Builders FirstSource Inc (BLDR) 2009 Q3 法說會逐字稿

Good morning, and welcome to the Builders FirstSource third quarter 2009 earnings conference call. Your host for today's call is Mr. Floyd Sherman, Chief Executive Officer. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session, and instructions will follow at this time. Any reproduction of this call in whole or in part is not permitted without prior written authorization of Builders FirstSource. As a reminder, this conference is being recorded today, October 23, 2009.

The Company issued a press release after market close yesterday. If you don't have a copy you can find it on our website at bldr.com.

Before we begin, I'd like to remind you that during the course of this conference call, management may make statements concerning the Company's future prospects, business strategies, and industry trends. Such statements are considered forward-looking statements under the Private Securities Litigation Reform Act of 1995, and are subject to certain risks and uncertainties which could cause actual results to different materially from expectations. Please refer to our most recently filed Form 10k, filed with the Securities and Exchange Commission, and other reports filed with the SEC for information on those risks.

The Company undertakes no obligation up to publicly update or revise forward-looking statements. We've provided reconciliations of non-GAAP financial measures to their GAAP equivalents in our earnings press release, and detailed explanations of non-GAAP financial measures in our Form 8k filed yesterday, both of which are available on our website.

At this time I will turn the call over to Floyd Sherman.

Thank you and good morning. Welcome to our third quarter 2009 earnings call. Joining me from our management team is Charles Horn, Senior Vice President and Chief Financial officer. I will start with a recap of the third quarter, and then I will turn the call over to Charles, who will discuss our third quarter financial results in more detail, and after my closing comments regarding our outlook, we will take your questions.

Housing starts made a slight recovery early in the quarter as the national seasonally adjusted rate for single family starts increased to 506,000 in July, but then softened as the quarter progressed. The quarter ended at a seasonally adjusted annual rate of 501,000, down 8.7% from the rate of 549,000 one year ago, and down 72.5% for the peak of a 1.823 million in the fist first of 2006. National single family starts for the quarter were 137,800, down 15.5% from the starts of 163,000 during the third quarter 2008.

We believe the momentum seen early in the quarter was largely due to first time home buyers tax credit contained in the economic stimulus package. We expect starts continue to fall as the December 1st expiration date of this program nears and as we enter the seasonal building trough.

As in previous quarters, our primary focus continues to be on prudently growing market share, adjusting staffing levels, monitoring physical capacity, and protecting liquidity. Net sales for the quarter were $188.9 million, down $77.1 million or 29%, compared to the $266 million in the third quarter of 2008. While the rate of decline for single family starts slowed during the quarter, down 15.5%, single family units under construction fell 33.8% from the third quarter of 2008. We estimate that market share losses reduced our sales for the quarter by approximately 8%, the result of an extremely competitive pricing environment. However, for the year we estimate that market share growth has added over 6% to our sales.

Rather than focus solely on top line sales growth, we have endeavored to protect gross margins and avoid unnecessary credit risks to the detriment of market share growth. Our average full time equivalent head count for the quarter was 3,100, down 38.4% from a year ago, and our salaries and benefit expenses flexed approximately 100% with our sales decline.

The reduction in payroll costs coupled with other cost reductions allowed us to reduce our selling general and administrative expenses by $20.3 million or 29.12%. As a percentage of sales, SG&A expenses were 26.1%, consistent with the third quarter of 2008 on $77.1 million less sales. Our facility count remains constant, as there were no closures during the current quarter.

Net cash used during the quarter was $15.8 million, compared with $12 million in the third quarter of 2008, excluding revolving credit facility activity and income tax refunds. Included in cash used for the quarter was $4.5 million dollars in annual insurance premiums and $0.5 million of lease termination payments. As expected, working capital was not a source of cash due to higher sales on a sequential quarter basis. I will now turn the call over to Charles, who will review the third quarter financial results in more detail.

Good morning everyone. For the quarter, we reported sales of $188.9 million, compared to $266 million last year, a decline of $77.1 million, or 29%. Our sales volume dropped estimated 26%, compared to a estimated 18% decline in housing starts in our markets, signifying a market share loss during the current quarter. We have sacrificed some sales and market share growth in an effort to protect gross margins and maintain our tight credit standards. Competition is as intense as we have seen since the downturn began, especially on commodity products, and we have [walked] certain low margin business with some of our larger customers in order to protect our gross margins.

Breaking down our sales by product category, prefabricated components declined $18 million, or 30.31% from the third quarter of 2008. Window and doors were down 29.9%. Lumber and lumber sheet goods declined 29.4%. Mill work declined 21.7%, and lastly, other building products and services decreased 27%. Overall our sales mix changed very little from last year.

Our gross margin percentage was 20.9%, down from 21.2% last year, a 0.3 percentage point decrease. Specifically, our gross margin percentage increased 40 basis points due to price, but decreased 40 basis points due to volume, a result of fixed costs within our cost of goods sold, as offset by a 30 basis point shift and sales mix towards lower margin and soft product sales. SG&A expenses decreased $20.3 million or 29.2%. As a percentage of sales, SG&A expense decreased from 26.2% in 2008, to 26.1% in 2009, on $77.1 million less sales.

Average full time equivalent employees for the third quarter 2009 were 3,100, down 38.4%, from the third quarter 2008 average. Our salaries and benefit education expense, excluding stock compensation expense, fell $11 million or 28%. This decline was over 100% variable with our sales volume decline of 25.8%.

Delivery expenses fell $3.7 million, or 27.1%, office G&A expenses fell $1.5 million, or 21.4%, bad debt expense fell $1.1 million. Interest expense was $5.9 million for the quarter, a decrease of $200,000 from the third quarter of 2008.

We recorded tax expense of $100,000 during the quarter, compared to a benefit of $4.5 million in the third quarter of 2008. Our benefit was reduced by an after tax, non-cash valuation allowance of $6.2 million, or $0.17 per share, and $3.2 million, or $0.09 per share related to our net deferred tax assets for the third quarter of 2009 and 2008 respectively. Absent this valuation allowance, our tax benefit rate would have been 38.5% for the third quarter of 2009, and 38% for the third quarter of 2008.

Our loss from continuing operations was $15.9 million, or $0.44 loss per diluted share, compared to a loss of $15.6 million, or $0.44 loss per diluted share in the same quarter last year. Excluding the valuation allowance, our loss from continuing operations per diluted share was $0.27 for the current quarter compared to a loss of $0.35 for the third quarter of 2008. Adjusted EBITDA was a loss of $4.8 million, compared to a loss of $6.1 million in the third quarter of 2008. These results were achieved on $77.1 million less sales for the current quarter.

Discontinued operations which include the results of our discontinued Ohio and New Jersey operations, represented income of $700,000 or $0.02 per diluted share for the third quarter of 2009, compared to a loss of $3.3 million or $0.09 loss per diluted share for the third quarter of 2008. Income in the current quarter was due to the settlement of a lease obligation on a closed facility, associated with our discontinued New Jersey operations.

As expected, our liquidity dropped during the quarter, as I we did not monetize any working capital to offset our operating losses and cash interest expense. In addition, we paid $4.5 million in annual insurance premiums during the quarter. We ended the quarter with availability liquidity of $92.0 million, which consists of cash of $96.3 million, less $4.3 million of cash on deposit with our agent supporting a shortfall in the calculation of our $35 million minimum liquidity covenant. Our seasonal advance rates on the revolving credit facility dropped in September, reducing our borrowing availability by $2.8 million. These advance rates will increase again in March 2010.

Our asset utilization remains strong, however, as our working capital, expressed as a percentage of sales, was 9.1%, excluding cash and income tax receivables, down from 11% in the third quarter of last year. Accounts receivable days decreased to 36.4 days for the quarter from 41.2 days last year, as we were successful in collecting older accounts and reducing our overall delinquency rate.

Our inventory turns improved to 10.5 turns from 8.6 last year. Partially offsetting these improvements accounts payable days fell to 28.9 days from 33.1 days last year, primarily due to the continued shift in sales mix towards installed product sales. Our focus on working capital management resulted in cash conversion days dropping to 42.4 days for the quarter, an 8.3 day improvement over the third quarter of 2008.

Today, the Company announced the series of transactions, including a [rights offer and end note] exchange. These transactions are intended to provide the Company with incremental liquidity, deleverage our balance sheet, and extend maturities on remaining notes. The rights offering is a $205 million offering, priced at $3.50 per share.

The first $75 million of the rights offering is [back stopped] by Warburg, Pincus, and and JLL Partners, and is intended to provide the Company with cash for operations. Any proceeds above $75 million will be used to retire debt. To the extent the entire $205 million is not subscribed for , meaning there is a gap between the $75 million backstop and the $205 million rights offering, our notes holders have agreed to exchange debt for equity at the same $3.50 price, as the rights a offering. This structure allows all shareholders to maintain ownership, to the extent they participate in the rights offering.

What does this mean for the Company? There are really four things. One, it guarantees the Company receives $75 million in cash, before fees, to help fund future operations. Two, it reduces our outstanding debt by $130 million. Three, it increases our stockholders equity by over $200 million. And four, it extends substantially all of our remaining debt to 2016.

I will now turn the call back to over Floyd for his closing comments.

Thank you, Charles. The Company cannot predict the duration of the current market conditions or the strength of future recovery in the housing market. The housing momentum that was building early in 2009 appears to have abated in August, when single family housing starts unexpectedly fell and units completed increased, as builders rushed to get homes completed prior to the pending expiration of $8,000 federal tax credit for first time home buyers on December 1, 2009, whereas from January to May 2009, housing starts were in line with permits.

Since that time single family starts have been exceeding permits; this typically means that housing activity is declining. Accordingly, we believe the housing starts will fall for the remainder of 2009, and possibly into early 2010. The extension of the tax credit, if any, could mitigate this expected decline. Additionally, increased competitive pressures arising from the current conditions could continue to have a negative impact on our sales, gross margins, and operating results.

We will continue to execute our proven strategy of conserving liquidity through growing market share, where possible, maintaining gross margin, implementing cost containment programs, and reducing physical capacity in an effort to maintain liquidity. I must also extend my appreciation to all Builders FirstSource employees. Their perseverance and dedication to our Company is to be admired, and I couldn't be more proud to be a part of the this team.

We appreciate the support of JLL and Warburg Pincus, our largest stockholders, their continued willingness to invest in the future of this Company, and their demonstrated faith in our management team. I believe that the transaction that Charles covered at the conclusion of his presentation is a message to the entire building community that Builders FirstSource has the capacity to withstand the current downturn and is prepared for the anticipated recovery.

We are optimistic that the announced rights offering for common stock and debt exchange for second priority senior secured floating rate notes due 2012 will be viewed favorably by our customers, suppliers, and employees. We expect the Company to emerge from this downturn in the building market as a stronger and better capitalized competitor. I will now turn the call over to the operator for q-and-a.

(Operator Instructions) We will go first to David Manthey with Robert W. Baird.

Hi, good morning. Assuming the transaction goes through, which it looks like it's structured that it will, in addition to the $75 million in cash, do you have any other availability on other lines or bank debt or anything? Not at this point. We have our $92 million of usable cash; we currently have no borrowing availability under our ABL, for two reasons, one the decline in our seasonal advance rates, as well as just general declines in working capital as we improve our efficiency. Given that level of cash on hand, I would imagine you feel pretty good about being able to work through the burn rates you have now, and get to a point where when sales do ultimately recover, you will have some capital to fund working capital increases at the point where sales stabilize and start to turn up?

That's the goal. I mean clearly, we felt it was prudent to raise capital at this time, really for two reasons. One, if housing conditions do not improve in the future or they extend out longer than we anticipate, we needed to absorb operating activities, and then two to your point, if we do see an increase in sales, a rapid increase, it's nice to have the added liquidity to support the working capital growth.

Okay. Finally, in terms of the competitive landscape and how your customers are buying from you, are you seeing any change in behavior among your, say, the top ten home builders in terms of how they're buying the products that you are selling, sort of a structural change, or are just seeing more selective, more aggressive type of shopping?

I think for we're seeing more aggressive shopping, certainly cost visibility. They're doing a lot spread sheeting on every item going into the housing package, so there is a lot of hungry suppliers out there and they certainly know how to take advantage of that. That's what we see primarily that's driving the competitive landscape.

Thank you very much.

We will go next to Ivan Holman with RBC Capital Markets.

Hi, this is Ivan sitting in for Scot Ciccarelli. I just wanted to touch on the market share losses that you were speaking about, can you give a little more color around that? Is that primarily due to pricing, or is there something else in there that we are missing? Were you just trying to defend your margin,s or is there more color that could be helpful on that?

Ivan, I think your point is correct, I mean, it's pricing driven. The competition did pick up during the quarter. We know excess inventory is still sitting in the markets, and it was really pricing decisions. On certain cases, with some of our very largest customers, the pricing the competitors were giving our customers, we just couldn't match, and so we chose not too. So you're right, we are trying to be defensive of our gross margins, so we will walk some business.

And then two, seeing past the major builders as you get down to smaller builders, our credit decisions are somewhat limiting our growth because we don't want to take unnecessary credit risks. And again, the underbelly of the housing industry, the smaller regional builders and the regional builders are still experiencing extreme liquidity issues. That is hampering our ability to grow out and grow share with those customers.

And we are also seeing the major top ten certainly increasing their market share within the markets that they're building and where we operate when we do an analysis of permits issued in the market and their respective permits. So the large national builder seems to be really gaining significant market share at the expense of the smaller builders, whether it be local or regional.

I guess moving towards the expense line for a quick follow-up question, as you move in to the next couple of quarters where obviously construction activity slows down, you guys have done a very good job, at least in this quarter, of controlling your expenses. What else can you take out of your expense line if your sales obviously drop, and there might be some deleveraging off of the fixed costs there, besides head count where can you really start chopping out expenses to account for the drop in revenues you're going to see?

Clearly that's the biggest area we can focus on.

I think if we saw an improvement in the used equipment market, there is certainly a chance that we could be maybe start shedding equipment that costs us money, even if we have it sitting there. We can take some expense out in that area, pretty small. We will continue to work on our payroll related expenses. We are getting down now to more and more of a fixed core of group, where it's been our people have just done an outstanding job, I think you will find very, very few businesses that have been able to flex their payroll and their head count at 100% variable.

Our people have really continued to look for all new ways of improving the efficiency of their operations, how they can spread work better, manage the work better, have it manage the hours, the overtime, every aspect of running an operation. I think if this continues to tighten, I think we will see that our ability to keep flexing on 100% variable scale is going to begin dropping. And I think it will look more like a 60% to 70% flex as we go forward.

But would that cause you to have to close additional facilities, say if you had to take out some costs, is that something that's in the plan?

We evaluate that continually. We are really working hard, and that's one of the things that our people have really risen to the challenge. We would rather not close a facility, because we want to keep our footprint in the markets that we currently are operating in, because we think that they are going to be very good strong markets for us when the recovery starts taking place.

As long as our people can continue to show that they can keep those operations cash neutral, we are going to work with them to keep them open. If we really see that we have a long-term situation and one in which it just doesn't justify, we will moth ball facilities, but it's only going to be after a lot of discussion and making sure that that's the only solution available to us to cut the costs.

Okay, great, thanks a lot, guys. That's it for me.

We'll go next to Jay McCanless, with FTN Equity.

Hi, good morning, everyone.

Good morning, Jay.

Congratulations on the new agreement, a substantial improvement over the original proposal, I think. Wanted to ask from the release, I think it said in there that 82.8% of the floating rate note holders you did have approval or endorsement from them for the deal. Is that enough, assuming the shareholders approve the rights offering, is that enough to go ahead and get the exchange going forward or to make the exchange happen?

Not at this point. We actually need to get higher percentage, again, we are early we feel that getting 82.8% already at this stage is good. But we will have to increase in order to get the transaction consummated.

You have to be, what, 90, 95. Where do you need to be?

It's at 95 in the proposal.

Okay, 95. Then what, assuming that you can move up to that 95% shareholders approve the rights offering, do you have any kind of time line for when all of this should occur?

It's going to be a moving target, but we are anticipating we can get it done mid to late December, and that's really what we will be shooting for.

Okay. Mid to late December. Then I think you also said that the advance rate is going to move up on the credit facility in March of 2010. What is that moving to?

It is different obviously on the AR, as well as the inventory, and it's been based upon several other factor,s but the decline that took place in September, basically we reduced our borrowing availability 2.8 billion. And so, what we'd expect, is if we are at constant asset level, it would go back in time, so [just to] audit by the agent during the interim, we'd basically recover the 2.8 million at a future date.

Okay, and then ne question on the competitive front. I know there has been back and forth about the tax credit, whether it gets extended, expanded, et cetera. Would it actually benefit you guys more if the tax credit didn't get extended and a lot of these competitors who, as best I can tell are selling below what their cost of goods sold is for some of this material, would it actually help you guys more to clear them, out if the tax credit weren't extended? Or, are we going to see another big shakeout in the materials side, with the slowness we ought to see over the winter, how do you think that's going to play out?

I think we would rather see the credit extended. We want to see some good support coming through in housing, anything that can help improve the housing market, we're going to support. So while your premise may be true, it could shake out a few suppliers, obviously from our standpoint, we are wanting a healthy housing market to return, and if the credit helps that and accelerates it, then we are very much supportive of it.

Okay, and then one other I question, assuming that this transaction goes through, puts you all in a better balance sheet position, does it re-open the opportunity for acquisitions, and do you feel like JLL and Warburg would be supportive, not only from a cash basis, but also I mean, from a ownership basis, but also from maybe willing to put more into the business to help you guys restart acquisitions?

I think the added liquidity and better capital structure will have us look at acquisitions; it doesn't mean that we're going to go out and start that process immediately. Our goal as a management team is to make sure we have adequate liquidity looking out through this uncertain housing market. And then if we see perhaps the housing market recovering quicker than we anticipate, or being stronger than we anticipate, it could very well be used to try to then grow the business.

Okay. Great thank you.

We will go next to Jim Wilson with JMP Securities.

Thanks, good morning. Wondering, this far through the downturn, what you think or you are seeing with your competitors financially. I know it's tough because you don't know what their balance sheets look like, but somewhere here I guess I would have to assume a lot more of them aren't going to be able to survive in the competitive position, you competitive position should get that much easier, somewhere before the end of the whole downturn. Any sense of where it might be easing, or you feel things might get better competitively for you sooner rather than later?

Jim that's an unknown. I think we anticipate for the next several months we are going to have excess inventory in the markets creating downward pressure on our gross margins. It's hard for us to know where capacity is going to shake out, when it's going shake out. It's hard to know if the capacity permanently leaves the market.

It could be like with [Sott] Building Supply, when they went into bankruptcy, they started selling off locations, so the previous owners opened them back up. So it's very difficult for us to anticipate the change capacity, because the dynamics have been so, the fact that capacity is not dropping at the level we would already have anticipated. So it's a very difficult question to answer.

And we seen it's very spotty by areas, down in Florida for instance, we seen a lot of capacity come out in component manufacturing, when that hasn't been the case, for instance, in coastal Carolinas, or certainly in mid-atlantic areas, and it's just been a mixed bag by areas where we have seen appropriate capacity adjustments being made.

Do you think [hosts] recaps early in 2010, any thoughts on, with the better balance sheet, how you might use that to try to acquire or do anything else that might further give you the chance to improve your competitive position? No yet, I think it's premature for us to be thinking along those lines. Again, our primary focus as Floyd and I've talked about before, we want to look out as best we can a couple of years in to the future, say are we covered from a liquidity stand point, and then if conditions are better than what we anticipate, then that could be really useful liquidity to try to go out and do as you say, grow the business.

And we understand better, and a better handle on where we think the housing correction is taking place. There is still a lot of uncertainties, a lot of unknowns with the housing environment, and that's certainly tempers our concerns for protecting liquidity in this business.

Okay. Good, thanks.

We will go next to Walter Branson with Regiment Capital.

Thanks you, just a few follow ups relating to some of the discussion that's taken place already. Regarding the excess inventory in the market that you've talked about, and it's impact on the profitability of the business, is that mostly an issue of liquidating locations, or are you seeing certain competitors aggressively move to grab share? And if the latter, who are these guys trying to grab share through pricing and through giving credit to questionable builders, and how are they able to do that ,when you actually are one of the best funded Companies in the industry?

Walter I think it's both. Clearly we have a case where companies have either filed bankruptcy or they're shutting down, and so they're creating excess inventory in our markets. And we have seen various estimates, but it's still a large amount sitting there.

But having said, that there are certain competitors out there who definitely are trying to grow share; they're trying to be very aggressive. And they seem to be taking a premise that they can drive other people out of the markets and accelerate the reduction in capacity. So it's a combination of both that's creating the pricing pressure we are trying respond to.

In terms of the latter, or are you talking about some of the bigger players in the industry, or is it just as much small and regional players who are taking that approach?

Bigger.

Okay. Regarding the outlook, I understand the issue with permits now below starts, but when we get to really next month, on a national basis, I would think there is a good chance, especially if the home buyers credit is extended, that will will actually see year-over-year gains in single family starts. Do you share that perspective, and do you think that bodes well for you on a year-over-year basis, or are you still expecting to be losing sales because of other factors?

Your first question on starts, I think our feeling is that we will see some declines for the remainder of this year, possibly in to early 2010 as people react to the tax credit already having a set expiration date and as people stop putting contracts. We do think that was helping support it. And what was your second question, Walter.

I guess you sort of answered it. Looks like we had troughed on starts late '08, early '09, so I guess you are just expecting sort of a double dip down to go to a new trough, is that right?

That's generally the consensus. We have seen a number of articles about this W-shaped recovery. We do think that's possible.

We've talked to some of our customers who have given us forecasts, and they're showing they're anticipating doing fewer homes in Q1 of next year and Q4 of this year. So I think many people are anticipating that that will happen, that the tax credit pulled some starts up into the second and third quarter, and now without that support or it looks like pending cessation of that support, that will see us drop back down some.

Jim, we've seen a lot of reports where model home traffic has certainly been decreasing; a lot of people know that they can't get qualified, get processed in time, and I think that that is being reflected in the activity that's going on. The other thing that's still very, very concerning is we are seeing average home prices still continuing to fall. And a lot of that I'm sure is a affected by the amount of foreclosed properties that come up through, especially for existing home sale numbers, but it does have an affect on on the new home builder, because it sets a pricing level within certain communities and so forth, that people look at and they say do I buy new home, do I try to buy an existing home, and go through the foreclosure related issues.

Just adding to that Walter, while we are forecasting there could be some further declines in starts in Q4 and possibly into Q1, that's not saying that we don't believe that 2010 overall cannot be better than 2009. In fact, we think there could be improvement in overall starts, it's just going to be timing of when those starts take place.

Okay. And just one last thing regarding your strategy with respect to share and pricing, once you have $75 million in the bank, does that change things any in terms of being more aggressive about share, or do you intend to use the same approach you've been using?

I don't think Walter that having additional liquidity will make us start chasing sales and start giving away profitable. Our goal is to try to get to if we can, EBITDA break even, and as quickly as we can to a cash flow break even. So I don't think we are going to sacrifice cash to try to grow market share if it's not profitable market share for us.

The concern that you have, once you start dropping your pricing and really making some of those adjustments, and we have seen in a number of product areas, but especially in the commodity areas, products being sold below variable costs. We are just not going to chase it. We are not going to do it, and we're not give long extended delivery times and put our business at risk.

Once you start really adjusting prices and saying I'm only interested in growing market share, it's very, very tough to control that pricing attitude, and you will find a lot of good business suddenly with falling prices. We're going to be very, very careful about that, we monitor it very closely, and we are going the continue to try do the things that are necessary to protect our liquidity and protect our business for the future.

Okay, thank you very much.

We will go next to Daniel Arona, private investor.

Yes, I wonder if you could elaborate for me under the rights offering, the debt exchange, the LIBOR plus 1,000 basis points, and what affects that would have on the performance of the Company.

At this point, and until we know exactly what the participation rate will be, we can't quantify it. I would not expect the overall cash interest to increase, in fact it should decrease. And so from that stand point it should not hurt us, but give us some support from a cash flow stand point.

Thank you.

(Operator Instruction) We will take a follow up from Jay McCanless with FTN Equity.

One thing I wanted to follow up on. I think in the release, and I know on the last conference call you all had talked about doing more installed sales business, and wanted to see what's going on there, are you actually seeing an increase in the number of renovation remodeled customers or decrease?

Jay we don't do a lot of with renovation remodel. Primarily we are still doing new construction in terms of our install business. In terms of the install, it grew year-over-year as a percentage of our sales, but it's likely going to abate, basically with a lot of it going in to light commercial and multifamily. You've been following the credit markets; it's taken its toll on those products, it's taken it's toll on those projects and fewer and fewer are getting funded. So likely, some of the increases we have been seeing there are going to moderate, maybe abate towards as this credit crisis continues.

Okay. For the contractors who you are selling to, they are doing renovation, remodel business, do you have any sense as to whether or not that is spec homes that they are remodeling and trying to sell for their own account, or if that is something that they are doing for a customer that's contracted them?

I would say Jay that's a small part of our business.

Okay.

Again a lot of your contractors that are doing remodeling go to your big boxes to get their product.

Okay. Great, thanks, guys.

We will go next to Nishu Sood with Deutsche Bank.

This is actually Rob Hansen on for Nishu. Just one quick question, you mentioned in the release, and basically that the commentary on August starts, and just looking into the quarter did you notice a noticeable drop off in terms of August to September, in terms of your own business and the tax credit beginning to wear off for the home builders?

I do think we are seeing the impact of that pending expiration, but it's a little bit difficult for us to gauge because we had such extreme weather throughout many of our areas in the south during the past month. So we have seen some softness coming through in our sales per day, but it's hard to differentiate between just pure weather versus that pending expiration of the credit.

Alright, great. That's all I had. Thank you.

At this time, there is appear to be no more questions. Mr. Sherman, I will turn the call back to you for closing remarks.

Okay, thank you for joining us today. If you have further questions, please feel free to contact Charles Horn.

This does conclude today's conference, thank you for your participation