WD-40 Co (WDFC) 2010 Q1 法說會逐字稿

Good day everyone.

Welcome to the WD-40 Company first quarter of 2010 earnings release conference call.

Just a reminder that that today's call is being recorded.

At this time, I would like to turn the call over to the Vice President of corporate and Investor Relations, for WD-40 Company, Ms.

Maria Mitchell.

Please go ahead .

(technical issues).

Today's call is

Good afternoon.

Thank I for joining us for our first quarter earnings call for fiscal 2010.

Today we are pleased to have Garry Ridge, President and CEO, and Jay Rembolt, Vice President and Chief Financial Officer.

This conference call contains forward-looking statements concerning WD-40 Company's outlook for sales, earnings, dividends and other financial results.

These statements are based on assessment of a variety of factors, contingencies, and uncertainties considered relevant by WD-40 Company.

Forward-looking statements involve risks and uncertainties which may cause actual results to differ materially from forward-looking statements, including the impact in changes in foreign currency exchange rates, the impact of new product introductions, and the uncertainty in economic conditions, both in the United States and internationally.

The Company's expectations, beliefs and projections are expressed in good faith and believed by the Company to have a reasonable basis, but there can be no assurance that the Company's expectation for these forward projections will be achieved or accomplished.

The risks and uncertainties are detailed from time to time in reports filed by WD-40 Company with the SEC, including forms 8-K, 10-Q and 10-K.

And readers are urged to carefully review these and other documents and stay up-to-date with our most recent Company developments provided in the Investor Relations section of our website at WD40Company.com.

Our second quarter fiscal 2010 earnings conference call is scheduled to take place on Wednesday, April 7th, 2010.

At this time, I'd like to turn the call over to Garry Ridge.

Thanks, Maria.

Good day and good afternoon and happy new year to you all.

Today we reported net sales of $77.7 million for the first quarter of fiscal 2010, a decrease of 7% over Q1 of last fiscal year.

Net income for the first quarter was $9.5 million, up 22.5% compared to Q1 of last fiscal year.

Diluted earnings per share for the quarter were $0.56, up from $0.46 in Q1 of last fiscal year.

Before I get into more detail about the last quarter, I want to spend a few minutes on the strategic initiatives that we've adopted and shared with you in our annual shareholder meeting and our annual shareholder letter.

There are four major strategies that are getting the most of our time, talent and treasure to drive our growth.

We call them the Fantastic 4.

Strategy is defined by us as the how-to over a given time frame.

These strategic initiatives are aligned to achieve our vision, which is our brands will create positive lasting memories as they become solutions that doers and on the job users around the world turn to first to get the job done.

By doing so, we will provide attractive economic returns for our stakeholders and meaningful work and opportunity for our tribe members.

We remain focused on committing our time, talent and treasure to our core strategic initiatives.

The Fantastic 4 are, number one, global expansion.

Continuing our efforts to expand around the world by helping end users in emerging and developing countries solve rust, squeak and other maintenance issues.

Number two, maximizing our position in the multipurpose maintenance products segment by focusing our research and development resources to leverage our core products in adjacent categories.

The recent launch of the you Blue Works line was a direct result of this strategy.

Number three, developing our business through acquisitions, joint ventures, licensing and strategic partners within our defined sand box.

And number four, leveraging the trust the WD-40 brand has established with its wide user base, to grow revenues and profits.

Our results continue to reflect our execution of these strategic initiatives so let's talk about the first quarter results and how the business is evolving.

We are pleased with our first quarter results.

While sales were below Q1 of fiscal 2009, we expected them to be that way.

As the prior year quarter sales benefited from the timing of global price increases, implemented in Q1 and Q2 of our fiscal year 2009.

During the prior year period, we saw many customers take advantage of lower prices prior to our price increase.

We then navigated through the uncertain economic times, along with our customers and our stakeholders.

Although there is still some uncertainty around us all, we are not about doom and gloom at WD-40 Company.

In the current quarter we continue to see improving economic stability in many markets and saw some of our core customers realize sales growth compared to major declines experienced during fiscal 2009.

We saw relative stability in foreign currency exchange rates and raw material costs, both of which significantly impacted our results and gross margin.

While changes in foreign currency exchange rates continue to impact our results, the magnitude was much lower than we had experienced during fiscal year of 2009.

In Q1 fiscal 2009, the impact of changes in foreign currency exchange rates decreased sales by $5.5 million, compared to $1.8 million in the current quarter.

On a constant currency basis, net sales in the current quarter would have decreased 5% instead of 7%, and net income would have increased 27% instead of 22%.

Despite increases in oil-based material costs in the current quarter versus Q4 of fiscal 2009, we managed our gross margin at 51.4% of sales.

Just shy of what we had accomplished in the prior year fourth quarter.

Compared to a year ago, our gross margin in the current quarter was over 500 basis points higher than we experienced in Q1 of last fiscal year when oil-based material costs peaked in our cost of goods.

So yes, it's been a relatively good and stable quarter for us, so let's dig into the details of our results by product line and they are as follows.

Multipurpose maintenance product sales were down 8% compared to the first quarter of fiscal 2009, yet 2% above our prior fourth quarter results.

Q1 was the largest sales quarter we had last year, driven by customers' forward purchases prior to global price increases implemented in Q1 and Q2 of fiscal 2009.

The sales decreases in the first quarter were in the WD-40 brand, as the 3-IN-ONE brand grew 7% in the period versus the prior period due to innovation and distribution in the Asia-Pacific region.

The growth was driven primarily in China, where we launched new formulations targeted to the automotive trade channel under the 3-IN-ONE pro brand line.

Like trade block, sales of our multipurpose maintenance products in Q1 were down 6% in the Americas, down 8% in Europe and down 17% in Asia-Pacific.

Home care and cleaning products were down 4% globally in the first quarter which includes the Spot Shot, 2000 Flushes, carpet trash, No Vac, 1001, X-14, Lava and Solvo brands.

By trade channel, sales of our home care and cleaning products in Q1 were down less than 1% in the Americas, were down 23% in Europe, and up 1% in Asia-Pacific.

Spot Shot sales increased 30% in Q1, due to promotional activity.

Solvo, which is exclusively sold in the Asia-Pacific region, increased 8% versus prior period, and these gains were offset by lower sales in other home care and cleaning brands.

For 1001 brand, which is exclusively sold in Europe, declined by 23% due to the timing of promotional activities and the unfavorable impact of changes in foreign currency exchange rates.

Sales of other brands were impacted by decreased distribution and the effective competitive factors.

Period versus period, automatic total bowl cleaners under the 2000 Flushes and X-14 brands combined declined 17%, and X-14 hard surface cleaners declined 37%, Carpet Fresh, 8% and Lava, 17%.

Now looking at our results by segment.

As I mentioned earlier, sales in our current quarter are lower compared to last fiscal year, primarily due to price increases implemented in Q1 and Q2 of the fiscal year of 2009.

Sales in all three segments, which include the Americas, Europe and Asia-Pacific, were impacted by this period versus over period.

There were also impacts from the changes in foreign currency exchange rates, particularly in Europe, which negatively impacted global net sales by $1.8 million.

Sales in the Americas decreased to $43.7 million in Q1, down $1.8 million, or 4% versus Q1 last fiscal year.

In the US, the sales decreased by 3%, driven by lower sales of multipurpose maintenance products.

Home care and cleaning product sales in the Americas were up 1%, driven by Spot Shot, which benefited from a comprehensive consumer targeted campaign surrounding the successful film, Cloudy With a Chance of Meatballs.

The campaign included commercial advertising in movie theaters, a robust online program and discounts with free purchases of promotions.

It also included print ads in magazines and special in store displays.

The brand also received excellent press coverage in the red carpet premiere and through special regional screenings that included a program with Feeding America.

Sales in Latin America decreased by 5%, most of which was in the WD-40 brand.

Sales in Canada decreased by 13% versus Q1 of last fiscal year, with the negligible impact from changes in foreign currency rates versus the prior period.

Although the sales for Latin America and Canada were lower in Q1 of fiscal 2009, these markets showed a recovery, with growth of 36 and 44% respectively versus the prior fourth quarter of last year.

We're also pleased to report that we began shipping our new Blue Works product line as expected in early December, and we'll start to see modest sales results in the second quarter as we begin to build distribution.

You will not find this Blue Works new line in your local hardware store, as Blue Works is aimed at industrial customers in the repair, maintenance and overhaul segments of the market.

We are encouraged by the feedback and the early acceptance we have received regarding Blue Works, which carries for the first time the WD-40 Company DNA.

We continued our global expansion efforts in Europe, which accounted for 35% of global sales in Q1.

Sales in Europe decreased to $27.2 million, down $2.9 million or 10% versus Q1 of last fiscal year.

Most of these decreases were due to the changes in foreign currency exchange rates, period versus period.

Europe's sales on a constant currency basis would have been $29.4 million, down $0.7 million, or 2% for the period.

We sell into Europe through a combination of direct operations in certain countries, as well as through exclusive marketing distributors in other countries.

We have direct sales force operations in the UK, Italy, France, Spain, Portugal, and in the markets we term the German region which includes Germany, Austria, Denmark and the Netherlands.

Overall sales in these direct markets were down 5% in Q1 versus the prior year quarter.

The direct markets which experienced Q1 sales growth in US dollars were France, Spain and Italy, which grew 19, 30 and 51% respectively.

The sales growth in Italy and the Spanish region was primarily due to improved market conditions and new distribution, while the sales growth in France was driven by continued growth of of the WD-40 Smart Straw and the 3-IN-ONE pro product lines.

These gains were offset by decreases in the UK and German markets, which in US dollars decreased 26 and 18% respectively.

The sales decline in these markets were due to the timing of promotional activity during Q1, compared to the same quarter last year.

Promotional activity was higher during the first quarter of the prior fiscal year in advance of the price increases implemented during that quarter.

We sell through exclusive independent marketing distributors in Eastern and northern Europe, and in the Middle East and Africa and virtually all sales in this area consist of the WD-40 brand.

These distributor markets combined accounted for approximately 38% of our total European segment sales, and decreased 17% in Q1 versus the same period last year.

As with many other markets, sales in the first quarter of 2009 were high in advance of the price increases implemented during that quarter.

Asia-Pacific, which is a global strategic growth market for us, accounted for approximately 9% of sales in Q1.

Asia-Pacific sales decreased to $6.8 million, or down $1.1 million or 14% in Q1, versus the same period last year.

Sales in Australia increased by 11%, while sales in the Asia distributor markets in China declined by 22 and 38% respectively.

Changes in foreign currency exchange rates during the period versus period had favorable impact on sales.

In constant currency, Asia-Pacific sales in the current year would have decreased $1.4 million or 18%.

The 11% sales increase in Australia in Q1 was due the favorable impact of changes in foreign currency exchange rates.

On a constant currency basis, sales would have decreased slightly during the period, primarily due to merchandising changes within some key customers.

China and many of the markets throughout the Asian region experienced strong sales during the first quarter of fiscal 2009, followed by declining sales throughout the remainder of the fiscal year, due to the negative impact of the general economic conditions.

Although these markets appear to be improving, sales growth in the current period has been slow.

In addition, continuing economic challenges and competitive factors have negatively impacted sales in certain markets in the Asian region.

Despite these challenges, China continues to be a long-term growth market for us.

It's not unusual to see these bumpy sales trends as we build new markets.

There are a lot of squeaks in China and many end users find WD-40 to get their jobs done for the first time every day and they'll continue to do that for many years to come.

That's it for the sales update.

Now over to Jay Rembolt who will continue the review of the financials.

Garry, thank you.

In addition to the information that presented in this call we suggest that you review our 10-Q that will be filed today.

As Garry has covered sales in detail, I'll continue with the rest of the financials.

Gross margin was 51.4% of sales in the first quarter, compared to 46.3% of sales in the prior year quarter.

The 510 basis point increase was primarily attributable to prior year price increases, lower discounts, and shifts in major input costs as well as sourcing changes and product conversions.

Price increases implemented in Q1 and Q2 of fiscal 2009 added approximately 160 basis points to our gross margin percentage in the first quarter.

The price increases were primarily across our multipurpose maintenance products, although some price increases were also implemented on our home care and cleaning products in Europe.

Lower promotional discount, promotional and other discounts positively impacted gross margin by 90 basis points.

Certain of our advertising and promotional costs, such as customer rebates, display allowances, slotting, coupon redemptions are treated as a reduction in sales.

Period versus period, a lower percentage of our sales were subject to these promotional allowances this year in our Q1.

This quarter saw lower costs for petroleum based products, mostly offset by higher costs for aerosol cans.

Although the cost of petroleum based materials has been on the rise, our costs continue to be much lower than what we had experienced in the first quarter of 2009.

The impact of these lower costs increased our gross margin by 390 basis points.

This benefit was offset by the dramatic increase in the cost of our aerosol cans that took effect in the second quarter of fiscal 2009.

The higher cost for aerosol cans had a negative impact on our gross margin, and impacted it by 330 basis points.

Other items that favorably impacted our cost of goods sold in sourcing changes and product conversions.

The sourcing changes and product conversions positively impacted gross margin by 130 basis points.

Cost of goods sold improvements stemmed from new lower cost formulations associated with product conversions, investments in equipment to reduce the cost of manufacturing our products, and lower cost manufacturers.

Our gross margin was also positively impacted as we began manufacturing our WD-40 Smart Straw in Europe.

Previously the smart straw was exclusively manufactured in the US and sold into our international markets.

When the international local currencies declined in value against the dollar in Q1 of fiscal 2009, the cost of the Smart Straw effectively increased, negatively impacting our gross margin.

To mitigate this impact and to reduce freight cost, we initiated smart straw manufacturing in Europe during the fourth quarter of fiscal 2009 and as a result of this change, our gross margin improved by 50 basis points in the current fiscal year versus the prior year.

Sales mix and other miscellaneous impacts combined positively impacted our gross margin by 20 basis points.

This completes the gross margin discussion and we'll look on to operating expenses, beginning with our selling, general and administrative expenses.

Our SG&A expense in Q1 was $19.8 million versus $21.1 million in the prior quarter.

As a percentage, SG&A increased slightly to 25.5% of sales, favorable impacts to SG&A expense include freight costs, which decreased $0.7 million due to lower fuel costs, increased shipping efficiencies and lower sales.

Lower professional service costs, which decreased $0.5 million, primarily due to lower legal fees in the quarter.

Changes in foreign currency exchange rates compared to Q1 of last year decreased the expense by $0.4 million, and lower miscellaneous expenses of $0.5 million, which would include things like bad debt expense, broker and sales commissions, and a few others.

These favorable impacts were offset by higher employee-related costs which increased $0.7 million, primarily due to compensation increases and higher staffing levels.

Our advertising and sales promotion expense in Q1 was $5.2 million, versus $5.4 million in the prior year quarter, and slightly increased as a percentage of sales from 6.5% to 6.7%.

The actual level of investment remains fairly constant.

But the expense in dollars is lower due to the impact from changes in foreign currency exchange rates.

Our amortization of intangible assets was $0.2 million compared to $0.1 million in the prior year quarter.

The current quarter includes amortization related to the Carpet Fresh and the X-14 trade names, which were changed to definite lived intangible assets at our August 31st, 2009.

Both periods include $0.1 million of amortization related to the customer lists acquired in the 1001 acquisition completed in fiscal year 2004.

Operating income in Q1 was $14.7 million, compared to $12.1 million in the prior year quarter.

Net interest expense in Q1 was $0.5 million, up slightly from the same period last year.

Our other income decreased by $0.1 million, primarily due to lower foreign currency exchange gains versus the prior year quarter.

Provision for income taxes in Q1 was 34.4%, a decrease from the 35.2% in the prior year quarter.

The decrease in the effective tax rate was primarily due to higher percentage of income expected from foreign jurisdictions with lower tax rates than the US.

Net income in Q1 was $9.4 million, an increase of 22.5% from the $7.7 million in the prior year quarter.

Changes in foreign currency exchange rates had an unfavorable impact on net income of $0.3 million.

Q1 fiscal 2010 results on a constant currency basis would have produced net income of $9.7 million.

On a diluted per share basis, earnings were $0.56 in Q1, compared to $0.46 in the prior year quarter.

Diluted shares outstanding are similar to the prior year period at 16.7 million shares.

Regarding the dividend, on December 8th, the Board of Directors declared a regular quarterly cash dividend of $0.25 per share payable on January 29th, 2010 to the shareholders of record on January 8th, 2010.

Based on today's closing price of $32.50, the annual dividend yield would be 3.1%.

About our balance sheet at November 30th, cash and cash equivalents were $48.9 million, up from $46 million at the end of 2009.

Cash provided by operations was $16.3 million.

Issuance of common stock upon exercise of stock options provided an provided additional cash of $0.9 million and we also got a favorable impact from foreign exchange rates on cash, which had an impact of $0.8 million.

These cash in-flows were partially offset by one, our annual $10.7 million principal payment, two, dividends paid of $4.1 million, and approximately $0.3 million used for capital expenditures during the period.

We continue to delever our Company with our annual October $10.7 million principal payment.

As of November 30th, our outstanding balance on our original $75 million term loan was $21.4 million.

Final payment will be due in October of 2011.

The Company's financial condition and liquidity continue to remain strong.

Our strong balance sheet helped us to weather the recent global liquidity crisis, and as we look forward, it will also serve us well in executing on our core strategic initiatives.

We believe that our existing cash, the liquidity available from our credit facilities, and our anticipated cash flows from operation will be sufficient to meet the projected operating capital requirements of our business.

This would include supporting our core strategic initiatives of acquisitions, investing in new direct markets for global expansion, and supporting new product introductions.

In light of our strong cash position and goal to provide long-term return to shareholders, the Company's Board of Directors authorized an open ended share buyback plan.

Under the plan, approved on December 8th, 2009, the Company may acquire up to $15 million of the Company's outstanding shares during 2010.

The authority will expire December 8th, 2010.

That completes the financial overview and again, more information will be available in the 10-Q which is filed today.

Thanks so much.

Now back to you, Garry.

Thanks, Jay.

Now let's discuss our outlook and guidance on the balance of fiscal 2010.

We continue to be cautiously optimistic as we see economic conditions improve.

While we see increased momentum, we also recognize there's still a level of uncertainty in the marketplace.

Given these conditions, and that we're only just a few months into our fiscal year, we are maintaining the guidance we shared with you last quarter.

The following fiscal year 2010 guidance does not include any acquisition activity, and assumes foreign currency exchange rates will remain close to recent levels.

Having said this, we continue our search for business opportunities through acquisition and partnerships that fit our stated criteria.

We also continue to dedicate time, talent and treasure, to understand and leverage the trust of the WD-40 brand, and we will share any of these new developments with you as they evolve.

So for fiscal year 2010, we expect our net sales results to be in the range of $298 million to $318 million.

That will be a growth of between 2 and 9% in sales versus 2009.

We expect our global advertising and promotional investment to be in the range of 6.5% and 8% of net sales, and we expect the net income to be in the range of $30.2 million to $32.8 million, which would achieve an EPS of between $1.80 and $1.95, assuming that there are 16.0 million(Sic-see press release) shares outstanding.

Thank you for joining us, today.

We'd be pleased to open the conference call for your questions.

(Operator Instructions).

We'll go first to Jeff Zekauskas of JPMorgan.

Hello, this is Ben Richardson sitting in for Jeff.

Hello, Ben.

Hello.

So I had a question here about raw materials and the trends you might be seeing, both in petroleum as we get into 2010 here and steel can costs.

Well, we've seen the petroleum based products rise a little bit as of late.

I think if we look forward, we're seeing that kind of the rates around or the rates that we currently see are probably what we're going to experience on average throughout the end of the year.

At least the end of our calendar or our fiscal year.

With respect to the -- our tin plate pricing, we are in our annual pricing negotiations and have yet to determine if we're going to receive any sort of price decreases.

Okay.

And you normally have some seasonality as you get into the -- your second fiscal quarter.

Is that something we might expect this year?

Well, I think seasonality went out with the uncertainty that we traded through last year.

But having said that, I think if you consider our guidance, what we're looking at is the first quarter of this year was up against a fairly solid first quarter of last year and now we're going up against two relatively soft quarters in 2 and 3.

And that should help us obtain our guidance which was a sales growth through the full year.

So there's no doubt that the two toughest quarters last year were the second and third quarter for everybody.

We don't see them obviously being as tough this year and we reflected that in our -- in the sales guidance we've given and hence why there's quite a delta in that guidance because we want to make sure that we're not being overly optimistic on what may happen.

But that's kind of how we see it.

Okay.

And lastly, currencies, is there any expectation baked into that sales growth number?

We would -- the currency impact is based on the currencies we see as of today or recent currency kind of projecting forward so we're not -- so our currency outlook is in some ways is blind.

We are just projecting based on current currencies.

Okay.

All right.

Thank you very much.

Thank you.

Up next we'll hear from Alan Robinson, Royal Bank of Canada.

Hi, good afternoon, everybody and happy new year.

Same to you, Alan.

I bet you're glad you're not in the UK right now.

No kidding.

No kidding.

Anyway, given the cost cuts you instituted last year and the issues we went through last year, it looks like now you have some good potential leverage in your business model which you can obviously harness by driving volume.

So broadly speaking, can you just speak to the idea of how you view the opportunities you have to drive volume over the next 12 months or so?

Not quite sure we did any cost cutting, Alan.

Maybe you're referring to the enhancement of our gross margin which has been a strategic driver of ours for four or five years.

Yes, exactly.

Okay.

Our sales growth opportunities are really aligned with our strategic drivers.

The first one is our continued global expansion, which will come from our European and Asian markets.

Secondly, the expansion of our activity around our multipurpose maintenance products, which will include the strengthening of the WD-40 brand's position in the US and in other markets.

And then development of the 3-IN-ONE pro line and then also to a lesser extent, because it's quite an unknown yet, is the Blue Works line.

So they're the major drivers.

The other area is the stabilization, if you will, of our home care and cleaning products.

We're very encouraged with the 30% increase in our Spot Shot brand in the first quarter.

And as you know, we made a decision that we would place our bets on the big winners when we de-emphasize the new development activity particularly around X-14 and Carpet Fresh and we diverted that time, talent and treasure into product development activities around our multipurpose maintenance products around the world, and then on a promotional basis on the Spot Shot and to a lesser extent to our 2000 Flushes business.

So global expansion, expansion of our multipurpose maintenance products area, stabilization of our home care and cleaning product, and then hopefully, although there's none of this really baked in, as we continue our development activities, revenues that will come from our other two strategic drivers, which are really leveraging the trust that we've established with the end user in the WD-40 brand and a lot of work going on there and finally joint ventures, acquisitions, and partnerships that we may enter into that either leverage our global position or some other channel strength that we may have.

Okay.

Fair enough.

I was also trying to get an idea of the extent to which the last minute buying that you experienced in the first quarter of last year impacted your comparables.

I know you increased your prices on various WD-40 products in the first and second quarter.

So when I look back to the first quarter of fiscal 2009, do you have a rough level that you could share with us of the impact that had either on a dollar basis or on a percent growth basis?

We haven't quantified that.

Is it likely to be material?

No, it would not.

But it's enough to -- in comparison, period on period, to have us come up a little shy this period.

Okay.

Okay.

And then last question.

What tax rate assumptions are embedded in your fiscal year guidance and is there any significant Blue Works revenue in that as well?

We haven't shared our tax rate in our guidance.

We typically share just the various items that we've included in our guidance.

With respect to Blue Works, we see that as a very slow build.

I'll let Garry share a little bit more about how we think about the Blue Works.

Blue Works is a brand that as I shared in my commentary, is one that you don't find -- you won't find in your local hardware store, so the sell-in isn't about loading into shelves.

The sell-in is about making the end users aware and making it easy for them to buy.

And the end users are repair, maintenance and overhaul professionals in factories and that just takes a little longer.

So we've got a lot of confidence in the Blue Works program over time, but there's certainly no significant ramp-up of Blue Works in this year's guidance.

All right.

Thanks.

I'll step back in line.

Thanks, Alan.

Next up we'll hear from Liam Burke, Janney, Montgomery Scott.

Thank you.

Good afternoon, Garry, good afternoon, Jay.

Garry, you mentioned in your commentary in revenues in China that you saw additional competition.

No, I don't -- if I did, I didn't mean that.

Okay.

The issues in China are not competitive from any particular competitive source.

They're bumpy as we went out of -- as China reduced manufacturing, particularly for export, as the world economies turned down, we backed off a little bit.

But we're very, very buoyant about China into the future.

It's not unusual for us to see some bumpy sales trends as we start to build markets.

But we're no more -- no less confident about China today.

It's just taking a little time and certainly the economic conditions that surrounded it, you know, were not in our favor.

But we're very comfortable about taking our time to do China right.

Okay.

And on Blue Works, it's a given that it's going to be a slow ramp.

Now, in terms -- you mentioned having to increase the awareness of the product with the repair, maintenance and overhaul channel.

What specifically do you do and is it a hit on resources to develop those kinds of campaigns?

Yes, good question.

Thanks for asking it.

Basically what has happened is part of the strategic, or the technical execution with Blue Works is us engaging across the United States a team of manufacturers representatives, if you will, who specialize in calling on the decision makers in repair, maintenance and overhaul facilities.

So these would be people who represent products to plant managers in major manufacturing operations across the US.

These people have been, for the last nine months grilled and trained.

In fact, they all now have what we call Masters of Blue Works Degrees, which is a comprehensive training program we did with them that they have to pass.

And their job is to carry the Blue Works message with samples of the product to the end users.

So they started doing that early in -- like early December, late November.

Before that, it was all collateral based.

So now they're taking the product to end users, putting it into factories, having the end user sample the product and so that's stage one.

And we have identified the key target customers .

We went across the United States to do that.

There are three -- I'm sorry I'm asking

Five major players.

No, but I mean the rep organizations.

Three.

Okay.

There are three rep organizations across the US that are doing this for us.

And then those companies then source product from -- who you would normally call our traditional distributors.

So our salespeople are selling into the traditional distributors.

So that's -- and those sales rep organizations are paid for that on a commission basis on sales.

So the costs are variable in relation to the success of their efforts.

Great.

Thank you.

And Jay, if we could go back to the cost of raw materials, the tin plate pricing is fixed on an annual basis; is that right?

Yes, it has been.

Okay.

And has it been fixed for this fiscal year?

It hasn't yet been finalized.

Okay.

And with steel prices on the rise, you're anticipating that it at least hold its own this year or -- ?

That's certainly our preliminary expectation at this time.

So we are expecting it not to increase.

Thank you.

Thanks.

Everyone at this time there are no further questions.

I'll turn the conference back over to our speakers for any additional or closing remarks.

Okay.

Well, thank you very much for joining us this afternoon.

We appreciate your interest and as Jay said, the 10-Q is filed today so you have all the reading you want.

We wish you a good next 90 days and we'll talk to you again after the end of the next quarter.

Thanks very much.

Good day.

That does conclude today's conference.

Thank you all for your participation.