Sturm, Ruger & Company, Inc. (RGR) Q2 2019 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Q2 2019, Sturm, Ruger Earnings Conference Call. [Operator Instructions] Also as a reminder, this conference call is being recorded.At this time I like to turn the call over to your host to Chris Killoy, Chief Executive Officer. Please go ahead.

Good morning, and welcome to the Sturm, Ruger & Company second quarter 2019 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?

Sure, Chris.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, 2018, and Forms 10-Q for the fiscal quarter ended June 29, 2019.Copies of these documents may be obtained by contacting the Company or the SEC, or on the Company website at ruger.com/corporate, or at the SEC website at 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, 2018 and our Form 10-Q for the quarter ended June 29, 2019, which also are posted on our website. Furthermore, the Company disclaims all responsibility to update forward-looking statements.Chris?

Thanks, Kevin. Now Tom will provide a financial summary of the second quarter. Tom?

Thanks Chris.For the second quarter of 2019, net sales were $96.3 million and diluted earnings were $0.35 per share. For the comparable prior year period, net sales were $128.4 million and diluted earnings were $0.86 per share. For the first six months of 2019, net sales were $210.4 million and diluted earnings were $1.09 per share. For the corresponding period in 2018, net sales were $259.6 million and diluted earnings were $1.68 per share.The reduced profitability in the second quarter and first half of 2019 was due primarily to the decrease in our sales and production which resulted in unfavorable deleveraging of fixed cost such as depreciation, maintenance, indirect labor and engineering.The balance sheet, at June 29, 2019 our cash and short-term investments totaled $131.8 million. Our current ratio was 5.121 and we have no debt. At June 29, 2019 stockholders' equity totaled $275.8 which equates to a book value of [$13.76] per share. In the first half of 2019, we used $6.4 million of cash in our operations.Cash return to shareholders. In the first half of 2019, the company returned $10 million to its shareholders through the payment of dividends. Our Board of Directors declared a $0.14 per share quarterly dividend for shareholders of record as of August 15, 2019 payable on August 30, 2019.As a reminder, our quarterly dividend is approximately 40% of net income and therefore varies quarter-to-quarter.That’s the financial update for the second quarter. Chris?

Thanks Tom.Demand, thus far 2019 has been challenging for the firearms industry. The adjusted NICs, checks decreased 5% in the first six months of 2019 from the comparable prior year period. Our internal surveys of distributors and retailers indicate that the overall market for new firearms in the first half of the year may have declined more than the adjusted NICs data would indicate.The estimated unit sellthrough of our products from the independent distributors to retailers decreased 26% for the same period. The discrepancy between the decrease in our sellthrough and the decrease in adjusted NICs may be attributable to the following: the discount an extension of payment terms offered by our competitors, relatively fewer new product shipments compared to the first half of 2018 which benefited from the launch of four major new products in December of 2017.The loss of a formally significant distributor that ultimately filed for bankruptcy protection in June 2019, our shipments to them were significantly reduced in 2019. And decreased retailer inventories as the anticipation of further discounting led to cautious buying behavior by the retailers.Our surveys indicate use firearm sales at retail increased in the first half of 2019. This would also explain some of the disparity between our sales results and the adjusted NICs data which includes both new and used firearms.Despite the softness in demand and the weaker market, we did not attempt any quick fixes. Unlike some of our competitors who offer deep discounts and reckless extension of payment terms in effort to generate better short-term results, we remain focused and consistent on the execution of our long-term strategy. We will continue to develop innovative and exciting new products, optimize our cost efficiency through our commitment to lean business practices and employee discipline approach to capital allocation.New product sales represented $43 million or 22% of firearms sales in the first six months of 2019. New product sales include only major new products that were introduced in the past two years which include the Wrangler revolver, the Pistol Caliber Carbine, the EC9s pistol, the Security-9 pistol, the AR pistol and the Precision Rimfire Rifle. As a reminder, derivatives, distributor specials and line extensions are not included in our calculation of new product sales.Production and inventory, we base our production and manage our inventory levels, primarily through semi-monthly reviews of the estimated sell-through of our products from the independent distributors to retailers. We also review our inventory and that of our independent distributors.Our total unit production for the second quarter of 2019 was 20% below the first quarter of 2019.As a result of our disciplined approach to production, the combined inventories in our warehouses at our distributors decreased 18,000 units during the second quarter of 2019, despite the reduced demand. This allows further flexibility in our production and inventory management as we enter the second half of the year.In response to the reduced production of the second quarter, we were proactive in managing our workforce. We maintained the high rent fees that was implemented in the first quarter and let attrition reduce our workforce. Over time was reduced. We took two additional shutdown days in the second quarter and we will take three shutdown days in addition to our normal annual weekly shutdown in the third quarter.Capital expenditures, capital expenditures in the first six months of the year were $3.9 million, which is low for us. However, as we've mentioned in the past, this is not indicative of a lack of new product development activity nor does it signal a change in our commitment to new products. Consequently, we expect our total capital expenditures to approximate $15 million in 2019.Cash and short-term investments, our cash and short-term investments balance of $132 million is more than we need to support our normal operation. Our capital allocation philosophy has not changed. Our primary responsibility is a stewardship of our shareholders assets in the creation of shareholder value. We're constantly looking for opportunities to generate strong returns to our capital.We stand ready to capitalize at the right opportunity that arises at the right price. Nevertheless, 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 please have the first question?

[Operator Instructions] Our first question comes from Brian Rafn from Morgan Dempsey. Please go ahead.

Can you - Chris just kind of take us through the second quarter and kind of look at maybe the cadence of business, did it continue to decline month-over-month. You said it was down quarter-versus-quarter like 20% your new production SIOP. I am just kind of what you’re seeing the pattern of demand?

Well, Brian, as you will recall I mean the summer months, typically are the slowest months in firearms industry. What we saw was things slow down perhaps a little bit earlier than they normally do. However, this not unexpectedly, we saw that seasonal downturn but it stayed pretty soft and I would tell you the remains of buyers’ market at all levels.We saw a lot of deals being offered by our competitors and in many cases, we had some strong programs out there to allow retailers to buy Ruger guns at a discount but they are same programs offered throughout the year to all retailers, and candidly we didn't cut any deals, we didn’t offer any extended payment terms and we like they may have paid a short-term price for that.

What you are seeing relative to some of the -- what kind of magnitude of discount are you seeing? Or maybe is it comparable to what you saw back in 2017?

The biggest selling we saw, the distributor network this year was the bankruptcy filing at one of our major distributors and that certainly had an impact during the quarter as well as let’s say slowdown and things started to really unravel as they approach bankruptcy, we saw that really throughout the first quarter as well, men and being one of the few manufacturers in the business who are 100% two-step distribution. When that happens it impacts those retailers who are serviced by that distributor as well as some of the big box accounts that they have to move their business. So all that is something that we had to react to throughout the first half of the year.

Relative to I think it was Ellett Brothers or whatever historically, what’s been kind of the dislocation there. Are they -- is that a Chapter -- is that a reorg or are they just, are they out of business?

Right now I believe it’s still in Chapter 11 proceedings. They are in the process I think last we heard, I believe most of their inventory has been sold. Some of that steep discounts. Frankly we’re not sure where that's going to go. I would be -- I am less than optimistic that they will emerge as a viable distributor for us going forward.I think that’s not likely to happen. So when that does, all of that disruption to that base if you have retailers who are served by those distributors that causes them to look for new light of credit, new source of product and provides a pretty good level of disruption within the industry. At one time, the Ellett Brothers and Jerry's were couple of our top distributors over the years that had change in the last couple of years, but it's still an impact on that distribution network.

Right. Do you see -- in your two-step process do you see at least incrementally some higher demand as that gap or void or do you think that with Jerry's and Ellett being out that that’s kind of a new lower level and that business wholesale may not come back by being redistributed across other wholesalers?

Yes, I mean, usually what we’ve seen in the past I mean, again, this is pretty much behind us with the Ellett and Jerry's situation but it takes a while for that business to shift over to other wholesalers, we've got a lot of strong wholesalers in our network. They were very pleased to do business with. We think the vast majority of that business will likely move there but you always may lose a little bit in the translation, so it's hard -- especially the bigger accounts get a lot of handholding from the new distributor they are going to be working with as well as our sales staff to make sure that we can help them to that transition and get back up and running with their new source of supply.

With your kind of bimonthly SIOP plan you kind of level load but what you are kind of running and obviously seasonally summer is really slow and I certainly understand it. What you are running shift-wise, you are down to maybe one shift across most of the production lines?

It varies Brian, depending on the product line. For example, on a new product like a Wrangler go top in New Hampshire, we got significant amount of demand. We’re putting new equipment in a place but in the meantime we are actually working some weekend shifts to support the demand we’re seeing out there and in other case it makes more sense to stay with a second shift in certain parts of the business rather than try to put your more capacity on a first shift, so it really does bear. We got some that are running to the weekend and some that are first shift only.

Okay. I think you had mentioned back in 2018 that was a really a record year and repurposing CNC machine tools and moving, thrilling in that around. Was the second quarter and maybe the first quarter kind of the same pace or you know, has that back off a little or is accelerated?

No, our folks had become very profession at moving machines and equipment from plant to plant as it needs -- as we need to for both increase production as well as new product development. The biggest think when you look at capital expenditures, of course is that, what you see is a capital -- a CapEx number for a given quarter doesn't mean that cash was spent that quarter. That cash may have been spent some time before and we don't roll it into the CapEx number until we go into production, so there are some significant things we’re working on for the back half of the year and for 2020 that you'll see that in future CapEx numbers.

Yes. Okay. Chris, you guys have run a roughly about a 140 guys in your research group, and you get 85, 90 or 100 kind of engineering guys on your design teams. Any contraction in headcount there and the second part of the question might be, given how kind of tougher sales are do you guys maybe stage or emphasize some of the major new frame product launches versus something that might just be a caliber iteration when you kind of looking at you know, you are trying to create some buzz in demand in new products that’s kind of a dynamic -- dynamic new frame versus something that maybe just the iteration?

Well, I mean, it’s really a combination. The first part of question, there’s no cut back in our commitment to our engineering and R&D. We've got full speed ahead in that regard we are recently looking first in mechanical engineers. We’ve got our internship program right now going on for our folks - young folks between typically their junior and senior year in college, hoping to recruit some additional mechanical engineers into our pipeline.So that part and that of our strategy really remains unchanged. When it comes to those derivatives and things like that that's been a unique part of Ruger’s success of late and we have, I believe our last count were probably 750 individual SKUs built this year-to-date and that includes maybe 3 to 400 catalog items and the rest are things like Cerakote models, camouflaged dip models different slide configuration.Recently, we launched what we call the flag series of products we had the AR-556 MNPR. We had the AR-556 pistol, Precision Rimfire and a PC Carbine all with the distinctive flag pattern that are folks produced – you're using Cerakote technology. We got Cerakote and dipping in all three facilities. So it gives us a unique ability to kind of capitalize on the short runs might be only a couple hundred units at a particular distributor or even a big retailer may request.

Yes, okay. Right you talked about dealer special so right?

Distributor special yes, as well as line extensions where it might be a caliber in a rifle, might be a niche caliber and a number one product. For example, it might be color case harden frames on a single actuary revolver all of those are things that we do as distributor kind of limited runs.

Yes, right, right. When you look at your new product development when, you look at your design teams so you give any given again how weak the economy do you give any priority to design teams that are developing maybe more of a revolutionary new frame design versus just a collaboration is an extension and not a dealer special I understand the specials.I'm just trying to think of how you look at the flow or do you let your design teams just kind of evolve at their own pace, you’re not trying to prioritize I guess, a major new product launch versus moving at the head of the pack or trying to put more engineers on it or whatever?

Actually, we put a lot effort into our prioritization efforts. We have quarterly new product review sessions so we cover all three of our factories and we go through that. And basically, we rank order and prioritize our projects based on what we call gross margin dollars per day. And so rank ordering we look at a forecast, we look at where we might be on cost with a competitive landscape.And say this one needs to move to the head of the pack some of them are – the more complex projects that are a brand new frame, brand new platform as we would say. Those typically have a have a full team involved in and that team includes design engineers, mechanical engineers that will support the fixturing, tooling and gauging once he gets into the shop floor. As well as supply chain personnel and product management folks to ensure that that big project comes in as close to on target for both time and budget as possible.So we definitely prioritize the big payoff projects and typically those are new platform, something like when you think about the pistol caliber carbine or the Wrangler. Those were ones we had a full engineering development team assigned to it with their own dedicated project management staff to go through and make sure we hit all key milestones.

Yes, it’s a good answer, and I appreciate that. As we saw kind of 2012/2013 was MSR rifle lot of accessory furniture and then we kind of got into these smaller you know that the smaller self-defense, the palm guns are little smaller like your LCR and LCP. As you look across the landscape in the firearms industry, are you seeing any revolutionary design, are you seeing any direction in new product categories that might draw some interest. What I was specifically talking about what’s in your pipeline I understand you want to be a little careful on that?

Well we think concealed carry remains a very strong segment of the market. We also think the MSR market has good opportunity. And frankly, even the bolt-action rifles in a hunting category we've had great success last couple of years with calibers like the 450 Bushmaster and recently the 350 Legend. We’ve got know standard skew, SKUs or models but we got a bunch of distributor specials in the work for 350 Legend.So, we try to go with that opportunities some of those are bigger, bigger pockets of opportunity than others. But I think, things like even bolt-action rifle we’ve seen some nice opportunities as well as we focus on the right niche.

You move to custom shop, you started with Doug Koenig 1911, the 1022 is that are you continuing to develop at a pace that you're happy with new product launches there?

We are - candidly I like to go faster, but these are type of a high-end product that we really need to take our time on and make sure we get right in terms of features and quality. We surely had the GP100 product it’s very cool we had out there heads a vented look on a barrel shroud. We have most recent addition is a custom shop SR1911 and 45 auto and that's another one that does Doug Koenig helped us both conceive and design and make sure we're bringing it up to the right standards.And so we've been very happy with that and we’re going to continue to take a fair measured approach to make sure we don't slip up in terms of either the specs or quality.

Our next question comes from Maks Netrebov from 2A Media Inc. Please go ahead.

Quick question for you. So and perhaps if you can chime a little bit more later on this. So you guys have had a really, really good new product launch that has really good response in the media and most of all the consumers and retailers. And doing a lot of the channel check and when you go to the Cabela’s you go into your local FFL. And they can't get in stock a lot of new product.On the other hand here we have year-over-year declining numbers so I mean if you can possible go in the gap on there, possibly with the distribution channel or with somebody yet very conservative in terms of expectations for the new launches?

Well in particular a couple you may be talking about Max the Wrangler revolver we makeup in Newport, New Hampshire get off to a great start. Those are unique niche at a very attractive price point and when we typically see that advertised below $200 in a lot of cases. So it hits a nice price point we know there is a lot of volume there. The challenge on new products is the demand is always greatest when production is frankly at its lowest or ramping up point.We are working very hard and – to get more Wranglers out – this is a gun that I think we have a total of actually five shifts throughout the week that cover seven days to maximize what we can build and ship. We’re in a process of moving more machines into that line to increase production there. So this one here, we think there is a lot of good opportunities and that's really only in the three models we introduced the three different color versions of the 22 LR rifle.And so we’re excited about it but yeah I know there's some frustration out there at the certain retailers that haven't seen, maybe that their allocation or what they would like to get from distributors. So it is challenge sometimes with new products we seen it in the past. When you work through two-step distribution, we don't necessarily connect with demand as fairly and as fluidly as perhaps we'd like or as perhaps some dealers would like, but they are out there. We are making them every day and shipping them every day. So there is more and there is more coming.

The next I was looking for this, can you comment on your recent product mix I mean basically between long gun versus rifle I am sorry long guns versus hand guns. And perhaps if you can comment on possibly the product new introduction product overlap with their recent increases we saw in the NICs data for May and June particularly as it related to the frenzy buying for California and Washington, plus where I am getting add did you guys we’re not able to possibly participate in that as much as you can because a lot of the new product introductions that would fit that bill weren’t available?

Good point, one of things you covered I think Max in one of your articles looking at the states like Illinois and California. For example in California we only have one pistol model on the Department of Justice roster. So in that centerfire semiautomatic a higher capacity magazine, not much we can do to play in California. We do try to make products available for those markets that have changed their laws whether it’s a 10 round or 15 round magazine limit.We recently introduced, you may have seen the California compliant version of our AR-556, using our Juggernaut Tactical sticks magazine kit, again we try to -- we try to have those models to be state compliant as quickly as we can and adapt to rules and changes in the law, but we did see for example would be in California change several laws on magazines. We saw our magazines basically cleaned out both at our level and distributor level, but that goes very quickly and you have to move on to the I think the products with good staying power.So we see it, we react to it as best we can but in some cases like you pointed out with Illinois and I think with California, it's tough to anticipate those changes in the law. We do our best to react to it, make sure we can continue to serve all our customers with compliant models for their states.

And I guess the final question if you can comment so shopruger.com, the website at carbine centers started carrying more [indiscernible] from there. Is that going to be look to focus going forward and is it, I am assuming now it’s not going to be driving significant revenue but are there possibly hopes that it will in a future?

I think Shop Ruger is always going to be a good complement for our product line. A lot of our customers wait to buy Ruger accessories or Ruger OEM parts directly from us rather than through a third-party but we’re always sensitive to competing with our bricks and mortar retailers, and so if that same item is available from a retailer, that's great. We'd rather they get the sale of that magazine from a local retailer than necessarily Shop Ruger but we want to be able to supply that magazine for customers who can't get it.Our customers are used to buying things online and so we want to certainly participate in it. And I don't think it will be a major contributor from a revenue standpoint but I think it's an important one to make sure we take care of our customers.

Our next question comes from Austin [indiscernible]. Please go ahead.

So I just first off I wanted to thank you guys for as a customer and a shareholders sticking true to your values and not bending to some of the activists pressures that have been coming at you the past couple of years. So thank you.

Thank you.

Has a first question or my only question, do you guys have any estimates of how many first time firearm owners there are annually in the U.S. I'm just looking to get some type of a baseline of new owners overall?

Off the top of my head I don't have that estimate. I know the National Shooting Sports Foundation or Industry Trade Association has some pretty good data that’s fairly current. I am not sure it’s been updated for anything as close to the current quarter or recent past but I think it's fairly current. So again, I'd rather than hazard a guess, I suggest possibly talking to folks at NSSF.I would tell you that it's a mix of customers. We see that the new customers we love to get, we love to help them get their first gun, learn to use it safely and then hopefully our goal is always to get them started with a Ruger beyond just the one gun maybe concealed carry or personal protection situation and get them where they really start to enjoy the shooting sports. Get them into a 1022 or Precision Rimfire. Maybe get them into one of our Mark IV pistols, let them really have a good time shooting and then move their way up and through the product line, because once we get a Ruger customer we tend to retain our Ruger customer for life.

All right. I’ll reach out to NSSF and CF they have any new stuff coming in and I think the last report that I saw was a couple of years old. Thanks guys.

Our next question comes from Joe Edelstein from Johnson Asset Management. Please go ahead.

Thanks for taking the questions. First question for you is just if you could quantify the sales impact from losing the distributor that went bankrupt and related to that you know, how do you view the health of your other partner, distributors should be anticipating any additional bankruptcies across the distribution chain?

Well, I mean we don’t really quantify individual to the sliver scales or the impact. I mean, certainly again, Ellett and Jerry’s were both strong wholesalers for decades candidly and I've dealt with them as a company's, 30 years I've been in the industry. It’s a shame to see them go by the wayside, so that happens.I would tell on the remaining members of our distributor base, we've got some that are -- our biggest and best distributors are extremely solid. They are well-capitalized. They watch their balance sheet as closely as we do and we’re very pleased with their performance.We would always like them to buy more Ruger and keep more Ruger inventory but in large measure we’re very satisfied with their performance. There may be some smaller distributors and they struggle during this period but that remains to be seen. At this point, we’re not seeing anybody, perhaps looking to go down the same path as Ellett Brothers and Jerry's but you never know.

Okay. Thank you, and maybe just related to the last question around new buyers and kind of what that underlying demand trend looks like and obviously the market has been volatile and I know that you don't give any sort of annual guidance but could you share some thoughts just around what you do think long-term sales growth could look like margin, operating margin goals earning algorithm goals that you might be able to share with us as you looked out over the long-term and clearly things have not normalized yet, but just kind of where do you think we can go for this industry long-term?

Well, we certainly don't give financial guidance along those lines looking at the future. I would tell you that we have -- we have a lot of confidence in the firearms business. I mean that’s all we do.We don't diversify beyond our core strengths. There are certainly some gaps in our product line that we want to strengthen and grow with new products, primarily organic growth, but if an opportunity presents itself down the road than that make sense for an acquisition are open to that as well. So we think there's a good headroom for Ruger to continue to grow in the firearms market. We don't plan to change our course of action or frankly what we do best which is, is make firearms.The new products that we’re working on right now cover a wide range of platforms and you know we see a lot of opportunities for us to go out and get that business. So we've been in a declining or potentially stagnant market. It’s incumbent on us to go out and take that business with exciting new products.

Related to just a comment that you would be open to acquisitions, is it fair to say that you at least did look at the Savage and Stevens, Chuck and brand portfolio?

We read comment on specifics there but I would tell you that when these opportunities come up and they wear on every investment bankers speed dial and we get lots of calls to look at lot’s of companies, it just has to make sense for us. It has to make sense for both the product line overlap, multiple deal price point and things of that nature but we get lots of calls from the investment bankers that any time they’ve got a project or a company that working with to sell.

Our next question comes from Brian Rafn from Morgan Dempsey. Please go ahead.

Chris, you had mentioned a little bit about MSR sales and I'm wondering, are you seeing the market, you guys produced your SR-762 and the 556 and also lower price the AR line. How are you seeing demand from a pricing standpoint, do you see it migrating more towards the lower price lines versus I mean, some of the higher price gas infringement?

Brian, good question. Absolutely we see a lot of downward pressure on pricing. We see some great prices out there right now on very well executed M4 platforms like our AR-556. We’re seeing a lot of pressure there.We see some bright spots when you got the right new product mix feature based things like, we launched our AR-556 with a free float hand guard or the MPR, the multipurpose rifle that we introduced last year. Those are really nice options that give you an upgraded look maybe things like M-Lok, attachments slots on hand guard, some things that buyers are looking for at a slightly higher price point but we’re seeing overall a lot of pricing pressure on that line.Things like the AR lowers whether they are stripped lowers or loaded lowers as we call them. You see those prices moving little further south almost on a weekly basis there is a lot of capacity out there still in the AR world.

You guys I think you’ve been very careful in the past in the SR and AR lines not to develop too much accessory in limit the application for demand but does that still kind of preclude you from on the M&A side from going out on looking at specific companies that might make stocks or receivers or anything that might optics from that standpoint you guys have always been I think kind of careful on how much detail you put in furniture coming out of the factory?

Again good question. We really look at anything that comes our way. The accessory side is interesting, there is certainly things we buy from great suppliers people like Magpul. Some of the magazine vendors throughout the world and some cool features we put on and when you look at the AR world. They tend to change pretty quickly as far as what the consumer wants. If you think of the migration over what slots are on the four ends of an AR rifle even that changes.So the ability the - vertically integrated in some cases helps us react to that to make our own furniture in some cases. In other cases some of the vendor supplied items are very cool, very exciting and things that are customers want so we go out and buy them from a good vendor and add them to our product mix. When it comes to buying actual companies that produce those, again it’s the same thing.We look at - the multiples people are looking at, we look at the long-term viability and whether it makes sense and make sure that we're bringing more than just being a banker with our balance sheet to the table. We would rather make sure it makes sense for Ruger long-term before we invest in it.

As you look to turn going to fall Chris being kind of a tappet market challenge on unit volume. As you kind of pre-position is - in the long gun areas is the hunting kind of the standard bolt-action obviously some of the MSRs demand. How do you kind of go into this hunting season given the fact that certainly volumes are down?

Frankly we’re going into it pretty aggressively, we've got a lot of new SKUs in the bolt-action arena coming out both our New Hampshire facility and our North Carolina facility. Things like the 450 Bushmaster calibers as I mentioned before, as well as now the 350 Legend that Winchester brought to market. I think really open up a lot of new opportunities for folks. And what we’re seeing is what may initially start out a niche caliber gets broad acceptance.And we saw that with the 450 Bushmaster, we’re probably - I think we’re going to see that with the 350 Legend. And we've got like I said a lot of our distributors have already come back looking to have a special make ups done in the 350 Legend caliber.

Anything on the commodity feedstock side, commodity inflation, your steels, oils, wood, waxes, resins, green sands anything that you’re seeing on a cost precious side?

No we saw frankly when the tariffs were imposed on offshore steel manufactures we saw some tightening of our supply chain for steel. We always buy our steel domestically, but we did see our supply look it was tightening. We made sure we had plenty of steel in inventory to cover our production. So that’s one of things the strength of our balance sheet allows us when we need to go and buy a little bit deeper in the raw materials side then some people might be able to.And that’s how we make sure we’re ready to go when things need to pick back up or when that supply chain continues to get tight. But right now on the actual pricing, we’re not really seeing it. We’re in pretty good shape I think in terms of all those commodities you mentioned.

Anything from the military or police on the MSR side any things that you’re looking at - what’s kind of the field demand there that’s always kind of a special I know from a distributor standpoint. But I'm just wondering - if you’re seeing any business on that side?

It's typically not our biggest focus. We are seeing good interest from tactical teams on our Precision Rifle series, especially now we’ve got the 300 Win Mag, 6.5 Creedmoor and some of the Magnum calibers, 338Lapua. We are seeing some good test and evaluation requests, some of those maybe for small Police Departments, some of those maybe for larger groups, but so far, I wouldn't say it have a measurable impact on our revenue just yet, but we’re pleased with our performance in some of those teeny trials.

Okay. And then just one on the foundries up, new quarter, were there anything on the legacy foundry relative to being wound down or it’s still going and I think you’re running two of the mini foundries I had glass last call, just any update there?

Yes, we’ve got the two rollover mini foundries working very well for us. They are pretty much covering all of our capacity that we need right now, so no plants at the present time to put on a third. And as far as the legacy foundry we still use it for a few items but very, very few.It’s not completely shut down but there are some things that we do for our revert or material that is comes out of the casting process to be re-melted down, but aside from that most of our production virtually all of our production has shifted over to the mini foundries and we’re very pleased with the process the folks have made up there.

Chris, on the -- you mentioned the bankers on the speed dial with relative to Stevens and Savage and that some of these fields up, are s you seeing given kind of this couple your malaise or are you seeing pricing, when are you seeing any pricing come down on multiples and what's been from the standpoint of kind of the deal flow for you guys, is it down, is it up, is it did or bigger mess all over the place, which been kind of the place.

They come and purchase seems like. You’ll get a book from somebody on small accessory companies, we’ll see a bigger company and I would say prices have probably come down a little bit but still so far as you’ve seen from an acquisition announcement from Ruger they haven’t come down to the point where we’d comfortable making that change just yet.Who knows as far as your companies are different levels of success right now in our industry so there maybe some other things coming. We’re going to keep our eyes open, be opportunistic and hopefully take advantage of our strong balance sheet if and when the right opportunity comes around. That may happen in the near term. If it doesn't, we’re going to do our best to get that business by organic growth.

How ridiculous are the multiples on EBITDA on some of those cases?

I think that I wouldn’t categorize those ridiculous. I mean, there’s some I think -- some companies still have pretty high expectations of what they are going to see on return but I think there -- I wouldn't put them in a ridiculous category. I think they've moderated maybe their expectations and I think getting closer to what might be a value for Ruger.

Thank you. I show no further questions in the queue. At this time I would like to turn the call back over to Chris Killoy, Chief Executive Officer for closing remarks.

Thank you. On behalf of our over 1700 dedicated Ruger employees, I would like to thank you for your continued interest in Ruger and I look forward to speaking with all of you in our third quarter earnings call in November.

Thank you, ladies and gentlemen for attending today’s conference. This concludes the program. You may all disconnect. Good day.