Trex Company Inc (TREX) 2006 Q2 法說會逐字稿

Welcome to the Trex Company Second Quarter Conference Call. [OPERATOR INSTRUCTIONS] As a reminder, this conference is being recorded July 27, 2006. I would now like to turn the conference over to Harriet Fried. Please go ahead madam.

Thank you everyone for joining us today. With us on the call are Tony Cavanna, Chairman, and CEO of Trex Company and Paul Fletcher, CFO. The Company issued a press release this morning containing financial results for the second quarter of 2006. This release is available on the Company's web site, as well as on various financial web sites. A replay of this conference call, will be available through Thursday, August 3rd. The call is also being webcast on the investor relation's page of the Company's web site, where it will be available for thirty days.

Before we begin, let me remind you that statements on this call regarding expected sales performance and operating results, projections of net sales and earning per share, and anticipated financial condition, constitutes forward-looking statements and are subject to risks and uncertainties that could cause the actual results to differ materially. Such risks and uncertainties include the extend of market acceptance of the Company's product, sensitivity to general economic conditions, and the highly competitive market in which the Company operates.

The Company's report on 10K filed with the SEC, in March 2006, and its subsequent filings on Form 10Q, discuss some of the important risk factors that could cause actual results to differ from those expressed or implied on this call. The Company disclaims any obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. With that introduction, I will turn the call over to Mr. Cavanna. Go ahead, please Tony.

Thank you Harriet and good morning. A few hours ago, we released our financial results for the second quarter of 2006. Revenue of $121.5 million represents an increase of 47% over the second quarter of 2005. Trex's net income was $7.1 million or $0.47 per diluted share, which compares favorably to 2005's second quarter loss of $0.07 per diluted share.

Now, I would like to turn the call over, to Paul Fletcher, our CFO, who will describe our financial performance and financial status in more detail.

Thank you, Tony. As you are aware, our press release was issued this morning and the numbers I will reference are contained in the last three pages of the release as a condensed consolidated statement of operations, condensed consolidated balance sheet, and condensed consolidated statement of cash flow.

The second quarter of 2006, net sales were $121.5 million, compared to 2005 second quarter net sales of $82.9 million, an increase of 47%. Modest inventory levels across each of our channels, strong consumer demand, and our expanded line of decking and railing product all contributed to the year-over-year revenue growth.

Net income in the second quarter of 2006, was $7.1 million or $0.47 per share, compared to a net loss of $1 million, or $0.07 per share, for the second quarter of 2005. Net income for the six months, ended June 30, 2006 was $11.3 million, or $0.76 per share, compared to $7.4 million for the six months, ended June 30, 2005 or $0.50 per diluted share.

Gross profits for the 2006 second quarter, represented 29% of sales. A slight increase for the second quarter of 2005 gross margins of 28%. The second quarter of 2006 gross profit margins compared to a year ago, was positively impacted by price increases, improved production performance, and higher manufacturing utilization in each of our three plants.

Offsetting these positive factors was higher average purchase Poly costs and incremental labor expenses associated with the quality initiatives implemented at the start of 2006. The price of Poly material increased approximately 16% over the second quarter of 2005.

In the second quarter of 2006, SG&A expenses totaled $23.6 million, compared to $25 million in the second quarter of 2005. This decline in total SG&A expenses was primarily attributed to constrained spending in all areas including branding and the elimination of start-up expenses in Olive Branch from a year ago. SG&A expenses as percent of revenue decreased to 19%, compared to 30% in the second quarter of 2005.

As a result of the operating performance during the first six months of 2006 and the reduction in total debt levels our liquidity and leverage measures were significantly improved at June 30, 2006.

Debt to trailing 12 months EBITDA improved from 3.8 times at December 31, 2005 to 2.2 at June 30, 2006. Debt to total capitalization improved from 32% at December 31, 2005 to 26% at June 30, 2006. As of June 30, 2006, total debt amounted to $61.6 million, down $13 million from December 31, 2005.

Accounts receivable at quarter end amounted to $38.2 million, which was higher than expected due to the strong shipment activity in June, as well as early bi-shipments, which carried extended-payment terms through June 30, 2006. Majority of the receivable balance at June 30, 2006 was collected on a timely basis in the month of July.

Total inventories increased from $48.9 million at March 31, 2006 to $51.5 million at June 30, 2005. Finished goods inventories declined by $4 million during the June quarter while raw material inventories increased by $6 million during the same period.

Cash flow from operations amounted to $25.4 million in the first half on 2006, which compares favorably to the $16.6 million in the first six months of 2005. Capital expenditures in the first half of 2006 amounted to $7 million.

The primary areas of investment included plastic processing, information technology and long lead manufacturing equipment. Tony?.

Thanks, Paul. Adding to Paul's review of the quarter, I have several comments. Recorded revenue for the first half of 2006 is $226.8 million, consistent with the revenue guidance of 220 to 230 million, which I confirmed during our April first quarter conference call.

First half income is $0.76 per diluted share and compares favorably to 2005's income of $0.50 per diluted share, an increase of 52%. Our customers have commented favorably on the improved quality of the product that they have received. We have made considerable progress in meeting our new quality standards.

Concurrently, we have been working on raising our production rates and efficiencies while satisfying these new product standards. Today, all our manufacturing lines are operating and manufacturing efficiencies approaching pre-adjustment standards.

Poly price for the second quarter remained flat with that of the first quarter. Producers of virgin polyethylene are in the process of attempting to raise the current market price. At this time we are cautiously optimistic that the virgin price increase will meet with minimal success. Therefore, we are not anticipating price escalation for recycled poly in the second half of 2006.

In order to continue to use low-cost, recycled poly, we are making a commitment the way poly processing facility. This processing facility, the first of potentially three, will allow us to continue to use lower cost raw materials while assuring that sub-par product aesthetics, caused by poly contamination, will not be an issue. This processing project will initially be tested at one plant here in Winchester, and is expected to be in operation in 2007.

Our 2006 early-buy program proved to be successful as demonstrated by 2006 first half sales revenue increase of 31% above 2005's revenue, 227 million compared to 173 million. Approximately 3% of the 31% revenue increase was contributed by selling a richer product mix. Accents, Brasilia and railing components represent 82% of the mix in the second quarter of 2006 and compares to 62% in 2005 for the same item. New products and product enhancements are critical to a long-term success.

Also supporting our sales increase is our continued growth at Home Depot. At year-end 2005, Trex was stocked at 300 stores. Today, Trex is stocked at 590 stores and we expect to be stocked at 800 stores at year-end 2006. This roll out will benefit 2007 sales program.

Although, not significant from a volume stand point, I am pleased to report that our product and market developments for Trex's new privacy fencing product seclusion is progressing nicely. While the volume is small in the overall Trex total, the product continues to receive laudatory comment as it relates to its aesthetics, product functionality and ease of installation. We still expect to move from the market development stage to full introduction in [inaudible] time in 2007.

During our April, 2006 conference call, I indicated that we were evaluating a need for installing additional manufacturing capacity. Today, I am able to report that we have completed the evaluation and have decided to install two manufacturing lines, one at our Fernley, Nevada plant and one at our Olive Branch, Mississippi facility. These lines are expected to start up in the first quarter and third quarter 2007. As a result of this expansion program and previously approved projects, total capital expenditures for a full-year 2006, are estimated between $25 and $30 million.

In 2006, we expect full-year revenue to be between $340 and $350 million, with earnings of $0.95 to $1.05 per diluted share. This concludes our prepared remarks and we are ready to answer questions. Harriet.

[OPERATOR INSTRUCTIONS] One moment please for the first question. Our first question is from Keith Hughes with SunTrust. Please proceed with your question, sir.

Thank you. With -- as the quality initiatives are launched down in the second quarter, if we have a good quarter in the third on volume, will we see even more gross margin progress?

The answer to your question -- I'll go to the answer first and then I will refer to your original introduction to your question. I expect the gross margin to move up, Keith, in a program way probably slowly like it did from our first quarter to second quarter, but I would tell you that our journey on this quality program is not going to wind down. We have a long way to go and part of it is consistency in making sure that we don't regress in some of our procedures and really institutionalize that at the manufacturing floor. So, we're going to be very cautious as we go forward and part of the reason for the Poly processing program that I spoke in my prepared remarks, are part of that whole journey.

Okay, and a final question. Yesterday, one of your competitors reported some really weak unit results in terms of its decking businesses. Do you feel like the good revenues in the quarters was that share gain?

I don't know if we have share gain, Keith, but I think we've had some good unit increases, besides just dollars.

Okay, thank you.

Our next question is from John Baugh, with Stifel Nicholas. Please proceed with your question, sir.

Is your Home Depot business offer similar kind of percentage with the increase in store account that you sighted. And some flavor, Tony, on what you think they're doing veranda versus Trex's would be helpful. And then the second question would be what is this Poly processing plant cost per plan? And I guess you're going to do three of them. And the timing of those CapEx is that 2006 or 2007?

Let me answer the last question first, John. We're not committed to anything more than the first plan right now. And we're going to -- a lot of the equipment is already installed. We expect to be operating it by the end the year and probably even the third quarter on a partial basis. And we're going to be evaluating to make sure that what we're anticipating as a reward for this operation actually materializes and gives us the return of investment we're looking for. As far as our sales at Home Depot, they are picking up nicely. I haven't done the calculation on the ratio of the number of stores, but its well -- it's up very significantly from last year.

Okay. And then lastly, give us a flavor for how the [corner progress] in terms of manufacturing efficiency, I am thinking about defect rates, which I know have gone from 6% before the quality initiatives to like 10, and I think we're backing off. Where kind of–its mentioned you're not through with this journey yet, but where are you in terms of the speed of production and off-quality ratios, etc.?

Okay. You might want to add that to your question, the question previously about margins that I believe Keith asked. The manufacturing rates, in other words, the boards that we make for unit time is approaching back to where we were before. However, the material efficiencies have not come back to where we want them to be. You mentioned something about a 5% or 6% of material year loss, and it had regressed to 10% loss. It actually had regressed to more than that. And a matter of fact it's more than 10%. So what it amounts to is there's where our gross margins are going to start picking up once we start making the product at today's rates and maybe even higher, but with much higher material efficiency. Are you with me?

Okay, so you're still a very high percentage of off-quality, in terms of production, but your speeds are back up?

That's right.

And where -- how did you progress through the quarter Tony, on that front, or did you really not have a chance because you're at peak production and you expect in the second half of the year, then going into 2007 with some of these process changes to see that yield number move a lot?

The yield number is starting to move in the right direction, but not significantly yet, John.

Okay. And I mean, I'm not going to pin you to a number, but you're going to do some things in the plant this fall that you hope will increase yield. One of them possibly being this Poly processing equipment?

That's correct.

Okay. Thank you.

Our next question comes from Bill Gibson with Nollenberger Capital. Please proceed with your question sir.

Tony, where are we going exit the year in terms of capacity before the two new lines?

It's somewhere around $420 million to $430 million worth.

Okay. And then we're putting two new lines on top of that?

That's right.

Okay. And what's your expectations on fencing in terms of just how meaningful that could be?

I think that's going to be very meaningful, Bill. But it will probably be two, three years before it's significant in our overall income statement. We were tight on capacity overall, so when you're tight on capacity, you don't always relegate enough capacity opportunity to the new products and we've done that judiciously I think. And we're in the process of relegating, devoting more capacity to that product line as we speak. And that's part of the reason we're adding those two lines.

Would that bring us to four in Olive Branch?

That would us to four in Olive Branch, correct.

Okay, thanks, Tony.

Our next question is from Michael Ward with CitiGroup. Please go ahead with your question.

Good morning, just a question for you following up on the previous callers questions regarding one of your competitors and the decline they saw in their business in the quarter. And one of reasons they sighted, they weren't sure, but they sighted a possible inventory building in the channel. I'm wondering what you can comment, if you can comment in that regard? And then just secondly, the SG&A, the lower than expected SG&A in the quarter, how sustainable do you see that is going forward given that you said it's -- paired back spending on branding and other areas as well and also the tax rate, lower tax rate. What should we expect going forward there?

Why don't we let Paul respond to the lower tax rate and then I'll come back and it will go to two questions.

Thank you.

Michael, I think the anticipated effective rate for the year with be 35% to 35 ½ %.

Okay.

Okay. On as far as inventories are concerned; we delivered a lot of product at the end -- in June and probably the later half of June, as we were catching up on orders, really all the way going back to the early buy. So when we got a snapshot of the inventory levels in the -- at June 30th, which is the cut off date, they were on the high side of what I call normal, but they're on the high side. But I'm not surprised because basically most of our product had just arrived in the last ten days of the month. All our distributors and dealers are telling us that sell through is very strong and I can only tell you that from antidotal standpoint without numbers, but we are cautiously optimistic that, that sell through is actually taking place. As far as SG&A concerned, it's not going to be back-end loaded. In other words, we're not going to be catching up on SG&A expenses that were deferred in the first two quarter of the year. The percentage of sales will go up a little bit as sales drop because of our seasonal business, but we expect to stay on the same trend that we've been working on through the whole year.

Thank you.

Our next question comes from Trey Grooms with Stephens Incorporated. Please go ahead with your question.

Good morning and nice quarter.

Thank you.

How much -- I know you touched on it briefly, but how much did you guys spend on branding in the quarter?

We said it was --

It was down somewhat or you had pared it back somewhat, but how much was -- is there?

All total, Paul will answer that.

Trey, branding in the quarter, as we define it, was about $7.5 million.

Okay, and that in going forward, I know the second quarter is usually your high point for branding throughout the year. Do you see that paring back on that throughout the rest of the year relative to what you had planned on doing?

Not at the same pace as you said. Most of the discretionary spending and branding is in the first half, so, there will be promotion activity, co-op activity and so on, but I think we will come in less than what we expect but it won't be at the same pace in the first half.

Trey, let me -- I've got this little commentary to that. We're not backing off from branding our products. For those of you who are on the conference call and the previous couple of conference calls, even going back to last year, heard me say that we were going to evaluate everything we are doing and making sure we got full value for our expenditures.

Part of the cutback is the fact that we are actually doing that and let's keep this conversation specifically to branding. We're not going weaken our brand name franchise and if anything, we're getting more value for the dollars that we're spending and then once we've got that platform, we will be resuming our spending to maintain our brand identity.

Okay, great. And could you break out Brasilia as far as the percent of revenue? We've got kind of a combined --

Let me just say it's less than 10%.

Less than 10?

Yes.

And, where are you guys at in your progress on the -- you've spoken of, because I know you had to put a lot of leg room on the front end with the quality control initiative and you had mentioned that as the year goes on later in the year, you could see possibly automating that. Where do you guys stand on that process?

At the moment, we still have the high labor rates, high number of people doing manual labor. As part of the processing plant that I referred to, that's going to be the first stage of removing some of that manual inspection.

Great. Thanks a lot guys.

Our next question comes from Robert Kelly with Sidoti and Company. Please go ahead with your question.

Gentlemen, nice quarter. A couple -- a question on the processing plant. Processing plant, when all three phases are finished, will that cover your entire raw material supply or --

No, no, not -- see, when we talk about recycled plastics, I wish there was one category that's recycled plastics. Our recycled plastics is made up of 5 or 6 different categories that we sort at different places in different forms. It's going to be the part that will elevate the quality level of the film that we buy.

Right.

The -- we buy big bales with labels on them with bags full of -- what do you call it, register sticks and so forth. So, we've got to clean all that up and then we're going to expect to put it in a form that not only is cleaned up it will also enhance our production rates because now when we're finished, it'll be in some sort of pellet form rather than loose film.

Then how much of that is your mix now or will it be one -- ?

It's more than 50%.

And then also on the sales guidance that you guys gave for the back half of the year.

Alright.

Does that include the full benefit of the 11% price increase?

Yes, it does.

So, on a volume basis, it's going to be down year-over-year versus the second half 2005? Is that a result of the strong second half or just seasonality?

No, what it amounts to is let me give you a little bit of a history. In the fourth quarter of 2005 and really in December, specifically, because you guys only hear it by quarters, our sales rate was very, very high and the reason for that was that we had -- our early-buy program called for us to have a price increase on January 1st which was different than our early-buy programs in previous years.

Because of that, our orders and deliveries in December were very high. If I tried to take away that number, which I call on top of norm, and put it back onto a normalized basis and compare that to what I projected for the second half and actually the fourth quarter of 2006, which I didn't give you that breakdown, we will actually be up 14% to 15% in unit.

Okay, a tough year-over-year comparison. And then the quality, the direct labor that you have in your cost-to-goods sold kind of dragging down your gross margin. Sequentially, we should expect that to kind of fall off or is that more of an 2007 story?

It's at least an 2007 story and maybe even a latter mid-year 2007.

And finally, on the SG&A, it looks like you guys are running the first half of the year about 10% below your 2005 levels. If we think about the rest of 2006 and into 2007, similar declines or mid-single digit declines in the SG&A spend?

It will probably be staying at that lower level.

Okay, thanks a lot.

Our next question comes from Roy [Smalley] with Mendota Capital Management. Please go ahead with your question, sir.

Hi, thanks for taking my call. Can you hear me?

Yes, I can.

Just -- I want to make sure I understood about the processing plant at -- the manual labor that you're having there will now go away and it'll be automated with what kind of machinery?

It will not all go away because there'll be still some manual labor but the manual labor, this is going to sound crazy, but the manual labor will be automated in such a way that there'll be belts and things of that nature that will allow the people segregating the contaminations to do it more efficiently. So, we'll be able to cut back a little bit as we get more efficient, but there's more to this processing plant than just the manual reduction of contaminants.

Okay, that's helpful. And then should we be at all concerned about the fencing product increasing demand for plastics? Are you going to create more plastic demand within Trex for the industry if you get really big in fencing?

Yes.

Is it the same kind of plastic, sir?

The construction of our fencing material and our decking material is almost identical. There is almost -- there is some minor differences because of performance criteria, but overall it's the identical material and the makeup of the composition is very close to the same.

Okay, and are the pounds per plastic on say a dollar per revenue basis, is that pretty comparable or are you going to have to price this differently than the decking board?

Well, we're going to price this differently but because of the fact that it is a different market and our costs are different, not necessarily on raw material basis but on manufacturing efficiencies and rates.

Okay, well thanks for your time. And great quarter!

Our next question comes from [Renee Reynolds] with Gilder Gagnon. Please proceed with your question ma'am.

Actually my question is already answered. Thank you.

Your next question will come from Fritz von Carp with Sage Asset Management. Please go ahead with your question.

Yes, hi. Good morning guys, congratulations on the quarter. Could you just help me understand though, just so I feel a little better. Housing, people worry about it, you know the homebuilders are suffering and so forth. I guess two questions; one is remind we why you are able to do well in even a bad housing environment? And two, if you could just give me related to that in color, so far in July are you seeing anything bad out there? Or is demand still strong?

Let me go back to our original thesis and actually what it is based on what we have seen in the past and the makeup of the market. More than 85% of the decks that are installed are installed on existing houses. So basically new housing is irrelevant, I mean it is not insignificant but it is a relatively small part of our overall business. So consequently, actually if you go back into the mid 90s or the early 90s when the company, when the country had a mild recession including housing, remodeling, which we are a part of, and decking actually went up during that period of time. I am not looking for that to happen. But I would like to believe and we are planning our business based on the fact that we more of the rate our business is based on more of the remodeling markets than the new housing markets. As of right now the housing slow down that is taking place, and we all read in the newspapers every other day has not affected our business.

Our next question comes from Keith Johnson with Morgan Keegan. Go ahead with your question.

Good morning. I was wondering if you could give a little bit more color on this Home Depot relationship. Are you guys working with them? Or trying to maybe improve the promotions within the stores, or anything, displays within the stores that would highlight composite decking?

The answer is yes and yes. Let me go about the displays. We have been given the category leadership of designing the displays in the stores that highlight composite decking. As far as we know they are not planning to display these in all 800 stores that we expect to be in. But they will do it strategically around the country. As far as we know and as far as promotions are concerned they are actually pushing promotions of Trex as we speak. We are in the middle of a promotion that they are selling Trex and that is part of their promotion. And they told us they are going to have another one sometime in August.

Okay, I just wanted to make sure that I had understood the polyethylene costs correctly. I think you said it was 16% over the prior year period?

Right.

And to make sure, recycled polyethylene pricing was flat in the market against the March quarter? Is that right?

Yes that is correct.

Yes, about us, yes.

Okay and when I look at the June quarter, how long did you use the higher, I may have missed that in your comments. How long did you use the higher priced off deck product?

Right through probably the middle of May.

Okay, so at this point we are just back to straight recycled product in your mix?

That is correct.

Okay, all right. Thanks.

[OPERATOR INSTRUCTIONS] Our next question comes from [Renee Reynolds] with Gilder Gagnon. Please go ahead with your question ma'am.

Thank you, sorry something just popped up. Did you guys experience any impact from adverse weather earlier on in April, May-ish that period where we had some pretty heavy rains in the northeast and some other regions?

Actually Renee, I do not and we do not see it in our data, actually our northeast area was sales were up very nicely.

Really? And so in California are you guys in the [indiscernible] there?

Overall when you have had the kind of sales growths we have had in terms of percentage I would indicate that part of the early buy program, which is still the major element of the total first six months, we do not have data that indicates any slowdown.

Great, thank you very much.

Our next question comes from Frank Dunau with Adage Capital. Please go ahead with your question sir.

Yes I have a question. The fact that the success of the early buy program, do you run the risk of the third quarter of this year what happened in the–I guess did you pull sales from the third quarter into the second quarter I guess is what I am trying to say?

Well, the early buy ended, officially ended in April.

Okay.

And the only reason we still had a hangover into May is because we were late in delivering orders, delivering products on time.

Okay. And you said in the call you shipped a lot of product in the second half of June?

Yes, June and towards the second half.

Why do you just have smooth deliveries throughout the quarter? Is there something, I am trying to figure out what is going on?

Well what happened is, we wound up, we came into the year, as you recall we quarantined all our inventory. Therefore, the inventory that we had on the ground probably about almost $40-50 million in inventory, which was staged to delivered, we could not deliver because we had not finished the expectation process. So therefore we delivered late to our overall customers.

So June's --

Some of June's delivery should have been delivered in late April or early May.

So the second quarter's deliveries succeed your capacity to produce. Did you ship that inventory basically?

Yes.

Okay. Thanks.

Our next question comes from Chris Blackman with Imperial Capital. Please go ahead with your question sir.

Yes thank you. Two questions. In your second half guidance what assumption are you using for your raw material costs? And then second question is your short-term working line of credit, did you pay that off in Q2?

The line of credit is all paid off and we have a very nice cash balance. As far as we projected in my prepared remarks, I expected that resin prices or poly prices would stay flat for the rest of the year.

And that would assume obviously that you do not have any price increases beyond the May 1 price increase for product?

You mean price increase to our customers?

Yes.

No.

Thank you.

Our next question comes from Robert Henderson with Rutabaga Capital Management. Please go ahead with your question.

What was capacity utilization in the quarter and the year-ago quarter? It looks like close to over 90%, is that right?

Yes. And a year ago Paul is looking at it right now.

A year ago quarter was….- it was low 90s. We had -- it was still quite high in the second quarter and the second half was when we pulled back on the production, if you recall.

Does that answer your question?

Yes, thank you.

Our next question comes from Robert Kelly with Sidoti and Company. Please go ahead with your question, sir.

Just a follow up on the HD relationship. You mentioned they had a little bit more promotional as far as the quasi-decking. Are you seeing better results in the stores where the promotions were going on or was it more for their private label product? Were you taking share from the private label product?

No, well, you know that they've advertised their private label product very heavily this year nationally --

Right.

But I was referring to promotions that are broadly regional basis promotions, actually national. The one that's on going now is the national one and that's specifically directed to Trex.

Great. And then quickly on CapEx for the year, 25 to 30 million, you guys guided to you only did 7 million so far in the first half, all of the spending in the second half is going to be for the two lines, the lines you were speaking about and the plastic reprocessing?

That's correct.

Thank you very much.

And there is a fair amount of maintenance of business types of capital, but they'll pick up its rate.

Okay, thank you.

Our next question comes from John Baugh with Stifel Nicholas. Please go ahead with your question.

Yes, you've mentioned that your dealers and distributors felt good about sales, you're trying to get some data out of your dealers and of course you know what your inventory positions are with your distributors. Do you have anything I know as somewhat delayed or 30 days or 45 days stale, but what is that data that you're collecting telling you about how sell though is going year-to-date, Tony?

Well, John, the only thing I could tell you is we've got -- we have the data as of the end of June and not surprisingly, at the distributor level, it was higher than I consider the median norms. So, that's why I refer to it as high side of norm. But -- so, that's the only data I have, John.

You don't have any retail data?

No, the retail data is usually 60 days in arrears.

Okay. So, but with the deck building season not really starting until April, I guess what you have 60 days stale isn't very helpful?

That's right.

But the high of, again -- the high this could be reviewed as partly because you ship a whole bunch of it the last two weeks of June.

That's correct. That's my answer to that, yes.

Okay, thank you.

There are no further questions at this time. Please proceed with your presentation or any closing remarks.

Well, I want to say that we feel like -- we feel pleased that the overall business is back on track or on track to be successful and some of our new products and new initiatives as it relates to cost on our existing business are starting to bear results and we look forward to those results materializing as we finish the year and going into 2007. Thank you very much.

Ladies and gentlemen, that concludes your conference call for today. We thank you for your participation and ask that you please disconnect your lines.