Q3 2019 Earnings Call

Thanks, everyone for joining us today on our 2019 third quarter call I'll start out by providing a few comments on our Q3 results.

Outliner revisions to 2019 guidance and wrap up with some thoughts around regulation affecting our industry and my perspective on our strategic priorities as we move toward 2020, I will then hand, the call over to Chris to take you through more detailed view of our financial results and guidance.

Third quarter represented another period of solid performance highlighted by EBITDA growth of 16% adjusted for year over year inventory holding gains.

On the sales front non cigarettes grew by 10.3% and overall sales by 3.5% due to relatively flat cigarette sales.

Same store carton decline accelerated to nearly 6%, partially offset by net market share gains and cigarette price inflation on the non cigarette side same store sales increased by over 7% led by growth in our food fresh and alternative nicotine categories.

We are proud to have delivered our third consecutive quarter in 2019 and margin expansion derived from continued to improve.

<expletive> pricing initiatives and growth in alternative nicotine sales.

On the expense front, we continue.

Seeing operating expenses dropped from 87% of remaining gross profit to 86% in short we are pleased with our results for the quarter and continue to benefit from solid execution on our strategic priorities.

In this mornings press release, we revised upward our 2019 full year EBITDA guidance to a range of 185 million to 188 million and lowered our sales guidance to a range of 16.5 billion to 16.7 billion I will let Chris take you through the details of our revised guidance, but I want to provide some brief.

Comments.

Our revised EBITDA outlook reflects an upward shift in guidance plus the benefit of the previously disclose candy holding gains of approximately $5.8 million combined with the impact of the recently announced third cigarette price increase.

As a result, we expect full year holding gains on cigarettes to be at or slightly above our 2019 guidance of approximately 19 million.

Our shift downward on our sales outlook, primarily reflects the accelerated pace of current declines the impact regulatory uncertainty is having on alternative nicotine sales and net market share gains lower than anticipated in our guidance range.

Overall, I'm disappointed to shifts sales guidance downward, but I'm also confident the market will recognize in our EBITDA performance the company's ability to meaningfully grow profits, despite card and decline headwinds and no major customer wins or wholesale or acquisitions, so far in 2019.

Next I would like to provide some color around the recent regulatory activities in our channel. The vapor category has come under increased scrutiny, causing the FDA to accelerate the pace and level of regulatory action.

In the interim we've seen some states cities and local municipalities put temporary vape restrictions in place it in advance of FDA action.

While we cannot be certain what regulations may ultimately be approved we believe the ban on the sale of most flavor products is likely it also seems likely than a national 21 age limit will be in place on the sale of all nicotine products.

The anticipated regulatory actions may cause some near term headwinds for the alternative nicotine category.

However, we believe that these same regulatory actions will likely funnel more customers into the C store channel.

Several major retailers, including Walmart Walgreens Rite aid and Kroger have already elected to stop selling vapor products. The ban on flavors would likely result in a significant reduction in sales through vipshops and online retailers, who sales are dominated by flavor products.

We believe the C store industry is well positioned to be the dominant retail channel with the growing alternative nicotine category with a history of strong compliance and enforcement of age restrictions.

Shifting to our strategic outlook, our executive leadership team met in September to critically evaluate our direction as we wrap up 2019 and prepare for 2020 and beyond our work session strongly reinforced our commitment to our strategic priorities to go faster and more profitably than the industry to be the industry leader in.

Category management solutions and drive cost leverage throughout the organization.

We continue to see tremendous opportunity ahead of us to execute on these priorities.

From a profit perspective, we've only seen the initial benefit our strategic pricing initiative in 2019, and we see continued opportunity ahead of us to drive incremental margin expansion.

We also made great progress this year and leveraging costs through technology, but are still in the early stages of adoption and see significant runway ahead.

Technology will remain a critical strategic lever as we head into 2020 and beyond both in terms of leveraging cost, but also attracting retaining and growing our customers from a sales perspective, while we've seen increases in store count this year accelerating our pace of store acquisition and reducing churn represent a tremendous growth opportunity.

We spent time in our strategic recession addressing how we can accelerate our market share gains. We are currently realigning our sales force to create a national sales team dedicated to pursuing and servicing chain stores, thus, enabling our division sales resources to focus solely on growing and servicing independent customers.

From a category management standpoint, our plans for 2020 include customer facing technology investments, providing our customers with access to real time data analytics through online and mobile platts.

We see this is an evolution of our after my initiative that will enable us to provide meaningful business insights to our customers on a real time basis driving growth in sales and profitability.

Additionally, we are on track to complete the construction of our center of excellence by year's end in preparation for a grand opening in early 2020. The center of excellence is designed to be the most dynamic collaboration space and the convenience retail industry customers, who visit the Sealy will have access to store innovation, where next generation cat.

Various come to life.

Data and insights designed to meet the needs of the evolving consumer.

Animal is being developed.

We are excited to add this asset to our category management Arsenal.

On the cost leverage front, we continue to deploy technologies that will provide long term and meaningful cost reduction opportunities robotic process automation has made major contributions and driving efficiencies and enabling us to centralize certain key financial processes. Our driver handheld evolution brings our customers are Fritz.

Analysts credit environment and allows us to bring efficiency to the returns process and from a warehouse perspective. We're currently running a beta test on state of the art voice selection technologies that we believe we'll make meaningful improvements in the future of our warehouse cost leverage. These amongst other technologies, we are deploying or evaluating.

Give us confidence in our ability to leverage cost over the long run.

To recap I'm pleased with the progress we have made so far in 2019, I'm confident that we have the ability to accelerate our growth curve via market share gains in acquisitions expand our margins and drive cost leverage in 2020 and beyond.

One final note we are finalizing the renewal of one of our top customers and look forward to issuing a press release soon we continue to view the competitive environment is rational and we believe that we're well positioned to profitably retain and grow our customer base I will now hand, the call over to Chris to provide more details on our financial results. Thank you.

Scott It good morning, everyone.

I will start off with a brief review of our key profitability metrics, then provide some additional details and insights on our strong financial results for the quarter and wrap up with an update on our outlook for the remainder of the year.

First it's important to point out that the comparability of our earnings and profitability metrics for the quarter.

Are impacted by significantly higher inventory holding gains in Q3 last year due primarily to the timing of cigarette price increases.

We reported net income of $22.5 million.

EPS of 49 cents per share compared to net income of $23.7 million, an EPS of 52 cents per share and last year's third quarter.

Adjusting for inventory holding gains and LIFO expense net income in Q3 increased 22.5% the $23.4 million and EPS increased approximately 24% to 51 cents per share.

And as Scott mentioned, adjusted EBITDA, which was $59.2 million decreased 16.2% over the prior year quarter, excluding the impact of inventory holding gains.

Although cigarette inventory holding gains were higher through September last year, we do expect them to be comparable for the full year given the third cigarette price increase announced in mid October .

Total sales increased 3.5% for the third quarter, driven primarily by 10.3% increase through food non food sales.

Same store food non food sales increased approximately 7%, reflecting continued strong growth in our food fresh beverage candy and health beauty and general categories.

The health beauty in general category increased 28% year over year accounting for less than half of the overall food non foods same store sales increase.

We also saw an acceleration in same store sales growth in the food and fresh categories as the quarter progressed.

Gross profit increased 5.5% to $246.6 million, while remaining gross profit increased 8.8% to $247.8 million for the quarter.

Remaining gross profit margin expanded 27 basis points, and 5.6%, reflecting the benefit of the favorable mix shift towards higher margin food non food products and the success of our strategic pricing initiatives.

Remaining gross profit margin in our food non food category expanded 19 basis points to 12.33%.

On continued growth in higher margin alternative nicotine products margin expansion in our food categories and the benefits of our strategic pricing initiatives.

Total operating expenses increased to $212.7 million in Q3, this year compared to $198.9 million last year.

The majority of the increase in Opex was driven by warehouse and delivery expenses, which were impacted by the increase in food non food volume and one extra workday in the third quarter. This year.

Warehouse and delivery expenses as a percentage of remaining gross profit.

Improved 40 basis points to 60%.

As DNA expenses, which increased $3 million were 5.1% in the third quarter included incremental stock comp expense of $1.1 million related to our year to date performance.

Adjusting for this SDMA increased approximately 3% for the quarter.

Turning to our balance sheet.

The amount drawn on our revolver increased approximately $177 million.

Sequential quarter basis, the $488 million.

The increase reflects our normal seasonal build and working capital in a more significant increase in our cigarette inventory in anticipation of the third cigarette price increase which was announced in mid October .

Due to the uncertainty regarding the timing of the third price increase we began to build our cigarette inventory prior to September , causing our inventory levels to be higher than anticipated at the end of the quarter.

Following the announcement of the price increase we began selling through our excess inventory.

And we've already reduced our ABL balance to $369 million as of November onest.

Based on our preliminary assessment of our yearend inventory requirements for LIFO purposes.

And our other key working capital trends, we still expect to generate approximately $100 million and free cash flow for 2019.

We expect our debt leverage to be approximately one half times EBITDA at the end of the year.

Turning to our guidance I want to provide a few additional comments with regard to the revised ranges for sales and earnings.

The lower end of our revised guidance range anticipates continued elevated declines and same store carton sales through the ended the year and a slowdown in alternatives nicotine sales growth rates.

Due to the temporary regulatory uncertainty.

The upper end of the guidance range assumes a modestly lower rates decline in same store carton sales consistent with the trend we've seen in October and more modest declines in alternatives nicotine sales.

Despite our disappointment to have to adjust revenues down slightly.

We are proud to close out the third quarter with EBITDA improvement of 13.3% year to date over 2018.

Which is consistent with our full year EBITDA guidance range at the midpoint.

Also you may have noticed in our press release that we've increased our expected full year tax rate to 27% from 25% driven primarily by higher taxes in Canada as a result of stronger earnings performance.

And LIFO expense is now expected to be $30 million for 2019, an increase of $5 million due primarily to higher cigarette inflation than previously anticipated.

To wrap up our prepared remarks.

We're pleased with our ability to execute on our core strategies. This year, we're very optimistic about with our future and we remain highly focused on executing on our strategic priorities.

Operator, you can now open the line for questions.

Thank you will now begin the question and answer session. If you have a question. Please press Star then one im near Touchtone phone. If you are you seeing speakerphone. Please pick up your handset first before pursuing any numbers. Once again have a question. Please press Star then one and your Touchtone phone.

First question comes from Bobby refrain from Raymond James Your line is now open.

Good morning, everybody I appreciate you taking my questions.

Yes, Hi, Bob effort.

Yes. Good morning, I first wanted to follow up I guess on the comments around the guidance reduction for sales in the prepared remarks, if I heard correctly, you mentioned things got a little better in October on the cigarette side and that's part of the high end range to the same thing happened for the alternate nicotine products in E cigarette should they improve a little on October those trends continue to kind of soft.

And on a year over year basis.

Yes, we've we've seen.

Both cigarette carton decline and the alternative nicotine trends kind of soft and I mean altered alternative nicotine, it's often than current decline has accelerated a little bit as we got into the latter part of the quarter and that's really the driver behind in of the adjustment in guidance.

Okay, and then if I, if I try to connect or just put the parts to give on the EBITDA guidance. The five five or so million 5.8 million of candy gain wasn't in there when we when we spoke last within the second quarter. So so I think about the midpoint moving up about $2 million is that fair.

Yes, no I think Thats I think thats generally there.

Yeah, excluding the candy the midpoint moved up couple million dollars correct, Okay, and that'd be on the that'd be kind of on the core the core operations still going on versus the core of when we spoke last since we didnt have the candy in there okay.

Okay all right.

Okay, and then I guess lastly from me it was driving at noon.

Independent customers the larger customers a certain items pricing initiatives anything to help us flush out some of the success that we continue to see in that category.

Yes, sure Bobby I think food and fresh has obviously been a focus of the company for a number of years and and I think the initiatives that we haven't place around.

Fresh sandwiches fresh fruit produce.

As well as we've we've launched a piece of program and and some sandwich line programs that have done really well, but I think the other kind of macro factor in that is it's kind of becoming the price of entry into convenience store. If you don't have some form of healthier fresh offer you really you're not in the game.

And so weve I think it's a combination of us just having a better product offer doing a better job of of working with retailers, but also on the retail acceptance side I think the number retailers are realizing that that they've got to be in that business to really be a viable retailer long run.

I appreciate the detail all my questions best of luck in the fourth quarter.

Thank you very much.

Our next question comes from Chris Mandeville from Jefferies. Your line is now open.

Hey, Good morning, Scott I appreciate your proactive commentary on the vaping front, but maybe you can elaborate on not just a little bit thing out getting a lot of.

Attention. If you went on your profitability and what that could mean can you maybe sign up for us to just what that looks like in terms of overall sales contribution I apologize I missed what that contributed to non cigarette comps in the corner and and can you help us understand maybe what you're seeing on selling sell through.

For the likes of jewel versus enjoy them seems to be highly promotional today.

Yes, so so we haven't called out specifically the number I'm, Chris as you know we've got a couple of analysts I think Bobby that we just talked to put out his estimations on.

What was that represented I'd say the best way to approach that is if you look at our general merchandise category growth over the last three years, it's going to give you a good indication of the overall impact.

Definitely significant I think the positive trend we saw for the company on the same store sales comp as we've kind of called out the first two quarters. It was about half of our growth.

This quarter was it was definitely less than that and we saw food and fresh really drive our same store sales comp for the quarter.

And then as far as your question around.

Other other items other than jewel definitely we've seen.

Some of the other manufacturers out there.

You know grow considerably because a lot of them are still selling flavors and jewel was not.

So that is definitely contributed to their growth, but at the end of the day Jewel is still 80 plus percent of the category.

And so you know as dual goes the category goes right now.

And in other regulatory environment that we've seen as I mentioned in the comments is we've definitely seen started to see a little bit of a softening as we got to the end of third quarter and started the first a fourth quarter, just because I think theres a lot of uncertainty with retailers you've seen some of these state and local bands or restrictions on so I think clear.

Pretty.

From from the FDA is going to be really important in the long run.

Okay, and then on the cigarette front.

Is there any you can attribute a.

Accelerated slowdown in volumes to it.

I guess I'm, just kind of curious in general what your thoughts are as it relates to that and how much that really is influencing that actual guide down in sales and then can you give us a sense of what the extra selling day provided in the corner for just overall sales and EBITDA.

Yes from an overall sales standpoint, you know, it's we were at 3.5, if you adjust for the day were just over two.

And.

And from what was the first further question again, Chris.

I just the cigarette volume decline to get tolerating throughout the corner and into October I guess I'm curious, what you think that might be.

Our problem related Tim.

Yes, I mean, I think a lot of interest is just you know everyday you open the newspaper you've seen.

Ill actions on regulatory around combustibles, and an alternative nicotine, but we definitely still had a really strong alternative nicotine quarter.

Our total tobacco sales for the quarter was still up in total or total nicotine sales were still up over 1% for the quarter, but from our revenue standpoint, as you know when we see an acceleration up to 6% and carton decline. The unit sales in cartons are really high and thats definitely going to impact the revenues and death.

He was the primary driver between.

Our driver of the downgrade in Q4.

Of.

Revenues.

Sorry, Chris you want to say something.

Digit did you get that I did yes, yes.

Hi by Chris we're going to say something after the fact, but if not all now.

Just the last question for me before I hop back into queue your reference to.

Being disappointed on net market share gains.

Can you give us a little bit of color on that as well I mean is that a function of just the salesforce seeing a bit of a low and perform in store.

Is that a reflection competition, maybe touch a little bit more broadly on overall the competitive dynamic as well.

Sure, Yes, I said that was disappointed and we came in through third quarter at about 620, some odd stores, we want to be over 1000 for the year. So it looks like we're probably going to be a little shy of that at our current run rate and and I thought we would perform a little better in that chain Arena and Thats why I mentioned in my prepared.

Our remarks that we've we've made some adjustments in the selling organization to really do a better job aligning to two that mid size chain, which as you know the 50 to call. It three or 400 stores or 700 chains in the marketplace that we don't have that are in that range. So.

We've done some things structurally in the organization to better align to that group.

To accelerate but yes, I think I.

I think from a market share standpoint, I expected to pick up another $100 million to $200 million.

In revenue from market share gains that we didn't get this year.

Okay. Thanks, guys.

Our next question comes from Ben Ben venue from Stephens. Your line is now open.

Hi, Thanks, good morning.

Ask.

Given that we've seen an accelerated rate of decline in cigarette carton consumption. This year.

Do you think we continue to see that trend in the next year I know, it's premature to maybe make a call like that but do you think.

At what point do you think we see.

Equilibrium reached around kind of a more steady state of declines around 45.

And if we see tighter restrictions on the products do you think that's a significant contributing factor to a normalization of.

Fine.

Yes, it's a good question Ben I think.

We've seen an acceleration clearly, but I think if you look at Altrias guidance, there, they're kind of guiding to 4% to 6%.

In in the next two or three years.

I think clearly the expansion of alternative nicotine or the growth of that area has contributed to.

To the accelerated decline so as we see what happens with the restrictions I think in the short run as I said in my remarks, I think there's definitely some headwinds I think all of the regulatory uncertainty is from provided some headwinds for the industry and in the short run I think for the convenience channel as you see the restriction in flavors.

Yes, that's going to have a huge impact on the e-commerce or online retailers and also on Vipshops, which the last outside of of shops is over 83% of their sales were in flavors.

So I think from a from a long term regulatory standpoint, the reduction in flavors is really going to push into the vape industry to the convenience channel, which has clearly been the most I think responsible channel around age verification and so I think in the long run will see benefits from from the regular.

Question that in the short run we'll see some headwind.

Okay, and then I have a follow up question on regulation and.

Your experience in the past if they're in the press you can point to.

In flavors are banned how what do you expect inventory.

Either.

And your warehouses or in the channel to be treated would you expect it.

To be sold through or you know just have to.

Right down what would you look like.

So we've been we've been very vigilant on managing flavored inventory. Obviously, we don't have we have very little flavored inventory on jewel other than just the men's and menthol.

And that's still I guess up in the year, whether thats going to get caught up in regulation or not but any other flavors that we carry.

We have managed that inventory down I think all of the other manufacturing wholesalers or doing something very similar.

And then I think we're hopeful and I think it would be the right thing for the regulators to have some level of sell through period or they're going to they're going to potentially cause some harm to manufacturers and other people. So I think historically, we've seen a sell through period.

But either way we also have our manufacturer partners. Some of them are prepared to take products back and exchange them for their products that are legal if there is regulation. So I think we've got a pretty clear path to not have any impact to our business.

Okay. That's helpful. Thank you.

We've got.

Our next question comes from Kelly ban off from B M O <unk> capital markets. Your line is now open.

Hi, Good morning, Kelly Bania here.

Just maybe I know, there's a lot of questions on on the.

Nicotine category, but maybe this question another way because I guess the thought process was maybe that as.

The and alternative nicotine, maybe coming came under a little pressure given.

Given what's going on in that category that cigarette carton declines would moderate but it seems like they've they've gotten worse at the same time. So do you think that just the overall attention to the total category is pressuring the total sales there and and maybe you could just clarify what is in your.

At this 0.4 carton declines for the full year.

Sure. So Kelly I think it's a little.

Correlation you're talking about I believe that to be true I think that if we see a significant shift down and alternative nicotine sales I think that carton decline will moderate.

But you know third quarter was still a really strong quarter for alternative nicotine. It was really just at the end of the quarter and as we enter into Q4 were all of the regulatory noise is starting to have an impact in the state bands.

That you've seen has had some impact so really I wouldnt use Q3 as a benchmark on on that thought process. I think you know our anticipation in Q4 from a guidance standpoint as one of the reasons. We lowered as we think you know the carton decline is probably likely to continue.

Somewhere around 6% benefit moderates, then we should perform a little better.

From a revenue standpoint, and the other reason for the further reduction is just was alternative nicotine obviously that that represents pretty good revenue number and depending on how quickly the FDA reacts and how they react I think theres definitely going to be some choppiness in sales over the next 90 days.

Okay. That's helpful. And then I guess, we just think about your operating expenses.

For the quarter I guess, there was the extra day, but maybe just can you explain how those compared to your forecasts and was there any kind of change in underlying trend or cost.

That that impacted the quarter the quarters trend.

No I think operating expense was you know I'd say for the most part we're kind of consistent with our trending and consistent with where we thought we would be from an opex standpoint.

We had a little bit of tick up in SDMA, because we increased.

You know just because of our performance, we increased our bonus accruals and stock accruals. There. So that's really in a positive.

Rewarding some of the people that really contributed to the performance of the company.

But overall I think our operating expenses came in about where we expected in about where we've been trending.

Okay, and then just another one on the.

The 7.1% or same store non cigarette sales increase can you just help us think about how much of that is its price.

Versus volume.

And how that compares to the recent trends.

I would say the the bulk of it is clearly volume we've had a little bit of inflation. This year, but most of it the inflation we've seen has been in candy.

I would say that 1% would be a fair benchmark on inflationary again.

And then food and fresh have been the other driver you know and then obviously alternative nicotine.

Okay, and then maybe I'll squeeze one more and just on not on the sales force reorganization, maybe can you just expand a little bit on.

What's changing and when that was implemented.

Just some more color on that.

Sure I wouldn't I wouldn't call. It a total sales force reorganization, we really just have identified we mentioned in the 700 change and we just felt like we needed a more centralized approach to two calling on those chains partnering with those chains. So really what we've done has gone out to our field and and.

Really kind of round it up the top what I'd call you know solicitors and business partners, we have out there there's a.

The group of probably 10 to 12 of those that are going to be working solely on that group of 700.

Jane Jane organizations, we think that will give as much better alignment to work with those folks and partner with them and so I like I said, it's not a not a complete sales reorganization its of animal modification to realign our our salesforce with the customer opportunity.

Thank you.

As a reminder, as a reminder, if you ever question. Please press Star then one on your Touchtone phone and we do have a follow up question from Chris Mandeville from Jefferies. Your line is now open.

Hi, guys. Thanks again.

Scott on the strategic pricing you mentioned only seeing the initial benefits I suppose im just curious.

And what inning are we in really how do we should think about that going into 2020 as.

A driver to sales versus margin capture and for the quarter or just recently how much of the remaining gross profit margin expansion when you caught as Mr initiatives.

Equally versus just mix shift.

Yeah, Chris strategic pricing is I mean, obviously, it's been in play over the course of this year. So clearly on this kind of first phase of approach, we're going to have some carry over into the next year.

And then we also have.

A number of initiatives that will will kick off in over the next 90 days to kind of roll into 2020, as well and I'm going to not going to get deep into the numbers because we clearly have competitors on the call and.

So I don't want to get to explicit with with how that contributes but I would say that it's been a meaningful contribution to our you know in this quarter. We were up 19 basis points in non said growth and I'd say, it's definitely.

A meaningful contribution to that number.

Okay, and then I'm just a final one from me for me anyway. It was the last time, we had spoken I you referenced that there might be some new business coming up for a bit earlier than you expected.

I want to make sure that bat is different than your comment about finalizing a pretty notable contract in short order. So maybe you can.

Yes, hi that and then.

If it does in fact, there front is there any news on or timing that we should be thinking about surrounding this potential new business and then finally on the RFP pipeline itself, how does that look and if I recall correctly you might have two notable contracts coming up and 29 to more than 20.

21 is one of those in 20 in fact, the one that you referenced earlier in the call.

No. The answered all those questions is pretty much yes, you had a good recollection. So the the one that we expect to kind of finalize here in the near term is one that was.

Early 2020.

The couple opportunities that I said kind of brought themselves to the forefront earlier than expected, we're still kind of in process and I would say that there's two or three solid opportunities that are meaningful to our growth for next year that we're engaged in that wed all take place in the we'll call. It the first half.

I have 2020.

You know pretty pretty solid.

You know chain opportunities and then you're right from a pipeline standpoint.

A bid standpoint over the next couple of years, we have a couple of sizable customers that come up really each of the next three years.

I think we've done a good job of servicing those customers and building a partnership and like I said I think incumbency in this industry is very powerful and I think that the market has gotten back to what I call a very rational approach to pricing and so I I feel really solid about in our partners that we have that will come.

Up for bid over the next few years.

Great and actually I myself that one more in seeing outfield obligatory with free cash flow seemingly bouncing back in Q4, and you still realizing about 100 million on the full year and with where the balance sheet lies today can you just give us some color on the M&A front, what valuations look like in terms.

The sellers asking pricing and if there's anything out there that might in fact, the available that you're interested in.

Yeah, Chris I would say the M&A landscape I would say, there's a lot of conversations right now across the landscape I think theres a lot of pressure on the smaller wholesalers in the industry right now, especially as you've seen the dynamics of carton decline and.

You know in how how well are they able to adjust and sell food and fresh and build out that infrastructure. So definitely a lot of pressure on some of the smaller wholesalers, but I feel really good about our dialogue pipeline.

I think we've got a number of constructive dialogues that we're working on and you know clearly we have the balance sheet to to go approach and be active in that space I don't think you're going to see any crazy multiples in our space.

I think.

Not like you see in.

Convenience retail space, but I think we've talked about multiples in the six to eight range historically and I think thats.

Probably the range, you'll see them in the future.

Great. Thanks, again and best of luck for the rest of the year.

Thanks, Chris.

And presenters at this time I show no further questions in queue.

Great well. Thank you all for joining the call. This morning. We appreciate your interest if you have any follow up questions feel free to reach out to me directly. This is David Lawrence and my contact information is available on the earnings release and on our website. Thanks so much.

Thank you ladies and gentlemen. This concludes today's teleconference. Thank you for your participation you may now disconnect.