HNI Corp (HNI) 2012 Q4 法說會逐字稿

Good morning.

My name is Jay and I will be your conference operator today.

I would like to welcome everyone to the HNI Corporation fourth-quarter and year-end fiscal 2012 results conference call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks there will be a question-and-answer session.

(Operator Instructions) As a reminder, today's conference call is being recorded.

Thank you.

Mr. Schmidt, you may begin your conference.

Good morning and thank you for joining us today for the HNI Corporation conference call to discuss fourth-quarter and full-year 2012 results which were announced yesterday after the market closed.

My name is Derek Schmidt, Vice President, Corporate Finance for HNI Corporation.

If you have not received a copy of the financial news release, it is available on our website, www.HNICorp.com.

A presentation intended to accompany this call has also been posted to our website under the Investor Information section.

We encourage you to review this presentation as it contains details of our financial performance including the non-GAAP to GAAP reconciliation.

Joining me on the line today from HNI Corporation are Kurt Tjaden, Vice President and CFO, and Stan Askren, Chairman, President, and CEO.

Stan and Kurt will review the results and then open up the call for questions.

Before we begin please be advised that statements made by the Corporation during this call that are not strictly historical facts are forward-looking statements.

Forward-looking statements are subject to known and unknown risk.

Actual results could differ materially from expected results.

Additional information concerning factors that could affect actual results can be found in the conference call presentation posted to the HNI Corporation website.

The Corporation assumes no obligation to update any forward-looking statements made during this call.

I now have the pleasure of turning the call over to Stan Askren.

Stan?

Thank you, Derek.

Good morning, everyone.

I will share an assessment for the year 2012 and then for the fourth quarter 2012; provide some thoughts on our outlook for first quarter and full year 2013.

We will then open the call up for questions.

So we will talk about the year.

I am pleased with our performance for the year 2012.

We delivered strong top-line growth the majority of our markets, achieved solid profit improvement and outstanding cash generation, and we made good progress on our long-term strategies.

All of these accomplishments were achieved in a challenging market hampered by ongoing uncertainty in the economy and our federal government.

We continue to compete well in our office furniture markets and delivered solid organic growth for the full year despite the uncertainty.

Organic growth in our office furniture business has exceeded 4%, even with a 27% decline in our federal government business.

Excluding the federal government, our supplies driven business grew 9% organically and our other Office Furniture businesses achieved 7% organic growth.

As part of our Core Plus strategy, on the plus side we completed the strategic acquisitions of Sagus and BP ERGO in India and are investing these businesses to transform and build platforms for long-term growth.

In the near term these acquisitions are not additive to margins but remain attractive long-term investments for growth in the future.

Our Hearth business delivered exceptional performance in 2012.

Operating profits improved 80% on 4% sales growth.

Growth in our new construction channel of 23% more than offset a 6% decline in our remodel retrofit channel where our biomass business was adversely impacted by lower energy costs and warmer weather conditions.

Sales and product performance in the fourth quarter met our expectations, even with softer market conditions created by the economic and political uncertainty.

Our supplies business improved 7% exceeding expectations in spite of depressed levels of small business confidence.

Sales growth benefited from additional customer orders placed ahead of our January price increase.

Our market leadership position is strong, and we continue to leverage the power of our brands and business model to perform well in this challenging environment.

Our other office furniture businesses are competing well and delivered low single-digit growth in a flat to moderately declining market, which again was adversely impacted by the weak federal government spending.

In particular, we saw a de-acceleration in the business activity in October and November.

Economic uncertainty continued to dampen business sentiment and spending, resulting in project holds and delays.

And I will point out the obvious.

Margins in our Office Furniture were down year over year.

Mix did not go our way and we are continuing to invest for the future.

We accelerated investments to retune our operations footprint and capabilities to the changing needs of the marketplace.

We also have a strong lineup of new products and platforms to be introduced in 2013, and we incurred additional production ramp up in product development expenses in the quarter.

We are also making good progress in our business system transformation initiative, which also drove incremental investment over the prior year.

We continue to invest in BP ERGO and Sagus to transform these businesses and build platforms for long-term growth in attractive markets.

I will say this, we expect to realize benefits from our core investments and deliver strong profit growth in 2013.

Continued strong profit growth in our Hearth business was led by substantial growth in the new construction channel and very strong operational and overall business execution.

Our new business construction was up 31% as single-family housing starts continued to rapidly improve.

Remodel retrofit sales were relatively flat as market activity was adversely impacted by previously mentioned lower energy prices and relatively warm weather which hampers demand in our biomass business.

I will now turn the call over to Kurt to review the specific financial data for the fourth quarter.

Kurt?

Thank you, Stan.

So for the fourth quarter 2012 consolidated net sales increased 5.5% to $528 million, or 3.5% on an organic basis.

Sales for the Office Furniture segment increased 5% to $422 million, or 2.5% on an organic basis.

And net sales for the Hearth Products segment increased 7.5% to $105 million.

Consolidated gross margins decreased to 35.2% compared to 35.6% in the prior-year quarter due to unfavorable mix, investments to improve operations, new product ramp up, and the impact of acquisitions which were offset partially by higher volume and lower material cost.

As a percent of sales, selling and administrative, expenses including restructuring and impairment charges, were 29.5%, or 0.1 percentage points, lower than the prior-year quarter.

Benefits from sales leverage were partially offset by investments in growth initiatives and the impact of acquisitions.

We ended the year with $42 million of cash.

Operating activities generated $145 million of cash during 2012 compared to $134 million last year.

Stan?

Thank you, Kurt.

Looking forward we entered 2013 financially strong, competitively well positioned, and focused on delivering profitable growth.

We expect growth in the first quarter of 2013 to be challenging given continued economic uncertainty related to this ongoing debt ceiling and government spending concerns.

We do anticipate business spending will improve as the year progresses and we anticipate low single-digit growth for the full year.

We expect to deliver double-digit profit improvement for the year in this low growth environment as we realize the financial returns from our previous investments.

For the first quarter growth in our supplies-driven channel is expected to be relatively flat due to the impact of the 2012 year-end buy ahead.

Market conditions are expected to remain challenging as fiscal and economic uncertainty dampens demands.

Our business is performing well versus the market due to our investments in branding, product development, selling capabilities, and the overall execution of our member owners in those businesses.

Year-over-year growth rates within the contract channel are expected to be down in the first quarter as federal government spending continues to decline and business delay or projects on hold until the economic uncertainty improves.

Our Office Furniture contract brands continue to compete well in their markets.

Our international business remains a key growth opportunity.

Lamex, our leading brand in China, continues to strengthen its market leadership position as we expand distribution and aggressively invest in our sales capabilities and branding.

Our recent acquisition of BP ERGO provides a very attractive platform for growth in India in the out years.

In our Hearth segment, we anticipate sales growth to be in the low double digits for the first quarter.

Top-line growth momentum in the new construction channel is expected to continue into 2013 as the housing market recovery continues.

In the remodel retrofit channel demand growth is anticipated to be relatively modest given the impact of stable fuel prices on the biomass business.

With the hearth industry's strongest brands, best products, superior manufacturing and distribution capabilities we remain well positioned for continued strong, profitable growth in this business.

Our Core Plus strategy remains unchanged.

We are investing in our core North American businesses to capture new product, new growth opportunities, and aggressively pursuing attractive prospects in key verticals and fast-growing international markets.

We continue to build upon the success of our new product investments.

We have a tremendous lineup of new products and platform initiatives in 2013 that are innovative and highly relevant to the changing needs of the marketplace.

Last year we expanded in the fast growing architectural wall segment with a highly differentiated, attractive product.

Market feedback has been very positive and I am excited by the opportunities for growth in this business.

We are investing in our manufacturing capabilities to align with the changing needs of the marketplace, competitively position ourselves in high growth and profitable segments, and to deliver consistent, flawless execution to our customers.

We are making good progress on our business system transformation initiative.

We are leveraging our long-standing RCI culture to champion significant process improvements throughout the Company as part of this effort.

Then, finally, we are expanding the power of our unique split-and-focus business model through investments in selling capabilities, branding, and customer loyalty initiatives, each tailored to the needs the Company's specific markets.

Kurt will now provide the financial outlook for the first quarter and full 2013.

Kurt?

So for the first quarter 2013 we anticipate overall sales to be flat to down 5%.

Office Furniture sales are expected to be down 2% to 7% while sales in the supplies driven channel are expected to be down 3% to up 2%.

Sales in the rest of our Office Furniture businesses are expected to be down 6% to 11%.

Finally, Hearth sales are expected to be up 9% to 13%.

Gross profit margin is expected to be consistent with first quarter 2012 when it was 33%, excluding restructuring and transition charges.

SG&A as a percentage of sales, excluding restructuring and transition charges, is expected to be higher than first quarter 2012 when it was 32.3%.

Net interest expense is projected to be $2.7 million.

And the effective tax rate is projected to be approximately 54.5% during the first quarter due to the extension of the R&D tax credit in January.

However, for the full year we expect the effective tax rate to be approximately 35%.

For the year we are expecting capital expenditures to be $70 million to $75 million, and we project full-year 2013 depreciation and amortization to be $46 million to $48 million.

Our estimate of non-GAAP earnings per diluted share for the first quarter is in the range of a $0.01 loss to a $0.07 loss, and for the full year 2013 we are updating our estimate of non-GAAP earnings per diluted share in the range of $1.25 to $1.45.

This summarizes our outlook for the first quarter and full year 2013.

I will now turn it back to Stan.

And I will close here by saying I remain positive on our momentum and our ability to grow sales and increase profits in 2013.

We continue to aggressively invest for long-term profitable growth and I remain confident our investments are delivering shareholder value.

Our businesses are strong.

They are competitive, well positioned in their markets, and the prospects for our businesses are encouraging.

With those comments complete, we will now open it up to questions.

(Operator Instructions) Budd Bugatch, Raymond James.

Good morning, Stan.

Good morning, Kurt.

Good morning, Derek.

I guess my first question is the previous guidance for 2013 was $1.30 to $1.50.

I know that you have shaved it a nickel on each end of that.

Maybe just tell us what has changed in the ensuing three months to occasion that.

Well, I think, Budd, that adjustment reflects the fourth quarter that we saw as the significant deceleration in orders from all the stuff that you and I read about in the newspaper.

And so I think that is really what is driving that.

We expect then as we -- that overhang continues through the first quarter of 2013 and then we expect it to re-accelerate, which overall gets us to the guidance that we gave you.

So the deceleration happened pretty much in the specified channel, is that where you were seeing it?

The answer is we saw it in the specified channel; we also saw it in the supply side.

Now, the supply side had a bit of a distortion -- I hope that is not misunderstood -- from the price buy ahead as well.

So if you kind of would boil it all down, the core of all that is everything kind of took a bit of a dip down just sorting through what is going to go on with the economy and the fiscal cliff.

Then I think overall the federal government spending decline which had an impact on us as well.

Okay.

So the buy ahead, can you quantify what you think that added to the fourth quarter and then takes away from the first?

$15 million type number.

$15 million, okay.

And so that would be -- but you probably knew of that price increase while you give the guidance, so that would have been in your thinking.

So it is really something else than that, right?

That buy ahead was actually more than we anticipated, Budd, and there is some large customers making some adjustments.

As you know, some of our large customers there, the way they look at these things is differently than how they value inventory, etc.

So it was more than we anticipated when we gave earnings guidance last time.

And the price increase itself, what kind of percentage does that roll through?

And is it just simply covering costs or is some of that going to flow back down to improve gross margin?

It is a 2% to 3% number and most of that is just covering cost.

Okay, okay.

So we should expect at the end of the -- for the balance of the year should we expect gross margins to expand or no?

Well, the guidance we gave you is 2%, roughly, top line and, I don't know, 25% bottom line, so margins are going to have to expand.

That is a very fair comment.

Okay.

My last question, Kurt, for you.

The first-quarter non-GAAP EPS of a loss of $0.01 to a loss of $0.07; using a 54.5% [tax] (technical difficulty) number what would be the GAAP number?

Is the tax rate that you are assuming to get to GAAP a 34% or 35% rate?

No, GAAP to non-GAAP is about the same but that rate, because of that R&D tax credit fully recognizing 2012 in the first quarter and given how close we are we are in a loss position.

That is really the drivers of the 54.5%, Budd.

It is not a GAAP/non-GAAP issue.

So what would be the GAAP EPS in the first quarter in terms of that?

And just walk to the non-GAAP.

Pretty similar.

That range it would not be meaningfully different.

Okay.

So you really have no restructuring or other one-time costs that are in the --?

Very, very minimal.

Okay.

All right, thank you very much.

Good luck on the balance of the year.

Thanks, Budd.

Matt McCall, BB&T Capital.

Good morning, everybody.

So I guess you gave some CapEx guidance and it looked like that is a little, maybe a step up from what we saw this year.

Yet it seems like -- given what you have said about Q1 and then given what you have said about the full year, it seems like you are implying not only a return on some of the investments but maybe some reduced spending.

I am just trying to make the higher CapEx and then maybe some lower implied spending jive in the thinking of this growth spending initiative that has been ongoing.

So two questions in there, right, Matt?

One was CapEx and that up slightly and what is driving that was one I heard.

Then I heard a question on investments and returns that we expect.

Is that -- I want to make sure we get (multiple speakers)?

What I am going to eventually get to is how much of the implied margin improvement next year is within your control and not really dependent on the top line.

So I try to understand how much of what you are forecasting is because you are pulling back spending versus getting returns on spending that already occurred.

So I am going to come back to Stan's comment.

I would posit that most of that earnings enhancement is driven by investments already made.

Because Stan talked about very modest top-line growth, low single digits, and earnings improvement in that range that runs upwards of 20%.

So there is not much from a volume leverage perspective.

As you know, we have been investing in these businesses.

Stan talked about a number of those continuing in the fourth quarter that we would expect to see those benefits start to be realized more significantly in 2013.

Okay, but no -- you are not reducing incremental spending or is there going to be -- what is the -- you have talked about it in the past; you have quantified it in the past sometimes, but I think you haven't recently.

But is there going to be incremental spending next year or are you going to kind of level off at these levels?

I think you hit it.

It is kind of level.

Nothing of significance.

We are looking to redeploy existing investment dollars where we have opportunities and other than BST IT, really that business system transformation, that is the only investment.

What you will see is in the first quarter in particular we see the full year or that run rate effect of that BST investment hitting us in the first quarter and starts to normalize as we go through the year.

But net not significant from an incremental investment perspective year on year.

Okay.

Then the two areas that seem to be out performing -- well, Hearth seems to be doing very well; your supplies business seems to be doing at least better than the market or the indicators would indicate.

Stan, can you talk about the competitive position there and how it may have improved?

Obviously these investments are aimed at doing just that, but anything you can quantify for us -- win rate, frequency rate?

I don't know what to use but just trying to understand how your competitive position may have changed since the last cycle in those two parts of the business.

It's tough to point to anything specifically, but I would clearly say -- I'll start with the Hearth.

They clearly are performing at a very high level and that is the result of A) a first-class group of very experienced, very focused, dedicated members and a leadership team there.

Second, that reflects the strategy that we undertook during the downturn which was sort of simultaneously resetting structural cost, yet preserving capacity that we knew we would need on the upturn, and also investing in selling brands product development, etc.

During the downturn one of our competitors filed bankruptcy and sold to private equity and other competitor sold and spun it off and sold it to private equity.

And so as we are there slogging through, resetting costs but also investing for the long term, we have grown share in almost all the categories.

During the downturn we made a couple of very nice bolt-on acquisitions that were well executed by that team.

Harmon was one of those; made another small little channel acquisition.

And so it is the coming together of a lot of longer-term perspective investments.

I would be remiss if I didn't say it is a lot of what we are talking about here in Office Furniture is running a very similar play.

So as it reverts -- you referenced the supply side; it is a similar type of story.

We have a tremendous presence in that channel.

We are the largest office furniture player in that channel.

We have several great brands.

The predominant brand is HON. We had invested widely there in the branding, in the product, in the manufacturing, in the content, in the selling resources.

We have a first-class management team running that business and the member owners there have done a beautiful job.

We have a lot more work to do in that channel and the market continues to be very challenging as small business sentiment is somewhat reserved or depressed or -- depending on what perspective you want to take on whatever day.

But feel great about our moment and feel great about our top-line growth.

As Kurt and I have said, we are confident that the bottom-line growth then is going to come as well.

So it is a little bit of a deferred gratification story through the downturn, but we believe strongly that we are making smart investments.

Not all of them are, I am sure, going to come to fruition, but overall I think we are doing the right thing for shareholders' long-term view on this business.

Thanks, Stan.

That is helpful.

I want to sneak one more in.

You talked about low single-digit growth expected for the year.

Can you give any more detail on the expectations by some of the segments and subsegments you talk about?

Just wondering how bullish you are specifically about the office construction sector, things like that.

Well, I think we laid that out.

If you go back and look at the notes, I think Kurt and I laid out probably as much guidance as we are going to give by segment.

But you talk about starts; we expect single-family starts to continue to recover.

I expect that remodel will recover modestly.

I think that biofuel is a big category, will be different.

And then we expect the Office Furniture federal government to be down again, but kind of everything else relatively flattish I think is probably the best way to say that.

Stay tuned, because the way this economy is going it will be different than we thought.

But we are continuing to be nimble and agile, yet also committed to our long-term strategy.

Kurt, do you want to say something?

Yes, I think as we talk about that low single-digit growth, Matt, the one headwind -- and we have talked about it, as have many of our competitors -- is federal government we would expect to continue to be a headwind for us in 2013.

Albeit at a lesser rate than 2012.

So that low single-digit growth does assume continued headwind in fed gov office spending.

Okay.

Thank you, guys.

Peter Lisnic, Robert W. Baird.

Good morning, this is Josh Chan calling in for Pete.

Could you talk about why exactly was mix negative in terms of Office Furniture for the quarter?

Then also whether you have any mix impact embedded in your guidance for 2013.

Why it was negative is there is several factors, Josh, it is a very complex equation.

Let me see if I can boil it down.

Mix is impacted by product mix, product category mix, product series mix, product channel mix, day-to-day business versus project business, etc.

There is lots of factors flowing through there.

And it has been kind of evolving up and down depending on the quarter for many years.

One of those has to do with, we have talked about this in the past, archival filing moving to other things.

We have historically had a very strong position, a very strong cost composition archival filing; as that declines we deal with it.

It is something that we are on that we manage that we are driving as well.

That impact, going forward, we anticipate to be less simply because we are through a lot of those transitions.

In fourth quarter it just seemed a bunch of those factors kind of came together and hit us in a negative way.

So that is really what happens there.

As I say, going forward, I think it will be less.

There will still be some of that, but it will be less.

That is part of what we are here to manage is how do we deal with that mix and continue to drive profitable growth.

All right, that makes sense.

Thanks for the color there.

Then switching to the overall demand outlook.

I guess you are not alone in saying that the first Q would be challenging, but then it might get better through the course of the year.

But what, in your mind, could get better that would impact the first quarter but improves throughout the year?

Is it based on conversations that you had with customers or quotations, activities, and things like that that gives you confidence?

Part of what we are dealing with, Josh, in first quarter is the deceleration that I talked about in the fourth quarter.

So you take orders in fourth quarter, you ship them in first quarter.

So the down in first quarter is really reflecting a dampened environment from this budget wrangle.

Then everybody is sort of standing on the sidelines waiting to see what has happened, and so that sort of let orders begin to decelerate.

In particular, October and November.

And so what we believe is that now that we are through that then orders begin to pick up in 2013 and we begin to ship in second quarter, third quarter, fourth quarter.

And that is the improvement.

All of that is barring another Washington, DC, crisis that spins the economy into another vector.

But, hey, that is what everybody deals with every day.

As I say, I think we are nimble and agile and prepared to deal with that as it comes.

Right, absolutely.

Is it fair to say then that January orders perhaps improved a little bit from what you were seeing in December?

I think that is fair to say.

Okay, great.

Then my last question is on Hearth profitability.

Obviously, very strong performance there.

Have you laid out sort of longer-term margin targets for that business for when housing starts gets back to a more normal level?

Is it fair to say that you could get back to, if not past, the prior peak margins in that business?

Yes, that is clearly the objective, Josh.

We should be more profitable than we were the last peak just based on restructuring our investments and that management team's focus and discipline.

Okay, great.

Thank you for your time.

Josh Borstein, Longbow Research.

Thank you for taking my question.

Just to get back on the ordering patterns so far here in 1Q just to get a feel for it.

With respect to the sentiment in terms of the leading indicators that you look at, the bid activity, what your channel partners are saying, what are you seeing right now in terms of customer behavior and the sentiment out there overall?

Yes, I apologize; we can barely hear you on this end.

It might be our issue.

So I think you're asking me what are we seeing around customer behaviors and order activity is what I heard.

Is that correct?

Exactly, yes.

As I said, it is improved since the deceleration in fourth quarter.

We cover all the channels, all the segments so it is a very complex question.

It is improved.

We are seeing, I think, a rebound in activity but it is not through the roof.

I think our guidance reflects low single-digit growth.

Part of that is the federal government is a drag and then the rest, the nonfederal government, is a boost.

So I think our current activity reflects that outlook that we shared for the year.

Okay.

Then just the caution out there because of the things going on with the government.

Does that affect more your customers on the supply side or on the contract side?

It is kind of six of one, half dozen of the other.

It impacts both.

Okay.

And the price increases that you initiated on the supply side, where there any price increases on the contract side as well?

Not at the end of the year.

We do those through the year so it depends on which operating company.

But we phase those in, feather those in different periods of the year.

The supply side was the only input one at the end of the year.

Okay.

Then just to transition over to the Hearth, this winter so far not particularly harsh but certainly seems colder than last winter.

Given those comparisons to the warmer winter last year, do you expect to see some improvement in the remodel Hearth business compared to last year?

The answer is on the non-biomass, so the non-pellet stove, etc., I do anticipate that we are going to see -- the dealers are going to see more activity, have seen more activity.

The colder it is, the longer it is, the more consistent it is, the better it is for the business.

So it is better than last year.

It's still not as good as it has been historically.

Part of this is in Iowa we go from 60 degrees to 10, back to 45 today I think, etc., and that doesn't help as much.

But to answer your question specifically, yes, I do think it is going to be better than it was last year but still not great as compared to historic levels.

Okay, thanks.

Then just last, that business, the Hearth, the breakdown between new construction and remodel is it still pretty much a one-third/two-third split?

It is shifting more towards new construction so it is more like 40% new construction now, 60% other.

Great.

Thanks for taking my questions.

Todd Schwartzman, Sidoti & Co.

Hi, Stan, Kurt, Derek.

On the Hearth side what was the combined market share of the competitors that have fallen on hard times?

Gosh, Todd, I don't have that at my fingertips.

It basically takes the next three competitors before this to match our market share, so probably the combined there was probably 20% or something like that.

That is a guess though, Todd.

So combined with the leverage that you are going to get and you are starting to get undoubtedly with housing coming back, new construction, what did these recent events do to your pricing power going forward?

Well, pricing power is always challenged so I would guess we will continue to put through modest price increases to offset our costs whenever we can.

But I would not say we have great pricing power.

The barriers to entry in that market are still relatively low and so we have to go out there and earn that builder business every day.

Those consumers come in and they shop.

There is lots of options, lots of little competitors out there in that stove business that -- they don't really care whether we are Hearth & Home or HNI.

They just care about what value it is they are getting, and so we have to be sharp every day in the new construction and in the retail environment.

Okay.

I know you don't give quarterly sales guidance beyond Q1.

But if you see normal seasonal trends materialize would you expect to see the type of sequential gross margin, consolidated margin improvement from Q1 to Q2 that you have enjoyed in most of the recent years?

If I understand the question right, Todd, the answer is, yes, I would anticipate that.

Okay, so something in the magnitude of 100 to 200-plus basis points would not be --?

I don't have that in front of me so I will leave that up to you to make that determination.

Okay.

Lastly, on CapEx how should we think about -- I know you don't have 2014 on your minds necessarily, but does it moderate then?

If not, when?

How should we look at it stair stepping?

Yes, I think 2014 you should plan at a similar level.

Not up, but not down significantly.

Okay, thank you very much.

Budd Bugatch, Raymond James.

Just -- and if you mentioned this I apologize.

Government business as a part of both I guess Office Furniture had peaked at, what, about 15% and that was in 2010 or 2011?

Is that about right?

Total government, Budd?

Well, federal and state, yes.

If you can parse it, Kurt, that would be great.

So 2009/2010 it would have been low 20%s, so 22%, 23%.

And then last year it was about 15%.

That is total state and local, fed.

In 2012 it was 15%?

Yes, about 15%.

And what do you think it will be in 2013?

Do you think it's --?

A little less than that as we continue to see that decline and shift away.

But the mix between government -- between state and federal?

Runs more on state, less on federal.

Used to be about 55%/45%, probably 60%/40% type state and local to fed.

So 60% of that is state and local of the 14%?

Right.

Okay.

And 55% would be the federal, okay.

Thank you very much.

There are no further questions in queue.

Well, thank you very much for your interest in HNI and your attention.

We look forward to talking to you in the future and have a great day.

This concludes today's conference call.

You may now disconnect.