Copart Inc (CPRT) 2012 Q3 法說會逐字稿

Good day, everyone, and welcome to today's Copart Q3 fiscal 2012 earnings conference call. Today's call is being recorded. I will now turn the conference to Jay Adair, Chief Executive Officer.

Thank you, Augusta. Good morning, everyone. We're really excited to report on the third-quarter earnings for Copart. It's my pleasure to welcome you all to the call. Will Franklin and I are in two different locations today. I'm going to turn the call over to him. He will go through his prepared remarks, I'll add a little color towards the end, and then we'll open it up for questions. So, with that, it's my pleasure to introduce to you Will Franklin, CFO for Copart.

Thank you, Jay, and good morning, everyone. Before we begin our comments, I would like to remind everyone on the call that our remarks will contain forward-looking statements. These include statements concerning our views of trends in our business. These statements are neither promises nor guarantees, and are subject to certain risks and uncertainties that could cause the final results to differ substantially from those projected or implied by our statements and comments. Key risks include trends in average selling prices for cars, and other factors that can affect our gross margin. For a more completion discussion of the risks that could affect our business, please review the Management's Discussion and Analysis, and the Risk Factors contained in our 10-Q, 10-K, and other SEC filings.

Now, I will provide a few brief comments about our financial performance in our third fiscal quarter. Yesterday we reported our results for the third quarter of our 2012 fiscal year. Consolidated revenue was $244.1 million, compared to $236.8 million for the same quarter last year, an increase of 3.1%. The growth in revenue was driven by higher revenue per car, as unit sales volume was relatively flat due to the mild winter weather in the United States, and the lingering recession in the United Kingdom. The growth in revenue per car was driven by a moderate year-over-year increase in used car pricing, and, more importantly, the change in our supplier mix.

Non-insurance cars which, on average, command a higher average selling price than insurance cars, comprised a larger portion of our total mix. In North America, the volume from non-insurance cars grew by almost 9% over the same quarter last year, and represented almost 21% of all cars sold during the quarter. The total number of purchased units sold decreased by 9.3%, as we continued to migrate contracts in the UK from the principal model to the agency model. In the UK, purchased cars represented 29% of the total volume for the quarter, compared to 36% in the same quarter last year.

Yard and fleet expenses remained relatively flat, consistent with the volume of cars sold. Our gross margin grew from $108.9 million to $115.3 million, or 5.9%. General and administrative costs, excluding depreciation, were $23.6 million compared to $24.8 million for the same quarter last year. The decline was due primarily to reduced costs associated with the transition of our headquarters to Dallas.

Our operating income increased from $82 million to $87.9 million, or 7.2%. And our diluted earnings per share increased from $0.35 to $0.43 per share, or almost 23%. Our gross margin percentage increased by 120 basis points. And our operating margin percentage increased by 130 basis points to the same quarter last year, reflecting the beneficial impact of processing more non-insurance cars. Our EBITDA, measured in the classical fashion, exceeded $100 million in the quarter for the first time. And our EBITDA margin was over 41%.

We ended the quarter with $207 million in cash. Accounts receivable and vehicle pooling costs declined on a sequential basis as we sold off winter inventory. During the quarter, we generated almost $107 million in operating cash flow, as net income and non-cash expenses generated almost $73 million in cash; the remainder coming from movement in the balance sheet as we sold off winter inventory. We expended $13.7 million for capital assets. We made no open market share repurchases. However, we did repurchase 86,000 shares in connection with our net settlement program, which allows those who exercise options to surrender shares in payment of the option strike price and income tax. At the end of the quarter, we had approximately 51 million shares remaining in our share repurchase authorization.

That concludes my remarks. I'll now turn the call back over to Jay Adair to add further comments for the quarter. Thank you, Jay.

Thank you, Will. I would like to go over four points with respect to the quarter, and add a little color on some of the topics that Will just brought up. I'd like to talk about mix and new business. I'll give you a little update on our overdrive project, talk about an acquisition made in the recent quarter, and then some of the things that are going on in the marketing side.

So, Will discussed the mix of business moving, on the non-insurance side, up to 21% in the quarter. This is a quarter that has been unseasonably low in terms of volume due to weather. As everyone, I believe, on the call knows, the quarter has just been one of which the year we had very little weather. And our business obviously, typically in the past, as we have heavy snow and rain in the winter months, build inventory, and then we sell that inventory off in Q3. So, we didn't see the volume coming in through winter, but at the same time, we were able to grow the non-insurance book of business. I would anticipate going forward that as things normalize in terms of weather in future years, that this is just unseasonably low. We haven't seen this kind of a light winter in a long time. So, I think that's a really positive thing to be able to finish the quarter with the numbers that we've been able to report, and see the growth in non-insurance.

The other thing I wanted to mention is that we talked in the last quarter about the Nationwide Insurance account that we gained in the quarter. And I wanted you all to know on the call that we did not move any of that business to the sales side in Q3. We started to integrate that new volume in Q3, and are continuing to integrate that volume in Q4. We will have the majority of the integration completed by this July, by the end of the fourth quarter. And we would expect to be near a full run rate in terms of selling volume in Q1 2013, and at full run rate by Q2 of 2013. So, again, the fact that, that wasn't assisting in the quarter is further positive news.

On the overdrive side, we talked about last quarter moving the HQ in this quarter. We anticipate that to be completed in the fourth quarter. We will be moving into the new HQ in Dallas in June, completing that in July. As we look to fiscal '13, we'll be in Dallas with our team, running the Company from Dallas going forward. So, it will be nice to have that integration completed and behind us.

I also talked in the last quarter about the selling off of the corporate jets, the two jets that the Company owned. Being a California-based company, there was a need for those jets; being a Dallas company, there isn't. Obviously, geographically, being located in the middle of the country and having access to DFW. We've already sold off one of those corporate jets, and we have the second jet in contract right now. I would anticipate that plane will be sold off in the current quarter. And if it doesn't close in this quarter, it will be completed in the first quarter of 2013. So, we should be looking at a G&A spend in 2013 that does not include those assets.

In this current quarter, you have seen the recent press release that we announced acquiring two locations in Alberta, Canada -- one in Edmonton, one in Calgary. This will improve our coverage across Canada. And we'll continue to do that. One of our internal goals is to be able to further grow our network of locations across the Canadian market, and become more competitive in that environment. So, you should see more of that approach towards the Canadian market in the future.

On the marketing side, I just wanted to finish with this. We've really seen some great improvements in Copart in marketing over the last four years. This is a company that, if you look at the chapters and think historically about how we grew our network of facilities across the country, and then embraced the Internet, and launched the first Internet bidding product, and put the first images online and eventually moved to VB2 in 2003, we've got a lot of experience now with selling cars online. We've sold over 10 million units online. So, very familiar with that.

But on the marketing side, we're just seeing a ton of improvement on the SEO side, SEM, and the user experience. We'll be continuing to improve that and launch new products in fiscal '13. I'm not going to talk about the products that we'll be launching, because in the second, third, and fourth quarters of fiscal '13, I will, on the calls, debut some of those products and show them to you as we launch those products. And give you a little bit of a tutorial through the products on how they work and why we've launched them, and the benefits of those products.

I will give you a great example, though, of just how powerful our marking efforts have become. In the quarter, we sold a 1995 Ferrari F-50. And while this is one of those rare units, not something that we'd sell every day, it really speaks to the power of our ability to sort product through, get it to the right members, have those members look at the product, and then boil that down to the bids that count. That vehicle went up for auction on February 20, and it sold on March 19. And during that period of time, we had 13,223 unique visitors look at the vehicle, which, on its own, is a pretty amazing number to be able to port that vehicle to so many potential buyers. Out of that, we ended up boiling that down to bidders from four countries and 11 states. We received 200 bids on the vehicle. Through preliminary bidding, the vehicle was bid up to $273,000. And in the VB2 auction, it sold for a final bid of $340,000. And that really just shows you some of the things that we're doing to be able to port product like that.

The buyer of the vehicle came onboard with Copart in December of 2011. So, a brand-new buyer. The vehicle wasn't listed until February. So, the buyer didn't come to Copart because of the Ferrari. The buyer came to Copart because of all the work that we have done on the marketing fronts to bring those types of buyers into Copart, and then became a buyer of the vehicle in March. That is very important as well, because we've always used vehicles that we sell to bring buyers in for the product. It's nice to bring a buyer in and have them bid on something that we didn't have yet or haven't served up to them.

So, just one example of some of the really cool stuff we're doing on the marketing fronts. As I said, in 2013 we'll continue to talk about how those efforts are working. And it just begs to why we've seen additional growth in clients as we've gone forward. And why we believe that will continue to be the case.

So, with that, I'll turn it over to you, Augusta, and we'll go ahead and open it up for questions.

(Operator Instructions)

John Lovallo of Merrill Lynch.

Starting off with the share repurchases, you've been pretty consistent with buying back shares in the past and in this quarter you didn't. Any change in philosophy there, or is it just a timing issue?

No -- I'll comment on that, John. No, no change in philosophy. We have been, obviously, very aggressive in buying back stock in the past. We look at our options that are out there. So we're sitting on, today, a little over $200 million in cash. And the options that are out there, either buying our stock back or buying other companies. And at this time we've got some opportunities that exist. So we don't want to not have the ability to do that. So it's important that we keep some cash on hand to be able to make acquisitions going forward. In the future, if we end up building, again, a really heavy cash position, and we feel that the stock is a better opportunity, then we'll go into the market and buy the stock.

Okay, great. That's helpful. Next, realizing that the accounting change shifted some of the seasonality in margin, and of course, the inventory build is going to dictate some of the margin level, historically speaking, the fourth quarter has been a pretty good margin quarter. Outside of any large inventory build would you still think that would be the case?

Yes, I don't see any change in that trend, John.

Okay, great. And if I can sneak one more in here, I think, Jay, you mentioned on the last call there were 12 facilities in the pipeline. I was just curious, are these new facilities being built, or are these just already built and just waiting to come online as demand picks up?

Some of these are facilities that we own and we're going to be turning on. We've got capacity issues in those markets so we've got to take those facilities and turn them on. They have been facilities maybe in the past and they've been mothballed, and now we're going to light them back up. Some of them are properties that we have acquired and we have to build out. So they will be capital expensed to get those online. Then some of them will be acquisitions that most likely will happen. So, we're comfortable with that number at this time. And we're working on that. It's really a timing thing.

Our goal is to try to get all that done in the next fiscal year. There may be some that gets pushed into the next year. But, the odds are that we'll get them online and we'll get those facilities turned on. The spend is just a timing issue. So as we're developing those yards and spending cash to build buildings and rock facilities and get them online, you are going to see the CapEx move. Will and I actually talked prior to the call, John, about whether or not we should try and give some CapEx numbers, and we felt that it was easier to let us finish the fourth quarter. We'll report CapEx in the fourth quarter, and then we'll put an estimate. This is what we've done in the past. We try to give you a range of what we think CapEx will be in the next fiscal year. So we're going to stick with that. We decided not to try and guess because we are in the middle of doing some deals right now on buying some land, and getting some facilities brought online. So it's just easier to report at the end of fourth quarter and then give you an estimate for the new fiscal year.

Great. Thank you very much, guys.

Scott Stember of Sidoti & Company.

Can you maybe talk about how we should be looking at the pricing on this new nationwide account? Just going back to Allstate, if I remember correctly, initially in order to get the account there were some concessions on pricing and initially in the first year we still have some margin compression. Could you tell me how that could play out with regards to the new account?

I can't go back in my head on Allstate. I can just tell you that this is an account we're really excited about gaining. They're a very well-respected company in the industry, as is Allstate. And to be able to sign something like that, it really confirms the model that we got. And validates what we're doing as a Company in terms of service and returns and all the things that insurers care about. We were competitive in our bid, but not overly competitive.

It's not like we're unhappy with what we'll be making on the contract. So I can't give you specific numbers. We'll report those earnings as they come out in the next fiscal year, but we're happy with the deal. That's the key. The key here is that we didn't do a deal that was to end up not being happy with how the returns would be or the margins would be. We're really happy with how we're going to be looking going forward.

Maybe you could just talk, flesh out a little bit what's going on in the UK. You talked about some weakness given the overall economy. Could you just talk about how the business is trending over there?

Yes, they're doing a great job. Nigel and the team that's over there, they're working on running that business, they're doing a fantastic job in terms of picking up vehicles and processing. Will talked about it in the opening remarks. The UK has definitely felt the effects of the economy and the recession. You've got high fuel prices. So, to some extent, I think people are driving less. And you had an unseasonably low winter. My goodness, the winter was just low across the US and the UK.

So volumes are down. And the accounts that we've got are there. There's no meaningful loss of business. There's nothing material where we've lost, if any business that's been lost. We are continuing to gain business in that market. They're continuing to convert sellers over from purchased model to agency, which we believe long term is the right thing to do. There's some compression on margins when we do that. Or, I should say, on profitability, not margins. Because, obviously, we don't book the vehicle that we're selling, but we make less per car when we do it on an agency model. But it's the right long-term move.

You want to be aligned with your customers' interests. And we're buying the car, we're trying to buy it as low as we can and sell it for as much as we can. And that puts us at odds. We'd rather be agency where we get a fee and then we and the insurer are both on the same side trying to get as much as we can for the car. And it's very transparent. They know exactly what we make. So, they're doing a great job. Very happy with the market. I would expect, as we see a normal winter a year from now, that things will come back. And eventually you'd expect that the economy will improve. At least you hope that, right?

Yes, on many fronts. All right. And just last question, more of a big picture. Now that we've been in the UK for quite some time now, could you talk about your general thoughts about moving into continental Europe, where we are with that? And just some general comments.

Sure. It's something that we intend to do, and we've talked about that on prior calls. We have every intent to expand internationally. And that will be something that we'll be doing. I can't tell you it's this quarter or the next quarter.

There's opportunities around the globe and we have to seize those opportunities that make sense first. And I'm not willing to lay that out on a conference call. I can just tell you that we're going to go in the markets that are going to be most welcoming first. The second piece will be where we've got a technology that we're implementing in the next fiscal year. And we're not going to let that technology hold us off from moving into markets.

But, at that same time, eventually you want to integrate. Just like when we bought the major company in London, we ran it on their platform for six months to a year. But eventually we'll want to integrate it to Copart and have the VB2 technology and all the other benefits we've got. We're happy to buy a company out and run it on their systems for a while, but eventually it needs to be integrated.

Once those systems go into play in the next fiscal year, it allows us to speed up the process in terms of expanding internationally, compared to where we've been in the past. So, it's going to happen. It's just a matter of kicking the boxes and getting everything done. When we do that, then we'll start a more aggressive expansion into some of those countries. But, like I said on the last call, you are going to see some international expansion, like you just did. You just saw the two facilities in Canada. But you are going to see more international expansion in the coming fiscal year.

Great. Thanks so much for taking my call.

If you guys could ask for Will or myself, too, that would help, just so we know who you want to answer the questions, that would be great.

Jason Ursaner of CJS Securities.

For Jay, on the SG&A and some of the marketing initiatives, I know you don't want to give specifically, but directionally from a cost perspective, as those come online, should we be thinking about this level as the trough in SG&A spending? Or you think there's still room to go there?

No, we've continued to spend, so I don't see SG&A going up dramatically in the next fiscal year. What were we, $23 million-and-change in the quarter? We could end up being $25 million a quarter, but I wouldn't expect it to be $30 million a quarter, as an example.

Okay. And then also for you, the ASPs, they're still near record high. And I know you don't know all the variables. Demand for cars is very high, but you have new cars, selling more of them, which pressures price. You talked about the aging fleet before. I'm just wondering if you could go through some of the variables and give your view on where you see ASPs going.

Yes. I would expect ASPs to come down over time. They're up because of demand, and there is still short demand -- short supply, rather. Yes, they're starting to sell some more new cars, but now we're four years baked into this thing now of not selling cars. You can run the numbers a few different ways. You can look at the total population, something over 200 million cars. You can look at the useable population, pulling out vehicles that get low mileage or third cars in families, that kind of thing. And knock the number down to 150 million vehicles. But either way you slice it, we've gone from 17 million, 18 million to 10 million to 12 million. So, there's a good 20 million cars that are missing out of the mix because we've continued to have to crush vehicles at the same rates that we have in the past.

So, we see an aging fleet, we see high demand, so we see the prices of vehicles higher. As the older vehicles pump through, it should bring down the -- that's our anticipation, anyway, is the average selling price would come off, but we would start seeing a lot more units going through. A new car is very difficult to total. A five-year-old car, which is an '07 now, when we started the recession in '08 -- if you're in the auto business, we think of it more like a depression -- but if you sit back and go to '08 and look at trying to total an '07, it wasn't easy to do. As you sit today, that's a five-year-old vehicle. So, when it gets in an accident, the probability of it becoming a total loss is much higher. So, going forward we should see ASPs come off. We should see total units going up. And the question is just going to be a supply/demand component of that. You can sit there and look at the numbers and expect that. The question is going to be, when is that going to take place?

The two should offset each other. It's no different than when parts cars are being sold and used to repair cars. You get more money for the parts cars, but, in theory, you should be fixing more cars. So the two really offset. We're in a business where there's a lot of moving parts, but it seems like when one lever gets pulled another one goes the other direction. What we're anticipating internally, that's all I can tell you, is that we're going to need room for more vehicles in the Company. And that's how we talked about expanding in excess of 10 locations, or opening in excess of 10 locations in the future. And then we've got a whole myriad of expansions we're doing on top of that. So we're taking yards where we've got an extra 10 or 15 acres, and we'll be rocking those facilities and expanding them. We're making room because we see the future as being a future where we've got to process more cars.

Got it. Appreciate all those. If I could squeeze one more little one in. Do you have a sense for how far down the market was in the North American salvage? Obviously you talked about the winter. Were your results -- do you think you're still outperforming that market? And was the actual overall market down even more than where you guys were, given the weather?

Yes, I think we're outperforming the market. It's hard to know, though, right? You have to look at the existing accounts that you've got. So, we take national accounts, and we look at where the volume is with those national accounts. And we know that volume is down. That, we can see. If you ask insurers are they totaling more cars this quarter than they did last quarter, and the answer is going to be, no, they're totaling less cars. So, to be able to deliver the results we delivered, the growth in non-insurance, and be able to maintain the number of units going through, we're really happy with those results. My expectations would be that won't be the case in the next year, that we're going to see additional volume coming through. For one, I don't expect to see the same kind of winter. But, who knows, we'll see what happens with the winter. I remember the days of sitting on calls 10 years ago and talking about El Nino. So, hopefully we don't end up like that. I'd hate to have to report on NOAA, because that gets a little bit ridiculous.

The weather is going to be what it'll be. The dynamic of aging vehicles will generate more units. And so our expectation is we're going to be selling more cars going forward. We're happy, really happy with the quarter and the growth that we saw, both in insurance, in terms of new accounts, and primarily the big win that we had in terms of a national agreement -- very happy with that. And then we're really happy with the non-insurance growth. Company-wide, we're seeing growth. It's just we're sitting in an environment right now, for obvious reasons, that we've talked about already, why the volume is not where it has been traditionally.

Great. I appreciate all the commentary. Thanks.

Bill Armstrong of CL King & Associates.

Just to follow up a little bit on pricing, it looks like scrap metal prices and crushed body indexes that we look at are down a little bit year over year. And the Manheim is about flat year over year. So, on the whole car side it looks a little like about flat. What's driving the higher price per vehicle in your auctions?

We've talked about that before. The index, we don't ignore the index. We don't ignore the Manheim index. We realize that there's a correlation there. But it's not an exact correlation. We are sitting here today -- yes, scrap is down a little bit. It's almost flat, for what it's down, especially when you consider scrap is one piece of the total value on a car. And it's a small component of all the cars we sell. It's a major piece of the low-end stuff. It's insignificant. It doesn't exist. It's insignificant on the parts cars or not as significant. It completely doesn't exist when you get into rebuilders. They're not looking at it at all.

What we're seeing internally is we've got marketing efforts that are bringing in new members every single month. The Ferrari example I gave you is a prime example of a member that's been onboard three months and then steps into the market for a $300,000-plus unit. We are doing some phenomenal stuff on the marketing fronts to bring in members and make them aware of these cars. That's driving returns. So I think a piece of it is the Manheim index. I think a piece of it is the price of scrap. But I know for a fact that we're doing phenomenal stuff on the marketing side to generate higher returns. And, as long as we do that, and as long as we keep pushing that envelope, which we will, in the next fiscal years, as we're doing that, we're driving demand. This is the ultimate supply/demand. We're a middle man, if there ever was one, as a Company. So we're bringing in supply, and we've got to outstrip that supply with demand. We've got to go out there and find more and more buyers for the product. And as long as we do that we're going to keep pushing those average selling prices higher. With that said, we'll always be subject to scrap prices, we'll always be subject to used car pricing. So there's limits to what we can do, but I believe our efforts are a big part of why you are seeing those ASPs so high.

Got it, okay. And then just one other quick one on the Project Overdrive systems rollout. I was wondering if you could just update us on how that's going, in particular relative to on schedule and on budget.

Yes, fantastic. All systems go. We anticipate starting the process of rolling TAC in the next fiscal year. And we'll be completed in calendar '13 with the vast majority of what is Project Overdrive. Project Overdrive, by the way, is a fiscal '12, '13, and '14 project. It's a three-year project. It comes at the end of those fiscal years. So, by the end of calendar '13, which will be second quarter of fiscal '14, we'll be finishing off the vast majority of that. And then at the end of fiscal '14 we'll be closing out Overdrive. That component of our strategy will come to an end.

We're big on that at Copart. Our team is really big on change and delivering change within set time frames. So we have to quantify that change will be. And then we have to set the time in which that change will be implemented. And that's why I can tell you it's a three-year project. It's not like Overdrive, some three or four or five or six or it goes on. It's not that way at all. We've got set dates we plan to implement on these dates. Right now it's all systems go. They are working towards those dates. We're on track for the budgets we've talked about in the past and for the time frames we've talked in the past. So they're doing a great job. We're excited about what they're doing.

Okay, great. Thank you.

Craig Kennison of Robert W. Baird.

Will, may I start with you?

Certainly.

Do you know when the SAP amortization is going to hit the income statement? I know in the past you've talked about it happening in fiscal 2013, but I'm wondering which quarter it might start.

It probably looks like it will be the end of calendar '13, which would be the beginning of fiscal '14.

Okay, thank you. That's helpful. And then, Jay, one of your competitive advantages has been that you control lots of salvaged property. You've got this great footprint that would be almost impossible to replicate. It's a huge durable advantage. But I'm curious about how many cars you're selling virtually, with no need for physical handling of the car. Because I'm wondering how much you can scale without the need for the physical land that you control.

The current model that we're in right now is almost none. We want to bring the vehicle into our facility. We want to go through the process of receiving it, presenting it for sale, marketing the vehicle. And our experience has been doing that off-site is very limited. So, having access to the vehicle, having it on our facilities, at our facilities is part and parcel. It's not just the marketing. There's a logistics piece.

We break our Company into three components. We've got a logistics company that moves all these vehicles in and out. We've got a technology company that markets and sells all these vehicles. And then we've got the landholding company that is storing all these vehicles. And that component is huge, to have the vehicle at our location so that when the buyer buys the vehicle they know they don't have to pick it up in three, or four, or five days. They can leave it there two, three, four weeks. They can set it up with the purchase of eight other vehicles. They can run a nine car in and pick that vehicle up while they're picking up the other eight vehicles at seven other facilities or five other facilities.

That's all part and parcel to our product and what makes it tick. We do have an off-site product. We do sell some product off-site. But I don't anticipate that product will grow at the same pace as the product that we've got today where we bring cars in, market them, sell them, store them, wait logistically, work with the shipping companies, and all the stuff that we do in that process.

Thanks. One more question to you, Jay. On Canada, are you following a company into that marketplace? Or is this more of a greenfield opportunity where you're looking to expand with new customers?

In Canada, the acquisition we just made was the purchase of a company. I would anticipate that the probability of acquiring companies is higher than the probability of greenfield in that market. But, as you've seen in the US, we're quite capable of doing both. We'll go into that market and continue to expand. At this point, we need to build a better network. We stepped into Canada and then a lot of things took place from '08 to today. And we've been working on our technology. You're very familiar, Craig, with all the stuff we've been doing. So, we held off, but we're not going to hold off any more. We're now in the market and we'll be looking to expand in furthering our coverage in that market to be more competitive.

Great. Thank you.

(Operator Instructions)

Edward Hemmelgarn of Shaker Investments.

This question is for Will. Will, did you say what the amount of money you spent on G&A was on just the move and things like that this quarter?

This quarter? It's about $400,000 in our current quarter, compared to about $800,000 in the same quarter last year.

Okay. And about how much do you think you have left?

We think the total move is going to be about $5 million, and we've spent about $3.5 million so far. Of course, that final number is uncertain, depending on the number of people that finally move and a couple of other factors. But, I think that's fair for your modeling.

Okay. So you expect the number to go up in fourth quarter?

No, I don't think it will. I think it will tail off. It will cover more quarters.

Okay. Thanks.

(Operator Instructions)

Mr. Adair, we have no other questions at this time.

All right, thanks, Augusta. We want to thank you all for coming to the call. We look forward to reporting our results on the fourth quarter. We'll see you all at that conference call, and we thank you again for your support. Hope you have a great week. Thanks again. Bye-bye.

That does conclude today's conference. Thank you all for your participation.