Sysco Corp (SYY) — Q4 2019 Earnings Call Transcript

Good morning, everyone, and welcome to Sysco's fourth quarter and fiscal year 2019 earnings call. Joining me in Houston today are Tom Bené, our Chairman, President and Chief Executive Officer; and Joel Grade, our Chief Financial Officer. Before we begin, please note that statements made during this presentation that state the company's or management's intentions, beliefs, expectations or predictions of the future are forward-looking statements within the meaning of the Private Securities Litigation Reform Act and actual results could differ in a material manner. Additional information about factors that could cause the results to differ from those in the forward-looking statements is contained in the company's SEC filings. This includes, but is not limited to, risk factors contained in our Annual Report on Form 10-K for the year ended June 30, 2018, subsequent SEC filings, and in the news release issued earlier this morning. A copy of these materials can be found in the Investors section at sysco.com or via Sysco's IR app. Non-GAAP financial measures are included in our comments today and in our presentation slides. The reconciliation of these non-GAAP measures to the corresponding GAAP measures are included at the end of the presentation slides and can also be found in the Investors section of our website. To ensure that we have sufficient time to answer all questions, we'd like to ask each participant to limit their time today to one question and one follow-up. At this time, I'd like to turn the call over to our Chairman, President and Chief Executive Officer, Tom Bené.

Thanks, Neil, and good morning, everyone. Thank you all for joining us. This morning we announced financial results, which reflect improved year-over-year performance for the fourth quarter and fiscal year 2019. For the full year, we made solid progress against our multi-year transformational initiatives, which we believe position us well to exceed our customers' expectations and deliver long-term growth. During the year, we had solid 8% adjusted operating income growth and adjusted earnings per share growth of 13%. Starting with Sysco's full year fiscal 2019 results, sales grew 2.4% to $60.1 billion, driven by steady growth of local customers and the acquisition of several smaller distributors in both the U.S. and Europe, which were partially offset by the transitioning of some national customers in both our Broadline and SYGMA businesses. Gross profit for the year grew 2.9% to $11.4 billion, driven by a continued shift in our customer mix, as we grew local cases at a faster pace than total case growth; favorable product mix, as we continue to drive growth in our Sysco Brand portfolio, not only through the addition of innovative products, but also by bringing Sysco Brand to additional geographies beyond the U.S.; the continuation of our successful category management effort, as we are now starting to bring this successful process to our European business; and the ongoing management of inbound freight that's now stabilized, although, not back to the pre-fiscal 2018 levels. Finally across the entire business, we saw a modest level of inflation for the year of about 1% to 2%. From an expense perspective, we saw solid overall expense management for the year, with adjusted operating expenses increasing only 1.4%, driven by benefits from our transformative initiatives and solid corporate expense management, all of which helped to offset the ongoing rising labor costs in both the transportation and warehouse areas. The gap between gross profit dollar growth and adjusted operating expense growth was 150 basis points for the full year, despite a challenging year-over-year comparison in the fourth quarter. For total Sysco, we delivered solid adjusted operating income growth of 8% to $2.7 billion, which helped to drive our adjusted earnings per share up 13% to $3.55. As we look at the results by business segment, let's start with the United States and the overall macroeconomic trends, which continue to be relatively positive. The underlying economic picture remains encouraging with GDP at 2.1% for the second quarter of 2019 and continued low unemployment, which were just 3.7% in July. Consumer confidence has decreased slightly, but still remains solid. These factors were important macroeconomic indicators, which describe the environment our customers are currently operating in and speaks to the relative health of our food-away-from-home market. As for restaurant industry trends, Knapp-Track and Black Box show same-store sales relatively flat in June and consistent with what we previously discussed, while traffic continues to be negative. Within U.S. Foodservice Operations for the year, sales for fiscal 2019 were $41.3 billion, an increase of 4.2% compared to the prior year. Inflation in U.S. Broadline was 1.5% and local case growth grew 3.1%, of which 2.2% was organic, while total case volume within U.S. Broadline grew 2.7%, of which 2% was organic. Gross profit dollars increased 4.4% and gross margin increased 5 basis points to 20%. Gross profit was positively impacted by strong Sysco Brand sales, year-over-year favorability of inbound freight and continued category management benefits. Regarding Sysco Brand, using customer insights we launched two new brands, including Sysco Earth Plus, a planet-friendly non-food solution for operators looking for a wide range of reliable and economically environmentally responsible products; and Sysco Simply, a platform designed to enable our customers to accommodate the growing consumer demand for varied dietary and lifestyle choices. Our adjusted operating expenses for the year increased 4.4%, due mainly to increased costs in both the transportation and warehouse areas, partly as a result of the tight labor market. This combined with seasonal hiring of driver and warehouse staff have driven increased operational costs on a per unit basis, as volume has softened. Finally, adjusted operating income was $3.2 billion, an increase of 4.4% compared to the prior year. Now turning to our International Foodservice Operations results for the year. The macro environment for the geographies in which we serve remains relatively positive, while the foodservice industry data suggest modestly improved sales with flat to slightly higher volume growth. The Sysco results in the segment overall were mixed during fiscal 2019 with improved performance during the second half of the year. Overall, for fiscal 2019, sales decreased 0.2%, gross profit decreased 1.8%, adjusted operating expenses decreased 3.7%; and adjusted operating income was $354.8 million, an increase of 10.7%. Topline growth for the year across our international businesses was also mixed. Canada and most of Europe performed well especially Ireland and Sweden and we dealt with some operational challenges in France as our efforts to integrate our two businesses Brake France and Davigel has impacted our ability to drive growth. From a cost perspective, we continue to make investments across much of Europe to position us for future business growth. We have also begun to leverage broader Sysco capabilities and processes to deliver improved synergies across the European business. Additionally, our regionalization efforts in Canada continue to deliver results and also helped to drive improved cost performance in this segment. In Latin America, our businesses are operating well with continued growth in sales, gross profit and operating income in Costa Rica and Panama from both the Broadline and Cash & Carry segments. The Bahamas in our international food group export business also continue to experience growth but were partially offset by our business in Mexico, which in the fourth quarter began to show some progress and weaker performance earlier this year. Turning to SYGMA, we continue to focus on improving overall profitability. As a result, we saw planned softness in the topline, while gross margin increased 30 basis points year-over-year. Adjusted operating expenses were down for the year, driven by a focus on removing unproductive miles and rightsizing underperforming locations, which helped to drive an adjusted operating income increase of 25% versus prior year. We feel very good about the continued progress we are making within SYGMA and are confident in our ability to drive improved performance going forward. Now, let me turn the call over to Joel Grade, who will talk with you about our fourth quarter performance, along with additional financial details for both the quarter and the year. I'll then come back to offer perspective regarding our overall business performance for the year, some important updates as we look ahead and some things we are excited about for the future.

Thank you, Tom. Good morning everyone. I'd like to discuss our fourth quarter results, followed by some additional perspective on our full fiscal year results, closing with some commentary regarding fiscal year 2020. Sales for the fourth quarter increased 1%, compared to the same period last year. Foreign exchange rates negatively affected total Sysco sales by approximately 0.8%. Local case volumes within U.S. Broadline operations grew 1.4% for the fourth quarter of which 1.3% was organic, while total case volume within the U.S. Broadline operations grew -- of which 0.3% was organic. Even though case growth was softer than anticipated, it is worth noting the tough comparison in the prior year local case growth of 5% and total case growth of 5.3%. Gross profit increased 2.1% versus the prior year and gross margin increased 21 basis points. We saw solid expense management for the quarter, despite operational cost challenges in our U.S. segment. Our transformational initiatives continue to provide benefit, as adjusted operating expenses grew only 0.6% for the year. And as a result, we achieved a gap between gross profit dollar growth and adjusted operating expense growth of 150 basis points and adjusted operating income grew 6.6% compared to the same period last year. It's important to note, that this performance as well was achieved despite having difficult year-over-year comparison, where the gap between gross profit dollar growth and adjusted operating expense growth was 300 basis points. As it relates to taxes, our GAAP tax rate in the fourth quarter was 21.5% and when adjusted for certain items was close to 20%. For the fourth quarter of fiscal 2019, we recognized the benefit as a reduction of income tax expense, attributable to stock option exercises that occurred in the quarter. In addition, we recognized a one-time benefit in France, related to a favorable ruling on tax carryovers and employment tax credits. Now turning to our results for the fiscal year 2019. Sales increased 2.4% to $60.1 billion. Foreign exchange rates negatively impacted total Sysco sales during the year by 0.8%. Our local case growth for the year in U.S. Broadline was 3.1%, one of the highest full year percentage increases in several years. Gross profit increased 2.9% to $11.4 billion and gross margin increased 10 basis points. For the year, our overall expense management was solid, driven by benefits from our transformation initiatives with adjusted operating expenses increasing 1.4%, resulting in an adjusted operating income increase of 7.9% to $2.7 billion. Foreign exchange rates negatively impacted total Sysco operating income during fiscal 2019 by 0.5%. For the year, we achieved a gap between gross profit dollar growth and adjusted operating expense growth of 150 basis points. Adjusted earnings per share increased by $0.41 to $3.55, primarily impacted by growth in adjusted operating income and our fiscal year 2019 non-GAAP effective tax rate which is 21%. For fiscal 2019 our non-GAAP tax rate reflects tax benefits attributable to equity compensation elections and credits. Cash flow from operations was $2.4 billion for fiscal year 2019 which was $256 million higher compared to last year. Net CapEx for fiscal year 2019 was $671 million or about 1.1% of sales which was $5.9 million higher compared to last year. We continue to generate meaningful free cash flow as we achieved $1.7 billion for fiscal year 2019 which was $250 million higher compared to last year due in part to reduced pension contributions partially offset by higher cash taxes. We are pleased that our adjusted return on invested capital grew 170 basis points to 16.4% in fiscal 2019 reflecting continued disciplined investments in our business and solid operating performance during the year. Now before closing, I would like to provide you some commentary on the outlook for fiscal year 2020. Capital expenditures during fiscal 2020 are expected to be approximately 1.3% of sales consistent with our previous three-year guidance. From a tax perspective, we expect our overall effective tax rate to be approximately 24% in fiscal 2020 and we intend to continue to improve working capital days to achieve our three-year plan goal of two days improvement by the end of fiscal 2020. At the end of fiscal 2019, we have improved working capital by approximately 1 day versus start of the three-year plan. In addition, we continue to maintain a strong and consistent capital allocation priority of investing in our business and returning value to shareholders with the increased cash flows from the business. These priorities include; first, investing in our business for long-term growth and increasing our industry leading position; second a commitment to consistently growing our dividend, something we have done each year for the last 50 years. Third, participating in successful tuck-in and specialty acquisitions as well as being opportunistic when it comes to larger more strategic deals. In fact I am proud to announce today that we are signing a definitive agreement to acquire J. Kings Food Service Professionals, a New York-based distributor with $155 million in annual sales, a majority of which are local customers. Fourth, a balanced approach between debt paydown and opportunistic share repurchase. As a result of our confidence in our long-term growth opportunities and our strong market leadership position, we intend to increase the amount of our share repurchases to more than $1 billion of shares during fiscal 2020. Before we go to Q&A, let me turn it back over to Tom for some closing comments.

Thanks, Joel. Before closing, I'd like to first review a couple of things we've shared with you this morning. As mentioned we delivered a strong fiscal 2019 with 8% adjusted operating income growth and 13% adjusted earnings per share growth. However, we didn't finish the year as strong as we would have liked especially in the U.S. Foodservice segment and therefore didn't meet our own expectations for the fourth quarter. When you combine the overall softness in our topline, driven primarily by national and regional customer losses along with some increased operational expenses and with our previously communicated reduction in go-forward operating income from the sale of Iowa Premium, our beef processing facility, we are now lowering our fiscal 2018 to 2020, three-year plan adjusted operating income growth target to approximately $600 million from the previously communicated low end of the $650 million to $700 million range. Having said that, I'd like to reinforce why we feel very confident in our ability to improve the current trajectory and continue to achieve success over the long-term despite some of these near-term challenges. We know from our ongoing customer feedback that we are strategically on the right track as we work to improve the experience our customers have in doing business with Sysco. That includes our ongoing investment in customer-facing technology as we look to improve the way our customers do business with us. Additionally, we will continue to drive growth in our Sysco Brand not only through the addition of new and innovative products, but also by expanding the reach of these types of products in additional geographies beyond the U.S. and Canada. We continue to have the strongest balance sheet in the industry and expect to leverage that to drive growth both in the core business and in returning value to shareholders. That includes planned M&A in both segments and geographies, in which we currently serve as well as relative adjacencies over time, which will only further strengthen our position as we see the level of competition in the industry increasing. In summary, in fiscal 2019, we saw improved year-over-year financial performance, which included strong adjusted operating income growth, double-digit adjusted earnings per share growth, and strong cash flow performance all achieved while investing in the business and returning value to shareholders with our 50th dividend increase and over $1 billion in share repurchases. Looking ahead, our focus remains squarely on the customer and achieving the newly outlined three-year plan financial targets. I remain very confident we have the right strategies and most importantly, the right team to vigorously compete on service, the highest quality products and price. Finally, I would like to thank each of our 69,000 associates across the globe for their continued dedication and hard work to ensuring Sysco remains our customers' most valued and trusted business partner. Operator, we are now ready for Q&A.

Good morning. Thanks for taking my questions and for all the color. I guess, just wanted to start with maybe a diagnosis of the top-line and the case growth and if there's any execution factors that you see either with sales reps or service levels or you really think it's just a function of the industry. And I think you've just made a comment about a level of competition increasing. So maybe you can just expand on what you're seeing there and how you feel about execution? And then I guess second part of the question is the outlook for $600 million, I guess does imply a little bit of a stronger year in fiscal 2020 than the last two years and just maybe helping -- seeing if you can help us walk through the puts and takes on how you're thinking about modeling that?

Yes. Thanks Kelly. Let's start with the top line and it's a great question. So as I shared, we certainly have seen and continued to focus on this disciplined profitable growth as it relates to our national customers. And so we've seen certainly some impacts there and some fairly significant change in the trajectory of that business as we've kind of -- we're in the fourth quarter even as we're into the New Year. So that's a big part of what we're talking about here. We've seen that also at some of the regional customer levels. So we talked over the last year or so about our focus on these micro chains and we cycled some business that we've picked up in the past and we've also seen competition ramp up in that space. And so that's the biggest single impact I think you will see both in the fourth quarter, driving our top line performance. Joel also talked about just the overlap we had year-over-year. Our Q4 last year was one of our biggest quarters in record both local and total cases. As far as operational or executional things, most of what we're talking about is on the expense side. Although as we talk about some of the transformative initiatives that we've been executing, we see from time to time as we're learning that there are some customer service challenges that get created. We're not broadly concerned about that and don't feel like that is a long-term issue but we've certainly seen a little bit of impact both from our finance transformation and also in some of the work we've done with our new ordering platform. But again in both cases we think that they are short-term and we're working through them. And obviously our customer service is kind of paramount for us in everything we do. As it relates to fiscal year 2020, I think that your point is correct, which is even at the $600 million number that does suggest a step-up from where we are today. And I think it's a combination of good performance in the U.S., and obviously continuing to see that business perform well, improving business across our international segments, and as I mentioned continued improving performance within SYGMA as well. So it's a little bit across the board, but we feel going into 2020 fairly confident that we can deliver that $600 million number and that increased step-up for fiscal year 2020.

Yeah. Hi guys, good morning. I just wanted to follow-up first question -- another question on Kelly's question here. Industry data for July hasn't really been great. Just kind of curious as to what you're seeing so far in Q1? And then how should we think about the progress of case growth throughout the year just given what you put up in Q4, some of the commentary about being more disciplined on accounts? Just kind of curious here as to how -- what the expectation should be in terms of case growth as we progress through to 2020 given what we just saw?

Great, Ed. So let's start with the Q1 question. I'd say, as we started Q1 and July has had some of that same softness that we just talked about for Q4. And I think it's mostly in the same areas for us these national and regional customers where we transitioned some business there or had some losses. So we see that similar trajectory as we started the quarter. As we think about case growth broadly, as we've talked for a long time now, our focus continues to be on those places where we can add the most value so those local customers. Some of those still are those regional concepts. I don't want to lead you to believe that those aren't important part of our growth story as well. But that independent customers where we have the most value, we continue to see that part of the business performing well, if not maybe at some of the high you saw a year ago, but we still see that business performing well. We feel like we're continuing to progress nicely with those customers. We do believe that we will start to see some improved volume growth throughout the fiscal year 2020, as we continue to cycle some losses that we had earlier in the year in the national customer sector. But generally speaking, I think we feel like the overall case numbers as we talked about I think last quarter are going to be a little softer than we originally projected for the three-year plan.

Okay. And then I just wanted to ask you about bad debt and just really kind of what's going on. We haven't -- looking at the cash flow statement, but -- and I'm assuming this is your accrual, but it hasn't been this high really since 2009. I'm just kind of curious, is there one specific situation that drove that this year? Is it something more broad-based? Does 2020 normalize?

Yes. Ed, it's Joel. I think the way I think about that is, I do think we have seen some worsening of the environment for bad debt. I think the -- it's -- I wouldn't certainly call it at a crisis situation, but it has certainly gotten worse. Our overall days are a little softer. We've had -- we had about one fairly significant hit per quarter to some extent that has impacted us. And so on one hand the bad debt expense -- and when you look at it year-over-year there is an element of some pickups we had in last year's numbers that account for about half of the difference. But nonetheless, I would say the environment has gotten a little bit worse. It's certainly something we're keeping a close eye on. And I'd say, if you look at our performance relatively over the last few years, we've had a pretty strong run. And so again I think it's a fair comment to say that has gotten -- it has gotten somewhat worse, but certainly something we're monitoring carefully.

Thanks, guys.

Hey, good morning. Tom, you characterized some of the losses or just reduction in customer count both in national and in regional from a perspective of loss and then planned. Can you just go into the losses a little bit more in greater detail? Just -- is there a common thread with respect to why they're choosing to go elsewhere, or is competition doing something a little bit more aggressively? Anything you can add there in terms of concept?

Sure, Chris. I think you're right to suggest there's both. There's customers that as we go into the negotiation would end up not being a renewal for Sysco. When we've taken a loss, it's generally driven by competitive pricing. And what I mean by that is more aggressive distribution fees than what we are comfortable with. And part of what we've tried to work through is how do we continue to improve the cost of -- to serve our customers so that we are obviously competitive on a day-to-day basis for almost any customer. But when we've typically lost, it's been because the fees have been beyond what we've been comfortable. And so that's been a big driver of what has happened to some of these regional customers.

Yes. And I would say too, I just wanted to add to that. I mean there's a little bit -- there's been, I'd say a little bit more of the upfront monies that have been moved around in the industry at this point. That's things in the areas that again discipline-wise at times we're just not comfortable making some of those decisions. So it's probably the other part that plays into that same point.

It's a great question. I think this conversation we've had for a couple of years now around the balance between gross profit and operating expenses is going to be key. And so if we do see -- we don't see a dramatic uptick in volume, therefore gross profit, we've got to make sure that that spread remains at that 150 basis points. So it is -- I wouldn't say, it's not really predicated only on that, but that balance of those two is very important as we continue to move forward the business.

So, Tom let me start local case growth is not bad, but it could be better right, particularly stacked up against some peers. Where do you think -- maybe you can put some investment muscle behind the business, right, if you think you can to drive some incremental growth? And where do you -- how happy are you with the growth in the MA population and their performance? Is there a case to be made for stepping that up a little bit selectively like you did two years ago?

Hi good morning. Thanks for taking the questions. Maybe first just to follow-up on kind of the competitive landscape within Broadline. Can you help us with what types of competitors may be winning those customers away from you? Are they more local in nature? And then why is your scale not helping you with kind of lower costs to serving those locales? [Technical Difficulty]

Great. Thank you. Can you hear me? Hello?

Hi there, Jeff?

Yes. Hi, there. Thank you.

Hi.

Good morning.

Go ahead with your questions.

Thank you. A couple of follow-ups as we think about the three-year profitability target obviously you've baked into the sales side of things. I'm just wondering from a cost perspective. First, I guess on commodities, I know the best inflation this past quarter was 2.5%, seems like it's been creeping up the past few quarters. Just wondering, what you're assuming in terms of fiscal 2020 whether you're anticipating a further acceleration in inflation. Maybe any thoughts specific to proteins that might be more vulnerable or any color you can provide on the food cost side of things?

Yes. Sure, Jeff. It's Joel. I would say at this point, I mean, we're anticipating what we continue to refer to as modest levels of inflation over the next couple of quarters, which I would interpret to say as something fairly consistent, where we are today. And we're certainly – the inflationary categories really have been in meat, in poultry and produce and then to some extent Jeff frozen potatoes as well has been an area that's continued to have some inflation. So I don't know that we are look for the next couple of quarters anything really dramatic or above that, but I certainly – we do anticipate continued inflation, and I'd say approximately in the range, we're at today.

And on the labor front? Is there any color you can provide in terms of whether there's a basket inflation number or how you look at it from turnover or just competition for drivers and associates?

Yeah. I think what we've tried to manage through here Jeff is the – and it's probably worth spending a minute here for everyone's benefit. As we went into the fourth quarter and we did have some volume softening traditionally, what we would be is much – probably more aggressive on trying to reduce the number of drivers the number of selectors we have. And given the labor market and the environment we're operating in we choose – we've chosen really to take more of a long-term view on this. And so part of what we're wrestling with right now is these increased operating expenses not so much driven by increased labor rates, because our labor – we pay – we're a pretty good payer in the market, but trying to make sure we're not letting people go during maybe a little bit of softer volume times. So we're still paying for those resources probably at a level that we haven't historically to maintain the service and support levels for our customers. As we look forward the volume – if the volume numbers will be softer over a longer period of time, we'll manage that more appropriately. But I think we're just trying to make sure, we're not in a situation where we were a couple of years ago, where we had lots of retention challenges and we were struggling to even get drivers in to fill routes. So today, we're feeling much better about our retention. And as we look to the labor rate next year, we don't see anything that's beyond the kind of 2% to 3% that we've dealt with over the past. And we look to offset some of that with productivity benefits in the operations. We still feel I think pretty good about the labor rate increases, just continuing to manage the retention and making sure we're not doing anything in the short-term to impact our ability to service our customers.

Got it. And just lastly, just – you mentioned national customer softening. I'm just wondering, if you're able to dig into that whether it's more quick service versus casual dining, whether there's a differential there, whether it's a regional differential, or is it kind of a broad brush comment across all brands and across all geographies?

Yeah. I think it's more of a broader comment. Part of it was losses meaning, we didn't renew or weren't successful in renewing a customer. There are some softness in certain customers, but I would say, it's not specific to anyone geography or even customer type. It's probably more of certain brands that are performing better than others and you guys probably have a sense of who those are and so some of those are in our portfolio both on the positive side and on the challenge side.

Got it. Thank you very much.

Thank you.

Hey, Tom, can you hear me?

I can hear you John. We're glad you're back or we're back here.

We thought we lost you.

So when you look at local case growth and you think about trend right because obviously a two-year stack it probably a little bit better in the fourth quarter, where do you think you are, or have you seen any deterioration in local case growth say the last three to six months? And then, is there opportunity, right? A couple of years ago, you selectively added or stepped up MA hiring. Is there an opportunity to do that again, or you don't think that would result in incremental share gains?

So let's start with the local cases. It was probably a little softer when you think about the last two quarters. But to your point about the two-year stack as we look at how we've grown over the last couple of years, we still feel pretty good about it. And even as we move into this year on that true independent customer, I think we feel good about where we're at. There are some of these as we've talked regional chains where we've seen some impacts and we've got to stay close to that. And part of that is making sure, we're staying competitive in those situations and so that's something that we're going to be very focused on. As we think about is there a way to accelerate that growth even further, the MAs continue to play an important role in our portfolio. As you guys know, we've talked about often the fact that our customers really value that resource and we obviously see the benefits of having them out there. We will selectively add resources, where it makes sense meaning maybe our share position is such that there's lots of upside and – but I don't think it makes sense for us to go and add a significant amount of resources in that area. What we're trying to make sure we do is we have the right support around them, especially as we have more and more customers go online to make sure that they've got whether it's the specialist support around proteins or it's around certain product categories that we feel are important to those customers or some of the other tools and technology that we've built to support them. So, it's less about I think adding more resources because, we feel like, we're pretty balanced in the size of territories that they have and the amount that they can handle going forward. We are thinking about ways to increase our new business. Our new business has been strong, but there's always an opportunity to increase the new business side of things especially as we've had some of these transitions happen. So, we feel really good about the three-year number and to your point that's delivering really solid results. I think as we look ahead we have not set a date yet to do an Analyst Day or Investor Day but we are we're certainly talking about that and trying to think through when is the best time to do that given the current three-year plan ends. I think the way we think about it is how do we continue to invest for the long term and drive what we would argue is top quartile results in the industry. And so it's a combination of the two. We still have a lot of investments that we're making in the international sector. Even here in the U.S. we still believe there are things we need to continue to invest in around technology to put ourselves in the right place going forward. And obviously, M&A continues to be an opportunity as we think about how do we grow in the future. So, probably not giving you what you want other than to say that we feel good about the performance we've had over the last couple of years. We feel like that's the kind of performance that we should be able to deliver going forward and we'll pick a day here in the not-too-distant future to be able to get together with you all and talk about that.

Great. Thank you.

Thank you.

Good morning. So I want to switch gears a little bit and just ask about the international division. The profitability came in a bit better than we were expecting and at 4% operating margins in the quarter. I was just wondering is this a reflection of the Canadian reorganization and something that could be more sustained and possibly a new kind of base hitting forward, or was there something unique about the Q4 that will not -- that temporarily kind of boosted profitability that we should not expect to carry forward?

Hi, Rebecca. Thanks for joining us. I wouldn't say, it was any unique things that happened in the quarter. I think it's a combination of things. The regionalization is a good example of where we need to be bringing more consistency across how we run the international businesses. And in the case of Canada, leveraging a model that given the geography there could help us drive more benefit on the cost side, because our costs were a bit out of whack. As it relates to Europe, some of those same opportunities exist. And you heard me say in the prepared comments that we're starting to bring some of the same kind of capabilities that we have as a company and processes to some of these businesses that maybe historically haven't operated that way. So I think what we would say is that we feel good about where we ended the year. As we had said, though we -- it was a little bit rougher in the first half and we still have some work to do, I think balancing the investments we're making and the improvements you should see in our operating expenses over time in the international sector should be kind of a way to think about us going forward. Thank you.