Arthur J. Gallagher & Co. (AJG) 2003 Q2 法說會逐字稿

Good morning ladies and gentlemen, and welcome to the Arthur J. Gallagher & Co. second quarter 2003 earnings conference call. At this time all participants have been placed on a listen-only mode. The call will be open for questions following the presentation. It is important to note that some of the comments made by Arthur George Gallagher & Co. today may constitute as forward-looking statements, within the meaning of the security laws that are subject to certain factors and risks described in their filings with the Securities and Exchange Commission which may cause actual results to differ materially. It is now my pleasure to hand the floor over to your host, Pat Gallagher, President and CEO of Arthur J. Gallagher & Co. Sir, the floor is yours.

Thank you very much, Holly, and good morning everyone and thank you for joining us this morning. This morning I am joined by Doug Howell, our Chief Financial Officer; Rich Cary, our Chief Accounting Officer; John Rosengren, our Chief Counsel; and Dave McGurn, our President of our Specialty Marking Operation; as well as Jack Lazzaro, our Treasurer and CFO of Arthur J. Gallagher Financial Services. Jim Gault, who typically joins us is on vacation, out of the country. I won't read our press release, but I do want to make some comments and just hit on some highlights, then turn it over to Doug Howell for some remarks and then go to questions and answers rather quickly.

Arthur J. Gallagher & Co. really is a sales and marketing and service company. Selling is what we are all about. Nothing happens around here until somebody sells something. We are an aggressive, competitive company and I think the second quarter results really showed that. We're very, very (technical difficulty) revenue growth in our brokerage sector, in particular the 14 percent organic growth, which I think is a great testament to our team into our niche strategy and the fact that the new hires in '01 and '02 are truly executing. Especially in today's environment with more clients inclined to self-insure or simply not buy at the higher price, this organic growth is really, really top flight. We know our investment in talent is paying great dividends for our shareholders. Let me just give you an example, our Manhattan office today which we started in May of '02, has over 40 people and is quickly approaching $10 million in revenue and should actually be and the black in '03. We told you a year ago that we'd see some margin improvement in the third quarter of '03, and as our new hires ramped up, we now know that that will be the case. In fact, let me give you another example, for all of '02 our new hires generated $59 million in revenue and lost us in pretax profit $5.7 million. So far in '03, just the first half of '03, we've generated $41 million in revenue and actually have a small pretax profit. Our strategy really is clearly a long-term home run for us.

Our compensation ratio is improving, second quarter of '02 we were at 56 percent, second quarter of '03 we are at 55 percent. As we come into our largest revenue quarters, that is the he third and fourth quarter, we feel really, really good about where we are. We're selling at ton of new business, and our retention remains very strong.

Let me try to make some comments on the market now. The market overall is still firm, but certain parts of the market are moderating. Liability, especially the excess casualty lines is still very much up and will probably stay in an up mode to 2004. Workers compensation is a very troubled line in particular excess workers compensation, that which we arrange above self-insurance programs, are seeing substantial increases. Property however has flattened, in some instances broader terms and even price decreases are the rule of the day. Middle market property casualty is still moving up, but that rate of change has moderated. Malpractice and directors and officers insurance are still very tight. So overall, the rate of growth has moderated. But disciplined underwriting with upward pressure remains the rule.

Our merger and acquisition pipeline remains very strong, we've completed five deals this year, were very, very pleased with people who have joined us. We hope to do a number more in the year. We don't ever target that, we don't have a goal and we have no expectation to give you. But we really believe that even with the additional competition in the market, we offer a potential partner, a real terrific opportunity to grow together.

Our Gallagher Bassett operation has really done a remarkable job of selling their way back to pre- 9-11 activity levels. You'll remember that after 9-11, Gallagher Bassett's claim activity dropped from somewhere around 39,000 claims arriving a month, down into middle 20,000s of claims a month, 26, 27,000. That has now come back to 41,000 claims a month and all of that increase really has come from their outstanding efforts of selling new business.

Gallagher Bassett is a real crown jewel, and I believe we've been garnered the reputation in the market as having the highest quality which bodes well and is proved by our ninety-eight percent customer retention rate.

This quarter we once again looked very closely at all of our investments, we feel that there is no impairment of any kind, we've provided you in the press release with a chart on those investments. Our balance sheet continues to be very strong, tangible net worth $400 million plus, operating debt at the end of the second quarter, $9 million versus $65 million at the end of the second quarter in '02.

More and more focus has been put on dividends of late and we've always believed in dividends even when they weren't the flavor of the month. And we believe that dividends are always an excellent indicator of a healthy company. Our dividends have increased an average of 19 percent per year for 20 years. In fact, if you bought the company at the IPO, you paid $1.72 for the stock, adjusted for three splits, today you would be getting a 72 cent payout. We believe we have the strength to continue that track record of dividend growth nicely into the future.

All in all, Gallagher is a growth company. We have proved this over 19 years since her IPO, we're proud of what we have accomplished, we're very proud of the team, I'm extremely please with our second quarter results, our strategy is working, our culture is strong, our team has really turned on, we're selling a lot of new business and were holding onto our accounts very, very well. So all in all what we believe was a solid quarter leading to what we hope will be a very solid second half, I will turn it over to Doug Howell now.

Thanks Pat, and good morning everyone. As an administrative note, we intend on following our 10-Q this Thursday or Friday. And our web site has a 10 quarter sequential view in an Excel spreadsheet that should help you with your models.

I would now to provide some commentary on six items that may help answer some questions that typically arise in these calls. First, we generated a lot of cash in the first half of 2003. We generated cash earnings per share of 88 cents or about $80 million. We used that cash, we used $32 million to pay dividends, $20 million to buy back 754,000 shares of our stock, $13 million for capital expenditures, and 16 million to pay down corporate borrowings in our line of credit. All five of our acquisitions were (inaudible) in the first half. We put out about 900,000 shares of our stock (inaudible).

Second I would like to make a comment on our contingent commission. Our contingents are also growing, but they only positively impact our growth rates by about one percent. But if you want to do your own math, here some numbers. In the second quarter of 2003, contingents were $7 million versus $5 million in the second quarter of '02. For the first half of '03 contingents were $20 million, versus 15 million in the first half of '02.

My third comment I'd like to make is regarding our synfuel tax credit. We remain confident in our synfuel tax credit position despite the IRS's announcement on June 27. You will see additional disclosure in our 10Q later this week, but here are the highlights. One, Gallagher has not been notified of any review or other action by the IRS related to this June announcement and we remain confident in our private letter (inaudible). Two, Gallagher's maximum exposure of the loss, related to synfuel tax credit is $153 million, or $1.80 per share. Three, Gallagher has in place insurance policies, the scope of which we believe would provide coverage in the event the synfuel credits were disallowed. While there can be no assurance that such coverage would ultimately be available, if the full amount of the policies were collected, Gallagher's maximum after-tax exposure, relating to the disallowance of the synfuel credits would be about $47 million.

My fourth comment relates to FIN 46 which we will implement in the third quarter. Recall that FIN 46 is the new accounting pronouncements that requires us to either expand our disclosures, or in some cases consolidate certain of our partially owned investments. In the past, we (technical difficulty) that we have partial investments in FIN 46-related entities that add about $600 million of assets. At this time, we believe we have to consolidate about $200 million and only provide enhanced disclosures for the other $400 million. This means our assets and liabilities will each increase by about $200 million, but it's important to take note that the most of the increase in the liabilities will be in terms of minority interest and not debt.

For the remaining $400 million of FIN 46 type investments, we will provide additional disclosures, but candidly, and very similar to what we already disclosed in our quarterly investment footnote. So in the end, we still believe that FIN 46 is not likely to have a material effect on earning or stockholders equity. However, as I say this, please keep in mind that these numbers may evolve over the next 90 days. FIN 46 is extremely complex and there's little industry implementation guidance out there to help us.

As a (indiscernible) comment, a couple of updates on items we discussed in the first quarter call. First, if you assume a 25 percent effective tax rate for the year, and keep financial services about breakeven in the third and the fourth quarter. And second, we told you that the compensation ratio would be about 52, 53 percent in the fourth quarter. We continue to believe that's where it will be.

My sixth and final comment relates to our line of credit. On Monday of this week, we were successful in replacing our expiring $150 million line of credit with a new three-year $250 million line. The deal was substantially oversubscribed and the number of participating banks has doubled. Those are my six comments, Holly, let's open it up for questions.

The floor is now open for questions. If you have a question or comment we ask you to please (CALLER INSTRUCTIONS) Jeff Thompson of Keefe, Bruyette & Woods.

I guess the first question, Pat, can you talk about your organic growth rate and give us some sense, do you think it's peaking here and how do you think about it going forward?

That's a good question. I don't want to -- I wouldn't say its peaking, but I don't feel it's strengthening from here. We're down slightly from the first quarter, like one point. The rate of growth in the market in the property market in particular, is less than it was a year ago. But we are seeing a great ramp up from the people that we brought on in '01 and '02. So I guess in terms of just thinking about it for the remainder of the year, I would hope it would stay similar to where it is today.

Can you say how much of the business you place is property versus casualty?

I don't have that number, Jeff.

I wanted to follow-up too, on your comments or Doug's comments or the synthetic fuels. You said that if it did unwind, which I don't expect, but I'm just curious, you said a $163 million charge, is that the cover closing plants or is there something else in there?

There are really three components of that. That would be the repayment of our tax credits, that we've taken, there would be potentially the repayment of tax credits sold to our partners, and there would be a write-off of assets sitting on the balance sheet and you used the word plans, (indiscernible) in the balance sheet.

Which bucket, how much, roughly?

I don't know if we are providing that information right now. I think we are going to put it in the 10-Q here in a couple of days. But if you assumed, I'm guessing here, about $75 million, in -- 65 to $75 million in tax credits, about $80 million in installment gains, and in the balance is in assets on the balance sheet. And those numbers are after-tax, and before insurance.

What kind of insurance policy is it? Against that?

The disclosure were making on insurance and you will see in the 10-Q similar disclosure and we can't expand upon the disclosure that we are making in the 10Q or that we are making here, Jeff.

And, finally, this timing, you said we would see the FIN 46 application when?

It will have to be implemented in the third quarter of 2003.

So we will see in that 10-Q?

Right.

J. F. Trembly from Credit Suisse First Boston.

Can you give us a sense of where you are in your preparation for FIN 46 as you're looking at your portfolio partnerships, are you exploring different alternatives who you will have to consolidate those on your balance sheet?

Right now the $200 million if he gross up the balance sheet by $200 million (indiscernible) is in our cash advantage investments and that doesn't assume any strategies to alter the investments between now and September 30. So we still have that option open. We could alter some of these partnerships or sell down a piece of them between now and then, and the $200 million wouldn't pop onto the balance sheet. So the $200 million in our view right now is really conservative. Again, remember that one of big questions that comes up it what was going to be the liability. It's easy to understand that the assets pop on, but what is the nature the liability. Most of this will be minority interest. It will not be debt.

Can you explain that?

If you think about it, if we have a partially owned investment, you always show a minority interest and it is just another liability. I can talk to you a little more off-line about the actual debits and credits in the accounting pronouncements for that. Basically it's just saying that if we own 40 percent of an investment, then 60 percent of it is, and we consolidate all 100 percent of it, 60 percent of it we have to show as our minority partners interest in that investment.

Regarding the overall market, can you tell us what kind of (indiscernible) you are seeing out there, are you seeing the (indiscernible) being more aggressive in your market or are you gaining shares from the smaller brokers?

Well I think, Jeff, one of the things that is so great about this business is that it is a very competitive business. In every town there are different competitors. There is no one single competitor that I would either look at and say we are seeing more of or less of. Everyone is being very aggressive. It's not there -- there is no one I can point to out there and say, here is who we are taking share from or what have you. It's a dogfight every day. We just hope we win more than we lose.

Thank you.

Hugo Warns of J.P. Morgan.

A couple of questions for you. On the back schedule on page 5, Doug, you are giving us the LOCs (ph), the guarantees, and the funding commitments, you gave that as of June of 2003, not to put you on the spot. What would that have looked like this time last year?

About $63 million bigger. The LOCs would have been higher, too. I can go from recent memory, in March, we had a $10 million guarantee on an asset alliance loan, they have paid down their loan to the point where we no longer have that guarantee. So, I don't have those numbers exactly but it is down substantially.

One of the things we had talked about in the office is that this is going to continue to be pushed down. What we're seeing here of the $16 million can it be pushed down even farther? Is the goal to just get all this stuff off and out?

Yes, and yes to answer that question.

With the schedule which I guess is new for us, this would contemplate any changes that you have made either from a write-down from the asset side or from the sale or divestiture correct?

Correct. And actually, this is, all this is an excerpt from out of our footnote, we put this in the first quarter queue, so we just provided a little earlier because sometimes it raises a lot of questions.

Also on the cash side, Pat and Doug together, you gave us, I thought it was very helpful to see the use of cash. As we look forward and you are going to continue to kick off a lot of cash, can you rank the priorities from today as we go out over the next 12 months?

It's a balance of three things. We are always going to be believers in dividends. So the dividends will be important and will be growing as we grow the company. We do put stock out as you know and prefer to use stock in our acquisition activity. But we do in fact need to cash for our acquisition activity as well. And thirdly, we buy stock back. That will be the primary usage of the cash we generate.

What have a debt load are you carrying right now? Is that a normalized target is probably not the right word, but is that kind of a comfort level from a balance sheet structure that you looking for?

We don't typically like debt, Hugh.

Okay, fair enough. The last question on the organic growth side. I think the 14 percent is incredibly strong. Is there any more granularity you can give, was it, how is the reinsurance business performing is there any division that is kind of picking up more steam than you though would be at this point outside of the new producers?

No. I think that everybody is probably everybody is doing just as good a job of hitting the ball out of the park as we would hope. Our reinsurance guys are doing very well. I think the fact that we have grown our reinsurance capabilities over the last four years with the acquisition of the Woods organization and with the expansion, significant expansion of our London operation, has given us an awful lot of her reinsurance strength that we didn't have just two or three years ago. We are getting great support from our retail insurance companies in building that business.

So retail brokerage, employee benefits, and specialty with the reinsurance, all of these guys are contributing fairly equally based on their weight, I know they are not equal in size?

I think that is a fair comment.

Thank you very much.

Jonathan Balkind of Fox-Pitt Kelton, Inc.

Quick question on the expense side, you did a great job managing other cost. I'm just wondering if you are implementing anything unique across the franchise to keep costs down or what was driving it this quarter?

Just running the business as hard as we can, Jon.

So nothing new on T&E (ph) or --

You do realize that we said last year at the end of the third quarter that we were basically saying, look the nets are full, lets go to shore we're not hiring a lot of people. And we are always looking for good production talent, but essentially our headcount is flat.

The comp line is obvious, it was the other noncomp expenses that you did a great job on as well --

Basically if you think about it, it's really not a numerator issue, it's a denominator issue, we've got more revenues. We're bringing hires on, a lot of them went into existing office space to support staff there to help them. That is really the impact of it.

Thanks guys.

Bob Glasspiegel of Langen McAlenney.

Two questions. Can you give us a little bit more color on how July renewals are trending, and also where do you think comp expense as percentage of revenues could go in '04?

I will let Doug take the comp expense, I will talk about July. July is always our bell weather month, it is a very big month for the company. Third quarter is a big quarter, fourth quarter is a little bigger. I don't have actual numbers at this time, but I can give you my anecdotal, of course, I talked to almost every one of our divisional managers and regional managers. And all of them felt that while July 1st was extremely difficult, not seeing any real moderation in the market in many respects. We had a lot of difficult renewals, a lot of significant increases that we had to sell, we did in fact anecdotally have a very good month.

Bob, on the comp for next year, I think it's very important for everyone to take a look at our 10-quarter spread and you can see the seasonality in our business. One of the things that we have is make sure you take a look at our first quarter. Our first quarter revenues are typically seasonally lower than the rest of the year. So that is going to change that compensation ratio next year. I would guess that overall the comp ratio is going to drop down slightly on a quarter by quarter basis as the new hires, as the season ends and are not quite as ratio dilutive on a compensation side. I'm not prepared to give you a specific number right now. We told you it is going to be 52 or 53 by the fourth quarter, that is our best guess at this point. But then you have to look at the seasonality again as you take those picks for next year.

Are you trying to say that the first half margins could be much improved over this year's first half just because there's a lot of leverage and the news hires are productive and it's a relatively thin quarter, is that what you are saying?

I'm saying that you need to take a look at the seasonality. We just don't have as much revenue in the first quarter and we have basically fairly constant expenses on the comp side, so you are going to see an uptick in the first quarter '04 over the fourth quarter '03.

But it should be much improved from the first quarter of '02 -- of '03.

Bob, I don't know if (indiscernible) much.

Bob, let's not get into giving you the number, okay?

Okay.

We gave you 10 quarters of spreads.

I'm just trying to understand what Doug was saying. Thank you.

Nick Pursos (ph) of Sandler O'Neill.

Just a question regarding the organic growth in the brokerage segment. Pat, I think you had said that as far as an outlook, you didn't necessarily see the rate strengthening. And I'm just trying to get a better handle on the 14 percent number in the second quarter between kind of the new producers -- and I don't know what word you want to use -- (technical difficulty). To the extent that in the second half we expect the new producers to be ramping up even more, one would think that the organic number should strengthen. So I'm just trying to get a better clarification of that.

Well, it's hard to put numbers around what you are asking there, Nick. I just think that in general, the market is, as I said, the rate of growth from last year is not as strong. So when you call in when you're thinking about 13, 14, 15 percent organic growth, it's hard for me to predict in the third and fourth quarter exactly where that's going to come from, and I think that's what you're asking. I'm not trying to be evasive.

No, I understand.

In order to get 14 percent, we are going to need all of our operations hitting on all cylinders again in the third and fourth quarter. Now the new hires, you are right, are in fact at this point more margin dilutive than they will be by the end of the year. But in terms of gross topline contribution, I wouldn't look to them to be providing 4 or 5 extra points of organic growth.

Great, that's helpful. Thank you.

Barry McCarver of Stephens & Co.

Most of my questions have been answered. I've just got a couple of quick ones. First off, can you give us an update on the Beacon Hill asset alliance issue?

We'll let John answer that.

There really haven't been any developments since we last talked, and there's really nothing to add to that.

Secondly, just to make sure I understand what is going on with the synfuel assets. The assets were up and looks like expenses for that were up little bit, should we expect future increases like that going forward?

We signed a deal in the first quarter of this year on a new synfuel plant. Ramping up that plant is what allowed us to project a 25 percent tax rate. But the costs of ramping up that plant are expensive. And then the plan ultimately once the plant is working is to monetize that by selling the partnership interest on an installment basis.

And just to add to that, I don't think you should think of another step up in the third quarter the same way you saw the step up between the first and the second quarter because the plant is up and running now. That biggest delta was between the first and the second quarter.

Thanks a lot guys.

Marcelo Visio (ph) from a Willow Creek Capital.

I just wanted to see if you could tell last, I'm not sure if you have told us in the past, who your synthetic field partner is and where your plants are located?

No, we have not disclosed that.

And are you assuming that there is nothing that is going to be that nothing is going to happen with the IRS regarding your synthetic fuel plant but that the other plants might come under scrutiny?

We think that the credits that we've taken and we think that the partnership interests that we have sold are solid. We have private letter rulings, we have done tremendous amounts of due diligence, the people that have purchased those partnership interests have also done tremendous amounts of due diligence and we feel that the position we've taken over the years is solid.

The $163 million maximum loss that you spoke of earlier, is that indemnification of the investors that you sold partnership interest to?

That is included in net number, yes. It's not the total number.

What would happen for instance if you had to get rid of the synthetic fuel tax credits, what would happen to your tax rate and to your operating income on an ongoing basis?

The tax rate would restore to between 35 and 40 percent. Tax rate. And we would write off all of the assets that remain on the book. So we take charge if Armageddon happened, we'd take the 163 charge, assuming there we had no insurance recoveries on it, then that would be behind us and our tax rate would go up to somewhere between 35 and 40 percent.

In this quarter how much of your operating income was from alternative fuel sales? Partnership sales?

Well financial services broke even this quarter. And that is in the press release.

I see it here, so $30 million.

I'm sorry, I didn't understand?

How much of your operating income (technical difficulty) from sales of alternative fuel partnerships?

If you define income as net income none, it was break even.

How about operating income? Could you bring in the gains through the operating line, right?

We have a lower tax rate as a result of all of our tax and investment strategies. So if you wanted to do that you'd just take the provision for income taxes and you would restore it to 35 percent versus what we reported in the press release. I can do that math in a few minutes here if you want. That is how you would level set the brokerage into risk management segment, assuming that there was no tax benefit.

Don't you bring in income though on onto, through your operating line from selling alternative fuel partnerships?

Yes, but there are also expenses. This is the trap that I don't want everybody to get into it again is that yes, we have revenues but we also have expenses. So again that is running at about break even for the first two quarters.

Thank you.

(CALLER INSTRUCTIONS) Mark Dwelle of Ferris Baker Watts.

A couple of questions related to the acquisition side. Can you give us just a sense of what the sort of annualized acquired revenues have been on the four deals, I guess the five deals you done year-to-date?

I can in a minute.

I think we can get that number, do you have another question?

The second question was just a general sense of, obviously most brokers that you would be considering acquiring have probably enjoyed pretty nice returns over the last few years. I was just interested in your assessment or your outlook on how the deals are getting done, are they harder to get done, is there more interest in selling, is there more competition for the prime properties? Just some general overview.

I can give you that. There is clearly more competition for the prime properties, both from other entrance into our business, public entrance, as well as the banking community. The banking community feels in many instances strongly, that this is a business that they want to be in. So we do see additional competition. You are absolutely right as well, part of the problem in terms doing some of these deals is the fact that many of these businesses have enjoyed incredible success over the last two to three years and frankly if you are in this business as you all know from looking at these models, its a heck of a business from the standpoint of cash and earnings. So what we are really selling in the marketplace if you will, is that can you grow your family's equity value faster without us, or can your family and our families grow it faster together. And when we find people that understand that, and look at the long-term, that is when we get to the next step in terms of trying to price the deal and bring them aboard.

But the pipeline is still full, remember its tremendous inventory in the market. There are literally thousands and thousands of insurance brokers in the United States and around the world. So we are constantly talking to dozens of them and trying to keep a pipeline full. Each deal, however, has a life of its own. There are different reasons each seller sells and we tried to ferret those out and show them where they would best be served with us.

The answer is 13 to $15 million. Annualized revenues, though.

Thanks very much. Thanks for both of your comments.

Robert Hydric (ph) of Robert W. Baird.

Great quarter. In a recent Crane's (ph) article mid July, they stated that some of your new hires have been calling on major accounts with your previous employers. Is this kind a new market niche you might be looking at? For your larger accounts are whatever?

Not really Bob. If you look at our history going all the way back to being a small private company, the large commercial accounts were a part of that history. Now by item count, the middle, the classic middle market accounts are generating anywhere from $15,000 in commission up to $4 million by item count those are clearly our largest position in the market. But, no, we've always felt that we were very competitive on large accounts and we've done very, very well in that market in the last year as well.

Thank you.

I think we have time for one more question, Holly.

Jeff Thompson of K.B.W Inc.

I just had a follow-up, Pat. Just to drill down a little, if we eliminate what you think we could do with these new producers and just look at the market. If premium rates are going out albeit at a slower pace, they are still going up, is it correct to assume that naturally you should see margin expansion in that kind of environment?

Yes.

Okay. Second question follow-up again on this synthetic fuel, I don't want to beat a dead horse. Were you ever reviewed for your synthetic fuel processing in the past?

Ever reviewed by whom?

It seems that this IRS ruling is going after someone, I don't know if they are power generation companies, whatever it is, but there are some culprits out there that they think maybe are not necessarily cleaning the cull, not necessarily processing and aren't really qualifying for the tax credits. Were you ever reviewed on the kind of basis?

No, but let me put it this way. We have applied for and received a number of private letter rulings. We believe the facts submitted in those private letter rulings are absolutely accurate. Should I add anymore to that, Jim?

I would just say that the IRS announcement that Doug referred to in his remarks relates to one specific (indiscernible). It doesn't in our view relate to what we do, and as Pat has said, we have done as much due diligence as is humanly and more so in the processes involved in our facilities.

I agree, I think this is overblown and I'm trying to get a better handle on it.

We are confident that all of the items of our private letter rulings will show to be very factual if they are ever reviewed by the IRS.

Thank you.

Thank you. Holly, I will just make a few quick comments here and then will sign off. Thanks again everyone for listening in. We are extremely pleased with the second quarter. I think we are extremely well positioned to continue the growth track that we are on, and we are very bullish about the third and fourth quarters. We continue to be really pleased with the investment we've made in people, you might remember that one year ago we told you that we expected that you would see the benefit of our hiring position in '01 and '02 really come to fruition in the second half of '03. Many of you have raised the issue of whether or not we have an execution risk in the hires that we did, I believe the question has been answered, the strategy is paying great dividends for our shareholders and I believe it will for the long run. Very, very, it will be a very, very positive thing. These people are really no longer new hires. These are people that are a part of our team, they are hitting the ball out of the park, and we are glad they are with us. Thanks again everyone for joining us today.

Thank you for your participation, ladies and gentlemen. This does conclude our teleconference. You may disconnect your lines at this time and have a wonderful day.

(CONFERENCE CALL CONCLUDED)