Radius Recycling Inc (RDUS) 2013 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Schnitzer Steel third-quarter 2013 earnings release call. At this time, all lines are in a listen-only mode. (Operator Instructions).

As a reminder, today's conference call is being recorded. I would now like to turn the conference over to your host, Alexandra Deignan, Vice President of Investor Relations. Please proceed.

Thank you, Sean, and good morning. Welcome to Schnitzer Steel's third quarter of fiscal 2013 earnings presentation. We are glad you were able to join us today.

In addition to today's audio comments, we've 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 release of today and in the Company's most recent Form 10-K and in the Form 10-Q which will be filed later today. These 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 those metrics to GAAP in the appendix to 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.

Thank you, Allie, and good morning, everyone, and welcome to our call. This morning, we will review our third-quarter results. I'll summarize our consolidated performance and provide some commentary on market trends during the quarter and the strategic initiatives that we have underway. Richard will provide the segment financials and review our capital structure, and then we'll open up the call for questions.

Before we get started, though, I'd like to take a moment to congratulate our employees for being recognized last week by American Metal Market as the scrap company of the year. This is an extraordinary accomplishment in what has been one of the most challenging years we've seen in the last decade. This award reflects our employees' dedication to the success of the Company and highlights the strength and the resiliency of our business model and the strong reputation we've built for quality and for customer service. I'm proud of our team for earning this highly sought after recognition and I'm very pleased to extend my thanks and my congratulations to each of our team members listening in on the call today.

So now, let's turn to slide 4. This morning, we reported third-quarter adjusted earnings per share of $0.09. This was a significant decline from our second-quarter results and reflects in part the $50 per ton drop in ferrous scrap prices which occurred during the quarter. As a result of this drop, our Metals Recycling Business was adversely impacted by about $9.00 per ton versus the second quarter, due to average inventory accounting. That adverse impact, together with the fact that the second quarter benefited from $0.10 of discrete tax benefits, accounted for the difference between the two quarters.

So what this means is that the underlying performance between Q2 and Q3 was stable in this otherwise difficult market, which is reflective of our disciplined buying program and operating efficiencies.

Despite the declining sales price environment, all three of our businesses delivered higher sales volumes versus Q2. In our Metals Recycling Business, ferrous sales volumes were up 6% and nonferrous sales volumes increased by 8%.

In our Auto Parts Business, organic growth and contribution from the 10 new locations we've added so far in fiscal 2013 resulted in 8% higher car purchase volumes. And in our Steel Manufacturing Business, we saw an uptick in seasonal demand and a gradually strengthening construction market.

Although sales prices declined steadily throughout the quarter as global steel production continued to outpace demand, we continued our focus on initiatives that we believe can deliver improved financial benefits over the next 12 to 18 months. These initiatives include additional cost savings; the integration of our 10 new auto parts stores, which should be accretive in fiscal 2014; the completion of our major CapEx projects in Canada and Puerto Rico, which should result in both improved profitability and cash flow once they become fully operational; and further operating benefits as we continue to integrate our MRB and APB divisions.

Now, let's turn to slide 5 to review the results of our third quarter in more detail. On a consolidated basis, our underlying performance during the quarter was in line with Q2, absent the adverse impact of average inventory accounting and the tax benefits recorded in the second quarter, which I just mentioned.

Revenue increased 7%, driven by higher sales volumes in all three segments, but our margins were notably compressed in our Metals Recycling Business as purchase prices for raw materials did not fall as quickly as sales prices, due to the constrained supply market.

While our Auto Parts Business was also adversely impacted by lower sales prices for scrap and poured, APB was able to deliver stable sequential margins, in large part due to the offsetting positive impact of higher seasonal part sales. And in our Steel Manufacturing Business, the Group delivered breakeven performance despite lower utilization levels.

We generated positive operating cash flow of $45 million during the quarter, which enabled us to continue to invest in growth projects and acquisitions and return capital to our shareholders through our strong dividend, while maintaining stable leverage. Our cash flow results reflect the resiliency of our business model. In weaker environments, you will see that we generate strong cash flow, and in stronger market environments, we generate higher earnings.

Let's turn to slide 6 to discuss the industry trends impacting our markets. Global production of steel products is outpacing demand, which puts pressure on prices for steel products and impacts the price of other scrap paid by the mills. The large drop in prices adversely affects supply (technical difficulty) inventory in anticipation of higher prices. In addition, weak domestic growth has impacted the availability of unprocessed scrap metal as consumers also hold onto their cars and appliances longer.

While these are challenging conditions I've just described, it's not an operating environment we are unfamiliar with. Throughout multiple cycles in our history, we've demonstrated that our business has the strong foundation, both in terms of our balance sheet and our operational flexibility, to withstand the volatility, to maintain profitability, and to grow in a strategic and disciplined manner.

Our previously announced restructuring program continues to be on track and we plan to [begin] further opportunities to reduce our operating expenses and to improve productivity. We expect the (technical difficulty) will enable us to generate additional cost reductions and sustainable productivity improvements in the areas of raw material supply chain and ferrous and nonferrous processing.

We are also progressing on a major construction project in Canada and Puerto Rico related to the installation of new equipment and (technical difficulty) infrastructure improvements. Completion of these plants will eliminate the disruption caused by construction and should also enable us to generate additional operating income and cash flow in these regions.

In addition, the acquisitions we've made and are continuing to make in our Auto Parts Business should enable us to deliver additional operating income and higher margins over the coming year.

So now let's turn to slide 7. As you can see in this chart, ferrous export prices in February held steady from March shipments, but prices began to soften in April and steadily declined throughout the quarter. By the end of the quarter, export prices had fallen $50 per ton from February levels. In June, we have seen this downward trend continue, but at a more moderate pace.

Today, ferrous prices are at their lowest point in over three years. Toward the end of the summer, as power curtailments in Asia and normal summer slowdowns come to an end, we expect to see more activity from our customers, which has the potential to support a stronger market and reverse the negative trends that we've seen for the past few months.

Now let's turn to slide 8. During Q3, we exported 82% of our external ferrous sales. We shipped our ferrous and nonferrous products to 13 countries. China, Turkey, and Malaysia were our top ferrous export destinations. As for nonferrous products, China, the US, and South Korea remain our top destinations.

For the first four months of calendar-year 2013, overall US ferrous exports were down 13%, with April being the lowest month for export shipments in three years. Nonferrous exports were stable sequentially in Q3 as we offset weakness in China and Turkey with shipments to other regions. This reflects our broad-based customer network, our reputation for quality and customer service, and our ability to export efficiently and meet demand wherever it is created.

Before I turn it over to Richard, let's turn to slide 9 for a review of the contributions from our new auto parts stores. Our Auto Parts Business provides a differentiated supply platform for our Metals Recycling Business. During the second quarter, we added 10 new locations to our APB platform through a combination of acquisitions and regional development. In total, APB now has 61 stores.

Subsequent to the third quarter, APB also invested in a new store in Rhode Island in establishing our first Pick-N-Pull store in that state. This new location is near our Metals Recycling operation, which will expand APB's presence in our core Northeastern market and strengthen our regional supply chain.

Since 2009, we've grown the number of our APB locations by over 50% and we intend to continue to actively grow this business. In aggregate, these investments will enable us to further penetrate core markets for our Auto Parts Business, leverage existing operational resources, and enhance scrap flow to our Metals Recycling Business.

(Technical difficulty) to Richard who will review segment operating trends, our cost-reduction programs, and our capital structure. Richard?

Thank you, Tamara. As you can see in the [bolded] graphs, both ferrous and nonferrous shipments increased sequentially from the second quarter.

While export shipments were flat sequentially, increased domestic demand led to an overall 6% increase in ferrous sales volumes, compared to the second quarter. Nonferrous shipments were 8% higher sequentially, due to a combination of higher production levels and modest seasonal improvements in flows of scrap.

While sales volumes benefited from higher shipments, operating margins were impacted by the declining price environment. Although cash purchase prices for scrap were reduced to reflect the lower sales price environment, when sharp market movements occur, average inventory costs take longer to adjust, thus creating an adverse noncash impact in cost of goods sold.

This effect (technical difficulty) operating margins of $9 per ton, or $10 million when compared to the second quarter. Absent average inventory accounting effects, (technical difficulty) operating income would have been approximately in line with the second quarter. The effect of average inventory accounting evens out over time and the market normally goes up within a couple of quarters as prices stabilize.

Let's turn to slide 11 to review our Auto Parts business. In the Auto Parts business, (technical difficulty) operating income improved slightly, despite the drop in [reported] prices. This adverse impact of the (technical difficulty) market conditions was more than offset by higher (technical difficulty), as well as continued progress in integrating our new acquisitions and building out our green (technical difficulty).

During the third quarter, APB also generated a sequential pickup in car purchase volumes of 8%, reflecting high contributions from both existing stores and new locations (technical difficulty) in the second quarter. As a result, APB generated an operating margin of 12% in the third quarter, including operating profits on new stores of approximately $1 million.

Now turning to slide 12 for a review of our Steel Manufacturing Business. Compared to the second quarter, sales volumes increased by 31% to 125,000 tons, mainly as a result of seasonal improvements in demand. Looking at our product mix, demand for rebar and wire rod were stronger in the quarter, and contributed equally to the volume increase.

Average net sales prices of $687 per ton approximated the second quarter, and due to the impact of decreases in the cost of raw materials, prices were substantially lower than the third quarter of 2012.

Operating income in the third quarter approximated breakeven levels. The decline in margins compared to the second quarter was primarily due to the impact of lower utilization levels on cost of goods sold, as customer demand was partially met with inventory produced during the second quarter.

While the steel market conditions continue to be weak, certain leading indicators are trending higher, so if the recovery can gain traction on the West Coast, we are well positioned to benefit.

Moving to slide 13, I'll provide an update on our cost-reduction program. Our SG&A year to date is 10%, or $16 million, lower than the same period in the prior fiscal year. This excludes the impact on SG&A of new acquisitions, which are anticipated to be accretive in fiscal 2014. These lower costs are due to a combination of inventory reductions, productivity improvements, and streamlining our organizational structure.

Our focus on cost efficiency is ongoing, and we remain on track to achieve our annualized target of $25 million of pretax savings through a combination of production and SG&A cost reductions.

Now let's turn to slide 14 for a review of our capital structure. We continue to pursue a balanced capital allocation strategy. In the third quarter, our solid underlying business performance, management of working capital generated positive operating cash flow of [$46 million]. This positive cash flow in challenging markets supports that our growth investments have been gaining a stable leverage position.

In the fiscal year to date, we have invested $47 million, and the combination relocation added in the second quarter and the acquisition of noncontrolling interest in a Canadian subsidiary, which we completed early in the third quarter.

For fiscal 2013 as a whole, we anticipate CapEx spending of up to $100 million, of which approximately 40% is related to the completion of major projects in Canada and Puerto Rico. Consequently, we expect a significant reduction in capital expenditure in fiscal 2014.

Now, I will turn the call back over to Tamara to wrap up her comments for today.

Thanks, Richard. While this year has proved to be one of the most challenging we've seen in a decade, we believe that we are well positioned to deliver improved results without waiting for an improved macroeconomic environment.

Our flexible operations enable us to rapidly and effectively implement cost-reduction programs. Completion of our major CapEx projects are expected to provide additional operating income and cash flow. Our growth initiatives in our Auto Parts Business are focused on higher churn, low capital-intensive investments, and our strong balance sheet enables us to return capital to our shareholders.

Since none of us can forecast what is (technical difficulty) efficiently and sustainably, we have initiatives underway that should enable us to deliver improved (technical difficulty) assuming that market conditions will neither improve nor deteriorate from current conditions. These initiatives serve as a road map to drive enhanced financial performance, further differentiate our competitive position, and create an even stronger platform for continued growth.

Operator, let's open up the call for questions.

(Operator Instructions). Luke Folta, Jefferies.

Just heads up, I am having a very difficult time hearing you. I don't know if it's my connection or yours, but there was a lot of cutting out going on during the prepared remarks.

That's unfortunate. (Technical difficulty) again.

I guess my question (multiple speakers)

But (technical difficulty) unfortunate.

You might have said this, and I apologize if I missed it, but on the cost-reduction process, can you just talk about how much of the initial $25 million that you've captured so far? And I thought I heard you say something about maybe some additional initiatives beyond that. Can you maybe give us some scope on that?

Sure, I am going to have Richard walk you through what we have done here to date and what we expect for the end of the year.

Hi, Luke, it is Richard here. If you look at our -- our $25 million is split between APB and production, (technical difficulty) $18 million of SG&A reductions and $7 million of reduction savings on the production savings and the cost of goods sold.

SG&A in the fiscal 2013 year is $146 million, which compares to a reported figure of $159 million in fiscal 2012 year to date, so that's a $13 million reduction. However, in fiscal 2013 we had $3 million of additional SG&A on new acquisitions, so really the improvement is $16 million, or 10%, on a year-on-year basis. So we are well on our way in terms of encapturing the full amount of our SG&A target of $18 million (technical difficulty).

(Technical difficulty) so what we get to see for you and our financials, but what I can say is that we have reduced our headcount by 300 positions, or 7%, the majority of which is in our production area, so we're very confident that that [$10 million] will be delivered by the end of this fiscal year.

And I think the other thing to add is that the $25 million target that we set out at the beginning of the year, we are maintaining even after inflation and other normal cost increases. So (technical difficulty) deliver the savings actually in excess of that in light of inflation and the other normal increases.

Okay.

Luke, in terms of additional cost savings, we're continuing in light of the economic conditions and the market to look at how we can make permanent cost reductions in our core business through productivity improvements, operating efficiencies, changes in procurement practices, and at present we are targeting an additional $5 million to $10 million in terms of a range, which is about 20% to 40% on top of what our existing target is, so we think that is substantial and that is what we will be aiming for in fiscal 2014.

Great, that is what I was looking for. Perfect.

Secondly, on the CapEx outlook, can you give us some sense of what's going on — what you are doing exactly in Puerto Rico? And once these projects in Puerto Rico and Canada are done, do you anticipate any further just general CapEx spending, beyond maintenance?

Sure. In Puerto Rico, our (technical difficulty) and an upgrade to the joint products plant. And that continues to be a very important (technical difficulty) to us in terms of our CapEx investment strategy.

In fiscal-year 2014, we don't have big projects on our (technical difficulty), like the Canadian [striver] and the like, but we will continue to invest in operational efficiency and in technologies that allow us to deliver quality products to our customers. But the next year, we won't see it at the same levels that we saw this past year. We're anticipating in fiscal 2014 that maintenance, repair, and smaller CapEx projects will result in significant reductions of about 40% to 50% of what we spent this year.

Okay. And if I could just ask one more quick one, what are you expecting as far as auto parts startup costs over the next couple of quarters?

Well, we (technical difficulty). As we mentioned in our release, in the first quarter we had $1 million of auto startup costs. We'd expect roughly the same again in the fourth quarter. And then, once we get into fiscal 2014, we're looking to get past that and (technical difficulty) accretion from the investments and reasonably (technical difficulty) this fiscal year.

Okay, great. Thank you very much.

Thank you.

Timna Tanners, Bank of America Merrill Lynch.

Echoing what Luke said, it's been a real challenge trying to understand you on this call. Eight minutes in or something, and it started getting harder to hear. So I just wanted to confirm what you just said, I think in response to the question about CapEx. Did you say 40% to 60% reduction into fiscal 2014? Is that what I heard?

Yes, we are spending about $100 million this year, and that includes growth CapEx, which is about 40% of that. And while we will continue to invest in CapEx projects and in technology, we don't see it at that level for fiscal-year 2014. So I assume our CapEx spending will be down probably about 40% or so from where it was this year.

Okay, cool. I just wanted to take a step back and if we look at EBITDA year to date, so three-fourths of the way through their fiscal year, and if we look at that year over year, it's still about a 25% decline even with a lot of the cost savings. And I just want to see, is it fair to say that a lot of that is because of slide 7, or are there other factors?

I mean, I understand the average cost phenomenon and if prices had been falling in this calendar year, all year long, that's a challenge, but is there more to it than that? How do we understand the performance on your fiscal year over year?

Well, I think you can look at it a couple of different ways. I think, first of all, clearly we made less money in an environment that is supply constrained with strong falling prices.

So I think that that -— I guess you can look at that trend. And we've seen lower US ferrous export volumes across the board for us, as well as for the market in general. I think if you look at the first four months of calendar-year 2013, you'll see US exports as a whole being down about 13% of 14%.

And you can see, the (technical difficulty) volumes are down similarly year over year. So those are the two big things that are driving the reduction in operating (technical difficulty).

Okay. That makes a lot of sense. I guess my last question was really going to be on those exports, so that leads up to it. I think we really have been observing, as you mentioned, that phenomenon. I wanted to get your perspective or the firm's perspective on what's driving that.

The US has been a steady net exporter, of course, since, what, 2009 or so, 2008, and that has built up quite a bit. Is this a structural or a cyclical downturn? Or do you think there's anything that structurally changes the US's position as a net exporter of scrap, or is this just a lull in some of the major consuming regions?

I see this as more temporary because if you look at the overall market (technical difficulty) right now, you did see the domestic market strengthening. You see Turkey stabilizing. Asia, the West Coast exports are lagging. They are probably more a tale of two cities in that China's being impacted right now with some credit issues, but obviously Asia is stronger.

So I think it's a temporary lull. I think you also have a currency impact that in times of weaker demand -- the stronger dollar against the euro; the stronger dollar against the yen -- it pushes US exports further back in the queue. So I see it as temporary and as part of the normal cycle. In periods of lower demand, that cycle just get stretched out a little longer.

Okay, cool. Thanks for your help.

Thank you.

Brent Thielman, D.A. Davidson.

Your domestic scrap volumes jumped this quarter, despite some more pressure on the export side. And I know it can be lumpy, but do you think this is a one-quarter anomaly or are you seeing some trends that suggest domestic volumes might continue to outpace exports, at least over the near term?

Well, I think if you look at overall growth in the emerging markets, it is higher than the domestic market. So on a long-term basis, I see it evening out.

But (technical difficulty) you do see this activity occur from time to time, and if you look at it over the course of the last decade, you'll see that domestic market prices actually step up in spite of export prices from time to time. We've seen that for the last couple of months. But overall growth rates and overall steel manufacturing rates, if you look at them over the longer term, balance out. And I'd expect to see export markets (technical difficulty). But they need each other and so at the end of the day, it evens out over time.

Okay. And then, could you offer any color around the steel mills current book or general visibility relative to this point in the construction season last year?

Well, I think we are seeing some strengthening in the construction market in the West Coast. And there's some indicators, ABI, the housing market, and the like, that are supporting that. And when we talk to our customers, we see order books that are strengthening and more positive comps.

The (technical difficulty) private market and not in the government market, I'd say that is a positive as well because hopefully the government activity will pick up over time.

Okay, thank you.

Sal Tharani, Goldman Sachs. (Technical difficulty)

Chris Haberlin, Davenport & Company.

Just coming back to the domestic and export markets, can you talk a little bit more about, near term, the dynamics between the domestic market and export market? I think we're starting to see scrap in the domestic market firm up a little bit, but it doesn't seem that the export market is following. How should we think about the diverging trends in those two markets?

Well, I'm not sure it's so much they are diverging as they are just a different pace, if you will, on demand structures. I think if you look at the domestic market over the past few months, you've seen it fall month over month. Without the stabilizing effect, the value (technical difficulty) the commentary about it strengthening.

And so, that is what we're seeing. We're seeing the US domestic market strengthening. And we're seeing the East Coast export market stabilizing. And as the domestic market continues to strengthen, that should positively influence the demand of the East Coast export market. And that is a very traditional dynamic.

So West Coast, as I said before, is lagging right now in terms of its improvement, but if you dig a little deeper in the West Coast market, you'll see it's really bifurcated where China right now has credit issues and the (technical difficulty) export volumes have been down considerably.

Having said that, there is strength in southeast Asia, so we are seeing stronger markets there.

And then, going to the synergies between Auto Parts and Metals Recycling, can you just give us a little bit more color on where you are going to drive those synergies? And as you achieve those, do they show up in the Metals Recycling Business unit or is it in the Auto Parts or is it a mix? And how should we think about that?

Well, it does show up in both places, and what -- how we're growing our Auto Parts Business is, first and foremost, focusing development near and around our Metals Recycling Business or focusing metals [success] development near and around where we've got Auto Parts Business. So you can see the buildout of the integrated platforms, both in the Northeast and in western Canada.

And for example, western Canada, we now have 17 sites combined, both recycling and auto parts, in British Columbia and Alberta. What we want to do is replicate the success we've had with that strategy that you've seen in other parts of the country, for example in California and in the Northwest.

So the synergies between the two businesses are based on car purchasing, as well as in how we handle materials and how we share support functions between the two groups.

And then, just one last question, if I may, we've seen iron ore prices fall pretty sharply here over the past couple of months. Can you just talk about how that might be impacting export demand for scrap? And I guess maybe specific to China, because I know in the past you have talked about how the Chinese will arb scrap and iron ore, just what you're seeing there and how that's impacting demand.

Well, the two markets, iron and scrap, have tended to trend similarly. They don't move dollar for dollar because, you know, scrap is not fully substitutable for iron ore in integrated and it's required in the (technical difficulty) we did the peak in iron ore at about $160 in February. And you saw the trough in May at about $110. So we're seeing a similar movement in (technical difficulty). But they don't move dollar for dollar.

China is probably the country that arbitrageurs most of its scrap and iron ore. And so, that is where you get the correlation on it.

Thank you.

Chris Olin, Cleveland Research.

I have a question about the longer-term thoughts or strategy, and I apologize if you touched on this a little earlier, but there was a steel conference last week and it basically set a relatively bearish tone about the potential impact China could have, and their reserves increasing and potentially becoming a net exporter in 2015, 2016.

And I guess I am wondering if those type of numbers change your strategic thinking in terms of where your assets should be or how you should be positioned going forward.

Yes, I've seen that (technical difficulty) report, and it doesn't change our strategy because our view on China and its self-sufficiency is that we do anticipate China will continue to generate scrap, but their demand for scrap should far exceed their pace of their scrap generation.

And that's really driven by environmental concerns that are getting stronger and stronger. You can foresee it in quality, but you can also see it just in general carbon emission, as well as the [receptivity] to increase sensitivity to energy efficiency and operational flexibility. So that dynamic, together with history, just does not support such quick scrap self-sufficiency doesn't lead us to alter our long-term strategic view.

If you put it in perspective, and you've probably heard me say this before, it took Japan over 50 years after World War II to become a net exporter. And Korea is still not a net exporter. So will they move more quickly than they did post-World War II? The broad-based demand for scrap in areas throughout the world outside of China is strong enough and continuing to grow strongly that our strategy doesn't change.

You can see that, for example, in our activity in the most recent quarter where exports — US ferrous exports were down quite significantly. Our export activity was up quarter to quarter by 1%, and it reflected a broad customer network and strong market within China.

Okay, kind of tough to hear you. I think I understood. Thanks. I'll get back in queue.

Yes, I really apologize about this. We don't know what's going on with the (technical difficulty) post very quickly a transcript of our formal comments and this Q&A. And you are welcome to call Allie and she will make sure that we make them both accessible.

(Operator Instructions). Phil Gibbs, KeyBanc Capital Markets.

My question is a little bit more broad. So we're seeing US scrap firming into July; hot band pricing in the US moving higher, I think, defying the rest of the world; plate pricing is moving lower; long products pricing is flat to moving lower. Just trying to put everything together. It just doesn't seem like to me like scrap should be firming up if flows were normal for this time of year. Are you seeing flows of scrap tighten up as we move into the summer? Or are you seeing some sort of contrary move versus history? We're just trying to understand a lot of these dynamics diverging.

The scrap supply (technical difficulty) are actually weak, which isn't surprising, because scrap prices have fallen so much. So when they fall dramatically, as we saw this last quarter, there is a pretty quick knockdown effect to dealers and other coal (technical difficulty) supplies in anticipation of a market that will (technical difficulty). So you're seeing some of that occur right now.

And then, honestly, you've got a bit of continued weak domestic economy. You saw the —- brief statement on the GDP growth for the first quarter come out, I think it was yesterday or the day before. They took it down from over 2 to 1.8. So those are the two big factors affecting supply for us right now.

So you are seeing incremental tightness relative to maybe the first quarter, then, calendar quarter? Into the second quarter, you're seeing incremental tightness?

Probably break (multiple speakers)

Or has it been about the same?

It's probably about the same, but year over year it is tighter.

Year over year, it's tighter? Okay.

Yes.

Thank you very much.

Thank you.

I'm not showing any other questions in the queue at this time.

Thank you, everyone, for participating on the call and we apologize for the poor quality of the reception. As I said earlier, and I'll repeat in case you didn't hear, we will post a transcript very quickly of our formal comments and the Q&A. Please feel free to reach out to Alex Deignan, our Vice President of Investor Relations, and she well make sure that we make ourselves accessible to provide for comments and clarity to our remarks today.

Thank you for joining us and we'll be speaking to you again in October when we announce our full-year fiscal 2013 results. Thank you.

Thank you. Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the conference. You may now disconnect. Good day.