Bread Financial Holdings, Inc.
Q4 2008 Earnings Call Transcript

Published: 5 Feb 2009

[Operator:]

Good afternoon and welcome to the Alliance Data fourth quarter and full year 2008 earnings conference call. (Operator Instructions) It is now my pleasure to introduce your host, Ms. Julie Prozeller of Financial Dynamics.

[Julie Prozeller:]

By now you should have received the copy of the company's fourth quarter and full year 2008 earnings release. If you haven't, please call Financial Dynamics at 212-850-5721. On the call today, we have Mike Parks, Chairman and Chief Executive Officer, and Ed Heffernan, Chief Financial Officer of Alliance Data. Before we begin I would like to remind you that some of the comments made on today's call and some of the responses to your questions may contain forward-looking statements. These statements are subject to the risks and uncertainties described in the company's earnings release and other filings with the SEC. Alliance Data has no obligation to update the information presented on the call. Also on today's call, our speakers will reference certain non-GAAP financial measures, which we believe will provide useful information for investors. A reconciliation of those measures to GAAP will be posted on the Investor Relations website at www.alliancedata.com. With that, I would like to turn the call over to Mike Parks.

[Mike Parks:]

Thanks Julie, good afternoon everyone, thanks for joining us today. If you’ll turn to the agenda slide you’ll note that we’ll hit the fourth quarter highlight and I’ll hit at a high level the full year results and talk about our 2009 outlook and then I’ll turn it over to Ed for a more detailed review of the business and our financial performance. Let’s get started, turning to the fourth quarter highlights, I am very pleased that particularly in this environment we delivered on our 31st consecutive quarter of meeting or exceeding our guidance. Despite the environment we continue to execute and we remain confident that our business model will fair far better then others. So let’s take a look at the quarter, we saw a slight decrease in revenue, just $508 million. However on a constant currency basis revenue grew over 5%. Operating EBITDA increased by 7% to $182 million and adjusted EBITDA just under $159 million. Cash earnings per share grew 31% over last year to $1.19. Bringing you up to date on our stock purchase plans and activities for the full year we purchased more then [inaudible] shares for approximately $1 billion. This continues to most advantageous use of the strong cash flow of our business and Ed will go into more details a little later. Let’s turn to the next slide and talk about the individual businesses starting with our Air Miles Reward program in Canada. Our loyalty services group manages that program. They did an outstanding job delivering the largest EBITDA quarter in history. Revenue came in at [$196] million and adjusted EBITDA grew to $61.5 million, a 59% increase for the same period last year. The long-term success of the program remains very sound and offers a very unique value proposition from the traction retained [inaudible] and as a result [inaudible] rate of our sponsors year over year. By expanding opportunities within our current base and adding new sponsors as well this program derived more spending [inaudible] to our sponsors and more earning opportunity for our collectors. Coupled with very robust and attainable rewards we have the most [inaudible] loyalty program in North America. I do want to mention a couple of notable items in the quarter, in [December] we announced our renewal with Hudson’s Bay Company, Canada’s largest general mass merchandise retailer and a long-term sponsor with the program. We also renewed our relationship with another long-term sponsor, Boston Pizza, Canada’s largest casual dining brand and a sponsor since 1993. Let’s turn to the next slide and hit Epsilon our US based marketing service units, they continue and we continue to see demand for the programs that deliver measurable results via transaction based solutions. We’re pleased to keep providing a comprehensive permission based email program and marketing solution for Marriott International. Our solution is designed to help them increase customer engagement, loyalty and revenue. We also renewed our agreement with the National Multiple Sclerosis Society to continue to provide database management services, [inaudible] campaigns for retention and loyalty among their 15 million members. The MS Society has been an Epsilon client since 1985. The question we’re often asked is what’s been the impact of the economy and the business climate on our business units. [inaudible] there are some clients who are struggling however among our key clients there is steady if not increased level of spending on ROI based marketing programs. And everyday [we are in] discussions with potential new clients to help them realize the benefits of transaction based marketing. This year we completed 15 new signings, up for typical dozen or so. These companies have placed a priority on retaining customers and increasing loyalty among their customers and they’re not the only ones who may have read recently in AdAge, a survey of marketing executives that particularly in this economy companies are prioritizing their marketing spend and efforts in four areas; customer retention, customer satisfaction, marketing ROI, and brand loyalty and that’s right in our [inaudible]. Nice job to the Epsilon. Let’s hit private label next turning to the next slide, we wrapped up 2008 with a record year for new program signings and as I said we did announce 10 programs as well as several renewals as well. As we’ve said our success lies in our ability to demonstrate that our private label is positioned as a marketing solution. We can help our clients increase sales and increase loyalty with their customers. A few weeks ago we announced Home Shopping Network, we now provide both private label and co-brand card services and will also be providing analytic services [inaudible] toward helping them identify, target, and acquire high value customers. We will also be including customer segmentation, product [inaudible] and response modeling. We also launched a private label program for Butler Animal Health Supply. Butler with over a billion dollars in sales is the largest distributor of veterinary and animal health products to vets across the United States. And lastly we signed a renewal with one of our long-standing clients, The Buckle. The Buckle you may be aware has been one of the few standouts among retailers this year with positive growth. We had a terrific year for new program signings, this will position us well for the 2009 and 2010. Our private label team expects to be continue to capitalize on our position of strength compared to our competitors [inaudible] financial institutions see their business model and strategy being challenged. Nice work to the private label team. For the full year despite the challenging environment we’re in there was mid teens earnings growth for the year. Cash EPS was $4.42, up 14% from last year. We finished the year at about $2 billion in revenue, EBITDA of $655 million and operating EBITDA of $711 million. As a recap to 2008, it was a strong year forging new relationships, we added more then our normal goal for new clients and we extended many of our key relationships. I’m very proud of our performance and I’m just as optimistic as we go into 2009. So let’s turn on to the 2009 outlook, looking forward as I said we remain confident in our business model and ability to execute on our strategy. The hallmark of our model as Ed sometimes calls our key themes, are as follows; solid recurring revenues, strong free cash flow, strong balance sheet and excess liquidity, and as a result we expect to deliver $5.15 to $5.20 on a per share or up between 17% and 18% over 2008. Loyalty services will have a strong organic growth however more in line with our typical growth rate of mid teens and we expect relationship with our sponsors to expand and grow while adding new sponsors and expanding categories. Epsilon with have solid growth as well but specifically the demand for database, analytic and interactive services will continue. For private label our growth will be driven by the portfolio growth from our 2008 wins coupled with the benefits of lower funding costs. In 2008 we took steps to ensure double-digit cash flow growth as well as an advantageous repurchase program. This has proved to be both timely and effective use of our capital and we expect to continue. In closing our earnings growth should be strong during these challenging times and we plan on using our strong position to come out even stronger. I believe our stakeholders are second to none. We have great client partners, that we help grow and maintain loyal customers and we have an exceptional team that has created a culture delivering on our promises to our clients, to our shareholders, and to each other. And with that, thank you to everyone, thanks for a good quarter and successful 2008, and now I’m going to turn it over to Ed.

[Ed Heffernan:]

Thanks Mike, if you could turn to the slide fourth quarter consolidated results, I understand we’re having not the greatest connection in the world so I’ll try to speak up a little bit. As Mike mentioned fourth quarter marked our 31st quarter since the IPO and 31st quarter of delivering or over delivering on our expectations. We beat our guidance by a couple of pennies or so and for the year our cash EPS was up quite a bit from our initial guidance. So that’s about eight years in a row for us but more importantly let’s talk about the key takeaways, there are three of them we think from the quarter. I think in this environment first and foremost all the financial metrics continue to grow. Operating EBITDA, a proxy for operating cash flow, reported EBITDA, and cash earnings per share all grew and even revenues when adjusted for the Canadian dollar exchange rate also grew. So even in a deep, deep macro recession we continued to show pretty decent organic growth. Second how’d we do it? It has to do with the mix shift. The percentage of cash contributed by each business continued to shift. For the first time in our history, loyalty and epsilon contributed two-thirds of the quarter’s cash flow. When you add in private label services that is the customer care, the network, all the marketing, the non-credit businesses contributed three quarters or over 75% of the quarter’s cash flow. And third cash flow continues to rule. Moderate growth in operating cash flow as defined by operating EBITDA, combined with low CapEx, a lower funding environment and a strong buyback program, all contributed to a 30% jump in our earnings per share. It isn’t the perfect recipe for us long-term but it has and will continue to service us well during this macro meltdown. Let’s wrap up the consolidated picture with a brief recap of the year, very simple, record revenues, record cash flow, record EBITDA, and record earnings per share. When all is said and done about how bad the global situation is, how bad the retail environment is, how bad the credit environment is, how bad consumer spending is, ADS continued to push ahead through 2008 and wound up with record results including mid teens growth in earnings. This track record of producing through good times and bad is the critical piece of our model. At any given time a few different things in our model are going to underperform, but the key to our model is that a few things can bend or even break but overall the mother ship, as we call it, continues to produce record results. As we enter 2009 I would certainly expect skepticism to continue to be the rule for most of the investment world and to all of you out there I’m sure this is shocking indeed. For us however its been 31 straight quarters or eight years of seeing the good, the bad, and the ugly. We fully expect 2009 to bring us another year of mid teens growth in earnings per share and we’ve got lots of extra powder to back that us as well. So over the past eight years we’ve heard over and over again that the model will not withstand a recession let alone a severe recession, well this one’s a pretty bad one, and the model has held up extremely well. In 2009 we actually have a better handle on I think then even 2008 because a lot of the drivers are beginning to head back in the right direction. So I think 2009 will be another year when we can prove that the model once again can deliver very nice earnings growth. So let’s turn to the segments, loyalty Air Miles in Canada, not much to say. They continue to rip it. EBITDA of over $60 million was a record and was up 60% from the prior year. Revenue on a constant currency basis was ahead by more then 20%. A quick note here, EBITDA was not materially impacted from the lower Canadian dollar because we had some investments up in Canada held at loyalty that gained in value and virtually offset the FX hit. Driving the continued growth were first the non-discretionary spend nature of the business which focuses on generating revenues. When people buy gas, groceries, go to the pharmacy, go to the liquor store, home improvement, etc. Second the network effect is alive and well as we continue to see a gradual increase in the number of sponsors visited by our members. You multiply that by 70% active membership across the entire nation and you’re talking about some serious coin. Third we continue to see our sponsors spend larger and larger share of their marketing dollars on the program. And finally new sponsor categories continue to be filled. Wrapping these items together with strong pricing power and zero sponsor attrition one can see how this machine continues to hum. The 2009 outlook remains up beat. We don’t expect a repeat of 2008 hyper growth of 20% on top line and over 50% on EBITDA but nonetheless even assuming some softening in the non-discretionary spend would still suggest mid to high teens growth in revenue and EBITDA respectively. Foreign exchange translate will in fact however be a drag on these results to the tune of about $88 million on top line and $24 million on EBITDA reflecting the expected weakness in the Canadian dollar to average about $0.83 per $1 US versus $0.94 in 2008. In other words $1 CDN will equal $0.83 US versus $0.94. While it doesn’t have anything to do with the health of the business we will provide constant currency metrics as well, its important to point out given that it will be in our numbers. Epsilon marketing services, our US marketing and loyalty business had a decent quarter and a good year overall. For the year revenues and EBITDA were each up 7% while Q4 came in flat. The difference between a flat quarter and 10% growth at Epsilon is about $3 million in EBITDA. For Epsilon that delta of $3 million can be attributed primarily to client bankruptcies. These included one big one as well as a number of small specialty retailers within in our Abacus catalogue coalition business. Of particular importance however was continued double-digit growth of database services, analytics, and interactive that is our permission based email, which all together account for the majority of Epsilon. Also, and this is a key point, we did not see significant cutbacks in client budgets impacting either Abacus or our agency that is our direct mail businesses. In essence by holding our own in the face of significant client budgetary cutbacks, we increased our wallet share significantly. For 2009 expect solid double-digit growth to continue from database, analytics, and interactive products. Abacus and agency are expected to hold their own with continuing gains in wallet share mitigated by an expected handful of additional retailer bankruptcies. Bottom line, when the dust settles Epsilon should perform in a similar fashion to 2008 and that’s around 7% growth is a good bet. Private label services provides the network processing, the customer care in the marketing services functions for roughly 100 private label clients. Comparing Q4 of 2008 to Q4 of 2007 we get a little caught up in the intercompany charges so the bottom line is that there is a growth of a few percent on top and bottom which would be a normalized number rather then the much higher revenue and EBITDA of 10% and 60% respectively. This intercompany apples to oranges has now hit its anniversary so next year it will be very, very simple. Of note however is the segment’s metric, statements generate. Specifically we were seeing declines of 8% to 9% throughout much of the year in the statements that we generated. In Q4 however the rate of decline was cut in half to under 4% as we anniversaried Lane Bryant and new clients were cranking up. Obviously this is nothing to pound the table too hard about but it’s a trend going in the right direction and we expect to see decent positive growth in 2009, specifically look for around 7% to 8% growth which will be highly correlated with statement growth. The fun stuff, let’s finish up with private label credit, compared to Q4’s EBITDA of last year the segment was hit by two things; increased credit losses accounted for two-thirds of the deterioration versus prior year and the remaining third consisted primarily of the higher inter segment charge noted above. Normally we would expect these drags to be offset by earnings from portfolio growth and lower funding costs, the latter being very typical in a recession. Those offsets did not occur as we didn’t anniversary Lane Bryant until mid November and for lack of a better term the mess in the funding environment actually drove our funding costs up as evidenced by LIBOR being at 4.5% in October versus 43 basis points today. So what that all means, well we have some good news which will drive 2009. Our two key positive drivers are back in the saddle, first as noted the portfolio had no growth in 2008. However we signed a record 10 new clients and anniversaried Lane Bryant in mid November. The results are quite promising, after no growth at all year until December the portfolio exited 2008 at a solid 6% growth rate with the addition of the Home Shopping Network file, and the beginning ramp of the 10 new clients we exited January at 8.5% growth rate and I might add with positive sales growth versus prior year and seem well on our way to our low double-digit growth goal of 2009. Again the reverse of everything you’re reading about in the papers. And then second funding costs, on our October call we guided to a funding headwind in 2009 of around $25 million due to the financial crisis. That headwind is now completely gone. LIBOR has come in 400 bps in the last three months so not only is that headwind now eliminated, but we would expect to actually see a benefit developing as 2009 progresses. So simply stated, what are we looking for, we’re looking for portfolio growth and funding benefits to be of such size as to mitigate the expected increase in loses which should be about 150 basis points. Let’s wrap up the full year summary for 2008, if you were to combine private label services and private label credit, it came in about $80 million behind 2007 in EBITDA. The $80 million hit however was more then offset by over $100 million in EBITDA growth from the rest of the business resulting in consolidated EBITDA growth of 4% and earnings per share growth of 14%. In 2009, it looks more favorable. While we won’t get quite as much zing out of loyalty as we did in 2008 both loyalty and Epsilon will still do well. Also in private label the portfolio is already nearing 10% growth and funding rates are dropping like a stone. These positive drivers both lacking in 2008 should mitigate another year of losses increasing 150 bps or so and thus 2009 will not be saddled with the big drain in 2008. Its pretty straightforward. Let’s hit the balance sheet first up Canada, deferred revenues actually decreased by $145 million from last quarter but not to worry its solely due to the translation loss from the lower Canadian dollar which tanked from $0.94 in Q3 to $0.82 in Q4 which is a huge move for the Loonie. Second we continued to buyback our stock, specifically we bought 2.9 million shares for a total of just over $130 million. For the year as Mike mentioned we spent exactly $1 billion and purchased just over 17 million shares or 20% of fully diluted shares. And yes, that’s a whole bunch. And no, we’re not done yet. We have another 800 million authorized and quite frankly in this market I can’t imagine a better use of some of our excess liquidity. Speaking of liquidity even after dropping a billion dollars on the buyback we ended the year with a leverage ratio of just 2.1x, still well under our self imposed cap of 3x which we feel would still preserve and investment grade profile. Finally, we have between $1.8 billion and $1.9 billion of available liquidity consisting of such items as cash, revolver capacity, conduit capacity, CDs and expected free cash flow. And no we are not concerned about renewals of these sources. That’s it, let’s see what 2009 has in store for us. The 2009 guidance for those of you who recall the October call, we essentially took that slide and said what’s changed. Easy part of it is 2009 guidance is very simple, there has been no change. So what you heard last October is what you’re going to hear today. The highlights, let’s take a look at the business before we have any headwinds attributed to them. As outlined earlier loyalty is expected to continue strongly, that is high teens for 2009. Epsilon normally a 10% plus organic growth engine, will get dinged a bit by retailer bankruptcies but we still expect a decent 7%-ish type growth. And finally in private label with the portfolio already at an 8.5% growth rate and ramping up as well as the significant reduction in funding costs, private label should come in, should come out of the blocks with conviction. Looking now at the headwinds, things have changed a bit since our October call. We’ve bumped up losses another 50 basis points [suggesting] the total of 150 basis points increase versus 2008. What’s that translate into? It translates into a drag of about $66 million. But going the opposite way by 50 basis points would be funding costs which rather then a headwind should now be flat if not beneficial. And finally the expected FX hit of around $0.11 that is the Canadian dollar depreciating from $0.94 to $0.83 remains similar to October’s number as well. Bottom line, losses are more in sync with that people are seeing and expecting while funding is returning to its historical position as a natural hedge during recessions. All in all there is no change to our overall guidance from October’s call. Okay, I think we’re going to take a couple of minutes here and hit, let me guess, the number one question that we’ll get asked, I don’t know, 300 or 400 times over the next three months, let’s go to the slide that says sidebar, number one investor concern credit losses. Let’s try to put a fence around how high credit losses can go, how comfortable we feel with it, it essentially provides some level of comfort that you can put down on a piece of paper. We went back and looked at 2008 and we noticed that the average unemployment rate was just around 6%. And if you looked at our total credit losses that includes both the public master trust and every other portfolio that we have outside of the trust, we came in around a 7.3, that’s 150 bps ahead of unemployment and that’s a $60 million incremental hit to the P&L which we talked about. Just as an FYI the master trust that comes out monthly that everyone looks at except us, averaged about 6.7% which was consistent with our mid 6% guidance from over a year ago. So we came pretty close. So what’s it all mean, we went back a couple of years, total losses tend to run about 100 to 120 basis points above the average unemployment rate for the year and that’s a pretty typical correlation for us and that’s sort of a back of the envelope type spread that you can pretty much count on going forward. So let’s take a scenario here that says alright in 2009 unemployment goes from 7-ish to a little over 8% averaging somewhere in the high 7’s for the year. Slap on 150 basis points and you’re going to get an average loss rate in the high 8’s. That’s the $66 million incremental hit to the P&L. The master trust as we talked about that’s that public thing that comes out every month would normally run in the low 8’s also consistent with 150 basis point increase versus prior year. So that’s sort of the rule of thumb that we have here which is you can’t do it by month or perhaps even not by quarter but on a full year basis there’s a very loose correlation of 100 to 120 basis points between the unemployment rate and our total managed loss rate. So let’s go to the next slide, my favorite, that we titled credit losses avoiding the freak out, the highly sophisticated financial term that we thought we’d use but we couldn’t come up with anything better, again it lays out for you the average unemployment rate that we put in for budget purposes. If you looked at 2007, 2008, and 2009 we talked about 2009 going from low 7’s to above 8% and we then constructed a budget and guidance based on a typical 100 to 120 basis point spread and that would give us total credit losses again as we said in the high 8’s. Normally again, the master trust, the thing that comes out monthly runs about 50 basis points below that. However this year something fairly unique will be taking place and specifically what we’re doing is in order to optimize our funding and our liquidity we will not be pushing hundreds of millions of receivables into the master trust after they have seasoned on the balance sheet like we normally do. Instead we’re going to keep them on balance sheet, we’re going to use very low cost FDIC insured CDs to continue to fund them and also to fund the brand new program starting up so essentially what’s going to happen is the master trust rate will start to creep up and converge with the total loss rate for the company. So if you look at both points we put down below, for 2009 your master trust rate will equal your total rate, think of it in the high 8’s, we’re optimizing financing, what we’re talking about here is the denominator effect usually we fund the new growth outside of the trust but once it gets nice and mature we jam it into the trust and that tends to moderate the loss percentage. We’re not doing that this year. However whether the master trust is 50 below or at our total losses it doesn’t matter, it has the same impact on our consolidated results. So its more of a heads up when you see the report. Q1 we’re actually looking in the high 8’s for both managed and the master trust with the expected upward creep felt year end to be mitigated, meaning fully offset by the new growth. I guess a couple of points I’ll make before we move on hopefully anticipating some questions, one is for those of you who get a lot of entertainment out of going into financial services companies with us on the securitization side there won’t be any significant IO write-down that we can see for 2009. Essentially growth is solid, the yield is extremely solid, funding costs are coming way down and should offset the increase in credit losses so you’re going to have essentially an IO that probably is about zero for the year. So there’s no surprise lurking out there. The second and we can debate this all day long, is hey Ed how about if unemployment doesn’t go just to the low 8’s, let’s say it goes all the way to 9%, isn’t that a big problem and if you did the math unemployment going from a 7.2 to a 9% gives you an average rate for the year of an 8.1, add your 110 basis points, that puts our total losses at a 9.2 versus 8.8 that we had in our budget. That’s 40 basis points, that’s $16 million of EBITDA, the bottom line is its only 2% of our EBITDA for the year. So what we’re trying to get through here is we’re going to be in the general ballpark on the losses and in the unemployment but if unemployment goes up 50 or 75 bps more you’re really talking 2, 3, maybe 4% of EBITDA, again its just not enough to move the needle for us. I know the losses get an awful lot of play because of people who are pure card issuers, they have for the most part blown up so far, we haven’t, and that’s why. Now if you look at the question of well, if unemployment is creeping up throughout the year and you’re starting the year in Q1 in the high 8’s and you add in a growing unemployment rate shouldn’t that overall rate be creeping up as well through the year, and actually we think its going to be relatively stable and it has nothing to do with the fact that we’re not seeing more losses, it has to do with the fact that the denominator is growing rapidly. Again very different from bank card issuers and AmEx that are out there who’s portfolios are shrinking. Because we signed a record amount of clients last year our denominator is actually growing. When you grow it it grows with receivables with virtually no losses. That then tends to keep down the loss rate throughout the year and that stuff is cranking up as we speak so it actually does make sense for a company that’s growing like ours to have a moderating impact on the losses as opposed to virtually everyone else in the bank card world who may be shrinking. Other then that I think what we’re trying to do is put it in perspective of losses are an important item but we’re close enough we think in the ballpark that 50 bps one way or the other really isn’t going to make much of a difference, its 2 or 3% of EBITDA and we can cover that off. So what’s it all mean, let’s finish up with the next slide, 2009 guidance. Again no change from the Q3 call. After you factor in the headwinds of FX and after you factor in the headwinds of higher credit losses, revenues about $2.2 billion, operating cash flow of about $720 and reported EBITDA of about $680, that’s leads us to about a cash EPS number of $5.15 to $5.20 same as before, up 17% to 18% versus the prior year. Specifically Q1 we’re going to set the bar a $1.10 for now. I think the key thing that needs to be noted about Q1 is that is our most challenging quarter when it comes to the foreign exchange grow over because that includes the $10 million EBITDA hit for FX for roughly a $0.10 drag on cash EPS. After Q1 that drag starts to decline to $0.09, $0.06, and then zero by the end of the year when we anniversary it. So this is our toughie when it comes to the FX grow over so on a reported basis 10% growth on a constant currency basis we’re still looking at 20% growth and if you looked at the full year cash EPS number on a constant currency basis we’re looking to do north of 20% for this year. So that’s pretty much where we are, 2008 obviously was the year of recession and the year of the credit crisis yet our earnings grew in the mid teens. In 2009 we are assuming as is everyone else that the recession will continue and will become the worst since the actual depression and yet we are forecasting 17% to 18% growth or over 20% on a constant currency basis. And that leads us to a thought about 2010 and 2011, if you can imagine when things finally begin to settle out, storm passes, what are we looking at. We’re looking at the loyalty business in Canada, no real change. Its going to do great in good times and in bad times. So it will just continue to zip along. Epsilon which will have a decent year last year and a decent year this year will actually move back up into double-digit growth as soon as this thing turns. But most importantly private label which drained us for about $80 million EBITDA last year will be no drain to us this year, will be a solid contributor and therefore you’ve got all three engines cranking away. You throw that in with the fact that the foreign exchange has anniversaried, that we continue to generate huge free cash flow at double-digit growth rates, and we’re going to have let’s call it a third or more fewer shares out there, and you will see an enormous acceleration in the growth of the company coming out of this recession but that’s even after showing 14% and 17% growth during the recession of 2008, 2009. So that’s our viewpoint here, we expect to have a good 2009 as we had a decent 2008 but more importantly we expect to come out of this thing even stronger and it will be somewhat of a slingshot effect when we do emerge but again we’re not saying its because we’re not growing in the recession, we’re growing very, very nicely, it will just be hyper growth once we get out of the recession. Okay finishing up free cash flow again this is our typical slide, we throw in the loyalty adjustment of free cash in Canada gets you to over $700 million of operating cash flow, take out CapEx, interest taxes, and you’ll get to free cash flow of a little under $400 million or $5.75 a share which is about a 14% yield on pure free cash flow which isn’t such a bad thing. And then finally the growth and shift in operating EBITDA you’ll see again that between loyalty, Epsilon, and private label services those three businesses have become 70% or more of the company. That being said, I appreciate your time and I’ll turn it back to Mike.

[Mike Parks:]

That’s everybody for bearing with us, we thought this quarter deserved a little more detail and I think its laid out fairly straight forward. Thanks everyone for the year. We’ll now take some questions.

[Operator:]

(Operator Instructions) Your first question comes from the line of James Kissane - Banc of America Securities

[James Kissane:]

Can you elaborate a bit on the factors behind the huge increase in the loyalty EBITDA.

[Ed Heffernan:]

Its just sort of the continuation of what we’ve been seeing all along. It used to be as you recall years ago driven by miles issued and then hopefully we get some leverage, what we’re seeing now is miles issued and then as you’re bringing on the Tier 2, Tier 3 sponsors your revenue per mile will obviously be higher because the volumes will be a lot lower then our national sponsor and you’re just getting just huge lift out of the infrastructure that we have up there. From that perspective you’ve got a combination of miles issued, price per mile issued, and the cost for running the operation are all going in the right direction.

[James Kissane:]

Was there any non-recurring items.

[Ed Heffernan:]

No, if you look at the first four quarters of the year, there’ll all running around 60%.

[James Kissane:]

But the miles issued did slow in the quarter what’s your outlook in 2009 for miles issued.

[Ed Heffernan:]

We’d probably say high single-digits and then miles redeemed would probably be low double-digits. So not all that different. One of the questions we did get was, boy was there going to be a run on the bank and all these miles were going to get redeemed and what actually happened was almost the reverse of people started to horde the miles as currency and I guess wait for when they really needed to use it. So we’re not seeing any big run up on the miles redeemed.

[James Kissane:]

The pipeline, maybe your appetite for private label portfolios, and maybe your capacity to take on some sizable portfolios here.

[Ed Heffernan:]

There is no question that we are taking an aggressive approach to this recession or whatever we’re calling it these days through both the buyback of our shares and the fact that there are retailers out there who still have a program in house and are having some fairly severe liquidity problems or have felt that the non-core asset of theirs, we will be a buyer or bidder as we were with Home Shopping Network, which is a very nice [inaudible] for us, about the right size, between $100 and $200 million. Additionally even though we don’t usually run into the big players that tend to play with the Home Depots of the world and the monster files, they still have a few of those 100 or so million dollar files floating around and I think across the board we can say they’re taking a step backwards during this recession and they are not out there in the marketplace or at least we’re not seeing them. So we like our chances and we would like to do somewhere in the order of two to three portfolios a year for the next two to three years in addition to signing our typical five or six new client startups.

[James Kissane:]

What portion of your debt is variable rate and maybe specifically off of LIBOR.

[Ed Heffernan:]

Well you’ve got a couple of chunks, you’ve got about, the portfolio itself which is a little under $4 billion and then you’ve got another $1.5 billion or so up at the corporate level, if you smashed all those together you’ve got converts and revolvers and CDs and everything else, I would say we probably have at least $2 billion that’s [shore] floating and then you’ve got CDs which are 18 to 24 months and then you’ve got a lot of the fixed stuff that’s out there. So I’d say maybe $2.5 billion.

[Operator:]

Your next question comes from the line of Reggie Smith - JPMorgan

[Reggie Smith:]

Can I get the exact managed loss rate for the quarter in the credit services segment?

[Ed Heffernan:]

We did 7.3 for the year and we did 8.5 for the quarter.

[Reggie Smith:]

I was a little surprised at the way you’re getting to your guidance next year, I didn’t expect the big increase in the portfolio, I had a pretty I think aggressive, I had substantial share repurchases next year in my model, just curious what’s your appetite for repurchases next year and what is contemplated in your guidance today.

[Ed Heffernan:]

You mean this year, we would say we can only put in there what we’ve already done and everything else will be an add on to that. So a little over a billion I guess would be the right answer. But certainly at these levels we’re going to be a bit more interested.

[Reggie Smith:]

I guess you have an [ABS] note maturing this year, I think you have some on balance sheet notes, how are you thinking about refinancing that, do you have enough untapped capacity in your conduit to handle the ABS note, if not, if you had to go to CDs would that change, would there by any IO recognition risk or anything there associated with the way you decide to fund those that come due.

[Ed Heffernan:]

We have only one deal maturing this year I believe its March or April, I believe its about $500 million. Usually when those mature we put them in what’s call conduit or a warehouse conduit that’s offered by one of the large banks and then it sits there until such time as we decide to push it out into the public market. I can say that we have a commitment from one of the large banks to provide that facility for when those notes mature. However we will also be looking in addition to that a back up plan which is we are very interested in the TALF program which is the quarter trillion dollar program set to kick off offered by the government that will essentially provide an alternative to the term ABS market which is all but nonexistent today. That is supposed to be kicking off by mid February and its right in our sweet spot and we would be looking to term out and take advantage of that program for sure and also use existing commitments we have from the banks on conduits and using additional CD capacity. So we’re going to be looking at those three sources of funding, the conduits which we think are in good shape, we’ve gotten good verbal commitments from the banks on renewals, CDs are nice and cheap these days and we can push them out to 24 months and then this TALF program with the government should also be fairly low cost alternative to locking in some term money. So any one of the three and we’re going to just see where the liquidity is, where the rates are and we’ll be probably trying to keep our presence in each one.

[Reggie Smith:]

With regards to your credit portfolio what percentage of that portfolio would you say is kind at risk for retail bankruptcies so without naming any accounts specifically, how much of the portfolio do you kind of think about, are concerned about as these retailers go under.

[Ed Heffernan:]

We took a hard look at the top 15 or 20 which of course make up the vast bulk of the portfolio and again I don’t think its any surprise that some of the names like Victoria Secret, and Stage Doors and Bride Lane which is owned by PPR, Jones Gucci out of France, they’re all in decent shape. As we went down the list really the two that jump out at us that had any size whatsoever were Goody’s Clothing and also [Fortunoff] and those two files combined are probably about I would say 3% of the overall portfolio. So I’d say about 3% would be what we’re looking at.

[Mike Parks:]

Its also good to point out that just because they go bankrupt doesn’t mean that we lose the receivable instantly as if it were a loan to the [inaudible], these are consumers that continue to pay out over the time so that won’t be an immediate.

[Operator:]

Your next question comes from the line of Wayne Johnson - Raymond James

[Wayne Johnson:]

As a follow-up to the client stability and quality question can you talk about the expected pipeline this year, and could you add any color, has the sale cycle lengthened because of the current macro environment.

[Mike Parks:]

We still can, much like we did all through 2008, have a good pipeline. Not only with our existing customers looking for expansion but there’s no question that budgets are tightening but we’re kind of in the sweet spot as we talked about in the beginning of trying to be in an ROI model that we can prove results. So perhaps a little slower but by the way, probably no slower then 2008 compared to 2005 and 2006 but nothing that I’m worried about in terms of the signing timeframes of new clients.

[Wayne Johnson:]

Would you say the same applies to Epsilon as it does to, on the credit.

[Ed Heffernan:]

Yes. I would say that if you were to start up north, you’re going to see some movements probably in the hotel category, the liquor category, maybe the petroleum category and the consumer electronics category. There’s some pretty cool stuff going on there. Maybe even the internet category. If you were to look at the private label space although we don’t expect to do 10 new signings this year I have to tell you I bet we’re looking at six or seven and we’ll make a bet later on as to how much and over at Epsilon we also see a pretty good pipeline as well. People are interested in this kind of ROI stuff.

[Wayne Johnson:]

Could you give any color on Citibank what would be the outcome if unfortunately business continued to deteriorate for that institution and can you give any sense on how important it is in terms of contribution to revenues and profits at Epsilon.

[Mike Parks:]

First of all I would say we don’t like to talk about specific clients. They are a good sized customer, no question. You need to recall that this is based on their consumer franchise that’s driving a lot of their deposits and their long-term relationship so a lot of the troubles at Citibank is having, really doesn’t fit the client division [inaudible] But they are certainly a top tin client but you will recall that Epsilon is a pretty diversified division in terms of number of clients driving revenue.

[Wayne Johnson:]

Can you give us any sense, has there been any cross selling recently between private label and Epsilon, and can you give us a sense do you see that taking place this year and if so what we should expect from that.

[Mike Parks:]

I know that they work together on our recent signing with the Butler I know we’re doing a lot of analytics there where actually Epsilon is going to do the analytic work and [inaudible] put that in the retail group I’m not sure yet but they are in close collaboration.

[Operator:]

Your next question comes from the line of David Scharf - JMP Securities

[David Scharf:]

On loyalty now that Air Miles is clearly the biggest contributor to profits, just on the miles I know you had a very difficult comp this quarter I think miles issued was up 16% last year fourth quarter but we’ve never seen a growth rate as low as 2% and I guess that doesn’t really get impacted by foreign exchange at all, anything in particular, is it the lower gas prices because of Shell or it is a little more broad based.

[Ed Heffernan:]

I have to tell you and you’ve seen enough quarters here probably all 31 practically, this stuff chops around a lot. The promotional budgets some of our clients were clearly focused more on Q2 and Q3 then they were in Q4. So that’s why you see some of the choppy stuff, you’re right about the tough comp. As we said all along you really can’t read anything into one quarter. If I were to guess I would say maybe there’s a little bit of lightness because of maybe some of the spending that’s being done on the credit cards us there, that are not at our sponsors so consider it discretionary spend but using our cards, maybe that has softened just a little bit but certainly on the major non-discretionary categories things seem to be pretty strong. I would say it’s the combo of all three of those things.

[David Scharf:]

Just curious, Shell is obviously a big sponsor, fuel prices have come down, probably put a drag on it, but BMO is your biggest sponsor, I know you’ve got several different programs with them for Air Miles but how much of the BMO miles issuance is tied just to how much people spend on their BMO credit card. That would seem to be a little more discretionary then some of your typical gas, grocery, pharmacy programs.

[Ed Heffernan:]

We don’t break it out by, but we can say it’s a combination of both a number of card programs as well as don’t forget their entire retail bank so to the extent you’re keeping a couple of thousand bucks in there you’re going to get Air Miles, there are all sorts of other retail options as well so its not just on the card side and in other words, you can ask the question another 20 times and we’re still not going to give you a client break out.

[David Scharf:]

On loyalty I know it was in the press release and you made mention of it, I didn’t quite understand this gain or currency related gain that led to the high margin, what exactly was that or just how big was it.

[Ed Heffernan:]

Its kind of a new one for us and it really wouldn’t have happened had there not been just a total tanking of the Canadian dollar vis-a-vie the US dollar but effectively what you had on one side was the Canadian dollar went from about $0.96 on average in Q3 to $0.82 in Q4 but more importantly it was at $1.02 last year so in Q4 it went from $1.02 last year to $0.82 this year which hit us for about $13 million negative on EBITDA and we clawed back about $10 of that because we had certain investments if you recall BMO gave us a whole bunch of money for the trust account early on, that would be one of the items and we were allowed to start investing in investment grade US securities and because there was such a big drop off between Q3 and Q4 the mark-to-market on that flow through the P&L was around $10 million. So one was a non-cash hit of about $30, one was a non-cash gain of about $10 or $11, it doesn’t really materially move it. So that’s why we said FX wasn’t really a factor.

[David Scharf:]

How should we think about this going forward, you got a few hundred million from BMO when you restructured that program, just in terms of thinking about the margins and what’s recurring and non-recurring. This is the first we’ve obviously had this magnitude of investment gains.

[Ed Heffernan:]

Its not going to be recurring unless there’s a significant move, because you book these things up around a buck and it goes down to $0.83, that’s going to trigger a gain but now that’s already been taken so to the extent things hang around $0.82, $0.83 next year, you’re going to see zero.

[David Scharf:]

So when I think about the quarter then arguably there was about $0.10 of Q4’s earnings sort of one time investment gains and going forward when I think about the loyalty margins more normalized mid 25%, 26%-ish like you saw for the first nine months is probably more sustainable.

[Ed Heffernan:]

Yes and I think against the $0.10 of gain you probably have $0.12 of FX hit, the sort of wash each other out. But don’t forget going forward the FX grow over gets less and less so that by Q4 of next year there’s going to be a zero impact from FX. So if you think of Q4 this year had kind of a zero impact from FX or very small, Q4 of 2009 should have a zero impact from FX as well.

[David Scharf:]

The $10, $11 million gain was it realized or is this just sort of mark-to-market.

[Ed Heffernan:]

Its mark-to-market, its non-cash as is the foreign exchange loss of $13.

[Operator:]

Your next question comes from the line of Bob Napoli - Piper Jaffray

[Bob Napoli:]

On the funding and the way the loans are going to move, credit card loans on and off balance sheet you only have $500 million of your funding that needs to be renewed in 2009 that is the maturing of the $4 billion is only $500 million. I thought it was more then that.

[Ed Heffernan:]

The question was of our asset backed notes and we have $500 million coming due this year and that’s it. Additionally we have a whole bunch that are in conduits which are not notes per se but these conduits are commitments from the big banks and we need to renew them on a yearly basis and that might be what you’re thinking about but in terms of the bonds coming due, there’s only 500.

[Bob Napoli:]

And how much of the conduits have to roll over this year?

[Ed Heffernan:]

They all do.

[Bob Napoli:]

So that’s $2 billion?

[Ed Heffernan:]

Yes, right around there. They need to be [364] day facilities for capital purposes within their own banks. It makes it a little less painful so what we essentially do is, we’ve been doing this for 10 years. We have no issue with the rollovers.

[Bob Napoli:]

And right now you have, you’re expecting that your bank group is going to, they are going to rollover through the bank group into the conduits at higher rates then they are now, but is that where the assumption is or is that $2 billion, are you raise, is a chunk of that $2 billion going to come on balance sheet.

[Ed Heffernan:]

The answer is yes, yes, and yes. We don’t know what the rate that the banks are going to charge but with LIBOR where it is even with a significant widening of the spread we should still have pretty favorable rates however the bulk of this doesn’t come due until the end of the year, October November time period. The alternative to the conduit programs are one, FDIC insured CDs which right now are probably around 2.8 to 3% which also is quite a bit lower then our rates from last year so that’s one of the reason we’re looking very hard at expanding that program and secondly the TALF program which begins in February theoretically as that gets underway it is going to be driving the spreads from the bank in quite a bit. So hopefully when the big stuff comes due at the end of the year we’ll be in a nice position to choose between the three. If the spreads don’t come in from the banks the way we want to we will use TALF or CDs only.

[Bob Napoli:]

How much can you raise the CDs, are you limited by any agreement with the regulators or—

[Ed Heffernan:]

Obviously we can’t talk about the agreements with the regulators but we think we have quite a bit of room to expand our offerings with the CD program. Recall we have both the Ohio Bank and we have the ILC out of Utah.

[Bob Napoli:]

In loyalty the miles issue I understand that that can be lumpy, are you looking for that to grow at double-digit rates in 2009.

[Ed Heffernan:]

High single-digit.

[Bob Napoli:]

How does the first quarter look in that regard.

[Mike Parks:]

We’re barely into January so I don’t think we’re going to even try and guess at that right now.

[Bob Napoli:]

The Home Shopping Network program looks like, you’ve generally gotten 30% of the business so generally its kind of been the rule of thumb, Home Shopping Network is a pretty large revenue base, is that going to be a very large program for you and are you comfortable with that?

[Ed Heffernan:]

Again we’re not going to get into specifics with a client but I think it would be safe to say that the wallet share that we would expect with Home Shopping would in fact be less then what we would expect from certain other clients primarily because the credit quality across the HSN base is quite diverse and the spreads are quite large between the different scores and since we do not target subprime, the prime sector within HSN that is of great interest to us would yield a wallet share that was less then our traditional one.

[Operator:]

Your next question comes from the line of Larry Berlin – First Analysis

[Larry Berlin:]

On Epsilon, just curious what’s up with the management, are they all happy, sticking around, or is there a bit of rotation going on over there.

[Mike Parks:]

We’ve got a very committed team, they’ve all as you know grown up with this business any where from 10 to 12 to 15 years across the board and so don’t expect any change in the leadership there.

[Operator:]

Your next question comes from the line of Roger Smith – Fox-Pitt Kelton

[Roger Smith:]

I have a question on APB 14-1 with the debt in 2009 and sort of how will that presentation look and is that in our numbers right now or not.

[Ed Heffernan:]

What we would be doing from a presentation perspective, obviously because we are focused on cash earnings and cash EPS we would make it apples to apples to this year so obviously the cash coupon component would be something that would be included in cash EPS and any other type of accrual that needs to go in there that is a non-cash item is irrelevant to our cash earnings that would be backed out as well as any type of tax benefit associated with it.

[Roger Smith:]

Which would look like the stock compensation line item now.

[Ed Heffernan:]

You bet.

[Roger Smith:]

Really on the stock buyback is there any thoughts of actually buying back some of the converts rather then do share repurchases or do you think that doesn’t necessarily make sense.

[Ed Heffernan:]

We haven’t really put a lot of brain matter into at this point since we just issued the thing, we’re certainly, we can certainly, it would certainly be part of our overall review of where the capital is going so for example we didn’t do any M&A in 2008, I’d be surprised other then buying some portfolios out there that really doesn’t use capital that we’d be doing much other then using the money for stock repurchases or converts or whatever you want to call it because the accretion on a stock buyback versus an M&A these days is not even close. We look at everything and at this point we really haven’t spent a lot of time on it.

[Roger Smith:]

With the TALF program going into place would you expect that this would be the opportunity to take all of that stuff that’s in the warehouse, the $2 billion and sort of roll that over in to new notes is that really how its intended to work?

[Ed Heffernan:]

You bet, its geared towards and again the rules are, they’re running fast and furious in Washington but in theory its anything that is maturing in 2009 so one would interpret that to be not only the $500 million note that is coming due but anything else that matures in 2009 as well. So the answer is would that be a possibility for us, absolutely. Would we do all of it, probably not. We would very much like to keep those relationships we’ve had for 10 years with the likes of Royal Bank of Canada, and Royal Bank of Scotland, and Barclays and JPMorgan and a number of other players out there alive and well so what we will do is we will make some distribution of the assets between federally insured CDs, hopefully a chunk in the TALF program and a chunk in the conduits and it will be a combination of terming out a certain amount, a combination of keeping our banks happy with keeping activity in the conduits and also using the low cost CDs.

[Operator:]

Your next question comes from the line of Robert Dodd - Morgan, Keegan

[Robert Dodd:]

Going back to Epsilon, obviously you signed Marriott and 15 others can you give us an idea of how those are going to ramp up to, are we going to see relatively modest growth in the first half of the year and then a ramp in the back half or can you give us an idea on those clients ramping on.

[Mike Parks:]

Again we’re not going into specific clients. If you think about and reading the press releases those that are directed toward permission based email activity and the analytics associated with that come up typically quicker then the bigger database builds. Those typically take a six month, depending on the size and the complexity and can take even longer so if you go back through the press releases that will probably give you your best bet of some ramp up.

[Ed Heffernan:]

To be quite specific we would expect Q4 of this year to be fairly strong for Epsilon because of the big programs that are ramping up but later on in the year the stronger they’re going to be and also because the comp quite frankly is the easiest I think in Q4 and then you work backwards from there. I don’t think you’ll have quite the huge surge that you see in Q3 that you would normally tee off of but you’ll see a strong Q2, a decent Q3, and a very strong Q4 I think.

[Robert Dodd:]

When I try and back into what you are spending promoting the Air Miles program versus the Air Miles sponsors themselves, it looks to me like you are, you ramped down a bit in Q4, is that right and then if it is what are your plans on your promotion of that program versus the sponsor promotions for this year.

[Mike Parks:]

That marketing spend and advertising bounces from quarter to quarter. A high degree of it is tied to campaigns and programs with our sponsors so we’ll have a normal year in terms of annual dollar amounts but from quarter to quarter until we get all of our client budgets for the rest of this year and look at those more complete we don’t have as good a feel yet on that.

[Robert Dodd:]

Just to clarify your guidance, it does not include any additional buybacks versus other, then what you’ve already completed, is that right?

[Ed Heffernan:]

I think you can say there’s just a modest amount put in there. We really don’t feel comfortable putting in much more then what we have already spent.

[Operator:]

Your next question comes from the line of Dan Levin - Robert W. Baird

[Dan Levin:]

On the Epsilon side of the business can you quantify the annual impact that you’ve had in terms of lost business from the bankruptcies.

[Ed Heffernan:]

Probably about $2 million of EBITDA from Q4, so that’s about $8 million.

[Dan Levin:]

Can you just comment on the linearity throughout the quarter and then to the extent that you’ve had any visibility into January on the Epsilon business, we’ve seen from some of your other competitors that have said that they’ve seen trends deteriorate later in the quarter, have you seen a similar trend or if you were picking up enough share to where that didn’t materialize for you.

[Ed Heffernan:]

Not really sure what linearity means but it seemed about the same. The bankruptcy of the big guy actually came a little bit earlier so that might have skewed the results but it was, at the end of the day you had database, you had analytics, and you had interactive all cranking through the end of the year, we didn’t see a fall off there. With Abacus and with agency or the direct marketing piece you saw that softness really throughout the quarter because it was a combination of both catalogue and bricks and mortar and as you know the catalogues will tend to soften up a bit earlier in the quarter so it was about the same throughout the quarter and when the dust settled it was here’s half a dozen bankruptcies of which there was one big guy that dinged the quarter for a couple of million.

[Operator:]

Your next question comes from the line of Andrew Jeffery - Sun Trust Robinson Humphrey

[Andrew Jeffery:]

Starting with Air Miles and the increase in redemptions versus issuance can you just comment on where we are life of program in terms of breakage assumptions, this is probably the biggest gap we’ve seen in any given period, what are the cumulative numbers looking like these days.

[Ed Heffernan:]

They haven’t really moved too much. Again this is a program that has been going on for 17 years or almost 70 quarters, so that’s an awful lot of quarters and you are going to have ups and downs and I believe if I were to look the total cumulative miles redeemed divided by the total cumulative miles issued I would be surprised if its much over 53%. And as you know with the new Bank of Montreal deal that we’ve put in place our weighted average reserve rate actually moved up from 67% to 72% so at 72% we’re reserving and our cumulative redemption rate is about 53%. It continues to move up about one percentage point a year so theoretically if nothing else is done in 20 years we will bump up against the reserve level and obviously we would take actions well before that time. So the cumulative rate is moving up about one point a year from 53.

[Andrew Jeffery:]

Looking at Epsilon, when you think about the full year growth rate there, very difficult first quarter comp, is this all new business that’s going to overcome $8 million in annualized lost revenue from bankruptcies and ostensibly some more in 2009, is this all signed business or how much of it is pipeline and how much of it is already highly visible.

[Mike Parks:]

It’s a combination of three, we had existing clients continuing to have commitments, specific growth and that’s probably plus the signed is the key driver. But the existing guys is probably 60%.

[Andrew Jeffery:]

On the IO you mentioned you had no adjustment this year, are the assumptions as you disclose in the K going to change meaningfully from what they were at the end of 2007?

[Ed Heffernan:]

You’re going to see the life of the receivable to be a little bit longer which is a plus. The funding cost will be improving, that will be a plus. The yield will be flat to slightly up which will be a plus and then you’ll have the mitigant being credit losses which will be, call it a double negative. And so it should pretty much even out.

[Andrew Jeffery:]

And the yield going up is a function of something contractual or what’s the key assumption there.

[Ed Heffernan:]

I think its just what we’re seeing is if you remember earlier in the year we were a bit nonplused by the fact that our late fees were a bit light and our yield was actually below a year ago even though our credit losses were going up and usually our late fees tend to move up when credit losses move up. And then we speculated that people were getting their house in order and all that other good stuff but then by Q3 and Q4 what we found is once again the typical behavior in a deep recession is we take in on the chin on losses but we do end up actually collecting cash from more folks being late then we do during the boom time. So our yield is a little bit higher because the late fees collected are a little bit higher then before.

[Andrew Jeffery:]

So a little better collection performance, what we saw in late 2008.

[Ed Heffernan:]

Right but its really a function of we really take in on the chin on the loss side, we certainly don’t make it back up all in late fees believe me.

[Mike Parks:]

We want to congratulate the team across the board for a great performance in 2008 and looking forward to 2009. Thanks for everyone for being on the phone and bearing with us. Hopefully the earning release laid it out very directly what we anticipate doing this year. Talk to you soon, thanks for joining us.