TESSCO Technologies Inc (TESS) 2008 Q4 法說會逐字稿

Good morning and welcome to TESSCO Technologies fourth-quarter earnings conference call. Today's call is being recorded and will be available for audio replay today at 12 PM Eastern Time. You can access the replay by calling 888-286-8010 and entering confirmation number 40650241. Today's call is also available via webcast at, www.TESSCO.com/go/pressroom.

As in most presentations, the following discussion contains forward-looking statements and TESSCO results may differ materially from those discussed here. Additional information concerning factors that may cause such a difference can be found in TESSCO's public disclosure including TESSCO's most recent report on Form 10-K, as well as prior and subsequently filed reports.

I am pleased to introduce Robert Barnhill, Chairman, President, and Chief Executive Officer; and David Young, Senior Vice President and Chief Financial Officer of TESSCO. Also, in order to facilitate dialogue, Ted Moreau of The Cardinal Group, TESSCO's retained Investor Relations Consultant, will also join the call during the question-and-answer period.

I will now turn the conference over to Robert Barnhill. Please go ahead, sir.

Good morning. It was an excellent quarter and end to a tough fiscal year. I'm very pleased that we delivered record earnings on low revenue growth in a soft marketplace. Throughout the third and fourth quarters, the speed of execution on our initiatives resulted in margin and earnings improvement, allowing us to significantly exceed our fourth-quarter plan and guidance.

We gained earnings momentum in the third and fourth quarter. As we went through the year, we delivered $0.15 quarter one, $0.13 quarter two, $0.29 quarter three and then we delivered the record $0.32 in earnings per share. And our intention is to continue this trend.

I would like to take a few minutes to just summarize on our initiatives. Our primary focus is delivering superior value to customers by assuring the now availability of a broad and diverse product and solutions base required to build, operate, maintain and use wireless systems. Today, our customers are staying very lean on their inventories which make our fundamental value proposition of delivering what you need when and where you need it even more powerful. Our pricing strategy for product and delivery is designed to reward us for the value we deliver, while assuring the customer the total lowest cost of the product plus the supply chain costs.

On the other side of our vital link, our procurement strategy has continued to lower total product and supply chain costs. Our proprietary products are also driving margin improvement and we're accelerating the development of our proprietary products in all product categories. Our marketing continues to become more effective and productive as we aggressively utilize TESSCO.com and database electronic marketing to leverage our print guides and journals. We're being rewarded for this value of being the knowledge source for the industry.

The changes we've made to our sales organization over this past year and our artful scientific selling strategy has resulted in the development of an increase in close customer relationships and sales productivity. Major productivity increases have incurred in our assembly and packaging and fulfillment operations and leveraging the East and West Coast logistic centers have resulted in a lower delivery and production cost. Driving all these meaningful initiatives is a very aligned, accountable leadership and team of teams committed to delivering superior value to our customers, manufacturers and shareowners.

As we move into the new fiscal year, we expect the current market conditions to continue. However, we plan to grow earnings independent of revenue growth through continued intense focus on margins and productivity. As we expect the customer spend of any one product to remain flat, increases in revenues will require the accelerated execution of our initiatives to significantly increase the number of monthly purchasing customers and the cross-sell through the expansion of our solutions focus in offering Web-based marketing and sales organization.

Dave Young will now give a deeper overview of our results. David?

Good morning. It was a very strong quarter for us and we're pleased to report these results. I will briefly go through the highlights for the fourth quarter and fiscal year in a minute but I would just like to add to what Bob started with.

This quarter's results were obviously well ahead of our plan and the business outlook we set at the end of last quarter. All the initiatives that Bob described earlier really came together during this quarter, even more so than we originally anticipated.

Our gross margins are up as we are delivering more value and solutions to the market. Our SG&A is down as we've really optimized our operation. The new packaging center as Bob mentioned that we opened a few quarters ago has really improved product flow, capacity and productivity. We've concentrated our marketing efforts to better utilize our proprietary knowledge tools which are largely electronic, thereby driving down costs even more. And we've made many other small-scale initiatives, almost all of which came to bear benefits in this quarter. So, it's no accident that all this happened this quarter and we think that these initiatives will produce sustained productivity. It's really the result of a lot of hard work and planning on our end, but it all did come together at even a faster rate than we expected.

So, all comparisons here that we will talk about are to last year's fourth quarter unless I state otherwise. Revenues reached $128 million and gross profit totaled nearly $30 million. Our overall gross margins were essentially flat this quarter. But our core gross margin, not including sales of the repair components and the sales to the large accessory Tier 1 carrier, was 26% in the fourth quarter compared to 24% in the third quarter and 24.8% in the fourth quarter of last year. We're really pleased with this margin growth.

Our operating expenses totaled $27 million, a decrease of 2%, resulting from increased productivity in marketing and sales as well as freight and operations. This was partially offset though by increases in our business generation compensation expense as we continue to focus on increasing our sales organization. And increasing the size of our sales organization is very important to us as we look forward to significantly increasing the number of customers that buy from us. So we expect to continue to see investment in the business generation people in our fiscal 2009.

EBITDA totaled $3.8 million for the quarter or $0.70 per diluted share. That is compared with $4 million or $0.70 per diluted share last year. Our net income was $1.7 million or $0.32 a share. That compared with $1.6 million or $0.28 per diluted share last year.

Our day sales outstanding increased slightly due to the timing of sales and collections during the various quarters. And during the quarter, we generated about $3.7 million of cash flow from operations. That allowed us to pay down our revolver this quarter. Our ending revolver balance was about $3.3 million.

Now on to the highlights of the fiscal year and I will just start with some commentary. So if you remember back, our fiscal 2007 was a record year. Our accessory relationship with a major Tier 1 carrier was really taking hold. And in the beginning of that year, we had some very positive results from our repair components business. And at the same time, we were gaining real traction with the core business. We were growing buyers and dollars per buyer etc.

But, then in the fourth quarter, so this would be the March 2007 quarter, we started to see things really slow down. Many of our retail and retailer customers began to slow down and work through much of their buffer inventories. The enterprise market started to show some real hesitancy and earnings were negatively impacted by the renegotiated repair components business. That all took effect in the fourth quarter.

So these soft market conditions did continue into this fiscal year. And as we said in our first and second-quarter releases, the speed of our execution on the initiatives we set forth wasn't fast enough to offset the effects of a slow market. We're glad to report that that trend reversed itself in Q3 and Q4 and that our margin and profitability initiatives allowed us to exceed the results from the early part of the year and offset the effects of the soft market.

We're expecting the macroeconomic environment next year to be tough. But we're confident that our plans are going to allow us to grow share in this market and be very well positioned to enhance revenue and profit growth in the future.

So, for fiscal 2008, revenues reached $521 million and gross profit totaled $117 million. Our total gross margin declined year-over-year but not including the two large concentrated arrangements. Our core gross margin increased to 24.3% compared to 24.1% last year.

Our operating expenses totaled $109 million. That's a very slight decrease which results mainly from marketing decreases in marketing and sales promotion as well as freight and bonus expenses. The decreases were partially offset by increases in compensation, again related to our business generation and fulfillment functions.

And just as a particular note here, consistent with our performance, pay-for-performance philosophy and plan, coupled with our below expected earnings during fiscal 2008, no cash or equity bonuses were earned by the Company's management. And, just to note, some of the Form 4s that you may have seen earlier this week, they all represented the performance-based restricted shares that were earned in prior years. And that had time-based vesting conditions that lapsed just this week. So, again, no shares or cash rewards were earned this year.

Also during fiscal 2008, our effective tax rate was lower than fiscal 2007 and that was due to several factors. Our state rate this year was lower due to differences in the financial performance of our various operating subsidiaries. Each one of these operating subsidiaries obviously has a different effective state rate. So, the mix of income has an effect on those state rates.

And then also, this year, we had two uncertain tax positions that were reserved under FIN 48 that the statute expired. So we were able to reverse those this year. So, looking forward into 2009, we expect that the effective rate will get back to very close to what it was in 2007 as we don't expect to have any new FIN 48 reversals and we do expect minimal increases in our state effective tax rates.

So, net income for the year totaled $4.8 million; that's $0.88 a share compared with $7 million or $1.17 last year. And then, just to give a little more detail from a line of business perspective, network infrastructure revenues were $166 million. That's a very slight increase compared to last year. It's the result of higher sales of our propagation and site support products, partially offset by lower sales of broadband products. These broadband product sales carry a lower margin, so our gross margin in this line increased from 24.3% to 25.4%. Buyers and purchases per buyer in this line of business were essentially flat.

In the mobile devices and accessory line of business, revenues totaled $270 million. That's a 17% increase as a result of increases in our core reseller and user channels as well as increasing sales to the large Tier 1 carrier. The gross margin to customers not including that Tier 1 carrier decreased very slightly from 23.6% to 22.8%. The number of commercial customers in this line of business though did -- we were able to grow that by 7% year-over-year and their monthly purchases increased by about 3%.

In the insulation test and maintenance line, revenues totaled $85 million. That's a 12% decrease which is again largely attributable to the decline in the repair and components business. Our overall gross margin in this line decreased to 22.4% from 28.9%, again as a result of the repair and components business. But the gross margin for the non-repair parts piece of this line of business was 24.7%, up almost 2% -- 2 percentage points compared to last year, so a nice margin growth there. And buyers in this line of business did decline slightly and their purchases also decreased by about 10%.

As for the stock buyback program, just real quickly, during the fourth quarter, we didn't buy any shares of common stock. So, to date, we still have the 2.1 million shares that we bought back, total cost of about 28.3 million. That equates to about $13.20 per share and we've got about 250 shares that remain available for repurchase.

So, I will turn it back to Bob to discuss the business outlook.

As I mentioned and we've been talking about it and probably no surprise is the -- we expect the current soft market conditions to continue throughout the year. We however plan to grow earnings independent of this revenue growth -- independent of any revenue growth through continued intense focus on margins and productivity. And, again, I mentioned we expect the customer spend to remain flat and thus all the increases in revenues will require us to significantly increase the number of our monthly purchasing customers and product cross-sell.

So, as a result, we're currently expecting that our earnings per share will be in the range of $1.10 to $1.40 for this fiscal year which ends 29. And the wide range of this guidance at this time reflects the possibility of improving market conditions and the accelerated execution of our initiatives.

So, in close, TESSCO continues its position as your total source and its leadership in providing the products and solutions to build and operate and maintain and use the converging voice, video and data systems. We expect that our opportunities will continue to expand regardless of the overall economic environment. We have the operational and financial platform in place with capacity and capability to provide superior value to existing and new customers and manufacturers. And we believe we are positioned to achieve accelerated revenue and profit growth.

So, as we enter our new fiscal year, I would like to take this opportunity to thank all of our stakeholders, our customers for their trust and business, our manufacturers who are professionals and this incredible team that we've built all for the dedicated support. And then, I would like to thank you, our shareowners, for your continued support of our business. So, with this, I would like to open it up to any questions that you might have.

(Operator Instructions). Randy Saluck, Mortar Rock.

It was certainly a good quarter. A couple of questions for you. I noticed that you did not utilize your buyback at all. What about in April when your stock really tumbled? Were you able to take advantage of your buyback there? And then I have two other questions for you.

This is David. We have not been active in the buyback into April. So we're looking at -- look at our balance sheet and you know that we've invested some cash into inventory this year. And we think that that's probably the best use of our cash at this point. We do think that the shares are undervalued. But we have not been active in the market.

Second question. It would seem like a great investment down where the stock has been even today. It seems a very cheap way to get a return for shareholders. So, I would encourage you to consider that more aggressively.

Secondly, the range of earnings that you have is $1.10 to $1.40 for this year coming up. What does that contemplate? Are you saying that on flat revenues, depending upon mix issues, you could do $1.10 to $1.40? Would that then suggest that if you do better than -- if revenue is stronger because the market ticks up that earnings could be a lot better? I just want to understand your guidance a little bit more.

Yes, I think when you look at where we are from a current run rate standpoint, that puts us right about in the middle of that range. And so, I think that there are obviously uncertainties around the macroeconomic conditions. So, I think the way you stated it is a fair way. At the current run rates of sales and profits and gross profits, we could be in that range.

We've got a -- again, we didn't fund any bonus accrual this year. So, as we get up into the top end of that range, we'd have to fund some of that this year and some other things. But I think that if we are able to really grow the top line this year that there is some upside in that guidance.

And there's tremendous operating leverage as we increase that top line as we go forward. But you're right. We're looking at this economy the way it is and continuing to drive that productivity. But if the top line grows, there would be great operating leverage that would kick in.

I see. And what would you say is the biggest revenue opportunity for the Company?

I think you are looking at it all the way across the board. If you start with network infrastructure, it continues to be soft. We're hearing that some of the carriers are starting to look at spend. Wireless broadband has huge opportunities that have been slow to really become aggressive, our continued accessory business as we move especially as we continue to promote the retail resale channel. But now, we're going after the self-maintained user which is creating opportunity. Training is going to be a very large area for us as we move forward.

So, that is the great thing about our business and it's very diversified as we look at product as well as markets. We have tremendous focus on what we call the self-maintained user and enterprise markets which we're starting to get traction with as well as the government market. So, we're really pushing all markets and all products. And then lastly, just the proprietary products look very attractive as we move into the new year.

Last question and I thank you for your time. You have a 9 point something percent shareholder that's a competitor. Do you have any idea what their intentions might be? A corollary to that question on a more general level would be, does it make sense given your small size to either do some sort of joint venture or combination with somebody in the industry at increased scale? Have you thought about that? Maybe you could talk about the pros and cons.

Well, first of all, we're very confident in our business plan and our business strategy and we don't want to be distracted as far as initiating that. We continue to look at acquisition opportunities. We have a great pipeline as far as the opportunities that we're looking at. And again, our acquisition strategy is to increase customers and product offering.

As far as the stake in the competitor, it is a competitor. It's a competitor not in all lines of our business but primarily the cellular device accessories. And they keep assuring us that they are investing because they feel that our stock is undervalued and the last comment that was made to me at a tradeshow was, keep making money. So, that is the only conversation that we've had with them. But at the same time, your point is a major competitor having a large stake doesn't really --

Right, but I was just thinking not necessarily with respect to them in particular, but it would seem like there are -- and you see a lot of companies that are small combining or not even combining but just striking some sort of venture to gain scale which could further improve what seems to be a pretty good operating leverage model that you already have.

Yes, that's why we continue to look at acquisition opportunities just for that exact same strategy. So, we're always looking for ways that we can continue to grow shareowner value, continue to provide more value to our customers and manufacturers. So we're always exploring those things.

Ted Moreau, The Cardinal Group.

Great quarter, Bob and Dave. I've got a couple of questions. The last questions are really good. And then I will leave it open for some others and then maybe come back. But Bob, I want to zero in on some of these initiatives that clearly are starting to impact your profitability. And it appears as though you've added some really qualified people into some key areas. Can you comment on first the new Board member from Staples that has I think maybe redirected some of your marketing initiatives?

And then secondly, I understand you have some new direction in your proprietary product line as well that seems to be having some impact. And maybe any other key people that you've added here in the past year.

Yes, it's a great and important question. I will say that we have the strongest, most aligned and accountable and capable team than we've ever had that we've obviously been building over the past year and prior to that. To kind of tick off your points, Jay Baitler joined us as the new director. Jay is the Senior Vice President of Staples Commercial Delivery Division.

And, as we've said internally and I believe we've said on this call is that much of our strategy is how do we become the Staples of wireless products? And by that, I mean how do we sell more customers more items? Jay has been a great addition to our Board and has great insight into a very similar business and has worked with our management team and worked with the Board in general bringing great, great insight.

Proprietary products, as we've continued to develop proprietary products, it has been to date really integrated in with our normal business. We've broken it out and we've created a -- after an intensive brand search, we've developed the name Ventev, which will be our umbrella brand that will integrate the wireless solutions brand, the TeraWave brand of product.

And we recruited a senior leader from Danaher, Jeff Lime, who is going to be leading that initiatives as far as continuing the acceleration of development as well as the contract manufacturing of products in all categories. Then, just continuing is that we continue to recruit for senior leadership in our market leadership to augment the people that we already have and then continuing to build a very high-quality, new market development and salespeople that is one of the primary initiatives. So, again we have a -- we've made some changes over the past year, some pretty sweeping changes. But we're locked tight in terms of the team that we have today.

Great. Thanks, Bob. I just found out I was a Danaher shareholder and it's -- I just read the Annual Report and it's a great company.

One or two other questions then I will turn it back. Your mobile devices business obviously is doing well. Can you discuss your relationship with your key customer there? And you know sort of how things are going in the retail distribution side of the business?

Yes, the relationship we believe that we continue to enhance it. There are monthly report cards if you will that radar our overall performance. And we continue to improve -- increase and improve and get great scores. And that's as far as product development and marketing and on-time deliveries which is a very important focus for this particular customer as well as other customers. So that relationship is excellent. Given the challenges as far as their business and the sell-through, we continue to enhance the various forecasting tools to assure that we've got the right product at the right time and at the same time protect inventories and inventory obsolescence. So, that's going very well.

And also, those relationships give us the leverage to go after the broader market which again we are making a great, great progress in inroads as we build market share into this overall device market, which is very exciting. You know, I mentioned the convergence between the voice and now the data and music accessories that we're building out is really paying off handsomely.

Maybe a final point here just to elaborate on the last comment you made, when you look at the recent carrier operating results, wireless is clearly driving their businesses. And all the new wireless markets particularly in wireless data and now a lot of discussion about mobile video, it seems as though number one you are in the right place.

And then secondly, the carriers are going to be doing two things that I think are going to benefit you. First, it looks like they are going to have to begin to be more aggressive on upgrading their networks and investing in their wireless networks. They are talking about running into capacity constraints here especially on Internet traffic. And then secondly, this movement to all of these new markets certainly are going to drive the device market it seems to me in the movement to open networks where you can have nonproprietary devices on any carriers' network. Everything I see is indicating that that's going to proliferate new devices coming on the market and accelerated growth there which is obviously going to be good for you.

You've asked a huge or made a huge point. If you look at the carriers and this open platform, it's really all about the total convergence as we look at a device not only being able to go through the conventional network which to your point is again going to have greater pressure on bandwidth which means that there's going to be additional build-out to serve that bandwidth. But also the open platform which is both an open platform for the Wi-Fi and WiMAX off the device as well as other new people coming in with the device is going to drive this total convergence as far as the wireless broadband as well as the voice.

So, your single device is going to be able to access your WiLAN system, access a WiMAX system, access the overall cellular system. And then with the new entrants as far as allowing independent devices onto a system, is going to give opportunity for these vertical applications that again we are looking at as you take a device and put it onto a certain carrier. So, it's the overall convergence and bandwidth requirement is going to generate network infrastructure spend and then also tremendous opportunities for new devices and thus new accessories and new software packages.

I also might just go back to your earlier question in terms of how we are doing with our major T1 carrier customer. This past quarter, we launched a training program to train their retail salespeople on how to sell accessories. And it's an online certification program and we did the first rollout. And it looks very promising not only for this particular customer but for also all of our customers as we continue to give this training and knowledge component to our customers and get paid for it.

Great and just a quick follow-on. On the overall market initiatives, are you seeing any uptick in carrier spend and/or are you seeing any other devices coming on to market? We've got a number of 3G launches coming up with T-Mobile and the iPhone and I just wonder if we're starting to see the acceleration in the device market.

Well, the network infrastructure spend is still not there in terms of -- as you mentioned between AT&T and T-Mobile, you know they're starting to talk about accelerating their CapEx which we're there and ready to participate.

The device -- there was a breather if you will in terms of a lot of the new devices this past quarter but we're starting to see a lot of the new smart phones rolling out. There are some great product coming out of RIM and LG and these obviously drive accessories. Our development team is inundated with new devices and new accessories as we continue to look at branded product as well as look at our proprietary products. So, there's a lot of exciting things happening there. And again, a lot of that again is driven by this convergence of where you have dual headsets between noise canceling, your cell phone as well as stereo and music which are creating a lot of opportunities for us.

Great. It looks like some interesting things happening here.

(Operator Instructions). Jonathan Ho, William Blair.

Great quarter. With regard to the gross margins, can you kind of quantify what you think the impact of the proprietary products have been so far and what you expect sort of in 2009 in terms of the impact on that side? And just in general, what range of improvement you expect to see on the gross margin side.

Yes, Jonathan, the proprietary products represent just under 10% of our total sales. The margin on that business is about double our OEM margin. So, I hope that -- does that kind of answer your first question?

Yes, just generally speaking.

And then I think our goals that we've stated before, our long-term goals are to get that 10% up to 30% of our total sales. So, I think that as we -- I think as we look to grow that business this year, it could have a meaningful impact on the gross margin, primarily I think in 2009 in the device accessory business. And the mix there is really difficult because the OEM Bluetooth product carries a much lower margin than the aftermarket stuff. So, I think that mix is going to drive that a lot. But we would like to see that line of business in total that margin increase in 2009 to some degree anyway.

In terms of the operating expenses, can you maybe talk a little bit more about what you see as an opportunity in 2009 to continue improving and again maybe kind of quantify what you expect to see on that side?

First of all from a pure operational point of view and we're looking at what we call the assembly and packaging and then fulfillment, the primary drivers there are obviously the labor cost, order completion, and just overall people productivity. Freight is going to continue to be an issue. We've done an extraordinary job in terms of managing our freight out and freight in in this difficult market. We continue to harmonize where product is stored between Reno and Baltimore where we can minimize the freights, the splits.

Mentioned order completion if you look at a cost point of view is that the order completion which means that we create or -- when we have a lower order completion, it means that we have a backorder which means we have to process the order twice. Split shipments where you've got the spoons in Baltimore and the forks in Reno. That's a split shipment. And then transshipment is where you've got something in Baltimore that you need to ship to the West Coast because you don't have it in our Reno operation.

So, all those things are being harmonized. It's a very complicated algorithm to get the inventories right and get the deliveries right. And then on top of that, you have your people productivity which as David mentioned in our assembly and packaging center coming up is the productivity just continues to improve on a very rapid rate.

I would just add to that that the increase in inventory really it helps availability to our customers so that we're getting the sale. But it also -- to Bob's point really does -- it reduces the number of split shipments. It reduces the number of transshipments. So that does also have an impact on our -- a positive impact on reducing operating expenses.

The other area that we continue to really attack and we think there is still some leverage there especially on a year-over-year basis for next year is marketing. So, we spent a lot of money early in the year on things like the branding survey that Bob talked about on the proprietary products that that isn't going to repeat this year. Now, we may do more marketing of that product brand but it's not going to be to the extent that we spent early in the year.

Also, we were early in the year spending a lot of sort of one-off marketing dollars where we were putting ads in trade pubs and everything else. And what we've decided to do, we made the conscious decision to really limit that going forward and put that money rather into just enhancing and improving our knowledge tools. And a lot of that we can do electronically as well. So, I think marketing -- there is some real leverage to be pulled out of marketing as well.

Great. Can you talk a little about what is happening in terms of the softness of the current environment? You guys have talked about this for a number of quarters. But what segments are you seeing right now? And has this really shown up in terms of the sell-through that you're seeing with your end customers?

Yes, the sell-through is definitely slower, the spend. I mean we get with many of our customers and certainly our major customers point-of-sale information and the sell-through is slower. We've seen starting in the fourth quarter a year ago, we measured the spend by customer and we saw a tightness across all markets -- government markets, self-maintained user markets, retail, commercial VARs, and the spend went down. And it's really stayed down. And where we're moving the overall purchases per customer is by cross-sell.

And again, that's our major initiative is that we have 15 major product categories and our average customer is buying less than two. And they're capable of buying 10 and that's a real marketing and sales challenge is to get cross-sell across all of our areas which that will drive -- as we go forward, it will drive total dollars per customer. But we're expecting that spend per any one product category to remain relatively flat this year. So the only way to gain market share is to increase the number of customers we're doing business with and the cross-sell the number of categories that they are buying from us.

My final question is, right now, it looks like your guidance is implying something between 25% to 60% EPS growth. And this is in the face of sort of a slowing economy and uncertain environment. What gives you the confidence that you're going to be able to meet that same type of growth expectation and that we're past sort of what happened in the first couple of quarters in 2008?

I don't know that we are past at least in a macro sense what we saw in the first two quarters. I think what gives us confidence is how we've operated these last two quarters and that these initiatives that we put in place really took hold. And they took hold this quarter as I said before even to maybe a greater extent than we anticipated.

So, we've got -- we've got a lot of very strong convictions about what we've done these last two quarters. And we think that maintaining that run rate is very, very doable for us. And then, what we've done on the sale side too is the leadership changes that happened midway through or the early part of last year, we think that those are paying off. We look at that guidance more as compared to where we are now in the third and fourth quarter as opposed to what we did in the first two quarters.

And I think the other piece of that is that we are not anticipating further decline in the economy. We're really looking at the economy kind of staying where it is and I think if the reports that came out today there was not quite 1% growth in the quarter. So we're looking at the sustainability. We're also looking at a lot of the products that we're involved in are cost reduction products for our customers such as broadband. So, we're anticipating that the economy kind of bumps along the way it is right now and then we continue to drive these productivity initiatives and then try to drive the top end with these other strategies.

There are no other questions in queue at this time. I would like to turn the call back over to Robert Barnhill for closing remarks.

Great. Thank you. Good questions and I think in close just to kind of reiterate where we ended with Jonathan's question is that we're just intensely focused on continuing to improve earnings through this margin and gross profit and productivity initiatives and looking at expense reduction. And also that we're very focused on reducing concentration through core customer growth and their monthly purchases.

So we are excited. We're energized as we move into this new fiscal year and we believe that we are in a very strong position to prevail in a weak market and to really capitalize when the market strengthens and the new opportunities emerge. So, in the quarters to come, look forward to leveraging our capabilities and assets to deliver this earnings growth and success for customers, manufacturers, team members and shareowners. So, I really thank you for your support and look forward to talking to you next quarter if not before. Thanks.

Thank you all for your participation in today's conference. This concludes the presentation. You may now disconnect and have a good day.