Courier F1Q08 (Qtr End 11/30/07) Earnings Call Transcript

Jan.16.08 | About: Courier Corporation (CRRC)

Courier Corporation (NASDAQ:CRRC)

F1Q08 Earnings Call

January 16, 2008, 2:30 pm ET

Executives

James F. Conway, III – Chairman, President and Chief Executive Officer

Robert P. Story, Jr. – Executive Vice President and Chief Operating Officer

Peter M. Folger – Senior Vice President and Chief Financial Officer

Analysts

James Clement – Sidoti & Company, LLC

Paul Holden – [Filmore] Asset Management

John Rogers – Ferris, Baker Watts, Inc.

Operator

Good afternoon ladies and gentlemen, and welcome to the first quarter 2008 Courier Corporation earnings conference call. My name is Andrea and I will be your coordinator for today. At this time all participants are in listen-only mode. We will conduct a question and answer session towards the end of this conference. (Operator Instructions)

I will now like to turn this presentation over to your host for today Mr. Jim Conway, President and CEO. Please proceed, sir.

James F. Conway, III – Chairman, President and Chief Executive Officer

Thank you, Andrea. Good afternoon and welcome to Courier Corporation’s first quarter earnings conference call. I’m Jim Conway, Chairman and Chief Executive Officer. Thank you for joining us.

We released our earnings at about nine o’clock this morning. I hope that you have all had a chance to see the results. It was a disappointing quarter, with sales off 2% and income off sharply. Fortunately, as you will hear in this call, the fundamental drivers of our business remain very strong. And our outlook for the remainder of the year is very positive.

We also had our annual shareholders meeting this morning. And I am pleased to report that all votes passed. We reelected three directors, and reappointed Deloitte & Touche as auditors, all by a wide margin. We would like to thank all of you for your support.

Courier’s Chief Operating Officer, Bob Story is here with me today. And Peter Folger, Courier’s Chief Financial Officer is also here with us. Bob will begin with an overview of financial results for the first quarter. I will then discuss the key issues driving our business. I will also provide an outlook for the remainder of the year. Bob, please go ahead.

Robert P. Story, Jr. – Executive Vice President and Chief Operating Officer

Thank you, Jim. Before I begin I will remind you that during this call we may make forward-looking statements relating to the company’s financial goals, and business environment among other things. Actual results may differ materially. Today’s earnings release, issued earlier this morning, includes detailed commentary on the factors that could affect financial results. We encourage you to review those factors in conjunction with any forward-looking statements we make today. All forward-looking statements are being made today under the provisions of the Private Securities Litigation Reform Act. Also throughout this call whenever we refer to earnings per share, it will be on a diluted basis.

Now let’s look at our performance for the first quarter ended December 29, 2007. We focused on three key measures that drive shareholder value, growth in revenues, growth in earnings per share, and growth in EBITDA. EBITDA is earnings before interest, taxes, depreciation, and amortization, which is a non-GAAP measure that we track as an indicator of the company’s operating cash flow performance. This measure should be considered in addition to, not as a substitute for or superior to GAAP financial measures.

First, relative to revenue growth, the first quarter sales were down 2% to $62.9 million from last year’s first quarter sales of $64.3 million. For more than a decade we have been able to rely on our balanced portfolio of businesses to achieve consistent year-over-year growth, despite softness in whatever markets.

This quarter was the exception. Weakness in too many markets in the same quarter resulted in overall sales being down. We believe that this is an anomaly. Our core markets remain solid, and our competitive position in these markets continues to grow. We expect sales for the year to be up. Jim will have more to say about the outlook later in the call.

Relative to our second goal of growth in earnings per share, we earned $0.11 per share this year compared to $0.32 per share last year. This drop is the result of market softness this quarter.

Our third key measure, EBITDA was $7.7 million in the first quarter, down from $11 million last year as a result of lower earnings.

Now we will take a closer look at our two business segments and talk about the results of each one. I will start with the specialty publishing segment which is comprised of Dover Publications, Research & Education Association or REA, and Creative Homeowner. Specialty publishing sales were $15.3 million in the first quarter, down $1.5 million or 9% from last year.

Creative Homeowner sales were down 24% in the first quarter. Creative’s primary business is books on home design and home improvement and their primary sales channel for these books are home center retailers. The slowdown in the housing market has reduced store travel and sales in this market. In addition, sales comparisons in the quarter were adversely impacted by changes in the timing and size of promotional activity by large retailers. As a result, Creative’s first quarter sales were down sharply compared to last year.

The downturn in the market began to seriously impact Creative’s business beginning in the second quarter of last fiscal year. Comparisons to last year should begin to be much better starting next quarter. We expect to see improvement in Creative’s business over the balance of the year, including a return to profitability starting as early as this spring.

REA had another excellent quarter with sales growth of 19% over last year. The market for test preparation books and study guides continues to grow. And REA has performed very well by focusing on high-stakes testing in such areas as advance placement, and high school exit exams, and using direct marketing programs with increasing effectiveness.

Dover sales were down in the first quarter by approximately $100,000, which has dropped to less than 2% compared to a year ago during a weak holiday season this year as reported by the major book retailers. Dover countered this weakness with aggressive direct to consumer marketing, which produced 6% growth in direct sales in the quarter and double-digit growth through online retailers.

Gross profit, as a percentage of sales to the publishing segment, was 40.9% in the first quarter, slightly below last year’s 41.8%. Gross profit percentage at both Dover and REA was up, while Creative’s gross profit percentage dropped as a result of their sharply lower sales volume in the quarter.

Selling and administrative expenses for this segment were $5.8 million, which was equal to last year’s first quarter. Interest expense allocated to this segment was $436,000 in the first quarter, also equal to last year. And pretax income in this segment was $49,000 for the first quarter, compared to $807,000 last year, while EBITDA was $2.1 million in the first quarter, compared to $2.7 million last year.

In our book manufacturing segment, first quarter sales were $49.7 million, were slightly below last year down less than 1%. In this segment we focused on three publishing markets, education, religious, and specialty trade.

Sales for the education market in the first quarter were well below our expectations, but still up 5%, primarily driven by sales of four-color textbooks. This is the seasonal slow period for the education market. But it is a period when publishers normally place orders for reprints to spread manufacturing workloads throughout the year. This relieves pressure on the peak season later in the year and it also allows us to keep our capacity utilization up in the first quarter. For a variety of reasons these reprint orders were significantly below historical patterns this year. We believe that these orders will simply come in later in the year.

The publishing industry is still predicting that 2008 will be another growth year, so we continue to expect very strong growth in education sales over the balance of the year. However, we will not completely recover from the impact of the low capacity utilization in the first quarter and the resulting drop in our margins.

In the religious market, sales were up 3% from last year’s first quarter, which is inline with our expectations and long-term historical growth trends. Quarter-to-quarter sales fluctuations have been characteristic of this market for many years, and we expect them to continue.

We are making progress on a major equipment upgrade in our Philadelphia religious plant intended to expand capacity to support our major customers global scripture distribution needs. As part of this plan, we will be starting up a major new press this winter and completing bindery upgrades this spring.

In our third key market, specialty trade, first quarter sales were down 7% from last year’s first quarter, which included several large one-time orders. Sales of computer game books were down as well. Apart from these factors, we continue to expand our base of specialty trade customers and gain share. We expect growth in this market to resume over the balance of the year.

Gross profit in this segment decreased by 20% to $10.4 million, and as a percentage of sales decreased from 26.1% to 20.9%. This drop in the gross profit percentage is a result of significantly lower capacity utilization in the quarter combined with an increase of approximately $600,000 in depreciation expense tied to large investments last year to expand capacity at our Kendallville, Indiana plant, where we manufacture four-color educational textbooks. We expect the gross profit percentage to return to normal levels for the balance of the year as sales volume and capacity utilization increase.

Selling and administrative expenses in this segment were up 9% in the quarter to $8 million. The increase was the result of additions to our sales force last summer targeting specific markets and customers.

Interest income allocated to this segment decreased slightly in the first quarter to $141,000 compared to $218,000 last year, primarily a result of the capital expansion program in Kendallville last year.

Pretax earnings in the book manufacturing segment decreased to $2.5 million in the first quarter from $5.9 million last year. While EBITDA of $5.9 million in the first quarter was down $2.5 million compared to last year.

Now I will shift gears and talk about cash flow and our financial condition. This quarter cash provided from operating activities was $7.9 million for the first quarter, up 7% from last year. The $7.9 million cash provided this year includes $1.4 million of net income and $5.2 million of depreciation and amortization. Working capital was down slightly from year end levels. Investment activities this quarter used $3.4 million of cash.

Capital expenditures were $2.2 million. We expect capital expenditures for the year to be approximately $20-25 million. This includes the construction of a 200,000 square foot warehouse in Kendallville, Indiana and the completion of our capacity expansion program in our religious book manufacturing operations in Philadelphia.

Pre-publication expenditures in our publishing segment were approximately $1.2 million for this quarter down $200,000 from a year ago. For the year these costs are expected to be between $5 million and $6 million. We used approximately $2.5 million to pay our quarterly dividend, which we increased by 11% in November, our 11th straight year of double-digit dividend increases.

We also used $2.9 million to repurchase 90,000 shares of our stock in the first quarter from the $10 million authorized by the board of directors in November. We expect to continue our stock repurchase program during 2008. And we ended the quarter with $18.1 million long-term debt, up $800,000 from fiscal year end.

So to sum up, both segments got off to a slow start for the year. Book manufacturing sales were down 1% and pretax income was down 57% in the quarter. Educational orders were well below expectation and capacity utilization was significantly below last year, even though this was expected to be a record setting year in the educational market. We see a very busy year ahead.

Trade sales were also down which further reduced capacity utilization. Despite the slow start we expect to see growth the remainder of the year in this market. Sales to the religious market and to our largest customer were up in the quarter returning to expected growth rates.

Specialty publishing sales were down 9% and pretax income fell to $49,000. Creative Homeowner sales were down 24% and they lost $750,000 in the quarter, a result of weakness in the housing market. Dover and REA both achieved increases in pretax income in excess of 50%, and REA continued strong double-digit sales growth in the quarter.

Our investment plans continue on track and our financial condition remains strong, leaving us well positioned for continued growth. And we expect to achieve significantly improved results over the balance of the year. Now I will turn the call back over to Jim.

James F. Conway, III – Chairman, President and Chief Executive Officer

Thank you, Bob. We have heard the worst that sales were down slightly. Our income was down sharply. There is no relief in the housing market. And it is a possibility that book manufacturers will be capacity bound from the influx of delayed orders during the coming spring and summer textbook season.

So why am I still feeling pretty good? The answers lie in between the lines of Bob’s narrative in the strategy and approach that has enabled Courier to perform so well over the last ten years or more. That we went six years without a quarter like this means either that we were exceptionally lucky, or that our strategy and execution have made sense in the context of the long-term directions of the markets that we serve.

Bob called the quarter an anomaly and it was in that we absorbed hits in individual areas of both segments that could not be overcome by the successes we achieved elsewhere. Like Bob, I’m confident that the best way to minimize the occurrence of quarters like this is to execute well and stay focused on the fundamentals and the long-term drivers that are still so positive for our markets and for our company.

The situation in the housing sector has received a lot of press and we don’t need to belabor it here. The situation in the textbook market really only came to light as the quarter progressed. But like the housing situation, it was a significant fact of life in our business environment. Particularly as we had just added capacity to be ready for the record demand we still foresee.

The good news in the education market is that one, new textbook adoptions are expected to be up in 2008 as previously forecast. There is no change. Two, the resulting demand from school districts will have to be met over the balance of this fiscal year. And three, Courier is better positioned than ever to help the industry out of this anticipated production crunch and gain share for the future of this still growing market.

As you may know, the last couple of years have been a time of consolidation among both publishers and book manufacturers. Interruptions in the order flow are part and parcel of such events. In the broader scheme of things, it’s certainly preferable that the interruption happen in the fall rather than at the height of the spring and summer rush.

For years we have been adding capacity to serve the growing demand for four-color textbooks. To use capacity efficiently, we have encouraged customers to place their reprint orders in the fall to free up press time for the new books coming out in the spring. This year, consolidations and other industry factors combined to reduce that early ordering among a number of customers. But the underlying demand is still there. As a result the delays in the fall, we expect to be extremely busy this spring and summer.

Four years ago, when we bought our first [manroll] and four-color press, people questioned our judgment. Would the market support that capacity? Four years and two more presses later, it clearly has. Since we have established our Kendallville, Indiana plant as a preeminent venue for four-color book manufacturing, and as we reported last quarter, we are proceeding with the construction on a new warehouse next to our Kendallville plant in anticipation of further growth.

There isn’t much good news coming out of the housing sector as a whole these days but there are some real positives for Creative Homeowner as we look to the balance of the year. One of them is the start of a terrific line of new titles in the emerging category of green design, green remodeling and green home ownership. In coming years, I’m sure that you will see many books in this category as the whole country begins thinking more seriously about how individuals can play a positive role in relation to [climate] change. With two releases perfectly timed to the spring season, Creative Homeowner is staking out the high ground in a potentially high-growth area.

The other factor is the much heavier calendar of major retailer promotions that Creative Homeowner has lined up for 2008. The number, size, and timing of these promotions can have a significant impact on book sales. And in the fall of 2007, they were down on all three counts from a year earlier. This year retailers are coming back with more promotions because they really do work. And they have pledged to support Creative Homeowner including its new green books with a level of promotion that has been absent in recent months.

There is also a great deal of new product excitement in other parts of our publishing segment. At Dover, where the fall quarter generally reflected the lackluster season among major book retailers, new packaged products such as Fun Kits, and Pocket Puzzles performed very well. [Out of] that success, this spring Dover will be applying a similar concept in the number of craft areas which preferred packaging specifically designed for very different kinds of retail environments.

The excitement has been building for quite a while now at REA, which continues to rack up quarter after quarter of double-digit sales gains. Within the next few weeks, REA will be launching a new service with tremendous growth potential to help high schools improve student performance. And help students as they prepare for those all important exit exams. So we continue to look for more outstanding performance from REA.

Finally, I’d like to update you on a subject we also discussed at our November conference call, namely the dip in religious sales in the third and fourth quarters of fiscal 2007. As I mentioned back then, we are in the midst of a major upgrade in printing and binding technology at National Publishing Company, our Philadelphia religious printing subsidiary. As part of this work, we are now installing a new state of the art high-efficiency press containing technologies specifically designed for the religious market exclusively for Courier, under a long-term agreement.

The catalyst for this upgrade is our long standing relationship with one of the world’s leading missionary organizations and our commitment to meet this customer’s long-term program needs for expanded scripture distribution worldwide. This relationship has been successful on both sides for decades and we are determined to keep it growing for decades more.

Yet within that relationship, ordering patterns have often fluctuated from quarter to quarter. In fiscal 2007, after an unusually large upward fluctuation in the second quarter, we had two down quarters in a row. So some observers expressed concern. For this reason it is particularly pleasing to report that in the first quarter of 2008, religious sales rebounded to the level of their historic growth norms.

As with education, where we invested ahead of the market and have reaped the rewards, we are happy to continue on the course of long-term investment in service leadership in the religious market, a course which continues to work well for us and more importantly for our customer. And by the way it is also a course that’s working well for us in specialty trade, where increased focus and a modest increase in our sales force has translated into a customer base of more than three hundred accounts and very attractive long-term growth prospects.

And with that let’s go our outlook. We had a difficult first quarter, but it is behind us. And the strong fundamentals underlying our businesses and markets are still there. As a result we expect to regain our momentum as the rest of the year unfolds.

In book manufacturing, we expect education sales to lead the segment to solid growth as publishers work to meet projected increases in demand from many school districts. In publishing, we expect Creative Homeowners to deliver improved performance starting in the current quarter and increasing as the year progresses.

Overall, we expect gains in both segments and a much stronger second half of the fiscal year. But because of the shortfall in the first quarter we have reduced our four year guidance. For the remaining nine months of fiscal 2008, we expect sales growth of between 10-13%. For the same nine month period, we expect earnings per share of $1.94 to $2.04, an increase of between 13% and 19% over earnings of $1.71 for the last nine months of fiscal 2007.

For fiscal 2008 overall, we project sales growth of 7-9% resulting in total sales of between $317 million and $322 million. We expect full-year earnings per share of $2.05 to $2.15 for fiscal 2008 compared to $2.03 per diluted share in fiscal 2007. And we expect EBITDA to be between $64 million and $66 million, an increase of 5-8%.

At this point we will turn the call over for questions, so it is back to you Andrea.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) And your first question comes from the line of Jamie Clement with Sidoti, please proceed.

James Clement – Sidoti & Company, LLC

Jim, Bob, Peter, good afternoon.

James F. Conway, III – Chairman, President and Chief Executive Officer

Good afternoon, Jamie.

James Clement – Sidoti & Company, LLC

Jim, just a couple of things that I wanted to make sure that I understood in your guys comments, with respect to the reprint work that you might normally see in the first quarter are we to assume that this was an industry wide phenomenon. In other words, it wasn’t just, you didn’t lose share for a quarter for whatever reason.

James F. Conway, III – Chairman, President and Chief Executive Officer

We did not lose share and it’s our belief that it was industry wide. Obviously I can’t be positive of that, but we do believe that it was industry wide and we certainly do not believe that we lost share.

James Clement – Sidoti & Company, LLC

Okay. And the other thing was you lumped in, it was right after the comments about the housing markets that you were talking about the challenges at being able to, for your industry to be able to meet anticipated order volumes later on in your fiscal year. It seems to me that that would be a good thing for you guys. Am I missing something there?

James F. Conway, III – Chairman, President and Chief Executive Officer

No, you are right. That would be a good thing.

James Clement – Sidoti & Company, LLC

Okay.

James F. Conway, III – Chairman, President and Chief Executive Officer

You’re right.

James Clement – Sidoti & Company, LLC

Okay, and just I can imagine that there might be competitive reasons why you wouldn’t get into this, but I’m going to give it a shot anyway. In the press release and in the prepared remarks, you talked about some other industry factors. It’s no surprise that one of your competitors is having some issues. Is there a ripple effect in the industry and in the dynamic that you saw in the first quarter that is in some way related to that?

James F. Conway, III – Chairman, President and Chief Executive Officer

Jamie, you were right. I don’t really want to go there.

James Clement – Sidoti & Company, LLC

Okay.

James F. Conway, III – Chairman, President and Chief Executive Officer

But I’m sure that there is some effect.

James Clement – Sidoti & Company, LLC

Right.

James F. Conway, III – Chairman, President and Chief Executive Officer

But I would just as soon not go there if that is okay with you.

James Clement – Sidoti & Company, LLC

Yes, that’s fine. It’s just that I think from an outsider standpoint and we are outsiders on the other end of the phone. There are some unusual circumstances in your industry as a result of some of that. We don’t know exactly what they are but it appears that there were some unusual circumstances in your quarter as well. They kind of match up a little bit although I’m not real clear on what the dynamic is. So it sounds like that is a possibility.

James F. Conway, III – Chairman, President and Chief Executive Officer

I’m certainly not disagreeing with you.

James Clement – Sidoti & Company, LLC

Yes, okay. And just lastly, looking at the book manufacturing segment and looking at the margin for the quarter, obviously you’ve got more capacity than you have had in some prior years. With that said, to me, the number actually looked a little bit lower on the actual revenue number than what, in my book, you might have expected. It takes, you have to support the capacity and what I’m wondering is the circumstances in the first quarter is this something that happened kind of abruptly. Like in other words, were you staffed up and prepared for a higher level of work? Is that what you were saying earlier?

James F. Conway, III – Chairman, President and Chief Executive Officer

James, I think a different way to look at it is that a lot of this stuff comes in typically it gets the strongest late in the quarter. If you look back at some of the comments that we made last year, we were slow early and got very busy late. And frankly, typically and last year was typical, a lot of that work was actually held up in work-in-process at the end of the quarter. So production levels were even much higher than the sales number would imply.

James Clement – Sidoti & Company, LLC

Okay.

James F. Conway, III – Chairman, President and Chief Executive Officer

And that’s one of the reasons that it seems to the outsider that margins are even lower than the sales draft would imply.

James Clement – Sidoti & Company, LLC

Okay, that’s very fair. Thanks a lot. I will let somebody else get on. Thank you for your time.

James F. Conway, III – Chairman, President and Chief Executive Officer

Thanks, Jamie.

Operator

(Operator Instructions) Your next question comes from the line of Paul Holden with [Filmore] Asset Management, please proceed.

Paul Holden – [Filmore] Asset Management

Hi, guys.

James F. Conway, III – Chairman, President and Chief Executive Officer

Hey Paul, how are you?

Paul Holden – [Filmore] Asset Management

I’m doing well, thank you. Jim, I had a question about your confidence in your visibility going forward. It seems like this quarter you had a little bit of a surprise and you had more confidence going into this quarter coming out of the previous quarter. So do you have much more confidence going into second quarter and the second half of the year?

James F. Conway, III – Chairman, President and Chief Executive Officer

Paul, the second half of the year is always busy around the book manufacturing side and I’m very confident about that just because the books are going to have to be ready by September 1. Our position with major customers is strong as ever. And historically it’s always been that the second half is much stronger than the first half.

I think Bob alluded to really one of the things that happened to us in the first quarter. Particularly in the education business, was the pattern had always been getting busier in the last month of the first quarter, December. And it just comes rolling in. And this year we were anticipating the same pattern of orders as last year and it just didn’t happen to the same level of activity. So we are confident that we are going to get it. We were just confident that we were going to get it late in the quarter and it just didn’t happen.

Paul Holden – [Filmore] Asset Management

Okay. And I’ve been reading more and more articles lately about the state budgets, particularly in larger states, which went through the adoption process. Are you seeing any impact of that in terms of demand for the textbooks?

James F. Conway, III – Chairman, President and Chief Executive Officer

If you are saying that you think that the state budgets could be impacting the book buying, everything that we are hearing, and we are not dealing obviously with the states. We are dealing with our publishing clients in the educational marketplace. And having talked to the whole list of them, they still expect 2008 to be a very, very strong year, with 2009 being even stronger.

Paul Holden – [Filmore] Asset Management

Okay, all right. And then my last question regarding Creative and you talked about the timing of the promotional activity. Can you elaborate on that a little bit going into the remainder of the year?

James F. Conway, III – Chairman, President and Chief Executive Officer

There is a certain seasonality in that business all the time. And our fiscal first quarter is seasonal low point and we are heading soon into part of the year when it picks up a lot. And Creative has a number of commitments already in hand for increased promotional activities this winter, early spring that bode well for that business as it moves into it’s seasonal peak. And that’s important because we feel that this fall to some extent the category by retailers was not promoted much because of the trends in the housing market. So we feel good about what that indicates and we know at least we are going to sell a lot more books in. We will see in the spring how well they sell through.

Paul Holden – [Filmore] Asset Management

Okay, so you’ve got the orders on hand and last year there wasn’t much promotion activity so you would have easy comparisons.

James F. Conway, III – Chairman, President and Chief Executive Officer

That’s certainly true. The fall of ’06 there was a lot of promotions taking place. The fall of ’07 they were way down. Last spring there were promotions. This spring there are going to be promotions. We see more promotions, larger promotions, which will definitely help at the end of the day.

Selling promotions is part of it, the rest of it how well that they sell through. And that is the part that remains to be seen. But we are very encouraged that the retailers are stepping back up to this category and feeling that it’s a good time to promote it again.

Paul Holden – [Filmore] Asset Management

Okay. All right great, thank you.

James F. Conway, III – Chairman, President and Chief Executive Officer

Thanks, Paul.

Operator

Your next question comes from the line John Rogers with Ferris, Baker Watts, please proceed.

John Rogers – Ferris, Baker Watts, Inc.

Good afternoon. You mentioned something about inventory. A lot of your inventory in the book manufacturing segment was tied up in work-in-process. Does that mean that sales growth would have been even weaker in the first quarter had that gone through in the fourth quarter of ’07?

James F. Conway, III – Chairman, President and Chief Executive Officer

What I referred to J.T. was a year ago when the manufacturing and reprint orders was much stronger, much of it didn’t get completed and build in the quarter a year ago. We don’t have anywhere near that this year. There is not a lot built up this year.

John Rogers – Ferris, Baker Watts, Inc.

Okay.

James F. Conway, III – Chairman, President and Chief Executive Officer

The process is built up. We expect the orders to build up.

John Rogers – Ferris, Baker Watts, Inc.

How is it progressing so far in the second quarter? I know that we are a few weeks in now.

James F. Conway, III – Chairman, President and Chief Executive Officer

Actually work has picked up quite significantly in January. We are still not at 100% of capacity, but it has picked up a lot more from where it had been last fall.

John Rogers – Ferris, Baker Watts, Inc.

Okay, great. Also I just wondered if you are expecting really tight capacity, particularly in the second half of ’08. Why you’d bring Creative Homeowner in house instead of possibly contracting that out and leaving more space open for your educational market clients?

James F. Conway, III – Chairman, President and Chief Executive Officer

That’s always a choice that we could make as we enter into the second half of this season, so J.T. that is a good point. That’s something that we will watch carefully.

John Rogers – Ferris, Baker Watts, Inc.

All right, great, that’s all that I’ve got. Thanks.

James F. Conway, III – Chairman, President and Chief Executive Officer

Thank you, J.T.

Operator

And there are no further questions in the queue at this time. I would like to turn the presentation back over to Mr. Conway.

James F. Conway, III – Chairman, President and Chief Executive Officer

Andrea, thank you very much for your help, and folks, thank you for listening in. And we look forward to chatting with you with much better news at the end of the second quarter. Again, thank you, and see you all soon. Bye.

Operator

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect and have a great day.

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