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Edited Transcript of QEPC earnings conference call or presentation 16-Jul-19 2:00pm GMT

Q4 2019 QEP Co Inc Earnings Call

Boca Raton Jul 18, 2019 (Thomson StreetEvents) -- Edited Transcript of QEP Co Inc earnings conference call or presentation Tuesday, July 16, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jamie L. Clingan

Q.E.P. Co., Inc. - EVP Sales & Marketing

* Leonard Gould

Q.E.P. Co., Inc. - President & Director

* Lewis Gould

Q.E.P. Co., Inc. - Executive Chairman

* Mark Steven Walter

Q.E.P. Co., Inc. - Senior VP of Finance & CFO

* Stanley Berger

SM Berger & Company, Inc. - President

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Conference Call Participants

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* James R. Wilen

Wilen Investment Management Corp. - President and Chief Compliance Officer

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Presentation

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Operator [1]

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Good day, and welcome to the Q.E.P. Co., Inc. Fiscal 2019 Year-end and Fiscal 2020 First Quarter Conference Call. This conference is being recorded. At this time, I would like to turn the conference over to Mr. Stan Berger. Please go ahead, sir.

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Stanley Berger, SM Berger & Company, Inc. - President [2]

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Thank you. On behalf of the management of Q.E.P. Co., Inc., we are extremely pleased to have you participate in our call. Thank you for joining us to discuss the company's fiscal 2019 full year and 2020 first quarter financial results.

Before I introduce management, I would like to remind everyone that some of the information provided during the course of this call may consist of forward-looking statements that involve risk and uncertainties, including but not limited to those regarding sales and sales growth, pricing and cost pressure, future market positions and profitability, opportunities and benefits associated with potential and completed acquisitions, integration of acquisitions, cost and product mix charges, success of product development and marketing endeavors, capital availability and currency fluctuations. The company assumes no obligation to update any forward-looking statements or information. It is important to remember that actual results and circumstances could differ materially from current company expectations.

The company's news release announcing the fiscal 2019 full year and 2020 first quarter financial result was issued on Wednesday, July 10, after the market closed. If you have not read these or seen these releases, they are posted on the Investor Relations section of the company's website at www.qepcorporate.com. Alternatively, please call Paula Siegel at (561) 944-5550 (sic) [994-5550] and she will e-mail or mail a copy to you.

Hosting the call today are Lewis Gould, Q.E.P.'s Chairman and Chief Executive Officer; Leonard Gould, President; and Mark Walter, Q.E.P.'s Senior Vice President and Chief Financial Officer. At this time, I will turn the call over to Lewis. Lewis?

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Lewis Gould, Q.E.P. Co., Inc. - Executive Chairman [3]

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Stanley, thank you very much and thank you, our patient investors. I'd like to recognize [Mr. Hexu], keeps me well, who sends me vitamins all the time and Jamie and a few of the others who've always been with us for a long time. Appreciate it. I had difficulty sleeping last night going over all the things that are happening. And I want to give everyone a rundown of where we are, what our vision is as we go forward and give you the comfort that we're working very hard.

First of all, last year, as you noticed, our sales were up $57 million. And in the first quarter, we're doing miracles again. If you don't grow, you go backwards. So I am very pleased with that part of the business and I'll tell you our plan how we increase that even further. Last year, we had a loss both in EBITDA and an operating loss. And there were several reasons for it. The major reason that I want you to understand that we made investments that were very costly to the company, and I'm going to now tell you more detail on those. When we bought the Kraus company, they had not put any new displays, samples or anything for quite a number of years. And it needed a refresh. Last year -- last fiscal year, we spent in display, samples, sales meetings, et cetera almost $4 million bringing new product, which is just starting to arrive, new sample boards, et cetera. So that will pay off in the future.

In the first quarter last year at this time, we spent $200,000 on that type of material. The first quarter we spent $1.8 million to give you an idea of where we're going. We also, during the year and the quarter, we had redundancies. We downsized our Australian operation, which now has returned to no loss. And previously, we were involved in the flooring business up to our eyeballs in different areas in Australia. That has stopped. The tariffs have had a real negative effect on us. The tariffs on a lot of the IMs that we sell to home centers, we cannot get back fully all the moneys spent on that. And then the double whammy, our insurance bond or customs bond was raised substantially by $1.8 million, making our availability from the bank even tighter because that goes against our line of credit. That was the unintended consequence of the tariffs that went through.

Also we're getting prepared in England for the Brexit operation. But fortunately, we've made our budgets around $1.25 to the pound -- to the dollar. So I think we're all set and we're very profitable in that side of Europe. So here's some of the things that we've done and then I'm going to tell you some specifics of how we're going to make this profitable in the coming year. First of all, we're working on an inventory reduction program that's going to free up a lot of working capital and cash. Our goal in the next few months is to eliminate about $8 million in additional inventory. We bought inventory if you remember to beat the tariffs, which did come in. And now we need a little bit of relief from that. We've had redundancies both in Canada and the United States that are very significant and we'll now merge our operation in California, NAF with Kraus U.S.A. And last month they were profitable. So it shows we're going in the right direction.

We have a new program, if you will, of flooring in England for the first time that's starting to sell flooring and Paul who is on the call brought in a $1 million worth of new business, which will be delivered probably this quarter. So we're working at that. Our tariff recovery has been about 80% so far. We've put price increases through on both the distributor and the mass merchandise side. We haven't fully gotten the money back. We resourced a lot of the products that we make in China especially on the flooring side in Vietnam, Cambodia, Indonesia, et cetera. So that's making a change. We have finally launched our American wood, our long and wide wood. The samples have gone out in the last 2 weeks, and that should be in our system and be reflected in orders very shortly. It has been a slow start with Congoleum. We're exclusive with them in Canada and certain parts of the United States. They've introduced a fantastic American-made product. But then again it's getting displays out where we are.

So looking at where we are? What do we do next? We figured that out what we're going to do next and how we're going to approach the marketplace. A lot of the items that we sell have now become mature. And in the mature business, you can't get the type of margins that you always want. You can make incremental changes by changing the color of the packaging design, et cetera, but it's still a matured business. And the world has changed now, a lot of people having things done for themselves rather than do it yourself.

We went to Spain about 4 years ago in an effort to buy a Spanish tile company. But our current bank doesn't lend money, and as Mark would say, in wine-growing areas, only in bear growing areas. And we were unable to make an acquisition that was satisfactory. But we did find a perfect partner in Spain that we contacted 4 years ago. And we hit it off with them and taking this line of product, we went to the major, the largest home centers chain in the United States. We showed it to them and lo and behold, we now have a vendor buying agreement with them and we have a test going on with ceramic tile. As a result of that, we're now equity owner-partners of a company in Spain that Grant Thornton says is the premier tile manufacturing company.

And there are no tariffs like China. Chinese ceramic tile is not coming in anymore because of the 25% plus the normal 8.5% duty that comes in. So we're working on bringing the items in right now. And more importantly, this company sells most of the major home centers all over Europe, and as you know, we're very involved in Europe, selling a lot of the same companies, Leroy Merlin, et cetera. And there's an integration plan going on right now. I was there last week. We had extensive discussions and Leonard and Jamie will be going there to increase our bond with this company.

Right now, we're holders, I can't give any information in detail because of the confidentiality agreement, but we are equity owners of stock, and we'll have a Board of Director seat, we believe, in September. And Paul would be attending that meeting. And we started the process of integration. But to give you an idea of the scale of this, in Australia, our major home center customer, Bruce Maclaren, our Managing Director showed the product to them, and they were having difficulties sourcing it as it turns out in Australia we have a lot of locations, and we can handle the distribution for this large customer. So they've made a decision that they want to buy from us and the buyer actually is flying to this company in Spain to look at it.

We've done the same thing in England. We have spoken to our major customers about doing that and in the United States, we have a -- the winning lottery ticket, if you will. We have 15,000 dealers. We have every type of flooring except ceramic. And we believe our first order will be a billing cycle of 1 year as we go through this. So that's the largest single initiative we have.

Going along with that, one of our great sales guys, Rodrigo, our Vice President of Export, started selling about a year ago in South America. And we picked up a major chain that has almost 400 stores in South America. The name is called Sodimac and they operate under several different names. And there's a distributor that we have in Peru. As it turns out, the Peruvian distributor makes most unusual estello or an accent tile, if you will, and we formed an international bond with them. We're their exclusive distributor as we are with the Spanish in a number of countries.

And we're going ahead and we're going to make an equity agreement with them very shortly. That also will be listed with this major home center in the United States. It'll be on the Internet, hopefully, on a web. As we go forward, it's very difficult to do, but I would say probably in the next 60 days, that's going to happen. That's a different direction than we're headed now, and it's a brand new opportunity for us and the valuations that we got were done by Grant Thornton Europe, where they looked carefully at some of the things but gave us not a detailed report but enough a report to make us happy. So we're looking at that.

Other items that -- as we go forward, I want to tell you some of the things that we actually are doing and not talking about. In our western operation, where we have our facility in Tolleson, we're folding in one of the Kraus operations and also the Congoleum third-party PL into our facility there.

We're now for the first time have sample racks available and they're going out. Our gross profit on the Kraus side of the business has gone up, our cost has gone down because we've resourced a lot of the items that we've done. Our -- I guess, our sourcing has changed. Where we used reps, we're now going direct, et cetera, et cetera. I also want to make everybody aware that as we go forward, we're sitting on over $200 million worth of assets on our balance sheet. So I think looking at the past, we have gone through the tariffs, we've gone through the purchase, we've gone through the cost of the purchase, we've gone through the samples, we've gone through lawsuits, we've gone through a variety of things that I think other companies would find very difficult. But with our new American products line coming out of Harris Wood, which you'll start to see hopefully in some of the major home centers and chains throughout the United States as we go forward, we've gotten some indications only that we're on the right track to do this.

Our team continues to work very hard. Adam is new, has joined us as a General Counsel. And we've done a great deal of pruning on the things that we do.

So there's not only hope, but we're moving forward in a lot of directions. Board is looking at the possibility of expanding the Board too to get us more basic help in sales and marketing and we're looking at that opportunity very shortly. But overall, we pay our bills on time. We've managed to eliminate sleep. So we only work 4 -- only sleep 4 hours a night. People are traveling extensively and we've gotten a handle on where we want to go. So that's our vision, to be the largest flooring guy that there is. It's my vision. Again, at the last conference, I told you we'd be approaching $400 million. We're probably going to pass that very shortly. Sales are good. They're increasing. And we look for increasing profitability with our new acquisitions. And if we get 51% of the Spanish tile company, our EBITDA will grow substantially. But because of the confidentiality agreement with them, I'm not able to give you more details until we finish up 1 or 2 tics and tacs on that.

So that's essentially where we are. We've given up sleep. We're working harder. Everybody's working harder. Everybody's traveling. We have more succession plan in place. I'm relying more on Leonard to take a lot of the nonsense that I do. We're putting together a tighter team, and you'll see very shortly there'll be some changes coming at Q.E.P. that are all positive, and we're looking on the management side to get better information. There's one thing I do want to say that we've had a big win on our IT system. We have managed to integrate both Prophet 21 and our PRMS, where now, we can get reports. Leonard what's the name of that? Is it Accenture, the new?

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Leonard Gould, Q.E.P. Co., Inc. - President & Director [4]

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Host Analytics.

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Lewis Gould, Q.E.P. Co., Inc. - Executive Chairman [5]

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Host Analytics, [Lorley] has worked on this project. And very shortly, we should have this done, which will be worth millions of dollars to the company as we look forward to making our consolidation and our reports a lot better.

So I don't see -- and there's no new lawsuits, there's no major threat to the business. We haven't shot ourselves in the foot too often. And we continue to grow. And we're looking at the top line always because if that doesn't grow, that's going to be the first sign of distress, but the top line is growing. So with that, I'd like to turn this over to any questions that our shareholders or the Directors may have. And we'll try to answer them with -- the best we can. So operator, fire away.

Operator? Are we on?

(technical difficulty)

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Operator [6]

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Can you hear me now?

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Leonard Gould, Q.E.P. Co., Inc. - President & Director [7]

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Yes. We need you to start the question and answers.

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Operator [8]

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Yes, I am very sorry for the interruption. Our system just went down for a second, like our connection dropped. And we just got back on right now. We're good to go for Q&A.

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Leonard Gould, Q.E.P. Co., Inc. - President & Director [9]

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Okay. Let's start.

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Operator [10]

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If you'd like to go ahead.

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Leonard Gould, Q.E.P. Co., Inc. - President & Director [11]

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Yes, please.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And I'll take our first question from [Gary Winstor.] He is a private investor.

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Unidentified Participant, [2]

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Lew, Leonard, Mark, I have some questions about the presentation. The first question is, the $57 million increase in revenue for this past year, how do the margins compared on that new business versus our more mature business margins?

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Lewis Gould, Q.E.P. Co., Inc. - Executive Chairman [3]

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Actually, the margins were probably a little bit higher than our standard business. The problem is the expenses that were involved in that. We went in at pretty good margins, nearly 30% level. But we had to do a lot of unusual things to get product out to the customers. Our supply chain was not perfect. Our delivery to our customers is quite expensive, et cetera, et cetera. But the margins now are starting to come through more desirable.

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Unidentified Participant, [4]

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The -- what -- the $4 million that you invested in the sample boards, what is the life of those boards, when would you have to replace those again? And what is your expectation in terms of additional revenue from the samples?

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Lewis Gould, Q.E.P. Co., Inc. - Executive Chairman [5]

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We'll have Jamie answer that question. Okay, the question was what's the life of sample boards?

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Leonard Gould, Q.E.P. Co., Inc. - President & Director [6]

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And when will we have to replace them?

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Jamie L. Clingan, Q.E.P. Co., Inc. - EVP Sales & Marketing [7]

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There's usually a 4- to 5-year cycle on them in the marketplace.

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Unidentified Participant, [8]

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And what are you hoping to achieve from getting those out? How many dealers do those go out to?

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Jamie L. Clingan, Q.E.P. Co., Inc. - EVP Sales & Marketing [9]

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Over 2,000.

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Unidentified Participant, [10]

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Over 2,000.

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Jamie L. Clingan, Q.E.P. Co., Inc. - EVP Sales & Marketing [11]

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It doesn't mean that -- for the every single dealer, it will be dependent on the product line.

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Unidentified Participant, [12]

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Okay. And then, Lew, you mentioned there were some things you were downsizing in Australia. Can you speak to what happened there? And was it just in the -- with that chain?

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Lewis Gould, Q.E.P. Co., Inc. - Executive Chairman [13]

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In Australia, we had -- we started importing flooring several years ago. And the type of flooring that we were importing, laminate and variety of others, it was expensive maintaining it with not only distribution but the sample cost, et cetera. And we were against some really tough competition. So we decided that we didn't want to put any more money into that particular segment of our operation. And we let go about 20 people roughly and liquidated the inventory.

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Unidentified Participant, [14]

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Okay. And can you quantify what that cost the reduction in headcount?

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Lewis Gould, Q.E.P. Co., Inc. - Executive Chairman [15]

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There's...

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Mark Steven Walter, Q.E.P. Co., Inc. - Senior VP of Finance & CFO [16]

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[Gary,] it's Mark. It's about AUD 0.5 million in May between write-down of inventory and redundancy cost. It's in Aussie dollars. So $300,000, $350,000 in terms of just inventory write-downs and redundancy costs in the quarter.

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Unidentified Participant, [17]

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Okay. The new million dollars of sales booked in England, can you talk to those channels that are opening up? And what you expect to achieve there?

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Lewis Gould, Q.E.P. Co., Inc. - Executive Chairman [18]

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England is one of our shining stars, even though he is on the conference call. Previously, in England, we were not in the flooring business at all. There's a major chain, the second-largest chain in England that Paul cracked, and we sold them flooring and it's called SPC. It's like an LVT, but it's stone on the top. So we have done our first orders from them and we look forward to growing our flooring business in Europe, especially with the addition of the tile company. It's just the beginning for us there.

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Unidentified Participant, [19]

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Okay. And then the new launch of the long and wide wood that was the Harris Wood product that you've spent a lot of resources retooling. How's that going? Is it too soon to tell?

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Lewis Gould, Q.E.P. Co., Inc. - Executive Chairman [20]

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Sample has just went out a couple of weeks ago. And we've had 2 sales meetings. We have 50 salesmen and the results are just starting to come in right now. Everybody says, it's a win. And we've written some small orders on it. But the displays are just starting to hit the dealers and distributors now. We have -- we recovered some of the money on the displays. On the distribution side, there was about 400 displays that people have signed up for. On the dealer side of business, we just have a shortage of displays as we go forward, and those displays in Canada and the United States are just now starting to reach some of the destinations. We just can't make enough of it right now because as you make the product, you have to cut a lot of the product up and make sample boards, et cetera, but that's the nature of the business. So I'm guessing that we'll start to see in the next few weeks the results of our labor. Everybody says that we did a phenomenal job on it.

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Unidentified Participant, [21]

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The test that you're doing with the Spanish tile, how many stores are participating in that test?

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Lewis Gould, Q.E.P. Co., Inc. - Executive Chairman [22]

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We have a -- again, the information is really very confidential because it's a major home center. But let's say that if the test stores pick a number like a dozen maybe in selected areas, if it works then we're going to take the next step. And it's going to be a lot of stores.

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Unidentified Participant, [23]

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And how big could that marketplace be for you?

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Lewis Gould, Q.E.P. Co., Inc. - Executive Chairman [24]

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Well, it's a capital product and it's one of the few types of flooring that manage the -- you got a 6% worldwide growth. I'm told that many of the home centers sell almost $1 billion worth of the -- this product. In this particular case, we have an enormous head up. We have 3 bays. I don't know if that means anything to you, but it means that it's almost a miracle that if this takes off, we're going to be in good shape. I apologize, I can't give you specifics because of the -- we're right in the middle of it right now, but we do have a vendor buying agreement with this major company.

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Unidentified Participant, [25]

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Okay. And then at Tolleson, we bought the cartridge machine. And I know we had some difficulties getting open. Can you speak to what's going on in the Arizona factory?

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Lewis Gould, Q.E.P. Co., Inc. - Executive Chairman [26]

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Yes. We're now fully supplying all of our western operations with the cartridges. We need to run 12 full 3-day shifts a month, I know it doesn't add up to the 30 days, but we need to run 12. We're right now running about 7 total, and we've run into a lot of teething problems as we go forward. But we're fully absorbing all of the products that we make in the western part. And then a second plan is that where we make a lot of this manually in our Dalton facility, that's what we're looking at accomplishing in the next 30 days, where we'll be taking over their -- that product too. We need to make 2 million cartridges a year, we're probably about half of that right now, minimum before we sell it to anybody else besides our own need.

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Unidentified Participant, [27]

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Okay. I know we spoke in the past about the cost savings from cheaper labor, cheaper shipping, being able to make our own cartridges. In retrospect, we're reviewing the decision to move to Arizona, the reduction in headcount, rationalizing workforce, less shipping. And now it seems like you've folded Congoleum in there. Have you gone back and looked at the merits of investing in that move, in that facility? And has it been satisfactory or will it be in your mind going forward?

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Lewis Gould, Q.E.P. Co., Inc. - Executive Chairman [28]

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It's a must for us. I'll tell you we had several locations in the people's -- I mean in California. We sold our property in Adelanto. We're currently holding a note for, I think...

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Mark Steven Walter, Q.E.P. Co., Inc. - Senior VP of Finance & CFO [29]

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$2.6 million.

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Lewis Gould, Q.E.P. Co., Inc. - Executive Chairman [30]

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I'm sorry.

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Mark Steven Walter, Q.E.P. Co., Inc. - Senior VP of Finance & CFO [31]

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$2.6 million.

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Lewis Gould, Q.E.P. Co., Inc. - Executive Chairman [32]

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$2.6 million, we're getting 9% on the note. And with that facility, it was just too small, it was a 30,000-foot facility. We also had a problem, the lease ran out on our Halex operation, which was Ontario. We had no choice and we were also operating in the -- in Nupla, which was in Burbank, California. And it was very difficult. We had 3 shipping departments, 3 people handling it, et cetera. So now we have 1 larger facility where we're making product right now. We're receiving product from overseas. And our plan right now is to move in our Congoleum 3PL operation and the Kraus operation, which is in Texas, it's also a 3PL. So we're going to be fully absorbed as we go forward. We've identified the product, where it's going to go, et cetera, et cetera. And also we're looking at that for ceramic tile to put that there. I also want to tell you besides closing those other facilities, last year, we closed our Indiana facility and there was a $0.25 million impairment charge that went through also. We move to a lot of places around for a company our size. I think we did terrific job.

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Unidentified Participant, [33]

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So it sounds like it's going to be pretty much utilized and filled up and...

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Lewis Gould, Q.E.P. Co., Inc. - Executive Chairman [34]

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Oh, boy, everything is -- that's going to be packed.

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Unidentified Participant, [35]

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Okay. And then my last question, it sounds like Adam, the new General Counsel's had his hands full with some litigation. What's that been about?

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Lewis Gould, Q.E.P. Co., Inc. - Executive Chairman [36]

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We sign confidentiality agreements on all litigation, so it's not public, any of these. But we did lose a lawsuit in California. It cost us a lot of money. And now there's nothing substantial that we're looking at right now. And I'll respond to your other e-mail some time a little bit later today.

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Operator [37]

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(Operator Instructions) We'll now take our next question from Jamie Wilen. He's from Wilen Management.

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James R. Wilen, Wilen Investment Management Corp. - President and Chief Compliance Officer [38]

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Just wanted to ask a few things to clean up last year if I could because I've never really seen the numbers on Kraus. What their sales were, EBITDA, operating profit, what we paid for it and talking about the synergies that you expected to achieve and whether it's combining with natural age, you're adding wood products or your accessories or adhesives and just what progress we're making on that as well? And if I ask what we paid for it, I would love to know that, too.

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Lewis Gould, Q.E.P. Co., Inc. - Executive Chairman [39]

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All right, fair enough. I'll tell you in at least round numbers rather than in exact because we have the bank and the accountants on the call too. We paid net asset value and in addition to the purchase of about $24 million worth of inventory and receivables, we also purchased a building in Dalton, Georgia for about $3 million which we believe is worth a great deal more than that today. So that was our purchase price. When we bought it, we started learning the ins and outs of this type of distribution. We are the distributor. We projected Kraus sales of about $80 million total for the sake of volume. And when we bought it, based on the best available information that we had, one of the things that has impacted us as we go forward, we gave guarantees to the management and to the salespeople that we would hold everybody, no matter what, we wouldn't make any changes for a number of months. And we've made some changes on the sales forces and some of the management folks have contracts that go through October, and we're paying some of the salespeople guarantees as we go forward.

What has happened to Kraus on the gross margin side, yes, they're profitable, but as you go down, with the warehousing, the delivery, the demerge and et cetera, if you remember, this is a carve-out, and they were starved for funds by the people that owned them. So our plan all along was to take on naturally exploring our California operation and fold it into Kraus U.S.A. because we had duplicate salespeople, duplicate product lines, et cetera. We've now, thank goodness, overcome that. We've gone through the downsizing at NAF most recently within the last few weeks. We've now consolidated. And when we look at the consolidated statement for the flooring division, they made money for the first time. We haven't finished last month, but we do know that it was positive.

In Canada, it's a more difficult situation. The Canadian economy has gone through a downturn, the Canadian dollar has been under pressure and that -- the way they have done their distribution has been more difficult. They are located in Edmonton, for example, and we're looking to go back to Vancouver, where the population center is. And that's a work in progress. They also are exclusive with Congoleum in Canada. But right now, we're tracking for the sake of argument, if you add NAF, and we're tracking roughly at around $90-some-odd million annualized for the operation.

Every month, it seems to get a little bit better on the sales line and a lot of the price increases that we put through because of the tariffs have taken hold, I'd say about 80% of it. There's no tariffs in Canada, but down here, it's taken hold. What we have to do is because when we bought it, there was a lot of inventory on hand and we bought more inventory, we're in the process right now of balancing out the inventory where it's going to go. And we have a lot of orders. Kraus itself has a credit center in Dalton, Georgia. They have a customer service center in Pennsylvania. And we're looking at all of the operations they have under a microscope to make sure that we can capture it all, but we've made amazing progress since we purchased them in October.

When you look at it, it was a fragmented piece that we wanted very badly because as you can imagine, we have about 15,000 dealers in United States and Canada, maybe more. So whatever we put through the product line will make some difference. We also manufactured for Kraus a private label adhesive under the Kraus brand which sometimes goes along with it. The first indications were we sold about a $0.25 million worth of that and who knows maybe it'll be on [delayment] more as we get better at doing it but our basic thrust right now has to be the product that we manufacture, we want to sell. And you can't sell unless you have a display in the guy's store.

The salespeople are very aggressive, very good. They're led very well. But we have to now give them ammunition that they need to be successful, which was the investments that we've made and believe me, there's not enough tons in the operation when you start buying the stuff. It's really difficult but we've had sales meetings with the 50 salesmen east and west. And we've done our homework the right way. We have some moving coming up as we look at our Dalton facility. We're going to be exiting the solvent-based glue that we manufacture in October. We're going to close that facility because on top of all of the great news that we've got with our customs bonds and the tariffs and everything else, the insurance market dried up for companies our size that were manufacturers and one of the things they said is that solvent-based blue represents a more difficult thing. The cost of insurance has gone up. Mark, do you remember what the increase was?

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Mark Steven Walter, Q.E.P. Co., Inc. - Senior VP of Finance & CFO [40]

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It was over -- for global property coverage, our increase was over 100%.

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Lewis Gould, Q.E.P. Co., Inc. - Executive Chairman [41]

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So we've decided that we're going to exit that type of business and concentrate on our non-toxic latex products that we make. And we recognize that. So we're doing all of the right things. It just is a matter of timing. I wish this was 6 months from now and I could tell you that we've done everything, but we've taken on a very, very large acquisition. We're continuing to grow. We're growing our product line. And we haven't increased our employment tremendously. Our employment's been holding steady. I hope that gives you some insight.

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James R. Wilen, Wilen Investment Management Corp. - President and Chief Compliance Officer [42]

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Okay. And we've also been in the process and have sold a number of our nonflooring-related businesses, Nupla, et cetera. Could you tell us what we've sold? What we've received for it, multiple of EBITDA? And are there any other nonflooring-relating activities that you may consider selling in the future?

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Lewis Gould, Q.E.P. Co., Inc. - Executive Chairman [43]

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They're all good questions. The tack strip business that we bought was a very difficult business for us. We had bought and sold this business to the same guy probably 3 or 4 times in the lifetime of the company. It was located in California. In our financial notes, you'll know there was a nonoperating income statement. I think it was $2.6 million. That's the money we picked up on it. It was going primarily to distribution. And distribution was buying a lot of this on a direct basis from overseas so we didn't want to be in that business anymore. And it was located in Tolleson. And we did, we exited the machinery, we exited the people, that was gone.

On the Nupla side of the business, Nupla was a professional business that we purchased from a hedge fund for about $6 million, many years ago. And we operated it, and we saw the tariffs coming. We found a wonderful company that felt they could operate it better than we did. And we made a substantial profit on the sale of that. Our confidentiality agreement prohibits me from telling you the amount but we made a very good detail -- a very good deal. And we've primarily have been getting out of the People's Republic as fast as we can. We still have an operation, NAF, that's located more par. But as a manufacturing operation, we're not there anymore.

The only other operations that we're looking at right now, if someone would want the solvent-based glue, that would be a difficult sell. But right now we're not looking to sell anything else. We're looking to consolidate what we do from top to bottom. We started with the IT side of -- like where you can see our inventory levels, our profitability, our stock turnover, et cetera, and that was the first step in doing this, but our locations will probably shrink as we downsize some of the Kraus operations, 1 3PL in Texas and maybe 1 of their facilities in Canada as we relocate one. And that's what's on the table right now.

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James R. Wilen, Wilen Investment Management Corp. - President and Chief Compliance Officer [44]

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Okay. And lastly, Lew, could you talk about the -- your basic flooring accessory business and the relationship with your existing large customer plus the possibility for penetrating additional customers or adding to your product line to all the customers?

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Lewis Gould, Q.E.P. Co., Inc. - Executive Chairman [45]

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The answer is yes. In more detail, I'll give you a wish list as opposed to something specific. There are a couple of major chains in the United States that have expressed interest in buying our wood. We're very close to getting a 1 million feet from this one, 1 million feet from this guy to 1 million feet from this guy. That's a work in process. They have to visit the factory and vet the process and that's ongoing right now, and I hope in 60 days to tell you we're successful.

Secondly, if you look at our operations throughout the world, in Australia, we've taken on a great company called Swiss Kronotex. We're their exclusive distributor in Australia. They have estimated that it would be over $4 million business. We've taken that from Mohawk and that's fully starting up overseas.

In Europe, if you can imagine, we have several companies in Europe and our partner in the tile business sells only home centers. And we have home center sale in France, PRCI, in England and Germany, and Germany is coming along. Germany is the second-largest home center in the world. And we've struggled and struggled, but we're making headway. If we put that together and start to consolidate that product line there too, that will make a difference. We're looking at additional product lines on the tile side. We're looking at maintenance products on the flooring side, on the chemical side of business and a few other things where we become prime because we're very concerned about not being prime. If you recall, we also have an office in China. We have 14 people in Shanghai. Lately we've been going constantly Vietnam, and we've switched suppliers in many cases from China to Vietnam successfully. Hard to believe, but we're doing that because of the effect of tariffs. But I hope that gives you some indication of where we're growing.

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James R. Wilen, Wilen Investment Management Corp. - President and Chief Compliance Officer [46]

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Okay. And then lastly, Lew, you're halfway through the second quarter. How would you relate that to the first quarter in terms of revenues and do you expect to be profitable this quarter?

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Lewis Gould, Q.E.P. Co., Inc. - Executive Chairman [47]

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This is an expectation. I think we turned the corner last month because the loss stopped at -- on the U.S. side. We're impacted by the tariffs with our major customers here, but I think we turned the corner. I think you'll see the numbers more pleasing, if you will. We were only halfway done with our new quarter this month, but I'm positive on it. I'm afraid to give you numbers because you'll call me names but we're going in the right direction. I could tell you that. If there were losses, the losses are half of what the losses were in the prior month. And that we're moving very close to where we want to be. I think that by year-end, which I know is 6 months away, we'll be dancing in the streets. We'll be a lot happier.

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Operator [48]

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(Operator Instructions) It appears there are no further questions at this time. I'd like to turn the conference back to the speakers for any additional remarks.

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Lewis Gould, Q.E.P. Co., Inc. - Executive Chairman [49]

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First of all, let me thank everybody. It's been real tough between the insurance companies, the tariffs and the things that we have no control over, some of the political things going on in the United States. We have managed to do okay. Our -- we've actually paid some debt down in the last quarter, where our overall debt is down -- the trend is going down and we've done the right things. We're watching our cash very carefully, our inventory very, very carefully and a lot of the initiatives that we have, we're relying on the people we have who are the unsung heroes of this, whether it's Leonard who works around the clock; Shawn, who gave up his golf game; Jamie, who's traveled with 3 kids and a granddaughter; and Adam, who was here in the morning at the beginning; Mark, who I call Mr. [Gap,] we've done everything right.

I think you'll see our audited report in the next 10 days, which accurately reflects where we are. But I'm very high on the business and when I'm allowed I'm going to buy some shares, if I'm allowed. I think our blackout period ends in about 3 days after this conference. And I'm going to be a buyer of some of the shares. So my confidence is there. We have a great partner in Spain that has a 13% EBITDA return on its sales, state-of-the-art factory. And we're going to make that a major part of our life if that happens. Their sales are about EUR 28 million, and they have the capacity to double the amount of shipments that they make. And I think we're balancing everything we do because if the dollar goes down as indicated, it will be good for us on the purchasing side, bad for us in Australia, perhaps. But we fought all the battles that are there.

Universally, we're still here. We're looking at our insurance cost very, very carefully, our bonds, our operations, and we're being very careful in things that we do. So I'd like to, first of all, thank everybody for being with us from a very long period of time and telling you that if nothing else, we're working harder than we ever worked at this age. And we're going to prevail and be successful because we care about what we do and so do all of our employees. So we want to thank our Directors who we speak to very frequently and their input is well taken, all of our employees and associates throughout the world. Thank you for the hard work through good times and even better times coming. And as we say, God bless America, and we're going to prevail because we're born in Brooklyn, and that's the way it is. So thank you very much.

Operator, please end the conference unless there's any other comments.

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Operator [50]

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Thank you. This concludes today's call. Thank you for your participation. You may all disconnect.