LCI Industries (LCII) Q1 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the First Quarter 2012 Drew Industries Inc. Earnings Conference Call. My name is Chanel, and I'll be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to Mr. Jeff Tryka, Drew's Investor Relations firm. Please proceed.

Thank you, Chanel. Good morning, everyone, and welcome to Drew Industries 2012 first quarter earnings conference call. I’m Jeff Tryka with Lambert-Edwards, Drew’s Investor Relations firm, and I am joined on the call by members of Drew's management team, including Leigh Abrams, Chairman of the Board of Drew; Fred Zinn, President, CEO and the Director of Drew; Jason Lippert, Chairman and CEO of Lippert Components and Kinro, and the Director of Drew; and Joe Giordano, CFO and Treasurer of Drew. We want to take a few minutes to discuss our first quarter results. However, before we do so, it is my responsibility to inform you that certain statements made in today's conference call regarding Drew Industries and its operations may be considered forward-looking statements under the securities laws. As a result I must caution you that there are a number of factors, many of which are beyond the company's control, which could cause actual results and events to differ materially from those described in the forward-looking statements. These factors are identified in our press releases, our Form 10-K for the year ended 2011, and in our other filings with the SEC. With that, I would like to turn the call over to Fred Zinn. Fred?

Thank you, Jeff, and thank you all for joining us on the call today. Our sales growth in the first quarter of 2012 was exceptionally strong. And this strength has continued in the second quarter of the year. This growth was a result of both acquisitions that we've made in the past 2 years, which added about $25 million to our first quarter sales, as well as increased industry-wide RV and Manufactured Housing production levels, which added an estimated $20 million. Among our top priorities for 2012, is to achieve favorable returns on the acquisitions and other investments we've made over the last few years. In the first quarter, we made progress towards this goal, which, along with higher sales volume, helped us double our EBIT margin compared to the fourth quarter of 2011. We still have a way to go but margins are headed in the right direction. A key measure of our long-term success has been our ability to generate substantial returns on the capital we invest in growth opportunities. In both 2010 and 2011, our after-tax return on invested capital put us above the 80th percentile of all companies in the Russell 2000 index. We're particularly proud of this achievement in light of the fact that the industry-wide RV production in 2010 and '11 was still well below the peak levels reached before the recession. And industry-wide production of Manufactured Housing -- in the Manufactured Housing industry was nearly 50% below the 2007 production revenue, yet our returns were high. With further improvement in both the RV and Manufactured Housing industries in the coming years, and with continuing increases in the profit returns on the acquisitions and other investments we've made, I expect that our return on invested capital will also increase. Looking forward, we'll continue to seek growth opportunities in the RV and Manufactured Housing markets, which will remain the foundation of our success. However, in the coming years, we also anticipate that an increasing portion of our sales growth will be generated in new markets and from the sales of news type of products. We have a broad array of growth opportunities, both within and outside our core markets. For example, our recently introduced awning products, aftermarket products for RVs and manufactured homes, components for a wide variety of cargo and utility trailers and buses and our new aluminum extrusions. Collectively, these new markets and products have a total market potential significantly in excess of $500 million annually. We believe that we have competitive advantages that will enable us to gain significant market share in these new areas over time, just as we have in our core market and products. Of course, we'll need to execute our plans to grow profitably. In certain of these new markets and products, we'll face new competitors, we'll incur some startup costs and we'll often have to establish ourselves as the supplier of choice among the leading customers. And to be successful, we'll have to continue to invest in both people and production capacity. As a result, we anticipate that our incremental margins on sales growth in these areas will initially be somewhat lower than the incremental margins of about 20% that we have historically targeted in our core markets and products. This factor had a modest impact on our incremental margins in the first quarter of 2012. In addition to our competitive cost advantages, I believe that the “customer first” corporate culture, which is part of the DNA, so to speak, of the entire operating management team, will continue to serve us very well as we expand in these new markets. By providing our customers with innovative and value-added products, as well as top-notch service and on-time delivery, all at a fair price, we expect to stay ahead of competition. To a large extent, this culture has been responsible for our success over the years. We couldn't have achieved a threefold increase in our content per total RV over the last decade without the confidence and satisfaction of our customers. A couple of weeks ago, I spent some time with 90 key managers from all facets of our business who were gathered at our annual managers' meeting to discuss ideas and plans and share best practices. What impressed me the most was the fountain of ideas that flowed from the people in the group, and each idea was focused on meeting and exceeding the current needs of customers or anticipating their future needs. Jason and his team also promote a corporate culture of continuous improvement in product design, in manufacturing processes and many other facets of our business. At the managers’ meeting, it was encouraging to me to hear ideas exchanged between our long-term managers and new managers we've gained in recent acquisitions. Over the years, Drew has completed numerous acquisitions, as you know, and we often make note of the tangible financial benefit we gain from those acquisitions. But the intangible benefits we've gained from acquisitions have also been important over the long term. From highly-qualified managers who may be ready to take on expanded responsibilities, to customer relationships, to new approaches to manufacturing and quality control. All have added to our success. Over the remainder of 2012 and beyond, we'll continue to strive for progress toward each of our primary long-term goals, including growth in our core markets, diversification into adjacent markets and further improvements in our production efficiencies and cost structure. Now I'll ask Joe to discuss our results in some more detail.

Thank you, Fred. Net sales for the first quarter of 2012 reached a record $224 million, which was only the third time that Drew sales exceeded $200 million in a single quarter, both previous quarters being in 2008 before the recession. This record was achieved despite the fact that industry-wide production of travel trailer and fifth-wheel RVs and manufactured homes, were still below quarterly production levels in those 2008 periods. These strong sales results are the outcome of our ability to execute our strategy of completing acquisitions, introducing new products and market share growth, which would not have been possible without our customer first focus. For the 12 months ended March 2012, our consolidated net sales were $736 million. On a pro forma basis, assuming recent acquisitions had been completed at the beginning of April 2011, sales would have been $775 million, surpassing our peak sales of $772 million achieved for the 12 months ended back in September 2006. One of our strategic goals is content growth in travel trailer and fifth-wheel RVs. And for the 3 months ended March 2012, which included the full effect of the 2011 acquisitions, our content for travel trailer and fifth-wheel RV was $2,830 per unit, an increase of 12% as compared to just the fourth quarter of 2011 alone. A portion of this increase is due to seasonality in our content on a quarterly basis, especially in the first quarter, which is why we usually focus on our content trends for the prior 12-month periods. In the first quarter of 2012, we did refine the calculation of our content per unit to better identify our aftermarket sales, as well as our sales to other industries. There was no change in total reported net sales for either the RV or Manufactured Housing segments, and all prior periods have also been refined for consistency. Recently, we introduced our new Solera awning product line. For the first quarter of 2012, our awning sales were approximately $0.5 million. However, our market share growth for awnings accelerated in early 2012 and based on our current orders for May 2012, our annual run rate has increased to more than $5 million with additional market share gains in awnings expected. To continue to be able to better serve our customers, in 2011, we invested over $24 million in capital expenditures and our current estimate is that we will invest another $18 million to $20 million in 2012. Aside from the aluminum extrusion operation, these capital expenditures are largely to increase capacity and improve efficiencies for our core products in our core markets. As part of our review of long-term capacity needs, one investment plan for 2012 is the addition of a second glass tempering operation, which will cost about $3 million to $4 million when completed in 2013. This new operation will not only supply us lower cost tempered glass as compared to outsourcing, but will provide a backup to help ensure an uninterrupted supply of tempered glass. Compared to historical averages for the past 6 years, material cost as a percent of sales in the first quarter of 2012, remains slightly above average, although below the highs experienced in 2011. Raw material costs, in particular steel and aluminum, continue to fluctuate in early 2012 although with generally less volatility than experienced last year. Our gross margin increased from 17.4% in the fourth quarter of 2011 to 20.1% in the first quarter of 2012. We achieved this improvement despite the higher level of overtime and related costs we incurred as a result of the greater-than-expected surge in industry-wide production levels. In addition, our operating margin in the first quarter of 2012 was impacted by continuing startup and acquisition-related integration costs. Collectively, these items are classified primarily in cost of goods sold reducing gross margin by about $4 million or nearly 2%. These costs are expected to decline in the second quarter of 2012 as many recently hired employees become fully trained and more efficient, which would increase gross margin. SG&A as a percent of sales declined from 13.4% for the full year 2011 to 12.3% in the first quarter of 2012, primarily because of the efficiencies gained by the spreading of fixed costs over a larger sales base. However, certain of our SG&A costs are variable such as much of our selling and delivery costs which comprise approximately 1/3 of SG&A and our incentive compensation, which is based on profits. As a result, our total SG&A costs will vary with both sales and profits. Further, over the last year or so, we added approximately $5 million of annual fixed SG&A costs, including amortization. A portion of these additional fixed SG&A costs were incurred in the latter part of 2011 and were related primarily to the 2011 acquisitions, our investment in sales teams for the aftermarket [ph] in adjacent industries and to meet the increased sales demand. We do expect the returns on these investments to continue to increase. Thank you for your time. Now I'll turn it back to Fred.

Thanks, Joe. Operator, we can open up for questions now.

[Operator Instructions] The first question comes from the line of Kathryn Thompson, Thompson Research Group.

Just to clarify, that $25 million in increase in sales from acquisition, that's for the RV segment?

It's in both. It's largely in the RV segment, but it is across both segments. Correct.

Okay. You did talk about -- you had some comments in your prepared comments about the raw material prices being a little bit less volatile this year versus last year. But in any case, we still view this is going to be an issue in 2012 overall. What are you doing to mitigate higher raw material costs or at least fluctuation in raw materials?

Well, I think, historically we've always worked pretty well with our customers and we've been able to -- when the need arose, to pass along higher prices when we've had to. Right now, it looks like the forecast for -- the short-term forecast for our primary raw materials are to be flat at least in the near term. Who knows what will happen beyond that. But for now, it looks like it'll be flat. So I don't -- Jason, do you have anything else you want to add to that? [Technical Difficulty] Well I don't think there's really much else to add to that. Right now it's not a significant issue for us and over the course of the next few months, we don't expect it to be.

And just to remind us, what's the general lag time between increasing prices and being able to capture it? I know that this has been something that you've had to constantly manage over the years. Is it more...

Yes. It probably ranges from 2 months to 4 months or 5 months. But at this time, it's not something we're focused on because it's not an issue. But I would say usually 2 to 4 months and we've got 2 months or so raw materials and inventories. So unless it goes to the upper end of that range, it doesn't hurt us at all.

Okay. In terms of your Manufactured Housing product, I want to get a little bit better sense of your core demand. We've seen some good numbers over the past 3 quarters. We know that there's something -- some impact from FEMA units, but how much of demand is being driven by a specific strength in certain geographic pockets, i.e. those that are exposed to energy, versus just a broad demand for your Manufactured Housing products?

Well, I think FEMA in -- at least in the first quarter, has not had a significant impact. I don't know if they ordered any, they may have. There's been some discussions about whether they'll order in the future, and there have been some notices sent out. But I think well -- but we'll see what happens. So the fourth quarter, I guess between September maybe and December, you're right, there were a couple of thousand of FEMA units. In terms of the strength in demand, I think it's fairly broad-based. Leigh is on the phone with us, and I know he spent some time with some of the Manufactured Housing industry, and I heard some comments about how it strikes us pretty good.

I just got back from a conference with -- there were over 700 members of the industry there, and for the first time in a number of years, there was really an upbeat tone to the conference. And I asked of that exact question, Katherine, and the answer that came back is that, no it's just normal traffic coming in, but there was some FEMA and some specific energy-related buying but mostly traffic with people coming back in for the first time and buying. So I was very pleased about that and the industry, as I said, was very upbeat.

Yes, and Kathryn, just an hour or so before our call, statistics on Manufactured Housing production in March came out. I believe it was up about 15%, just under 4,700 units.

And how is the financing environment for Manufactured Housing?

As far as we know, we're a few steps away from it, obviously, but it does seem to be steady. So better than it was, certainly, a few years ago, but still, I think Manufactured Homes -- financing for Manufactured Homes is at a disadvantage to type of homes, spreads are properly higher than normal. But not getting significantly worse or better, as far as I understand.

Okay. And how is the environment for acquisitions and as the markets improve, is it getting tougher or easier to target acquisitions?

Well, we'll see what happens. I think there are still opportunities out there. I think that as the market recovers, of course, sellers are going to want more. Also, negotiating price could be more difficult. But I also know that with uncertainty in the tax laws coming up in 2013, sellers may be more motivated to sell. I don't know which one will gain the upper hand there, but we'll continue to look at acquisition opportunities. And we'll continue to be reasonable in what we're willing to pay. I'd also say, I may have said this in prior calls, that our kind of target for acquisitions is a little broader. Now we're not only looking within our core markets, but also in some of the adjacent markets.

Okay, good. And then finally, what trends are you seeing with the customers' demand for RV products? Is it a particular product that is in higher demand versus other? Anything that related to that?

Jason, did you get back on the line? I guess we still lost him. But from what I understand, lower-priced units are doing better than higher-priced units. I think the consumer is kind of crawling out from their hiding place, they're starting to spend. But they're still being more cautious. So within towables and between towables and motor homes, I think consumers are looking for lower-priced alternatives.

Your next question comes from Daniel Moore, CJS Securities.

Sales components to other industries accelerated in both RVs and Manufactured Housing quite a bit. What are the some of the key end markets driving that and what's changed in the last couple of months to kind of kick that into higher gear?

I think what you're seeing there, Dan, first, if you look at the RV piece, a portion of that growth has to do with the acquisition we completed in the third quarter of last year. So if I remember correctly, it looks like the RV other industries went from a $5 million to $15 million and I would say about $5 million of that related to one of those acquisitions.

But still pretty good, it’s up $5 million in the quarter.

Okay. And then the wholesale RV demand has been robust for several months now. Talk about your confidence levels relative to where you were maybe 6 or 12 months ago that those increased inventory builds are translating into higher sales retail level over the next several months?

Well, as you know, Dan, we're one step further away from the dealer and the consumer so I don't have direct information. But I can tell you that it does seem as if our customers are pretty confident. They have opened some new factories; they've talked about opening new factories. There was a recent interview with Pete Lannon from GE Capital and he seemed to indicate, his view anyway, the outlook is better. The outlook -- I think what he said was that he expects stronger second half than the RVIA. He expects that they may even increase their outlook. There's been some strong activity in retail demand; dealers are turning their inventories pretty well. So at least in his view, which I think is a pretty good indicator, the outlook is getting stronger.

And maybe one other way to ask a similar question -- that's very helpful. In terms of dealer inventories, there's been, obviously, a huge bubble and then a crash. Where do you see inventories being? Are they at normal levels? If there is such a thing as historic normal levels versus if you sort of normalize things over the last 10 years?

Well, I don't know if you can normalize things over the last 10 years. But I can -- again, I'm going to stick with what Pete Lannon said that inventories are in very good shape. I'm just reading my notes from his interview. That turns were between 2.2 and 2.5 and that they were pleased with that.

Your next question comes from the line of Scott Stember, Sidoti & Company.

Can you maybe just to nail down a little bit more about the -- some of these extraneous costs you've had the last few quarters. I know they've been abating and the margins have been improving. But is there a timeline that you can give, a loose timeline on when we can see things at where they should be?

It's continuing to get better. The key pieces to the puzzle are the integration costs, startup costs with our new product lines and with our aluminum extrusion. And I'm going to guess that by second quarter, we'll barely talk about it and I hope not to talk about it at all in the third.

Okay. And maybe just circling back to the other and aftermarket, it looks like they were combined in your comments. Can you talk about the aftermarket itself, now that you have a separately formed division and and you’ve got some online customers there? Could you talk about how that's been rolling out for you?

Yes. Jason, you want to give some insight into that?

Yes, sure. We've been in the aftermarket in a -- real loosely over the last 3 years. And we decided to jump in with both feet and establish a brand and division. And I think like we spoke about in prior calls, the aftermarket's a market that's going to take years to really penetrate and get in deep. So we're establishing relationships and we're starting to get branding done on all of our products with our new brands, feel the aftermarket customers out on which products will more than likely sell through and which ones we should put on the back burner. So it's going to be a couple of year process to really get our products entrenched into the aftermarket channels. But we're really happy with the progress that we made so far and we've got some really key strategic partnerships in place. And moving along and products flowing a lot faster than I would have anticipated. So I think overall we're happy right now.

And can you talk about the new awning product? I know when you first released it or introduced it, you’d talked about a substantial aftermarket opportunity. Have you seen any benefit from that yet or any anecdotal comments from some of your customers on that side?

Yes, really, we just launched it late last year, and we're in design validation and a lot [ph] of the process validation stages right now. So we're really -- we've got a handful of customers on the OE side. We're listening to feedback. We're trying to make minor improvements where they like to see it and really just trying to get some out there and make sure that we've got everything covered before we go to the masses and go to aftermarket with it. So aftermarket will come. But we’re probably 6 to 12 months there before we even hit aftermarket with it.

Okay, great. And last question is on price increases, now that we've gotten through another round of increases to your customers. Can you talk about your experience in basically how much of your full price you were able to receive, let’s say versus a year or 2 ago? Has there been more reluctance or have you been mostly successful in attaining what you need?

You have seen margins recover for us so I do believe that we've been largely successful as we have in prior years. We're never going get 100% of recovery on costs. We'll share in the pain a little bit as our customers do and as dealers do and as retail customers do. But I think it's been pretty good.

Your next question comes from the line of Barry Vogel of Barry & Associates.

You had an interesting comment in your 10-K that said in one of the paragraphs that net income in 2011 was impacted by higher raw material costs, higher production costs in one product line, which you never told us what it was. And startup and integration costs related to 5 acquisitions completed in 2011, and the new aluminum extrusion operation and its new RV awning product line. And you said these costs reduced net income by approximately $7 million last year. That's about $0.31 a share.

Right. I think we talked about the same thing in the conference call.

Yes. Again, I just happen to see that in the 10-K. So is it fair to that assume that when we’re looking back at in 2012, that $0.31 a share negative impact will be on balance 0?

No. Certainly, we had some impact as we've said in the press release in the first quarter, but far, far reduced. So it's gotten a lot better and we expect it to continue to get better. And as I responded to Scott Stember, I don't expect to be talking about that in a few months because it'll be so small, if any.

Right. So it's possible this year it might be a, let's say, $0.05 impact, so you'd pick up $0.26 a share?

Yes, but I would say things always go wrong. We're not perfect, so there'll be other issues of some sort over time of whatever it might be. So we were just trying to give you an impression and a feel for the fact that it was all a little overburdened last year. We had more of those types of costs [ph] than we typically would.

Okay. And as far as Manufactured Housing outlook, it's shocking to see the strength in the industry after 11-year depression?

Yes, it's nice. What is it, about 6 or 7 months now, some nice numbers and manufactured housing. Hopefully it will continue. It will depend sequentially on the economy and the housing market, in general.

But let's assume that things continue to improve, what operating rates you have now on your Manufactured Housing Products? And what could be -- general capacity, if things just continue to improve steadily, I'm not using a number...

Right. Jason, would you agree that we have a significant room to grow in the Manufactured Housing?

Capacity-wise, without question.

Excuse me?

Yes, significantly. Yes.

Capacity-wise, yes. Without question

I didn't hear that.

We have significant capacity. So if the industry continues to grow, we can meet those demands.

All right, so let's say in the first quarter you did $28 million in revenues, what could you do on a quarterly basis if you were operating sort of flat out?

I'm not sure I can answer that because it'll depend -- it all depends on the needs. We can expand fairly quickly in terms of our ability to produce, so I think significant.

And also Barry, with respect to setting up additional operations, I mean, there's not extensive machinery and equipment in our business that would take us -- give us extra-long lead times and put us out of the running for a business boom in the housing side of things.

Right now, as far as margins and Manufactured Housing we've always done a great job in the depression, which is amazing to me. And would you say it's fair to assume that your 11.2% operating margin in Manufactured Housing, which is what it was in the first quarter, is at the minimum, achievable for the year?

I can't give you a forecast, but I can tell you that if sales remain strong, we would anticipate strong margins as well. We have in net [ph] segments, on the order of 20% incremental margin. And I don't see structurally why that should change. So as our sales grow, I would expect to see nice margins on it and as always, we'll work with our customers where we have to.

Your next question comes from Barry Kaplan, Maple Tree Capital.

So, a couple of things. If I take out the $25 million in the first quarter that you attribute to acquisitions, so it looks like the sort of organic growth was about 18% if that's right?

That's about right.

And if so, you were saying that April was 22% if you take out acquisitions there as well. And so obviously, it seems like, on a revenue basis, things are actually accelerating as you move through the year...

Yes, of those of -- I think I would call that a modest change. I don't think our revenues are going to be quite that steady, but I would say on the same order, yes, April looked on the same order the first quarter.

And then obviously, these are big organic growth numbers for revenues and I'm trying to get a better sense in terms of the operating leverage going forward, and I know you've talked about kind of 20% incremental operating margins sort of being your target and you just mentioned you were getting that in the Manufactured Housing business. Is there -- I mean, presumably, there’s some relationship though between that and the level of incremental revenue. In other words, the faster your revenues are growing. Can you not just -- if revenues are growing 40% one would think you'd be able to get more than 20% incremental margins than if your revenues were out growing 5%.

No. No, I think that probably is not correct, at least for us. I think our incremental margin would hold regardless of the speed with which we grow. But in fact, if you're growing that fast you're going to have to add more fixed costs. Incremental margin only work up to a certain point. So it may even work the opposite way. I think in the first quarter we did a little bit. We saw very fast growth. We saw the industries expand further and quicker than we expected, so we incurred some overtime. But on the long term, it could only be good. If we see health in our underlying industries, we'll be jumping up and down.

And that gets to the question, really, of pricing. I mean, all the discussion about pricing that you’re able to get or not get really relate to recovering in raw material costs in cases [ph] . But at some point, if the demand in the industry is so good, you should be able to get some supply and demand-related pricing outside the whole [ph] raw material costs [ph] , how do you guys think about that? Obviously it's a sensitive subject to talk about on a conference...

Yes, I would turn it over to Jason, but I would say that we need to be fair with our customers. Our growth, Barry, if you look at it historically, has been because our customers trusted us to buy a new product line from us. So they’re buying a new area or to have a new -- one of their divisions buying from us. So our success is, to large extent, built on customer trust. And Jason, you have anything you want to add?

No, I'm right on line with all that.

Yes, okay. So we're not -- our intention is not take advantage of the situation. Our intention is to be fair in pricing to both our customers and to us.

There was a comment -- just going to the Manufactured Housing, there was a comment the press release about you're not growing as fast as the market in Manufactured Housing because you -- the house sizes were smaller and you do you just a bit more in larger houses. Is that something that you can -- are you looking to provide more content into smaller houses in smaller homes, or is that just the math of the fact that smaller house has less content or you're somehow less present in the smaller house?

No, it's at the smaller houses. Mostly it's that the smaller houses have less content. The Manufactured Homes are built in sections. So a larger home really means 2 chassis, 2 frames; a smaller home means one frame. So there's -- a larger home has more windows, so our content is naturally higher in the...

Our content's largely limited in the housing sector anyway, because they don't supply them with furniture and appliances and all the other things that you'd find in an RV.

Right. And the last thing, I just want -- I apologize I got distracted a little when Joe is talking about this tempered glass facility. Can you just repeat that?

Well, I'll give you the lead in. We temper our own glass for our own needs. Most of -- almost all of the windows we put certainly in the RV, are tempered glass. We temper it ourselves, and we foresee being at capacity. We are even outsourcing in peak season some of our tempered glass needs, so we're going to build a second glass tempering line operation.

Did you say how much that's going to cost?

$3 million to $4 million.

Your next question comes from the line of Daniel Moore, CJS Securities.

One quick follow-up. You mentioned planned capacity expansion in the press release, maybe it was in regard to the tempered glass as well. But will those incremental costs be largely CapEx, or do you envision further investments that'll hit the P&L that might mitigate some of the margin benefit that you would otherwise see as we roll through the year?

I think whenever you add capacity, you always have some P&L. But it's largely CapEx that we're talking about but there's always some start-up costs.

But not a repeat of kind of what we saw in Q4 where over the last couple of quarters where you had incremental costs that you broke out specifically that impacted margin?

Hopefully, on a much smaller scale.

Towables [ph] were -- I think they were talking about greenfield projects where we kind of started the brand-new project where this would be more spreading out existing capacity so that we create more.

Obviously, the extrusion has a little bit more build cost ahead of revenue than you would on brownfield.

Your next question comes from Steve Prusman [ph] from SES Capital.

Just a quick question, in your press release, you called out $0.04 for additional labor and overtime, and you kind of touched on it a little bit earlier. But can you clarify if you think you've rightsized your workforce at this point, and how we should think about the timing of those costs going away?

I think the workforce has been rightsized and I think most of the impact in the first quarter was that we had untrained, or workforce that wasn't as well trained. And now they're becoming much better trained. So I do expect we'll see an improvement. Jason, is that fair to say?

Yes, and one of the tough things first quarter was, the industry, obviously, grew significantly from what a lot of us had anticipated or planned on, which is good. But everybody in Nacaur [ph] County was going to the well of unemployed workers and whether or not that some of the workers or many of the workers weren't ready to come back or we just weren't able to get at them efficiently enough. That cost, like I said, so a lot of training issues and ability to just get everybody, all the plants up and running. The whole county was grabbing at anybody who was willing to work. So and a lot of us -- some were a little bit trying to get workers and get them trained, get them up to speed, while we were increasing production, literally every week. But that's gone, our hiring levels have kind of leveled off for the most part as have most others in the community so [indiscernible] quarter.

[Operator Instructions] And there are no questions at this time.

Okay, Well, thank you, all very much for participating and for your insightful questions. We look forward to speaking with you just a few months down the road when we report our second quarter results. So thanks again.

Ladies and gentlemen, that concludes the presentation. Thank you for your participation. You may now disconnect. Have a great day.