Core Natural Resources Inc (CNR) 2011 Q3 法說會逐字稿

Hello, and welcome to the NCI Building Systems third quarter 2011 earnings conference call. All participants will be in a listen-only mode. (Operator Instructions) After today's presentation, there will be an opportunity for you to ask questions. Please also note that today's event is being recorded. I would now like to turn the conference call over to Mr. Todd Moore, Chief General Counsel. Mr. Moore, please go ahead.

Thank you, and good afternoon. Welcome to NCI Building Systems conference call to review the Company's results for the third quarter of fiscal 2011. This call is being recorded. To access the taped replay, please dial 412-317-0088 and enter the passcode 10003446 and then the pound sign when prompted.

The webcast archive and the taped replay will be available approximately two hours after this call and will remain available until September 14. The replay will also be available at the Company's website which can be found at www.ncilp.com. The Company's third quarter results were issued earlier today in a press release that was covered by the financial media. A release was also issued advising of the accessibility of this call on a listen-only basis over the Internet.

Some statements made on this call may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and Section 27A of the Securities Act. These statements and other statements identified by such words as, potential, expect, should, will and similar expressions are forward-looking statements within the meaning of the Safe Harbor provisions. These forward-looking statements may be subject to a number of risks and uncertainties that may cause the Company's actual performance to differ materially from that projected in such statements.

Investors should refer to statements filed by the Company with the Securities and Exchange Commission and in today's release for a discussion of factors that could affect NCI's operations as well as any forward-looking statements that may be made on this call. To the extent any non-GAAP financial measures are discussed, you may also find a reconciliation of that measure to the most directly comparable financial measure calculated according to GAAP on the Company's website by following in the news link to see today's news release.

Information being provided today is as of this date only and NCI expressly disclaims any obligation to release publicly any updates or revisions to these forward-looking statements to reflect changes in expectations. At this time, it is my pleasure to turn the call over to NCI's Chairman, President and Chief Executive Officer, Norm Chambers.

Thank you very much, Todd. Good evening, everyone, and welcome to our third quarter 2011 conference call. Joining me this evening are Mark Johnson, our Chief Financial Officer; Mark Dobbins, our Chief Operating Officer; Todd Moore, our General Counsel. I will provide an overview, then Mark Johnson will review our financial results, followed by Mark Dobbins, who will review our operations and then we will happy to take your calls.

Our third quarter was a line with our expectations and benefited from many of the initiatives that we have taken over the past two years. Consolidated revenue increased 7% year-on-year and showed sequential growth of 16%. For the first time in seven quarters, all of our business units posted operating profits and our consolidated operating income improved by $5.5 million year-over-year and swung from a loss of nearly $2 million in Q2 of this year to a profit of $6.6 million.

Each business unit faced different challenges within a persistently weak non-residential market. However, there were growth opportunities in the commercial/industrial sector which we were well-positioned to capitalize on. During our second quarter conference call, we pointed to three important factors that we would have to effectively manage in order to improve our performance in the second half of 2011. These factors were market improvement, a balanced commercial approach, and steel price volatility.

In order for us to achieve continued financial improvement, the non-residential market has to provide at least a modest pathway to recovery. While overall non-residential low-rise market volumes declined by 15% year-over-year in our third fiscal quarter, there was growth in the manufacturing and warehousing sectors, historically very good areas for us. Also, there was a marked increase in design build work which takes advantage of our outstanding engineering capabilities and benefits our Buildings group.

Of course, it would be better if the American Institute of Architects' commercial/industrial billing index was above 50 and positive growth area. But many of the jobs we booked and shipped in our third quarter are less likely to have architectural involvement because of the industrial nature of the work and the fact that low-rise buildings are less complex than mid-rise or high-rise buildings. We were very encouraged that bookings in our Buildings group were up 42% on a year-over-year basis and 24% on a sequential basis.

And this growth occurred, as you will remember, at a time when negative economic data dominated the news. Now we all know that credit markets will need to improve to support a broader economic recovery, but the Fed's senior lender survey for July reflected better lending standards for non-residential loans. In fact, commercial industrial loans were up 5.8% on a year-over-year basis. We also said in our second quarter conference call that our Buildings group needed to strike the right balance between commercial discipline and increasing bookings.

The Buildings group accomplished this in Q3, increasing its backlog by 7% sequentially to $225 million and maintaining commercial discipline, which is reflective of our end market focus and build a network of collaboration. Finally, we said during last quarter's conference call that each of our business units would need to deal effectively with steel price volatility. Our Coatings group experienced margin pressure as steel prices declined but did generate positive growth in volume as a result of third-party sales initiatives in appliance, lighting and HVAC industries.

Our Components group core business tracks the overall non-res market more closely and experienced volume decline of 8% and margin pressure. On a positive note, however, the Components group continued to generate significant growth in the Insulated Metal Panels business and our Components group operates very efficiently, consistently producing positive operating results despite difficult market conditions.

As expected, the commercial discipline combined with improved efficiencies in engineering, drafting and manufacturing enabled our Buildings group to sequentially increase its gross profit margin by 150 basis points, to 22.8%, and improved year-over-year gross profit margin by 570 basis points. Our ability to show overall improvement, even when performance varies within our business units, speaks to the strength of our integrated business model. Each business unit responds somewhat differently to steel price volatility, which is not only actual price change but also the velocity of the change. Among our three business units we have been fairly successful in creating a natural hedge against steel price volatility which mitigates much of the impact.

So before I hand over to Mark Johnson, I'd like to make a couple of additional points. First, we plan on filing a registration statement on Form S-8 tomorrow which will permit the trustee under our 401(k) plan to continue to purchase shares of our common stock on the open market to meet the demand of our employees who participate in a 401(k) plan to buy our stock. The Company is not issuing any new shares in connection with this Form S-8.

Second, we are committed to paying a cash dividend rather than payment in kind for our preferred shares. We have paid two out of three dividends in cash this fiscal year. While we will utilize payment in kind on September 15, we are very pleased that CD&R has reduced their interest rate from 12% to 8% for this dividend payment. Decisions on future dividend payments in cash or PIK will be made at the appropriate time in each subsequent quarter.

Finally, while great economic uncertainty remains, we believe there are enough opportunities that we can capitalize on in our markets to allow us to deliver fourth quarter performance that will exceed that of our third quarter. If we are able to do so it will be the first time since the fourth quarter of 2007 that we will be returning to our normal seasonal patterns. We believe that this may be another subtle indication that we are at least beginning a modest economic recovery in non-residential new construction. With that, I will turn the call over to Mark Johnson for a financial review.

Thanks, Norm. Third quarter revenues at $262 million were 7% of last year's third quarter and 16% higher than second quarter levels. This growth was driven by a combination of commercial discipline and improvements in product and segment mix. Gross profit margin for the quarter was 21.7% which was 120 basis points higher than the 20.5% earned in last year's third quarter but 80 basis points lower sequentially.

In this year's third quarter, steel costs peaked and then began to retreat, an operating environment that pressures the margins in our shorter cycle Coatings and Components divisions but works well for our Buildings group which resulted in improved margins on a consolidated basis. In addition to effectively managing the volatility of raw material costs, the Company also made gains in manufacturing efficiency which were masked by the lower fixed cost absorption caused by lower volumes, commensurate with declines in overall non-residential construction starts.

Our operating costs, or ESG&A, totaled nearly $51 million, up from $49 million in last year's third quarter but sequentially lower than the $53 million in our second quarter. As a percentage of revenues, ESG&A declined to 19.4% from 19.9% last year and 23.3% in the prior quarter. Operating income was $6.6 million which compares to operating income of $1.1 million in last year's quarter, and a $1.8 million operating loss in our second quarter. Adjusted EBITDA for the third quarter was $14.7 million which was significantly ahead of last year's $10.2 million and the $7.7 million of the second quarter.

On a trailing 12-month basis, adjusted EBITDA moved up from $21 million at the end of the second quarter to $25.5 million at the end of the third quarter. This is the second consecutive quarter that our trailing 12-month EBITDA has increased sequentially. Looking ahead, my comments on the remainder of fiscal 2011 are very similar to those of the prior two conference calls. Our ESG&A costs have stabilized at substantially lower levels and we expect our fourth quarter costs to be within the range reported for our second and third quarter. Similar to the second and third quarter of this year, we expect our fourth quarter gross margin to show a modest increase over the comparable period of 2010.

We do not expect to return to our higher historical levels of 24% to 26% until we see meaningful improvements in demand leading to greater operating leverage. A few comments on our balance sheet. For the first nine months of fiscal 2011, we generated cash from operations of $5.4 million after investing $46 million in inventory and receivables, reflecting higher transaction values related to higher raw material costs. At the end of the quarter, we had nearly $50 million of unrestricted cash on our balance sheet and our $125 million ABL credit facility remains undrawn.

Since the beginning of fiscal 2011, we have used $11 million to pay the first two quarterly preferred dividends in cash, paid our term loan down by $5.3 million, and have invested almost $15 million in capital additions including $6.7 million to expand our Insulated Panel operations. Our $92 million accounts receivable balance improved to approximately 31.9 days of sales outstanding from 32.6 days in the year ago period. Our $116 million inventory balance increased on a year-over-year basis primarily reflecting higher raw material costs. Our current inventory balance represents approximately 52 days of inventory on hand which is similar to the 50 days on hand at the end of the second quarter and the 51 days at the end of last year's third quarter. Now I would like to turn the call over to Mark Dobbins, our Chief Operating Officer.

Thank you, Mark. During the third quarter, our three business units operated within an overall construction market that was just stagnant at best. As noted earlier, the McGraw-Hill non-residential construction data suggests that 2011 will have less square footage construction starts than the previous year which seems to align with the volumes we are seeing in our businesses.

However, our business units were benefiting from improvements in their cost structures and technical system upgrades which allowed them to capture more profitable work. Now there are several significant improvements we are seeing within the current market. First, we continue to see improvement in the type of work that is currently shipping from our backlog. In our previous conference call, we noted a return of design/build type work versus plan and spec. And this trend continued in Q3, specifically in the commercial/industrial markets which comprise the bulk of our end markets. Bookings for commercial/industrial end use applications made up approximately 70% of total bookings for the quarter returning to a more normalized mix.

Second, the bookings trend we are currently experiencing supports the continuance of design/build work with an improving percentage of production work versus permit and approval projects. And lastly, the positive revenue booking trends, which Norm commented on earlier for the quarter, continued into August as the Buildings group bookings exceeded prior year by 51%. Taking a closer look at our segment performance, the Coatings group continues to have steady volumes and results will managing their fixed costs quite well. The success of the continuing efforts to develop non-construction coating business was demonstrated by their year-over-year external volume increased despite the current environment.

This diversification into non-construction areas involves developing business in the HVAC and lighting industries, as we have noted in the past, but has expanded further to include door and window hardware, shelving and gas station canopy applications. Ongoing equipment modifications and improvements at our light-gauge coating operations will help support these non-construction initiatives. We also continue to move ahead with our plans for opening the Middletown, Ohio coating facility as market conditions improve. We have efforts underway to build additional external volumes to complement the internal business which already exists in this region of the country.

The Components group had higher volumes than in our second quarter, however, they were engaged in a very competitive market as steel prices peaked during the quarter and then began to slowly retreat. Pricing discipline remained steady throughout the quarter, but volume was off from last year's third quarter. Here again, focus on controlling costs allowed the Components group to be profitable in the period.

The Components group operates on a very short lead time, supplying quick turn projects which give them very little visibility on upcoming work. However, there is a correlation between booking activity in the Buildings group and shipments in the Components group when adjusted for the time required for engineering and drafting. If the Components group's customers, many of which are metal building manufacturers, bookings are in step with our Buildings group's bookings we should see improved activity in Q4 for the Components group.

Increasing interest and demand for Insulated Metal Panels through external component sales and through our Engineered Buildings group is evidenced by a 24% increase in revenue for these products year to date. This increase continues to support our efforts to open two additional Insulated Panel manufacturing facilities which are under construction currently. With the addition of these two facilities we will have the capacity and footprint to manufacture and distribute these products very efficiently.

A few examples of current projects utilizing Insulated Metal Panels this quarter include a large food processing facility, a power plant and numerous manufacturing facilities relating to automotive and aerospace. Additionally, the Components group's retrofit sales continue to grow. Some examples of those opportunities this quarter were three large retrofit projects for military installations across the US and retrofit projects for a school campus, along with numerous other projects.

These examples indicate the wide range of end use markets and applications where our roof retrofit and Insulated Panel sales initiatives are creating opportunities. The Buildings group achieved the most significant improvement this quarter. Their focus on systems improvements, operational integration, equipment upgrades, and pricing discipline continues to improve their profitability despite the depressed construction market. This group actually shipped slightly less tons in Q3 than the prior year but their profitability this quarter easily exceeded the past seven quarters.

Bookings in the Buildings group continue to improve and while one month does not make a trend, July was better than any prior month in the past two years. We continue to see improving business conditions for the Buildings group, driven primarily by the return of design/build type projects, as mentioned earlier. So moving forward, any volume improvements in this type of construction will create a significant tailwind for this group when we begin to see improving demand for non-residential construction.

This improving business mix for the Buildings group can be seen in the variety of projects either shipped or booked during the quarter. A few examples of larger projects are a heavy equipment manufacturing plant, multiple oilfield services manufacturing facilities, an industrial marine manufacturing facility, large multi-site retail projects and a complete high school campus project, recreational facilities and several warehousing manufacturing projects for export.

These are the types of design/build projects which allow us to work directly with our builder and the end user beginning with the design phase of the project to capitalize on the value added expertise which is where our Engineered Buildings group excels. Now there's no doubt that the non-residential construction market remains very weak. However, there are improving opportunities in the specific areas of manufacturing, warehousing and distribution which show signs of growth and each of our divisions as well-positioned and prepared to take advantage of this improvement. So at this point, operator, we would like to open the call for questions. Thank you very much.

At this time, we will begin the question-and-answer session. (Operator instructions) Our first question comes from Robert Kelly from Sidoti. Please go ahead with your question.

Good afternoon, gentlemen. First one was on the booking trends that you saw, up fairly strongly, would you call the year ago comparisons your easiest of the cycle or are we starting to see some firming up in your end market?

I think when we look at trailing booking rates we can see, as Mark said, that August kind of continued the same level of booking that we saw through the third quarter. And to be up 51% year over year is a very good thing. When I compare it to 2009 we were actually up 30% over 2009, as well. So what we believe we are seeing is that the recovery in non-residential will likely be, as some pundits have said, kind of contained in industrial side of the business. And that's particularly good for we and our competitors.

When I look at the metal building manufacturing group, their shipments have been up. I don't see their bookings, obviously, but I see their shippings and they have been up as well. So I have a sense that we are seeing these smaller buildings, 5 stories and less, that are beginning to capture a bit of the growth in improvement. We do expect that to continue.

Yes. As far as the -- it sounds like the momentum is going to spill into 4Q here or maybe even improve a little bit. Is that a function of running off some low-margin stuff you have in backlog or the orders now being more complex? Maybe just, is it just EBS, the Engineered Building Systems, that you expect to improve sequentially to drive the quarter-on-quarter improvement or were all your segments be getting better in 4Q (multiple speakers)?

Okay, the way we see it, Bob, and again, I wish I could guarantee this but I can't guarantee it, but the way we see it is that the Buildings group will continue their improvement. And as I've said in the past, I'm expecting, almost regardless of the market, that we still have a lot of internal improvements that will be witnessed in the Buildings group as we go forward.

Okay.

And they do benefit -- the commercial discipline and working in a design/build environment is really well suited for them to sell value. That's what the marketing sales guys have just done a superb job on. Now the Components group is quick turn. That now have no backlog, their visibility is limited. But we know, historically, that if we're picking up bookings, as Mark said, then we should see improvement. So we are expecting in the last couple months of the quarter that the Components group will pick up.

I also think that we've gone through this ebb stage where in the quarter where they were kind of stuck with higher cost steel at a time when their customers were expecting lower steel prices. So that put extra pressure on them. So I expect the Buildings group -- I'm sorry -- the Components group will show improvement over the third quarter which was unusually low for them. And then the Coatings group continues to just move along in the marketplace in a really steady way. Their SG&A costs are very low, their efficiencies are real, and they've done a great job on third-party sales. So we expect to see some improvement there, as well. Modest, but some improvement.

Okay, but it sounds like Engineered Building is going to be to driver of the sequential improvement. Could you all talk about the difference between margins or price points, the design/build work versus, I think you called is spec?

Right. The planned spec is kind of the hard bid stuff that we've been unfortunately -- design/build really kind of went away to some extent at the tail end of 2008 and it's only been the last 9 months, I guess, Mark, that we've seen that recover. That's a function of industrial use generally prefers a design/build where, whether it's we or our competitors, are working closely with the group to design a project for them.

In that case, it gives us a chance to sell value in terms of our engineering and drafting, our manufacturing, the quality of our product, timely delivery, quality delivery in terms of everything being there. And it sounds pretty basic, but we are focused on that aspect of really homing in on delivering a product that really makes a difference. The builders have all the risk. God bless them, they are the guys that are out there with the risk, so they appreciate and appreciate and value since when we can deliver something that is really better.

And that's really it. The Components group is still well-positioned and whatever work is out there, those guys will get it. The thing is that I think that we expect to see, as I said, some improvement with demand for them, as well.

All right. And then just one final one on the 8% negotiation for the pay in kind this quarter. Is there any quick quid pro quo there or is that just some (multiple speakers) --

No, that was -- I've got to tell you right now, that was -- I don't want to go into a lot of detail of other options that we looked at, but the heck of it is, when we boiled it down and presented our case to CD&R, it was their decision. We can't force them to do anything, but they really did the right thing and it makes a hell of a difference, Bob. You take down to 8%, that's a really important thing for us.

Understood. Okay. Thanks.

Our next comes from our Arnie Ursaner. Please go ahead with your question.

Congratulations on the quarter. Norman --

Thank you, Arnie.

When you step back, a greater percentage of your work is short lead time and you are seeing tremendous improvement on year over year and sequential basis. Can you comment on what you think is driving the demand? And also as you look forward, given the fact that you are doing a lot more work now, does it reduce your visibility since you will have a little less backlog going in since you are, in a sense, getting quicker deliveries?

Arnie, it's interesting, on a backlog basis, this is the first time in a long time that our backlog hasn't actually declined. Year-on-year we're up 1% or something, which is nothing, but it is been a long time since we haven't been declining. So I'm encouraged by that. The demand is real.

But, again, we are still at volumes, across the industry, about 45% below 2007. All right? But we are seeing pockets of recovery that's driven by a pretty broad range of industrial type of use. And we are encouraged by that.

What I have seen is that there is some concern about what's going on in Monterrey in Mexico and I think -- not a reluctance, but I think there's a reevaluation of the advantage of manufacturing in the United States and oftentimes in right-to-work states.

And the second thing is that I think that a number of companies are questioning this sense of being so held hostage to long supply chains and I think that it is not a question of changing kind of the Asian approach, but I think that people are beginning to look at a Plan B of having something more in the United States. So I'm forecasting that manufacturing in the United States is actually going to rebound and recover. And I think that's part of what we are seeing.

A couple of financial and mechanical questions. Your share equivalents that you are going to issue in September, is it as simple as the math of taking 2/3 of the 1.2 million that you normally would issue?

It is very close to that, Arnie. I think the normal issue is about 1.3 million, so take 2/3 of that.

Okay. And you mentioned your Q4 gross margin would be less than Q4 of 2010. Do expect your Q4 gross margin to be up sequentially?

No, no, no. That's the reverse. I said it will be up modestly from Q4 of 2010.

Okay.

And a lot of it is driven by the fact that we just don't have the visibility in the Components group, so we've got to see that occur. Right? As we think, historically, we have. But we do expect that the Buildings group will show a nice improvement.

And staying on Components, you were down, you mentioned in your prepared remarks you were down 8% in volume and yet you showed a 4% revenue increase. Was it just literally the double-digit price increase or was there some other mix issue that went into the equation?

It was in part mix, but it was the price, the steel was higher and they did a good job of trying to deal with that.

Okay. And just freshen up one more number for me. Normally you run anywhere from 40% to 70% of the short cycle, we want the product delivered immediately kind of work, what do you think it was in this quarter?

The mix this quarter was around 60/40 which is 60% for production, 40% permit and approval. And that's just the opposite of what we were seeing for the last 18 months to 2 years.

Right. Okay. Thank you. I will jump back in queue.

Thank you.

(Operator instructions) And our next question comes from Eric Prouty from Canaccord. Please go ahead with your question.

Great, good quarter, guys, thanks.

Thank you, sir.

First question, you mentioned exports in some of your commentary, maybe you could just spend a little more time, I know it is a small part of the business, but what opportunities are there in the export market?

Well, we continue to see recovery in our Robertson brand with the Canadian operation. And also our plant in Spokane, the Garco brand is really showing some revitalization as well. We have historically had some very good relationships in Central America and South America.

While it is a small part of our business, we, again, seem to be able to compete very favorably there. And we like that. Exports are probably a higher percentage than they have been in some years.

That's right. And, Eric, the type of work that is is typically what we are seeing is distribution and warehouse.

Great. And also as the panels business and the retrofit business starts to grow, what would be the overall margin impact, both on the Components group and then at the Company as a whole. Does that tend to be higher or lower margin than your average Components job?

Well, the Components group has a variety of kind of core products. Some of them are more commodity, but the architectural aspect we've always done better in margins and the panels piece fits more into that architectural play. So we would expect to see historical levels of margin in the mid-20%s there going forward on a gross profit basis. And the retrofit and repair has really been quite good, as well.

And it had been in margins that are similar to that. Because we've done a good job at screening those projects and really try to stay focused on not taking every job, but taking jobs that we can make some sense of. I won't say we are agnostic to market share because we are not, but the hell of it is that we really are more focused on selling the value product where we can work in a way that is consistent with improving our margins.

Great, and then finally just to get back to the margin question. First, you did a good job this quarter on operating expenses. It has kind of bounced around averaging over the last 3 quarters at that $50 million range. Is that a good range going forward or are there any big campaigns going on that could boost that cost up?

That's a good range for our fourth quarter this year. There are some general growth in marketing campaigns that will begin to see a little bit more cost into for next year. But nothing that is extremely significant.

But on a positive note, we want to see our sales people earn more. And they earn more by selling more and selling good value, and so I'm definitely in favor of that trend.

Let me throw a comment in from an operating perspective. We're always looking for ways to reduce those costs, though. Anything that we increase costs on we're going to try to look for an offset.

That's a very good point.

Great. And then finally back to the gross margin, it was a little unclear on the previous question. I know you commented year over year, but if we take a sequential look would you look to be lower in gross margin than that 21.7% that you hit in the July quarter?

No, we expect that to be up. But as Mark said, we want to kind of stay close -- that we don't want to get too far over our skis here.

Okay.

So we are expecting, and my colleagues in the Buildings group are expecting that they are going to continue to improve because, God almighty, they worked their butts off on a bunch of initiatives internally and both the marketing sales and engineering and drafting and the manufacturing side. And we are showing some improvements. A little pickup in volume, I think our utilization rate in the Buildings group, Mark, got up to, what, 60% --

About 62%.

About 62% in the Buildings group and I think that we would expect that to be up a little bit in the fourth quarter. And that helps.

So looking kind of from the division, say we look at it as flat margin, given what steel has been doing, we could expect continued pressure in the operating margin of the Components group yet probably another sequential increase in Engineered Buildings margins?

Well, I expect that the Components group will show improved margins.

You do.

I really do. Again, if we don't see a historical connection between bookings and improvement in volume, then that would be challenged. But the Components group are hard core tough guys and they are -- they are not happy with their performance in the third quarter. They are going to do everything they can to really show improvement in the fourth quarter. That's for certain.

And just to add onto that thought, that train of thought there, steel prices today have flattened out and there's actually a fair amount of pressure from the steel mills. They sent out some price increase letters, so we do see an increase in the overall price of steel moving forward, even though it may be sight there is pressure there coming up. So that benefits the Components group.

Absolutely. Good point.

Okay, great. And then finally, if you don't mind, a little longer term and, again, you touched upon this in your commentary, but a lot of people focused on this EBI data, as you know, and with the roll-over in (inaudible) it sounds like you've continued to see into September here, in August some strength in the bookings, but what gives you confidence that we don't from a business standpoint kind of double dip back your business standpoint as we go into 2012? What gives NCI that confidence?

Well, for me, Eric, it really boils down to a couple of fundamental things and the first is that the industrial piece is showing some legs. It is showing some demand. We see it in our bookings, we see it in our quoting activity, and that's an all together good thing for we and our competitors. Okay?

The second thing is that when you look at the AIA and the commercial/industrial we have 9 consecutive months of growth followed by 4 months of decline. And the momentum is still, when you see it graphically, is still pretty convincing that the declines have certainly not moved that momentum back a lot. So that's encouraging for me. And while the increase in commercial/industrial loans is only 5.8% up, that's still up over the 3.4% we saw in the last quarter.

So we're finding that the regional banks have been working through a lot of the balance sheet issues and are certainly more inclined, but the Fed survey is the most important thing and the Fed survey shows very clearly that the lending standards in commercial/industrial are heading back to 2004 and 2005 levels, meaning the terms and conditions are more favorable. So that doesn't spell a tailwind of any great magnitude, but in certain sectors of our business, and ones that we are best suited for, that headwind is diminished in that respect.

Great, thank you very much.

(Operator instructions) And it appears there are no additional questions. I'd like to turn the conference call back over to management for any closing remarks.

Well, again, thank you very much for your interest and we are still at the early stages of improving. You all know that our goal is to get back to $200 million in EBITDA when the market is back to a billion square feet, where the market is yet to be convincingly moving in a steady direction, but there are signs, a glimmer of hope. And we are well-positioned to take advantage of that. So hopefully we will continue to report favorable results. Thank you very much.

Thank you for attending today's conference call. That concludes today's call. You may now disconnect your telephone lines.