Goldman Sachs Second Annual Leveraged Finance Conference

Jun 20, 2017

Slides

Summary

Management saw the rental cycle in its middle innings and targeted fleet-mix and profitability improvements over five years. Separation could extend to June 2018; organic growth, customer-focused technology and deleveraging remained priorities.

All right. I think most of the people who are in the room now were in the room before, so I am not going to introduce myself again. We are very happy to have the management team, or representatives from Herc here with us. We have Elizabeth Higashi, does IR for Herc, as well as Mustally Hussain Can I just say Herc? Oh, Herc. Sorry. Herc Holdings. You must know that I spend 95% of my time talking actually about Hertz, so I apologize. It will not happen again. Herc Holdings. Mustali Hussain works in treasury at Herc. We have a similar set of fireside chat questions for them, and then we will open it up to the floor as well afterwards. I asked a question to the BlueLine folks who were up here before, but I want to get your view on it, too. Where do you guys think we are in the cycle right now? Well, I think, for most of us who, most of you have seen us before, we really think that given what we are seeing in terms of most of the major economic metrics, ABI, GDP, even non-res construction, even though the numbers yesterday looked a little softer than what they had previously. We think we really are still in the middle innings of this economic cycle. We believe that there is a lot of potential for growth, and particularly for us, given the fragmented nature of the industry, and the size of the opportunity, we think that there is substantial opportunities still for growth. Is that kind of a year or two that you think there is left in the cycle, or is it difficult to put a timeframe on it? Well, if you look at ARA, over a five-year period, they are expecting 4.5% growth or so, right? Anywhere between 3%-5% per year. We certainly think that if and when any infrastructure spend is approved, that that would only extend what we would already see as sort of an expansion of the cycle. Okay. I want to talk about the separation between Herc and Hertz, because that's obviously still an ongoing process. First of all, what are the one or two most difficult aspects of the split with Hertz that you have yet to accomplish? Well, let me say that our highest priority is really to separate completely from Hertz. We currently continue to have transition services agreements with Hertz for services that they provide, which include an IT platform for both the front end and back end of our systems, and that's accounting and other things like that. That would probably be the most important thing we do. Our separation and distribution agreement was for two years, so that we would expect to certainly be separated as quickly as possible, but likely, it could be certainly moving into 2018 before all that's complete, because we have until June 30, 2018, to complete that transition. Now, is it- Yeah. Oh, go ahead. I think that is right. I think we have about 2 years since the spin, and we see the- It will be like summer 2018, right? That is about a year. We are like a year in. That is right. Basically. I know in theory from what Hertz is telling the market, they are trying to change around some of their IT. I suspect that that might be in the customer-facing aspect of Hertz's business, which obviously would not affect the Herc side of the business. Are any of the changes that Hertz is trying to make in terms of the IT management of the rental car business, is that affecting your platform at all? Or is your platform more kind of like the back office and accounting that does not have to do with any changes they may make as they face the rental car customers? Yeah, I think the platform, again, the IT platform that we're talking about is for the front end and back end, right. So we don't think there's too much overlap with their front-end platform, right. Again, of course, for the back-end platform, there's connection. Right on the accounting system, so there's separation there. But we don't believe there's too much connection on what they're trying to do on the front end of the platform. Okay. When should the cost of the split abate. Also 2018. Is that the timeframe, or could we see them abate before then. Well, basically we have said previously that spin costs for this year would be $25 million-$26 million, and that the expectation would be that those costs would decrease dramatically in 2018. I am sorry. I might have misspoken. I meant 2017, if I said 2018. Yeah, 2017. Yep. That certainly is our highest priority is to really split apart. So we would like to do it sooner than later, but it may be that it bleeds into 2018, certainly. Okay. The last question on this split, and this is something that I have been asked by investors as well. This is in terms of the liabilities that could be related to Hertz. So we know that in terms of contingent liabilities for existing legal issues, Herc and Hertz share responsibilities going forward. But what is the timeframe during which Herc might still be liable for any financial difficulties at Hertz? I have gotten the question from investors about potential fraudulent conveyance if something terrible happens to Hertz, and that is certainly not our base case, but can you guys just explain to us what Herc might be on the hook for for that? Well, I think basically most of the risks are really quite specifically outlined in the 10-Qs and the 10-Ks that have been filed. Most importantly, I think is that any pre-spin litigation and liabilities, there's certainly certain liabilities that we would share some cost. What we've said is that our share would be 15% based on our separation and distribution agreement. Okay. Is there a time period during which if Hertz does face financial difficulties as a spun-off company, there could be a look back to Herc? I can't really comment further on that. That's- Okay It is what it is. Okay. When we were talking to BlueLine about the business, I kind of separated into the buying, the renting, and the selling. Sure That's how I kind of look at this business. First of all, on the buying side, how do you feel as though your pricing with OEMs compares with peers such as URI, Sunbelt, and BlueLine? Well, we can't really comment on the kinds of discounts or whatever that all of these other peer companies get. I think that we basically feel that we have the scale to offer really comparable scale so that we're pretty much sort of in line likely with some of the key players. You guys still do get decent discounts on the equipment that you buy. We absolutely do. Tell me this. If I look at this industry and there are several large players and then a bunch of really small players, if the small players likely are not getting discounts and they do not have the same scale as the larger players, how does someone the size of Herc really ever lose business to those companies? Is it literally just that they are in the small places where you guys may not have a location? Because it would seem to me that you guys have kind of a better equipment cost, right? So you may be able to better compete on price just because you might get that discount. Well, do not forget that a lot of the smaller mom and pops would buy used equipment, right? They are going to have a lower base so they can offer a lower rate. Okay. So that is where it is. Yeah, it depends really on what kind of customer that you're working with. That certainly is going to be a major factor. Okay. I want to talk about Herc's strategy. Stop doing that at some point. Maybe you guys got to change your name as part of the. Sorry. Right. Herc's. Herc's strategy for acquiring equipment. I know that you've, and we've spoken about this, that under previous management, the equipment rental side of the business was not focused on as much, and that there was a similar mistake made by management that they did with the rental car business, which was trying to get the cheapest equipment up front and not worrying about the residual value on the back end. So obviously, Herc is now trying to change that. If you were 0% on day one of the spin, how far along in that strategy are you? Is this in terms of makeup strategy, like particular or makeup equipment in terms of particular OEM, or is it age of equipment? What are the characteristics that help you guys buy better now? Well, that's a whole lot of questions that you just provided. Granted, we as a major strategy, going forward, one of the biggest things we wanted to do to enhance our own profitability longer term was to shift the mix of equipment. So it's a broad-based approach to enhance the size of our ProContractor and ProSolutions equipment, which in 2015 was about 15% of OEC compared to core, and now it's about 18%. That kind of equipment is ProContractor is sort of a small tools business, so power tools and floor scrubbers and surface equipment and landscaping equipment, that kind of thing. Then ProSolutions is more of the sort of what others call specialty, which is pump and power remediation and climate control. While that process has gone on, we've also been enhancing the type of equipment we have in certain segments of the business. In aerial, we've been not replacing big booms as much as we are enhancing the size of the fleet and scissors. In earthmoving, we're really changing out the mix between heavy earthmoving, more towards compact equipment that can be used in a broader customer base, and the same with telehandlers as well. I don't know, what else did you ask there? Yeah. So that's helped me in terms of the type of equipment. Is it more saying, look, I think that the residual value in equipment A is going to hold up better than equipment B because of the end market demand for that equipment? Or is it- Oh, it's really both. the OEM make? Is it- It is really about what the customers want. The customers are going to recognize the premium and well-known brands, and that is going to be easier to rent. Okay. Certainly there is- Yeah as Nasali would say, certainly the value is the same. We certainly think that premium brands tend to hold their residual values better, right? Even within certain types of equipment. So aerial booms and sort of your scissor lifts and things like that, they certainly held their residual values much better and be much more flat as opposed to other kinds of equipment. You've got to recall too, though, that when Larry Silber, who had 30 years of experience with Ingersoll Rand, and Bruce Dressel, who was our Chief Operating Officer, who previously ran Sunbelt, there is a wealth of experience there in terms of understanding the equipment rental business and what's important to customers, what holds residual values. So, the focus for us was not only the shift in fleet that would improve the dollar utilization, but also making sure that we were partnering with our OEMs as well. So we got actually better pricing probably because we had more commitments with them. Then, all of that sort of ties into how we've been improving sort of the whole process. Again, this is a journey, right? It's a five-year journey that we've said when we laid it, when we spun out, we said, we expected to get to the metrics of our leading peers in the industry over a five-year period of time. As you know, there's always an equipment rotation. So, that process is ongoing. At the same time, as I've just talked about, instead of purchasing some of the same types of equipment where we're changing out and moving into different types of equipment. That's not just in the ProContractor or ProSolutions, but also in the mix of what else we're doing. I think we've spoken about this publicly. We want to make sure that we are attacking the customer mix and the fleet mix in the right way, right? We are broadening the customer mix as much as possible. All the things that you're talking about, that speaks to it. Now, we just were talking with BlueLine about their strategy for buying equipment, and as Sarah's noted, that they have a bottom-up approach where they say, "Okay, what do our salespeople say they need? Yeah. They tell us that, and then we go and buy accordingly." Is that the Herc approach as well, or is yours more top-down, where management says, "All right, I think that this end market, this market, this market look like they have good demand trends. That's what we're going to buy. We certainly have a feedback loop through our branch network. The branch manager and the sales guys are saying that, "This is the kind of equipment we need." Corporate doesn't make a decision in a silo. It's really a collaborative decision. Okay. Ultimately, the decisions, the procurement is happening through corporate. Right. I can tell you that we had a huge group of our salespeople at the American Rental Association meeting in February. They are all tasked with not only checking out equipment, but also deciding what sorts of equipment they want. They all certainly let everybody know what is important to them and what markets. Then those decisions are made in terms of what best seems appropriate. But then they certainly have their inputs heard. Okay. I want to talk about your growth strategy versus competitors. I know that you guys and URI are both focused on pump, power, and climate. As I read them, some of this kind of penetrating some of the similar end markets. How does Herc's strategy for targeting under-penetrated markets differ from URI's? Even, I guess we could talk about the ProContractor, which is more similar to what Sunbelt is doing. How does your strategy in those markets differ, or is it just saying, "Look, it's so under-penetrated, there's room for all of us to go in"? I think it's a little of both. The market opportunity is huge, and at the same time, we have industry specialists that are looking at vertical industries who we've brought in to help us focus on the right approaches to the customers that are most sought after. But what we're focused on is providing a solution to a customer. So if a customer has an issue where, say, they're a nursing home, and their air conditioning goes out, and it's the middle of the summer, and you're in Louisiana. They call us and go, "Oh my gosh, I'm going to have to move 195 people unless I can control the temperature, because it's beginning to rise because it's 95 degrees outside." Our guys go in, and they evaluate the square footage and what kind of power it's going to need to pump chilled air through the building and the right kinds of air ducts that should be provided depending on how large the facility is. That's what we do all the time. Those relationships that we can establish with people in each region and with contractors and remediation people, all that's an important part of how we approach the business. I think one of the key pillars of our strategy, and we have said it very publicly, is good customer service. Enhancing that customer service and providing customized service to each customer is really important. As long as we are meeting the demands of the customers, and it is not just like one solution fits all, that hopefully will provide long-term dividends for us. The other side of that is technology plays a huge role as well. For some of the people that have been in our one-on-ones, we have been talking about situations where a major metropolitan housing authority just rented several hundred light towers from us. What we were able to provide for that housing organization was light towers that could go on and off remotely with our telematics system, so they did not have to send people out to turn them on and off, which was a huge savings. Also that our systems could also tell at what point in time that those light towers needed to have fuel added. They would be given, whatever, a 48-hour notice that it was time to put some more diesel in that light tower. Those are really important ways that we help our customers become more efficient and more effective. That is, I think, the advantage that we and others like the Big Three have in a local market. For a big project like that, did you guys have those light towers on hand, or you had to go out and order them, and let's say the lead time was a few weeks, so it was fine? I think the lead time was longer than that, but yeah, I think we probably had some. We had to obviously reacquire. Okay. But again, for a certain major customer, you are going to see us buy appropriately for that customer. Right. But now, in terms of that equipment re-leasing capacity, for an example like that where you sort of fleet up for a particular customer order, I do not know how long the contract was for that. Is there a high level of comfort that you are like, "Wow, now we are sitting on several hundred light towers." Are there other places for us to lease that many? Oh, I am sure there is always a market for those. Okay. You have got to remember, too, that we are in the business of. We have a very successful entertainment services organization that supports the movie and TV industry. Yeah. Lighting and towers and even events such as Coachella and other major entertainment events, all that equipment can be used. Okay. We've sort of already moved into the renting of the assets from the buying of the assets, but I want to stay on this trend. We were talking about technology. Do you guys have an app that helps your customers, and can you talk to us about how you think your app compares with others in the market that might help people pay through the app or? Oh, sure. Absolutely. Well, our mobile app went live a year ago, and we continue to make further enhancements. We just recently rolled out an E-apply app, online app, so that a customer can very easily apply for credit and set up their account. But our mobile app allows any customer to order remotely, and any of you can download that app and just take a look at the catalog, and it's very simple to just. If you're a client, then your customer information's going to be in there, so your rates will be in there as well. Do you feel as though you've won loyalty with the app, like in hindsight? Again, a lot of this, unfortunately, is kind of comparing to what we've heard from BlueLine and other companies. A lot of this industry, I feel like it's comp to comp, right? Because they're very similar peers out there, but BlueLine's just starting. If you were to look back a year, would you say, "Wow, we've actually generated some loyalty with this app," in addition to just improving the ease of doing business with you? I mean, it certainly makes your life easier, right, if you're a customer, right? The app is, you can order the equipment. I think we have some other things out there, like a ProControl, which allows you to monitor the performance of the equipment, utilization of the equipment. They are all value-added tools, right, that you just can't sort of just pick up like that, and it makes your job so much more easier as opposed to sending out workers or labor out there to check on each equipment. Yeah. And figure out, "Hey, where is this guy? Where is this guy?" Right. Right. I think the technology is really going to be key, on a longer term basis. If you don't have it, you are not going to really be able to compete. We certainly have our ProControl telematics systems we continue to improve. So we can create a customized dashboard for a client or an industrial client who is then keeping track of reading sort of the meters on the equipment. They can track when that equipment is on, when it's off, if it needs to be serviced, how much fuel it needs, a variety of different things. And one of the most important things is just that geo-locator, right? So that they know on this 50-acre site where all the pieces of equipment are, so when it is serviced, they know exactly where it is. Where many years ago, you would probably be searching- Of course. all over a site to figure out where it is. It's like when you lose your car in the parking lot. Exactly, which now we all have our keyless locks, right? Right. There you go. It lights up. There you go. It is the same thing. The only thing that hurts is your Fitbit foot count, if you are not walking around the parking lot as much. I wanted to ask about pricing, because this is where we have seen a positive divergent trend for Herc versus peers. You guys have been able to raise pricing over the last few quarters, while peers have seen softer pricing across the board. I know that this is because you have been getting out of some bad contracts, and you guys kind of were starting from a lower base in some of those contracts. How many more quarters might we see of this before your pricing trends start to mirror the trends of the industry? We've also, just to point out to the audience here and anybody that's listening, we also have a deck that we've posted on our website, and there is a slide, I think it was page 24 or something, that shows actually the quarterly rate increases that we've been able to generate over the last five quarters, and we've been very positively improving our rates. We believe that rates are really based on sort of scientific and mathematical data that is utilized to really optimize the rate in a region or by customer. What we've done, effectively January 1, 2016, we introduced a proprietary pricing model called Optimus, and that helps our sales organization price the right rate for the right equipment, for the right region. Right It uses a number of different inputs in terms of data. So we have then a floor rate, a target rate, and an expert rate, and our sales organization is then incentivized by the level of rates that they're able to get, whether it's on a national contract basis or on a local basis. So what you see is you see a change in sales activity in terms of their behavior because now they're being incentivized, and that is a huge impetus for us, where in the past, the organization a couple of years ago was not incentivized on profitable growth, but just basically on revenue. So it's really changed behaviors, and I think that really drives what we've been successfully able to do. And obviously, I think the numbers speak for themselves in terms of what you've seen we've been able to do. And on the slides, you want to. No, I think that's perfect. Okay. I want to turn to the selling now, the selling part of the business. We know that the strategy is to buy better equipment, and we know that you said publicly that there's a hold period of about seven to eight years. Will investors have to wait this long to see the real evidence of the success of this program? It seems like a long time, and if my hold period's seven, eight years, I'm only going to know that you've been buying equipment that holds its residual better seven years from now. Well, clearly, we're very committed to our strategy, and we've said that in a five-year period, our goal is to achieve the same sort of financial metrics of our major peers. So one would obviously take away from that it's not going to take us that long, right? We certainly get to the fleet mix that we want. The timeframe we said was five years for 25%-30% of ProSolutions and ProContractor to get there. As well, I think you're seeing already, you're seeing changes in the mix of the fleet throughout. Those changes, we'll report to you. In the first quarter, we provided a great deal more transparency where we showed by categories of equipment, how the fleet is shifting as a percent of the total fleet. So I think you're going to see that tracking as we go forward. But if we're looking at the recovery on your equipment, We're only going to see the change in the recovery when you sell the new equipment. Will the hold periods change on the equipment? Will they get shorter on the equipment? Well, I think for small tools, likely that will be more, we are talking probably a shorter time period, four or five years. But then on some of the bigger pieces of equipment, some equipment could be 10 or 12 years old. Our average age right now is 49 months. In terms of the total inventory, and we are comfortable with where it is. We also have said that if a customer is happy with the equipment that they have got on rent, that there would be no reason for us to pull it off. And so we might sweat the gear, quote unquote, it is a sort of a laries and we sweat the gear a little. So it is going to be a combination, certainly. I think one more thing. As our sales organization gets more experience, that would certainly help in us selling. We already talked about better buying. Better buying through more cost-efficient programs. As we bring that fleet on the local branches, as you get the right programs and the right experienced sales force, we can just sell it better as well. Mm-hmm. You guys sell equipment to your customers as well, right? Sometimes you'll have someone who was renting the equipment from you, then they'll just say, "Okay, I've turned that. I want to buy it. That's actually, I guess there are two pieces of that. There's the used equipment, which is the old equipment that we are just disposing. The new equipment actually sort of, that's a very small portion, which is only, it's like, I think in Hawaii now. Right, like where you buy from the OEM and then you just sell it directly. Right. That's small. Right. Right. Really, the focus is rental of the equipment, and again, if there's a used equipment, rotate it out. Okay. Now I get asked this question sometimes from investors. In the event of a downturn in the next couple of years, would Herc pare back CapEx even though it would likely, you know you're going to need to make progress on this fleet. We know that this is going to cost more because you're probably buying more expensive equipment up front because you want to buy the equipment that's going to hold its value better. Would you pare back CapEx in a downturn or do you say, "Look, we know we've got to turn this fleet around, we need to plow through? I think the way the business model works, in the event of a downturn, the business throws off enough cash flow. Certainly, our business model offers us the ability to pare back the CapEx. But we would still look at CapEx on an as-needed basis. Where is the right underperforming fleet that we need to rotate out and put the right pieces in to continue to drive the business forward. But we don't need to. There's enough cash flow in the business for us to continue operating it as is. Have you guys given free You've not given free cash flow guidance? Mm-hmm. No. Right. Not to date. You've given the EBITDA guidance, but not the free cash flow guidance. Right. Okay. A couple of questions on the balance sheet. You guys recently used the provision in your bonds that lets you buy back 10% of the bonds at 103, in any given 12-month period. Right. You draw on the ABL to do that. Do you guys plan, I think you can do this up until 2020. Do you guys plan to utilize this feature of the bonds in 2018 and 2019? Yeah. It's a pretty unique provision that we were able to get in our bonds. It's a cheap way of getting the towers down. Versus where the bonds are currently trading. I think the way we do this is we look at opportunities as they arise. We look at where the cash flow needs, where the liquidity levels, then if it makes sense, we'll do it. I think we have two more bites at the apple in 2018 and 2019 for this provision, so we can do it twice more, as you said. That was basically just straight up comparing the cost of borrowing. The borrowing on your ABL is cheaper than the coupon that you are borrowing. That is part of it, absolutely. Yeah. Yeah. The leverage goal for the company is 2.5x-3.5x. We know that you have talked about the five-year kind of turnaround story for the fleet. Is that the timeframe that we should think about for this 2.5x-3.5x of leverage? Yeah, I think, we're still very much focused on organic growth. Trying to get to the 2.5, 3.5 times via sort of the organic EBITDA growth. I think if you look at sort of the 2017 guidance that we provided, the midpoint of it still allows us to get to that and close that gap. Mm-hmm. Right. In terms of what the deleveraging strategy might be going forward, is it possible that you guys might consider calling your shorter dated bonds and refinancing part of them and repaying some with cash? At the moment, our free cash flow for you guys is sub $50 million. We do not have the company generating a huge amount of free cash flow given the CapEx that you are spending. I guess over time, if you can improve your EBITDA, generating more free cash flow in 2018, 2019, something like that, is it kind of like early take out of those bonds to whittle down the size? Is that something that is on the cards? I think the redemptions are a good way to bring the towers down. In order to bring all the bonds in, there is a big make whole on that. So the bonds have to be trading quite healthily. Yeah. The new issue prices have to be very attractive for us to do that. Yeah. Okay. The last questions that I had were on the topic of consolidation. We were talking about this with BlueLine. It is obviously a topic given that URI is a big player in the industry. Can Herc be a participant in consolidation with leverage where it is now, or leverage, let us say, over the next year or two, right? Which I don't think it is going to get down to 2.5 times in the next year or two. We have it getting, I think, to 4 times, at the end of this year. So you are going to be 4 to 4.5 times, I think, by our numbers. Can Herc participate in consolidation with that leverage, either as an acquisition target or as a buyer? It is interesting because your numbers use EBITDA, and we use adjusted EBITDA, so it is a little bit different. Okay. Your leverage target, your leverage number is a little different than ours, right? Okay. We would look at the latest 12 months being 4.1 times. Okay. So we need to be adding back the adjustments. Okay. We need to be adding back the adjustments. Right. Your number's a little higher than that. Okay. We've said consistently that we have a fabulous footprint. We have 275 perfectly built locations in North America that are equipped and have the wherewithal to really drive more revenue. Why wouldn't we take advantage of really doing that, improving our EBITDA, keeping the fixed costs minimally, right? In terms of where they are. Growing, certainly, with some greenfields, we've said four to six a year or so. But controlling the growth and then really pushing that top line so we can improve that EBITDA faster and earlier to meet our profitability goals. The leverage certainly is an issue, but I don't think it's quite as much as you put it out there. I do not know, Masali, why do not you? No, I think Elizabeth, you said it right. Organic growth is certainly the strategy going forward, and even if there is something else out there, just very opportunistic. Well, in some ways, this is a discussion that we have had, we had it with another company that is a totally different industrial company this morning, but if there is a fragmented industry, and you cannot do kind of an NES size acquisition, right? Because even if the leverage is 3x, if you do not want to take it back up to 6x, right? Then you are going to have to buy a very small company, but then given the size of Herc in the industry, it does not even move the needle for you to buy a company that is like a mom and pop shop, right? It does not really actually help your cause anyway, and you are probably going out and spending more time doing diligence on those deals than what they will add to your bottom line. I think it depends. You never know, I mean, in terms of the opportunity. But generally I think that we would really focus on organic growth. And if there is something which is accretive, ultimately, how quickly will that EBITDA start flowing down to the bottom line, right? Because if it's day one, okay, that's tough one. Right. Are there any questions from the audience? Go ahead. I just had two quick questions. First one is, have you had any discussions with Carl Icahn, kind of as a feature at all? Then the second one is, when you sell these pieces of equipment, have you seen any change in kind of the market you can find for the equipment? Well, as you know, Carl Icahn, his organization has three members of our board and represent the Icahn organization. So they're involved certainly in the corporate governance overall of the company. That's really as much as I think our relationship with Mr. Icahn is fully disclosed in the 10-K and 10-Q. Then in terms of equipment, do you want to talk to that, Mustally? Could you repeat that question again? So in terms of the participants that you're selling the equipment to, has that mix of end customers changed at all? Do the end customers change? So perhaps more to retail customers or Oh, yeah. I mean, I think Well, they are talking more the channel mix as well. Yeah. Right. I guess, the top three power segments are industrial construction and sort of the other, right? We continue to broaden that customer base, and that's sort of the story that we have been, the strategy that we have going on. I think you're talking more, though, about who we're selling our used equipment to and through. So we typically would sell through retail, wholesale, and auction. On the retail side, we could certainly sell to a customer who might want that. On the wholesale side, you might be selling to an OEM who then is servicing equipment and then reselling it. Then auction, you would go through the major auction houses, and that goes wherever it might go, right? I believe that's what you're addressing. If you think of those three different mediums, do you expect kind of an equilibrium shift in the future? Would you buy more retail because that's your strength kind of thing? I think it doesn't have anything to do with the equipment. Ultimately, we get the best proceeds from retail channel, right? So our strategy is always to try to increase that retail mix as much as possible, because that way we get the maximum proceeds. But it's really a little bit market driven as well. We don't control the channel mix fully on our own. Okay. Thank you. All right. With that, we are going to have to end it to be on time. Thank you, guys, so much for the time. We really appreciate it. Thank you everybody for coming, and we will end the panel there. Thanks a lot. Thank you. Thank you all for coming.