Simpson Manufacturing Co., Inc. (SSD) Q1 2018 Earnings Report, Transcript and Summary

Greetings, and welcome to the Simpson Manufacturing Company First Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host today, Ms. Kim Orlando with ADDO Investor Relations. Please begin.

Good afternoon, ladies and gentlemen and welcome to Simpson Manufacturing Company's first quarter 2018 earnings conference call. On this call, the company may discuss forward-looking statements such as future plans and events. Forward-looking statements, like any prediction of future events, are subject to factors, which may vary and actual results may differ materially from these statements. Some of these factors and cautionary statements are discussed in the company's public filings and reports, which are available on the SEC or the company's corporate website. Please note that the company's earnings press release was issued today at approximately 4:15 PM Eastern Time. The earnings press release is available on the company's website, at www.simpsonmfg.com. Today's call is being webcast and a replay will also be available on the company's website. Now I would like to turn the conference over to Karen Colonias, Simpson's President and Chief Executive Officer.

Thanks, Kim and good afternoon everyone. We had a strong start to the year with our first quarter net sales increasing 11% year-over-year to $244.8 million, mainly due to growth in sales volume. As you may recall first quarter of 2017 was negatively impacted by severe weather. We have continued to execute on our 2020 plan, which we unveiled just six months ago, to provide more clarity into our longer term strategic plan and financial objective. The plan has been a welcome change within our organization, as we have been diligent in openly communicating with our employees who all know their role will make a difference. Given our goal oriented culture, we believe these necessary steps will take Simpson from what we view as already a great company to an exceptional company. I will now elaborate on our key 2025 objectives in detail. They include our focus on organic growth, rationalizing our cost structure to improve companywide profitability, and improving working capital management and overall balance sheet discipline. We continue to believe we can achieve an organic compound annual growth rate of approximately 8% for our consolidated net sales through 2020 from our reported 2016 net sales of $861 million. Subsequent to quarter end, we announced an 11.5% price increase on all our U.S. wood connector products, in an effort to offset rising raw material cost. As a reminder, after announcing a price increase we provide our customers with a 60 day notice period before it goes into effect with a clause that prohibits significant pre-buying ahead of the increase, in order for us to properly manage our inventory levels. We anticipate the price increase will go into effect by mid-June, which will help us maintain our strong gross profit margin. Also factored into our top line growth assumptions is the $30 million annualized revenue opportunity for our mechanical anchor product line in the Home Depot. As of March 31, it has been rolled out into three 330 Home Depot locations across the U.S. We anticipate the completed rollout into all 1,900 stores will be accomplished by 2020. Further we expect growth in U.S. housing starts which are a leading indicator for approximately 50% of our business to continue at an annual mid-single digit rate over the next few years with repair and remodel market also expected to grow at a similar rate. In Europe overall economic conditions remain positive, which provides a solid foundation to continue growing our presence in the Nordic and Western European markets for both our connectors and fasteners. Lastly, our top line growth assumptions include market share gains in both our truss products which include software and our concrete products. Truss sales were up modestly quarter-over-quarter, supported by increased conversion of medium sized component manufacturers who purchase our truss plates and utilize our proprietary software. In the concrete space we remain on track, to grow our current 10% share of a $1.3 billion addressable market to approximately 14% by 2020. While we are prioritizing organic growth supported by strategic capital investment, I would like to reiterate that should an attractive tuck in acquisition target present itself in either fasteners, connectors or software we would be open to pursuing it, if it meets the stringent set of criteria to add value to the company. That said we are not pursuing acquisitions in the concrete repair space. During the quarter we completed the asset purchase of LotSpec in an effort to facilitate builders abilities to complete complex designs and do full take offs in collaboration with our CG Visions software. LotSpec is essentially a suite of software applications for home builders designed to optimize efficiency and productivity around construction documents and option management solution. When coupled with our 2017 acquisition of CG Visions, LotSpec will continue to deepen this instant strong type partnership with top builders, architects and engineers by offering scalable software solutions to key applications compatible with industry standard design platform. In addition, we announced the strategic software partnership with Hyphen Solution, a leading cloud-based construction management software company. Hyphen offers integrated information exchange between its software and our existing CG Visions' take-off platform, to more efficiently create detailed plan estimates, designs and production specifications to automatically flow through to purchasing system. We believe that the LotSpec asset purchase and the Hyphen strategic partnership align well with our strategy to continue strengthening our value preposition while being the industry's trusted partner in construction solutions and building systems software. As our second objective states, we remain keenly focused on rationalizing our cost structure to drive improved profitability without sacrificing our competitive edge. Our 60 plus years of long standing trusted brand reputation is what sets Simpson apart to our network of deep industry relationships, proprietary testing capabilities to ensure the safety and reliability of our solutions, and our involvement with building code officials to continually improve construction practices. Today, we are restating our 2020 plan, our target to improve total operating expenses as a percent of net sales to a range of 26% to 27% by 2020, from 31.8% in 2016. By the end of 2018 we believe we can achieve total operating expense as a percentage of net sales in the mid-29% range. As previously discussed, we will aggressively manage our total 2018 operating expense dollars to be less than 2017 levels, including additional planned SAP costs, which I will discuss shortly. We have been working with the management since then [ph] to uncover incremental opportunities to enhance our operating efficiencies. We are well on our way with the transition office and have dedicated senior leadership members involved with each of our projects, to us prepare for potential additional operating expense reduction in 2019 and beyond. While it is still too early in the process to quantify the impact that these projects will have on incremental costs savings, we will be transparent in the coming quarters, should we have material updates to share. We look forward to benefiting from this consultant expertise as they continue to perform an in-depth analysis of our operations. In North America we have substantially completed the move from our truss plate manufacturing operations into our wood connector plant and are now producing truss plates at those branches. The move was completed in order to best maximize efficiency and plant utilization. When the former truss facility is sold, we expect to reduce our costs of sales by approximately $2 million annually from prior levels as a result of reduced costs in our manufacturing footprint and reduced freight times to move truss plates to our end customers. In Europe, we continue to target an operating income margin of approximately 12% by 2020. In addition, we are consolidating our European management team to now encompass only one head of European operations versus dividing the responsibility between two managers. While this plant consolidation did not impact our first quarter results we will provide details in the coming quarters in regards to severance costs. In concrete, we are reiterating our gross margin target of 42% by 2020. Our narrowed concentration on six distinct product categories in the concrete space enables us to focus on high margin product to drive this enhanced profitability. Turning to expense associated with our software effort, we will continue to allocate dollars toward software development to support the evolving needs of both builders and truss component manufacturers. Software is critical to the preservation and growth of our core wood connector business, with over 40% of our customers requiring software solutions to efficiently conduct their business. We have been primarily focused on converting medium-sized component manufacturers to purchase our truss plates and corresponding software solutions, while continuing to support our valued smaller component manufacturers we've already converted. We have over a dozen conversions in process. Our SAP project has continued to progress and we are currently focused on improving efficiencies from the wave one locations that went live in Q1. In the first wave, we incurred approximately $1 million of incremental cost versus planned due to additional onsite support that was needed to ensure a smooth transition. Therefore, we now estimate approximately $8 million to $9 million will be expensed in 2018, including amortization of capitalized SAP costs. That said, we expect some of these incremental costs could be offset in future ways, and as such we continue to estimate a total of $30 million to $34 million of SAP implementation cost including amounts capitalized from 2016 through 2019. Since the project began, we have capitalized approximately $13 million and expensed $6.5 million. The third key objective pertaining to our 2020 plan involves improving our working capital management and overall balance sheet discipline through inventory reduction and tightening management of our payables and receivables. Through these efforts, we continue to believe, we can double our inventory turn rate from two times in 2016 to four times by 2020. Our total inventory came in roughly flat compared to our levels as of March 31 of last year. In an effort to rightsize our inventory, we have been working through three phases of SKU reduction. Phase 1, which has been completed, included the elimination of approximately 10,000 SKUs which were not transferred to our SAP system. We are currently working through phase two of the process, which involves the identification and removal of slow moving SKUs. We've been working to phase out these SKUs over a transition period as we convert our customers over to replacement products. For phase three, we currently estimate we should have room for further inventory reductions, amounting to approximately 30% of our raw materials and finished goods over the next three years. Importantly, I'd like to note that these SKU reductions will not impact our ability to delivery product to our customers, which is often within 24 hours. Further to support our efforts, we have been working our external lean consultant to assist us in identifying incremental improvements to our inventory management, which has s been a very positive experience. We look forward to sharing more details in the coming quarters. As evidence of our continued confidence to execute against the 2020 plan, we've repurchased 437,500 shares of our common stock during the first quarter at an average price of $57.14 per share for approximately $25 million. We generated an estimated $16.3 million in cash flow from operations during the first quarter, which was used in part to pay out $9.8 million in quarterly cash dividends compared to using $7.5 million of cash in the prior year period. We remain committed to returning a minimum of 50% of our cash flow from operations to our valued stockholders in the form of share repurchases and dividends. Over the past three years that we have returned approximately 80% of our cash flow from operations to stockholders. Through delivering on our 2020 plan targets, we believe we can substantially improve our return on invested capital from 10.5% in 2016 to a range of 17% to 18% by 2020. We are tracking towards this goal by continuing to reduce our total operating expense dollars, improving our inventory turn rates and continuing aggressive share repurchase activity. In summary, the first quarter marked a strong start to the year as we continued to perform against our strategic plan to ensure long term sustainable growth and operational excellence. We believe our key objectives will provide additional capital to continue returning to our shareholders. While our 2020 targets are aggressive, we are confident in our ability to execute on these stated goals, given current market conditions and look forward to updating you on our progress in the coming quarters. I'd now like to turn the call over to Brian who will discuss our first quarter financial results.

Thank you, Karen, and good afternoon everyone. I am pleased to discuss our first quarter financial results with you today. Our consolidated net sales for the first quarter of 2018 were $244.8 million, up 11% compared to $219.9 million in the first quarter of 2017. Within the North America segment net sales increased 12% year-over-year to $206.2 million, primarily due to increased sales volume over the first quarter of 2017, which was impacted by heavy rainfall in the western parts of the U.S. In Europe net sales increased 6% year-over-year to $36.3 million, primarily due to increased sales volume and unit prices as well as positive impacts from foreign currency translations. Sales growth in Europe was partially offset by the divestiture of our Gbo Fastener business unit in Poland and Romania in the fourth quarter of 2017, which contributed $3 million of net sales in the first quarter of 2017. Wood construction products represented almost 87% of total net sales in the first quarter, in line with the first quarter of 2017. And concrete construction products represented 13% of total net sales in both the current and prior year quarter. Our first quarter consolidated gross profit increased 8% to $108.5 million from $100.2 million in the first quarter of 2017, resulting in a consolidated gross profit margin of 44.3%. Compared to the first quarter of 2017 our gross profit margin declined by approximately 130 basis points, primarily due to increased raw material costs. Currently we do not anticipate the margin pressure experienced as a result of higher steel prices to impact our full year 2018 gross profit margin guidance of 45% to 46% due to the recently announced U.S. price increase on our wood connector products which will go into effect in the second half of this year. On a per segment basis our gross profit margin in North America decreased to 46.9% from 48.4% in the prior year quarter, due primarily to increased material cost, which were partially offset by reduced factory costs. In Europe our first quarter gross profit margin was 31.9% compared to$32.2% in the year ago period. From a product perspective, our first quarter gross profit margin on wood products was 44.8% compared to 47.1% in the prior year quarter and was 35.1% for concrete products, compared to 32.1% in the prior year quarter. Now turning to our first quarter cost and operating expenses. As part of our ongoing efforts to improve our cost structure, consolidated research and development and engineering expenses for the quarter declined 6% year-over-year to $11.2 million. The decline was primarily due to decreased cash profit sharing and stock-based compensation expenses. Also included in research and development and engineering expense is approximately $8 million per year for the ongoing development of our truss software initiative to help support and grow our core connector business. Consolidated selling expenses for the quarter decreased 7% year-over-year to $27.6 million as a result of decreased stock-based compensation expense. On a segment basis compared to the prior year quarter selling expenses in North America decreased by $1.8 million and decreased by 0.4 million in Europe. General and administrate expenses in the first quarter increased 6% year-over-year to 38.2 million primarily due to increases in professional and consulting fees, associated with the SAP project, IT related costs to upgrade hardware systems and depreciation and amortization. These costs were partially offset by decreased cash profit sharing and stock-based compensation expenses. On a segment level, general and administrative expenses in the North America segment increased by $2.2 million and in Europe G&A increased by $0.9 million, compared to the prior year quarter. We are committed to reducing our total operating expense dollars as a percentage of net sales. For the first quarter of 2018, total operating expenses as a percentage of net sales was 31.4%, down 390 basis points from the prior year quarter. We are pleased with this result which includes $3.2 million of cost related to the ERP implementation in the first quarter of 2018 compared to $0.2 million of ERP related costs in the prior year quarter. Our consolidated income from operations for the first quarter increased 45% year-over-year to $32. 8 million, compared to $22.6 million in the first quarter of 2017. Our income from operations for the quarter included a $1.2 million gain on disposal of assets primarily due to a sale of property in the State of Texas which was declared Eminent domain. In North America income from operations increased 34% year-over-year to $36 million and in Europe loss from operations was $1.6 million, compared to a loss of $1.8 million in the prior year period. Included in Europe's loss from operations were SAP related costs of approximately $700,000 in the first quarter of 2018 and a $100,000 in the first quarter of 2017. As a result our operating income margin of 13.4% on a consolidated basis increased by approximately 310 basis points from the first quarter of 2017. Our effective tax rate decreased to 22.2% from 24.9% in the first quarter of 2017. As a reminder the bargain purchase gain recorded in the first quarter of 2017 in connection with our acquisition of Gbo Fastening Systems resulted in a positive 9.3% impact to the prior year quarters effective tax rate. Our consolidated net income for the first quarter was $25.4 million or a $0.54 per fully diluted share compared to net income of $23.1 million or $0.48 per fully diluted share in the prior year quarter. It's important to note that our consolidated net income in the first quarter of 2017 included the aforementioned bargain purchase gain of $8.4 million for an impact of $0.18 per share. Turning to our balance sheet and cash flow, at March 31, 2018 cash and cash equivalents totaled $137.4 million, a decrease of $31.1 million compared to the balance as of December 31, 2017. Capital expenditures were approximately $10.9 million for the quarter, and were primarily related to investments in machinery, equipment and software, including $1.4 million of capitalized costs related to the ERP project. We remain debt free, with only a small portion of capital leases amounting to approximately $3.5 million. On April 21, our Board of Directors declared a quarterly cash dividend of $0.22 per share, which represents a 5% increase over the first quarter of 2018 dividend. The dividend will be payable on July 26, 2018 for shareholders of record as of July 5, 2018. In addition, we've received 182,171 shares during the quarter as final delivery for the $50 million accelerated share repurchase program initiated in December 2017, which accounted for $10 million of the $34.9 million worth of shares repurchased during the first quarter of 2018. Further we repurchased an additional 437,500 shares during the quarter at an average price of $57.14 per share for a total of $25 million. The remaining amount authorized under our current repurchase program, which expires at the end of 2018 is $125.9 million. As Karen mentioned, share repurchases will remain a priority as we believe our stock is a good value at current level versus where we expect to be upon completion of our 2020 plan. Before we turn it over to questions I'd like to discuss our outlook. Although we experienced margin pressure during the quarter due to rising material cost, we currently believe the price increases we announced in mid-April which will become effective in mid-June will enable us to achieve our previously issued guidance. As such we are reiterating our outlook for the full year of 2018 as follows. We expect our consolidated gross profit margin to be in the range of 45% to 46%, the effective tax rate to be in the range of 26% to 27%, depreciation and amortization expense to be in the range of $39 million to $40 million of which $34 million to $35 million is pure depreciation, and capital expenditures to be in the range of $30 million to $32 million including $9 million to $10 million that will be dedicated to maintenance. In summary, we are pleased with our first quarter results and look forward to updating our shareholders as we continue to execute against our strategic initiatives and 2020 plan objective. Thank you for your time and attention today. We'd now like to open up the call for questions. Operator?

Thank you. At this time we will conduct a question-and-answer session. [Operator Instructions] Our first question comes from Daniel Moore with CJS Securities. Please proceed with your question.

Good afternoon, Karen and Brian. Thank you for the color. Want to touch first on the gross margin guidance and price increases, certainly impressive holding the line given the inflation that we've seen. 11.5% is that one of the biggest price increases you've had to put through in more than some time and I guess what's the initial feedback you're getting from customers?

Hi, Dan. Certainly 11.5% is pretty substantial for what we see and I think it's pretty indicative of what's going on in the market from the tariffs and what we see from the steel pricing. The information is still predominant in the market and builders and our customers are getting price increases pretty much from anybody that had material made out of steel. So certainly it's understood, it's been publicized for a very long time about what's going on in the market with steel prices. Our customers appreciate that we give them a 60 day notification and they're in the process of accepting that price increases.

Very helpful. Just shifting gears in terms of the quarter, Brian, can you give us the sensitivity impact of both FX and price increases the raw material pass through had on the revenue growth?

Raw material price increase pass-through not significant. Karen noted that will be later in this year. Foreign exchange had a - bear with me just a second, about a $4.5 million positive impact.

Perfect. And lastly and I'll jump back in queue. LotSpec, any more details you can share, purchase price, what revenue looks like, EBITDA multiples and any color you want to give on how it fits in CG Visions beyond the prepared remarks would be great. Thank you.

Sure. Dan, it's Brian. It's really an asset, it wasn't a business per say. It was the software application that we bought. It was an immaterial purchase price and it will have a little bit of effect on depreciation on a go forward basis but on an annual basis it's not significant.

And just a little bit more about LotSpec, it's really an application for both AutoCAD and Revit. So AutoCAD being 2D Revit 3D drawing platforms and what it allows us to do is convert those drawings into a 3D model, which we can then push through what's called Pipeline which is a take-off software that's part of CG Visions software platform. So, it's really helping us make that take off much easier for the builders.

Got it. Thank you.

Sure.

Our next question comes from Tim Lange with Robert W. Baird. Please proceed with your questions.

Hey, good afternoon everybody.

Hi, Tim.

So maybe on free cash flow. So I think free cash flow was positive in the first quarter, I think for the first time since 2007. And so I was just wondering if maybe there is some guardrails to how we should think about free cash flow for the year as you kind of tie in some of the working capital reductions with inventory?

Sure Tim, this is Brian. So free cash flow in Q1, cash flow from operations as Karen noted in the prepared part of the remarks, $16 million, but largely CapEx and acquisitions in Q1 were much lower than in prior years. From a seasonality perspective, I'm not sure that I'm seeing on the operating cash flows much significant changes quarter-over-quarter. But you're right, it was a - last year we were a net use versus a net received on cash. So I think one of the primary ones was the - you'll see a change in inventory was a bit less this quarter. I think it's pretty much it. There were some other movements and other working capital items that changed that, from a use to provided.

Okay. Maybe I'll ask it a different way. So if I look - do you expect working capital to be down year-over-year in '18 versus '17?

Well, to the extent that we're returning cash to shareholders via buyback and dividend, yes. You've heard us talking about the improvement efforts we're looking at from inventory and then some of the AP and AR elements. We'll have to see how far we get with those two elements, but if we were to look at cash as a part of working capital, I would expect that to be less.

Okay. And then maybe back on to pricing just two questions, have you put through anything in terms of price increases in Europe? That's one. And then second, when you put through a price increase in North America, is the realization on that price increase typically pretty good in terms of, you don't have to give kind of back in the percentages. But if what - how good would you expect that 11.5% to kind of stick?

So hi, Tim, it's Karen. Yes we did put some price increases in Europe that was happening in the early part of the year. They also have some significant increases in the steel pricing in the European market. So again that was taken in the first part of the year. From the standpoint of I think as we look at our price increase we work very hard to justify what that needs to be and have conversations with our customers as to what's that based on? So certainly anticipate once you get through the staggering of customers and again that mid-June timeframe that majority of that price increase will stick.

Okay.

Hey, Tim, if I can give you one item on the working - on the cash flow from ops. Just as a reminder, last year, that bargain purchase gain of about $8 million was a use of cash. So that also contributed to the net differential or primarily the net use of cash in last year's Q1. So I just wanted to provide a little additional clarity there.

Okay, great. Now that's good to call out, I appreciate that. Good luck, see you guys.

Thanks.

Thanks Tim.

Thank you. Our next question comes from Kurt Yinger with D.A. Davidson. Please proceed with your questions.

Yeah, hi Karen and Brian. When you talked about the mid-29% operating expenses target, was that a full year 2018 goal or by the fourth quarter that's sort of what you're expecting from a quarterly run-rate

That's the full year 2018 goal.

Okay. And then with the lower tax rate in the first quarter here and the 26% to 27% guide for the full year, should we expect to be at the high end of that as we look out over the next three quarters?

On the tax rate.

Yes.

Yes. I think that's right.

And then could you talk a little bit about differences between the small mid and large size truss manufacturers, Myer [ph], like are gaining some traction, it sounds like with those mid-sized manufacturers?

Sure, so the small sized manufacturers are a little less complicated from the standpoint of what they need on the software from a feature set and typically they has a fewer locations that we're needing to support. So small size truss manufacturer again just using designing trusses, not floor systems and not wall panel. On the large - the medium size as we go up it becomes more complicated. So a medium size truss manufacturer typically has more locations. They require floor systems as well as trust design and certainly a management software and then as we get to the larger size component manufacturers they have many, many more locations and they require the use of wall panels, roof truss and floor system. The reason we are getting some good traction is last October at the Building Component Manufacturing Conference we released - we put out a new release of our software which had some additional feature sets which was well received by the medium size component manufacturers and we have got our sales force directed to work specifically with those medium size component manufacturers on those conversion.

Great, thanks Karen. And lastly, I apologize if I missed this. But can you talk about your CapEx assumptions for the year and are there any sort of significant discretionary spends within that?

So we do - Kurt, this is Brian. We have got sort of third of that what we called maintenance CapEx, and about a $30 million to $32 million annual amount projected for the year. So part of it is the timing so that assumes all project that we're looking at are finished by the end of the year and often projects to rollover is because the spending may carry over into early next year. But we based that amount on projected projects that would finish this year. So, it may end up varying a little bit from that again due to how much is completed and put in to use by the end of the year.

Great, thanks, Brian, I'll turn it over.

Thank you.

Thank you our next question comes from Julio Romero of Sidoti & Company. Please proceed with your question.

Hey good afternoon Karen and Brian.

Good afternoon.

Hello Julio.

Hey, so just appreciate the color that you gave on truss sales up year-over-year. You called out some new features that might be driving that, to the extent that you can - I don't know if you can go any more granular, is that really like based on the cloud based offering or any other features of that software that's resonating with customers?

Yeah, I think as we've mentioned in the past that our software is number one modular in design and number two it is on a cloud base. Additional feature sets are always added to software and it's the things needed to make component manufacturers more efficient. So as we survey our customers and potential customers and get the input that we're looking for, that what do they need to be more efficient, those are things that we have input into the software. So we just put elements that have made those medium size component manufacturers more efficient. And as I mentioned before it's not only our truss design but it's our management software that really can help them manage their inventory and efficiently produce those - produce the trusses. So it's the truss design software is worth our management software that is appealing to them. Again it has to be something that makes them more efficient so that it's worthwhile converting to Simpson.

That's helpful. And just on that point about the management software, the partnership with Hyphen Solutions, can you give an additional color there and should we expect Simpson to continue to explore those types of collaborations going forward with others in the market?

Sure. So, Hyphen Solutions is a leading cloud-based software for builders in the ERP space. So if you can imagine a large builder on the frontend has AutoCAD joints or whether joints 2D or 3D, the would like to get them into a 3D model, so they can when do a takeoff, which would happen in our pipeline which is 3D vision. And when you want to be able to push that data into an ERP system, that can help you with scheduling, warranty information and that sort of things. So, our connection with Hyphen Solutions is to allow a free flow of data, so that this makes again the builder's life much easier from both the frontend and the backend of their project with the current software solutions that are available. And Hyphen is predominate ERP solution used for most builders. So, it's been a - it's a nice partnership that we have and again it's just exchanging the data to make that a faster process for the end users.

Got it. I'll jump back into queue. Thanks for taking my questions.

We have a follow-up question from Daniel Moore with CJS Securities. Please proceed with your question.

Thank you again. I just missed - can we get the number of Home Depot stores that where mechanical anchors are now rolled out and what's the current run rate revenue look like?

We're currently in 335, I think is the right number. Of the 1,900 stores, we're currently in 330 locations. And on a run rate, we anticipate that we'll convert several hundred stores this year. It's a little hard Dan to give you the run rate and the reason is that we are not displacing but there is someone in the Home Depot. So it takes a little bit longer to find that space and it set those stores. But what we will do is be giving you a quarterly update on how we are progressing.

Helpful. And lastly, would you update your 8% organic growth goal if raw material prices continue to move higher or should we think of that is set of a net of inflation goal?

I think we are going to have to think about that one a little bit more Dan, provide a little bit more color possibly next quarter.

Understood. Okay. Thank you again.

Thank you.

Hey, Dan.

Thank you. At this time, I would like to conclude today's teleconference. You may disconnect your lines at this time. And thank you for your participation.