shipments, acquisition opportunities, currency exchange rates, adequate financing, and availability of experienced management employees to implement the Company's growth strategies.

The Company can give no assurance that such forward-looking statements prove to be correct. AZZ assumes no obligation to affirm publicly, update, or revise any forward-looking statements, whether as a result of new information, future events or otherwise. With that having been said, I would like to turn the call over to Mr. David Dingus, President and Chief Executive Officer of AZZ. David?

Thank you, Joe. And thanks to each of you for taking the time to join us for the conference call for the second quarter of fiscal year 2011. We are pleased with the operating results for the second quarter, and they did approximate what we had anticipated. Second quarter was another quarter of effective execution of our opportunities, and the positive impact of the assimilation of North American Galvanizing. The markets for our electrical and industrial products have not shown the level of stability, or the recovery that we had anticipated.

Based upon our quotation activity and conversations with our customers, we do not believe that our backlog will show appreciable increases in the current fiscal year. The economic and regulatory uncertainty does continue. We will continue to closely monitor our quotation activity and customer feedback, which hopefully will allow us in the future quarters to better forecast our incoming order rate and backlog, and confirm that we have leveled off, and see signs of improvement. Based upon current customer requested delivery dates and our production schedules, 65% of our backlog is expected to ship in the current fiscal year. Of the backlog of $106.5 million, 38% is to be delivered outside of the US.

The Galvanizing Services segment achieved another outstanding quarter operating performance, considering the market conditions in which we are operating. The markets for our Northern Galvanizing showed some increase, while the Gulf Coast operations continued to be adversely impacted by lower levels of petrochemical and offshore drilling work. We continue to demonstrate our commitment to quality and service during these market conditions, and take advantage of all opportunities to maximize volume, and increase our market share, while we are maintaining our pricing.

While margins were down, when compared to the prior year, we continue to operate at the higher end of our margin projections. Pricing was essentially unchanged in the quarter, when compared to the prior year, but it did not fully offset the increased costs, being primarily higher costs of zinc. We are very pleased that we were able to acquire North American Galvanizing. The results of the first few months is encouraging. We believe this acquisition is good for the industry, our customers, employees of the former North American Galvanizing, and the employees and shareholders of AZZ. The assimilation process is going very smooth.

Competitive pricing actions continue to be mixed in both segments, with some competitors deciding to maintain production and employment levels regardless of price, and others deciding to follow a more disciplined approach. Price deterioration is becoming more prevalent in the utility market, due to their significant reduction in capital spending and lower operating budgets. As a Company, our accomplishments have continued, and we double and redouble our efforts to better position the Company for the market recovery, and regulatory clarity. We will strive to effectively and efficiently execute on all of business that we do have.

The completion of another successful quarter, the financial strength of the Company, and a great group of employees is reflected in our operating results, and the confidence that we have in our future. We continue to advance with confidence, as we navigate through challenging waters in this period of market uncertainty. We remain fully committed to our strategy. With that as an overview of our results, Dana will now give us a review of the operating results for the second quarter of fiscal 2011. Dana?

Thank you, David. I would also like to welcome each of you to the second quarter conference call, and at this time I will review our unaudited consolidated results for the period ending August 31, 2010. As outlined in our press release, revenues for the quarter ending August 31, 2010, were $99.6 million, as compared to $95.2 million in the prior year. Net income and diluted earnings per share for the quarter were $9.6 million, and $0.77 a share, as compared to $11.1 million, and $0.89 a share in the prior year.

Transaction costs associated with the acquisition of North American Galvanizing during the second quarter, amounted to approximately $700,000 pre-tax, or $0.03 per share. Total transaction costs so far accumulated to approximately $1.8 million or $0.09 pre-tax. As David indicated, our book-to-ship ratio for the quarter was 95%, ending the quarter with a backlog of $106.5 million. Our backlog at the end of our previous fiscal year-end was $109.9 million. Our Electrical Industrial segment generated 41% of our revenues for the quarter. While our Galvanizing Services segment generated 59%.

With the acquisition of NGA, we expect our Electrical and Industrial segment will generate 43% of our revenues for the full-year of fiscal 2010, while the Galvanizing segment will generate the balance of 57%. In our Electrical and Industrial Products segment, we recorded revenues for the quarter of $40.8 million, as compared to prior year results of $55.6 million. Decreased revenues for the quarter were the results of reduced order intake during the third and fourth quarters of our fiscal 2010. Lower order intake during the second half of fiscal 2010, was a primary reflection of the economic and regulatory uncertainty in our served markets. Operating income was $7.5 million as compared to $12.1 million. And operating margins were 18.5% for the quarter, compared to 21.8% in the prior year period.

Margins were negatively impacted during the quarter, as a result of the loss of leverage due to reduced plant utilization, as a result of lower volumes. Revenues in our Galvanizing segment for the quarter were $58.8 million, as compared to $39.6 million recorded in our second quarter of last -- of fiscal 2010. Operating income in this segment was $15.2 million, compared to $12.3 million in the prior year. Operating margins for the quarter were 25.9% compared to 31.1% in the prior year.

The acquisition of NGA added approximately $15.1 million to our second quarter revenues, and $3.5 million to our operating income. The reduction in the operating margins was a result of higher zinc costs and overhead costs, that we were unable to recover through price increases, as well as margins that were lower at NGA, as compared to our core AZZ margins. As we have indicated before, results for this segment have followed closely, the condition of the industrial sector of the general economy.

At this time, I will cover some of our key cash flow and balance sheet items, on a comparative basis. For the six month period, cash provided by operations was $8 million, compared to $36.9 million in the prior year. Accounts receivable days outstanding were 50 days, as compared to the second quarter, at the end of the second quarter as compared to 53 days at our last fiscal year-end. Our inventory days continued to improve, as we monitor our working capital improvements. Year-to-date capital improvements were made in the amount of $5.5 million. Depreciation and amortization amounted to $10.3 million.

The acquisition of NGA was completed during the quarter with a total purchase price of $132 million, which was net of cash acquired in the amount of $28 million, resulting in a net cash outlay of $104 million for the transaction. Our excellent cash flows allows us to continue to pay our quarterly cash dividend of $0.25. Our total outstanding bank debt at the end of the quarter was $112 million, and our cash balance was $8.8 million. We utilized our cash balances, and drew down approximately $12 million to fund the acquisition of NGA during -- during the prior two quarters.

Our leverage ratio, at the end of our second quarter was 1.59 times, well below our floor of our covenant requirement of 3.25 times. We continue to believe that our balance sheet is one of our core strengths, and along with our strong cash flow characteristics, combined with access to borrowings under our existing bank agreements should provide us with adequate flexibility to continue the growth of our Company. At this time, David will give us an overview of the two operating segments.

Overall, the power generation market has been relatively stable. Most of our domestic activity resolve -- revolves around the new renewable generation, upgrades to coal-fired plants, and new gas-fired peaking plants. And internationally, our business revolves around the hydro and nuclear power plants. The gas-fired generation market is providing new opportunities for our enclosure business, that may possibly impact our future bookings. Industrial and petrochemical demand for our power distribution and motor control centers remained at the lower level that we saw for most of calendar 2009.

The timing on new projects and release of orders related to energy infrastructure, rebuilds, expansion and upgrades remains an issue, and is impacting our incoming order rate. Demand for our electrical distribution substations products saw a continuation of reduced inquiry and order levels. Utility budgetary spending levels have been reduced, and we do not anticipate an increase until overall electrical demand increases, and the utilities are able to get regulatory rate increases.

Our business historically has been more for replacement and upgrade, rather than expansion. So we would anticipate that that would follow this trend, once rate recovery is granted to the utility companies, and they are able to return to their upgrade programs. Therefore, we believe it is a timing issue, rather than a long-term reduction in spending for our distribution substation market products. For our high voltage transmission bus duct products, quotation for the domestic market was limited, and the international was somewhat spotty. The outlook for the international market remains strong, but the timing of the release of orders is probably outside of the current fiscal year. Grid expansion to accommodate wind energy would be a big driver to our domestic business.

For the Galvanizing Services segment, our strategy to provide a premium level of service and quality to our customers has continued, and will continue, as we resist downward pricing pressures, and try to achieve increased market share. The acquisition of North America Galvanizing has been well received, and we are extremely pleased with the assimilation progress to date. The acquisition has increased our footprint, has broadened our customer base, and increased the total number of facilities to 33, allowing us to become the market leader in this market, and truly provide a superior level of service and support, to it.

In summary, our products and services are extremely well positioned to benefit from any market improvements, and/or increased infrastructure spending. Our lead times are shorter, and should provide for more expeditious benefits of any improved market condition. The timing of projects and release of orders will always have an impact on quarterly recognition of bookings, backlog, revenues and earnings, and will result in quarter-to-quarter fluctuations, which may be greater than true changes in market demand, and our competitive position and successes.

Based upon the evaluation of information currently available to management, we're revising our guidance for revenues to be in the range of $385 million to $395 million, and our earning to be in the range of $2.70 to $2.85. The revised guidance includes the anticipated results of the acquisition of North American for the period of June 14, 2010, to February 2010 -- 2011, or approximately nine months of our fiscal year. The previously issued guidance was for revenues to be in the range of $380 million to $395 million, and fully diluted earnings per share to be in the range of $2.65 to $2.80.

Achievement of these projections would be our 24th consecutive year of profitability. Our estimates assume that we will not have any appreciable change in our current market condition, competitive activity, or significant delays in the delivery or timing in the receipt of orders of our Electrical and Industrial products, and demand for our Galvanizing Services. Additionally, the Company's Board of Directors, as Dana indicated, declared $0.25 per share cash dividend on common stock outstanding. The dividend will be paid at the close of business on November 1, 2010, to shareholders of record of October 15, 2010. And again, we thank you for your participation today. And we would like to open it up for any questions you might have at this time.

(Operator Instructions).

Our first question comes from John Franzreb at Sidoti and Company.

Good afternoon, David and Dana.

Good afternoon, John.

My first question is, David, you mentioned pricing is more difficult in the utility side of the business. From what I can recall, you -- that's been a case in the past, but that was a large foreign competitor who kind of was disruptive in the utility market. Is that still the case, or is it more domestic competitors going after share?

John, in this case, I am referring to the substation market, which is the domestic market where most of our competitors are privately-held smaller companies, which essentially kept waiting around for improvement. Now, their backlogs have shrunk, and they're getting more desperate to keep business coming. So in this case, previously when we talked about the utility, I was talking about the large orders in China, but my reference here is the domestic substation market.

Okay. Okay, Perfect. Now, you kind of referenced that the petrochemical business is kind of flat lining. I think it remains low. Is that business stabilizing at this point, or is there enough concerns about the legislative environment that -- that business is weakening?

I think it's remaining at a very weak level. I don't see any signs that it is getting worse, John. I have been there (inaudible) -- I don't see signs that it has improved either.

Okay. So if I kind of piece it all together, my last question is, if I piece it all together, when you say you do not believe the backlog will increase this year, do you think you are going to be eating into the backlog for the balance of the year, and the book-to-bill is going to remain below one, is that what you are kind of signaling at this point?

I still believe that we have got a real shot at a one to one for the year. I think we are going to continue to bounce along the bottom here. But we are just not going see the recovery, until the utility companies have restored their budget levels, and we get a little more activity in the international market. So we really thought by this time when we had previous calls, that the utilities would have returned more to spending that maintenance CapEx. They haven't, all right? Until we get evidence, they're going to increase the budget, I just don't think we will see an appreciable change. But I really don't anticipate eating into it. Now when we are operating at this level, $1.5 million order, the timing of it may look that way, but I think in total we will be very close to a one to one for the year.

Okay. Great. Thanks a lot, David.

Thank you, John.

The next question comes from Fred Buonocore at CJS Securities.

Yes. Good evening, gentlemen. Nice quarter.

Thank you.

My question pertains to the electrical products operating margins. It seemed like after last quarter the guidance you were looking for the year was in the 15% to 15.5% range, and clearly you had a much stronger quarter, in terms of profitability. And also looking at it sequentially, you had relatively flattish revenues or up slightly sequentially, but still a nice boost in operating margin there. I am just wondering, keeping the fact that you've kept guidance the same, l would assume that you're still making that implication for a big drop in electrical products margin. But I am just trying to understand, how we get there at this point?

Sure, and yes, we are still projecting the 15% to 17% for the year. Essentially, in the third and fourth quarter, Fred, our backlog even though it stabilized, as I indicated, it is more consistent in the power generation market. And we are having trouble in the distribution and the industrial markets. Well, the way we are structured, if you have trouble in one of our operations, you lose a lot of leverage in that one, if I am make sense, because we build those in a separate factory, a separate organization, a separate engineering department.

So what is hitting us in the third and the fourth quarter is even though the -- as I have indicated to John, backlog stays up simple, it gets out of balance between generation T&D and industrial. And so, consequently my fixed cost gets out of balance on me. And so, therefore, we are going to have more by margin struggle in the third and the fourth quarter, until we readjust those to the incoming order rate, or make any cost structure adjustments that we have to. So yes, we are pleased with the second quarter. I wish that were the case with the on going, but I think that is representative of what we could do if we start getting some market recovery. I don't think we are permanently damaging margins, by what we are projecting for the third and fourth quarter. But yes, I still believe that we will end up in 15% to 17% for the year, which does show that the third and fourth quarter is going give in 13% to 14% range before we start seeing recovery.

Okay. I understand. And then on the Galvanizing Services revenue, it looks like X on North American Galvanizing. You had a bit of sequential pick up there. Should I conclude from that, that maybe we are seeing some strengthening in volumes from some different end markets, and if so, where? Can you get a little more detailed about where you are seeing the pick up?

Right, and most of that, as I have indicated are in the northern or Midwestern operations. There are bridge and highway work, is up about 5%, and some of that is infrastructure spending there. But in that particular market, we have had real successes with some market share improvement. And we have had some real successes with getting some of our customers galvanize more of their product, as opposed to an alternative coating. So that accounts more for our penetration success, than it does an overall market change. But that is where that sequential volume is coming from, even if you exit out the North American, Fred.

Very good. And then finally, just can you give a little more color on the international markets? And if anything is holding up orders, and what you think that might be, and where you might expect those, next very sizable orders that come from? Thank you.

As we look at, and in particular the China market, and the Middle East market, there's a lot of projects out there. And we are optimistic the next three years, but none of the timing of when they need our product is occurring in our current fiscal year. We don't think we've lost. ground We don't think the overall market has shrunk. But the project is in motion, before they decide to bring our product in. So I think we are just hitting an, out of timing sequence here, rather than a significant market change. Because when we do our three year window, for the key international markets, the total number of projects has not changed. It is just, the timing of them, is just not lending itself to the contribution of the fiscal year that we believe will happen in the subsequent years.

Okay. Thank you.

Thank you.

The next question comes from Ned Borland of Hudson Securities.

Good afternoon, guys. Just to follow up on your last point with regard to international, the international picture. I know you've said that you probably won't see any contribution from international orders this year. But, do you in fact, expect maybe that you will see a couple of international orders hit in this fiscal year?

Maybe I should have rephrased that. We are not going to get a big impact like we had before, from a very large international order. Yes, we are projecting international business in the last six months, but it's more routine. It's not any of the mega projects that we've traditionally had in the past. I probably should have phrased it that way, rather than saying not any. So I am just saying there is not a big mega project, those $10 million to $20 million projects that we landed in the -- in the Middle East or China market in prior years, that has given us a real boost in backlog. I just don't see that happening in our current fiscal year.

Okay. Yes, no, that's what I was getting at. And I -- I mean I would assume if you got a international order in the second half, that would of contributed to 2011. But or -- 2012 fiscal 2012. But switching over to Galvanizing, the margins slid a little bit. I would imagine a lot of f that is due to the integration, but can you maybe give us a sense of where the North American Galvanizing are running margin-wise, compared to your legacy operations?

No, but -- first I will address the first part of your question. And that is in our traditional AZZ plant, we had a significant increase in zinc costs that flowed through out P&L that wasn't recovered in price. So that's where the biggest part of the depreciation, the deterioration comes. Because if you go back to second quarter of last year, we had $0.62 average cost of zinc, and the same quarter this year, we had an $0.88. But yet pricing was essentially the same, because of market conditions suppressing that. Now as far as the North American, they are ahead of where we thought they would be this time. There was a little more low hanging fruit, than we had thought. And that -- so if you look at our North American margins versus our traditional companies, they're 3 to 4 points below where we are. And we still believe we can get there, but not a lot in this fiscal year as we come through there. But we are very pleased. We thought that they would be 6 to 8 points below our traditional, but we have been able to improve the operations a little more quickly than we thought.

Okay. And then sticking with zinc, what is your kettle current cost versus the current spot prices? I mean is it pretty level, basically the same? Or are you still passing through higher high cost zinc.

We still have higher coming at us, Ned, because on the year-to-date basis, our cost of sales has run $0.83 a pound, and our average purchase has run $0.96, all right? So in our guidance, we still say we're going to struggle getting that through, because markets not going to let us push that. But we said, we'd be probably returning to that range of the 22 to 26, and fortunately we're operating at that 25.9. So we're at that -- still the high end, it is disappointing any time you have a decrease, but it is consistent with how we felt the market would behave.

Okay, and last question, any integration expenses expected in the third quarter?

No, we believe most of those are behind us.

Okay. Thank you, Ned.

Thank you.

(Operator Instructions).

Our next question comes from Rick Hoss at Roth Capital Partners.

Hi, gentlemen. A question on Galvanizing, the North American NGA revenue sequentially, was that down?

I am sorry? The revenue sequentially? You mean from when it was their company?

Yes.

I honestly don't have that answer. But I'm assuming, that it's behaved pretty much like ours did. But I have not taken the same period of their's last year, and compared it to this. I apologize, I have not done that, Rick.

Or really, sequentially, it was my understanding it was about $19 million a quarter business, and this quarter is 15, correct?

Right. But we only had -- we were two weeks short of a full quarter. So that -- it's something.

Okay.

That's about $2 million. So you really have -- to get to the -- the run rate for the quarter, add about $2 million to it.

Okay. Okay. That makes sense.

And then -- we picked it up on June 14. So we -- the first two weeks, if we could have left that in it would have been about $2 million more.

Okay. Okay. And then the -- so the margins are a little bit higher than you expected. But the changes that you have made they've happened sooner. But the total time to get to traditional AZZ operating margin is still intact.

Yes, it is.

Okay. Okay. Okay. And then, on the [E & IP] side of things, once we start to have some sort of meaningful recovery, do you expect to see more shortly timed book and ship type of business, as you -- as you're coming out of the trough?

Yes, we do. Because our power generation is our longest lead time, okay? And the high voltage, well, that market is behaving relatively well. The ones that we are struggling with are the utility substation, and that's in the -- on the domestic side and the industrial. And those have a little shorter lead times for the most part, those factories can shorten. And so, yes, when it comes back, we think that it is the shorter lead cycle that will come back first.

Okay. Last question how much of an impact in your opinion, does this administration have on the utility outlook, their expectation? There is no -- there is no tangible direction. And then you have a lot of the EPA regulations that are -- that have been pushed out, and pushed out, and pushed out. Do you see any impact from, say maybe, in a more of a Republican emphasis, in the -- in the House and Congress coming up? Is that meaningful to you, do you think?

I would certainly hope it's a meaningful thing change. Because really, I mean it's the same thing that we all hear, on capital spending, regardless of what industry that you are in, is what is the regulatory uncertainty? I mean utility industry is driven by rate of recovery, and regulatory rate increases. And if you have uncertainty in the economy, then no one is going to approve a rate increase. So they just pull all the CapEx back through that

So, yes, we need to have clarity. We have got to have a definition of how is our coal-fired plants or going to be able in the future. What is the -- if any -- government subsidy or rebate, as related to renewables? What is their really firm commitment to the nuclear power? Yes, I think it is pretty brutal. But the problem is. to tackle all of those, is pretty high political risk. And I just hope that the new Congress will have some of that. I -- know -- that's -- it will be unpopular. So I don't know if a change will make it more palatable or not. I -- but I would think any step forward would be an improvement, of what ever we have today.

Right, or even a grid lock, would be a step forward. (Laughter).

No, I think in this case it would. I think it might say, for the next three years, we are not going to do X. I think that might be clarity, even though we'd have to guess what it is in three years, is what I am coming back to.

Right, right. Okay. Thank you, gentlemen.

Thank you.

(Operator Instructions).

Our next question is from Eric Prouty at Canaccord.

Great. Thanks guys for taking my question. Just a follow up to the Galvanizing discussion. With the combination of the two companies, is there any, I guess, pricing power to gain more from the raw materials standpoint, with the folks that supply your zinc, and maybe getting it for a little less of a premium, to LME than what you have been paying?

It doesn't impact the LME piece of it, but we pay a premium over the LME, which can be $0.04 or $0.05. Naturally, the bigger you are the more you can pressure them to give you a relief there. So you might pick up a $0.01, because of your relative size on the premium side. But the base price is going to remain the same, because they all are going to sell it to you at the floating LME price.

Sure. Have you already started talking with the suppliers yet, about any pricing now that you are combined entity?

Definitely.

Okay. When might we see an impact from that?

I think, indirectly, we already are. The market went through a phase in the last three or four weeks to where premiums went up to most suppliers. They did not go up to us, ours, because of that. So I don't think that you should build into your model an appreciable change for that. I think it is more the management of it. Now like I said, a $0.01 makes a difference through that cycle. But I don't think there is an appreciable -- it would be hard for me to say what the BPS would be, just from the change of negotiating that premium, without doing a little more calculation. But I don't think it is significant.

Sure. That is fair enough. Is there any supplier switch-overs you need to do, with the two companies using separate suppliers, and do you need to switch suppliers at any of your operations at this point?

No. Naturally, through our volume we've added a few more suppliers to assure continuity of supply. But there's nothing unique about one or the other, that forces you to one direction or the other.

Great. Then a few folks have touched upon kind of the end market demands, and strengths and weaknesses, can you just maybe spend a minute or so just reiterating, from a galvanizing standpoint, from an end market standpoint, what industries you see a pick up in demand, and in what industries are still lagging behind?

Well, the biggest lagger, again, is the petrochemical market. And that's because of so many facilities along the Gulf coast there. The markets that have been good and consistent have been in the electrical and telecommunications, the towers, and the poll work there. That's been good. Our OEM business is up a little, because of how we have made market share in-roads. And also, we have converted more people through the process, and that, So really, there has been more of a consistent or stability of our markets, and we have improved our penetration of those markets, which is leading to the increase, rather than one particular one. The only one that has a measurable increase is bridge and highway.

Sure. And do you think that's sustainable, or is that a bump solely from kind of a delayed impact from the stimulus spending?

We believe it is at least sustainable in this current fiscal year. We will have to see, as we enter next year. So I haven't looked at it at over, say outside of a nine to 12 month window. But we are pretty comfortable, that it is pretty stable through the balance of this fiscal year at least.

Okay. Fantastic. Thank you very much.

Thank you, Eric.

(Operator Instructions).

Our next question comes from Fred Buonocore at CJS Securities.

Hi, yes. Just a couple of quick follow ups. When you talked about before how North American Galvanizing is performing margin wise, a few percentage points below the core business average, or core business historic average. Which average are we talking about, because you used to talk about like an 18% to 20% range. And obviously that's increased over the last couple of years. I am just trying to get a sense for -- relative to what is that spread?

Relative to our performance of 22 to 26 spread.

22 to 26, okay, that's what I thought. Great. And then, just a follow up from something that you talked about on last call. You talked about the specialty lighting products business, and how that was kind of picking up, which you had historically seen as a leading indicator. Forgive me, if you have already talked about specialty lighting, and I missed it. But just wondering, what you are seeing there? And has that sort of fallen off? And was what you saw last quarter maybe just an anomaly, or something, what do you see there?

It is remains strong, Fred, but it appears to be a little more market share than market improvement.

Ah, okay. Got it.

Okay. I didn't have all of that data last time, as I went through. But we had another great quarter, the second quarter. We believe it is continuing on. And I don't want to awaken my competitors, should I say too much. But it is -- it is -- there's some market share improvement in there.

Okay. Well, not as good as a positive leading indicator, but good none the less.

Right.

Thank you very much.

Okay. Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to David Dingus for any closing remarks.

Again, we thank you for your participation today, and for your support. And we will continue to communicate through this mechanism. And of course, if we can supplement anything, don't hesitate to get in touch with us. Have a great weekend. And we appreciate your help.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.