Advanced Drainage Systems, Inc. (WMS) Q3 2017 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen and welcome to Advanced Drainage Systems’ Fiscal Third Quarter 2017 Results Conference Call. My name is Austin and I’m your operator for today’s call. At this time, all participants are in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the presentation over to your host for today’s call, Mr. Mike Higgins, Director, Investor Relations and Business Strategy. Sir, you may begin.

Thank you. Good morning. With me today is Joe Chlapaty, our Chairman and CEO; Scott Cottrill, our CFO and Ron Vitarelli our Co-COO. On today's call, Joe will provide highlights for the third fiscal quarter. Scott will then provide more detail on the financial results for the quarter as well as our guidance for fiscal 2017 before we open the call up to your questions. I would also like to remind you that we will discuss forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those forward-looking statements as a result of various factors, including those discussed in our press release and the risk factors identified in our Form 10-K filed with the SEC. While we may update forward-looking statements in the future, we disclaim any obligation to do so. You should not place undue reliance on these forward-looking statements, all of which speak only as of today. Lastly, the press release we issued earlier this morning is posted on the Investor Relations section of our website. A copy of the release has also been included in an 8-K we submitted to the SEC. We will make a replay of this conference call available via webcast on the company website. With that, I'll turn the call over to Joe Chlapaty.

Thank you, Mike and good morning, everyone. Welcome to ADS’s fiscal third quarter 2017 earnings conference call. We'd like to thank all of you for joining us. We have a good deal of news to share with you today, starting first with highlights of our fiscal third quarter 2017 results. As we indicated on our last call, consolidated net sales declined 6% for the quarter, primarily due to continued softness in the domestic and Canadian ag markets as well as a relatively flat domestic construction market. But I am pleased with our overall performance, as we continued to outpace the overall construction market, while generating strong profits and cash flow. Third quarter domestic construction sales increased 2%, driven by our non-residential market. On a year-to-date basis, we have generated solid growth of 5% in our non-residential end market and continue to see double digit growth of our about HP pipe and strong growth in our allied products. We also generated $43 million of adjusted EBITDA this quarter, about 12% lower compared to the prior year. Our material cost advantage was offset by lower volume and higher SG&A cost. On a year-to-date basis, adjusted EBITDA has increased an impressive 9% to $181 million, even though net sales decreased 3% over the same time period. On our last call, I said we expected to continue generating favorable cash flow that we would use to create additional avenues for shareholder value creation and distribution. We have recently released a few announcements to this end. First and foremost, we're pleased to announce that our Board of Directors has authorized a $50 million share repurchase program, which was announced this morning in a separate press release. Also, on February 6, we announced the acquisition of Plastic Tubing Industries for $9.5 million in cash. With the acquisition, we increased our manufacturing footprint in Georgia and Texas, while adding production capacity to the existing ADS manufacturing facilities in Florida to better serve growing demand in the region. PTI is a highly complementary business, carries a strong brand in its local markets and has exceptional customer loyalty, dating back more than 40 years. We are also very excited about our recently announced HPXR 75 product line, which we have highlighted on slide 5. We believe this new product will enable us to make significant inroads in the infrastructure and public construction markets for large diameter storm pipe. The revolutionary design of our new pipe builds on the success of our high performance polypropylene pipe by incorporating a fiber glass reinforced smooth outer wall. This creates one of the stiffest thermal plastic corrugated pipes in the storm sewer market today. Additionally, HPXR 75 allows for a broad range of backfill materials, increasing installation flexibility and reducing backfill material cost. The HPXR 75 product line is the culmination of several years of internal research and design, highlighting our commitment to investing in product innovation that will expand our leadership position and further our competitive differentiation. Lastly, as I mentioned in our most recent earnings conference call, we continue to review our manufacturing footprint to identify investments and other actions we can take to improve the way we operate and lower costs, while improving our customer service and logistics. We remain early in this process and will have more to share later this year. In summary, we continue to feel good about our ability to drive above market growth and healthy profitability for fiscal year 2017 and beyond, in spite of the headwinds to our top line revenue. Importantly, we continue to generate favorable cash flow, which we're putting to work to create additional avenues for shareholder value creation, including organic investments in our business, acquisitions, cash returns to shareholders and maintaining a healthy balance sheet. Now, I’ll turn the call over to Scott Cottrill to discuss financial highlights as well as our fiscal 2017 outlook. Scott?

Thanks, Joe. Let me now shift to our year-to-date financial results, a summary of which is provided on slide 6. During the nine months ended December 31, 2016, we generated net sales of just over $1 billion, down 3.1% compared to the prior year. The year-to-date sales decline was primarily due to significant headwinds in our agricultural end markets in both the US and Canada as well as continued weakness in Mexico. That being said, our domestic non-residential end market has performed very well, increasing 5% year-over-year. On a product level basis, our allied products have grown 4% year-to-date, partially offsetting the 6% decline in pipe sales. Strong allied product sales reflect market adoption for our comprehensive product package for storm water management solutions. Our gross margin has increased 270 basis points to 25.3% as compared to 22.6% last year. This improvement is primarily due to effective price management and lower resin costs. And finally, our adjusted EBITDA increased 9% to $181 million year to date. Our adjusted EBITDA margin improved 190 basis points to 17.8%, primarily due to the same factors impacting our gross margin, partially offset by higher SG&A expenses. Moving to slide 7, we provide an overview of our Q3 performance. During the third quarter, we generated net sales of $295 million, down 5.8% from $313 million in the prior year. The lower sales in Q3 of fiscal 17 were due to our domestic construction markets being slower than we initially anticipated and ag continuing to be a significant headwind. While we are encouraged by signs of stabilization in Mexico, the Canadian market softened during the third quarter, driven primarily by a lower ag market. Our gross margin decreased slightly to 23.6%, 30 basis points lower as compared to the same period last year and our adjusted EBITDA margin decreased by 110 basis points to 14.7%. Favorable resin costs, net of pricing, were offset by higher transportation, manufacturing and G&A costs. The higher transportation and manufacturing costs were due primarily to lower absorption of overhead due to the reduced volumes in the quarter, while the higher G&A costs were primarily driven by our financial transformation initiatives. Slide 8 goes into a bit more detail on what is driving our domestic performance by end market. Our non-residential end market continues to perform well in a difficult market environment with the result up 4% year-over-year. But pipe and allied product sales increased with growth of 2% and 7% respectively. Year to date trends at our residential end market continued during the quarter as a 6% increase in new residential construction sales was offset by a 7% decline in our retail channel, resulting in an overall 1% decline during the third quarter. The decline in the retail channel was primarily due to the favorable weather and sales we experienced in Q4 of last year as well as the inventory management and destocking practices many of our retailers implemented this past year. In our infrastructure end market, our sales declined 4% in the quarter. Longer term, we feel very good about our position in this market and look forward to continued success of our HP product line as well as the rollout of our HPXR 75 product that Joe mentioned earlier. Finally, sales in ag were down 27% on a year-over-year basis, primarily as a result of an earlier start to the planting season as well as weaker underlying market conditions in the agricultural economy. As we mentioned on our last call, we will continue to evaluate our facilities and production capacity in locations that primarily support this market, given the weak market conditions we are experiencing. In addition to the actions we discussed on the last call, we are accelerating our efforts to optimize our domestic network of approximately 50 plants and 20 distribution yards to become more efficient as well as to make sure we have the right product at the right plant at the right time. Turning to slide 9. Year to date, we have generated $80 million of free cash flow, a decrease of $18 million when compared to last year. The increase in free cash flow attributed to higher adjusted EBITDA was offset by additional cash required for working capital as well as an increase in cash paid for restatement related costs. Lastly, we repaid $33 million in debt since December 31st of last year and ended the quarter with net debt of $370 million. Through December 31st, we’ve invested approximately $3.5 million this fiscal year at our new manufacturing facility in Harrisonville, Missouri, which should open in the first half of this calendar year. As we noted on our prior earnings call, we are still on track to hit our expected range of between $50 million and $55 million of CapEx for the full year. Slide 10 highlights our disciplined capital deployment strategy. Our highest priority use of cash continues to be investing in our business through various initiatives to accelerate profitable growth and to drive margin expansion through ops excellence and superior performance initiatives. We remain committed to returning a portion of our excess cash to shareholders through our dividend and will consider opportunistic share repurchases in the future. Turning to slide 11, we provide our 2017 outlook. We're maintaining our previously communicated net sales and adjusted EBITDA guidance. Our expectation for net sales are still in the range of $1.225 billion to $1.250 billion and our adjusted EBITDA is still in the range of $190 million to $210 million. On slide 12, we have provided our outlook on the end market dynamics as we head into fiscal year 2018. We anticipate our domestic construction markets will grow low to mid-single digits. We also expect the soft agricultural market to continue into fiscal year 2018 with low to mid single digit declines. Finally, we expect low single digit growth in our international markets with improvement in Mexico, partially offset by continued weakness in the agricultural market in Canada. We look forward to providing you with additional details regarding fiscal ’18 on our fourth quarter earnings call in May. Finally, we plan to file our third quarter Form 10-Q later today. Now, we’ll be happy to take questions. Operator, please open the line.

[Operator Instructions] And our first question is from Rob Hansen with Deutsche Bank. Please go ahead.

Thanks. So first question, I just wanted to ask about the 2018 outlook in construction markets. Wondered if you could dive in a little bit more and I know you guys are looking for a little bit bigger of an increase this, in fiscal 2018. So what's driving that view? Does that kind of match up with what you guys are, I know you guys always had that long term visibility and technical plans, like how is that all shaping your view for 2018?

Hey, Rob. It’s Scott here. Yeah. I think right now based on the year that we've seen, I think the key point I want to highlight is the fact that this is what we think our end markets will do. There's still the conversion piece of this that we’ll be adding to this as we look at what ADS will be able to do on a year-over-year basis. So from an end market perspective, again when we say low single digits to mid-single digits, that could be anywhere in that 2% to 6% range year-over-year. So again, it’s mostly based on what we've seen this year, obviously looking at third party external third party factors and as well as kind of what we're hearing others in the industry say. So we kind of triangulate all of that, including what our sales folks are telling us. So that’s our early read on it and Mike, I don’t know, if you have any additional comment on that.

No. I think maybe just to add a little color to the question of what you asked Rob is the internal metrics we look at as far as design activity, still remains at healthy levels, which leads us to believe that we’ll continue to see growth in that non-residential end market.

Let me add one comment. This is Joe Chlapaty. We are very excited about the performance to date of our HP product line and we expect that strong growth to continue and now augmented by and accelerated by the new HPXR 75 product line. So that gives us additional reason for, I’d say, cautious optimism as we look at calendar 2018.

Got it. And then what do you guys think about measuring the conversion angle. What are you using to kind of measure that and assess that, are you looking at on a local market basis or are you looking at on the whole United States? And then related to that, with the HPXR, what's like the market, the target market size for that business?

With regards to the market share, we look at it at all those levels, Rob. We look at how are we performing at local markets in a metropolitan area, at a state level at a regional level and then also at a national level.

As to the market size, Ron, you can talk to that.

We look at this product, the XR 75 market as giving us another tool to go after that $1 billion plus conversion RCP opportunity that's readily available in the marketplace for us and really the XR 75 is an extension of the technology that was developed with the HP product line. It's kind of the next generation of that and even further. So we're continuing where they're continuing the development of technologies to meet the need for higher performance type to accelerate the conversion process within ADS.

Okay. And then I think when you guys did the IPO right, the market penetration I think for the industry was somewhere around 25%, what are the kind of -- do you have any kind of latest thoughts on what that would be today?

Yeah. As we said at the end of our last fiscal year, we feel that our industry’s penetration is 27% or above right now.

Okay. Got it. And then the last question I have is, you mentioned some projects to become more efficient, what are these initiatives? What type of returns are you looking at for them? Is it going to cost additional CapEx beyond just adding plants, et cetera, just some more color on that would be great?

Yeah, Rob, Scott here. So basically, it's a continuation of some of the efforts we've done plus some new initiatives, but as I put it under the banner of ops excellence, so it'll be everything from network optimization to CI Lean and so forth. Yes, there will be some additional CapEx as we look at next year, but I look at that as putting our balance sheet to work. We're basically going to be around two times levered as we go into March, the end of this fiscal year. And again, I want to stay, we want to stay between two and three times on a leverage basis. So putting that balance sheet to work is really prioritizing and focusing on some of these initiatives and some of them are around accelerating profitable growth, both through innovation and other tools that we're developing and more to come on that later as well as through M&A. So we're very excited about the initiatives that we're focusing on here, both to accelerate growth, profitable growth as well as to expand margins from a cost savings and efficiency. Again, we have 50 plants, 20 distribution yards. There's plenty of opportunity to build on the success that our team has already had and some things that we need to go get and that will be good, especially in a stable resident environment as we look toward to fiscal ‘18.

We’ll be in a much better position at the May conference call to give more detail and focus on this.

Our next question is from Bob Wetenhall with RBC Capital Markets. Please go ahead.

Guys, good morning. I wanted to spend a moment on profitability, on the international segment, but you had a big improvement from being in the red in the, being in the red last quarter and then a nice improvement here and what's the accounting -- what's driving the strength in international profitability, given the fact that you're facing some top line headwinds and how do we think about that versus domestic profitability?

So I’ll take a stab at a piece of it. I think on the Mexico side of the house, we’ve done a really good job controlling our costs, especially given everything on the top line that they’ve seen. So again, that margin business and margin performance there has been good. On the Canadian side of the house, you see a mix of allied products that go in to there as well on construction side. Even though, the ag part of that business is a little bit more than half. So I would say those would be a couple of highlights that I’d point out.

In Mexico, we are experiencing a rebound in sales activity and we're hopeful this will continue as we enter into fiscal 2018.

And then you're also showing some good growth on a year-over-year basis domestically in your core business in spite of some headwinds in the agricultural markets, what's really the tailwind that's giving you the expansion here, specifically because it's a very nice trend and I'm just trying to understand, is this a sustainable trend as we move through the year?

I think it is. I mean one of the pieces that we talked about is the Allied products, the biggest market that our allied products go in to is the non-residential commercial side of the house, Bob and that’s been a continual, significant growth market for us year-over-year and we expect that to continue as we go forward. The HP product has been significant double digit growth and that conversion story is definitely something that we’re extremely proud of and we see that continuing.

And Bob, this is Ron Vitarelli. One of the things to mention there is the market has responded very well over the course of the last three or four years on our kind of solution selling approach early involvement with the design engineers and developers and the owners and that has really helped us kind of establish a nice pattern for us, not only in the current, but going forward. So hopefully that answers your question.

So that's giving you traction and you guys had discussed and maybe this is for Ron, having a lot of momentum with HP pipe in the Texas market. What's like the potential there for share gain and where specifically are you getting traction with that?

In general terms obviously, the Texas market is one of the strongest markets we have. It's also one of the largest opportunities we have for conversion. So the HP product line has accentuated our ability to convert there, because we're not reliant upon select backfill in that particular market. The XR 75 product line takes that and magnifies the attributes of being able to use somewhat substandard data materials for backfill. So we look at the Texas market as a very positive arena for us to garner market share from traditional business.

Hey, Bob, let me make a comment about HP and the new HPXR 75. The trigger point for the Harrisonville, Missouri plant was HP pipe and a very good approval we got from the state of Missouri and we were incurring significant freight costs to move pipe to meet the market demand out there and so you're going to look at this as intuitive for wage, number one, we talk about optimization, revenue growth opportunities and the ability with Harrisonville to be strategically located to dramatically reduce freight costs. So it was kind of a double win for us.

Another part of that I would add is the fact that it helps expand the acceptance piece of it and from a conversion standpoint, which we've been very successful on and it's going to help a little bit on the approval side, greatly on the approval side for what we've had a little bit more resistance. So again, it's going to help us getting on that conversion side of the house.

And then, in your 2018 fiscal year outlook, are you just kind of using a base case or is there any reflection of maybe there's more infrastructure spend on water management under President Trump and if there is any big uptick, where are you in terms of network capacity, if you have a big surge in volumes?

Bob, yea, this is more base case. We’re monitoring what the new administration is going to do. As we've talked about it, a lot of what's coming out of the new administration is going to be a tailwind for ADS. It's just a question of magnitude and timing, but what we're giving and talking about right now is more of a base case. So we have -- more of a wait and see to see kind of the timing and magnitude of that, but that would not be embedded in any of these numbers right now.

And I would say on the network capacity, again, it would still be a wait and see. We'll see where the where the funding is allocated, where it goes and where the stage choose to spend it and we’ll react appropriately if we see opportunities to gain share and we feel we're capacity constrained, we’ll look at investments to be able to capitalize on any type of growth above and beyond the base case scenario that exists.

And Bob, oh, just one quick commentary. Because of our 300 salespeople, 50 of which are civil engineers, we have very good visibility even on the municipal and infrastructure level as what’s in the design funnel and I think that -- having that visibility allows us to anticipate where we may need to make some corrections for production allocations. So what we're seeing on the infrastructure side right now, we're not seeing an imminent wave in 2018 of projects in the design bid, implement and build stage, but I'm confident with our 300 feet on the street and thousands of calls they make monthly that we will have a good idea when that starts to develop.

That's helpful. Thank you. And just one last housekeeping question, on the PTI acquisition, 11 million topline, what kind of EBITDA does that bring to the table and can maybe, Joe, you could just step in the water a little deeper and talk about the strategic rationale of the acquisition and given the fact you guys are now starting to talk about buyback program, you got the 50 million share repo authorization, are you more looking to grow through tuck-in acquisitions, buyback balanced approach. How should we think about this?

We haven't really altered differently from our capital allocation strategy. Our first focus is organic growth and you can see that with the introduction of HPXR 75 or Harrisonville plant, et cetera. The second thing we look at is acquisitions and this acquisition really fit a nice hole we had in a high growth area, both providing sales revenue and strategic plant locations that were not optimized for us to deliver to. So this is a company that we've had discussions with over the years and it resulted in this acquisition. I might say that our pipeline remains active. When it comes to acquisitions you really can’t predict timing. It’s a case of what owners and these companies are privately owned for the most part. So they’re looking at what they want to accomplish, do they have a succession plan within the families often times and where they might be heading. We believe that we can incorporate and integrate PTI and generate meaningful synergistic EBITDA and earnings relative to the sales revenue that we believe is there.

Any view on kind of margin I know you guys had noted its 11 million sales, what kind of EBITDA does this come in with.

Yeah Bob, they way we talk to would be a fact on a percentage basis, we basically look at that purchase spice of being around five or six times.

Our next question is from Mike Halloran with Robert Baird. Please go ahead.

So questions on the EBITDA margin cumulatively and looking at the sequentials little lower than we were expecting, maybe you could talk about some of the puts and takes seems like the transportation side a positive tailwind in the second quarter, pretty sizable headwind third quarter here. What's going on in that side and anything else from a variance perspective? Hedges, do those go against you, simply that the price of transportation, any color that would be great.

I’m the [indiscernible] I turn to my colleagues, when you look at the freight numbers you have to look at a couple of different things. The lowest cost freight that we have in ADS is the ag business because most of the shipments for our agriculture plants are within 50 to 75 miles and it's a very efficient multi-run day. With a tremendous growth that we've had on our HP product line we were incurring substantial cost to get HP into the marketplace where demand was incurring. And then because of lower overall sales volumes you have the fixed cost of freight kind of moved in there and we weren’t able to leverage those as historically did. Now I've given you what I know then I'm going to turn it over to Scott and Mike and Ron and they’ll give you the rest.

No, Joe you did a good job there. Transportation piece of that would be best on the miles. [indiscernible] up year-over-year as we’re getting the right product at the right plant at the right time. It's basically been a big focus this year, so the miles were up. Diesel was about flat, so it's on a quarter basis, so nothing there that would be driving. On the operational side of the house, yeah sure you’ve got a little bit up on salaries and so forth, but it's mostly on the negative sales leverage. So we had additional absorption based on 10 million pounds lighter year over year. So you're going to have some of that. I’d say there might be a little bit of R&M timing, repair and maintenance that came through in the quarter versus what we've seen in Q2 and prior, but those would be the big drivers there. There is no spike in spending that would highlight. On the hedge side of the house, we’ve had favorable if you will movement in that the hedges came off in December, year to date about a $3 million favorable move from a GAAP earnings perspective, obviously on an EBITDA perspective we recognized that as they settle. So on a year to date basis there's been about a $9 million hit from settling those and that compares to about $10 million number last year.

So then how to think about the margins then moving forward. The transportation costs - I guess that make senses, we can talk more about it offline because I don't know and I totally understand the variable between 2Q being a tailwind, 3Q being a headwind win. A lot of these costs that you're talking about from a transportation costs it didn't sound like they flexed all that differently from 2Q to 3Q. But how to think about that margin and going forward from a trajectory perspective, are you expecting things to ramp comparably from a 3Q level that you saw here versus obviously the revenue level fluctuating for you and in other words is 3Q a good run rate to build off of relative to the revenue levels or should we be thinking about some different puts and takes, obviously you just talked about the hedges but..

Yeah there is going to be a lot of put and takes. I think as you build out your model and as you think through the future I would say that in a stable resin environment we project that we'll be able to do at least 26 to 50 fifty basis point expansion in margins year over year.

And then on the buyback side maybe just talk about rationale for putting buyback forward and then more importantly how you guys think about executing on it from a timing perspective?

We've always talked about it being a tool in the toolkit, it’s been in every one of our presentations, we always have the discussion about it as being something that's out there. So this is an authorization. Right now as Joe mentioned and as we talked about in the presentation our strong bias because of all of the opportunities we have are internal initiatives that we have and that will be our strong bias as we move forward. So, again it’s another tool in the toolkit and it’s available for us. I think when you look at some mitigation of share dilution, might be immediate use of it. Other than that it’s just a tool in the toolkit but again strong bias is funding on internal initiatives as well as M&A opportunities that we have as well.

And then timing on execution? What kind of timing from a cadence perspective of spending the $50 million, are you expecting this to be drawn out over a year, a quarter, I'm just looking for some framework there.

Nothing that we would give or guide you to right now especially get another tool in the toolkit right now would be used for offsetting share dilution in the near term but again it's something that we’ll always keep there but no short term need or thought that we’ll be using it immediately.

[Operator Instructions] Our next question comes from Ryan Connors with Boenning & Scattergood. Please go ahead.

I wanted to actually continue on this topic of the buyback and I recognize its a sensitive discussion probably limited what you can disclose but to the extent you can give us some color on the rationale I mean you're market cap is well up north of a billion but you've obviously got a bit of a float issue there where the float is much smaller. So my question is why not look at you know either taken out some of the convertible preferred or planning to do that and/or arranging some kind of a private placement for one of your larger shareholders that's still in there on the on the - since the IPO and so forth. I mean why go after the limited public float when you've got those other areas to potentially go after with deploying capital that way.

Let me take a first cut at that. Just eco what Scott had said, we want to have the flexibility of having a share buyback program and we have a programmatic stock option program that is in place and we don't want to have a diluted effect of that program so that would be an obvious solution to that situation. And we don't know what’s going to happen in the marketplace with additional shares perhaps coming to the market and so we want to be prepared as it’s advantageously at the appropriate value to take advantage of that. So we just approved this program, we’re working closely with our Board, but it’s that it’s a tool and it’s a tool that we expect to use to pin the starting point of it would be very difficult for us at this time to say.

I’ll just eco that just to make sure we're very clear. This is an authorization, there's no saying that we're going out tomorrow and we're going to go execute and use. This capital deployment is all about prioritization and making sure that we fund and prioritize the next best alternative that presents the best return for shareholders. And again, when we talk about shareholders, it's the company, our employees as well as our investors and our shareholders. So absolutely you bring up some really good thoughts and obviously items that we've talked about. So as we go forward when and if we do execute and use that will be the considerations that will go into but right now the bias and use of our balance sheet is on internal initiatives that again will accelerate profitable growth and expand our margins through ops excellence, those are the priorities for how we’re going to deploy capital and M&A which we have some good opportunities out there.

Let me add one more comment. I want to say this the right way but we're sitting here in Columbus and I'll just put that - we recaptured our mojo, we went through a lengthy period where we were having to deal with accounting issues and separately trying to focus on our business as best we could. Now that we have those issues behind us now we're back in the bucket with the silos where we presented to investors who are going on three years ago, how we believe this company can grow. So organic growth by gosh, it's exciting when we talk about the opportunities we have. We're back out there looking at acquisitions in a meaningful way now. But most companies would have a share buyback program to use as time and circumstances indicate a need. So we're back on the trail of having fun executing the plan.

This concludes our question-and-answer session. I would like to turn the conference back over to Joe Chlapaty for any closing remarks.

Thank you. In summary we are pleased with our performance so far throughout fiscal 2017, particularly given the more difficult than expected end market environment. Our performance in the construction market this year including strong results in non-residential and new residential construction end markets continues to outpace the market. We're also pleased to see double-digit growth of our HP pipe as well as solid growth in our allied products. We are very excited about our HPXR 75 product launch, ongoing progress at our new manufacturing facility we are building in Harrisonville, Missouri as well as our recent acquisition and stock repurchase program. All of which are possible based on our ability to generate healthy profits and free cash flow. We also remain confident in our strategy to outperform the overall market by driving conversion opportunities from traditional materials as well as generating significant operating leverage over time. Thank you all again for joining us today and we look forward to speaking with many of you very soon. Operator that concludes the call.