Good day, ladies and gentlemen. Welcome to the Quanex Fiscal Second Quarter 2014 Conference Call. [Operator Instructions] During today's conference call, company management may make forward-looking statements about the future prospects of Quanex Building Products. Participants should refer to the company's Form 10-K filed with the SEC for more complete forward-looking statement disclosures. Additionally, the company may refer to non-GAAP figures throughout today's call. A reconciliation to the most comparable GAAP figure is included in the company's most recent earnings release, which is available, along with the company's Form 10-K, at the company's website at www.quanex.com. Lastly, participants are reminded that today's conference call is being recorded. I will now turn the conference call over to Mr. Bill Griffiths, Chairman, President and CEO of Quanex Building Products, for opening comments. Please go ahead, sir.

Thank you. Good morning, everyone, and thank you for joining us for our second quarter conference call. On the call with me this morning is Brent Korb, our Chief Financial Officer; and Marty Ketelaar, our Vice President of Treasury and Investor Relations. On our February call, I commented that there continues to be a high degree of optimism around the continued recovery in new construction and the early stages of a rebound in R&R. And as a result, many of our customers who sell nationally have been building inventory in anticipation of a strong spring and summer selling season. On the heels of a very difficult winter and some weakness in the housing and construction data over the past several weeks, that optimism has dampened somewhat. In fact, Ducker recently cut their forecasted window shipment growth rate from 12% to 7.5% for calendar 2014 and also adjusted calendar 2013 growth downward to 9.4%. We reported, if you recall, 8.8% growth for fiscal 2013, so pretty much in line with the Ducker numbers, and have now posted 8.5% growth for the first half of our fiscal 2014. This growth rate is almost double that reported by Ducker for the similar 6-month period, which we believe is due primarily to an inventory buildup by some of our major customers as we reported last quarter. As they deplete this inventory through the summer, window shipment levels are likely to outpace our revenue levels. Notwithstanding this, however, we still expect to see revenue growth for the full year in the 8% to 9% range, similar to last year, but up from our previous guidance of 5% to 6%. For the first half of fiscal 2014, operating EBITDA margins are in line with the prior year at 10.4%. And while we are seeing operating improvements…

Thank you, Bill, and good morning to everyone on today's call. Consolidated second quarter net sales increased 8% to $135 million, while second quarter EBITDA increased $5.7 million compared to a $1.2 million in the year-ago quarter. The improved results were due to higher sales across all products, offset by margin pressure from the higher resin pricing and increased repair and maintenance expenditures in our vinyl business. The net loss from continuing operations improved significantly from the loss of $0.19 per share in the second fiscal quarter of last year to a loss of $0.05 per share in the second fiscal quarter of 2014. Quanex's North American fenestration sales for the last 12 months increased 8.1%. Preliminary Ducker numbers have U.S. window shipments increasing 7.5% for the 12 months ended March 31, driven primarily by new construction window shipment. Sales increases at Quanex were driven by overall growth across all products. Corporate expenses were $6.8 million this quarter compared to $14.5 million in the year-ago quarter. As you will recall, our corporate expense guidance excludes the impact of deferred compensation, transactions and LIFO inventory-related items. During the second quarter, we incurred a $500,000 impairment related to our vacant Barbourville, Kentucky facility to reflect its market value. That facility was sold subsequent to the end of the second quarter. We ended the second quarter with a cash balance of $127 million and no outstanding borrowings on our revolving credit facility. Our historical seasonal pattern shows us generating significant cash in the third and fourth quarters, and we expect that pattern to continue in 2014 as well. As reported previously, we completed the sale of Nichols Aluminum on April 1. The combination of Nichols' results through April 1 and the gain on the sale resulted in $22.2 million of income from discontinued operations. The final settlement of the insurance claim for the cold mill repair, which should occur over the next few months, will also be reported as discontinued operations. Since this is the first quarter that we are showing Nichols as discontinued operation, we thought it would be helpful to provide you with the historical results from continuing operations. If you would like additional information on our historical financials, we have posted our most recent investor presentation under the Investor Presentation section of our website. This presentation includes an appendix with the 2009 through 2012 annual results and 2011 through 2013 quarterly results from continuing operations, consistent with how we will report our results going forward. I'll now turn the call back to Bill.

Thanks, Brent. Despite some of the margin headwinds in our vinyl business, we are still off to a good start in 2014 and expect to report a solid year with 8% to 9% top line growth and overall EBITDA margins after corporate costs of 9% to 10%. Our focus will continue to be on profitable growth, organically on a customer-by-customer basis and by aggressively pursuing operational improvements at each division. We also continue to spend a considerable amount of our time and energy working on the current acquisition pipeline and still hope to complete at least 1 transaction before the end of this year. I would like to close with a few words on the subject of growth expectations. While it continues to be difficult to accurately predict the growth in window shipments on a short-term basis, over the long term, housing starts and R&R activity will return to more normalized levels. When this does happen, window shipments should recover to a level of around 65 million units per year. While this is still below the last peak of around 72 million units, it is a 50% improvement over current levels. Over this past year, as we have continued to evolve as a pure-play window component manufacturer, and at the same time, balanced our product offering over the good, better, best categories, we have more closely tracked Ducker's reported actual window shipment growth numbers. While our goal is clearly to outperform the market, we believe that at a minimum, we will at least closely follow the window shipment growth trajectory, which, by definition, should translate to 50% revenue growth over the next several years. The baseline for this growth is now a clean, transparent, easy-to-understand window components business with expected overall EBITDA margins this year of 9% to 10%, which would represent the most profitable year since the spin in 2008. And on that note, I would now like to open the call for questions.

[Operator Instructions] And our first question comes from Kathryn Thompson of Thompson Research.

Appreciated the color on the vinyl pricing dynamics for the year, but could you maybe give a little bit more color on the background of this? And is this indicative of trends with other raw materials? And what gives you confidence that you'll be able to overcome this headwind once we get into 2015?

The -- this was really a result of a spike in natural gas prices. It was anticipated earlier in the year. It was expected to last through the second quarter. The resin guys took a 12% increase in the aggregate over that period. It is not expected to continue. And in fact, in May, it did, in fact, flatten out. So not unexpected. Over time, resin prices have been pretty much stable. And so we entered into some contracts last year that included a freeze on passing through resin prices for calendar 2014. At the time, that looked like a reasonable bet. As it turns out, it wasn't. A contract's a contract. We will honor those. So that's the reason we can't pass that through. The long-term outlook for natural gas prices and, therefore, resin prices, which will follow, is to be stable at current levels. There is some talk about them, in fact, coming down towards the end of this year. I think our assumption at this point is they'll remain stable for the balance of this year. We do not expect to see similar material pricing increases in other parts of the business. So this is really the one headwind that we have visibility of anyway, that we are fighting right now.

And do you expect to have similar-type agreements that you set last year going forward? Or has this been a sufficient eye-opener to perhaps consider discontinuing those type of agreements?

Yes. Clearly, after this quarter, the likelihood of us agreeing to that in future contracts is pretty slim. I mean, obviously, we have some large customers that I'm sure are going to push back in the other direction, but that's all part of the negotiating process. It's unlikely we'll continue this practice.

Excluding resins -- excuse me, vinyl, have you been able to -- how successful have you been just overall in the pricing -- gain pricing? So if you look at top line growth, how much of it was volume versus price?

Effectively, none of it was price. We clearly are in an environment where I think everybody in the building products sector is talking about getting price, including our customers, because a number of the window manufacturers had recently and/or are starting to try and put price increases through to their customers. We are doing some selective price increase in some parts of our business. We are limited by our current contracts in our ability to increase price arbitrarily, but it is very much on our radar screen. I would not expect to see significant revenue gains from price this fiscal year, much more likely to be so next year, but still early days here.

And finally, could you talk a little bit on just as the quarter progressed, in terms of order trends and what you're hearing from the end market in terms of demand?

Yes. Because of the winter, clearly, month by month, as inventory builds stopped and new construction really didn't get off to a quick start, as we all know from the housing data, the trend through the quarter was our revenue level growth rate declined as we went through the quarter, and that continued into the month of May. Notwithstanding that, though, we are still optimistic that the year will turn out in the 8% to 9% range. I think the reality is a lot of people had expectations of much higher growth rates because I think the feeling was that new construction was going to have perhaps a better year than it may turn out to.

Our next question comes from Daniel Moore of CJS Securities.

Bill, great color in terms of the longer-term outlook and the opportunity for growth. Given the investments you've made to build out across the good, better, best, if we start 9%, 10% EBITDA margins this year, what type of incremental margins would you be building and/or thinking about for the overall business? I realize that sort of depends on where those -- where the uplift comes in terms of what segments of the market, but maybe any color that -- Brent as well, he might want to give it out, that would be helpful.

I think, Dan, at this stage, we are still working through some of our modeling. I know we committed to give sort of longer-term guidance on margins. We're not ready to do that today. It is still a work in progress. The reason that I wanted to make it very clear that I consider 9% to 10% EBITDA margins the baseline overall is that I do expect this year's revenue level, over time, to increase by some 50%. And I definitely expect the 9%, 10% EBITDA margins to increase proportionately with operating drop-through rates, but also with margin improvement programs. The resin pricing has obviously caused a hiccup this year, and we're just struggling to sort of keep up with that. But I would prefer to wait a little before we give granularity on what we expect that number to be. It is definitely going to be better than 9% to 10%.

Understood. Maybe talk a little bit about trends in R&R by region, any material change, pickup or decline in specific regions of the country that you can [indiscernible].

No. We do continue to see, I mean, strong business in the south and west. That trend continues. As we've tried to articulate, the more we delve into where our product ends up in the new construction versus remodeling markets, the more difficult -- the murky the water gets, which is why I think, going forward, we're going to sort of rely more and more on -- this is what happened to the total window market, irrespective of where they end up, and here's where we fall within that. We will continue to use Ducker even though the industry associations are starting to move away to another source. We're awaiting data from that other source. And as soon as that's available, we'll start citing that as a reference point as well to try and give as much clarity as we can. Our belief still is that the remodeling part of the market still has a ways to go. And I believe that's a function of the price of remodeling, the availability of consumer credit and the desirability of consumers to take on more credit even if it's available to them. So I still think that's at the end of the recovery cycle. But again, I continue to fall back on whichever way you look at it, over the next several years, the likelihood of a 50% improvement in window shipments and, therefore, a 50% improvement in our revenue levels, I think that is a very, very likely outcome. Of course, that the bet for all of us is going to be how quickly. Everybody wants to see it in the next 2 years, but I suspect it's more closely going to be 5.

Understood. And Brent, just quickly, could you quantify the impact of the elevated repair and maintenance in the quarter? And is any of that will spill over into Q3 and beyond?

Yes. I mean, we had, for this quarter, about $2 million of higher repair and maintenance. And we do expect some of that to spill over into the third quarter.

Which is in your guidance, obviously?

Yes.

Our next question comes from Al Kaschalk from Wedbush Securities.

Bill, I just wanted to pressure you a little bit on your comments about others' expectations out there in the market, your expectations and then lifting guidance essentially for growth for the year, 5% or 6% to about 8% to 9%, and how that balances with your comment earlier that inventory in the channel is sort of -- had build. So did -- are you seeing the benefit then of sort of the diversification story that's going on here? Or what -- help me understand why you lifted top line growth and yet inventory is built in the channel.

Okay. So I think after doing a significant amount of internal analysis, which really started around this 70-30 split of revenue, R&R to new construction, we nail because of some conscious moves and because perhaps of a better understanding of the analysis, we have a much more balanced product offering than perhaps was originally thought. And in the latest investor presentation that we posted this morning prior to this call, we, in fact, have a good, better, best chart that sort of if you -- and the balance point is this, that shows that in the good category, the entry price point, total product portfolio is about 25% of our revenue. At the best end, it's around 28%. And then in the middle, it's 47%. So I think you can clearly say, at the good end, most of that product goes into new construction. At the best end, most of that goes into custom home building or remodeling. The question is the squishiness in the 47% in the middle. And I think what's happening is that maybe some of that better category, depending on market conditions, ends up in new construction or ends up in the opposite direction. But I think the takeaway is -- and this is partly because we have added Aluminite, which is almost all at the entry price point end of the market. We've also added some new customers in the vinyl business with some profiles that are designed specifically for entry-level windows. That's helped that balance point. So one of the messages I want to convey is that I think that has helped us track closer to Ducker, assuming Ducker's numbers are correct. And then if you look at recent history, Ducker adjusted and then reported calendar 2014 at 9.4% growth over 2012. We reported, as of the end of January, so a month out of sync, 8.8% growth. So kind of on top of their numbers. And again, if you look at trailing 12 months, we're on top of their numbers. But I do want to point out, because of inventory builds, if you look at their last 6 months and our last 6 months, we are double. And I think that is simply because of inventory. But what I think is going to happen is, as they deplete that inventory, our revenue levels will stay relatively stable, window shipments will go up, but they're coming off of the first half of 4.5%. We're coming off of the first half of 8.5%, which is why we have confidence that we'll finish the year in the 8% to 9% range. And if you think about it a different way, that would be exactly the same growth as we had last year. Do we all believe by the time the dust settles, that calendar 2014 will end up being similar in terms of housing starts and R&R as it was in 2013. And I think that's probably right. Does that help?

It helps, yes. And then your earlier comment on -- I'm sorry, I may have missed this. But did you say that as you look into May or as you saw May come forward, that the order patterns increased or you started to see some [indiscernible].

So let me be clear, if I look at May's revenue growth year-over-year, it grew, but its rate of growth was slower than that which we saw in the second quarter, which I think reinforces my point that we're starting to see inventory being shipped from the window manufacturers. And we're not increasing at the same rate as they are shipping, so we're lagging.

Got it, got it. And then, finally, I appreciate maybe you not wanting to talk about new construction and R&R. But your comment about 50% growth in window shipments, do you have in place today the assets to grow at that rate over a reasonable period of time? Or is there some share you are looking to gain through M&A that can help you get that target?

So the answer is we do have the assets in place. Can we physically build products to satisfy that growth? The answer is yes. We clearly have capital replacement plans as part of that 5-year horizon. So it will be supported by capital. As far as acquisitions grow -- go, sorry, that would be incremental to that 50% market growth.

Our next question comes from Scott Levine from Imperial Capital.

So maybe just looking for a little bit more color on mix here. As you indicated, I think, Bill, Ducker slashed the projections by about 450 basis points in terms of the growth for 2014. Am I correct in thinking -- and I haven't seen the detailed projections, but is most of that a function of new housing? Or said another way, is the outlook for repair and remodel, how does that compare to what the prior outlook was from them? And is this -- perhaps imply that R&R, which generally syncs up with your higher-end products, that the outlook there is relatively consistent with those numbers, say, 3, 4 months ago, and it's really kind of more the new housing side where the outlooks become a little bit more muted?

Yes, I think -- actually, I don't have the numbers in front of me, but my recollection is the current projection is 13.3% for new construction growth, 12.2% for R&R. And I believe Ducker took both of them down. I think originally they had close to 20% for new construction. So that one's starting to sound a bit more right. And if I recall, it was 6.5% or 6.8% or something for R&R. So that came down by 50%. And frankly, I've always believed personally that, that original projection for R&R was on the aggressive side. I still believe that -- well, we think repair and remodeling are 2 different markets here. The remodeling part of it still has a ways to go because as I've said several times, typically, that is something that's financed. Not many people have the ability to write a check to replace the windows in their house.

Got it. And then maybe to take another shot in terms of the outlook. Is most of the -- so you're reducing the high end of the range by $5 million for EBITDA. Is almost all of this -- I don't know if you can comment, is almost all of this the resin price increase and the removal of Nichols? Or are you effectively reducing your more fundamental outlook for the business in any way? Or is that remaining intact?

Well, the biggest part of it was the removal of Nichols, right? And obviously, the resin pricing is impacted where we hoped it would turn out. I mean, we clearly thought early on in the year that we had a reasonable shot at replacing the contribution from Nichols with improved operating performance in the balance of the business. The resin price increase has certainly inhibited our ability to fully recover that. So hence, the $55 million to $60 million rather than $55 million to $65 million.

Got it. And one last one, if I may. I think you said you had sold off the Barbourville facility after the quarter. Are we talking -- what are we talking about in terms of magnitude? Can you comment on that? I don't know if you mentioned in terms of what that would bring in terms of cash.

Oh, no. We didn't mention it. It's fairly negligible. It's not a big facility from a valuation standpoint.

Our next question comes from Bill Baldwin of Baldwin Anthony Securities.

A couple of areas. The -- can you bring us up-to-date on how the 2 new lines are performing there at your Greenville facility that you're putting in there?

I'll let Brent answer that because he happened to be up there a week before last.

Yes, so they're not up and running. And I know where they plan them to be up and running, but we are just about to start those lines up. And to put it in a little bit of perspective, we have 2 lines being installed there, 2 in our Yakima facility in Washington, as well as 1 in Richmond, Kentucky. And these are new EcoBlend, which EcoBlend is utilizing more regrind than you would use in a non-EcoBlend line, just for the benefit of everybody on the call. So we are weeks away from starting to go through all 5 of those lines and getting them tested and running and going through the tweaks so that we can get salable product.

And that project is on schedule as originally planned.

And I presume that those lines will consume less amount of resin, new resin.

Correct.

Yes, it...

It will lower your resin cost.

That is correct.

That is right.

Okay. And secondly, can you give us a little color on what's going on with the spacer markets in the U.K. and Europe with your operations over there?

They both continue to perform extremely well, and they're actually growing faster than the growth rates we see in North America. All of the statistics we quote compared to Ducker exclude the international businesses because they are both growing at double digits.

And are they both positive EBITDA contributors to the company?

Indeed, absolutely.

Our next question comes from Phil Gibbs of KeyBanc Capital.

Had a question largely on the competition in vinyl pricing. And that was a big issue for the last 6 to 12 months, in particular with new competitors entering the fold. I'm wondering if that, in your view, is -- that competitive jockeying process is bottoming? Or -- yes, that's probably a good way to put it, or found a more level of stability on the pricing side?

Well, from our competition, directly, there are -- at least one, anyway, competitor that continues to try and get business based on price and price alone. At this point, that strategy does not appear to be taking hold. We've not seen a lot of lost business for the last -- or other more rational competitors. A lot of that was being driven by 2 or 3 of the entry price point vinyl window manufacturers. And they are now starting to perhaps change direction. And all of those have put through recent price increases. And I think that is taking the pressure off of the component suppliers, particularly in the light of resin price increases, which have affected everybody across the board.

Okay. And are you seeing any pickup in the wood window side, sort of the historical piece of the business? Has that started to move the other way for you?

It's -- the components we supply to the wood window business are growing at a similar but slightly less rate -- slightly lower rate than the rest of the business, but not materially so. So it's sort of moving in line. The market share change between wood, vinyl and aluminum has not really changed.

Okay. I think that seems like a little bit of a change, I guess, relative to the last 12 to 18 months on the wood side because I know wood was really getting hit hard. Vinyl is coming back faster because of the low price point piece. So that's -- you see that as a sign of encouragement on the higher-end homes, that the wood piece is starting to grow like that?

I think in all fairness, it's also part of our customer strategy or a number of customers at the higher end of the market that I think have made some pretty aggressive moves more in the remodeling end of the market to capture share. I think we are the beneficiaries of that. But there are a couple of our major customers at the top end of the market that have done a particularly good job. I think that penetrated much deeper into that remodeling market, even though it, in and of itself, I'm not sure is recovering at a great rate. I do think we have some customers that are gaining share there.

Our next question comes from Joe Krawczak from Zelman Capital.

It's Dave Zelman. So a comment and then a question about your capital structure. I find it interesting the myopic nature of most of these calls, about how is May sales and this and that. We all know repair and remodel is a function of home prices, and home prices are going straight up. And the fact that you're growing 8% or 9%, where your footprint is in the Midwest and the State center, slower to enjoy the recovery, I think, is pretty impressive. And then on the new construction side, the year-over-year comps, once you get past June and July, become incredibly easy. I think the investment community is forgetting that last year's home cycle was on the first 5 or 6 months of the year and then the back half of the year really died. And what they're missing is community count. So if you just add up community count, starts are going to grow and production is going to be up 15% to 20% at the back half of the year. And another month or 2, that will become visible to all investors, I believe. Now to your stock, it's dirt cheap. And you have $120 million of cash on your balance sheet and no debt. You could buy in 20% of your own company, just reinvesting back into that for the benefit of the shareholders. Not even mentioning what a turn of leverage, if you want to be conservative and not having a leverage on your balance sheet. So as opposed to the acquisition front, where your stock is trading relative to your current production, let alone what it's going to be over the cycle, I am scratching my head as to why you just wouldn't take all of that cash and reduce the market capital of it and drive higher profitability and earnings for the benefit of all shareholders. So just talk to me about your stock buyback and how that return looks relative to what a merger or an acquisition might look like.

Yes. Look, I think, first of all, this is a pretty recent phenomenon and because it wasn't that long ago, we were trading at $21. And I accept the fact that where we're trading right now, or certainly where we opened this morning, makes a stock buyback a lot more attractive. We talked about it at each of our board meetings. We are well down the path with an acquisition strategy, but I think it is fair to say that given where the stock price is trading, we have already restarted some internal discussions about the viability of exactly what you say. The extent to which you are asking for it, maybe we're not quite there yet. But I can tell you, at these price levels, we are starting to do some analysis along those lines.

Okay. So we'd be happy to build a model for you and show you what the economic impact of that can be. I'm very excited about the current valuation of how you reposition your company and what the outlook's going to bring over the course of the next couple of years. And I, for one, would much rather have you generate free cash flow and do some tuck-in, accretive acquisitions because I really don't know anything that's trading out there at 3x past peak, with no debt and all that cash sitting out there with the operating leverage that you guys do have. So we're looking forward to the next few years, and I would hope you guys would very seriously consider tendering for material amount of your stock because it's hard-pressed to see how you're going to buy anything. It's cheap on a current and future fundamentals as your current stock.

Understood.

Our next question comes from Ethan Stein [ph] of SG Capital.

I jumped on late, so I might have missed this. But I wanted to -- just to understand the math a little better on the sales being up 8% for the quarter, year-to-date. Half of that was inventory build, but then 8% to 9% for the year, when you think things are slowing down as that inventory gets brought out. I wanted just to understand how the math on that works. Or did I hear that correctly?

So the first half growth rate was 8.5% year-over-year. The window shipment growth rate for that similar 6-month period was 4.4%. So we clearly supply components that went into inventory. As that inventory gets depleted, I think what you'll see is window shipments will go from 4.4% in the first half, probably to low teens in the second half. Our shipments won't continue accordingly because they're not going to -- the OEMs are not going to sit on the inventory. So we're just going to see a more level-loaded picture through the year, which is why we believe we'll hold that 8% to 9%. I think the way to think about it is, it was 8.8% last year, which was in line with window shipments. We're saying it's going to be the same this year. So I guess the question is, does everybody believe that window shipments are going to be similar this year to what they were last year? And I think you're hard-pressed to come to an answer that's different than yes.

Okay. And so it's predicated on window shipments accelerating, though, from 4% or 5% to teens percent in the second half.

Yes, because, certainly, in the Northeast and Midwest, obviously, the new construction season is really only just getting underway. So those window shipments have not occurred yet.

Got it. And what do you think we make at the May trend? I don't really read into the month, but I thought there would be some pent-up released. Is there much you're hearing from customers?

No. I think if you -- we do not have data on window shipments. But I suspect very strongly that window shipments probably did, in fact, go up pretty significantly in the month of May, as the construction season got started. I think what we are seeing is what we expected and talked about on the last call, that the window manufacturers are starting to ship out of inventory to satisfy that demand, which did not translate into incremental business for us.

Okay. And when you're talking about May, are you talking about year-over-year or sequentially?

No, year-over-year.

Okay. And then just lastly, on the corporate expense, can you remind me what is in there? And then should we -- is there any way you can give us some guidance on how to model that for the rest of the year? Should it change much from the quarter?

Brent?

No. I mean, so in terms of what's in there is all that what I call the public company-related items, the consolidations, legal, the stock compensation, stock expense and things of that nature. In terms of guidance for the year, we talked about $28 million to $30 million of expense. I think if you look at the first half of the year on our operating income line item, we're about $15 million, sort of right in kind of 1/2 of that. So we would expect those quarters to continue sort of in line with what we've seen in the first half of the year.

Our next question comes from Paul Betz of BB&T Capital Markets.

Sorry, if I missed this. I think you said the higher maintenance was about a $2 million impact in the quarter. Did you say what the higher resin prices -- what that impact was?

No. We didn't talk about it. It had more of an impact for the quarter. Yes, I mean, it's still going to be kind of in that $2 million range.

Yes.

Okay. And I imagine since your shipments are slowing, the impact for the rest of the year on a quarterly basis will be lower than that.

No, no. Shipments aren't slowing. There's a difference between year-over-year growth and increased shipments. So sequentially, shipments continue to increase.

Okay. Your EBITDA guidance, that's based on reported operating income and not the adjusted number?

That's just based -- that's based on EBITDA. No adjustments to EBITDA. It's really OI, plus depreciation and amortization.

Right. But I noticed in your press release you guys kind of give adjusted operating -- adjusted income from continuing operations, so you're not [indiscernible].

No, no. The adjustments that's taken to that are really backing out transaction costs and maybe impairment on the Barbourville facility, but that's excluded from the EBITDA [indiscernible].

[Operator Instructions] And our next question comes from Al Kaschalk of Wedbush Securities.

Brent, just a quick follow-up. Could you clarify what the sale -- taxes and the implication of that? Are they going to be part of discontinued ops? Or will the corporate tax rate have some bearings here? Because I think you had mentioned -- actually, you have the payment of it for that one transaction occurs, but then because of the NOL, there'll be some recouping of that over time. So could you...

Yes. So the way it will work, the vast majority of the impact from the transaction, the taxes will be reflected in discontinued ops. But just to be clear, I mean, there is some stuff that does get mussed up being even in the, I call it the non-discontinued ops. When you start to assess your ability to use previous losses and things like that, it does carry over into the, what I call the normal operations. So there will be a little bit of that. That does carry over. But I think if we continue to think sort of on a longer term, historical rate of 38% on a continuing operations basis is what we would expect.

And I'm showing no further questions at this time. I'd like to turn it back to Mr. Bill Griffiths for closing remarks.

Thank you, and thanks, everyone, for joining us today. Good questions. We clearly are still very enthusiastic and optimistic about the opportunities in front of us for the balance of this year, as well as more importantly, the long term and look forward to seeing you at the conferences through the summer and early fall and look forward to updating you on our progress next quarter. Thanks, everyone. Goodbye.

Ladies and gentlemen, that does conclude today's conference. Thank you for your attendance. You may now disconnect. Everyone, have a great day.