Trinity Industries Inc Q2 FY2023 Earnings Call

Good day and welcome to the Trinity Industries Second Quarter and six months ended June 30, 2023 Results Conference Call. Please note, this event is being recorded. Before we get started, let me remind you that today's conference call contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995 and includes statements as to estimates, expectations, intentions, and predictions of future financial performance. Statements that are not historical facts are forward-looking. Participants are directed to Trinity's Form 10-K and other SEC filings for a description of certain business issues and risks, a change in any of which could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. I would now like to turn the conference over to Leigh Anne Mann, Vice President of Investor Relations. Please go ahead.

Thank you, operator. Good morning, everyone. We appreciate you joining us for the company's second quarter 2023 financial results conference call. Our prepared remarks will include comments from Jean Savage, Trinity's Chief Executive Officer and President; and Eric Marchetto, the company's Chief Financial Officer. We will hold a Q&A session following the prepared remarks from our leaders. During the call today, we will reference slides highlighting key points of discussion and certain non-GAAP financial metrics. The reconciliations of the non-GAAP metrics to comparable GAAP measures are provided in the appendix of the supplemental slides which are accessible on our Investor Relations website at www.trin.net. These slides are under the Events and Presentations portion of the website, along with the second quarter earnings conference call event link. A replay of today's call will be available after 10:30 a.m. Eastern Time through midnight on August 8, 2023. Replay information is available under the Events and Presentations page on our Investor Relations website. It is now my pleasure to turn the call over to Jean.

Thank you, Leigh Anne and good morning, everyone. Our second quarter results reflect positive trends in our business, despite some downside in our broader operating environment. We'll provide more details on how those factors impacted our financial performance. Still, we remain confident in our business' continued momentum and growth as we enter the second half of the year. We have line of sight to higher revenues on both sides of our business, with increased deliveries, rising lease rates, and continued improvement in our operating margins. Please turn with me to Slide 3 to discuss today's key messages. We are reporting second quarter consolidated revenue of $722 million, a 73% year-over-year improvement. Our second quarter EPS from continuing operations was $0.23, up $0.16 sequentially and $0.09 year-over-year on an adjusted basis. Our leading indicators for our business, namely the FLRD on the leasing side and the manufacturing side backlog, are favorable and give us visibility into strong revenues in 2023 and beyond. Despite these favorable indicators, we are reducing and tightening our 2023 adjusted EPS guidance to $1.35 to $1.45. This adjustment is primarily due to the outsized impact of the strengthening Mexican peso on our manufacturing business, higher interest expense, and continued inefficiencies. Our revised guidance assumes a substantial improvement in the back half of the year from better efficiency. However, we do not have line of sight to our previously issued guidance range without a significant pullback in the strength of the Mexican peso, which we are not anticipating in 2023. Let's turn to Slide 4 and discuss the rail market and a commercial overview. Like last quarter, overall rail traffic trends are negatively impacted by intermodal volumes. Through the first 26 weeks of the year, railcars load volumes improved just 2% year-over-year, outperforming the 4% decline in total traffic shown in the slide. While the increase in railcar storage in the quarter is consistent with expected seasonal trends, the North American fleet ended June with the lowest active rate since early 2022. Fleet storage levels remain well below the 5-year average but improving network fluidity prompts some normalization. We're willing to take this trade-off as we believe a more efficient rail network will benefit from gaining modal share and driving longer-term sustainable growth. Moving to the bottom of the slide, we continue to see high fleet utilization and a very strong future lease rate differential, or FLRD, which are good predictors for rising lease rates in the future. Our fleet utilization was 97.9% and the FLRD was 29.5%, with lease rate strength, especially in pressure tank cars and large covered hoppers. While rail traffic trends are important in our business, the critical driver is lease fleet utilization and rising lease rates which have seen significant improvement. But more directly, the strength in our business has been supply-led which provides confidence in the durability of cash flows. On the manufacturing side, orders and deliveries were strong in the quarter. We delivered 4,985 railcars in the quarter and booked orders for another 4,770. These numbers and new railcar inquiry levels align with expectations and are consistent with our view of replacement-level demand. Our backlog of $3.6 billion and current inquiry levels give us confidence in our expectations well into 2024. Moving to Slide 5, I'll briefly discuss the cash flow, with Eric providing more details later in the call. Our quarterly cash flow from continuing operations was $38 million, up $128 million year-over-year. Additionally, our adjusted free cash flow was $45 million, up $50 million year-over-year. Our business can consistently and predictably generate a lot of cash which is evidenced in today's results as we see the effect of increased production and higher lease rates flowing through our cash balance. Let's turn to Slide 6 and talk a little bit more about the drivers of our business segments. Starting with Leasing, I've already talked about our FLRD and fleet utilization which indicate momentum and increasing lease rates and revenue. Because it takes a while to reprice the fleet, revenue increases are slower but more durable. We are starting to see several quarters of increased rates take effect and we are encouraged to see the top line rising. Our renewals are coming in about 30% higher than expiring rates year-to-date. And when considering the whole fleet, our average lease rate for the quarter was the highest since 2018 and 9% higher than a year ago. It's worth noting that we have only repriced about 30% of our fleet since the FLRD had double digits in the second quarter of 2022, so we expect to see this number continue to rise as we reprice more of the fleet upward. While lease rates are still growing, the growth rate is starting to moderate. Our renewal success rate was an impressive 91% in the quarter, the highest since 2018, showing a sign of a healthy and balanced lease fleet. And year-to-date, our average renewal term is 55 months which allows us to hold on to higher lease rates longer. Our leasing and management operating margin was 39.7% in the quarter, up 430 basis points sequentially but down year-over-year due to increased maintenance expense and depreciation expense. Additionally, as we have begun integrating some of our recent acquisitions, those businesses have a different margin profile and slightly decreased the overall leasing margin. Overall, we are incredibly pleased with the performance of the Leasing business and expect to see continued strength in both revenue and margin through 2023. Moving to Rail Products at the bottom of the slide. Quarterly revenue was up sequentially and year-over-year due to a higher volume of railcar deliveries. Our operating margin of 3.3% in the second quarter was down slightly which was disappointing. In the second quarter, foreign exchange, persistent rail service issues, and efficiency negatively impacted our Rail Products margin. Rail Products efficiency has not gotten where we wanted as quickly as we'd like. We are seeing improvement in the metrics we track but we still plan to continue the improvement. Supply chain issues are being eased but there are still negative surprises more frequently than we have expected. The strength of the Mexican peso impacted Rail Products operating margin by approximately 90 basis points in the quarter. Although we hedge a portion of our pace of spending, our revenue is in the U.S. dollar but we pay our Mexican workforce and several suppliers in pesos. We are evaluating options to reduce our exposure to the peso. Still, a persistently high exchange rate will be an ongoing drag on the Rail Products margins until we can adjust our pricing and cost structure. While the challenges persist, many indicators give us optimism. Labor attrition has reached a much more manageable level in Mexico. And the second half of the year requires fewer and less complex changeovers. This will lead to the resumption of production more quickly with the additional benefit of longer runs. To give some context on the progression of improvement, our Rail Products June operating profit was above 5% in the segment, the highest this year. This included the foreign exchange impact. As we said on the call last quarter, we can still expect to exit the year with our Rail Product margin in the high single-digit range, even after accounting for the impact of exchange rates. This has been a focus of mine and we have been aggressive in taking the necessary steps to improve the business' overall efficiency and financial results. I'll conclude my remarks on Slide 7 and turn the call to Eric. Trinity's pretax ROE for the last 12 months has improved to 10.6%, progressing toward our long-term goal of a mid-teen ROE. We announced our third acquisition last quarter and are focused on integrating these businesses into Trinity. Across the board, we're pleased with the performance of our acquisitions. Olin continues to outperform our expectations with solid demand for auto racks and supporting parts. We are early in the integration of our recent acquisition of RSI Logistics. By combining our equipment expertise and innovation with RSI's customer-centric, well-respected logistics services, we can make rail a more approachable mode of transportation. These integrated service offerings will be an important step in our strategy to position the industry for modal share growth with our railroad partners. And before I turn the call to Eric, I wanted to quickly congratulate the team for successfully completing the financing of our senior notes and our TRL 2023 term loan this quarter. I'll let Eric provide more details on these events.

Good morning, everyone. I'll start my comments on Slide 8, discussing our income statement and cash flows. Turning to the income statement. Our revenue in the quarter of $722 million reflects higher external railcar deliveries and improved lease rates. Our earnings per share from continuing operations were $0.23 in the quarter, a $0.16 increase over the first quarter on an adjusted basis. We benefited from $129 million in Lease portfolio sales in the second quarter. Year-to-date, our net lease fleet investment is $214 million and our Lease portfolio sales allow us to optimize our fleet and achieve our target for lease fleet investment. Year-to-date, cash flow from continuing operations is $140 million and adjusted free cash flow is $81 million after investments and dividends. We've returned $43 million to shareholders through our dividend. Turning to Slide 9, as Jean just mentioned, we have seen a $225 million increase in our outstanding debt this year from the completion of a new corporate senior notes offering and the TRL 2023 term loan, offset by reductions in the revolver and warehouse as well as normal amortization. As you are all aware, the debt market has changed significantly which is reflected in higher interest expense. Ultimately, we executed these deals effectively, given the current environment. For our senior notes, we used the proceeds to repay outstanding borrowings under our revolver credit facility. We intend to use the remainder of the net proceeds for general corporate purposes which may include repayment of other debt, including the senior notes due in 2024. Moving to Slide 10 for an update on our guidance. We remain confident that North American railcar deliveries will be approximately 45,000 this year. This supports our ongoing view of replacement-level demand. As mentioned, we have a backlog that gives us visibility into future deliveries and are now receiving orders well into 2024 for most railcar types. We are affirming our net lease fleet investment guidance of $250 million to $350 million for the full year, supporting our 3-year outlook. Year-to-date, our net lease fleet investment is $214 million. And along with investment in the fleet in the second half of the year, we also expect to complete significant railcar sales in the fourth quarter of this year. Our guidance for manufacturing CapEx for the year remains unchanged at $40 million to $50 million. Moving to our EPS guidance. As Jean mentioned, we are lowering our full-year guidance range to $1.35 to $1.45, driven by the economic headwinds, Jean outlined, namely the strength of the Mexican peso and higher interest expense and slower-than-expected improvement in efficiency, partially offset by better-than-expected leasing profits. We set our operating plan assuming an exchange rate based on the rates in the fourth quarter of 2022. Since then, the peso has strengthened by about 17% against the dollar and continues to gain momentum. Given the nature of our business, we have no other material currency exposure, except for the Mexican peso. We do have hedges in place but even after accounting for the hedges, the exchange rate variance impact has been about $10 million in the first half of the year and pulled down our full-year forecast by an additional $18 million for a combined impact of $28 million to the downside. This flows through our Rail Products margin and will impact our margin as compared to our original guidance. We have limited our downside exposure to the peso for the balance of the year. We are also reducing our guidance to account for higher-than-expected interest expense, given the higher levels of working capital and higher borrowing costs. Finally, while improvement in efficiency is evident, it has been slower than we anticipated. We expect to exit the year with Rail Group margins in the 8% to 9% range. Our full-year Rail Products margin average is forecast to be between 6% and 7% after considering year-to-date performance, exchange rate impact, and expectations in the second half of the year. As Jean said, we expect significantly stronger performance in the second half compared to the first half on the manufacturing side of our business. Year-to-date, we have earned adjusted earnings per share of $0.30. In the back half of the year, assuming the midpoint of our adjusted guidance, this still implies significant EPS growth in the second half, aided by improving margins, continued top-line growth, and RevPAR portfolio sales in the fourth quarter. We are confident this is achievable, given the strength of our forward-looking metrics in both of our businesses. Please turn to Slide 11 before we open the call for Q&A. I want to emphasize the positive trends we see in our business. Our Leasing business continues to improve and we believe there is room for growth. We expect continued revenue growth in our Leasing business as we reprice more of our lease fleet and extend the term so we can retain the higher lease rates longer. This will also drive up the margin in the business. The supply and demand dynamics of the North American fleet remain very positive. On the manufacturing side, we've increased production over the last year, evident in the growth in deliveries and revenue, with margin growth soon to follow as this business continues to improve. And now operator, we are ready for our first question.

The first question comes from Allison Poliniak with Wells Fargo Securities.

I want to go back to the Rail Products Group margin. The labor inefficiencies that you talked to, were they purely driven by the complex line changeovers? Was there something more to that? Just trying to get a sense of the confidence that you guys have in that back half in terms of the efficiency sort of moving away from you.

Sure. So what we have, a lot of the companies in the back half, is we're carrying a lot of momentum into that half. The first half of the year, we were ramping. If you look at year-over-year car production first quarter, we were up 64%, second quarter 99%, large ramp there. In June, even with the FX headwinds, we were above 5% on the operating margin. If you look at the changeovers, remember in the past, we talked to you about 65% of the changeovers were occurring in the first two quarters, that relates to about 200 basis points for us as we're looking at the effect. Next, as we talked to you also about the first half of the year, we have hired the employees. They were going through training that by the end of the second quarter, they should start coming down and we would see the efficiency start to rise, that is occurring. So if you take all of that into effect, we see a lot of momentum, going forward into that second half, to get into the operating margins we talked about, so leaving the year at 8% to 9% for the fourth quarter. And the FX is still in that. So a lot of improvement.

Got it. That's helpful. And then on the lease rate environment, Leasing, very strong. It seems like it's a very constrained environment right now. Any verticals that you're getting incrementally more concerned about or you're starting to hear a little bit of weakness of understanding the whole lease fleet is actually quite strong for you? But I just want to understand if there's any sort of weak points within that.

Okay. It's important to note that this cycle is primarily driven by supply and is not reliant on a single market. Another important factor is that 250,000 cars will need to be retired in the next five years. Overall, while some markets are performing well, other areas will see an increase in production of boxcars and grain cars. On the weaker side, the chemical sector is adjusting to the current economic conditions, which has made it one of the less robust markets. However, construction and agriculture sectors continue to remain strong, particularly as stimulus funds begin to be allocated.

The next question comes from Matt Elkott with TD Cowen.

Jean, I want to follow up on your comment about the need to retire 250,000 cars in the coming years. The overall tightness in the fleet remains significant, and I find it surprising that the delivery outlook continues to anticipate replacement-level demand despite these dynamics that should be favorable for manufacturing. Additionally, there is the possibility of a pull-forward effect on tank car replacement, which, while not driven by regulation, could still occur.

So really, it's the underlying fundamentals that we see there remaining strong. Utilization, 97.9%; renewal rate, 91% in the quarter; term, 55%. And scrapping is continuing. It's not at the pace we've seen in the prior year. So, so far this year, we've had about 16,000 car scrapped and we expect about 35,000 to come out of the fleet. So we're still seeing the inquiry levels to support 40,000 to 50,000 cars a year. And if you look at our backlog, we ended the quarter with just under 50% of the industry backlog sitting on our books. So we have good visibility well into '24 right now.

Yes. I was just surprised that like, I think if this had been any other cycle with the current tightness in the fleet, we would have already seen 50,000 to possibly even 55,000 car a year, but I guess it's just a more smoothed-out cycle. So we might have solid builds for two to three years to come. On the order side, your orders were solid in the quarter. Can you talk about where they came from? Was there like one or two big orders included? And can you talk about the order activity after the end of the quarter?

Sure. So when we look at the orders, it's really spread out. We're not seeing very large orders. So we're seeing consistent orders of car types that we talked about. They may be in smaller quantities than you've seen in the past when you've had a single market that is driving the demand. So overall for us, this is really good because it gives us the ability to stabilize our manufacturing facility. But to your other point real quick, I really think that this cycle, everyone's being disciplined. There's not a lot of speculative orders and that's why the tightness is remaining and that's a good thing. Not only from a manufacturing standpoint but from a leasing standpoint, it's really good. So we're hoping that continues.

Got it. And just one last high-level question. The Class I seems determined to continue to improve velocity in other service metrics which could be a headwind to equipment demand in the intermediate term in absence of volume, given the volume outlook continues to be pretty anemic, that's basically one of the few levers they have. How concerned that this might start affecting actual underlying demand for equipment? And if it does, where would we see it first, in manufacturing orders or lease rates?

So again, it’s important to note that there isn’t a single commodity driving this demand; it’s actually driven by supply. Overall, we are still observing good orders across the board. If there’s one area that’s lighter, it’s tank cars at the moment. As mentioned earlier, the upcoming rule change in 2025 hasn’t resulted in a significant increase in tank car orders. While there are still some orders, the demand and recovery we’re witnessing are focused on freight cars. Looking at the biggest downside, it’s in intermodal. Fortunately, our lease fleet does not include any intermodal cars. Although we have built some, it’s not a major type that we focus on. Overall, we are still seeing very positive indicators, and our outlook extends well into 2024.

The next question comes from Justin Long with Stephens.

Thanks and good morning. So building on the question about orders, if you look at the industry order book, it took a pretty big step-up in the second quarter versus the first quarter. How much of that would you attribute to an acceleration in the demand environment versus just the timing of orders? I know there can be a lot of lumpiness quarter-to-quarter. And I'm curious if you have any updated thoughts on industry order flow as we move through the back half.

So Justin, the orders tend to fluctuate from quarter to quarter, which is what you're noticing. It's rarely consistent. We believe that the industry will continue to show replacement-level demand, which suggests we can expect around 40,000 to 50,000 railcars per year. Looking at intermodal, there were about 10,000 less. Please go ahead.

Justin, referring back to our earlier discussion, 10,000 orders per quarter represents the baseline demand. The first quarter was slightly below this figure, while the second quarter exceeded it. Over the past six quarters, even if we exclude our long-term agreement with GATX, the average still stands at 10,000 cars per quarter. We anticipate maintaining this trend moving forward. There might be some quarters with lower numbers, but the long-term expectation is 10,000 per quarter, and we project this will continue into 2024 and beyond.

And one thing to go with that again, is that 250,000 cars that have to be scrapped, either from regulation or age over the 5 years, so there's going to be some consistent demand there.

I wanted to follow up on manufacturing margins. It was good to hear about the improvement in June. Could you comment on July and whether that improvement in margins has continued? Also, regarding gains on sale, that could significantly impact our model. Can you provide any insight into how the second half looks compared to the first half, especially the fourth quarter, since it seems there is a significant sale on the horizon?

I'll go ahead and start a little bit. When you're looking at manufacturing, a couple of things that we've seen. I've talked about the changeovers in the first half of the year, that was about 200 basis points of headwind that we saw that we won't see in the second half. If you look at the efficiency improvement, we are seeing that flow over into the third quarter. And the fact that we're not going to have as many changeovers, the fact that we have less turnover in our employees in the second half that we saw in June less turnover and also the fact that we pretty much got to our ramp point, so we got to the volume, I think you're going to see that level out and the performance come through. The last thing I'm going to say is the reason we lowered the overall operating margin coming out in the third and fourth quarter was the fact that you're going to have FX headwinds of about 120 basis points in there. So the FX is a driving factor in the fact that we had to lower the guidance. And Eric, if you want to...

Yes. Justin, to address the second part regarding the gains from RevPAR sales, there were significant gains of $29 million in the second quarter, which I mentioned in my prepared remarks about the fourth quarter. There are definitely gains included in our forecast, but when considering the net fleet investment projected at $250 million to $350 million, you'll notice in our quarterly report that the leasing backlog stands at approximately $380 million. We still have deliveries to manage in our fleet, so we are overseeing that net fleet investment. As for the size of the gains, I won’t go into specifics, but the gains on sale in the first half were quite significant. Directionally, we anticipate fewer gains in the latter half of the year.

The next question comes from Bascome Majors with Susquehanna.

I appreciate all the quantitative framing of how FX is weighing on both the quarter and the second half outlook. Qualitatively, though, we followed you for about 12 years now, I don't recall FX coming up as a major driver of unexpected upside or downside really ever historically and apologies if we missed that. I'm just curious if something has changed in the way that you either manage the business or hedge that risk, where this is going to be a more meaningful driver of volatility, going forward because the Mexican currency has always been pretty volatile and we just haven't seen it show up in your results, at least at the conference call sort of level?

Yes, Bascome. This is Eric. You're correct. The impacts have not increased. One reason is prespend; we had some natural protections because we were earning revenue in pesos from our non-rail businesses, which mitigated some of the effects. Looking back over the past 12 years, the peso has generally weakened against the dollar, but it hasn't experienced the extreme volatility with 17% or 18% swings over a two-quarter period. This quarter, we have seen a noticeable strengthening of the peso, particularly in the first half of the year. Initially, we guided for a change around 20%, but it's now below 17%, which has affected us. In the first quarter, this led to a $3 million impact, and in the second quarter, it grew to approximately $6 million. As we reviewed our guidance for the remainder of the year, we did not anticipate the peso weakening further, so we adjusted our guidance to align with the current peso levels. We have implemented some hedges to guard against potential downsides if the peso strengthens even more. Conversely, if the peso does weaken, as some projections suggest it might, we would stand to gain from that, especially since a significant portion of our production is in Mexico. Most of our new car manufacturing occurs there, while many of our overhead costs are in pesos, so this does affect us. We are not insulated from currency changes, especially with a greater share of our production in Mexico, which influences both our balance sheet and the operating margins of the Rail segment.

I appreciate that. That does make a lot of sense. Maybe taking a step back. If we go back to the Investor Day from almost 3 years ago, some of the messaging was on a variabilization in some ways of the cost structure in the manufacturing business, where you might have higher lows and lower highs through the cycle and margins there. Now clearly, that's been difficult to achieve in the supply chain disruption environment that you and all of your competitors have been operating in over the last 2.5 years. I'm curious, does the strategy still have an opportunity to work as designed? Or is there a need to change some of the calculus that went into that? Do you have the right procedures, people? Just curious if looking forward on the environment you're operating in today versus the one you planned to operate in 3 years ago, if the manufacturing business could be done a little differently?

So Bascome, we do believe that we still have the opportunity to do what we said in the 3-year plan. You mentioned some of the headwinds, the change in the environment, everything from COVID, the war in Russia, the inflationary period. All of those have mitigated the results coming through. I think the second half of this year, you're going to see the manufacturing results start to shine, even with some of the FX headwinds that we've talked about. We expect, going into next year, we won't have quite the headwinds on the FX that we have now. But as you go through, we're always going to be looking to optimize our operations. They've taken a lot of the steps. We're still working on some of those programs. So we look for those results as you look at the second half of the year, moving into next year.

Maybe just to look in that conversation. We're in year 3 of that period; do you have a sense of how and when you'd like to share your next mid- or long-term vision for the business?

So right now, we're looking at later this year, most likely in the fourth quarter. You'll hear us announce at Investor Day and give you the update on the strategy.

The next question comes from Steve Barger with KeyBanc Capital Markets.

This is Jacob Moore for Steve this morning. My first one is just with the balance sheet getting to your leverage targets. Can you just talk about how you're thinking about capital allocation priorities? Given the current environment, where do you see the best opportunities for value creation?

Yes, Jacob, this is Eric. The way we approach capital allocation is continuously evolving. The good news is that we are identifying investment opportunities, we’ve returned a significant amount of capital to shareholders, increased our dividend, and engaged in substantial share repurchases. Although we haven't made any repurchases this year, it has been a notable aspect of our history. Additionally, yields are increasing, and we're seeing improved returns from leasing investments. There are opportunities in the secondary market, both to invest and to sell assets. Our approach remains well-balanced. A positive aspect of our business is having the ability to deploy capital effectively, and we remain committed to acting in the best interests of our shareholders. I want to assure you that this will not change, and we will continue to deploy capital as the business generates substantial cash flow.

Understood. That's useful information. My second question is regarding your guidance. It appears that you have raised industry deliveries to the higher end of the range while slightly lowering EPS. This suggests that second-half industry deliveries may decrease, but EPS is expected to increase significantly. Could you elaborate on the factors that will contribute to this contrasting performance? Some of it may relate to margin improvement, but do you believe your delivery trends will differ from the industry expectations you have set?

In the first half of the year, the industry has delivered around 23,000 units, and we expect this to stabilize at approximately 45,000 units. I want to emphasize that we foresee significant margin improvements, which is an important factor. We have a clear view of the incoming orders and are confident in our ability to turn those margins into operating profit. This perspective has not changed. I wouldn't place too much emphasis on the 45,000 railcar figure. We anticipate that deliveries will remain at this level for the long term.

Okay. Understood. And then one just quick one, if I could, could you provide any clarity on expectations for cadence as we head into '24 after what's likely a lopsided '23?

So overall, as we're looking into 2024, we're not giving an overall guidance, I guess the only thing I would say is we still expect the 40,000 to 50,000 railcars for the industry, is about as far as I'll go there. We'll get into '24 guidance later in the year.

This concludes our question-and-answer session. I would like to turn the conference back over to Jean Savage for any closing remarks.

Well, thank you for joining us today. Despite some downside factors in the quarter, we're continuing to feel positively about the operating environment and our company's ability to execute on substantial revenue, margin, and EPS growth in the back half of the year. We look forward to sharing our progress with you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.