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Executives

Whit Kincaid

John C. Miller - Chief Executive Officer, President and Director

F. Mark Wolfinger - Chief Financial Officer, Chief Administrative Officer, Executive Vice President and Director

Analysts

Will Slabaugh - Stephens Inc., Research Division

Michael Halen - Sidoti & Company, LLC

Conrad Lyon - B. Riley Caris, Research Division

Nick Setyan - Wedbush Securities Inc., Research Division

Amitabh Kapoor - Gabelli & Company, Inc.

Denny's (DENN) Q2 2013 Earnings Call July 29, 2013 4:30 PM ET

Operator

Good day, and welcome to the Denny's Corporation Second Quarter 2013 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Whit Kincaid, Senior Director of Investor Relations. Please go ahead, sir.

Whit Kincaid

Thank you, Stephanie. Good afternoon, and thank you for joining us for Denny's Second Quarter 2013 Investor Conference Call. This call is being broadcast simultaneously over the Internet. With me today, from management are John Miller, Denny's President and Chief Executive Officer; and Mark Wolfinger, Denny's Executive Vice President, Chief Administrative Officer and Chief Financial Officer. John will begin today's call with his introductory comments. After that, Mark will provide a financial review of our second quarter results. I will conclude the call with commentary on Denny's 2013 annual guidance.

Before we begin, let me remind you that in accordance with the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995, the company knows that certain matters to be discussed by members of management during this call may constitute forward-looking statements. Management urges caution in considering its current trends and any outlook on earnings provided on this call. Such statements are subject to risks, uncertainties and other factors that may cause the actual performance of Denny's to be materially different from the performance indicated or implied by such statements. Such risks and factors are set forth in the company's most recent annual report on Form 10-K for the year ended December 26, 2012, and in any subsequent quarterly reports on Form 10-Q. With that, I will now turn the call over to John Miller, Denny's President and CEO.

John C. Miller

Thank you, Whit and good afternoon, everyone. In the second quarter, we achieved positive system-wide same-store sales and grew adjusted net income per share by 21%. In addition, our franchise-focused business model generated $11 million in free cash flow in the quarter. We are pleased to achieve these results despite an ongoing challenging economic environment for our consumers. We continue to be focused on executing against our 3 key objectives to drive shareholder returns. Our first of those key objectives is to revitalize Denny's through menu, service and environment initiatives designed to fully leverage our competitively distinct America's Diner brand positioning. The first part of the second quarter saw the return of our popular Baconalia! Limited Time Only menu. Prior to the Memorial Day Holiday weekend, we launched our Red, White and Blue Plate specials Limited Time Only menu. This menu celebrates our heritage as America's Diner and features diner classics with an Americans twist, like the Apple Pie French toast, a Bourbon Bacon Burger and a Red White and Blue Pancake breakfast. We also introduced our newest product, leveraging our new coffee platform as we added Frozen Coffee to our lineup. Guests are responding positively to the new coffee blends and we've seen a small increase in coffee incidents, which is now averaging over a thousand cups per week, per store. We continue to balance our compelling Limited Time Only offerings with our highly competitive and effective $2/$4/$6/$8 Value Menu. This gives us a tiered pricing strategy when combined with some of the more premium offerings on our Limited Time Only menu and core menu. The mix of the $2/$4/$6/$8 Value Menu continues to be in the high teens. This is similar to the first quarter but reflects around a 4 percentage point increase compared to the prior year. We will continue to work closely with our franchisees to strengthen one of our most recognizable everyday value platforms in full-service dining.

As we seek to provide even greater relevance during the important back-to-school period, we are giving guests the opportunity to once again Build Their Own Pancakes, an offer we believe will be well received and offer a valuable competitive advantages for us throughout the end of the summer. This menu features the Red, White and Blue pancake breakfast, which is the most popular item on the Red, White and Blue plate specials menu just concluded. This menu also highlights some of our newest beyond breakfast product introductions, also available on our new core menu launching this week. These new products reflect our continued focus on improving the quality and craveability of all the products we offer with a special focus of on the competitiveness of our beyond breakfast items. Specifically, we have introduced a prime rib cob salad, sirloin steak entrée and breakfast sausage skillet, leveraging the same high-quality sausage product we offered on our very successful Hobbit menu promotion. We continue to make progress improving our restaurant facilities as franchisees completed 57 remodels throughout the first 2 quarters. 3 company remodels were completed in the first 2 quarters of the year of around 20 planned with the majority of these to be completed in the third quarter. Just as we have made improvement in our menu offerings and guest service scores, we are looking at ways to improve the facilities. For example, we are updating our look with new carpet styles, wall and accent colors, roof and tabletop colors and the like. While a number of alternatives were in review, we decided to take additional time to assess some of the early learnings from the first remodels before moving ahead more aggressively. We continue to be encouraged by the positive consumer reviews, as well as the sales comp increase, primarily in traffic in keeping with our historical mid-single-digit gains, even in these more challenging times.

In addition, we have made changes to our restaurant opening team and wanted to align their availability with our reopening of our remodeled restaurants. Most importantly, we're working closely with our franchisees to finalize the changes and of course, we will provide more details as we move throughout the process. The progress we have made with many of our initiatives and continued outperformance in key states like California and Texas, have helped drive a sequential improvement in same-store sales. We believe that we have the right execution strategies in place to revitalize the Denny's brand with the goal of generating sustainable, consistent, positive same-store sales and traffic.

Our second key objective is to increase the growth of the Denny's brand both domestically and internationally through traditional and nontraditional venues. We opened 11 new franchise restaurants in the second quarter, including our newest international location at the Monterrey International Airport in Apodaca, Mexico. This is the first restaurant opened by one of our newest franchisees, International Meal Company. They are a leading multi-brand restaurant operator in South and Central America, as well as the Caribbean. Although Denny's currently has 5 restaurants in Mexico, this is the first location to open in Mexico in over 5 years. We are excited about the new development in Mexico as we believe that there-- it has a great potential for the Denny's brand there in Mexico. We think family dining can do well in most parts of the world, especially Asia, Central and South America and the Middle East. Most recently, we opened our first location in El Salvador. This is the fourth restaurant opened by one of our newest international franchisees, who is based in Honduras. We also recently opened our 12th restaurant in Puerto Rico. We remain positive about our international growth opportunities. We currently have 40 unopened international restaurant commitments and are aggressively working to find the right, well-capitalized franchisees to build our international pipeline.

And our third key objective is to grow profitability and free cash flow through our primarily franchise-focused business model, balancing capital allocation between reinvesting in the growth of the brand, returning cash to shareholders and reducing outstanding debt. Given that we have a meaningful base of company restaurants, we will look to opportunistically invest our free cash flow to acquire franchise restaurants and real estate where we can generate attractive returns. To that end, in the second quarter, we acquired a location in the Miami market, and have agreed to acquire another franchise restaurant in the third quarter of this year. We believe that it is important to balance our capital allocation between investing and growing the brand and returning cash to shareholders. We have generated around $24 million of free cash flow through the first 2 quarters after capital spending and acquisitions. So far this year, we have allocated approximately $11 million to purchase around 2 million shares. As we move forward, we will continue to work closely with our franchisees to increase restaurant level performance and new restaurant growth, while also balancing our capital allocation between reinvestments in the brand and returning value to shareholders via our share repurchase program. With that, I'll the turn the call over to Mark Wolfinger, Denny's Chief Financial Officer and Chief Administrative Officer. Mark?

F. Mark Wolfinger

Thank you, John, and good afternoon, everyone. Our second quarter results were highlighted by increasing system-wide same-store sales by 0.6%, growing adjusted net income per share by 20.7% and generating $11.1 million of free cash flow. Denny's opened 11 new franchise restaurants and closed 10 franchise restaurants in the quarter. As John mentioned previously, we acquired 1 franchise restaurant located in the Miami market during the quarter. As a result, we ended the quarter with 165 company restaurants and 1,525 franchise restaurants, bringing the total restaurant count to 1,690. Denny's total operating revenue, including company restaurant sales and franchise revenue decreased $8.1 million to $116.6 million, primarily driven by a decrease in company restaurant sales in the quarter, resulting from the refranchising program completed in 2012. Same-store sales at domestic franchise restaurants increased 0.7%. The increase was primarily driven by an increase in guest check average, partially offset by a decrease in same-store guest traffic. Denny's franchise and license revenue increased by $200,000 to $33.7 million in the second quarter. The increase in franchise revenue was primarily driven by a $500,000 increase in royalties and a $300,000 increase in occupancy revenue, which were favorably impacted by 32 additional equivalent franchise restaurants. These increases were offset by a $600,000 decrease in initial and other fee revenue, primarily driven by fees received associated with selling 17 company restaurants to franchisees in the prior year quarter.

Franchise operating margin was $22.1 million, which was flat to the prior year quarter. Franchise operating margin as a percentage of franchise and license revenue, decreased 0.3 percentage points to 65.7% compared with the prior year quarter, primarily due to the previously mentioned decrease in initial fee and other revenue.

Sales of company restaurants decreased $8.4 million to $82.8 million, primarily due to 24 fewer equivalent company restaurants, which reflects the impact of our refranchising strategy that was completed at the end of 2012. Same-store sales at company restaurants decreased 0.5%, compared with the prior year quarter. The decrease was primarily driven by a decrease in same-store guest traffic, which was partially offset by an increase in same-store guest check average. The second quarter company restaurant operating margin of 13.7% represents a 1.1 percentage point decrease compared with the prior year quarter, and was primarily impacted by higher product costs. The increase in product costs was primarily due to higher commodity costs and the unfavorable impact of product mix in the quarter. Payroll benefit costs were flat compared to the prior year quarter and included a $500,000 impact from unfavorable workers compensation claims developments in this quarter. The increase in other operating cost was primarily driven by higher legal expense compared to the prior year quarter.

Company restaurant operating margin decreased to $2.1 million to $11.4 million on a sales decrease of $8.4 million, primarily due to the impact of selling company restaurants to franchisees in the prior year. Total general and administrative expenses for the second quarter decreased $700,000 from the prior year quarter, primarily due to a $600,000 decrease in payroll and benefits costs, including incentive compensation, and a $400,000 decrease in professional fees. These decreases were partially offset by higher share-based compensation expense.

For the second quarter, adjusted EBITDA decreased by $1.2 million to $19.9 million, primarily driven by the previously mentioned decrease in company restaurant operating margin. Adjusted EBITDA, as a percentage of total operating revenue, increased 0.1 percentage points to 17.1%, primarily driven by lower G&A expense in the quarter. Depreciation and amortization expense declined by $500,000 compared with the prior year quarter, primarily resulting from the sale of company restaurants last year. Interest expense for the second quarter decreased by $400,000 to $2.5 million, resulting from a $27.8 million reduction in total gross debt over the last 12 months and lower interest rates under our refinanced credit facility. In the second quarter, our provision for income taxes was $2.5 million, reflecting a 29% effective income tax rate. This is lower than our initial guidance range of 35% to 40% due to an $800,000 income tax benefit related to certain California jobs income tax credits generated during the second quarter as a result of the prior year's hiring activity.

Due to the use of net operating losses and income tax credit carryforwards, we have only paid approximately $1.3 million in cash taxes through the first 2 quarters. We will continue to utilize additional net operating losses and income tax credit carryforwards to eliminate the majority of our cash taxes for the next several years. Cash capital expenditures of $5.5 million increased $3.1 million compared to the prior year quarter. The increase was primarily driven by the acquisition of 2 parcels of real estate and 1 franchise restaurant in the quarter for a total of approximately $3.2 million. Free cash flow was $11.1 million in the second quarter and decreased $3.8 million compared to the prior year, primarily due to the higher cash capital expenditures. We repurchased 1.7 million shares in the quarter for $9.4 million as part of our ongoing share repurchase program. And since November 2010, we've used approximately $59 million to repurchase 13.5 million shares. As of June 26, we had a total of 11.5 million shares authorized and remaining in our ongoing repurchase program. We ended the second quarter with $176.6 million in total debt, including $97.5 million outstanding on our revolving credit facility, $59.3 million outstanding on the $60 million term loan and $19.9 million of capital lease obligations. Our total debt to adjusted EBITDA ratio was 2.3x at the end of the second quarter. With the increased flexibility we have with our new revolving credit facility, we brought our cash outstanding down to $2 million at the end of the second quarter by effectively using excess cash to temporarily pay down our revolving credit facility.

In 2013, we will continue to use our free cash flow after capital expenditures towards both share repurchases and to a lesser extent, debt repayment. In addition, we will opportunistically use cash to either purchase franchise restaurants that enhance our company restaurant portfolio or acquire real estate to improve our returns. That wraps up my review of our second quarter results. I'll now turn the call over to Whit, who will comment on our updated annual guidance for 2013.

Whit Kincaid

Thank you, Mark, and good afternoon, everyone. I would like to take a few minutes to expand upon the business outlook section in today's press release. The following estimates for full year 2013 are based on year-to-date results and management's expectations at this time. We now expect full year system-wide same-store sales to perform between flat and positive 1% as we take into account our performance for the first half of the year. We anticipate that franchise same-store sales will be between flat and positive 1%, and company same-store sales will be between negative 1% and flat. As John mentioned earlier, we will roll out a new core menu tomorrow. This menu includes a little more than 50 basis points of pricing. We continue to expect that commodity cost pressures will be in the 2% to 3% range this year, and we are currently locked in to approximately 80% of our needs for the year. We expect our franchise percent margin to be towards the upper half of our initial guidance range of 65% to 66%, and our company percent margin to be at the lower end of our initial guidance range of 14% to 15%.

Our updated annual guidance for total G&A expense, including share based compensation is between $58 million and $60 million, primarily driven by lower performance based compensation projections. The closing of our new bank facility in the second quarter of this year resulted in a one-time noncash charge to other nonoperating expense of approximately $1.2 million, resulting from the write-off of the unamortized portion of deferred financing costs related to the prior facility and a portion of the fees related to the new facility. And as a reminder, there was a one-time noncash charge to other nonoperating expense of approximately $7.9 million in the second quarter of last year when we refinanced our previous credit facility. We currently expect our effective tax rate to be between 34% and 36% in 2013 and expect our cash taxes to be between $2.5 million and $3.5 million. Our updated cash capital guidance is between $20 million and $22 million, which includes the remodeling of approximately 20 company restaurants. This estimate also includes the acquisition of 2 parcels of real estate and 2 franchise restaurants for a total of approximately $4 million. In addition, we expect to sell 2 company restaurants located in Hawaii to an existing franchisee in the third quarter of this year. We now anticipate that adjusted EBITDA will trend towards the lower end of our initial guidance range of $76 million to $80 million. Our updated annual guidance for free cash flow is between $43 million and $46 million. Please refer to the historical reconciliation of free cash flow to net income in today's press release. That wraps up our guidance commentary. I will now turn the call over to the operator to begin the Q&A portion of our call.

Question-and-Answer Session

Operator

[Operator Instructions] And we'll go first to Will Slabaugh with Stephens.

Will Slabaugh - Stephens Inc., Research Division

I wonder if you could talk about the success you've seen with $2/$4/$6/$8 and sort of how that's evolved now. And really this quarter, as that mix has gone up 400 basis points year-over-year, how you think that's contributing to that consistency you're starting to see on the top line?

John C. Miller

Will, this is John. I think it is a combination of the overall arching strategy of America's Diner, beyond breakfast initiatives talking to Millennials, Hispanics, Seniors. So multi tiers playing a role in consistency, as well as the underlying foundation of a good quality value platform. So knowing, I don't have to shop price or clip a coupon, sort of the everyday reliability of being able to find a good deal for the family, we think plays a role and so, we obviously do our part in socializing that on a regular basis to support it. When it moves up and down, I think that plays a role in sort of how-- what you see as the environment the consumer is in right now. No question, the first quarter, with the payroll tax holding coming to an end that follows, particularly middle and lower middle working class consumers all year long creates a headwind to the year for those in full-service. And so having a value platform and how that might dial up to retain some consistency of performance, we certainly believe it has a role. We don't believe it's the whole role. We think everyday value plus interesting new news, plus improving the core menu, plus learning how to talk to different consumers, where they live, whether be in their language or social media to Millennials and converting folks, the young folks to our brand, 60 year young brand, as we like to call it, we think that also plays a role in consistently.

Will Slabaugh - Stephens Inc., Research Division

Got you. And following up on the commentary about the consumer. Can you give us your take on what the consumer has been going through the past few months? It seems like a lot of your peers have been reporting and talked about a slowing June and into July, I wonder if you could comment -- just comment about sort of what you saw throughout the quarter, if you would, and just sort of how you think consumers are set up as you enter the back half of the year?

John C. Miller

Yes. So July might be asking a little much. I'd say, certainly, throughout the year, as we said in the last call a quarter ago, so sorry to re-trade old information here, but obviously, February was the toughest. We think that's pretty well documented now about how the reports have unfolded and then you saw improvements from there. So we think the 1 thing that follows us all year long is that payroll tax holiday, as I've mentioned. If you want a little color on quarters, first quarter to second, there's no question timing of Easter this year favored Q1 at the expense of Q2. But other than that, we just see choppiness, stronger markets than others, where employment is growing fast as we see the best recovery. California, Texas, Arizona, Nevada to name a few, where Denny's is especially well distributed. So we think that's to our benefit and in other parts of the country that-- where employment recovery is a little slower, so is guest recovery.

Operator

And we'll go next to Michael Halen with Sidoti.

Michael Halen - Sidoti & Company, LLC

Can you talk a little bit about the acquired store, any other store that you're looking to acquire in the third quarter? Can you talk about, I guess, why that franchisee was looking to sell, how many units they own, AUV at that store, any color that you can give us into those locations?

F. Mark Wolfinger

Mike, it's Mark. It's difficult to say, there's a consistency to sort of each one of those franchise situations. So let me just step back a little bit. We obviously have a right of first refusal on any franchise to franchise transaction. So we get to take a look at each transaction that's going between 2 franchise groups or 2 franchisees. We obviously focus on where we currently have geographically, field management for our company operations. So it has to fit geographically into company ops. And then obviously, we have a criteria from a return standpoint. So I think the takeaway here is we think this is a good use of our cash on a selective basis. I think the term we've used is opportunistic in nature. We continue to see some additional opportunities out there and we'll continue to take it -- certainly take advantage of them or exercise our right, if we think it's the right kind of returns from our shareholders' standpoint. And again, just to emphasize, obviously, we -- the company base that we have, the 165 stores that we have in the company base, they're averaging in volumes in sort of that $2 million range. The AUVs at our franchise stores are about $1.4 million, so obviously these stores also have to fit into our criteria from both a sales and return standpoint.

Michael Halen - Sidoti & Company, LLC

Okay, great. That's helpful. Also, can you break down guest check and traffic at the company-owned stores?

Whit Kincaid

Mike, this is Whit. The company-owned stores, traffic was down negative 1.7%.

Operator

And we'll go next to Conrad Lyon with B. Riley and Company.

Conrad Lyon - B. Riley Caris, Research Division

Not much to ask here. Quick one just about the cash. You guys are always very efficient with cash and those cash balances even lower than usual. Is that just more of a timing thing or is that you guys just trying to be even more efficient?

F. Mark Wolfinger

Conrad, it's Mark. Absolutely. And I think with this, I'll say, the newest debt instrument we have in place, which gives us a large revolver in sort of a smaller term loan versus some our previous structure. We just decided to go ahead and obviously, move our cash and pay down that revolver from a temporary standpoint and that's how we ended up with that 2.3x leverage ratio. So again, we like the flexibility this new agreement gives us. And obviously, we're a strong, consistent cash generator and so that was really our approach at the end of the quarter.

Conrad Lyon - B. Riley Caris, Research Division

Got you. Okay. And then one just kind of as it relates to the guidance. It sounds kind of challenging dicing this up, but is part of it, would you say -- or should I say, evenly redistributed between kind of the company performance and the franchise performance, meaning does it say that the lower end of the expectation as a result of more on the company side, franchise side or is it a little bit of both?

Whit Kincaid

Conrad, this is Whit. You're referring to the same-store sales?

Conrad Lyon - B. Riley Caris, Research Division

No. Just the performance in general. So just really, the EBITDA and free cash flow. Just trying to get a handle from a modeling perspective, if I should -- I mean, you also talked about the margins a little bit on the company side but I'm just wondering if there's anything to the franchise margin as well that might -- that's kind of getting baked in there as well?

Whit Kincaid

Yes. I think the franchise margin, and I think certainly, from a dollar and a rate standpoint is probably a little bit more stable in terms of just to give you a sense. I mean year-to-date, that franchise margin is 65.8%. So early in the year, we said it would be between 65% and 66%, so we anticipate kind of being the upper end of that range, consistent with where it is today. So I think it's -- from a same-store sales perspective, certainly, that's probably more meaningful on the company side because the year-to-date numbers, when the franchise were kind of -- were flat year-to-date with expectation of flat to plus 1% and on the company side, it's negative 1% is the year-to-date comp. And so on the company, I think the biggest driver has certainly been traffic from doing remodels. So where we've done 3 so far year-to-date and we're anticipating doing 20 in total for the year, so that leaves another 17 that should be done.

John C. Miller

The second half is pricing?

Whit Kincaid

Yes, that's right. John brought the pricing, certainly is something for the second half as well. So it's an additional -- a little bit more than 50 basis points. So that comp starts really tomorrow when we launch this new core menu, as well as launch this new Limited Time Only menu.

Conrad Lyon - B. Riley Caris, Research Division

Okay. That's helpful. Speaking of menu, do you have enough data around the coffee program to see if there's any fruitful benefits or are you seeing anybody linger longer, add on more anything like that, that sees more -- gives you more encouragement with the program?

John C. Miller

Well, we'd like them to linger longer and have a piece of pie or come in for another day part but I think those have proven over the course of time, that what we know so far is we have a -- that our incidents are up. We took about a $0.10 a cup price increase when we rolled this program but as I mentioned, in my opening comments that our incidents are up about 1%. We're now a little over 90 million cups of coffee here. It's about $100,000 per restaurant in our system, about 1,000 cups a week. That puts us a little over 1,000 cups a week. But on top of that, we're selling another 50 to 60 incidents of Iced Coffee, which we think we couldn't have done without coffee credibility in the first place. So when you marry those 2 together, about a 1% lift plus the iced coffee which obviously has good margin is a little bit more of a -- it can be a beverage, and or, it can be dessert incident, depending on how you interpret it with the time of day you're using the brand. So the ability to build on that platform we think, is good news, that coffee is -- that we're in the coffee game. I'd say that's what we learned so far.

Conrad Lyon - B. Riley Caris, Research Division

And it sounds like there's not an issue with coffee drinkers taking a seat during peak times or anything like that?

John C. Miller

I don't think -- I think the day parts dictate the use more than the quality of the coffee. So if it's 2 in the afternoon and you're just getting off shift and having lunch, you use Denny's for lunch and you might have a cup of coffee or what. But you're at Saturday morning breakfast, when there's a crowd, I don't think people are coming and tying up a four-top for just a cup of coffee. No, I don't think that's a risk.

Operator

And we'll go next to Nick Setyan with Wedbush Securities.

Nick Setyan - Wedbush Securities Inc., Research Division

So it sounds like the remodels are still on track to be about 20 or so for the year. But you had the commentary in there that you're going to take a pause for a little bit to kind of evaluate the early, I guess, learning. So can you guys maybe elaborate on sort of what you're thinking, what you're seeing? It does seem like you've seen a lift, so why the pause, and create -- potentially see even a more impactful remodel. So maybe just some color around that.

John C. Miller

No, that's a great question. Let me see if I grazed it. I'd say the pause is largely behind us now but the fact that franchisees have completed 57 and we had a smaller number of company stores, I added to my comments, just trying to add some clarity around that not confusion, that our pause was one to align the training department. We would have favored supporting our franchise systems with training teams, so that would cost waiting for them to be available for company units, so the favor of the franchise system. And then the other is that we have a number of changes, so when you're evolving from an older scheme to and up-to-date wall color, up-to-date booth fabrics and so forth, we have a number that we look at and we want to settle on final versions. And so I would say that what you're saying is right. Taking a pause early on to settle on all those pieces come together caused a little delay. I think we largely have that behind us and so that's why you'll see the majority of the balance of the year completed in the third quarter.

Nick Setyan - Wedbush Securities Inc., Research Division

Got it. And just a clarification, the 50 bps of pricing. Now, is that going to take us up to 1.7% pricing?

F. Mark Wolfinger

We're at about 1.4% all in, company 1. 2% through the first half, 1.4% franchise. So the extra 50 bps will take to 1.7%, 1.9%.

Operator

[Operator Instructions] And we'll go next to Amit Kapoor with Gabelli & Company.

Amitabh Kapoor - Gabelli & Company, Inc.

In terms of share buyback, just a housekeeping item for the question. How many shares outstanding at the end of the quarter, Whit, if you have that handy please?

Whit Kincaid

Fully-diluted, I think it's around a little bit less than 94 million.

Amitabh Kapoor - Gabelli & Company, Inc.

Okay. That would be 6 30 or the stuff that will be on the cover of the Q. And then in terms of -- are there -- in terms of the credit facility, are there any restrictions on the pace of stock buybacks for the rest of the year or for the duration of the authorization, if you could remind us that please?

F. Mark Wolfinger

It's Mark. The limitation, there's an annual limitation, which under the -- well, it expanded in the newest agreement, the limitation on an annual basis is a little bit less than $45 million of stock repurchases and that remains there. It gets expanded or more flexible when we take our leverage ratio below 2:1 and we're currently about 2.3x at the end of the quarter. So again, there's not a speed as far as the ability to purchase. Obviously, we are very focused on the market and making sure that we're consistently in the market repurchasing shares and we continue to believe this is a strong use of our free cash flow.

Operator

And there are no further questions at this time. I'll turn it back to the speakers.

Whit Kincaid

Thank you, Stephanie. I'd like to thank everyone for joining us on today's call. We look forward to our next earnings conference call in late October to discuss our third quarter results. Thank you, and have a great evening.

Operator

And this does conclude our conference for today. Thank you for your participation.

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