TrueBlue Inc (TBI) 2012 Q2 法說會逐字稿

Good day, everyone, and welcome to TrueBlue's conference call. Today's call is being recorded.

Joining us today is TrueBlue's CEO, Steve Cooper, and CFO, Derrek Gafford. They will discuss TrueBlue's 2012 second quarter earnings results, which were announced today.

At this time, I'd like to turn the call over to Ms. Stacey Burke for the reading of the Safe Harbor. Please go ahead, Ms. Burke.

Thank you. Here with me today is TrueBlue's CEO and President, Steve Cooper; and CFO, Derrek Gafford. They will be discussing TrueBlue's 2012 Q2 earnings results, which were announced after the market closed today. Please note that slides providing additional background on our Q2 results were included in our 8-K filing today and that the slides, press release, and accompanying financial schedules are now available on our website at www.TrueBlueInc.com.

Before I hand you over to Steve, I ask for your attention as I read the following Safe Harbor. Please note that on this conference call management will reiterate forward-looking statements contained in today's press release and may make or refer to additional forward-looking statements relating to the Company's financial results and the operations in the future.

A reconciliation of any non-GAAP measures discussed today can be found in the Investor Section on our website. Although we believe that the expectations reflected in these statements are reasonable, actual results may be materially different. Additional information concerning factors which could cause results to differ materially is contained in the press release and in the Company's filings with the Securities and Exchange Commission, including the most recent Forms 10-Q and 10-K.

I'll now hand this call over to Steve Cooper.

Thank you, Stacey, and welcome, everyone. Today we reported 2012 second quarter revenue grew 11% to $354 million, which produced $0.26 per share of net income which is in line with the earlier guidance that we shared. Our operating margin of 4.9% for the quarter expanded by 60 basis points compared to the prior year second quarter. Our operating margin of 3% through 26 weeks of operations this year has expanded by 50 basis points.

We've expanded our operating margins by growing revenue 12% year-to-date, while holding gross margins constant and continuing to run a cost efficient cost structure, which provided the leverage on the operating statement, as reported. Expanding our operating margins remains a high priority for our team. As we continue to grow revenue we are focused on being diligent in appropriately pricing our business to get the highest possible gross margin at the highest possible revenue growth.

This requires us balancing opportunities for growth with our focus to increase our profitability. As we've expanded our opportunities with larger accounts over the past few years our total mix of gross margins have lowered. To offset the lower mix of gross margins we have been and remain diligent in lowering our cost structure.

We have successfully lowered selling and administrative costs as a percentage of revenue, during the same time period our gross margin mix has changed. As a result, we've expanded our operating margins. We remain focused and committed to driving operating leverage in our future results.

Revenue continues to show consistent growth as gross margins remained stable here in 2012. In Q2 we grew revenue across most industry groups and geographic regions. Residential construction remains a challenge, however, we are continuing to see commercial projects and energy related construction projects show strong growth.

We remain focused on our approach to building expertise in several markets, along with driving local market selling and delivery of services. This is a multipronged approach and building national customer relationships along with our strong capability of serving local customers is the driving force behind our strong results.

The one industry that I just mentioned that has continued to show extraordinary revenue results is energy. Similar to the prior three quarters, this sector positively impacted our overall growth in Q2. We feel comfortable with our ability to sustain the level of revenue from this sector, while the growth rates will moderate the revenue from these accounts seems stable.

As we've grown multiple industry sectors we have become less reliant on one particular account or even one industry to provide our growth. Even as our largest account over the past year has declined, as planned and reported, we have other large accounts and industry groups replacing that work. Our strategy to be more diverse in relation to our overall industry approach is helping us produce more consistent and sustainable results.

After Derrek reviews further operational and financial details I will offer some additional remarks. Derrek?

Thanks, Steve. I'll start off today by covering our high level second quarter results, then we'll take a deeper dive on the key financial trends for Q2, and hit some balance sheet and cash flow highlights. We'll finish off with a discussion of our expectations for the third quarter. Any reference to our performance is based on a comparison to the same period a year ago, unless stated otherwise.

Solid execution across the business produced strong results this quarter. Revenue grew at 11%, as expected, marking the ninth consecutive quarter of double-digit revenue growth. Diluted net income per share growth was about 30% and near the high end of our expectations.

Now let's review some of the key financial trends in this quarter's results. Gross margin for the quarter was 26.4%, as expected, and was lower than Q2 gross margin a year ago of 26.7%, which included 50 basis points of nonrecurring benefit from the resolution of a payroll tax matter. Excluding the payroll tax benefit from Q2 last year, gross margin in Q2 this year would have increased 20 basis points. This improvement is the result of successfully increasing billing rates in January and disciplined pricing of new business throughout this year.

Now let's discuss sales, general and administrative expense. This quarter's revenue growth spread across our largely fixed cost structure continued to drive strong operating leverage. SG&A as a percentage of revenue of 20.2% was better than expected due to less SG&A spend. In comparison with Q2 last year our operating leverage produced a 90-basis point decrease in SG&A. On a dollar basis SG&A increased about $4 million compared to Q2 last year, mostly due to the variable SG&A associated with the nearly $35 million increase in revenue.

This quarter's revenue and gross margin performance in combination with the Company's operating leverage delivered impressive EBITDA results. Incremental EBITDA as a percentage of incremental revenue was 13% this quarter. Excluding the previously mentioned payroll tax benefit received in Q2 last year, incremental EBITDA would have been 17%. This highlights the business model's ability to convert over 50% of gross profit growth into EBITDA growth and drive long-term EBITDA margin expansion.

Our effective income tax rate of 42% was slightly better than expected due to higher pretax income, which leverages certain nondeductible items over a larger base.

Let's cover a few cash flow and balance sheet items. Cash flow from operations was $28 million, which was an improvement of over $25 million compared to the same period last year, due to favorable trends in accounts receivable. Accounts receivable in 2012 has followed a normal seasonal build versus a steeper build in 2011 due to a low beginning balance.

Year-to-date capital expenditures were nearly $10 million. $6 million of CapEx occurred in Q2, which was concentrated on the completion of an operating system and other technology investments. We also purchased 300,000 shares of our common stock in Q2 at a cost of $4 million. This leaves $36 million remaining on our stock purchase authorization.

Today we filed a $100 million shelf registration, which replaces the previous shelf registration that expired this month. With $130 million of cash and $70 million of borrowing availability on our credit facility we have no plans at this time to make use of the shelf registration. However, should the need arise the shelf registration facilitates quick and efficient access to capital, making it an important component of sound corporate governance.

Let's change direction and look forward to Q3 2012. We expect total revenue of $385 million to $395 million, which represents growth of about 5%. The expected growth is lower than the 11% growth we experienced in Q2 this year, mostly due to a lower growth rate expectation in our energy business. While we expect a healthy run rate in our energy related revenue during Q3 it does anniversary a more challenging prior year comparison. We expect diluted net income per share for Q3 of $0.34 to $0.39.

Now let's take a closer look at some of the key assumptions for Q3 this year. We expect gross margin in Q3 of 26.8% to 27.3%. Third quarter SG&A as a percentage of revenue is expected to be about 19% to 20% based on the revenue estimate provided today.

We expect an effective income tax rate for 2012 of 42% to 44%. This is higher than our normalized 2011 income tax rate of 39% due to the expiration of the Work Opportunity Tax Credit Program at the end of 2011. This program provided employers with income tax credits for hiring certain disadvantaged individuals, as defined by the Federal Government. While this program has been renewed in the past, we cannot give any assurance the program will be renewed in the future. This program will continue to be excluded from our income tax rate estimate until legislation is enacted to renew it.

Let's cover a few remaining expectations. We expect about $3 million to $4 million of CapEx in Q3 and about $2 million in Q4, equaling about $15 million of CapEx for 2012. We expect our depreciation and amortization expense for Q3 and Q4 to be about the same as Q2. Diluted shares outstanding for Q3 should be about 40.1 million.

Our efforts are clearly focused on building the Company's EBITDA margin. Company sales, service, technology and people strategies, mentioned by Steve, are producing results by capturing market share and expanding the EBITDA margin through the Company's operating leverage. A continued disciplined approach in managing gross margin and operating expenses is also a key priority in further maximizing operating leverage and EBITDA margin expansion.

I'll now turn the call back to Steve.

Thank you, Derrek. As we've shared with you today, our story is one of consistent growth through a more diverse customer and industry mix. Our story is also one of leverage, consistent growth with an efficient cost structure. This results in strong operating margins, as shared today.

In addition, we continue to pursue new value creating investment opportunities that will enable us to broaden the services we offer our customers, as well as increase our efficiency in putting people to work. As we build new capabilities and drive further efficiencies for our customers we believe we will also provide higher returns for shareholders.

There are three areas of strategic focus that we believe will continue to drive shareholder returns. First, our sales and service strategy. Second, our technology strategy. And, third, our people strategy. Let me first speak to our sales and service strategy.

New capabilities and expanded market opportunities that we have built and invested in over the past few years has enabled us to serve more industries and broaden the partnerships we have created with several national customers, and we remain confident in our industry market strategy to drive growth with both national and the thousands of local customers that fit into one of these vertical market specialties.

There are several components of our sales and service strategy that are fueling our success. First, we have industry-specific research and development for each major customer segment. Second, we have an industry-leading sales and marketing strategy. And, third, we have a dedicated sales team for each market. These strong relationships with each of the vertical markets we serve is proven to expand our credibility in those segments on both a national and a local level.

And, finally, we have a proven method of tying this success of serving national accounts to the local market performance. Our proven methods of customer service have made us a leader in selling and servicing large accounts, yet delivering the right candidate in the local market.

Technology is another driving strategic force for us. Last year we began implementing technology that is focused on recruitment, communication and assigning our workforce to customers. In 2011 we put more than 300,000 individual people to work. Many of these workers were recruited through our neighborhood branch locations.

For many of our customers' requests, we do not have the ability to recruit and fill job openings outside of that of the neighborhood recruiting model, and we believe that mobile recruitment solutions, particularly texting on a basic feature phone, can open-up new methods of recruiting and filling customer job openings.

We are on track. I know I've talked about this new technology, but to report we are on track to be able to recruit, communicate with candidates and place candidates via mobile is important to us. We see a huge opportunity using text messages to identify and reach the right candidates and get them to work faster through a less intensive cost structure in the future.

And, lastly, our people strategy. Our people are a driving force in our strategy. We remain committed to the development and retention of our team. We continue to recruit and develop a strong team in all aspects of selling and servicing customers. We know that the value we create for customers and our shareholders is directly related to the quality of our team.

Therefore, we continue to make the appropriate focused investments in our people. We have a growing talent pool that is committed to helping us change the world by putting people to work.

The combination of our sales and service strategy, our technology strategy, and our outstanding team members companywide will continue to drive us to be the leading provider of blue-collar staffing and continue to provide outstanding returns for our shareholders.

I will now open up the call for any questions you may have.

(Operator Instructions)

And your first question comes from the line of Sara Gubins with Merrill Lynch. Please go ahead.

Hi, thanks. First question, could you just break-out Boeing revenue for us in the quarter?

Yes, Boeing was a little over $20 million.

Okay, and do you -- is that -- does that feel like a reasonable run rate for the back half of the year? Do you think it'll continue to move downwards?

Yes, that's stepped down about $5 million from where the revenue was in the previous quarter. It might step down a little bit from there as we start to complete a few of those projects at Boeing.

Okay, I'm sorry, just to confirm you said that Boeing was about $20 million in the second quarter?

It was $23 million.

$23 million in the second quarter. Okay, and could you remind us how much of your revenue is coming from energy?

Yes, it's -- so total Company revenue?

Total Company energy?

Yes, total Company revenue coming from -- you mentioned that that was kind of the driver for the step down in growth rate in the 3Q guidance. I'm just wondering what portion of your revenue comes from energy projects?

Yes, so depending on how you want to look at it, I would say that we had for energy we had about, oh, $25 million this quarter total revenue.

Okay, and then just a last question, I know that you don't give specifics about bill rates, but could you talk about the trends that you're seeing in bill rates and pricing? And I'm wondering based on your comments are you turning away business because there's more pricing pressure on it?

Yes, it's not -- yes, there's still pricing pressure out there, Sara, no doubt. And so there are opportunities that we don't step up to or we have to draw some lines because based on how hard it's going to be to service a given account. So there are pressures out there on bill rates.

We've been running in the 1% to 2% bill rate inflation, so there's a little bit of an opportunity to increase bill rates here and there in our core business, but overall most of the culling out and my comments were about lower margin, not our base margin work.

Okay. Thank you.

Your next question is from the line of Jeff Silber with BMO Capital Markets. Please go ahead.

Thanks so much. Derrek, in your discussion you talked about the incremental EBITDA margin being about 17% when we remove the impact of the payroll tax benefit. Is that kind of incremental EBITDA sustainable?

Yes, the business is certainly capable of producing that, Paul --

Jeff.

-- or Jeff, sorry. That's been a fundamental part of the business model and I certainly expect us to continue to do so. Our guidance reflects that for Q3.

Okay, and in terms of the guidance, you mentioned that the annual growth rate was going to slow a little bit, specifically because of the tough comps in the energy business. Was that just a third quarter 2011 phenomena or should we expect that kind of trend to continue in the fourth quarter?

I think most of that for this year is in the third quarter as far as an impact to the blended growth rate. We haven't gotten into fourth quarter, but it too anniversaries tough comps, but not expecting that to be in decline this year in our energy practice.

Okay, great, that's helpful. You mentioned that the WATSI tax credit, do you have any indications if and when that might change?

Jeff, we really don't. It's, with everything going on back in Washington this has just not been a topic that has garnered a lot of conversation.

Okay, great. And just one quick numbers question, what should we be modeling for stock based comp for the year?

I think you can take a look at our run rate, where we are now, we're running on stock comp we're running a little bit ahead of last year, maybe about $800,000. I wouldn't expect that to continue in the back half of the year, maybe $300,000 or $400,000 ahead of where we were during the back half of last year.

All right, great. I'll jump back in the queue. Thanks so much.

Your next question is from the line of Mark Marcon with R.W. Baird. Please go ahead.

Good afternoon. Sorry, but I missed the first four minutes of the call due to the -- just being on hold for an excessively long period of time, and so I apologize in advance if I'm asking something that you already spoke about.

But in June -- was the step down, and I know the year-over-year comp was a little bit tougher, but was that all energy or was that more broad-based in terms of a little bit of the slowing?

Yes, that was all energy related, Mark. The general business across our branch operations has been running very steady throughout the quarter.

Okay, and can you just repeat what you ended up saying with regards to -- and I apologize, but what exactly did you say in terms of how much energy slowed?

Well, let's keep in mind here, Mark, it's not that it slowed, it's just that that project started heavily in June of 2011. So you get on a year-over-year growth rate, and the growth rates moderate. It's not that the revenue run rate has moderated.

Got it. And what was the Q2 contribution from energy in 2011?

That was made-up about half of the total company revenue growth in Q2.

Yes, it was -- we disclosed it earlier, before you might have got on, Mark. It was $25 million.

In Q2 of last year?

Oh, I'm sorry.

So energy growth for Q2 of this year added about five or six points of total revenue growth for us. That represented in total revenue in Q2 this year about $25 million of revenue, and compared to Q2 last year total energy revenue was about $10 million, so about $15 million of growth.

Got it. And how much was it in Q3 of '11?

It was, let's see, it was about $25 million.

Okay, so basically that element you just expect to flatten out?

That's right, starting to flatten.

Okay.

Just because of the comps, not the run rate.

Got it. And do you see, you know, there's still discussion about the energy tax credits, do you foresee that dropping off or do you think that holds steady even into next year?

Yes, we're getting good reports. The project pipeline looks pretty strong right now. So a year ago we had less certainty about it then I feel like we have today, so I think that the word on the street and the projects that are starting up it looks good for the next 18 months.

Great. And then, Steve, just to go to your strategic comments, with regards to the technology initiative and being able to procure workers more efficiently, how far along are you in that rollout and when would you expect it to be fully operational?

So we definitely have the ability right now to communicate and opt people in, and get them signed up. Our large goal there and our big bang that's coming is the ability to dispatch, especially in the day-pay model, where we can send people out to assignments on quick fill assignments. And so that's a little bit more tricky to be able to have it tied to our operating system, and so this fall we're tying that dispatch process to our operating system.

So currently we have the ability, we know the technology is working, and we're really excited about the ability to communicate and drive job opportunities out to people. But the real bang for the efficiency buck comes from being able to place them through texting, and we're really excited about that.

So that's just around the corner. I imagine in Q1 of 2013 we're going to know what this means for us more, and how far a reach we can have with our workforce in getting them dispatched out and assigned to jobs, and let us know how dependent we really are on that recruiting model right around the neighborhood branch or can we expand it. We have big hopes for that, but, yes, we're within six months of having some great results.

It sounds like you'll be able to increase fill rates and basically respond to far more orders?

Yes, definitely, the testing and the results we're getting back so far is the response time is fast, the open order goes down, the customer service goes up, the margin goes up. So it only takes two or three workers per branch to drive a lot of revenue in this Company, so that's one avenue.

The other is it's just an easier way to administrate our business and run the business, is through a messaging system like that rather than come wait in line for the next job. We've got -- we can have thousands of people in the queue and being able to send them out to whoever is closest to the job or has the best skillset and the best match for the job. So we're going to open up our recruiting pool like we've never seen before.

Yes, and also it sounds like it would end up helping the associates' job satisfaction.

Oh, yes, the testing results in that category are huge because they don't need to come to the office to look for a job assignment, nor do they need to come back at night to be paid. We've really freshened up the entire approach in the model where we can communicate with them if they're not in the office and we can actually pay them without coming to the office. So we've really freshened up the entire approach.

Great, thanks for the color. I'll jump back on.

(Operator Instructions)

And your next question is from the line of [Audo Gehrt] with [Bush Bank]. Please go ahead.

Hi. Could you remind us of your exposure to construction and then -- or to residential construction? And can you talk about the year-over-year growth rate in the second quarter versus the first quarter?

In residential?

Yes.

Yes, so residential construction for us, now I'm giving you kind of what our mix here is on a trailing 12-month basis, probably best to look at it that way, is -- it's about 5%.

Okay.

And you wanted to know --

Year-over-year growth?

-- total revenue is -- residential construction.

Okay, and then the year-over-year growth for the second quarter versus first?

Year-over-year growth rate?

Yes.

Yes, so for residential it was pretty flattish.

In 2Q?

Yes.

Okay, but then how was it in the first quarter?

Which was an improvement for us because we've been running declines for quite awhile.

Okay.

First quarter was -- that was in the teens or so, as far as a decline.

Okay, and then what was the -- do you guys have a worker's comp reversal this quarter and, if so, what was it?

We did. Give it to you here. So it was about 110 basis points.

Okay, great. Thank you.

(Operator Instructions)

And your next question is from the line of Randy Reece with Avondale Partners. Please go ahead.

Good afternoon. I was wondering if we could talk about trends in the Spartan business and kind of what your longer term strategy is with that segment?

Yes, just for those that may not be aware of by brand, since we don't have disclosures by brand, that's really mostly our manufacturing and our light industrial business, heavy in the Midwest. And it serves heavily the auto business and so a year ago we were struggling in that category, and we talked a bit about the declines due to the Japanese auto market. That has stabilized, it's bounced back. We're actually seeing growth again in that business, and mid-single digits growth from that business unit. So things have stabilized.

Our longer term strategy in that category, really across the board is that serving distribution, manufacturing accounts is important to us, and we have a pretty neat little formula there over at Spartan of serving accounts in a more professional way on a longer term basis. So some of our more legacy accounts and work that we've done is high turnover business and high hard-to-fill jobs. And the Spartan has really taken on more of a screening and longer term fill and longer term management, more onsite premise work.

And that business is growing for us. We're picking up accounts. We're growing our presence in that category. I'm not saying we have it perfected, but we're sure glad that we have a method of going about it. We're seeing, although certain accounts to deal with their uncertainty in this economy are still a little bit timid in hiring employees and they turn to the short-term fill model or more seasonal approach, there are clients that want us to do the screening and recruiting and hiring and placing for them. And so there's a great need for what has been referred to as our Spartan model.

Longer term we're going to blend all of this, that our teams are coming together, they're working closer together, and the gaps between one brand and the other aren't that wide. And we've gradually been getting these teams closer and tighter and under common leadership and common systems. And really this is about what the customer needs, and if the customer has an application that we call it to provide onsite services or to provide more of a general labor, quick fill model, but really providing it as TrueBlue is kind of where our strategy is going.

Do you think that there has been any kind of pause in labor demand, any kind of shift in timing, or anything more permanent than just a pause?

Well, that's a pretty big question, and I wished I had the answer to that. I know that temporary help, temporary labor has definitely been tied to the overall economy, and fulltime labor for quite some time. And if the question is is there a secular shift that's going on that companies are really leaning more on temporary help. What we do feel and what we do sense is since the last recession and it's been a real spotty growth period. Although we've been in growth for a lot of quarters, companies remain timid in gearing up and making long-term investments in their own businesses, and turning to temporary help gives them the ability to work through that.

Really makes us relevant to their business model. So I know that that's real, and that they rely on us, and that they need us, and but whether there's a continuing shift I can't feel that out yet to know that whether long term they'll be turning more to temporary help or whether we'll get a shift maybe in 2013 where more longer term hiring will be taking place.

I like a strong economy. I'd love to see more jobs, more fulltime jobs and growth, that does us all well, and there's room for clients to use us to recruit up their staff for fulltime and then use us for seasonal and short-term needs. So there's a real good balance for both temporary help as fulltime employment growth either way. But I know we're relevant in both sides of the cycle either way, but I don't have much more for you other than that.

Okay, do you have an updated office count for the quarter?

You said office count?

Yes.

It's 700.

7-0-0?

7-0-0.

Thank you very much.

You have a follow-up from the line of Mark Marcon with R.W. Baird. Please go ahead.

Was wondering if you had any updated thoughts with regards to capital deployment? Cash just keeps building, how should we think about that? You obviously bought a little bit of stock.

Right. Well, that's one use. Our number one use would be to put it to work in operations and we have a pretty successful track record the last seven years of buying companies and onboarding them and getting them to work.

The last 18 months or so we've been on this efficiency play that we wanted to invest in technology and give ourselves a chance to retool. As I was just talking about the last question of the importance of us to continue to focus on our own efficiency and become one to the customer and sell as TrueBlue has been on our minds and part of the testing.

So the heavy investment in technology that we've made in the last few years is really to set the table so we can do just that. That we can offer the customer all that we do but do it together and do it better, which really for the investors' point of view is a more efficient play. So we can keep driving this incremental revenue, incremental EBITDA margins, that Derrek was talking about is an important play.

So that's what we've been working on in the last 18 months. In that period of time cash has grown. The stock price has been strong. We haven't been aggressively buying stock the last 12 months because we knew that this period of time would pass where we're making a large investment in our efficiency play, and that time is ripe, that we would love to get back in the market of buying companies and buying up opportunity to grow, to serve more geographies, more skillsets or just do more over each counter.

So we're not announcing anything today, I'm just saying that we still see that as the best use of capital, that's where we've got our best returns over the years. So that remains number one.

Share repurchase remains right there behind it. If we can't find a great investment alternative then investing in ourselves with our own efficiency model is a good place to turn, and so we'll look for the opportune times to buy our own stock, which Derrek has reported today that we bought some this quarter. That's not an aggressive play for us right now because we'd love to be on the more aggressive front of growing the Company and providing opportunities right now.

So those are the two main things. It's not new, but it freshens the approach a bit. And we have been in somewhat of a time-out mode on acquisitions and maybe we won't be in the next 36 months, maybe we'll be more forward-looking there.

Great, but it sounds like you're going to -- you're basically going to bring it home with regards to getting the technology initiatives completed and fully rolled out first, right?

Yes, absolutely. The investments we've made so far in the strategy of the efficiency play and driving our EBITDA margins and especially keeping those incremental EBITDA margins high is just high on our list. And that's why I lead with that strategy story here in my script today and just saying it's working. It worked last quarter, it worked again this quarter, and the forecast that Derrek shared here, it's going to work again in the third quarter, and that play is the most important play.

Along the way though, growth is important, and so looking for the opportune times to grow our revenue and our reach to customers so we can serve more people, put more people to work, is also just as important. But, yes, we will not put our efficiency play on hold in order to do an acquisition.

Great, and then in terms of the vertical market strategy, you've had some really good success there. In terms of seeing the next really strong evidence of that, would that be more in the fourth quarter, particularly on the retail side or are there other areas that could crop-up sooner? And I'm talking about relative to what you've already demonstrated thus far?

Right. Well, we have eight or 10 serious categories of industries that are important to us, throughout the history of our organization being invested and being prepared to take on the waste industry. And the disaster business have remained really important to us as we expanded our Spartan business. Being heavily in the manufacturing and distribution industries has been important to us, we've been invested there. And then we moved in and got into this aviation business and the driving business, and now a greenfield opportunity that didn't come through acquisitions, this energy business.

So is there another big one and what's around the corner? I think we have so much room to grow in those eight or 10 that we've already identified and that we haven't perfected. It falls back into the efficiency play model of let's get the tools, let's get the customer service lined out, and let's grow those and perfect that.

So you called out retail. I think we have a huge opportunity in that category. We've succeeded with some big household names that I didn't know that we could and we have. And if we've succeeded with one why don't we succeed with 10? And that's kind of the play right now. So that retail and distribution industry is really ripe for us in how we serve them through seasonal categories.

So, Mark, as you've said here, yes, the proof will be in the pudding on how we do during the retail distribution season this fall. So it's a good call out.

Great, and then just a numbers question, with regards to Q3 of last year were there any tax credits or anything that positively impacted the gross margins in the year ago that we're going to be calling out when we report Q3?

No, the year-over-year comparisons, so Q3 of this year versus Q3 of last year is a clean comparison, there wasn't anything unique in the prior year compare.

Great, thanks for the color.

And we have no other questions, so I'm going to turn it over to Mr. Steve Cooper for closing remarks.

Great, thank you. We sure appreciate you and thank you for joining us today, and your questions. Your attention and questions and interest in our Company is much appreciated.

We look forward to reporting the results of Q3 to you as we continue to drive this industry-leading growth and push these strategies forward. So thank you. Have a good afternoon.

Ladies and gentlemen, that'll conclude today's conference. Thank you very much for joining us and you may now disconnect. Everyone, have a great day.