Canadian Pacific Kansas City Ltd (CP) 2015 Q3 法說會逐字稿

Good morning.

My name is Aaron and I will be your conference operator today.

At this time I would like to welcome everyone to Canadian Pacific's third-quarter 2015 conference call.

The slides accompanying today's call are available at www.CPR.ca.

(Operator Instructions).

Now I would like to introduce Nadeem Velani, EVP Investor Relations, to begin the conference.

Thank you, Aaron.

Good morning and thank you for joining us.

I am proud to have with me here today Hunter Harrison, Chief Executive Officer; Keith Creel, President and Chief Operating Officer; Mark Erceg, our Executive Vice President and Chief Financial Officer.

Before we begin, I want to remind you this presentation contains forward-looking information.

Actual results may differ materially.

The risks, uncertainties and other factors that could influence actual results are described on slide two, in the press release, and in the MD&A filed with Canadian and US regulators.

This presentation also contains non-GAAP measures outlined on slide three.

The formal remarks will be followed by Q&A.

In the interest of time, we would appreciate if you would limit your questions to two.

It is now my pleasure to introduce our CEO, Hunter Harrison.

Thanks, Nadeem, and glad to be back.

I'd much rather be here with you than in Rochester.

There are a few things I would like to highlight on the quarter before Keith and Mark go into more level of detail that I think are noteworthy.

I guess one was the pretty outstanding performance in less than a robust economy to achieve an operating ratio again of breaking through 60.

We completed the transaction and the sale of the D&H so that is behind us.

As most of you are aware, we upsized the buyback and I should -- I would be remiss if I didn't take a moment here to thank Keith and the team who carried on pretty admirably with my absence.

They might have done too good a job but maybe I can come back and help them a little bit here.

But I think most noteworthy and we have been talking about this for some time in each company we have been, but our LR Group was successful signing an hourly agreement with the BLE in the US which I think is quite significant.

I think that in my view at least that will only lead to the UTU signing up and that is kind of the pattern we followed before.

And so effectively then with a couple of minor tweaks, we will have the total US operation on an hourly comp basis, similar to the ones of you that have been following us for some time, similar to the Illinois Central agreement.

So that was a big, big breakthrough and I think that will be a further influence at some point in time and this is one that is hard to predict but I think at some point in time, we are going to see a similar type arrangement I would predict in Canada.

Now we are before arbitration as we speak.

I think we are expecting a -- and I don't think this is written in stone -- but I think we are expecting fourth-quarter probably end of October, early November a decision from the arbitrator on the running trades in Canada which will basically put most of the -- most all the labor issues in Canada to rest.

So I think that is a big move.

There is really in these kind of economic times, I think it is clear that we have got the best product service out there in the market.

I think we have reached a time where we are the most efficient and the boom times are really coming when we can break loose and get Canada out of this recession and see a little direction on what is going to happen to crude.

Then we are going to have to buy a bigger safe for the funds.

So with that, nice to be back.

I will be here for the Q&A and with that, let me turn it over to Mark or Keith and Mark I guess Keith will take the ball first.

Keith?

Thanks for the comments.

Hunter, welcome back.

Certainly a true measure of a leader is what happens when he is not here so we never felt like you left us and this team worked extremely hard given the economic headwinds we faced to produce these results which I am extremely proud of, very strong operating performance across the board.

Potentially this is a quarter of control in which you can't control with this operating model converting it.

The metrics provide some pretty powerful proof points across the board with all key metrics showing improvement year over year.

Dwell time 19% better, another reflection of our commitment to be focusing on our terminals this year to drive those costs down and improve service.

Train speed up 20% for the year which effectively for those of you that were at our multi-year plan rollout last year, that is our end of year plan.

With that said, we are obviously not going to be complacent in that regard.

I pulled the team together back a couple of weeks ago.

Hunter of course as he always has, has challenged us, I challenged the team.

We are looking at what is next, what is next from additional train speed improvement so we can continue to turn our assets, not necessarily through significant spend but more about process and execution, converting what we have already invested in.

And also it has opened up a very unique opportunity for us given that we are much further ahead than we had thought to take a very strategic and hard look at our capital spend in the out years as we go forward.

There is quite a bit of discretionary spend in our multi-year plans so certainly rest assured we are going to be taking a look at that for 2016, 2017 and 2018.

Throughout the quarter as well, we continue to allow resources to match the reduced volume environment.

Across the board a couple of comments; total workforce down 9% from a year ago.

Overall since Hunter started this journey a little more than three years ago, we are down just in excess of 5900 employees.

So quite a bit of improvement in that regard.

That said, the railroad still is very well-positioned to handle the growth when it bounces back.

A nice proof point of that was September when this Company actually moved record amounts of crude and record amounts of grain given the asset base that we have.

During the quarter as well, we reduced cars online by about 15% and we've got over 400 locomotives stored as we sit today which obviously is a significant delay to our capital requirements for the years going forward as well as reducing our operating costs during our current times.

And another very encouraging point I want to say a few words about is the area of safety.

This is an area that is critical to CP, it is critical to our customers and the communities we operate in and through.

Our safety record continues to set new levels of performance.

Train accidents improved 40% over last year's Q3 performance and again eight to nine years running of CP being these safest railway in the industry.

But again, one derailment is too many, it is an area that we remain seized on focused on.

Turning the page to the revenue side, 2% revenue growth year-over-year.

Revenue performance was driven by effectively 2% revenue growth but a negative 4% RTM.

This was driven by a 4% positive per RTM as the currency in our price more than offset the negative mix and the lower fuel surcharges that we faced.

I am not going to go into detail by segments but let me highlight a couple of key drivers of the volumes.

In the bulk, the grain was down as a whole driven by our US market where our farmers continue to hold their crop given the suppressed commodity prices as well as the strong US dollar.

Coal up 7% but this is the tale of two stories obviously some headwinds in the Canadian franchise which was down about 9% in the quarter with some of the pinpointed reductions of the mine shutdowns that tech had but that was more than offset by our strong US coal performance.

On the merchandise side, we did see some strength in forest products but faced some pretty difficult compares given the key energy markets and obviously some headwinds there we didn't expect or could predict last year.

Intermodal growth, you see a little bit has been muted by a weaker fall peak, a little bit less than what we expected.

Obviously there is increased trucking capacity in our short-haul lanes which has given us some headwinds or resistance and also we are being impacted by a slowdown in the Canadian economy.

So obviously there's a lot of uncertainty in the market, times like this again I will close with what I started with, this is an opportunity for us to take this operating model, focus on what we can control, provide the best service, we control our costs, operate a safe railroad and win market share even in the down environments and put ourselves in a position when the economy bounces back, the base is reduced obviously and you are going to see not just impressive results but remarkable results from this operating team, this company and this operating model.

So with that, let me pass it over to Mark Erceg to provide some color on the financials.

Thanks, Keith.

As I reflect on the third quarter which is my second quarter here with the Company, I would have to say the team performed really well particularly in light of what was a very challenging demand environment and I am very proud and honored to be part of this team.

As Keith mentioned, revenues were up 2% with FX and price gains offsetting the impact of lower fuel surcharge revenues and weak volumes.

And from an OR standpoint, our adjusted operating ratio came in at 59.9% which represented a 290 basis point improvement versus a year ago but perhaps even more importantly was the second lowest OR in the Company's history.

Then from an adjusted earnings standpoint, we earned CAD427 million which is up 7% versus a year ago and adjusted EPS came in at CAD2.69 a share which is up 16%.

Now in order to reconcile back to our GAAP EPS of CAD2.04 per share, there is a couple of items that we need to cover.

First, we did exclude a CAD128 million non-cash loss of CAD0.70 per share.

That was related to the FX translation on our long-term debt.

As you know and as we've talked about in the past, we are excluding from adjusted earnings per share, the non-cash revaluation of US dollar-denominated debt on our balance sheet which results from changes in the CAD/US dollar FX rate during the quarter.

And as you will recall during the second quarter when this was a gain, we also excluded that from our adjusted EPS.

Second, we did complete the sale of D&H South.

That resulted in a CAD68 million one-time gain of CAD0.26 per share during the quarter which and also consistent with prior practices was excluded from our adjusted number.

Finally, you may recall that last quarter I indicated we were exploring ways to increase our financial flexibility going forward and consistent with that, we did decide during the third quarter to take out a series of privately held secured notes and that resulted in us paying an early redemption premium of CAD0.22 per share during the third quarter.

So with the adjusted earnings per share to GAAP reconciliation now out of the way, let me provide some additional color on just a couple of income statement items and I will do that on an FX adjusted basis in order to try and keep things as simple as possible.

So comp and benefits was CAD351 million this quarter.

That represented an increase year-over-year of roughly 4%.

Within that, lower stock-based compensation of CAD18 million and headcount reductions more than offset wage inflation and CAD24 million of higher pension expense.

And then turning to fuel expense, fuel expense was CAD162 million, which was down 45% year-over-year.

Lower volumes did account for CAD16 million of the reduction and fuel productivity accounted for an additional CAD14 million, but lower fuel prices themselves did account for the lion's share of the reduction at CAD106 million.

And then finally fuel lag which is a CAD15 million benefit during the quarter more or less completes the reconciliation.

Purchased services came in at CAD272 million.

Now that represented an increase of 8%.

That increase was probably higher than some of you might have expected but that was because we cycled up against some one-time capital credits and accounting adjustments which were in the base period.

And in addition while casualty costs were low during the third quarter, they were even lower last year.

And finally, we are no longer subleasing locomotives to another railroad which temporarily lowered purchase services last year.

The last P&L line item I should probably comment on is interest expense.

Interest expense was up 24% in the quarter.

You probably noticed that we've issued a series of debt instruments recently.

We have done that to take advantage of what we believe is a temporary dislocation between our stock's current trading price and its long-term intrinsic value.

So while we have dramatically lowered our share count, that has come at the increase of higher interest expense.

The last area I should probably comment on is cash.

Year to date, we have generated CAD979 million of free cash; that is a 60% increase versus year ago.

The increase is primarily attributable to higher cash flows from operations only partially offset by higher capital spending.

And while capital spending through the first nine months of the year is running ahead of last year and we do continue to see pressure from a higher US dollar, we do remain on track to spend the CAD1.5 billion we did guide to at the beginning of the year although as you heard Keith mention, we are doing a bottoms up review and looking at all discretionary capital programs going forward and that might be reflective then in our thinking as we move into the outer years.

Now I am sure you have notice, we have also been very active in the capital markets this quarter.

We issued $2.7 billion of US dollar-denominated debt.

A small portion of that was used to fund the early redemption of several secured notes which I spoke to just a moment ago but the vast majority of that was used to repurchase shares.

During the quarter, we repurchased 7.7 million shares or a little over CAD1.5 billion and year to date we have bought back 13 million shares at a cost of CAD2.6 billion.

Now the net result of all this activity is that we have increased our financial flexibility by removing restrictive covenants in secured debt.

We have significantly reduced our weighted average coupon rate while at the same time dramatically increasing the weighted average duration of our debt portfolio.

And we have taken advantage of what we believe is a temporary dislocation in our stock price to aggressively repurchase our shares all the while being mindful to protect our strong balance sheet and our BBB+ credit rating.

So with that, let me turn the call back over to Mr. Harrison or Mr. Creel.

Let me just make one comment before we take questions.

I would expect that this review of capital and just to give you one example, when we started this journey I guess 3.5 years ago now, we talked about for example locomotives that we were going to be able to take a hopefully a three- to four-year holiday on locomotive acquisitions.

Keith tells me now that three or four years is probably going to extend to at least 2018.

So we are looking at instead of three or four years, we are looking at six or seven years.

And if you can, look at that across the board, and if you look at the discretionary spending and the catch-up capital, if you will allow me to use that term that we put in place without affecting the condition of the physical plant and no compromise of safety and all discretionary sightings that we have caught up on, I would expect that we could see our capital spend come down potentially as much as CAD400 million.

So pretty significant of the work that has been done in the past that we will just now start to begin to reap the benefits from.

With that, Aaron, we will be happy to address questions the group might have.

(Operator Instructions).

Scott Group, Wolfe Research.

Thanks.

Good morning, guys.

Welcome back, Hunter.

So been a while since we have heard from you, Hunter, and there have been some media reports.

Can you just give us an update, I don't know that we need the history of where you were but kind of where you are now and how active you are day to day and how this kind of impacts your view and vision for CP over the next few years?

Well, I hope it is a nonevent, Scott.

I am back on my feet.

Most all of the medical issues of any significance are behind me.

I am very similar to where I was before and I don't see any change in what we previously talked about that the plan is that contractually I will be here until the middle of 2017 and unless God forbid some other issue kicks in that is where I want to be.

Okay, good to hear.

We are in this period of weaker volume which may or may not continue.

And if we can't count on the top line as much anymore, how comfortable do you feel or how low do you feel like you can push the operating ratio lower with things like lower capital, lower headcount, the new labor deals?

How good could that get or is it that in a tougher revenue environment there is not much more margin to get?

I think it is starting to be reflective.

This quarter starts to send some signal if you look at the bottom line performance in spite of the fact of a weak topline with the other things that you mentioned that are additive.

I mean if we just were focusing on OR, clearly we didn't hit the wall.

I don't know, the group is going to get nervous if I say anything more but I'm going to say it anyway, there are probably two or three more points to pull out just where we are now.

Now you let the economy bounce back a little bit and us get back to quote normal times, then it really gets pretty exciting.

So I think that we have always said this model does even better of controlling costs and producing results during soft -- might be called bad times -- than it does as everybody does well when things are robust for the top line.

So I think that to produce the kind of OR now with that soft a top line and with these other things of that the labor agreements and headcount and the capital and so forth, it is pretty exciting.

Okay.

Thank you, guys.

Fadi Chamoun, BMO Capital Markets.

Okay, good morning.

Welcome back, Hunter.

So on the -- you mentioned in the press release the ability to generate bottom-line double digit EPS growth in varied economic conditions.

Should we understand that extended to 2016 even without sort of a change in the underlying volume environment we are seeing?

Yes, I think the simple answer is yes.

We had demonstrated an ability even with revenue ton miles down, the ability to increase train weight, train length, network speed.

We have driven fuel-efficiency lower by 5% this quarter.

So there is still a lot of cost take-out that can be affected and so we are very confident that next year will be at least another year of double-digit EPS growth.

Okay great.

If we can look at the volume a little bit as we are looking into 2016, what do you see are the opportunities to maybe grow the volume and where do you see some of the challenges?

I am just trying to see if you feel that 2016 is potentially kind of flat or slightly up volume or down volume.

I'm not sure at this point if you are able to make any comment about that.

Let me just say this, the only answer I feel comfortable giving you is I don't know.

I don't know what is going happen in 2016.

I do see continued strength in some of the areas that we are seeing strength in now.

Automotive I believe can be a strength for us.

Intermodal I think can continue to drive some growth for us, Canadian grain.

First part of the year strong, latter part of the year, I don't know what is going to happen with the harvest and I certainly don't know what the US farmer is going to do relative to when they are finally going to move their product.

So a lot of uncertainty and again I will take you back to what we said before regardless of what the macroeconomic environment is, we are going to focus on what we can control.

We are going to right size our assets, we are going to continue to convert, control the bottom line.

The investment even if I scale off and we will for next year our capital investment, we still have to pay for what we spent this year.

I looked at the speed this morning, we hit 23.2 on the network.

That may be an all-time record for us.

But rest assured, I've still got six or seven sidings that I haven't the benefit of coming online yet that will come online in 2015 that I'm going to be paying for in 2016.

What I went through last week, we are leaving a lot of money on the table and a lot of opportunity, and a lot of productivity on the table just from executing day in and day out what I call noise in the network.

So take away the excuses, focus on locomotive reliability, focus on using the speed you have got, focus on maybe an age-old mentality in this Company where the engineering department may have been more of in a silo, not tied to speed, this effectively seasoning and making everyone very sensitive to what speed does for assets across the board from the guy that is pounding spikes to the guy that is pulling pins to the dispatcher that is lining the switches and there is incremental opportunity for us without additional capital spend to drive that bottom line.

So long answer to your question but again, I am not two seeds with what the economy is going to give me.

I'm strictly, I'm very focused on what I can control relative to the bottom line running this railway better day in and day out.

Okay, that is helpful.

Thanks.

Brandon Oglenski, Barclays.

Good morning, everyone.

And Hunter, welcome back.

Best wishes on the future.

Keith, I hate to come back to the same question it feels like the first two folks were asking here but can we talk about recent trends?

Because it does feel like the quarter has started on and even softer note.

Is there currently deceleration in demand across Canada and across some of your major markets or should we not read too much in the negativity that we've seen the last few weeks?

I would say that maybe the last few weeks is a little bit overstated because you have got Canadian Thanksgiving in there, you have got some supply chain challenges on the coal side that we have dealt with.

But overall, yes, there is a little bit of weakness certainly a little bit less than what our expectations are.

But as far as looking at it out at the balance of the quarter and the year end, we said second half 3% to 4%, less RTMs.

Are we closer to the 3% versus closer to the 4%?

I would say yes, probably.

But beyond that, I would just be guessing.

In my follow-up, I want to focus on because you guys have driven a lot of EBIT growth here just via FX and we understand how that impacts the P&L.

But you start to lap the significant change in FX next, year, so you lose a little bit of that EBIT tailwind.

I guess are these cost initiatives that you are talking about going to be enough to deliver double-digit earnings expansion?

And I guess can you talk about the buyback as well because you have spent a lot on the buyback here.

So how do we think about earnings growth in an environment where volumes could be still flat, maybe even negative and without the FX like we have seen this year?

Think about significant operational improvement to Hunter's point, given the same or a little bit less, if you improve the operating margins 2 to 3 points, that is driving significant EPS and I will let Mark address the question on the buybacks.

Yes, the share buybacks, look, we had an initial program out there this year for 6%.

This authorization is to be completed.

We have (technical difficulty) an additional 2% and we've been buying our shares fairly aggressively in the marketplace because as we have looked out and we have done our own intrinsic value modeling work, we are very confident we are creating shareholder value over the mid- and long-term horizon which is how you have to think about things.

We are not overly concerned with weekly movements in stock price but over the mid-and long-term horizon, we are very confident that we are creating shareholder value through the actions we are taking.

We also want to make sure that we balance that with our desire to maintain a strong balance sheet and we are committed to maintaining our BBB+ credit rating at the time as well.

I appreciate it.

Thank you.

Walter Spracklin, RBC.

Thanks very much and glad to have you back there, Hunter.

My question I guess is on pricing, and Hunter, you have mentioned dynamic pricing at the last investor day in terms of encouraging volume and you kind of assured us that that was more with an effort to gain share from truck.

I would like to ask you a bit about two particular areas, that is domestic intermodal and crude.

Feedback we are getting is that you are being a little bit more aggressive on pricing, aligning it a little bit more with the dynamic pricing that you had indicated at the investor day.

And it is being a little bit more competitive with your rail competitors as opposed to truck.

Can you help us understand what the pricing approach is there and specifically where it applies to domestic intermodal and crude?

Yes, I mean I would start off with there is a little supply and demand in there, number one.

Number two, we have talked about, there is a point in time when you've got assets parked, when you've got human resources sitting at home, when you've got a physical plant that is underutilized, your cost structure is such that it would say the smart thing to do is to move something.

Now there is a point you are not going to get there but as our cost base comes down, and so if we are at 57 or 58 instead of 68, nobody thought about what we were doing when we were priced at 68 and you can damn sure afford to do it when you are down.

Now look, I have always said that I think the market gives you the price, the market gives you the price and you decide if you want to be a player or not.

Now if the competition doesn't like what we are doing, they have got a choice.

They can jump in the fray and play or they can stay home.

It is up to them.

So that is I think just one example.

Now I would further say this, as we come out of these economic times and as we talked about the four-year plan, clearly there is some leverage there where if you can look at your business like other people nonrail look at it, like the automobile industry, and if you can afford to make the car cheaper at a higher quality for it but still charge the same thing and gain market share, you would jump all over it and people would think it is the smart thing to do.

With rail sometimes, they kind of question that strategy and as we clearly I think articulated at the last analyst meeting that if we get our cost down and we are pretty well there to the pretty consistently starting with a 5, that we can convert some of that to be more competitive in the marketplace and pick up topline.

Now if business comes back and we come out of recessionary times and there is higher demand, we are not going to give it away to give it away.

If there is a demand out there, we are going to strike the demand.

I think you will see over time where we effectively pretty well move away from contracts and get into tariff and are more supply and demand and more flexibility and move rather than just sign some three-year contract, put it to bed and go on to something else.

I think those have some opportunities also.

So is that to suggest that if the continued weakness versus persists, we might see year-over-year same-store core pricing less than the 3% to 4% that you have been historically guiding or are you still comfortable with 3% to 4% for going forward?

Yes, 3% to 4%.

It doesn't change it.

The only thing I would add to Hunter's comment, I would remind everyone that I don't see rail as my competitor when it comes to crude.

My primary competitor is the pipeline, subrail.

So if I am going to be doing things to leverage this great service and operating costs to win business for this railroad that otherwise would be in a pipe, I would say it is the right thing to do.

Okay, makes sense.

Thank you very much.

Alex Vecchio, Morgan Stanley

Good morning.

Thanks for taking my questions and welcome back, Hunter.

So with respect to the labor deal in the US, great progress there.

I was wondering, Hunter, if you could just remind us of the -- if you were to win the same terms or similar terms with the other US unions, how much margin expansion potential could result from that?

And taking it a step further, I know there is still a lot of uncertainty about the Canadian side but just remind us if you will in a bull case scenario if you were to win the hourly agreements on the Canadian side, how much margin expansion potential would come from that?

Well, let me oversimplify it this way.

Effectively and there is a little bit of difference between maybe some would suggest a lot of difference between Canada and the US here but it focuses around fringe.

Our fringe benefits in the US are somewhere in the 43%, 44% range.

I would say Canada, they are probably 15%, 17%.

So there is a significant difference in fringe.

So effectively and look, there is no secret strategy here.

We have been very honest with the collective bargaining units going back six or eight years when we started this.

We can take fewer people and pay them more if they can produce.

So bottom line what this does is it takes -- you can look at headcount, I looked at it more of the full cost.

It takes about 35% of the cost of the train and engine and US out of the equation, lowers it 35% to 40%.

Now in Canada much, much bigger base to deal with but not quite as much synergies there because the fringe benefits are so much lower and that is basically healthcare.

But it is a significant difference in move and I think what we have experienced in the past with it is that the 35% is kind of a floor and then it is the smarter you get using that type of operation that raises up the ceiling of how effective you can be there with it.

But it is a mark on the OR.

All right.

No, that is great color.

That is helpful.

Let me add more and more comment to that if I could, Hunter.

This isn't just about the cost.

In today's labor environment when the economy comes back, we all understand that labor can be a challenge attracting and retaining labor.

This is all about employee retention as well.

You take an environment where the employees although they may give up work rules when they get predictability to their schedules which is nontraditional in the railroad environment, they know they are going to get a couple of days off a week, they know they're going to be making a lot more money, they got better quality of life, they've got more money in their checking account, that is a powerful combination.

In turn what the railroad gets is lower cost but most importantly improved service.

So yes, it drives the margins on a cost standpoint but when the economy comes back and you are competing for service and you've got predictable workforce both in quantum as well as the service you provide day in and day out, that is how you truly win in the marketshare and drive the bottom line operating ratio improvement and margin improvement in the Company.

So it is a tale of two stories that is powerful on both sides.

Plus the one other thing I would add in today's kind of market, I mean it is really significant, it provides job protection for the employee.

How many employees today if you look at the oil patch would like to have a guaranteed job.

Now we have to be very, very careful how we manage that and that is why I am sometimes accused of choking the horse a little bit by not turning them loose with hiring, just freelance.

But it really to Keith's point, it is just a total different quality of life than the typical rail employee has been used to.

No, that makes sense and that is great color, guys.

My follow-up Keith, I just wanted to clarify something you mentioned earlier.

Was the 3% to 4% year-over-year decline and your comment that you would probably be closer to a 3% decline, was that in reference to the second half RTMs as a whole or the fourth quarter specifically?

Second half overall.

Okay, great.

Thanks very much.

Chris Wetherbee, Citi.

Thanks, good morning and welcome back, Hunter.

Wanted to touch back on sort of the CapEx comments and some of your thoughts there.

You gave some census for maybe the magnitude of some of the savings that you could incur over the course of the next couple of years.

How do we think about the duration of that?

Is that sort of a one-year or maybe two-year type of dynamic for 2016 or 2017?

Is it something that maybe you could see stretching out a little bit longer and then when you think about sort of priority and use of cash where you stand now with the buyback and the leverage, how do you think about extra capital in the budget for 2016?

Well, you know, look, we kind of have a rule internally that says you don't ever spend precious capital until you have explored every operating opportunity you potentially can, number one.

So I think that there is a lot this depends on.

We are in a position today where we have effectively from a basic physical plant, safety rail ties and ballasts are awful close to catching up.

Now we are not disturbing those dollars going forward.

Basically what we are looking at is the discretionary spend that we have been doing with the sidings and so forth and Keith, I think mentioned earlier still have six or seven to put in service now.

Now if we were looking at a run rate of the business at the same level we are talking about today, the percent of however you like to look at capital as a percent of revenue or what the most effective way, you could say that run rate would be pretty well the same.

But once again if we see and we will the economy bounce back and things come back, then there will be times that says maybe we've got to spend a little discretionary capital to be able to handle this or get rid of this pinch point or whatever the case might be.

But I think the order of magnitude and the message is this.

The Company at a point in time got way behind and we paid our bills and caught up and so now we are kind of managing this year to year so it will be lower but not anything that I can say to you it is always going to be as a percent of revenue less than X.

Okay, that makes sense.

Sort of priorities for capital when you think about 2016 leverage, buyback, those types of things?

I think what I would simply say is the first use of our discretionary cash is to support the business growth itself.

We are hopeful that as the economy comes back we will need a little bit more working capital to finance the day to day receivable balances.

Secondarily, we put our CapEx to work for high rate of return investment projects like the sidings that Keith has alluded to, it increases the overall network speed and improves our services and our reliability to our customer base.

Then beyond that, we've talked openly about the fact that our preferred way to return excess cash to our shareholders is through share buybacks because we believe in the long-term intrinsic value of the Company.

We think we are creating value for our shareholders through those actions.

Okay, that is helpful.

If I could squeeze one little follow-up here.

Just what do you think about sort of resource levels.

I know what the volumes look like right now and it is very uncertain how it might play out in 2016 but given that sort of uncertainty, how do you think about headcount and other resources as you are positioning for 2016 given that uncertainty relative to where we have finished the third quarter?

Well, you know, it is very hard to manage this business quarter to quarter.

That is why we try to keep -- we are maybe a little more aggressive of saying we are going to have a lower headcount but we are willing to pay if we get caught and we need to, we can pay some premiums to take care of the business rather than have somebody brought on for the longer-term.

I think from a rolling stock perspective and so forth, we are taking advantage of putting -- we have got as Keith said, the 400 or so high horsepower locomotives put up now.

That represents about 40% of the fleet.

That is something that is significant enough and we know it will last long enough that that directly affects the headcount material.

And so they are a little bit different but I think that maybe gives you a little flavor of how we look at it.

I mean we are not a company that says look, freeze all spending.

We didn't go through that with crude I think one day and we always said look, we have never been opposed or fought, lobbied against the pipeline.

I think there is appropriate places for the pipeline.

There is appropriate places for us hopefully.

And so you know, we are going to keep ourselves in a position where if crude bounces back, if our bulk commodities handles back that we can handle that but to kind of do that on a quarterly type basis, some organizations get pretty immature.

That makes sense.

Thanks for the color, guys.

Appreciate it.

Tom Kim, Goldman Sachs.

Good morning.

Thanks very much for your time here.

Keith, I just wanted to follow up on your comments regarding crude pricing obviously versus the pipeline.

I am wondering to what extent have you had to adjust pricing already in the third quarter if it was reflected there?

And maybe if you want to give us some guidance as to what your latest thoughts might be for crude volumes in the fourth quarter and perhaps how you are thinking about pricing around that?

Thanks.

I would say this.

There has been some second quarter, third quarter, fourth quarter, some strategic pricing relative to pipeline capacity and the ability to put that freight on the rail versus the pipeline.

Yes, there has been some of that.

Obviously in a more robust environment we would be extracting a greater rate of return on the business.

But I can tell you rest assured, we are covering our cost of capital.

We are making money.

We are not doing this for practice.

But again, it is revenue we otherwise wouldn't see on the rail so I think it is the right thing to do.

Relative to demand for the fourth quarter, obviously the strength we saw in September, October, I don't think and the spreads would suggest it is not going to be replicated in November and December.

It is certainly not as bad as it was this summer but certainly not as robust as it was in September.

Okay, that is very helpful.

Can I just ask on the domestic intermodal side, the second quarter was a little soft and the third quarter showed a little bit more weakness.

Can you give us a sense of when you would anticipate some of the domestic volumes turning around or giving a little bit of guidance as to how we should be thinking about the near-term outlook for that?

I think short-term you are seeing a reflection of primarily Canadian economy and excess truck capacity.

I think from what I am seeing, we pretty hit the trough.

I think you will see a little bit of stabilizing into this month, into the middle of next month as we go through this muted peak.

And I think in 2016 as the economy bounces back a little bit, you are going to see a little bit of strengthening on the domestic side.

But short-term I think it stays pretty close.

I don't think it gets a lot worse and maybe a little bit of upside the balance of the quarter.

Thanks very much.

Ken Hoexter, Bank of America.

Great.

Welcome back, Hunter.

Good morning Keith, Mark and Nadeem.

Keith, maybe you can expand on your last comment there.

Are you seeing it past that bottom and you are already bouncing because I am just wondering into your 2016 comment is that something where you see the economy bouncing?

I guess maybe just going back to your original thought on the double-digit EPS outlook, does that include volumes being flat or down next year or is that only on the cost side and you are kind of just looking at I guess just on the cost side?

Again I can't predict on the volume side.

My strength and comments and my confidence is based on -- I'm sorry on the revenue side, my strength and confidence is based on the cost side and our ability to drive operating margin improvement regardless of what the macroeconomic environment gives us.

What I'm saying specifically a moment ago though I think we have gotten close to the bottom relative to domestic intermodal demand.

I think we will see a little bit of uptick through November versus where we are today.

I don't think it is going to be significant but I don't think likewise we are going to see a lot of deterioration either.

Year-over-year even in this down economic environment that we are in, people forget the fact that we have actually grown domestic intermodal over very strong compares from 2014 and 2013.

So again from a service standpoint even in the face of macroeconomic headwinds, I think that speaks well of our operating model and the services we provide.

So I think that same model is going to begin to drive the margins in 2016 regardless of the macroeconomic and I say regardless, if we have some huge economic downturn I can't predict, then they will have another discussion but given what I am seeing today unless something gets drastically worse, I'm still very confident on the cost side driving margins to that double-digit EPS.

Great.

If I could just follow up on the coal side.

You threw out there that obviously, given tech shutdown and the rolling shutdowns, it was down in Canada but up in the US.

Maybe you can expand on that a bit.

Just given everybody else on the US side is seeing a downtick, where was the growth from?

And then maybe a little bit of outlook on tech, what is expected from there?

Are we going to continue to see maybe double-digit declines from tech, or post the shutdown do you think it is back to slight growth going forward?

Well, let's start with tech.

I can't predict.

Obviously, I don't think I am going to have tremendous amount of growth given -- understanding the environment they're working against relative to a depressed coal price on the world market.

So I can't say there.

I think we are going to do what we can to help them stay competitive, driving their cost down so that they can continue to be a low-cost producer and they can deal with these economic headwinds they are dealing with and with a reduced commodity price.

So that when it does bottom out and come back that they are in standing in a position of strength, which is going to benefit this railway.

What has given us an offset to the reduction in tech on the US side is not increased demand overall, but it's relative to our book of business.

Last year a lot of our coal effectively was covered under legacy contracts.

We have a couple of contracts here that we have repriced, as well as we've shifted the interchange locations with the gateway this coal is moving over.

So we are benefiting from a stronger price.

We are actually making money, not losing money, and at the same time a longer length of haul which is driving increased revenues year-over-year to more than offset what we have lost on the Canadian side.

So was that new business or did you change the business to get the longer haul, or is it just how you are running it?

No, it is not new business.

It is actually a shift of contract.

Some of that business is handled by one carrier that's shifted to a different carrier.

So same business, it is just handled over different gateways, longer length of haul and improved profitability.

All of the things we do on the operating side as well.

So actually increased those train sets, the size of those sets, by making that shift in interchange location.

Got it.

Thank you very much for the insight.

Appreciate it.

Allison Landry, Credit Suisse.

Thanks.

First, Hunter, glad to hear you're back on your feet.

My first question is more strategic in nature.

First, can you comment on the cross-border intermodal conversion opportunity in terms of what you think the size of the addressable market is?

Secondly, how are you thinking about CN's partnership with JB Hunt and would you consider partnering with an asset base carrier at some point in the future in order to increase marketshare and build density?

I would say on the JB Hunt piece, I believe CN has had a relationship with JB Hunt that predates their announcement.

So with that said, cross-border I think if our competitor has an opportunity with their service to compete then we obviously have that same opportunity.

I don't know the exact size of the prize.

I would recognize that some of the currency headwinds that we have got may hurt as far as help but it is something that we are looking at relative to the opportunity.

So again, we would consider anything that made sense relative to a partnership with an asset-based company but at the same time knowing what I know about that business, I don't significantly think that is moving the needle.

Okay, great.

My second question is on potash.

So I think you guys were fairly positive on second half volumes but with some of the recent production cuts that we have been hearing, what is your outlook for the fourth quarter and maybe into early next year?

I still think we are going to have a strong fourth quarter.

It may be a little bit less than what I expected, maybe a little bit down but still very strong.

Going into next year there is a lot of uncertainty but I still think Canpotex is going to be positioned well for a strong year.

We had a phenomenal 2015 shipping experience with Canpotex shipping record volumes.

I'm not going to suggest that they will exceed that.

I can't predict that.

But I will say that I think it is going to be strong but more to come on that.

A lot of that is driven obviously by when they settle the price with China and how the world commodity prices respond to that which we won't really know about until sometime in the first quarter.

Okay, excellent.

Thank you.

Tom Wadewitz, UBS.

Good morning and welcome back, Hunter.

Good to hear your voice again and also congratulations on the hourly agreement.

I know that is a big deal.

So you made some comments earlier in the Q&A session about still room for overall improvement I think you said there might be another 2 to 3 points.

Is that including the US agreement and what could be I think in the past you have said maybe 75 basis points from give US hourly agreement or would that be further upside to the 2 to 3 points?

I think it is further upside.

And what kind of timeframe like when you say that, is that possible you capture that next year or you say that is over a couple of years?

No, I think we start -- it just doesn't kick in overnight but we pretty well control how quick we are able to adjust and get our people acclimated to managing a railroad in a different manner.

So I would think that within a year we will be 80% there and then as you go further, there is going to continue to be opportunities but you will just be chasing after those opportunities for a long period of time as you fine tune the operation with other opportunities.

Okay.

Just as a second one, a follow-up also there was discussion on the CapEx and you provided a pretty optimistic comment about maybe CAD400 million reduction in CapEx that was potential.

It was unclear to me from the comments, is that something you would apply to next year or that is just kind of a broader comment, is that like CAD1 billion in CapEx next year or you don't want to be that specific yet?

No, no.

I think Keith and Company are rerunning some of the numbers right now as we speak.

So I would hope and expect that most of that, most if not all of that CAD400 million would be captured in 2016.

Okay, great.

Thanks for the time.

Benoit Poirier, Desjardins Securities.

Yes, good afternoon good morning and welcome back, Hunter.

Mark, if you can go back to your flexibility on the balance sheet, you end up with a net debt that is close to 2.7.

You previously targeted in the range of 2, 2.5 debt equity stands to 67%.

So if you could provide more color about the flexibility and whether you could still -- how aggressive can you be in your share buyback next year given the significant amount you have made this year and also the asset sale that impacts your latest two-year free cash flow?

That is a great question.

We have talked on a regular basis with all of the principal rating agencies.

We went to them very proactively a number of months back and said we think we have an opportunity to step forward and take advantage of what we think is a temporary disconnect between our underlying intrinsic value and the stock's current trading price and we would like to access that by temporarily increasing our leverage ratios.

They were very amenable to that.

They understood the value we were creating through that transaction.

They also understand our ability to delever if we need to because of the cash generative abilities of the railroad.

So we have been working in consultation with them as it relates to that.

Clearly if we recast our 2016 and going forward CapEx budgets, that will provide us with additional funds to continue share repurchase as well but we are going to take it as it comes.

We are balancing the desire to create shareholder value through those repurchases but also want to maintain a strong balance sheet as we have been doing over the course over the last several years.

Okay.

The second question, the follow-up question with respect to the potential CapEx reduction that could take place next year, is it something very temporary because it is a volume decline or it is something that could sustain and we could see a CAD400 million reduction of CapEx a year in 2017 and 2018?

No, it is not related necessarily to the business issues now of just taking a cut.

So I think it is something that is sustainable but as other opportunities come up and business bounce back and so forth, then we might have to reach in and increase and take away some of the CAD450 million or whatever it might be.

I don't think it would return to the levels it was before when we were in the kind of catch-up mode from previous administrations.

Okay, perfect.

Thanks for the time, guys.

Matt Troy, Nomura.

Thanks.

Just a quick one.

Positive train control, was wondering if you could give us a status update on where you stand in terms of the rollout obviously the OpEx of dead line in just over two months something being extensively covered in the press.

But just wondering if you can provide an update in terms of where you are in terms of what you are required to implement across your network?

And then perhaps what you see as the path forward and what some of the contingency planning might be around the fact that Congress can't get an extension past there would be repercussions.

Thanks.

I would just say that there is a lot of uncertainty there except for the fact where we are certain there is no way this industry is going to meet that mandate.

It is something we are all seized with obviously.

We have done our job, we are trying to do our job day in and day out to make sure that Congress understands that in spite of the mandate that we can't meet we have got a responsibility to run the railway safely and if they force that date upon us, then we have no choice but to seriously consider not hauling those products that require us to have PTC in the first place which is what we are positioning.

We have certainly communicated that with Congress and have communicated that with our customers obviously.

That draws a lot of concern, a lot of people maybe some of the Congress members don't clearly understand the products that we carry that enable them to drink clean drinking water, that produce the products that we consume day in and day out that should we not haul it, those kind of items could be in jeopardy.

But with that said, this Company has spent probably rough numbers two-thirds of our total spend.

We are well-positioned, we've got get the technology tested.

It hasn't been for lack of effort, the territory effectively from the border down to Chicago down to Kansas City has to be covered.

We've got some testing that is in place now that we are going to do throughout the end of the year and we will continue to progress through that to 2016, 2017 with a view and an expectation that we can get this thing implemented.

That doesn't mean tested and reliable, that is a whole nother discussion but certainly [implement] by about 2018.

Makes sense.

Thanks for the detail.

Jason Seidl, Cowen.

Thank you and echoing everyone's comments, welcome back Hunter and hello to everyone else.

Hunter, if I could just go back to your commentary sort of about the ability to bring on more revenue, maybe pushing the OR up a bit, I think I can do the math like everybody else.

I would rather have CAD1.8 billion in revenues at a 65 OR as opposed to CAD1.5 at a 59.

However, every time I think you say that people think about the old days of railroading where two railroads would fight over 0.5% market share and that would force pricing down in the long-term.

Is there anything you can tell us that is not going to happen again?

And my second question to that is this related more around the move away from the contracts and this is going to be more on the spot basis that you can be aggressive for extra business?

I think it is our view of what is smart to do and look at.

I can tell you this, I was not part of that old regime.

I remember the days but I didn't have any controls then.

As long as I am around, we are going to maintain a certain discipline and never get back into that type of environment again.

I just think to your point, I sit down and I talk about that of would you rather be this size company with this and that and everybody agrees until they think we might do it and they say oh my God, you wouldn't do that would you?

And if you don't do it, they say, oh my God, you are going to do that.

So it is kind of damned if you do and damned if you don't.

I think that as I have said before many times, number one, we are going to be the most efficient carrier out there with the best service and the best product.

And as long as we do that, that is going to put us in good position.

Then how we react to the marketplace given demand in the market and given what the market is, I'm not going to spend a lot of money to go out and try to get business that is very cheap margins.

I think that you can rest assured that this Company is going to be very disciplined with how we do pricing and we have never been accused of being price cutters or the low-cost leader or what.

If anything, we have been on the other side of the ledger and I just think that you have to think about something.

I get very nervous when I pick up the headlines and it says some rail is raising rates 17%.

At the same time the next week, they are announcing a record quarter and the next week somebody is writing their congressman.

Now we have a certain amount of discipline more so in Canada than we do and rails all of the time get the questions in the US, why don't you raise rates?

Well, one of the reasons that we don't is this.

We have kind of an internal rule that says this, if you abuse authority, you lose it.

So there is some responsibility we have to manage that in a very disciplined manner and I hope you can trust that we will do that.

No, I think that is the answer most people wanted to hear.

And a quick follow-up, you sort of mentioned the government.

Now you guys have had your clashes in the past over a few issues, you have a new government there in Canada.

Do you think this is going to be a positive, negative, neutral or wait and see?

If I had to guess right now, I think it is neutral.

With due respect to my conservative friends in Canada, they might not call me a friend, they ain't done much for us.

The liberals didn't do much for us before the conservatives when they were in and now the liberals are back in.

They ain't going to do a whole lot for railroads and they don't need to do for us.

Just leave us alone, give us a level playing field and let us run our business.

I do wish they would take a look at their policies as far as grain and why all of a sudden they think they have to regulate Western grain and all of that.

But I think they have got larger issues than to worry about the rails in Canada.

Canada right now as I sit as an American citizen, Canada has the finest rail system in the world, the two best carriers in the world and they ought to be proud of it up there and take care of it.

Now I will leave it there.

Thanks for your time as always, Hunter.

Bascome Majors, Susquehanna.

Thanks for taking my question here.

I just wanted to follow up on the balance sheet, Mark.

Where do you see leverage landing for 2015 here on a debt to EBITDA basis?

How comfortable are you with maintaining that profile at or above the high-end of your targets against the uncertain macro backdrop we are seeing into 2016?

Right now we finished the quarter at 2.75 times.

I would expect if anything to see that maybe move in slightly but with only three months to go, I wouldn't expect it to move materially from that point.

I think the key is that we have worked very closely with the rating agencies, they understand what it is that we are doing, why we are doing that.

They also understand that we are making sure that we maintain a very flexible financial structure going forward.

So for example, you would have seen that we issued 100 year paper during the quarter.

In effect what we did through that transaction was we have traded out cost of equity which is maybe call it roughly 10% for an after-tax cost of debt which is maybe 4.5% and effectively locked in over 500 basis points to value for our shareholder base over our long duration.

We have also been able to as we said move out the duration of our weighted average portfolio very significantly.

It was about 13 years, not that long ago.

Now it is more akin to 26 years.

We also did that and (technical difficulty) our weighted average coupon rate down from call it 6 1/4 to 5 5/8.

So a lot of things that we are doing we think are very prudent balance sheet management.

Exactly where we will end the year I can't predict that but I can tell you that we are committed to our BBB+ credit rating agencies dialogue and we are comfortable we will manage against that.

I appreciate all of that detail here.

Just one housekeeping item related.

Where do you see interest expense landing for 4Q after all the debt that you raised in the third quarter and given the higher debt balance and reduced weighted average coupon that you talked about?

I think maybe just see a straight mathematical calculation given all of the paper we have already issued, the coupon rates are outstanding I think it is probably 1.25, something to that effect but that is just a straight calculation.

All right.

Thank you for the time.

David Vernon, Bernstein.

Good morning and thanks for fitting me in here.

A question for you, Keith, on the fluidity you guys are seeing in Chicago as we are heading into winter, do you think the rail service levels through there are holding up at a decent level and we are going to avoid any risks assuming a normal winter of another network seizure as we kind of look to the end of the year?

If it is a normal winter relative to a reduced business demand, I would say the likelihood you are going to see what happened in 2014 happen is minimal.

That said, it doesn't just take a weather event in Chicago, it is a very tenuous sensitive place as it is.

A major service interruption by any of the carriers can cause traffic bunching dump into the belt carriers.

It has a ripple effect across the (technical difficulty).

So I look at it every day with cautious optimism but I am a realist and I understand it doesn't take a lot to create some fragility there in Chicago but again, normal winter reduced traffic volumes I don't see a great likelihood or chance of a repeat of 2014 for sure.

And has there been any structural improvements or some of the work that has been put through there or is this just the better service levels as a result of there is just less volume, less crude flowing through the city?

There has been some.

Obviously some of the capital dollars that have been continue that have been spent since 2014 is going to increase options to a degree.

Does it move the needle?

I would say no.

But between that, between a reduced traffic volume level and between some coordination where the railroads are working better together in the play box so of speak when things do get a little bit hairy, I do think you get a better outcome given the same circumstances.

Great.

Thanks for the time and congratulations on getting the profits up and the volumes down.

It is a good result.

Jeff Kauffman, Buckingham Research.

Thank you very much.

Thanks for squeezing me on and welcome back, Hunter.

A lot of my questions have been asked.

Let me just follow up one for Keith, one for Mark.

Mark, you mentioned the interest expense calculation for 4Q.

If you bought back no more shares, what would shares outstanding look like in 4Q?

I think if I got it correctly here for quarter end, share count was around 158.7 million shares in (inaudible).

All right.

I thought that was the weighted average for the quarter, not the quarter end.

I may be siding that, that is what is sticking in my head as far as the actual share count.

I would have to dig it out of a file.

I will follow up with you.

(multiple speakers)

We will do that off-line.

Last question for Keith, Keith, I don't think anyone has asked about the expiration of these softwood lumber agreement and I was just kind of wondering what your thoughts were on that?

It just has expired a couple of weeks ago; it was a year long process.

I don't know what is going to happen.

I would say that hopefully that presents an opportunity for us to move more softwood lumber across the border in the absence of the tariff but I'm not exactly sure.

Congratulations and thank you.

David Tyerman, Canaccord Genuity.

Yes, just wanted to follow up on Hunter's comment about the 2 to 3 point OR improvement.

So I was wondering what areas we should expect to see the biggest improvement?

Is it labor or is it other areas that you would expect to see improvement like that?

Essentially it is all the above.

It is effectively converting the operations and synergies we create through the investment to running fewer train starts, fewer people, fewer locomotives, fewer cars, fewer mechanics needed to work on locomotives, fewer mechanics needed to work on cars.

So across the board lower headcount in headquarters obviously.

It is just -- there is no silver bullet there, it is singles and doubles.

It is working across the board, it is rightsizing our assets relative to the business levels with a much more productive physical plant, doing more with less effectively.

Okay.

So it sounds like if we were modeling this, pretty much every category could be improved somewhat?

Well you are going to -- the things you would see, you would see headcount down to a degree.

You would see train length up, you would see train speed up, you would see if you looked at our daily numbers we look at, you would see train miles down and crew starts down.

Those are the drivers that drive the bottom line that actually drive the cost centers in the Company.

You would see fuel improvement, less fuel consumed, fuel productivity up, I could give you about 15 or 20 things.

But external if you pay attention to train speed, you see the (technical difficulty) improving, you see train length improving, you see train weight improvement, you see fuel and productivity improvement and all of those other things are going to happen as a result.

Okay, very good.

Thank you.

Steven Paget, First Energy.

Thank you.

Good morning.

Welcome back, Hunter.

One ping only for me.

Anecdotal feedback is that are only two railroads in North America that do what they say they will do, yourselves and the railroad in Montreal and US railroads aren't providing the same service, customers are getting frustrated.

And could this frustration with other railroads lead to some form of negative intervention by the US government?

That is a question?

I hope not but I guess it could.

I am not aware of so much of the sensitivity of some of those issues.

I think the Service Transportation Board and not this last administration has not been very aggressive.

In fact, if you look at what they have done or accomplished over the last -- I don't care what period of time you want to look at 10 or 15 years with the exception of handling a couple of mergers, it has been a non-event.

At this point in time, I would doubt that they are equipped or we would want to get into a fray like that.

But I mean I wouldn't rule that out.

I mean certainly we tend to forget -- I guess a couple of years ago what we were going through in Chicago with grain and other things and if God forbid we would go back into those times, then you would have people raising many issues again about those type things that we should be sensitive to.

Thank you.

That is my one question.

Turan Quettawala, Scotia Bank.

Yes, good afternoon.

I guess most of my questions have been answered as well.

Welcome back, Hunter.

One question only I guess on asset sales, maybe you can give us a bit of an update on that.

I guess that is the only part of a capital equation there that we haven't touched on today.

Go ahead.

Mark Wallace is here with us.

I will let Mark given that is his portfolio.

Sure, hey Turan.

It is Mark.

So we are still working with our partners at Dream pretty aggressively.

We have got about 12 or 13 projects underway.

We are fast tracking two of them in Toronto that we are pretty excited about.

We are going to start seeing some cash from those probably in 2017.

These are development opportunities that we are working on.

We do have a couple of properties that have flowed back to CP because they are not developable so we would expect probably sometime in 2016, 2017 to see some higher land sales.

How much right now I'm not going to quantify that but year-over-year you should probably start seeing an increase in 2016, 2017 in our land sale numbers.

That is helpful.

Thank you very much.

There are no further questions.

Mr. Harrison, please continue.

Thanks so much for joining us.

Once again, it is nice to be back and I look forward to visiting with you in January after we hopefully have experienced a very successful fourth quarter.

Thank you.

This concludes today's conference call.

You may now disconnect.