Charter Communications, Inc.
Q2 2016 Earnings Call Transcript

Published: 9 Aug 2016

[Operator:]

Good morning. My name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everyone to The Charter Second Quarter 2016 Investor Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. I would now like to turn the call over to Mr. Stefan Anninger. Please go ahead.

[Stefan Anninger:]

Thanks, Michelle. Good morning and welcome to Charter's second quarter 2016 investor call. The presentation that accompanies this call can be found on our website, ir.charter.com, under the Financial Information section. Before we proceed, I would like to remind you that there are a number of risk factors and other cautionary statements contained in our SEC filings, including our most recent Forms 10-K and 10-Q. We will not review those risk factors and other cautionary statements on this call; however, we encourage you to read them carefully. Various remarks that we make on this call concerning expectations, predictions, plans and prospects constitute forward-looking statements. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ from historical or anticipated results. Any forward-looking statements reflect management's current view only, and Charter undertakes no obligation to revise or update such statements or to make additional forward-looking statements in the future. During the course of today's call, we will be referring to non-GAAP measures as defined and reconciled in our earnings materials. These non-GAAP measures, as defined by Charter, may not be comparable to measures with similar titles used by other companies. On today's call we will also refer to pro forma results, while our transactions closed on May 18, 2016, these pro forma results present information regarding the combined operations as if our transactions had closed at the beginning of the earliest period presented in order to provide a more useful discussion of our results. Please refer to the pro forma disclosures throughout today's materials, including the reconciliations provided in Exhibit 99.1 to our form 10-Q filed today. All growth rates noted on this call and in the presentation are calculated on a year-over-year basis, unless otherwise specified. Joining me on today's call are Tom Rutledge, President and CEO; and Chris Winfrey, our CFO. With that, I'll turn the call over to Tom.

[Thomas M. Rutledge:]

Thanks, Stefan. On May 18, we closed our transaction with Time Warner Cable and Bright House Networks, creating a new company with a bigger and a significantly more concentrated footprint giving us the local and national scale to integrate and grow faster. Our high capacity network now reaches nearly 49 million homes and businesses and we have over 25 million residential and business customers in attractive markets. Our ability to use mass media effectively has increased from approximately 50% of passings at Legacy Charter to the mid-90% range today. This gives us better local sales, marketing and branding capabilities, service delivery and field operations, efficiencies and a greater ability to reach and serve medium and large commercial customers. The new scale will accelerate video and advanced advertising product development and deepen our wireless service offerings over time. There are also meaningful one-time transaction synergies which will prove higher than previously outlined. Nevertheless, the execution of Charter's high growth, customer focused operating strategy across a larger service footprint remains the largest contributor to shareholder value in our plans. Since the close, we found what we thought we would. And we put in place a single centralized operating and financial control structure. We're standardizing our business practices and processes including the IT service infrastructure which will be completed over the two plus years, as well as our products, pricing and packaging across all of our regions over the next year. And finally, we'll continue to develop and launch new products and services which position Charter for long-term growth. At closing, all of our employees were mapped to their respective business units and executives based on our operating model. Today the bulk of our 90,000 plus employees remain in the field, inside our operating regions and call centers. We've already began in-sourcing efforts for the new company. The process of in-sourcing will take several years and will require that we hire 20,000 people, train them and equip them with trucks, tools and test equipment and house them in new and expanded facilities. That process has already started as we are building Charter's first Spanish language call center in McAllen, Texas with approximately 600 seats. Ultimately, with a more local work force, we'll perform higher quality transactions with customers which we expect will improve customer satisfaction, reduce transactions and costs and extend average customer lives thereby growing our customer base and cash flow efficiently. In the fall, we will begin to rebrand Time Warner Cable and Bright House and launch our Spectrum pricing and packaging in a number of key markets totaling over 40% of our acquired passings with the remainder in the first half of 2017. On the small and medium business side, we'll launch the full Spectrum small business product, pricing and packaging in TWC and Bright House markets in early and mid-2017 In 2017, the all-digital project at Time Warner Cable and Bright House markets will use the Charter all-digital strategy, which uses fully functioning two-way set-top boxes with video on demand and advanced guide functionality on every TV outlet. We expect the project to be completed by 2018. We will also extend our practice of performing electronic connections instead of physical truck rolls as we go all-digital, allowing us to fully scale our self-installation and self-service practices. Our plan is to have Spectrum Guide available in most Legacy Charter markets by the end of this year. We will launch Spectrum Guide in TWC's larger markets by the middle of 2017 and other TWC and Bright House markets following through the year and likely continuing through 2018 as we complete the all-digital project. Now that we're closed, we're running a Wi-Fi network in public spaces throughout the country as well as on a widely distributed indoor terrestrial wireless network. Which combined with MVNO opportunities and other wireless building blocks should allow us to create products and services with a high value proposition. Over time, we'll have more to discuss on this subject. Chris will cover the second quarter results in more detail in a moment, but the overview is that Legacy Charter continued to perform very well in the quarter, with better subscriber growth than the prior year and on a standalone basis through closing, Legacy Charter continued to show double-digit in improving EBITDA growth. Bright House also improved its customer performance year-over-year. While Bright House has benefited from Frontier's acquisition of certain FiOS properties, it should be noted that because most of its footprint is in Florida it is subject to greater second quarter seasonality than both Charter and Time Warner Cable. Legacy Time Warner Cable is in better shape than just a couple of years ago, with growth in customer relationships. During the second quarter last year, Time Warner had a very aggressive voice promotion, making voice net add comparisons with this third quarter negative. However, our second quarter pro forma results have to be seen in context because they reflect the continuation of previous operating strategies much of which are different from our plan. Through different metrics and stages of development, we can see that TWC and more recently, Bright House had both become reliant on rate increases and retention offers, each of which has various short and long-term effects including encouraging customers to initiate more transactions. We've addressed these types of issues at Legacy Charter and we'll do so at TWC and Bright House during the Spectrum pricing and packaging migration. Generally though, we're very pleased with how TWC and Bright House managed the assets through closing. Our pro forma total customer relationships increased by 173,000 during the second quarter compared to 54,000 last year. And our year-over-year pro forma revenue growth of 6.6% and pro forma adjusted EBITDA growth of 9% in Q2 demonstrates the health of our business. We will make the necessary investments using the same approach we used at Charter to put the new assets on the right long-term growth strategy. The big difference today is that we have an established management team with experience running our operating plan. And TWC and Bright House are in better condition than Legacy Charter was four years ago. And we have meaningful transaction synergies which will help offset short-term effects and investments we need to make to create long-run operating momentum in the marketplace. Now, I'll turn it over to Chris.

[Christopher L. Winfrey:]

Thanks, Tom. I'll largely focus on pro forma results as comparisons to prior-year actuals aren't helpful given the size of the transactions. Before going there though, I think it makes sense to get set the baseline for the new company by walking back through the basic building blocks. On slide 8, you should see a summary sources and uses statement for the transactions. On the left-hand side of the slide under Sources, you can see that the amount of debt that we issued for our transactions totaled approximately $23.8 billion composed of $21.8 billion for the TWC transaction and $2 billion for the Bright House transaction. We also assumed approximately $22.5 billion principal value of TWC investment grade debt already in place. And we issued approximately $33 billion in Charter stock to Legacy TWC shareholders valued at the closing date, about $10.2 billion to Advance/Newhouse in the form of preferred and common partnership units also valued at the closing date, and $5 billion in stock to Liberty Broadband and Liberty Interactive in exchange for cash valued at the signing of the deals, all totaling about $96 billion in sources and uses for our transactions. And other than the impact of a higher Charter share price at closing, the sources and uses were essentially as we outlined at signing. From the beginning, we carefully structured our transactions with TWC and Bright House in order to achieve a number of operating, tax and financing objectives. By providing pari-passu bank loan security to investment grade bondholders, we now have access to virtually all pockets of the debt markets, including long dated low-cost financing without separate financing silos. The debt we issued to finance our transactions was placed in the investment-grade market, the term loan market, and in the high-yield market. And as slide 9 indicates, our total debt outstanding now stands at just over $60 billion compared to our June 30 market cap of approximately $71 billion. Our weighted average cost of debt is 5.5%, 87% of which is fixed, with an average maturity of 11.5 years and close to 90% due after 2019. Excluding the impact of purchase price accounting which revalued assumed TWC debt to fair market value on the balance sheet, our total net debt to last 12 month pro forma adjusted EBITDA was 4.4 times. It was 4.2 times pro forma for year one run rate synergy estimates. Our target leverage range remains at 4 times to 4.5 times, and we'll target the lower end of that range. We've also committed to remain at 3.5 times or below the first lien level for CCO and maintain eligibility for inclusion in the Investment Grade Index. Given our EBITDA growth profile and positive cash flow, we expect to delever rapidly, providing us with excess capacity relative to our leverage targets. We could use that excess capacity in a number of ways, but in order of priority

[Thomas M. Rutledge:]

Thanks, Chris. Thanks for getting that off your chest. Just a few final comments before turning it over to Q&A. Since our closing on May 18, we've been working to integrate the three companies. And while integrating three large companies comes with issues and execution risks. We're picking our way through those issues and so far, we haven't seen anything that precludes us from being successful. Our track record at Charter over the last several years shows our operating model produces excellent economic value, and we'll make the right investments as quickly as possible to apply our operating practices on the new assets. With our newfound scale comes additional opportunities unavailable to Legacy Charter including cost savings and purchasing opportunities, product development opportunities, commercial services opportunities, wireless service opportunities and more, and we're ready to exploit those opportunities in order to drive greater growth and value into our business. Operator, we're ready for questions.

[Operator:]

Okay. Your first question comes from Jessica Reif Cohen from Bank of America Merrill Lynch. Your line is open.

[Jessica Jean Reif Cohen:]

Oh, thanks. I have two questions if that's okay. Tom, you alluded to wireless in your opening remarks. And as part of the merger, you did receive Time Warner Cable's access to the Verizon MVNO. Has Time Warner Cable or you, Charter, notified them of your intention to utilize that, and how do your rights differ from Comcast's if they do?

[Thomas M. Rutledge:]

I don't know exactly what's in Comcast's rights structure, but I believe they're similar because they were created at the same time as part of the same transaction. And we have not fully exercised that right yet.

[Jessica Jean Reif Cohen:]

Anything you want to say on timing?

[Thomas M. Rutledge:]

We're looking at what those rights are and how we'll execute or how we'll utilize them for the best benefit of the company, but we don't have a plan yet that we're ready to roll out.

[Jessica Jean Reif Cohen:]

And then, the second completely different subject, but given your new footprint – your new enlarged footprint and the scale that you get in much bigger markets, can you talk a little bit about, you also alluded to this in your opening remarks, the advertising opportunity? You mentioned addressable advertising. What are your plans and where does this fall in your priority list?

[Thomas M. Rutledge:]

Well, there's two parts of the scale that are interesting. One is we're a much bigger company. And if you just take the Charter growth strategy and apply it to a much bigger set of assets and you do the same thing on those assets, get the same kind of growth rates, you create a lot of value. But the other part of scale that comes out of this is that the footprint, the coverage of the DMA and our ability to use mass advertising, as well as sell advertising in the DMA is improved by the efficiency of our coverage of local markets, meaning in historic terms, we're better clustered. So, we have our ownership of assets by particular DMA more concentrated than we did at Charter. That gives you two things. It gives you the opportunity to be a better seller of services and products and it gives you the opportunity to be a better seller of advertising and targeted advertising in local products sold at – on all the various platforms, the TV, the Internet and voice platforms, wireless platforms, and it also gives you, from a commercial sales perspective, a more likely footprint to serve medium-sized businesses and all the facilities those businesses pass or use within your footprint. So, if you have a multi-site business, your ability to serve multi-sites with better footprint is improved, and so the commercial marketplace is also improved. So, the whole footprint is more efficient.

[Jessica Jean Reif Cohen:]

Thank you.

[Stefan Anninger:]

Operator, we'll take our next question, please.

[Operator:]

Your next question comes from Craig Moffett from MoffettNathanson. Your line is open.

[Craig Eder Moffett:]

Hi. I wonder if you could talk about the programming agreement step downs that you've had and there have obviously been a couple of lawsuits. Can you talk about what you anticipated in the relationships with your programmers and what kind of response you've had from other programming partners with respect to stepping them down onto the Time Warner Cable agreements?

[Thomas M. Rutledge:]

Well, the nature of programming relationships hasn't fundamentally changed, and it's still a contentious contractual environment. But, generally, we have good relationships with our programmers, and I think the litigation is part of the negotiation process in general. And it's going about what we thought it would go.

[Craig Eder Moffett:]

That's helpful. And if I could just ask one additional, much more general question, you talked about that what you've found so far doesn't change your confidence at all. But, can you talk about any particularly big surprises you've come across as you finally gotten inside of Time Warner Cable and Bright House? Anything that jumped out at you as I wouldn't have expected this, and there is either real opportunity or potentially some peril here?

[Thomas M. Rutledge:]

I wouldn't say that I'm surprised by anything. We have a pretty good visibility into these businesses. I have managed Time Warner assets in the past, now granted, it's 15 years ago. But, for instance, I knew about seasonality in Florida, having managed those assets in the past, with snowbirds and so forth. And I would say that the pricing and packaging and the variability of offers is the most interesting opportunity to fix quickly. It creates a lot of activity and confusion in the marketplace both for the consumer and for the employees of the company. And so, I think having a more logical, efficient selling machine will cause a lot of activity to go away quickly. And there's a lot more complexity there than even I thought was there. All of which means there's more upside.

[Stefan Anninger:]

Thanks, Craig. We'll take our next question, please.

[Operator:]

Your next question comes from Bryan Kraft from Deutsche Bank. Your line is open.

[Bryan Kraft:]

Hi. Good morning. I wanted to ask you if you could comment on how disruptive or not you expect the repricing and repackaging of services in the acquired operations to be to your subscriber and ARPU trends. Should we expect some noise in the numbers for a while? And then separately, is there anything that you need to do that's significant to the plan in the acquired operations before you can deploy the Spectrum Guide or is that something that you can do fairly easily? Thank you.

[Thomas M. Rutledge:]

Right. Look, the pricing and packaging is mostly done incrementally. But it does require you to retrain your workforce and to set up processes to provide the products that you want to sell. So, we need to make sure that we have an advanced video product in every market where we launch pricing and packaging that our data speeds can be taken up to where they need to be. And it's logistically complex but not that disruptive to the consumer. What is disruptive to the consumer, though, is continued all-digital rollouts. That requires hardware going into consumer homes. So, about 40% of Time Warner assets are not all-digital currently, and 50% of Bright House are not all-digital. So, those transactions are more disruptive, but necessary in order to get you in a place where you have a superior product set relative to all your competitors. If you look at the history of Charter and its growth rate, and its trending schedules as you'd inquire about, they're a good proxy for what we expect to happen going forward in these new assets. The difference in these assets is that physically, they're in better shape, so there's probably less capital required in them. But from a consumer perspective and driving revenue and driving consumer stats, the Charter experience is a good proxy. With regard to your question on the guide, yes, there are some issues around the guide in rolling it out in the new assets. And they have to do with provisioning systems. So, you have three different companies that talk to their hardware; modems, voice devices, as well as TV set-top boxes and create the billing environment and the control environment around all of that hardware in the field, as well as the billing environment that goes over top of that. All of those things are separate functions that have to be integrated and require an IT infrastructure over top of all of the existing Legacy's structures to unify what products can go where. And the guide, to some extent, has to wait for that physical infrastructure to get put in place. So, we think we can do that as we roll out the all-digital strategy. And we don't think it's gating or anything like that, but it takes time and it's complicated.

[Bryan Kraft:]

Okay. Thank you.

[Stefan Anninger:]

Operator, next question please.

[Operator:]

Your next question comes from Jonathan Chaplin from New Street Research. Your line is open.

[Jonathan Chaplin:]

Two quick ones, if I may. First, I'm wondering if you could give us a little bit more color on the higher churn you saw in the Time Warner Cable footprint, specifically for video? And secondly, on the synergies. Chris, I think you said by the time you hit your first year anniversary, synergies should clock in at about $600 million. Was that for that first year period or would that be the run rate in sort of the second quarter of next year?

[Christopher L. Winfrey:]

That's the annualized run rate by the time we get to the end of the first year of $600 million. You'll recall that, I think, originally, we had said that was about $400 million at the time of the announcement of the transaction. If I remember, I think it was $500 million for financing purposes. So, it's higher than what we expected to be a run rate by the end of the first year since close.

[Jonathan Chaplin:]

Got it.

[Thomas M. Rutledge:]

With regard to your question on higher churn. First, we weren't managing those assets through the quarter, most of the quarter. And so, we don't have a direct connection to what happened or is happening. But it's really a function of the pricing and packaging and the way that the business has been marketed, and our view is that both Bright House and Time Warner pricing and packaging lend themselves to higher churn than the way Charter prices and packages. And so, until we get the business priced and packaged properly, we'll have churn rates in the legacy properties probably higher than Legacy Charter. At least that's our expectation. So, as a result of that, our strategy is to change the way those businesses market their services.

[Jonathan Chaplin:]

So, Tom, does that mean that you'd expect to see sort of the higher churn rates for the next sort of several quarters as you get more of the base onto Charter-style packages? And I guess as a sort of second follow-up, it seems like the adds were a little bit worse year-over-year, so the sort of the churn rates were maybe higher amongst that base this year than a year ago on those kinds – on the legacy Time Warner Cable packages, I'm wondering if you have any insights at this point into what could have driven that?

[Christopher L. Winfrey:]

Hey, Jonathan. This is Chris. What you're getting at is actually really complex because of all the different transactions that are involved, but I'll try to simplify it a little bit. There was a higher amount of churn at Legacy TWC in Q2. A lot of that was also coming from downgrades at the point where we had promotional pricing roll-off. That's a function of not having the highest quality product that you could offer in place at the best price you could offer and making it competitive in the marketplace and not having a consistent way of rolling the pricing up at promotion, which means essentially that the product doesn't stick.

[Jonathan Chaplin:]

Right.

[Christopher L. Winfrey:]

So, in terms of going forward, the more the base that you can get on pricing and packaging, the more sticky that base becomes not only in the face of competition but also in the context of step-up in price. But you're still exposed along the way to the Legacy base that hasn't migrated to new pricing and packaging as to what happens to them at roll-offs, what you allow them to roll off to, what retention offers you have in place, and how quickly you can either proactively or reactively migrate that base into the new pricing and packaging. It's fairly complex. No different than what was done at Legacy Charter in the 2012 to 2014 time period. So, we'll just manage through it the same way that we did then.

[Jonathan Chaplin:]

Thanks, Chris.

[Stefan Anninger:]

Operator, we'll take our next question please.

[Operator:]

Next question comes from Ben Swinburne from Morgan Stanley. Your line is open.

[Benjamin Daniel Swinburne:]

Thank you. Good morning. I have one for Tom and one for Chris. Tom, when you look at the new footprint, you've got a lot of broadband-only customers. I think something like 7 million plus. How are you thinking about marketing video to them maybe in a way that hasn't been done before either at scale or in the industry? Anything at this point that you're thinking about from a product offering or technology perspective to sort of get at that opportunity? And, Chris, if you go back to the expense growth in the quarter, I think you gave us pro forma growth for programming, cost of serve and G&A – and other of like 7.5%, 2% and 8.5%. But there's a lot, as you point out, a lot of moving pieces there. Is there a way to think about either clean versions of those three numbers or even directionally whether the sort of real underlying trend is higher or lower than these metrics you gave in the release? Just as we think about sort of the natural cost growth trend of the business through the rest of this year. Any color would be helpful if you had any.

[Thomas M. Rutledge:]

Well, Ben, I think the biggest opportunity continues to be selling against satellite. If you look those 7 million data only subs, a substantial portion of them are satellite customers.

[Benjamin Daniel Swinburne:]

Yeah.

[Thomas M. Rutledge:]

And that has to do with the analog nature of the video product that the cable companies sell. And by going all-digital and using your two-way interactive platform, you can build a better video product than your competitors, in my opinion, which is why I think Charter is growing its video business year-over-year. It's a slow process. The inertia is real in the marketplace. But it's – I think, Charter has turned the video business positively, and I think the same is possible in Time Warner and Bright House, but it requires the proper investment in a video product, which means you need a two-way product with an excellent user interface and all the functionality and features that you get from an Internet type like service with live, fully-featured content. So, I think there's still lots of upside selling traditional MVPD products, the cable service to customers who have broadband only. That said, there is an income issue with television. It's very expensive to buy the whole package. It's hard to sell smaller packages that resonate in the market and are sticky and satisfy consumers. And various marketing tactics have been tried to skinny down the product. The problem is skinny-ing it down to the right place with the right package and satisfying people who are financially challenged. And we'll continue to explore relationships with content companies to do that. But I also think that you can make a fully featured service more attractive and more worth what it does cost. And we can use that to drive into the marketplace.

[Benjamin Daniel Swinburne:]

Got it.

[Christopher L. Winfrey:]

On the expense side, Ben, I don't want to get into the mode of providing guidance, but based on what I've already said, I think you can deduce a few things going through the three categories that you listed. Programming, we only had half a quarter, in essence, of Charter being in a closed status. And in addition to that, you had a number of one-time bad guys at legacy Charter, some of which was contingent fees that are going to be paid on closing to programmers. So, by definition, that means that result improves. Going against that grain over time is that if you're putting a rich video product into the marketplace and you're selling more expanded as Tom was talking about, that's not rate-based growth of programming. That's volume-based that's accompanied by higher revenue and less churn. So, we look at the transaction piece of that as rate versus volume. The second piece that you highlighted was cost to serve, where the cost to serve is really benefiting from the significant operating synergies that exist at legacy Charter as a result of having a simpler product in the marketplace for customers knowing that when you step up rate that is a fair rate and not continuing to keep on calling in to do a deal, reduces your call volume, reduces your churn. And in-source labor being – in-source labor also being a key function as well. Then going the other way, so that's legacy Charter which is really helping the results. We're going to continue to in-source at TWC and Bright House. It's going to create some of the same pressures that we saw at Charter in the cost to serve line at the beginning, as we in-source a labor force that needs to be trained up and you have parallel outsourced resource in place while you're doing that. So, it's going to be dynamic as we go. For the other category, as I mentioned in the prepared remarks, this includes corporate, advertising, enterprise, and particularly from a corporate perspective, a lot of the head count reductions didn't really occur or begin to occur until June. And those will be continuing on for some time, so there should be some improvements in that line item on a go-forward basis.

[Benjamin Daniel Swinburne:]

That's very helpful.

[Christopher L. Winfrey:]

And look, our goal here is even if it costs us a little bit more by putting a richer product in place on programming or whether it costs us more up front to put in-sourcing in place for cost to serve and things like IT and whatnot, is to generate operating leverage at the back end by being able to scale it upfront and reduce transactions over time and make more of the revenue flow through to EBITDA.

[Benjamin Daniel Swinburne:]

Thanks a lot.

[Stefan Anninger:]

Operator, I think we have time for one last question please.

[Operator:]

Okay. Your next question comes from Phil Cusick from JPMorgan. Your line is open.

[Philip A. Cusick:]

Thanks. Chris, you stated before, you've given Charter CapEx guidance. Can you help us with CapEx expectations for the rest of the year? Should we look for some growth slowdown in the next couple of quarters before an acceleration in 2017?

[Christopher L. Winfrey:]

So, we're not going to be providing CapEx guidance. But I think the thing that is clear is that the – one of the big drivers for spend in the first half of the year on a pro forma basis, again managing – it wasn't us managing the combined CapEx, we're just reporting on it today on a pro forma basis. But there is, obviously, the significant amount of all-digital activity that was continuing at TWC. And that will be largely put on hold as we put in the Charter all-digital strategy the beginning of next year. The results of some what I believe is pull-forward of good capital, but significant pull-forward of capital around CMTS and routers and some of that type of activity that should slow down a little bit as well. But the danger in providing CapEx guidance or even expectations is, frankly, if we see the opportunity to go make an investment that's going to put the company in a position to grow faster, then we're going to do that inside of a particular quarter or inside of a particular last 12 months or fiscal year. And our view on the trends of CapEx is that capital intensity will go down significantly once we get through the all-digital program. But from a timing perspective, we see opportunities to grow faster by investing quicker, even though the total gross dollars invested may not be any different. We'll pull it forward as we need to and we don't want to be beholden to slowing down the growth trajectory of the company to meet what is in our view kind of an artificial target. So, no, we won't be providing an outlook for this year. But I think if you take a look at the way that we've managed capital in the past at Charter. It's meant to be efficient and to drive faster growth.

[Philip A. Cusick:]

And even at the current CapEx run rate, it seems like you're delevering very quickly and could head to that 4 turns leverage range right around the end of the year. Is that a fair way to look at it, and is there any reason you wouldn't be returning capital if you got to that point?

[Christopher L. Winfrey:]

So, now, you're backing me into guidance. So, look, the business is delevering at, call, it half a turn a year, that's what we expected even though CapEx was being spent at a more elevated level, and it included the duplicative portion of the CapEx, which is three different companies spending on IT and different types of product development and those kind of corporate expenditures as they spend at least two or if not three times over. So, that's another area that it should automatically get more efficient. But, yeah, I think, we're going to delever fast and it's a first-class problem to have is to where to deploy the capital which is why I've spent some time on it in the past couple of calls and make sure people understand the priority of how we'll opportunistically deploy our excess free cash flow over time.

[Philip A. Cusick:]

Thanks very much, Chris.

[Stefan Anninger:]

Operator, that ends our call. Thank you.

[Christopher L. Winfrey:]

Thanks, everyone.

[Thomas M. Rutledge:]

Thank you, all.

[Operator:]

Thank you, everyone. This concludes today's conference call. You may now disconnect.