ProAssurance Corp (PRA) 2008 Q1 法說會逐字稿

Good day, everyone, and welcome to today's ProAssurance Corporation 2008 first quarter results conference call. As a reminder, today's conference is being recorded. And now for opening remarks and introductions, I would like to turn the call over to Mr. Frank O'Neill. Please go ahead.

Thank you, Alan, and thanks, everyone, for joining us. Let me preface our comments by noting that both our news release which we issue this morning and our SEC filings include extensive disclosures with regard to forward-looking statements. In that regard, you should understand that statements we make during today's call which deal with projections, estimates, expectations and the like are explicitly identified as forward-looking statements subject to various risks. As you know, actual results could differ materially from current projections or expectations. Our SEC filings have a full listing of the risks that investors should consider in connection with such statements.

When you understand that the risks we face, we believe you will better understand today's remarks and our business. We will not undertake and we expressly disclaim any obligation to update or alter forward-looking statements, whether as a result of new information or future events, except as required bylaw. The content of this call is accurate only on Wednesday, May 7, 2008, the date of first broadcast. We don't authorize any transcripts nor do we review them for errors. So if you are reading a transcript of this call it may have mistakes that could alter the intent or meaning of our statements. On the call today is our Chief Executive Officer, Stan Starnes; our President, Vic Adamo; Chief Financial Officer, Ned Rand; Chief Underwriting Officer, Howard Friedman; Chief Claims Officer, Mr. Darryl Thomas; and Mr. Jim Morello, our Chief Accounting Officer. Stan will open our remarks today. Stan?

Thanks, Brian. Welcome, everyone, and thanks for your interest. We had a solid quarter operationally. In fact, it was one of the best first quarters in our history, although the top line did decline, as we explained it would. As you'll hear, we retained a higher percentage of insureds than in past quarters. We've seen key ratios continue to improve. We've responded appropriate to a favorable loss climate. Our balance sheet continues to strengthen, and we have grown book value. We are pleased with our operational results, but we also see opportunities for improvement which we intend to exploit in the months ahead. We did see a decline in our investment result in the quarter, and Ned will provide you some details in a moment. I do want to emphasize that we continue to maintain a very conservative investment portfolio. Overall, our soft market strategies are in place and are working. On balance, I find far more positives in our results than negative, and I'm pleased with the $35.9 million we made for our stockholders. Ned, how about a more detailed look at the numbers?

Thank you, Stan. Let's look at the many areas where we made gain during the first quarter of last year. We believe there is no substitute for a strong balance sheet and we know that book value per share was up 3% and is now is $39.80 per share. Stockholders equity, total investments and total assets are all higher than at the end of 2007. Our combined ratio improved year over year, moving down a little more than two points despite an uptick in our expense ratio. Our focus on the expense line helped us to keep most operational expenses flat or down, but we are evaluating those expenses against a smaller premium base. Those factors combined to move the expense ratio higher in the first quarter than in Q1 of last year. Our operating ratio, which includes our investment returns, showed an improvement of almost 5.5 points. While net income was essentially flat, our net income per diluted share was up 2% as we reduced the number of shares outstanding for our share repurchase program. Through April 30, we have repurchased approximately 1.5 million shares of our stock; total sum of those shares is at $77.8 million.

After those repurchases and the $15.5 million spent to redeem the [inaudible] debt last year, we have $56.7 million remaining in our authorization to repurchase shares and regain debt security. We will continue to be opportunistic and prudent in our repurchase of shares. We are continuing to evaluate interest rates in the capital markets as we determine how or if we will call the convertible debt when that window opens for us this summer. As Stan mentioned, we did see a decline in our investment results compared to last year. This is largely attributable to two investments. The first is part of our equity investment strategy, the $14 million investment in a long short fund. Because we carry this as an investment in an unconsolidated subsidiary, changes in the market value of the fund close to earnings much the way a trading portfolio would. This fund has been returning about 30% per year for us, but saw an11% decline in the first quarter. The second investment was in a special situations debt fund, where we have approximately $25 million invested. We carry this investment on a cost basis and report distributions from the fund to the extent they are not gains on return of capital as investment income. Given the turmoil in the markets, the fund decided month not to make a distribution in the quarter.

This compares to a distribution of approximately $1.7 million in the first quarter of 2007, which is on the high side of that fund's quarterly distribution, which will vary from quarter to quarter. As a further reference point, total distributions from the funds for 2007 were $6.3 million. We make investments like these because they are generally noncorrelating with our business and the rest of our investment portfolio. That means we will see small surprises but -- upside and downside from time to time. These investments have provided good returns in the past and we believe they will do so in the future. A note about our investment portfolio disclosures. Several of you have commented positively on the level of detail we provided in our investor presentation since late last year. We are updating that disclosure with first quarter data and expect to file new slides next week prior to the investor meeting. But the key is that there are no major changes from previous filings. Frank?

Thanks, Ned. Now, we did receive some benefit in the quarter from favorable net reserve developments, so I am going to ask Howard to comment on that, as well as pricing and loss trends. Howard?

I'm happy to, Frank. Favorable net reserve development was $20 million in the quarter, as our analysis determined that severity trends continued to come in below initial projections. This is primarily from accident years 2003 through 2005, with some contributions from 2006 as we begin to get a better handle on that more recent data. The story in the marketplace is that pricing continues to be soft, although not at the levels we saw in 1999 and 2000, and loss costs continue as expected. Gross premiums written were down in the quarter, and the year over year decline was about 13.5%. With many of our loss projections continuing to show a downward trend, we are responding with appropriately lower rates. On renewal business, premiums were down about 7% as compared to first quarter last year. We are retaining 89% of our expiring business compared to 85% in Q1 of 2007.

The difficulty at this point in the market is in acquiring new business against price based competition as we emphasize underwriting discipline and pricing integrity. We are still pricing to maintain our margins and collecting an adequate rate per unit of risk. There's really nothing new to report with regard to loss trends; frequency continues to be moderate in most states, but is no longer declining. In addition to our focus on underwriting and pricing, we are maintaining the same initial level of reserving as we had in the past. We continue to see companies that believe these current loss trends represent a new paradigm and are establishing their loss picks accordingly. I want us to be on the record as doubting the permanency of today's loss trends, given the historical ups and downs of the cycle. Frank?

I will note that, Howard; and along those lines, I would like to ask Darryl Thomas to tell us what he sees in claims now that we are well into 2008. Darryl, how are claims stacking up?

Frank, our claims inventory continues to decline. As we mentioned in our prior call, last year we tried 733 cases for our insureds and 528 trials. I expect that number will fall in 2008 because the number of cases being filed has been declining for a few years. We simply don't have as many claims in our inventories. However, no matter what the claims inventory, we will maintain our devotion to our position and our commitment to their defense in the courtroom. One other brief note. In last quarter's call and in several presentations, we've mentioned that a new day of transparency appears to be coming to medicine with regard to malpractice claims outcomes.

We have seen more evidence of this in the past few years. There's a proposal for greater access to claims data in North Carolina, and the Florida Supreme Court's January ruling on the patient's right to know law is expanding access to outcome record. Consequently, our willingness to offer an insured an unfettered right to a claims defense and give them the best chance to clear their name continues to be a strong selling point with our clients and potential clients. We'd also point out that last week at Lower Court in Georgia, struck down the state's $350,000 cap on noneconomic damages. This was a centerpiece of Georgia's tort reform, and we are total that that decision will be appealed to the Georgia Supreme Court. This decision, like last year's Lower Court decision striking down Illinois damage caps, underscores the need for caution in today's environment and accounts for our unwillingness to give presumptive credit in our rates to untested legal reform. Frank?

Thanks, Darryl. Stan, do you have any final comments you want to make before we take questions?

I want to reemphasize our believe that the way through the soft market is to maintain underwriting discipline and continue to build a stronger balance sheet. There are those who are willing to voice an opinion about whether the soft market might end and when it might end, but the truth is that know one really knows. I do believe the loss picture will change. It's done so in every medical liability insurance cycle back to the '70s when we first started tracking this line of insurance. My goal is to bring ProAssurance out of the soft market with dry powder to take advantage of the mistakes we believe that others are making today.

Too many companies are making bets on the current claims environment that we think are unfounded. If, for example, severity were to pick back up, the effect would ripple back through every open claim on the books. Darryl's point about the potential loss of dam caps in Georgia and Illinois highlights the reasons we are always guarding against downside surprises. If potential damages are uncapped, the lower and higher awards in those states will draw lawsuits like moths to a flame. The same could hold true nationwide if the plaintiff's bar becomes emboldened by a change in the political climate after the election. The point is this, trees don't go to the sky forever and frequency has never stayed low forever either. We believe that some level of skepticism is warranted when analyzing claims data in the loss picks is being developed by companies that believe today's climate is permanent. No one can give you a concrete answer as to why frequency is down. And when you don't know why something is happening, you better not count on it forever.

I can tell you from more than 30 years in the courtroom, that patient frustration and dissatisfaction with unexpected outcomes drives people to lawyer's offices. And that's only going to get worse as healthcare becomes more expensive and we are forced to do make choices about who will be covered and at what expense. So that's another reason to be wary. With all of that being said, we do think there are opportunities out there. We are identifying a few small markets and lines of business where we may add new business this year, but those won't be enough to move the needle much if at all; but it will set a foundation for internal growth when the market hardens. Obviously, I don't want to tip our hand, so we will record any gains when and if they occur. We continue to believe there is a better avenue for growth through M&A transactions and there is a greater sense that one or more of those deals may come forward in the market this year.

While M&A opportunities are sporadic, there does seem to be more activity in this area than we've seen over the last two years. There is no assurance that the right opportunity will come along, but you can be assured that we are actively evaluating what is happening in the marketplace. And Frank, a final note. This will be the last conference call for Jim Morello, our Chief Accounting Officer and Treasurer. Jim is retiring at the end of June after more than two decades of dedicated service to our Company, our insureds and our shareholders. Jim has served as a member in a number of capacities since he joined Mutual Assurance in 1984. Jim, we'll miss you and the contributions to our enterprise, and I want to take time to say publicly on behalf of everyone, thanks for all you've done. Frank?

Well done, Jim. Thank you, Alan. We will take questions now, please.

Thank you, gentlemen. (OPERATOR INSTRUCTIONS). And first we'll hear from Amit Kumar from Fox-Pitt.

Thanks, good morning. I guess just going back to the investment income delta, do you have some sort of a number how much it is as of now -- like obviously numbers have reversed a bit, but do you have that number handy?

Amit, are you asking basically what the April result is?

Yes.

I can't give you specifics. But I can tell you in both instances we've seen improvements.

Okay.

You might explain why.

I'm sorry?

Explain why we can't give him the number.

Oh, I'm sorry. One is, the funds are private funds. We can't disclose specific information about those funds without permission in the funds. They are not in a position to want to do that right now I guess is the main reason. The other is that they do hard closes on quarters and softer closes on months, so we just have less data on those funds.

Okay. And I guess -- okay, that is somewhat helpful. Just moving on in terms of -- there was some comment in the press release regarding the expense control. Can you just expand on that a bit?

Sure, Amit. A couple of things. Obviously, as we enter in a a softer market and we keep premiums defined we are going to see the expense ratio go up and so we are doing everything we can to control expenses. I think probably, as would you understand, though, the largest components of our expenses is our people. And one thing we don't have the intent to do is layoff people. Because we do have a stance that we want to keep our powder dry for when the market does harden. So with that in mind, we do have a normal level of attrition within the organization and as we see people leave through that normal level of attrition, we challenge the need to replace that position to see if we can redistribute work loads differently in the organization. And beyond that, it's just really gets to kind of watching your nickels and dimes.

Okay. That's helpful. And I guess just going back to the investment income myth, has there been any change in your thought process going forward? There have been other companies which have missed earnings based on this delta, and some of them have gone back and looked at what they thought was less of a correlation but especially how the markets are right now, some retooling might be necessary. Have you thought of -- are you sort of reevaluating your position on this or not?

First, let's put things in perspective. You know, we've got an investment portfolio in excess of $3 billion, and the two investment funds we are talking about total right at about $40 million. So one, I think it's just important to put in into perspective the funds we are talking about. 95% of our portfolio is a AA investment grade fixed income portfolio. And there is no plans to really change that. As far as the things we do in our alternative investments, I guess we see it slightly differently, and we see a lot of opportunities out there because people are pulling out of investments and they are doing so at we think distressed prices, and so we see more opportunities to increase investments, and not increase them dramatically but to take bigger positions in some of these investments rather than to run away from them.

Okay. That's helpful. The stock is down 7%. I think obviously the investment income volatility creates some sort of -- often overhangs. So that's why I was wondering if it changed any thought process. But I guess just moving on to the M&A scenario, you briefly touched upon it saying you were seeing some changes. Can you just expand what sort of companies we are talking about? Is it, I guess, smaller companies or Bermudians, or foreign companies thinking about it?

Amit, this is Stan. The activity we've seen has been essentially domestic activity and it is across the board in terms of size. And I'm not in a position to talk about any specifics but just to say to you that there seems to be more activity than there was a year ago, more activity than reportedly there was two years ago. But it's wide-ranging, a variety of different companies, a variety of different sizes.

Okay. That's all I have for now. Thanks so much.

Thank you.

And next we'll hear from David List from Raymond James.

Thank you, and good morning.

Good morning, David.

Can we talk a little more about pricing pressures? You are down 7% in the first quarter. Do you think that's going to accelerate on the decline side? And then, where do you see from a competitive pressure standpoint? [Inaudible] mentioned on their call a couple of days ago that AIG's gotten a little more aggressive on the large doctor groups -- are you running into them?

Tell you what, I'll do the AIG question. We hold our folks out in the marketplace, and basically AIG, as you know, could be a force in the market when and where they want to be; but when we asked our field people they said that AIG doesn't seem to be going after the small practices, David. Said they are really not a factor in our core business. They did say they have seen them on one or two really large clinics and practices where people tends to chase large premium dollars with little regard for underwriting the component risks. So we are aware that they are around, but not really a major problem. Howard, you want to talk about other prices?

The pricing in general, I would think we are going to continue to see more or less the same type of pricing activity going through the next couple of quarters, at least as we saw in the first quarter just based on what's happening in the marketplace now. As Frank mentioned, AIG really isn't the issue for us in any great way. It's really just the existing competitors that continue to look for growth at lower and lower prices. And what we've done, as I mentioned I think in a prior call, our rate filings for the first half of 2008 will probably result in continued rate declines in the same kind of range that we saw in the first quarter. And as we about through the year and we have different states come up for review, different anniversary dates, we will be looking at those; but I don't really see anything in a dramatic change in the near future.

Howard, while I've got you, can you give us any thought on kind of where your current reserve levels are relative to the midpoint of the actuarial range?

Not any more than we've ever done. We've always declined to disclose reserve range issues or reserve range numbers. We do say, and historically have said, that we feel that our reserves are very adequate and that we are evaluating them on a regular basis, but we don't provide details as far as ranges.

The reason I ask that, Howard, it just seems that your Company has probably continued to be a little more conservative than maybe some of the other players, and that may be based on Stan's comments that clearly we are -- we don't want to assume that claims frequency trends are going to continue on a downward fashion. So I don't know if you can add anything to that.

Well, I think a couple of different things. One is, the reserves themselves are not directly affected by where frequency is going. I mean, other than the small proportion of our reserves that relate to [tell] coverage and the old occurrence business and little bit of occurrence business that we might have at PIC Wisconsin, the frequency in the future doesn't affect the reserves that are established -- it's really severity related issues that affect the reserves. And the favorable development that we've seen over the past couple of years has really been driven by the fact that claims severity has continued to be lower on average than we originally projected in the rates and therefore what we projected when we established the reserves. So as long as we don't see a major change in severity, then I don't expect different kinds of reserve results than what we've been seeing in the past couple of years.

That's helpful. And Ned, finally for you, the expense ratio that as we would have anticipated, do you think that's going to continue to tick up over the next few quarters?

David, it's hard to tell, but if we continue to see modest premium declines I'd expect that it would tick up a little bit. One thing to keep in mind, we talked about this last year in the first quarter, is that some components of the expensing of stock options gets accelerated under the rules for expensing of stock options. Those options that are issued to retirement eligible employees are expensed in the period in which they are issued, and that for us is Q1. So there is 700, $800,000 of expense that runs through the first quarter that would not be recurring in the latter quarters of the year. Beyond that, I don't see any significant changes in kind of the run rate of expenses.

That's helpful. Thank you.

And next we will hear from Mark Hughes from SunTrust.

Thank you very much. Any particular strategies that account for the improved retention in the quarter? Nice job sequentially year over year -- should that continue?

This is Howard again. Well, I think it's a combination of some things. One is, we have made some rate changes as we've mentioned. We've had rate reductions in several states, and price is always an issue out there. Secondly, we've done I think quite a bit more in terms of working with our agents and with our insureds directly to the reinforce the message -- reinforce it's value of the Company to them, what we are doing. That's quite a bit different we think than other companies in the market with respect to our claims process and our risk management. And in general, just trying to provide the most efficient, fastest service that we can, particularly to our agents, and that's what agents are really looking for in a marketplace or market space where we use agents. Oftentimes, the response time that a company provides to the agent is much of an issue in terms of keeping the account as anything else, because the agent can then get on to work on their next account or their other business. If anybody has anything else to add?

You might mention sources of those rate changes, it's not a competitive driven.

Sure. You know, as I mentioned earlier, that we take the rate changes as we see the data coming in and we continue to see, as we mentioned previously, frequency staying at a very moderate level, lower than it was several years ago -- maybe not going down any further, but certainly lower -- and as we average that in that results in a lower target price for us. And so we've been able to pass that along.

Got you. Then just with respect to the frequency, flattening out, why now, and any changes in any specific markets that have caused the flattening or any specific specialties? What do you think is behind that?

Well, I mean, it can't go down forever I guess is probably the first response that I would have. Frequency in a number of states has dropped considerably over the past few years; and while we are not sure why, we knew it wasn't going to zero. So it does get to a point where there are a number of true negligence situations out there, plus there are other cases that are going to be filed in any event and you do get to a point where it flattens out. Our contention over the past several years is that this is a temporary phenomenon that we don't completely understand, and as Stan mentioned in his prepared remarks, we don't know why it's happening and therefore we don't necessarily believe that it's going to continue. So we may be seeing some signs that it's starting to head in the other direction. We don't have any data to specifically show that yet other than the decline has stopped.

Thank you.

(OPERATOR INSTRUCTIONS). Next, John at Morgan Keegan.

Good morning. Ned, the net investment income that you show in your release, that's exclusive of the equity accounting activity on the limited partnerships, right?

Yes, there are two lines on the income statement. There is net investment income and then the equity in earnings of unconsolidated subsidiaries, and they are exclusive of one another.

Okay. The decline in, let's call it regular net investment income, is that driven by tax-exempt activity, or?

I guess three things. Tax-exempt activity is one of them. Of the two investments I talked about in my prepared remarks, the special situation debt fund, that income does flow through net investment income. So on a comparative basis, the first quarter of last year, there was $1.7 million of distribution there versus zero in this quarter. And I guess the other thing that has a modest impact is just the decline in short term rates had a modest impact on investment income, probably brought investment income down buy about $600,000.

Okay. And on the equity accounting on limited partnerships, is it 39 million that you have in that investment category?

Hold on one second, I will give you that exact number. 45 million.

45 million. And is any of that activity delayed reporting?

We do have some that are on a one-month delay, but we do get data from them and if there were anything material we would run it through in the current quarter.

Okay, so no quarterly delays then?

Yes, no quarterly delays.

Okay. And on your realized losses, how much of that was OTTI?

Just one second and I will pull that up. A small amount. I want to say less than $1 million off the top of my head. But let me verify that. Yes, about $900,000.

Of the 1.4 million?

Yes.

Okay. And, Howard, I realize everyone is mystified by frequency, but quite frankly, if the State Supreme Courts continue to overturn caps you are going to have an increase in frequency, right?

Certainly expect that in those situations, yes.

Okay. Thanks a lot.

Thanks, John.

And next we'll hear from Beth Malone from KeyBanc.

Okay, thank you, good morning. Could you just talk a little bit about the timing of reserve development? Because it appears that in the first half over the last couple of years it's been less and then it builds over the year. Is there any way to predict how that's going to flow on that to help us out there?

Beth, this is Howard. No, there really isn't any good way to predict. I think what any company sees, or at least certainly the way that we approach it, we do reserve reviews, as we said previously, on a semi-annual basis basically using data at the end of the first quarter which provides some guidance for mid year, and then again using data at the end of the third quarter which sets the foundation for the end of the year. So our end of year analysis is always the most thorough and the most time consuming, and therefore we make -- typically make the largest changes at that point in time. As we go through the year, particularly in the first quarter, we have limited -- very limited new information. This is not, as we've always said, a quarter to quarter businesses, so having come off the year end analysis, we have a limited amount of new information in the first quarter, which we try to incorporate. As we about through the year, we generally get more information, we do the mid year reserve analysis, so I think it's just a natural process, whichever way things are going they tend to consume late or develop further as we get more information and move through the year. But, no, we are not making any predictions in that regard.

Okay. And then on the pricing could you talk a little bit more specifically, like what are you seeing in Michigan, for example?

Well, back again to more of our philosophical approach, we don't typically talk state by state; but I guess I will say on pricing in general we are seeing a great deal of price competition, no question about it. We see many of the companies, both the established competitors and some of the, you would call newer entrants to the market, clearly looking to maintain market share just by writing more business at lower prices; therefore, as you would expect, reducing the rate for each unit of risk that they are writing. We are doing this the same to some extent where we think it's justified as a result of our rate analysis. But just generating more premium by an ever increasing number of risk isn't our approach to the marketplace.

Okay. Thank you.

And next we'll hear from Al (inaudible) from [Meadow].

Thank you. Actually, Beth just asked my question on the timing of reserve releases, thank you.

(OPERATOR INSTRUCTIONS). And next we'll hear from [Ron Rodman] from [Capital Returns].

Good morning, Ron.

Hi. Good morning, everybody. Ned, you gave it to us on the special situation fund for the swing, Q1 '07 versus Q1 '08, I think it was 1.7 million last year, it's zero this year. Could you do the same for the other noteworthy fund?

One second, Ron, let me see if I can get my hand on that.

While they are looking up that any other question?

Well, I had a related question that may require some digging. I was curious in this current quarter, Q2 '08, if you look back to Q2 '07 and maybe look across the other alternatives that you are in, I assume as well, were there any sort of noteworthy returns this quarter that we should -- whatever, sort of be increasingly focused on about an upcoming month of a quarter over quarter swing?

In answer to your question, in the first part of last year, that particular investment returned a positive about $867,000, I believe. And in answer to your second question --

I'm sorry, before you go on to the second question, how about the Q1 '08 number for that second fund?

The Q1 '08 number was a loss of about $1.6 million.

Okay.

And I think it's important to realize that that's largely mark-to-market stuff, it doesn't necessarily realize gains or losses by the funds, but the accounting is the mark-to-market accounting on that. The amounts can vary from quarter to quarter. I don't know that we've got any particular quarters that were big anomalies.

I guess in contrast, if I look at the $45 million of investment in these two funds, you made $2.5 million -- approximately 5% last year. They weren't disasters this year at all, but just the swing of a strong first quarter last year compared to this quarter.

Right, yes, the second quarter of '07 was a seasonally strong quarter for both those funds. The third quarter of last year was not a great quarter for those funds, and the fourth quarter last year was more of a normal quarter for those funds.

Okay. And I had another sort of small question, curious to know whether you did any buybacks in April? And if you could refresh us, do you just sort of have what I will call an ordinary buyback program that basically allows you to buy back stock outside of blackout windows or do you have sort of the supplemental -- what is it,, 10-B-5 or something?

We do not buy during blackouts.

Ron, I think in the news release we disclosed the number through March 31 -- I'm digging in here to find it.

No, I saw that, I was curious --

And I guess through April 30, we have repurchased 1.5 million, so it would be the difference between, --

Oh, that's in there?

Yes, that was in our prepared remarks.

Oh, okay, I missed that, sorry. 1.5.

That's total throughout the whole buy back.

Ron, just, through April 30, 1.5 million shares that we've repurchased in total for $77.8 million.

That's 1.5 for the first four months of this year or since the --

Since we started the buy back.

Okay, okay. Thanks a lot guys, and best of luck.

Thanks, Ron.

(OPERATOR INSTRUCTIONS). And we have a follow up from Amit.

Yes, thanks. Real quick, I know some of your peers talk about their policy holder account, and I might have missed this in your prepared remarks, but do you have that number?

Amit, we generally don't disclose the exact number. I would say, though, that our policy holder account decreased -- the core business, physicians and hospitals -- decreased roughly in proportion to the loss premium meaning that the unit or the dollars per unit risk stayed up.

Okay. That was it. That's very helpful. Thanks so much.

It does appear that we have no further question. I'd like to turn it back to you for closing remarks.

Thank you, Alan. Thanks everybody for join us. We will speak to you next quarter. Thanks again, Jim Morello. Good-bye.

And that does conclude today's conference. We do thank you for your participation, and ask that you enjoy the remainder of your day.