Alamo Group Inc. (ALG) Q3 2016 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Alamo Group Third Quarter 2016 Earnings Conference Call. [Operator Instructions] This conference is being recorded today, Friday, November 4, 2016. I will now turn the conference over to Mr. Bob George, Vice President of Alamo Group. Please go ahead, sir.

Thank you, and good morning. By now you should have received a copy of the press release, however, if anyone is missing a copy and would like to receive one, please contact us at 212-827-3746, and we will send you a release and make sure you're on the company's distribution list. There will be a replay of the call, which will begin one hour after the call and run for one week. The replay can be accessed by dialing 1-888-203-1112, with a passcode 8256869. Additionally, the call is being webcast on the company's Web site at www.alamo-group.com, and a replay will be available for 60 days. On the line with me today are Ron Robinson, Chief Executive Officer and President; Dan Malone, Executive Vice President and Chief Financial Officer; Richard Wehrle, Vice President and Corporate Controller; and Ed Rizzuti, Vice President and General Counsel. Management will make some opening remarks and then we'll open up the line for your questions. Before turning the call over to Ron, I'd like to make a few comments about forward-looking statements. We will be making forward-looking statements today that are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties, which may cause the company's actual results in future periods to differ materially from forecasted results. Among those factors, which could cause actual results to differ materially are the following: market demand, competition, weather, seasonality, currency-related issues, and other risk factors listed from time-to-time in the company's SEC reports. The company does not undertake any obligation to update the information contained herein, which speaks only as of this date. We will be filing our 10-Q today. I would now like to introduce Ron. Ron, please go ahead.

Yes. Thank you, Bob, and we want to thank all of you over joining us today. Dan Malone, our CFO, will begin our call with the review of our financial results for the third quarter of 2016, and then I will then provide a few comments on the quarter's results after Dan. And then following our formal remarks, we look forward to taking your questions. So Dan, please go ahead.

Thank you, Ron. Third quarter 2016 sales were $216.8 million, down 6.4% to third quarter 2015 sales of $231.6 million. Our quarter-to-quarter comparison continues to be affected by reduced demand from non-governmental users of vacuum trucks, weak agricultural markets worldwide, currency translation, and the impact of Brexit and European economic uncertainties on our businesses in the U.K. Year-to-date 2016 sales were $639.2 million, down 2.4% to year-to-date 2015 sales of $655.1 million. Industrial division third quarter 2016 sales of $121.2 million represented a 4.9% increase from the prior year third quarter primarily due to very weak vacuum product sales in non-governmental users. Year-to-date 2016 Industrial division sales of $361.6 million were flat to the 2015 year-to-date results. Agriculture division third quarter 2016 sales were $56.4 million, down 4.2% from the prior year quarter. Sales in this division continued to reflect weakness in demand for most agricultural equipment. Year-to-date 2016 agricultural division sales of $157 million was 2.1% lower than the comparable 2015 year-to-date result. European division third quarter 2016 sales were $39.1 million or about 13.7% lower than the third quarter of 2015. Excluding the unfavorable currency translation of effect of $3.3 million, this division's local currency sales were down about 6.4% to the prior year third quarter. Year-to-date 2016 European division sales of $120.6 million was 8.6% lower than the reported 2015 year-to-date sales and were down about 4.2% in local currency. The local currency results continue to reflect the softer market conditions particularly in the U.K. stemming from uncertainty surrounding Brexit as well as continued general weakness in European and agricultural equipment markets. As mentioned in prior calls, our prior and trailing 12 month results included business acquisition cost, information systems conversion cost, restructuring cost related to a plant closure in France, and purchase accounting effect due to the fair value set up of acquired inventory. In my next few comments when I refer to adjusted results, it simply means the applicable prior year quarter, prior year-to-date, or trailing 12 month results excludes these costs. Also, we computed EBITDA by adding back depreciation and amortization to operating income. And we computed free cash flow by subtracting the net of capital expenditures of retirements from net cash provided by operating activities. All the components used in these calculations to be found in our 10-Q to be filed this Saturday. Due to lower sales, third quarter 2016 gross margin of $54.7 million was 4.9% lower than the reported prior year third quarter results and 5.8% lower than the adjusted third quarter 2015 results. Third quarter 2016 gross margin was 25.2% of net sales which compares favorably to both to reported 24.8% of net sales for the prior year quarter and the adjusted 24.9% of net sales for the third quarter of 2015 adjusted. These favorable comparisons for the quarter were maintained as continued improvement in production efficiencies and lower material cost more than offset the unfavorable operating leverage effect of lower volume. Third quarter 2016 operating income of $21 million was 10.8% lower than the reported prior year third quarter result and down 12.9% from adjusted three quarter 2015 operating income. As a percent of net sales third quarter 2016 operating income was 9.7%, which is lower than both the reported 10.2% and adjusted 10.4% of net sales for the prior year quarter. Net income for the third quarter of 2016 was $13.2 million or $1.14 per diluted share which compares to a reported prior year quarter net income of $14.8 million or $1.28 per diluted share, and adjusted third quarter 2015 net income of $15.1 million or $1.31 per diluted share. Year-to-date 2016 net income was $32.4 million or $2.81 per diluted share favorably compares to reported prior year-to-date net income of $31.8 million or $2.77 per diluted share. Year-to-date net income and EPS were down about 5% for the adjusted prior year results. Our third quarter earnings reflect the impact of lower volume on our operating results previously mentioned and the effect of foreign exchange rate changes on non-operating income and expense partially offset by lower effective income tax rate caused by a shift in the third quarter 2016 earnings makes a way for higher tax U.S. jurisdiction. Third quarter 2016 EBITDA was $26.1 million, down 11% from the prior year quarter. Year-to-date 2016 EBITDA of $71.1 million increased 4% over the reported prior year-to-date result, but was down 2% from the adjusted prior year results. Trailing 12 months EBITDA of $91.1 million is up 3% over prior year. Adjusted trailing 12 month EBITDA of $94 million is about flat to the comparable prior year result. Despite lower earnings, our cash generation continued to strengthen. As of the end of the third quarter 2016, our trailing 12 month free cash flow totaled $58.7 million which is a 114% increase over the comparable prior year result. This represents a cash conversion rate of 134% of trailing 12 month net income. Our backlog ended the third quarter 2016 at $137 million is up about $7 million from the second quarter end, was down about 22% from the prior year third quarter mainly due to weakness in non-governmental demand for vacuum trucks, continued softness in agricultural markets, and economic uncertainties in Europe as well as currency translation. In summary, our third quarter 2016 results were highlighted by lower sales due to weaker vacuum truck, agricultural and market conditions as well as currency -- unfavorable currency translation, the unfavorable earnings impact of lower sales volume, continued year-over-year productivity improvement driving higher percentage gross margin results despite unfavorable volume leveraging, and continued increases in free cash flow despite lower sales and earnings. I would now like to turn the call back over to Ron.

Thank you, Dan. And I will make a few comments. Certainly as Dan pointed out the challenging market conditions we have been facing and these effects have been going on for several years now, and this certainly affected our third quarter results. The global Ag market has been weak. Farm incomes in the U.S. are down again this year. And for us, it's even I think the weakness has been a little broader this year than last year. Last year it was heavily in commodity prices for corn and soybeans and wheat and mostly raw crop price commodities, whereas -- I think in this year we even saw the ranching and cattle prices come down whereas last year they had actually held up pretty good. So I think we're seeing sort of -- and this has been reflected in farm incomes which are down again this year, not quite as much as they were down last year but still declining. And in our Industrial division, actually our infrastructure maintenance market for governmental end users has held up quite well and continues to do so. Things like our mowers to governmental, street sweepers, great all products, no renewable products, all have generally held up pretty good. Our weakest point as we have said has been the non-governmental market which is while it's a small part of our business in our Industrial division in general had very nice growth in the preceding few years, but with the general declines and everything from mining and oil field and some construction activity we're seeing that part of our business to become soft and remaining soft. Our European markets which is again the market themselves and generally have been weak and this is certainly further impacted by the Brexit vote in the U.K. That vote took place near the end of the second quarter of this year and so the third quarter had a little more impact and we would have liked the certainly we believe there was a bit of a wait-and-see following the vote and this which reduced sales particularly in our U.K. operations which was among our strongest in Europe. And then on top of that the current the British pound felt quite a bit immediately following the vote, and so throughout the third quarter has been much weaker, and in fact half of our decrease in sales in Europe is related to currency exchange rates. Despite these negative conditions we believe our results held up reasonably well. In fact in many cases better than some of our peers have done in the same sector. And we were able to maintain reasonable profitability despite lower sales. This was mainly achieved by our ongoing cost control efforts, which has allowed us to achieve higher gross margins even less volume. And our cash flow was not only strong, but continued to improve which has led to an over $50 million reduction in our total net of cash compared to last year this time. So I think cash flow margins operating activities have been relatively strong despite the soft sales. And even in fact despite the softness in the third quarter actually our year-to-date results for the first nine months of 2016 are still at record levels in both earnings and earnings per share. So while the third quarter was certainly not a great quarter for Alamo it was a -- for a soft one it was pretty good. Looking ahead a little, we did not see much in the way of market improvement for the balance of 2016 and even early in the 2017 but for -- that's for the market in general; for us we are seeing some minor signs of some pick up in things like enquiry levels. I think it's really too early to tell that this is a trend or just a blip. As I said I think and like in Europe we had some softness immediately following the Brexit vote and enquiries seem to be picking up but again way too early to tell that this is a trend, but I think one evidence to this is that our backlogs actually went up a little bit in the third quarter compared to the second quarter. And then generally our backlogs continue to be at what I would consider a healthy level. In the agricultural sector while the overall market remains weak again there're some signs that the market is bottoming out while there's early indications are next year won't show a lot of improvement at least the early indications are that next year is not going to be down again. so you know I think that's in itself a positive sign that if farming comes to -- they're down again this year they were down last year, that if they can at least a steady next year I think that would start to be a good sign. I think inventories in general are in a little bit better shape at the dealer levels. So I think after some and -- you know, like I said these are just some indications they're certainly nothing concrete in any of this at this point but I think we are feeling a little bit better and we also feel that in a broader applicability of our range of products will continue to give us a little more stability than many of the other manufacturers. And we also believe that next year we will benefit from some new product introductions as a result of some -- our continued R&D efforts. Our industrial division we feel will continue to benefit also from some relative stability exhibited by our infrastructure maintenance markets which we feel will show further increases following maybe the upcoming elections. I think that it seems to historically be little pick up following a major election such as this one we're having next week. And sort of the same things as was said Ag, I think even the non-governmental markets are showing signs of bottoming out. They certainly are not improving yet but they don't appear to be getting worse. We've seen a slight uptick even in things like utilization of our rental fleet and [indiscernible]. So you know, some just signs it's too early to tell whether it's just a blip or a trend but you know I'd say some a few positive signs. Even in Europe as I said I think enquiry levels have improved but it's too early to see if this is a trend and certainly the strong dollar will continue to have a dampening effect on the translation of our international results back to US Dollars. Then lastly, as indicated in the third quarter press release we are also seeing more M&A opportunities which we believe are actionable. And this is an encouraging sign for Alamo group since we consider acquisitions to be an integral part of our overall strategy. While we think our markets in general will remain challenged for the balance of this year and to the first of next year we feel Alamo can continue to perform at a better reasonable level due to our ongoing focus on cost control, asset management, combined with the demonstrated stability of many of our products in our core markets. And this should allow us to produce good results in a soft market and position us well to benefit from any market improvement no matter how modest. And we're not just really sitting back waiting for the market to improve but feel we have with some aggressive marketing efforts, new product introductions, strategic acquisition opportunities we can move ahead Alamo in our markets even if the markets themselves like. So we continue to believe Alamo group is well-positioned for long-term growth and we want to thank you all for your continued support. And with that, I would like to open the floor up for any questions you all might have.

Thank you [Operator Instructions] We will start first to Mike Shlisky with Seaport Global.

Good morning, guys. Can you hear me okay?

Just fine.

All right, great. I guess maybe I'll start off -- I think you guys just mentioning around the cattle prices, that's a little bit challenged here, I looked -- maybe covered this more just a bit challenged in the last few months. Cattle [indiscernible] while pork has been down quite a bit, I guess kind of when you're looking through the confidence that the ranching business will be okay in 2017, given where the prices are of meat commodities today?

Well, as I've said, I mean we've -- even this year I mean our egg sales are soft, but they held up reasonably well. And as you said even in this scenario where cattle prices are already -- pork prices were already weak. I think it -- but it sort of comes down I think in general farm incomes looked like they're -- should flatten out next year. I might say not as exhibit further decreases, and I think that the inventory levels at dealers are at a more healthy level. And when I say -- I mean it's not like our products have had an overhang at the dealer level, but I think dealers in general have had too much inventory, which has affected their ability to restock and everything. So I think that any improvement in dealer inventories will help manufacturers such as us even in a softer market, because you know, last couple of years the dealers have been selling more than the manufacturers have, because they have been working down inventories. And so, I think that you're right that cattle prices and pork prices are going to stay constrained, but I think that the outlook for manufacturers is reasonably flat and with even some possible upset.

Okay, that's great color. Thanks. I also want to ask secondly about your snow product business, obviously, Q3 being a pretty important quarter here especially for the orders, can you give me kind of a sense as to how orders went in the quarter and if you could maybe possibly differentiate between airport snow plows and off airport snow plows?

I think the snow plow business for us in general has held up well. We had a good year, I mean, with all the products like I said it's the vacuum trucks for us that's been the weakest. Snow plows for us have held up I think actually better than I thought, given that last year was a fairly soft snow season. I think we ourselves have not done as well in the airport market. I think we have some of our limitations on product range, which we are addressing to improve our offering and that sector have constrained us a little, but in general our snow business has been good and we think it's certainly in less part of this year, we've already -- as we start into the next snow season, it looks strong.

Thanks. And if I could, I just wanted to dig in a little bit on the Warsaw division. I've seen some peers saying turnaround stories inside your factory. They're trying to put some new equipment in there and cut these more lean and efficiency. I was wondering if you could tell us, update us on how that's going at that division and whether you maybe had a sales impact this year that might be a little bit more normalized next year once your new and improved plan is up and running?

Yes, Warsaw -- it's their airport business within our Warsaw Group has been weak, and I think that's -- like I said we're making some product changes to improve our position there, but other than that the Warsaw business is regular plows for governmentals, for highways, that's held up reasonably well, and you are right, I think with the changes we've made in the manufacturing plant should help our margins in that, but our other like [indiscernible] snow businesses are all having nice years.

Okay, thanks. And last one from me on the M&A side. We did see a deal announced last week in the Haynes Forest World in Europe with one of the bigger tractor guys out there. It was somewhat small for them but I would think it would be good sized deal for you. I was kind of wondering if you were looking at the [indiscernible] asset that were out there for sale, or is that not the kind of deal you are looking, are you looking at more of a infrastructure type of deal in the line Europe rather than a core Ag deal right now?

No, so the [indiscernible] is good to do, and I think that would have been a good one for us. I think that one was -- I think they had been talking with them about that for quite a while more of a negotiated position. So I really, I can't really -- I don't know what's going on between [indiscernible] but yes, that would have been a reasonable size and reasonable product for us. I mean I think that would have been a nice one.

All right, thank you so much. I'll hop back in the queue.

Okay. Thank you, Mike.

Thank you. Next we'll go to Joe Mondillo with Sidoti & Company.

Hi guys, good morning.

Good morning, Joe.

So I just wanted to sort of enquire about sort of the fourth quarter outlook and sort of your commentary that things remain challenging, but maybe things improving. The backlog was down 22% year-over-year, you saw some sequential growth, but that sequential growth wasn't as strong as the sequential growth you saw a year ago. And so I was just really wondering how tough of a comp you see particularly at the industrial segment in the fourth quarter?

We don't give specific guidance on that but as I said I think the enquiry level is looking little bit better. The markets are going to stay tight. Certainly like I said I think a little bit of improvement in backlog and I think October started off reasonably decent in bookings but certainly the market headwinds are still there. The currency situation isn't changing. The pound is – the strong dollar is still -- like I said half of our decrease in Europe was currency and those kinds of effects are still going to be in play. And lastly, of course the fourth quarter is little bit of a our strongest two quarters generally our second and third quarter so there is little bit of seasonality playing in that as well. So like I said I think hold up reasonably. It's certainly too early to tell. We've seen some strengthening in enquiries but they got to turn into bookings and sales before and like Mike said that one month doesn't -- it could be a blip or it could be a trend. We're not sure the overall market conditions have not improved and so it's hard to say exactly how the quarter will end up but I think we'll do well, relatively well to whatever we can achieve depending on what sales are.

In terms of your U.S. government sales it sounds like they've been holding. You said they're holding up. Is the year-over-year growth slowed at all, has the election played any -- I don't know, role in distributing CapEx budget for us…

It's hard to say precisely due to the election. It seems like there is some wait and see. During the election year, you can never really say if there is some wait and see, was it because the market was softer or because people were waiting and seeing and then so it's impossible to tell to differentiate between the two. But like I said historically we've seen a little bit of that after elections. The government sales have held up well for us. When you take out the vacuum trucks and take out the non-governmental sales our sales, industrial division would have been up this year. I can't say how far it would have been up compared to the previous anything like that. We don't have that degree of specificity but certainly like I say adjusting for a couple of divisions we know it is continuing to hold up nicely.

Okay, thanks. In terms of the agriculture in European segments the fourth quarter seemed like agriculture had a pretty good operating margin in the fourth of last year. I know you did some restructuring type stuff, I am not sure when that actually hit. I am just wondering if that fourth quarter operating margin in agriculture is sort of a bar that you can hit or if that was sort of you think a little lofty and it's making to a tough comp this year. And then sort of likewise at European the margin was pretty low actually in the fourth quarter of last year we've since gone into even more of a challenging environment. However you have made the restructuring and improvements that you've made in France. So just wondering how you're looking at those two segments on a year-over-year comparison here in the fourth quarter?

Just a quick clarification, Joe, when you say the European margin was low in the fourth quarter, you're backing up…

Excluding, yes.

The restructuring charges…

Yes, yes. You are at 3% or so in the fourth quarter '15.

Yes. I was going to say for Europe specifically we had the two major events in the fourth quarter that has been to be the sale of some excess land and the reserve taken on the closure of one plan in France. So if you are adjusting for those I would say Europe -- the difference is that the pound is now 15% lower than it was then so like I said we got to almost do 15% better just to have the same. So while I think in local currency the opportunity to do in Europe this fourth quarter is reasonable. I think that in U.S. dollars it would be difficult to maintain the comp. And in Ag, but I definitely feel it was reasonable. They had a good four quarter last year but they have -- I think one thing in our Ag division this can be seen in the previous quarters and you'll see in today when the 10-Q is realized that our Ag margins have continued to hold up very nicely. So I think that sales is the question, I think margins will actually be reasonable.

Okay. And then last question from me, just wondering if you could talk further now that we're sort of closer to 2017 about your productivity improvement and CapEx budgets. I know you have a couple of plants in Wisconsin that you were talking about, eventually consolidating just wondering how you are anticipating, since the environment is still very challenging and you are not necessarily seeing recovery in the near term how you are thinking about cost and productivity improvements for 2017.

Yes, I think we will have some continued improvements, I mean we did -- we have reworked our Warsaw plant in Milwaukee and I think it will greatly improve the flow and I think we will see some benefits of that next year. We did get the plant in France closed this year and I think we saw some benefits of that this year. I think that this year and we will see further next year and in fact our French operations are actually up year-over-year. I mean our U.K. operations have always been our stronger ones and they are the ones that have struggled a little bit more this year but actually our French operations are seeing decent improvement. As far as the plant consolidation and Milwaukee, yes that is still more on the vacuum trucks that is something we still very much wanted to do but we sort of delayed that pending, seeing how the market shakes out in the next year. So we still got plans, we still actually sort of still working on moving them ahead, but probably aren't, you know we are playing a little bit wait to see how the market develops.

So just a follow up on that, it seemed like this year you did, you had quite a bit going on, you had the China raw material sourcing or I guess it might have been component sourcing, you also had the Warsaw and couple other things. At this point in time compared to last year, a year ago, do you feel like you have as much ammo to sort of try to take cross out or is it just given how much you have done over the last year you can't possibly have as much compared to a year ago in terms of cost savings and such?

Actually think, like I say we have a number of initiatives that continue to contribute to improve margins. But volume plays in there too and I mean like I say, we need volumes to hold that year or improve a little to really gain the full benefit of these margin improvement initiatives. But I think we still feel that we got good benefit from reduction of cost in China based on the exchange rate and when we got that for about half a year this year we think, we will get it for a full year next year. I think steel prices, well they started out in 2016 low but they inched up during the year, I think we will see that flatten out maybe even come down slightly next year. So I think those are just two examples but I think there is still opportunities there that yes we do think we can get some continued market improvement but it's certainly going to be that at some point volumes.

Okay, great, thanks a lot, appreciate it.

Thank you.

[Operator instructions] Next we will turn to Brett Wong with Piper Jaffray.

Hey, thanks so much for taking my questions guys. First I wanted to bank in Ag, wonder if you can talk a little bit more about why you think that farming comes up flat next year, do you see more upside or downside to that?

The reports that I am seeing that are coming out from the various people who are tracking Ag incomes, the latest report I saw all showed farm incomes that moved up a little like I say not improve next year but not decline like this year or certainly last year. So this is more some of the overall trends I think for farmers I think costs have come down, probably price has come down but I think the cost structure has come down. So I think their ability to net income should have the ability to hold steady and I think if that does that holds well for the manufactures plus as I said I think the dealer financial situation is a little healthier now than it was a year ago and I think those two combined give some support to these in Ag like I say not improvement but not getting worse. And I think if it doesn't get worse that's almost an improvement because I think the main manufacturers will be in better shape for it. So like I said it's going to be bank Ag is going to stay soft or I am saying it's going to be up but I just don't think it's going to be down again.

Okay. And just some clarity there on the equipment side specifically given your outlook just for the macro in Ag, so don't you see a lift in demand for equipment because you have a better dealer inventory situation or is it flat or…

I think it's going to be spotty. I think in like combines things like that big tractors I don't see the demand picking up. I think more so the projections are for instance moving equipment should be up next year, small percentage increases but like you read some of the Ag forecast that break it down by commodity, that small tractors you know the hobby farm sector which has been up the last couple of years, looks like it's going to continue to be relatively strong. I think that like I said movers and certain some other kind of ground equipment or look like they are going to show some modest improvement, certainly grounds and landscaping equipment looks like they are going to show some modest improvement. So the almost in the Ag you have to look market by market or product-by-product. I don't think things like big [indiscernible] equipments going to show any improvement but maybe hay making equipment could show some minor improvements just because it was so far down this year.

Okay. That's great color thanks. Now we are heading, just to stand Ag we are heading a new farm bill year, wonder if you guys have thought about that at all and anything in there that you see could be positive detrimental for your business going forward?

Yes. I mean I think it will show, I don't think there will be a big change to it but jeez, I mean you tell me what's going to happen next Tuesday and like I say I think you need to see the repercussions of the election before what happens, not only at the presidential level but at the congressional level, who's going to be running congress next year. And so I think those issues I think we will have better color on next week than we will this week.

Fair enough. Moving to industrial, I am just wondering when the earliest you expect your non-government industrial business revenues to start growing again?

I think two things, I think there is a bit of overhang equipment in the rental market of vacuum trucks even though like I said I think we saw some pick up in utilization rates again not sure if it's a political trend but I think it's when oil prices and other mining copper and coal, coal is a big one in there when are prices for those types of commodities, oil, coal, copper when are those going to start to show some, iron ore, when are those going to start to show some positive improvement and your guess on that is as good as mine.

Okay, again in the back trucks, you just talked to what you are currently seeing around demand for new trucks and then any comments you have on unused pricing would be helpful?

Governmental demand for vacuum trucks has actually held pretty stable and so I think that's, like I say, which is actually for us the biggest part of the market. It wasn't the growing part of the market like the non-governmental plan was, so I think the governmental demand is holding steady. I think the non-governmental demand is not, I think that it's not a huge market the used truck market for vacuum trucks but I believe today there is a little over hang, I mean fortunately we are not trying to sell many used trucks. We actually did I think quite well, end of last year and first of this year getting our rental fleet better aligned to the market we are trying to serve and we are actually had, when we did sell some used trucks from the fleet last year and early this year we actually got our target margins on them. So we did not see from but I think it is probably softened a little since then but I don't know with the Federal signal, Joe Johnson, DO, there seems to be a lot of new trucks going into that market. I think they are trying to deal with some inventory issues but in total, and in specific areas I don't know Joe Johnson settled in Canada and things like that. So I think in specific areas there is some overhang, in general I think it's holding up reasonably well just because it's not a huge dynamic market with just lots of inventory everywhere. I think it's a reasonably contained market.

That's great, and last one from me, just wondering if there are any regulations or rate restrictions that are impacting the back truck market or demand? A – Ron Robinson: Nothing that we have seen that's, like I said again that's almost in certain specific areas, that's not a broad trend that has affected anything yet, if anything that [indiscernible] buy more trucks you need to get the heavier ones off the highway, so now we are not seeing anything there that's had appreciable effect on the market from our point of view yet.

Excellent. Thank you so much for all the color.

Sure, thank you.

And with that we will conclude today's question and answer session. Gentlemen, I will turn the conference back to you for any additional or closing remarks.

Well, again, thank you all for joining us today. We appreciate your participation and the questions and certainly an interesting, and I say challenging time for markets but we are good about where we are and look forward to speaking with you on our next quarterly call.

Thank you. With that we will conclude today's conference. Thank you everyone for your participation.