Black Box's CEO Discusses F2Q 2014 Results - Earnings Call Transcript

| About: Black Box (BBOX)

Black Box Corporation (NASDAQ:BBOX)

F2Q 2014 Earnings Conference Call

October 29, 2013 05:00 PM ET

Executives

Gary Doyle – VP, Corporate Communications and IR

Michael McAndrew – President and CEO

Tim Huffmyer – VP, CFO and Treasurer

Ken Davis – EVP, North America Commercial Services

Analysts

Greg Burns – Sidoti & Company

Andrew Fleming – Heartland Advisors

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Black Box Second Quarter Fiscal 2014 Earnings Call. At this time, all participants are in a listen-only mode and later we will conduct a question-and-answer session, instructions will be given at that time. (Operator Instructions) And as a reminder, today’s conference is being recorded.

I would now like to turn the conference over to your host Mr. Gary Doyle, Vice President of Investor relations. Please go ahead sir.

Gary Doyle

Thank you. Good evening and welcome to Black Box Corporation's second quarter of fiscal 2014 earnings conference call. With us today are Mike McAndrew, President and CEO of Black Box Corporation, Tim Huffmyer, our Vice President and Chief Financial Officer, and Ken Davis, our Executive Vice President of North American Commercial Services.

Earlier today, we announced our second quarter of fiscal 2014 results by issuing a press release and furnishing it to the Securities And Exchange Commission on Form 8-K. We also posted this press release on our website at blackbox.com. In addition to commentary from our executive team, we have a brief slide presentation supplementing the call. The slides are available for download on the IR section of our website at blackbox.com. For those of you who are accessing the website, the slides will present on your screen.

We will begin today's call with comments from Mike, followed by a summary of our financial results from Tim. Mike will then provide an overview of our strategy and the market we serve. Our team will then take your questions.

Before we begin, and as a reminder, matters discussed in this call may contain forward-looking statements that involve risks and uncertainties concerning Black Box's expected financial performance. Actual results may differ materially from expected results, and reported results should not be considered as an indication of future performance. Potential factors that could affect our business and financial results include changes in economic conditions in our end markets and the general market at large. Additional factors are included in our most recent Form 10-K and today's press release.

On this call, and as presented in today's press release, we will discuss some financial information that includes non-GAAP financial measures, including adjusted operating income percentage or adjusted operating margin, operating net income, operating earnings per share, free cash flow, EBITDA, adjusted EBITDA, and organic or same-office revenue comparisons. We will limit any non-GAAP financial discussions today to the specific measures in our press release.

Please refer to the schedules that accompany the press release for a reconciliation of non-GAAP financial measurements to the most directly comparable GAAP financial measurement and other supplemental information.

Now I’d like to turn the call over to Mr. Mike McAndrew.

Michael McAndrew

Thanks Gary. Welcome everyone and thank you for joining us today. I like to begin today’s call with a review of our second quarter of fiscal 2014 results.

For the quarter ended September 30, our revenue was $247 million. Our operating earnings per share was $0.60 and we generated $9 million in cash flow from operations. Our second quarter results reflect a solid operational performance and positive cash flow which allows us to continue to return value to our shareholders through $6 million of stock repurchases and $1.4 million of dividend payments.

However, softness in demand primarily from the federal government has decreased our revenue and profit margin expectations for the second half of the fiscal year. Our outlook has changed from the guidance that we provided in May and reiterated in August of this year. At that time we felt comfortable that our core markets would remain stable and that the programs introduced this year would generate organic growth over fiscal 2013, specifically we indicated organic growth of 1% to 2% in fiscal 2014 fueled by an investment in a new direct sales team in our product segments and investments in our Cisco and wireless solutions practices in our service segments.

Those investments have been successful and we believe those programs will generate revenue growth. In fact, as I will describe later we plan to continue our investments in those programs to accelerate the growth in revenue and market penetration that we’re experiencing. However, the growth that we expect to achieve from those investments in 2014 will not overcome the challenges that we’re experiencing in our core markets. As we stated in the past approximately 20% our revenue is generated from sales to the federal government. This is true in both our product and service segments.

However, each of these segments interacts in a different way with our federal clients. On the product side we primarily sell networking equipment for operations and maintenance needs. While we will periodically bid directly on larger projects for a particular agency, generally our federal product order sizes are small and initiative through IT procurement.

Beginning in July we noted that orders did not increase as they typically do during the September quarter. We had many bids in play and forecasted closure by quarter end. However, we did not see the expected closures. A subsequent 16 day shut down further delayed decisions and since the reopening on October 17, orders have not picked up to pre July levels. For planning and guidance purposes, we consider our current run rate to be the new normal for the federal government in our product segments.

Our government solutions business and our service segment continues to proudly serve our federal clients domestically and abroad. As noted in previous quarters while spending has been limited on US infrastructure we pursued opportunities to provide services in the Pac Rim and Europe.

Our original guidance for fiscal 2014 included a small amount for projected wins on recurring US contracts that are typically awarded in the September quarter. The number of those opportunities actually put out to bid was lower than expected and decisions on those opportunities have been deferred. At this point we’re not expecting any deferred awards to have a material revenue impact in fiscal 2014.

In addition, we’re experiencing a decrease in demand from commercial clients in our North America service business. As we’ve stated in the past because of the many changes in technology and the competition for IT budget dollars, unified communications has become a lower priority item for CIOs. In the most recent quarter, we experienced additional delays in award decisions that were expected by quarter end. We believe we’re priced to be competitive on large opportunities, but award delays will have an effect on near term revenue and backlog.

These market changes are a short term setback to our plan and are reflected in the guidance that Tim will provide shortly. Despite the changes, the growth programs that we’ve discussed in our last two calls are doing well. In our product segments our primary growth initiative call for an investment in a global direct sales team.

As mentioned in our last call by the end of Q1 we would hire to expected levels and we’re in the process of on boarding and training the team. At the end of Q2 the direct sales team was selling at about 70% of expected targets. We’ve learned that although the ramp up time maybe a bit longer than expected the program is off to a good start generating approximately $7 million in revenue through the second quarter. We continue to invest in this initiative as we refine successful sales person profiles and go to market strategies.

In our service segment we initiated programs in both our government and commercial businesses, I’ve already discussed some of the challenges on the federal side, so I’ll focus on the commercial initiatives. Our primary commercial initiative centered on investments in our Cisco and wireless solutions practices. We believe that our resources in these practices are highly leveragable and could be introduced to our existing client base to expand our relationships and generate additional revenue opportunities.

Our backlog in these practices has grown 10% over the first quarter to over $40 million and our pipeline has grown 25% to approximately $160 million. I’m very encouraged by the early results from our growth programs. Over the last two quarters we’ve learned a lot. We’ve also identified points in our process where we can invest to expand opportunities. I’m also extremely pleased with a team is embracing our strategy and supporting the change necessary to enable successful execution of our initiatives. The early success of these programs gives us confidence to aggressively pursue and incorporate other high growth communication solutions into our portfolio.

I’ll talk more about additional investment after some financial highlights from Tim.

Tim Huffmyer

Thanks, Mike. In the second quarter we posted revenue of $247 million down 5% from $260 million reported for the same period last year both on an as reported and same store basis and within our guidance range. Maintenance revenue which is derived primarily from long term agreements with our service clients was $48 million or 19% of our revenue for the second quarter. Our six month order backlog now stands at $178 million compared to a $185 million at the end of the first quarter. The decrease in backlog is attributable to our North America commercial service business and is a result of the challenges in demand that Mike just mentioned.

Gross margin for the quarter was 31.2% and consistent with our gross margin in the first quarter. This is lower than the 32% to 32.5% used in the guidance we provided. In May, based on trends and analysis of our pipeline we believe that the prior two years of gross margin compression had stabilized and we felt comfortable to model fiscal 2014 at 32% to 32.5%. Recent changes in our markets have caused us to update our outlook.

In the Product segment, competitive pressures particularly among our IT infrastructure products has decreased the overall margins approximately 1%. We do not expect historical margins to return in this category in fiscal 2014.

In the Service segment, we continue to bid aggressively to win new project business. In certain cases, awards have been delayed. Additionally, the number of new opportunities has decreased which has increased competitive pricing pressure. We expect the impact to service gross margins to also be approximately 1% for the remainder of fiscal 2014.

The impact of these two items has led us to reduce our expected consolidated gross margin as reflected in our new guidance to 31% to 32% for the remainder of fiscal 2014. In the second quarter, SG&A was $60.5 million which included $734,000 of restructuring expenses. Restructuring expenses reduced our projected SG&A by an annual run rate of approximately $700,000. As noted last quarter, much of the savings generated from our restructuring activity is being invested in new growth programs. We anticipate additional restructuring cost of additionally 1 to 2 million over the remainder of fiscal 2014.

Our adjusted operating income margin for the second quarter was 7%. This represents a slight increase over our last quarter's 6.4% attributable to a decrease in our quarterly SG&A expense. As Mike will discuss shortly, we will continue to invest in our growth initiatives over the next two quarters which will have a negative impact on our expected adjusted operating income margin.

Second quarter operating earnings per share was $0.60 consistent with the guidance we provided last quarter. During the second quarter we wrote off certain deferred tax assets related to unrealized performance based equity awards. This write off is considered a discrete item and resulted in an increase to our second quarter GAAP affective income tax rate of 50.3%. Although this discrete item occurred we are still guiding to an operational and a GAAP annual effective income tax rate of 39.5% for fiscal 2014.

Also during the second quarter, we recorded a non operating non cash pre-tax loss of approximately 800,000 related to the expected divestiture of our non controlling interest in a joint venture from fiscal 2011. We do not expect any additional cash expenditures for this entity in the future.

Second quarter cash flow provided by operation was $9 million. Strong cash flow is the primary focus of management and we will continue to deploy our free cash flow to balance long term growth of the business with tangible returns to our shareholders.

Aggregate DSOs for the second quarter, inclusive of cost in excess of billings and billings in excess of cost were 84 days, up from first quarter aggregate DSOs of 80 days and under our fiscal 2014 goal of 85 days. At the end of the second quarter, we had cash and cash equivalents of $27 million and total debt of $173 million resulting in a net debt position of $146 million. This is a $1 million decrease from a net debt position of $147 million at the end of the first quarter and the lowest our net debt position has been in two years. Currently, our incremental borrowing rate is 1.6% and our leverage ratio is 2.1x.

I'm comfortable with these debt levels based on our ability to generate free cash flow. Our historical range for our leverage ratio is 1.5 to 2.6x.

Total availability under our line of credit, which expires in March of 2017, is $400 million. At the end of the second quarter, the unused portion of the line was approximately $223 million. During the second quarter we repurchased approximately 210,000 shares or just over 1% of our shares outstanding for approximately $6 million. We currently have authorization to purchase approximately 425,000 additional shares.

Over the last two and half years we have invested over [$60] [ph] million to repurchase 2.4 million shares or approximately 14% of our shares outstanding. Repurchases may continue to occur from time to time depending on factors, such as cash flow, share price, other potential uses of cash and general market conditions. While we may continue to repurchase shares for the foreseeable future, there can be no assurance as to the timing or amount of such purchases.

Now, I would like to provide guidance for the third quarter and the full year of fiscal 2014. For the third quarter we are targeting reported revenues of $230 million to $235 million and operating EPS range of $0.45 to $0.50. This operating EPS range includes stock-based compensation expense of $1.5 million, interest expense of $1.3 million and an expected operational income tax rate of 39.5%. We expect capital expenditures of $1million to $2 million and our expected weighted average shares outstanding is $16 million. Our third quarter guidance includes an approximate 7% to 8% decrease in organic revenue from the same period last year.

For the full year of fiscal 2014, we are targeting reported revenues of $955 million to $965 million, an operating EPS range of $2 to $2.10. This operating EPS range includes stock based compensation expense of $6.8 million, interest expense of $5.3 million and an expected operational income tax rate of 39.5%. We expect capital expenditures of $7 million and our expected weighted average shares outstanding is $16.2 million for the full year.

Our annual guidance projects an approximate 3% to 4% decrease in our organic revenue for fiscal 2013. This guidance excludes restructuring charges, intangible amortization, write off of joint venture interest and the impact of changes in the fair market value of our interest rate swap. It is also before any new merger and acquisition activity that has not been announced.

Now I’d like to turn the call back to Mike.

Michael McAndrew

Thanks Tim. This is an important time for Black Box. In the last nine months we have introduced a clear and cohesive strategy to align our resources and grow our business. We made initial investments and programs and measured the early returns. At the same time, our team continues to provide our clients with world class product and service solutions to solve the communication challenges. Our growth programs have been successful and we have identified opportunities for additional investments to improve our operational execution.

In the product segment, we have been successful in identifying and on boarding new sales people. However, pipeline build has been slower than expected. We attribute the difference to our aggressive expectation on the ramp up time required. I am committed to investing additional resources to continue training and provide marketing support to our product sales teams.

We will also add new counter sales people as we identify them. I believe our direct sales effort is approaching critical mass and expect incremental investments to have a compounding effect on results. In the service segments we’ve been successful with our Cisco and wireless initiatives. Over the last six months we’ve identified certain areas where we would benefit from additional resources to process all the opportunities generated by the field.

We’re making investments in additional engineering and specialized sales talent to deepen the resource pool available to our clients. The process and manpower constraints will enable our field to respond quickly and effectively and we expect improvements in pipeline opportunities and win race.

As announced last quarter our UCaaS solution are in place and provide Black Box with a position in a fast growing segment of the market. We’ve already built pipeline in this area and we continue to invest in tools and training with our partners and team.

Finally, our growing confidence and our ability to deliver new solutions opens the door to a more innovative go to market strategy. We’ll continue to make additional investments in new growth programs and building our capacity to grow. For example, the sales and marketing engine in our North America Commercial Services business will benefit from programs that we’ve initiated in the back half of fiscal 2014. We plan to expand our ability to let our existing and potential new customers know about our proved capabilities with additional marketing and more effective sales approach.

We also continue to explore additional product and service solutions that will drive new client conversations in fiscal 2015. We can do this within our proven framework for incorporating and successfully cross selling new solutions. The investments that I just discussed are critical tour of business and their expected impacts have build into our guidance for the remainder of 2014.

We are making progress in our mission to transform Black Box into a more relevant and effective solution provider. Our team remains focused on generating new client opportunities and building momentum into the New Year.

Our strategy is sound and are confident that our investments and client development initiatives as well as our own infrastructure will accelerate the pace of our transformation.

Now I’d like to open up the line for questions.

Question-and-Answer Session

Operator

(Operator Instructions) We will go to the line of Greg Burns at Sidoti & Company.

Greg Burns – Sidoti & Company

Good afternoon. Just when we look at the revised guidance for the full year what percent or portion of that is attributable to, the decline is attributable to the federal government as opposed to the commercial segment of the business?

Michael McAndrew

Yes, if you look at our guidance coming down about $50 million from midpoint to midpoint Greg, I would say that we have about $20 million tied directly to the fed, another $5 million or so is related to this ramp up sort of behind the ramp up pace that we have predicted for a TPS sales teams and then the remainder $25 million rests around our commercial services and non-federal clients on the service side.

Greg Burns – Sidoti & Company

Okay, and you know when you look at the - what’s going on the federal level a lot of the stuff that, I guess you’ve seen lower opportunities, but the stuff that’s being pushed out is there only sense of when this might close, do you expect fiscal 2015 to be better than ‘14 or is there really no visibility into that right now?

Michael McAndrew

I’d say that’s a difficult one to go out that far, I mean, we had tempered our expectations coming into the year around the fed, but I would say that typically even in the last several years when there’s been some pressure there on the services side this is a key quarter for us to build backlog, typically backlog is built up, you know from 1 Q to 2 Q around that September budgetary year end of 6 million to 10 million in the last couple of years that did not occur, there are lesser opportunities, we feel we are in a position to win some of those, but candidly you know we’re not sure what the timing of those will be and given we are now ramping up October, the impact on the back half of the year will be - not help basically with what we have, what we’re pursuing today, so I think we’ll be reading this whole process over the next several quarters, I mean the shut down, the budget situation, the spending cap - and we’re down in January I think, who knows what we’ll be faced with, there will be a similar event to what we saw here in September, if they’re kicking the can down the road relative to some of these decisions.

Greg Burns – Sidoti & Company

And so, I guess you mentioned that the fed is historically been about 20% of sales that’s still the case or at this point given the declines we’ve seen over the last couple of years, is it a lesser percent of your overall business at this point?

Michael McAndrew

Yeah, I think when we get to the end of the year you’ll see that come down, I mean three years ago it was probably running 25% or more so that mix if you of federal revenues is coming down as we see a greater reduction in that particular part of the business.

Greg Burns – Sidoti & Company

Then on the solutions practices, I guess earlier in the year the implied guidance was for about 20% growth on like a $100 million base between Cisco and the wireless products, is that still good, is that still where we are going to end up the year or are you also not a little behind in that -- on the solution…?

Michael McAndrew

I would say we have line of sight right now for our probably mid teen growth in those two particular practices based on what's going on. We highlighted some of the pipeline activity and backlog. So, we feel good about those areas where we have made investments and seeing, I mentioned our team adopting this strategy, advancing these solutions into our installed base where we continue to see some headwinds relative to demand in the general UC marketplace.

So, to answer your question directly, we would expect to be in the neighborhood of our targets around the solutions practices when we wrap up the year and that’s what's included in our guidance here today.

Greg Burns – Sidoti & Company

Okay. And you mentioned the backlog and the pipeline growth, but in terms of conversion, has that been improving? Have you been converting these opportunities at a faster pace or is it kind of the overall softness in the market affecting that? Can you just give us a sense of how you are burning this revenue?

Michael McAndrew

Yeah. I would say as it relates to the opportunities we are getting from our field offices which is newly introduced. We are in early stages there so I think it would be premature to actually identify a particular conversion rate there but the fact is that we are far enough long that we see an opportunity, we have engaged the solutions practices and have proposed a bid for that solution. So, I think it will be another quarter or two before we get a sense of what the conversion rate is from timing of pipeline to backlog to revenue in some of these opportunities.

Greg Burns – Sidoti & Company

Okay. And you mentioned, now you have this platform in place layering in some other solutions what other – where else are you looking to, in terms of technology, for opportunities to layer into your solution practices infrastructure?

Michael McAndrew

So, we wanted to get out the gate, demonstrate that you know fundamentally the framework that we put in place here over the last two to three quarters would be effective. We feel good about the performance relative to the engagement with our sales teams. So now we are at a point to say we have a framework we are comfortable with, cross selling seems to be an effective approach relative to the way we have our solutions practices in some of our incentive programs put into place. And so as we kind of put a check mark there, if you will, we are looking at putting other practices in place. Really nothing new here, Greg, we talked about managed services and really having a true solutions practice around a Black Box wide managed service offering; we continue to look at expanding our capabilities in the data center. And also, with everything going on in the wireless space, looking at opportunities to expand beyond the enterprise which is where we are focused today to relationships with third-party providers aka the satellite guys, the tower guys, and also the carriers so expanding our addressable market in the wireless solutions area.

Greg Burns – Sidoti & Company

Okay thanks, I’ll hop back in the queue.

Michael McAndrew

Thanks Greg.

Operator

(Operator Instructions) We will go back to the line of Greg Burns.

Greg Burns – Sidoti & Company

The expected, the plan restructuring going forward, I guess what you talked about this quarter. What is the good run rate for SG&A, will there be any savings or is that all going to be kind of plugged back into the growth areas of the business? How should we think about that going forward?

Michael McAndrew

Yeah, I would expect that SG&A will be at these levels. It may be slightly higher as we introduced some of these additional sales engineers, sales specialist and so we are taking certain cost out in areas where we are not seeing growth and reinvesting them in these areas that we see real opportunity.

Greg Burns – Sidoti & Company

Okay. And in terms of the hosted partnerships, do you have with Mitel and GENBAN, is there a difference between those solutions or are they just kind of roughly different flavors of the same sort of offering?

Michael McAndrew

Yeah. They are functionally very similar, architecturally behind the scenes a little bit different. I would say that we see the Mitel solution as a really strong offering in our F&B base and GENBAN with -- they are experience with the carriers and their platforms to be a real strong candidate at the enterprise level. So really if you look at the market that way, we feel like we have two really good partners as it relate to that particular offering.

Greg Burns – Sidoti & Company

So are those partnerships contributing meaningful revenue yet or it's just too early?

Michael McAndrew

Too early, I did mentioned pipeline. We have, I think about $20 million of opportunities out there around the UCaaS offering. So nothing is converted at this point but I have found particular clients that are interested in exploring that as an alternative.

Greg Burns – Sidoti & Company

Okay. And just lastly on the government, I just wanted to get a sense of how much of what you are saying was the result of the government shutdown, or how much is – was for just the general decline in the government, is there any particular events or – I think the government still weak?

Michael McAndrew

That’s a really good question. I think something we have been kind of wrestling with. Clearly the shutdown impacted us during the shutdown and candidly have not seen -- products business in particular. Have not seen even pre July levels yet. They have been back whatever 10 days or so. We had a number of bid out there. We worked through the quarter with the Federal government and I am not sure that the anticipated shutdown or the debt ceiling drove our inability to capture those opportunities, I think we had a number of larger deals that they would take a piece of not the whole thing. So it was clearly a lot of scrutiny going on to expenditures on the IT front, on the Federal side moving into the shutdown and the debt ceiling issue. So I am not sure how much of that was anticipation of that or just a general reduction in expenditures. So I don’t have a clear answer on that but clearly in front of the shutdown we saw different behavior than we have seen historically.

Greg Burns – Sidoti & Company

And, I guess the larger project type orders that you saw there, they are still out there, I mean, having the loss they are still just the –?

Michael McAndrew

Yes, they are still hanging out there.

Greg Burns – Sidoti & Company

On the commercial side of the world I just wanted to, I guess, what do you think is just – I am just trying to get a sense of what do you think is closing the office there because it seems it stabilize over the last couple of quarters in margin and revenue but now we are kind of thinking next – another step lower here, is there anything in particular that you see out there that is impacting that spending cycle.

Gary Doyle

Hi Greg, before Mike answers that question, we’re going to ask you to jump back into the queue if you have another question and we’ve someone else waiting to get in.

Greg Burns – Sidoti & Company

Okay sure.

Michael McAndrew

Let me take that. We’ve been talking about longer sale cycles and talking about primarily the UC market through a couple of years here. One thing that we can point to is, we were a fair amount of success around the medical industry hospital in particular and I would say in the last quarter or two we haven’t seen what was a more traditional sales cycle in that vertical sort of behave like a lot of the other verticals in extending decision making and visiting opportunities. So it’s more of the same, no doubt you see continuous to not hit the top priority areas for CIOs, I think that’s clear from some of our technology partners results and also surveys from a lot of other parties validated by our experience with the client. So I think we’ve factored in but again our backlog decrease was really around our commercial business so we chewed up backlog and were unable to fulfill it up. I don’t think its competitive landscape has changed dramatically, it’s the same cast to characters. There’s fewer opportunities and we continue to see our client extending the life of their existing communication infrastructure.

Greg Burns – Sidoti & Company

Okay, thank you.

Operator

We will go next to line of Andrew Fleming with Heartland Advisors.

Andrew Fleming – Heartland Advisors

Mike, how are you?

Michael McAndrew

Hi, Andy.

Andrew Fleming – Heartland Advisors

I’m just curious, it sounds like most of the miss this quarter or the drop in revenue year-over-year was attributed to the federal government. I’m just curious, do you view that as revenue that’s simply gone or pushed out?

Michael McAndrew

Well, that is a difficult one, the demand is definitely down, and I’m not sure the – I think, there is going to be, continue to be scrutiny on where spending is occurring on the federal side. So until there is an established framework for budgetary activity, I would say that we should not expect that to behave like pent up demand in the near term.

Andrew Fleming – Heartland Advisors

Okay. Also if I look at your balance sheet today, very strong, how do you prioritize buybacks versus a potential increase in the dividend today, how are you thinking about that?

Michael McAndrew

Yeah, we continue to look at that, you can see, we sort of built the cadence here relative to a measured approach to share repurchases, we have increased our dividends on an annual basis for the last three years, three, four years and I would say our debt cost of borrowing is very well. So I think you should expect us to see a continued approach consisting with our diverse approach to capital deployment. So --

Andrew Fleming – Heartland Advisors

Okay, great. Thanks.

Michael McAndrew

Okay.

Operator

And gentlemen there are no further questions in queue from the phones at this time.

Gary Doyle

Okay. Well thank you everybody for your time today. As a reminder, our press release has been filed on Form 8-K and is available on blackbox.com. On the IR front we will present at the Southwest Ideas conference in Dallas on November 20th and 21st and Mike will present at the Bank Montreal Technology conference in New York City on December 11th and 12th. We will send out press releases with more details as these events get closer. Thank you again and this concludes today's conference call.

Operator

Thank you. And ladies and gentlemen today's conference will be available for replay after 7 PM Eastern time this evening running from November 1st at midnight. You may access the AT&T teleconference replay for today anytime by dialing 1-320-365-3844 with the access code of 304730. That phone number again is 320-365-3844 with the access code of 304730. That does conclude your conference for today. Thank you for your participation and for using AT&T Executive Teleconference Service. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!