G-III Apparel Group Ltd (GIII) 2010 Q4 法說會逐字稿

Good morning ladies and gentlemen, thank you for standing by. Welcome to the G-III Apparel Group Ltd. Q4 2010 earnings call. Today's call is being recorded. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for a question.

I would like to turn the conference over to Mr. Neal Nackman, Chief Financial Officer of G-III Apparel Group. Please go ahead, sir.

Thank you. Before we begin, I would like to remind participants that certain statements made on this call and the Q&A session may constitute forward-looking statements within the meaning of the federal securities laws. Forward-looking statements are not guarantees and actual results may differ materially from those expressed or implied in forward-looking statements. Important factors that could cause actual results of operations or the financial condition of the Company to differ are discussed in the documents filed by the Company with the SEC. The Company undertakes no duty to update any forward-looking statements.

In addition during the call we will refer to EBITDA and adjusted net income, both of which are non-GAAP numbers, for which we have provided a reconciliation to the net income according to GAAP in our press release and on our web site.

I will turn the call over to our Chairman and Chief Executive Officer, Morris Goldfarb.

Good morning and thank you for joining us for our fourth quarter and year end review. With me today are Sammy Aaron, our Vice Chairman; Wayne Miller, our Chief Operating Officer; and Neal Nackman, our Chief Financial Officer.

We had an excellent fourth quarter and finished the year with good momentum heading into the spring season. Here are some highlights from the quarter. Sales were up 14% to $194 million compared to $171 million last year. Gross margin was up over 11 full points to 36% compared to 24% last year. We reported adjusted net income of $7.5 million, and adjusted diluted earnings per share of $0.40. This compares to an adjusted loss of $3.7 million, and adjusted net loss per share of $0.23. For the full year, net sales increased 13%, to $801 million. Adjusted net income more than doubled to $30 million compared to adjusted net income of $14 million last year. Adjusted net income per diluted share increased to $1.74, compared to adjusted net income of $0.84 per diluted share in fiscal 2009.

In addition to our strong financial results, we improved our financial position in the fourth quarter with the successful capital raise that yielded net proceeds of $35 million. Our balance sheet has never been stronger than it is today. For our Company, integration of acquired businesses has become a core skill set. Every company we have acquired over the past few years is proving to be accretive. We believe we've never been better positioned to continue to take a advantage of acquisitions on an opportunistic basis. The consumer continues to demonstrate a strong preference for brands they trust and our portfolio by Calvin Klein remains a standout.

Our order book is up approximately 50%, compared to last year at this time. There is strength pretty much across the board for our businesses. In particular, I would like to note that our bookings in dresses and sportswear are greater than last year and are exceeding plan. Calvin Klein, Jessica Howard and Eliza J. all have strong increases in the dress business. Our Calvin Klein sportswear are up significantly from last year. Our team bookings are vastly improved compared to last year as we regained our mass tier NFL license. Our orders for the NFL collection are also very strong.

Andrew Marc and Marc New York performed well and we are pleased with the sell through at Sachs, Bloomingdales, Nordstroms and Lord and Taylor. Our soft launch of Marc New York dresses for holiday was a success. We are building door counts with each delivery. Bloomingdales is our launch partner for the spring for Andrew Marc dresses. We are seeing good initial performance from several of Andrew Marc licenses we have signed including men's accessories, cold weather gear and women's handbags. We will increase our media and advertising budget to support the additional categories we are bringing to market as we build this lifestyle brand.

In our Wilson's business, we saw rapid improvement in our comps from August through the end of the year. The first two months of this year are tracking ahead of plan in comp sales, as well as margin. As we stated repeatedly, we've remerchandised these stores, the consumers have noticed, our sales have improved and our margins were up dramatically compared to last year. We now have the appropriate inventory position in both coats and accessories, good merchandise teams and well trained personnel. As a result, we believe Wilsons will be profitable in 2011.

We concluded a very good year for G-III. In this challenging market environment, we are growing our business. We have strong nationally recognized brands that are supported by great marketing, and our world class ability to execute has also helped us gain market share in a retail environment that continues to look to consolidate their vendor base. Because we offer great value to both our customers and to the consumer, we have made steady progress towards our overall goal of building G-III into an all season diversified apparel company. Our position for the year ahead is encouraging. Our order book demonstrates that the wind is really at our back as we continue to grow our opportunities.

I will reserve some additional comments for closing. But I will now turn the call over to Neal Nackman to run through the numbers for the quarter and some additional detail.

Thank you, Morris. We had a very strong fourth quarter. I would like to first address some of the surprises we had in terms of comparisons to our initial guidance of $1.28 to $1.33. First of all, we had very strong sales in our non-outerwear categories, particularly in sportswear and dresses. Secondly, our outerwear business performed extremely well during the season providing for enhanced sales at both full price and off price channels which resulted in higher gross margins than we initially anticipated. Lastly, our brand continues to perform strongly in the retail sector, which led to lower markdowns than we previously anticipated.

For the full year we reported net sales of $801 million, an increase of 12.6%, compared to last years $711 million. Net sales of wholesale licensed apparel increased 21.7% to $523.6 million from $430.2 million. And net sales of wholesale nonlicensed apparel decreased 7%, to $188.3 million, from $202.4 million. Net sales in our retail segment increased to $126.6 million from $78.5 million in the prior year. Sales of our licensed apparel were favorably impacted by an increase in Calvin Klein licensed product which includes the launch of women's sportswear and increased sales volume in dresses and men's and women's outerwear, sales of nonlicensed apparel decrease due to a reduction in private label outerwear programs. Jessica Howard dress business and our Andrew Marc businesses delivered good increases for the year.

We acquired Wilsons in July 2008. Therefore Wilsons results for last year were included for the post acquisition date period. In the comparable post acquisition periods we have seen a comp improvement in the low double digits. Our net income for the year Increased to $31.7 million or $1.83 per diluted share, a net loss of $14 million or $0.85 per share in the prior year. The current years results included a one time tax benefit related to an increase in an acquired net operating loss of $1.6 million, or $0.09 per share. Prior year results included non-cash charges for impairment of goodwill and trademarks of $33.5 million on a pretax basis equal to $1.69 per share on an after tax basis. Excluding the effects of the tax benefit in this year and the non-cash charges in the prior year, adjusted net income per diluted share was $1.74, and $0.84 for the fiscal years ended January 31, 2010 and 2009, respectively. Our EBITDA for the year increased 68% to $61.6 million in the current year and $36.6 million in the prior year.

Gross margin percentage for the year increased to 33.3% from 28.2%. We achieved gross margin percentage increases in all three segments. our gross margin percentage of wholesale licensed apparel segment improved to 29.8% from 27.8%. Our wholesale nonlicensed apparel segment improved to 28.5% from 25.4%. And our retail segment improved to 45%, from 37.9%. Margins in our wholesale licensed apparel segment improved as a result of increased sales volume from Calvin Klein dresses and higher gross margins from Calvin Klein outerwear. Margin gains in our wholesale nonlicensed apparel segment were primarily the result of improved margins in our Jessica Howard and Andrew Marc business lines. The retail margins increased primarily as a result of reduced markdowns although we had stronger markups as a result of the merchandising shifts we implemented.

SG&A expenses exclusive of depreciation and amortization increased $41 million to $205 million. $24 million of this increase was attributable to including the full years results to the acquired Wilsons retail outlet business. Other expense increases attributable to personnel, advertising, and warehouse costs. Personnel costs increased primarily as a result of higher bonus payments associated with the higher profitability. Personnel increases from the launch of the Calvin Klein women's sportswear were more than offset by personnel reductions in other operating units of the Company. Advertising and warehouse costs were up due to higher sales in the year.

Regarding our fourth quarter, net sales increased 13.5% to $194 million in the fourth quarter, compared to last years $170 million. The sales increase was primarily attributable to increases in sales of our dresses and sportswear products. Sales in our retail operations increased 5% to $49 million from $46 million in last years comparable period. Our adjusted net income for the quarter increased to $7.5 million or $0.40 per diluted share from an adjusted net loss of $3.7 million or $0.23 per share in the prior years quarter. Adjusted net income reflects assessments for one time tax benefits and non cash charges previously mentioned. GAAP net income was $9 million this year compared to a net loss of $32 million for the prior years quarter. Our gross profit margin percentage for the fourth quarter increased to 35.7% from 24.5% last year. Similar to the full year, the increase was attributable to higher gross margin percentages in all three segments. Gross margin in our wholesale license apparel improved to 29.7% from 22.1%. Our wholesale nonlicensed segment improved to 24.7% from 17.4%. Our retail segment improved to 47.7% from 34.1%.

SG&A expenses exclusive of depreciation and amortization increased $9 million to $54 million. This increase is significantly attributable to higher personnel cost principally for bonuses associated with higher profitability. Cash generated from our operations and our equity offering in December 2009 leave us in a solid capital position. We ended the year with a net cash position of $46.8 million compared to a net borrowing position of $26.5 million in the prior year. We plan on spending more for capital expenditures in the coming year than last year as a result of expenditures relating to our warehouse facility and anticipation of opening between five to ten new stores. We expect capital expenditures for the coming year to be approximately $13 million.

Now turning to guidance. With regard to the first quarter ending April 30, 2010, we are forecasting net sales of approximately $135 million, compared to $107.6 million in last years first fiscal quarter. We also are forecasting a net loss of between $3.3 million to $4.3 million, or between $0.18 and $0.23 per share in the first quarter, compared to a net loss of $6.8 million or $0.41 per share on last years first fiscal quarter. Our weighted average shares are forecasted to increase to approximately 18.7 million, from 16.7 million in the prior year, primarily as a result of the Company's public offering of shales completed in December 2009.

With that I will turn the call back to Morris for concluding comments.

Thanks, Neal. I recall that some years ago I made a statement that within five years we could achieve annual sales of $1 billion. Since then we've more than doubled our revenues and continue to close in on what today is really a relatively short-term goal. We've built our core business, entered new categories, acquired a lifestyle brand with excellent potential, continue to sign powerful new licenses and have become a much more capable and effective organization. We have an order book that indicates our momentum is intact as we enter into fiscal 2011. Our inventory position is good and we expect our profitability improvements to continue. We continue to have a wide range of significant long-term opportunities and to have the wherewithal to pursue them. We will continue to grow our business organically and we are well poised and positioned to continue our acquisition strategy. We are very much looking forward to the year ahead and appreciate the attention and support of our shareholders. We believe we are in a superior position to create value in this business for us as well as for our customers and consumers.

Thank you. I will now open the call to questions.

(Operator Instructions). We will first go to Edward Yruma with KeyBanc.

Congratulations on a great quarter and a great finish to a very solid year. Can you please talk about the acquisition environment and your current thought process given your strong execution? What size acquisitions are you contemplating and when could this be completed?

We are actively looking at acquisitions that fit into possibly several buckets. It can be a men's acquisition, it can be a sports licensed acquisition, it could be a women's sportswear acquisition. The scale of what we look at today is much larger than historically, primarily because our financial position is better. Our competency in integrating new businesses and new acquisitions has been proven out so there is less of a fear there. I would say that our comfort zone would be between $100 million and $200 million acquisition today. We are quite capable of integrating them and adding our capabilities in operating, sourcing, designing and doing whatever is needed to shore up any business that we acquire.

Great. I know you discussed in the past looking at potential license opportunities for Andrew Marc. Can you give us an update on that?

We are currently in negotiations with several categories. Hopefully before the next quarter's conference call we will be able to announce several deals.

Final question. Your outperformance in the quarter, how important was the performance of the Wilsons business relative to your plan? You talked about making money in Wilsons this year. Is that where the store expansion is taking place or are you opening other types of stores? Thank you.

The store comment from us, the capital expenditure was toward the Wilson stores. We don't have a budget for other stores at the moment. And the performance at Wilsons currently and for the past six months lead us to believe that we have the correct formula and believe that we are going to be profitable with Wilsons. We've added G-III design, G-III sourcing and the formula seems to be working on creating private label, partly back to the old Wilsons model. And adding some of the brands that we have. And the management team at Wilsons has been, again, shored up, as well as -- in the corporate office as well as in the field. We are very comfortable with where we sit in Wilsons today.

I would add to that Wilsons was a positive surprise for us in the fourth quarter to a lesser extent than the other three that I had mentioned.

Thank you very much.

We will now move on to Todd Slater with Lazard Capital Markets.

Thanks very much and very impressive results, guys, all around. Just returning back to Andrew Marc quickly, could you just talk a little bit more about the categories you would like to penetrate both in terms of businesses that you operate yourselves and categories that you are looking to license over the near and midterm?

Currently what we are shipping within G-III are in the coat areas of Andrew Marc in both men's and ladies. And Marc New York in men's and ladies. We've launched a dress division that's doing quite nicely in the short period of time that we've been shipping the product. We have expanded door counts for the coming season. And there is a fair amount of excitement that's being generated by the dress business at Andrew Marc. The licensed categories that we have are cold weather, women's handbags, and men's small leather goods and bags. We also have a women's shoe license that is yet to be launched. It's being worked on but not yet in the stores. The men's bag business is performing exceptionally well.

The door count for the coming season is approximately 200 doors that have bought the men's accessories and bags. The men's cold weather is slated to be in about 200 doors going forward. And handbags in about 100 doors. So for the short period of time that we've brought this product to a licensing model, the performance is better than anticipated. We are currently in negotiations and conversations with other categories and, quite honestly, it's too early for me to discuss. But they will be important licenses if they do get signed and they will bring a greater breadth of product to the marketplace. And thus maybe enable us to open a couple of stores to showcase the product. We will -- as our suit business improves (inaudible) on that, but as our women's suit business improves at Calvin Klein, and we are comfortable that there is a good season ahead of us, there is a strong possibility that we internally will build a suit collection under Andrew Marc this year, as well.

Anything in the sportswear category you might be thinking about or envisioning for Andrew Marc?

We are growing and better understanding our Calvin Klein sportswear business today. It's a complicated business, it's one that is design intensive. We've come out with a collection every month. We are getting our arms wrapped around a growing business and we prefer to get that right before we expand into another sportswear classification, or a sportswear brand.

Sure. Great. Then I was wondering if you could talk a little bit about how the private label outerwear business should factor in 2010 and if that will grow both for Wilsons and for other stores and how that also impacts the profitability, the margin rate.

If there was an area in calendar 2009, or fiscal 2010, that we did not perform in, it would have been the private label outerwear business. That was off for a couple of reasons. But our bookings for fiscal 2011 were far greater than they were in 2010, and we have a very strong private label business with other retailers, as well as some wholesalers, as well as some European business, all in private label. So that business is growing and we will be back, at least back to fiscal 2009 numbers which were about 15% ahead of what 2010 was.

We will now move on to Sean Naughton with Piper Jaffray.

Thanks, I will also add my congratulations on the fourth quarter, nice job. Calvin Klein obviously has been a strong performer over the last few years. Can you elaborate on your growth plans for 2010? Is this a door expansion story, a category expansion story, or is it just more of a comp growth story as well within these doors that you are currently in?

It's a combination of all. We have the attention of the retailer. What we are constantly evaluating are the merit of the door expansion versus door penetration. So clearly we are anticipating growth in every classification including the sportswear collection area. But it will come from, as I said, a combination of greater depth and classifications in the department, more dominance within the department. And not necessarily greater door count. It's available to us but we are considering what the best solution for the prosperity for ourselves as well as the retailer is. We are building some fixturing which is part of the CapEx that Neal had alluded to. We are improving our presentation within the stores both with product and fixtures.

Just in terms of the sourcing on product, we've heard a lot of apparel companies starting to talk about some higher pressures in the second half. Are you seeing the same thing similar in your apparel business and then also on the outerwear business, as well?

We are a dominant factor in outerwear. Our relationships with our factories have been consistent. It's not a spot buy, in most cases. We are involved with our vendor base, greater than a decade. We are not feeling pressure in the coat area, we have become very dominant in the dress area. And again, in those areas we have key vendors that support our needs, and have been able to support our growth, and make us feel comfortable that our plans in production area is going to be met. We've added personnel to our offices overseas. We're building a larger office to better (inaudible) and manage our business. That office will be open before June of this year. It will handle some direct private label business from some of our European accounts as well as make us more comfortable on a regular basis that the quantity, the quality and the price that we pay for product will be complied with with our vendor base. Historically we have been importing products since 1976. I would tell you that we got more than our share. We were always the winner in classification buying and I don't see a change.

Then lastly, just looking out for the balance of the year, you guys have obviously done a nice job of moving to less seasonality in the business. If the chips fall your way is there a potential for you to generate profitability in the out three quarters just based on what you are seeing from your current forward bookings? Thank you.

I think that our business is looking very strong at the moment. We have not given guidance out into the future and really going to continue at this point in time -- and we're going to continue with that at this point.

Okay, best of luck, thanks.

We will now move on to Eric Beder with Brean Murray.

Good morning, let me add my congratulations. Could you talk a little bit about the NFL business. I know you talk about adding the math, could you add some color on that. What are you seeing in your core business before that in terms of trends?

Let's take the two things that we added. The mass business we did add for this upcoming fall season, and booking trends are very strong. The other piece, Eric, that we added was the NFL sportswear collection, that's in a share distribution where we get stadiums and others. But recent update is we are actually getting department store distribution now which is just great for the brand and for us and for our overall NFL business. So we are seeing good growth on the men's side. The women's side continues to make progress. I think the mass business and this piece does help the overall sports business. I've got to tell you the prospects for that business have never looked brighter. We are continuing to put together proposals for more opportunities in the overall sports area. So we feel pretty good about it.

And in terms of Calvin Klein sportswear, could you give us an update on how the doors are rolling out there, how should we think about that business going forward for the rest of the year.

The door count is increasing. If we were comparing like periods of time, I would say we were at 250 doors going to 500 doors this year. The prospects of that business are excellent for us. We stated early on that this business has the potential of being greater than the $200 million business, we still stand by that and we believe we get there in reasonable time.

Finally, you talked about historically the Calvin Klein dress being a $100 million plus business. Are we there yet? Is it pretty close?

We are there.

Congratulations even more.

We'll now move on to Jim Duffy with Thomas Weisel Partners.

This is actually Sam in for Jim. On the retail business, what were sales per square foot this year? Is that goal of $330 per square foot still intact? What would need to happen to drive this improvement?

We closed the year around $270 per square foot. We still believe that the $330 is achievable. I think we are making improvements. We saw significant improvements this year in really a very difficult environment. I think we still feel we can get the productivity improvement out of the current footprint and that's really giving us some additional support to start expanding the footprint as well.

Great. And just touching on the order book, up 50%, any early read on the fall orders?

That order book is comprehensive. Today I would tell you it's primarily fall. Spring is pretty much behind us. We are currently shipping spring. Spring is good. But the excitement really is the fall order book.

Yes. That's great numbers. Thanks, guys, appreciate it.

We will now move on to Paula Torch with Needham & Company.

Yes, good morning, thanks for taking my question. I was just wondering where you see the biggest growth opportunities for fall. Is it in sportswear, is it in dresses? And maybe if you could also give us a little bit of an update on your Ellen Tracy business?

Probably the biggest percentage growth area for the Company in my eyes might be the women's suit business. We are growing that business nicely. We had a little bit of lift. The demand for women's sportswear had faded for a little while and we are in a catch up mode right now. The reorders are coming fast and furiously in Calvin Klein. We are excited by the margin improvements, by the top line growth and the sell throughs at retail. There will be growth in our dress business. We are one of the leading dress design manufacturers in the United States today and we believe that we are going to grow at a very aggressive rate this year, as well.

The Ellen Tracy brand for us will encompass coats as well as dresses. Dresses will be a big growth area. And the coat area will be a maintenance area. We don't anticipate a good deal of growth in our matured Ellen Tracy coat area. We had pretty good door penetration in several retail segments, several retail department stores. We believe we can continue with the coat area and in all the department stores that we have distribution. The dress area is going to be a greater challenge with the new alliance at Macy's. We believe most of our dress distribution will be at Macy's. We are not ready yet. We have a new design team, a new management team, and the early previews were excellent. So we are excited about Ellen Tracy for the coming years.

If I recall correctly in the past, were you planning to expand in sportswear in Ellen Tracy, is that on hold for now?

It's not our brand, we have licensed categories. There is sportswear production. And it has nothing to do with us other than we hope it does well. I know that there was a soft launch recently. The performance at Macy's is very good and as they grow we grow. But it is not our category of product.

Okay. Great, thank you and good luck.

We will now move on to Mimi Bartow with Telsey Advisory Group.

Thanks guys, and good morning. First, I wonder if you can talk a little bit -- I know you're not going to talk specifically but just generalities on how we should be thinking about the expense base? Neal mentioned uptick in bonus accruals and payouts there. Is there anything else that would meaningfully bring up the expense base in fiscal 2011?

I think we mentioned the warehouse expansion. Other than warehouse expansion we got some small store increases. Our expense growth will certainly fit comfortably within our topline growth. We are certainly looking for continued operating leverage as we go into next year.

Great. Then, just in terms of -- obviously there was some very strong gross margin in the retail segment. Can you remind me, when we cycled through a lot of that excess inventory in 2009 and where we are going to start to lap that?

Can you repeat that question?

I'm just wondering on the retail side, obviously you guys were going through some merchandising changes throughout the beginning of 2009. I'm just wondering when you felt the inventory levels were cleaner last year, I think it was -- I want to say it was the second quarter.

Actually we have been growing our inventory levels because we really felt that since we acquired the stores we really were under inventoried. So we've actually been growing inventory levels since the acquisition year. We feel pretty comfortable with them at this point.

I guess I'm more talking about the mix. Getting the mix right there.

The period of time that we were dealing with liquidating and in a sense bettering our inventory was January through July of this past year. Where we had an aggressive accessory and some troubled dataware inventory that we moved through. And we stated several times during the course of the year, that if you walk into our stores in August you would see the appropriate inventory. So you're probably right, it's that second quarter period that we should be able to lap, as you said, last year.

Great, thanks, guys.

We will now take a follow-up question from Todd Slater with Lazard Capital Markets.

Thanks very much. Just a quick follow up on the private label outerwear business. In the past it has -- had its moments where it's come and gone a little bit, I'm just wondering how sustainable do you see it? What are the incremental investment expense, if any, to service customers for that business? What's sort of maybe comparable about the operating margin structure there relative to your other brands? Thanks.

Historically, this has -- actually it has been my favorite piece of the business and for as long as I can remember I describe it as the most elastic piece of our business. It does. maybe as you said, come and go. It never goes away. But it has the ability of expanding rapidly if you're negotiating with a retailer such as Wal-Mart, Kohl's, Target, JC Penney. You can walk away with programs that are, in a sense, possibly a million units that came off of a zero base because collaboratively our private label team with the merchants at the retailer come up with a concept that works really well. It's all incremental. You can book 0.5 million unit order that translates into $20 million and we don't have to add a nickel in expenses, we don't need additional head count. We are positioned for it. And it's a wonderful event when private label grows. There are no royalty fees attached to it. The margins are pure. There is virtually no give back at the end of the year. It's a business we like to do. Is there a follow up to that Todd? Did I miss--?

No, that's great, sounds like a very good opportunity. Especially if it is somewhat sustainable. You earned almost 7% operating profit as a Company in a recession year. So that's really tremendous and I think that we are on our way to much higher margins over time.

We will now move on to Lawrence Leeds with Buckingham Capital.

Congratulations, Morris, and your team, I think it's fabulous. Can you hear me?

Yes, we can, Larry.

It strikes me, however, once you look at the overall picture you made $30 million on an $800 million business but you started to show the results, you invested, invested, invested all these years. But the real earning potential of this Company it probably is pretty close to double that. In other words, to make 7% or 8% after taxes, on $1 billion business, should be a worthwhile goal with all you've done. Really, the potential of this business is enormous, and I think the direction you are heading in is terrific. I think this is a terrific first step, second step, third step. What you are building here is magnificent but I think people don't realize the potential of what you've got going here. The sportswear business and the dress businesses have much higher margins than the outerwear business. So the potential from what you are investing and what you're building, this is a terrific business that you are building here. My question is, what are your goals for the next three or four years and what do you think the earning potential is for a business like this down the road?

Well, we share your sentiment, quite honestly, and I thank you for the support. We do have a goal that probably is north of what you are describing. If Wayne and Neal have gone on several conferences and they have openly stated. You can speak for it.

Larry, we have been out as late as December and January at ICR and we talked about achieving 8% operating margins over the next two or three years. Based upon today's results we are reconsidering that and I think we are going to get there a lot quicker than two to three years from now and it's quite possible that we will move into that double digit operating margin.

Especially as we are really experiencing the leverage now of all of our businesses on our SG&A. As these businesses get wider and bigger, our operating margins are potentially going to jump. We are thrilled about the fact that we've gotten there at a quicker pace. So we are definitely heading in the right direction and it appears that now we are heading there at a faster pace.

I think potential that's all I'm saying, this looks terrific. What is out there in the future could be just -- I just think it's great what you are doing, where you are heading. That's my message -- my question and you've answered it really.

Thank you, Larry.

At this point, gentlemen, there are no further questions. I'd like to turn the conference back over to you.

Thank you all for your participation this morning and your continued support. Have a good day.

That does conclude today's conference, thank you for your participation.