Denny's Corp (DENN) 2010 Q3 法說會逐字稿

Good afternoon. My name is Tamika, and I will be your conference operator today. At this time, I would like to welcome everyone to the Denny's third quarter 2010 earnings release. All lines have been placed on mute to prevent any background noise. After the remarks there will be a question and answer session. (Operator Instructions). Thank you. I would now like to turn this over to Mr. Enrique Mayor-Mora, Financial Planning and Investor Relations Officer. Mr. Mora, you may begin.

Thank you Tamika. Good afternoon, and thank you for joining us for Denny's third quarter 2010 investor conference call. This call is being broadcast simultaneously over the Internet. With the today from management are Debra Smithart-Oglesby, Denny's Interim Chief Executive Officer and Board Chair, who is traveling and calling in from Dallas. And Mark Wolfinger, Denny's Executive Vice President, Chief Administrative Officer, and Chief Financial Officer, who is here in Spartanburg, South Carolina.

Debra will begin today's call with an overview of our business and our strategic initiative. After that Mark will provide a financial review of our third quarter results. I will conclude the call with a review of Denny's' full year guidance. As a reminder, the 10-Q will be filed by Monday, November 8th.

Before we begin, let me remind you that in accordance with the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995, the Company knows that certain matters to be discussed by members of management during this call may constitute forward-looking statements. Management urges caution in considering its current trends, and any outlook on earnings provided on this call. Such statements are subject to risks, uncertainties and other factors that may cause the actual performance of Denny's to be materially different from the performance indicated or implied by such statements. Such risk and factors are set forth in the Company's Annual Report on Form 10-K for the year ended December 30th, 2009, and in any subsequent quarterly reports on Form 10-Q.

With that I will now turn the call over to Debra Smithart-Oglesby, Denny's Interim CEO and Board Chair.

Thank you, Enrique. Good afternoon everyone. I will be talking to you today about my areas of focus as the Interim CEO, and the progress that we are making against these priorities. Now specifically, these include building a world-class leadership team, a commitmentto driving guest count growth, the solid execution of the Flying J conversions, the refinancing of Denny's debt to a lower cost credit facility, and the initial findings from our cost structure review. And then additionally, I will touch on for a few moments our recent announcement that Denny's is testing a fast casual cafe concept.

We continued to make progress in the third quarter in building the Denny's leadership team. As we discussed in our second quarter call, we brought aboard Frances Allen as our new Executive Vice President, Chief Marketing Officer back in July. This past September, we added Robert Rodriguez as an Executive Vice President, Chief Operating Officer. Robert brings 30 years of industry experience including leadership positions with Duncan Brands, McDonalds, and PepsiCo.

The Denny's Board remains active in its search for a Chief Executive Officer, and we have engaged an international executive firm, Spencer Stuart, to assist us in this search. As soon as the search is complete, Denny's will name its CEO, and will expect that will occur by the end of this year. We also continued in the third quarter to benefit from the active participation of our franchisees. That was including two of our larger franchises Bob Langford and Bill Cox, each who have over 30 years of restaurant industry experience. This partnership has supported our ability to act quickly, and to efficiently execute on the initiatives, while getting us continued opportunity to build strong relationships throughout our franchise community as a whole.

Across the Company, we have all been committed to driving sales and guest count growth. In the second quarter with the strong support of our franchisees, we launched nationally the 2/4/6/8 Value Menu in combination with limited time offers at attractive value price points. Now under this every day affordability platform, we have seen our guest count performance improve every month since the national roll-out of this program. From April through September, our guest counts improved sequentially from a negative 5.6% up to a positive 2.3%. That is an 8 point improvement during this period of time.

And importantly, we continue to see positive progress in key markets across the country, including California, Texas and Florida. The third quarter saw Denny's exceed the guest count performance of the mid-scale segment. In the third quarter we refreshed our 2/4/6/8 menu, introduced a new build-your-own omelette limited time offer, and we continued to see the redemption rates from our AARP program increase as well. We also leveraged heavier media weights this year, due to the reallocation of funds within our national advertising funds, and through the growth of our local marketing cooperatives, which now cover about 60% of our sales. We continue to believe that value-oriented every day affordable menu items, supported by very focused marketing, improved hospitality, and execution at our restaurants, will continue to drive this momentum throughout our system.

And furthermore, to support our market initiatives we have rolled out a facilities refresh program to our system. As the franchisor, we will lead in this process, and anticipate approximately 50 company units to be refreshed by the end of this year. In the third quarter, we completed four of these units, and our expectation is that the franchise community will follow in 2011.

Let me now discuss the progress we have made in the Flying J conversions. Immediately after the FTC approved the pilot Flying J merger, we announced our intention to convert 80 Flying J sites to Denny's this yea, out of a total opportunity of up to 140 units. Through the third quarter, 53 Flying J sites have been converted to Denny's restaurants,including 48 that we have converted in the third quarter. Of these 48 sites, 42 were open by our franchises, and six opened by the Company. The unit level sales of these new openings continued to meet our initial expectations.

Now given the pace and the success that we have experienced to date, we have increased our Flying J conversion expectations for 2010 from 80 units to 91 units. This is being driven by the increase in sites being converted to Company units. With the objective of completing the entire conversion opportunity by early next year, while ensuring profitable allocation of capital, the Company has stepped in to convert selected Flying J sites. Denny's expects to convert another 11 sites in the fourth quarter, for a total of 21 company-operated sites in 2010. And we expect that approximately 25% of all of the Flying J conversion opportunities will be to company-owned units.

In regards to our traditional growth, we continued to see benefit there as well from strong franchisee interest in our brand. In the third quarter our franchisees opened another nine traditional units bringing our year-to-date opens to 21. We also continued to pursue opportunities on university campuses across the country. In the third quarter we opened at four more university locations. Florida State University, Northern Arizona, California Poly Technical State, and Monroe Community College. These locations were opened in partnership with Sodexo and Aramark. We are now located on five campuses and we and our partners have been very pleased with the performance and the impact of the Denny's brand, and the impact that we are having on these locations.

In addition to the non-traditional travel centers and our university campus locations, we believe that the strength of the Denny's brand can be leveraged into a fast casual format. To this end, Denny's plans on opening a handful of company-operated cafe test locations over the next several months including two by the end of 2010. Once the concept is up and running, we expect our franchisee to open the vast majority of our future units. This cafe concept will offer our guests core products from the Denny's popular menu, and will be located in urban settings in footprints approximately 25% smaller than our traditional Denny's. In this limited service concept, guests will be able to order at a counter, and have runners bringing out their food.

From an investment standpoint, the model is built to deliver attractive rates of return by leveraging lower capital and lower labor requirements. Subsequent to the end of the third quarter,the Company's financial position, flexibility and credit profile was all strengthened by the $300 million refinancing of all of Denny's debts. The basic terms of this facility are as follows. Lower cost debt through a term loan, rather than high yield unsecured notes, and improved maturity profile, no debt now matures until the third quarter of 2015. We now have the flexibility to perform stockholder friendly actions.

As communicated last quarter we have also begun to take a full review of our cost structure to ensure that resources are optimally aligned to our priorities, for the past three years Denny's has consistently taken a sharp pencil to our cost structure, and we have been very effective in increasing our operating efficiencies, and decreasing operating and G&A costs. Now specifically we have lowered our G&A on a per unit and percent of sales basis, to below the median of our peers, and we have delivered improving four wall margins in part by improving efficiencies, and continuing to reduce costs in our units. We are approaching this review with a similar commitment.

We began this evaluation by looking for efficiency opportunities in our Company units, and a full review of G&A to follow. Today we have acted on tighter outlier management that has delivered $0.5 million in cost savings in our Company units in the third quarter alone. At this point in time, we are not in a position to communicate our expectations beyond this, but we do intend on updating you on the appropriate time in the future. I will conclude my comments today by restating that there have been clear leaders in this industry, who have been driving sales despite the challenging economic environment, and the limited visibility that we have into the near future. I firmly believe that we have begun to take the right steps to take the Denny's brand back to its rightful place as the leading family dining restaurant chain in the nation.

I will now turn the call over to Mark Wolfinger, Denny's Chief Financial Officer and Chief Administrative Officer.

Thank you Debra. Good afternoon everyone. Our third quarterperformance continued to deliver the benefits of our emerging business modelwhile also showing significant progress towards our Flying J conversions, our sales and guest driving initiatives, and our ability to refinance our debt.

In the third quarter, Denny's had net system unit growth of a positive 56 units. After announcing the completion of the merger of Pilot Travel Centers and Flying J Travel Centers at the end of June, we begin converting the Flying J restaurants and successfully completed 48 conversions in the quarter. 42 of these sites were converted by franchisees, and six by the Company. Our franchisees also opened nine traditional units. In addition we opened four university locations demonstrating the attractiveness of the Denny's' brand in new distribution points. We have seen a significant improvement in system sales and guest count within the quarter, driven primarily by our every day affordability strategy. In the third quarter, same store sales at Company restaurants decreased 0.7 of a point, and decreased 1.2%at our franchise restaurants.

Looking at details for Company sales performance, we saw same store guest count increase a positive 2.3% in the quarter, which represents a 6 percentage point improvement in trend from the second quarter. We saw positive same store guest counts in all 13 weeks of the quarter, and also saw a sequential improvement from month to month. In the third quarter average guest check decreased by 2.9%. This was driven by our 2/4/6/8 Value Menu, and the limited time offering sizzling skillets starting at $3.99. At the end of August the Sizzling Skillets LTO was replaced by the build-your-own Omelette starting at $4.99.

The decline in total Company restaurant sales in the third quarter largely reflects the continuing improvement of our franchise growth initiative, to continue the impact of our Franchise Growth Initiative, or FGI, as sales decreased $9.4 million, or 8%, due to 27 fewer equivalent Company restaurants compared with the same period last year. I will now turn to the quarterly operating margin discussion.

The decrease of 1.4 percentage points in the third quarter for our Company operated units was primarily driven by higher product costs, higher restaurant management and incentive compensation, higher new store opening expenses associated with the Flying J units, and unfavorable legal claims developments, offset by lower utility rates, lower repairs and maintenance expense, efficiency gains in labor, and the selling of lower margin units through FGI. Product costs increased 0.6 of a percentage point to 23.7% of sales, primarily due to the impact of the higher mix of value priced items, and higher commodity costs, payroll and benefit costs increased 0.4 of a point to 38.8% of sales, primarily due to higher restaurant management incentive compensation, partially offset by favorable Workers Compensation claim development, and efficiency improvements in team labor. Occupancy expense decreased 0.1 of a point to 6.6% of sales, primarily due to lower general liability claims development, offset by the impact of adding ten new leased Flying J units. Utility costs decreased 0.4 of a point to 4.6%.

Denny's is benefiting from natural gas and electrical rates that have fallen considerably from the levels seen in 2008, and early 2009, as well as from the recognition of $500,000 in losses on natural gas contracts during the prior year quarter. Repairs and maintenance expense decreased 0.5 point to 1.6% of sales. Marketing expenses increased 0.4 of a point to 4.3% of sales, primarily due to additional spending related to the Super Bowl, and the testing of the 2/4/6/8 Value Menu program. These costs are being recognized throughout the year based on sales.

Legal settlements increased 0.5 point due to unfavorable claims development. In summary the gross profit from our Company operations decreased $3 million, on a sales decline of $9.4 million. For the third quarter of 2010 Denny's' reported franchise and license revenue of $32.8 million, compared of $29.5 million in the prior year quarter. The $3.3 million increase in franchise revenue was driven by a $2.1 million increase in franchise fee revenue, a $900,000 increase in royalties, and a $300,000 increase in franchise occupancy revenue.

The franchise fee increase resulted from opening 55 franchise units in the third quarter of this year, which included 42 Flying J Travel Center conversions, and four university locations. The royalty revenue increase was due to 63 additional equivalent franchised restaurants. In addition to opening 55 franchise units during the third quarter, Denny's franchisees closed five restaurants and purchased two Company units. Franchise operating margin increased $1.6 million to $20.8 million in the third quarter. This increase was driven by the increase in franchise fee revenue, and 63 additional equivalent units, primarily offset by temporary overhead costs associated with converting Flying J sites.

Franchise operation margin as a percentage of franchise and licensed revenue was 63.3%, a decrease of 1.7 percentage points compared to the same quarter last year. The franchise margin decrease was primarily due to the temporary overhead costs associated with converting Flying J sites, offset by higher franchise fees. The franchise side of our business contributes 57% of the gross profit, which is $4.8 million more than our Company restaurants. This income shift continues to allow us to reduce the risk , and increase the predictability of our earnings.

General & Administrative expenses for the third quarter increased $100,000 from the same period last year. This increase was primarily driven by senior executive recruiting costs incurred in the quarter, offset by lower share based compensation expense. The decrease in share based compensation was due to the departure of certain employees at the end of 2009 and in the first half of 2010, and the adoption of lower cost share based compensation plan. Depreciation and amortization expense declined by $500,000 compared with the prior year period, primarily as a result of the sale of Company-owned restaurants over the past year.

Operating gains losses and other charges on a net basis, which reflect restructuring charges, exit costs, impairment charges, and gains or losses on the sale of assets, decreased $700,000 in the quarter. This decrease was primarily the result of a $1.7 million increase in restructuring and exit costs in the quarter which includes $1.5 million related to the departure of our former Chief Executive Officer. The higher restructuring and exit costs were offset by a $600,000 increase in gains on the sale of Company restaurants and real estate to franchisees. Operating income for the third quarter decreased $1.7 million from the prior period to $18.6 million, despite a $6.1 million decrease in total operating revenue attributable primarily to the sale of Company restaurants.

Below operating income expense for the third quarter decreased $1.7 million, or 21.2% to $6.4 million, as a result of the termination of our interest rate swap, and a $42.5 million reduction in debt from the prior year period. Other non-operating expense increased $600,000 in the third quarter, primarily due to interest rate, swap, and gas hedging activities in the prior year.

Because of the significant impact to our P&L from non-operating, non-recurring or noncash items, we give earnings guidance based on our internal profitability measure, adjusted income before taxes. We believe this measure best reflects the ongoing earnings of our business. Our adjusted income before taxes in the third quarter was $9.4 million, and an increase of $300,000 over the prior year period.

Moving on to capital expenditures our year-to-date cash capital spending was $13.2 million, an increase of $400,000 compared with the prior year period. The increase was driven by a $3 million increase in new construction expenditures reflecting the opening of 10 Company Flying J units this year. This increase was offset by decreases in facilities and remodel expenditures, which continue to decline as we have reduced our Company restaurant portfolio. The execution to our FGI program and our focus on cost containment allowed us to aggressively reduce debt during the last few years, and as a result, place us in a position to refinance our debt facilities.

Subsequent to the end of the third quarter we closed on a $300 million senior secured credit facility which will lower our borrowing costs, extend maturities, and give us increased flexibility to perform shareholder friendly actions. The new facility consists of a $50 million five-year senior secured revolver, and a $250 million 6-year senior secured term loan. Interest on the new term loan will be LIBOR plus 475 basis points, with a 1.75% LIBORfloor. The term loan was issued at a 98.5% original issue discount, and will amortize quarterly equal to approximately 1% per year. The new facility has similar covenants to our old facility, a maximum leverage ratio, a maximum lease adjusted leveraged ratio, a minimum fix charge coverage ratio, and limitations on capital expenditures. On November 1st, we redeemed the remaining portion of our 10% notes.

That wraps up my review of our third quarter results, I will now turn the call over to Enrique, who will speak to our full year

Thank you, Mark, and good afternoon everyone. Based on year-to-date results and managements expectations at this time, Denny's is reaffirming its financial guidance for full year 2010. It is also raising its expectations related to unit developments, and the refinancing of its debt that occurred subsequent to the end of the third quarter.

The three key areas of raised expectations are new unit openings of 126 sites, as compared to 111 sites. This increase reflects an accelerated pace of Flying J conversions, with 91 sites anticipated in 2010 as compared to 80. Increased development at university campus locations with six sites as compared to four, and a launch of two test sites for Denny's' fast casual cafe.

Second, given the accelerated pace of Flying J openings, cash capital expenditures are expected to increase to $29 million, as compared to $21 million. This increase is primarily being driven by the number of Flying J conversions that the Company will undertake. The decision to open an additional 11 Company operated Flying J units in 2010 was a per unit cost of $565,000, will increase Flying J conversion capital from $6 million to $12 million. In addition the Denny's fast casual cafe test units are each expected to cost approximately $800,000.

Third, with all of Denny's' debt refinance under the new credit facility, cash interest expense is expected to decrease from $24 million to $23 million in 2010. On an annualized basis, the new credit facility is expected to result in a reduction of cash interest of approximately $2.5 million. Same store sales are expected to be within our previous guidance with Company units ranging from down 4% to down 2%, and franchise range of down 5% to down 3%. Adjusted EBITDA is expected to be within the original guidance of $71 million to $75 million. This guidance now includes $2.3 million of restructured costs, related to the departure of the former CEO.

Adjusted income before taxes, our internal profitability metric is also expected to meet our original guidance of $23 million to $28 million. As a reminder this guidance includes the $2 million of proxy related costs we incurred in the first half of the year. When considering Denny's profitability outlook for the fourth quarter of 2010, it is important to note, first the increase in Company unit Flying J conversions in the fourth quarter will drive profitability in 2011, not in 2010 due to the standard pre opening and start-up costs associated with new units.

Second, as communicated in our 2009 year-end call on February 17th, 2010 Denny's benefited in the fourth quarter of 2009 from Workers Compensation and general liability accrual reversal, and a credit card settlement benefit. Collectively these drove $4.7 million of benefit to our profitability in the fourth quarter of 2009. We do not expect these to recur this year.

Third, with the refinancing of our debt, Denny's will recognize a charge of approximate $4 million in the fourth quarter. This charge is due to the write-off of deferred financing costs related to the previous debt structure, a portion of the costs related to the new debt structure, and costs associated with the bond tender. That concludes managements prepared comments for this call. I will now turn the call back over to Tamika for the question and answer session.

(Operator Instructions). We do ask that our callers limit themselves to one question and one follow-up question. If there any additional questions please press star one to reenter the queue. Please hold while we poll for questions. Our first question comes from the line of Michael Gallo with CL King.

How are you?

Congratulations on the improved result. A couple of questions, I just wanted to drill down into Flying Js. Obviously you are doing more of them on the Company side. What drove that, how many do you expect to do in total on the Company side? And do you expect that the 40 might even be increased, or 140 is still your expectation for the total number of units. Thank you.

Alright, hi Michael, it is Mark, how are you?

Good. How are you?

Fine. First, let's start back to the number, the total units for us is 140 Flying Js. That is in total and obviously, we have raised our guidance for this year as far as the number of conversions so we are currently at 91 in total, which again the split is 21 on the Company side, and 70 on the franchise side. I think on the specific question you had as far as the increase in the Company side.

Our focus was to make sure that we maintain our commitment and our time line with Pilot. We also obviously are taking advantage of what I would say is very good progress on the conversion side. We continue to do four to five a week, and coming out of the gate after the FDC approval obviously, we wanted to be a bit conservative in that conversion process. Obviously things will go on quite well for us in that conversion process. Is there any other part of your question --?

Just to understand that again, come back to these units that you plan to operate long term as Company units just because the performance is good, or the units that you just wanted to get out and convert and then you might refranchise down the road, or that is what the thinking was on that?

Right now we do plan to operate these Company stores long term. If by chance they would be part of a refranchising strategy further down the line, then that might make sense for us, just as we have gone through our refranchising strategy overall. But right now we do plan to operate them as Company-operated stores.

Okay, that is very helpful. I will get back in the queue. Thank you.

Thank you, Michael.

Your next question comes from the line of Mark Smith with Feltl and Company.

Hi, Mark.

I just wanted to follow-up on the question there on why more Company operated. Have there been any issues with demand for the Flying J conversions from franchisees, or any problems with them getting financing even though it is a lower cost?

No, from the standpoint and this is Mark Wolfinger. There really hasn't been any kind of demand issue overall from the franchise side of the business on these Flying Js. Obviously we wanted to make sure that the geography makes sense, because the 140 locations are spread throughout the US. And on the financing side, we continue to see a pretty strong market out there for financing. As you might recall, we put together a financing pool as it relates to this specific transaction. We have had our franchisees use that pool of financing, but we have also seen some of our franchises go to other third-party financing entities. When you look at these stores, and you look at a $565,000 capital investment for what was a pre-existing sales base before conversion. We have seen improvement after conversion as far as sales volumes, this is a compelling investment opportunity.

Just to confirm it is not because franchisees don't want them that you are taking these on now?

No, that is not the case.

Perfect. Can you talk about preopening expense on these conversions?

Sure. Pre opening runs about $125,000 per unit and there is also for the first three to four months of any unit there are naturally inefficiencies and learnings that you garner throughout that point in time. So it is pretty much around the fourth month that the units start to run efficiently, but pre opening costs about $125,000 per unit.

Next just looking at commodities. Any new updates on contracts that you may have on commodities?

The outlook for next year, we are look at commodity pressure now somewhere between 2% and 3% for the system next year. As of now, as of today, we are looked into about one-third of our basket for next year. And meat at this point in time and grain based commodities.

Okay. And then last question, just looking at your new fast casual test sites, can you give us the locations of those two?

This is Mark Wolfinger, the first two will be in the state of California out west. As you might recall from our presentations we have about 25% of our stores in the state of California, and again, the first one will be opening here very soon, and the second one is also, I think Debra commented it will open during the fourth quarter.

Okay.

Your next question comes from the line of Sam Yake from BGB Securities.

Congratulations on a real good quarter.

Thank you Sam.

I had a question, you said under the new financing credit facility that you had the flexibility to perform stockholder friendly actions. I am wondering if you can please elaborate on that, are there any restrictions at all on stock dividends or stock buybacks, or are you very flexible?

There are still covenants that we have with the term loan. There are still conditions, but certainly relative to where we had been in the past with our credit facilities, where we had very little to no flexibility to perform any stockholder friendly activities, such as share repurchases, or dividend payments, we have considerably more flexibility now.

So is there anything preventing you from doing it now, other than your desire to just pay down debt a little more?

I think our view at this point in time is that we would like to get over the investments we are making in Flying J as a system. Get past that which we expect to be completed by early next year, and at that point in time really move forward on activities.

Okay. I had one other question. That is on the FGI program. It kind of slowed down a little bit. Are you still aggressively pursuing that?I heard in the industry franchisees are having a tough time getting financing. Is that holding up further FGI transactions?

This is mark. We obviously have, we started the program back in 2007. I would say that it has slowed down a bit, but it has also slowed down from the standpoint of our franchise system is making significant investment both in the Flying J units, as well as our new unit builds that are going on in the franchise system. The second piece is that we still have certain stores in the US that we have targeted for refranchising activity, but we want to make sure that it makes sense from an overall stakeholder standpoint to do those transactions. There is still interest out there on part of our franchise community. We just want to make sure that we move forward accordingly, it is beginning to come down a bit to tail off a bit. Our target mix between our franchise and Company stores is a 90/10 split, and we are at about 86% today on the franchise size. So there are not nearly as many stores left to sell as obviously what we have already sold.

Okay, thanks so much.

Your next question comes from the time of Tony Brenner with Roth Capital Partners.

Hi Tony.

Good afternoon. Two things. Can you please go through the components and the operating games, losses and other charge line item of $1.9 million?

I would be more than happy to. Let me pull it up here.

It would be in the Q, but it is not in the --?

From a restructuring standpoint, we did have as Mark talked about in his piece. We had about $1.5 million in restructure dealing with the final settlement with Nelson that hit our restructure. We had about $600,000 more in operating gains from the sale of the two units plus some real estate. We sold about four sites, underlying real estate to franchisees as well. Those are the two biggest components in the restructuring gain.

There was a restructuring gain of $1.5 millionor charge?

It was a charge of $1.5 million.

So I am wondering how you get a total gain of $1.9 million?

There is also $3.7 millionof gain which is $600,000 greater than we had last year in the same quarter, but we also had gains from the sale of the two sites through FGI plus underlying real estate sales at four sites that combined for $3.7 million in gains in the quarter. I will be more than happy to follow-up on any further detail. Those are really the two components within the gains in restructuring.

And in talking about guest counts improving, I think you said sequentially it improved every week year-over-year comparison, improved every week during the quarter. Is there any reason that wouldn't carry over, and result in a positive number again in the fourth quarter?

In the fourth quarter, we are certainly encouraged by the trend that we have been experiencing really since April, where we have seen sequentially improving guest counts month to month, and I think one of the things to be cognizant of is in October of last year we did roll-out a build-your-own-burger promotion that actually worked effectively for us in the month of October. That being said we are encouraged and continue to be encouraged with our trends in guest counts and sales for the fourth quarter.

Thank you, I plan to test your first casual opening on Friday, which is the first day it opens I believe.

That is great.

Great.

Thank you, Tony.

Okay.

(Operator Instructions). Your next question is a follow-up from the line of Michael Gallo with CL King.

Just had a follow-up on the guidance reiteration if I go back to the second quarter release. I think you indicated that originally, or back then the low end of the $23 million to $28 million for adjusted income before taxes. Are you now saying just back to the original range of the $23 million to $28 million?

That is exactly right.

Okay. Just wanted to clarify that. Thanks a lot.

(Operator Instructions). And there are no further questions.

Alright, I would like to thank everyone for joining us today for our third quarter conference call. We look forward to following up with you on our fourth quarter year end call, and I am available for any further questions as well. Thank you, and have a wonderful evening.

Thank you for participating in today's conference call. You may now disconnect.