Charter Communications Inc (CHTR) — Q3 2018 Earnings Call Transcript

Good morning and welcome to Charter's third quarter 2018 investor call. The presentation that accompanies this call can be found on our website, ir.charter.com, under the Financial Information section. Before we proceed, I would like to remind you that there are a number of risk factors and other cautionary statements contained in our SEC filings including our most recent 10-K and 10-Q. We will not review those risk factors and other cautionary statements on this call. However, we encourage you to read them carefully. Various remarks that we make on this call concerning expectations, predictions, plans and prospects constitute forward-looking statements. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ from historical or anticipated results. Any forward-looking statements reflect management's current view only, and Charter undertakes no obligation to revise or update such statements or to make additional forward-looking statements in the future. During the course of today's call, we will be referring to non-GAAP measures as defined and reconciled in our earnings materials. These non-GAAP measures, as defined by Charter, may not be comparable to measures with similar titles used by other companies. Please also note that all growth rates noted on this call and in the presentation are calculated on a year-over-year basis unless otherwise specified. Joining me on today's call are Tom Rutledge, Chairman and CEO; and Chris Winfrey, our CFO. With that, I'll turn the call over to Tom.

Thanks, Stefan. At the end of the third quarter, 67% of our acquired residential customers were in our new Spectrum pricing and packaging, up from 62% at the end of the second quarter. So we’re delivering better products at better prices to more customers, which will drive lower churn, faster customer growth and long-term financial growth. Over the last year we’ve grown our total Internet customer base by over 1.2 million customers or 5.3%. In video, net losses this quarter were less than the third quarter of ‘17. In the third quarter, we grew cable revenue by 4% year-over-year and adjusted cable EBITDA grew by 5.5%. During the quarter, we rolled out our Gigabit speed offering to over 7 million homes passed, using very capital efficient DOCSIS 3.1 technology. Earlier this month, we launched our Gigabit service to more than 12 million additional homes passed. So we now offer Spectrum Internet Gig to over 95% of our passings, and we will be offering Giga service in nearly all of our 51 million homes passed by the end of this year, and over 80% of our residential Internet customers subscribed to tiers that provide 100 megabits or more of speed. Our faster speeds are having the intended impact of driving Internet customer growth. In early September, we executed a full market launch of our Spectrum Mobile service with the goal of accelerating connectivity relationship growth, and we expect our mobile product to be profitable on a standalone basis once it reaches scale. We now offer mobile services to both new and existing Spectrum Internet customers on both Apple and Android devices. Spectrum Mobile is being marketed via TV, radio, direct mail, and through other advertising and marketing platforms, and our selling machine is scaling across key existing sales channels including our stores, inbound call centers, and online. We offer our mobile services at prices that give new and existing customers the opportunity to save hundreds of dollars per year on their mobile bills. Our unlimited service costs $45 a month and our By the Gig service is $14 per gigabyte. So far our broader market launch has gone very smoothly. Our mobile operations and the service itself are scaling and working well. We started selling the product after Labor Day, so our total customer base is relatively small at quarter end, about 21,000 lines. But we’re seeing steady new sales growth and yield in traditional cable sales as we build brand and product awareness. In the next few months, we will enable customers to transfer their existing handsets. We also have a pipeline of product improvements that will extend through the middle of next year and which will continue to make our product more attractive and easier to switch and entire households’ mobile service package. Ultimately, the goal is to use Spectrum Mobile to save customers money via an integrated superior product offering, driving faster customer growth and better retention, higher penetration, and greater capacity. Shifting back to cable, our all-digital initiative is on schedule for completion by the end of the year. About 95% of our footprint is now all-digital. By the end of this year, the whole company will be fully digitized as we deploy fully functioning two-way digital set-top boxes, mostly our WorldBox and increasingly third-party IP devices on all remaining analog TV outlets that we serve. Simultaneous implementation of high-touch integration projects and product improvements, which are nearly finished, is actually counter to our operating strategy of reducing service interactions. The customer disruption that all-digital drives is well understood, but the migration of millions of customers to Spectrum pricing and packaging, the different equipment and bills, installation of uniform business practices, the integration of various product, network IP and billing platforms, and parallel network upgrades and integration has also been disruptive to our sales, service, customer transactions, and churn. We said at the start of this integration that putting Charter in a position to operate as a single entity and grow faster over the long-term would impact our operating and financial outputs during the integration and drive outsized capital investment in the short-term. But our integration is coming to a close, and most of the disruption will be behind us in 2019, and we will quickly start to see the tangible benefits of our operating strategy to lower churn, continued higher sales, and increasing operational efficiency, resulting in higher revenue per passing and lower operating costs. The completion of our integration will also bring a meaningful reduction in capital spending. And as one company with a superior bandwidth-rich network, a unified product marketing and service infrastructure, and value creation model as laid out on slide 4 of today's presentation, we believe we know what works. We will be in a position to accelerate growth and innovate faster than where we have been over the last few years. Now, I will turn the call over to Chris.

Thanks, Tom. Before going over the results, I have a few administrative points to mention. As I noted in our last call, we are now presenting all results on a consolidated basis. Hurricane Florence had a minor effect on our Q3 results, particularly in the Carolinas, impacting a few thousand customers and costing about $5 million each in revenue and operating expenses, totaling just over $10 million in adjusted EBITDA. We experienced a similar impact from storms in the third quarter of last year, so the year-over-year effect is not significant. We are currently in cleanup mode for Hurricane Florence and restoration mode for Hurricane Michael. We will provide a similar update in our Q4 call if necessary, although we do not anticipate significant year-over-year effects from either hurricane. Finally, I want to remind everyone that starting January 1st of this year, we adopted FASB’s new revenue recognition standard, which led to several adjustments in the quarter related to this standard. These adjustments decreased EBITDA by about $15 million compared to last year. This year-over-year impact from the accounting change will disappear after Q4. Now, moving to our results, total residential and SMB customer relationships increased by 234,000 in the third quarter, reaching 903,000 over the past year. Including both residential and SMB, Internet growth was 380,000 this quarter. However, Video declined by 54,000 and Voice declined by 77,000. As Tom mentioned, 67% of our acquired residential customers were in Spectrum pricing and packaging at the end of Q3, and we anticipate surpassing 70% by year-end. As we saw with the Legacy Charter pricing and packaging migration, the pace of transactions is slowing, and the completion of network upgrades this year indicates that in 2019 we will experience lower customer premise equipment spending and significant churn. In residential Internet, we added a total of 266,000 customers compared to 250,000 last year. Total Internet company sales showed year-over-year growth. As Tom noted, we now offer Gigabit service in over 95% of our area and expect availability to be nearly universal by the end of 2018. Over the last 12 months, we expanded our total residential Internet customer base by 1.1 million customers, or 4.9%. In contrast, our residential video customers have decreased by about 1.6%, all of which is from limited basic. Sales of our Stream and Choice video packages, mainly aimed at Internet-only customers, continue to perform well. In Voice, we lost 107,000 residential voice customers versus a gain of 26,000 last year due to a lower triple play selling mix and reduced retention at TWC. In September, we changed how we market and price wireline voice within our bundles to improve selling, retention, and transition to mobile. In most markets, our Internet and Video double play pricing will be $90 for targeted acquisition pricing. In either scenario, wireline voice is now a $10 add-on with the same pricing if a customer drops a bundled promotion. Going forward, wireline voice will be a $10 value-added service, while mobile will become the primary value driver for connectivity sales, much like wireline voice for cable in the past decade. Even though the revenue per household for the new triple play will be higher, our better products will save customers money. Turning to mobile, as Tom mentioned, we launched our Spectrum Mobile product on September 4. Thus, our Q3 results reflect only a brief period of active marketing and sales for the product. By the end of the quarter, we had approximately 21,000 mobile lines that included both unlimited and By the Gig options. We are concentrating on branding and awareness marketing, and as we introduce new features and capabilities, our marketing will become more offer-centric. All of our existing sales channels will be activated and integrated for mobile in the upcoming quarters, which will help to accelerate mobile line additions and overall connectivity relationships. In the past year, we increased residential customers by 734,000, or 2.9%. Residential revenue per customer relationship increased by 0.4% year-over-year, largely due to reduced SPP migration, ending promotional campaigns, and rate adjustments. This was significantly offset by last year's third quarter Mayweather and McGregor fight, which caused over $50 million in lost revenue, a higher proportion of Internet-only customers, and increased full-year sales of promotional rates. Excluding pay-per-view and video-on-demand, residential revenue per customer relationship grew by 1.1% year-over-year. Our customer growth and ARPU growth resulted in year-over-year residential revenue growth of 3.3%. Excluding pay-per-view and VOD and certain adjustments from last summer not reflected this quarter, residential revenue grew by 4.4%, similar to last quarter's growth rate. For commercial, total SMB and enterprise combined grew by 4.3% in Q3, with SMB up 2.8% and enterprise up 6.4%. Excluding cell backhaul and Navisite, enterprise grew over 9%, and PSU growth was at 15%. SMB sales also improved, and we've seen a greater than 10% increase in SMB customer relationships since last year. However, revenue growth in the acquired markets has not yet aligned with unit growth due to a slowdown in SMB product repricing. Our SMB revenue growth has effectively stabilized over the last two quarters, and we anticipate reduced repricing impact on SMB revenue growth in 2019. Third quarter advertising revenue increased by 18% year-over-year, entirely driven by political advertising while also leveraging our traditional inventory. We continue to sell more overall spots with improved inventory utilization and targeted selling. Mobile revenue totaled $17 million, with almost all of Q3 revenue coming from voice revenue. Under our equipment installment plans, all future device installment payments are counted as revenue when connected. Overall, consolidated third-quarter revenue increased by 4.2% year-over-year, with cable revenue growth at 4.0% or 4.1% when excluding advertising and pay-per-view. Looking at operating expenses, total operating costs rose by $302 million, or 4.6% year-over-year. Excluding mobile, operating expenses went up by 3.1%. Programming costs increased 3% year-over-year due to contractual rate increases and renewals, which was offset by fewer total video customers and the previous year’s Mayweather and McGregor fight that reduced our year-over-year programming costs by 1.6%. Excluding pay-per-view and VOD programming costs, programming increased by 4.4% in this period and by 5.8% per video customer. Regulatory connectivity and produced content also increased by 4.4%, mainly due to our adoption of the new revenue recognition standard, prompting some expense reclassifications to this category. Customer service costs rose by 1.7% year-over-year against 3.4% customer relationship growth, reflecting a reduction in per-relationship service costs through changes in business practices, along with initial productivity benefits from ongoing investments. Cable marketing expenses increased by 3.7% year-over-year due to higher sales, while cable expenses rose by 5.5% year-over-year because of ad sales costs, enterprise expenses, and IT costs from ongoing integration. Mobile expenses totaled $94 million, covering device costs, market launch expenses, and operational costs to establish and run the business, including personnel and overhead costs and our share of the Comcast joint venture. Device costs are recognized immediately, while consumer payments for devices are typically received over two years, leading to a working capital challenge. Adjusted cable EBITDA grew by 5.5% in Q3, and including mobile's impact, total adjusted EBITDA increased by 3.5%. As for net income, we generated $493 million of net income attributable to Charter shareholders in Q3 compared to $48 million last year, driven by a pension re-measurement gain this quarter, lower depreciation and amortization expenses, increased adjusted EBITDA, and reduced severance-related costs, partially offset by higher interest expenses. For capital expenditures, total spending amounted to $2.1 billion in Q3, $275 million lower than last year, mainly due to decreased CPE and scalable infrastructure spending, partially countered by mobile expenses. CPE costs were down due to a year-over-year decline in both the volume and migration of acquired customers to our Spectrum pricing and packaging. We spent around $42 million in all-digital this quarter compared to $47 million last year and $88 million in Q2 of this year. The decrease in scalable infrastructure capital is linked to a more consistent timing of expenditures this year versus last. Line extension spending increased year-over-year as we continue to fulfill our merger conditions. We allocated $66 million for mobile-related capital expenditures this quarter, primarily on software tied to our joint venture with Comcast and renovations for mobile product marketing areas in our stores. As I mentioned last quarter, our capital expenditures are more evenly spread this year than last. For the full year, we expect cable capital expenditures as a percentage of cable revenue to remain similar or slightly lower than 2017. We forecast a significant decrease in absolute dollar terms and in capital intensity for 2019 cable CapEx. This quarter, we generated $532 million in consolidated free cash flow, including $149 million of investment in mobile. Excluding mobile, we produced $681 million in cable free cash flow compared to $594 million last year. This growth was primarily due to higher adjusted EBITDA, lower cable CapEx year-over-year, and reduced severance expenses, but it was somewhat offset by increased cash paid for interest and negative cash flow contributions from working capital. The negative change in working capital stemmed from lower CapEx payables, resulting from our ongoing decline in capital intensity. I also anticipate that our working capital-related cash flow reductions will be evident in Q4 compared to last year due to the more level-loaded CapEx spend this year. Last year's Q4 working capital benefited from a much higher level of capital expenditures and specific timing at the end of the quarter, contributing to temporary substantial payables. This year’s Q4 will not have those benefits due to our more balanced CapEx approach. In Q4, we will also see the initial working capital investment from EIP sales of mobile devices, with revenue recovery occurring over a two-year period. We will continue to isolate this impact in our overall mobile reporting as the trend accelerates along with the growth of wireless subscribers. Looking toward next year, we anticipate a working capital-related decrease in our cash flow in Q1 2019 for cable due to lower CapEx, but it shouldn’t be as significant as what we experienced in Q1 this year. We concluded the quarter with $71.5 billion in debt principal, and our current annualized cash interest expense is $3.9 billion, while our P&L interest expense for the quarter suggests an annual run rate of $3.6 billion. The discrepancy arises mainly from purchase accounting. By the end of Q3, our net debt to the last 12-month adjusted EBITDA ratio was 4.47 times, at the high end of our target leverage range of 4 to 4.5 times. At the end of the quarter, we maintained over $4 billion in liquidity, including cash on hand and revolver capacity. During Q3, we repaid $2 billion of debt that matured and raised another $2 billion in the investment-grade market. We also repurchased 3.5 million shares of Charter stock and Charter Holdings common units, totaling $1.1 billion at an average price of $303 per share. Since September 2016, we have repurchased approximately 18% of Charter's equity, and we plan to maintain leverage at or below 4.5 times on a consolidated basis, encompassing mobile's influence on our financials. Looking ahead, we will continue our integration activities, capital expenditures, service impacts, and network upgrades through Q4. We are optimistic about 2019 as the largest cable integration efforts will be largely completed. Based on our past experiences and the operational metrics we are observing, we expect strong demand for our improved connectivity offerings, including faster Internet speeds, valuable mobile products that save consumers money, and competitively priced bundled services for video and wireline voice. This anticipated growth, combined with reduced integration efforts starting in 2019 and lower capital intensity, will yield significant long-term advantages for our customer-focused operating strategy and our potential for cable free cash flow.

Thanks. Good morning. Just wanted to unpack the video trend; obviously, the losses decline in the quarter, I think you called out Stream and Choice packages become a bigger piece and that limited basic is moderating. Can you just help us understand sort of what's really going on, on the video competitive landscape and the growth on the expanded basic product? And then for Chris, I just wanted to reconfirm your comments, which was that there was a $15 million hit from accounting changes and about $10 million from the hurricane. So, the EBITDA impact was about $25 million? Thank you.

So Vijay, on the macro issues, I guess there are two things to explain. One is that our desire to sell feature-rich high-value video products as part of our overall market-facing strategy, meaning when we sell or create a customer, we believe it's appropriate to try to give that customer the full capabilities of our service. And then through time, as a result of that, keep that customer and satisfy that customer fully. In order to implement that strategy, we sell full packages of product in video, which means we don't sell video or basic-only products generally incrementally. And therefore, as we grow, we're growing rich products and shrinking our broadcast-only base. And so that, that was a strategy at Legacy Charter, Legacy Cablevision actually. And so we’ve been implementing that through this transaction successfully. So if you're actually a programmer receiving funds from us, we're growing in your eyes, because we’re growing expanded basic as part of every acquisition we make generally. Every new customer gets. So that’s our product strategy. In terms of where the overall marketplace is, I think it continues to be pressured for all the reasons we expressed before by high content costs, the fact that the content is bundled the way it is as is wholesale to us and the fact that it's not very secure incrementally on the IP level meaning that you can get it without paying for it, all this puts pressure on price along with the whole value proposition of the content because it’s continually going up in cost. And I don’t see those trends changing. And so you see a continued erosion of the overall marketplace for bundled video. That doesn’t mean we can't be successful in that marketplace using video to drive our overall customer relationship growth. And that our video products can be relatively better than other companies’ video products, and that we can achieve share shifts as a result of that.

Vijay, regarding the accounting question, we have experienced some impact due to the adoption of the revenue recognition standards since the start of the year. There was a minor effect in the first and second quarters, and a slightly larger one in the third quarter, which we noted. You are correct that there is a $15 million decrease in EBITDA this quarter compared to last year on a year-over-year basis. As we approach the first quarter of next year, this year-over-year comparison will no longer apply. Additionally, the over $10 million related to the storms did reduce our EBITDA this quarter; however, it’s worth noting that we had a similar amount affecting us in the third quarter of last year. So, be cautious when making adjustments, as this situation remains consistent in terms of year-over-year comparisons. Does that make sense?

Right. Thanks so much.

Thanks, Vijay. Michelle, we will take our next question please.

Two things around pricing and revenue. First, can you compare the price increases that we've seen in the last week to last year's and any impact higher or lower on broadband or video revenue this year? And then second, can you help us sort of think about your expectations for revenue and EBITDA on the next few years. I know you are not going to give guidance, but you've talked about an acceleration; I think it would help to put some framework around it. We understand you don't expect revenue to grow 4% and EBITDA 5.5% from here. But what's the level of increase we could expect in the next few years as you come out of the transition? Thank you.

Hey, Phil. This is Chris. It seems like you are seeking a lot of guidance. Our core pricing and packaging, apart from what I mentioned regarding our double play pricing, hasn’t changed. You are correct that we've had a few small increases in different services, but they are not significant. The full effect of these changes won’t be reflected in our numbers until December. While some of the billing cycles may start in November, the complete impact will only be apparent for a full month in December. This describes what we've done so far. It doesn’t imply that this will be our position throughout the full year in 2019, but it is a slightly lower sum compared to what we experienced this year and last year. I previously noted that in 2017 we implemented some smaller increases in January and August, which did affect the comparison for this year from Q3 to Q3. We have some minor rate increases, which you've pointed out and also documented, but they won’t be completely reflected until December. As 2019 progresses, we will see where we stand. However, if you compare it to our actions in January this year, it would be somewhat lower. Regarding revenue and EBITDA acceleration, without providing specific guidance, the first one directly relates to the growth of customer relationships, particularly in SMB, which has stabilized. We anticipate that SMB will continue to improve, although it won't experience the same growth rate in customer relationships next year due to ongoing repackaging and pricing strategies. The enterprise segment is in a similar phase but is a bit behind SMB and residential given their contracts. Additionally, we will also have to account for the absence of political advertising next year. When you combine all this, it comes down to how quickly we can grow our customer relationships alongside the minor rate increases previously discussed. We believe we can continue to expand our customer relationships and that promotional roll-offs will play a part. The impact from EBITDA primarily comes from eliminating transactions from the system, which not only reduces transaction costs but also decreases churn. This enables the same marketing and sales investments to focus on acquiring new customers rather than replacing lost ones, leading to not only additional revenue but also improved EBITDA. Currently, our cost of service per customer relationship is declining, and we expect this trend to accelerate regarding our efficiency. Despite the challenges, we are eliminating excess noise in our system related to transactions at TWC, where the volume of calls and service inquiries is still considerably greater than at Legacy Charter, indicating a substantial opportunity ahead.

Michele, we will take our next question please.

I wonder if you could talk a little bit about the wireless business. Tom, you have discussed some technological limitations regarding the network controller and your ability to direct traffic between Verizon's network and your own. How do you view the MVNO in terms of its strategic adequacy for your wireless ambitions? What might you need to do to ensure that the MVNO meets your requirements?

Good question, Craig. I've recently gone through some of your materials as well. We are currently a wireless company with over 300 million authenticated devices on our network before launching our MVNO. As we progress with the MVNO, there are some limitations on our ability to manage the network and achieve certain economic objectives. However, we can redirect traffic onto our own network via Wi-Fi, and we anticipate new spectrum availability, including public options like CBRS. We have five spectrum resources, some public and some set to be sold at auction. New technologies such as dual SIM and eSIMs will enable MVNOs like us to operate their own networks alongside an MVNO on the same device, presenting interesting possibilities for managing traffic efficiently. Although our current MVNO is limited and doesn't fully meet our ambitions, it is an improvement over the previous situation, enhancing the overall value of our offerings. We can still save our customers significant amounts on their wireless bills and provide more services by bundling our products effectively. Additionally, our product bundle offers superior capabilities compared to what competitors provide in the market, which allows us to grow our business. We view our current mobile relationship and MVNO as pathways to achieve this growth, while remaining aware of future technological opportunities that may arise.

Thanks, Craig. Michelle, we will take our next question please.

Going back to your prepared remarks where you talked about the integration having been disruptive to the business. And as you expect to quickly see benefits in customer growth and meaningful churn benefits, maybe you guys could just spend a minute talking about where that disruption showed up in the 2018 financials and customer metrics? And so it would help us think about the improvements you should see as we head into ‘19 and I don’t know if it makes sense, but it also be worth hearing from you really when you think this company is operating sort of full steam ahead, for lack of a better phrase, without the complexity of this integration, is that literally January, is the phase-in over the course of the year. I just think helping without giving guidance we can hear your enthusiasm for the business coming around the turn of the calendar, but putting a little more specifics about it would be helpful?

Sure, Ben. The primary impact on our financials in 2018 from the integration was in capital spending, which is linked to disruptions in operations. We invested significantly to upgrade the network to an all-digital format. When we acquired Time Warner Cable and Bright House, it's important to note that these entities were larger; Charter is only a quarter of their combined size. The new entity still relied on analog television in much of its operations, which is less efficient and doesn't require a set-top box. However, this has several downsides for our long-term strategy. It occupies channel spectrum that we aim to utilize for high-speed data and IP video and has inferior picture quality. To resolve this, we needed to provide set-top boxes to customers, leading to disruptions. We deemed it essential to reclaim the spectrum for the future, despite the need to reach millions of customers for installation. This process is somewhat at odds with our operational strategy of delivering superior products in a way that minimizes customer interactions, thus fostering longer relationships. Consequently, the activity of installing new digital set-top boxes created operational challenges, impacting our phone traffic, service calls, and ultimately our sales focus throughout 2017 and 2018. Additionally, due to changes in the market, we believed it was necessary to enhance our service speeds. Our operational infrastructure is strong, and we aimed to make this advantage available to customers, completing a 1 gig upgrade across our entire service area quickly. This upgrade was also capital-intensive and required significant adjustments in our network architecture as we reallocated spectrum from the all-digital project to our high-speed data services. Given that Time Warner and Bright House operated as independent divisions with their own infrastructures, we had to electronically integrate these systems into one uniform environment. We also streamlined our call centers, sales centers, and stores, which involved restructuring multiple decentralized systems. This required retraining our workforce, adding to the overall disruption. The integration effort to unify our decentralized assets into a cohesive system should conclude by the end of 2018. While some activities will carry into 2019, the majority of the financial impacts will be resolved by the end of this year. We still have to complete the all-digital project and the DOCSIS 3.1 gig rollout this quarter, as well as finish integrating our billing systems, although much of this will extend slightly into 2019. Nevertheless, by the end of this quarter, the bulk of customer-facing disruptions should be behind us. Moving forward, we will benefit from not needing to allocate capital for these projects, leading to a new operational model, both financially and in execution.

What Tom was just describing, it feels like a year and a half, two years now I have been talking about non-linear choppier in a quarter-over-quarter. We have been turning a lot of knobs and making a lot of changes. Some of which have an immediate positive impact. As an example last year's fourth quarter we started to rollout some of the streaming products which cost less. On the other hand at different stages through all the things that Tom just described that have an impact on service transactions and churn. On the Internet, that customer-facing should go away in Q1. Are we at full steam in Q1? No, because the impact of what we have been doing over the past few years will stick for a little bit. But I don’t think it will be Q1, but I think that incremental activity goes down in Q1 and starts to look better through the year.

Activity is already decreasing, and churn is also declining as expected. We are observing the operating metrics and feel confident that our strategy will achieve the desired results.

That's helpful. I think the questions from myself and others are all targeting the same issue, which is that we are approaching the payoff from this acquisition, and people are curious about the extent of revenue growth benefits to CapEx. I believe that's quite clear. However, it appears there have been enough developments in the system that have affected net additions and possibly ARPU, but we are likely going to move past that. Thank you for providing that context. I appreciate it.

Thanks a lot, John. Michelle, that concludes our call.

Alright. Thanks, everyone.