Sturm, Ruger & Company, Inc. (RGR) Q4 2015 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Sturm, Ruger & Company Fourth Quarter 2015 Earnings Conference Call. My name is Mark and I'll be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Michael Fifer, Chief Executive Officer. Please proceed, sir. Michael O. Fifer - Chief Executive Officer & Director: Thank you. Good morning and welcome to the Sturm, Ruger & Company year-end 2015 conference call. I'd like to ask Kevin Reid, our General Counsel, to read the caution on forward-looking statements, which will be followed by a quick overview of 2015, including the fourth quarter, and then we can get right into your questions. Kevin? Kevin B. Reid - Vice President & General Counsel: Thanks, Mike. We want to remind everyone that statements made in the course of this meeting that state the company's or management's intentions, hopes, beliefs, expectations or predictions of the future are forward-looking statements. It is important to note that the company's actual results could differ materially from those projected in such forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained from time to time in the company's SEC filings, including, but not limited to, the company's reports on Form 10-K for the year-ended December 31, 2015 and Forms 10-Q for the first, second, and third quarters of 2015. Copies of these documents may be obtained by contacting the company or the SEC or of course on the company's website at www.ruger.com or the SEC website at www.sec.gov. We reference non-GAAP EBITDA. Please note that the reconciliation of GAAP net income to non-GAAP EBITDA can be found on our Form 10-K for the year-ended December 31, 2015, and our Forms 10-Q for the first three quarters of 2015, which also are posted to our website. Furthermore, the company disclaims all responsibility to update forward-looking statements. Mike? Michael O. Fifer - Chief Executive Officer & Director: Thank you, Kevin. Financial results. For 2015, net sales were $551.1 million and fully diluted earnings were $3.21 per share. For 2014, net sales were $544.5 million and fully diluted earnings were $1.95 per share. In the fourth quarter of 2014, the company recorded an expense of $41 million related to the termination and settlement of its defined-benefit pension plan. Excluding this expense, 2014's fully diluted earnings were $3.22 per share. For the fourth quarter of 2015, net sales were $152.4 million and fully diluted earnings were $0.88 per share. For the corresponding period in 2014, net sales were $122.6 million and the company realized a loss of $0.77 per share. Excluding the aforementioned defined-benefit pension plan expense, fourth quarter 2014 fully diluted earnings were $0.53 per share. Our 2015 EBITDA was $132.5 million or 24% of sales and our 2014 EBITDA was $126.3 million or 23% of sales. For the fourth quarter of 2015, our EBITDA was $36 million or 24% of sales. These results compare favorably to our fourth quarter of 2014 EBITDA of $17.3 million or 14% of sales. Demand. After a year of declining demand in 2014, demand rebounded in 2015 whilst to slightly higher overall levels and back to typical seasonal patterns. For 2015, the estimated sell-through of the company's products from the independent wholesale distributors to retailers increased 7% from 2014. During the same period, the National Instant Criminal Background Check System background checks, as adjusted by the National Shooting Sports Foundation and commonly referred to as NICS checks, increased 9%. For the fourth quarter of 2015, the estimated sell-through of the company's products from the independent wholesale distributors to retailers increased 24% from the comparable prior-year period. During the same period, NICS checks increased 18%. We've had a strong presence in the 2015 Black Friday advertisements with some national chain accounts reporting significant increases in sales of the company's products to consumers year-over-year. In the fourth quarter of 2015, we observed stronger demand for those firearm products that would typically be used for self-defense such as centerfire pistols. This increase in demand led to increased sell-through at all levels of the channel and helped reduce inventory levels of the company's products both at Ruger and at the independent wholesale distributors. Demand continues to be strong for both self-defense type firearms and for new products through the first month-and-a-half of 2016. New product development. We believe that new products are a key driver of demand. Our major new product launch in mid-2015 was the Ruger Precision Rifle. And at the end of the year, we launched the Ruger American Pistol and shortly thereafter the Silent-SR rimfire sound suppressor. In addition to these new products, we placed an increased emphasis on accessories and licensed products. New accessory of products included the Elite 452 trigger, which fits all modern sporting rifles, several 10/22 barrels, custom replacement stocks and grips, muzzle brakes for threaded barrels and a 9-millimeter conversion kit for our LC380 pistol. We also added Ruger ARX ammunition manufactured by PolyCase and an exclusive line of knives by CRKT to our catalog of licensed products. New products represented $115.4 million or 21% of firearm sales in 2015 compared to $89.4 million or 16% of firearm sales in 2014. New product sales include only major new products that were introduced in the past two years. Production and inventories. In 2015, unit production for the year declined 8% from 2014. The quarterly numbers, however, show an improving trend in the second half of the year. In the third and fourth quarters of 2015, unit production increased 23% and 18%, respectively, from the comparable prior-year period. In spite of that increase in production, inventories at both the company and at the independent wholesale distributors declined in the fourth quarter due to the aforementioned increase in demand. For the full year, the company finished with inventory decrease 16,800 units and the independent wholesale distributor's inventory decreased 55,700 units. We believe that the overall inventory levels are generally sufficient to support rapid fulfillment of retailer demand. However, there is still insufficient availability of certain models that are enjoying strong demand and we are working hard to increase production rates for those models. Balance sheet. At December 31, 2015, our cash and cash equivalents totaled $69 million, an increase of $60 million from December 31, 2014. Our current ratio was 2.3:1 and we have no debt. At December 31, 2015, stockholders equity was $227.7 million, which equates to a book value of $12.17 per share. Cash flows. In 2015, we generated $112.6 million of cash from operations. We reinvested $28.7 million of that back into the company in the form of capital expenditures. We estimate that capital expenditures in 2016 will be approximately $25 million. Our primary focus for investment will be new product development as well as capacity increases for certain established products that have strong demand. Cash returned to shareholders. In 2015, the company returned $24 million to its shareholders through the payment of $21 million of dividend and the repurchase of 82,100 shares of our common stock at an average price of $34.57 per share for a total of $3 million. At December 31, 2015, $73 million remained authorized for future stock repurchases. Our board of directors has declared a $0.35 per share quarterly dividend for shareholders of record as of March 11, 2016, payable on March 25, 2016. As a reminder, our quarterly dividend is approximately 40% of net income and therefore varies quarter-to-quarter. Those were the highlights of 2015. Operator, may we please have the first question?

Your first question comes from Andrea James from Dougherty Company. Please proceed. Andrea Susan James - Dougherty & Company: Taking my questions, Andrea James here. Quick question, Mike, just a modeling question. If you shipped 478,000 units in the quarter at a $336 ASP. If I multiply those two numbers, I get $160 million in revenue. You reported about $150 million of firearms revenue. I'm just wondering what I'm missing because normally that roughly works out. Michael O. Fifer - Chief Executive Officer & Director: I believe the answer would be free goods being shipped from our summer promotional programs. And so... Andrea Susan James - Dougherty & Company: All right. Michael O. Fifer - Chief Executive Officer & Director: ...not every one of those units went out at that ASP. I mean, the ASP would be the products for which we invoice. Andrea Susan James - Dougherty & Company: Okay. I appreciate that. And then can you give us a little bit of color into your thinking about the decision to go into suppressors and whether or not that could be material? Thank you. Michael O. Fifer - Chief Executive Officer & Director: Yes. I think suppressors on emerging markets really has taken the whole shooting industry by storm. Once people finally get around to trying it, they realize how delightful it is to shoot in a must quieter environment. And we just think it's going to be a big growth area. Now, for the first year or two, I don't see it being material to our results. But at the SHOT Show, we had a bunch of retailers come up to us and say, hey, I was thinking about getting into the silencer business, but I couldn't make up my mind. But now that Ruger's in it that means it's mainstream, I'm going to do it. I'm going to get my license. Andrea Susan James - Dougherty & Company: And the waiting period on that? You think it's still a popular product even though folks have to wait a little bit just to get it? Michael O. Fifer - Chief Executive Officer & Director: I think the waiting period is actually getting worse. Because of budget constraints, they have redeployed some of the people who are working on the licenses – not licenses, but the authorizations for suppressors and have reassigned them to just doing basic NICS checks. So it's a problem and we can only hope that they'll put more resources on it and it'll get better. Andrea Susan James - Dougherty & Company: Thank you for taking my questions. Congratulations. Michael O. Fifer - Chief Executive Officer & Director: Thank you.

Your next question comes from the line of Brian Ruttenbur from BB&T. Brian William Ruttenbur - BB&T Securities LLC: ...very much. Great quarter and year. Couple of questions. Distributor level inventory currently stands around 270,000. Where do you see or where do you want distributor level inventory to go to? I think you made a comment on the last quarter around 325,000, if I recall correctly, and maybe you can elaborate on that. Michael O. Fifer - Chief Executive Officer & Director: Well, I believe we've been very consistent in saying that we really like to have that distributors smiling at about six inventory turn, which is where that number in the 300,000 come from and, of course, this is a good healthy and growing year, then we'll want even more. On the other hand, distributors like to have as little inventory as possible as many inventory turns as they can. So it's always a bit of a challenge to convince them to invest a little more, but we've been recently successful. And those who actually did it because it's not uniform across the board, but those who made a real effort and a real commitment, they made a lot of money in the fourth quarter. And so hopefully that message will resonate to more of them and more of them will actually act like wholesalers and hold inventory. Brian William Ruttenbur - BB&T Securities LLC: Okay. And then the next question is on capacity at Mayodan, are you at full capacity or are you at 75% capacity? How many lines do you have up there? Michael O. Fifer - Chief Executive Officer & Director: Right now, the Mayodan factory has about half the space finished out and with production lines in it. Not all of those production lines in that first half are shipping yet because we are increasing capacity on a bunch of the products there – built there. But I have signed a capital request to finish out the other half of the building because we anticipate filling it in the coming year. Brian William Ruttenbur - BB&T Securities LLC: Can you talk a little bit about CapEx requirements then in 2016 as you finish that out? Is it going to be larger or smaller, can you give me any kind of numbers around that? Michael O. Fifer - Chief Executive Officer & Director: I can give you our current estimate, which is about $25 million because generally we don't have any major building infrastructure issues other than finishing out the interior of the Mayodan plant. For example, in the past few years, we've done a substantial – on the wastewater treatment facility, we put in a very big indoor production range and those things are quite expensive building additions. So our current estimate is $25 million. I would caution, however, my January estimates have never held up. And if we get great opportunity, as you see, we're sitting on a lot of cash that we can move very quickly to take advantage of that. Brian William Ruttenbur - BB&T Securities LLC: Okay. Next question is about traction with a new American Pistol line, market reception, what you're seeing out there? Michael O. Fifer - Chief Executive Officer & Director: All right. I'd like to ask Chris Killoy, President and Chief Operating Officer, to take that question. Christopher John Killoy - President & Chief Operating Officer: Thanks, Mike. One of the things with the American Pistol is, we had a very innovative launch plan, shipping to retailers and our select ranges across the country in advance of actual announcement to consumers. That proved very effective. And so far, the demand has been very strong. We just finished shipping the last of our introductory packages, now building the individual firearms. We have two primary SKUs, 9-millimeter and 45 that are shipping to retailers. And so far, we've been very pleased with the demand and the success of the launch. Brian William Ruttenbur - BB&T Securities LLC: Great. And then I have some additional follow-up questions just that the plan for promotional activity in 2016 versus 2015. We're picking up from SHOT Show that maybe the discounting environment is less this year because of the increased volumes or increased demand. Is that what you're seeing also? Michael O. Fifer - Chief Executive Officer & Director: Yes. Christopher John Killoy - President & Chief Operating Officer: This is Chris again. Right now, certainly there's increased demand on certain segments both of Ruger product line and the market in general. Other parts are still somewhat subjected to promotional needs. At Ruger, we typically over the past couple of years had had a single annual promotional period between January and February. And as many of you likely know last year, we had a summer series of promotions that we're planning to repeat this year. So we're planning for that. The way we do these promotions is, we can throttle those up or down as far as how rich they are or how rich they need to be based on the market demand and the segments we're talking with. Brian William Ruttenbur - BB&T Securities LLC: Okay. Thank you. Rise in ASPs this year versus last year, I think that on the year you had, I guess $319 was the average in 2015 versus last year was $303. Do you expect that rise to continue in 2016 for ASPs and was that driven primarily by long guns or what was it driven by? Michael O. Fifer - Chief Executive Officer & Director: The major factors in ASP are the number of free goods that are shipped and the accessories that are shipped. These ASP numbers include our accessory sales. So if you have a year like 2013 where there was an extraordinary of aftermarket magazine sold, that can substantially lower the ASP number. And if you have a period of time where they're not quite so many and then you throw in our new product, the Precision Rifle, which is not our most expensive firearm, that can adjust it too. So I wouldn't read a lot into the ASP numbers one way or the other here. I'd focus more on the total units sold because we tend to have a good contribution margin on incremental units. So if you see us go from one quarter to another with a big jump, you can expect sort of earnings to follow that. Brian William Ruttenbur - BB&T Securities LLC: Right. And then, last questions, got to bring Tom into this. Can you talk about tax rate anticipation for 2016, where you anticipate that to shake out? And then, your share count, is there any anticipated buybacks or you're anticipating kind of flattish share count or some increase in share count with time? Thomas A. Dineen - Chief Financial Officer, Treasurer, CAO & VP: We don't have any particular reason to expect the tax rate to change. And especially in election year, I doubt they could pass any legislation that would affect it. In terms of share repurchases, with that $73 million authorized and at this stock price, I doubt we would do it. And let me just go back to a discussion I've had in the past, which is if the stock is trading at a historical, kind of average multiple, we're not going to participate. If we think that multiple has dropped too low, then we will jump in at that point. Because from the perspective of a shareholder who is around before the stock repurchase and saves and still owns their stock after the repurchase, they are only better off when the company buys the stocks if the company buys the stock at a below average earnings multiple. And honestly, I would invite more people to actually run the math and figure it out, because there's too many assumptions out there that just buying stock back at any old price is good, but it's only good for the exiting shareholder and it's not good for the shareholder who stays. So if our average multiple is kind of in the 6 times to 8 times range, you would expect us to buy only when it's below that range. And right now, I think that the multiple is somewhere in that range, and so we probably wouldn't participate. But as you saw last year, when the stock price dropped down to what we thought was an unfair level, we did jump in and buy a bunch of $35 a share. Brian William Ruttenbur - BB&T Securities LLC: Thank you very much. Michael O. Fifer - Chief Executive Officer & Director: Let me add to that a little bit. There's always a tug between three main things: stock repurchase, special dividend or acquisitions. And we've kept our eye out for acquisitions for the last 10 years, and we've actually tried a few times but been beaten by others who were willing to pay really kind of silly multiples. And as we see some of those acquisitions that we didn't quite get, I think the people who bought them rue the day that they did win. And you've seen us where we have done a special dividend in the past and seen us actually buy stock back from time to time. If we have another good year, I think we may find our cash balance to be uncomfortably high at that point, and that would probably lead us in the direction of a special dividend. On the other hand, if politics and things really drive a strong market, some of that cash will go into additional capacity and we may not be in a position to do a special dividend. At the same time, who knows what will happen with politics if the stock price gets on the – what we believe is a very low multiple, then we'll jump in with the stock repurchase. So we're very aware the way to spend the money, we're trying to do it in a responsible way for our long-term shareholders and we'll be ready to move if an opportunity presents itself. Next question?

Your next question comes from Colin Moran from Abdiel. Please proceed.

Mike, your D&A is running about a little under $40 million a year. But you mentioned this $25 million CapEx number as creating some room for expansion. Can you just comment on what the right number to think about for just sort of a maintenance CapEx level for you guys is? Michael O. Fifer - Chief Executive Officer & Director: I think probably somewhere in the number of $15 million, but we've got such a long list of new products out there that we're anxious to implement that I'd be surprised if you saw us less than $25 million on a running basis.

Okay. Just to make sure I heard you, $15 million, $15 million is maintenance, and then maybe an extra $10 million for – whatever is above that is building out capacity? Michael O. Fifer - Chief Executive Officer & Director: Well, when you introduce a new product, keep in mind that even if you have (24:21) that's suitable to build it, you generally have to do a lot of new tooling – both tooling in the machine and then perhaps tooling for plastic injection molded parts or metal injection molded parts. And so the startup of the line consumes a fair amount of capital, whether you have the equipment or not, and then if you have to buy either extra equipment or specialized equipment that adds more to it. So new products really tend to drive our CapEx in any given year. And then, typically, to a lesser degree, increasing demand on existing products may have an impact. We've got a lot of new equipment throughout the business because we've invested over $200 million back in the business in the last seven years or eight years. So it's not like I have a lot of old equipment that's just dying and falling apart. Pretty much we've cleaned most of that out. There aren't too many Bridgeports left in our building. So when you ask about maintenance, it's a tough question for me to answer because I'm trying to think of do we have any more roofs to repair. And we've been pretty steady each year at maintaining our infrastructure, and then our CapEx has really been driven by new product demands.

Okay. I guess, sort of related to that is your sales to net PP&E historically has been in the kind of close to seven times ratio, and now it's closer to five times. So would it be right to infer from that that you've got a fair amount of room to ramp up production without – at least in existing lines without needing to spend a lot of CapEx? Michael O. Fifer - Chief Executive Officer & Director: It depends on the line, but I think that's a reasonable assumption. And keep in mind that some of our early products during this big run were small, like the LCP pistol. And that really required minimal capital for what we were producing. And then we added things like the SR1911, which requires a lot of capital for each gun produced. And then, most recently, we put out the Ruger Precision Rifle, which is a very vertically integrated product. And our AR556 is very vertically integrated, which is how we're able to reach the price points we did. And so those were much more capital intensive than, say, the original LCP. So a lot has to do with product mix and how much we're vertically integrated versus how much we're buying component parts from outside vendors.

Okay. And then, with respect to the Precision Rifle, what's your sense of how many of those you'll be producing in Q4 of this upcoming year versus the quarter we just finished? Not looking for a number, just kind of a relationship. Are you going to double it? Is it something in that order of magnitude? Michael O. Fifer - Chief Executive Officer & Director: I do not anticipate doubling it. I'm frankly thrilled with how popular it is and how much it is in demand. But I mean it is a $1,000 rifle, and there's a smaller market for a $1,000 rifle, no matter how incredibly accurate and fun to shoot it is compared to a $299 pistol. So I truly have no idea what the demand will be at the end of the year. Hopefully it will be every bit as strong as it is now, and I'll probably be lagging demand in terms of capacity increases because I always remain a little bit skeptical on the higher price products to just how long strong demand will last.

Okay. And on the new pistol, what could we think about in the way of additional related pistols over time that might come out of the American Pistol. Just what possible alternative – or not alternatives, but additional lines could come out of that? Michael O. Fifer - Chief Executive Officer & Director: Well, what we've done is come out was two of the most popular calibers in a full-size and what we call the Pro model, which means manual safety is not on there, and magazine disconnect safety isn't on there because typically more experienced shooters don't want to have those. And so those are just two models. I believe our plans for that line are somewhere on the order of 22 models in total. So you would expect at least one additional caliber, you'd expect Pro model, safety models, full-size models, compact models, I just work through the list and that's long before we even get to a distributor exclusive that wants other special features on it. So I think it will keep us busy for a few years. You should expect us to expand this to a full line, but it will take a number of years to do so.

Got it. Thanks.

Your next question comes from Brian Rafn from Morgan Dempsey Capital Management. Please proceed.

Good morning, Mike. Hi, Chris. Michael O. Fifer - Chief Executive Officer & Director: Good morning.

Mike, from the standpoint of new product development, obviously that's what you've kind of anchored the company on. One, from your standpoint of engineering staff, are you looking at adding any design capacity and engineers this year? Michael O. Fifer - Chief Executive Officer & Director: Brian, at this point, I would tell you probably not other than just sort of the normal part of our engineering intern program. Every year, a few of those guys graduate, and we extend them offers for full-time employment. We've been very fortunate in that we've had, I believe, zero turnover. We had – I think, over the past three years, one or two guys left for one reason and they both came back. So we've done very well in keeping the guys and keeping them happy, challenging them, we're working hard on enhancing their education and skill sets so that they can become more valuable to us. And with the good established base we have, I think that's more important than bringing in new guys, although we try to bring in interns every year and then keep a few of them post-graduation.

Okay, so you're keeping a couple interns every year. Okay. Last time I checked, you had 75, 80, 85 engineers, is that about right or am I off? Michael O. Fifer - Chief Executive Officer & Director: It depends who you count. But I think in aggregate, including our manufacturing engineers, which work so closely with the design guys, there's a lot of crossover. I think we're probably closer in total to about 140.

Okay, great. Super. All right. When you look at product development lifecycle, concept, prototyping, testing, building inventory, at one time, Ruger was three-and-a-half, four years, what maybe are your goals and are you seeing any compression in that design to bringing to market that compression of that cycle-time? Michael O. Fifer - Chief Executive Officer & Director: Well, last year we initiated a big project to try to rationalize how we do new product development at all of our facilities. And I don't really want to go into all the details on that, but we expect good things from it. And in spite of – mind you, in the past, Brian, it takes three years or four years to develop a product, every now and then we get one that slides through one year. So we have done it well on occasion, and we know that if we can get those best practices across the board throughout the plants, and teach more of the guys how to do that, we will get better over time.

Yeah, okay. No, I think you're making efforts. You talked once, and one of the things that we look at too is the ability – you build some buzz in the channel, and you got to have some decent inventory on a launch day. The Precision Rifle is such a superb rifle. There are Delta Force guys SOCOM guys, Rangers that can't get to. I'm still on a waiting list. You talked about being a little skeptical kind of gauging that. What is your sense on – I'm trying to understand what's the gauging. I mean, if you're constantly kind of behind that, how do you kind of lift production for something that has tremendous demand? Michael O. Fifer - Chief Executive Officer & Director: Well, that's a challenge we face every day. Right now, demand for that rifle is substantially more than we can build today. But is that – let's say, the demand would easily be 2X or 3X what we're building today, but it's going to last for five years, in which case that should be scrambling to get more equipment and more staff working on that right away or is that the typical launch of a new product where you get this enormous spike for the first six months to 12 months. And then it kind of settles down to a value that was, let's say, for example, half of the peaks out. And that's the sustainable multi-year. So what we try to do is we try to estimate what the sustainable multi-year level is, build a production capacity for that, and then build units for several months before the launch so that we can take care of the peak at launch, but not be over-invested in capacity.

Right. Michael O. Fifer - Chief Executive Officer & Director: And pretty much, we have misjudged that every single time. We have never had enough capacity.

Yeah, right. Well, it's a tough thing to do. I'm not pressing you. Harley-Davidson does that with motorcycles here in Milwaukee. They like scarcity. Scarcity drives that buzz. I'm wondering, is scarcity for you, does that help engaging and being a little more skeptical or would you just assume – deliver as many as you could. Michael O. Fifer - Chief Executive Officer & Director: I think this is a little bit like what you learn at business school that you cannot inventory a hotel room. If you didn't sell it last night, you lost that sale forever.

Right. Michael O. Fifer - Chief Executive Officer & Director: And there's a certain number of folks who, when they see it on the cover of a magazine, want to run out and buy it right then and there. But if you wait six months or nine months, they may have two different reactions. One may be they've just forgotten about it and they're on for the next exciting thing, or two, they are so resentful they couldn't get it that you can't even give it to them. And so, I think it's more important to have enough when you launch, and that demand is perishable, you really need to service it at launch if you can.

Yeah, I got you. I appreciate the color. Yeah, in the 10-K you guys build, I think, six rifles and one pistol at Mayodan and you talked about building out the other 50%. How many other lines are you adding? Are you shifting other rifles or long guns from Newport? Are you using that capacity for new pipeline products that you have yet to launch or to bring out? What's going to build at Mayodan? Michael O. Fifer - Chief Executive Officer & Director: Yes.

Okay. Michael O. Fifer - Chief Executive Officer & Director: Brian, we're doing all the above.

Yeah, okay. No, no, no, I got you. In the Earth City, the metal injection mold that's vertically integrated, is that on plan, on budget? Are you seeing more content? Are you expanding it? What's going on at Earth City? Michael O. Fifer - Chief Executive Officer & Director: I believe right now, we're fairly pleased with it. We made an estimate of how much total capacity there was there. And we're not using it all yet, but with the launch of the American Pistol, I expect to completely utilize it and we may be starting to look at expanding it. I don't think we're going to expand it in St. Louis. I think what we're going to do is develop cells there that we can then move to the factories that consume the units. And so, our core MIM factory will be in St. Louis with the major expertise there. But then, we can develop a small cell and move it to the plant, that will be the right way to expand.

Okay, okay. And when you look at the plant, historically Newport has been rifles, long guns, revolvers; Prescott has been pistols. Is Mayodan going to get a class or is it going to be more new products, or is it just where you have floor space? What's going to define what Mayodan, North Carolina build? Michael O. Fifer - Chief Executive Officer & Director: Brian, that's a great question. I don't really think I have a good answer. It's been really kind of very opportunistic.

Okay. Michael O. Fifer - Chief Executive Officer & Director: For example, back to your earlier question, we are moving a product line out of Newport, because Newport has a new product they need space for and the engineers are there. So we're moving out a product line that's fairly stable and moving it down to Mayodan. But it's driven by needs in Newport, not driven by some fancy plan for Mayodan. And we've done that once before with a product line from Prescott moving to Mayodan. But Mayodan in their own right is building their own engineering team and it's developing new products. So farther down the road we go, the less likely we'll move a product line to Mayodan because they'll have plenty of their own taking up the space.

Your next question comes from Steve Roberts from NorthPointe Capital. Please proceed.

Obviously we have the elections coming up this fall, and the year demand has been fairly robust. Do you think if Hillary Clinton is elected President, then we'll see a step-up in demand or just kind of stay at this level here? Michael O. Fifer - Chief Executive Officer & Director: I think we'll see a step-up of demand if a Democrat wins the election. And particularly so if they win the Senate, because in spite of whether President Obama is successful in appointing a new Supreme Court Justice, more than likely based on age and health that the next President will get several opportunities and that could drive concern about the rights of – gun rights. So, yes.

Okay. Thank you.

Your next question comes from Brian Rafn from Morgan Dempsey Capital Management. Please proceed.

Yeah, Mike, the mini foundries up at Newport, you're running two maybe and any further plans with the main integrated foundry versus the minis? Michael O. Fifer - Chief Executive Officer & Director: I believe I said in the past, and it's still true today, that I think we need three mini foundries at our current volume level to be able to shut down the big one, the old legacy foundry, and we're holding off on the third mini foundry for the moment, sort of – do not spend too much on our capital spending. And also because there are some emerging new technologies that we want to look at and see how they mature. So, my guess is, we will not commence that third mini foundry this year if we watch some of these emerging technologies. And we'll revisit it again perhaps 12 months from now.

Okay. Okay. Any CapEx – you talked about building on Mayodan, anything going on at Newport or Prescott or just specifically on new products? Michael O. Fifer - Chief Executive Officer & Director: Primarily it's new products, and the only major infrastructure that I can think of at the moment is the build out in Mayodan.

Okay. Okay. In the 10-K, Mike, you have that the old Dorr Woolen building, 45,000 square feet, I thought you guys were going to burn that thing to the ground or you're going to knock it over. Maybe I got that wrong. I thought that was an old asset or whatever. What's in there? Is that a storage area or...? Michael O. Fifer - Chief Executive Officer & Director: Well, like most industrial buildings, it was built over time with different sections of different age and the building style and sort of quality. And there was – in that large building, there was one section that was pretty new, and we got rid of everything but that one new section.

Okay. Okay. Michael O. Fifer - Chief Executive Officer & Director: And that's our finished goods warehouse for Newport.

Okay. Okay. All right. Yeah, okay. Let me ask, relative to accessories, you mentioned many years back talking about M&A activity, but you kind of qualified it with the phrase, needle-mover. You wanted something that was – that had some impact. I'm just wondering, when you look across certainly with the modern sporting rifles, the grips, the optics, the lasers, the flashlights, holsters or slings for revolvers or pistols, are there any areas – you guys certainly have added magazine clips and triggers and some things, are there other broader areas in the accessories area that you might go to? Obviously suppressor is very good choice. I'm just wondering how broad your nets are. Michael O. Fifer - Chief Executive Officer & Director: Well, we pay a lot of attention to what's out there. Frankly, our big focus right now is going to be on suppressors. And some of our products, for example, the 10/22 and now emerging the Precision Rifle draw a lot of aftermarket suppliers, because those products are very customizable. And so we've decided, and it's really sort of a shift, and taking here that we ought to be supplying a lot more of those aftermarket products, and we can get good margin for. So the engineers that we have dedicated to accessories are really kind of focused on that for now.

Okay. You mentioned a little bit in your opening comments talking about Black Friday sales, and it seems to have been – I don't know – the last four, five years, the gun area in Black Friday has really been a big area. How do you guys war plan for that? And what kind of things do you do? Are there some promotions? I'm just curious as to what kind of goes into your Black Friday planning. Michael O. Fifer - Chief Executive Officer & Director: Yeah. Let me give that one to Chris, I think. Christopher John Killoy - President & Chief Operating Officer: Hi, Brian. Chris here. Really the Black Friday planning process begins as early as SHOT Show this past year, if you believe it. We were meeting with all our big box partners that we sell. We still sell them through our network of independent wholesalers, but we're out there planning, really right there at SHOT Show forward on what would make good Black Friday ad commitments. We firm that up as we get further down in the spring, and most of that is locked up pretty early on in the year. I mean, last year, you'll remember, we talked about in 2014 we got boxed out of some of those planned ads because of discounting and price cuts by some of the competition. This year, we didn't see that. We saw very strong Back Friday ads, and we had very fruitful and productive discussions with the big box stores at the SHOT Show and continuing forward. And I think we're in good shape from a planning standpoint.

Yeah, okay. Good. Let me ask you guys on the military and police side, obviously I think you guys made certainly the right choice with not taking back scrap guns and holsters and having to buy leather and bullets and training and all the stuff that goes with those big orders. But you do have products, certainly the modern sporting rifles, the American Pistol, I mean, it's got a nice kind of military look to it. Any smaller departments, any limited size business, SWAT teams are that relative to Ruger products in the police side? Christopher John Killoy - President & Chief Operating Officer: Brian, Chris again. We do have a small footprint in the law enforcement market, but the product you mentioned, in particular the AR-556 as well as the Precision Rifle, have generated some small department orders as well as some test and evaluation requests from quite a few different departments. And we think there will also be interest in the American Pistol as we go forward. But again, that's not a major part of our approach to business down the road. We still focus primarily on the consumer segment.

Right, right, right. And then just, finally, any – in specific calibers or product lines, any safety stock building for 2016? Michael O. Fifer - Chief Executive Officer & Director: It's Mike here. We've actually encouraged our wholesalers that this summer anticipating a little bit of a normal seasonal slowdown in the summer regardless of the politics, that this is their big opportunity to take advantage of the upcoming elections. And so we're going to continue encouraging them, strong arming and that kind of stuff, and hopefully they'll do it.

Okay. Michael O. Fifer - Chief Executive Officer & Director: It really is a big opportunity for them.

Yeah. Michael O. Fifer - Chief Executive Officer & Director: The day after the election, it's too late to ask for product. It's all allocated from that day forward.

Right. And one final one, Mike. Are you guys going to have a plant tour someday at Mayodan or are you going to wait till it gets built out? Michael O. Fifer - Chief Executive Officer & Director: I'm sorry. Say that again?

You had an Analyst Day there. We've enjoyed those in the past, Prescott and Newport. Are you going to do something similar to that at Mayodan, or are you going to wait till it gets fully – or filled up. I think you said you're going to build it out this year. Michael O. Fifer - Chief Executive Officer & Director: Yes. We are going to have an Analyst Day. The Annual Meeting is on Tuesday, the 3rd. And so we are inviting interested shareholders to let us know if they'd like to come in at 2 PM on Monday, May 2 at Mayodan for a tour. We're going to – as we've done in the past, we'll sort of limit it to a manageable size crowd, so let us know your interests, your current shareholdings, and we'll try to get some folks in there.

Sounds good. Thanks, guys. Appreciate it.

I would now like to hand the call back to Michael Fifer for closing remarks. Michael O. Fifer - Chief Executive Officer & Director: Thank you. In closing, I'd like to thank you for your continued interest in Ruger, and I'd like to thank our loyal customers and the 2,000-plus hard-working members of the Ruger team who design and manufacture wonderful firearm products every day in our American factories. And I look forward to seeing many of you at our 2016 Annual Meeting on Tuesday, May 3, in Mayodan, North Carolina. Thank you.

Thank you very much. This concludes today's conference. Thank you for your participation. You may now disconnect. Have a wonderful day.