Humana Inc (HUM) 2005 Q3 法說會逐字稿

Good day ladies and gentlemen, and welcome to the KMG America Corporation third quarter 2005 earnings conference call. My name is Samuel and I’ll be your coordinator for today.

(Operator Instructions)

I would now like to turn the call over to Mr. Kenneth Kuk, Chairman and Chief Executive Officer. Please proceed, sir.

Good morning. Thank you for joining us and welcome to KMG America’s third quarter conference call. I have with me this morning our CFO, Scott DeLong, General Counsel, Jim Nelson, and Tom Sass, who’s in charge of operations, underwriting and risk management.

Before we begin, I want to mention that certain statements made during this call relating to KMG America’s future operations performance, growth plans and expectations of future developments are forward-looking statements under Federal Security Laws. These statements are based on various assumptions and estimates that are subject to a number of risks and uncertainties. These risks are discussed in our third quarter earnings release issued this morning, and our Form 10Q to be filed later today. In light of these risks, actual results may differ materially from those expressed in any forward-looking statements made during this call and should be considered carefully.

The third quarter marked continued progress for KMG America as we move steadily towards becoming a prominent provider of group and voluntary insurance products to employers and employees across America.

Earnings were consistent with recent expectations. Scott will speak in detail about third quarter results but it’s apparent that the strategy to utilize Kanawha earnings base to fund KMG America’s growth is working.

I feel that we’re getting beyond devoting a lot of time to reporting on operational or process issues because most of the basics are now in place. The measures for KMG now should be sales, sales rep hiring, rep productivity, margins, and of course earnings per share.

We’ve indicated that we intended to hire at least 20, but no more than 22, sales reps in 2005. By early in the fourth quarter, we had hired 20 high-quality sales reps and we will not hire additional representatives in 2005. We achieved the stated objective, and recruiting is now focused on 2006. This decision allows our sales management to focus even more intently on sales in this critical quarter. The quarter is important for achieving ’05 objectives as well as January 1 renewals.

Regarding sales rep productivity recall that we hired eight reps in January and February. We had a total of 10 at the end of the first quarter and we reported a total of 15 at the second quarter conference call.

Our plan for 2005 contemplates no production for new sales reps in the first six months after they are hired. In light of these circumstances we believe a reasonable way to measure productivity of our sales reps is to look at the results of the eight representatives hired and annualize their sales results from June through October, a five month period.

For purposes of measuring sales rep productivity we include issued sales where a policy has been issued and submitted sales in which case we have made a commitment to issue a policy but no policy has yet been issued. Please note that sales we report in our SEC filings and earnings releases include only sales where a policy has been issued. Using both submitted and issued sales the eight representatives five months sales production annualized would be 3.1 million per rep. This result is particularly note worthy considering that our product menu was very limited and that a January 1 renewal period wasn’t included. I can conclude that the productivity of this group is at least on target with our expectations. Additionally, of the 15 reps on board for 90 days or more, 13 have produced new premium.

Regarding absolute sales levels in 2005 our original model calls for about 13 million of new sales full year. That number was increased to 20 million because of accelerated sales representative hiring early in the year. While the year isn’t complete our current estimate is that we will be over 15 million of sales but somewhat short of 20 million.

Although the group life product has been approved in approximately 30 states the shortfall to the most recent estimate is attributable to slow Group Life sale due to delayed approval of the Group Life product filing in California where we have four sales representatives and the failure thus far to obtain approval in Texas, Illinois and Massachusetts where we employ six sales reps. So group Life is currently not available to half of our sales force.

The other key sales measurement is January ’06 renewals. That objective is also 20 million. Early indications are that we are on track to hit that number. It’s obvious that earned premiums should jump significantly as of January 1, 2006.

Another key measurement is a margin analysis. We don’t have data yet that would permit conclusions to be made. We of course will furnish the information when it is available which will probably be at the first quarter of ’06 conference call.

I’d like to discuss a few additional items.

One is the investment portfolio. Cash and cash equivalents rose to about 110 million at September 30th. With the recent rise in interest rates we have invested an additional 30 million bringing to about 60 million of cash that we have invested along this year. We expect to commit much of the remaining 75 to 80 million over the next several weeks unless rates pull back or the yield curve flattens further.

The 30 million recently invested produced yields of about 5.7% with a 7-8 year duration with an average quality of A minus. While these yields are below our original ’04 estimates they are 60-75 basis points higher than were generally available in ’05 and at least 200 basis points higher than commercial paper rates we’ve received from most 2005.

The ING lawsuit drags on. We reported at the second quarter call that they filed a motion for injunctive relief in early August. As we expected the court ruled against their motion. ING had 60 days from the date of the ruling to file an appeal and on the 58th day they filed notice of their appeal. We have developed a strategy to proceed which I can’t discuss but I will say we’ve notified them we will seek reimbursement of all the costs we’ve incurred. While the lawsuit has been costly to defend, as I’ve said from the beginning, I view it as nothing more than a minor distraction.

Finally in early October, we concluded the sale of our senior market agency office in Fort Myers, Florida. The sale had small negative impact on the third quarter results but should have a small positive effect in the fourth quarter and going forward as the operating losses from running the agency are now eliminated.

Now I’ll ask Scott to comment on earnings.

Good morning. Our earnings release went out earlier this morning and our 10-Q will be filed later today. I’ll start with a few words about our financial statement presentation in the press release.

First, we compared this year’s third quarter to both the second quarter of this year and to last year’s third quarter for our predecessor. We believe however that the most meaningful comparison of the third quarter results will be to this year’s first and second quarters.

Second, we have added extra lines to the income statement in order to separate the performance of the Kanawha legacy business from that of the new activity relating to our new sales and underwriting operation, the corporate office and costs associated with being a new public company.

Starting this quarter we have provided a full P&L for this new activity now that meaningful amounts of premium revenues and benefit costs are being recorded along with expenses. With this introduction let me now get to third quarter results.

Operating income was $0.06 per fully diluted share slightly ahead of the analyst consensus estimate of $0.05. This compares to $0.03 per share last quarter and $0.05 in the first quarter. We are satisfied with this result for two reasons. First, Kanawha’s legacy business continues to perform adequately with operating income this quarter of $0.16 compared to $0.15 last quarter and $0.12 in the first quarter. Comparing the performance of the legacy business to the last quarter, investment income was up and expenses net of deferrals and amortization were down. These favorable affects were partially offset by less premium income, higher claims and a higher effective tax rate.

Second, it now appears we have turned the corner on the earnings impact of the new activity with the operating losses beginning to decline now that we are seeing the beginning of what we expect to be a rapid increase in premium revenue from the new sales activity. Operating losses from the new activity were $0.07 in the first quarter $0.12 in the second quarter and now down to $0.10 in the third quarter. The improvement results from the million dollars of new earned premium after reinsurance in the third quarter compared to less than $100,000 in the second quarter along with the decline in expenses net of deferrals of $3.5 million in the third quarter compared to $4 million in the second quarter.

Next, I have a short commentary on the performance of Kanawha’s legacy business. Premiums were down in the third quarter from the second quarter for two primary reasons. First, earlier this year, we put in place two steep rate increases aggregating to 75% on one voluntary short-term disability income policy form which has been discontinued for new sales for some time. This action was required because of continuing higher than expected claims on two legacy worksite cases. Policyholder reaction to these rate increases was as we would expect: Very rapid lapsation.

The second driver of the premium decline is a technical seasonal effect on our long term care block to the timing – due to timing of policy anniversaries. It is unlikely premium revenue will decline in the fourth quarter and we should benefit next year from the rate increases that we have been filing in our in force business this year.

Investment income in the third quarter was up from the second quarter because the average portfolio yield increased from 4.7 to 4.8%. This resulted from the steady rise in short term rates, not because we started to invest in longer assets in the third quarter. We continue to be very short and liquid throughout the third quarter. In fact, we started the quarter with about $100 million in cash and investments with durations of two years or less and ended the quarter up a bit at $110 million. As Ken mentioned, we did get about $30 million invested longer in October when the 10-year rate jumped up and we should be getting more such opportunities and getting invested with longer assets should help future earnings.

The benefits ratios increased in all legacy segments this quarter. The increase in the worksite segment ratio resulted from the reduced premiums and continuing high claims on the two legacy worksite disability income cases mentioned above as well as an increase in Medicare supplement claims that are also reported in this segment. The latter increase may be temporary as claims performance in this closed block has been satisfactory in most recent quarters.

While the long-term care benefit ratio did increase in the third quarter benefit costs were actually down from the second quarter. As a result, the increase in benefit ratio came from the decline in premium discussed above not from an increase in policyholder benefits. And the filed rate increases mentioned earlier should have a beneficial effect if we can get them approved.

In the acquire business segment claims were worse in the third quarter in one treaty in particular which accounts for the rise in the benefit ratio. Claims experienced in the first two quarters this year was quite good compared to all quarters last year so on a year-to-date basis benefit ratio for the acquired business segment is about 25 basis points better than last year.

Expenses net of deferrals were down in the third quarter compared to the second quarter with two primary causes. First, expenses before deferred acquisition costs deferrals were down by $700,000. Second, deferrals of acquisitions costs were up by $300,000 as a result of an internal review of such costs as noted in the press release. Another expense item relates to the amortization of the DAC and VOBA assets. As noted in the press release, amortization of VOBA was reduced by $300,000 in the third quarter as a result of generally favorable policy persistency.

I’ll conclude with an update on expenses associated with the new KMG America activity. Before the deferral of $400,000 of acquisition costs in the third quarter, expenses for this new activity were $3.9 million in the third quarter compared to $4 million in the second quarter. While employment related costs associated with new hires were up as expected, the increase was more than offset by declines in legal and SOXcompliance costs. The reduction in legal costs resulted from bringing more activities in-house, not from a decline in litigation expense. It is possible these costs will increase in the fourth quarter, and employment-related costs will continue to rise as our organization expands. But we now have a flow of premium revenue to offset these expenses, and we would certainly expect that future revenue increases relating to this new activity will exceed future expense increases.

All in all, we are very satisfied with our current earnings performance especially given the challenging interest rate environment throughout this year and the increase in legacy benefit costs in the third quarter.

The important thing, we think, is that our core sales and underwriting organization is in place and we are seeing some encouraging signs regarding our sales outlook. We believe we are positioned for strong revenue and earnings growth in 2006. With that, I’ll turn it back to Ken for the Q&A session.

We’d be happy to take any questions.

Thank you.

(Operator Instructions)

And our first question comes from Mike Grasher with Piper Jaffray. Please proceed, sir.

Good morning gentlemen.

Good morning.

I just wanted to follow-up with a few questions regarding the sales here. You mentioned slower group sales and attributed much of it to lack of approval from some of the states. Is there anything else that you feel that could be driving the less than expected?

No. The shortfall is all in the group life category, and as I said, we have been unfortunate in that we’re not approved in—

It is California.

California, Illinois, Texas and Massachusetts, and those four states happen to have half of our reps. Now California was recently approved, so that one now is available to us.

Okay. And any time horizon for the other three?

No. The process is you file in all the states and then you work with them to get your application for the product approved, and some go faster than others. California is traditionally rather slow. We’re surprised that we’re not done in Massachusetts, Texas and Illinois, but there’s no inherent problem. It’s just a matter of working through the process.

Okay. And then any new product offerings on the way as we look into ‘06?

Yes. We have filed for short and long term disability group product and a short term voluntary product. Those are in process. Our next product work will focus on improving the existing voluntary products that Kanawha offers, so most of ‘06 will be spent on improving the existing block of products.

Okay. Then maybe I missed it, but did you update us on your targets for new sales reps in 2006?

We haven’t made a final determination of what that number will be. We’ve said in the past it could be anywhere from five on the low side to 15 or 18 on the high side and we haven’t made final determination.

Okay. Then finally on the long term care block, Scott, I think you mentioned that you had put a couple of rate increases through. How many more increases might you need to make this a bit more of an attractive block?

This is Scott DeLong. It’s an iterative process that continues probably for quite a few years. Our plan is to file rate increases in all states every other year. We have underway now our third such round of rate increases going in the latter half of this year. We expect approvals on a number of them. Probably won’t get everything that we’ve asked for. In some states more difficult than others but it’s an extended iterative process that has benefits over a long period of time. Once we do get a rate increase approved they go into effect the next policy anniversary so it really takes up to two years following approval for the full impact to show up in our earned premium.

Okay. Is it safe to say to say then or fair to say that given this quarter’s results that the claims really are proceeding as expected?

Except for Florida we are very favorable relative to expected claims in the rest of the country. I think the last I was informed it was around 80% actual to expected. Of course as is the case with the industry as a whole, Florida particularly South Florida where we have about a third of our business written is more problematic in our claims – actual claim levels are above original pricing.

And then just to clarify South Florida makes up a third of all of Florida?

Except a third of our overall business in force.

South Florida alone makes up a third—

About 30%.

Okay. How much for the total State of Florida?

I don’t have that but it wouldn’t be a lot more than that. Maybe 35%.

Okay. Thank you very much.

And your next question comes from Thomas Gallagher from Credit Suisse First Boston. Please proceed, sir.

Good morning Ken, Scott. Craig Sethenal? First question I had dealt with the stock option expensing starting in the first quarter of 2006. We estimate the run rate as roughly about 180,000 per quarter and from your 10-Q vesting schedule we estimate it to be about 180,000 in the first year moving up to 720,000 around 2009. I was wondering if maybe you can give me a little more detail on how this can impact earnings next year and going forward?

This is Scott. I think our disclosure in the 10-Q which I don’t believe you’ve had a chance to see yet because it won’t be filed until later today indicates what that expense is. It will accrue consistent with the vesting of options and we have granted, I don’t know, well over half of the total options available to be granted so I can’t comment on your ultimate number but the current quarterly impact sounds about correct.

Okay. Thank you. Second question deals with DAC amortization which was well below what we were expecting and also the levels in the second quarter. I believe it was a little bit higher in the worksite but among the senior and acquired it was significantly lower. I was wondering if maybe you could also give me a little color here?

This is Scott again.As we noted in the press release we completed a review of costs that are being deferred through the first and second quarters – that deferral was consistent with our predecessors previous practice. We reviewed that and changed some of the deferral percentages in areas like IT where far more of that activity relates to the processing of a new business than has been the case historically. So we review that and that increased deferrals. As far as amortization, VOBA amortization as noted in the press release was reduced in the third quarter consistent with a dynamic amortization methodology that reflects actual policy persistency which was more favorable than was incorporated in the amortization factors.

Thank you. Actually just a final quick question. I was just wondering how your sales are doing in some of the new offices you opened in ’05 and also ’04 such as like the Cleveland office because I know you just touched base briefly on Massachusetts and California but I was just wondering how some of the new offices were doing.

This is Ken Kuk. I think the best way to look at that is that productivity per rep calculation that I talked about and it’s key for us that we get something over $3 million. We’ve said we would expect this group of reps the 20 that we have to ultimately produce at about 3.4-3.5 million annualized new premium per year and those reps that have been with us long enough for us to have a calculation that we can annualize, it would appear even with limited product menu and without having the January 1 renewal period that they’re producing at something over $3 million already. So I think we have to be very, very satisfied with the productivity of our reps to this point.

Excellent Ken, Scott. Thank you very much.

Thank you.

And your next question comes from David Lewis with SunTrust Robinson Humphrey. Please proceed, sir.

Thank you. Good morning.

Good morning David.

Back on the DAC VOBA question, Scott can you give us any guidance moving forward? I mean was that somewhat of a true up in the third quarter to bring it down to a net half million dollars or I guess a better way to look at it is what do you think we’re going to see in the fourth quarter and kind of moving forward on an annual basis? If all the trends on persistency hold similar to what we saw in the third quarter.

This is Scott DeLong. That’s the key. There was nothing about third quarter amortization of DAC or VOBA that we would expect to be one-time in nature. The internal review I mentioned will apply going forward so the impact of that will continue in approximately the same magnitude. As far as the VOBA amortization relating to persistency there was nothing that we saw that was unusual in the third quarter. The projections and the amortization factors were somewhat conservative at it turns out and so assuming persistency continues at the level it was at in the third quarter, that benefit should continue as well. Now we know that policy persistency can move up and down so there’s no assurance that the amortization will continue at that slower rate.

Okay. And Ken, on the group gife product, now you have California in place. When was that approved? Was that just in the last few weeks?

Yes.

And do you think there’s a reasonable probability – I know it’s hard to determine timing for regulators but if – do you think there’s a reasonable chance that you will get the approvals from Texas, Illinois and Massachusetts to be prepared for January 1 renewals?

This is Ken Kuk. Everyday that passes reduces our ability to write group life for January 1. With that said, we have agreed to do a little bit more in the stop loss product so that we can in fact get to the $20 million of annualized new premium on January 1. We can rebalance next year when we have the approvals in place. So that’s our strategy for dealing with it.

And so what percentage would stop loss be as of that January 1 renewal based on that assumption of 20 million?

I would say 60% or something in that range.

The balance being group life?

Group life, we have an array of voluntary products that we’re selling as well.

If January’s target is 20 million and that’s probably going to be roughly 25% of production, can we annualize that number as a good target for the full year?

This is Ken Kuk again. We would expect the 20 reps that we have on board as of January 1 to produce something in the area of $70 million worth of business next year. If we do 20, that will be something less than a third on January 1. We think that’s appropriate given our – the fact that we’re relatively new in the market and our product menu is expanding. The number beyond that will be a function of the reps that we hire – the level of reps – the number of reps that we hire in early ’06 and we haven’t made that determination but clearly I think you’re safe with that 25% on January 1 number because if we do 75 million with the existing base we clearly would expect to do at least 5 million from other reps hired throughout the year.

That sounds very positive. Couple of final questions. Scott, what do you anticipate if you can put your $75-$80 million of cash and equivalents to work here during the fourth quarter-- as we look into 2006 what would you expect your total portfolio yield to be on an aggregate basis?

This is Scott. I’m not sure that it’s our intent to get fully invested in the fourth quarter. But I guess hypothetically, if we did, those short terms today are probably earning somewhere around 4%, and at today’s 10-year treasury rate, which is sort of the baseline for us, we should be able to invest at 5.7 to 5.8%, which includes about 100 basis points spread over the treasury baseline.

Okay. That’s helpful. Just two final questions. Scott, what would the senior marketing agency’s negative impact on expenses been in the third quarter. And I assume when you say a positive in the fourth quarter, that expense just goes away and that’s the reason it’s positive?

This is Scott. Are you talking about the operating expense or the one timer?

Well, I’m trying to figure out what the total negative impact for the senior marketing agency was in the third quarter.

Pre-tax, those operating losses have been running about $200,000 a quarter. So that goes away, and additionally in the third quarter, we had a one timer of $300,000 due to severance costs. But as we noted, that was offset by a one timer going the other way relative to a legal settlement. But if you’re just looking at the senior segment, you would have about a $500,000 negative going away from the third quarter and replaced by zero in the fourth quarter and later.

But on a consolidated basis, we’re kind of $200,000 plus third quarter to fourth quarter?

That would be correct.

Okay. And can you give a sense of litigation costs in the third quarter versus the second quarter?

This is Jim Nelson. We were just slightly up in litigation costs and that would be primarily related to the ING litigation. And some of that slight up tick was due to our temporary injunction hearing that we had in August, some discovery, and then also mediation. As Ken mentioned, ING did file an appeal of the ruling in our favor in August, so that may have some impact on costs in the fourth quarter. But it’s a little too early to tell what that impact will be.

And what’s the process on the whole ING litigation who I assume are moving into discovery now and the June court date stands?

Well we’ve been in discovery, I think, since April. So we’ve gotten some additional discovery requests from ING and we’ll be addressing those over the course of the next several weeks. As far as the trial date, with the appeal, we expect that the trial date may end up being pushed back until later in 2006. It could be third quarter or fourth quarter for a trial date.

And you said the appeal-- is that they’re appealing the injunctive relief?

Yes, they’re appealing the ruling in our favor where the courts have ruled against ING’s motion for injunctive relief. They are appealing that and overall the process would be – it could be nine or so months before we actually get a decision on that appeal, which would put us probably around June of next year.

Great. And Ken Kuk finally is Paul Moore or Paul Kraemer on line that might want to give us some further color on the traction the sales force is getting as they look into 2006 and the response they’re getting from potential customers?

Neither are on the line.

Maybe you could give us some feedback, just in general terms?

Well, we have to be very happy with the quality of the reps and reception we’re receiving in the marketplace. I’ve stated in the past the quality of the rep is every good as we’d hoped for and the reception that we’re getting in the marketplace is probably better than we expected. So we’re very, very upbeat. We’re very positive.

With that said we have big objectives. We have big hurdles, but getting 20 high quality reps on board clearly moves us forward in the direction that ought to make us feel pretty comfortable with next years’ sales objectives.

Very good. Congratulations on a solid quarter. Thank you.

Thank you.

And your next question comes from Stewart Johnson from Friedman, Billings, Ramsey. Please proceed.

Yes good morning. I’m just trying to get a sense of the fourth quarter sales menu versus what we have available in the third quarter and clearly we’re going to have the group life approval in California. We’ve got the same number of reps or the same number of offices. It sounds like you’re doing some work on the Kanawha the voluntary products. Will any of that revamping be factored into sales in the fourth quarter for the January renewal period?

This is Tom Sass. The major work on the current voluntary products has really been on the individual disability products and that is in the process now of being prepared for filing so it won’t impact our January 1, but we feel that we’ll roll it out in the first quarter and it could have a nice impact next year. We’re also prioritizing and looking at some of the other products to begin some updates on so the biggest probably new product that we’ll get from gains are the group STD and LTD which we’re filing right now and is approved in about eight or nine states. So that’s when they’ll have the biggest impact on the January 1.

Okay. What are the Kanawha products that you’re working on in addition to the individual disability products?

Well we’re looking at a whole host of them right now to see really the extent and prioritize because of our resources we want to make sure that we get the right ones and prioritize them in the right way but cancerwill certainly be a product that we look at and the critical illness product will be one that we look at quickly next year.

Okay. And then the last question I have is regarding hiring of reps going into next year. I know you said on the low side five up to 15 or 18. Would you see that weighted towards the first couple of quarters of the year?

We’ll want to complete hiring certainly by the end of the first half and we will want as many new hires on in the first quarter as possible. There’s a couple of reasons for that. Number one they’re productive for a longer period of time. Number two it’s just easier to hire reps earlier in the year than it is late in the year so whatever number we settle on we will move aggressively to complete early in the year and I would add that we have several reps that we have had ongoing conversations with that we will circle back to right after the first of the year that we delayed because of their existing compensation arrangements.

It seems like the reps are becoming productive within a six month timeframe. So if you were to hire reps at the beginning of the year it would seem probable that they would be up and running by the time the summer renewal period comes which is the second largest renewal period behind the January season. Does that sound—

Stewart this is Ken. That’s absolutely right and the advantage next year versus ’05 is we will have a fairly complete menu of products available to them immediately so the start up lag should be shorter next year than it was this year.

Have you gone back to any of the accounts that you’ve sold the group products to and made any inroads with the individual disability product yet or is it too early?

This is Tom Sass. It’s a little bit too early right now but that will be a major focus of ours in the first half of ’06.

Great, thank you.

Thank you.

As a reminder ladies and gentlemen to ask a question please press star one. And your next question comes from Craig Rothman with Millennium Partners. Please proceed.

How you doing guys? Congrats on getting some solid traction in the market here. Could you just give an update on how the servicing platform is performing for your expectations here?

This is Ken Kuk. I’ll comment and then I’ll also ask Tom Sass to make a comment. I can say without any question that the Kanawha administrative platform is superior to what we expected. It was an area of concern early on because it was unknown. We spent a lot of time in Lancaster working with the folks there and our experience has been superb. We haven’t had glitches. Not only do they have a high quality technology platform but the quality of the people is superb. They’re used to servicing for outside customers. They’ve had a requirement of being very responsive throughout their history and we could not be more happy with the administrative platform in Lancaster. Now I’ll let Tom say a couple of words as well.

The services have gone very, very well as Ken mentioned. I would say the thing that we’re doing right now is really spending a lot of time just mapping through on this initial (inaudible)volume of new business coming through to make sure that all the processes are working the way we want them to so that as we have this good January 1 that we can handle the volume of new business coming through very effectively and efficiently so we’ve been very, very pleased. Our clients – brokers have been very pleased with the performance of getting policies out quicker than they’ve seen from some of our peers.

So I think that everything has gone very, very well to date and we’re spending a lot of time making sure that we can continue that and kind of load test it if you will as we go forward.

Great and can you guys just comment on any progress with any national benefits brokers out there?

Could you repeat that? I didn’t catch that.

I’m just wondering if you guys can comment on any progress with any national benefits brokers out there like a (inaudible) AON or USI?

We’ve had discussions with most all the major national brokers. We’ve had very favorable responses. We’ve been in dialogue with AON, we’re talking to Mercer and Marsh. We’ve talked to Gallagher so we’ve been in contact with all the national brokers and we’ve made some great headway there. We’re writing business and quoting on business with most of those organizations so we’ve been pleased at the reception that we’ve had from them.

Great. Good luck guys.

Thank you.

Mr. Kuk we have no further questions at this time.

Okay. Once again thank you for joining us this morning. We are extremely satisfied with our progress to date. We continue to be very enthusiastic about the future of KMG America. Thank you.

Thank you, ladies and gentlemen, for your participation in today’s conference. This concludes the presentation. You may all now disconnect. Good day.