SpartanNash Company
Q2 2015 Earnings Call Transcript

Published: 20 Aug 2015

[Operator:]

Good day and welcome to the SpartanNash Company’s Second Quarter 2015 Earnings Conference Call and Webcast. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Katie Turner. Please go ahead.

[Katie Turner:]

Thank you. Good morning and welcome to the SpartanNash Company’s second quarter fiscal 2015 earnings conference call and webcast. By now everyone should have access to the earnings release for the second quarter ended July 18, 2015. For a copy of the release, please visit the SpartanNash website at www.spartannash.com under For Investors. This call is being recorded and a replay will be available on the company’s website for approximately 10 days. Before we begin, we’d like to remind everyone that comments made by management during today’s call will contain forward-looking statements. These forward-looking statements discuss plans, expectations, estimates, and projections that might involve significant risks and uncertainties. Actual results may differ materially from the results discussed in these forward-looking statements. Internal and external factors that may cause such differences include, among others, competitive pressures among food retail and distribution companies, the uncertainties inherent in implementing strategic plans, and general economic and market conditions. Additional information about the risk factors and the uncertainties associated with SpartanNash’s forward-looking statements can be found in the company’s second quarter earnings release, fiscal annual report on Form 10-K, and in the company’s other filings with the SEC. Because of these risks and uncertainties, investors should not place undue reliance on any forward-looking statements. SpartanNash disclaims any intention or obligation to update or revise any forward-looking statements. This presentation includes certain non-GAAP metrics and comparable period measures to provide investors with useful information about the company’s financial performance. A reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures and the other information required by Regulation G is included in the company’s earnings release, which was issued after market closed yesterday. And it’s now my pleasure to introduce Mr. Dennis Eidson, President and CEO of SpartanNash, for opening remarks.

[Dennis Eidson:]

Thanks, Katie. Good morning and thank you for joining our second quarter fiscal 2015 earnings conference call. With me this morning are Dave Staples, our Executive Vice President and Chief Operating Officer, as well as other members of our executive team. Today I’ll begin by providing you with a brief overview of our business and highlights of our financial performance for Q2. And then Dave will share some additional details about the second quarter financial results, as well as our outlook for the remainder of fiscal 2015. Finally, I’ll provide some closing remarks and we’ll open up the call and we’ll take some questions. We’re pleased with our earnings results in the second quarter. In spite of a challenging sales environment, we grew operating profit and exceeded earnings expectations due to our disciplined cost controls, merger synergies and improved operational efficiencies. While we experienced sales growth in our food distribution segment, sales in our retail segment were negatively affected by the closure of stores, lower fuel prices, a continued competitive retail food environment and unfavorable weather conditions in our Michigan markets. As we have previously mentioned, we are very focused on improving the performance of our retail segment’s western store base. We continue to make progress on our initiatives, including the rollout of merchandising, pricing, and promotional strategies across this store base, as well as the re-grand opening of our six remodeled stores in Omaha a few weeks ago. In addition, we are pleased to have acquired six stores from Dan’s Supermarket in Bismarck, North Dakota. Now reviewing our food distribution segment results, I am pleased to report that net sales were up 1.9% in the second quarter. On the merchandising and marketing front, we continued to rollout new value added strategies, including the wall of values and basket of values programs as well as expanded private brand programs for both HBC and organics across all of our independent customer base. All of these new programs take hold, as these programs take hold and gain greater acceptance, we’re beginning to see a corresponding lift in sales volume. Additionally, we continue to focus on the optimization of our transportation and warehouse networks. We’ve identified a number of opportunities to gain better economies of scale in our transportation network for both our military and food distribution channels. And while we are really in the early stages of the effort, we believe there are significant benefits to be yielded by integrating the two fleets and reducing empty miles and freight. On the warehouse front, we continue to be pleased with the improvements in service, assortment and product quality our customers have been able to realize through our optimization efforts to date and believe there are additional opportunities to be realized over the course of the next couple of years. In our retail segment, we continue to make significant progress on improving the operations in our western store base. With the completion of the six Omaha remodels right at the end of the quarter, we have now upgraded a total of 13 locations since the merger. As mentioned, we also completed the acquisition of six high quality stores from Dan’s Supermarket in Bismarck, North Dakota in June. The purchase has strengthened our position in the market from a retail perspective as well as from a distribution standpoint as Dan’s was not a distribution customer prior to the acquisition. As we continue to expand and improve our western store base, we’re stepping up our marketing efforts in these markets. For example, we recently launched an ad campaign called ‘Things Are Good Here’ with both television and radio support. This is a new ad and a new look which is focused on our differentiated shopping experience and our commitment to convenience, quality and service. Same ad campaign will be deployed for our Michigan Family Fare stores as well. Additionally, we’re in the process of rolling out our Yes Rewards Loyalty program to our Fargo and Dickinson stores as well as our recently remodeled Omaha stores and are encouraged by the initial acceptance rates. We plan to continue to roll out to our Family Fresh stores in the third quarter. We continue to invest more in the digital space and recently completed the upgrade of our website and mobile app for our Family Fare banner and expect to complete our other banners by the end of the year. We’re also developing digital platforms that will allow our distribution customers to offer similar programs. We continue to use our pharmacy and fuel programs to reward our customers. We began rolling out our [$410] generic pharmacy offerings to the western store base during the quarter. In Michigan, our pharmacies posted a 2.4% increase in comp script count for the quarter, marking the 18th consecutive quarter of positive script count growth. Our Michigan fuel centers posted a 1.5% increase in comp gallons sold for the quarter and we continue to look for innovative ways to provide additional savings and to better engage our retail customers. On the product side, we continue to expand our overall assortment in private brand program by adding more organic and gluten free products. During the second quarter, we launched approximately 430 new private brand items and our private brand unit penetration in our retail operations was 22.2%, which continues to place us above the national average. We ended the quarter with approximately 7,100 private brand offerings and for the remainder of the year we expect to introduce approximately 100 additional new items. Sales in our military segment were pressured in the quarter, due to the corresponding soft sales at the DeCA-operated commissaries. We continue to seek out new business and have been pleased by our success in securing new contracts. In addition, we’ll continue to look for new ways to serve the military in order to fully leverage our existing distribution network. Moving onto our capital plan, during the second quarter, as I just mentioned, we continued construction on the six remodels and re-banners to Family Fare in the Omaha market. Construction was completed on all six early in the third quarter and the grand reopenings were held on July 22. The initial customer response has been positive and feedback on some of the new additions such as the expanded natural and organic sections has been encouraging. With that, I’ll turn the call over to Dave for more details on the financials and the outlook for the remainder of 2015. Dave?

[Dave Staples:]

Thank you, Dennis, and good morning everyone. Consolidated net sales for the 12-week second quarter approximated $1.8 billion for both years, as increases in the food distribution segment were offset by the impact of closed stores, lower comparable store sales, significantly lower retail fuel prices this year and lower sales in the military segment. Consolidated gross profit margin for the second quarter of this year was 14.6%. Second quarter operating expenses would have been $224.9 million, or 12.5% of net sales, compared to $228.8 million, or 12.6% of net sales last year, if the charges related to the merger integration and acquisition expenses, net gains on property sales and expenses related to tax planning and asset impairment were excluded from both periods. On an absolute basis, the decrease was due to benefits from merger synergies, lower fuel and healthcare costs, as well as the impact of closed stores. The second results exclude $200,000 in expenses related to merger integration and acquisition costs and $600,000 in expenses related to tax planning, partially offset by $300,000 in net gains on property sales. The prior year second quarter excludes $2.6 million in expenses related to merger integration and $1.1 million in restructuring charges. Adjusted EBITDA for the second quarter was $58.5 million, or 3.3% of net sales, compared to $58.3 million, or 3.2% of net sales last year. Adjusted earnings from continuing operations for the second quarter increased to $19.8 million, or $0.53 per diluted share, as compared to $19.1 million, or $0.50 per diluted share last year. These results exclude a benefit related to tax planning initiatives of $0.01 per diluted share. For the prior year second quarter, adjusted earnings from continuing operations exclude merger integration expenses of $0.04 per diluted share and restructuring charges for store closures of $0.02 per diluted share, partially offset by a favorable settlement of an unrecognized tax liability of $0.02 per diluted share. Turning to our operating segments, second quarter net sales for the food distribution segment increased to $782.7 million, compared to $767.9 million in the year ago quarter. Second quarter operating earnings for the food distribution segment, when adjusted to exclude $900,000 in gains from a litigation settlement that resulted in a reduction of previously accrued or paid compensation, net of ongoing merger integration costs and professional fees associated with tax planning initiatives, increased 37% to $18.5 million versus $13.5 million last year, excluding $2.9 million in merger expenses and restructuring charges. The increase was primarily due to increased sales, merger synergies, lower operating costs, including healthcare, and increased inventory procurement gains. In our retail segment, second quarter net sales were $516.1 million compared to $539.8 million last year, due to $17.1 million in lower sales due to the closure of retail stores and fuel centers, a 3.2% decrease in comparable store sales, excluding fuel, and $10.6 million due to significantly lower retail fuel prices compared to the prior year, partially offset by sales of $9.2 million from the recently acquired Dan’s stores. Comparable store sales reflect increased competition, unseasonably cool weather in our Michigan market compared to the prior year, and the continued impact of a low inflationary environment. Retail segment operating earnings for the quarter when adjusted to exclude $1.2 million of pre-tax acquisition cost and net gains on the sales of previously closed sites, were $14.7 million versus $16.9 million last year, when adjusted to exclude $800,000 of net pre-tax restructuring charges. The decrease was due primarily to the impact of the increased competition, our remodel activity, a lower inflationary environment and lower pharmacy margins. In our military segment, second quarter net sales were $497 million compared to $502.4 million last year, due to a decrease in sales at DeCA-operated commissaries. Operating earnings were $3.9 million, compared to $5.9 million last year, primarily due to the cycling of a purchase accounting related adjustment for depreciation expense. From a cash flow, our current year-to-date operating cash flow was $123.4 million, compared to $64 million for the comparable period last year, primarily due to improvements in working capital. During the second quarter, we repurchased 202,963 shares of our common stock for a total of approximately $6.5 million. As of the end of the second quarter, we had $12.3 million available for share repurchases under our $50 million repurchase program which expires in May 17, 2016. Total net long-term debt was $524.6 million as of July 18, 2015, versus $563.8 million at the end of last year. We remain committed to reducing our leverage towards the 2 times multiple of EBITDA and ended up the quarter at 2.2 times. I will now provide further detail on our outlook for the remainder of fiscal 2015. As we look to the second half of the year, we continue to believe that we’re in a position to deliver our earnings outlook for fiscal 2015. Although the retail environment in our markets remains challenging, we have a number of growth initiatives underway including merchandising, pricing, promotional, and store improvement efforts and we’re coupling these with our continued strong expense control and improving operational efficiencies. For the third quarter and remainder of fiscal 2015, we anticipate that net earnings from continuing operations per diluted share will slightly exceed last year’s adjusted comparable third and fourth quarter results of $0.46 and $0.44 per diluted share, respectively, excluding merger integration costs and any other one-time expenses. Based on the first half results and outlook for the remainder of the year, we are maintaining our previously issued fiscal 2015 guidance of adjusted earnings per share from continuing operations of approximately $1.89 to $1.98, excluding merger integration costs and other one-time expenses and gains. For purposes of comparison, adjusted earnings per share were $1.80 in fiscal 2014 when adjusted to a 52-week basis. This guidance is based on expectations of the continued low inflation levels and the challenging sales environment. We now expect capital expenditures for fiscal 2015 to be in the range of $70 million to $75 million, with depreciation and amortization of approximately $83 million to $85 million and total interest expense of approximately $21 million to $23 million. This concludes our financial discussion. And I will now turn the call back to Dennis for his closing remarks. Dennis?

[Dennis Eidson:]

Thanks, Dave. In summary, we are pleased with our solid execution and the progress we’ve made operationally and strategically. Although we’re facing some economic and competitive headwinds, we continue to take meaningful steps forward on our initiatives to grow sales and margin. We’re pleased with the initial results of our western store remodels and the roll out of the loyalty program and we expect to see these markets gain momentum due to our recent marketing efforts in both traditional and digital channels. In addition, we’re seeing improving trends in our food distribution business and are optimistic about our prospects. We continue to expect further benefits from the merger integration and are focused on driving improved operational efficiencies through the supply chain in our food distribution and military channels. Finally, we will proactively pursue financially and strategically attractive acquisition opportunities in order to make best use of our capital and increase shareholder returns. With that, we will now open up the call and take some questions.

[Operator:]

[Operator Instructions] The first question comes from Scott Mushkin of Wolfe Research.

[Scott Mushkin:]

I had a couple here. So I just wondered in the pharmacy business, I think, you were talking about it’s a little bit tougher although the volumes were up, what’s going on in the pharmacy business in your minds? I mean, we’ve heard this from a number of retailers at this stage that things are tough and is there any light at the end of the tunnel?

[Dennis Eidson:]

Things are tough. As I indicated, we’re really pleased with the volume, positive 2.4% in the Michigan pharmacies and 18 consecutive quarters and we think we have a compelling offer. As you know, we not only offer [$410] 30 and 90-day opportunity, but we also offer free medications, prenatal, antibiotics and diabetic meds. So we’re benefitting from that. But the generic drug costs have continued to increase. And it was fairly meaningful, even the delta between Q1 and Q2, and also the pressure on the reimbursement rates continues to be there, we’re doing things, Scott, that we think are going to help us long-term, mitigate this kind of increased cost of generic drugs and offset some of the reimbursement pressure. So I’m not sure there is a long-term solution, but we think we can mitigate the effects we saw this quarter.

[Scott Mushkin:]

The DeCA situation, it’s weakening up, I mean, obviously your business is strong with them [quotes on that] but I guess, any flavor of what’s going on with that military commissary business, why their sales seem to be decelerating and again, is there any thought that that will come to an end, so I guess, any color you can give around just that business generally, again, you guys are doing well in it, but it is seemingly challenging.

[Dennis Eidson:]

We’re certainly outperforming DeCA as it relates our sales trend. On a year-to-date basis, we’re actually up nearly 1%, I think we’re up 0.8% with the military segment, just like the fact that DeCA is negative 3.9%, and it’s an approximate number because their quarters don’t exactly line-up with ours. So we’re feeling better about that. We also feel good about the offer we have, vis-a-vis, supplying CPGs with the service of delivering to the commissaries. We have a meaningful amount of business with DeCA, we think we do it better than the competitors, not that we don’t have good competitors, we do, we have a great competitors, but the frequency with which we deliver our service levels, the full solution we provide, in fact, you can sign up with our program and basically with one contact point have every commissary in the world serviced. We are the only solution that provides that. And so we think we can grow the business, even though they may shrink a bit, we think we think we can grow the business and we also think there are plenty of opportunities to do more with military resale system because we have such a robust delivery schedule and a well positioned distribution network in place. So I think we think of it a little bit more as half full, it’s just going to take some time and it’s a process winning that business and we are up for it.

[Scott Mushkin:]

Do you have any idea why they are shrinking so much? Any – kind of, what’s driving their overall sales, are the military commissaries down?

[Dennis Eidson:]

I’m not sure that I can give you a great amount of color on that, Scott. I think more recently we’ve seen the export business for DeCA soften up a little bit, so that would be the commissaries primarily in Europe. But I’m not sure I am the best person to give you that feedback on their operation.

[Operator:]

The next question comes from James Fronda of Sidoti.

[James Fronda:]

Are there any specific initiatives other than the Yes program that you have that could help boost comp sales, or overall sales going forward?

[Dennis Eidson:]

Obviously, the comps that we had in Q2 of negative 3.2% are not where we expect to live. We are working on much activity all across the retail portfolio and we’re focused a lot in the west and we talked a little bit about that in the Omaha market where not only did we remodel those stores and we spent somewhere around $15 million in capital in those six stores, but we’ve rebranded those stores. That is a significant undertaking to put a new brand in a marketplace. We think that’s going to resonate long-term, we are excited about the early returns, there are more stores in that marketplace that we can touch in an aggressive way and we think that’s a big part of it. The other thing I would say to you is the whole loyalty initiatives that we have and the work we are doing with [EMEA] to get closer to the consumer and being able to touch them more directly individually is a meaningful initiative on our plate. And I guess the last thing I might say just with regard to the comps and the segment is we went from a negative 1.2% to a negative 3.2%, and 80 to 90 points of that was a reduction in the amount of inflation we had from Q1 to Q2. And so that was pretty meaningful. And the other big meaningful delta between Q1 and Q2 is more competitive openings in the quarter. We took about 50 to 60 points of competitive impacts in the quarter. So those will – they come and they go, we will begin to have a whole less of that in Q3 and next year we don’t see nearly this kind of competitive pressure. We are currently in Q2, we had 13 new stores opened against our corporate retail fleet.

[Operator:]

The next question comes from Karen Short of Deutsche Bank.

[Karen Short:]

Just on that comment on the increased competitive openings, can you just give a little bit more color on the type of – what formats were opening and then obviously [isolated Michigan or broad based] anymore color there?

[Dennis Eidson:]

It was pretty broad based, Karen. We had in North Dakota three new stores opened, two in the Fargo market where we operate four stores, one was a corporate SuperValu store, one was an independent SuperValu store and also in Dickinson we had a SuperValu independent open in the marketplace and those are pretty small markets to be getting [indiscernible] new stores. We had Myer open up a new store in Northern Michigan; we digested in Southwest Michigan a Costco and an Earth Fare. So it’s a bit of a mix, but quite a bit activity in the quarter in total as I indicated, 13 non-cycled competitive hits and I’m not including – glancing below as we sometimes get from say the lights and all these in that number.

[Karen Short:]

So just to understand, in terms of the comps as for this year in retail, so 60 basis points is something that will continue to impact you throughout the year, right, until you cycle them and then the wildcard is obviously inflation or deflation, I guess the question is what is your expectation for inflation for the year or for the back half?

[Dennis Eidson:]

I think the lack or the reducing inflation is real. If you look at our distribution segment just with retail, when we went from 1.9% inflation in Q1 to 1% inflation in Q2 and we saw [income way off]. It was running nearly 5% in Q1 and about 1.5% in Q2. Over 3% delta and they meaningfully moved the number. And we saw protos go from 1.7% deflationary in Q1 to 2.6% deflationary in Q2. So those were big drivers. We are not getting much inflation in the core store, so that’s also contributing. And if you kind of look at what happened in our three periods of Q2, we started out the first period at 1.3% inflation, the second period of 1.1% and the third period was 0.6%. So as you can see we continue to go down. I read stuff, and Karen I know you just put something out recently, I don’t see much inflation in the back half of the year. If it were flat that wouldn’t surprise me, maybe don’t go deflationary, but I could see a world where there is no inflation in the back half. I think the USDA is calling for the year to be 1.75% to 2.75%, I don’t think there is much likelihood we’re going to get to that high end of that number. I just don’t see it. I think we are seeing more like flat.

[Karen Short:]

And then I guess just following on that, so it seems like when I look at our guidance, the Dan’s acquisition, even though you only have it for half a year, that should be pretty meaningfully accretive in terms of a benefit to EPS. But you are maintaining your guidance and you do also – it looks like the interest expense guidance came down a little bit, which should be a benefit too. So I guess is it fair to say there is just a lot of moving parts, some things are helping you and some things are out of your control and are hurting you, so it’s just prudent to maintain the guidance even though that seems to me at least like $0.07 to $0.08, maybe $0.07 in tailwind from interest in from Dan’s?

[Dave Staples:]

I think Dan’s might be given a little bit too much credit for especially in the first year of a transition. But yes, I think your moving parts comment is pretty much on.

[Operator:]

The next question comes from Mark Wiltamuth of Jefferies.

[Mark Wiltamuth:]

I wanted to dig a little bit more on the retail, if you can maybe cross-off the impacts from the western markets, what’s going on in the core Michigan retail space?

[Dennis Eidson:]

Michigan in the quarter certainly performed much better than we did in the west and that’s no surprise to anybody. But we did have a challenge I would say particularly in Northern Michigan with the weather. As you know our business, summer is our best quarter, partially because we operate many stores in the Lake communities of Northern Michigan, we just didn’t really have a summer. The last two or three weeks have been the best summer weather we’ve had and the trend has clearly gotten better up north as a result of the weather improving and got better north by a couple of percent on a comp basis. So that was a big driver to what happened here in Michigan as well as we have the competitive impacts that I discussed earlier.

[Mark Wiltamuth:]

Was the Michigan comp also negative and just not as severe as the overall?

[Dennis Eidson:]

The Michigan comp was slightly negative.

[Mark Wiltamuth:]

And just a bigger picture question, you’re probably running towards the end of your synergies now, maybe if you could just talk, have you found any new things along the way and how should we think about growth once we’re beyond the synergies? Do you think you can really – what level of operating income growth do you think you can generate over the next several years now the synergies are winding down?

[Dave Staples:]

I think from the synergy perspective, certainly we’ve crossed the midpoint. So as we’ve said, we expect them to continue to grow each year, but certainly the magnitude of the growth is lower as we move into the next year. So from that perspective, there will be still some incremental benefit next year, but it’s not nearly – not quite the level it was this year. As you look out, we still have a number of things we think that help the business move forward. I mean, as we continue to wrestle with the west division and bring that online with where we’d like it to be, I think that’s a positive upside for us. I think, we look at our network in the distribution world and I think we have some really good upside on as we brought the whole network together, whether that’d be the military or food distribution, we’ve combined that under Derek, I think he sees nice upsides there where we can bring efficiency to the business. In addition to just continuing to work on the whole network in general, being the physical facilities, we’ve done a number of things over the past couple of years to improve our offerings to our customers and improve the efficiency of these facilities and I believe we have more of that that we can do. So a number of just fundamental things I think have been new finds, I guess to your question, but also types of things that I think will benefit us going forward and give us an opportunity to continue to improve the profitability of the company.

[Mark Wiltamuth:]

And how should we think about acquisitions moving forward, are you thinking about maybe one or two small ones a year on the distribution side or what should we think about just big picture?

[Dave Staples:]

I think we clearly believe in the consolidation of the space, right, and we clearly believe that’s going to happen. When you get these kinds of environments, partly I would believe maybe it will help us accelerate that phenomenon. But I think – and again I don’t know the definition of small versus large, but I would say we would like to have a more normalized pace of acquisitions. So in that 12 to 18-month period, we’d like to be doing an acquisition of some type and whether that $0.5 billion type entity or $1 billion to $1.5 billion, you can never know for sure. I’m not sure where that fits on your small, medium or large, but I think we’d like a pacing in that frame, again there is nothing we can do to guarantee that will happen because it’s really based on who is available when and is it the right company for us, but as we said, I think we’re taking a little bit more of a proactive approach on that.

[Dennis Eidson:]

We are 20, 21 months into the merger and we feel good about where we are and as Dave indicated, being a little more proactive about M&A because we think we’ve got much of the heavy lifting behind us with regard to the integration of [indiscernible] stores.

[Operator:]

And next is a follow-up from Scott Mushkin of Wolfe Research.

[Scott Mushkin:]

I wanted to follow up on Karen’s thoughts and some of your comments around the inflation environment, I guess I’m struggling here to understand, as we move out, how things change? In other words, it seems like demand is really soft and we are being in this 2% growth economy, it’s quite unusual to actually see flat or even down consumer inflation, that should never really happen when we got a growing economy, I guess I’m just trying to understand how we kind of get out of this funk in your opinion, kind of take me forward through the back half and into next year and how things change materially?

[Dennis Eidson:]

I think it is an unusual time and the fact that we have this low growth not only in the macro economy, if you look at GDP, but if you look at tonnage cross the space, whether you’re tracking Nielson or IRI, if you look at food-at-home, it’s a low or no growth or negative growth environment depending on the quarter you look at. That’s hard to believe, right. I know we don’t have great population growth in the country, but the fact that tonnage is negative, all channels considered, and you take the conventional space it’s even a little softer. That’s a dynamic that’s tough. But against that, we managed to put up, our largest segment is food distribution and we had a positive sales number there for the second quarter in a row and we remarked that we are feeling good about some prospects there. We think we can win incremental business in the distribution space. And so I think that is one way that we can improve the back half or next year [indiscernible] a bit about the military segment and the fact that I believe we can aggregate incremental volume in that segment as well due to the uniqueness of our offer and so we have confidence there. And as it relates to retail, I mean, I think we’ve kind of walked through some of the reasons we performed where we did in Q2, but we do have a base of stores in particularly in the west where we think there is plenty of upside and we are actively mining that field. We think there is opportunity in private brand. The Spartan legacy business has a lot higher penetration than private brand than does the Nash business and we think there is upside to that as well. And Dave spoke about some other operational areas where we can improve. So it’s going to be tough, the business has never been easy and I have tremendous confidence in the management team here. I think strategically this merger was perfect and it was – it happened at the right time for the right reasons and we are looking at the opportunity to continue to roll up the space and be a larger more significant player.

[Operator:]

That concludes our question-and-answer session. I would now like to turn the conference back over to management for closing remarks.

[Dennis Eidson:]

Thanks, Kate, and thanks everybody for participating in today’s call. That concludes our second quarter conference call. And we look forward to speaking with everybody again next quarter. Thank you.

[Operator:]

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.