Radius Recycling Inc (RDUS) 2012 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Schnitzer Steel third-quarter 2012 earnings release conference call.

At this time, all participants are in a listen-only mode. (Operator Instructions). As a reminder, today's conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Ms. Alexandra Deignan. Ma'am, you may begin.

Thank you, Mary. Good morning. I'm Alexandra Deignan, the Company's Investor Relations contact.

I'd like to thank everyone for taking the time to join us today. In addition to today's audio comments, we have prepared a set of slides that you can access on our website at www.SchnitzerSteel.com or www.SCHN.com.

Before we get started, let me call your attention to the detailed Safe Harbor statements on slide two, which are also included in our press releases today and in the Company's most recent Form 10-K. The statements, in summary, say that in spite of management's good-faith current opinions on various forward-looking matters, circumstances can change and not everything we think will happen always happens.

Please note that we will be discussing some non-GAAP measures during our presentation today. We've included a reconciliation of these metrics to GAAP in the appendix of our slide presentation.

Now let me turn the call over to Tamara Lundgren, our Chief Executive Officer. She will host the call today with Richard Peach, our Chief Financial Officer.

Thanks. Good morning, everyone, and welcome to our fiscal 2012 third-quarter earnings call.

I'll begin this morning with a look at our Q3 results and recent market trends. Richard will follow with a more detailed review of the financial performance of each of our segments. I'll wrap up with some comments on current market conditions, and then we'll open up the call for some Q&A. So if you'll join me by turning to slide four, we can get started.

As we noted in this morning's press release, we reported earnings per share of $0.40 for the third quarter. This reflects an increase of 16% over our second-quarter performance. Our operating income also reflected significant sequential improvement.

Q3 consolidated operating income was up 23% versus Q2.

These results exceeded our third-quarter market outlook, primarily due to better-than-anticipated performance at our metals recycling business towards the end of the quarter. All of the markets in which we operate continue to face challenging conditions. Our earnings and margins have increased over the course of this fiscal year, yet they're still below where they were in fiscal 2011.

Our consecutive quarters of sequential improvement over the last nine months, however, is a reflection of the strength and competitiveness of our people and our operating platform, because we face tougher markets today than we did last year.

In our last fiscal year, which ended August 31, the export markets experienced a steady increase in sales prices, driven by rising demand, and as you may recall as well, in our last fiscal year, average ferrous and nonferrous sales prices increased by about 30% during the year, which was one of the drivers of our expanded margin.

But this situation changed abruptly in the fall of 2011 with the onset of the European financial crisis, the slower growth projections in the developing world, and the uncertainty in the US economy in the face of our nation's fiscal cliff. Although year-to-date export scrap volumes have stayed relatively flat versus 2011, the volatility from month to month has been very significant, and export sales prices have also been quite volatile during the last nine months with a peak-to-trough difference of approximately $100 and with an overall trend downwards during this time period.

Falling price environments typically act as a damper on supply [loads], and our margins have compressed during this time period as purchase prices have not fallen as quickly as sales prices.

Notwithstanding these headwinds, we've been able to maintain our financial discipline by staying focused on the things that we can control. We remain highly focused on maintaining our positive cash metal spreads, extracting synergies between our MRB and APB divisions, reducing SG&A throughout the Company, and strengthening our supply chain and our operating efficiencies. This has enabled us to generate strong operating cash flows and to execute a balanced capital allocation strategy.

We have reduced our outstanding debts, we have returned capital to our shareholders through share repurchases, we have substantially increased our annual dividend to $0.75 per share, and we have been able to continue to invest in the growth of our business.

Our capital allocation strategy is a reflection of the long-term strength of our business model. We have a uniquely positioned operating platform, which enables us to meet the fundamental demand for scrap that exists and is expected to continue. The developing world is still growing and is still short of scrap.

So let's turn to slide five to take a deeper dive into our sales and supply market. As you can see from the year-to-date statistics, even in this challenging environment we've been able not only to maintain our market share, but also to grow both our ferrous and nonferrous sales volumes. This has been due to our integrated MRB-APB supply-chain model, our strong feeder yard network, our capital investments, and the 10 acquisitions that we made last year.

In our auto parts business, the year-to-date statistics also reflect our ability to maintain our market share in a tough market environment. In the third quarter, higher parts sales and lower SG&A drove sequential growth in revenues and a significant increase in operating income. Scrap and core revenues were essentially flat as compared to Q2.

And in our steel manufacturing business, sales volumes are up slightly year to date. Although sales volumes were a bit lower this quarter, SMB achieved breakeven operating performance. The reduced volumes were offset by lower operating costs and slightly higher prices due to product mix.

Let's turn to slide six to review the pricing environment in both the export and the domestic markets. Looking at prices, while average ferrous sales prices in Q3 were flat versus Q2, they began higher in February, then declined significantly, and remained relatively flat through May shipments.

Our Q3 margins compressed versus Q2, primarily because purchase prices did not fall as quickly as sale prices.

During the quarter, both export and domestic prices were affected by the weakening global economy. In the domestic market, declining steel production due to uncertainty regarding the impact of the weakening US and global economies and increased imports contributed to lower prices. In the export markets, while export sales volumes remain stable and broad-based, lower domestic prices, the uncertain global outlook, and a supply push of raw materials for both Europe and Japan suppressed the pricing recovery.

And as you can see from the pie chart, during the third quarter we exported about 80% of our volumes to 19 countries. We shipped our ferrous exports to 10 countries. Turkey, South Korea, and China were our top three ferrous export destinations. Our top three nonferrous destinations were China, the US, and South Korea.

Since the end of our third quarter, sales prices in both the domestic and export markets have declined significantly, and we anticipate that sales volumes in the fourth quarter may also be lower. Since average inventory costs typically decline more slowly than cash purchase costs for raw materials, this may negatively impact our fourth-quarter results. We intend to provide our Q4 market outlook on expected pricing, volumes, and margins during the second half of August.

While we can't predict when the cycle will turn back up, the most recently publicly reported export sales prices indicate stabilizing prices as the export market buys scrap to meet their production needs. The announcements of US domestic steel mill production cuts, some temporary and some longer-term, and the infrastructure stimulus advocated in Europe and reported in China are also indicators of a potentially recovering price environment.

So let's turn now to slide seven to discuss our capital allocation strategy. During the third quarter, we generated $95 million in operating cash flow, and we've generated $136 million in operating cash flow for the first nine months of the fiscal year, a clear demonstration of our financial discipline and our focus on operational performance.

As a result of this strong cash flow generation, during the third quarter we repurchased 555,000 shares. This repurchase, together with the significant increase to our annual dividend which we announced last quarter, reflects our commitment to returning capital to our shareholders. Our higher dividend and the share repurchases underscore our confidence in the long-term fundamentals of our business.

We have 2.6 million shares remaining authorized for repurchase under our existing Board approval and we anticipate continuing our practice of repurchasing shares.

It's equally important to note that our consistent cash-flow generation means that we were also able to continue our capital investment program, and still reduce our net debt leverage to 21% at the end of the third quarter, down from 24% at the end of the second quarter. Our capital allocation strategy will continue to balance strategic growth initiatives to enhance our market position and operating performance, maintenance of a strong and flexible balance sheet, and return of capital to our shareholders.

Now, I'll turn it over to Richard who will provide more information on our Company's financial results for the third quarter.

Thank you, Tamara, and good morning. I'll start my presentation on slide eight with a discussion of market trends impacting MRB.

Steady volumes during the third quarter of 1.4 million ferrous sales tons approximated the second quarter. Year to date, MRB's ferrous volumes have increased 4% due to incremental sales volumes from a combination of organic growth and contributions from last year's acquisitions.

Average net ferrous selling prices increased by 1% sequentially. Prices had been on a rising trend in the prior quarter, but then fell coming into March and remained flat for shipments during April and May. Due to market conditions, the drop in selling prices occurred more quickly than the reduction in average purchase costs. As a result, MRB's margins in the third quarter were slightly compressed compared to the prior quarter.

Towards the end of May, selling prices for shipments in the fourth quarter began to decline more significantly, which resulted in a drop in average purchase costs. This reduction, combined with other benefits to cost of goods sold, enabled MRB to exceed their Q3 outlook.

Moving to slide nine, we'll review nonferrous trends. Nonferrous sales volumes were 154 million pounds in the third quarter. This was an increase year on year, but a sequential decline of 9% primarily due to the second-quarter benefiting from the processing of backlog material. On a year-to-date basis, nonferrous sales volumes are up by over 80 million pounds due to contributions from increased collection activity and last year's technology investments and acquisitions.

Average selling prices for nonferrous increased sequentially by 7%, primarily due to a greater proportion of higher-value nonferrous products.

Now we'll move to auto parts on slide 10. In our auto parts business, revenues increased 6% sequentially due to seasonally-higher parts sales and admissions. Operating margins of 15% also included benefits from higher car purchase volumes, which increased sequentially by 6%. Weak markets for end-of-life vehicles continues to put pressure on margins, which we are able to partly mitigate through volume benefits from last year's acquisitions and marketing initiatives for sales of parts.

Moving to slide 11, turn to our steel manufacturing business. In our steel manufacturing business, sales volumes were down 8% sequentially, but increased 2% year to date. Sales prices were slightly higher sequentially, and rolling mill utilization was 54%, which was the same as the prior quarter. SMB continues to operate efficiently, despite weak markets on the US West Coast.

Now moving to cash flow and capital structure, let's turn to slide 12. Operating cash flow was positive by $136 million year to date. The primary drivers are positive EBITDA and reductions in working capital, including lower inventories and receivables. Capital expenditures were $55 million year to date, and we anticipate full-year CapEx to be 15% to 30% less than fiscal 2011.

As a result of the third quarter's strong cash flow, we were able to continue our share purchase -- repurchase activity and fund our dividend increase, while at the same time reducing our net debt to $301 million and our net debt leverage to 21%.

In summary, we continue to prioritize our strong balance sheet, which gives us the ongoing flexibility for effective capital deployment.

Now, I'll turn the call back over to Tamara for some concluding remarks.

Thanks, Richard.

Market conditions are challenging right now. However, the long-term fundamentals driving both fixed-asset investment in the developing world and increased EAF steel production throughout Asia, Turkey, and the Middle East still exists. And we have consistently shown that we're able to successfully navigate through difficult markets.

We have seven well-positioned bulk export facilities. We have integrated our MRB/APB supply chain in the regions where we have operating proximity. We've developed and are continuing to develop our strong network of feeder yards. We've invested in state-of-the-art nonferrous extraction technology that has enabled us to significantly grow our volumes. And we have aggressively focused on reducing our SG&A company-wide.

The results from all of this can be seen in a number of areas, including our increased sales volumes; our SG&A run rate, which has decreased by about 10% year over year; and our cash flow generation, which has increased by over $100 million.

Longer term, we believe that market conditions will improve as the need for infrastructure development and the rising demand for recycled metals continue to be global priorities.

Operator, let's open up this call now for some questions.

(Operator Instructions). Timna Tanners, BofA Merrill Lynch.

Yes, hello, good morning.

Good morning, Timna.

I tried to listen carefully to everything that you said, and I appreciate that market conditions are somewhat challenging. I guess I'm just stuck and I wanted to look specifically on scrap EBIT per ton, so the MRB division, and we're still talking about average first three quarters of the year being in the low teens versus average less -- last year being more than double that.

And so, that's still including the fact that you bought these feeder yards, your nonferrous business is up, and exports are strong. So, I mean, there was certainly uncertainty at the end of last year as well, and I'm wondering, is there something more that's going on here? How much of this is structural? How much of this is maybe greater challenges in the North American scrap side of the equation, rather than the export demand?

There were a lot of questions embedded in there. Let me see if I can start.

Thanks.

First of all, you made the reference to structural, and we don't see this as long term. Last year, we were working in a rising-price environment, and this year -- you know, our fiscal year seems to line up with global financial crises, whether that's the fall of 2008 or the fall of 2011. So the beginning of our fiscal year began with a significant falling-price environment.

So that really is the big difference between what was going on last year and what was going on this year.

But as to the structural part of your question, we are still selling into markets that continue to grow, and this is a cyclical business. The current pricing weakness is due to different reasons, I think, in different markets, whether you're looking at domestic or export, but I think the one common reason is global uncertainty.

Okay, but if I look at your scrap prices last year, yes, you're right. On a calendar -- on a fiscal-year basis, this year has been particular challenging, but there's been times in your history where prices have fallen, and there hasn't been that much variation this year in the scrap price. So you make the point that you haven't been able to go back to your -- to be able to cut your price at the yard as quickly as you were having to cut prices, so isn't there something going on in the domestic scrap industry that hasn't enabled you to maintain your margins as well as you have in the past?

Well, if you look back at the past 2006-2007, the big difference between that environment and this environment is the lower-growth US GDP environment.

And what you see in today's market is purchase prices are more sticky than they were in a higher GDP growth environment because the obsolete scrap pool is affected by lower consumer spending. You know, people hold onto their cars and their appliances longer, so you don't see the same elasticity in the scrap supply and in purchase prices as you did in higher US GDP growth environments.

I'll shift gears and ask an easier question, then I'll hand the call off. But if I could, we are seeing a strange divergence between scrap prices in the last couple months, sharply down globally, and yet iron ore price is much more stable. What are you seeing to make you believe that scrap prices will stabilize soon?

Well, we're seeing that in the market right now is that -- we're seeing good demand in Turkey. We're seeing China in the market. We're seeing Southeast Asia in the market, and if you look at the reported prices, you can see some price stabilization.

Phil Gibbs, KeyBanc Capital Markets.

Good morning. Good job on the SG&A cost reduction. It looked like you had come down another $2 million sequentially. How much more momentum are we expecting here going forward?

We've got good momentum going forward as we leverage our infrastructure across all three of our divisions and shared services, all three of our operating divisions and shared services.

And where I see some benefits going forward is in the increased focus we've got on driving synergies between our MRB and APB platforms across our buying, processing, and selling activities. So we've still got a high focus on that.

Can you talk a little bit about the integration of western Canada and any view on when you may implement another shredder up in Vancouver?

Sure. That shredder in Canada is currently being constructed, and the acquisitions that we did last year are showing benefits in terms of volume, and we are anticipating to see increased benefit from Canada once that shredder is up and running, and we're in the middle of construction on that right now.

And just lastly, if I could here, what is your view of the recent lifting on Russia's scrap tariffs? And have any of your conversations with customers been focused on that, or has that issue come up? Thanks much.

You know, we haven't seen much of an impact from the Russia scrap export lifting of their bands. Our perspective is we believe in free trade and fair trade, but we haven't seen any real impact from the Russia activity.

Luke Folta, Jefferies.

Hi. Good morning, guys.

Good morning.

My first question, I was hoping, can you talk some just about the process that you use for setting purchase prices for scrap?

I'm just curious if you feel like there's anything you can do to speed up the amount of -- speed up the reaction time regarding scale prices when you see a move in selling prices.

And also, just as a kind of follow-up to that, have you studied the trade-off at all between maybe missing out on some sales in order to protect your metal spread? Maybe you don't get as much flow and maybe you can't sell as much, but your -- the actual metal spread is better. Have you studied that trade-off and do you feel like you're most optimized in that sense?

We do feel that we are optimizing in this current environment.

You know, the biggest issue is the generation of obsolete scrap and the low US GDP growth environment. And so, as sales prices move, we adjust purchase prices. And as you know, we sell on the spot market on both -- we sell on the spot market and we buy on the spot market, so both of those prices move quite quickly.

As I was mentioning earlier, the elasticity of or the stickiness of purchase prices is different in a lower US GDP growth environment when the obsolete scrap supply flows are influenced by lower consumer activity. So that's really what you see in the difference in the environment this year and last few years versus what you saw in a higher GDP growth rate environment.

Okay, so if the elasticity is less now than it was in the prior cycle, would that kind of suggest that maybe the amount of magnitude that you adjust to your purchase prices isn't quite as high as it has been historically? Because if you raise prices, it doesn't bring in as much scrap as it used to? I'm trying to understand how it works there.

That is exactly how it works, so that you end up reaching out further for scrap, and in falling-price environments, it dampers or dampens supply flows.

Okay. Thank you for that, and secondly, just over the last six weeks or so, I think that some of the industry publications have been talking about some bankruptcies among some of the real smaller players in the market. Is that something that you've seen in your regions or something that you expect to benefit from in the near future?

Well, we've seen the announcements of the bankruptcies, and, you know, this environment coming into this particular financial crisis, I think people are coming in with different financial strengths than what they were coming into the last one, so we're not so surprised by it. I think the ones that have been announced have been scattered around the country and not really -- I think one was in one of the regions that we operate, but they're really quite small.

Okay. All right, and then, just last one. I mean, your cash flows are, all things considered, pretty decent, but of course not quite as robust as they were historically.

And you've increased your dividend meaningfully and you bought back some shares here. Have you kind of put your acquisition strategy -- I don't want to say on hold, but are you starting to use a lower allocation for cash outlay as it relates to acquisitions in your plans over the next 12 months?

No. We are continuing our acquisition strategy. As you know, you don't really control the timing of that. You don't see them -- you see them coming out when they come out, but we're looking to continue to make acquisitions in both our MRB and APB businesses.

Okay, thank you very much and good luck.

Brent Thielman, D.A. Davidson.

Hi, good morning.

Good morning.

Have you seen any cancellations in orders in the recycling businesses as prices have sort of fallen here in June, or was it pretty well anticipated by the market?

No, we haven't seen any cancellations.

Okay, and then on the steel business, it seemed like you'd have kind of a tailwind here going -- looking ahead with lower scrap prices. Or are you starting to see some pressure in steel? And then, any sort of indications on the backlog there or signs of improvement?

I think that the construction markets, the private construction markets on the West Coast, are beginning to see a little bit of light, but we're still waiting for some significant -- or we're still hoping for some significant increases in both nonresidential and infrastructure construction on the West Coast.

Okay, and in terms of lower scrap costs, should that be a tailwind here in terms of profitability for that business?

Well, we'll announce our Q4 indications towards the end of August.

Okay, and then on -- and I'm sorry if I missed this before, but on corporate expense. Is Q3 a good run rate to use here going forward?

Yes, you'll notice that we're on a lower run rate this year than we have been previously. So I would've said in terms of the fourth quarter, if you're estimating, you should look at the [thorp] than just that [one].

Bridget Freas, Morningstar.

Hi, good morning.

Good morning.

I'm curious about the disconnect in ferrous scrap pricing. It looks like a little bit higher export prices made up for lower scrap pricing in the US during the quarter. Can you give us some sense of what's happening there, especially since it seems that somewhat softer export demand is causing some of the downward pressure on pricing here?

Well, I think the current pricing weakness is due to different reasons than the domestic market versus the export markets, with one common theme that they're both being impacted by global uncertainty.

In the domestic markets, the pricing weakness, we believe, is really being driven by lower steel production, to lower demand for scrap, as well as imports which are affecting steel production.

And in the export markets, the lower domestic prices, the significant lower domestic prices, haven't gone unnoticed by the export markets, and there's also been a supply push of material from Europe as they go through a significant transition in their growth rates, as well as from Japan.

Okay, but your average selling prices in the third quarter on the export market were higher than in the second quarter, right?

That's right, slightly higher, and the domestic market, quarter over quarter, were about $20 lower.

Okay. My second question is on the production levels at metals recycling. It sounds like the better-than-expected performance attributed somewhat to higher production later in the quarter. Was this in anticipation of better shipping levels? It sounds like you're expecting possibly lower sales volumes in Q4, so can you give us some more clarity on that?

No, it's really just better operational performance, and the more production you have, all that does is it reduces your unit cost per ton, so it benefits your cost of goods sold and really gives you a bit of margin expansion because you're using your fixed-cost base more efficiently.

Sure, but I'm just curious. At the time of your guidance, you expected production to be lower than it actually was, so I'm just wondering, was that -- some of that pulled forward or are you producing more in anticipation of better-than-expected shipping levels?

It's a good question, but no. It was not a pull forward; it was just simply better operational performance than we had projected at the time.

Tim Hayes, Davenport & Company.

Hello, everyone.

Good morning.

Just a question on the recycling, the metals recycling business, looking at the upcoming quarter. Perhaps this is a little premature since we'll get some mid-quarter update, but the decline in scrap being so pronounced here in June, I would have to think that the operating income per ton is going to take a step down in the quarter, and I'm worried that maybe we get close to maybe low single digits on that operating income per ton. Any -- I just want to make sure if that direction is correct and any, maybe, thoughts on that?

Well, what we highlighted is the average inventory hit. I mean, we continue to focus on cash metal spreads and we anticipate that those will remain attractive. But with the big drop that we saw between May and June, we wanted to highlight that there is potential for an average inventory costing adjustment, and that is what normally occurs when you see a big step down that we did between May and June.

We'll obviously update with more specifics toward the end of the quarter. (Multiple speakers). But we just wanted to highlight the difference between cash purchase costs and average inventory.

Sure, sure. And then in terms of the scrap flows, coming out of the recession I would imagine that at least now the amount of scrap in the US being generated, say, in 2012 would be more than what was generated in 2009. Would that be correct, just because the economy is better? We do have more runaround scrap. I'm assuming with car sales up that there's more junk cars coming into the market. Is that true or not?

Well, there will be eventually, but you don't go from a new car -- your trade-in doesn't go to end-of-life immediately. It goes through sort of a waterfall of trade-ins -- down a waterfall, if you will, until you hit end-of-life.

So that's why we focus on long-term fundamentals because consumer activity will generate the obsolete scrap, and in this low-growth environment, you do see people holding onto their cars longer. But the average age of cars on the road right now is about 11 years, about 130,000 miles, and so eventually you're going to see that tightness, if you will, loosen up as those cars reach and those appliances reach their natural end of life.

But I think it's too quick to make a connection between increase in auto production today and end-of-life vehicles today. You need to give that a little bit more of a timeline before we start to see the flows into our facilities.

Thank you. That's helpful.

Thanks.

(Operator Instructions). David Lipschitz, CLSA.

Good afternoon.

Good morning. Good afternoon, I'm sorry.

No, that's okay. I'm just trying to get this straight from the earlier question. So, a better GDP, higher scrap in the US, that just pretty much protects you from the downside. You still need the -- and the international market helps you to the upside, but you just need that to protect your downside and protect your margins. Is that a good way of looking at it?

The higher GDP growth creates a higher flow of our raw material, and with a higher flow, there's more elasticity in the prices that we get to adjust upwards or downwards as sales prices move because, remember, it's a spot market.

And so, when we sell off higher GDP growth in 2006 and 2007 where it was -- US was around 4%, we saw a really good flow of material.

The export demand and the growth in emerging markets, those growth rates, while we're seeing them slow down, they're still strong growth rates, and their need for scrap and steel over the long term is very robust. So when we're talking about US GDP growth, we're really talking about what that -- we're really talking about the generation of that obsolete scrap supply.

That's what I mean, though. Basically if the world slows, if the US is going strong, it protects you on the downside because your prices move lower because there's more scrap availability, is what you're saying.

That would be one way of looking at it, yes.

Okay. So what happens -- if Europe and Asia, everything slowing, if iron ore predictions are right, that it goes back down to [190], stuff like that, how do you offset -- if we grow slowly, how are -- what are you going about to offset that, or are you just stuck with the lower prices because if scrap goes down and iron ore is going down and things like that? What do you do to try to offset some of the margin declines?

There are a couple of things that we do. Focusing on our cash metal spread is clearly one of them.

Focusing on consolidating our supply chain, investing in technology is another one, and that's where you've seen our volumes increase both in ferrous, as well as in nonferrous. Our nonferrous volumes, for example, this year have increased 22% year over year. You see us able to drive synergies between our MRB and APB divisions, which gives us the ability to buy more effectively across a larger platform, process more effectively, sell more effectively.

And then, obviously, we continue to focus on making sure that we're running our SG&A efficiently and leanly. So those are really where we focus on because those are the things that we can control.

Mark Parr, KeyBanc Capital Markets.

Thanks a lot. Good afternoon.

Good afternoon.

I was wondering if you could give us any color on what sort of capacity utilization rates in the metal recycling business you're achieving here at 1.4 million tons of ferrous?

Well, we -- I think that the base [line supplies], we've got very significant headroom in our capacity.

We don't run 24-hour shifts, and back in 2008 when volumes were at all-time highs, we were still nowhere near capacity, so we've got very significant capacity for growth now. As you know, we expanded our supply network over the last year. That gave us even more capacity, so I think we've got a pretty strong platform for when things pick up and improve to really capitalize on that stronger platform and that headroom on our capacity. So the answer is we're nowhere near full capacity.

Okay, if I could ask a follow-up question, just kind of a high-level question. I'm just curious, it seems like the barriers to entry for shredders is relatively low. It's not that difficult to put a new shredder in. I'm wondering if there's anything on the horizon or anything coming out of ISRI or anything that you've detected that might increase the barriers to entry for someone who wants to put a shredder on the ground.

I think that the barriers to entry are actually pretty high for well-run shredders.

I think that you've got to be -- you've got to position it in a place that allows you to buy effectively and operate effectively. You've got to be able to manage the environmental complexities around shredders, and the capital requirement is pretty high. So, I'm not sure that the barriers to entry are low.

Where we operate shredders, we obviously operate shredders that are Southern port facilities. I think that there are very high barriers to entry in terms of establishing shredders at port facilities, particularly because we've got to be able to operate them efficiently. We've got to be able to operate them in compliance with complex environmental regulations. So I'm not sure that they're getting easier, but that may be in certain parts of the country where we're not operating.

Okay, thanks for the color.

Thank you.

Thank you. I show no further questions and would like to turn the conference back to Ms. Tamara Lundgren for closing remarks.

Thank you, and thanks, everyone, for joining us today. We look forward to speaking with you again when we report our fiscal-year end results in October. Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program, and you may all disconnect at this time.