Beacon Roofing Supply Inc (BECN) 2010 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Beacon Roofing Supply fiscal-year 2010 first-quarter conference call. My name is Danielle and I will be your coordinator for today. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes.

On this call, Beacon Roofing Supply may make forward-looking statements, including statements about its plans and objectives and future economic performance. Forward-looking statements are subject to a number of risks and uncertainties.

Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, including but not limited to those set forth in the risk factors section of the Company's latest Form 10-K.

The Company has posted slides on the investor section of its website under Events and Presentations that will be referenced during management's comments.

On the call today for Beacon Roofing Supply will be Mr. Robert Buck, Chairman and CEO; Mr. Paul Isabella, President and COO; and Mr. David Grace, Chief Financial Officer. I would now like to turn the call over to Mr. Robert Buck, Chairman and CEO. Please proceed, Mr. Buck.

Thank you, Danielle, and welcome, everyone, to our first-quarter earnings call for fiscal-year 2010.

This was another solid quarter for Beacon, as our profits met Street estimates. We delivered great expense controls, which helped produce, in our opinion, very strong cash flows. And I want to take this opportunity to thank our leadership team for these results.

I'm also very proud of this Company, and the hard work and dedication of all of our employees who made these results possible. We really have a wonderful team here, and they are certainly getting a job done in very tough economic times.

As is our custom on these calls, our CFO, David Grace, will present the financial details for the quarter, and again for this quarter we have prepared slides to augment David's comments, and as Danielle said, they can be accessed on our website. After his presentation, I will ask both Paul and David to comment on topics that I know are very important to you.

Before I get into that, let me just say our new fiscal year is off to a good start. Comparisons to the prior year aren't proper, probably, or very useful because last-year results included business generated from Hurricane Ike. And as you know, large storms like Ike can distort our results for short period of time, but David will point out how our attention to the fundamentals of this business is paying off with strong cash flows, lower operating expenses, and strong earnings per share.

We have solid plans in place to keep us on track in fiscal 2010. Our business model will serve us well because our product offerings cover all segments of the roofing industry.

Our geographic diversity also gives us stability as we look forward to better economic times in the coming months.

Again, our balance sheet is strong because of our detailed attention to Accounts Receivable, very good management of inventory, both of which supports our efforts, really, to improve our debt ratios, return on assets, and return on equity.

Now let me turn the call over to David, our CFO, with that wonderful accent from Gloucester, and he will lead us through the financial details. So, David, I'll turn it over to you now.

Thanks, Bob. If you're using our slides to follow along, let's begin with slide one. Sales decreased 20.6% to $367.7 million from $463.3 million in 2008.

This year's residential roofing sales decreased 26.2% as we lost the benefit of the 2008 activity from Hurricane Ike. New residential construction continues to be at all-time lows and residential re-roofing was weak in certain other markets. Non-residential roofing declined 15.5% as commercial activities have remained slow.

Complementary product sales were down 13.5% and continue to be negatively impacted by both the slowdown in the economy and lower levels of residential construction and remodeling.

Regionally, we saw sales growth in the Southeast and in Canada, while sales decreases ranged from 5% to 50% in the remaining regions.

We estimate inflation in our product costs based upon our current inventory's product mix and the invoice cost as compared to the invoice cost of the same products a year ago. Based upon this estimate, our product costs were relatively flat as compared to 2008 levels.

We had 62 business days in both 2009 and 2008. We operated a total of 173 branches as of the end of this quarter, compared to 171 last year. We did acquire one branch this year, while we closed four during last year's fourth quarter.

Gross profit was $88.3 million, as compared to $116.0 million in 2008, a 23.9% decrease, with gross margins decreasing to 24.0% from 25.0%.

The current drop in sales volumes is still creating some margin pressures, but the larger factor in the decrease is due to 2008 having the benefit from the large prior price increases in asphalt roofing shingles, which created a short-term cost advantage for us as we have discussed in the past.

Sequentially from the fourth quarter of fiscal 2009, our gross margin increased 80 basis points, mainly due to higher incentive income.

Operating expenses, which is slide two, decreased $8.5 million, or 10.8%, to $69.8 million from $78.3 million in 2008. Payroll and related costs were $4.3 million lower than last year's first quarter, as we benefited from headcount and overtime reductions, lower incentive pay, and reduced related benefits.

Selling expenses were lower by $1.5 million, due to reduced transportation costs and credit-card fees from the lower sales volumes, but also due to other cost-saving measures.

General and administrative expenses decreased by $1.8 million, as bad debts decreased by $0.8 million, mainly due to the drop in Accounts Receivable. And we saw reductions in insurance expense due to lower claims costs, along with other savings in other expense categories.

Depreciation and amortization decreased by $0.6 million, mostly due to a drop-off in the amortization related to purchase accounting.

Warehouse expenses decreased due to -- mainly to lower branch-closing costs. As a result of that, operating expenses as a percentage of net sales increased to 19.0% from 16.9%, due to the lower sales volumes.

Interest expense decreased by $0.5 million from the paydown of debt since 2008. Income tax expense was $5.1 million in 2009, reflecting an effective rate of 39.4%, compared to 40.9% in 2008.

As a result of all I've mentioned, our net income was $7.8 million for the quarter, as compared to $18.6 million in 2008.

Slide three shows our diluted net income per share fell $0.24 to $0.17 compared to $0.41 in 2008.

Our earnings before interest, taxes, depreciation, and amortization, and stock-based compensation, or adjusted EBITDA, which is reconciled to our GAAP net income in our press release, was $27.1 million for 2009, as compared to $46.6 million in 2008.

Slide four shows the components of our cash flows. Cash flows from operation were $29.6 million in 2009, as compared to $5.0 million in 2008. As the slide shows, we had more favorable changes in working capital compared to 2008, more than offsetting the drop in our operating income.

We experienced favorable decreases in Accounts Receivable and inventories that totaled $68.9 million and $22.3 million, respectively, in 2009, which, combined, were well above an unfavorable decrease in Accounts Payable and accrued expenses of $79.6 million.

Inventory turns were slightly lower in 2009 compared to 2008, mainly due to the drop in sales, where our days sales outstanding and Accounts Receivable were flat year over year.

Capital expenditures in 2009 were $0.6 million, compared to point -- $2.0 million in 2008, while net cash used by financing activities was $1.2 million in 2009, as we continue to pay down existing debt.

To summarize a few key points from my presentations, sales contracted 21% in the quarter. Operating expenses decreased by $8.5 million. First-quarter operating margin of 5.0%, which is below the lower end of our annual goal, compared to the usually high 8.1% in 2009. First-quarter diluted net income per share was $0.17, compared to the hurricane-driven $0.41 in 2008, but well above the $0.12 we earned in 2007, which had no storm-related activity.

The balance sheet is in great shape, with cash on hand of $110 million, a working-capital ratio of 3.2 to 1, and a debt-to-total capital ratio of 45%, compared to 49% last year. And our net debt-to-equity ratio was 36%, compared to 48% last year. And now, back to Bob.

Thank you, David. What I'd like to do now is get into our commentary to cover details about some specific items. What I'd like to do is start the commentary with a request for David to update us on pricing, both for residential and commercial markets. So, David, can you do that?

Sure. Since our last earnings announcement in December, the asphalt shingle manufacturers have announced a price increase of 5% to 7%, generally for purchases after February. We're told these initial increases are driven by lower supplies of asphalt and the expectation that the price of asphalt will rise as the demand from asphalt paving rises in the spring.

As we have said in the past, our job is to react properly to any increases as they take hold, like we did in fiscal 2008. We have seen no material proposed price increases from the non-residential manufacturers or in our complementary products at this time.

Let's move into sales. Paul, the first quarter was a pretty tough quarter for sales, especially beginning in early December, when winter really kicked in, and also, if anyone is comparing it to last year when -- which included sales from Ike. But looking at the first quarter, give us an idea of what you're seeing in each of your markets. Just give us a little more flavor in that regard.

Sure. I don't think anyone could have expected us to come near last year's residential sales, which, as Bob said, had the full effects of Hurricane Ike.

While we're certainly not pleased with a 26% drop in residential sales, it should be noted that 2008 showed an unusually large increase of 58%. Remember, we estimated that Ike represented between $36 million and $42 million in sales in 2008. And, also, we estimate that half of Q1's 26% residential drop was due to Ike.

Now, we are seeing a few positive signs in residential roofing as the three geographical regions saw growth and one other was relatively flat against last year.

As for the non-residential business, there is no question we continue to see a slowdown in commercial construction, although sequentially from Q4 of 2009, we saw some improvement in the extent of the year-over-year contraction, which is good news.

As for complementary products, this segment will begin to rebound as the economy improves.

Okay, and David, back to you. What I'd like for you to do is give us more color on gross margins. It looks like we had some improvement in gross margins from the fourth quarter of fiscal 2009. But we're off a little bit, if you compare first quarter of 2009 to first quarter of 2010. Explain the current effects, the current influences, and what level do you expect them to be in the future of this fiscal year?

With inflation flat year over year, and despite the drop in demand, our corporate purchasing team, with a lot of help from the regions, was able to utilize our buying power during the quarter to make opportunistic buys. That effort, along with some normal year-end true-ups of incentive plans, helped us improve our margins by 80 basis points compared to Q4 of 2009.

As we said a year ago, we had a cost advantage in Q1 of 2009 from the fiscal 2008 price increases, which makes a comparison with this year inequitable.

Looking ahead, we still expect our overall gross margin to range from 23% to 24%, dependent on product mix, and we will have to wait and see how much the proposed increases will affect us.

Paul, let's move to operating expenses. It was amazing, but total operating expenses were slightly below $70 million for the quarter, which I'd like to point out is the lowest level for any quarter over the past three years. Give us an idea how that was accomplished, update us on employee headcount, and give us other details that you think are important to our investors regarding cost controls.

Yes, on the employment side, we ended the quarter with 2,146 employees, as compared to 2,372 at the end of last year's first quarter, for a reduction of about 9%, or 226 employees.

Beyond the related savings in payroll of $4.3 million, which also included lower overtime and incentive-based pay, as Dave said, we saw savings in many other line -- many other expense-line items. Our reductions in selling expenses and general administrative costs, including bad debts, totaled another $3.3 million.

I know our investors appreciate our diligence in operating the business day to day based upon the volume of the business we enjoy. As we've said in the past, doing more with less is our practice at Beacon, not just a slogan, from the branch level to the regions to here at corporate, and we continue to focus on, as Dave mentioned, as driving this 6% to 8% operating margin in all regions.

That was a good job. David, bad debts were down for the quarter -- for the second quarter in a row, actually. That was a great job, but I'd like for you to talk more about the quality of the receivables at the end of the quarter. How do you see that?

As always, we continue to be conservative and consistent with our bad-debt reserves, which are only down slightly compared to last year and about equal with the end of fiscal 2009, despite net Accounts Receivable being down about 20% since last year and 30% since year-and.

Our days outstanding at the end of the quarter were less than one additional day than last year, while our over 60-day past-due percentage, a detail we watch very carefully, is down about 180 basis points compared to 2008. Both of these indicators are still at very manageable levels.

Our credit organization continues to perform very well, and all of our people are keenly aware of the need to monitor the quality of our receivables, especially during the slower winter months that we're into now.

You're absolutely right. Let's move to the balance sheet. David, I'm going to throw this to you. What I'd like for you to do is review the key highlights of the balance sheet, and update us on the ratios that are important to us and the ones that you track, okay?

As you saw in our press release, we now have over $110 million in cash after a quarter of very disciplined management of our working capital. As I just mentioned, AR is in good shape, and we have reduced our inventories by 11% since year-end, which should enable us to take advantage of the manufacturers' winter buying programs in Q2 of 2010.

We are down to a 1.96 to 1 ratio in our only pertinent debt covenant, which is a required adjusted net debt to adjusted EBITDA ratio of less than 4 to 1.

Let me also recite a few other ratios. Our current ratio is at 3.2 to 1, compared to 2.6 to 1 last year. And our net debt to total capital is 36%, compared to 48% last year.

We work hard to maintain these very healthy financial conditions, and our balance sheet is in excellent shape, especially considering the state of the economy, and this should prove very useful as attractive opportunities for expansions come along in the near future.

Thanks, gentlemen. What I'd like to do now, I'd like to address the final two topics before we get into the open Q&A, and those two topics, the first one is analyst estimates for fiscal-year 2010 and the second one I'd like to talk about is our acquisition activities.

As you can see in our press release, we met our income expectations for the first quarter, so regarding estimates, we remain comfortable, very comfortable, with current analyst ranges for fiscal 2010 earnings, so we are happy to report that.

And actually, as we look back over the last few years, our analyst ranges have been very accurate as everyone learns more about our industry, the impact of weather, and the stability that re-roofing provides to our business, so even though we have not been a public company that long, we are starting to -- our analysts, and we have a lot of analysts following us, are doing a good job with earnings estimates.

So, the second topic is acquisition activities. That was a big topic at the earnings call last time, and I'd like to report that we certainly have picked up our acquisition activities in the last six months. There's no question about that.

The economic and business reasons for consolidation in this industry are compelling. However, we don't believe there is a specific timetable for any acquisition. I personally don't feel the pressure to complete (multiple speakers) a fixed number of acquisitions within a certain period of time. As everyone knows, our strategy is to buy well-run companies that give us new geography, and so we are very careful about that.

But, we do have a strong balance sheet, excellent banking relationships, and we will continue to exercise prudent stewardship of our assets, but we are excited about the opportunity (multiple speakers) in the acquisition field.

Managing our current business growth and profitability is always a main priority, but our acquisition activities have certainly picked up, and particularly as we see evidence of an improving economy.

So that wraps up our somewhat prepared remarks, and at this time, Danielle, I'd like to open the call to questions and we'll answer them to the best of our abilities.

(Operator Instructions). Scot Ciccarelli, RBC Capital Markets.

I guess my primary question is how much of the sales decline, in your estimation, was attributable to new home sales and how much was attributable to people kind of putting off projects, maybe patching where they could have put on a whole roof, etc.. Can you give us any more details or flavor on those issues?

Scot, I'll start off, and then David and Paul will comment as well. It's a fair question, difficult to answer.

We don't track new home starts by delivery. So that's not something in our system that we do because we are really ambivalent whether our products are going to new home or to a re-roofing job. So, that's A.

B, deferrals, I think, are becoming interesting. It's -- and you really read about it in newspapers, you see it in neighborhoods.

It wasn't that long ago that David passed around an article from Gloucester. The school system is in Gloucester had deferred maintenance on several schools up there to the point now where they have to get it done, and they showed pictures in the article of stained ceiling tiles and things like that. So it's back to that non-discretionary, you're going eventually have to fix it, and so they've decided to go ahead and do that.

But we believe, particularly in the commercial side, there are deferrals out there. The great thing about our business is, bad weather and things like that, the business does not go away. It will eventually get done, which I think, Scot, bodes well for our future.

I wish I could give you specific numbers, but I can tell you with some certainty that that looks good for us in the future. Paul, David, do you want to add anything?

Yes, let me just add that -- a couple of things. One, and Dave might've mentioned it, but we saw some encouraging signs with three or four of our regions posting some positive year-over-year comps on the residential sales piece, which is pretty encouraging for us.

The other piece, and we don't measure it, we don't spend a lot of time trying to measure it, is the fact that we did have a very tough October even, weather-wise, with a lot of rain, and then the freeze started in December. And you can see that in some of the -- especially, obviously, the Northern markets, but it did impact our sales, residential and commercial, in Q1.

Dave, I don't know if you have anything to add?

Go ahead, Scot.

That's helpful. And then, just a quick one for Dave. Expectations for working-capital changes for the balance of the year? Obviously, you guys were able to generate a lot of cash from working-capital management in this quarter. Can you just give us an idea of kind of the way you're thinking about the balance sheet on the working-capital side for the balance of the year? Thanks, guys.

Sure. I think as we look ahead to the next two quarters, we will probably use some working capital in Q2 as we take advantage of some of the buying programs that especially the asphalt shingle manufacturers are offering in the marketplace, and before their first price increase in February. If they go up again in March or April, which some of them are hinting at, then we may have to do that again in the June quarter.

After the March quarter, though, it should react much like it has in the past, in Q3 and Q4, with a little rise in Q3 and then flattening back out again in Q4 as we end our year. Hope that helps.

Michael Rehaut, JPMorgan.

It's actually Ray Wong in for Mike. First question, looking out to the rest of the year, it looks like 2Q is probably going to be pretty challenging on the sales side, given the still challenging comps, especially in the residential piece. But, in the back half of the year, are you guys baking in some modest sales growth across your segments in 3Q and 4Q?

Yes, I think that's what we're hoping for, along, it seems like, with the rest of the country is that the residential market starts to pick up once we get into our second half and certainly in the second half of the calendar-year 2010.

We were also start seeing a little bit of a flattening out in our results as compared to last year for the non-residential business. As you are aware, it started in really our Q1 of last year, but the strongest drops happened in late Q2 through Q4 for that business.

The other aspect is the complementary products. As the economy improves -- I think I just read something that Home Depot is a little more optimistic right now and they truly sell into the remodeling market much, much more than new construction. So there are signs that things will get better, and that's what we're hoping for in the second half of our year, especially.

Do you have any commentary on trends so far through January?

I think, as we started to say last call, that we are going to stay away from the monthly information, but Bob will fill you in a little bit. There is a little bit of good news for January as we go forward.

Yes, January doesn't change our mind at all about the quarter or the outlook for the year, so we -- nothing happening, other than bad weather, but there is nothing happening in our regions that would cause us to change our outlook at all.

Okay, and then just a follow-up question. I was just wondering if you guys had any other cost-reduction initiatives planned for 2010? Are you comfortable with where you are right now? And for SG&A for the year, is a 17% to 18% range a reasonable assumption?

I think Grace's salary is at risk.

It's always me. (Multiple speakers)

To answer a little bit, we -- obviously during the winter season, our percentage of costs against sales goes up, and then it drops back down into the -- as it did last year, to 15%, 16%. So we'll see that change.

But I guess the terms of the question, are we comfortable? I'm never comfortable and I know the guys aren't. We're always watching sales. We alluded to that earlier with our statements. We watch sales every day, every week, and make adjustments as we can.

There are plans for continued cost reduction. The guys are always looking for efficiency gains. Now as we see volume come back, of course we're going to add some of that cost back in on the delivery side and some of the headcount, that 200 or so folks that we decreased year over year, we'll see some of that come back.

But we'll continue to do just what we've done, and that's watch sales, match it against our internal budgets, and make sure we're making adjustments as quick as we can, both on the headcount side and line-expense side.

And I would just add that we continue to have that goal of operating between 6% to 8%, and right now, if we look at what the current expectations for this year with the analysts, it comes out about 6%. We certainly will try to improve upon that, and that's always our goal when we operate the business.

David Manthey, Robert W. Baird & Company, Inc..

First off, could you talk about the -- great job on the cost reductions, first of all, and as it relates to them, how much of that is sustainable as you look forward? And could you talk a little bit about the fixed versus variable nature of the cost structure from here, meaning as revenues start to stabilize and hopefully come back, how much of those costs start to flow back into the numbers from this point?

Without giving you exact percentages, as I said there's no doubt costs will come back into the system, just because we will have more deliveries and hence more sales.

There will be a portion, though, that will remain permanently out, just because the folks have driven so much efficiencies in the region. So I think the other piece, too, that's encouraging for us is -- and as we saw last year with the Ike volume, we do leverage very well on the upside, so -- and the majority of our branches have the ability to increase sales maybe upward of 15% or 20% based on the current footprint, which will give us an awful lot of margin leverage, also.

I would add one thing to that, David, is that because of the large inflation we've had in the residential products, we're actually at volumes below what we were in 2007, so Paul is exactly right. We have some excess capacity in our physical plant.

The other thing to point out is, really as we go forward, some increases, if we get some more of these price increases, will certainly be another help where we don't have to add the normal variable costs with that, except for pay increases, because we won't be servicing more volume of costs.

Second, could you quantify the impact of the calendar year in true-ups and the short-term buying programs on GP?

Really can't. It was not a material amount to the total income for the quarter. It's just normal stuff that we do at the end of the year.

We made a couple gates that, as of September, we had no idea that we'd be close, and we had shifted some business to one other manufacturer and made that gate.

Okay, so as far as the true-ups go, though, you're talking -- we're talking, maybe, 10, 20 basis points, not something much bigger than that?

That's correct.

At this point, ladies and gentlemen, we do have time for one or two more questions. Ivan Marcuse, KeyBanc Capital Markets.

David, on the CapEx, it was pretty low this quarter, and I think you said in the Q that you're looking for $12 million to $18 million for the year, about there. So when will you see the CapEx sort of flow through, sort of increase? Do you think the third/fourth is when you'll see a big increase in it or are you looking for more of an even distribution now throughout the next three quarters?

I think you'll certainly see an even distribution in Q2 and Q3. That's usually when we do the majority of the purchases of the trucks and forklifts. We could buy them right now, but to be honest with you, they would sit there a little bit because of the winter period.

Paul and I released the checkbook about mid-November, so they had to order the trucks, and they take a little bit of time to come in, but certainly you'll see that pick up in Q2 and Q3.

Great. And then, with the reduction in sales through the segments, was it all volume? Was there any price on a year-over-year basis?

All volume. Even amongst the categories, the -- total inflation was less than 100 to 150 basis points between the categories, too.

Then, just real quick on -- back to operating expenses, on a sequential basis going to December to March quarters, March tends to be lower on operating expenses. Is there much more to take out, or would you expect it to go lower, or do you think it would be more level with where it is right now?

Be level to slightly down. We should be able to save a little bit more money as we go into the next quarter because we have regions that will now have layoffs or winterization plans for both January and February, instead of just December.

So it should be a little bit slower, but you're absolutely right. That is a nice level to be at for the business we had. We can save a little bit more during the winter period, but we still need to service our customers as best we can.

(Multiple speakers). What the team did was as this -- [as] the -- we had kind of a lousy weather. Most of it rain in October and then the tougher freeze in December. The guys prepared well in ahead of time to size the business properly, and then Q2 is typically our toughest quarter from a weather standpoint, January, February, (multiple speakers) in March.

So I think we're in good shape, and I'll just mimic Dave's comments that it'll be flat to slightly down as we go through these next months.

Great, and then one last quick. Dave, is D&A going to be about the same where it is right now for the remainder of the year?

Is the D&A? Yes. You should be able to project that out, but you need to model in a little bit for the increases. A truck's a five-year amortization and the forklift's a five-year (multiple speakers)

And those will hit in the second, third quarters?

Yes, (multiple speakers) that's [correct].

Joe Gagan, Atlantic Equities.

Just have a couple of questions. First of all, on the pricing, my research is showing that in a few areas, some areas of the country, that pricing is going down. And you guys -- I thought you said earlier that it's flattish, right? Are you noticing that at all? I'm not saying every area, but some areas, pricing is going down the last two or three months (multiple speakers)

(Multiple speakers) individual markets, Joe, that can have temporary decreases and things like that. But remember, the manufacturers have actually increased prices twice during this year, once in the early spring and then once in the fall. So, those price increases are out there in the asphalt shingles, so you need to counteract that.

Now a roofer here or there, I give them all the credit in the world. He is trying to get cheaper prices for every job he can, and that's what can happen.

No, no, no. In other words, I am noticing with some of your competitors, they are lowering the prices, not the contractors.

And another thing is that, on -- as far as -- and I want to make sure that I understand this and it's accurately depicted, is that the price increases that started in August last year, that were announced by the manufacturers and then they were staggered at the end of the year, based on my research, after a little while none of them stuck, so I'm going to say that.

My research is showing that none of the price increases stuck after a little while after -- so, are you finding something different in regard to that? I mean, (multiple speakers)

That's exactly what we said. That's why we are flat year over year on inflation. You're absolutely right.

Okay, so none of the -- so, in other words, and you're talking about price increases 5% to 7%. Do you think it makes sense to put the hope into people's minds that this price increase is going to stick, when they haven't stuck the last six months?

Flat doesn't mean that they've gone down, though, Joe. So, I'm not sure. We don't have control over it, the manufacturers control the pricing to us. The competitors don't have enough of an advantage in how much money they make compared to us to do anything different about it.

And it's usually follow the leader, and that's just what's happened historically in our business. I'm not sure if it will change.

The other question is, I want to understand in this quarter on -- specifically on any reserve reversals. So did you, for example, reduce an inventory reserve or a bad-debt receivable reserve or any other reserve this quarter?

Our comments stand as they are. There is nothing in that that we -- that is in any way material to our results. So the answer is no.

And then, the last question as far as the Accounts Payable, have you changed your standards on that, how you are paying people, and is that how your cash flow got helped out?

Absolutely not.

And ladies and gentlemen, that is all the time we have for questions. I would now like to turn the call back to Mr. Buck for his closing comments.

Thanks, Danielle. Thanks for your questions. As usual, Paul and Dave and I will be available right after this call for any follow-up questions.

Just a few comments with the minutes remaining. Gross margin percentages remain solid as compared to the fourth quarter, which is encouraging to us. Operating expenses, I think you've heard how well managed and under control they are. Again, that's only possible because of the very good management team out there in the field doing their jobs.

As I've said before, our culture is lean and clean, and that's a core value of Beacon.

And finally, we take pride in our reputation as good financial stewards. We recognize that this Company and its resources are owned by our shareholders, and we are merely caretakers of those resources.

So we look forward to a good 2010. We are off to a good start. Our focus will be taking care of our employees, our shareholders, customers, and all those things keep us well grounded. Again, thanks for your interest and support in Beacon. We certainly appreciate it.

And I've told you in the past, our employees, many of whom are on this call, certainly appreciate your support as well. We're going to work real hard to make this a very good year and we look forward to our next earnings call. So thanks very much for your time, your questions, and thanks for calling in. Thank you, bye-bye.

Ladies and gentlemen, that does conclude today's teleconference. Thank you all, once again, for your participation.