達美樂 (DPZ) 2014 Q3 法說會逐字稿

Good morning. My name is Juana, and I will be your conference operator today. At this time I would like to welcome everyone to the Q3 financial results earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions). Thank you. Lynn Liddle, you may begin your conference.

Thanks, Juana. Appreciate it. Welcome, everybody. We are very excited to be announcing our third-quarter earnings this morning. And with us I have our usual folks of Patrick Doyle, our President and CEO; and Mike Lawton, our Chief Financial Officer. They have some prepared remarks that they will make and then we will open up to Q&A. Usual rules apply. We are asking -- since this is an investor call -- that members of the media remain in listen only mode and then I will direct you all to our Safe Harbor statement in the press release in the event that any forward-looking remarks are made today. So with that, I am happy to turn it over to Mike.

Thank you, Lynn. Good morning, everyone. I'm pleased to report that once again we delivered solid results for our shareholders during the quarter. Our international and domestic divisions posted strong same-store sales growth. We opened significant number of new stores and our adjusted EPS grew 23.5% over the prior year.

Our global retail sales, which are the total retail sales at franchise and Company-owned stores worldwide, grew 13.8%. When we exclude the positive impact of foreign currency, global retail sales grew by 12.4%. The drivers of this growth included domestic same-store sales, which rose 7.7% in the quarter, lapping a positive 5.4% from last year. This was comprised of franchisee same-store sales, which were up 7.8%, and Company-owned stores, which were up 6.1% due to stronger order and ticket growth.

We are pleased to report that we opened 14 net domestic stores in the third quarter, consisting of 23 store openings and nine closures. During the trailing four quarters we opened 77 net domestic stores.

Our international division had another strong quarter as same-store sales grew 7.1%, lapping a prior-year quarter increase of 5%. In the third quarter our international division group by 146 stores, made up of 160 store openings and 14 closures. For the trailing four quarters we opened 638 net international stores.

Turning to revenues, total revenues were up $42.5 million or 10.5% from the prior year. This increase was primarily a result of three factors. First, higher supply chain revenues from increased supply chain center volumes; higher commodity prices, specifically cheese; and increased sales of equipment and supplies to our stores as our store reimaging program accelerates. Second, higher international royalty and supply chain revenues from increased same-store sales and store count growth. And third, higher domestic franchise royalty revenues, again from higher same-store sales and store count growth.

Moving on to operating margin, as a percentage of revenues consolidated operating margin for the quarter was flat as compared to the prior-year quarter at 29.9%. The key impacts to operating margin for this quarter were a change in the mix of our revenues which positively impacted our operating margin as a greater percentage of our revenue this quarter came from international royalties, which have no cost of sales, and we had a lower percentage of revenue from food sales at our supply chain centers and from our Company-owned stores.

This increase was offset by the impact on operating margin of higher commodity cost. The average cheese block price in the third quarter was $2.04 per pound versus $1.72 in the same period last year, which led to our overall market basket increasing 4.2% as compared to the prior-year quarter. As a reminder, commodities are generally priced on a constant dollar markup to our franchisees. Therefore higher commodity prices do not impact our supply chain dollar profit. They do, however, negatively impact our supply chain margin as a percent of revenues.

Year-to-date commodity prices have run about 5% over last year. With cheese prices staying higher-than-expected we expect Q4 costs to also increase at a similar pace, and we expect the full year market basket to be up 4% to 6% over last year.

Turning to G&A expenses, G&A increased $2.7 million or 5% quarter over quarter, primarily due to continued expansion of e-commerce in technology support as well as expansion of our international team. Through Q3 our G&A spend, which includes $1.7 million gain on the sale of stores we had in the first quarter, is $2.4 million above last year.

Also going forward, we expect to take a nonrecurring charge of approximately $6 million in the fourth quarter in connection with the Board's approval to replace our corporate airplane, which has dated avionics, with a newer-model used plane. Excluding the impact of the plane we continue to expect our G&A for the full year to be in the range of $3 million to $6 million over 2013. We have noted the purchase of the plane in our 10-Q [but we enter it up] here as well since it will also increase our current estimate for 2014 CapEx spend by approximately $20 million beyond our stated range of $35 million to $45 million.

Regarding income taxes, our reported effective tax rate was 37.5% for the quarter. We continue to expect that 37% to 38% will be our effective tax rate for the foreseeable future.

Our third-quarter net income was up $5 million, which is 16.3%. This increase was primarily driven by higher domestic and international same-store sales, international store growth, and higher supply chain volumes.

Our third-quarter diluted EPS was $0.63. There were no significant items affecting comparability in the quarter. The $0.63 is a $0.12 or 23.5% increase from the $0.51 as-adjusted EPS in the third quarter of last year. This increase is primarily result of our improved operating results, which benefited us by $0.11, and our lower diluted share count mostly due to share repurchases, which benefited us by $0.01.

Now turning to our use of cash, during the quarter we repurchased and retired approximately 243,000 shares at a cost of $17.4 million or an average price of $71.69 per share. We also returned over $14 million to our shareholders in the form of a quarterly dividend.

In closing, we are really pleased with the quarter and our consistent positive performance of far this year. Thank you for your time today and now I will turn it over to Patrick.

Thanks, Mike. Third quarter was certainly one that we are proud of. We are driving some strong momentum with our formula of great people and food, focus on service, and our industry-leading technology. Our franchisees are delivering excellent store growth worldwide, and we are pleased that they have embraced our Pizza Theater store image in neighborhoods around the world.

Before moving on to the details about what a great quarter we had, I want to take a minute to highlight some other positive news we announced this morning. As I said, people were a main ingredient to the success of this quarter and to our strong past record. Domino's has some of the best people in our industry, from franchisees to team members to leadership. That's why I'm pleased to announce that some of the industry's most proven and effective leaders are assuming key roles on our biggest businesses.

Russell Weiner came to us from Pepsi in 2008 as our Chief Marketing Officer. Since then he has been a linchpin of our success in turning around the domestic Domino's brand. Creativity, research-based decision-making, and strong franchise relationships are his hallmarks. Russell has been promoted to President, Domino's USA and will now also lead our US franchise and corporate operations in addition to marketing.

Rich Allison, who has led a team in our international division that is greatly outperformed the sector, as they did once again this quarter, has been promoted to President Domino's International. He has done terrific things for our business in the four short years that he has been with us, opening over 1800 stores in 10 countries during that time, and solidifying great relationships with our international master franchisees.

My colleague here with me today, our CFO Mike Lawton, will now additionally assume the leadership of our supply chain business. Having run our international business in the past as well as interim position running our technology division and past general management experience at Gerber Products Company, I am very confident that he can enhance the overall effectiveness of this business as well as find more global efficiencies. My congratulations and very strong support go out to these unparalleled leaders.

Now, turning back to reporting our pretty fabulous quarter, here in the US this quarter marked our 14th straight quarter of positive same-store sales growth. A number of factors led to these strong results. Our sales growth was pretty evenly driven by both traffic growth and ticket growth. We continued to promote our new specialty chicken for much of the quarter, a product we launched in the second quarter. Our advertising continue to prove effective in the third quarter, bringing in new customers and helping to increase ticket as chicken is generally sold as a side item with pizza.

We also drove good digital order growth. As we have said in the past, digital orders have a slightly higher ticket than traditional phone orders.

Some franchisees raised prices a bit in the quarter, but their increases were disciplined and we did not see it across the board among all franchisees.

Overall, the momentum we have going right now feels pretty good. It's helping to moderate some of the concerns over increased commodity prices, particularly cheese. Cheese prices are certainly higher than the experts had expected at the beginning of the year, but higher sales have helped mitigate the impact.

We had continued growth in domestic store counts, having opened a net 77 stores over the past 12 months. Our momentum is also helping to keep the system invigorated as we ramp up our store reimages. Over 10% of our system in the US has been reimaged so far and the pace is about what we expected it would be at this time.

Turning to our international division, the third quarter was another solid one in terms of sales and store growth. Great promotions, new products, and in some markets strong digital ordering have helped propel sales. Many of our international franchisees continue to get robust returns on their store investments, driving an excellent quarter of store growth. India, Turkey, Japan, and the UK continue to be leaders in store growth. This demonstrates a nice mix of growth between developed and emerging markets, a hallmark of our international group. We also opened in Norway during the third quarter, where we expect to have two more stores open by the end of this year.

A number of our master franchisees reported results recently. Domino's Pizza Enterprises, our largest franchisee, announced strong first effort results in Australia, New Zealand, Europe, and Japan. They also continued to drive remarkable digital growth. Earlier this month our UK master franchisee announced impressive results in their core UK market as well as in Ireland in Switzerland. They also noted that 70% of their UK delivery sales are now digital, an outstanding milestone for their system.

Overall, our international division this quarter continued its history of driving excellent sales results, as it has for over 20 years of positive quarterly same-store sales, a record we are proud to highlight.

An ongoing story in both our domestic and international businesses is our digital leadership, which is helping to define our brand in the US and in many countries around the world as well. In the US I am pleased to report that our new iPad app has the highest conversion and highest ticket of all of our digital ordering channels. It has exceeded all of our performance expectations and sets new benchmarks almost immediately upon launch. We continue to work to get even more iPad users to download the new app, as it provides a very robust ordering experience that plays into many of the iPad device strengths.

In the US you may have noticed that in the past few weeks we have been promoting our voice-ordering capabilities in our television ads. This is yet another example of how we use national promotions to focus on technology rather than exclusively focusing on new products for all of our national windows. This is our first big promotion of our voice platform, available on iPhone and Android apps. And without any promotion we have already achieved over 200,000 voice orders since it was introduced in June.

Our international markets continued to drive digital ordering sales as well, and there are a number of markets with digital ordering levels that exceed the US. The international digital ordering averages over 40%, which is remarkable, but there are also a number of markets with a significant opportunity to drive further growth in this area. We know the benefits that we derive globally from digital orderings and feel that continuing our leadership in this area will benefit our brand globally.

In closing, I would like to thank our franchisees and store team members around the world for their effective work in driving such a great quarter. The store team members continue to do a terrific job taking care of our customers. And I'm thrilled that we are able to give them great opportunities to grow in our system. And our franchisees continue to become more and more aggressive about growing our brands and our system as they see their great efforts generate strong returns.

Our excellent top-line sales growth, healthy store growth, and technological advances helped us report strong EPS and produce robust free cash flow once again. We deployed that cash towards shareholder-friendly stock buybacks and our regular quarterly dividend.

With that, operator, I'm ready to open the floor for questions.

(Operator Instructions) John Glass with Morgan Stanley.

First, Patrick, you talked about the remodels and you are about 10% through. Can you talk about the response you have seen from them if you're willing to talk about sales lift or maybe could speak about their success qualitatively at least?

Sure. The answer is we are a little over 10% now on the system domestically. We are higher than that outside of the US. And as we do individual reimages, the answer is we see a modest increase from those stores. Our belief is that as the system becomes largely reimaged, that is going to continue to drive the momentum that we have in the business. So it takes a little bit of time. We are seeing some lift in those stores that get reimaged. But we think the real gain from that is going to be as we get the whole system done everybody is seeing this new image around Domino's that continues to drive the brand and momentum that we've got in the business.

Thanks. And you mentioned pricing was a small piece of the over -- there's been some incremental pricing taken. Can you just quantify how much was that in aggregate? Was it material versus last quarter? Did that explain any of the acceleration in comp or was it small enough that it blended down to not material?

Yes. No, what I'd say, John, is where not going to give absolute specifics on that. It was a nice mix between orders and ticket. What I would say, though, is that even within the ticket some of that is selling more food. So with the specialty chicken out there some of the reason the ticket is up is simply that we are selling more food in each order than we were previously, and a little bit of it is pricing.

Great. All right. Thanks very much.

Next question comes from the line of Alton Stump with Longbow Research.

Good morning, great job on the quarter. If I miss this I apologize, but did you update us on what percentage of your US sales came from digital in 3Q?

Yes, we are still right in the mid-40s. So this is -- what we've always seen is that as we get gains in the fourth quarter every year and into the first quarter of the following year, and in the spring and summer as people move away from their homes, they are out and about a little bit more, we generally seen that flatten out. So were still in that 45% range that we have been in, which is expected. And then generally what happens is we get into the fourth quarter of the year and we start to see it move up again.

That's helpful. And then if I could follow-up to that, sort of segueing, obviously technology has been a key share gain driver for you guys for a couple years now. It would seem like the pace of that is picking up steam though. You of course talked on several different points that you have made improvements to your platform whether the iPad or the iPhone apps. But is there anything that was incremental just in 3Q versus the first half of the year that really helps to provide a comp lift, whether through higher tickets or more frequent orders associated with technology?

No. You know, I think to go back to the answer around mix, this is the time of the year that mix isn't necessarily growing versus the previous quarter. It has grown materially versus the year-ago quarter. But the real gain on digital is from frequency. It's ultimately about a better retention of customers, better frequency of orders from customers. And as they have a better experience with Domino's, we get more orders from them. And that's really what drives it more than anything else.

And what I would say and what you are seeing from us is we are absolutely determined that we are going to maintain and grow our leadership in digital ordering. We are absolutely not standing still. And voice ordering is the newest a step in that. And we are really pleased with 200,000 orders now having used the voice capabilities without having promoted it, and now we've gone on air. And it's yet one more way in which we believe we've absolutely got the best digital ordering platform in the space, and it's another way that we think we are continuing to extend our leadership there.

That's great. Thanks so much, Patrick.

Alex Slagle with Jefferies.

It's actually a question, a follow-up on John's question before the touched on the pricing and mix. And like to get a handle on how you managed commodity inflation so well in the third quarter, specifically on the corporate domestic stores. I was just surprised to see cost of goods flat year-over-year even after another big inflationary quarter on cheese cost here in the third quarter. Any comments you have on that, what was different about this quarter versus previous quarters.

I think it's -- it goes back to the mix. We had good order count growth. We had good ticket growth. We had the increased amount of food within the basket, selling chicken, which is good for our cost of goods and for the overall profitability of the business. And it's really about the balance of those things that we think we got it.

As well as leveraging some of the costs beyond just food cost, because of the higher sales levels.

Okay, thank you.

Jeffrey Bernstein with Barclays.

Congrats to management on the promotions. It seems very well-deserved. Just on the US, the category in general -- it seems pretty clear you are taking share. It's hard to actually tell where the share comes from, but it would seem to be coming from independents and your national competitors. I'm just wondering, Patrick, whether you have any updated data on where the category is now in terms of growth. I think in the past you said maybe a percent or two. And what you're seeing if you have any data in terms of independents, whether it's just their unit counts, it would seem like in this type of environment where you are taking such meaningful share you would expect to see some closures on that front. And then I had a follow-up.

I don't know that there's really a material change in where we think the category is and the competitive environment. I think category is continuing to grow slowly and still is. You have seen, I think, little bit of ticket growth from us now and from some of our competitors. So I think that is playing in and may continue to play in a little bit more as we go forward, depending on what happens with cost pressures overall in the business.

But I guess the other thing I'd say is in terms of competition and store closures and all of that, capital is pretty available right now. And it's part of why you are starting to see a little bit of acceleration in our store growth. It's a function of unit economics continuing to make good progress over the last few years. But the markets for lending and for capital, the franchisees have come around nicely.

You all were asking questions a year ago about the reimage process and would it affect our store growth. And our answer then was maybe at the margin it would a little bit, but overall we didn't think it was going to, much. And I think that's playing out the way we expected it to. And partly that's because of availability of capital for the franchisees to get these reimages done and where they choose to relocate they can do that as well and generate some store growth.

And I think that's got to be playing out a little bit with the competition as well, which is there's some availability of capital again. And that may be allowing some people to hang in there that may not be getting the same kind of results that we are.

Understood. And Mike, you mentioned -- I guess, I'm sorry, actually it was Patrick, at the end of your prepared remarks just your cash usage and the repo and dividend balance. I didn't know whether there was any update. I think you are now probably at or below that 4.5 times level from a leverage standpoint, whether it's still status quo and you are happy to see that leverage ratio fall further or (multiple speakers).

We have stopped amortizing the debt. So while it may continue to fall a little bit further if we are able to continue to grow our operating results, it won't fall further because of deleveraging through repayment of debt. And at this point there's really not much more to update you on.

Got it. And any comment on FX? It just seems like for the rest of 2014 and into 2015, at least where rates currently stand, the impact it might be having on you going forward?

For the third quarter the impact of FX was slightly positive but relatively small. And with rate since then, the dollar has strengthened a little bit, which again would lead at this point in time toward same fourth quarter. It's not likely to be a big impact.

Great. Thank you.

Brian Bittner with Oppenheimer.

Congrats to everybody on the promotions. I've got a follow-up question just on the balance sheet. Most of my operational questions have been answered. I think a third of the debt becomes redeemable sometime next year. Can you remind us exactly when that is and also remind us what type of interest rate you need to see on new debt to actually execute anything on that front?

Okay. Well, the debt that he referred to as a rate of 5.25%. And we could call roughly a third of our outstanding in July of next year. In terms of what rate we would need to see, that would be a function of what kind of duration we were looking on the debt. There are certainly issuance costs that goes along with that. And it's not really something I can give you a specific rate on other than it's obviously got to be better than 5.25%. So we will see at that point in time what kind of tenure you could get on the debt, what it means in terms of what it would do for the other two-thirds that would still remain. And we will keep an eye on it.

Okay. Great, thanks.

Chris O'Cull with KeyBanc.

Patrick, some operators have talked about loyalty programs having higher spend, frequency, and satisfaction than orders that are placed online. Can you talk about Domino's opportunities with either a loyalty or a rewards program?

It's certainly something that we have looked at. Right now what's driving our frequency and growth is, we think, just giving people a better experience overall. But it's certainly something we've looked at. Our impression at least from comments that have been made at Papa John's is that theirs has worked for them. So it's certainly something that we keep an eye on. But overall we are obviously pretty darn happy with our results and our mix of orders and ticket and all that. But it's certainly something we will keep an eye on.

Just as a follow-up, the other competitor, Pizza Hut, has fallen behind in terms of getting conversion to online ordering. If they were to be more aggressive, let's say in the fourth quarter, to try to drive online ordering usage, how would the Company respond? How would Domino's respond to something like that in terms of -- or what's the risk of that to the category?

I actually -- I not only don't think it's a risk. I think it's more an upside. I've often talked about the fact that I really think that the biggest thing that's going on in the category is the larger players, largely driven by digital, have been taking share from the smaller players. I know that Pizza Hut has had a couple of bumps. But they are -- I think in their latest release they talked about now being at 40% of their off-premise sales, something like that. So they are not in a bad shape, in a bad way, there.

And I think the real opportunity is that as the three largest players continue to show that this is a better way for customers to do business with us, we are going to have an opportunity to grow the category, hopefully, but also continue to take some share from the people that can't put up a platform of the quality that we are able to do.

So, we certainly take pride in what we have done and want to make sure that we maintain leadership in this area. But I still believe that the greater gap is going to be between what the three biggest players are able to do with digital versus everybody else, rather than what we are able to do, necessarily, versus our other national players, national competitors who are in the same digital space. So I think as they continue to advance, it is going to continue to move people across to digital ordering and I think that plays to us.

Okay. Great. Thanks, guys.

Mark Smith with Feltl and Company.

Can you give us an update on what percent of Company stores are reimaged?

Yes. We are today at -- I think the percentage -- it's got to be about 30%, something like that and coming along nicely. We are ahead versus the overall system and expect to be done prior to the whole system being completed. So moving along pretty nicely there.

And then is there an opportunity -- I know you guys have talked about that you like where you are at on your franchise mix today. But is there an opportunity to do some refranchising?

I don't think you're going to see us do that. We've always said we are going to be opportunistic but that can be opportunistic buying or selling. The size that we are in today I think with our corporate store unit is good. It's generating reasonable returns for us, for our shareholders. It's where we develop our people and our leadership. It's where we test things. And it needs to be a scale business in order to do that. So, I think we are in pretty good shape there. And as we move into the mode of more and more, hopefully, store growth in our system, it's something we've got to do with our corporate stores as well. So, I don't think you are going to see a major change their overall. I think we are in a reasonable range on our corporate stores. And no, I would not expect material re-franchising of those stores.

Excellent. Thank you.

John Ivankoe with JPMorgan.

Well, John?

On the Domino's website it looks like a two-topping Pan is being offered in a dollars and $8.99 want to think it was previously $7.99. So is that correct? And if so, when was that change made? And similarly, has there been an increase in delivery fees at all?

Yes. I think we are actually taking a dollar more on the Pan. And it's an amazing product and clearly I think we could support that. You've seen our national promotion remain consistent. But we really believe we've got the best Handmade Pan Pizza out there. And demand is there for it. And delivery -- a few franchisees have done it, and that's just market opportunistic. We obviously look at cost pressures, we look at what is happening with our competition. But we certainly haven't taken much there. Most stores have not increased anything there. A few certainly have, opportunistically, but on materially.

And internationally -- obviously very, very strong, but looking at opportunities it does seem like India may have slowed in recent quarters. So can you talk about the color maybe you are getting from your franchise either on demand and what's being done to get the same-store sales moving in a positive direction again?

Yes. So what hasn't slowed down at all is store growth. In fact, store growth continues to get stronger and stronger because the cash-on-cash returns on the stores there are really terrific. And the whole restaurant industry I think in India has seen slower same-store sales growth. In fact, most folks have been a little bit negative over the course of the last year or two. We have certainly felt that as well. And the team is doing a great job of continuing to bring it along. We've launched some new products and doing a number of things to try to drive that.

But we clearly need to see the economy get a little bit more robust over there again. It's still growing and still growing pretty nicely, but it's not growing as much as it was three or four years ago. And you have had some inflation over there, which I think has affected consumer behavior there a little bit as well. But overall, I'll tell you I remain very, very bullish on India and where it is and where it's going to continue to go. And certainly our partners over there, Jubilant FoodWorks, have not taken their foot off the gas at all in terms of continuing to grow the system there.

Okay, great. Thanks and congrats on a good quarter.

Steve Anderson with Miller Tabak.

A quick question on commodities. You left your outlook for this year unchanged at 4% to 6%. Looking at some of the dairy prices and some of the pork prices, the two areas you have looked at in terms of higher cost, both have -- it looks like they've been plateauing if not actually starting to decline. You think it's a little early or do you think you can give a little insight into where you think 2015 will end up?

2015 is -- will talk about that our investor day in January when we got a little more visibility. We'll give you our best guess of what's going to happen at that point in time. But to your point, in the last couple of weeks both pork and cheese have moderated a little bit. And hopefully that's the start of something good. But can't go much beyond that at this point in time.

Understand. Thank you.

David Meis with Citadel.

Congrats on a great quarter. Just one quick question on how much of the -- apologies if you guys had already answered this. But how much of the growth is coming from increased commodity prices versus true same-store sales and volume uptick?

Haven't given an exact number on the mix on that. It's a nice mix of orders and ticket. And then I would say, within ticket, it's a mix of selling more food in each order and actual price increases. The price increase is pretty modest in there when you look at it along with selling some more food. So haven't given the exacts, are not going to give the exacts for competitive reasons. What I would tell is, it's a nice mix of orders and ticket.

That's helpful. Thanks a lot, guys. And congrats again.

Peter Saleh with Telsey Advisors.

Thanks, congrats on the quarter. Just wanted to ask, on -- for this quarter I know the World Cup overlapped the better majority of this quarter. Did you see any positive momentum from the World Cup?

Yes. We get just a little bit from the World Cup when it comes around. But I would tell you it's not really material within the overall. There are a few markets that feel it a bit more, but every time it comes around we're looking at it and trying to figure out how it has played out in each market. And always depends to a great extent on where it's being played. There are time zones where, frankly, it doesn't have much effect because it's the middle of the night or it's breakfast for people, depending on where it is. So the answer is helps a little bit at the margin but not a really big effect.

Great. And then, Patrick, you have talked in the past about the 1000-store potential left in the US. Any thoughts on an update on that? Is that still a good number? And any thoughts on an acceleration of new unit growth potentially next year?

Yes, it's still a good number. It's still something that we think is very possible. And what you've seen if you look at our four-quarter trailing or 12-month trailing net store growth in the US, you've seen it continue to move upward, as we have talked about before. Our goal is to continue to accelerate a little bit off of the growth we had and it has been playing out that way. And we think we're doing it the right way. We are doing it because the store economics continue to get better. The franchisees continue to get stronger and stronger. Their income statements that better and better. Their balance sheets are stronger and that gives them an opportunity to build stores.

So there are absolutely still stores out there to be built. The 1000 is, I think, reasonable number to continue to look at. As same-store sales grow and the population in the US continues to grow at about 1% that year, that feels pretty good to us.

Great, thank you very much.

Paul Westra with Stifel.

Great, thanks. Just a question on really any granularity you might be able to give us on your technology investments and maybe any G&A investments, obviously you're holding that line pretty tight. And clearly, results are very strong are just curious about maybe the ability to maybe invest more in infrastructure that might be able to garner current results for the longer-term.

One thing I point out is that a very significant amount of our CapEx, well over a third in each of the last two or three years, has gone into technology. And most of that has been on areas that support either our proprietary point-of-sales system or e-commerce, as opposed to the core systems of the company. So we are doing something of what you suggest.

As far as the increases in G&A, we are pretty tight on what we do with what you could call back-office or G&A and the negative terminology you might use it for. Most of what our increases have been it's all been to support the growth of international business or the growth of the IT area. And if you are ever to see our office, you would see that we are not shy about adding into IT if it's something it's going to help us grow our revenue. So, I think what you are suggesting is we are certainly on the same track and would continue to do so.

Great, thank you.

Thanks, Paul. Listen, thank you, everybody, for your time today. I look forward to reporting our year-end results in February.

This concludes today's conference call. You may now disconnect.