Group 1 Automotive Inc Q2 FY2022 Earnings Call

Good morning, ladies and gentlemen, and welcome to Group 1 Automotive's 2022 Second Quarter Financial Results Conference Call. Please be advised that this call is being recorded. I would now like to turn the floor over to Mr. Peter DeLongchamps, Group 1's Senior Vice President of Manufacturer Relations, Financial Services and Public Affairs. Please go ahead, Mr. DeLongchamps.

Thank you, Jamie. And good morning, everyone, and welcome to today's call. The earnings release we issued this morning and a related slide presentation that includes reconciliations related to the adjusted results we'll refer to on this call for comparison purposes have been posted to Group 1's website. Before we begin, I'd like to make some brief remarks about forward-looking statements and the use of non-GAAP financial measures. Except for historical information mentioned during the call, statements made by management of Group 1 are forward-looking statements that are pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve both known and unknown risks and uncertainties which may cause the company's actual results in future periods to differ materially from forecasted results. Those risks include, but are not limited to, risks associated with pricing, volume, inventory supply due to increased customer demand and reduced manufacturing production levels due to component shortages, conditions of the market and adverse developments in the global economy as well as the public health crisis related to COVID-19. Those and other risks are described in the company's filings with the Securities and Exchange Commission. In addition, certain non-GAAP financial measures as defined under SEC rules may be discussed on this call. As required by applicable SEC rules, the company provides reconciliations of any such non-GAAP financial measures to the most directly comparable GAAP measures on its website. Participating today on the call are Earl Hesterberg, our President and Chief Executive Officer; Daryl Kenningham, President of U.S. Operations; and Daniel McHenry, Senior Vice President and Chief Financial Officer. I'd like to now hand the call over to Earl.

Thank you, Pete, and good morning, everyone. I'm pleased to report that for the quarter, Group 1 generated record adjusted net income of $198 million from continuing operations. This equates to adjusted earnings per share of $12 per diluted share, an increase of 18% over the prior year. Our adjusted results exclude noncore items totaling approximately $2 million of after-tax gains, which primarily resulted from the sale of two franchises in the quarter. These record-setting results were largely due to continued strong new vehicle margins that were able to more than offset weak supply, continued double-digit same-store growth in our aftersales business, impressive cost control, and significant contributions from our recent acquisitions. Consumer demand for vehicles remains strong exiting the second quarter, and we continue to sell most units almost immediately after OEM delivery. This dynamic should continue throughout the year. As with the U.S., consumer demand for vehicles in the U.K. continues to remain strong and new vehicle availability is still constrained. Our new vehicle order bank of 17,000 units represents more than a six-month backlog based on first-half unit sales. We continue to believe the pent-up demand built over the past several years due to both Brexit and the very strict pandemic lockdowns will help drive strong U.K. vehicle demand well into 2023. We're also seeing continued strength in the state of Texas. The market collectively outperformed our total U.S. same-store growth in new vehicle sales, used vehicle sales, aftersales, and net profitability. Texas demographic trends continue to be a positive tailwind for the company due to population growth, reasonable cost of living, low taxes, and a friendly business environment. We believe this is both a near-term and longer-term advantage for our company. To provide some color on our U.S. second-quarter performance, I'll now turn the call over to Daryl Kenningham.

Thank you, Earl. We're pleased with our overall performance in the U.S. business. Our aftersales and F&I were outstanding once again, both generating incremental standout performance. As of June 30, we have 3,600 U.S. new vehicle inventory units in stock representing an 11-day supply which was roughly flat from December of '21. Our pipeline customer orders have stayed consistently strong with no discernible change in presales or inventory aging. Despite significantly fewer trade-ins due to a 26% decline in new car sales in the quarter, our same-store used retail sales declined only 4%. Our organic sourcing efforts, including 9,200 units acquired from individuals through AcceleRide, led to stronger-than-expected used vehicle inventory of a 32-day supply. As a franchise dealer, we have a distinct advantage over used-only operators due to the numerous channel resources available only to us, including our service drives, lease returns, and OEM front options. As I mentioned, our aftersales performance delivered once again. Through our technician recruiting and retention efforts, we increased our same-store technician headcount by 12% versus the second quarter of 2021. Following a very strong '21, our customer pay business generated 20% same-store revenue growth compared to a year ago. Collision revenues increased 18%; also, part revenues were up 16%. This allowed us to grow overall same-store aftersales revenue by 15% versus the second quarter of 2021 despite continued declines in warranty work. We foresee our aftersales business continuing to be a strength over the course of the rest of 2022. Our F&I business was up $388 per unit in the quarter, and we're seeing improved product trend penetrations nearly across the board. The final major factor driving our outstanding profit performance was continued cost discipline. Second quarter SG&A as a percentage of gross profit was 59%, a sequential reduction from 60% in the first quarter and down from 70% in the pre-pandemic second quarter of 2019. Lastly, I'm happy to say that our customers continued to vote yes on Acceleride. We sold an all-time record 6,900 vehicles through Acceleride in the second quarter, 10% of our U.S. vehicle sales, an all-time record. We offer delivery in every U.S. dealership and over 70% of our customers who choose this convenience option are local, which gives us the opportunity to maintain them as a customer by providing future service through our outstanding aftersales operations. As we continue to make enhancements to Acceleride, during the quarter, we started to more fully integrate our websites into Acceleride and we've also begun to integrate Acceleride with our desking and CRM software as well as our credit software. This will provide faster and more transparent transactions for our customers. I'll now turn the call over to our CFO, Daniel McHenry, to provide our balance sheet and liquidity overview. Daniel?

Thank you, Daryl. And good morning, everyone. As of June 30, we had $26 million of cash on hand and another $83 million invested in our floor plan offset accounts, bringing total cash liquidity to $109 million. We also had $236 million available to borrow on our acquisition line, bringing immediate available liquidity to $345 million. These amounts did not include the cash received from the sale of our Brazil operation, which finalized on July 1. Through the first half of 2022, we generated $457 million of adjusted operating cash flow and $402 million of free cash flow after backing out $55 million of capital expenditure. This capital was deployed through a combination of acquisitions, share repurchases, and dividends. As previously announced, over the first half of the year, we spent $254 million repurchasing over 1.4 million shares at an average price of $176.74. This represented over 8% of our beginning of the year share count. Our rent-adjusted leverage ratio, as defined by our U.S. syndicated credit facility, was 1.8x at the end of June. This strong leverage position will continue to allow for meaningful capital deployment in 2022 if appropriate opportunities exist. Finally, related to interest expense. Our quarterly floor plan interest of $5.9 million was a decrease of $2.7 million, or 32% from the prior year due to lower vessel inventory holding. Non-floor plan interest expense increased by $4.9 million, or 36% from the prior year, primarily due to the debt rates in conjunction with the Prime acquisition. As a reminder, the majority of our debt has been fixed through interest rate swaps. As of June 30, 76% of our $2.8 million in floor plan and other debt was fixed. Therefore, the annual impact to EPS is only $0.32 for every 100 basis point increase in the overnight funding rate, our super, which is a benchmark rate referred to in our floor plan and mortgage debt interest instrument. For additional detail regarding our financial condition, please refer to the schedules of additional information attached to the news release as well as the Investor Presentation posted on our website. I will now turn the call back over to Earl.

Thanks, Daniel. In 2022, we've continued our focus on high-quality external growth actions with the purchase of five U.S. dealerships that are expected to generate $660 million of annual revenues. These dealerships had our existing scale in Austin, Albuquerque, and Shreveport markets. Growing our U.S. and U.K. businesses remains our top capital allocation priority and we expect to find additional external growth opportunities in 2022. However, our balance sheet cash flow generation and leverage position will continue to support a flexible capital allocation approach which will likely include serious consideration of further share repurchases in addition to pursuing external growth. Since November 2021, we have repurchased 2.4 million shares representing over 13% of our outstanding share count. This concludes our prepared remarks. I'll now turn the call over to the operator to begin the question and answer session.

Our first question today comes from John Murphy from Bank of America. Please proceed with your question.

Hi, good morning guys. The thing that probably stood out the most was the surge in parts and service, that means a lot of good things that stood out the back seems that you're routed to what we're looking for, and I'm just curious what's driving there. I know you're up 12% in tax but then you're even saying in wholesale parts were up mid-teen. So it seems like it's a real resurgence there. Is there anything other than hiring the 12% tax is going on and how sustainable do you think these levels are?

Hi John, this is Daryl. Yes, the recovery in parts speaks to the collision business in general, this recovery. And we service a lot of outside collision centers obviously as well as our own collision business. So there is an industry collision recovery that's happening and that's driving some of the wholesale parts increase. On the customer pay service, what we focus on is how can we drive capacity in our shops. Whether it's our hours of operation or four-day work week, which you're familiar with, our technician hiring, and then the availability of appointments to our customers we think is very important to have as many appointments available as possible. That's different than some in the industry will do. They will limit appointments. We tend not to do that, we'd rather be available and then that puts a little more pressure on us to keep our capacity high and our staffing high and our hours of operation at a point that is convenient for customers. So, I would say that's probably the largest difference. As well as the car park is continuing to age and so there's more work to be done on some of these cars. So, that's happening as well.

Okay. And then, maybe if I can call this a follow-up on F&I PVR, obviously continues to surprise to the upside, a lot of skeptics out there. Could you kind of just remind us what the compositions are of the F&I PVR and maybe just give us an idea of sort of the best-in-class F&I PVR versus the average so people can understand where could potentially go to not on the average but just on the high side.

Sure, John. This is Peter DeLongchamps. You know, we're clearly pleased with the results. If you break it down, we're at 70% finance penetration, our service contracts are just slightly less than 50%. And when you take a look at the overall products, we'll just continue to see increases there. We're also seeing strong partnerships with our banks. There's a lot of discussion about delinquencies and we've seen some of the delinquencies kind of return to pre-COVID levels, but when you look at charge-offs and what's happening in the marketplace, there's still a healthy appetite for lending. So, the F&I team has performed at a very high level and we continue to think that there are some opportunities ahead for us.

And our next question comes from Rajat Gupta from JPMorgan. Please go ahead with your question.

Great, thanks for taking the questions. I just had one and a follow-up. On your productivity metrics, particularly the U.S. SG&A to gross, it was down sequentially despite flattish GPU units still pressured. Could you help unpack the drivers of the sequential improvement, is it just parts and services drop-through, the continued in-store productivity improvements or perhaps from AcceleRide or other factors? And maybe if you could give us an updated normalized view on SG&A to gross once grosses do go back to pre-pandemic levels. Thanks.

Rajat, this is Daryl. I'll address part of your question, and my teammate might add to it. Yes, AcceleRide is enhancing productivity regarding sales per salesperson, sales per sales manager, and sales per F&I manager. Even with limited inventory, we are still witnessing increased productivity. I believe this will get better as inventory becomes more available. In aftersales, our technicians are showing improved productivity, which is generally linked to better performance from our advisors as well. Daniel may have additional insights.

In answer to the second part of your question, what we've essentially said is that if we return to 2019 levels of profitability in terms of new and new cycle, that our expectation would be that SG&A would not return to above 70% as a percent of gross.

Got it. And that view has not changed despite some of the AcceleRide's improvement, the integration with the CRM, credit apps, etc. Is that kind of baked into that number or would?

I think what we've discussed is that as those things get implemented, we would expect to see a further reduction in SG&A.

We're just launching our first set of stores as you know, Rajat, on the testing on that.

Our next question comes from Daniel Imbro from Stephens Incorporated. Please go ahead with your question.

Good morning everyone. Congratulations on the results and thank you for taking our questions. Earl, I’d like to ask about the Value Line offering. Are you observing any external growth there given the pressures on consumers? We've heard discussions from others about a potential shift towards lower-priced options. Historically, you mentioned that this segment has been beneficial for your previous vehicle. Are you looking to expand into other vehicles, or has there been any change in strategy within that segment?

Well, I'll start out with that. This is Earl, but I'll let Daryl chime in because he's more into the detail. But yes, as you would expect, in this type of economically challenged environment, particularly for the middle class and the volume brand in used car customers, we're seeing demand shift to lower price points. With the advantage of our flexible business model, we try to pull on that lever and push the average price of our used vehicle inventory down, and that applies to both the U.S. and the U.K. So, that's one of the countermeasures that we just normally take in these times. The problem with these Value Line cars is they're very difficult to source. We would be selling a lot more if we could buy a lot more. Like all used cars, they are scarce, but the lower price used cars are the most scarce in my observation. Daryl, do you want to add anything?

Yes, good. Daniel, the data supports Earl's comments that our fastest turning segment are sub-$10,000 cars, and our leanest inventories are in sub-$10,000 cars. One thing to note, you saw our wholesale volume is down considerably about 25%. That's all in our effort to preserve as many cars inside our own system as possible. And part of that is obviously Value Line.

Got it. That's great, thanks for helpful color. And then, as a follow-up, just moving over to the U.K. kind of side. We were seeing, I feel like, last couple of quarters a more steady economic reopening. That seems to be more disrupted this quarter given COVID and now some economic uncertainty across the continent. So, what do your field teams or operational teams saying that they're expecting as we look to the back half of the year and preparing for the September registration month?

Yes, I don’t think there will be a big September new vehicle registration month as there have been historically, same with March. Because the supply is just all limited. As I mentioned in this script, we have a new vehicle order bank of 17,000 units. In each of the first two quarters, we retailed a little over 7,000. So, you can see that's a pretty big backlog. The same dynamic in the used vehicle market is occurring in the U.K. as in the U.S., these middle-class volume brand customers are under pressure from increasing utility prices or food prices, and so we're seeing the average price points go down. And we're actually, in normal conditions, the U.K. used vehicle market is much newer cars than the U.S. It's a lot of nearly new used vehicles sold in the U.K. in the normal market. That market has dried up because of the lack of supply of new vehicles. So, we're selling continually older, lower-priced used cars in the U.K. But prices are increasing, our reconditioning costs, and so forth. So, that's another factor that's put a little pressure on our used vehicle margins. But overall, 83% of our business in the U.K. are luxury brands and Volkswagen, which is a newer luxury brand in the U.K. So, the majority of our business continues to be with higher income consumers.

Daniel, it's just one thing I would add to what Earl has to say. I think if you look at the comps for quarter two, you really need to look at the year-to-date, both quarter one and quarter two together, which had significant numbers of closures in quarter one 2022; so I think some of the results need to be balanced over the two quarters effectively.

Our next question comes from Adam Jonas from Morgan Stanley. Please go ahead with your question.

Hey, thanks everyone, good morning. You provided some useful color I believe on the U.K. order bank in the backlog. Could we get a similar number for the U.S. in terms of how big the order bank, how long is the backlog and how that might compare to a quarter or two ago in terms of stability? And I have a follow-up.

Adam, this is Daryl. We haven’t seen any material change at all. When you look at our domestic business, about half of our pipeline is presold. When you look at our volume imports, it's at 80%, some as high as 95%. When you look at our luxury segment, it's in the 60% range. And that is right where it's been for the last couple of quarters.

That's amazing. And then I have a follow-up. Any thoughts on some of your competitors that are investing or acquiring, investing in and acquiring a capital finance capability that could help roll out business particularly in the used market. I didn’t know where that was on your order of priority and use of the capital.

Yes Adam, this is Earl. It's not to talk about our list right now. Obviously, we watch what others are doing, so you never say never, but we have so many lenders who are willing to support us with retail lending. We just don’t see any benefit for our company in the near-term in taking that kind of step. We also think that we can sell 25% or more volume of used vehicles through our existing physical plan. Investing in additional fixed costs doesn’t seem right for Group 1 right now. Quite frankly, we have trouble sourcing additional used vehicles right now. And Daryl, do you want to add anything to that.

No, that was it.

And our next question comes from David Whiston from Morningstar. Please go ahead with your question.

Thanks, good morning. On used, you talk about how you could sell more if you could buy more. I know there's a lot of issues with used right now because of the chip shortage that impact on new. But is the real problem for you, what's more of a serious problem I guess, is it that there's too many bidders like the rental agencies coming back in, or is the problem more just not overpaying because used acquisition costs are so high right now?

This is Daryl. You need to be cautious about overpaying, which is likely our biggest issue at the moment. We are putting significant effort into improving our pricing and ensuring price accuracy within our company. Given the market dynamics over the past few months, the situation has actually improved. I would say that this is our primary challenge right now.

Okay. And I think it was Earl that said you're looking to get serious and got consideration for more buyback. You've already been doing lots. How much of the company do you want to buy long-term?

We don’t have any goal on that. Capital allocation is something that's dynamic and it’s a continual process of discussion with our board. We just have to balance the accretion from acquisitions that are made available to us versus the accretion of returning capital to shareholders via buybacks, and of course the buybacks don’t have any execution risk. I'll also say that the quality of the acquisitions we made, such as the Toyota stores in Austin and Albuquerque and things like that, we don’t think they have any material execution risk either. We think we're in the best position we've ever been in terms of capital allocation with the ability to do both of those things simultaneously: quality external growth actions and return capital to shareholders.

Our next question comes from Michael Ward from Benchmark. Please go ahead with your question.

Thanks. Good morning, everyone. Earl, just curious, the bear case on the dealer group is that we're at peak earnings. I'm just curious what your thoughts are.

Well, I don’t think so. Because we have a flexible business model, and that's the beauty of what we do, right. The key driving factor to our business model now or over time is the balance of supply and demand on new cars. That's what makes everything work. I have incorrectly predicted that would revert to pre-COVID for a year and a half now, and I believe all the auto manufacturers are starting to see that maybe this is a more sustainable model for everyone. I see a lot of aftersales growth opportunity for companies like Group 1 and these comps we're putting up on aftersales are against some pretty strong comps from a year ago. I don’t think we're anywhere near our peak, and being able to capture more of the aftersales momentum. In used vehicles, I think that market is going to revert back a bit, but I think there is great volume opportunity for us when it stabilizes. You can see that where our new vehicle sales were down over 20%, so there is a lot of room for volume to offset any degree of margin correction.

Mike, Daniel here. And just as a follow-up to what Earl said. You need to remember that the company is structurally different from where it was in 2019. We've grown the company by $3 billion in revenues. The share repurchases that we've done and I think that's all going to help to sustain our EPS going forward.

As a follow-up. It seems like we're going to have a new normal of inventory going out, going forward. But for at least the next two years, we're going to be in an inventory build mode and as a result, these record levels of pre-orders, it sounds like over 70% of your expected deliveries over the next six months have an order behind it. I think my definition is to kind of push more people to AcceleRide; when I look at that chart on Page 15, it's showing that F&I goes up by $151 when people use AcceleRide and just getting a better understanding. Service goes up. We're going to see an increased usage of AcceleRide for both service and F&I, and getting more knowledgeable, does that push those two? Does that help additional growth or am I reading that wrong?

Mike, this is Daryl. I think you're reading it exactly right. Customers today shop for vehicles and we're now in the appointment business. The days of our people waiting outside for a customer to wander into a dealership are gone. A lot of it's because customers now have digital tools that they can use and leverage to shop with us. That has implications on our staffing, compensation, and all kinds of areas. We're seeing it with the 10% of the business that we're doing with AcceleRide, and I expect that to do nothing but grow.

Yes, Mike. This is Earl. I just want to follow-up on that inventory build comment you made, and I continue to remind myself of the staggering fact that pre-COVID we had 29,000 new vehicles in inventory at Group 1. And we were a much smaller company; we had 30 fewer dealerships, I think. I don’t think we crack 4,000 new vehicles in inventory yet. Four versus 29,000 when we were a smaller company. So, I don’t think this build inventory is going to happen overnight. I have been shocked by it, I must admit, but I think that's a pretty staggering hole in the inventory.

And our next question is a follow-up from Rajat Gupta from JPMorgan. Please go ahead with your follow-up.

Great. And thanks for giving another question. Could you maybe help us understand the divergence in consumer help between Texas and some of the other markets you are present in? You know, maybe you could provide us some metrics on what percentage of incoming shipments are resold in Texas versus other markets or maybe other regional commentary that you could provide if it's meaningful.

Well, I'll just start out on a macro basis. I don’t know if Daniel can come up with some data for you. But even through COVID, Texas continued to grow like a weed. I'm involved with some economic development organizations in Texas. Even when oil prices were low and there was correction in the energy market and such, Texas companies were still moving to Texas monthly. And that's never stopped and it doesn’t appear to be a trend that is going to stop. The energy business not only has the price recovered because of these global macro forces, but it's shifting to newer forms of energy and renewable energy. You have the best of both worlds in Texas. You have just natural growth of industry in places like Austin and Dallas, and even Houston we have a huge medical and medical research community in there. Then you have the energy business that's probably back to one of its stronger periods of growth. So, that combined with a business environment, the legal environment in Texas, it's just the best place we found in company to do business.

Got it. Great, thanks for the color.

Our next question is also a follow-up from Adam Jonas from Morgan Stanley. Please go ahead with your follow-up.

Hi guys, thanks for the follow-up opportunity. Remind us your net debt EBITDA leverage target. You're at 1.8 but kind of give us your ranges just when thinking about your ability and capacity to keep your M&A buybacks and what the cap is?

Sure, Adam. Our credit facility allows us to go to 5.5x in terms of leverage ratio. As a company, if we saw a big acquisition even bigger than the Prime acquisition, we would possibly go as far as a 3.5x to 4.0x, but ideally we'd like to stand at 3.0x.

Thanks a lot. And it's like, yes, just a follow-up there. Any signs of auto credit tightening impacting your business in any way? I mean, obviously you're seeing some softness in use. But I don’t know what were you watching in particular in terms of credit cohort or showroom traffic or anything else that gives you an opportunity to be cautious if need be. And so, what's your rate or telling you on consumer credit? Thanks.

Sure Adam, it's Peter DeLongchamps. I addressed that a little bit earlier in my comments. But we're seeing no tightening whatsoever. When you think about the asset class that performed very well in 2008 and '09. When I talk to the heads of these finance companies, they're seeing some delinquency increases on the lower end, but it's back to pre-COVID levels. The reassuring part of that is losses are at historic lows, and the appetite for car loans is robust. So, we have not lost any car business because of the availability of credit.

And our next question is also a follow-up from John Murphy from Bank of America. Please go ahead with your follow-up.

Hey guys, thanks for that for the follow-up. A few quick ones. On SG&A, my understanding is that about half of this is variable and half is fixed. A big chunk of that is the pay transfer for salespeople. So, I'm just curious. There's a lot of concern that SG&A will inflate as volume comes back and grosses come under pressure, or normalize, that I say will come onto pressure. How are the pay plans constructed for the sales folks? I mean, AcceleRide is making them more efficient; you have a lot of vehicles that are essentially pre-sold, and you have lower headcounts. So, how should we think about that reinflation of SG&A as volume comes back? How are the pay plans constructed?

Hi John, Daryl. Historically, variable pay plans are based on two things: unit sales and gross profit per unit generated. I think what you will see moving forward because of the nature of our business changing, you'll see that dynamic change a bit. As margins get perhaps less negotiation going on, you'll see the compensation plans change with that to accommodate that.

Okay, meaning that the sales portion is the sales comp is not going to inflate once with units because gross is becoming the pressure. So, there should be some real leverage then even come the backdoor go forth. That appears didn’t have?

We would hope to see that, but we hope to.

Okay. And then just a second follow-up. I mean, Earl, you said something in a press release just about the acquisitions that it seems like you were surprised at how well your integrations were, acquisitions that go on. I know you've been a little bit skeptical in the past, concerned about that. What has been so surprising on the positive side becoming maybe say you're integrating these with extreme speed, just kind of became you were very pleasantly surprised, and it might lead to maybe a clearer appetite to make these acquisitions go forward.

Well, the real challenge was 28 Prime stores to take into our accounting center and so forth all at once. But also to integrate AcceleRide was done with incredible speed by Daryl's team. Some of these recent acquisitions like the Toyota store in Austin, these are huge dealerships. The way we do it is we do it the first day. Doing a big dealership or doing 28 dealerships taxed us and it did create some strain, I will tell you. The benefits came much more quickly than I would have imagined. I think you're seeing some of that in our aftersales growth. Obviously, that's not the same-store number yet, but I really was very impressed with what Daryl and Daniel's teams did to bring those just to standardize those operations with the rest of our operations in a short period.

John, this is Daryl. Just a bit more detail there. We had acquisition teams over a hundred people that flew in from around the country to the Northeast from all of our disciplines: F&I, parts and service, sales, accounting, each assigned to every one of those stores. They were on the ground in those stores on the day we took over, and that was a huge difference maker. Employees of ours that have been with us a long time, working with the new teams we had just acquired, the stores we just acquired made a huge difference with the technology uptake with AcceleRide with our processes. That was a real key, and they were there for about 2.5 weeks.

And ladies and gentlemen, we have reached the end of today's question and answer session. I'd like to turn the floor back over to management for any closing remarks.

Okay. Thanks to everyone for joining us today. We look forward to updating you on our third quarter earnings call in October. Have a good day.

And ladies and gentlemen, with that we will conclude today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.