Maple Leaf Foods' (MLFNF) CEO Michael McCain on Q2 2016 Results - Earnings Call Transcript

| About: Maple Leaf (MLFNF)

Maple Leaf Foods Inc. (OTCPK:MLFNF) Q2 2016 Earnings Conference Call July 28, 2016 2:30 PM ET

Executives

Michael H. McCain - President and CEO

Deborah Simpson - CFO

Analysts

George Doumet - Scotiabank GBM

Irene Nattel - RBC Capital Markets

Mark Petrie - CIBC World Markets

Michael Van Aelst - TD Securities

Derek Dley - Canaccord Genuity

Operator

All participants please stand by your conference is ready to begin. Good afternoon, ladies and gentlemen. Welcome to the Maple Leaf Foods Second Quarter 2016 Results Conference Call hosted by Mr. Michael McCain.

Please be advised that this call is being recorded. Please note that there will be a question-and-answer session following the formal remarks, and the question-and-answer session instructions will be read after the presentation. I would now like to turn the meeting over to Mr. Michael McCain. Please go ahead.

Michael H. McCain

Thank you and good afternoon everyone. Thank you for joining us here today. On today's webcast we will review Maple Leaf Foods financial and operating results for the second quarter of 2016. The news release and today's webcast presentation are available at mapleleaffoods.com under the Investors section.

Some of the statements made in this call may constitute forward-looking information and future results may differ materially from what we discuss. Please refer to our 2015 annual MD&A and other information on our website for a broader description of operations and risk factors that could affect the company's performance.

As usually is the case, I'll begin with an operations and business overview followed by Debbie Simpson, our Chief Financial Officer, who will provide some key financial highlights. And then we'll open the call to your questions.

If I could turn your attention please to slide number two. During the second quarter Maple Leaf built on our step change in structural margin expansion, drove a strong commercial performance across the business, and we made continued efficiency improvements. We also delivered the most product innovation ever in our history. It was another strong quarter for us that clearly demonstrates the strength of our strategic foundation.

Some of the highlights for the quarter include adjusted EPS which was $0.32 per share versus $0.13 for the same period last year and adjusted EBITDA margin for the quarter which was 10.3%. Our commercial teams continued to execute well. We had strong commercial performance across the business with improved mix towards value added products which drove higher margins.

Our performance this quarter was supported by our enhanced investments in branding, advertising and promotional activity which I will provide some color around in a few moments. In addition we continued to drive operational improvements at our new heritage facility in Hamilton.

As you will see in slide three, by almost any measure we have made excellent progress with strong performance across the board. Sales were up 4% from the prior year to $855 million. Adjusted operating earnings were up 177%, to $61 million. Adjusted earnings per share was $0.32, a 146% increase from $0.13 last year. And adjusted EBITDA was up 80% from the prior year to 88 million.

The scale and extent of our financial improvement is a testament to the success of our transformation strategy. It is due to the hard work and dedication of thousands of people across this organization who came to work every day focused on building an even better Maple Leaf for the future.

Moving to slide number four, we delivered record earnings in the quarter reflecting the culmination of years of investments and change. The charts on slide number four reinforced the consistent, sustained progress that we have delivered quarter-over-quarter culminating in the seventh consecutive quarter of improvement and the record earnings that we announced this morning.

Turning to slide number five, our improved financial performance overtime is probably best illustrated by the step change in our margin structure. As you know in 2010 we established a strategic EBITDA margin target of 10%. We hit that target for the first time in the first quarter of this year and this quarter we delivered EBITDA margins of 10.3%.

The second quarter represents the seventh consecutive quarter of EBITDA margin improvement and it is almost 1500 basis point margin improvement from our low point at the end of 2013 and our transformation activity was at its height. We have structurally shifted our margin from pre-transformation levels of approximately 3.5% to the roughly 10% level that we are seeing today. Of course there is some natural quarterly fluctuations and volatility that is normal in this business but it is similar to all of our CPG peers.

Normal fluctuations aside we have substantially shifted the fundamental profitability of the business which will reward shareholders by providing us with the return on investment that we anticipated when we began this lengthy journey. Going forward we are confident that structurally our EBITDA margins in the range of 10% will be a floor and not a ceiling. We will continue to grow margins overtime through continued focus on cost reduction. We believe there is more opportunity to deliver on this and also through profitable growth from innovation and leveraging our brands.

Turning to slide six, I will shift my commentary to our business activities and initiatives. We continued to execute well in our commercial operations with strong performance across the business. Prepared meats margins continued to increase as a result of reduced operating costs and an improved retail brand of sales mix. We continued to reduce ramp up variance at Heritage. While we have still more work to do and there is still upside from these ongoing improvements, the variances are no longer significant to Maple Leafs' overall financial story.

Prepared meats mix continues to improve as we leverage our North American leadership position in the emerging raised without antibiotics or RWA meat category. This improvement in mix is happening both in the retail channel as well as the food service channel where we have been making substantial inroads. The benefit of pricing taken in the first quarter in Q1 from our prepared meats business to offset inflationary pressures was partially offset by our short-term decline in volume which is typical following these price increases.

In poultry we are continuing to increase our penetration of branded fresh sales including the prime brand, the Maple Leaf brand, and the Mina halal brand taking advantage of our growing consumer interest in poultry. Finally we have increased our margins in fresh pork from the sale of value added fresh products both in the retail and in the export channels.

Turning to slide number seven, I am going to elaborate for a moment on sustainable meat which as we see is a competitive differentiator for Maple Leaf and gives us marketplace competitive advantage. Sustainable meat is in the sweet spot of where a meaningful portion of consumers are heading and we are uniquely positioned at this time to develop that marketing or market opportunity. We are dedicating resources and teams to build out our sustainable meat proposition and to extend the commercial advantage that we already have.

Currently much of that focus which we will evolve over time is in the raised without antibiotics space or RWA as we call it for short. In addition to our RWA leadership in pork we are the largest source of RWA poultry in Canada and we not only see increased volume across our fresh pork and poultry platforms but we are transitioning this into a full line of prepared meats.

That said the nature of consumer evolution will see sustainable meat move from simply an RWA focus to also include our advanced animal care practices, our feed ingredient practices, our environmental commitments and practices, and also even our community engagement activities. Sustainable meat production is also about nutrition and ingredients. Altogether in the second quarter we introduced more than 20 new SKUs with cleaner, simpler ingredient decks. As we develop our sustainable meat proposition we are making meaningful progress in building out our retail and food service business both here in Canada and also in the United States.

Turning to slide number eight, at the outset of the call I talked about the significant innovation in the market during the second quarter which was the most active in our history and reflects increased focus on accelerating profitable growth. We discussed some of this planned activity in our first quarter and in the second quarter we delivered with the Canadian Craft line and Prime turkey launches amongst others.

Our goal with Canadian Craft is designed to lead the market in artisanal prepared meats made in Canada that are accessible to the everyday consumer. The brand draws on iconic foods from across the country to inspire recipes with products like Atlantic Sea Salt Prosciutto, Québec Maple Ham, and Canadian Whiskey and Apple Bacon. They are all made with simpler, natural ingredients. We were seeing very strong consumer response to Canadian Craft following its launch in April 2016 with the listing support of retailers coast-to-coast.

Another significant innovation that we had in the second quarter was Prime Turkey. Our market research demonstrates the importance of a consumers place on turkey as a healthy nutritious food but also the turkey offers today a perceived to lack convenience and versatility. For many years Canadians haven’t had much product choice when it comes to turkey products largely purchasing it for holiday celebrations.

In the U.S. market where the product offering is more advanced and has greater breadth, the turkey market is rapidly growing and thriving. In Canada we under indexed the U.S. market significantly which underpins the opportunity. Given the growing demand for wholesome turkey products we have expanded our Maple Leaf Prime Turkey Fully Cooked portfolio to include Prime Turkey bacon, wieners and sausage that are lean, offer high protein, and flavorful foods made from farm raised turkeys.

Turning to slide number nine, we are also very active in the second quarter not only from a product innovation perspective but also in terms of ramped up consumer marketing and promotion. We put a lot of focus and attention on the re-launch of Schneiders brand. Our brand marketing teams have done a great job reinforcing the brands Heritage while also increasing its consumer relevance both on branding and in promotional and advertising support.

We are partnering with high profile brands and popular themes that appeal to our customers to deliver exciting new store and social media campaigns. For instance we have partnered with a major movie to drive consumer excitement with a new lunch mate collection and our partnership with the Ontario Blue Jays and Kevin Pillar has been hugely successful and a popular way for us to focus on the inspirational traditions linked with baseball, the Blue Jays, and of course Maple Leaf.

I am also excited to talk as illustrated on slide number 10 about our upcoming launch of Devour which will be in the marketplace this week. The Devour takes us into an exciting new opportunity in a category that is right for innovation. Snacking is one of our three primary growth platforms in the beef jerky business is currently outpacing the overall meat snacking category by a nice clip.

What Devour delivers is a fundamentally different taste experience through a very extensive consumer research and product development over a lengthy period of time. We have completely re-imagined the texture, the flavor options, and the overall quality of the product. It is an elevated protein snack that is incredibly tender and it is full of bold new flavors. It is made of premium beef and pork, lean whole muscle cuts with a clean simple ingredient deck. And there is no artificial color or flavors or preservatives.

The brand is going to be introduced in the coming weeks with an exciting promotional campaign. We are very excited about the product and stay tuned for the flavors like Sweet and Pepper Barbecue, Five Spice Teriyaki, Firecracker Lime, or Smokehouse Chipotle to show up on the shelves across the country. Now I will turn the call over to Debbie Simpson our Chief Financial Officer who is going to provide some additional financial information. Debbie.

Deborah Simpson

Thank you, Michael. Turning to slide 11, I am going to add some color to Michael's discussion around the structural change in our margin. You can see the significant year-over-year impact of the transformation on our income statement. We have increased our structural adjusted gross margin from 12.5% of sales in Q2 2015 to 16.4% in Q2 2016.

At the same time selling, general, and administrative expenses decreased from 9.8% of sales in the prior year to 9.3% of sales in Q2 2016, as our teams maintained our ongoing pursuit of cost efficiency. In absolute dollars SG&A for the second quarter decreased slightly to $79.5 million compared to $80.5 million last year. Overtime core selling, general, and administrative expenses have decreased significantly as a result of the efficiencies realized by the reduction of non-strategic costs.

We have reinvested much of these savings into advertising and promotional activities along with other strategic imperatives including sustainability and the company -- as the company increasingly shifts its attention from transformation to innovation and growth. The net result is that adjusted operating earnings increased to 7.1% of sales and EBITDA margin improved to 10.3%.

Moving to slide 12, I would like to provide some detail on our cash flow position and an update on changes to our credit facility. Cash on hand at the end of the quarter improved to $313 million. Cash flow from operations was $63 million in Q2 of 2016 versus $75 million in Q2 2015 due to the seasonal investment in our working capital. Correspondingly free cash flow was $36 million in Q2 2016 versus $31 million last year. Our capital expenditures in the quarter were $27 million compared to $44 million last year.

We have completed negotiations for a new credit facility during the quarter, expanding the facility from $200 million to $400 million. This development is consistent with our long-term view of maintaining maximum financial flexibility, taking advantage of favorable lending terms, and establishing a foundation for our balance sheet that we can build from to support the company's growth plans. I will now turn the call over to Michael to wrap up our remarks.

Michael H. McCain

Thank you, Debbie. In closing I would point out that we delivered our seventh consecutive quarter of EBITDA margin improvement with strong financial performance. And the second consecutive quarter in excess of our 10% EBITDA margin target. These results were driven by great commercial execution across all aspects of our business. We have got considerable focus today on product innovation, our category expansion and new market penetration in sustainable meat. And we see a very exciting future as we accelerate progress on our strategic growth platforms. With that I would like to open up the call for any of your questions. Mary.

Question-and-Answer Session

Operator

[Operator Instructions]. The first question is from George Doumet. Please go ahead.

George Doumet

Good afternoon, guys.

Michael H. McCain

Hello George, how are you?

George Doumet

Good, thanks. On the Q1 conference call, I believe we had identified about 100 basis points of inefficiencies. So that leaves about, I believe, about 90 basis points for further improvement from today. I'm just wondering if that holds and maybe can you remind us of the buckets of improvements and timing there?

Michael H. McCain

Yes, we said the last quarter was roughly a 100 basis points and this quarter we showed continuous improvement against that. And we are continuing to improve it quarter-over-quarter and week-over-week, month-over-month. It got to a point George this quarter where we felt that it was not material to the strategic story and therefore we chose to discontinue reporting that as a measurable -- as a metric on a quarter-to-quarter basis because it is not material to our overall results. That said we think that there is more upside because while it continues to improve it is not a 100% yet but it is pretty darn close.

George Doumet

Alright, thanks, it is really helpful. And at the time of the Canada Bread sale, you guys mentioned the return of proceeds through issuer bids within three years. I'm just wondering where we stand today in terms of plans and timeline there.

Michael H. McCain

Can you tell the question again, we said at the time -- what place you are referring to.

George Doumet

Yes, you guys would return the proceeds through issuer bids within three years of the time of the sale. I'm just wondering where we stand today. Notice that the NCIB hasn't been utilized since announced; so just kind of maybe have an --

Michael H. McCain

I would correct you actually, George, we did not say that we would do that. What we said was if we did that we would use a -- we would use Dutch auction if we were returning a substantial amount of capital. The Board continues to be focused on capital allocation. It is a topic that is under constant and frequent review by the Board. And I think we have demonstrated that over the course of the last few years and every option is on the table. We don’t have anything other than what Debbie had referred to earlier about in our capital management update our stakeholders on. But I don’t think we have any specific plans other than what we have announced to date.

George Doumet

Alright, thanks Mike for the clarification.

Operator

Thank you. The following question is from Irene Nattel. Please go ahead.

Irene Nattel

Thanks and good afternoon, everyone. Just sticking with the whole theme of capital allocation, clearly you have substantial firepower on your balance sheet, between the cash on hand and the credit facility. Just wondering, Michael, if you could provide us an update on your current thinking in terms of -- or whether there's been any change to your areas of focus and the criteria that you might use should you decide to make some kind of acquisition.

Michael H. McCain

So I would say that there is absolutely no update or change in my thinking Irene or our collective thinking because this is one of the single most important topics for Board consideration and they are actively engaged in this, all of them. So there is no change of thinking but it might be worthwhile to many stakeholders for me to review about what we said in the past so that people are clear on what our thinking is.

First and most important is a view of prioritization for use of capital. And we are all aligned Board and Management that the -- the first priority use of capital is towards the growth of the business overtime. And we are constantly focused on deploying prudent amounts of capital in the business to drive growth and we have been clear as to what the priorities for that growth are. Things like, one, sustainable meat and anything that will drive our future in that genre or class of product because we have a growth potential and strategic advantage. Two, snacking because there is a tremendous market opportunity that is outpacing the growth of other segments of the business. And three, in alternative proteins because we are convinced on a very long-term horizon that alternative proteins will outpace or vegetable proteins will outpace the growth of animal proteins.

Further we have been clear that we are keenly interested and we will constantly be investigating the opportunities for geographic expansion more specifically in United States to accelerate our expansion in that market where we are investing in organic growth. Today we would have a desire to accelerate that with a stronger platform by investing capital in that market.

Following that priority we are also looking at balanced options to both increase our regular dividend which we have done consistently since over the last couple of years as the transformational strategy unfolded. And thirdly where it is prudent and where it makes sense a return on capital through the using the techniques that have been identified with the Board or the tools that have been identified by the Board including the NCIB and if a substantial amount of capital is returned then using the guidelines we have indicated several years ago around the Dutch auction, so, underpinning substantial returns of capital. So, those invest the priority architecture, that is how we think about it and honestly it is dynamic Irene, the Board looks at it constantly. We review it constantly. We will look at every one of the tools constantly and make sure -- and making sure that we have a balanced approach to it. But I don’t -- I think that -- there is no new news there but it is a good reinforcement of what our perspective has been in the past.

Irene Nattel

That's very helpful. That's really helpful, Michael. And may I ask a follow-on question, which is, if we go back to the days when Maple Leaf did make selective acquisitions in other geographies in the U.S. and in the UK, historically when you did it in the past, you went -- the acquisitions you made were relatively small in terms of magnitude, but strategically important, and they put you in a position to expand and build. So will that be your preference at this point in time or if you were going to make an acquisition would you prefer to make it as something of more size and presence?

Michael H. McCain

No, I think we are -- I think we have a framework and a bias that is geared towards very disciplined and prudent M&A activity. We are not going to be either elephant hunters or frivolous about our approach to this. That implies a number of things, first strategic alignment. It is very, very important to us that we deploy our capital in ways that are aligned with the strategic focus of the business and that will support our strategic growth plans.

Number two is we are much more inclined to do a series of smaller things. We are not elephant hunters, we are just not -- we don’t like the risk that they imply and a much more digestible particularly with the strength of the platform that we have today. And number three which is probably the tallest test of all of them is that we are looking for good businesses but we are not willing to overpay for any business. So, valuation is a really, really important thing. Not looking to underpay.

Obviously we are not going to buy, we are not going to undervalue assets but we look for fair value for our shareholders where the return on capital is satisfactory over time. So valuation is obviously the biggest challenge particularly in today's marketplace. But this is we are playing alone game and that is our orientation. We are not in any hurry. We are driving it in a very disciplined, methodical, strategic manner.

Irene Nattel

That's really helpful, Michael. Thank you for that. If I could just turn for a moment to the current operations, which are delivering very nicely. I think clearly ongoing improving the cost efficiency remains the focus and you did a great job of that in this quarter. Wondering will you might still see some significant opportunities, and should we be looking in future quarters for that SG&A line to continue to trend downward slightly or should we expect it to be more stable from current levels?

Michael H. McCain

Are you referring to SG&A, Irene.

Irene Nattel

Yes.

Michael H. McCain

I think you should fairly expect I should say for it to be relatively stable but not because we are not continuing to find cost reduction opportunities. We actually feel that there are many opportunities to improve the efficiency of our SG&A and reduce cost. But our intention very clearly is when we find cost reduction opportunities in SG&A to reinvest that in brands and our people which we think will drive growth in the future. So, and we did that and this year that is very much a part of our results this year. We have had in our core SG&A, we had significant reductions in our core SG&A offset by significant boost in our advertising and promotional budgets.

Irene Nattel

That's great. Thank you very much.

Operator

Thank you. The next question is from Mark Petrie. Please go ahead.

Mark Petrie

Yes, good afternoon.

Michael H. McCain

Hi Mark.

Mark Petrie

Hello. I just wanted to ask about the volume trend specifically in the quarter and on the prepared meat side you talked about the decline following the price increase. Wonder if you could just give a bit more color in terms of the trajectory of that, and are you seeing that normalize now?

Michael H. McCain

Yes, so as we articulated both in my remarks and in our press releases and the MD&A for the quarter, we did see modest volume declines in the quarter. That was low single-digits really in our prepared meats branded portfolio. That is not unexpected following price adjustments and this was a relatively large price adjustment in the first quarter mostly offsetting the impact of currency changes in the marketplace. We have historically Mark always been clear that when pricing actually is taken particularly out of the norm pricing action that there is commonly one to three quarters of volume adjustments. And what we look for is normal patterns and normal recovery patterns in the marketplace and we clearly are seeing that. The second quarter was better than the first and we are expecting the third quarter to be better than the second. So, we are seeing the normal recovery patterns to that.

Mark Petrie

Okay, thanks. And then you called out in terms of the fresh meats side, better margins from value-add in your export business. Could you just give a bit more color there, what markets are growing, and do you expect to continue to see that trajectory?

Michael H. McCain

Certainly, it is a great question. We are -- first of all our improved performance in our value added fresh businesses mostly domestic and not export because we have tremendous performance in the marketplace on our branded fresh operations including things like Maple Leaf branded poultry, Prime poultry, fresh turkey offerings which I referred to somewhat. We have had great growth in the Mina halal marketplace in fresh poultry. All of our fresh RWA offerings, raised without antibiotics offerings would be covered in that commentary so we have had great growth there.

So, our branded fresh offerings actually and value added fresh offerings is -- we think is a huge demonstration of our branding strategies and certainly the consumers -- where the consumers are at today. Specifically in export markets it covers a broad range of opportunities. Things like growth in value added fresh, RWA meat in United States. We are getting some interest in value added raised without antibiotic product lines in some of the Asia markets, our traditional Japanese and Chinese markets. Certainly our focus is domestic but we certainly value those as well particularly because they have such strong value added opportunities in those markets around that segment. So, it is a broad array of successes in the marketplace and value added fresh, Mark I hope that is helpful.

Mark Petrie

It is. Thank you very much.

Operator

Thank you. The following question is from Michael Van Aelst. Please go ahead.

Michael Van Aelst

Yes, hi. Good afternoon.

Michael H. McCain

Hi, good afternoon Michael.

Michael Van Aelst

Most of the questions have been answered but just a few smaller ones. First of all, when you look at the spreads, the processing spreads, why do you think they are still so far above the average, I know they've come down from Q1, but they are still pretty strong, what's going on there?

Michael H. McCain

First of all Michael I should say I think what is commonly overlooked is that the primary processing spread that you are looking at carefully needs to be considered in the context of the whole value chain, not just one link in the value chain. And the whole value chain includes both primary hog production or growing hogs as well as primary processing. Think of it as the barn and the plant. In many if not most processors today look at it as one value chain not two even though there is a discreet market between those two links in the chain. So, there have been very strong primary processing margins but there has been offsetting very, very weak hog production markets. In fact those two when you take the whole value chain that is why we have said very clearly that the overall market influence on our business so far in the first half of 2016 has been normal. It is pretty much in the whole value chain in line with five year averages.

Our participation and our results we participate in that whole value chain. So, yes we have had strong primary processing margins but we have had very weak results in our hog production relative to five year averages. And so, your question was why are they -- why is one link in the chain strong, the answer to that while it is very difficult for me to give you a specific answer, I would argue there is some correlation to the fact that one is very strong because the other is very weak.

Michael Van Aelst

Alright, fair enough and then also on -- the working capital usage was up in the first half of the year, despite volumes being relatively flat or down a bit. What should we expect going forward?

Michael H. McCain

That is a timing issue. You know just a day of the month that the quarter ends, Debbie would you maybe add some color to that.

Deborah Simpson

Michael when you look at it from last year to this year, Michael was right, it really is a timing issue in terms of just where the calendar falls for this year. And we fell on the wrong side if you will on some of the expense accruals. And actually in the use of our AR securitization balances. So, nothing significant there, more just that it was a different week, if it was another week from there then it would have been relatively similar to the prior year. When you look at the use of cash flow and working capital for the first six months, that is really just timing and the yield with seasonal inventories and actually a little bit more going on there with all the innovation that we are doing at the moment.

Michael Van Aelst

So long-term, assuming very modest volume growth, should we be anticipating a relatively flat working capital usage?

Deborah Simpson

Yes.

Michael Van Aelst

Okay. Alright, and then on the SG&A side, you talked about nonproductive or nonstrategic costs coming out. Can you give us some examples of maybe some of the key buckets?

Michael H. McCain

Well, we have looked at our SG&A through two different lenses. The cost of running our business which is cost to administer our business, our financial disciplines, all of those internal processes, information systems those are basically costs of running our business. And we are constantly looking for ways to reduce that.

Offsetting that are strategic investments like our advertising budgets, brand building promotional activities, even revenue generating activities like if we can invest in a larger, broader, more capable sales organization to drive organic growth in United States for example, that would show up in our SG&A budget but we would look at that as an investment in future growth. So, we basically look at trying to ratchet down our cost of running our business and ratchet up our investment in brands and people.

Michael Van Aelst

And when you say you expect it to be stable over the next little while, are you talking about as a percentage of sales, or is it in dollar terms?

Michael H. McCain

No, as a percentage of sales.

Michael Van Aelst

Alright, thank you very much.

Operator

Thank you. [Operator Instructions]. The following question is from Derek Dley. Please go ahead.

Derek Dley

Yes, hi there, just a couple of questions on competitive dynamic, based on currency. Have you guys started to see the currency -- the weakness in the Canadian dollar, at least over the medium and long-term, leaving short-term volatility aside, begin to favorably impact your positioning competitively in Canada?

Michael H. McCain

Yes, starting to. We are going to take some but as we have always articulated there is a long, long lifetime of that. But yes, definitely we are starting to. More importantly we are starting to see good growth rates in our U.S. business from an expert perspective. It is important to note that our focus for growth in United States is really around where we are putting our 100% of our efforts Derek behind growing a sustainable meat proposition in the U.S. marketplace which is -- that is not an immediate turn on the tap to moral kind of initiative. It takes more business development activity that goes into that but we also think that it is more sustainable over time. So, the answer is yes.

Derek Dley

Okay, great. And just on some of the new product launches, Canadian Craft and whatnot, I mean how have these been trending so far in terms of both retailer and consumer response, are you guys pleased with the initial --?

Michael H. McCain

Very pleased, at or above our expectations. Having said that I would tell you that they are really early days, and in innovations like that you are very hard pressed to make any calls, sustainable call for six months to a year.

Derek Dley

Okay, great. Thank you very much.

Operator

Thank you. There are no further questions registered at this time. I would now like to turn the meeting back over to Mr. McCain.

Michael H. McCain

Okay, well thank you very much to all of you on the line today. We had an excellent quarter and we are very pleased with the progress that we are making. I think what excites us most and most of the management team is that as pleased as we are with the current results we are extraordinarily confident that we can do better. And that is something that we are focused on. We are building plans going well into the future that can drive ongoing profit growth in the business. So, thank you very much for your support and we look forward to the next quarter and the next update. Have a wonderful day.

Operator

Thank you. The conference has now ended. Please disconnect your lines at this time. Thank you for your participation.

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