American Water Works Co. Inc (AWK) — Q2 2018 Earnings Call Transcript

Thank you, Brandon, and good morning, everyone, and thank you for joining us for today's call. As usual, we'll keep the call to about an hour and at the end of our prepared remarks, we will open the call for any of your questions. During the course of this conference call, both in our prepared remarks and to address your questions, we may make forward-looking statements that represent our expectations regarding our future performance or other future events. These statements are predictions based upon our current expectations, estimates and assumptions. However, since these estimates deal with future events, they are subject to numerous known and unknown risks, uncertainties and other factors that may cause actual results to be materially different from the results indicated or implied by such statements. Additional information regarding these risks, uncertainties and other factors as well as a more detailed analysis of our financials and other important information is provided in the earnings release and in our Form 10-Q filed with the SEC. Reconciliations for non-GAAP financial information discussed on this conference call, including adjusted earnings per share and our adjusted regulated O&M efficiency ratio, can be found in our earnings release and in the appendix of the slide deck for this call. Also, this slide deck has been posted to our Investor Relations page of our website and will remain available through September 2, 2018. All statements made during this call related to earnings and earnings per share refer to diluted earnings and earnings per share. And with that, I will now turn the call over to American Water's President and CEO, Susan Story.

Thanks, Ed. Good morning, everyone, and thanks for joining us. Today, our CFO, Linda Sullivan, will cover our second quarter financial results; and COO, Walter Lynch, will give key updates on our operations. The employees of American Water delivered strong results in the second quarter of 2018. We had a number of positive events this quarter, and I will highlight just a few of them. First, we continue to deliver strong consistent growth and financial performance. I will discuss more details in just a moment. Our Regulated Business continued to make critically needed investments in infrastructure for safety, reliability and resiliency. We continue to provide water and wastewater solutions within our service areas through disciplined acquisitions. We also made progress in optimizing our portfolio of Market-Based Businesses. We completed the acquisition of Pivotal Home Solutions, which significantly grew and enhanced our Home Warranty Business. As we've noted before, Pivotal is a leading provider of home warranty protection products and services and is highly complementary to our legacy Homeowner Services Group. On July 5, we announced the sale of the majority of our Contract Services business to Veolia North America for a purchase price of $27 million. Veolia and we have already closed on 17 of the 23 contracts sold with the remainder to close by the end of the year. We will keep 4 separate contracts in Camden, North Brunswick and South Orange, all in New Jersey, as well as Godfrey, Illinois due to their proximity to our existing service areas. Six other contracts, not part of the Veolia transaction, are being sold to others or will terminate within the next 12 months. Another highlight of the quarter is the selection of American Water to the inaugural NAACP Equity, Inclusion and Empowerment Index. This index was created in partnership with Impact Shares and Morningstar and tracks and monitors indicators that assess racial equity and inclusion policies among U.S. corporations with a $2 billion or higher market capitalization. We are a values-driven company, and our employees represent the communities we are privileged to serve. This is a real honor for us, as our people take pride in delivering the critical services of water, sanitation and fire protection to about 14 million Americans in diverse communities throughout the nation. Lastly, the global settlement related to the Freedom Industries chemical spill in West Virginia has obtained final court approval and the appeals period has ended. We also settled the one outstanding claim with our last insurance carrier related to this matter. Linda will give you greater detail on the related financials in just a few minutes. For the sake of our employees and the communities and customers we're privileged to serve in West Virginia, we're pleased this matter has reached its conclusion. As always, we remain focused on giving all of our customers the best quality product and services possible. In fact, our West Virginia Kanawha Valley Water Plant won first place this year in the statewide tap water taste test competition. This is the plant that was affected by the Freedom Industries chemical spill in 2014. Moving to our financial performance. Our adjusted earnings per share were up 13.7% compared to second quarter 2017. The foundation for our earnings growth continues to be the capital investment we make in our regulated operations. We invested $1.1 billion during the first half of the year, with $713 million for our regulated infrastructure and $363 million for the purchase of Pivotal. We minimized the customer bill impacts of our infrastructure investment through a continued focus on controlling O&M costs, optimizing capital spend through value engineering and volume procurement and through constructive regulatory mechanisms. Walter will discuss examples of these in just a few minutes. We continued to grow our Regulated Business. Today, we have welcomed 10,300 new customer connections through closed acquisitions and organic growth. Just as a reminder, we said customer connections because it's more accurate to measure additions by customer meters rather than try to estimate the number of people who live in every house. Typically, and it varies location by location, but on average, there are about 3 or more customers per residential meter. When we at American Water refer to customer additions, we're talking in terms of meter connections. We have an additional 57,000 customer connections under agreement for acquisition. This includes 2 recently announced additions, one in New Jersey, where we will welcome 3,900 new water customers; and one in Pennsylvania, where we will add another 9,000 new wastewater customers. We've had two quarters of strong performance in 2018 and are affirming today our 2018 adjusted guidance of $3.22 to $3.32 per share, which excludes the $0.08 insurance settlement benefit related to Freedom Industries. As most of you are aware, it has been our practice for the past several years to narrow or change our annual EPS earnings range following our third quarter results and we will do so again this year. American Water will invest $8.4 billion to $9 billion over the next five years, with more than $7.2 billion spent to improve our existing infrastructure. We see line of sight to our 32% target O&M efficiency ratio by 2022. Our regulated operations will continue to be our core business. Under this plan and normal operating conditions, no new equity will be needed. With this strong performance and our continued execution of strategies, we affirm our long-term EPS CAGR to be in the top half of our 7% to 10% range through 2022. Walter will now give you his update on our Regulated Business.

Thanks, Susan. Good morning, everyone. As Susan mentioned, our Regulated Businesses had a strong first half of the year, making capital investments to ensure clean, safe and reliable water service, while continuing to improve our operating efficiencies to benefit our customers. We also had tremendous growth driven by acquisitions. Let me start on Slide 9 with an update on our New Jersey rate case. We filed this case last September, seeking recovery of more than $868 million in infrastructure upgrades statewide since our last rate adjustment in 2015. We concluded evidentiary hearings on June 25 and are now in the briefing phase of the proceeding. We expect a final decision in the first quarter of 2019. Also, effective April 1 of this year, New Jersey American Water customers received a rate decrease of almost 6% as a result of the lower federal tax rates under the Tax Cuts and Jobs Act. Moving to California. We now expect both a proposed and final decision later this year on our general rate case for 2018 to 2020. If approved, this case will support approximately $230 million of capital investments on our systems. We also expect the California Public Utilities Commission to approve in September the Certificate of Public Convenience and Necessity for a water supply project in Monterey. This action, as we discussed in the first quarter, will give us the authority to move forward with this critical water supply project. In June, Maryland American Water filed a petition with the Maryland Public Service Commission seeking recovery of approximately $18 million in capital investments since our last rate adjustment in 2015. The driver of this case is a new reservoir and intake that will secure the water supply for our customers in Bel Air and parts of Hartford County. The reservoir, which costs approximately $15.4 million is $6.3 million less than originally planned due to our value engineering approach and the tremendous team working on this water supply solution. On the legislative front, two bills were recently signed in Missouri that benefit communities and water and wastewater customers. The first bill allows the state's Public Service Commission to approve a Revenue Stabilization Mechanism, or RSM, for water utilities, and RSM aligns to conservation goals of the state, customers and water providers while helping to ensure that water utilities achieve their authorized revenue requirement as established by the Public Service Commission. The second bill changes the public vote requirement for the sale of a municipal water or wastewater system to a simple majority for towns with populations of less than 3,000. Historically, in Missouri, smaller communities needed a 2/3 majority. This new legislation increases the options for small towns and we stand ready to assist. Also during the quarter in Iowa, legislation passed that allows private water utilities to use a future test year approach in rate cases. This will decrease potential regulatory lag and help spread out the time between rate cases. We've also made constructive progress in our other regulated jurisdictions on the Tax Cuts and Jobs Act. We've had 4 states revise their state income tax rates. Linda will talk about these in more detail in a few minutes. Recently, in New York, we're working through a self-reported issue concerning a property tax error, which resulted in an overpayment to local taxing authorities and ultimately affected about 4,500 customer bills. We're working with the Public Service Commission leaders and staff as well as other stakeholders to ensure that the issue is resolved constructively to the benefit of everyone involved. Turning to Slide 10. We added 5,600 new customer connections to date and have another 57,000 customer connections through signed agreements in addition to the 4,700 we added through organic growth. Most recently in July, New Jersey American Water announced an agreement to acquire the Roxbury Water Company that provides water service to nearly 3,900 customer connections in Morris County, New Jersey. Following regulatory approval, we expect to close this acquisition in early 2019. In June, Pennsylvania American Water signed an agreement to acquire the wastewater asset of Exeter Township in Berks County, which serves approximately 9,000 wastewater customer connections. We provide water service to about 70% of the township's residents and we're excited to be the future provider of wastewater service for the entire town. We expect to close this transaction by the end of the first quarter of 2019 pending regulatory approvals. These agreements represent our continued focus on a regional approach to water and wastewater service, which expands our customer base, increases operational efficiency and economies of scale, while keeping rates affordable for our customers. Moving on to Slide 11. Doing right by our customers is key to our ability to grow. This means smart investments, balanced by efficient operations and capital deployment. In the first six months, we invested $713 million on our regulated operations. This investment is critical to ensure reliable service, but for us it's also about affordable service. We continue to make progress towards our long-term O&M efficiency goal of 32% by 2022. And to put this into perspective, our adjusted O&M expenses are less today than they were in 2012. And during that same period, we invested more than $7.2 billion on our infrastructure and added more than 150,000 customer connections. Let me give you two examples of how our employees are driving these results. Starting in 2017, we expanded the use of drones to perform visual inspections of our above ground water tanks. This is a safer and faster way to visually inspect tanks while providing more detailed information. We can now perform about 150 visual inspections of above ground water tanks in six months when it once took us four years to complete this work. We've also developed software that uses artificial intelligence to analyze thousands of images and millions of data points per day to detect deteriorating tank coating. This allows us to manage our tank maintenance program more proactively and efficiently, and again, it's a much safer way to conduct this work. Our technology and innovation group is also developing a series of physical and digital solutions to detect and respond to water quality events in surface water supplies. The advanced systems include an artificial intelligence smart sensor network that could detect a range of contaminants. We'll complete this program in phases and eventually these sensors will tie into our operations and initiate treatment protocol. We're very excited about this project and what it can mean for our entire industry. Lastly, the chemicals PFOS and PFOA that made a lot of headlines of late when it comes to water quality. New Jersey has set the nation's toughest PFOA limit to date. I'm pleased to say that we've proactively addressed this contaminant and are in compliance. I also want to commend New Jersey's leaders for their commitment to addressing this water quality concern. As a final point, we're pleased to announce that we reached the National Benefits Agreement, with our 3,200 employees who are part of 17 national unions and represent 69 contracts. Every five years, we negotiate national benefits with their represented employees. These negotiations were marked by collaboration, professionalism and respect. Some of the highlights include making all of our employees eligible for an annual performance plan and providing our employees more options to decide what benefit plans make the best sense for them and their families. We look forward to our continued partnership in doing what's best for our employees. With that, I'll turn the call over to Linda for more detail on our financial performance.

Thank you, Walter, and good morning, everyone. Before I get into the numbers, I want to share some important updates from the second quarter. First, I’m happy to report that S&P has affirmed our A credit rating with a stable outlook, reflecting our commitment to maintaining a largely regulated risk profile. Second, we finalized the Pivotal acquisition for $363 million on June 4, and we completed our equity forward agreements by issuing 2.32 million shares for $183 million, which is about 50% of the purchase price. Lastly, as Susan mentioned, we received final approval from the U.S. District Court regarding the Freedom Industries-related settlement. We also settled with the final outstanding insurer this quarter for a $20 million pretax benefit, which has been recorded as a non-GAAP adjustment consistent with the other elements of the settlement. Overall, West Virginia American Water's portion of the $126 million Freedom Industry-related settlement, after accounting for insurance recoveries, was $23 million pretax. In the second quarter of 2018, our GAAP earnings were $0.91 per share, an increase of $0.18 compared to the same period last year. When excluding the insurance settlement, adjusted earnings were $0.83 per share, marking a $0.10 or 13.7% increase over the same period in 2017. The regulated segment saw an increase of $0.08 per share, while market-based businesses grew by $0.02. Now, let’s break down the adjusted quarterly results by each business sector. Regulated operations increased by $0.08 per share in total, with net revenue down by $0.01 due to three main factors. First, we saw a $0.14 increase from additional authorized revenue and surcharges to support infrastructure investments, acquisitions, and organic growth. Second, warmer weather contributed a $0.01 benefit per share, but these gains were offset by a $0.16 negative impact from the lower federal tax rate, which was expected to benefit customers. Operating and maintenance expenses went up by $0.05, and depreciation increased by $0.02, primarily to support regulated acquisitions and investment growth. Additionally, our income tax expense was favorable, showing a $0.16 improvement mainly due to the lower federal tax rate. Regarding market-based businesses, the $0.02 increase was largely driven by our Homeowner Services Group, which benefited from operational efficiencies, improved cost management, customer growth, and the positive effects of the lower federal tax rate. However, the partial month of Pivotal's earnings was offset by anticipated integration costs, leading to a strong quarter for our Homeowner Services Group. For the first half of the year, adjusted earnings through June 30, 2018, were $1.42 per share, reflecting a 12.7% increase over the same period last year. Our regulated operations improved by $0.13 per share due to investment and acquisition growth, while our market-based businesses gained $0.05, primarily due to Homeowner Services. The Military Services Group remained flat as operational improvements countered the effects of reduced capital upgrades awarded by the Department of Defense in the first half of the year. Keystone's first half results were positive, supported by strong revenues from an active market, particularly in water transfer. Conversely, the parent company saw a decrease of $0.02 due to lower tax yield on interest expense. Now, let’s discuss tax-related matters. We are making steady progress across our 14 regulatory jurisdictions regarding the best methods to return tax reform benefits to our customers. The top section of this slide outlines the status of state tax rate changes and amortization of the remeasured accumulated deferred income taxes. In the second quarter, three states enacted legislation reducing future state income tax rates, which we expect will benefit our regulated customers when calculated on a stand-alone basis. Any discrepancies between stand-alone calculations and actual tax expenses based on state tax apportionment factors will be recorded at the parent company. During the second quarter, we recorded a $3 million cumulative noncash charge to earnings at the parent for state tax apportionment. Additionally, New Jersey has passed legislation to raise corporate business tax rates in the third quarter, and we're currently assessing the impact on both our New Jersey subsidiary and the parent company, expecting an update in the third quarter. Moving on to our regulatory filings, we have achieved $110 million in annualized new revenues effective since January 1. This includes $95 million from rate case settlements in Pennsylvania and Missouri, and $15 million from infrastructure mechanisms. We also have filed requests and are waiting for final orders on four rate cases and one infrastructure surcharge, totaling an annualized revenue request of $169 million. Today, we are confirming our 2018 earnings guidance of an adjusted range of $3.22 to $3.32 per share, excluding the $0.08 insurance benefit from the Freedom Industries settlement. We have had a strong first half of the year, and as we look ahead, there are several pending items that we expect to finalize in the third quarter. First, we are currently quantifying the impact of the increased corporate business tax rate in New Jersey. We have also completed a preliminary assessment of our purchase price allocation for Pivotal and are adjusting the amortization of intangible assets, which we now expect will front-load in 2018 more than initially projected. While we have a year to finalize purchase price accounting, we anticipate being substantially complete by the third quarter. Additionally, we expect lease termination costs of up to $5 million as we transition into our new headquarters building in Camden later this year, consolidating from four office locations. Lastly, the third quarter typically represents our largest net income quarter and carries the greatest potential earnings variability due to weather. We consider a weather impact of plus or minus $0.07 as normal annual variability, which is factored into our guidance range. Thus, we anticipate several influencing factors in the second half of the year and remain confident in our adjusted guidance range, providing updates as necessary in the third quarter. I’ll now turn it back over to Susan.

Thanks, Linda. American Water's stated purpose is to keep life flowing and that means for our customers, our communities and our planet. We also have five values that we measure ourselves by, and those are safety, trust, environmental leadership, teamwork and high performance. Living by these values actually constitutes a full 50% of our employee performance plans and individual employee ratings. These values match up nicely with the goals of our investors interested in ESG principles and measures. We agree that the hows are just as important as the whats. While we have always focused on ESG principles as the way we should run our business, we have not done a good job communicating our efforts as well as we should have. You told us you wanted to hear more, so you will. Following the third quarter, we will share quarterly updates on ESG metrics that are important to our company and our investors. We look forward to your feedback on these. We know that being a good corporate citizen and environmental leader and a role model for sustainability is more than metrics or communication campaigns. It's ensuring that we leave our children and grandchildren a healthy planet and the natural resources that we enjoy today. It means developing solutions to issues before they become problems. It means keeping our employees and our customers safe from harm. It's providing a workplace where every employee is respected and developed to his or her fullest potential. It means building strong communities where we serve and meeting and exceeding the expectations of our customers. So we close with a snapshot of just some of the things that others outside of our company are saying about our efforts. With that, we're happy to take your questions.

I have a couple of quick follow-up questions, starting with New Jersey. I'm interested in understanding the corporate income tax and why it wouldn't benefit regulated customers, especially in light of the comments made about other jurisdictions in the slide.

So we are working through that right now, in terms of how that will affect our New Jersey subsidiary and the parent company allocation. And so as you are aware, we are currently in a general rate case in New Jersey, and so we're working through how that increase in the corporate business tax rate would impact our customers.

Right. Completely understood. But broadly speaking, you should think about this principally as a parent level impact.

Right. And we also have a corporate headquarters that is located in New Jersey, which will impact that calculation as well. And so we're going through all of the detailed calculations from a state tax apportionment perspective. We're also working through some clarifications, either through administratively or through legislation, to make sure that we understand the complexity of how this will apply to water utilities.

Understood. Excellent. Turning back to the Market-Based side of the business, if you can. Just curious how is the sort of Keystone water side of the business going year-to-date, just given some of the trends there? And then separately, can you just talk to a little bit more of the sales side of the equation, the Veolia deal, in the context of, sort of, pruning the business? Is the thought process here, this is more opportunistic? Or should we expect more as you think about the aggregate size of the Market-Based Business and kind of bumping up against that 15% pro forma?

Julien, that's a great question. I'll address Keystone first, then discuss the sale of CSG, and finally provide our broader perspective on Market-Based Businesses. In the Keystone and Appalachian Basin, we are observing a strong market with solid revenue growth. As Linda mentioned, the first half of the year has been beneficial. Our largest Keystone water transfer businesses have steady ongoing work, and we are actively trying to hire more staff. Although the rig count has seen a slight decline in recent months, robust activity continues. For oil and gas pipeline construction, we are encountering consistent bidding opportunities and increased infrastructure planning for 2018 and 2019. The takeaway pipeline capacities still under construction in the Appalachian Basin will be advantageous compared to Henry Hub. Keystone is positioned well in the market, and we are actively monitoring it while seeking to optimize our main businesses. Regarding the CSG sale, we've previously mentioned that our Contract Services Group operates systems for other entities, where municipalities or industrials manage the assets, while we handle the operations. This segment is highly competitive with many players, such as Veolia and SUEZ. As we analyzed our Market-Based segment and considered acquiring Pivotal, we noted the success of Homeowner Services and our goal of keeping Market-Based activities at 15% or less of our portfolio through 2022, with a potential increase to 20% under regulated conditions. Currently, the Military Services Group is the only Market-Based business aligning with that profile. Given the effort needed to operate the business, we concluded that Veolia could manage it more effectively and reached an agreement for them to acquire the majority of the contracts. Ten contracts were not sold; four are remaining with us due to their proximity to our service areas and the strong community ties we have. The other four had prior buyers with rights, while two will end within the next year. This decision reflects our strategy to refine the Market-Based Businesses. Our central philosophy remains that we are a regulated utility. We have communicated our intent to keep that segment under 15% while striving to grow other business areas. We will consistently evaluate which aspects can best leverage our core competencies as a water and wastewater company.

Got it. Excellent. And then lastly, can I turn quickly to Missouri. You obviously alluded to the legislation there in your prepared remarks. How does that change the strategy? I mean, obviously, you've had some success of late in the settlement there. Does that require any kind of enabling subsequent rate case here? Or how do we see that actualize the latest legislation?

Yes. As far as the RSM goes, that would be applicable in the next rate case. And as far as the growth, the legislation that deals with the vote of half simple majority instead of 2/3, it's really just allowing us to have more discussions with municipalities throughout Missouri, and particularly some of the smaller municipalities that had a really high threshold as far as the vote count. So we just think it's more in keeping with the rest of Missouri and the rest of the country, and it enables us to have many more discussions with some of the smaller municipalities.

Great quarter too, great on the report and on the other news delivered. I just have two quick questions regarding the acquisition front. Obviously, American is the most operationally diverse water utility and it helps blend against unfavorable weather conditions or regulatory impact. But despite that operational diversity, I was wondering if there are any states outside of that current American Water footprint that the company may be considering entering through acquisitions?

So Rich, that's a great question. As a company, of course, our growth projections we give, the five year, based on growth within our service area, we do have a corporate business development group. We are always looking across the country at other states, opportunities, but as I think we have mentioned before, we have three kind of gates before we would look at going into a new state. The first one is looking at the regulatory environment, the second one is the business environment or business climate and the third one tends to be the one that is the most difficult, which is do we see a line of sight to get to at least 50,000 customers within five years. Why that's important to us? You hear Walter and Linda talk all the time about the O&M efficiency. We're very proud of the chart we put up that showed that our O&M cost, the adjusted that's used in the calculation for O&M efficiency and we have a reconciliation table in the appendix, but that calculation, our O&M costs are less today than they were in 2012. Our reputation being able to do investment that's desperately needed in systems is dependent on being able to also help offset a portion of those impacts to customer bills by reducing O&M costs. What we find is, if we don't have enough customers to get a critical mass, then we're not able to make the investments, we're not able to get some of the economies of scale. So we find that, that third element of ensuring that we can grow to about 50,000 customers in five years tends to be the one that is our biggest hurdle. So with that said, we are always looking at every state in the nation, we are always looking at opportunities, and we are always looking at a chance to grow and to provide our expertise to as many people across the country as we can.

That's great color. And for the second question, I was just wondering if the company is seeing any municipal acquisition competition from the electric utilities? And if so, how that might be impacting the acquisition effort?

That's a great question, Rich. So again, for water investor-owned utilities, I think that, of course, the answer is yes. And predominantly, Eversource with their acquisition of Aquarion, and I'm sure that all of you are keeping up with what's going on with the merger between San Jose, Connecticut Water, and then Eversource's bid for Connecticut Water and Cal Walter's bid for San Jose. So I think that's the main thing that we're seeing. And again outside of that, as we look at our strategy of buying municipalities that are between 3,000, 5,000 and 30,000, those are relatively small for someone to break into an industry. They also typically are in areas contiguous to where we're already located, we have name brands in those areas, we have people in communities. So for that area, we don't see as much because first of all, these acquisitions of distressed municipalities take, as Walter showed in his slides, years to cultivate relationships because when municipalities are buying, yes, price is a big deal, but they also want to make sure that their citizens have the best service possible and are taken care of, and that they don't have to worry about emerging contaminants and that they have professionals running the system. So what we find is, for that particular market that we focus on, it's more difficult for someone who is not in our industry to break into them.

I have another question regarding the military aspect. Based on our estimates, there's a significant opportunity, and most of those contracts are expected to be awarded between next year and 2025. Could you provide an update on the military base contracts? Specifically, are you focusing more on seeking new opportunities, or are you concentrating on enhancing and optimizing the existing bases you currently manage? Are you actively looking for new bases to add under the American umbrella?

That's a great question, Rich. And the answer is yes, we are. To provide some context for those who may not be fully aware, when you invest in a base, there’s usually a substantial amount of work involved, primarily concerning working capital. Once you secure a base, you obtain a 50-year contract to manage the water and wastewater services there. Additionally, as you pointed out, this involves acquiring new bases or making capital improvements to existing ones. The Military Group has experienced a bit of softness in the past 2 to 3 years primarily due to the latter category. The Department of Defense faced a few years of budget cuts, which significantly reduced their funding for fixed capital upgrades. Instead, they allocated available funds more toward warfighter training and related areas. With the lifting of those budget restrictions about a year ago, we’re beginning to witness increased financial flow. However, it will take some time for these funds to reach infrastructure projects after fulfilling other priority needs. That said, we currently have around 8 Request for Proposals outstanding for bases, and there's a chance that 3 of them will be awarded this year. We anticipate the remaining will be awarded over the next 3 to 4 years, as you mentioned. Furthermore, we are considering 2 to 3 additional RFPs. Typically, we concentrate on medium to larger-sized bases, which are the most worth our effort and generally have a contract value of $250 million or more for a 50-year period. So, yes, we do see opportunities, especially within the Army and the Air Force. Last November, we appointed General David Turner, who recently retired from the Army, as the new President of our Military Services Group, and we are optimistic about this segment of our business. We appreciate that it operates in a regulated manner, and we see potential for growth in this area going forward.

Thank you, Brandon. And thank you all for participating in our call today. Again, please note we value you as our investor-owners and as the financial analysts who research our company for the benefit of your clients and their futures. We always want to be open and transparent in our discussions and dealings with you, so you can have confidence in your decisions around our company and your investments in our stock. If we've not been able to address your questions or you think of something later, please call Ed and Ralph, and they will be happy to help. Thanks again for listening.