Core-Mark Holding Company, Inc.
Q3 2018 Earnings Call Transcript

Published: 11 Nov 2018

[Operator:]

Welcome to the Core-Mark 2018 Third Quarter Investor Call. My name is Hilda, and I will be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Ms. Milton Draper. Ms. Draper, you may begin.

[Milton Gray Draper:]

Thank you, operator. I'd like to welcome everyone to Core-Mark's Third Quarter 2018 Investor Call. Joining me today are Scott McPherson, our President and Chief Executive Officer; and Chris Miller, our Chief Financial Officer. Also in the room is Matt Tachouet, our Chief Accounting Officer. Core-Mark issued its earnings press release earlier this morning. You can find a copy of it on our website under the Investor Relations tab. Today's discussion will include both GAAP and non-GAAP financial measures. A reconciliation to GAAP of these non-GAAP financial measures is included in the earnings press release. We will also be discussing forward-looking statements. These forward-looking statements are subject to risks and uncertainties. Actual results may differ materially from management's current expectations. We refer you to the documents we periodically file with the SEC, specifically our 10-K and 10-Qs for a discussion of risks that may affect our future results. I will now turn the call over to Scott McPherson.

[Scott McPherson:]

Good morning, everyone, and thanks for joining us. Chris is here with me. And after a review of our quarter, we'll open it up for questions. We delivered another solid performance in Q3 highlighted by improving profitability. We saw margin expansion and strong earnings growth as we continue to improve upon execution and focus on quality of earnings and driving cost out of the business, which has been a priority for us this year. The most significant challenge in the quarter was sales, which were down slightly a little under 1%. I'll provide more color on that shortly. For the quarter, EBITDA was up 23% over prior year, coming in at $59 million, helped by continued improvement in cost leverage and margin performance. Earnings per share of $0.63 were up 70%-plus year-over-year. Our earnings results included a $5 million net benefit from a one-time tax gain, partially offset by one-time expenses. Chris will have the details there, but even with the significant one-time aid to earnings, we still performed well in the soft industry environment. Based on third quarter results, we will be adjusting upward our expected guidance range for the diluted EPS, EBITDA and free cash flow. Achieving these targets in 2018, will represent a return towards the type of performance our shareholders have come to expect. As we move in that direction, we remain focused on three primary strategic objectives

[Christopher Miller:]

Thank you, Scott, and hello, everyone. To kick things off, I will review our profitability metrics and the key drivers behind our strong financial results. I'll then provide an update on our guidance for the year. Net income for the quarter grew 73% to $23.7 million or $0.51 per share compared to $13.7 million or $0.29 per share in last year's third quarter. There are a few items impacting the comparability of earnings for the quarter worth calling out. The first item is a $7.4 million or $0.12 per share one-time cigarette stamp inventory holding gain that is offset by several smaller items totaling approximately $0.04 per share. Secondly, LIFO expense was $0.12 per share for the quarter this year versus $0.08 last year. And lastly, the impact of the reduced federal income tax rate provided a benefit of approximately $0.11 per share in the quarter this year. For more details on these items, you can refer to the table on our press release. Looking at earnings adjusted for the aforementioned items, EPS totaled $0.44, a healthy 19% improvement over last year's third quarter. Adjusted EBITDA was also strong increasing 23% to $59 million, driven by sales growth in our non-cigarette category, improved operational performance and the net impact of the onetime items I just mentioned. As Scott mentioned, our sales were down 0.9% for the quarter and totaled $4.3 billion. The loss of the Kum & Go business in April this year impacted sales in the quarter by about 2% overall. Cigarette sales were down 2.8%, driven by a 4.1% decline in same-store carton sales for the quarter, a greater decline than the 2.5% we saw in Q2. Non-cigarette sales increased 3.4% or 7.7% adjusted for Kum & Go for the quarter. Same store non-cigarette sales grew 8% in the quarter, an increase of over last year's 6.8% growth. In looking at our key categories on a same store basis, fresh sales were up 6.4% with food and OTP increasing at 3.6% and 6.3%, respectively. Sales of alternative nicotine products increased over 50% and continue to drive the strong performance in the Health, Beauty & General category, which was up about 38% in the quarter. Gross profit increased $11.6 million or 5.2% to $233.8 million, driven by the increase in non-cigarette sales and the onetime tax stamp inventory holding gain. In addition, similar to 2017, cigarette manufacturers raised the prices in September and we earned $5.9 million in inventory holding gains this year compared with $6.6 million last year. We'll carry over about $3 million of holding gains into Q4 from the September price increase this year. Remaining gross profit, which excludes inventory holding gains, LIFO expense and OTP tax refunds increased 2.8% to $227.7 million from $221.6 million last year. Remaining gross profit margin expanded 19 basis points to 5.33%, primarily due to the sales mix shift to higher-margin non-cigarette products. Cigarette remaining gross profit was flat to $57.9 million, while non-cigarette remaining gross profit was $169.8 million, a $6.1 million increase over last year's third quarter. Non-cigarette remaining gross profit margin was flat compared to last year, driven primarily by the mix of non-cigarette products sold. Total operating expenses increased $2.1 million or 1.1% to $198.9 million for the quarter as we achieved good improvement in warehouse productivity and held SG&A expenses fairly steady. Operating expenses came in at 87.4% of remaining gross profit in the quarter compared with 88.8% last year and also improved from 90% in Q2 this year. Total warehouse and delivery costs were $137.6 million, essentially flat with last year's third quarter. As a percentage of remaining gross profit, warehouse and delivery expenses were 60% of remaining gross profit this year, down from 62% in last year's third quarter. Transportation costs were up approximately $1.8 million, primarily due to challenges in driver staffing and turnover. As Scott mentioned, we are aggressively pursuing drivers internally and externally, where transportation will continue to be a challenge in the near-term. SG&A expenses increased 3.2% in the quarter as a result of the previously mentioned legal costs that would have otherwise been flat despite higher employee bonus accruals and stock compensation costs. Excluding the legal costs in the quarter, SG&A expenses as a percent of remaining gross profit improved approximately 50 basis points compared with last year's third quarter. Overall, we feel good about how the company is executing on keeping operating costs in check. This will benefit us as we execute on our sales growth objectives. Free cash flow was $175.6 million for the first nine months of the year, an increase of approximately $114 million compared with last year. The balance of our credit facility at the end of the third quarter was reduced to $350 million, despite carrying significant investments in inventory at the end of the quarter in anticipation of manufacturer price increases. We've since sold through the additional inventory and reduced our debt level to $225 million at the end of October. We are on track to finish the year with our debt leverage being in the range of 2 to 2.5 times adjusted EBITDA, which is consistent with the expectation we previously communicated. Capital spending was about $15 million, and we repurchased 502,000 shares through September at an average price of about $25. We repurchased an additional 87,000 shares in October, leaving approximately $22 million remaining in the authorization plan as of today. As called out in our press release, we updated our 2018 outlook to reflect our third quarter results. We raised the low-end of adjusted EBITDA to $162 million from $157 million, while maintaining the high end of the range at $167 million, representing growth of over 21% at the midpoint compared with last year. Diluted earnings per share expected to be between $0.88 and $0.96, and $1.31 and $1.40, excluding LIFO expense, representing increases of 28% and 36% at the respective mid points. We've lowered our top line expectations to be between $16.2 billion to $16.4 billion, a reduction of $400 million or about 2%. The new guidance represents a 3.8% increase at the midpoint over last year's $15.7 billion of net sales. Free cash flow is expected to be approximately $80 million to $90 million, driven by the expected strong earnings growth and focus on reducing our working capital requirements. At these levels, we'll be in a good position to provide capital allocation flexibility as we balance investments in our business to grow market share, potential M&A and return of capital to shareholders through stock repurchases and cash dividends. In summary, through the first nine months of the year, we've accomplished a lot in our work to reposition Core-Mark for profitable growth. Our margin expansion and strong EBITDA performance in the third quarter reflect our progress in shifting our mix toward higher-margin products, and improving our operating efficiency and productivity. As we close 2018, we expect to continue to drive cost out of our operations, improve operating leverage and focus on growing sales. We look forward to finishing the year on high note and entering 2019 well positioned to deliver solid growth and drive shareholder value. Now, I'll return the call to the operator for questions.

[Operator:]

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Christopher Mandeville from Jefferies. Please go ahead.

[Christopher Mandeville:]

Hey, good morning, guys. Chris, just beginning with the updated guidance here, I want to make sure that I'm thinking about this correctly, since it seems like the market may be interpreting kind of how I'm looking at things a little bit, given the share response. If we take the net of the tax stamp gain with the one-time cost, well, I think it was $5 million in EBITDA, does that not assume that actually Q4 expectations need to come down relative to consensus? And if that's the case, is there anything else to read into that other than just simple cadence?

[Christopher Miller:]

Yeah, Chris, no, I don't necessarily think that's the case. But I think, we are assuming that cigarette cartons are going to be down 4% to 5% in the fourth quarter. So I'm not totally sure what's built into the consensus guidance out there. But, so - no, that doesn't necessarily mean that that's the case.

[Christopher Mandeville:]

Okay. And then, you brought up with the tobacco case comps that you are expecting for Q4. Any color on quarter-to-date trends on the non-cigarette side, since it was really impressive in Q3? And then, when it comes to sales growth expectations for 2019, I realize you're not providing official guidance quite yet. But I guess, it currently sounds like you're not necessarily picking up new accounts to the degree that you had been hoping or while you're shedding some less favorable accounts. So I'm just trying to get a sense of when you think you can maybe begin to add new accounts and then ultimately get back to that, call it, 2% growth rate for your 6% sales algorithm that you typically speak to?

[Scott McPherson:]

Yeah, Chris, I'd say a couple of things. One is we clearly were focused on the quality of revenues, quality of earnings, and we shedded a significant number of accounts over the last three to four months. That said, we still had a net gain for the year-to-date. And I think we'll see continued momentum into next year as we look at the independent market share. The other thing that we saw that was pretty flat this year, and as you know, with the timing of different bids that come out, it's kind of cyclical as we didn't see a lot of activity in the small to midsized chain opportunities in 2018. I'd say the pipeline there is pretty active. And I would say that we'll see some positive - I expect to see some positive results there in 2019 in that small to midsize chain bracket.

[Christopher Mandeville:]

And the quarter-to-date comp, would you be able to provide any color on non-cigarette?

[Scott McPherson:]

You mean fourth quarter to date?

[Christopher Mandeville:]

Correct.

[Scott McPherson:]

No.

[Christopher Mandeville:]

Okay. Then my next question would be, I suppose, there is a general consensus that believes vaping is actually incremental and not purely cannibalistic to nicotine consumption. So, I guess, first off, I'm curious, if you'd agree with that statement. And then, given the potential for some regulatory change in the coming year, can you provide kind of your view on how things may unfold? Ultimately, how that may impact the Health and Beauty category, and to what degree that offering is actually contributing to that category today?

[Scott McPherson:]

Yeah, I mean, obviously, the nicotine space has been dynamic this year. It's been a significant contributor to our Health and Beauty category, clearly. When I look at the landscape, Chris, I think, about the FDA. And when they took oversight over cigarettes, the first thing they did is restrict flavors, restrict advertising, and really enforce the age enforcement piece of it. They did the same thing with cigars. They restricted flavors and advertising, and did the same thing with age restriction. And I think nicotine, I mean, the vape category kind of got out of over its skis so to speak. There wasn't a lot of enforcement. It launched with a whole lot of flavors. And I think some of that appealed to the younger demographic, could have been caused by that. But I think it's clearly a safer alternative to combustible cigarettes. And I think the FDA will likely follow the same pattern or I think they should follow the same pattern, and that is to restrict flavors and to push it into the C-store channel, which has really been the chosen channel for carting, and with alcohol and tobacco to use that channel as governance on age restriction, and get it out of the Internet channel and some of the other channels that you see it's sold in. So I think that's where it's headed. Clearly, the FDA has taken aggressive action to kind of rein in that channel. So I think in the short run, I think, we'll see some regulation and some bounce in the long run. I see it will - I think it will conform much like cigarettes and cigars did.

[Christopher Mandeville:]

So, Scott, maybe a follow-up, if they were to move in the direction, that category has been a nice contributor to penny profit in recent quarters. How quickly could you adjust your business model to account for a potential loss of those sales?

[Scott McPherson:]

Well, I don't anticipate a loss of those sales necessarily. And I think you're going to see definitely - because this has been a very quickly emerging and growing category. I think you may see a slowing in growth. And I think as you see an elimination of flavors, you may see - I don't think you'll see a constricting of the category, but I think you'll see a slowdown in growth.

[Christopher Mandeville:]

Okay, and just a quick modeling one for Chris. G&A was down roughly 2% year-on-year. How should we think about the runway on a go-forward basis?

[Christopher Miller:]

For depreciation and amortization?

[Christopher Mandeville:]

Right.

[Scott McPherson:]

It would be similar to go-forward.

[Christopher Miller:]

Yeah, it'd be similar to go-forward. I think it'd be comparable to this quarter.

[Christopher Mandeville:]

Okay. Thanks, guys.

[Operator:]

The next question comes from Andrew Wolf from Loop Capital Markets.

[Andrew Wolf:]

Hi. I joined the call a bit late, so just maybe asking you to repeat. But on the guide down on sales, is that tied into - you're looking for 4% to 5% lower carton, cigarette carton growth in the quarter, fourth quarter, in this quarter maybe being lower? Or is it broader based than that? Could you elaborate on that?

[Scott McPherson:]

Yeah, I think, Andrew, it was - that's clearly a big part of it. Beyond that, we had called out in my prepared remarks a couple of things. One of them is we had - over the last three to four months, we've had about 800 Rite Aid store transitions, which affected that. Also, we've been very aggressive in pruning underperforming accounts as we're focused on really quality of revenues, quality of earnings. So that was another headwind as far as sales go. And that along with the cigarettes, were really the primary drivers.

[Andrew Wolf:]

Could you kind of quantify, maybe as a percentage of growth or something like that, either how much the Rite Aid stores or the pruning added up to or as a separately or together, just so that I have an understanding of how much…

[Scott McPherson:]

Well, you know what the - yeah, you know what the carton decline, Chris, just talked about that. We've pruned over 1,000 stores over the last, call it, three to four months. And I'm not going to give you a specific number on Rite Aid. We don't call out specific numbers on customers.

[Andrew Wolf:]

Okay. But - so we're close to 2,000 stores, and we can figure out the weightings ourselves or estimate them. That's helpful. Did a $0.04 of assorted offsets to the stamp tax again, I guess, you called out, was the legal cost in that or is that other items?

[Christopher Miller:]

That's included in that.

[Andrew Wolf:]

Okay. What was the exact pre-tax amount? I don't know what tax rate you used in that $0.04.

[Christopher Miller:]

The pre-tax amount for the legal?

[Andrew Wolf:]

Well, the whole $0.04 that you referenced of various sort of one-time costs.

[Christopher Miller:]

A little over $2 million.

[Andrew Wolf:]

Okay, got it. And last question, if I could, I know you only want one. But on the regional chain, so you're talking to - I assume they are well within your sort of risk parameters versus some of the bigger deals you've done? Or like how you're thinking about risks so that investors can be comfortable that if you win a bunch of these, things will go smoothly?

[Scott McPherson:]

Yeah, I think about regional chains as 50 to 200 stores. And clearly - and that go across multiple divisions. And we clearly have the capacity and wherewithal to handle those kinds of tuck-in chains. Definitely, we're not talking about some of the much bigger deals that we've absorbed in the past.

[Andrew Wolf:]

Okay. Thank you. Take care.

[Scott McPherson:]

Thanks, Andrew.

[Operator:]

We have a question from Ben Bienvenu from Stephens Incorporated.

[Ben Bienvenu:]

Good afternoon, guys. Thanks for taking my questions. I wanted to ask about the remaining gross profit that's implied for 4Q in the guidance, I think, at the midpoint of the guidance with the revenue and the EPS. We don't have assumed expense exemption, but it suggests that remaining gross profit would be more flattish, maybe slightly down in 4Q is our quick math versus up, sort of, 20 basis points year-over-year as a percentage of sales in 3Q. The comparison gets substantially harder year-over-year from 3Q to 4Q, but I just wanted to get a sense as to whether that's a function of mix within the food, non-food category maybe vaping driving down profitability margins, whether it's a function of mix of cigarettes versus non-cigarette business or something else otherwise that we didn't contemplate, that might be impacting that remaining gross profit margin?

[Scott McPherson:]

Yeah, Ben, I think, you touched on a number of them. Vape has a little bit of pressure on it. But really what's pressured the non-food margin overall is the growth of OTP, which tends to have high revenue and a little lower margin within our non-food category.

[Ben Bienvenu:]

Okay, great. And then if I think forward to next year, if you think it's reasonable that you could get back to delivering remaining gross profit margin expansion over the longer-term for the earnings algorithm?

[Scott McPherson:]

Yeah, we clearly - I think, the way we think about the business is, yes, clearly I think we can get back to growing that 10 to 20 bps. But that said, it also depends heavily on the dynamics within the non-food category. If we see tremendous growth in OTP or in e-cigs, then it's going to be - you'll see great growth in margin dollars, but maybe not in the percentage.

[Ben Bienvenu:]

Fair enough. And then on the culling of less profitable accounts, when did you start that process? And then, how long would you imagine that, that persists such that, that noise comes out of the numbers?

[Scott McPherson:]

Yeah. I mean I think we did a big chunk of it. And when it really started, Ben, is when I looked at the business coming into Q3 and saw the pressure that we had on our distribution assets, we've kind of made the decision that we're going to take a hard look at our customer portfolio and prune anything that we didn't feel was our customer that we wanted going forward to kind of lighten the burden on our transportation group. And I think that was the right move. And I think the results show that. That said, it's something that we'll do every year, but I think, clearly, it will be diminishing - the impact will be diminishing in future years as we improve the quality of the customer base.

[Ben Bienvenu:]

Okay, great. And then just one quick one from me. Really nice control, particularly during peak season on the expense side of the business. And what is the reasonable expectation? I think, Chris, you called out the noise in SG&A on the legal expenses, but what is the reasonable growth rate for SG&A on a go-forward basis?

[Christopher Miller:]

I mean, I'd say on a comparable basis, barring any onetime items, its 2% to 3%.

[Ben Bienvenu:]

Okay, great. Thanks. That's all.

[Scott McPherson:]

Thanks, Ben.

[Operator:]

The next question comes from Kelly Bania from BMO Capital.

[Kelly Bania:]

Hi, good morning. Thanks for taking my questions. I guess, just a question on the pruning of accounts. Was that in your guidance? It seems like one of the reasons that you called out for lowering the sales guidance. Just curious what your expectation was in that early in the year? And what the processes for those contracts that you just chose not to renew? Maybe just help us understand how that process works with those customers?

[Scott McPherson:]

Yeah, so Kelly, most of our larger, I'd call, chains, mid- to large- to extra-large chains are all under contract. A lot of our independent customer base, we have a pricing agreement, but beyond that, it's an at-will relationship. And so we did a - as we - like I told Ben, as we looked at what we had facing us for the summer, we want to make sure that what we were filling our trucks up with was profitable business. And so we did a deep dive on our customer base and identified customers that we clearly weren't profitable and went to those customers with options to change pricing or to buy more categories from us or the last option, but definitely an option that a number of them were forced to take is to find another supplier. And I think - so, no, that wasn't considered when we looked at guidance for the year, this year. It was a midcourse correction this year, when I came in and looked at what we were facing for the summer, and said, I think, we need to improve the quality of our customer portfolio.

[Kelly Bania:]

Okay. And then, I guess, circling back on the last question, I mean, how much more of that could we see next year if this transportation kind of headwinds continue?

[Scott McPherson:]

Yes, like I said - like I told Ben, it don't - it will diminish, it should diminish every year, because we did a lot of that pruning this year. We're always going to review that customer portfolio, and say, there are definitely accounts that we either discontinue buying as much as they used to or their business is down considerably, where we need to make changes in that relationship. And so I would say going forward, it would be - it would have a lesser impact on future years for sure.

[Kelly Bania:]

Got it. And I guess, going back to the same store cartons, I heard you say down 4% to 5% in the fourth quarter and missed this quarter, but maybe you can just talk what that was relative to your expectations? And what you're seeing in terms of elasticity compared to what you normally see given the recent price hike?

[Scott McPherson:]

Yes, I would say - I think, when we talked about guidance this year, we said 3% to 4%. We saw Q4 at a little above 4%. And we saw the first month of this quarter to be a little more than that. And that's, I think, probably some impact of the price increase, but not significantly more than that. We didn't see a massive jump in the first month of the quarter.

[Kelly Bania:]

So Q3 was a little above 4% and sounds like October, a little bit worse?

[Scott McPherson:]

Yes.

[Kelly Bania:]

Is that right? Okay. And I guess, as we're thinking about 2019, I mean, is there anything that you're seeing in your business that kind of changes the algorithm? Or do you see you getting - yourselves getting back to kind of the normal algorithm? I guess, right now, it doesn't seem like there's much M&A impacting 2019. So maybe just - what the normal algorithm would be? And also, how you are feeling about M&A going forward?

[Scott McPherson:]

Sure. So I think we talked a number of times about our capital allocation and it was largely focused on paying down debt to kind of reposition ourselves to be back in the acquisition game. I'd say that we've done a really nice job of doing that and paying down debt and putting ourselves back into a 2% to 2.5% leverage position. And I think that in 2019 would definitely allow us to make a small- to- mid-size acquisition comfortably. And If the right one comes along - I've never stopped my, I guess, pursuit or kind of closed the pipeline down. I've continued to look at opportunities. And we'll continue to focus on paying down debt in 2019 and positioning us to make bigger acquisitions as we go forward. So I think, the pipeline will continue to be active. And our historical was kind of one to two - one acquisition a year or every other year. I think, we made what eight acquisitions over 12 years or something like that. So I think that's a reasonable expectation and there's definitely a runway in acquisitions in this industry.

[Kelly Bania:]

And any comment as we think about 2019 about your existing customers and RFP cycle and what could be coming up for rebidding and how you feel about that process in 2019?

[Scott McPherson:]

Yeah, we have one customer that was up at the end of 2018, and we're feeling pretty good about that situation right now and hopefully we'll be able to announce where that stands shortly. Like I mentioned earlier, there's a number of which was pretty slow this year, but next year we see a number of, what I'd call small- to- mid-size chain bids right now that we're working on that could have some impact on 2019. But as far as existing customers, we don't have really anything significant in 2019 except for - right at the end of 2019, I think we have a couple to come up in January of 2020.

[Kelly Bania:]

Thank you.

[Scott McPherson:]

Thanks, Kelly.

[Operator:]

The next question comes from Chris McGinnis from Sidoti & Company.

[Christopher McGinnis:]

Yeah, good morning. Thanks for taking my questions. Can we just start maybe on the organic maybe Fresh and Food. Can you just maybe comment on that just maybe backing out the impact of the Kum & Go?

[Scott McPherson:]

Yeah, so we called out the biggest impact Kum & Go clearly was the strong food customer for the Iowa division so that definitely had an impact on our Food and Fresh growth. We still grew fresh year-over-year, but food was down slightly. And really overall, if you look at our non-food, I think, we were up 3%, 4%, and if you were to add that Kum & Go, we'll be in the 7.5% range. So they definitely had an impact on our non-food sales growth.

[Christopher McGinnis:]

Okay. I appreciate that. And then - sorry.

[Scott McPherson:]

Go ahead, go ahead.

[Christopher McGinnis:]

No. I was going to ask just on Q4 for the SG&A was pretty high last year and it should not be an easier comp for the quarter or other costs that should come back, I guess, as we head into the year-end?

[Christopher Miller:]

Yeah. So I would say that it should be less than last year. There are some end of year things that we have to look at like medical and workers' comp and things like that. But I'd say, as I said earlier, I think, there were 2% to 3% growth barring any significant one-time items, but I don't think there will be significant as last year.

[Christopher McGinnis:]

Okay. And then just looking out to 2019, I know it's a little early, but just with the one-time benefits in the quarter itself and it sounds like your maybe carryover a little bit in Q4. I think just how does that position you for growing in 2019 at least for the bottom line, if you could just comment maybe a little bit on that?

[Scott McPherson:]

Yeah. No, I think, it is a little early. We haven't started constructing our plan for 2019 yet. We did have some tailwinds that we called out, but we always have some headwinds too. So I still feel pretty optimistic about 2019 and our ability to grow EBITDA at a strong rate.

[Christopher McGinnis:]

[indiscernible].

[Scott McPherson:]

What was that, Chris, we didn't hear that last part.

[Christopher McGinnis:]

I said, thank you for taking my questions and good luck in Q4. Thanks.

[Scott McPherson:]

Thank you.

[Christopher Miller:]

Thank you.

[Operator:]

[Operator Instructions] At this moment, we show no other questions in queue. I would like to turn the call back to Ms. Draper for other remarks.

[Milton Gray Draper:]

Thank you all for your participation. And if you have any follow-up questions, don't hesitate to call. Thank you.

[Operator:]

Thank you. Ladies and gentlemen, this concludes today's conference. We thank you for participating. You may now disconnect.