Earnings Call: Q1 2018

May 11, 2018

Good morning. My name is Lisa, and I'll be your conference operator today. At this time, I would like to welcome everyone to the New Flyer Industries, Inc. Twenty eighteen First Quarter Results Conference Call. Thank you. Paul Subri, President and CEO, you may begin your conference. Thank you, Lisa, good morning, ladies and gentlemen. Welcome to the twenty eighteen first quarter results call for New Flyer Industries. Joining me on the call today is our Chief Financial Officer, Glenn Asham. For your information, this call is being recorded and a replay will be made available shortly after the call. As a reminder to all of our participants and others regarding this call, certain information provided today may be forward looking and based on assumptions and anticipated results that are subject to uncertainties. Should any one or more of these uncertainties materialize or should the underlying assumptions prove incorrect, actual results may vary significantly from those expected. You are advised to review the risk factors found in the company's press releases and other public filings with the security administrators for more details. I will start off this morning with an overview of our quarter. Glenn will speak to the financial results and some metrics and then I'll finish up with some market insights and a little bit of our outlook. Following that, we'll open up the call to your questions. And if our voices are a little raspy this morning, forgive us, we were up late watching the Winnipeg Jets win Game seven. So with that, I'll hand it over to Glenn. Sorry, actually I'll give you an update first. Yes, I apologize. All right. So overall, our markets remain healthy and we continue to be confident in our market position, our strategy and our business plan. We had another strong quarter of deliveries with nine ninety three equivalent units of new buses, coaches and cutaways in Q1 twenty eighteen compared to eight ninety two equivalent units in the first quarter of last year. This is the first full quarter to include ARBOC bus deliveries. New awards received in the quarter totaled seven thirty six equivalent units or 5,858 equivalent units for the last twelve months. And at the end of the quarter, our total backlog was 11,548 units, of which 3,997 were firm and 7,971 are options. Now that equals $5,750,000,000 of backlog or approximately 2.7x our current annual production rate. A further nine zero four units were in award pending where we've been notified by our customer that we're successful bidder, we have not yet received formal documentation and therefore we cannot yet add them to our backlog. We do so as soon as we receive those contract documents. Overall, our adjusted EBITDA quarter was up over last year's Q1 and as Glenn will explain in a little more detail, we had a very strong manufacturing quarter and parts were down, but something that we're not overly concerned with. We'll continue to remind investors that our business is lumpy and mix has significant impact on both our manufacturing and parts businesses. We continue to invest in areas of our company, including product development, facility upgrades, part fabrication capability, IT harmonization. And for 2018, again, Glenn will give you some details, but we've increased our level of capital investment. We continue to focus on OpEx and synergy efforts at our recently acquired fiberglass businesses or fiberglass reinforced plastic or what we call FRP in order to optimize that portion of our business. So the combination of what was Frankfare and Carfare and Syntex Wissaukee Composites now all branded as Carfare will provide us with a much better control of our cost, time and quality of virtually all of our FRP needs, which is a very delicate and yet critical portion of our material supply stream. In addition, it also has helped us with our U. S. Content requirements that are now part of the increase by America as a result of the 2015 FactSetc. And as you may remember, those levels went from 6065% at the 2017 and a further 5% is required by the 2019. We also launched OpEx efforts with our recent acquisition of ARBOC, low floor cutaway bus manufacturer and the original efforts are focusing on plant layout and production flow. Our parts business leadership team continues to evolve its business to address the needs of its very diverse bus and coach customer base. This newly integrated organization is now branded as NFI Parts and it will maintain its focus on supporting original equipment manufacturer business as well as targeting new opportunities. Also in the quarter on January 31, we hosted an Investor Day at our Anniston, Alabama facility and we showcased our production facility and our new Vehicle Innovation Center or VIC, which is a state of the art lab with virtual learning spaces, driving simulators and other interactive exhibits that will help us and the market evolve electric, autonomous and telematic technologies for buses. In the quarter, we also came to an agreement, a milestone agreement on a new collective bargaining agreement with our New Flyer Transit Bus manufacturing workforce at the Winnipeg plant. This contract is a five year deal, and that's the first time ever that we've been able to get an agreement for this site longer than three years. With that agreement, there was a retroactive adjustment to the pension plan, which resulted in a charge in this quarter's earnings related to past service costs, which Glenn will talk about. We're actively working on two other CBAs that are currently negotiation. Glenn will now take you through the highlights of our financial results for the 2018 and following that, as I said before, we will give you a bit of an outlook and then open the call to questions. Now I can hand it over to Glenn. Thank you, Paul and good morning everyone. I will be highlighting certain twenty eighteen first quarter results and provide comparisons to the same period last year and focus my commentary on key financial insights. I would like to direct you to the company's full first quarter financial statements and management discussion and analysis of financial statements, which are available on SEDAR or the company's website. I do want to remind you that our interim unaudited financial statements are presented in U. S. Dollars, the company's functional currency and all amounts are referred to in U. S. Dollars unless otherwise noted. Organizational changes to better align business functions with operating segments were made last year and implemented in two phases. 2017, the over counter parts sales were moved from the coach operations to aftermarket operations. In 2018, the service function comprised of technical service management and customer training, which was previously managed by the aftermarket operations of MCI only, was moved to the coach manufacturing operations. To improve comparability between periods, the related prior year segment information has been restated to reflect these changes. The company generated consolidated revenue of $578,700,000 for the 2018, an increase of 1.2% compared to 572,100,000.0 during twenty seventeen first quarter. Revenues from manufacturing operations increased by 0.6% for twenty eighteen first quarter compared to the 2017. The increase in first quarter twenty eighteen revenue primarily resulted from 11.3% increase in new transit bus, coach and cutaway deliveries compared to twenty seventeen Q1 deliveries. As well as the inclusion of revenue to third party for the fiberglass component operations. Volume increased as a result of higher transit bus deliveries and the inclusion of RBAC deliveries offset by a reduction in motor coach deliveries. Motor coach deliveries are seasonal and comparatively strong in the fourth quarter and softer in the first quarters. However, in the twenty seventeen first quarter deliveries were stronger as a result of recovering New Jersey Transit deliveries following a contract deferral in 2016. Additionally, management believes that tax changes in The U. S. Related to accelerated depreciation resulted in seasonally stronger twenty seventeen Q4 sales followed by weaker twenty eighteen Q1. The decrease in average selling price for the quarter is the result of combining normal volatility in the transit bus and motor coach sales mix and now the inclusion of RBOX units, which have a substantially lower average selling price. Aftermarket revenue increased 4.1%, primarily as result of seasonality and sales mix. Total adjusted EBITDA for the quarter totaled $73,800,000 which represents an increase of 3.4% compared to $71,400,000 in the corresponding period in 2017. Manufacturing operations adjusted EBITDA increased to 11.1%, primarily as a result of increased deliveries, improved margin and inclusion of Aarbox operations. Contributors to the increase in margin included favorable sales mix and continued cost reductions through the company's OpEx initiatives. Aftermarket operations adjusted EBITDA decreased 13.1% due to sales mix and costs involved in consolidating New Flyer and MCI parts business. Net earnings decreased by 24.7% and earnings per share decreased by $0.13 primarily as a result of a $3,900,000 past service cost adjustment, net of tax, related to collective bargaining agreement, which commenced on 04/01/2018 and a $2,800,000 net of tax unrealized foreign exchange loss on non current monetary items. The impact of these two events to net earnings was $0.11 per share. The liquidity position of $204,100,000 at 04/01/2018 decreased as compared to liquidity of $222,300,000 at December 3037. The decrease in liquidity relates to change capital. Changes in non cash working capital are primarily a result of seasonality and are expected to be timing temporary in nature. The company generated free cash flow of CAD52.4 million during the 2018, a decrease of 2.4% compared to CAD53.7 million in the 2017, primarily as a result of increased cash capital expenditures offset by a decrease in current income tax expense. The company declared dividends of CAD20.5 million in the 2018, which increased compared to CAD14.7 million in the 2017. Property, plant and equipment cash expenditures in the 2018 increased by 84.4% compared to twenty seventeen Q1, primarily as a result of investments in field facilities, increased part fabrication in the new Shepherdsville, Kentucky facility and as a result of insourcing and continuous improvement programs. Management believes that ROIC is an important ratio and metric that can be used to assess investments against the related earnings and capital utilization. Growth for the last twelve months ended 04/01/2018 was 15.4% compared to 14.6 during the last twelve months ended 04/02/2017, improving primarily as a result of a decrease in the effective tax rate under U. S. Tax reform effective December 2237 as well as the improved net operating results. With that, I'll turn it back to Paul. Thanks, Glenn. Yesterday in Toronto, we held our Annual General Meeting and pleased to report that we had our highest attendance ever at one of these meetings for us. At the meeting, our shareholders approved a name change of our publicly traded company from New Flyer Industries, Inc. To NFI Group, Inc. And we asked to make this change to better reflect the multi platform nature of our business that now includes transit buses built by New Flyer, motor coaches built by MCI, cutaway shuttles and medium duty buses built by ARBOC and aftermarket parts and component parts fabrication under the brand of NFI Parts. So we'll now be working on launching an identity and a brand for NFI Group, But make no mistake, we want our focus to remain on our bus and parts brands directly with our customers. At the AGM, I explained to our group how pleased we are with our strategy, our execution and our business. And we remain committed to maintaining and profitably growing our leading market positions in bus manufacturing and aftermarket parts through enhanced competitiveness with a laser focus on quality, customer satisfaction and operational efficiency. Looking back almost 10 ago in 02/2009, we chartered a course to optimize, defend, diversify and grow our business. Optimize our facilities, processes and products, defend our market leading positions, diversify our business and grow our revenue, our EBITDA and our cash flow, all with a mission of delivering consistent and increasing total shareholder returns and we're very proud of our last year's last number of years performance. We're also watching our business migrate from just being a bus builder to a solution provider. And the why of our business has evolved to providing solutions or leading solutions to move groups of people safely, efficiently, responsibly and in style. In 2017, our market shares were as follows New Flyer transit buses 43%, MCI motor coaches 43%, which is up from 37% at the acquisition in 2015 and approximately 64% of low floor cutaway buses sold. Make no mistake though, while we want to grow share, we're not interested in chasing volume for its own sake. Profitable return satisfaction have guided us. We've lost some bids in the last twelve months where we felt pricing was unrealistic and not sustainable. New Flyer launched the charge version of our Excelsior Transit bus on a proven thirty five and forty foot and 65 foot platforms and response has been fantastic. E Bus orders while increasing a little continue to be proof of concept or trial programs for the most part. But I'm really pleased with where we're at on our electrification and fuel cell agenda. Overall, our markets continue to be fairly robust and healthy. On March 2338, the U. S. Congress passed the twenty eight fiscal year budget, which included appropriations appropriations for public transportation of 13,500,000,000 APTA or the American Public Transit Association of which we're very involved with has recently indicated that the federal budget is a big win for public transit. According to APTA, the total appropriations of $13,500,000,000 is the largest amount appropriated for public transportation in an annual spending bill and the largest ever one year increase with more than $1,000,000,000 over last year, we think a sign of health supporting replacement of fleets and upgrades. Based on an aging fleet, overall economic conditions expected and customer fleet replacement plans and active anticipate procurements, we continue to believe and expect procurement activity through Canada and United States will remain stable through 2018. On the MCI front, two days ago, we announced that New Jersey Transit had issued a purchase order for year three of its six year contract to manufacture and deliver an additional 182 commuter coaches for an approximate value of nearly $100,000,000 NCI expects to have completed all year two deliveries of that contract by the May and will begin production of the year three coaches starting in September private markets, The U. S. Tax reform, as Glenn indicated, did have an impact on our Q4 twenty seventeen orders, which then had a flow through impact on Q1 twenty eighteen. And given MCI volumes are roughly or on average two thirds private and one third public, MCI continues to adjust the production line rates accordingly of the Model D and Model J buses. MCI also continues to develop the plan and expand its product portfolio. The new D45 CRT LE or what we call the vestibule coach, which really is a game changer from a mobility perspective with revolutionary improvements of how to support people loading and unloading has undergone its testing at the bus facility in Altoona and is currently performing very well. So therefore, once passes, we'll qualify as a vehicle eligible for purchase using FTA funding. NCI is also in the process of detailed and heavy testing and certification of its 35 foot or J3500 MCI coach. And MCI is also in the process of now completing its first prototype of a J model electric coach where the bus is actually in itself driving and now starting its advanced testing phases. Now production capability MCI to support the new models of coach coaches continues and will be in place after the summer shutdown so that we can start production in the 2018 with deliveries of some of those programs early in 2019. As population ages and ease of access and mobility becomes more of a focus, we also believe the demand for low floor cutaway and medium duty buses with greater accessibility will grow from its current level of only approximately 5% of the total cutaway market. We are really pleased with the acquisition we completed last year of ARBOC and we estimate that ARBOC delivered 64% of all low four cutaway buses in 2017. The other attraction we had to ARBOC was its new launch of a medium duty bus that they titled Spirit of Equus. And that bus is currently completing its testing at the FTA facility at Altoona. We're really, really pleased with customer response of the technical specs of the bus, but also the price point compared to other available medium duty buses, domestically or one imported from China and we anticipate deliveries to start in the 2018. Overall, our master production schedule combined with our current backlog and orders anticipated to be ordered under new procurements is expected us to maintain our guidance to deliver approximately 350 units during fiscal twenty eighteen. Now production rates always vary quarter to quarter due to production mix and timing. So with our production schedule, low leverage, solid liquidity, we continue to focus on PPE investment. And as Glenn mentioned, we estimate that to be in the range of 63,000,000 to $73,000,000 Now that's about $8,000,000 higher than we originally disclosed in our forecast as the revised range now includes what was carried over from 2017 and not completed, but also money to be spent on PPE investments in our newly acquired composite business. And although our parts sales and margins remain difficult to forecast, we expect the market the parts market to be relatively stable in fiscal twenty eighteen. We are encouraged by the increase in gross parts already received in the quarter, but reality is quarter to quarter volatility is normal and typical for this business segment. Our parts teams launched a new website offering state of the art online sales primarily focused on private markets and it also has new distribution features, freight options and so forth. And while adjusted EBITDA for parts was low in the quarter, we are not worried about that segment of our business. We make a good return on parts sales, but customer satisfaction is key, especially during a phase of combining our businesses so that when our customers go to buy another bus, we're first in line. We continue to be focused on an established customer base to provide best value and support, and we also continue to investigate a number incremental business programs in the parts world, specifically a number of vendor managed inventory contracts that we expect to be in place later this year. We previously announced the closure of one of our redundant parts distribution centers that's located in Hebron, Kentucky. We are doing that in July 2018 and we'll continue opportunities for cost reduction and consolidation once the New Flyer and MCI parts business are fully harmonized with a common IT system, which we expect to complete later this year. Actually on Monday, I was in Kentucky, I visited the Louisville parts distribution center and nearly 50% of the parts from Hebron are now successfully moved and stocked in Louisville. So we're well on our way to making that July date. Finally, with our current overall NFI Group business performance, a healthy backlog, we continue to investigate M and A opportunities for additional long term growth and diversification. We've actively evaluated both domestic and international opportunities within the definition of a bus business as well as within our supply chain and our aftermarket. We've looked at targets and we continue to do so. But as I have in the past, any investments or acquisition we make will be strategic, prudent, measured and appropriate. Finally, as was mentioned, MFI Group Board approved yesterday an increase to our annual dividend to CAD 1.5 a share, which is up 15.4% and reflects the confidence we have in this business. Ladies and gentlemen, thank you for listening today. We're proud of our history. We're excited about our future and we continue to be poised to be North America's leading provider of buses. With that, we'll invite your questions and I'll hand it over to Lisa where you can please provide instructions to our callers. Thank you. Our first question comes from the line of Mark Neville from Scotiabank. Your line is open. Hey, good morning guys. Morning. Big win last night. Yes, I noticed. Anyway, just on the EBITDA per EU on the bus side, If I'm backing out Aarbak, I'm getting about 58,059 thousand dollars per bus. It's a healthy number, but it looks like it's took a little dip down from the last couple of quarters. It feels like Q1 is, for whatever reason, typically the seasonally weakest. I mean, is there a reason for that? Or is there anything in the mix that you can speak to in the quarter? I'll let Paul jump in after my I guess a couple of comments. For sure, it's always volatile quarter by quarter. The one in fact because we include all our SG and A with our corporate within the bus manufacturing operations. You do when you have a seasonally low period like we did this quarter, obviously, you have less expense leverage. So that's part of it. But we do have some just volatility and variation in our mix just quarter by quarter. There's nothing systemic in there, Mark, that would say there's movement or changes in mix that's not normal in the variation. No, the SG and A explanation helps a bit. On the New Jersey contract you just mentioned, again, sounds like the gap from June to September, did you also have that last year just so we avoid maybe some dip in Q2? The New Jersey contract, so if you go back in 2016, ancient memory now, the contract was deferred. We had a whole number and we continue to build because we felt that this contract would ultimately get built. So eventually, New Jersey got their funding straightened out, the contract got put back into place and we began to ship and trying to catch up all the backlog of buses we had built up. We did not catch up everything and we had some buses that fell into Q1. So Q1 twenty seventeen is when we finished the catch up of the buses that built up. Going forward though, Mark, your question about year over year, NCI and New has different approaches to, let's call them summer shutdowns. And New Flyer has a smaller kind of shutdown window and has always had a number of weeks in the summer. So what we do is in the public world where you don't have model years, we basically will adjust to try and have a level flow. And after the shutdown on the private side, we start to build model 19 coaches. And so yes, that happens every year. Okay. And so I guess my question, there's not going to be, again, a small dip in Q2 because of the New Jersey contract, saw something similar last year, roughly? No. No difference in terms of the quarter over year type thing. Okay. On the aftermarket, it's been two or three quarters now, some good year over year momentum, but you're still calling or talking about a flat market. So I'm just curious if it's maybe you're just being a bit conservative or you think you're gaining some market share or just too difficult to call the market? Well, it's really hard. And we've talked about this on other calls and in our Investor Days and so forth. The visibility of the total spend on parts is impossible to get our heads around because my silly example is that a windshield wiper, you can buy it from me, you can buy it from my competitor, can probably buy it from a broker, you can buy it on the Internet. And so it's impossible to know. We do our best to try and go back into the transit agencies and look at their maintenance spends and their year over year budgets and so forth, but so hard. So we were trying to stay and say, but we don't see any structural changes to the business in terms of the way people are buying parts. And it is so volatile quarter over quarter. If we're selling a bunch of stuff that is low dollar that has no margin on that thing in a quarter and there's a batch buy and so forth that can influence every single quarter differently. And so but again, we're trying to say that we don't see any changes in the market. We had a quarter where we had actual volume uplift, but we had a high mix of low margin stuff, but it's not like it's fundamentally changing our business. Okay. Maybe just on the closure of the Kentucky DC, again, you've talked about that before, but maybe put an estimate on sort of cost savings you might expect to see through the business from closing that? Yes. I guess just in terms of facility costs, that is probably in the neighborhood of $1,000,000 And then the question becomes when we consolidate all the labor, is there some supervisory that we have duplication, don't really have a feeling for that yet. Want to get the thing up and running and then we'll assess. There's also some cost in there to shut it down, right? Like we made a deal with a bunch of employees. We gave them several months notice. We put in some retainage packages to stick around and help us transition and so forth. So savings will be offset at least in the quarter to some extent by costs going out to transition those people. Yes. Maybe just one last one then. I guess there were some industry press on design of electric buses, replacement of batteries, what makes the most sense? I'm just curious to get your maybe your thoughts or your opinion on that if you wish to share them. It's a really good question, Mark. So our approach has been and continues to be, we've been building heavy duty transit buses for eighty years. We've chosen a structure and when we introduced low floor buses in North America in the early 1990s, we've chosen a structure where traditionally you have an engine in the back, but you also have load on top of the buses whether it be CNG tanks or fuel cell stuff or trolley stuff and so forth. And we've tested the hell out of that bus. And so our strategy when we first started electrification was to try and use exactly the same weight profile and distribution. And so we put depending on the size and quantity of batteries, we put them in the engine compartment. In some cases, we've had them under the seats, in some cases on top of the roofs and so forth. So the center of gravity, if you will, and the weight distribution on the bus has been consistent across all of our models. We have competitors that have buses in the floor and much like a Tesla car does. Their strategy and approach is to build a composite structure and put them in the floor. And when you add 150 kilowatts of battery, that was fine. Now that we're getting in the range of 400 to 500 kilowatts, you now have weight challenges on those buses in terms of total weight, but also axle and weight distribution. And I will say, in our single standby, there's not one solution that is best. We're really feeling comfortable with our solution and what we've done. We had an incident with one bus where we had a driver that was recklessly driving the bus and it flipped on to the passenger. So we looked at it, but that changed nothing to do with the safety, the design, the performance, the efficiency of our buses and we're very confident Okay. Thank you for that and enjoy the rest of the playoffs. Thanks, Mark. Our next question comes from the line of Chris Murray from AltaCorp Capital. Your line is open. Thanks guys. Good morning. Hey, Chris. So if we can go back to the Q1 manufacturing numbers because I think there's a little bit of confusion we're trying to straighten out. So I've got a lot of parts to this question, so maybe we'll try to take it one at a time. So first of all, can you tell us how many of the AARBOC buses were actually delivered in Q1 that made up part of this mix? 120,000,000 or something. Thought it around 130,000,000 It's just it's in the MD and A, so I'm just trying to find it. Dollars 1 and 35,000,000. Dollars 135,000,000. Okay, cool. All right. So as we start walking through here, and I guess part of trying to understand where the numbers are going to go, with ARBOC in there, you've got a lot of different mix items. So I guess I just want to walk through the revenue pile a little bit. So first of all, you've also now got the FRP program bringing in revenue, still small at this point. So I guess two questions on that. $14,000,000 a quarter, is that kind of the run rate we should be thinking about? And at what margin does that actually come in at? Yes. So a couple of things. Number one, we bought this FRP business primarily for ourselves and it did have some external customers. Our focus is not on trying to generate external revenue from this. We're out to support our products. And in fact, in some of the in some portion of the business, in order to start dealing with some of our added volume requirements, we started we have had turn some of that external revenue away. So it's always going to be a small amount in terms of revenue. Mean, I think it was $3,000,000 or something for the quarters. I wouldn't see it growing much from that. And while there'll be some margin, now you got to remember we bought this business or the part of the business we bought, it was an asset sale distressed business. So it was not making a whole lot of money on its external sales. And so we're in the process of lowering the cost of that business, so it will improve, but again, very low profitability. Okay. So basically think that like used or pre owned coach kind of marginal or zero type of profitability at this point is the way to think about it? Yes. Absolutely, Chris. Okay, great. All right. So when we go back to look at the numbers, so you said about 135 units. I know you talked about kind of 500 units for ARBOC this year. That is a bit of a step up from what you saw at Q4 or even the run rate through 2017. Should we assume that you're still aiming at that 500,000,000 number or should we be thinking of a slightly higher number at this point? No, at this point, we're still forecasting we haven't changed our full year forecast, Chris. And the number that we've got in the MD and A and then of course our quarterly releases and so forth still has us that. And if that changes, we'll just change that number quarter over quarter. It is not like New Flyer, it's probably more like NCI where it's transaction in nature, not as much contractual in nature and much, much shorter lead times. So it's not like we're able to fill out a year of production slots. If that number changes going forward, we'll obviously change that guidance. Okay. And should we be thinking like is there any particular seasonality like a shutdown or something like that we should be thinking about? So like you'll normalize to the 500,000,000 with a dropout of a couple of weeks in Q3. Is that the way to think about it? Yes. Okay. Okay. So just looking at that. And we're just trying to go back maybe even to Mark's earlier question. So trying to understand the core manufacturing margin. If I think about Transit and the coach buses, the margin did look a little bit down. So you're basically thinking a part of that is due to volume and mix in a weaker Q1. Is that the way to think about it? Absolutely. And again, every quarter, however many orders we deliver in that quarter, 30 or 40 or 50, every one of them is going to have a very different volume and different margin associated with it. And so we've had lots of quarters where everybody's all excited about fantastic margins and this one is not as great, but systemically nothing is different. Okay. All right. Because I mean the other thing that has us a little concerned is your ROIC number. I know you talked about like Q1 of last year, but I think the one that we're looking at is sort of the most recent print, which was 15.8%, and now you're 15.4%. So despite some of the noise in manufacturing, we're trying to understand why the ROIC is actually going backwards? So a couple of things there. Number one, we did have some heavy investments in working capital. So the invested capital is higher. We think that is related to seasonality and temporary and looking to reduce it. Secondly, obviously, have $100,000,000 of capital related RBAC. We bought that business on a based on its growth potential. So as a result, its return on invested capital is not at the same levels as the rest of the business today. However, we believe we're going to continue to grow that business and we'll get return on invested capital heading back towards that same direction. Okay. That's helpful. Thanks. Just kind of a question about sort of your outlook on the market. You used the term you see orders this year being stable, which is a bit of a change from the previous terminology. I don't want to read too much into it of being robust. Is that a way that you guys are trying to give us an indication that you think this, call it, supernormal book to bill rate that you've been enjoying is going to slow down and maybe normalize more around kind of replacement? I wouldn't suggest we change the words to signal anything different other than we're feeling based on the funding environment, the orders we got, the competitions we're seeing, there's nothing changing in the space. And we had a tragedy like nineeleven that would fundamentally change a whole bunch of stuff or if we had a real systemic shift on funding that changed, like there's nothing different today in the health of our business of any materiality that we had last quarter or the quarter before. There is always things that change in terms of the tax issue changed last year. Some of the commercial buyers of motor coaches pulled stuff into December to take advantage of the full year tax, accelerated tax that which impacted maybe somewhat we're hoping in the first quarter. Okay. So that's but in the grand scheme of things, it's not material to the overall total business. Okay. And then last question, something that came up at the AGM yesterday was kind of interesting. There's some commentary that you had around maybe testing out some Marco Polo product for use in North America. Can you give us a bit more of an explanation about what you're actually doing there? And is this sort of a trial to see if you can do some development work through ARBOC? Well, it's a really good question, Chris. And yes, I mean we have a press release because at this point we are evaluating. So the story goes as follows. We got a market pull amid investment in 2013. It was a cash investment as well as some strategic MOU type stuff. Let's compare supply chains. Let's look at product portfolios and remember we had first right of refusal on their products and so forth. But because New Flyer and then MCI, we never had any experience with cutaway or body on chassis type buses, we really didn't have an opportunity to demo, to assess Marquipola products in North America. So when the ARBOC opportunity came along and now that we are learning a lot from Don Roberts and his team about how to build a cutaway, how to build a much lower cost medium duty bus, how a dealer network works in terms of selling and trade ins and stocking and those things. We went back in partnership with our friends at Marco Polo and said, what do you got in that class that we might want to consider? And so we brought two Marco Polo, let's call them kind of small to medium duty shuttle buses, one is a low floor, one is a high floor. And we brought it in North America and we are marching people through the buses to say what do you think of the styling, do you think of the design, what do you think of the technical specs, what do you think about if it's for a public world, you'd have to have Buy America compliance, If it's for a private world, wouldn't price points and all those things. And so this is just part of our as we've grown up from just a transit bus to multiple platforms, this is just good solid research to see if there's an opportunity based on some products that are already designed and crazy successful in Latin America. Okay. And is this the kind of thing that I mean, you alluded to public market versus private, but this is the kind of thing where you basically take the spectrum is we could license the designs and build them completely in America and anything in between. But we're still first trying to determine whether the products, the two buses we bought, they're very different. The two buses that we brought to North America or whether they are there, whether people the market thinks that there is an opportunity to sell this product. And then there is the whole issue like our wonderful learning experience with Alexander Dennis about Americanizing an international product is not trivial. Yes. Okay, great. That's helpful, guys. Thank you. Thanks, Chris. Our next question comes from the line of Cameron Doerksen from National Bank Financial. Your line is open. Thanks very much. Good morning. Good morning, Karen. A question on the, I guess, the electric all electric motor coach you put out a press release last night and it sounds like there's some good progress there. I'm just wondering if you can maybe describe, are you actually seeing, I guess, pull from customers for that type of product? And who are the potential customers of an all electric coach? Is it more transit agencies or is it private operators? That's a really good question, Cam. And of course, we have the benefit of the learning that we've had over the last well, held since the 70s here at New Flyer dealing with buses that have electric motors and batteries and then in the last couple of years pure battery electric and then fuel cell electric and so forth. The pull comes from primarily from two places. One is public transit agencies that are following the same theme that you have in transit buses around emissions and clean and green and so on and so forth. So there is absolutely some of the transit agencies that want this. Now there is not a lot of transit agencies that operate coaches and most of them are New York, New Jersey and others where you're shelling people into the cities. And so in those scenarios, you got to really think about capacity and range, charging strategies and so forth. The primary draw and pull so far is coming from Silicon Valley. And so we talked to and we did at our Investor Day a little bit, but in Silicon Valley, it's gone from kind of zero employee shuttles to something like six eighty buses or motor coaches that are shuttling people to Apple and Facebook and Google and so forth all day long. So these buses are operating for a couple of hours in the morning. They are operating for a couple of hours at night. The people that get on are professionals and only have a briefcase. They don't have luggage and the range is very well known, the capacity is known and so forth. And so as we opened up a service center in the Bay Area, as we've been able to sell more diesel coaches, as we have looked at our product line up there, the ability to electrify a coach to be able to do that range in a green type approach really has a lot of those operators and those companies specifically very interested in it. And so this is not rocket science or inventing things from a New Flyer and MCI perspective. It's more of applied engineering based on learnings that we have. So we're really excited. They like our bus. They like the design. They like the layout. They like the efficiency and so forth. And if we can add one more opportunity for propulsion choice, we're pretty pleased with it. That's great. Just maybe to follow-up. I mean, I guess, are your competitors on all electric coach? Have you got a decent lead on them in developing something? So we have a Chinese competitor that has an electric coach and they've been demoing it. And we have another one that is we're here planning to come to North America and start building here with an electric platform. If the transit world is in really early phases of demoing and trials and charging strategies and so forth, the motor coach world is behind it. It's really early stage evaluation. Okay, very good. And maybe just one final one for me just on staying with the electric theme here. Maybe can you just update us on the progress of I guess electrical infrastructure standardization? I know there is some trials going on right now. I know that's a big sort of sticking point for potential customers is having some standardization across all electric buses. Maybe you can just talk a bit about that. Yes. That's a really good point too, Ken. We've been talking quite openly for the last, I'm going to say, and a half or two years, trying to really get together, FTA and The U. S. Operators and the competitors and so forth to be able to come to a standards definition. And so we think by the end of this year or even into 2019 that we'll have consensus on what those standards are. Europe is ahead of us where they already have agreed to certain standards and what we're proposing and where we're at seem to be pretty close if not identical, which would be fantastic. The other dynamic around adoption of electric buses, well, some people in the industry keep talking about, hey, they should be all tomorrow and so forth. Not only the price of the electric buses and sure they've come down, but there is a premium to diesel or to natural gas. The bigger issue in our perspective around adoption has to do with infrastructure. And so I used an example at our AGM and in other meetings in the last couple of days, we put five buses into New York City that go across on a trial basis that go across Manhattan. These buses go, I can't remember the width of the island, but on average they are 2.9 miles an hour and they are loaded with people and so forth. But it took us nine months and 13 different transit agencies to 13 different civic agencies to sign off on our ability just to put two chargers in place. And then you think about it on a bigger scale, the cost of the infrastructure and possible power stations and on and on and on, who's going to pay for that. And that's one of the dynamics that it's easy to talk about just the bus makes sense, but it's the economics of the system and the funding that's going to really pace adoption. Hopefully that color is helpful. No, that's great. Appreciate it. Thanks very much. Our next question comes from the line of Kevin Chiang from CIBC. Your line is open. Hey, good morning and thanks for taking my question here. Maybe just on the EBITDA per EU not to beat a dead horse, but in your disclosure, you noted, I guess, an apples to apples pro form a comparison that your margins were up roughly 2,500 year over year in the first quarter. And I'm just wondering, is that the kind of lift we should expect through the year as we account even as we account for mix? Or should that accelerate because you had a more challenging mix scenario in the first quarter of this year? Or maybe you get accelerated cost savings as we get to the back half of the year? Just trying to level set the $2,500 versus how we should think for the remainder of things we're talking about are things at the fringe, like, for example, the SG and A, right? We'll get better leverage out of those SG and A as we get into higher volume quarters. So that will provide for a little bit better. The mix is always questionable whether it's going up or down. We continue to focus on OpEx initiatives. And just going back to Chris Murray's question on ROIC, the other question that I might forgot to mention, our capital expenditures that we've been booking over the last couple of quarters, we anticipate to get earnings or margin enhancement out of that, right? So that has deteriorated upfront, the ROIC, for example, but we would see that as now be a contributor to our overall margin enhancement strategy that we've been on for the last few years. So I think what we could see is some marginal improvements as we continue to step forward, but nothing dramatic. Then As a mix, right? I mean the mix is going to be volatile. No, that's helpful. And then when I look at, I guess, the past three years, you have seen a slippage in your market share within the heavy duty transit market. But obviously, your deliveries are increasing here. And I guess, it seems like the individual that's taking share from both you and some of the other players is Nova. And I'm just wondering, are you seeing them do anything differently from a competitive perspective or maybe just an overall competitive dynamics? Is there anything changing here given how healthy market seems to be and given how the funding environment is shaping up here over the next couple of years? Well, I think you nailed it, Chris. We have an increasing market that albeit not drastic, but the whole market has gone up. The competitive intensity has grown. And so where, for example, Nova has increased their volume, Gilly's increased their volume, Eldorado has increased their volume and we've tried to make conscious trade offs about volume versus customer stats and profitability. But I can point to three or four competitions in the last year where we've lost by $75,000 bidding for that. I don't know how you make any money and how you sustain your business. But so if that's what it takes to maintain share, we'll pass on that. And we're going to focus on our core customers and our core performance and the profitability of our business. How you bid 75,000 to $100,000 less than us is incredible, especially on volumes. In some cases, there are 300 or 400 plus orders. Now whether that's a change in the industry, I'm not so sure. Some of competitors have been tuning that for years on certain orders and I guess that's their prerogative. The competitive intensity, let's say, overall is more intense today than it was three or four years ago when became part of us and when Orion went away. And then of course, the next chapter in our lives with the electrification, we do have new competitors that but their ability to ramp up to volumes and so forth is something we haven't yet seen. So we'll watch it and we'll but at the end of the day, I maintain we're about performance of the business, quality products, about profitability and returns so we can invest in new products, not about just chasing some of that crazy volume. Are you finding that a lot of this increased pricing competition is happening outside it sounds like it's outside of your core customer base, suggesting that maybe your core customers' pricing is maybe at the low is lower down on the list of things that decide whether they place an order with you or not. Is that a fair comment? No. I mean there's some of our core long standing customers that just came back to us and said, have a price that's $90,000 less than your bus. Sorry guys, I can't justify that to my taxpayers, and I get it. So some of these bids that we've lost are just some core customers. In contrast though, we've won some customers that were competitors of other people, which is why we've been able to kind of hover on our market share but dramatically improve our profitability. Okay. That's a fair point. And just last one for me. When I think of uses of excess capital, I think you've talked about M and A and the pipeline there and how you look at that. You raised your dividend. You're under levered versus your target and your willingness to go above the top end of that target on the right deal you've made well known. If we think of twenty nineteen CapEx rolls over, let's say M and A is still pretty quiet. How should I think of excess capital? Is it primarily through the dividend and maybe accelerate that? Or does the buyback become more relevant post this elevated CapEx spend if M and A doesn't show up in the next twelve to eighteen months? Well, you must have been sitting in our Board meeting yesterday because that's exactly the conversation we have. First and foremost, we're going to continue to invest in our business, and we've demonstrated that. We've been very transparent about product enhancements or facility optimization or part fabrication, and that's why our CapEx is up. We're going to continue to try and live in that world of 2% to 2.5% from a flexibility from a leverage perspective, but it's going to be volatile based on where we're at in the cycle. The M and A is absolutely on our radar and we've been fairly transparent, but we're not going to just overpay for assets that we like. And I go back to it took us three years to buy Navi. It took us a year and a bit to get NCI. And so we're going to take our time to do it right. And the dividend, we believe to be an important part of our strategy. And then the other, which is why we increased a little bit. And then the other dynamic is we continue to have conversations about an appropriateness of an NCIB with our Board. And so I've told the shareholders for a couple of years, we didn't want to do that because we didn't think we're in a position relative to liquidity and the size of our business that made any sense. And now we're getting to territory where the conversations around NCIB are very deep on the Board agenda and trying to see whether that's prudent. Having said that, we want to continue to grow and diversify our business. And so we're spending time and effort on appropriate M and A for the future of our company. That's all very good color. Thank you very much guys. Thanks Kevin. Thanks Kevin. Our next question comes from the line of Jonathan Lamers from BMO Capital Markets. Your line is open. Good morning. With the significant changes to the MCID model being made this year, will your D line be taking more downtime this summer than it did last year? No, not more, Jonathan. The changes that we're making to the new D, it's hard to articulate without a kind of a flowchart of that thing. But think of it this way, the D and the J are two completely different lines. The new D is going to be built on the J line. The old D doesn't go away until we're finished building the current contracts. The one primarily that's in front of us is New Jersey, which worst case can go to 2022. And so we have been spending money at the shutdown at Christmas. We're spending more money at this summer shutdown to continue to put in common fixtures on the J line in Winnipeg to handle the new deeds. So the shutdown won't be any different time duration, but that's a lot where a lot of the CapEx at MCI is going. Okay. And just Paul, you made some comments earlier about adjusting the production rates appropriately on the D and the J. Could you elaborate on that a little bit more? Have you seen some softness in the private sector demand for the J? Maybe Every you would single year, hell, every single quarter, we are tweaking the D and the J volumes and the production rates. And of course, that has it's easy to say, but very difficult to do because you have people moving across the plant that today work here, tomorrow works there and then you have the bumping dynamics and so forth. So we don't make those adjustments lightly. The dynamic of the as Glenn and I both discussed earlier of The U. S. Tax reform that we felt had an impact on our fourth quarter deliveries that had a rollover impact in the first quarter, has had us look at slowing the J down a little bit and increasing the D to handle the new or the purchase order we just got for New Jersey. The other dynamic that you have to keep in the back of your mind is that we build J models for a certain level for stock and that stock can range from 20 or 30 buses in stock to fifty, sixty, eighty, ninety depending on the timing and whatever, how many are on our shelf. And because of that first quarter dynamic, we are going to slow the J a little bit down and we are going increase the D. Whether there softness in commercial private orders that systemic beyond the first quarter, fourth quarter impact, I'm not so sure we know yet. Okay. So it sounds like you have inventory to support wherever orders are in Q2, albeit you've taken down the J line, right, a little bit? Yes. And also keep in mind, Jonathan, I think I can't remember if Mark asked this question earlier, but the other dynamic is the buses we build today are a model 18 production year. The buses that we build after summer shutdown are model 19. So you don't want to build too many 18 models because some people might say then I'll wait for a 2019 model, which is again why we always adjust the D and the J lines to kind of synchronize with the short term demand and the market conditions as opposed to a long term production rate. Okay. Thanks. And Glen, would you have the contribution to EBITDA from ARBOC for Q1? We haven't disclosed that and we don't intend We did provide last year, so you could sort of set the benchmark, but that number is not being disclosed. Right. So I mean the deliveries were up 55% year over year. Yes. I think the way you can look at it is, I guess you can come up with an estimate of the EBITDA from 2017. That would be a proxy as I'll go forward. Okay. So like no significant changes in our box earnings? No. There may be later on the year as we start introducing and seeing some sales from the medium duty coach, but right now it's primarily cutaway business and therefore last year's fair representative. Right. And just to clarify, in the aftermarket segment, were the aftermarket SG and A margins up at all? Or were they maintained flat this quarter and we just saw the gross margin come down? There is some in the SG and not a whole lot. It's primarily on the gross profit side. Thank you. And if I could just ask about this funding increase for public transit. Did you receive any indication as to how much of the increase is available for buses versus rail and other forms of transit? I don't have that in front of me here and that's something maybe we can look at providing off top of my head. I don't know the ratios and whatever. I guess the point we were trying to make is the strong support from government continues both in the FAST Act as well as the funding and appropriations bills. But we can try and see if we can come up with that. Like I just it sounded quite positive that the funding was up 8%. So I was a little surprised to that the market was kind of characterized as stable versus robust last quarter. Like I would have thought that could higher level of orders going forward. Remember too, Jonathan, that you get into a scenario that if the funding goes up today, it's not elastic. It takes transit agencies twelve months or nine months to put a competition together. And so if you're working on a plan for your fleet to do X buses and Y upgrades and X mid lives and so forth and there's a little bit more funding coming, it's not like it increases the volume tomorrow. And again, to Chris' point, I guess lesson learned from my end, using the word stable versus robust and so forth, I guess we're going to have to be a little bit more careful about how people read into that stuff. I don't think you should read into that. We're comfortable with the funding. We're comfortable with the number of competitions. I'll always, on the public side, point back to the bid universe, which is always very volatile, but we've got a really healthy number of competitions going on in active and in what people tell us they're going to buy over the next five years. And with that kind of a funding statement by the government, maybe we'll see people starting to say, hey, last time I talked to you, think I'm going to buy 100 buses over the next five years. Now it's 120. That's where it will first transpire is any uptake in the what people tell us they think they're going to buy beyond their current budget window. Thanks. And one other question, if I can. On these capital projects that you're undertaking, the Alabama facility to be completed in January, the Kentucky parts fabrication facility, I think you said that will be done by the 2019. Can you update us on whether those target dates are still accurate and perhaps the returns you expect from these projects, whether in terms of paybacks or IRRs relative to your other in sourcing projects? So projects are all on schedule. In fact, the first parts have started to come off from the Shepherdsville facility. Obviously, it will ramp up throughout the year as we put more. And into next year. And into next year. So all on schedule there. The Alabama facility, on schedule, looking forward to getting that in place. A lot of the equipment and you saw it already in place from when we did our investor tour in January. So you 've already seen that. So moving along very well, don't see any changes in our targets. As we sort of said, it will be both those projects are going to be contributors to our margins on a go forward basis. We looked at these projects no different than we look at an M and A target and said it's got to be justified through return on investment and payback periods. And I would say that the paybacks on these projects would be much in line with the other projects we completed over the past three, four years. The other dynamic though Jonathan on that stuff is it's a much offensive defense from our perspective. In sourcing a part that we can make to our little drawing that we can roost the cost is fantastic and we hope to get margin off it. The other dynamic as we talked in the question earlier is as competitive intensity ramps up, we got to keep going after our cost base And so if we've got to give some away on price in the short term and in the long term and so forth, having that ability to reduce our cost base is absolutely critical. We've based every single one of our business cases on current volume and current pricing of those individual subcomponents. So you shouldn't expect massive increases in EBITDA. All it takes is a couple of competitions with tough pricing that allows us to compete. But we're really pleased with the performance. And as Glenn said, we're absolutely on schedule for all of the major projects that we've got going on. Great. Okay. Thanks for your comments. Thanks, John. Your next question comes from the line of Stephen Harris from GMP Securities. Your line is open. Good morning, Just had one quick one and a follow-up on what Chris was talking about, about deliveries. When I look at your numbers, the 40 three-fifty guidance for the year, quite frankly, struggle to get our number down to that level. And I'm just wondering, there anything we're missing? Is there any capacity issues or any constraints that you're aware of? Or would you just characterize your guidance as being maybe on the conservative side? I don't want to say it's too conservative. Obviously, we're trying to be prudent in the guidance we provide out there because we don't provide EBITDA guidance. And so we're trying to be prudent in how we approach that. The other dynamic, and I think, we saw this when we walked everybody through the Alabama facility, Plant capacity is only part of the issue because it's specifically in the public world, every bus is different. Non recurrent engineering that we do or with our suppliers is also a limiter as well as the high variation of the supply chain. And so we got to and then ultimately when we finish the bus or as we build the bus, the other limiter in capacity is inspectors. And we've talked about over the years where we got to we can build at a much faster rate, but the customer can't inspect nor accept and induct those business at a certain rate. And so we govern our output not only by our productive capacity, but all those other variations whether it be as I said, the non recurring engineering, the supply chain or the customer is they've been pretty transparent. There's more capacity in our facilities, but we're hesitant to jack it up in any quick manner because it's got to be sustainable. And so that's why you've seen us build backlog at the same time as we're increasing production rates. Okay. All right. So and when you think about these issues, are any of them sort of tangible and affecting your business right now? Or are they sort of concerns on the radar that you need to be worried about but aren't actually affecting your ability to operate today? Well, I don't see I can't think off the top of my head if anything that is different than it's been last year or the year before. But Glenn talked earlier about it, but it inflated working capital in the quarter. If you build x buses for a customer that have can't take acceptance of them, you build up receivables. And we're not worried about getting paid. It's just a matter of timing. You've got other dynamics that have changed with certain customers in The U. S. Where ten years ago, they used to give us milestone payments and they paid for the bus as we built it. Now that has gone away with the exception of maybe one or two contracts and we get a dynamic of what's called retainage, which certain customers actually are holding back tens of millions of dollars and drip feeding it once all the buses are delivered. But I wouldn't say any of those are massively systemic issues, but it impacts every quarter and because every customer is different, not only the spec, but how they pay, how they inspect. It's not like a normal tractor manufacturer where they punch off the line and they're very consistent. This is a building houses on an assembly line, highly, highly variable, everything about the technical, the inspection, the building and so forth. But to your point, I can't think of anything that's structurally different today other than maybe those payment term type things that there was a couple of years ago. And this is also a dynamic that some of our competitors that are new to our industry are getting their heads around. We don't get to just decide what the bus looks like and build it. We've got to integrate that unique spec and requirements into a very, very complex product and then you got to build it. And then you go through a very sophisticated and detailed inspection process, which every customer is different at. Great. Thank you. Thanks, Steve. Your next question comes from the line of Daryl Young from TD Securities. Your line is open. Good morning, Good morning, Daryl. First question relates to with the rising environment and the increased deliveries across the industry, are you guys seeing seeing any input cost inflation or anything that would impact potentially the margins that are actually in the backlog currently? Because I know in the past you've mentioned the margins in the backlog are kind of consistent with 2017 levels. That's a great question. I don't think there's anything we can point to other than maybe steel pricing. But I'll go back to look, pricing is going up and we were in a period of five, six years or whatever where it was crazy low and then we have dealing with the dynamics of tariffs or possible tariffs and so forth. But in a materiality perspective, the cost of raw steel that we buy that puts into a bus is how much, Glenn? $10,000 Yes, for a pretty modest 10 so if it goes up 10% or 15% or 20%, yes, it has an impact on COGS, but it's not massively material. And because when we bid that bus, we went back to our supply chain and said sell me an axle. And in that axle is that supplier is having to deal with the commodity prices. So the next bus that we quote, they're going to give us a different price, which we're then going to build into our COGS and then we're going to manage our margin on top of that. But it's not as if I'm buying a whole bunch of commodities or raw materials that have massive differential on my current backlog. Okay, great. So then kind of fair to say that the margin profile this year would look similar to the last twelve months, which is kind of what you guys Yes. Are And then the caveat of look, it's everything is different, right? And every customer is different. And if it's a trolley bus where two of us are bidding compared to a diesel bus where five of us are bidding, sure, you're going to have margin differentials, but nothing systemically inside that bucket or that mix. Okay, perfect. So the next question would be on aftermarket. Some of these new vendor managed inventory programs you're talking about as well as the recent MV Transportation contract, Are those going to effectively stabilize the revenue profile, but at the cost of margins? And then what does that mean when you say lower margins? Is that Well, that's absolutely part of dynamic that's already inside some of our results because we do have some vendor managed inventory contracts. So you absolutely trade off, let's call it not surety, but confidence in volume for a differential margin. But at the same time, there's a balance sheet impact because as we can we grow our inventory business or our MVMI business, we're now into planning inventories for customer and volume rather than guessing who needs what and then having a whole bunch of stuff on the shelf that may or may not turn. And so the deal with the one you just talked about, we got a dynamic where we're only selling certain parts of them today. Now we got a broader basket of parts, which hopefully can drive up more volume and yet there may be a margin trade off. But that so far is a very small part of our business. It may grow. Okay, perfect. And then in terms of the electric buses, plant capacity, obviously, we said is not an issue. But as the ramp up of electrification happens, is there going to be additional CapEx that needs to go into your facilities to convert to a greater proportion of electric vehicles on the production lines? So we today in two of our three systems, let's call it, Winnipeg, Crookston, St. Cloud and Anniston on the New Flyer side, two of the three are already capacitized to build an electric bus right beside a diesel bus or a natural gas bus. We as part of capital profile for this year and next, we will continue to make all those plants electric bus build or fuel cell bus build capable. And those are $1,000,000 here and $1,000,000 there. It's not like this $50,000,000 are big. Dollars. NCI exactly the same thing. So it's all within our current capital extend that we've got planned. Right. Okay. So no real change to the sustaining CapEx profile No. Going Okay, perfect. And then fair to say then that as the existing capital investments come through the ROIC heading into 2019 should directionally would kind of trend back upwards? Yes, Craig. Obviously, the investment comes first and the benefits later on. Terrific. Thanks guys. Thank you. We have no further questions in queue. I'll turn the call back to the presenters. Great. Thank you, Lisa. Much appreciated. Ladies and gentlemen, really appreciate you calling in and very detailed questions today. Look forward to speaking with you at the next quarter in August. Have a great day. Go, Jess. This concludes today's conference call. You may now disconnect.