Builders FirstSource Inc (BLDR) 2013 Q3 法說會逐字稿

Good morning and welcome to the Builders FirstSource third-quarter 2013 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 that 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 call is being recorded today, October 25, 2013. The Company issued a press release after the market closed yesterday. If you don't have a copy, you can find it on our website at bldr.com.

Before we begin, I would like to remind you that during the course of this conference call, management may make statements concerning the Company's future prospects, financial results, 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 differ materially from expectations.

Please refer to our most recent Form 10-K filed with the Securities and Exchange Commission and other reports filed with the SEC for more information on those risks. The Company undertakes no obligation to publicly update or revise any forward-looking statement.

We have 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 8-K filed yesterday, both of which are available on our website. It is now my pleasure to turn the call over to Mr. Floyd Sherman. Please go ahead, sir.

Thank you. Good morning and welcome to our third-quarter 2013 earnings call. Joining me from our management team is Chad Crow, Senior VP and Chief Financial Officer.

After I give a brief recap of our third quarter, I will turn the call over to Chad who will discuss our financial results in more detail. After my closing comments regarding our outlook, we will take your questions.

Our trend of improving financial results continued as our topline growth and gross margin increased helped us achieve positive net income and positive cash flow in the current quarter. As we have previously stated, our focus has been on increasing market share while expanding gross margins.

To that end our third-quarter sales were $402.9 million, an increase of 38.1% when compared to the third quarter of 2012. This marks the eighth consecutive quarter of year-over-year sales growth above 30% and shows our sales growth is still outpacing the increase in residential construction activity.

Our gross margin percentage increased to 23% for the current quarter, up from 19.8% for the third quarter of 2012. This margin increase was accomplished in spite of the continuation of a very competitive pricing environment and was largely due to better customer pricing, an increase on sales volume and a lower rate of material cost inflation.

I will now turn the call over to Chad, who will review our financial results in more detail.

Thank you, Floyd. Good morning, everyone.

For the current quarter we reported sales of $402.9 million compared to $291.8 million for the third quarter of 2012, an increase of $111.2 million or 38.1%. We estimate sales increased 29.6% due to increased sales volume at 8.5%, due to price.

Breaking down our sales by product category, prefabricated components were $83 million up 47.8% from $56.1 million in the third quarter of 2012. Windows and doors are $84.4 million up approximately 37%. Lumber and lumber sheet goods were $137.5 million, an increase of $40.2 million. Our millwork category was $37.4 million up 33.5%, and other building products and services increased $12.1 million to $60.6 million.

From a sales mix perspective, prefabricated components were 20.6% of total sales, up from 19.2% in the same quarter a year ago, and represents our highest mix Of this category since the fourth quarter of 2008. Our gross margin percentage was 23% in the current quarter, up 320 basis points from 19.8% in the same quarter last year. We estimate our gross margin percent increased 280 basis points due to improved sales price and 40 basis points due to increased sales volume. On a sequential quarter basis, our gross margin improved 230 basis points.

Turning to SG&A, our selling, general and administrative expenses were $72.3 million, an increase of $13.7 million or 23.3% from the same quarter last year despite the 38.1% increase in sales over the same time period and shows we continue to leverage our operating expenses very well. For the current quarter, our salaries and benefits expense, excluding stock compensation expense, was $46.4 million or 11.5% of sales compared to $35.6 million or 12.2% of sales in the third quarter of 2012. This increase is primarily related to higher sales commission and additional staffing needs to service our increased sales volume.

Delivery expense increased $1.3 million and other general and administrative expenses increased $1.4 million, both a result of increased sales volumes. Interest expense for the current quarter was $7.5 million, a decrease of $3.1 million which relates primarily to our recent refinancing. For the current year quarter, interest expense included $6.7 million related to our outstanding senior secured notes due 2021 and $600,000 of amortized deferred loan costs.

Interest expense in the third quarter of 2012 included $4.7 million related to our current loans and $4.5 million related to our floating rate notes due 2016. In addition, interest expense in the third quarter of 2012 included a $700,000 non-cash fair value adjustment related to stock warrants issued in connection with the term loan and $200,000 of amortized deferred loan costs.

We recorded $129,000 income tax benefit in the third quarter of 2013 compared to $33,000 of income tax expense in the third quarter of 2012. We recorded a $3.4 million reduction of our tax valuation allowance in the third quarter of 2013 versus a $4.6 million increase in our tax valuation allowance in the third quarter of 2012. Absent the valuation allowance, the effective tax rate would have been 25.8% and 37.6% in the third quarters of 2013 and 2012, respectively.

As of the end of the third quarter, our gross federal income tax NOL available for carryforward was approximately $270 million. Our income from continuing operations was $13 million or $0.13 per diluted share compared to a loss from continuing operations of $12.3 million or a $0.13 loss per diluted share in the same quarter last year. Excluding the facility closure cost, the fair value adjustment for stock warrants in the tax valuation allowance, our income from continuing operations was $9.2 million or $0.09 per diluted share for the current quarter, compared to a loss from continuing operations of $6.5 million or a $0.07 loss per diluted share for the third quarter of 2012.

Our net income for the third quarter of 2013 was $12.8 million or $0.13 per diluted share compared to a net loss of $13.6 million or a $0.14 loss per diluted share in the same quarter of 2012.

Adjusted EBITDA was $23 million or 5.7% of sales for the current quarter compared to an adjusted EBITDA of $3 million or 1% of sales in the third quarter of 2012.

For the current quarter, we had positive cash flow of approximately $25 million which resulted in liquidity at September 30 of $211.5 million consisting of $50.4 million of available cash and $161.1 million in borrowing availability under our revolving credit facility. We had no borrowings during the quarter under our revolver.

Operating cash flow was $29.7 million for the third quarter of 2013, which included a $14.5 million reduction in working capital. Our new senior secured notes due 2021 require interest payments semiannually in June and December. Therefore, our third-quarter 2013 operating cash flow does not include an interest payment pertaining to these notes of approximately $6.7 million, which is included in accrued liabilities. Operating cash flow was negative at $11.1 million in the third quarter of 2012 and included $4 million related to working capital build.

Capital expenditures were $4.8 million in the third quarter of 2013 compared to $5.2 million for the same quarter of 2012. We expect capital expenditures in the fourth quarter of 2013 to be approximately $8 million and expect 2014 capital expenditures to be between $15 million and $20 million as we continue to invest in our fleet and truck, panel, door and window capabilities.

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

Thank you, Chad. Despite the challenges we still face within the industry, such as the historically low rate of housing starts, availability of credit for homebuyers, shortages of skilled construction labor and the competitive pricing environment, we believe the demand for housing continues to strengthen and the outlook for a continued industry improvement remains positive.

We saw our financial results accelerate through the third quarter and are optimistic regarding our outlook, taking seasonal differences into account for the remainder of the year. I am extremely pleased with our recent financial performance and, no, would not have been possible without the dedication and hard work of all of our employees.

I will now turn the call over to the operator for Q&A.

(Operator Instructions). Scott Levine.

Good morning. We heard you say there toward the end that activity accelerated throughout the quarter. Looking for maybe a little bit more color. Doesn't sound like the recent turbulence in mortgage rates has had any real impact on your business. But if you could just provide a little bit more color and also maybe a little bit of color by region within your footprint, which markets are looking the strongest or maybe weakest on a comparative basis.

We really haven't seen the pause that you have seen a lot of the homebuilders refer to. Our business thus far this quarter has remained fairly consistent with the way it ended the third quarter and, then, our guys are real optimistic about what they are seeing for the remainder of this year.

Now, I will say that if new home orders were slowing, it would take several months for that to trickle through to impact our business. So maybe there is a pause coming, but we haven't seen that yet.

As far as weaker or stronger markets, right now, certainly Texas is one of our stronger. Nashville, Tennessee, is strong. The Charlotte, Baltimore, Washington markets are performing well. And everyone is up obviously on the year-over-year basis. I would say right now still the most challenging would probably be Alabama and Atlanta to some degree.

Yes, just to add to what Chad has said, we see the same reports that you do from the public builders. While the contract signings maybe show or are showing a decrease in the rate of increase over the prior reporting quarter or on a year-to-date basis, they still are ahead, obviously, of last year.

The backlogs are still very healthy that the builders are showing. If you do your math, it is anywhere probably from 5.5 months to 7, 7.5 months of backlog. It is still -- we are still seeing a good flowthrough as the builders are pushing to get the homes turned over. And so we feel confident and good about our fourth quarter.

I think the builders, what we're starting to hear is that they are slowing down on the price increases. There is also starting to come back in a little bit more in the way of incentives to get people to get contracts closed out, but still nothing like what had been done in the past.

So, overall, I think what it is saying is is that on a national basis single-family starts probably are going to come in somewhere around 625, 630 for the year. It is still a nice improvement over last year and we are taking market share. We continue to build our market share and I think our performance in the field is certainly helping keep our rate of sales up as compared to what maybe is now being reported by some of the builders as to their sales performance.

Understood, thank you. One follow-up as well. I think you mentioned 8.5% price increase in the quarter that I think it was down sequentially from 17.5%. If you could just comment on competitive trends versus what is going on with lumber pricing in terms of what you are seeing out there on the pricing front.

From a competitive standpoint, we are still seeing very, very competitive conditions in the field. Everybody is very tuned to the commodity markets. We are starting to see OSB has leveled out and is -- we are not really seeing a lot of volatility right now in OSB. We have done, I think, a good job of protecting ourselves for the remainder of the quarter.

Lumber, however, is a little bit different case. There's more of volatility. There is more upward push to the lumber pricing and we would anticipate, as we look towards through the first quarter of next year, that we will probably see a continual inflationary curve to the lumber commodity side of the business.

And people are going to take that into account in their pricing and as we have said, overall, it is a lot better for us when we have high commodity price so long as that pricing is stable. But we have -- I think we have done a very good job of covering the volatility that we have seen this year. I think our margin performance reflects it and I think people in the industry are getting, I think, a lot more sensitive to making sure that their pricing is more reflective of the commodity prices that are out there.

Thanks. Nice quarter.

Thanks.

David Williams.

Good morning. I wanted to ask you a little bit about the margins. You were clearly well ahead of where we thought you would be and a little surprised at how well those came in. But if we think about the 280 basis points that you have gotten off the pricing, how much of that is sticky and we can expect that to go forward and then maybe how much of that is capitalizing on a one-time event?

Then, maybe, what are you seeing on pricing across the board, maybe on different products or group of products. Is there anything specifically that you could point to on maybe the prefabricated components you are getting better pricing on or anything of that nature?

If you look at commodity prices during the third quarter, they didn't behave all that differently than they did in the third quarter last year. We actually saw inflation during both those quarters.

I think the bigger difference is how prices were behaving heading into the quarter. Heading into Q3 of this year, prices were falling quite sharply and that did allow us to benefit from some pricing that had been set towards the end of Q2 that didn't ship until Q3. And so during that period there, we were able to lower our average cost a bit and this is obviously the opposite of what we had been facing the last year and a half or so with the commodity inflation.

I will also say, however, the rapid fall in prices heading into the quarter left us with an average cost on hand that was above the current market because it takes a little longer for our average cost to catch up. And our sales force did one hell of a job quoting prices based on on-hand costs when the temptation would have been to price up replacement at that time to avoid risking, losing some business. So, my hat is off to those guys for helping us manage through that volatility.

But all that is just part of the puzzle obviously and there are several other factors that can impact our margins. As we stated in the release, our margins were up 320 basis points quarter over quarter due to price, but breaking out the components to that price can be difficult. The competitive environment, changes in sales mix, obviously the commodity inflation or deflation and then our inventory costs position going into the quarter has a lot to do with it as well as Floyd just alluded to.

So, all those things play a part. I will say, going into Q4, you are asking about how sticky that margin is. We will see a seasonal slowdown. We would expect to see a seasonal slowdown in the business.

So from that standpoint, I think maintaining 23% margin will be difficult and commodity prices are behaving a little different now heading into Q4 than they were in Q3. Although they are still relatively stable.

So, I would expect Q4 margins to be lower than they were in Q3, but also certainly higher than they were in Q4 of last year. I think this is going to fall somewhere in between there and it is just a little early yet to pin it down any more than that.

Perfect, thanks. Then maybe on any other products, are you seeing better pricing in the prefabricated components or the window segments yet? Or has that really begun to flow through?

We saw some fairly nice improvement on the prefab margin this quarter. I would say that was the biggest change in the -- that at the commodity lumber had the biggest improvement in margin.

Great. Are you seeing any volume increases on the prefabs?

Yes.

Yes.

Can you put a number around that, maybe?

Yes. Our -- we saw almost what, 40%, 46% increase over the Q3 of last year.

Yes. It was up 48% quarter over quarter. Haven't done a price volume analysis on that specific category, but the 48% year-over-year is a good indication of the volume we are seeing.

Yes, it is heavy to volume (multiple speakers) (inaudible) pricing.

One more if I could here. Looking at where we are on the southern starts and your dollar content into those southern starts and unfortunately I don't have the September data yet, but estimating that, we are up about 20% year on year in the dollar content and lumber prices were only up about 5%.

So, to me, that points to definitely gaining some market share and getting some deeper penetration. But is there anything specific that you could point to that maybe has given you the ability to drive that dollar content a little higher than maybe just with the pricing?

Well, I know just from recent discussions there's quite a few small competitors out there that are still struggling from a liquidity standpoint and really struggling to have the liquidity to grow their business like they need to. So I think that has been a definite advantage for us.

Yes, I think, but I will continue to keep going back to the one factor, I think, that separates us from so many of our competitors is the quality of our people servicing the business and the number of our people servicing the business. We are able to take advantage of the improving market conditions, I think, a lot better than any of our competitors and we are doing a better job of servicing them.

I think the builders recognize the quality of our services that we provide. Certainly the install component of our business has strategically really helped us open some doors and improve the total mix of products going into our customers and I think all of those factors are what is really enabling us to drive our superior market growth and market share gain.

And I know in the prefabs category I have also heard that leadtimes are getting extended with a lot of our competitors and we are having folks come to us for the truss and panel because we can take the volume and our leadtimes are shorter. So that has obviously helped us as well.

Great. Thanks for the color and good luck on the quarter.

Thank you.

Trey Grooms.

Good morning. Like the others, congratulations on a great quarter.

Thank you.

A couple of questions. Here on, coming back to the margins. 23%, obviously, very strong and, of course, you would expect a seasonal slow or pull back a little bit in that just from a seasonal standpoint.

But outside of that, looking forward say fast-forward to next spring, when demand should be better and we could continue to see higher sales numbers, is there anyway -- any reason why we shouldn't or white you couldn't perform in a similar or maybe even higher-margin fashion in that type of sales environment?

Yes, I think there is always a possibility that we can, but there is a lot of -- as you know, Trey, there is a lot of unknown factors that we have to deal with in this business. The volatility of our commodities. Maybe the change in pricing attitude with your competitors and so forth.

But do I expect or anticipate us having a better margin through the year next year that we have this year? Yes, I do. And we certainly are expecting that performance out of our people and I believe our people will deliver it.

But some of it is also a factor of how aggressive do we want to be in continuing to take market share at the rate that we have been taking. Because in a -- we are still in a very, very bad housing environment as compared to what we have historically seen from a construction standpoint.

And any time you are increasing market share, price certainly enters into and is a very important determinant of the gain that you might take on. And that is something that we monitor. We try to keep it controlled. We -- in the past quarter we walked from, I think, a significant amount of business because it just didn't meet our pricing guidelines and requirements. And we are going to continue to do that.

But I think next year I am anticipating a better year next year than we have seen this year.

Right. Yes, I understand there's a lot of moving pieces here for sure.

Chad, on SG&A as a percent of sales, again, very impressive. How do we think about this going into the slower seasonal period and also further out looking to improve sales next year, would we expect this -- a similar kind of percent of sales SG&A number, or how should we think about that as we look to next year as well?

Well, if we do see a slowdown in Q4 in business, we will be able to pull back on the SG&A, the variable portion of it. So I still think we will be able to flex that as we need to in Q4. And I really haven't changed my stance on OpEx going forward. I still think we can be somewhere in that 65% variable range on the increased sales volume next year.

So, if that is the case, I would anticipate that as a percentage of sales, we should still see that number ticked down as our volume picks up.

Right, okay. Just on the prefab highest mix since 2008, I would think that like you mentioned the demand for that part of your business would continue to grow and become more important as these builders get busier and busier and labor becomes tighter. But where, from a capacity standpoint, where can that go? Where can the prefab as a percent of revs -- where can that really go before you have to start thinking about putting on additional lines and that sort of thing? Then, also, if you could comment on the expansion on the windows and doors. Thanks.

I think our truss and panel, I think we can get up to close to 25% of our overall business with not only the facilities that we have currently open, but we still have some mothball facilities that we can and will open as the demand requires it. The trusses that we are building today and especially the wall panels that we are building today are much more complicated and require a lot more production time than they did back in 2005 and 2006. There have been design changes. The local code requirements and so forth, the insurance requirements have really brought about some very significant changes in the component business.

That will -- has taken away some of the output capacity that we have for our current plans. But I think we can get it up to about 25% of our business before we have to start either green fielding plants or acquiring maybe some other unused capacity from plants that might be out there available for us to acquire.

But -- so -- they have -- we have opened up here in the past six months two facilities and both of those have really got up and running. They are doing well. The plants that were in those areas of those plants were already operating at close to capacity and that is the reason we brought those two plants up. And we will do the same for the other remaining facilities.

And some of the CapEx that we referred to in the earnings release does relate to additional truss and panel equipment, as well as door and window equipment. Some of that is replacement. Some of that equipment is old, but some of it is also to add additional efficiency getting some more up- to-date.

Yes, and our window operation we are definitely adding substantial capital dollars. There is probably $4.5 million will be going into that plant for capacity enhancements. They have -- they are operating right now at close to theoretical maximum and we are anticipating another good year of expansion. That window operation is doing very nicely for us and we don't want to do anything that might inhibit the continued growth of that part of the operation.

Great. Thanks for the color on all of that. Great work and good luck.

Thank you.

Jack Kasprzak.

Good morning. Chad, is $7.5 million of quarterly interest expense the right number to model or will some of the smaller items roll off in the near future?

That is probably the right number. I think we will be about $30 million a year in expense and about $28 million of cash interest.

Okay. Floyd, is there a number you could give us around capacity utilization, say, in prefab components where you guys might be running right now?

Yes, I would guess overall we are probably running now in -- of our theoretical capacity we are probably in the mid-to high 70s.

Okay. And you guys are obviously running at a sales rate per start much higher than where we have been over the years and you have talked about market share gains quarter in and quarter out here. But also your cost performance has been good and is trending better than what it was in previous upturns in the housing market.

So, in similar level of starts, how much better will SG&A as a percent of sales be, do you think, than it was in the last cycle?

I think our best in 2005 or 2006 was around 18.3% of sales, I believe.

That's right.

I think we can get that down below 17% somewhere in the 16s.

Okay, great. Last question is you have talked also about the competitive pricing environment, that has been ongoing obviously. But the press release also mentions margin improvement due to better customer pricing. Can you talk about that dynamic a little bit?

Well, I think some of it is what Floyd already referred to is we continue to be more and more selective about the business we are taking and what we are able to -- as our results improve, we are able to raise the bar as to what the minimum requirement is on pricing.

So, that is certainly some of it. And I would say it does seem that some of our competitors are getting more price conscious and being a little more rational. Not to in any way say it is not still very competitive, because it is. As Floyd mentioned earlier, we are still at a historically low level of housing, and so it is still a very competitive environment.

But I think we are starting to see it soften a little and as you have all read, the homebuilders are getting price increases pushed through, which over time can give us a little bit of wiggle room as well.

Great. Thanks for the color. Appreciate it.

Philip Volpicelli.

Good morning and congrats on a very nice quarter.

Thank you.

My question is with regard to some of the mothballed facilities that you might still have or any ideas you guys might have in terms of either greenfielding or buying a weak competitor in terms of growth here. Clearly the business has turned much strongly positive and you have got $50 million of cash.

Just wondering if that makes any sense to go out and do some M&A, do some greenfield or bring some more facilities out of mothballs?

Well, we certainly do have the balance sheet now to start considering M&A and I would probably categorize it as that is where we are right now. We will consider it if something attractive comes along. We are not on a mission to just go out and start buying people. It has got to make sense.

As far as mothballed facilities go, we do have a couple that we are waiting to see how business kicks off next year as to whether we reopen those or not. But we could certainly do that and then have them up and running in a relatively short order if the demand is there.

And those are production facilities or are they distribution facilities?

No, we have got a truss operation and we have got a panel operation that we are going to be looking at very closely and, probably, I would anticipate that we will be -- open those facilities in about 2014.

And in terms of greenfield is that something you guys are considering at all?

I wouldn't rule it out. We did a little bit of that last year as we expanded in Austin and Clarksville, Tennessee. So, certainly there's opportunities to expand into adjacent markets or new markets we would look at it. Preference probably would be a little more related towards acquiring someone to get into a new market rather than greenfield.

Great. And how much -- what size would you be willing to spend -- or [I could say the words asset] how much cash would you want to have on the balance sheet once you do it?

I don't think we have any real criteria for saying size. A lot of times you can look at maybe a smaller operation and their sale, they may be smaller because they haven't had the liquidity to really expand their business and to where -- but they have a facility that can do a lot more than they may be doing through that facility or we might be able to add products to their mix that would really enhance their sales performance.

So sometimes a smaller guy will be more attractive maybe than a larger sized operation. A lot of it is -- I would expect most of our -- that'd be, if you look at tuck-in acquisitions which are really most important to us because we think anytime we can enhance and take a larger market share of one of our existing markets that that will be long-term financially more beneficial to us than going out and starting up in an altogether new market that we can't fully support. The -- most of these acquisitions will fall somewhere probably in the $20 million to $75 million a year sale category.

Thank you very much and good luck.

Thanks.

[David Vernon].

I know a lot of questions have been asked regarding the prefabricated [truss] category. I was wondering if you could shed a little bit more light on how you forecast demand internally for that.

All our forecasting of forward demand is really based upon what we think the builders might be doing within the markets in which we serve. We get very little in the way of solid guidance from the builders as to what their building outlook is going to be. This business has traditionally over the years always been a day by day situation and reacting to very, very short-term demand forecast.

So we -- you get pretty good at trying to anticipate what the builders are going to be doing and where and consequently how that make affect all the different products that we sell. And in particular the components.

Right now an additional factor that is helping us with components and accelerating the use of the components is the shortage of really good, trained, experienced labor in the field, especially for traditional framing. That gives rise to increasing the usage rate for trusses and panels and it reduces the skill levels that are required out on the jobsite to build that house.

And so, we are seeing and you try to estimate what you think that that conversion rate might be from traditional stick framing to component -- use of components, but it is our best estimates of the situation. We really don't have good concrete for -- advanced forecasting from the builders.

Thanks. I appreciate it.

(Operator Instructions). Robert Kelly.

Good morning. You have said historically your EBITDA margin flow-through should be 15% to 20%. If the trends continue to decelerate with respect to the new order book for the public builders and private builders, what are the levers you pull to maintain that kind of flow-through? This assumes, of course, lumber is relatively steady.

I think it is really going to be more of the same. It is going to be managing the OpEx to what your sales volume is and it is going to be pushing to get every last dollar you can on price. I don't know that a pause or a deceleration is going to really change that strategy.

Do you have enough visibility into their order book to make those OpEx changes quickly?

Yes, we can react fairly quickly. I am not -- I don't -- I am not going to say we have a lot of visibility, but as the business if it were to start to slow, yes our guys are well equipped, they have been through the drill before to flex their cost structure. We utilize a lot of temp labor in our truss and panel plant that allows us to flex that as needed.

And then a lot -- a good chunk of our SG&A is variable. The delivery and obviously the salesman commission is variable. So yes, we would be ready to flex that down if conditions warrant it.

We also run weekly FTE reporting by location, by operation. The -- what the standard is and what your actual FTE count is, and that gives you your guidelines and you can react fairly quickly to if there is a significant and a real trend in decelerating level of business activity.

Got it. Thank you. You might have touched on this, the reason for the bump in CapEx 4Q and in to 2014, what is driving that?

In the fourth quarter, we have got a couple of facilities we are relocating and then, as Floyd mentioned earlier, we are expanding the capacity of our window plant in Houston. And so a lot of that equipment will be ordering this year to get it online next year. And then as far as next year goes --

We have also had, Chad, as you know, we are putting some dollars into our truss and panel operation and into our -- the middle work area. And because of the leadtimes that are now being required on the equipment, we are having to put in the initial downpayments in some cases up to one third of the acquisition cost in order to get our place in the schedule so we can get that equipment in and put into operation by early spring of next year.

Yes. We have got deposits we are putting down on that equipment as well as fleet expansion for next year. And then the rest of that will flow through in 2014, plus we have one more facility we are looking at relocating next year.

With the Houston window expansion, what is the new capacity you want when that is all said and done? Sales capacity.

Yes. If you are asking -- what will we be able to get out of that operation?

Yes.

It will be in excess of $100 million annually.

Thanks very much.

It appears that we have no further questions at this time. So I will now turn the program back over to our presenters for any closing remarks.

We really appreciate your tuning in today and following our Company. If there are any follow-up questions that you have, don't hesitate to either give Chad or Marcie Hyder a call here in Dallas and we will be glad to try to answer your questions for you.

We hope you have a good day and a very nice weekend. That concludes any of our remarks, further remarks.

This concludes today's program. We thank you for your participation. You may now disconnect at any time.