O`Reilly Automotive Inc (ORLY) — Q2 2019 Earnings Call Transcript

Thank you, Brandon. Good morning, everyone, and thank you for joining us. During today's conference call, we will discuss our second quarter 2019 results and our outlook for the third quarter and full year of 2019. After our prepared comments, we will host a question-and-answer period. Before we begin this morning, I would like to remind everyone that our comments today contain forward-looking statements and we intend to be covered by, and we claim the protection under, the Safe Harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. You can identify these statements by forward-looking words, such as estimate, may, could, will, believe, expect, would consider, should, anticipate, project, plan, intend or similar words. The Company's actual results could differ materially from any forward-looking statements due to several important factors described in the Company's latest annual report on Form 10-K for the year ended December 31, 2018, and other recent SEC filings. The Company assumes no obligation to update any forward-looking statements made during this call. At this time, I would like to introduce Greg Johnson.

Thanks, Tom. Good morning everyone and welcome to the O'Reilly Automotive second quarter conference call. Participating on this call with me this morning are Jeff Shaw, our Chief Operating Officer and Co-President, and Thomas McFall, our Chief Financial Officer. David O'Reilly, our Executive Chairman, is also present. I would like to begin our call today thanking team O'Reilly for their continued dedication to providing the excellent service that earns customers' business every day. Our team remains relentlessly committed to our customers and the growth of the O'Reilly brand in all of our markets. In the second quarter, we generated 3.4% comparable store sales growth as our core underlying business was very solid. However, we faced some adverse weather headwinds during the quarter, which resulted in comparable store sales coming in towards the bottom end of our guidance range. We saw a strong start to our quarter in April but experienced unseasonably cool and rainy weather in many of our markets as we moved through the quarter, which significantly impacted the demand we typically see in seasonal categories. As we called out in our press release yesterday, the significant precipitation we have seen thus far in 2019 has also delayed new store construction and pushed back anticipated new store openings, which Jeff will discuss in his prepared comments. The combination of these top-line pressures, coupled with continued headwinds in SG&A expenses from an inflationary cost environment, resulted in our second quarter earnings per share performance of $4.51, falling below our guided range of $4.55 to $4.65. We are not pleased whenever our actual results fall short of our expectations, but remain confident in the drivers of underlying demand in the automotive aftermarket and in the ability of our team to outperform our competition and grow market share. Now I would like to provide some additional color on the composition of our second quarter comparable store sales results. Both the DIY and professional sides of our business contributed positively to our comp growth in the second quarter, with professional again being the stronger contributor. In aggregate, comparable store sales gains continued to be driven by increased average ticket as a result of continued increasing parts complexity and inflation. Comparable safety accounts for the quarter were flat, with solid growth on the professional side offset by pressure to the DIY ticket counts consistent with our recent trends as customers on this side of the business remain susceptible to rising prices. On a year-over-year basis, we experienced product acquisition inflation driven by tariffs and other input cost increases passed on from our suppliers. As has been the historical practice in our industry, these acquisition cost increases have been rationally passed through to increase pricing. During mid-June, the additional round of 15% tariffs went into effect and we anticipate the related acquisition price increases will be passed along in selling price. However, we expect the incremental benefit in same-SKU pricing will likely be offset by pressure to ticket counts and good, better, best product mix headwinds. Next, I would like to provide some additional details on category performance and the cadence of our comparable store sales growth during the second quarter. As I previously mentioned, the quarter started off well but demand slowed as we moved into May and June. Typically, we see a seasonal increase during these months in heat-related categories such as air conditioning and refrigerants. However, with the unseasonably cool and rainy weather in many of our markets in May and June, we experienced sluggish demands in these categories. Excluding the headwinds we saw in these categories, we continue to see solid demand in both sides of our business in line with our expectations and are pleased with the performance of key undercar hard part categories including brakes, ride control, and chassis. We continue to have a positive outlook from the strength of our industry including positive trends in core underlying demand drivers, steadily increasing miles driven, and increasing age and complexity of vehicles. While weather conditions can cause short-term volatility in our business, our team remains focused on providing the best possible service to our customers every day in all of our markets. With more normal summer weather we have experienced thus far in the quarter, we are off to a solid start in the third quarter and are establishing our third quarter comparable store sales guidance at 3% to 5%. Based on the first half performance and our unchanged expectations for the demand conditions in our industry, we are maintaining our full-year comparable store sales guidance of 3% to 5%. For the quarter, our gross margin of 52.8% was a 36 basis points improvement over the second quarter of 2018 margin and in line with our full-year gross margin guidance. During the quarter, our slower than anticipated seasonal sales resulted in a mixed benefit to gross margin percentage, and the year-over-year stability in gross margin highlights our industry's ability to pass along acquisition price increases. For the year, we are leaving our full-year gross margin guidance unchanged at 52.7% to 53.2% of sales. Although, based on year-to-date results and second-half expectations, we now expect to be above the midpoint. Our operating profit dollar growth was 4% for the second quarter and 4.5% for the first half of 2019, and we continue to expect our full-year operating profit as a percent of sales to be within our previously guided range of 18.7% to 19.2%. For earnings per share, we are establishing our third quarter guidance at $4.73 to $4.83. We are maintaining our full-year EPS guidance of $17.37 to $17.47. Based on our year-to-date results, expected headwinds from delayed new store openings, and continued anticipated pressure to SG&A, we expect to come in near the bottom of the range. Our full-year guidance includes the impact of shares repurchased through the call but does not include any additional share repurchases. Before I turn the call over to Jeff, I would like to again thank our team of over 81,000 dedicated team members for their continued dedication and commitment to our customers. We remain very confident in the long-term drivers for demand in our industry and we believe we are very well positioned to capitalize on this by consistently providing industry-leading service to our customers every day. I will now turn the call over to Jeff Shaw.

Thanks, Greg, and good morning, everyone. I would like to join Greg in thanking team O'Reilly for their hard work and steadfast commitment to outhustling the competition, to earning our customers by providing the best service in our industry. Our team continues to successfully navigate a choppy sales environment by staying focused on the fundamentals of our business and ensuring we are doing everything possible to take care of our customers. I would like to begin my comments today by discussing our SG&A results for the quarter and provide some color on our approach for executing our business model and managing expenses. SG&A as a percent of sales was 33.6%, a deleverage of 64 basis points from 2018. On average per store SG&A basis, our SG&A grew 3.4%, which is higher than our expectations for the quarter, while total SG&A dollars spent was on plan. The majority of the deleverage from the prior year was expected as we continue to see structural cost pressure from rising wage rates and other variable costs in a tight labor market. At the same time, we continue to invest in our goals to continually enhance customer service, both in-store and in our Omni-channel and technology initiatives. So, higher than expected per store SG&A growth is the result of delays in new store openings. When a new store's opening date is pushed back a month or two, a portion of the staff for the new store has already been hired and is in training in an existing store. Adjusting for these delays is extremely difficult, especially in this high labor market. Our field management teams have flexibility to adjust staffing levels to appropriately respond to persistent trends in our business, but will not adjust drastically in short periods of time in an attempt to hit a short-term target. We are very confident in the strategy and feel that our consistency in delivering excellent customer service in all market conditions has been critical to our long-term success. However, we do encounter pressure to our SG&A when facing sales volatility, particularly when we experience significant weather-driven swings in the business in the short-term. We constantly evaluate the opportunities we have to drive increased sales and profitability. We can and will prudently adjust expenses over time when appropriate for our business. As Greg discussed earlier, as we look forward to the remainder of 2019, we continue to have a positive outlook for the demand in our industry and are maintaining our sales guidance. As a result, we are also maintaining our guidance range for full-year growth in SG&A per store of 2.5% to 3% with the expectation we will come in towards the higher end of that range based on the results in the first half of 2019. Next, I would like to provide an update on our store expansion during the quarter and our plans for the remainder of the year. In the second quarter, we opened 43 net new stores, bringing our total 2019 store openings to 105 through the first six months of the year. While the construction, installation and opening of over 100 stores in the first half of the year is a result of a significant amount of hard work and dedication by our team, we unfortunately are well behind the plans scheduled for new store openings we established coming into 2019. This shortfall is a result of significant levels of precipitation we saw in markets with new store projects in development. Consistent with our approach in previous years, our projected calendar for new store openings is more heavily weighted towards the front half of the year, which affords us the opportunity to put the new team in place and let them get their feet underneath them before entering the busy summer season. We are accustomed to seeing and adjusting to delays for any number of reasons including weather and typically would not have a material impact on our overall schedule. Unfortunately, the wet weather in 2019 has been widespread and persistent on a week-to-week basis that has delayed many projects for extended periods of time and has impacted our overall schedule significantly. As Greg mentioned earlier, this delay created top-line pressure in our second quarter that we will persist as we catch up in the back half of the year. However, we remain very confident we will achieve our goal of opening at least 200 net new stores for 2019. Now before I turn the call over to Tom, I would like to provide an update on a couple of other expansion projects. During the second quarter, we successfully completed the conversion of 20 Bennett auto supply stores acquired at the end of 2018 and merged the remaining five stores into existing O'Reilly locations. The Bennett team has been a great addition and we are pleased with the opportunities to continue to grow our business in Florida, which remains a key growth market for us. Finally, I’m pleased to report that we continue to progress on schedule in the development of our three distribution center projects with planned new facilities in Twinsburg, Ohio just south of Cleveland, in Lebanon, Tennessee in the Metro Nashville market, and in Horn Lake, Mississippi, just south of Memphis. We have established an aggressive schedule for these projects with a planned opening of Twinsburg in the fourth quarter followed by Lebanon opening in the first half of 2020 and Horn Lake opening in the second half of 2020. Our distribution center team has repeatedly demonstrated the ability to successfully manage multiple ongoing new distribution projects while consistently achieving a high standard of service to allow our stores to get hard-to-find parts in our customers' hands faster than our competitors. We are industry leaders in the investments we have made to establish a robust distribution infrastructure that supports the best parts availability in the aftermarket and we will aggressively work to enhance our distribution capabilities to maintain this competitive advantage. As important as the physical locations of our 27 distribution centers and our network of 350 hub stores are to our strategy, it's equally important that we execute on our business model deploying the right inventory at the right location within our supply chain and effectively and efficiently delivering the right part to our customers faster than our competitors. We are extremely confident in the ability of our teams to execute at a high level and lead the industry in inventory availability, but we will not rest on our past success, as we strive to expand our industry-leading advantage. I would like to once again thank our store and distribution teams for their continued dedication to providing the best customer service in our industry. Despite fluctuations in industry demand we experienced in the first half of the year, our team has produced solid results and we are in a great position to finish the year strong. Now, I will turn the call over to Tom.

Thanks, Jeff. I would also like to thank all of team O'Reilly for their continued commitment to our customers, which drove our solid results in the second quarter. Now we will take a closer look at our quarterly results. For the quarter, sales increased $134 million comprised of an $81 million increase in comp store sales, a $54 million increase in non-comp store sales, which includes the contribution from the acquired Bennett stores, and a $1 million increase in non-comp, non-store sales and a $2 million decrease from closed stores. For 2019, we continue to expect our total revenue to be $10 billion to $10.3 billion. As Greg previously mentioned, our gross margin was up 36 basis points for the quarter as we saw benefits from product mix. On a year-over-year basis, the second quarter gross margin also benefited from the sell-through of previous inventory that was purchased prior to the tariff-driven acquisition price increases, which went into effect at the end of 2018 and the beginning of 2019 in the corresponding retail and wholesale price increases. Within our guidance expectations coming into 2019, this benefit to gross margin was expected to be more significant to gross margin in the first half of the year. And as Greg mentioned earlier, we are leaving our full-year guidance unchanged, but our actual results will be impacted by the most recent round of tariffs and the timing of corresponding marketplace increases. We remain confident that margins will remain rational; the non-discretionary nature and immediacy of need for the parts we sell affording us and our competitors significant pricing power. Our second quarter effective tax rate was 23.9% of pretax income, slightly above our expectations and comprised of a base rent of 24.4%, which was on plan, reduced by a 0.5% benefit from share-based compensation, which was less than expected. This compares to the second quarter of 2018 rate of 21.5% of pretax income, which was comprised of a base rate of 24.5%, reduced by a 3% benefit from share-based compensation. For the full year of 2019, we continue to expect an effective tax rate of approximately 23.5%, comprised of a base rate of 24.1% reduced by the benefit of 0.6% from share-based compensation. While the benefit from share-based compensation will fluctuate from quarter to quarter, we expect these variations to even out over the course of the year and are leaving our full-year tax rate expectations unchanged. We expect our base rates to be relatively consistent with the exception of the third quarter, which may be lower due to the tolling of certain open tax periods. Now, we will move on to free cash flow and the components that drove our results for the quarter and our guidance expectations for the full year of 2019. Free cash flow for the first six months of 2019 was $541 million versus $632 million in the first six months of 2018, with the reduction driven by increased CapEx and a higher account receivable balance which is timing related due to the day of the week that the quarter ended, offset in part by higher pretax income and a reduction in our net inventory investment. For the full year, we are maintaining our free cash flow guidance in the range of $1 billion to $1.1 billion. Inventory per store at the end of the quarter was $610,000, which was down slightly from the beginning of the year and up 1.6% from this time last year. We continue to expect to grow per store inventory in the range of 2% to 2.5% this year as a result of acquisition cost increases and the fourth quarter opening of the Twinsburg DC putting pressure on the growth percentage. Our EPD inventory ratio at the end of the second quarter was 108%, which is up from 106% from the end of 2018. We still expect to finish 2019 with approximately 106%. Finally, capital expenditures for the first half of the year were $296 million, which was up $71 million in the same period of 2018 driven by our ongoing investments in new distribution projects, the conversion of the Bennett stores, and new store growth and technology investments. We continue to forecast CapEx to come to $625 million to $675 million for the full year. Moving on to debt, we finished the second quarter with an adjusted debt to EBITDA ratio of 2.35 times as compared to our ratio of 2.23 times at the end of 2018. The increase in our leverage ratio reflects our May bond issuance and borrowings on our unsecured revolving credit facility. We are below our stated leverage target of 2.5 times and we will approach that number when appropriate. We continue to execute our share repurchase program, and year to date we have repurchased 2.6 million shares at an average share price of $359.63 for a total investment of $921 million. Subsequent to the end of the second quarter and through the date of our press release, we have repurchased 0.2 million shares at an average price of $380.79. We remain very confident that the average repurchase price is supported by expected discounted future cash flows of our business and we continue to view our buyback program as an effective means of returning available cash for our shareholders. Before I open up our call to your questions, I would like to thank the O'Reilly team for their dedication to our company and our customers. This concludes our prepared comments and at this I would like to ask Brandon, the operator, to turn the line and we will be happy to answer your questions.

Hey, good morning, guys.

Good morning, Bret.

Just a follow-up on your inflation commentary. I mean I guess as we look at anniversary last year’s tariffs but then some potential new tariff addition this year. How do you see the inflation stacking up in the second half of the year?

So our second quarter inflation was a little bit over 2% similar to the first quarter. We would expect as these tariffs start hitting our acquisition costs that we will flow through that into price, so we would expect that we will see a higher number. Originally we thought 2% for the year, easing in the back half but that looks like there will be additional pressure there, it will depend on how long these tariffs stay in place.

Okay. Great. And then a question I guess, when you look around the margin, you talked about even in the space of slow demand pricing that is pretty rational. Are you seeing any either pass through of tariffs than lower prices from competitors or more aggressive activity around small commercial account or large national accounts?

Jeff, do you want to take that one?

For the most part, I mean everybody is under the same pressure from the price increases, and what we are seeing in the field is everybody is adjusting the prices accordingly. I mean, anytime there is a pressure on sales, you will see some competitors try to use price as a tool to gain business, but for the most part that is not the case.

Yes, absolutely. It's been very rational Bret and to Jeff's point, any exceptions to that from some of these regional players, I wouldn’t attribute to tariffs or inflation, it's just typically some of the things they do during the course of a quarter.

Okay. Great. Thank you.

Hi. Thanks for taking my question. Just after your first two quarters of comps being closer to 3% and the 5%, we are wondering what you are seeing that gives you confidence that you could potentially still reach that high end of that range? And do you have an estimate of how much of the business was impacted by wet weather?

What we would tell you is, we look at our category-by-category performance that our underlying non-seasonal business has been very strong. Where we have run into problems are in our seasonal business. We would tell you that absent the pressure we saw in the HVAC refrigerant category that Greg spoke to, we would have been happy with our comps this quarter. So, when we look at the rest of the year, we always plan for normal weather and that core underlying demand for hard parts remains good and gives us confidence in the second half of the year.

Okay. Thank you. And just with the delayed store opening, I just can't off the top of my head recall a time when this has been the case before. Is it purely just weather or are there more specific circumstances as to why this is happening now than maybe not happening before? Is it the timing of the number of stores versus wetter weather time?

We have a fairly aggressive plan in 2019 frontloaded to the first half of the year, but it’s entirely weather related. I mean we have always got issues year-to-year when you are making a plan and a forecast, I mean it could be environmental, regulatory, whatever the case may be. There are always weather issues and normally the second quarter is the most volatile quarter of new store openings during the year, that is when we have the most impact from weather, and this year was just extremely tough and widespread and persistent. What I would add to that Kate is, all of the locations for the year are in progress, so we are not looking for additional locations. It's just how quick we can get the doors open on the building.

Okay. Thank you.

Hey, good morning. You talked about the benefit of selling through pre-tariff merchandise at post-tariff pricing. Curious how much of a tailwind this has been for you so far this year? And then as more inflationary products start to roll in the back half, curious if you could walk us through the puts and takes here? And at what point do you think this dynamic could shift to a gross margin headwind?

So, we would tell you the faster moving products, there are fewer benefits because those are the ones we are most quickly reordering. So, it’s more of the back end of the lines where we are seeing the benefit. And we would tell you that it’s a modest benefit and it’s something that helps our gross margin. But ultimately we look at the last five, what was our last five purchase price and that is how we are managing our business. So, when we look at the ongoing forward tariffs, we are going to take a look and make sure that we are priced appropriately for the market. And looking at what margins we think we need to make and should make based on the gross margin return on investment of each product to set those prices. So we think that it will be impactful, not being negative going forward and we think we will be able to sustain our margin percentage.

Okay. And on the SG&A side, how much of the 64 basis points of deleverage would you specifically attribute to delayed new store openings? And going forward with SG&A per store expected to be up about 3% for the year. Are there any other buckets where you anticipate a step down in the growth rate from here?

So, last year we talked about SG&A, people investing in SG&A with the part of the funds they receive from the tax reduction and that going forward, we saw higher than average SG&A growth and we would expect to see inflationary pricing and the top-line being the benefit and that is what we have seen this year, as the labor market continues to be tighter. So when we have looked at our guide this year, we were going to anniversary some of those investments we made last year in-store payroll, primarily more heavily weighted in the first and second quarter as they ramped up. We would tell you that when we look at our guidance, and you look at the guidance from the beginning of the year, the midpoint of our operating profit was an expectation of a decrease because of those pressures. We would tell you that when you look at the second quarter specifically, most of the deleverage was planned based on these higher structural store payroll numbers. But a meaningful amount is due to slower comp sales and unexpected and light non-comp sales due to the stores not opening on time.

Hi. Good morning guys. Thanks for taking our questions. Just a follow-up on the last SG&A question, actually one of your larger peers has talked more recently about investing more heavily into supply chain and DC wages. Are you feeling any specific pressure from those kinds of investments in that part of your business or is it more broad-based wage pressure?

I would say it’s across the board, Daniel. We are seeing some wage pressure in some of our store markets that are driven by minimum wage changes where they are escalating some of those on the west coast, but across the country, across really in the corporate office and the distribution centers and in the stores, we are seeing wage pressures and wage is moving up. One of the biggest areas we have seen some wage pressure is with our truck drivers and distribution centers; that has become a very aggressive market, supply hasn’t kept up with demand over the last couple of years and we have seen a lot of the inflation and wage pressure there.

Okay. And then I think it was last quarter or a call before that you guys talked about the market becoming more rational and being able to raise retail prices to offset some of these wage pressures. So curious if you still think the market is in a similar place or what has changed to keep you guys from being able to pass through industry-wide cost pressures, being able to pass it through in the form of inflation? Thanks.

Well, I think we have spoken to the first and second quarter same-SKU inflation being up slightly over 2% which is a reflection of passing through the inflationary pressures across the cost retail through our pricing to cover both the tariffs and increasing expenses and I think you see that in our increasing gross margin percentage.

Thanks for taking the question. Wanted to go a little bit on tariffs. Just hoping you may give us lay at the land in terms of the percentage of SKUs affected and the level of price increases. And just for clarity, the next 15, those are the same SKUs affected or is does that become a more expensive SKU set and then just look holistically thinking about this, you know given some of your reservations on deferred demand in customer trade down, is it something you had already seen in the first round of tariffs that is what gives you the confidence that you won't see comps accelerate on the next 15, that will be helpful. Thank you.

Yes, Chris, I will take the first part and let Tom take the back end question. You know, there has been a total I think this is in the fourth round of tariffs. The first was more of a component tariff increase and then we hit more and more SKUs in the second and third rounds. Third round was the most impactful; it was a 10%. And this latest round is an additional 15% on 10% for basically the same pace of SKUs. As we said in the previous quarter calls, just because there is a tariff increase either at the component level or at the SKU level of 10%, that doesn't mean that we are going to take the full 10% tariff on that. We direct import a very small subset of our SKU base. Most of our import lines come from China, flow through one of our suppliers’ facilities here in the U.S., so the impact of tariffs is a little less for us than if we direct imported all of that product. So what we would expect and what we have seen thus far is you know this next round of 15%, we would also take a less than 15% increase on this round.

In relation to your second question, we started to see some inflation on commodity-type items second quarter of last year. And as prices go up, especially on items that are more discretionary, what we see is pressure on our lower-end consumer, our DIY consumer and that is been reflected in pressure on their traffic count. We see less of that pressure on the professional side of the business; the general demographic there is less impacted by price increases. So, when we look at rolling through this additional round of tariffs, we would expect the professional side of the business to be less impacted on traffic and see a benefit there in average ticket. On the DIY side, we will see the ticket average go up, but we would expect to see additional pressure on traffic as people work harder to defer to save money.

Thanks for taking the question. Hey, guys, I just wanted to clarify on the full-year guidance. So, I think the earlier comment was that you are expecting EPS to now be at the low end of the range for the year. Is that due to the first half performance or are you actually modifying your expectations for the second half as well?

Well, I think the specific word we used was lower; it’s based on really two factors that are different second quarter results and our expectations that we are going to continue to have a drag from new store openings where we are not generating as many non-comp store sales dollars as we expected as we both catch up and stores that open later in the year don’t generate quite as much as revenue as they have a later date to start ramping up their business.

Okay. Makes sense. And then a follow-up question on the gross margin, could you just talk about the performance in the quarter, specifically you highlighted mix as a benefit. If you could quantify that that would be really helpful. And then I think previously you talked about gross margin being flattish for the second half of the year. Is that still the right way to think about it, I mean you do have higher pricing now I guess incremental to what you expected previously. So, should we actually expect that that could be a little bit higher for the year or at least for the back half of the year?

We have maintained our guidance; we think we will be able to achieve a little bit above the midpoint of the guidance. Seth, I’m sorry, will you repeat the first question?

The first part was just around the gross margin performance in the quarter; you highlighted mix. I’m just wondering if you could quantify that?

I’m sorry about that. We are not going into the nitty-gritty of the details, but what we would tell you is a lot of the seasonal products in HVAC and refrigerant are big ticket items but carry a lower gross margin percentage, so not having those sales for our comps helped our gross margin percentage mix.

Got it. Understood. Okay. Thanks, Tom.

Thanks a lot, and good morning.

Good morning, Seth.

My question is around the trends between DIY and DISM. If you could give us a sense of whether or not the performance gap of comps between those two customer segments widened this quarter relatively to last quarter, that would be helpful?

Yes. Overall the spread was very similar to what we saw last quarter with professional outperforming DIY.

Great. And as you look back further in 2018, was it a narrow gap than we have seen thus far in 2019?

It’s been pretty similar for the last four quarters.

Got it. Okay. And just lastly, as you roll forward, do you think about the impact of tariffs and the pressure on DIY customer; do you think this round leading to higher price increases and more pressure on the DIY pocket books is going to lead to further widening of the gap?

I think it is likely and it’s not just that, Seth. You know, it’s the complexity of products that are impacting that as well and it’s not just our industry. You know, we talk a lot about the average DIY consumer, their spend is being impacted in everything they buy because of these tariffs. So their discretionary income and discretionary money they have to spend on non-essential items is less than it was, and they will likely postpone any repairs that they don't have to make.

Thank you, Brandon. We would like to conclude our call today by thanking the entire O’Reilly team for continued hard work and delivering another solid quarter. I would like to thank everyone for joining our call today, and we look forward to reporting our third quarter results in October. Thank you.