Eagle Materials Inc (EXP) 2016 Q2 法說會逐字稿

Good day, everyone, and welcome to the Eagle Materials second quarter of fiscal 2016 earnings results conference call.

This call is being recorded.

At this time, I would like to turn the call over to Eagle's President and CEO, Mr. Steve Rowley.

Mr. Rowley, please go ahead, sir.

Thank you and welcome to Eagle Materials' conference call for the second quarter of fiscal-year 2016.

Joining me today are Craig Kesler, our Chief Financial Officer, and Bob Stewart, Executive Vice President of Strategy, Corporate Development and Communications.

There will be a slide presentation made in connection with this call.

To access it, please go to www.eaglematerials.com and click on the link to the webcast.

While you're accessing the slides, please note the first slide covers our cautionary disclosure regarding forward-looking statements made during this call.

These statements are subject to risk and uncertainties that could cause results to differ from those discussed during the call.

For further information please refer to this disclosure which is also included at the end of the press release.

Eagle's second-quarter revenues improved 16% reflecting strong demand for our construction products and building materials and continued improvement in cement pricing.

Our cement business reported record quarterly operating earnings while wallboard and paperboard reported a 7% increase in operating earnings.

We also completed the acquisition of the Skyway slag cement facility from Holcim during the quarter and the integration progress has been going very well.

As we reflect in the earnings release, conditions in the oil and gas sector remain difficult.

As result, we wrote down several intangible and tangible assets associated with our acquisition of CRS Proppants.

Our second-quarter earnings were impacted approximately $37.8 million from these write-downs.

An 8% increase in our average net cement sales price was the primary driver of the increase in Eagle's quarterly comparative of cement, concrete, and aggregates revenues.

Sales volumes improved across most of our markets as well.

The decline in our Texas cement sales volumes reflect reduced demand for our oil well cement product.

Cement price increases from $10 to $15 per ton have been announced across all of our markets for early 2016.

Increased wallboard and paperboard sales volumes drove an 8% increase in our quarterly comparative of wallboard and paperboard revenues.

Operating earnings in our wallboard and paper businesses increased 7% to $48.1 million for the second quarter.

Additionally, our paper mill continues to perform exceptionally well and remains sold out.

Eagle's oil and gas proppants second-quarter financial results reflect an accounting impairment charge of $38.7 million, related primarily to the CRS acquisition.

The reduction in oil and gas drilling activity and declining well completion activity has affected near-term demand and pricing for proppants.

We continue to work closely with our customers to navigate this cycle and strengthen our customer relationships.

From a strategic perspective, we will take advantage of this opportunity to cost-effectively build out our outreach to targeted shale plays and strengthen our long-term low-cost positions.

Now let me turn this over to Craig for more details on the financials.

Thank you, Steve.

Cash flow from operations improved 12% from the prior-year second quarter and was utilized to complete the Skyway acquisition, fund capital improvements, pay dividends, reduce debt and repurchase shares.

We repurchased 384,000 shares from mid-August through October 6.

The effective tax rate for the quarter was approximately 30%.

As this last slide reflects, our highly competitive low-cost position has allowed Eagle to continue to generate meaningful cash flow from operations, which we have used to continue to improve our financial flexibility.

Our net debt to cap ratio stood at 32% as of September 30, 2015.

Thank you for attending today's call.

Andrea, we'll now move to the question-and-answer session.

Thank you.

(Operator Instructions) Trey Grooms, Stephens.

Steve, can you talk about, I guess first off, wallboard pricing?

Obviously, it was down just a little bit there in the quarter year-over-year.

Could you give us any color at all on how it progressed through the quarter and through October?

Also, kind of your outlook there for pricing going into next year.

I know you have a price increase announced for January, but how you're thinking about traction there given the current level of demand.

Sure.

I'll start with, first, the -- and, we have obviously September numbers.

We're still in October.

But the September price was identical, or nearly identical, within a few pennies of the Q2 price.

So effectively, the price has really stabilized in this last quarter.

We haven't had to make too many adjustments there.

So I'll start with that.

And then, I think it's also important to kind of understand where demand is for wallboard and -- before we talk about pricing going forward and the implications there, or what we may want to do.

Because as demand increases, supply tightens regionally and it's important to understand that.

We anticipate that, and it certainly looks like, the annual wallboard demand will continue to increase at about the current pace of about 5% growth rate next year.

There will be some, however -- that's a national basis -- some geographic regions which will be stronger than the 5%.

Those are markets primarily in the Sun Belt and we're fortunate to have many of our operations in these Sun Belt regions, which create some regional differences in supply/demand.

As for next year, our wallboard price increase will be implemented in the first quarter of 2016.

The actual dollar per thousand increase amount, it typically firms up a few weeks before the implementation, so it's a little too early to talk about any of those specifics.

Okay.

Well, that color was helpful.

On cement, can you give us a little bit more color on what's going on with the oil well cement, specifically?

And then how you're transitioning that into construction grade?

I know there's -- the Texas market is a pretty complicated one.

But how we should think about the puts and takes and your ability to kind of find a home for that converted cement?

How we should think about that would be helpful.

We're obviously having to adjust for the demand for well cement in Texas.

We have plenty of levers to allow us to do that as we do sell in addition to our own manufactured product, we sell a lot of purchased product in the marketplace.

So our results really look pretty good, irrespective of the fact that demand for well cement has really been cut in half.

Maybe the easiest way for me to help you out a little bit, it's our best understanding that, let's take a year ago, 2014, demand for cement in Texas was 17 million tons, roughly 15 million tons would be construction grade and 2 million well cement.

So now we can look at demand for this year, and I think the latest PCA, which is a little dated, there should be another one coming out pretty soon, it was for about 16.5 million tons of demand this year in Texas, but only 1 million of that would be associated with oil well.

So demand for construction-grade cement has actually improved year-over-year, even with all the rains that we've had in Texas.

And so it really is a much better market, but it's just hard to understand if you don't realize how much well cement has reduced during the last year.

Okay.

I understand.

And then I guess on my last question, then I'll jump back in queue, is if you could comment on cement demand.

How things have been trending since August.

We had a little look at how things have been going there in August, and obviously through the quarter, but specifically in September and any kind of commentary that you could give us on trends since then in Texas as well as your other markets would be helpful.

Thanks a lot, Steve.

You got to realize this is the time of year when cement gets tight and some competitors run out.

So you were going to -- they just don't have the ability to supply cement in quantities right now as they would have six month ago or three months ago when inventories were flowing.

So this is a natural period where you're starting to find out on a time basis or on a seasonality basis, you end up being seasonally sold out.

So, I'll talk about that a little bit here, specifically by our markets.

So demand for our products continues to remain very, very strong in Texas, mountain, the northern Midwest markets, with the exception of what we talked about just a minute ago, Trey, the demand for our oil well cement which has been cut in half, both in Texas and in the mountain region.

Demand for cement in our southern Midwest markets and our northern Nevada, northern California markets, are showing steady signs of improvement.

That's really nice to see.

So that's really helping our results.

All of our plants continue to run well and we actually have been able to, because they've run well, have a little bit more product to sell this fall than we had in the past, simply because of the exceptional performance.

So we're able to sell more volume when it's tight at this time of year than we have in the past because of how well our plants have performed.

Got you.

Okay.

Thanks a lot, Steve, for that and I'll jump back in queue.

Good luck.

Todd Vencil, Sterne Agee CRT.

Hey, thanks a lot.

Steve, you mentioned the price increases in cement for the beginning of next year.

Can you go specifically state-by-state or market-by-market and talk about magnitudes and timing?

Yes.

I can tell you we have price letters out in almost all of them.

And, believe it or not, they range in almost all of them by the ranges that we gave you.

So I could go market-to-market, but I can say they're, in market-by-market, you might have one market where the price might range from $12 to $15 and another one the range might be $10 to $15.

But in general, it's in that $10 to $15 range in all of our markets.

Got it.

And what about the differences in timing?

Are some for January and some for April?

Again, where you have seasonal demand, and in the northern markets it's typically in the Spring, and where you don't have seasonality in the Sun Belt markets, or the southern markets, it's typically earlier.

Okay.

Got it.

Thanks for that.

I know there was some flooding in Texas over the weekend again.

Hopefully everybody is okay.

Is this the kind of thing that you might see some notable impact on the December quarter from?

Or do think it's just more of a passing event?

Where the flooding occurred was not in a terribly populated market.

So I do not anticipate that to really have a huge impact on demand.

Perfect.

Switching to wallboard, you mentioned in the June quarter, that you saw competitive pricing pressure that did impact pricing.

So you're saying you did not see that in the September quarter?

That's correct.

Okay.

Got it.

Just wanted to make sure of that.

Switching to frac sand, you just mentioned earlier that you were working during this phase to strengthen your relationships with your customers.

Can you talk a little bit about specifically what that means, what you're doing, whether we're talking about contracts or we're talking about some kind of service arrangement?

I mean, how does that play out?

This is primarily about contracts and realizing that with what's going on in oil and gas, at the current level of activity in this area, the contracts just don't make sense.

So you have to find a way to work with the customers to have them make sense, but not devalue terribly the value of the contract.

However, in addition to that, while you're working on that and trying to work through those issues, you also realize that there is a lot of competition in that market driving prices of all of our customers way down, that may in fact create issues beyond survivability.

So we have to be very careful how we go to market.

We don't want to influence one over the other.

We don't want one customer to be able to destroy other customers.

So it's a very delicate dance.

And we're doing the best we can with this dance.

And on top of that, if for some reason there are issues with some of our customers, it becomes a real concern about receivables.

So we're very careful and we're trying to, again this briar patch, we're tiptoeing through it right now, to what makes most sense to running our sand business.

More importantly though, what we're really doing is making sure that while we have this opportunity in this lull and severe depression in the oil and gas business to improve our customer service, by having better distribution to the market and be able to meet, when things do rebound, to meet our customers' demand for cement or sand on a very timely basis by having in-basin inventories of sand as needed to meet the requirements.

Got it.

That makes sense.

Final one for me.

We were glad to see the buyback in the quarter.

Any thoughts you want to share on the pace at which you're going to proceed with buybacks going forward?

We analyze that on a go-forward basis.

We look at our opportunities and we do continue to look at certain growth opportunities.

So as we move forward, we make decisions that we feel are best within the realms of going forward, looking at the opportunities to put the balance sheet of Eagle's to work for the best interest of our shareholders.

We're not saying that there aren't opportunities out there and we'll go at a pace that allows us to pursue opportunities that we think may make sense.

But until you get it across or near the goal line, you don't know whether it makes sense.

So, we'll continue do the right thing, make sure we keep enough powder dry so we can chase those opportunities.

But at the same time, compare that opportunity to the opportunity of repurchasing ourselves back.

Got it.

That's great.

Thanks so much.

Jerry Revich, Goldman Sachs.

Good morning.

This is Brandon Jaffe on behalf of Jerry.

Your wallboard volumes improved more significantly than the industry in the quarter.

Can you talk about why you think there's been a disconnect between industry volumes improving in the low single digits compared to what we're seeing out of housing growth?

Housing starts should have been much stronger.

Are you seeing widening lead times at all for wallboard?

Yes, so this is actually a little bit of a surprise for us and could be somewhat reasonably, why it occurred.

But we did not anticipate the results of our market share improving.

Great.

And on frac sand, what cost do you think you can take out of the business, just in your view, what's the near-term path to breaking even in that segment?

For right now, I still think for six to nine months, it is a very, very difficult business.

And for us, the easiest way to -- our issue in the frac sand is our volumes are so low, it really is a volume issue.

Our other businesses, price is clearly more important than volume.

But we're just entering this business.

But it's delicate how we enter this business and we know our volumes are lower than they really need to be for the numbers to make sense.

But when you're in a depressed market, it's not the proper time to be aggressive chasing volumes, when we know it's a volume-fixed.

We don't get into this thing for the near-term, so I'm not worried about the next year.

But over the long-term we're going to improve our ability to get to market and our ability to serve our customers by having plenty of sand in-basin.

Great.

Thank you.

John Baugh, Stifel.

I was wondering if we could talk a little bit about Skyway and how we should model that or think about the impact of that for the company?

We are extraordinarily happy with the acquisition.

Integration has gone very well.

We're particularly proud of the performance of the facility and the employees that came along with the acquisition.

So we're really, not only did we get some great physical assets, we got some great talent as well with that acquisition.

And that has really helped us to perform, what 2.5 months that we've owned it, and the performance has just been outstanding.

And the same time, we brought our sales team in and they've also performed exceptionally well, and beyond my expectations.

As we go forward, we are very excited about Skyway.

However, Skyway is -- we're kind of running it as part of our cement business and it's a cementitious material.

We also have a fly ash business that's run with one of our concrete and aggregates companies.

So we have cementitious materials that are included in our results, but they're still just a part of one of our other companies.

So we haven't broken out fly ash and we haven't broken out slag in the numbers that we give you.

Okay.

And then on the proppant side, the press release reads like you have certainly written off the excess sand, in terms of the contractual obligations, and you touched on writing down intangibles.

Are we done on both fronts?

Or if pricing or something were to take another leg down this industry, there's more to go?

No.

We're absolutely done there.

This really had to do with a contract, a writing down -- the majority of the write-down of the sand had to do with a contract to purchase sand that was part of an expansion project at CRS.

We've completed that acquisition during the quarter, but it was at a higher cost than it cost us to produce the sand out of our old mine.

And so, we fulfilled our obligations and now have decided to recognize that the cost of the contract was higher than the price to sell the sand.

That's done.

That's behind us and we're moving forward.

And, Steve, what will be, if any, the CapEx or capital committed to proppants over the next, I don't know, year or two?

It varies depending on how far we go.

I don't think that it's $100 million.

I guess less than $100 million.

But I don't think it's less than $50 million.

So, I would kind of give you a range of $50 million to $75 million, $80 million.

Something like that is probably what's needed to finish out at least what I would call Phase I, which would also include the production capacity, certainly at the mine in Illinois, as well as the distribution assets that we need in-basin.

Okay.

And my last question now, on wallboard.

Philosophically, has your thinking changed at all about pricing?

Obviously your competition is sending out different notices of different timing.

It seems to be some of the structure is broken down.

I don't know if that's a result of the price-fixing allegations or weak volume.

But, have you essentially still of the mindset we'd like to raise prices, we'd like to be a price leader?

Obviously, you have to be realistic, but do you want to try to lead rather than cut price?

What is the philosophy going forward?

Thank you.

I'm not sure if that's a question or an answer (laughter).

And so that makes it really hard for me to respond to.

So, you plan still on the 15% price increase to go into effect January 1, correct?

We're going to implement our price increase in the first quarter of 2016.

Okay.

Thank you.

Good luck.

Brent Thielman, DA Davidson.

Steve, I always appreciate any update you have on the competitive landscape in proppants.

It looks like one public competitor talked about plans to idle a facility this morning.

Just curious if that's becoming more widespread.

Yes, well demand is certainly at least cut in half for proppants.

And if you've got a lot of facilities up and running, yes, there's certainly going to be some issues there.

I don't think any of our operations are -- for us, like I said, we're just getting into it.

We're not running anywhere near full capacity, but we will continue to run the operations that we have as needed to meet the sales.

Okay.

And, Craig, in terms of intangibles on the balance sheet, related to frac sand, is that pretty well cleared out?

Or is there still some remaining?

Not very much.

So, we had originally recorded about $56 million; and with the short-lived nature of those contracts and with the impairment, I think we've written off close to 75% of them in fact.

So there's a few remaining, but those that are remaining actually have a prepaid sand relationship with that.

So, on a net-basis, the total asset's pretty small.

Okay.

And then on the wallboard side, I guess have you seen any slowing demand in the Sun Belt region?

I'm thinking specifically Texas markets; or does it still feel like housing is rolling along in the region?

Housing is still -- yes, again, housing is really local, so you may have one city or so that's an issue, but in general, housing remains strong in the Sun Belt.

Okay, great.

Thank you.

Kathryn Thompson, Thompson Research Group.

Thanks for taking my questions today.

The first is on your JV ops.

What were the decline in volume for your well grade cements for your JV ops and how does this contrast with demand for construction grade cement out of JV?

Our demand for well cement is cut in half.

And that's kind of where it's at.

It may continue.

Again, I still think we got another six to nine months of pain in energy before we see the bottom.

But roughly in half and that feels where it is.

However, then demand for construction, though, it continues to improve in Texas.

In construction area, there's a lot of work associated with highways still in Texas.

And there's still a lot of residential construction going on in, certainly in the DFW and the San Antonio/Austin area.

Whereas maybe we've seen residential ease off in Houston, in the other two major markets, it's still very, very strong.

But one of the other things that you see, which makes it really hard to understand, or if you go and you try to call one customer or another and try to get a feel for what's going on, is much of the construction activity, and it's not just Texas, but all across the large metropolitan areas in the US, are large multi-use projects: parking garages, retail, multi-family.

They're very large jobs and they require copious amounts of concrete and wallboard for that one particular job.

What happens is this can create a feast or famine dynamic for our customers in these markets.

So you're either overloaded with business or you're standing in the bread lines.

And so that creates some other dynamics that you have to deal with simply because of these large jobs.

And it really is -- it does wreak -- you know, one of your customers is doing great and the other one is struggling a little bit.

So, that's part of what's happening in the marketplace.

Thanks for the color for that.

For the construction grade, though, blending out the feast or famine, would you say that volumes for the JV, in Texas in general, is it up mid-single digits?

High single digits?

As best as I can give you, which I mentioned earlier on the call, was in 2014 there was 17 million tons of demand: 15 million was construction, 2 million was well.

Yes.

The latest data, and I think it's June data, for PCA projected 16.4 million, 16.5 million demand in Texas this year and the well grade cement we'll be 1 million of that.

So, 15 million to 15.5 million-ish, whatever that is, that's the growth that we've seen, even with all the weather that we've had, in demand for construction grade cement in Texas.

Okay.

That somewhat helps.

And just a quick clean-up question.

JV sales, what percentage is to the energy market today?

Rough numbers.

We were about 50% of the manufacturing capacity a year ago and that's cut in half.

It would be roughly 25%.

Of manufacturing, not total sales.

Because we sell a lot of purchased product as well.

Correct.

And then on wallboard, I know you've had quite a few questions on the call today about the pricing and volumes, clearly outperformed the industry, industry up around 1.5%, 1.6%, you were up 9%.

But just to be clear, for those that are dialing in, that these volumes were not necessarily gained from you being more aggressive with pricing.

So, just wanted to clarify that.

And then two, if you look at, historically there is some pricing slippage into Q2 from Q1 for your fiscal year, but it was a little bit wider this year.

Any ideas or thoughts as to explain why there perhaps is a little bit more slippage?

Could it be mix?

Could it be geography?

So, factors such as that.

On the volume, we really do our best to service our customers' need.

So, the answer is we're out there making sure that we fulfill the needs of our customers and the fact that our volume's up is because we've been taking care of our customers' needs.

And that's it.

We haven't been trying to do anything other than to make sure that our customers are satisfied.

On the pricing, it's really hard.

Yes, there is some stuff that's going on regionally and there is some regional supply/demand dynamic, so there is some regional geographic mix that is occurring.

And there's also typically some regional geographic demand that occurs.

And so it's a little hard to really understand that.

But, for the most part, we feel very, very good about the wallboard business.

And we feel that as demand continues to grow, there's no reason to believe that because logistics are so complicated and so expensive anymore that you're going to continue to see markets that have real problems with meeting demand on a timely basis to service the customer.

So that creates a tightening of the marketplace, which certainly allows you to price it appropriately.

That's helpful.

In the quarter, we took a stab from the industry standpoint at looking at wallboard capacity utilization on a national basis and down to manufacturer.

Would you be able to share with us either on a blended basis or even by plant where you stand in terms of capacity utilization, because that speaks ultimately to pricing down the road?

Thank you.

We really, most of our plants, they're running, in certain areas, nearly at capacity.

We have one plant that's not running and that's in a market that is still fairly depressed.

On a current basis, in the ability with the shifts that you have on, it's very, very hard for us to produce much more than we're currently producing.

And unless there some reason to change that activity we're not; there's no reason for us to do it.

So, we feel comfortable that we have wallboard and the ability to produce wallboard to deliver to market to service our customers appropriately.

Okay, great.

Thank you very much.

Garik Shmois, Longbow Research.

Thank you.

First question is on the wholly-owned cement volume growth.

Just wondering if you could speak to what end markets, if any, are standing out right now and maybe specifically talk about non-residential construction trends and if you're seeing any change in velocity in that end market?

Non-res still remains very, very strong in, again, across the country, in most major metropolitan areas.

I mentioned earlier that demand is very strong in both Texas and mountain.

It's also expanded to the northern Midwest.

Those markets are very, very strong for us, with the exception, in Texas and mountain, the demand for oil well has cut in half.

Demand in the southern Midwest region, as well as demand in northern Nevada and northern California, are steadily improving.

So, we're starting to feel real good about the demand for cement in all of our markets but it is particularly strong, now it's strong in three markets, whereas for the last couple of years, it had really just been strong in two of our markets.

Thank you.

Switching to JV cement, you provided the volume change from 2014 to 2015.

Thanks for that.

Just wondering, just in the context of some supply additions that have come into the Texas market, where are we standing with respect to supply/demand in Texas?

And have you seen any change in the competitive landscape, given both the change in domestic supply plus a change of imports over the last several months?

We're still terribly short in Texas.

The demand is 16.5 million this year versus 17 million, and if capacity has gone up a little over 1 million tons from 12.5 million to 13.5 million, or something like that.

There's still a huge shortage of supply in the Texas market, requiring that to be satiated either by bringing cement in from neighboring states or importing it into the state.

So, it's still a very, very tight market as far as manufactured product being able to meet the demand in Texas.

Okay.

Thanks.

And just lastly, a last question on Texas and I'll step aside.

I think investors were, for better or worse, surprised that the October price increase in Texas did not stick, given that it's a tight market.

I think the state has announced, or a number of players have announced a price increase for next Spring.

Can you speak to, just given your comments about the tightness in the market, your level of optimism around further price acceleration in Texas as you look out through 2016?

We had the rain.

And what happens when you have rain is inventories swell, whereas typically, that is high shipping -- when it was raining is typically when we're really shipping a lot of product in those markets.

So now you go to shipping very little and your inventories swell, whereas typically -- and then when you head into this time of year, you have no inventory.

Your inventories are low.

And that's typically, when supply is that tight, why you have a tendency to see price increases.

But with inventories still high, based on the tremendous amount of rain and how far it extended into the shipping season, you still have some inventories, which is the reason why you're not going to see a price increase because there is some inventory available in the marketplace.

Okay.

Thank you.

Adam Thalhimer, BB&T Capital Markets.

I wanted to ask first on incremental margins in cement, they were strong at roughly 50%.

What are your thoughts on that going forward?

The plants just continue to run well.

Typically and the way things have happened here lately for us, our major maintenance occurs in the first quarter and then we have a strong run until we perform major maintenance again.

And sometimes that'll move a quarter or two, either into the fourth quarter or the first quarter, but all that is behind us and continues to work very well.

With cement, it's just extraordinarily hard because, both you have sales that are impacted by seasonal demand, and maintenance which is lumpy.

Unless you really look at the cement business on the trailing 12 and compare it to a previous trailing 12, it's just hard to talk about one-offs on a quarter-to-quarter basis.

Got it.

And then cement prices, they were down a little bit sequentially in Q2.

Should we expect another sequential decline in Q3 before the price increases kick in in Q4?

Adam, this is Craig.

That's what we typically see, some seasonality changes to pricing more than anything as your northern markets are priced differently than your southern markets.

And so this is a pretty natural change sequentially in pricing.

I always encourage you to look year-over-year.

That's going to be an easier way to look at the cement pricing.

Okay.

And then the G&A continues to run a little higher than our estimates, up about $2 million, year-over-year.

What's driving that?

And then thoughts going forward as well.

Sure.

Some of that's included in the 10-Q, but some of it's incentive compensation is running a little bit higher.

And then legal costs associated with some of the outstanding legal cases that we have.

Okay.

And lastly, Craig, the tax rate was a little lower in the quarter.

What are thoughts going forward on that?

With the impairment write-down, it kind of goes back to lower pre-tax earnings, your depletion deduction and some of those other deductions will have a greater impact.

I'd expect to see that start to creep back up, to the extent, no more impairments going forward.

Great.

Thank you.

Jim Barrett, C.L. King & Associates.

Steve, I just wanted to clarify your comment on wallboard.

Most of your plants, excluding New Mexico, are running nearly at capacity.

Is the solution to increasing production is to add shifts?

Did you say it was based upon --?

Yes, that's correct.

Okay.

And is that something that's in the planning process for 2016?

Currently not.

All right.

And then just switching over to the JV for moment, the margins in that business were up 300 basis points year-over-year, with less oil well cement.

Is that a function of less plant maintenance?

Can you tell us what explains that?

That's the (multiple speakers) of less purchased product and more -- the percentage of manufactured to purchased changing.

Understood.

Okay.

And then finally, it sounds like you want to take advantage of the distress in the frac sand industry to expand.

Is that going to -- the money you're spending there, will it be focused on logistics and distribution as opposed to mining assets?

It will be -- yes, primarily.

But not mining, but maybe also additional plant capacity, which we've talked about in the past, associated with the mine in Illinois.

Okay.

Okay, well thank you very much.

(Operator Instructions) Todd Vencil, Sterne, Agee CRT.

Thanks.

Just a quick follow-up.

You had a question about the sale price increase for October, or the price increase that was pulled back.

Did you guys actually ever announce a price increase for October?

I think some had.

I don't think we had.

Okay.

You guys didn't.

Just wanted to make sure.

Thanks a lot.

Thank you.

And this concludes our Q&A session for today.

I would like to turn the conference back over to Mr. Steve Rowley for closing remarks.

Thank you, everyone.

Looking forward to another call in three months.

Ladies and gentlemen, thank you for participating in today's conference.

This does conclude the program and you may all disconnect.

Everyone have a great day.