Sequential Brands Group, Inc.
Q3 2015 Earnings Call Transcript

Published: 30 Oct 2015

[Operator:]

Greetings and welcome to the Sequential Brands' Group 2015 Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] And as a reminder, today's conference is being recorded. Today’s presentation will include forward-looking statements, which are based on current expectations and beliefs of management. Investors and security holders are cautioned not to reply upon such statements as they do not constitute or guarantee of future performance or results. The company is under no obligation to and expressly disclaims any obligation to update or alter its forward-looking statements, whether as a result of new information, future events or otherwise. In addition, we note that the information in this communication is for informational purposes only and is neither an offer to purchase, nor a solicitation of an offer to sell, subscribe for or buy any securities or the solicitation of any vote or approval. The company has filed with the SEC a registration statement on Form S-4, that was declared effective by the SEC on October 23, 2015 which included a prospectus with respect to the shares to be issued and the transaction with MSLO as well the proxy statement for MSLO stockholders and an information statement for Sequential stockholders. The company urges investors and security holders to read the Form S-4 and other documents filed with the SEC as they contain important information. And now I will turn it over to Gary Klein, our CFO.

[Gary Klein:]

Good morning and thank you for joining Sequential's third quarter earnings conference call. On today’s call, I will review our third quarter results for 2015 and then turn the call over to our CEO, Yehuda Shmidman, to provide an overall update on our business. For the third quarter that ended September 30, 2015 the company earned revenue of $23 million representing an increase of 130% compared to our prior year quarter revenue of $10 million. Adjusted EBITDA for the third quarter increased a 158% to $15.7 million compared to $6.1 million in the prior year quarter. Non-GAAP net income for the third quarter was approximately $5 million or $0.12 per share compared to approximately $2 million or $0.06 per share in the prior year quarter. For the nine months that ended September 30, 2015 the company earned revenue of $56.8 million representing an increase of a 144% compared to our prior year period revenue of $23.3million. Adjusted EBITDA for the nine-month period increased 180% to $36.1 million compared to $12.9 million in the prior year period. Non-GAAP net income for the nine-month period was approximately $9.6 million or $0.23 per share compared to $3.9 million or $0.13 per share in the prior year period. Our balance sheet is strong and in addition including the recent acquisition of the Joe's Jeans brand we now have over $300 million in aggregate guarantee minimum royalties due to the company from a diversified customer base of over 100 licensees as of October 1, 2015. I would now like to turn the call over to our Chief Executive Officer, Yehuda Shmidman.

[Yehuda Shmidman:]

Thank you, Gary and good morning everyone. We are pleased to report our third quarter results which included continued organic growth for our brand portfolio and the closing of the acquisition of the Joe’s Jeans brand a bolt-on to our fashion vertical. In addition, over the past quarter and this month we made significant progress on completing the Martha Stewart Living Omnimedia merger which is fully on track to close on schedule. I’ll provide further detail about the MSLO merger, but first a few comments on this past quarter and our projection for the balance of 2015. Q3 was a strong quarter across the board from all three of our verticals. Our results are a real credit to the hard work and commitment of our brand management teams and licensing partners. We believe that our performance is also a testament to the strength of the brand management business model whereby we focus on leveraging the power of brands together with retailers up and down the distribution pyramid domestically and internationally through physical stores and through digital platforms including Alibaba and Amazon. Of note, in our lifestyle vertical Heelys has been one of our strongest performers this year up double-digits year-to-date. Heelys remains a quintessential case study of our business model at work and the success that can be achieved by combining a strong brand that was previously in an underperforming operating model with a new best-in-class operator and Sequential's platform for global retail growth. For Heelys, which we acquired in Q1 of 2013 we partnered with the world-class footwear operator BBC International led by Bobby Campbell and together the business has grown exponentially, both in the U.S. and abroad and both in physical locations and digital stores as well. In our active vertical our brands AND1 and Avia are up 14% year-to-date on a comparable nine months basis with continued strength into Q4 and significant growth initiatives in work for 2016. The growth from AND1 and Avia is largely attributed to increased market share, new category introduction and our continued focus of delivering what we refer to as "shocking" value to the Walmart customer, a combination of a great brand and a quality product at an incredibly compelling price point. In our fashion vertical, the Jessica Simpson brand with less than a year in the Sequential portfolio has already proven to be a winner for us. This past quarter, we celebrated the 10th anniversary of the Jessica Simpson collection with a number of strategic marketing initiatives including appearances by Jessica and Jimmy Fallon, The Tonight [ph] Show and other media outlets with billboard takeovers in key cities including New York and a celebration at [indiscernible] Green all of which generate over 3 billion impressions of the brand for our retail partners. In addition, we added two new long-term licenses in the active wear and e-commerce categories both of which have launched and are expected to be significant contributors in 2016 and beyond. With these highlights and strong performance across the majority of our brands, we are pleased to report that we expect to exceed our organic growth targets for the year. Coming into the year, we projected high single digit organic growth and we now believe we will achieve double-digit growth from our brands. Given this increase earlier this morning, we announced that we are raising our annual revenue guidance up from a range of $78 million to $81 million to a new range of $81 million to $83 million. Turning to the acquisition chapter of our playbook, we are excited to have closed on the acquisition of the Joe's Jeans brand this past quarter. This brand acquisition in many ways resembled the Heelys acquisition that I discussed earlier. Joe’s is a strong brand that was trapped inside a troubled operating company. We view this acquisition as another opportunity to once again unlock the value in a great brand by combining it with the best-in-class operator, Global Brands Group and Sequential’s retail network. Global Brands Group is a multibillion dollar manufacturer and distributor and our anchor licensee for Ellen Tracy. Together with GBG and Joe Dahan, the brand’s Founder we are already working seamlessly in executing our growth plans for the business which we expect to have a positive impact beginning in 2016. In addition, we believe that the financial metrics around our Joe’s acquisition are extremely compelling as we secured over 90% of the purchase price in future minimum guaranteed revenues. Also on the acquisition front as mentioned earlier, we have made significant progress towards the completion of the Martha Stewart Living Omnimedia merger. To that end, we are pleased to report that this past Friday, October 23, the Form S-4 registration statement was declared effective by the SEC. With the S4 in place proxies to vote in the transaction of being mailed to the MSLO stockholders and the MSLO board has scheduled a special stockholder meeting for December 2, 2015 in order to obtain the requisite stockholder approval for the transaction. We anticipate that the transaction will close shortly after the vote and post-closing we are planning to communicate further details surrounding our vote strategy and the planned conversion into the Sequential business model. In addition, upon closing we plan to provide full company projections for 2016. In closing this is a pivotal time for Sequential. Our platform is delivering and we are in the cusp of closing a game changing merger with MSLO which will add a fourth vertical to our platform and scale our business to nearly $4 billion in global retail sales. We look forward to updating you on our progress in the quarters ahead. Thank you all for listening today and thank you for your continued support. I’ll now turn the call over to the operator for Q&A.

[Operator:]

Thank you. [Operator Instructions] Our first question is coming from the line of Erinn Murphy with Piper Jaffray. Please proceed with your question.

[Erinn Murphy:]

Great, thank you good morning and really nice job on the quarter. I guess you referred, I was hoping that you could give classified guidance a little bit closer, and I think it’s the first time you’ve actually raised guidance and it is not in context with an immediate acquisition. So I guess with the context of what you’ve talked about from an organic growth trending nicely in the double-digit range, are we to assume that the guide up is truly organic outperforming or is there any of the Joe’s Jeans business that maybe a little bit stronger than you anticipated when you’re integrating that?

[Gary Klein:]

Sure. The increase relates to the organic strength of the business Erinn. So as we think about our organic growth strategy, we would think about the combination that we have of strong brands, but really nimble business model that can evolve as distribution evolves around the world and we’ve got a proven activation team. So for example, when we think about our business for 2015, we are getting increased market share from our brands, if you look at AND1 and Avia as prime examples. We’re adding distribution channels. So when you think about sort of a non-reliance or non-dependence upon sort of stretched same-store sales growth we’re adding distribution channels like e-commerce such as Heelys, on Amazon or Jesica Simpson e-commerce. We are introducing new categories. For example JessicaSimpson Activewear which is already launching right now and in 300 Macy stores and we’re adding our brands internationally to new places, for example, the recent announcement of Ellen Stacy at House of Frasers. So, we certainly had a lot of sort of hope and excitement for organic growth coming into this year where we projected high single digit organic growth but as our Q3 numbers came in and really exceeded our expectations. We now believe we will be at 10%. So it’s an exciting time for our business and of course a lot of those initiatives carry into next year as well.

[Erinn Murphy:]

Great, that’s helpful. Thank you and I guess just so to kind of flush out the Walmart relationship a little bit more, I know that has been a bit of an overhang on the stock, so it’s nice to hear that those two businesses that you have with them are opportunities at 14%. I guess going forward, can you may be just focus on a little bit more about how you plan to continued to take those share gains within Walmart and then may be taking a step back outside of just your relationship with Walmart, could you just address some of the other department store mass relationship that you have, and kind of how organic growth is blending in some of the other channels for you guys.

[Gary Klein:]

Yes, sure, so let’s take the question from the last to the first, when we think about macro retail environment there is no doubt that there are certain challenges out there in the marketplace and our job is to be nimble and work with those partners to help them provide solutions through our brands. Customers want brands even if they shop differently whether it’s on a mobile device or a tablet, an e-commerce, a computer or in a store and so what we want to make sure is that our brands are available in an omnichannel way and we’re seeing that to our brands and we’re able to sort of expand distribution nimbly across different platforms. At the same time, when you think about individual issues and you mentioned Walmart, of course we can’t speak to Walmart generally, but what we can speak to is our brands, AND1 and Avia wear which have been performing really well. We’re up 14% for the year with our two Walmart brands of [indiscernible] AND1, each of those brands in their quarter were up double-digits. We are seeing, why is that happening. We believe it’s a combination of this what we call shocking value delivery system or we've got these great brands, quality products and we drive unbelievable compelling prices to our licensees who are really just unbelievably shocked. So when you look at AND1 short programs or And1 underwear programs or the footwear for Avia footwear for AND1 you could really see it on the floor. We've got close relationships with retailers and so we’re always trying to do better and work harder and help them to whatever challenges that may exist, but I think the results speak well and we’re certainly excited about our businesses for AND1 and Avia as we head into next year as well.

[Erinn Murphy:]

Great, thank you. And then just my last question, I was just on the Joe's Jeans acquisition, I mean that really puts you guys on a map in terms of having a little bit more authority in venom which seems to be a category that is starting to kind of rebound across the board, can you just talk a bit more about your strategies for that going on and how are retailers that you talk to kind of thinking about denim as a category as you go [indiscernible] to back-to-school and into next year, $30 billion into next year? Thanks.

[Gary Klein:]

Yes, we are excited about Joe’s. This certainly has been a sentiment around the denim category in sort of recent prior years that has been negative. But I think we’re turning the corner on that sentiment and if anything now is really the best time to invest in sort of a denim rooted brand. But beyond that the reason we are really excited Joe’s is not just because as Denim but about the category expansion in working with Global Branch Group as our new anchor licensee which we secured prior to closing and now have a long term partnership with. We see expansion into other categories that include other parts of a towel [ph] at the brand hasn’t yet been in and we’re working closely, but the founder Joe Dahan as to creatively steer the brand in that way. We’re planning to add categories such as hand bags on the women side and we’re planning to take the brand globally to other markets outside the U.S so I think there is a lot of growth there ahead for their brand and in the hands of Sequential we think we can unlock that value.

[Erinn Murphy:]

Great, thanks for that and best of luck in the holidays.

[Gary Klein:]

Thank you.

[Operator:]

Thank you. Our next question is coming from the line of Dave King with ROTH Capital Partners. Please proceed with your questions.

[Dave King:]

Thanks. Good morning guys.

[Gary Klein:]

Good morning.

[Dave King:]

I guess first off on the deal for Jessica with Delivery Agent I was just curious I’m sort of moving parts that agreement is that similar to a DTR how does the growth – rate works given higher retail margins and then anything you can share there you could in terms of early success since the launch?

[Gary Klein:]

Sure, so as you mentioned, no absolutely, as you mentioned for Jessica Simpson e-commerce, we partnered with a company as you mentioned Delivery Agent based out of San Francisco, really incredible company that they’re sort of experts in running many different merchandise to driven websites and mobile commerce sites. Together we built a site if course did all the backend and they drive all the technical side of it and creatively we work together on sort of the look and feel of how it is all presented and how the merchandise is actually presented to the end user. I give them a lot of credit. They put that site together and in a really record time we got a launch in conjunction with the 10th anniversary celebration which was last month and our early reads are good. I mean we’re really excited about it how it looks and how customers are interacting with it, real impact for us there will be a little bit busier, but really the big impact will next be year in having a full year under our belt. And in terms of the relationships your question about structure, they are technically a licensee of ours and we get paid on sales. It’s not a tier growth structure but straight wealthy stream. So it’s real consistent with our business model, they hold the inventory and then together we try to drive sales so that we can increase the business in unison.

[Dave King:]

Okay. That helps and then switching gears a bit in terms of the acquisition environment, obviously you just closed Joe’s hopefully Martha has done here fairly shortly, I guess just what is your appetite going forward over the near term and willingness given that these recent ones. And I guess, more particularly, more specifically what is your appetite for other brand managers, licensors, similar to what you did for Galaxy, would you be open to having an entertainment business, any thoughts there?

[Gary Klein:]

Yes, great question, let me throw out a couple of thoughts on that - on that question if I may, first is we’re really proud of the platform that we’ve been building and intend to continue building. When you think about this business, this company Sequential post to Martha Stewart Living Omnimedia merger will have four strong verticals in home, in fashion, in lifestyle and active driven by great leadership and strong retail partnerships and licensing partnerships. With that platform, we absolutely believe in the chapter of our playbook of acquisition growth in addition to organic growth. So the second thought I would mentioned with that in mind is that after the Martha Stewart Living Omnimedia merger, our intention is to publish a new three-year plan to replace the sort of now obsolete prior three-year plan which we will have beaten post Martha. And as part of that plan what you will see Dave is again a reintegration of both of these chapters of being important to our strategy, again namely continued acquisition growth as well as organic growth. In terms of specifically other license stores, of course I’m sure you can understand I can’t comment, but what we’re looking for is very simple, we’re looking for brands that fit our business, brands that we can grow after acquisitions, brands that will have sustained organic growth in all the different ways we've described and brands that we can get excited about. And so that is how we intend to continue thinking about it and I do believe that when we’re able to publish that three-year plan, it will really demonstrate how that all adds up once it is all together.

[Dave King:]

Yes great, thanks for the color and nice quarter.

[Operator:]

Thank you. Our next question is coming from the line of Camilo Lyon with Canaccord Genuity. Please proceed with your question.

[Camilo Lyon:]

Good morning guys. Nice job on the quarter.

[Gary Klein:]

Good morning.

[Camilo Lyon:]

I had a question a little bit more of a strategic question. If we look back when you first joined Sequential a couple of years back you set out on a strategy to buy underappreciated assets and make them and rebuild them. But last kind of couple of quarters for the last three acquisitions Jessica, Joe’s Jeans and now Martha Stewart, it seems like there has been a sea change in the assets that you’re not only going after, but you are getting, these are brands that are very well established in the market and don’t need a lot of buildup is that couple of questions to that, is that an intentional change, is that also providing you better access to brands in the market that you might not have had an opportunity to go after previously and is this opening up the growth platform for you in a much bigger way?

[Gary Klein:]

It’s a great point Camilo and one that I would like to address absolutely, when you think about the ability to have an anchor brand such as Martha Stewart, to anchor our home vertical the ability to have brands anchoring a fashion vertical of Joe’s and Jessica Simpson and the ability to have AND1, Avia anchoring and active vertical brands like Vivo in the lifestyle vertical. To your point these are really strong brands and I think when you think about how we’ve been able to effectively win these acquisitions if you will or partners with these brands really goes back to the notion that there is true growth ahead and in a combination of with if you take those brands with our growth platform the ability to yield a meaningful result becomes very compelling. So I think you make a great point. It’s really the Sequential model today is not about sort of finding distressed assets or out of favor brands in as much it’s about identifying brands that are great brands that have growth left in them and we have some sort of ability to unlock that growth through our specific and unique platform and when combined that growth platform with Martha Stewart, with Jessica Simpson, with AND1, or with Joe’s Jeans we look to unlock that. I think just to go a level deeper, do you think Joe’s Jeans as sort of a quintessential example of this of the point you’re making, Joe’s Jeans has been a strong brand since Joe Dahan founded it, but as everybody knows because it was a public company itself they could keep the numbers. It was really trapped in an underperforming operating entity, so the brand itself was good but the growth was sort of trapped or mitigated or limited by the fact that it has operating issues. As part of our purchase, we’ve now separated that operation away, licensed it to Global Brands Group who is a supreme operator in our view and now we’re able to put that brand back where it should be which is on the growth track ahead. So I think you made a great point and it is certainly something that we’re excited about and we want to be a growth company that’s what gets excited and where we think we can add value.

[Camilo Lyon:]

Does that elevate the channels that you can now sell into other partners you can partner up with versus what that might’ve been a couple years ago?

[Yehuda Shmidman:]

We certainly hope so, I mean the ability to deliver better brands and through this business model is certainly compelling ingredient in making this work. We absolutely want to continue to invest in our brands, to ensure that they remain of that stature and so we do make investments for each of the brands depending on where those growth opportunities are. But, yes I think that’s a valid point you’re making and certainly we want to be important to all of our retail partners and we want to develop those relationships and be a part of their long-term strategies as they are always looking for unique and different answers to drive consumers into the store.

[Camilo Lyon:]

Great and then just my last question was on Revo, if you could just give us an update on that and if there’s any plan to expand that distribution I think was some was dominantly now you got a good ecommerce platform there, but I would assume that with some of the partnerships that you have got on board with Bono in particular that maybe there is more demand to have the brand at other outlets is that the case?

[Yehuda Shmidman:]

It is and in fact we've got our Revo team out in Europe this week and we heard from them that we’ve launched at Solaris [ph] and GrandVision [ph] which is a large chain out there. I believe there is close to 1000 stores there, all new distribution for us. We think big picture with Revo, we see the door count doubling over the next year and a lot of that is not just because we've got really great products from our new licensee and when I say new the licensee that we signed at the time we bought the brand. But, also with the partnership with Bono, Revo has really been elevated in the public sphere and we got a great charitable initiative, longtime multiyear partnership with Bono to really make a difference and now we've got a brand with a purpose that many different retailers have actually gotten excited about. And so we will have more updates for you on Revo hopefully by the next call, if not the next call the call after, but certainly you can start seeing distribution expanding and we think we were really excited about that and especially heading into 2016.

[Camilo Lyon:]

Sounds great, Yehuda, best of luck.

[Yehuda Shmidman:]

Thank you.

[Operator:]

Thank you. Our next question is coming from the line of Liz Pierce with Brean Capital. Please proceed with your question.

[Liz Pierce:]

Thanks, congratulations, nice job. So, going back to kind of the question about distress brands versus great brands, did that mean there are great brands they are perhaps were out of favor and distressed. I mean, I am just, I guess I want a little bit more clarification on that Yehuda?

[Yehuda Shmidman:]

Sure, sure we think about brands and I guess what I was referring to in comparing distress versus growth assets, we are really thinking about distress situations. Joe’s Jeans is the good brand that was stuck in a distressed operating business. Revo, good brand, actually in a good company, but a distressed situation in that it was an orphan asset and a conglomerate. When we think about Jessica Simpson it was certainly not this distressed, it’s been a great brand long before we had anything to do with it, but it was in need or in need in large part of a new partner to help it grow to the next level on a global basis and into other ways. So I guess the stress factor for us is not so much I guess to use an extreme in that we are looking at brands call it in bankruptcy and as much as we are looking at brands that are strong that have these distress situations and that we can help grow when we think about the future plans of those brands.

[Liz Pierce:]

Okay, that’s helpful. So, really the operate word is distress word, it would be distressed situation, that makes it so much clear. So, when we think about, exceeding in Q4 your high single digit growth parameters what about if we look into next year are you going to hold off on giving us facts kind of until you complete the Martha Stewart, but if high single, I guess this is high single digits still the way to look at it?

[Yehuda Shmidman:]

I would say that is the way to look at it, that has been our consistent model even when we put out the three-year plan at the spring of 2014 I believe it was. We have a laid out a three-year plan that said hey, if we can acquire two to three brands per year and if we can continue to grow high single digit, what will this business look like. And so that thesis is absolutely intact. What’s interesting is, when we looked at this past quarter's results and we really studied the forecast for this year and we said well this the organic growth is really exceeding our plan, of course we got very excited about that and of course we are always going to try to beat our plans, that’s natural. But I think that is a fair way to look at it. At the same time Liz what I would just say, add is to that question is that our attention is post Martha Stewart merger is to communicate full company 2016 projections that will give hopefully greater detail for you.

[Liz Pierce:]

Yes, it just seems Yehuda if you think about the multiplier effect which I think you have not talked about before, you’ve got so much more kind of in the pipeline in the works, whether it’s brand or distribution channels that it would seem almost hard to continue to high single digit?

[Yehuda Shmidman:]

But we definitely are so Liz we are with you. I may not give you to put out there on the multiplier effect as you refer to it as we are heading into 2016 our Walmart is a little strong. We've got kind of Revo partnership with Bono and expanded distribution. We’ve got continued international development and new international development with brands such as Jessica Simpson and Joe’s Jeans and then of course we will have the Martha Stewart brand and the Emerald brand as part of Martha Stewart which we'll talk about more post closing. So we’re definitely excited about the levers that we have to pull heading into next year.

[Liz Pierce:]

And are two to three still acquisitions still kind of on the table or do you want to address again like post-Martha?

[Yehuda Shmidman:]

Yes post-Martha would be better, but no reason to think that we would change differently from that generally speaking.

[Liz Pierce:]

Okay.

[Yehuda Shmidman:]

But we definitely do believe that the acquisition chapter of the playbook is important, obviously want to be responsible about which brands we’re acquiring and we want to make sure that we can add growth to those assets. So there are other variables of course, but suffice it to say the acquisition chapter remains important to our future.

[Liz Pierce:]

Okay, all right and best of luck for the next quarter and next year, thanks.

[Yehuda Shmidman:]

Thank you.

[Operator:]

Thank you. Our next question is coming from the line of John [indiscernible] with Cowen. Please proceed with your question.

[Unidentified Analyst:]

Hey, good morning everybody. Congrats on a busy and successful nine months and to the year.

[Yehuda Shmidman:]

Thanks John.

[Unidentified Analyst:]

Can you guys just talk about your ability to expand your brands in the digital space, I think it’s pretty clear Amazon stealing a lot of market share from the department stores in pretty much all the verticals you operate in, so how can you adjust your business and push more of your brands into some of the digital channels that are out there?

[Yehuda Shmidman:]

Yes, we would absolutely agree with you, Amazon is a critical part of the distribution future and others such as Alibaba, I mean other digital outlets and we've got a big focus on the digital business for each of our brands, each of our brands has of course a nuance strategy beneath that of how we interplay with the digital commerce but it’s critical, it really is critical. I mean if you look today on Amazon you’ll see a big Heelys presence for example and so there are certainly brands of ours that are expanding into Amazon, we are by no means fully baked and what we can do digitally and we’re with Amazon specifically but we’re definitely looking at other ideas. We’re looking at ideas with Alibaba now which we can’t speak to specifically yet, but different ideas that we’re contemplating and working on that could affect 2016 or 2017, but I think to the point of your question clearly our brands need to be digital and that’s a big focus of ours. The other point I would just add to that John is that, it really is one of the benefits of our particular business model in that we can be nimble to distribution. We don’t own physical retail stores, we don’t own sort of inventory and therefore as distribution evolves and people purchase things online as an example we can be nimble and get our brands online through our licensees without much sort of risk on the other side. So it is a focus of ours and I'm glad you brought it up and something we’re thinking about for the future.

[Unidentified Analyst:]

All right, thanks for the color. I just wanted you to ask you was, the home vertical obviously is going to be a big, much bigger part of your business, beyond just Martha, can you talk about the strategy behind Home and how much bigger you can get there?

[Yehuda Shmidman:]

Sure. So some of the commentary that we sort of would like to provide, we do have to wait and hold off on until we do actually close the transaction. But from a big picture standpoint, clearly Martha Stewart is one of the most well-known brand certainly in our lifetimes and certainly in that vertical. As an anchor to a new vertical for our company, we’re extremely excited just within the Martha Stewart on the existing business it will expand our partner relationships to retailers such as Home Depot and PetSmart and Staples. It will certainly further our relationships with existing partners that were already in business with such as Michaels and Macy’s and we do see a lot of upside there. It’s definitely is a category that is important and you mentioned Amazon before and again the digital sphere is important. So, I think could there be other bolt-on acquisitions in the future perhaps are there other levers we could pull for global growth in our typical fashion or other big category growth absolutely. So I think I have got to reserve some of that, no specifics for post merger, but it is certainly sort of a vertical that we're excited to diversify into.

[Unidentified Analyst:]

Okay. That’s helpful; I will certainly looking forward to these new targets you’re going to put out. I guess Gary one question for you there is some concern on the credit markets are tightening up a little bit. Have you seen any change towards the availability of capital, obviously you've got great partners in GSO and Bank of America, but any change in the outlook for the credit markets?

[Gary Klein:]

Hey John, thanks for giving me a question too. No, I mean I think you just hit the nail on the head though that we do have great partners and we do have facilities that are in place that we can grow with. So and that’s really where we’re focused, we’re not realizing too creative at this time that I'm looking at other avenues as to what is going on there. But again with the Bank of America facility, with the GSO facility, nimbly we have a great run rate to continue to be nimble in the acquisition area as well.

[Unidentified Analyst:]

And then just any color on what you think your long-term your optimal leverage ratio is in the business?

[Gary Klein:]

The optimal leverage ratio continues to be four times net debt-to-EBITDA, again it will fluctuate over time and we do believe it will normalize over the next year or so.

[Unidentified Analyst:]

Okay, thanks guys. Good luck.

[Gary Klein:]

Thank you.

[Operator:]

Thank you. It appears we have no further questions at this time. So, I would like to turn the floor back over to management for any additional concluding comments.

[Yehuda Shmidman:]

Okay, great. Thank you all for your time today and thank you for your support and we look forward to speaking with you at the next quarter.

[Operator:]

Ladies and gentlemen, this does conclude today’s teleconference. We thank you for your participation and you may disconnect your lines at this time.