Sturm, Ruger & Company, Inc. (RGR) Q2 2018 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Sturm, Ruger Second Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. As a reminder, this conference call may be recorded. I would now like to turn the conference over to Chris Killoy, President and CEO. You may begin. Christopher John Killoy - Sturm, Ruger & Co., Inc.: Good morning and welcome to the Sturm, Ruger & Company second quarter 2018 conference call. I would like to ask Kevin Reid, our General Counsel, to read the caution on forward-looking statements,. Then Tom Dineen, our Chief Financial Officer, will give an overview of the second quarter financial results. And then I will discuss the state of the market and update you on our operations, and then we'll get to your questions. Kevin, let's get started. Kevin B. Reid, Sr. - Sturm, Ruger & Co., Inc.: Sure, Chris. We like 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, 2017 and, of course, the Form 10-Q for the fiscal ended June 30, 2018. Copies of these documents may be obtained by contacting the company or the SEC, or on the company website at www.ruger.com/corporate, or the SEC website at www.sec.gov. We do reference non-GAAP EBITDA. Please note that the reconciliation of GAAP net income to non-GAAP EBITDA can be found in our Form 10-K for the year ended December 31, 2017 and our Form 10-Q for the quarter ended June 30, 2018, which are also posted to our website. Furthermore, the company disclaims all responsibility to update forward-looking statements. Chris? Christopher John Killoy - Sturm, Ruger & Co., Inc.: Thank you, Kevin. Now, Tom will provide a financial summary of the second quarter. Thomas A. Dineen - Sturm, Ruger & Co., Inc.: Thanks, Chris. For the second quarter of 2018, net sales were $128.4 million and diluted earnings were $0.86 per share. For the comparable prior year period, net sales were $131.9 million and diluted earnings were $0.57 per share. In the second quarter of 2018, earnings per share benefited by the following. The adoption of the new revenue recognition standard, known as ASC 606, increased EPS by $0.05. The reduced federal income tax rate from 35% to 21% increased EPS by $0.12. And the repurchase of 1.3 million shares of common stock in 2017 increased EPS by $0.06. For the first half of 2018, net sales were $259.6 million and diluted earnings were $1.68 per share. For the corresponding period in 2017, net sales were $299.2 million and diluted earnings were $1.79 per share. For the second quarter of 2018, our EBITDA was $28.2 million, or 22% of sales, compared to $25.0 million, or 19% of sales, in the second quarter of 2017. The balance sheet, at June 30, 2018, our cash and cash equivalents totaled $131.7 million. Our current ratio was 3.3:1, and we have no debt. At June 30, 2018, stockholders' equity totaled $249.4 million, which equates to a book value of $14.29 per share. In the first half of 2018, we generated $81 million of cash from operations. Cash returned to shareholders, in the first half of 2018, the company returned $9.6 million to its shareholders through the payment of dividends. Our board of directors declared a $0.34 per share quarterly dividend for shareholders of record as of August 17, 2018, payable on August 31, 2018. As a reminder, our quarterly dividend is approximately 40% of net income, and therefore varies quarter-to-quarter. That's the financial updates for the second quarter. Chris? Christopher John Killoy - Sturm, Ruger & Co., Inc.: Thanks, Tom. We are pleased with the second quarter financial results and our financial condition as we enter the second half of the year. In the second quarter of 2017, we implemented a strategy to lower production and reduce our workforce. As a result, we performed well in the latter half of 2017, a period of relatively soft demand, without becoming overextended with promotions and discounts. We ended the year with a strong balance sheet, reduced inventories in our warehouses and at the independent distributors, and a healthy sell-through at distributor level. Demand, the estimated unit sell-through of our products from the independent distributors to retailers in the second quarter of 2018 increased 5% from the comparable prior year period. For the same period, the National Instant Criminal Background Check System background checks, or NICS checks, decreased 8%. The estimated unit sell-through of our products from the independent distributors to retailers decreased 1% in the first half of 2018 from the comparable prior year period. For the same period, NICS checks decreased 3%. We believe our outperformance of NICS in both the second quarter and first half of 2018 is attributable to the strong reception of four major new products that we launched this past December, the Pistol Caliber Carbine, commonly referred to as PCC, the EC9s pistol, the Security-9 pistol, and the Precision Rimfire Rifle. New product sales represented $75.5 million, or 29% of firearm sales, in the first half of 2018. New products sales include only major new products that were introduced in the past two years, like the four that I just mentioned. Derivatives and line extensions are not included in the new product sales calculation. Production and inventory, we base our production and manage our inventory levels primarily through semimonthly reviews of the estimated sell-through of our products from the independent distributors to retailers. We also review our inventory and the independent distributors' inventories. Based on these reviews, we increased the second quarter total unit production by 7% from the first quarter of 2018. Despite this increase, our total unit production for the first half of 2018 was 17% below the first half of last year. The reduced production levels allowed our finished goods inventory to decrease 48,200 units in the first half of 2018. Distributor inventories of our products decreased by 38,600 units during the same period. The combined inventory in our warehouses and at the independent distributors decreased over 200,000 units since last June. This is a reduction of almost 40%. We plan to increase production in the latter half of 2018 to replenish inventories of the products in the strongest demand. Remember, unlike most of our competitors, effectively all of our domestic firearm sales go through distribution. Capital expenditures, capital expenditures in the first half of the year were $2.4 million, which is very low for us. However, this is not indicative of a lack of activity related to new product development nor a change in our mindset about the importance of new products. Rather, it can be attributed to two key factors. First, the first is timing. Earlier we discussed the four major new products that we introduced last December. The capital expenditures related to those new products were recognized in the fourth quarter of 2017. Consequently, our capital expenditures in that quarter totaled $20 million, which is uncommonly high. If one or two of those products lagged into 2018, our year-to-date 2018 capital expenditures would have been significantly greater. The second reason is the repurposing of machinery and equipment. Remember, we built 2.1 million units in 2016. Production has been reduced over the past couple of years and we are working to better employ underutilized equipment. Cash, as Tom mentioned a few minutes ago, our cash generation in the first half of the year was very strong. The key contributors were our solid operating performance, the cash generation of which was bolstered by the reduced federal income tax rate; the $16 million inventory reduction, as demand outstripped production in the first half of the year; continued solid accounts receivable collections, despite some headwinds in the industry; and the relatively low level of capital expenditures, which we just covered. Our cash balance of $132 million is more than we need to support our normal daily operations. Nevertheless, our capital allocation philosophy has not changed. Our primary responsibility is the stewardship of our shareholders' assets and the creation of shareholder value. We are constantly looking for opportunities to generate strong returns with our capital. If we get to a point where we decide that we will not be able to employ our capital, we will return the cash to our shareholders in the form of dividends. Operator, may we have the first question?

Our first question comes from the line of Brian Rafn of Morgan-Dempsey. Your line is now open.

Good morning, Chris. Good morning, Tom. Christopher John Killoy - Sturm, Ruger & Co., Inc.: Good morning, Brian. Thomas A. Dineen - Sturm, Ruger & Co., Inc.: Good morning, Brian.

Yeah. Give me a sense, Chris, kind of the cadence or tempo of business through the quarter kind of maybe month-by-month, and then give your overall kind of strategic sense, are we through maybe some of the darkest days of the inventory destocking and the discounts from MSRP and maybe with the two quarters of increased booked orders that maybe the tone of business is more normalizing, just your sense. Christopher John Killoy - Sturm, Ruger & Co., Inc.: Thanks, Brian. Well, I think what we saw through the second quarter, as you know, we don't disclose monthly results. But typically the months of June, July, and August are always slow for the firearms industry. We saw this year what I would call a return to that normal seasonality. However, I think because we manage this year very closely in terms of production with an eye towards both our inventory and our distributors' inventory, we felt pretty comfortable as we ended Q2 with the inventory levels at Ruger in our warehouses, as well as what we saw at each of our distributors, as a fairly balanced inventory. So one of the things you may recall, at this time last year we were in the midst of an additional summer promotional program. This year we did not implement a summer program. We had our normal winter and spring programs that concluded in the end of May. And then just the other day, we launched a fall promotion, as we've done the last couple of years, kicking off August 1. But we did not have the promotion that we had last summer, which is a little indicative of a better overall environment, hopefully less promotionally driven and less discounting out there at the retail and wholesale level.

Got you. No, I appreciate that. I think you call it your SIOP planning, the sales/inventory operations planning. Do you guys have any planned summer idle shutdowns in any of the plants? Christopher John Killoy - Sturm, Ruger & Co., Inc.: We already went through that, Brian. We did that during the 4th of July week just up in the Newport plant. So, Prescott did not shutdown. Mayodan had, I think, normal operations as well. So it was just up in Newport to allow them to take care of some maintenance matters and things of that nature. But other than that, no additional shutdowns planned for the year.

Yeah. Okay. Okay. Given kind of the sense you guys really focused, you've been extremely productive in your kind of new product launches. What's the sense? Would you say there's a heightened appetite for new product in this environment amongst your wholesalers and retailers, more so maybe in the past when you're at more of a frenzied business pace? Christopher John Killoy - Sturm, Ruger & Co., Inc.: I kind of think it's maybe just the opposite. I mean, when you're out really chasing the business, trying to keep up with demand at retail and consumer level, sometimes the new products are not quite as important as overall production. When things slow down to a more normalized pace, I think new products rule the day. And so, as a result, products like the Pistol Caliber Carbine produced up in New Hampshire have done extremely well. We've got probably one of the most in-demand items both at the national account level, as well as the independent retailers. And so we've been very pleased with the results of those new products, the big four as we call them, Pistol Caliber Carbine, Security-9 pistol, EC9s pistol, and the Precision Rimfire out of North Carolina.

Okay. Yeah, all right. And so from your standpoint, the appetite – I understand you're focused on the production, but the appetite from demand side from your wholesale distributors and the retailers for new products is very, very strong from your vantage point? Christopher John Killoy - Sturm, Ruger & Co., Inc.: Absolutely. Throughout the quarter, we've got meetings that we have with our distributors, both formal and informal. And they love the new products. It helps a little bit, what we would call a halo effect around the entire Ruger product line. When the distributor salesperson is making an outbound call and he's got a hot new Ruger product to talk about, it really has a halo effect on their business and our business.

Got you. Anything in the quarter relative to kind some of the wholesale exclusive specials that you guys run with your distributors? Has that been important maybe in a more normalized environment and/or how important was it in the second quarter? Christopher John Killoy - Sturm, Ruger & Co., Inc.: It remains a big part of our business. We've got some real powerhouse distributors that do very well with everything from Number One Rifle, single-action revolvers, Cerakote models, dipped camouflage pattern models, and all that has been very important to them. And even when things are at higher levels of production, we always try to make sure we spend some of our resources on those special make-ups to keep that appetite out there at the consumer level, because that's still an important part of our business.

Yeah. Yeah. Let me ask you just from a design standpoint, and I may have asked this in the past. When you look at the cycle time between engineering, design concept, prototyping, production, building inventory, I want to say back in Bill Ruger's day that was as much as four years to get a product to market. How has that compressed for you guys overall, or is it still a gun-by-gun situation? Christopher John Killoy - Sturm, Ruger & Co., Inc.: Well, I would say we're getting better all the time, but we're not there yet. We're not where we want to be. Probably the most recent example is that Pistol Caliber Carbine. We had a very focused engineering and manufacturing team that really spent a lot of time doing the upfront homework, the deep dive on the engineering front, as well as working from day one on the right manufacturing processes before we bought the first machine. So I mean that – we've learned a lot of lessons. We're getting better, but we're not there yet. That's an area of continuous improvement for us. And sometimes you hit an engineering obstacle or a challenge that you're not counting on, and that may throw you back in a rework loop to make sure you got the right product when you get ready for production. So it's improving all the time. And I'd say Pistol Caliber Carbine was the most recent best example of a success story, but we still got work to do.

Got you. I'll ask one more and get back in the line. The Trump administration's kind of overall – the gun export surveillance from Department of State to Commerce, the (17:29) NSSF said that might add 20% sales growth to industry. Does that at all – you guys primarily been a domestic manufacturer for hunters and sportsmen and that. Does that at all help you guys over the long term, let's say, three to five years? Christopher John Killoy - Sturm, Ruger & Co., Inc.: Well, I think, Brian, what it does for us, as you likely recall, Ruger is typically in the – 4%, 5%, or 6% level of our overall sales go to our export customers. And we've got some great international distributors that represent Ruger very well for us overseas. But it's not been a very significant part of our business. So I think that that change is a welcome change. It will certainly help the efficiencies and perhaps impact the throughput of those orders here at Ruger. But we have to remember the countries that are receiving those imports, whether it's Germany, France, et cetera, they haven't changed any of their import laws. So certain guns that may be restricted in their countries are still going to be restricted. So I don't see it having a measurable or appreciable difference on Ruger's export business.

Got you, Chris. I'll get back in line. Thanks.

Thank you. Our next question comes from the line of Rommel Dionisio of Aegis. Your line is now open.

Thanks very much and good morning. A couple of questions to start on gross margin. First, could you talk about the impact of potential raw material price increases, as well as the impact of the tariffs on steel and smelters? And also with regards to the gross margin. In the 10-Q, you talk about reclassifying certain promotional expenses from selling to cost of goods. You quantify that. But that summer promotion, Chris, that you talked about, the impact of not running that, did that fall entirely in 2Q or some of that filtered into the third quarter as well? Thanks. Christopher John Killoy - Sturm, Ruger & Co., Inc.: Okay. Rommel, first off, maybe the question as it relates to tariffs. To-date, we've not been impacted directly by the tariffs, because we order (00:19:50) the vast majority of our raw materials domestically. However, the tariffs have impacted us indirectly. Take steel, for example; we've been sourcing our steel domestically for decades. The tariffs have made domestic steel more attractive, so demand has risen tremendously recently, as manufacturers who have been getting their steel from overseas look to find domestic sources. This has led to some price increases and some shortages of raw materials. Our purchasing folks really have been working very closely with our suppliers to ensure that we have adequate inventory to support what we need for production. Our projections currently indicate that our production will not be indicated (00:20:26), but it's a tighter inventory situation that we would like and that we've seen in quite a while. So that's something we're keeping a close eye on. Your second question, I think it was really as it related to the promotions and also the margins. There were a couple of things. Remember, when you look at – margins up in Q2 versus the prior year, couple of contributing factors. First, in the second quarter of 2017, you may recall the Mark IV recall expense of $2.5 million costs us about 2 points of margin. And then production in the second quarter of 2018 increased about 7% in the first quarter due to the production ramp-up of our new products that were introduced in December 2017 and continued strong demand for those products. That increased production and some improved manufacturing efficiencies helped boost the gross margin. And then I think your last question, I believe, was on promotions for last year. I believe if I recall what I was talking about the summer promotions, I think, straddled Q2 and Q3.

Okay. Thanks very much. That's very helpful.

Thank you. Our next question comes from the line of Brian Rafn of Morgan-Dempsey. Your line is now open.

Yeah. I'm going to ask my legacy question. Up at Newport, any changes in the mix of – were the furnaces between the main integrated and then any of your mini furnace foundries, you're still running two, I think, the minis? Christopher John Killoy - Sturm, Ruger & Co., Inc.: Brian, yes, we are. We were just up at the Newport facility and we were over at Pine Tree Castings for a recent board meeting and got a great tour of the latest updates from the folks on the shop floor and really some nice improvements, some great impacts from the daily Kaizen events that are being run. And the folks up there have done a great job. They've got the two rollover or mini foundries really in full operation. The legacy foundry is down to a very small – a few parts that we haven't qualified over into the furnace and some of the – or into to the rollover foundries. And then a small amount of the, what we call, revert material, but really we're 95% there with the two mini foundries. And the folks up there have done a really good job of integrating those into the production pool.

Okay. And then is there still – I think Mike at one time said that at some point in the distant future you might have five or six, seven mini foundries up there. Is there still floor space for that type of thing or might they be in other – maybe not just at Newport, but maybe at Mayodan or Prescott? Christopher John Killoy - Sturm, Ruger & Co., Inc.: It's hard to say. We still have some floor space. As we get more efficient, we free up floor space in the existing facilities. Right now the two rollover foundries that we've got going up in Pinetree and in New Hampshire, we think are going to be sufficient for our needs. We've also got, you'll recall, the RPM, Ruger Precision Metals, out in Missouri that provides a lot of our MIM capability. And to-date, we haven't put any of those processes into the existing gun plants. But you never know, that could be in the future something we've talked about. But at this point in time, we haven't made any firm plans to move either the casting or the metal injection molding processes in with the existing gun plants.

Yeah, okay. And then you guys launched a summer package of new products, the SR1911 Officer .45, a 10/22 Target, the Ruger 77/17, and then the Security-9. Any kind of preliminary indications? Because, again, summer seasonally is a little quieter market. Is it tougher to launch new products during summer or do you like to keep an even pace? Christopher John Killoy - Sturm, Ruger & Co., Inc.: Well, I mean, as you heard me say before, Brian, even like the big our that we launched last December, I wish I could say that all four were planned for December; a couple of them were absolutely on time, a couple of them were late. Typically on the less significant product introductions – and I don't mean any disrespect to any of the guns you just mentioned. But the ones that are more of a line extension, like the different versions of the 1911, we do like to have those coming out every quarter. I mean, it gives us some chance to make sure we get visibility from an editorial standpoint with writers both at the print and TV level. If everybody introduces everything at SHOT Show, there's a mad dash to get their attention. And we like to spread it out when we can and be able to take writers, whether it's on trips to gun site or down to FTW Ranch in Texas to be able to bring these products out, try them out, write about them, talk about them, put them on TV. And so for us, it's been a good strategy. We can spread out those line extensions throughout the year.

Yeah. And (00:25:41), Chris. Do you guys, as you spread that out during the year, do you try to batch a launch for – Black Friday has continued to be in November a big kind of pre-Christmas. Is that also kind of an important date point now for new product launches? Christopher John Killoy - Sturm, Ruger & Co., Inc.: I think probably not as significant, because the planning for those national account retailers is so far in advance, you really have to be in Q2 to be significant for them in terms of volume and get out in front of their planning needs for their fliers, their circulars, their mailers. And so that planning cycle has really gotten so much earlier than it used to be. So if we come out with a new product just before Black Friday, we may get into some of the bigger independents quickly, but we lose a lot of traction with the big box stores. And so we like to make sure we don't give anybody any last minute surprises just after or before they print their circulars and such.

Right, right. It's a very good comment. Let me ask you, the launch of Doug Koenig's – excuse me if I get the name wrong – his Team Ruger shooting, the competitive shooting, what's the thought process there? Is that building brand? Is it field testing weapons? Is it just brand ambassador? What is Doug's team, or is it just strictly competing and bringing the Ruger name into a competitive shooting competition? Christopher John Killoy - Sturm, Ruger & Co., Inc.: Well, it's a little of everything you just mentioned. It's really building the brand, representing Ruger at these events where our customers are at, and I think really implementing some of the best practices that we see in the competitive shooting world and some of those disciplines, bringing that back to the factory. We've already had – in our new product planning sessions we have each month that we rotate around for the factories, we've had members of our Ruger shooting team attend these events and really give us first-hand feedback to our engineers on what we should be looking at for key features and benefits. So I think it's a little bit of both. I think you're going to see continued influence (00:28:00) and some of the things we learned from our pro-shooters are really going to help us out in designing new, exciting products down the road.

Yeah. Thank you. Appreciate it. As we kind of enter – you talked a little bit about entering the fall, the hunting season and I'm just kind of looking for your experience now that we've got a couple more years. How has the modern sporting rifle, the AR-15, competed against kind of your normal legacy bolt action rifles, but scopes for hunting? Has that continued to be popular or is there a bit of an ebb and flow there? Christopher John Killoy - Sturm, Ruger & Co., Inc.: I think it continues to be popular with a lot of our shooters who also hunt. But what we saw over the last year or so was really some of the – extra attention to some of the newer calibers, particularly things like 6.5 Creedmoor, .450 Bushmaster, where we had a lot of attention on those new calibers in some of the existing platforms. And there's some old calibers, like 7.62x39, incorporated in things like the Ruger American Ranch Rifle, and were really a good combination and beyond just traditional Hawkeye or American Rifle in 30-06 (00:29:20) or .270, for example.

Got you. No, I appreciate that. Have you done any repurposing or, as you guys call it, shifting of machinery between your gun lines between Newport, Prescott, Mayodan, anything or how have you may be built out the floor space at Mayodan? Christopher John Killoy - Sturm, Ruger & Co., Inc.: That's an excellent point, Brian. As 2017 was a tough year for a lot of us in the firearms business, as we decided to change our production strategy, we had to right size our workforce. And along with that, it meant repurposing a lot of that equipment. So we had a lot of machines that were freed up depending on which product line was going down a production versus which was coming up. And that's been very helpful in both CapEx avoidance and being able to – obviously, if you don't have – you don't have any lead times on buying new equipment if you're just moving it from one of your existing factories to another. So, as an example, just the other day we were up in New Hampshire at the Newport facility and one of the product lines that the folks were working on for a new product that we haven't launched yet, 100% of the CNC machines that were in use and on the line had come from the Prescott facility. So it's a good example of repurposing those big machines from one facility to the other.

Got you. Okay. And then specifically with Mayodan, what's kind of your – it's been couple of years since we were down there. What's the factory floor space look like? I think it was about 50% maybe two years ago. What have you kind of built it out at? Christopher John Killoy - Sturm, Ruger & Co., Inc.: I think they're probably maybe at the 75% level. I mean, the folks down there have done a great job with that facility. The team down there really makes good use of the new equipment. They've got a good team of engineers now that are coming out with cool new products, for example, the Precision Rimfire. So that's proved to be very popular. And as those new products take hold, they're adding some capacity to existing lines and we were also looking at should we shift other lines from the other factories as they get their new products. So that remains a work in process, but again, the folks down there have done an awesome job in running that factory and getting ready for both new products that are homegrown, as well as moving lines in other facilities.

As you take a look, Chris, at the future of Mayodan, and correct me if I'm wrong, Newport has kind of been rifles and revolvers, and Prescott pistols. Does Mayodan have any specific flavor? Is it more new guns or does it tend to be more AR-15? What's kind of its profile? Christopher John Killoy - Sturm, Ruger & Co., Inc.: Mayodan has got a little bit of everything right now with the exception of revolvers. They've got the – most of our American Rifle production is centerfire. They've got all of our American Rimfire. They've got our MSR business. They've got the SR22 pistol that originally was built out in Prescott. And they've actually got the LCP original version, the LCP I as we call it, is also down at Mayodan. So they've got a real good mix. The only thing they don't have down there is anything from the revolver product line.

Okay. I got you. As we kind of move into 2018, 2018 a little bit of a recovery, how you see head count? Are you replacing any of the attrition? Are you extending any shifts or any overtime? What's kind of the factory floor labor situation? Christopher John Killoy - Sturm, Ruger & Co., Inc.: Well, actually they're working overtime in all three of the major facilities and we're looking for additional associates right now. We are hiring at all three locations for new sales associates. So I think in the Q, we've got – you can see the units produced going up. And, as Tom mentioned, we are looking to increase production further on some of those lines, so it's a much better picture than we saw at this time in 2017.

Got you. Got you. And just M&A, as always you guys have certainly done a great job in managing your capital. By far your competitors, really from the standpoint of Wall Street stock, (00:33:46) much, much further, and you guys have really looked at organic development of new products instead of trying to be an umbrella holding company for sporting goods in general. But what are you seeing on the M&A front? You guys have been very selective. And then I've always had an interest in seeing you guys develop kind of the accessory side of the business. So just maybe a comment to what you're seeing and what's available and how pricing is on the M&A side. Christopher John Killoy - Sturm, Ruger & Co., Inc.: Well, I mean, I know for a while things in the accessory world, which you mentioned, seem to be pretty pricey. And we looked at a couple of companies and we didn't think we were going to bring much to the party other than our cash. And so we did not participate in a couple recent accessory companies who were out there on the market. The accessory part of the business is good margins. It's strong, typically for Ruger. Most of our revenue is generated from the magazines that go with our firearms, additional sales of magazines. And then on the firearms side, it is kind of an active landscape. You've got – the folks at Remington have come through their bankruptcy. It looks like in pretty good order. I don't know if there'll be some activity down there. The folks at Remington decide that they may want to move forward with selling all or parts of their business. And then, recently we've seen articles in the paper and the folks at Vista have talked about the sale of not only their several units that came with Bushnell, their Serengeti and Bollé sunglass brand, but also potentially the Savage Arms business. So we're going to keep an eye on that and see where that goes. But at this point, too early to make any predictions.

Yeah. No, I appreciate that. Let me ask you a comment or a point. Couple of quarters ago I thought it was very interesting comment. When you design something like your SR or your AR, MSR lines, you mentioned that we don't want to put too much furniture on them, because it really kind of drags out (00:35:58), so the CCH, the Magpul, the Weaver, all of that stuff. Does that kind of limit you guys from going out and maybe acquiring an accessories brand? Because if you too much customize something like that, then you may limit the actual unit volume of the actual core gun. Christopher John Killoy - Sturm, Ruger & Co., Inc.: I don't think that would be the – what would limit that. I think what we would watch if we're going to acquire an accessory company is would we put their existing base of business that they may do with some of our competitors at risk. If we were to buy a company that made optics, for example, and they were currently selling optics to other rifle manufacturers, would that business now be at risk from – that OEM business be at risk and just something we'd have to consider and do we discount that in the process. But you're right on new products, when we do a few of what we call packaged guns, where we're including, say, optics with the firearm, and usually those are intended to hit a price point particular – maybe a short run of products. What we have found over the years is exactly what you said is we can over-niche a gun if we're not careful. If we pick the optics, pick the case, pick too many of the accessories, we might think we have a very cool product, but we might have overlooked a big part of the market who says, why would I put a different optic on it? So that is something we watch from the configuration standpoint. And I think we just have to – if it was an M&A activity, we just have to watch to make sure we weren't convincing ourselves that that OEM business would somehow not be affected from other manufacturers who are currently using that accessory company.

Yeah. No, I appreciate that. The CapEx $10 million I think you talked about for the balance of the year. How much of that's maintenance CapEx versus just tooling or machinery for a specific product? Christopher John Killoy - Sturm, Ruger & Co., Inc.: That's probably maybe half-and-half. I mean, that's a ballpark. It's the typical things with the amount of facilities we have, just the physical plants, try to maintain those new rooves (00:38:03) and things like that, that we have to be mindful of. So we try not to ever overlook that. We try to always take care of that as the needs come up. But on the other hand, we're not out there building new factories and breaking ground.

Yeah. No, I got you on that. And then just one final one, you guys have continued to be fortress balance sheet, no debt, you've tons of cash. I mean, you've really been a miracle on that side. Any thought process beyond treasury purchases on special dividend or do you really see your demand for CapEx calling some of that cash on the balance sheet? Christopher John Killoy - Sturm, Ruger & Co., Inc.: Well, I mean, at this point we really don't plan to change our approach. With $130 million cash balance, a lot of people have asked are we considering a special dividend now. It certainly comes up in discussions at the board level. But, as I said earlier, our primary responsibility is stewardship of the shareholders' assets and creation of value. We're constantly looking at opportunities to continue to generate those returns, and it may be something like either continued share buybacks or things like a special dividend or it might be something on the M&A front. Right now we think we're positioned in a good way for any one of those three to happen.

Got you. And then one more on the raw materials, are you seeing anything on lumber wood stocks or resins or waxes or any chemical from the standpoint of commodity inflation. Can you talk a little bit about the tooling steel, anything on any of the other raw material feedstocks? Christopher John Killoy - Sturm, Ruger & Co., Inc.: No. I think we're in pretty good shape on wood and the rest of the raw materials that we consume at Ruger. So I think it's primarily steel is what we're keeping our eye on and making sure from an allocation standpoint that we don't want to lose our spot in line, so to speak.

Okay. All right, guys. I appreciate it. Thanks very much. Good luck. Christopher John Killoy - Sturm, Ruger & Co., Inc.: Thanks, Brian. Thomas A. Dineen - Sturm, Ruger & Co., Inc.: Thanks, Brian.

Thank you. And I'm showing no further questions at this time. Christopher John Killoy - Sturm, Ruger & Co., Inc.: Okay. Thank you, operator. In closing, I would like to thank you for your continued interest in Ruger and I look forward to speaking with you in our third quarter earnings call in November. I would also like to thank the over 18,000 Ruger associates at our facilities throughout the United States for their hard work and commitment to building great firearms. Thank you very much.

Ladies and gentlemen, thank you for participating in today's conference. That does conclude today's program. You may all disconnect. Everyone, have a great day.