NWPX Infrastructure Inc (NWPX) 2013 Q1 法說會逐字稿

Welcome, and thank you all for standing by. At this time all participants are in a listen-only mode until the question and answer session of today's conference call. (Operator Instructions). Today's conference is being recorded, and if you have any objections, you may disconnect at this point.

Now I will turn the meeting over to Mr. Scott Montross, CEO. Sir, you may begin.

Thank you, Bret. Good morning, and welcome to Northwest Pipe's conference call. My name is Scott Montross, and I'm CEO of the Company, and I'm joined by Robin Gantt, our Chief Financial Officer.

As we begin I would like to remind everyone that the statements we make in this call about our expectations for the future are forward-looking statements, and actual results could differ materially. Please refer to our most recent SEC filing on Form 10-K for a discussion of risk factors that could cause actual results to differ materially from expectations.

I will now turn to Robin, who will discuss our first quarter results.

Thank you, Scott. Our net income was $9.5 million or $1 per diluted share in the first quarter of 2013,compared to $4.7 million or $0.50 per diluted share in the first quarter of 2012.

Water Transmission sales increased 34.5% to $78.6 million in the first quarter of 2013from $58.4 million in the first quarter of 2012. Water Transmission gross profit as a percent of sales increased to 25.3% in the first quarter of 2013 from 16.6% in the first quarter of 2012.

The increase in sales was due to a 53% increase in tons produced, partially offset by a 12% decrease in selling prices per ton. The increase in gross profit and gross profit as a percent of sales was driven by a decline in material cost per ton, particularly fuel costs, at significantly higher volumes, which had a positive impact on the fixed portion of our cost of good sold.

Tubular Product sales decreased 26% to $62 million in the first quarter of 2013 from $83.7 million in the first quarter of 2012. Volume decreased 19%, and selling prices per ton decreased 9%. We sold 53,900 tons in the first quarter of 2013, compared to 66,600 tons in the first quarter of 2012.

Tubular Products gross profit as a percent of sales was 2.2% in the first quarter of 2013, compared to 8.1% in the first quarter of 2012. Our energy products comprised approximately 75% of Tubular Products sales in the first quarter of 2013, compared to 76% in the first quarter of 2012.

Gross profit and gross profit as a percent of sales was negatively impacted by increased competition from imports, which exerted significant downward pressure on selling prices and volume. In addition, gross profit was negatively impacted by an additional $800,000 lower cost of market inventory adjustment taken in the first quarter of 2013. There was no lower cost to market adjustment in the first quarter of 2012.

Selling, general and administrative costs decreased to $6.4 million in the first quarter of 2013 compared to $7.3 million in the first quarter of 2012. There was a decrease in outside services in the first quarter of 2013 compared to the same quarter in 2012, as the 2012 results have the costs associated with the restatement completed in April of 2012.

Interest expense was $1 million in the first quarter of 2013 and $1.6 million in the first quarter of 2012. The decrease was the result of lower average borrowings and lower average interest rates.

Our effective tax rates were 31.7% in the first quarter of 2013 and 37.2% in the first quarter of 2012. During the first quarter of 2013 we reported the favorable impact of the retroactive extension of the federal research and development tax credit for 2012.

In the first quarter of 2013 the Company generated $3.8 million in cash from operations to support the growth of the business, mainly through our net income and depreciation, and decreases in inventories and increases in accounts payable. These were partially offset by an increase in our trade and other receivable accounts. Depreciation was $3.9 million in the first quarter of 2013 and $3.3 million in the first quarter of 2012.

Inventories decreased $4 million in the first quarter of 2013 from the fourth quarter of 2012 due to a decrease in [foil] for Water Transmission production. Capital expenditures were $9.8 million in the first quarter of 2013, primarily for planned capacity expansion in our Tubular Products plants and the expansion project at our Saginaw, Texas facility. The remainder was for ongoing maintenance of capital expenditures.

Regarding legal matters, the shareholder class action lawsuit and the shareholder derivative action that had been filed against the Company were settled and dismissed at the end of March 2013. On April 3, 2013, the SEC informed the Company that the SEC 's investigation had been completed, and that the staff does not intend to recommend any enforcement action against the Company.

Now I will turn it over to Scott for an update on our business.

Thanks, Robin. As of March 31, 2013, our backlog in Water Transmission was approximately $136 million. As of March 31, 2012, our backlog was approximately $161 million.

We expect the first quarter for Water Transmission will be the strongest quarter for the year, with a record quarterly gross profit as a percentage of sales. The backlog in Water Transmission has decreased, as we have completed much of the drought related emergency work in Texas. We expect Water Transmission sales, gross profit and margin to be lower in the second quarter compared to the first quarter, with gross margin percentages in the mid teens.

In Tubular Products we expect to compressed margins for the foreseeable future as imports have had a negative impact be on both volume and margins. We expect to be about breakeven in Tubular Products for the second quarter of 2013. We also expect to spend between $30 million and $35 million of total capital, which includes some investment projects in normal capital maintenance.

The biggest investment projects are the previously announced expansion at our Saginaw facility as well as the continued modernization of our Atchison, Kansas plant. The Atchison modernization includes the installation of a second accumulator, a new hydro tester, and the replacement of the existing front end of our 16 inch mill.

In conclusion, we anticipate a profitable second quarter for our Water Transmission business, while we anticipate that the continued competition from imports of energy products will limit the profitability for our Tubular Products segment, at least through the first half of 2013 and likely into the third quarter. At this time, we will be happy to answer any of your questions.

Thank you. We will now begin the question and answer session. (Operator Instructions). The first question comes from Scott Graham. Sir, your line is now open.

Hi, this is actually [Concia Peneporetti] for Scott. I wanted to know -- I know you provided color on 2Q for both businesses. Could you talk a little bit how you are thinking about sales in the back half of the year for both businesses?

I will comment on the Water Transmission piece of the business first. As we mentioned in the call, I think we had a very strong first quarter for Water Transmission, and I think in the last call we talked a little bit about the number of jobs that are actually bidding at this point. We are probably seeing a reduction of between 35% and maybe a little bit higher percent over -- of the jobs that we saw bidding in the 2011 to 2012 timeframe.

So we are seeing many fewer jobs, and not a lot of jobs out there that have a lot of size to them. SoI think what we are seeing on the Water Transmission side is fewer jobs and a lot more competition and focus on the jobs that are out there that are actually having a muting effect or a depressing effect on the margins as we go through the rest of this year and into 2014.

On the Tubular Products side it is the same story that we have discuss, I think even on the last call. I think with the high imports that we have seen and the related falling price due to the imports I think that we are going to see a relatively tough second quarter on the Tubular Products side. I do believe that sometime as we start going through the second quarter we are going to see the rig count start to increase, which should increase demand in the Tubular Products side of the business.

The only question is how much effect are the continued high levels of imports going to have on the Tubular Products business and muting what the price increases can be on that side of the business based on increased demand from higher rig counts. So I think when we look at both sides of the business as we go through this period of time, the second quarter into the last half of the year, I think we have challenges on both sides of the business for the environments that we see.

Could you talk a little bit about what you are seeing on pricing in the Water Transmission business?

Yes, the pricing is certainly getting more competitive. Again, we are seeing-- because of the limited amounts of jobs we are seeing a lot more competition on individual jobs.

I think we are also beginning to see a little bit more competition from players that we would refer to as non-traditional players that are in the position of being able to buy pipe and get pipe coated and lined, maybe by third-party processing, and doing the fab work and starting to try to compete on some of these jobs, just because of the limited amount of work that we are seeing in the marketplace. So pricing, because of all those factors, has a downward pressure on it as we are moving into the second quarter and I think through the end of this year.

Got it. And could you tell us what the Lake Texoma shipments were in the quarter?

In the first quarter?

Yes.

We were about $25 million of revenue for Lake Texoma in the first quarter.

Great. Thank you very much.

You're welcome.

Next is Brent Thielman. Sir, your line is now open.

Hi, good morning.

Hi, Brent.

Good morning.

Yes, Scott or Robin, could you provide capacity utilization for the Texas plant in Water Transmission, and then utilization for the rest of the segment, I guess excluding Texas, for the quarter?

Brent, you are not coming through very loud. That was capacity utilization for the Texas plant, the Saginaw plant?

That's right.

Okay. I think when you look at how we have been running through the fourth quarter and actually into and through the first quarter at our Saginaw plant, we have probably been running very close to what the rated capacity is of that plant. And when you say those things, you really talking some where in the area of 90%. It really depends on the mix of products.

As we go forward, because of the limited amount of jobs that we currently see bidding, we see that capacity utilization going down pretty substantially. We are still out into the marketplace bidding on jobs, working on getting additional jobs to increase what we have to run on not only that facility but all facilities. But I think it is down substantially over where it has been in the fourth and the first quarter.

As far as the rest of the Water Transmission plants, it is a little bit of the same story. We have had a -- we have been able to enjoy the Lake Texoma at more than just the Saginaw plant. We have been able to produce that at our Parkersburg, West Virginia plant as well as a little bit in our Denver plant. So obviously with that being over, the utilizations will be off at those plants.

And we also had other jobs that we enjoyed in the first quarter of the year moving into the first quarter at our Adelanto plant, which we will be winding down and finishing off, so our utilization rates will be lower there. So I think what you see is utilization rates that are down pretty significantly across all of Water Transmission because of these jobs that are coming to an end and the slowness of the market that we see going through the end of the year.

And I don't remember, did you ask about the Tubular Products segment also? Was that part of the question?

No, but if you have got it, that's great.

Well, I couldn't remember if you asked that. I'm not begging for another question, but you just a little color on that. I think on the Tubular Products side of the business, when we came out of the fourth quarter we were at the about 40% capacity utilization across all three of our plants. In the first quarter we were 52% to 55% capacity utilization, and we expect to be in that 55% or so utilization as we go through the second quarter and through you the rest year, based on what the current market conditions are.

Okay. Appreciate that. And then back on Water, can you talk a little more about how you manage to get to the 25% gross margin? I know you had the benefits of these large projects, and we shouldn't think it is sustainable into subsequent quarters. But when we look at this level of margin, I mean, how much is it a function of some of the changes you have been making in the business and plants, and then kind of how much is attributable just to better operating leverage?

Well, I think oneis when you have the kind of operating rates that we had in the fourth quarter that carried through the first quarter, really it comes down to the heavy volume and spreading of fixed costs over the first and -- over the fourth and the first quarter. And what we have seen in our history is that when you get on these larger projects like Texoma, the longer that you produce them, the more efficient that we get on these projects, so the better gains we get on the projects.

As you know, we were on Texoma for a long period of time, so that was a big contributor. And I would contribute that kind of volume to a big -- 80%, 85% of the increased profitability, but as we have talked about in these meetings before, we also have had a pretty significant focus on our cost reduction activities. I think that the idea of trying to maximize our tons per man hour and reduce overhead cost the per ton, work on our maintenance costs, work on our quality systems to reduce a customer claims, and things like working on our -- on the amount of steel that we buy, and leveraging what we buy have all contributed pretty significantly to what those margin levels were in the fourth quarter.

I hesitate to really throw a number on this, because we are in a period of time on Water Transmission from the fourth quarter through the first quarter obviously that it is a pretty high operating rate. So I will feel more comfortable as we go through you a period of time -- the second, third, fourth quarters of this year as the operating rates are lower probably in talking about how much that those cost savings initiatives have generated as far as percentage of what the profitability is.

But I think one thing we said before is we cannot control what the price is in any of these markets, but what we can control is our costs. And focusing on our costs and working on costs to make our sales as profitable as we can be in both of these segments, so that is what we are doing.

Okay, that is helpful, Scott. And thenI know you don't offer specific guidance, but assuming that the import situation persists indefinitely, and then considering some of the changes you are making within Tubular Products, when can that business get back to more reasonable level of, I guess, segment earnings?

And then the second part of that question, is target you would be willing to discuss for Tubular Products in terms of either earnings or unit margins, I guess assuming that import situation persists?

Well, as we said in the past, Brent, we are actually -- we're trying to get into the double digit margins. Obviously we have done a lot with working on our arrangements for heat treating, which is a big piece of our business on Tubular Products, and having longer term arrangements for heat treating so that we are not paying spot market pricing for heat treating. As everybody knows -- I think everybody knows we don't have any of our own downstream processing, so a big piece of that margin goes away to the downstream processors, specifically the heat treaters.

So what we tried to do to build on what we have right now is to create longer term arrangements with these heat treaters so that we can enjoy a bigger part of the margin and control our costs better. So that is one of the things that we have done that I think is going to be a big thing going forward.

You also know about the investments that we have made in the Atkinson plant. I think when you look at the things we have done in Atkinson, specifically the investments in the accumulators and the investments we are making going forward, those investments do a lot to take not only yield costs out of the equation, but you to reduce our conversion cost. So I think all of things we are doing are driving us, trying to get to those double digit margins.

I think as far as the imports are concerned and how that affects things, I think as we go into this year what is going to happen is because we have seen natural gas prices begin to move up and in some cases be above $4 per MMBTu for a period of time, and we have seen the oil prices hold in there, I think as you look at rig counts, and rig counts begin to move up, and all of a sudden demand will start to move up. And if demand starts to move up, I think pricing will begin to move up, because myrecent trips to Houston, meeting with a lot of the customers, suggested a lot of those people believe we ever at the bottom of the market and the price is going to start to move back up.

The issue with the imports, Brent, is that they will -- the imports are here and in some cases we've talked about having 50% or more of the market. At some point they will be the thing that caps the price from going to higher levels and will put a limiting effect on the market in total.

But again, we aregoing to have competition from imports ongoing. Whether there is trade cases filed or not trade cases filed, there will always be competition from imports. And we can't really rely on trade cases to generate the profitability of our business, so that's why we have done all of the things at each one of these facilities, like I said the accumulators and working on our uptime at facilities and all those things to drive our costs down to make us as competitive as we can be so we can get to those margins even without trade protection. Because ultimately long-term we have to be able to do that, whether the market has imports or not.

That is great. Thanks a lot, guys.

Thank you. Next is Mr. Barry Vogel. Sir, you may proceed. Stand by, please. Check your mute button.

Excuse me?

Your line is now open, sir.

Is it open now? Hello?

Yes, sir. Your line is now open.

Scott, I have a question for you on the trade cases. What is the scuttlebutt in terms of what you think is going to happen ultimately in terms of potential trade cases?

It is hard to -- it is hard to say exactly, I think what I can say is that we haven't seen import levels subside significantly since we have had our last discussion, I guess it was several weeks guy now, in March. And I think imports are still affecting the market. Maybe not by gaining more market share, but by the differences in the pricing level and in really, really having the impact of what the ultimate margin levels are of domestic producers.

If it you look at where some of our competitors' earnings were in the first quarter of 2012 versus where they are in the first quarter of 2013, they are half of what they were. Where their margins were are in the mid to high teens on ACI products and now they are 8% or 9%, and I think that is a relatively common theme that we have seen with our competitors and with us.

And what I would say is that I think that because of those things happening that we are closer to the potential of a trade case now than we were six or seven weeks ago. But other than that it is really difficult to comment any more than that.

Okay. And as far as the capacity at the end of this calendar year for each of our three facilities in Tubular, can you give us some rough numbers that the point?

Can you -- you are coming through faintly, and I'm not sure I heard the total question.

Okay, as far as the capacity at the end of 2013, at Kansas, Louisiana, and Houston, Texas, what is your estimate is of what the capacity will be for these for those three --

What the total capacity will be at those facilities?

Yes, at each of those facilities.

So total capacity at our Houston plant is about 50,000 tons. At our Bossier City, Louisiana plant, it is about 125,000 tons. And at our Atchison plant it's about 250,000 tons.

And that 250,000 is going to be in place at the end of the year?

Okay, so that is right now as we speak, after we have had the implementation of both of the accumulators. Actually we will have, as we add a different front end to the mill -- to the big mill at the Atchison facilities, that capacity actually increases at the Atchison in the first quarter once the front end of the mill is completed.

What will it go to --

So we that capacity in the first part of next year will be about 325,000 tons. So I think it gives us about 500,000 tons of capacity.

But I think the capacity -- the total capacity isn't the biggest thing for us at Atchison. I think what it is, is even if the volumes are the same and not at capacity, we have the ability to -- by replacing the front end of the mill to run the product mix faster at a lower conversion cost to make ourselves more competitive in the marketplace.

The other thing that it does, Barry, by replacing the front end of the mill, is it approximately doubles the existing line pipe market that is available to us by being able to go up to heavier gages and higher strength levels. So i the capacity is needed, it is there. If it is not needed, we have the ability to run the current level of production at a higher rate and therefore at a lower conversion cost making this more competitive in the marketplace.

Okay. Now, as far as Tarrant County and Houston, what is the current situation look like in terms of when bidding will progress on both of those projects?

Our most recent information tells us that the IPL project will likely be pushed to the first quarter due to Army corps of engineering permitting, and we expect that probably to move out one quarter further than we thought it was going to be. We thought we would have revenue from IPL in the fourth quarter of this year, but it is likely going to start sometime in or after the first quarter of 2014.

When we start talking about the Houston [MSA] project, you are probably looking at something in the area of 2016 or 2018, with a potential of that to push out even further.

So those -- are there any other projects that are possible for bidding beyond these two major projects that you know of right now?

Yes, there is -- if you look at Texas in particular -- obviously both of these projects are from Texas -- the Texas Water Development Board has about I think somewhere in the area of $7 billion worth of projects that have been identified in Texas over the next 15 or 20 years. So obviously there is going to be more projects out there.

The latest information that I have read on the state of Texas and what the governor said is that he is going -- he's trying to address the drought work. He is having a little issue with the legislature letting him use the rainy day fund down there, but I think he is becoming pretty insistent. So I do believe as we go forward we will see additional potential jobs out there in the state of Texas.

Of course, you probably know about the Southern Nevada job to move water down into Las Vegas, and I believe from Lake Powell. The issue with that job is it has been talk about being 2016, 2018 but it is 300 miles of pipe -- 250 miles of pipe, which flexes around and may make get pulled up, may get pushed out, but for the time being we are not expecting anything significant out of that job in the near term.

So there is jobs that are out there, it is just what is going to get approved specifically in Texas, and how soon are they going to come up. Obviously we are looking very closely at that and working to get everything that we can out of that market.

I have a couple of questions for Robin.

Yes?

Have the D&A expenses on the Texas plant affected the Tubular Profits in any fashion?

The Saginaw work that we have been doing is for Water Transmission, so there has been no impact on Tubular Products. The Atchison [work has], of course, had an impact on Tubular Products. We are expecting about $15 million to $17 million in total depreciation for the year.

I misquoted myself. I think I was talking about the work in Kansas, which has been fairly extensive. Has that affected your D&A? And of course it would affect your Tubular profits if the D&A has gone up decently percentage-wise.

It has gone up. The gains we have made on yield and our conversion costs has more than made up for it.

Okay. And as far -- as let's see where I was here. Could you give us -- didI get it right there was a tax credit in the first quarter from R&D that was pro forma? That is why you had a 31 --

It was retroactive. Yes, it was a discrete event within the quarter. The Congress in Washington approved the 2012 R&D tax credit, and that happened in the first quarter in January. So we took it in first quarter relating to last year.

So we are not the expecting that to happen again, of course. Our rate for the year we think will be about 35%.

All right, soit goes -- all right, so the rate for the year is going down to 35%?

Right.

Okay. And I notice interest expense has really dropped and -- because of your astute restructuring of your balance sheet, andof course having the Fed lower interest rates to everybody. What is your best guess for net interest expense of the year now? That's not (inaudible -- multiple speakers) --

Best guess would be about $6 million to $7 million.

So it is still -- even though it was less than $1 million this quarter?

Right, because we are going to have a little bit of buildup because we -- our borrowings did go up at the end of Q1, and as we start working through and shipping out the Water Transmission turning into cash we expect our borrowings to go up a little bit, and then that will convert into cash. But probably about closer to the $6 million than the $7 million, but that is our estimate.

All right. Keep up the good work. Youguys are doing a great job.

Thank you, Barry.

Thank you. Next it from Mr. [Frank Casnic]Sir, you may proceed.

Yes, can you please just give us some color on what the outlook is for steel costs and availability now?

Hey, Frank, how are you?

How are you Scott?

Good. Well, what we've seen on steel costs is, obviously we have seen some significant downward pressure on steel pricing. We have not seen to any great extent the run-up in steel pricing that we have seen in the first quarter for the last couple of years.

And we have seen a year-over-year decrease in coil pricing. I think when you look at what the current coil pricing is in the first quarter, and just by CRU standards it is over $100 a ton lower than what the first quarter was of 2012 and about $180 per ton lower than the first quarter of 2011. So there is certainly longer term structural downward pressure on coil pricing.

With scrap pricing continuing to move down, I think that pressure stays on pricing. I think a lot of the steel guys at this point believe that we have reached the bottom of where the coil price is going to be.

But the other thing is when you look at in comparison to where the coil price -- the hot roll [band] price is in the United States versus the rest of the world, we are still pretty high in comparison to the rest of the world. So not only do we have downward pressure from current raw material costs and overcapacity, but we he also potentially have pressure from imports. So I think there is going to be downward pressure on coil pricing as we go throughout this year, Frank.

And I'm not sure that there is going to be a whole lot of movement upwards on that. I think we could get to periods of time where you will see the price move up briefly, but it doesn't seem structurally there is markets in place to support hot roll bands moving up. I think automotive has picked up to some extent, and you see some of the big steel suppliers talking about automotive.

I think construction has started to pick up, but a lot is the residential construction piece, and nonresidential is still kind of even. And we have been talking about the construction markets to continuing to improve for quite awhile, and they are continuing slowly. I just don't know how much we will get out of it.

So to answer your question in long form, I think there will be continued pressure on coil as we go throughout this year on pricing, and the pressure is going to be downward.

And you noted also -- it might have been Robin -- about your increase in tons during in the first quarter -- that is your tons shipped I assume -- was how much?

We increased from -- what was the number, Robin?

Or a decline it was? 50 --

No, it was an increase from the fourth quarter to the first quarter. We were actually probably up --

We were around 40,000 tons in Q4. We went to just under 54,000 in Q1. But we did have a decrease from a year ago, which was when we had about 66,600.

66 is it, or 56?

Yes. Right. So we had 53,900 in the first quarter of 2013. We had 66,600 in the first quarter of 2012. And we were around 40,000 in the fourth quarter of 2012.

Right. And that is total tons shipped, right?

Yes, in the Tubular side, yes.

In Tubular. Thanks very much.

Thanks, Frank.

Thank you. Next is Gerry Sweeney. Gerry, your line is now open.

Good morning everyone. Most of my questions were answered, but I wanted to circle back to what Brent was talking about on the Tubular side, making some arrangements and just overall competition with the imports. You said making some arrangements, maybe not paying forward the spot pricing on the heat treating. What would the mechanism behind this be. Would this be a lower selling price to the heat treater, and then they are giving you some guaranteed tonnage? Just maybe a little bit of comer as to how that would work?

I think it is a guaranteed tonnage level over longer periods of time and a preferential heat treating price that allows to us be more competitive in the marketplace. Allows us in essence to enjoy more of the margin than we are if we are only running out to get spot heat treating, which has happened up to this point.

And I assume it would also help with your, I guess, managed -- plant management? You would have a guaranteed amount of production through the plant and that would help on the management side of the throughput?

Yes, I mean, obviously you have is to be able to sell the heat treat into the marketplace first. So it is a matter of -- itis a pull system, because -- or push system if you will. We have got to sell the product, and then once it is sold we have it heat treated.

But one thing that we haven't had up to this point is a situation where we had longer term arrangements with the heat treaters that we could control more of our OCTG heat treated product costs. And we are now you in that position.

Got it. And then the higher gage on the Atchison plant, would this -- yousaid this doubles the market that you can compete it, but does the higher gage carry a higher margin, or is it just a function of market size?

Well, it is the higher gage and strength levels. We when we upgrade the mill, not only will we be able to go to 375 gage but likely up X80 product, which opens up a much larger portion of the 16 inch and under line pipe market for us. So it's -- and when you are looking at the higher gage products, obviously when you run those items through the mill, specifically through a mill that has been upgraded on the front end, you run that at a higher tons per hour rate, which is at a lower cost, which should allow you to enjoy not only a lower conversion cost but actually higher margin.

Got it. And then just shifting real quick to over to the Water Transmission Group. California,I know that is a big market. It has been dead, but I'm hearing rumblings that their municipal market or their finances are actually coming in line. Any sense that market is starting to percolate in the background?

We haven't seen a lot of major activity from California, andwhat we have seen has been relatively small. SoI don't know that I could say that it is -- that market is actually coming to life at this point.

Okay. Got it. That's all my questions. Thanks a lot.

Sure, thank you.

Thank you. We currently have only one question on queue. (Operator Instructions). Next question he is from Mr. Matt Sherwood. Your line is open.

Hi, guys. Congrats on a great quarter in a tough environment. A question on the CapEx on Tubular. Obviously, you are spending a lot of money on the Tubular division. That has sort of been operating breakeven, and we have been waiting for a trade case that has been clough slow to come. Just want to understand the terms when we look into 2014 in a difficult market from this Tubular CapEx that you are spending?

I think if you focus on where we are spending it, Matt, on the Atchison facility, I think as we look at the Atchison facility and look at how that facility has performed, we've over a historic period or a period of relatively long period of time had pretty good returns from our Atchison facility. And that was quite frankly in a facility that needed modernization.

Got a couple of mills there that are relatively old and needed to be upgraded, and yet that facility has always generated pretty good profitability for the Company. So -- and when you look at the market that it had available to it, of the total line pipe market under 16 inch it was a relatively small portion being able to only go up to quarter wall product and up to X60.

So once we expand that, not the only do you have the situation with the bigger market, but a higher rate of production, lower conversion costs, and I think that puts us in a position with having that bigger market and lower conversion cost to be able to drive even more profitability out of that Atchison facility. And it has been a pretty good platform for growth in that side of the business when you look at the infrastructure we have there, it being rail served, and the workforce that we have there. So I think it is a pretty sound platform for growth, and that is why we have targeted more investment on the Atchison side.

So obviously if we get a rate case and the market normalizes -- or the rig count goes up a lot and market normalizes, sounds like that facility will be significantly profitable, probably mid teens type margins -- gross margins. But if we don't, what -- if we are in an environment like this, like we are today, where you are operating breakeven, could you make a material profit at that facility with the CapEx?

[Yes, I think when you at] that facility -- I don't really want to talk a lot specifically about single facilities, but I would say that through the course of the last 12 months that facility has done pretty well based on what we have seen in the marketplace as far as import activity and falling rig count. It has is still done pretty well profitability-wise.

That's great.

So I think that further investment to enhance that profitability just, if you will, enhances what that facility can do and what it will generate for the Company.

Okay.

Thank you. At this point, sir, we don't have any questions on queue. Handing the call back to you, sir. Thank you.

Okay, well, thank everybody for calling in, and I guess we will see everybody sometime in August. Is that right? And we will talk on the call again in August. We do have our annual shareholder meeting at the end of May, and we will talk to everybody then. Thank you.

That concludes today's conference. Thank you for participating. You may now all disconnect.