Bluelinx Holdings Inc (BXC) 2007 Q3 法說會逐字稿

Good morning, ladies and gentleman, and welcome to the BlueLinx third quarter conference call. All lines have placed on mute to prevent any background noise. After today's presentation there will be a question-and-answer session. (OPERATOR INSTRUCTIONS) Thank you.

I'll now turn the conference over to James Storey, Vice President, Investor Relations. Please go ahead.

Thank you, operator, and welcome everyone to the BlueLinx third quarter 2007 conference call. With us this morning are Steve Macadam, Chief Executive Officer, George Judd, President and Chief Operating Officer, and Lynn Wentworth, Chief Financial Officer.

Our press release was issued earlier this morning. For those of you who do not have a copy, it is available in the Investor Relation section of the Company's website at www.bluelinxco.com

Before starting the call, I need to refer you to our Safe Harbor statement. I would like to remind everyone that on today's call, management may make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including all statements concerning future or unexpected events or results.

Actual results could differ materially from those projected in the Company's forward-looking statements due to known and unknown risks and uncertainties. A discussion of factors that may affect future results is provided in the Company's filing with the Securities and Exchange Commission.

BlueLinx undertakes no obligation to publicly update or revise any forward-looking statements contained in these presentations, based on new information or otherwise, except as required by law.

With that requirement completed, I would like to remind our listeners that we have posted slides on our website. We will be referring to these slides during this call and we would encourage you to review them during our remarks.

Additionally, the slide package contains an appendix of supplementary tables available for your review.

Now, let me turn the call over to our Chief Executive Officer, Steve Macadam.

Thank you, Jim. And thank you to everyone for joining this morning for the BlueLinx third quarter earnings conference call. I will provide a brief overview of the quarter, and then Lynn will walk you through our financial results, followed by George, who will review operations. I will close our prepared remarks with an assessment of current conditions and then open the call to your questions.

Our business environment deteriorated significantly throughout the third quarter after holding at weak but relatively stable levels for the first half of the year. The downturn coincided with the well-publicized problems in the credit and housing markets. The result was that demand declined further and our business slowed dramatically. The drop-off in demand was accompanied by a decline in wood-based structural product prices from their modest second quarter firming trends with prices of key grades now near their estimated variable manufacturing cost.

We are operating in the depths of an historic cyclical housing correction expected by most to extend through 2008, a year that we now believe will be characterized by housing starts in the 1 million range based on continuing declining industry forecast.

Overall, the industry has adopted a significantly more bearish outlook than was the case when we ended the second quarter. In light of this scenario, over the past several weeks and months, we have taken further steps to reduce costs and right size our company to remain competitive through this extended downturn.

We have identified approximately $30 million in annualized cost saving that we intend to achieve through certain actions and initiatives including headcount reductions. Nearly all of the implementation is complete and we expect full completion by the end of the year. I want to emphasize that our company was built to be able to continue executing our business strategy throughout this housing downturn.

We diligently managed cost and working capital in the third quarter ending the period with more than $278 million in excess availability. We intend to continue to reduce inventories in the fourth quarter and in 2008 in response to the lower demand environment, which will generate additional cash. And I am confident that we will continue to execute our long-term business strategy throughout this downturn and emerge from it well-positioned to capitalize on our industry's rebound when it does occur.

Our strategy in this challenging environment remains consistent. Our long-term objectives remain to grow specialty products to more than 60% of total sales to profitably manage our structural products business and to outgrow the market over the long term.

As we move forward, we will continue to adjust our business to this environment, while at the same time continuing to serve the needs of our customers and suppliers.

Finally, as you know, our Board of Directors, yesterday, declared a quarterly dividend. As we have said in the past, we have the ability to pay a dividend in a cyclical downturn and funding it through borrowings from our revolving credit facility.

I do want to emphasize however that we do not believe it is in the best interest of our shareholders to continue to fund the dividend with additional debt through a protracted cyclical downturn like we are now forecasting. The decision to declare dividend is one that will be made each quarter by our Board of Directors based on a number of factors including the Company's cash flow from operations, financial results, as well as the current and anticipated environment.

Now, Lynn Wentworth, our Chief Financial Officer will walk you through our financial results for the quarter.

Thanks, Steve, and good morning everyone. Let's start with quarterly sales on slide 7. Overall sales for the quarter were $1 billion, down 16% or $188 million from last year. Specialty sales declined 16% from the same period last year with the majority of the decline coming from decreased unit volume.

Structural product sales also declined 14%, also largely a result of lower unit volumes. Specialty products comprised 45% of total sales, basically unchanged from a year ago.

Turning to slide 8, BlueLinx generated $103 million in gross profit for the quarter. Beside the deteriorating operating environment we achieved overall gross margin of 10.1%, up slightly from 10% a year ago.

The third quarter gross margin compares to the 11% for the second quarter primarily the results of our structural gross margin returning to the 7% range. As we said in our second quarter conference call we didn't expect to sustain structural's 9.3% gross margin, which benefited from a temporary upswing in wood-based structural product prices.

During the quarter we remained focused on maintaining gross margin through our ongoing management of structural product pricing and to a lesser extent from channel mix. Specialty gross margin of 13.8% compares with 14% a year ago.

Structural growth margin of 7.6% compares with 7% in the prior year. As we had previously discussed, more customers are managing their inventory by ordering smaller break bulk quantities through our warehouse, rather than the full truckloads that are often shipped through the direct channel. Channel mix analysis is available on pages 28 and 29 in the appendix.

As shown on slide nine, operating expenses for the quarter were $90 million, a decrease of $15 million or 14% from a year ago. This decline primarily reflects lower payroll related to headcount reductions and lower commissions and incentives.

Despite the overall decline in volume, our logistics and material handling costs were flat, as more of our mix flowed through the warehouse and as our trucks delivered smaller quantities to more locations.

Operating income for the third quarter was $13 million compared with $16 million a year ago, reflecting the decline in gross profit and was partially offset by our improvement in operating expense.

In June of 2006, we removed significant costs from our business in response to the slowing demand environment. Our total headcount of salaried and [hourlied] employees stands below 2,900 today, compared with nearly 3,700 at June 30, 2006, and reflects our latest cost reduction efforts that Steve mentioned earlier.

The $30 million in estimated annual cost reductions will result in an after-tax charge estimated to be $2.5 to $3 million or $0.08 to $0.10 a share in the fourth quarter; primarily related to headcount reduction.

Turning to slide 10, we achieved a third quarter net profit of $890,000 or $0.03 a share compared with the year-ago net income of $2.3 million or $0.07 a share. The net profit is after interest expense of $11.4 million, which decreased by $700,000 from the prior year, and after-tax expense of $600,000 compared to the tax expense of $1.8 million a year ago.

Looking at year-to-date results on slide 11, sales for the nine months ended September 29, was $3.1 billion down 23% from the same period last year. Gross margin of 10.7% showed a 90 basis point improvement over a year ago.

Year-to-date operating expenses declined 9% from the same period last year, while operating income declined 44%. Year-to-date net income totaled $0.20 a share compared to $0.71 a year ago.

Moving to cash flow on slide 12, during the quarter receivables decreased by $35 million in line with the sales slowdown and inventories decreased $46 million. These decreases were partially offset by a $36 million decrease in accounts payable, which reflects reduced purchase activity during the quarter.

Third quarter net cash provided by operations was $45 million. Investing activities provided $1 million as ongoing investments in process and systems improvements were offset by insurance proceeds from Hurricane Katrina.

In the third quarter, we continued to invest in programs designed to improve our capabilities in inventory management and forecasting, in financial budgeting and reporting, in order tracking and visibility and in product marketing.

These are all included in our $13.8 million capital budget for 2007, of which approximately 40% is designated for these strategic initiatives. As we've previously said, we believe these are necessary investments to support our long-term growth strategy.

Cash used in financing activities was $47 million for the quarter, driven by payment of our quarterly dividend of $0.125 a share or $3.9 million and by a $46 million decrease in our revolving credit facility. The resulting cash balance at September 29, was $25 million compared with $24 million a year ago.

We had $278 million available on our revolving credit facility. The combined debt balance on our mortgage and our revolving credit facility was $581 million down $52 million from a year ago.

Now, let us look at inventory on slide 13. Our third quarter inventory position of $425 million was down about 10% for both second quarter and year-ago level. We continue to balance inventory levels with the weakening demand environment, while also continuing to support new products and vendors as a part of our ongoing focus on specialty products growth.

While we made steady progress reducing inventories in the quarter, our objective is to continue to reduce inventory levels in the fourth quarter to position ourselves appropriately given the demand situation.

Turning to slide 14, working capital turn days for the third quarter were 52 that compares with 52 days for the second quarter, and 50 days for the same period last year.

Let me wrap up our financial discussion on slide 15 by highlighting that we remained focused on gross margin, evidenced by our ability to hold overall margin at 10.1% during the third quarter as our business environment weakened. Looking ahead however, we do expect gross margins could come under increased competitive pressure.

We are adjusting our cost structure and inventory level to levels that we believe are appropriate in this environment. As Steve noted, we have identified approximately $30 million in annualized cost reductions and have already completed the bulk of these.

We expect to complete the remainder by the end of the fourth quarter. We continue to make selective investments in the tools we need to support our specialty growth strategy. And finally, I want to remind everyone that our flexible debt structure allows us to continue to pursue our business plan even through an extended downturn.

Our debt structure consists of a mortgage secured by our company-owned distribution center and a revolving credit facility secured by inventory and receivables. As I just said, we currently have excess availability of $278 million on our facility.

Now, let me turn the call over to George Judd, our Chief Operating Officer.

Thanks, Lynn. I will review our operational performance for the quarter. Our objective remains consistent for our specialty products business over time to a larger portion of our total business and operate our structural business for profitability.

Specialty offers higher margin, less price volatility, and is well suited to our centralized distribution platform, our national sales force, and our solutions-based value proposition. Though our number one strategic objective remains to grow specialty to greater than 60%, total sales over time.

In the third quarter we continued to focus on cultivating new relationships with new and existing customers based on our long-term value creation. At the same time we maintained price discipline, even as our business environment slowed further and price competition increased.

As we previously have stated, our value proposition is based on customer service, on timely deliveries of the right products, and on partnering with our suppliers and our customers to find the best solutions to their supply chain challenges. We believe BlueLinx will succeed in the long run by continuing to add value to our customers' and vendors' businesses.

Looking at the third quarter unit volume performance on slide 17 and 18, our total estimated unit volume contracted 14.5% in the third quarter from year ago compared with an end user market decline of 12.4%, based on the current methodology for estimating our end use markets.

Our structural unit volume was down 14.8% and specialty unit volume declined by 14.2%. As I have noted, we're focusing on building long-term businesses with customers and suppliers. However, the benefits of these arrangements won't necessarily be reflected in our financial performance until the business of our customers begins to improve. Nevertheless, we believe we are pursuing the right strategy given our long-term value proposition.

Slide 19, illustrates the five initiatives we are continuing to pursue in support of our strategic objective. First, we remain focused on improving gross margin, followed by managing our structural businesses, our structural products business and by increasing our mix of specialty products over the long run. Our track record throughout the cyclical downturn shows that we have performed well in maintaining gross margins.

But as Lynn noted, we expect margins could come under additional pressure in the months ahead due to the increasingly competitive environment. Our second key initiative involves making the necessary investments to support our specialty growth strategy. These ongoing investments include the developing of an online catalog, a more sophisticated inventory management and forecasting tools, and better order tracking and visibility capabilities.

Initiative three focuses on developing under-penetrated markets. For example, we are continuing to invest in new distribution facilities specifically, serving the industrials business. Since the end of the second quarter we have opened a new industrials facility in Lubbock, Texas.

Our industrials facilities are smaller than our traditional distribution facilities but they offer a full assortment of industrials-oriented building materials and hardware to serve these smaller industrials customers, who use our products to make their finished goods. Like furniture, fixtures, cabinets, containers and palettes.

Our fourth initiative involves expanding relationships with the existing vendors whose business needs align well with our value proposition. We have done this with Owens Corning, Dow, and Georgia-Pacific among others and we continue to work with our existing vendors to explore new ways to increase value in our relationships.

Our last initiative is acquisitions, which we continue to explore in a disciplined way. This concludes my prepared remarks and I would like to turn the call back over to Steve.

Thanks, George. Before turning the call over to the operator, let me add -- let me make a few closing remarks. We are clearly in a very challenging environment. Our business deteriorated further in the third quarter and it now is entering the seasonally slow winter period. Just a few months ago, industry forecasters were predicting a 2008 housing start environment in the range of 1.4 to 1.5 million starts.

As I noted earlier, those projections have been coming down, and we are actually building our business plan for next year around expectations in approximately the 1 million starts range. Given this current view of the demand environment our priorities are to aggressively manage costs, to defend our core business, serve our customers and suppliers, and selectively pursue growth opportunities as they present themselves.

I want to reiterate that our flexible capital structure was designed to provide us the liquidity necessary to continue to execute in an extended cyclical downturn. And I think it's important to keep in mind that this is a cyclical downturn, albeit probably deeper and longer lasting than most of our industry expected.

When this housing correction has run its course however, most housing forecasters continue to point to a strong, prolonged rebound based on population demographics and other factors.

We plan to participate in that rebound as the largest specialty building products distributor in the United States. With that we will open the call to your questions. Operator?

(OPERATOR INSTRUCTIONS) And we will pause for a moment to compile the Q&A roster. Your first question comes from the line of Mukul Kochhar with CIBC World Markets.

Hi, guys. Good morning. Just a couple of quick questions. In the quarter your structural GM was likely impacted by a reduction in price as well, as price was declining through the quarter. If you can imagine an environment where your warehouse deliveries are as high as they are and prices become flattish what kind of margins can you expect in that environment?

Well, Mukul, as you may know, if you compare quarter-end Q2 to quarter-end Q3, so these are the end points not the average through the quarter, plywood was down 15%, OSB was down 20.3%, and lumber was down approximately 20.1%. So if you blend that through the BlueLinx product mix it is about an 18.1% reduction; period-end quarter two to period-end quarter three. So it was a fairly significant decrease to the levels that we now see, which as I mentioned in my prepared remarks, were really right at --[very cause and effect] in many cases down to the middle of the cost curves in some of these grades. So that is what the numbers were. That said, I think we did a pretty good job of keeping our inventories exceptionally lean and not being really hurt by that. So I wouldn't expect structural margin improvement as we go forward even in a stable price environment.

Second question, on the fuel cost, right, I mean if gas prices go up from where they are, first of all what percentage of your total costs are fuel costs and if they go up do you have an incremental ability to manage that?

Let me let George, address that.

Yes, Mukul, as we shared before, we sell almost everything that we sell on a delivered basis, so it is included in our pricing strategy. That said, our costs do go up but our total costs to delivered products goes up. And from a competitive landscape our competitors are delivering on the same trucks, the same type of equipment we are, and their costs are also going up. So in a highly competitive world that we are in today that you just talked about and related to the question on structural gross margin the reason that structural gross margin [wouldn't] go up is because of the competitive landscape that is out there. The same holds true with fuel, it's part of our pricing decision, it's competitive. And we include that in our pricing decisions and remain competitive on a total delivered cost to good to each one of our customers.

All right, and on the $30 million annual cost reduction. I think you may have touched this -- touched upon this on your prepared remarks. If I missed that I'm sorry. How much of that -- do you have, sort of a breakdown on that $30 million, how much of it is coming from headcount, and how much from other factors? And how much of that is already in, in the third quarter?

Roughly two thirds of it is payroll and payroll related, and roughly one third of it is indirect costs. And a relatively low level is actually in the third quarter in terms of what was implemented by the end of the third quarter, but most of the implementation is complete as of today.

Okay, got it. And does the $30 million assume that your SG&A is going to be down because of volume anyway?

No, none of that 30 is a volume-affected number.

All right, great. And last question, so the dividend is going to be a quarterly review, is that what you were saying?

I just said that the decision to declare a dividend is one that is held by our Board of Directors.

Fine.

So they are the ones that will make the decision on a quarterly basis. But I did say that the current view of management is that we would not recommend paying a quarterly dividend if we need to continue to borrow money to support it.

All right, great. Thanks a lot guys. Thanks for your -- and thanks.

Okay. Yes.

Your next question comes from the line of Richard Skidmore with Goldman Sachs.

Good morning. Just a follow up on slide 17. I believe in the past the plan was to grow faster than the weighted end use market growth, and it appears that your growth is slower than that. Can you just elaborate as to why that is? Is it because you are being more disciplined on price to protect gross margin, or is there something else that is happening?

Well, there is two things I would say, Rick, on that. One is again the end use -- the end use market number is an estimated number, based on our mix. And we have actually done some review of that recently. And I actually believe, sometime early next year, we are going to be talking about what we now believe that is. So we don't believe that is a very precise number because it is a very difficult number. Because it is not clear what all those end use drivers are, if they directly affect BlueLinx's end use market. It is a very messy and approximate calculation. So I would say that is the first. The second, I think you are right, we have been very disciplined in trying to continue to get paid for what we do. And in a decreasing environment, like we have been, taking share is a very, very difficult thing to do. So I would say that is the second big driver.

Okay. And just following up on the previous question about the dividend. What is the Board's view of the dividend?

I can't comment directly for the Board.

Fine. And shifting just to a different topic, what have you seen so far with regards to volumes through October?

Volumes through October, I think, we believe we are continuing to trend towards a 1 million start range environment.

Okay. I bet and just lastly a question for Lynn. What sort of working capital, source of cash would you expect in the fourth quarter, how much would accounts receivable and inventories go down?

I think we would see declines, third quarter this year to fourth quarter that would be comparable on the receivable side to what we saw last year. And we're -- leave it at that, and from a day's perspective we are still tracking pretty close to where we have tracked historically.

Okay, thank you.

You're welcome.

Your next question comes from the line of Keith Hughes with SunTrust Bank.

Thank you, back to the dividend. You paid off some debt in the quarter, so you didn't really borrow for the dividend this quarter. Steve, your comments are in the future, and there is several quarters in the off-seasonal period where you typically don't produce much on the net income line, but yet generate a lot of working capital. So, I'm just confused on your comments of what you're trying to tell us here.

Well, I'm trying to tell you that, one, it's not my decision, it's the Board's decision, and I'm trying to tell you that we're in the middle of the conversations with them about this issue. And it's management's view that it doesn't make sense to fund a dividend in an environment where we can't generate enough operating income to cover that cash flow. And that's basically all I can say about it, Keith.

Based on your million start view, would you be profitable on the EPS line in a 1 million start scenario?

No.

Okay. On the specialty products, the margin you put up in the quarter was within the range of what we've seen for some time for you, is that going to come under pressure moving forward, do you think?

Yes. As we said in our prepared remarks it's a very competitively intense environment. We have benefited in that gross margin, as we've talked in previous calls, to a channel mix shift. There is more product going through the warehouse channel versus direct. And we believe there is a limit to how far that shift will go. So we won't continue to see a lift as a result of that although we don't see it going back the other way. So we believe now we're going to be not offsetting any competitive pressure with additional mix shift.

All right. Thank you.

Your next question comes from the line of Steve Chercover with D.A. Davidson.

Thanks, good morning. First question, on the debt, the $100 million that's classified as current debt, will that be funded out of the revolver the 278 million availability, or are you going to go back and redo the lines?

Yes. Let me explain the way that works. The $100 million actually is a portion of the outstanding facility, and it's the -- our best estimate of what we think the lowest debt point on that facility will be over the next 12 months. So it's really an accounting classification that we work with our external auditors in making.

So it -- but it's currently drawn --

Yes.

-- and there is $270 million available over and above that.

That's correct.

Yes.

Okay. And in this environment have you seen -- have any of your customers started to get into financial difficulty? And are you monitoring the receivables closer than ever, anything changing on that respect.

We are monitoring receivables closer than ever. We historically have had a watch list of customers that we're concerned about. Within the last quarter or so we have put increased focus on that. We've made an extra effort to talk with all of our regional vice presidents and general managers about it, and have asked them to -- particularly with their outside sales people, truck drivers, anyone who might be at a customer location on a pretty routine basis to be extra sensitive to any changes in operations, changes in what the yard looks like, anything that might signal early that there could be an issue. At this point we have continued to track pretty much as planned on our receivables, and our ability to collect them. But again we're -- we feel like this is a very unusual time, and we're on a heightened notice around this topic.

Okay. One more question and I'll get back in the queue. The relationship with Georgia-Pacific, I mean you've added some product lines. If I'm not mistaken some of the off-take agreements, I guess, will expire, and then you've got the option to renew it. Is there any concern that things won't be renewed, or is the relationship very strong?

The term of the contract is actually through May of 2010.

Okay. Well, that's not that far away.

The relationship still is actually quite good. And we believe we're talking to GP about additional product lines to expand into.

So you're certainly not concerned that any exclusive deals are going to go away?

Concerned, it is a tough issue -- it is a tough word, Steve. I mean, we're concerned about maintaining good service and relationship with all our suppliers. So I would say GP is no different than the rest of them. We've got to continue to prove our value and do what we can do. We -- as we've talked before in the call we're unique in the value chain in that we have to provide value to both our customers and our suppliers. So -- but I wouldn't highlight Georgia-Pacific as any different in that dimension than our other suppliers as well.

And -- this is George, some of the -- some of the programs are gone because Georgia-Pacific divested some assets, so really the original supply agreement affects plywood, OSB, and engineered lumber -- well all of the particleboards and melamines and those things Georgia-Pacific divested those assets already, and we have agreements with the new owners in many cases and with new locations, new manufacturing sites with those owners. We're pretty optimistic and we're looking at investing in -- jointly investing in new engineered lumber programs and constantly spent lot of time managing the Georgia-Pacific relationship.

Thanks, George.

The next question comes from the line of Yuri Krapivin of Lehman Brothers.

Good morning to everybody. Now, I have question about the potential volume declines in '08. And if you look at the September quarter of '07, housing starts were down about 25% year-over-year. Your volume was down about 15, so there is this 10 percentage point difference. If we assume 1 million starts for '08 that would imply year-over-year drop of about, I guess, 20% in the housing starts. So in that environment should we be thinking about volume decline for BlueLinx maybe of around 10% assuming that the recession in the remodeling market will not be that severe, and that the industrial market will perform much better?

Well, if we get to 1 million starts, Yuri, the year-over-year decline in housing starts will be larger than 20%. It will be 20% for the pace we are at today but that pace has been -- is lower now than it has been throughout the year. So I think your ratio is pretty good, but I think you need to look back at the math of what the total year starts will be for this year versus the million, because the outlook for the year really is more like 1.3, 1.35 (inaudible) what you're talking -- you are talking about a 30% reduction to get to that level from year-over-year total averages.

Okay, I see, yes, I understand. And then with respect to the inventories, now, what's your ability to the produce inventories in line with the end markets decline going forward? Is there some, kind of, maintenance level for inventories below which you cannot really go for competitive reasons?

No, that's certainly the case, and when you have 70 plus -- 75 facilities you get to a point where you've got that situation. We're not -- we don't believe we're bumping up against that yet. So I think the trickiest thing to model and look -- forecast forward for our inventories is not to get too confused by quarterly lags because as we've said before in the call, as we shift more towards specialty products that lengthens the supply chain and our turn day targets even in specialty products are higher than in structural products. And so you've got both of those factors. So when we see pretty dramatic shifts in the market, in reductions, it takes our supply chain longer to react. So you can't get bound up in quarter-to-quarter numbers. So if you look at the -- when we publish the full year this year and you look at the total inventory reduction throughout the entire year and you look at what that -- how that compared to the demand and sales decrease, that's a -- that's going to be a reasonably accurate number and way to look at it going forward.

Okay.

But our inventories will be lower in the fourth quarter. We're continuing to work to work them down.

Okay. I understand. Thanks for the comments.

Okay. You're welcome.

(OPERATOR INSTRUCTIONS) And your next question comes from the line of Steve Chercover with D.A. Davidson.

I'm back. One other question with respect to the departure of Steve Skinner, who I didn't really know, but he had several roles at his tenure there. Is there anything going on? Or is he, I guess, part of that $30 million cost reduction?

He is part of the $30 million cost reduction as were other vice presidents with our company, so it's a downsizing. His role over the past year has been to lead our industrial segment, our industrial customer segment, and we have replaced that role with another 23 -- 24-year veteran of BlueLinx.

Okay. And, I guess you inadvertently gave us some guidance. I don't want to put words in your mouth, but I think you said that in a 1 million start housing environment it would be tough to be much better than breakeven. Did I hear that correctly?

Unless you're looking at a different statement than I am.

Okay. Well, thank you very much.

Yes.

At this time there are no questions.

Okay. Thank you very much. Once again ladies and gentleman as a reminder -- oh, I'm sorry. I want to leave you with three thoughts, first the ongoing deterioration in the credit and housing market makes the outlook for 2008 very challenging but we have the financial structure that will allow us to execute in an extended downturn.

Second, we continue to aggressively manage cost and working capital in this environment. But third, we will continue to execute on our specialty products growth strategy and I remain confident that regardless of the environment we are very well positioned to succeed over time as the country's leading specialty products distributor.

Thank you. And we'll talk to you again next quarter.

This concludes today's conference call. You may now disconnect.