Interface Inc (TILE) 2013 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q3 2013 Interface, Inc. earnings conference call. My name is Steve and I'll be your operator for today. At this time, all participants are in a listen-only mode. We will conduct a Q&A session towards the end of this conference. (Operator Instructions). As a reminder, this call is being recorded for replay purposes.

Now I'd like to turn the call over to Mr. David O'Shea, Vice President. Please proceed, sir.

Thank you, operator. Good morning, and welcome to Interface's conference call regarding third-quarter 2013 results. Joining us from the Company are Dan Hendrix, Chairman and Chief Executive Officer; and Patrick Lynch, Senior Vice President and Chief Financial Officer. Dan will review highlights from a quarter, as well as Interface's business outlook. Patrick will then review the Company's key performance metrics and financial results. We will then open the call for Q&A.

A copy of the earnings release can be downloaded off the Investor Relations section of Interface's website. An archived version of this conference call will also be available through that website.

Before we begin the formal remarks, please note that during today's conference call, management's comments regarding Interface's business, which are not historical information, are forward-looking statements. Forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from any such statements, including risks and uncertainties associated with the economic conditions in the commercial interiors industry, as well as the risks and uncertainties discussed under the heading Risk Factors in Item 1A of the Company's Annual Report on Form 10-K for the fiscal year ended December 30, 2012, which has been filed with the Securities and Exchange Commission. We direct all listeners to that document.

Any such forward-looking statements are made pursuant to the Private Securities Litigation Reform Act of 1995. The Company assumes no responsibility to update or revise forward-looking statements made during this call, and cautions listeners not to place undue reliance on any such forward-looking statements. Management's remarks during this call refer to certain non-GAAP measures. A reconciliation of these non-GAAP measures to the most comparable GAAP measures is contained in the Company's results release and Form 8-K filed with the SEC yesterday. These documents can be found in the Investor Relations portion of the Company's website, www.interfaceglobal.com.

Lastly, please note that this call is being recorded and broadcasted through Interface. It contains copyrighted material and may not be rerecorded or rebroadcast without Interface's express permission. Your participation on the call confirms your consent of the Company's taping and broadcasting of it.

Now I'd like to turn the call over to Dan Hendrix. Please go ahead, sir.

Thank you, David. Good morning, everyone. We're really pleased with the way the third quarter shaped up, with nice increases in sales, operating income, net income, and earnings per share. We also continued our drive to raise gross profit margins, pushing it up to 36.1%, up 200 basis points year-over-year, and up 70 basis points over the second quarter. And SG&A expenses came in where we forecasted in our last call at 25% of sales.

As we said in the earnings release, the Americas business was the star of the quarter, with all-time record sales and operating income for the region. It broke the previous sales record set in the third quarter last year, and the next highest operating income was way back in the second quarter of 2008, prior to the worldwide financial crisis.

Hitting these all-time quarterly records is remarkable when you consider that we are still about 30% below the 2007 peak of the commercial market. I also was pleased that we generated $28 million in cash during the quarter. We finished the quarter with $89 million of cash on the balance sheet. As we announced a few weeks ago, we'll soon be deploying a portion of our cash to redeem $27.5 million of our 7 5/8 senior notes.

We saw some much-needed improvement in our European business on a sequential basis, with sales up 9% in the quarter, compared with the second quarter. Year-over-year sales -- European sales were flat, as reported in US dollars, but down 6% in local currency. However, the year-over-year order comparison in Europe turned positive for the month of September, which is another good sign in Europe, overall, still maintaining a respectable profit level despite the challenging conditions in that region.

Our Asia-Pacific business turned in a strong quarter, with help coming from all across the region. In Southeast Asia, sales and operating income were up substantially. In China, we had a very good sales growth, mostly from local Chinese customers. In Australia, business was a bit soft in July and August in the run-up to their federal election, but it swung very positive in September with a post-election bounce.

The buildout of our new manufacturing facility in Minto, outside of Sydney, is coming along nicely. We've pushed the startup of the facility to the first week of January, primarily to avoid logistic issues surrounding the holidays and year-end activities. At our consumer business, floor sales were up 22% in the third quarter, which is significant, given the summer sale was in the third quarter last year, but was pulled forward into the second quarter this year.

Year-to-date sales were up 35% compared with the first nine months last year. We opened our 21st floor store during the quarter located in Miami. Same-store sales were up 25% during the quarter, and the stores in aggregate remained profitable, with the mature stores, of course, doing better than the newer ones. We also started seeing some solid growth in our Web business.

As we said in the earnings release, we've somewhat moderated our outlook for the fourth quarter, based on the softening order book, mainly in the US over the past six weeks. I can't say that the government shutdown is to blame, but I can say it sure as hell didn't help things. I also can say that we've seen some large corporate customers in the US moving projects out to next year.

And while on the topic of next year, I think we have a lot to look forward to. In the US and the UK -- which combined, represent about 60% of our business -- the general consensus of employment, nonresidential construction, architectural buildings, and office data, point to improvement. In Europe, economic indicators have turned more favorable, giving us additional comfort that the worst is behind us, and order trend is beginning to prove this out.

We expect our Asia-Pacific business to see sales growth from the startup of our new Australia facility, as lead-times for delivery in Australia become more competitive, and our service levels improve across all of Asia. This will, however, have a margin impact during the first part of the year, as we balance production among our three factories in the region.

Our floor business has plenty of headroom for growth, as we drive more traffic in the stores and on the Web, as we look to expand our store footprint. We expect to expand gross margins with lean manufacturing initiatives, and we expect SG&A expenses to continue trailing off as a percentage of sales. We also believe there's a big opportunity to improve our capital structure next year, as our 7 5/8 bonds become redeemable in their entirety in December of 2014.

With that, I'll turn it over to Patrick.

Thank you, and good morning, everyone. I'll take a few minutes to walk through the financial highlights for the quarter. Just as a quick reminder, given the sale of Bentley's Prince Street in 2012, the results for Bentley Prince Street for the third quarter of 2012 and all prior periods have been classified as discontinued operations. Sales in the third quarter of 2013 were up 4.8% to $254.5 million compared with $242.9 million in the third quarter 2012. On a consolidated basis, there was not a significant currency impact for the quarter.

As anticipated in our second-quarter call, we continue to see gross profit margin expansion in 2013. We saw an improvement in gross profit margin of 200 basis points versus the third quarter of 2012, and a sequential improvement of 70 basis points versus the second quarter of 2013. Dan has already mentioned the record quarter we experienced in the Americas due to the success of our segmentation strategy, as well as the continued rebound of the commercial market.

We're very pleased with the success of our hospitality segment, which showed improvement up 55% versus the second 2012 third-quarter. Our success in hospitality is a great validation of our investments in the segmentation strategy over the last several years. We're also encouraged by the improvement in the Asia-Pacific market, which experienced a sales increase of 10% during the quarter. On a segment basis, our increases in the regions were led by the corporate office market, retail, and hospitality.

Southeast Asia and China performed very well, delivering double-digit sales increases. We're also pleased to report that we turned a small profit in China for the quarter. On a local currency basis, our sales in Australia were up 10%, but due to the weakening of the Australian dollar, we saw a decline of 3% as reported in US dollars.

In Europe, we experienced a 6% sales decline in local currency, which translated into flat performance in US dollars for the quarter. We experienced sales declines in corporate office retail and the residential markets. Despite this year-over-year decline, we did see improved gross profit margin improvement in the region. We're also very pleased with the region's performance on a sequential basis, as it delivered solid increases in sales and operating income for the second -- versus the second quarter of 2013.

For the third quarter on a consolidated basis, gross margin increased to 36.1% compared with 34.1% in the third quarter of 2012. As in the second quarter, the year-over-year increase in gross margin was the result of higher fixed costs absorption on higher production volume and continued benefits from our lean initiatives. Our raw material prices were effectively flat in the third quarter of 2013 versus the same period in 2012.

In the third quarter of 2013, SG&A increased to $63.9 million from $58 million last year. As a percentage of sales, SG&A increased 120 basis points to 25.1% compared with 23.9% a year ago. As discussed on our second-quarter call, we did expect SG&A to decrease as a percentage of sales on a sequential basis, and we're happy with the over 130 basis point of reduction versus the second quarter of 2013.

Operating income in the third quarter was $27.8 million or 10.9% of sales. This compares to operating income in the third quarter of $24.8 million or 10.2% of sales, excluding the $800,000 related to the restructuring charges and $1 million of expenses related to our fire at our Australian manufacturing facility in the third quarter of 2012. Interest expense in the third quarter was flat at $6.3 million when compared to the third quarter of 2012. Depreciation and amortization was $8 million in the third quarter of 2013 compared with $7.7 million in the third quarter of 2012.

Turning to the balance sheet, we exited the quarter with $89.4 million compared with $91.7 million at the end of third quarter last year, and $90.5 million at the end of 2012. While on the topic of liquidity, I wanted to briefly discuss the new credit facility we entered into on Tuesday. This is a global credit facility with total availability of $200 million, and it will allow us to draw down funds as needed, both domestically and internationally. This replaces our domestic ABL facility and some other smaller facilities we had in place throughout the world. We are very pleased with the structure and pricing of this new facility, and hope to strategically employ it when we need to, to further strengthen our capital structure.

With that, I will open the call up for questions. Operator?

(Operator Instructions). David MacGregor, Longbow Research.

Good luck -- or congratulations on the progress. Nice to see those margins up. Just to start with those margins, if you will -- you talked about the market is still down about 30% from the peak. And so I guess I'm just trying to get a sense of what the upside might be from a leverage standpoint? And just how much available capacity you've got today? Could you just review capacity utilization rates in the US and Europe and Asia for us?

Yes. In the US, remember the capacity is bottlenecked. It's not you go out and build a new plant. In the US, we're running about 75% of capacity now today, with the intention of expanding that next year pretty significantly. If you go to Asia-Pacific, our Thailand plant is running 24/7, seven days a week, but that's going to be alleviated when we start the Australian plant up. And once that happens, it will be at about 70% capacity.

Our China plant as well is running at about 100% capacity, supplying product to Australia, and that will go back down about 60%, and the Australian plant will be at about 60%. In Europe, we have a lot of capacity. We're at about 60% of capacity in Europe.

60%, okay. And expansion in the US for next year, what kind of capital will that require?

Well, we're looking at it right now. As we kind of go through the budget season here in November, we'll have further detail. But right now, we're just still kind of evaluating different options right now.

Do you have a sense of what kind of revenue potential the incremental capacity you are contemplating would support?

Not at this time, no.

Okay. And then just in Australia, you talked about the fact that there could be some first half 2014 margin pressure as you ramp that facility up. Can you elaborate a little further on that for us?

Sure. I think there will be a little bit naturally. As we start up the facility, you might see 50 basis point kind of compression, you know, on a total basis, early part of next year related to Australia.

David, there's always -- you know what you're looking at is, you've got downsize production in China and Thailand, which creates some disruption as you do that. And you've got to increase the capacity in Australia and then ramp it up. So you're always having inefficiencies when you're moving around that kind of volume.

No, understood, understood. It'd be nice to get that plant up and running. How quickly can you rebuild the quick turn business that you've given up there?

Well, when we start it up in January, we'll be at three weeks. So, we're there as far as the quick turn.

Okay, that's great. And then just, finally, you talked about the Chinese plant turning a small profit. Can you elaborate on the expectations for 2014, given that you're going to have to move to a lower capacity utilization rate once Australia comes up?

Well, yes -- I think we're going to -- our idea is to grow the China business 15%. That's what we think the market is growing. And as you grow into that 15% growth, you're going to take up some of that capacity that we are sending to Thailand -- I mean, excuse me, sending to Australia. We would expect China to be profitable next year.

Sorry, if I could just ask one more. You've done well in a number of verticals that you highlighted in your press release. I'm just wondering if you're gaining share or what you're seeing in terms of vertical market development? And are you adding salespeople as a driver behind those numbers?

Yes to all three of those questions or data points you asked. I think in the hospitality market, we're trying to convert the broadloom Axminster business to Carpet Tile, and we're having success in that. I think it's up 55%, if I got the number right, in the US -- or in Americas. We're also rolling Interface hospitality out globally. Carpet Tile has a very, very, very minute share of the global hospitality market, which we estimate at around $1.5 billion.

And so yes, we're one of the only big players trying to convert the broadloom to Carpet Tile. And that's all market share gains for us.

Great. Congratulations on all the progress. Thank you.

Mike Wood, Macquarie Capital.

He seems to have dropped off. Your next question comes from the line of Sam Darkatsh from Raymond James. Please go ahead.

Yes, Sam Darkatsh, Raymond James. (multiple speakers) First of all, a couple of housekeeping questions, piggybacking off of one of David's questions. When you're talking about the 50 basis points of gross margin pressure early next year because of the rebalancing of the plants, are you talking companywide? Or are you just talking just in Asia?

Well, I was talking companywide on a sequential basis from Q4 to Q1.

Okay, on a sequential basis. Okay, very good. I was concerned there for a second. Second housekeeping question. The floor business, the overall growth was less than that of the comp store sales. I'm guessing the differential there is the Web catalog business? (multiple speakers) Could you help us what the growth rates might have been there versus the stores?

Yes. That was high-single/low-double-digit kind of growth.

On the Web catalog?

That's right.

Okay. And then, Dan, my final question, I mean, it seems as though -- I know orders slowed tail-end of Q3, but then it seems like they picked up a fair amount in October. So how do you -- you're balancing out -- it seems like you're being much more circumspect on your fourth quarter results despite the fact that it seems like orders may have picked up early in the quarter. Help us reconcile those two things.

Well, we -- I mean the fourth quarter orders is a pretty easy comp. It was $230 million last year, I think. So you're comparing it to a comp that's pretty easy.

I understand. Okay. So it's more of the directionally what you're seeing at a high-level versus the absolute year-on-year change at this point is more concerning to you?

Right.

Okay, got it. Thank you very much.

Mike Wood, Macquarie Capital.

In terms of the recent order weakness that you talked about in the press release, can you give us some more color in terms of what the office growth was in the Americas versus the non-office orders?

Well, we don't track the segmentation by orders. We track segmentation by shipments. In the Americas, the corporate office was up 4% in Q3 in shipments, and overall sales were up 6%. So, the non-corporate office piece was up, I guess, in aggregate -- I don't know (multiple speakers) 8% or so?

Yes.

Got it. In terms of the trail-off, though, towards the end of the quarter, I guess were there specific pockets that saw that, that may help shed light into whether it was government shutdown-related or --?

I would say that what we're seeing is there's a lot of projects that we are in the process of bidding out and getting specified on. And the major projects keep getting pushed out and they got pushed out during that period. The large corporations just didn't pull the trigger on them. And when we talk about being choppy, the large order businesses is not an instantly part of our business and that seemed to get delayed, those projects.

Okay, so that would be in office. And then in terms of the minimizing the downtime between turnover in the plants and the gross margin improvement that you saw, was that largely a one-time fix that was implemented? Or will there be an ongoing margin benefit from continued process improvement?

I think to get the margin improvement, we have process improvements going on with lean. Thailand, we've been very inefficient in Thailand and we've been also working on the US business. But the margin improvements are also going to have to come through throughput. We need to increase the throughput to the plants to get continued margin improvement as well.

Got it. And also in terms of SG&A going into the fourth quarter, can you give us a sense of the absolute dollar directional change?

I think it will be sequentially flat.

Thank you.

John Baugh, Stifel.

Nice quarter. I wanted to ask on the orders, can we go into a little more -- and you can do it sequentially or year-over-year, it doesn't matter -- you know, get into Europe and maybe parse it out, the UK versus everything else, and then how that compared with the US. I see a flat, I think, order number for the quarter. Thank you.

Yes, you know, orders in the second quarter -- or sorry, in the third quarter were in the Americas up 2%. Europe in US dollars were up 4%, and then Asia-Pacific was down, includes Australia and Asia, 18%. So, a balance for the whole quarter. It was about right at flat 255 million orders.

And so that Asia-Pacific number, was there something timing or --?

Yes, there -- if you remember, we had the fire last year right in the beginning of the third quarter. And so we had a lot of order influx in Australia, where people were trying to place their orders to get in line for the production, because they knew that we had longer lead-times. So you had an abnormal amount of orders in Australia getting entered in the third quarter.

Got it. And I don't -- an earlier questioner was implying that orders have rebounded significantly in October. Did you say that? Or did I miss that? Or is that not a right conclusion? Or I'm confused.

Yes, we've talked about it. The order trend in the first three weeks, as a group, were up 10% in the first three weeks. The Americas was 10%, the European business was up 20% in US dollars, and then Asia-Pacific continues to be down around 15%.

Okay. And that would -- again, refresh our memory on how much of that would ship in, say, this quarter versus in the next year?

Well, we -- considering six to eight-week lead-time, half; half of the quarter's orders are shipped.

Okay. And do you have any goals -- I realize you're right in the middle of your budgeting process for next year, but I'm curious as to -- I guess a couple of numbers, thoughts on the floor, store expansion, and then how we might think about SG&A in light of that and other obviously consolidated business? Thank you.

As far as the floor expansion, there's 10 more markets that we're looking at that are Tier 1 markets. So we're going to go through that budget process and look at that. We're also -- have a mindset to make money for next year, so we're going to sort of balance the floor expansion with making money to some extent.

What was the second part of that question?

Just a thought on SG&A and how that, either as a percentage of revenue or dollars, would play out next year?

Well, I think we've got to start driving the SG&A percentage down; 25% is too high. So we're going to really take a hard look at SG&A, and what can grow the top line and what can't, and be very selective about what we invest in.

Great. Thank you. Good luck.

Thanks.

Kathryn Thompson, Thompson Research Group.

This is Wenjun sitting in for Kathryn. I just have one more question on margins. Could you give more color on how much of the year-over-year margin improvement was better utilization versus price and mix?

Yes -- no, I think it was better utilization, it was better execution in our -- specifically, in our Americas manufacturing; price mix on a year-over-year basis was pretty even. Pricing is up a little bit. Mix really didn't have a big impact. It's really just better efficiencies, better execution in our manufacturing facilities.

Okay. And how is your outlook on that question and the remainder of the year?

Seems to be the same. The raw material environment seems to be pretty stable, as it has been for over 18 months now. The near-term, at least through the balance of 2013, that is expected to be pretty stable. So, and we continue to -- hopefully, continue to harvest the benefits of all the lean manufacturing initiatives we've put in place. So it should be consistent through the balance of the year.

Okay. Thank you so much for taking my question.

Thank you.

Keith Hughes, SunTrust.

You talked earlier about capacity expansions. And so it appears you're preparing for an upcycle, we're running over some period of time. So to get back to your answer to the last question, Dan, on controlling SG&A, that's not usually a period where SG&A dollars come down. How are you looking at SG&A for next year, in light of the capacity expansion?

Well, I don't think they're going to come down. My anticipation is that as a percentage, they're going to come down, but not absolute dollars. And we're going to grow the top line.

Do you have an internal goal to grow SG&A some percentage of, let's say, a half of what sales grow or something along those lines?

Yes, we have a -- we actually do it with a throughput model, which you have to control SG&A to get the throughput on the sales line. So yes, we expect SG&A to be step function, where you actually see it go down as sales go up, as a percentage. (multiple speakers) So, yes, we have internal goals on how much will increase.

Okay. And you had referred earlier to some bonds that you can bring in at the end of 2014. Is it fair to say you're going to try to generate cash and pay off as much of those as you can? Are you looking to roll them over? What's the long-term capital plan?

Sure. All of the above. We expect to continue to generate free cash, and then selectively repay the senior notes utilizing the call features that we have, the 10% redemption feature, and then the full call protection steps in next December. So, the new credit facility kind of is a first step in the process of addressing the capital structure and creating options for us, when that time comes next year to refinance. So we have options in front of us. But right now, we haven't made any decisions about that yet.

Okay, thank you.

Glenn Wortman, Sidoti.

Just on the gross margin, would you expect that to ramp back up fairly quickly as you adjust to a new plant coming online in 2014?

Sure. Yes. We'd expect to get back to the margins we have in Asia-Pacific in the second quarter next year.

Okay. And then second on Australia, how much are sales now down from the peak? And how soon do you think you can get back to prior levels?

Well, the peak was about $120 million, right? But I would say the market is down. I think before the fire started, we were at about $100 million -- a little over $100 million in sales. We think we're going to end a little over $80 million, so there's $17 million of market share that we think we can get back pretty quick.

Okay. All right, thanks for taking my questions.

Philip Volpicelli, Deutsche Bank.

(technical difficulty) on for Philip Volpicelli. My first question for you has to do with your Americas business. You gave some good color on the hospitality portion. I was curious, given the complications going on with the government, do you foresee this being a big headwind next year, you know, with respect to orders and how you expect next year to kind of play out?

Sure. I mean, we weren't terribly bullish about the government business, even going into 2013. And it's kind of exceeded our expectation. I mean, our government business year-to-date is up 12%. But yes, I would imagine going into 2014, we'll continue to be in the negative 5%, up 5%, kind of category expectation around the government business in the US. And just to give you a sense, total government for us in our Americas business was about 7% of the total portfolio.

7%. Okay, thank you. And then also, in terms of the education markets and some of your other markets, can you touch base on them a little bit, what you're seeing there, you're seeing some more investment?

Yes, our education business, again, in the Americas business continues to do about what we thought. It's up low-single digits on a full-year basis. So we're doing probably better than we had anticipated at in the beginning of the year. And again, we'll probably continue to bracket that in a similar fashion, as we did in the government business going into 2014, kind of flat to up (multiple speakers) --.

Okay, thank you. And then one last question. It seems like you're turning the corner here on the -- with respect to the Australian fire. Things seem to be coming back together. You obviously called 10% of your notes. What would you expect when you think about next year -- excuse me one second. What would you expect -- oh, I'm sorry. Have you received the proceeds from the business interruption insurance yet? Or are you still waiting on those?

We have received $55 million in aggregate in proceeds. They have not been earmarked for any of the particular elements of the claim to date. They've all been advanced kind of payments against our full claim. And so, we're not exactly clear what the $55 million is yet to date that it's really attributable to. Now we'll have better visibility here in Q4 when we have our kind of second round of face-to-face meetings with the adjust -- with the insurance company.

Okay. And have you disclosed what your full claim was for that?

Full claim so far has been $80 million.

$80 million. And if everything were to work out, is there a timeline by which you think you might be able to realize all that?

It's unclear at this point. It's just the early stages of the negotiation.

Okay. Fair enough. Thanks a lot and good luck next quarter.

David MacGregor, Longbow Research. (Operator Instructions)

Dan, with respect to the previous question on floor, you had indicated that in 2014, the plan might be that you lighten up a little bit on growth and pursue profitability. Is there any way you can talk about how profitable that business is today, either at the gross margin or at the EBITDA margin line?

Well, today, it's losing money. We've made significant investments in that business. At the gross profit level, it's the highest gross profit business that we have, by a lot, actually.

Can you talk about what that would be?

It's in the 50% category gross profit margin. (multiple speakers)

So it's really just about leveraging the SG&A at this point?

Correct.

Okay. How many stores are in the comp base?

15 on a year-over-year basis that have been open 12 months -- of the 21.

Okay. And that 50% gross margin, how does that compare with where you were a year ago?

It's right about the same, maybe up a little bit. But it's been largely a pretty consistent gross profit margin in the mid to low 50s pretty consistently.

Which we priced the product to be, though.

Okay, good. And then just one last question, just on Europe. I mean, the orders have turned positive. That's pretty encouraging. But how much -- at least by how much do you think you've reduced your breakeven point in Europe over the last couple of years?

Well, I mean, it's been a profitable business all the way through. I mean we've put up 8% kind of EBIT margins here in Q3 in our European business. So, it's held in there at a decent level of profitability, even on flat to down sales for the last three or four years. But we took out the manufacturing facility last spring, took out $10 million in fixed manufacturing costs. So we've rightsized that business several times over the last decade (multiple speakers) --

To keep it profitable.

(multiple speakers) -- to maintain this level of profitability. So we should see some nice leverage going forward on top line growth in the division.

Yes, I guess, David, one way to look at it is it's one of our highest contribution margin businesses once you get growth.

Yes, I was just about to ask what the contribution margins there might be now?

25-plus-percent.

Okay, great. Thanks a lot, guys.

Stephen Kim, Barclays.

It's John Coyle filling in for Steve. I'm just trying to reconcile just your commentary in the press release on the orders -- or sorry, on the fourth quarter, and then what you're seeing for orders in October. I mean, to me, it appears that the comps are a bit more difficult in the fourth quarter. Was there an acceleration in orders last year sequentially from October into November/December that's driving your commentary from the press release?

I would say that we had a deceleration of orders from third quarter/fourth quarter last year. And we're running at a pretty high level in our manufacturing plants, particularly in the United States, that we have to back off on, based on the order activity. We're at six-week lead-times, and so, we're pulling everything in we can run. And we're seeing that we -- we didn't see the same level of activity in the last six weeks of the quarter that we had in the first six weeks. So we ate into backlog in the US business.

Got it. But in the fourth quarter of 2012, did orders sequentially improve at the end of the year?

No, they declined.

They declined. Okay.

They went from about [$255 million to $230 million] in the third to the fourth quarter last year.

So from October to November and December, the comps should ease, correct?

Comps were fairly easy now. That's why we're up 10% in the first three weeks, because we had a pretty easy comp in the fourth quarter last year.

Okay. All right, thank you.

You have no further questions at this time. (Operator Instructions)

Well, thank you. Thank you for listening to our call. And hopefully, we'll have a really good fourth quarter. Thanks. Thanks a lot.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.