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Digital Cinema Destinations Corp. (NASDAQ:DCIN)

F2Q 2014 Earnings Conference Call

February 12, 2014 16:30 ET

Executives

Rob Rinderman - Investor Relations, JCIR

Bud Mayo - Chairman and Chief Executive Officer

Brian Pflug - Chief Financial Officer

Analysts

Mike Hickey - Benchmark Company

Jim Goss - Barrington Research

Kevin Rippey - Maxim Group

Kyle Mowery - GrizzlyRock Capital

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Digiplex Fiscal 2014 Second Quarter Results Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (Operator Instructions)

I would now like to turn the conference over to Rob Rinderman from Digiplex’s Investor Relations firm, JCIR. Please go ahead.

Rob Rinderman - Investor Relations, JCIR

Thank you, Sarcy. Today’s presentation may contain forward-looking statements related to the company’s future operating results. Such statements are based upon current expectations and assumptions and may involve certain risks and uncertainties within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. These risks and uncertainties are detailed from time-to-time in our SEC filings.

Digiplex’s actual performance may differ materially because of these or other factors as discussed in the Management’s Discussion and Analysis section of our filings, copies of which can be obtained from the SEC or via digiplexdest.com. All information discussed is as of today, February 12, 2014 and the company undertakes no obligation to update any statements or expectations from prior conversations. Today’s call is being webcast live over the Internet and a replay will be available on our corporate website for a minimum of 30 days.

I will now turn it over to Chairman and CEO, Bud Mayo, who is joined this afternoon by CFO, Brian Pflug. Bud?

Bud Mayo - Chairman and Chief Executive Officer

Thank you, Rob. We appreciate everyone joining us today. At the conclusion of my opening remarks, Brian will provide additional color on Digiplex’s fiscal Q2 financials, which will be followed by our usual Q&A. For those of you who have been closely following our consistent circuit growth and operational progress since inception, today’s reported results should be relatively in line with your expectations. We are still in the early stages of Digiplex’s planned growth and development for both our digital cinema platform as well as our verticals in distribution and alternative programming, but are firmly on track with our strategy and execution on all fronts. It was a relatively quiet quarter in terms of actually closed acquisitions. In fact, the company’s weighted average screen count was flat sequentially compared to our September and June quarters. We closed one previously announced purchase in late December adding our six Pennsylvania locations.

As we mentioned in the past, predicting timing of future transactions could be challenging. And you should expect this lumpiness trend to continue as we announced future additions to Digiplex’s growing digital cinema platform. We remain very active on the M&A front on a daily basis. As mentioned in the quarterly results announcements, the company’s pipeline is very robust. We are engaged in numerous high-level conversations with motivated theater sellers and landlords that are interested in landing Digiplex as a marquee anchor tenant. We plan to harvest any and all acquisition opportunities provided we see a path to achieving our required financial return beginning in year one.

Our strategy has been to typically disclose acquisitions after an asset purchase agreement, or APA is signed. During our rigorous internal and external due diligence process, we occasionally uncover certain issues that may cause us to renegotiate financial terms or in rare cases to actually terminate the APA. After signing an APA on a Daytona, Florida property, we subsequently became aware that another cinema chain is in fact proceeding with the building of a new state-of-the-art location in the same market. We have understandably elected to terminate this agreement. We believe this is a prudent long-term decision that is in the best interest of Digiplex and our stakeholders. It is less likely that we would be able to deliver our previously anticipated ROI if we are to split the market with a formidable competitor.

Also subsequent to quarter end, in February, our JV reached an agreement to sell its 7-screen Mission Valley, San Diego theater back to an UltraStar affiliate. The consideration to be received is similar to the original purchase price. The JV had been operating a theater under lease in which the landlord had an early termination option. Primarily for that reason, most of the share consideration paid in the 2012 transaction was being held there under long-term escrow agreement. Those shares will now be returned to the joint venture. It is worth noting that this location has not matched our anticipated cash flow expectations at the time we acquired it in December 2012. Our corporate operations and integrations teams are energized by the planned addition of approximately 40 screens we expect to close in the coming months. And we expect to add many additional new locations and screens in top 100 markets during 2014. We continue to strongly believe that our acquisition and operating plans combined with prudent management of our capital structure is a great formula for sustained long-term growth and increasing shareholder value.

Digiplex will continue to pay a reasonable multiple of historic theater level cash flow for attracted assets in leading markets. We remain committed to identifying and acting on new opportunities to create further value, but we will not expand our circuit merely for the sake of bulking up nor are we interested in constructing our own new theaters. As you know a major differentiator for Digiplex is our commitment to verticals in alternative programming and content distribution. As a company we have been organized very differently than others from inception to increase capacity utilization during off-peak periods and to generate continuing revenues long after our curated DigiNext JV content leaves our theaters by building our own global direct-to-consumer platform to complement and increase our control over traditional digital distributions.

Digital Cinema has always been more about choice for our customers and more opportunities for exhibitors who understand and are built to apply the newest technologies to their customers delight. No other company large or small is better equipped than Digiplex to exploit the opportunities using every available digital era means to identify, communicate with and cultivate new audiences in every channel. We are peaked at the future and proud of our progress not just in terms of screen growth and operational improvements, certainly are there, but of the in-house talent and expertise that is gradually taking Digiplex to an entirely different level as a vertically integrated entertainment company.

I will be hosting an educational session at the upcoming CinemaCon theater industry convention entitled everything you wanted to know about alternative content what we are afraid to ask. Digiplex is proud to be a clear leader in this type of programming and a very successful early adopter. I believe it is mutually beneficial for us to share knowledge and best practices with our fellow exhibitors the better alternative programming performs today, the more likely producers will be to both fund and help market it in our theaters tomorrow.

Alternative programming accounted for approximately 4% of total admissions receipts in fiscal Q2 circuit wide. We have typically only reported the percentage for those locations we have been operating for 12 months or more through their relatively steep learning curve in educating audiences, the extensive training of our theater little teams and lastly the additional time required to install the required digital technology software and systems. Given this quarter’s alternative programming performance, it is apparent that we have been improving the process of shortening the learning curve and speeding up our educational and technological introductions. Perhaps most importantly, it is worth reiterating that alternative programming is designed to replace content that is not performing well with programming that on average outperforms what is being replaced by a factor of more than 10 times at a ticket price 50% higher.

Taking a closer look at the December quarter Digiplex’s top grossing alternative programming revenue contributors were once again a diverse mix. The highly touted Bollywood production Dhoom 3 was the top performer followed by Dr. Who: The Day of the Doctor, another Unstoppable Live, a faith-based feature starring Kirk Cameron and two Metropolitan Opera productions Tosca and Eugene Onegin, I am not going to try to pronounce the Russian title, but rounded out our top five. I believe it mention – I believe I briefly mentioned our DigiNext JV earlier, which released it’s first feature film last December with assistance from our distribution partner, Screenvision.

We are delighted that A Miracle in Spanish Harlem recently guarded the DOVE Foundation nomination under the best limited release category. For those of you not familiar with DOVE, this group specifically recognizes and rewards movies that are suitable for family audience. Last week, we re-released A Miracle in many of our Digiplex locations and we are excited about its potential to generate ancillary revenues in the U.S. and nearly 70 other countries, where DigiNext content is available for purchase. In addition to re-releasing the Miracle, we are bringing back Kinderblock 66 in April to honor Holocaust Remembrance Day on April 27. We are also in the process of planning a May release of our sponsored documentary, American Nurses, which honors nurses from all disciplines and it will be released in time for Nurse Recognition Week. Next quarter, I will fill you in on more exciting developments and other coming attractions.

Before turning it over to Brian, I also want to update you on some recent discussions we have been having with respect to the lenders and capital sources. As part of this process, we are seeking a multi-draw facility to fund our future or to at least help fund that future. Our discussions have been with lending funds without the use of equity kickers, but with higher interest rates than banks. We have not yet attracted any commercial banks in our search. We plan to report back to you on our progress on this part of our financial plan as we intend to make a final choice on which lender is best suited to assist us later in the quarter.

In terms of movie slate performance, the March quarter is off to a solid start running ahead of the prior year by low double-digits. There was a strong early 2014 follow-through from Frozen, which was released over the Thanksgiving holiday, but continue to perform well until just recently. And other noteworthy year-end releases included The Hobbit: The Desolation of Smaug, Lone Survivor, and Oscar-nominated American Hustle. Ride Along and Lego Movie have been the top 2014 releases thus far, with RoboCop debuting actually today.

That concludes my planned remarks. Brian will now discuss our fiscal Q2 financials.

Brian Pflug - Chief Financial Officer

Thanks, Bud and good afternoon everyone. Our fiscal Q2 2014 includes a full quarter of operating results from the majority of our current circuit, the only exception being the late year addition of our entertainment center in the Harrisburg, Pennsylvania DMA. Our comparable year ago quarterly financials were based upon 96 weighted average screens factoring in a rolling close of our acquired UltraStar locations in December 2012. As of December 31, 2013, our full circuit consisted of 20 locations and 192 digital screens in six states with several announced acquisitions not yet closed as Bud mentioned earlier. Approximately, 40% of our total screens are 3D compatible. We have one IMAX premium large-format auditorium, D-BOX 4D seating at 30% of our locations and ButtKicker 4D seating at one.

For fiscal 2014’s Q2, our total revenues amounted to $11.2 million, including admissions of $7.6 million, concessions of $3.2 million and the balance from other revenues, primarily advertising and theater rentals. Our current circuit is generating a top line annual run rate in the mid to upper $40 million range and that will rise as we close previously announced purchases and sign additional APAs. Digiplex’s box office per patron grew again in fiscal Q2 rising 2.9% to $7.93. Average admission price was positively impacted by a combination of our entry into more affluent demographic areas and continued success of premium priced alternative content, which typically has a higher ticket price compared to standard movie fair.

Film run expense was $3.9 million, or 51.9% of admissions revenues compared to 50.5% last year. Our film margin includes the benefit of virtual print fees, where we own and funded the digital projection systems. The uptick was primarily due to a combination of a lower percentage of screens receiving DTS and product mix. Our film run is impacted by our percentage of screens receiving DTS as well as the blend of Hollywood independent alternative programming during any given period. Fiscal Q2 cost of concessions represented 18.4% of concessions revenues. The change in gross margin percentage was largely a function of promotions, giveaways and an increase in supply cost. But over the long run we expect our gross margin on concessions to approximate the industry average in the low to mid 80s. Importantly, our per patron concession sales rose 5.8% to $3.31 marking the fourth consecutive quarterly increase for this key metric.

In general we have been benefiting from an improved strategic mix of product, pricing and promotions which have contributed to a gradual increase in concession revenues and better forecasts. G&A costs amounted to $1.3 million for quarter including approximately $200,000 of non-cash stock-based compensation expenses and merger and acquisition related costs. Digiplex earned $275,000 of management fees during the quarter. These fees reduce G&A but for SEC reporting purposes are not shown that way since we fully consolidate the JV owned theaters. But the calculation is included in the adjusted EBITDA reconciliation of our quarterly release.

You should expect some level of M&A related expenses for the foreseeable future as we continued to expand our circuit. With enhanced economies of scale and a season management team already in place G&A costs are continuing to decline as a percentage of revenue. In fact in the December quarter our G&A net of management fees is sub-10% of revenue and as a percentage of revenue has declined by over 40% compared to the December 2012 quarter. Importantly with our operating infrastructure largely in place, we expect an increasing percentage of theater level cash flow from future acquisitions to add to the company’s bottom line results further enhancing profitability and margins.

Fiscal Q2 depreciation and amortization expense was $1.4 million and with our ongoing M&A strategy this metric will continue to trend higher. These non-cash charges are benefiting the company by adding to our net operating loss carry forwards which total about $6 million currently shielding us from paying cash income taxes for the foreseeable future. Interest expense on our $10 million of notes outstanding it’s actually $9.4 million as of 12/31, was $348,000 which includes $76,000 non-cash component. As Bud alluded to earlier we are in the process of seeking more attractive and expanded debt financing to both lower our cost of capital and help us fund future growth.

Our quarterly operating loss was $888,000 and our net loss was $1.4 million or $0.14 per diluted share based on 7.6 million weighted average diluted shares outstanding. Our share count rose following the successful completion of our registered direct offering in excess of 1.1 million common shares and also our acquisition of the Mechanicsburg theater in December.

Taking a look at your two key reported non-GAAP measures theater level cash flow rose 24.8% to $1.9 million and adjusted EBITDA rose 48% to $950,000. These metrics demonstrate the accretive impact of our industry consolidation strategy. You can find reconciliations to our reported GAAP results in today’s news announcements. Our total attendance rose 60% in Q2 versus the year ago quarter. It’s worth pointing out that on a per screen basis, the fiscal 2013 reported average attendance was an anomaly due to the timing of the UltraStar acquisition which occurred amidst the holiday cinema going season pushing the per screen attendance higher during one of the busiest times of the year and setting up an unrealistically difficult year-over-year comparison.

This concludes our prepared remarks. Operator, you can open the lines to questions now.

Question-and-Answer Session

Operator

Thank you very much. (Operator Instructions) And our first question comes from the line of Mike Hickey with Benchmark Company. Please proceed with your question.

Mike Hickey - Benchmark Company

Hey Bud, Brian, and Rob. Thank you guys for taking my questions. Just curious Brian on the attendance per screen if you were to back out that anomaly, I am not sure you did the math or not, but can you give us kind of attendance per screen X anomaly that was in your prior quarter last year?

Brian Pflug

Mike, I haven’t done that math and I have that available for you to actually quote a number, but I think if we were to remove the UltraStar component of that or somehow smooth that as if we had to own that for the whole quarter, I think you would find that attendance per screen is that it certainly would not have gone down by anything like what those numbers show, but I would actually have to do that math. So I can’t comment on that.

Mike Hickey - Benchmark Company

Okay. It’s fair enough. Just curious if you could kind of speak to the kind of profile of the seller market, obviously ‘12 and ‘13 were great years for the box office, ‘15 looks also to be exceptional, we will see about ‘14 we obviously had a good start here, but do you think the – given the strength of the box that the sellers kind of have rationalized expectations here or they kind of is there too big of a spread so to speak between the bid you ask or any insight there would be helpful?

Bud Mayo

Well, let me address that, Mike. Our negotiations are typically with the owners and generally the founders of smaller family-owned movie theaters. And we have not seen any attempt to change the valuations. I think when you have reached a certain point in your career, you are looking for an exit, you are looking for credible exit with people you know. That’s been the way we have done business and the way we have been able to build the circuit from the 19 screens we started with which are all – we are also done that way. So sitting across a kitchen table or a conference table, we have done okay and we have built the pipeline substantially in exactly the same way. As I may have mentioned earlier in calls, we don’t really do that well when we get into an auction and frankly tend to stay away from those, because of the competitiveness, the funding, the need to be able to demonstrate write off your balance sheet that you can do something. We tend to do a lot better with these smaller ones and we are doing fine. And a long answer to a good question.

Mike Hickey - Benchmark Company

That’s great. Thank you. Thank you, Bud. I think you mentioned 40 screens through year end, so is that kind of a realistic quote that your screen count today for a year end screen count. And then I know visibility is obviously difficult and these deals can extend for a while, but do you have any sort of goal for ‘14 ending screen count at this point?

Bud Mayo

So are we talking about fiscal – our fiscal June 30, ‘14?

Mike Hickey - Benchmark Company

Yes.

Bud Mayo

Well, I think 40 is a safe number. I think we can beat that. We certainly – based on conversations we are currently having certainly deals that would reach the level of announcability that is we have a firm contract, expect to add some. So I mean, certainly that number is about as far as I am comfortable going right now I think, because even after we announced them they are still in the closing process. So I would say I’d stop right around there, 240, 250 screen something in that range would be a reasonable target for the balance of this fiscal year.

Mike Hickey - Benchmark Company

And then did you have a perspective on your forward fiscal year?

Bud Mayo

Well, I certainly have a perspective, but I am loathed to share that. I always get bitten when I do that, because as I said earlier in my prepared comments, the lumpiness, if you are doing this right, it’s going to be lumpy. It’s just the way it is if you do it right. If you are just chasing numbers, then you have a different perspective. The other is that we have limited resources and we cannot afford to be terribly aggressive even when we would like to be. And there are situations where we would like to be but we have had to remain disciplined and stay within ourselves and just continue to grow.

Mike Hickey - Benchmark Company

Fair enough. The last question for me is on the budgets, just curious your perspective on the 3D environment, it looks like film count is down this year in ‘14 and there is always the specter of fatigue, it’s great headlines, but I think there is maybe some believability that maybe that market is taking a bit and of course the premium ticket is nice to your overall pricing, but just if you could share with us your perspective on how you see how that market, submarket on 3D taking shape for ‘14?

Bud Mayo

Well, First of all I think it’s here to stay when we buy a theater we make sure that at least 40% of our screens are equipped to play 3D. And then after that as most people who know me know that I am a content guy. I care about what’s up on the screen I mean everything else is ancillary, it doesn’t mean that I am averse to putting in better seats or nicer ambience or better food, but it’s all about content. And that goes true and certainly holds true for 3D. If people want to see the movie they are going to come to see it. If they need to see it as they did for Gravity for example even in an older audience environment they are going to put on the 3D glasses and pay that premium. So it’s incumbent upon the filmmakers to make movies that really get people to want to see them in 3D. And I think that quality will trump quantity any day. And right now the lineup for the number of 3D movies this year is relatively small compared to last year from what I can see although that could change. The quality of some of those titles look very exciting for us and so we may see fewer titles, but I will be willing to bet that we will see at least comparable revenues in the current year from 3D.

Mike Hickey - Benchmark Company

Okay, thanks Bud and thanks guys. Best of luck.

Bud Mayo

Thank you.

Operator

Our next question comes from the line of Jim Goss with Barrington Research. Please proceed with your question.

Jim Goss - Barrington Research

Alright, thanks very much. First, I was wondering with regard to the Daytona property, is there an opportunity you might have to consider renegotiating the price rather walking away totally even if it meant sort of getting out of the first contract for that reason and starting over. Given that if the other theater isn’t there and the existing property would have an incumbency advantage maybe would have some value, but it would have been lessened by the potential competition?

Bud Mayo

We did offer to talk about that and the seller declined.

Jim Goss - Barrington Research

Okay, so dumb for now. Are there any particular target markets that you think would be priorities maybe not specific towns, but geographies that you think should be filled in to complete your path to having a nationwide presence?

Bud Mayo

Oh sure, I think let’s start with the NFL cities I mean that’s a pretty good blueprint for where we want be and certainly in those DMAs. So we have announced a theater just outside of Pittsburgh, another market we want to be in. We are looking throughout California and up the Northwest, we want more of a presence in Florida places like Atlanta, places obviously like Chicago, the Greater Detroit Area. We are looking at theaters in certainly – I mean at this stage we have – the world is our oyster. I mean we have just lots of opportunities and what we need to do and can afford to do now is to pick the best ones where the best banks for the book are for us both in terms of operating results and location. No question that once we get to 500 screens or get closer to our goal of the 1,000 screens at some point that the choices will be fewer, because we will already be in many more markets. And so they will be an obvious target. For example, if we are not in New York City proper, if we are not in LA proper, there is no doubt that we will want to make a deal in those DMAs and we will likely have to pay a premium. We can only hope that our cost of capital will allow us to do that. But again, being patient and being deliberative and being committed to one thing and one thing only and that is creating shareholder value with every step we make is really our mantra.

Jim Goss - Barrington Research

Okay. And Bud, one of the surprising things I think some people have said, you have been able to maintain a pretty aggressive pace of expansion, I think there was some concern that maybe it would have to be slower at the beginning as you evolved into a larger company at which time you would be able to step up with the higher pace of acquisitions. I think partly it seems that you have been able to get pretty attractive prices than some of the earlier properties, which have allowed to generate more property acquisitions than some might have thought possible. And it would seem like it would evolve to a point where you either can afford to pay the higher prices as you get to be a bigger company or maybe can continue this more rapid pace. And I am wondering if you want to talk about how that process evolves since that’s the big value driver for Digiplex right now?

Bud Mayo

Well, those who know us know that when somebody says we can’t do something, we do it and that’s the challenge we readily accept. And that’s not only today or two years ago or three years ago, we started Digiplex, but also tomorrow. We are going to continue to grow. We have a clear roadmap for doing that. We have lots of people in the industry who respect us and we guard that respect and credibility jealously, so that anytime we do make a move or make a commitment or shake hands on a deal, it’s going to be based on truth and transparency. So if we do happen to find a larger group of theaters as we did on two different occasions, the Cinema Centers deal back in 2012 and the UltraStar deal later in 2012. We have the ability to ask them to stand still while we can put together some kind of favorable financing to make the deal happen. So in both of those cases, it took more than a year for us to actually get them as they are larger. They were not one-off transactions. The Cinema Centers deal was five theaters, really good theaters that have performed well for us. And the UltraStar theaters were seven less one that we have traded back. Those sellers, because they knew us for years were willing to wait, because we said we thought we could do this at a fair price and we move forward accordingly. We just have to keep doing what we do and thank you for acknowledging. We have been able to do some of that, we appreciate that acknowledgment. We are very proud of the progress we make and we are not going to sit back on our laurels, I mean, we just have to keep going and if anything try to accelerate the process of value creation.

Jim Goss - Barrington Research

Okay. And just one last thing, if anybody attends your speech at CinemaCon, if they know you or they hear anything they wouldn’t have heard before?

Bud Mayo

I think so. I have got about a half hour to be entertaining and informative. I am not going to give away our secrets in the process that we worked hard arguably for 15 years to develop, but we are certainly going to help create that roadmap for other exhibitors if they choose to do the work and the make the investment that we have made over the last three or four years.

Jim Goss - Barrington Research

Alright, thank you much.

Bud Mayo

Thank you.

Operator

And the next question comes from the line of Kevin Rippey with Maxim Group. Please proceed with your question.

Kevin Rippey - Maxim Group

Thanks for taking my call. Yes, looking at the concession margin as you guys build out your footprint how low can that go I know you mentioned the mid-80s, but is that a matter of time, is it matter of scale or how are you thinking about it? Thanks.

Bud Mayo

Brian?

Brian Pflug

Well, we are probably getting about as good pricing as we can reasonably get. We can probably improve concession margins a little bit. But as we go to widen out the offerings we have certain pretty unique offerings to Bollywood customers for example. And that stuff will cost us a little bit more, but the per cap is going to go up. We shouldn’t ignore the fact that even if our concession margins suffer a little bit if the per cap is increasing we are still benefiting that bottom line by bringing in more dollars albeit sometimes lower margin dollars. So there could be a little improvement here, I don’t think we are going to see going, if we are at an 18% cost now maybe that could be a percent better than that, but I wouldn’t expect anything a lot more than that.

Kevin Rippey - Maxim Group

Thanks.

Operator

(Operator Instructions) Your next question comes from the line of Kyle Mowery with GrizzlyRock Capital. Please proceed with your question.

Kyle Mowery - GrizzlyRock Capital

Good afternoon Brain and Bud. My question pertains to your comments regarding the credit facility you guys are working on, it seems like it’s a bit of (indiscernible) between a true mez deal with equity kicker and the commercial deal is that really predicated on your desire that flexibility i.e. to grow the facility otherwise clearly you are willing to pay up for rates higher than a commercial bank would give you, is that the reason or is just a size issue at this point?

Bud Mayo

The answer is we would like to have something other than equity as currency. And in particular since despite our growth rate since going public the stock has remained at its current levels and we are very aware of the one year BWAP and six-month BWAP we watch these closely and recognize that the mandate is to grow. And how do we do that, by introducing some leverage into equation without the equity component in order to secure that debt. We now have some currency and if we can insert into the equation alongside of the equity that is always going to be a piece of this.

So how do we step up the return on the issuance of equity, even at market levels that we think are undervalued, part of that is to recapture it from the price we can pay for theaters and the other part is to introduce some element of leverage. So these we are not ready for banks, we have not received proposal from any of the banks that we have talked to, we are still too small by their standards and too young perhaps to be able to attract a bank despite the fact that we can offer a relationship. So what we are down to or I shouldn’t say down to, where we are is to be speaking to some really good quality debt firms who have made proposal to provide expansion capital. So the process would be to takeout the $10 million that we currently have, reduce that interest rate by some amount although nowhere near as much as a bank would and then to provide a new multi-draw facility.

And all of this would be the typical uni-tranche type financing. And we are entertaining those proposals now. I mean we have been working hard since the fall really putting together something that we thought would be attractive and still do, but again our initial targets were banks, commercial banks but we have not at this point been able to secure one. So we have moved to another level, where we – while it’s more expensive from an interest standpoint, we are concentrating on terms and conditions, availability, amortization schedules, things like that as a bit of a trade-off to what the actual interest rates are.

Kyle Mowery - GrizzlyRock Capital

No, that’s great color, Bud. Thanks for that.

Bud Mayo

What was that? Thank you.

Brian Pflug

Thanks Kyle.

Operator

Mr. Mayo or Mr. Pflug, we have no further questions at this time.

Bud Mayo - Chairman and Chief Executive Officer

Well, I want to thank you once again everyone for joining us and for your ongoing interest and support. Brian and I look forward to updating you again following our fiscal Q3 results and keeping you up-to-date on any news that we have to share with you and we believe some of it will be very interesting to you in the coming months. Thank you very much and have a good day.

Operator

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.

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