Smith & Wesson Brands Inc (SWBI) 2006 Q3 法說會逐字稿

Good day everyone. And welcome to Smith & Wesson's Third Quarter Fiscal 2006 Financial Results Conference Call. This call is being recorded. At this time I'd like to turn the call over to Liz Sharp, the company's vice president of investor relations. Please go ahead.

Thank you and good afternoon. Before we begin the formal part of our presentation, let me tell you that what we're about to say as well as any questions we may answer could contain predictions, estimates and other forward-looking statements. Our use of words like "project", "estimate", "forecast" and other similar expressions is intended to identify those forward-looking statements.

Any forward-looking statements that we might make represent our current judgment on what the future holds. As such the statements are subjected to variety of risks and uncertainties. Important risk factors and other considerations that could cause our actual results to be materially different are described in our securities filings including our forms S-3, 10-K and 10-Q. I encourage you to review those documents. A replay of this call can be found on our website later today at www.smith-wesson.com.

This conference contains time sensitive information. It is accurate only as of the time hereof. If any of portion of this presentation is re-broadcast is retransmitted or redistributed at a later date, we'll not be reviewing or updating our material content herein. Our actual results could differ materially from these statements.

Our speakers on today's call are Mike Golden, President and CEO; and John Kelly, CFO. And with that I'll turn you over to Mike.

Thank you Liz. Hi everybody. Let me begin by giving you the agenda for today's call. First, John will review our financial results. Then I will share my thoughts with you regarding our performance this quarter, our strategy and our outlook for the future. After that, I'll open the call up for questions from our analysts. Now I'll turn the call over to John for a review of our financial performance. Please go ahead, John.

Thank you Mike. Net product sales for the three months ended January 31, 2006 of $38.6 million were 24% higher than the $31.1 million for the comparable quarter last year. Firearms sales for the third quarter ended January 31, 2006 increased by 25.9% over the comparable quarter last year. Net income for the quarter of $1.1 million, or $0.03 per diluted share, was $1.3 million, or $0.03 per diluted share, higher than the quarter ended January 31, 2005.

The 25.9% increase of firearms sales was led by 61% increase in pistol sales. The increase in pistol sales was driven by the introduction of our M&P pistol series as well as increased sales of our Sigma pistols, which included a $1 million shipment in November to the Afghanistan National Police. We also saw 157% growth in our engraving business and revolver sales grew strongly at a rate of 20.3%.

The $7.5 million increase in net product sales translated into approximately $2.6 million in additional gross margin. Labor efficiency was up substantially when compared to the third quarter of last year. Our labor efficiency was at 76% for the quarter up from 68% for the third quarter of last year. As a result we saved approximately 240,000 over the comparable quarter of last year.

Gross margin as a percentage of sales and licensing was 28.9% for the quarter compared to 24.5% for the quarter ended January 31, 2005. While the gross margin percentage improves substantially over the comparable quarter last year, it was down from our first half results. During the quarter we incurred start-up costs relative to the ramp-up of production for the M&P pistol. Utility cost increased by over 50% in the quarter, reducing gross margin by over $354,000.

We also incurred some additional costs relative to the transition from the seven-day workweek to the current five-day production schedule. While we have achieved the desired production levels, labor efficiency levels were not achieved during the quarter. We have incurred unexpected overtime costs in order to maintain production targets.

The contributing factors to this issue have all been addressed and we have seen improvements in the first month of the fourth quarter. Operating expenses for the third quarter of this year increased by $2.3 million. Sales and marketing expenses increased by $427,000 as planned due to our sponsorship in NASCAR and marketing programs related to the M&P pistol launch.

In June 2005, we announced that we intended to early adopt Statement of Financial Accounting Standards No.123(R), "Share-based Payment," using the modified retrospective application method. FAS 123(R) resulted in additional stock compensation expense of $662,000 for the quarter ended January 31, 2006 compared with 206,000 for the quarter ended January 31, 2005. We also incurred approximately $675,000 in consulting fees relative to the implementation of Sarbanes-Oxley 404 compliance during the third quarter of this year. This compares to no expense in this category in the comparable quarter of last year.

Now let's look at the nine month results. Net product sales for the nine months ended January 31, 2006 were $106 million, an $18 million or 20.5% increase over the first nine months of last year pistol sales -- last fiscal year sales of $88 million. This increase was driven by a 61% increase in pistol sales, continued steady growth in revolvers and a 330% increase in our engraving business.

Gross profit for the nine months ended January 31, 2006 was 31.4 million, a $1.9 million increase from the first nine months of last fiscal year. Gross profit for last fiscal year included 4.1 million in insurance benefits. Excluding the impact of insurance, gross profit from operations actually increased by $6 million. The utility costs in the first nine months of fiscal 2006 increased by $695,000, a 37.4% increase over last year.

Gross margin as a percentage of sales and licensing was 29.6% compared to 28.3% for the nine months ended January 31, 2005 after excluding the impact of insurance. Operating expenses increased by 1.7 million for the first nine months of fiscal 2006 compared with the first nine months of the previous fiscal year. Operating expenses for fiscal 2006 include a $3.1 million environmental reserve reduction that took place in the first quarter of this year.

Excluding the environmental issue, operating expenses increased by 4.8 million year-over-year. This increase included marketing programs related to M&P pistol launch, consulting fees relative to the implementation of Sarbanes-Oxley 404, stock option expense relative to FAS 123(R), cost related to our first year NASCAR promotion expenses and payroll taxes related to the warrant repurchasing exercise. In addition, we incurred audit fees in the first quarter relative to the restatement of prior periods due to our expensing of stock options.

Operating expenses as a percentage of sales and licensing, excluding the environmental reserve reduction, for the nine months ended January 31, 2006 were 24.7% compared to 24.4% for the same period last year. Net income for the nine months ended January 31, 2006 was $4.5 million or $0.11 per diluted share compared to 3.4 million or $0.09 per diluted share for the nine months ended January 31, 2005. The results for the nine months ended January 31, 2005 include a $4.1 million benefit from insurance, which on an after-tax basis, is 2.2 million or $0.06 per diluted share.

Net cash outflow for the nine months ended January 31, 2006 was 3.1 million compared to a net cash outflow of 4.6 million for the nine months ended January 31, 2005. Capital expenditures for the nine months ended January 31, 2006 were 8.8 million. An increase of 1.4 million over the 7.4 million spent in the first nine months of last year. We had short term borrowings of 2.5 million at January 31, 2006.

Now turning to our outlook for the reminder of the year. We're raising our sales expectations for the balance of fiscal 2006. And now expect to see net products sales increase by 19 to 20% over fiscal 2005. This increase is expected to come from improved sales penetration of the current sporting goods channel, new sales in law enforcement filled by the introduction of M&P pistol and the partial shipment of the latest order received from the U.S. government for the Afghanistan National Police.

Our estimated gross profit as a percentage of net product sales and licensing is expected to increase from 29.1% before the impact of insurance in fiscal 2005 to approximately 30% of fiscal 2006. The gross margin improvement is slightly less than previously expected due to higher energy costs, start-up costs relative to the M&P pistol and transition expenses relative to the shift to the five-day work week.

Although we have shifted to an alternative supplier we expect electricity cost to increase by over $1 million in fiscal 2006. The M&P is now in full production and there should not be any additional costs going forward. We have seen improvement in labor efficiency in February with the challenges we addressed in the third quarter will adversely impact our overall gross margin for the year.

Operating expenses have trended well, very well for our projections for the year. As a percentage of sales and licensing operating expenses excluding the environmental adjustment for 2006 are expected to be about same as fiscal 2005 levels. We expect our interest expense in fiscal 2006 to be approximately 1.6 million, substantially lower than our fiscal 2005 levels reflecting our refining activities in January 2005. Net income for fiscal 2006 is still expected to increase to between $7.6 and 8 million -- $8.1 million or between $0.19 and $0.20 per diluted share.

While we've increased our sales expectations, our annual earnings expectations remain unchanged. The combination of increased utility expenses and the added cost incurred in the third quarter for the M&P production start-up and the five day workweek transition have offset the overall sales gains. Our expectations include an anticipated stock compensation expense relative to SFAS 123(R) of 2.0 million for $0.3 per share.

Capital expenditures for the year are now projected at $16 million. This is a $4 million increase from our previous projections. The increases for pistol capacity expansion due to the success of our pistol business reflect an acceleration of plan fiscal 2007 expense spending. The additional capacity will enable to quickly capitalize on our demand for our pistols. Looking ahead to the upcoming fiscal year, let me begin by saying that our outlook for fiscal 2007 does not take into account any new ventures that we may enter into during the upcoming fiscal year. The estimates I'm about to give you are based upon the existing firearms business today.

We expect sales for fiscal 2007 to increase to between $172 and $180 million, a 20 to 24% increase over fiscal 2006. The increase in sales is expected to come from growth in our existing sporting goods channel as well as continued penetration of the law enforcement, federal government and the international markets. Both the M&P pistol series and the M&P 15 rifle are expected to be key elements of our growth in fiscal 2007. Gross margin is expected to improve to 32% in fiscal 2007 while operating expenses as a percentage of revenues are expected to hold steady with current year levels.

Interest expense is expected to be approximately $1.1 million. Capital expenditures are expected to be about $8 million, and will be financed from internal cash flow. Net income is expected to be approximately $12.5 million, or approximately $0.30 per diluted share, a 50% increase over fiscal 2006. The strong bottom line performance will be driven by the continued growth of our core business, reinforced by new products like the M&P pistols and rifles as well as improved efficiency and cost management within the organization. I'll now turn things back to Mike.

Thank you John. Over the course of fiscal 2006, we have developed a strategy and made a commitment to deliver on three fronts. Those are -- get deeper into the handgun business, leverage our incredibly strong brand and diversify our company in the global businesses of safety, security protection and sport. Our performance this quarter reflects that we have delivered solid results in all three areas. At the same time, we've [nailed down] some major milestones along the way.

First, let me recap the highlights of the quarter. Then I'll come back and provide some details. We grew our core handgun business in a big way, boasting a record level of sales along with solid year-over-year quarterly sales growth of 24% and nearly 26% in firearms. We continue to win business from the government and secured our fourth order valued at $15 million from the U.S. government for pistols that will be shipped to the Afghanistan Military.

In our commitment to penetrate the military, government and law enforcement markets, we ramped up production on our new M&P polymer pistol series and won orders from several law enforcement agencies both in the United States and internationally.

We delivered on our promise to diversify by entering the long-gun market and by unveiling in February our new series of M&P 15 tactical rifles. Initial shipments have already commenced and the market demand has been very strong. We continue to drive improvements in the factory that will reduce our cost as we ramp up production volumes in the pistol area. And we further leveraged the Smith & Wesson brand by expanding our licensing network.

Those are the highlights. Now let me give you some details. At the core of our strategy is a commitment to move deeper into the handgun business. We certainly did that this quarter. In addition to delivering a very impressive 26% growth rate, which is a tremendous result no matter what industry you're in, we also delivered sales numbers that set a new quarterly record at Smith & Wesson.

You'll recall that last quarter, we shifted from a blended sales force of direct personnel and manufacturer's reps to a network comprised entirely of Smith & Wesson employees. We believe this strategy is paying off. Sales this quarter into the sporting goods channel were up 24%, which is triple the growth rate we saw in the first two quarters of the fiscal year. Our sales for both the quarter and fiscal year year-to-date also reflect our success in gaining visibility and orders from the federal government.

We recently received our largest order to date for pistols that will be shipped to the Afghanistan Military. This was great news for us in several ways. First, it tells us that our time spent in Washington as well as the team we've assembled to drive government sales are both yielding results. Second, this last order is a tremendous endorsement of our product quality, in this case our Sigma pistols, which were shipped on the first three orders.

While the past is no indication of future success, it is clear we are establishing a positive track record with the federal government. And that track record is helping us to win more business. With this newest order for 51,000 pistols, our total shipments to Afghanistan Military number around 75,000 pistols in less than one year. That's a significant quantity. Lastly most of this recent order will ship in fiscal 2007, giving us a great start to a new fiscal year.

Now, let me update you on our M&P polymer pistol series. We estimate the domestic market for pistols, excluding the federal government, to be approximately $500 million. Today, we hold just about 10% of that market. We designed the M&P pistol to take market share in this space and move us deeper into handguns by incorporating features and benefits that law enforcement and military professionals have told us will make a difference in the weapons they choose.

This quarter we launched the new pistols. We ramped up initial production. And we shipped test and evaluation units to over 150 law enforcement agencies across the United States. Now it's still early in the game. And most of these evaluations are still underway. But we're beginning to see conversions and orders come through for those departments that administratively can move more quickly than others.

This is an exciting time and there's a lot of activity here. So let me try to sum up for you what we're seeing. Although we made our initial M&P shipments just two short months ago, we have already received purchase orders from a total of eight separate law enforcement agencies. We told you about one of these, the Patrick County Sheriff's Office in Virginia. They converted their entire department to the M&P early in January. They represented our first conversion.

We've also received an order, as our press release today indicated, from the Peel Regional Police Department in Ontario, Canada. Now Peel is important because it represents our first international law enforcement order for the M&P. Peel is also important because while the initial order will cover just their new officers, they have told us that they plan to convert the entire 1,800-person department to the M&P pistol over time.

In addition to Patrick County and Peel, we have also secured purchase orders from six other law enforcement agencies in Virginia, Pennsylvania, Delaware, Indiana and Texas. Total POs we have received today are from department that represents a total of about 2,500 law enforcement officers. Equally exciting is the fact that there are another 10 law enforcement agencies representing over 4,000 officers that have indicated their testing is complete, they have chosen the M&P and they intend to place orders with us within the next 30 or 60 days. Again it's early in this process, but we think we're getting an indication of what will happen when more of these law enforcement agencies complete their test and evaluation process.

Now in addition to getting deeper into handguns, our strategy calls for diversifying our business by moving into new markets with new products. Our research told us there was already a space carved out for the Smith & Wesson brand name in the long-gun market even though we were not participating with our product. That made long-guns the most logical first step in diversifying our business. And our goal is to get there quickly.

Well, it was a success. In fact, it took only six months from the time we made our decision to enter the market and the shipment of our first test and evaluation units. And the response has been overwhelming. While we're not giving out any specific numbers, I will indicate to you that we've been receiving order from our distributors at the SHOT Show, our industry's major event immediately upon unveiling the product.

And the reason goes back to the reason we entered this market in the first place. People know and trust the Smith & Wesson brand. With an entry in the tactical rifles, among a host of companies whose names are not widely known, we immediately began to take market share in the sporting goods channel. We think we can secure a 10 to 15% share of the tactical rifle market in our first year.

At the same time, we're also beginning to gain traction in the law enforcement market with these tactical rifles. Today we're pleased to announce that the Las Vegas Metro Police department has selected our M&P15 tactical rifle as the rifle of choice and they have given us our first law enforcement order for the new rifles. This is -- this is just a short weeks since we started shipping our initial test and evaluation units. We believe we will continue to win other police departments with the M&P15 as well. This is because historically, SWAT officers carry tactical rifles. But today regular officers also want the confidence and the ability to respond quickly that tactical rifles provide.

We have now received requests for test and evaluation units from about 80 additional law enforcement agencies. We expect success in this market based on both the features of our rifle and the product quality that Smith & Wesson has come to represent.

That's a great lead into an update on our licensing efforts since the brand name and leveraging it into new categories remains an important piece of our plan. At this year's SHOT Show we launched products from new licensees representing three targeted product categories -- safes, gun cleaning products and T-shirts and hats. As promised we'll continue to deliver on our commitment to expand and refine our network of licensees focusing on products that will drive the Smith & Wesson brand name and loyalty into new demographics and markets.

Now let me talk about operations for a moment because we continue to make important progress in this area as well. We are continually improving the way we manufactured guns in the factory and during the third quarter our productivity metrics moved up accordingly.

We were impacted a bit during the third quarter as we move fully into a new five day workweek from a seven day workweek. This transition combined with the production start-up of our M&P pistols yield the manufacturing inefficiencies in December and January. But our February data indicates that these issues are largely resolved. Our operations team continues to make changes in our process that will strategically lower our cost of doing business.

Just a couple of examples. First, we have increased our pistol slide manufacturing capacity dramatically, almost doubled it in fact, by bringing in new technology and refining our process. This enhancement is significant in two ways. It allows us to better address the increase in demand we are experiencing and it lowers the manufacturing cost.

The second example of our focus and execution on cost reduction comes in the area of implementation of the Smith & Wesson operating system, which is based on the Toyota manufacturing approach. We have taken steps including dedicating families of parts to [flow paths], standardizing work, implementing [pull] systems and driving preventive maintenance programs. These initiatives have improved our equipment uptime from an original rate of 50% to today's level of about 80%. That's astonishing progress.

Let me wrap up now by saying that I am pleased with our products not just in this quarter but also processed -- not just in this quarter but also for the entire year. We have set up goals as we entered the current fiscal year and we have delivered on those commitments. We have targeted solid growth in all areas of our business and we have diversified into new markets with new products. We are confident that we will achieve our guidance in fiscal 2006 and expect to deliver earnings of $0.19 to $0.20 per share for the year.

Moving into the new fiscal year, we expect our robust growth to continue as we further penetrate the handgun business and seek out additional new markets and new products that will fuel that growth. We will deliver a greater percentage of that growth to the bottom line in the form of net income and our expectation of $0.30 in earnings per share in fiscal 2007 represents a 50% increase over our earnings per share expectation for fiscal 2006.

We have a tremendous team in place, a portfolio of new and exciting products, a brand name that carries amazing strength in a variety of markets. With these valuable assets in hand we plan to make Smith & Wesson a major force in the global markets for safety, security, protection and sport. With that I'd like to open the call to questions.

[OPERATOR INSTRUCTIONS] Sir, I have your first question today coming to you from Mr. Ed Ching.

Good afternoon guys. Great work so far.

Okay, Ed. Thanks a lot.

Could you tell us what percentage are pistols as a percentage of the total number of consumer -- consumer sporting guns that you're selling right now? Is it growing from last year?

Are pistols growing? Yes. Our pistol number through the first nine months of the year is up is 61%.

Now hat's only, that's only - I'm saying, let's take that away from the M&P. I'm saying the stuff -- the handguns out there and the sporting goods consumer?

In sporting good channel? All right?

Yes.

The Sigmas have been very strong throughout the year even if you go back to the last quarter. That's the gun that's being shipped to Afghanistan. But we're up 60 - I think 61% through the first half and that was all -- that was pre M&P. So very strong growth on the government side and in the consumer market as well.

Great.

We watch that pretty carefully, Ed, because you can delude yourself. You won a few government contracts and you get the other piece of the business lost and the numbers if you don't look at it by channels. So we look it that way every month, by product category, by channel.

Great. And then in Ontario and Patrick County, what manufacturer did they replace with the M&P?

The -- let me think about this for a second, Ed -- the Patrick County was Beretta and the one in Canada, Peel region, that's not a conversion. They -- that's a new -- that's a Smith & Wesson customer that bought Smith & Wesson's metal guns I think. And they did the test and evaluation with our product and other products and picked the M&P.

And were these 40 Caliber or 9mm that they chose for the M&P?

40.

Wow, excellent.

We haven't -- we'll start shipping the 9mm in April.

I see. So you're still seeing some demands for the 9mm through law enforcement as well then? Not just 40 then?

Yes, there are a number of agencies that carry 9 mm, NYPD for example is now 9mm. Chicago, Cincinnati, several of the cities -- large cities still use 9mm. And internationally it is a -- it is still the most [inaudible - cross talk] in United States. So we have test and evaluation samples going out -- has gone out already to agencies that prefer 9mm. But we'll start shipping commercially product in April.

Great. And my last question and I'll get in queue is hat are you hearing from the Federal Government as opposed to the continuation of the follow on orders for Sigma? Will they at some point stop Sigma and just buy M&P to give to, say, our allies like Afghanistan and Pakistan or do you see a follow on continuation going on here with the Sigma?

I don't see them shifting from the Sigma per Afghanistan and Iraq. We haven't shipped one piece to Iraq yet. But the -- I don't see them shifting from the Sigma to the M&P for price reasons, if for nothing else. And they're also -- I'm sure they're going to try to standardize on a product as they train these guys.

Thanks guys.

Okay Eddie, thanks.

Thanks Ed.

Okay, thank you sir. Sir your next question will be from Mr. Jack [Rubenstein].

Hi, good afternoon guys.

Jack, how are you doing?

I'm doing great thanks. A couple of questions. One, I guess the real good news is on the guidance. I'm to assume there are no other events like there was in Q1. So you're basically making up ground even on the 3 million from the Q1, correct?

Yes, we don't know --

I'm talking about '07. So '07 is --

There is no that we know of one-time type of things like that out there.

Okay, so that -- that's good news. And then on the Q4 guidance, I guess I'm trying to figure how you get to the end of the year. Am I to assume that you do pick up as much as, it looks like almost 400 basis points in gross margin over one quarter?

In the fourth --a couple of points on the fourth quarter. One is when a couple - back up before that, one the industry's very strong right now. Fourth quarter is historically our strongest quarter, which will contribute. We'll have a full quarter of shipping M&Ps which are very positive for us on the gross margin line. We'll begin shifting the Afghan order, which again has the -- the one we just got - will have a positive influence. And the issues that we faced in the third quarter are behind us which had a negative impact on gross margin. So you've got a combination of four or five things there, Jack.

A couple of other things too, Jack, is the price increase implemented in January. You'll have a full quarter benefit from that. And then the other side too from a production standpoint, each of the previous two quarters have had a shut down period in it. This quarter will be strictly open for business running.

Planned shutdown.

And we had a two-week planned summer shutdown in August of Q2 and then in Q3, we shutdown for a week in between the holidays. And that just throws an unabsorbed fixed cost here that kind of hurts you in the margin in each of those quarters.

Okay, great, thanks. I just wanted to make sure I wasn't missing something. And then on the other item from the balance sheet, I think, you remember the last quarter, would could you just remind us how much available borrowings capacity do you guys still have?

We have a $22 million line of credit -- revolving line credit. We have a $5 million line of credit that we also have access to for capital expenditures. So we've got a total of 27 million. We've got 2.5 million in borrowings and probably about 4 million tied up in bonds and letters of credit - stand-by letters of credit. So we've got over $20 million available.

Okay, okay. So you guys are fine from that standpoint. And then lastly, it's sort of a, I guess an odd question because it doesn't impact directly. But you're talking about the energy cost. Could you talk about what they were on sort of a cost basis, BTU et cetera? And obviously that market's come in a little bit. And where you guys are now?

Basically in January of last year, January 2005, the rate per, I may get this from, megawatt hour was about $60. That's sounds -- $60. The rate that was quoted to us by our existing utility was $197. We have gone out with a - there are a number of alternative suppliers in New England. They were all pretty much in the same area of about 120. So we're looking at a doubling, essentially, of our electrical cost.

We've locked in on a contract because based on where we stood that the benefit even if rates declined significantly would be better given the winter months, so we've locked in for a year on contracts there. So we're still going to see - continu to see increases but not in the dramatic numbers that would have been initially projected to us.

Okay, great. Thanks guys.

Thanks, Jack.

[OPERATOR INSTRUCTIONS] Sir, we'll go to Ari [inaudible].

Hi guys.

Hey, Harry, how are you doing?

Great. How are you? Great quarter and great outlook.

Thank you.

Just curious on the international order front. I know currently that there's a limitation of $1 million per order. I'm wondering how your lobbying efforts are going with regard to increasing that? And secondly, with regards to that Canadian order. I assume that means this order is for less than $1 million and go on forward all the orders would have to be for less than one million?

Let's take them one at a time, okay?

Okay.

On the -- it's a great question. We have the end of last year, the calendar year once we got the Lawful Commerce in Arms Act through the White House we began to shift our focus on getting the $1 million cap on orders that anything above - the way it works is anything over $1 million requires Congressional approval.

So we've begun working on getting that - what our attempt is to get that lifted back up for 14.5 million that it was before Senator Feinstein made this change. We were early into that, Ari. And it's going to take a little bit work to get, one, to get people in Washington to pay attention to that because it's pretty important for us but - so we're talking to guys down there now, working with our lobbying firm.

But in addition that we have -- we're working together with other industry manufacturers that are affected by that -- the U.S. companies, quite honestly because we believe that if we get elected we'll win the battles. So we're in the process of doing that.

On the Peel order, the first order was less than $1 million. That's correct. The -- if we get all 1,800 officers when we get that, that's worth -- it's about $1 million in business going over there. So that would fall underneath the cap. And it probably won't come in one big order. These police departments aren't going to -- they got to train people and all that. So they'll probably do it in a couple of hundred at a or something like that.

Great. Got it. Thanks. And this is a follow-up question. Any update on potential wins at FBI? If I'm not mistaken the contracts are up there and that's sort of open territory. Any comment?

You're right, the contract has expired. And we are talking to them with our M&P pistols as we speak.

Okay, great. Thanks guys.

Great, all right.

[OPERATOR INSTRUCTIONS]. Sir, I have no further questions queued for you at this time.

Okay. Well, thank you everyone for joining us today. As you can tell we're proud about delivering on our commitment to growth and diversification and we're excited about the plans we have to make Smith & Wesson a major force in safety, security, protection and sport. I look forward to talking to you again next quarter. Thanks everybody.