聯合太平洋集團 (UNP) 2017 Q3 法說會逐字稿

Greetings, and welcome to the Union Pacific's Third Quarter 2017 Conference Call.

(Operator Instructions) As a reminder, this conference is being recorded and the slides for today's presentation are available on Union Pacific's website.

It is now my pleasure to introduce your host, Mr. Lance Fritz, Chairman, President and CEO for Union Pacific.

Thank you.

Mr. Fritz, you may now begin.

Good morning, everybody, and welcome to Union Pacific's Third Quarter Earnings Conference Call.

With me here today in Omaha are Beth Whited, our Chief Marketing Officer; Cameron Scott, our Chief Operating Officer; and Rob Knight, our Chief Financial Officer.

This morning, Union Pacific is reporting net income of $1.2 billion for the third quarter of 2017.

This equates to $1.50 per share, which is up 10% over last year.

Total volume decreased 1% in the quarter compared to 2016.

Carload volume decreased in 4 of our 6 commodity groups, driven primarily by a 10% decrease in Agricultural Products and associated grain carloadings.

Partially offsetting this volume decrease was a 15% increase in Industrial Products, with particular strength in frac sand shipments.

The quarterly operating ratio came in at 62.8%, which was up 0.7 points from the third quarter of 2016.

During the quarter, our company faced the unprecedented challenge of Hurricane Harvey.

I want to thank the men and women of Union Pacific who worked tirelessly and heroically to quickly and safely restore our network and our operations from the storm and the related flooding.

Given these challenges, I'm pleased with our results and look forward to continuing to build on the foundation provided by our 6-track value strategy.

Our team will give you more of the details on the third quarter, starting with Beth.

Thanks, Lance, and good morning.

We announced during the third quarter that, effective January 1, we will transition reporting to our newly established 4 business groups: Agricultural, Energy, Industrial and Premium.

Until then, we will continue to report on the 6 business teams.

For the third quarter, our volume was down 1%, driven primarily by Agricultural Products, Automotive and Chemicals, with an offset in Industrial Products.

We generated positive net core pricing of nearly 2% in the quarter, with continued Coal related and Intermodal pricing pressure.

Despite these challenges, we remained committed to achieving core pricing gains that offset inflation and align with our value proposition.

We saw a 4% increase in freight revenue due to a 5% increase in average revenue per car, with a slight offset due to decreased carloads.

Let's take a closer look at the performance of each business group.

Ag Products revenue was down 2% on a 10% volume decrease and a 9% increase in average revenue per car.

Grain carloads were down 19%, primarily driven by a delay in harvest and lower U.S. exports of feed grains and wheat as a result of high global inventories.

This was partially offset by domestic strength in the MidSouth poultry and Idaho dairy market.

Grain products carloads were down 10% predominately due to weaker competitiveness of U.S. export mill shipments to the Gulf Coast.

Food & Refrigerated volumes were up 5%, driven by continued strength in import beer, with strong summer demand.

Domestic sugar shipments also remained strong, with the movement of surplus inventory to accommodate new crop production.

Looking at the rest of the year, we may see some benefit from the delayed harvest, however, high global production of both feed grains and wheat, coupled with the lower-quality domestic wheat harvest, will continue to create headwinds in our export markets.

Domestic business is expected to remain stable.

We expect Food & Refrigerated shipments will see growth driven by Cold Connect penetration, weather recovery and tightening truck capacity.

We also anticipate sustained strength in sugar and import beer, trending with consumer demand.

Automotive revenue was down 3% in the quarter on a 5% decrease in volume and a 1% increase in average revenue per car.

Finished vehicle shipments decreased 9% as a result of lower production levels in response to softer vehicle sales, coupled with high inventories as well as planned outages for model changeovers.

These reductions were partially offset by new West Coast import traffic and production growth in Mexico.

The seasonally adjusted average rate of sales was 17.1 million vehicles in the third quarter, down 3% from third quarter 2016.

On the parts side, over-the-road conversions and growth in light truck demand maintained our parts volume despite lower overall production levels.

The U.S. light vehicle sales forecast for full year 2017 is 17 million units, down almost 3% from the 2016 record rate of 17.5 million.

For the rest of the year, we remain cautious with respect to auto sales due to current sales trends, high inventory and rising incentives.

Hurricane replacements may provide some short-term opportunity.

Chemicals revenue was up 2% for the quarter on a 5% decrease in volume and 8% increase in average revenue per car.

Petroleum and LPG shipments declined 17% as we continued to see headwinds on crude oil shipments, which were down 82% to about 2,000 carloads due to the lower crude oil prices and available pipeline capacity.

Chemicals volume, excluding crude oil, was down 2% in the quarter.

Plastics carloads were down 6%, with 7 plastics plants impacted by Hurricane Harvey.

Fertilizer was up 6%, driven by continued strength in potash exports.

For the fourth quarter of 2017, our Chemicals franchise is expected to grow modestly.

We are back to pre -- back to normal prehurricane levels.

In addition, we anticipate strength in plastics with continued domestic and export demand, coupled with the new facilities and expansions coming online.

Coal revenue decreased 2% for the quarter on a 3% decrease in volume and flat average revenue per car.

On a tonnage basis, Powder River Basin was down 4%, while other regions were up 6%, as Coal units and unloading outages reduced PRB volume.

Colorado/Utah loading benefited from strong export shipments to the West Coast and to the Gulf Coast.

Natural gas prices were similar to a year ago, and Coal stockpiles have been below normal for the majority of the year.

Looking forward to the fourth quarter, Coal volumes are expected to be flat versus fourth quarter 2016 due to normalized demand.

As always, weather conditions will be a key factor of demand.

Industrial Products revenue was up 26% on a 15% increase in volume and a 10% increase in average revenue per car during the quarter.

Minerals volume increased 80% in the quarter, driven by a 120% increase in sand shipments due to improving well completions and increased proppants intensity per well.

Specialized markets volume increased 23% in the quarter, driven by a 22% increase in waste as a result of West Coast remediation projects and a 130% increase in military shipments due to increased deployments and rotations.

Looking forward, we anticipate proppant intensity, well completions and business developments to drive continued growth through the fourth quarter.

We see growth in military and waste shipments, with an offset in rock volumes due to less project work in the South.

Intermodal revenue was up 3% on flat volume and a 2% increase in average revenue per car.

Domestic volume was down 1% due to a challenging competitive environment, offset by partial growth.

International volume was up 1% in the quarter from stronger westbound shipments.

Excluding the Hanjin impact in 2016, international volume would have been up 5%.

We expect international Intermodal volume to hover around 2016 levels for the remainder of the year.

We have now lapped the effects of the Hanjin bankruptcy, creating easier comps, however, we expect slowing from normal seasonality as well as headwinds from ocean carrier industry consolidation and increasing overcapacity in the fourth quarter, resulting in lower ocean rates.

For the domestic market, we remain optimistic that truck capacity will tighten further in the fourth quarter, providing an opportunity to drive higher levels of over-the-road conversions.

We are also well positioned for holiday sales growth later in the quarter.

To wrap up, this slide recaps our outlook for the remainder of 2017 mentioned in the previous slides.

We anticipate continued progress in our Food & Refrigerated, plastics, fertilizer and sand markets.

Over-the-road conversions in both Automotive and Intermodal will also continue to present opportunities for growth.

Our diverse franchise remains well positioned for growth for the remainder of the year as the U.S. economy continues to build momentum in the face of a number of uncertainties in the worldwide economy.

Our team remains fully committed to developing new business opportunities and strengthening our overall customer value proposition.

With that, I'll turn it over to Cameron for an update on our operating performance.

Thanks, Beth, and good morning.

Starting with safety performance.

Our reportable personal injury rate was 0.78, almost even with the year-to-date record of 0.77 achieved in 2016.

Although we continue generating near-record safety results, we won't be satisfied until we reach our goal of 0 incidents, getting every one of our employees home safely at the end of each day.

With regards to rail equipment incidents, or derailments, our reportable rate improved 5% to 2.97.

And in public safety, our grade crossing incident rate improved 1% versus 2016 to 2.52, as we remain focused on improving crossings where we can impact public safety the most.

Moving on to network performance.

As reported to the AAR, velocity declined 2% when compared to the third quarter of 2016.

As Lance mentioned, we faced a particularly tough challenge in the quarter dealing with the impact of Hurricane Harvey.

The record-setting rains negatively impacted Gulf Coast operations and our network fluidity system-wide.

In the aftermath of the storm, over 1,700 miles of track were out of service and more than 2,400 route miles were affected.

The team showed tremendous dedication as they worked extremely hard around the clock restoring operations back to normal in only 10 days.

Continued implementation and testing of PTC across a growing number of routes in our network also negatively impacted velocity during the quarter.

Terminal dwell increased 7% compared to last year, whereas the effect of the hurricane did contribute to the increase during the quarter, we also see opportunities to improve car connections within our transportation plant.

Looking at our resources.

All in, our total operating workforce was down nearly 550 employees in the quarter when compared to last year.

Our engineering and mechanical workforce was down more than 800 employees, driven primarily by fewer employees required on capital projects as a result of the productivity initiatives implemented during our "G55 + 0" efforts.

While our TE&Y workforce, excluding those in training, declined with volume during the quarter, our overall TE&Y workforce increased as we began to refill the training pipeline.

As always, we will continue to adjust our resources as volume and network performance dictate.

Despite the challenges experienced during the quarter, the team has remained focused on generating solid productivity results.

We achieved best-ever train size performance in our grain and manifest categories during the third quarter, marking the ninth consecutive quarter of best-ever performance in our manifest network.

The team also achieved third quarter records in our Automotive, Intermodal and Coal categories.

We were also able to generate productivity gains within our terminals as cars switched per employee day increased 3% during the third quarter.

To wrap up, looking forward, we will continue fine-tuning our safety strategy to generate positive results year-over-year.

And while we have made solid operating productivity gains throughout the year, our progress is far from over.

Ultimately, running a safe, reliable and efficient railroad creates an excellent customer experience and increases returns for our shareholders.

With that, I'll turn it over to Rob.

Thanks, and good morning.

Let's start with a recap of our third quarter results.

Operating revenue was $5.4 billion in the quarter, up 5% versus last year, positive core price and increased fuel surcharge revenue offset the slight decrease in volumes for the quarter.

Operating expense totaled $3.4 billion, up 6% from 2016.

This includes the impact from Hurricane Harvey and the onetime expense associated with our workforce reduction plan.

Operating income totaled $2 billion, a 3% increase from last year.

Below the line, other income totaled $151 million, up about $122 million from 2016.

This increase includes the impact for both the large land sale and the settlement of a previous litigation matter.

Interest expense of $180 million was down 2% compared to the previous year, and this reflects the impact of a lower effective interest rate offsetting a higher total debt balance.

Income tax expense increased 17% to $789 million, driven primarily by higher pretax earnings and the impact of the Illinois tax rate increase.

Net income totaled $1.2 billion, up 6% versus last year, while the outstanding share balance declined 4% as a result of our continued share repurchase activity.

These results combined to produce third quarter earnings per share of $1.50.

The operating ratio was 62.8%, up 0.7 percentage points from the third quarter of last year.

The combined impact of fuel price and the surcharge lag benefit had less than 0.5 point negative impact on the operating ratio and had a neutral impact on earnings per share in the third quarter versus last year.

I want to take a minute to recap the onetime items, which we have called out over the past few months.

Slide 20 provides a summary of these items, along with the third quarter impact on earnings per share and operating ratio.

Above the line, we had the onetime costs associated with our workforce reduction as well as the negative impact from Hurricane Harvey.

Below the line, we had the negative impact of the Illinois State income tax adjustment, which was more than offset by the positive impact from the large land sale as well as the litigation settlements.

The net impact of all these items resulted in a $0.06 headwind on our earnings per share and a negative 2.3 points on our operating ratio in the quarter.

Turning now to the top line.

Freight revenue of $5 billion was up 4% versus last year despite a 1% decrease in volume.

Fuel surcharge revenue totaled $227 million, up $54 million when compared to 2016 and down slightly versus the second quarter of this year.

The business mix impact on freight revenue in the third quarter was a positive 2%.

The primary drivers of this positive mix were year-over-year growth in frac sand shipments, partially offset by decreases in grain carloadings, finished vehicle volumes and chemical movements.

Core price was nearly 2% in the quarter, continuing the positive trend that we have experienced throughout the year.

And as Beth previously mentioned, we are still facing some challenges with our Coal and Intermodal businesses.

Excluding Coal and Intermodal, our core price was about 3%.

For the full year, we continue to be on track with our pricing initiatives to generate a revenue benefit that exceeds our rail inflation costs.

Turning now to operating expense, Slide 22 provides a summary of our operating expenses for the quarter.

Compensation and benefits expense increased 9% versus 2016, including the impact from the workforce reduction plan, which represented a majority of this increase.

Excluding the workforce reduction impact, comp and benefits expense was up about 2% versus last year.

We expect full year labor inflation to be in the 4% to 5% range.

Productivity gains and a smaller capital workforce resulted in total workforce levels declining just under 2% in the quarter versus last year, or about 700 employees.

This does not include the impact of our workforce reduction plan, which will be reflected in our fourth quarter results.

Fuel expense totaled $450 million, up 15% when compared to last year.

Higher diesel fuel prices and a 2% increase in gross ton-miles drove the increase in fuel expense for the quarter.

Compared to the third quarter of last year, our fuel consumption rate improved 1%, while our average fuel price increased 13% to $1.77 per gallon.

Purchased services and materials expense increased 9% to $615 million.

The increase was primarily driven by higher freight car expense associated with lease turn-backs, subsidiary contract services and hurricane-related costs.

Turning to Slide 23.

Depreciation expense was $528 million, up 3% compared to 2016.

For the full year 2017, we now estimate that depreciation expense will increase around 3% to 4%.

The increase is primarily driven by a higher depreciable base, including our positive train control assets that we put in place to date.

Moving to equipment and other rents, this expense totaled $275 million in the quarter, which is down 2% when compared to 2016.

Lower locomotive and freight car lease expense were the primary drivers.

Other expenses came in at $230 million, down 15% versus last year.

The primary drivers were lower state and local taxes and an easier comparison in bad debt expense given the Hanjin bankruptcy write-off in 2016.

For the full year 2017, we would expect other expense to decrease about 5% versus 2016.

Looking at our cash flow.

Cash from operations for the first 3 quarters of the year totaled about $5.4 billion, down 1% compared to last year.

The decrease in cash was primarily related to a lower bonus depreciation benefit in 2017 compared to 2016, which was mostly offset by the increase in net income.

Taking a look at adjusted debt levels.

The all-in adjusted debt balance totaled about $19.4 billion at quarter end, up $1.6 billion since the start of the year.

We finished the third quarter with an adjusted debt-to-EBITDA ratio of around 1.9x, which is close to our target ratio of just under 2x.

Dividend payments for the first 3 quarters totaled nearly $1.5 billion, up from almost $1.4 billion last year.

In addition to dividends, we also bought back 27.1 million shares, totaling $2.9 billion through the end of the third quarter.

This represents a 34% increase over last year in terms of dollars spent.

Of the 27.1 million shares repurchased year-to-date, we bought back 11.8 million of these shares, totaling about $1.3 billion in the third quarter.

And since initiating share repurchases in 2007, we have repurchased over 32% of our outstanding shares.

Between our dividend payments and our share repurchases, we returned about $4.4 billion to our shareholders through the first 3 quarters of this year, which represented 127% of net income over the same period.

On the productivity side, our "G55 + 0" initiatives yielded around $70 million of productivity in the quarter.

While this number is light relative to the first half of the year, indirect effects related to the hurricane and its impact on overall network operations likely overshadowed some additional productivity momentum.

This brings our year-to-date total through the first 3 quarters to around $270 million.

And with these results, we continue to progress as expected, and we are on track to meet our $350 million to $400 million productivity goal for the full year.

Looking forward to the balance of the year, we expect fourth quarter carloadings will increase slightly year-over-year and we still expect full year carloading growth to be up in the low single-digit range.

With positive full year volume, positive core price and significant productivity benefits, we are still on track to improve our full year operating ratio, including the net impact of all the onetime items that I just mentioned.

We are intently focusing on achieving a targeted 60%, plus or minus, operating ratio on full year basis by 2019, and we remain committed to reaching our goal of a 55% operating ratio beyond 2019 as we continued the momentum of our volume, pricing and productivity initiatives.

Before I turn it back to Lance, I would like to mention 2 other items.

One, I would like to announce that we will be hosting an Investor Day on May 31, 2018, in Omaha, Nebraska.

More details to follow, but we look forward to seeing you all here in Omaha next May.

And finally, as you all know, Mary Jones has announced her retirement effective December 1. She's sitting right next to me right now.

And we would like to thank her for her 37 years of service, including a record 18 years as Treasurer.

So thank you, Mary.

And with that, I'll turn it over back to Lance.

Thanks, Rob, and thank you, Mary.

That was a great tribute.

Closing out, for the last few months of the year, we expect our business to be similar to this past quarter, with year-over-year challenges in Coal and Automotive somewhat offset by strength in other areas, such as Industrial Products.

As the economy continues to ebb and flow, we will focus on executing our value strategy.

We'll use innovation to enhance our customer experience while continuing to drive resource productivity throughout the organization as we progress our "G55 + 0" initiatives.

Looking ahead to 2018, our engaged team is laser-focused on building on our recent success.

Our goal is to continue creating long-term enterprise value for all 4 of our stakeholders as we improve our top line and progress toward our margin improvement targets.

With that, let's open up the line for your questions.

(Operator Instructions) And our first question comes from the line of Chris Wetherbee with Citigroup.

I wanted to talk a little bit about sort of the pricing environment and as you look out into probably not the fourth quarter but maybe 2018, just get a rough sense of maybe how you're starting to think about it as you're having discussions with customers.

It looks like you had some acceleration on the core number this quarter and last quarter.

How should we be thinking about, just roughly, the sort of pricing environment as we move into next year?

Beth?

Chris, we are optimistic that the trucking tightening that we're seeing right now and what may come with the ELD implementation is going to provide an environment where we'll have an opportunity for pricing as well as some volume growth.

But at the same time, we still do see that other things that will impact us will be other competitive modes of transportation, what's going on with economic demand, et cetera.

As you know, we're still very committed to ensuring that we have pricing in place that offsets our inflation.

Okay.

All right.

That's helpful.

And sort of with the backdrop that we're seeing with economic growth maybe picking up a little bit, we have some tightness.

I guess, coupled with the moves you've done with some headcount reductions, any sense of how we should be thinking about sort of productivity?

I know you need to get productivity every year in order to get to your longer-term OR targets.

But how should we be thinking about '18 maybe in relation to 2017?

Yes, we'll let Rob take them.

Yes, Chris, I mean, as you know, as part of our "G55 + 0" initiative, we're all about continuing to drive robust productivity numbers, as we have this year and as we have the last several years.

So without giving you a number, I would just say that the unrelenting focus on continuing to drive productivity is embedded in our organization.

And as we've always said, we do find benefit in our productivity initiatives with positive volume growth.

And at this point in time, we are believing and hoping that volume for 2018 will be on the positive side of the ledger.

Yes, absolutely.

We would love to see some growth to help us leverage.

But in the absence of it, we'll continue to generate productivity.

Our next question comes from the line of Jason Seidl with Cowen.

Mary, congratulations.

This will be your last call that you'll have to deal with guys like me.

I wanted to focus a little bit on sort of the OR in the quarter.

Rob, I think you mentioned some of the puts and takes from fuel being about 0.5%, you said, and I think with the other stuff.

It looks like if we would draw everything out, you guys are probably closer to a 60% OR.

And Lance, I think you described the fourth quarter as looking very similar to the third quarter.

Did I get all those puts and takes right for looking forward?

Yes.

So, I'll start with fourth quarter looking like third quarter.

That was largely right.

You take the unusual items out, we expect continued robust productivity.

We talked about slightly positive volumes.

And so, the environment, as we see the fourth quarter, looks about the third quarter.

Rob, you want to talk about...

Yes, Jason, I would just say you're right in terms of the way you were doing about the math.

Fuel was a headwind in the quarter of about 0.3 and the items that I itemized were 2.3 of headwind, that's the force reduction, and the hurricane impact, which we certainly don't think those 2 are going to repeat.

So if you do that math, you get down to a low 60% core performance, which we're very proud of in the third quarter.

Now I wouldn't straight line because fourth quarters are always a little bit different.

You've got different mix; you've got different volume.

But I would just tell you that we'll continue to be focused on the same initiatives that drove what we think is an outstanding performance in the third quarter to repeat in the fourth quarter.

But I wouldn't straight line any of those numbers per se.

Okay.

Follow-up, I guess, is going to be a little bit about the pricing side.

The way I look at it is, obviously, you've had pressures in 2 of your bigger commodity groups.

But it looks like the one commodity group is -- should at least start to get better here, let's say, in the next quarter or so.

Is the way to think about it as more of a slow recovery in both those 2 groups, one of which is going to be just driven by what's going on in the truck market?

And if that's correct, when do you think you'll start seeing the positive impacts from that?

So I'm assuming the 2 groups you're referencing are Coal and Intermodal, which we called out.

And certainly, Coal is more of a rail-to-rail competition than truck.

There's not as much truck activity in that segment.

And so we'll continue to price into that environment, ensuring that we're reinvestful in getting the kind of returns that we want.

On the Intermodal side, I agree with your assessment.

I mean, there's lots of different competitors in that space, trucks and rail, IMCs, et cetera.

And the tightening of trucks should provide a tailwind, but we are also continuing to keep an eye on what's happening with our competitors in that market space.

And at this point, we're pretty hopeful that we're going to see the ability to get additional pricing and volume.

Our next question is from the line of Tom Wadewitz with UBS.

Yes.

Sorry, I just kind of jumped over to the call here, so I've missed some things, I think.

But what -- how would you view the, I guess, the volume impact looking into next year as you've got -- the economy feels pretty good, you've got a number of probably kind of puts and takes in terms of maybe frac sand, coal, things that could be headwinds.

But are you optimistic looking into 2018 that you can see, I don't know, meaningful volume growth, call it, 2% type of volume growth?

Or do you think that there are some headwinds that are going to make that maybe difficult to achieve?

Tom, this is Lance.

I'll start by kind of sharing our overall perspective and then let Beth fill in some blanks.

So overall, as we look into '18, we are somewhat optimistic, right?

There's a number of markers that are -- that look promising.

One is the truck market.

It is becoming kind of consensus knowledge that truck capacity might very well tighten.

The ELD will have an impact of some kind.

And that's a good environment.

That's good for us when that occurs.

It feels to us like the overall economy continues to move along.

I'd like to see it accelerate a bit.

But consumers feel to us like they are like buying stuff at a reasonable pace, not a kind of pre-recession normal pace yet.

I think that will show up in housing starts.

So there's a number of relatively positive things.

There's some continued headwinds though as well, right?

Coal remains somewhat of a question mark.

What exactly happens in the grain markets and the worldwide feed and grain markets are still somewhat of a question mark.

And of course, we continue to face a robust competitive environment, notwithstanding that environment at its base level looks like it's improving.

If you want to talk a little bit more specifically about a few markets we're pretty excited about, we continue to feel good about our ability to grow the new Cold Connect platform that we have, focused on Food & Refrigerated products.

Mexico remains a great opportunity for us.

There's certainly uncertainty around what happens with NAFTA, but we believe that market is a growth opportunity for us across a variety of markets.

And of course, the plastics expansions will give us some opportunities in 2018 and beyond.

Frac sand, as you called out, may have some headwinds, but we view it as there's more than one place that oil is being drilled for in the United States.

And certainly in the Permian, you're going to see some in-basin sand come online.

But we do view the entire pie for frac sand as growing and we think that we have opportunities in other places like the Eagle Ford and Oklahoma, possibly in the Front Range as well for frac sand shipments.

So I think we feel pretty good about some potential there.

And if we see housing really go up, that would be a great opportunity for us.

So I mean, if you put it, without saying, oh, it's going to -- volumes are going to grow at a certain level, do you -- when you put the puts and takes together, do you say, yes, we ought to got to get volume growth next year.

And maybe it's a couple of points, maybe it's plus or minus, but is it reasonable to think, you put them all together, it's more positive than negative?

Tom, this is Rob.

As you know, we're not going to give precise numbers around what that volume all adds up to.

But we are confident that, you add up everything that Lance and Beth just went through, it's going to be on the positive side of the ledger.

So we'll work to be as successful on that as we possibly can, but I would just reiterate all the things we just said are a fabulous commercial for the wonderful diversity that we have in our network and the strength that, that offers us.

So we have lots of opportunities to grow our business.

And at this point in time, it all adds up to a positive volume assumption.

Okay, great.

And then just one quick one, I apologize if you mentioned this.

But how much of your book would you touch in terms of repricing in 2018?

What percent?

We're kind of typically in around a 2/3 under contract or under letter quote environment, with more of a 1/3 that's quoting on either a spot basis or a tariff basis.

So the letter quote would be 1 year presumably (inaudible).

How much is the letter...

Yes.

Sorry, I should've been clear about that, yes.

So those have the potential to roll out sometime in the year next year.

Right.

So how much would the letter quote would be?

Is that like (inaudible)?

We're not going to get into those details, Tom.

Okay, it's sounds like you've got a lot of the book you could touch next year.

So, all right.

The next question is from the line of Justin Long with Stephens.

So historically, we've always heard a lot from the rails about the addressable market for highway conversions as it relates to the Intermodal business.

But given the tightness we've seen in truck load, I was just curious if you could speak to what the opportunity looks like within your general merchandise network.

Is there any way to frame up that addressable market or growth potential that you see from highway conversions in general merchandise?

Yes.

Thanks, Justin, this is Lance.

Taking it a very high level, historically, and we still believe this, we've talked about a very large addressable truck market.

Our current product today takes us comfortably down into a market where if the length of the haul is 500 miles plus, it's an opportunity for us, and there's lots and lots of truckload capability there.

What we're focused on is making sure that the experience with us in that journey of shipping product feels as good, if not better, than it feels all along the way with truck.

I'll let Beth talk more specifically to the opportunities within that market.

Yes.

So we do believe that the Intermodal market, and possibly even conversion into boxcar off the highway, is a big opportunity for us.

And we -- our focus is really on taking advantage of our great franchise where we offer Intermodal service in many more lanes than our direct competitor, which we think gives us opportunities to grow at a decent pace as the market turns our way with truck capacity tightening.

Okay, great.

And as a follow-up and maybe this one is for you, Beth, I think there's going to be a lot more focus on the Chemicals business as we get into next year.

Could you help us think about the potential growth in your chemicals franchise as we get into 2018 and beyond?

And do you think we'll be at the point where that Chemicals business can start growing at a pace that's above GDP?

So there are, as you know, hundreds -- close to $200 billion that have been put into the Gulf Coast Chemical franchise to grow mostly plastics, although there are Industrial Chemicals investments happening as well.

And while that is a very substantial investment and a wonderful opportunity for us, it certainly isn't the size of some of our other markets.

We would hope to see growth in those markets in the tens of thousands of carloads, not in the hundreds of thousands of carloads.

And some of the things that'll be a governor for us is not all of that, plastics in particular, is going to want to move domestically.

A lot of it will have an export solution.

A lot of it will go out to the Port of Houston, but we will do our best to participate in providing our customers with supply chain solutions should they not be able to use the Port of Houston because of capacity constraints and want to use a West Coast port, where we've developed an opportunity to do that near our Dallas Intermodal facility.

And the good news is, and Rob talked about this, our franchise is built for the long run and overall global economic growth for the long run.

So you get that beautiful Chemical franchise on the Gulf Coast and it'll start out producing and shipping at certain quantity and certain direction.

But really, who can make the call over the course of the next 10 or 20 or 30 years other than we're pretty confident consumption is going to increase worldwide and we've got a wonderful franchise to be able to ship it.

Our next question is from the line of Fadi Chamoun with BMO.

So if we were to think about volume being up, say, 2% next year, how should we think about the headcount?

I mean, if you're sort of aiming to that kind of 60-ish operating ratio in 2019, I would think headcounts would have to stay kind of flat or even down a little bit to get you to that number.

I'm just trying to reconcile a little bit this sort of 2019 target with the outlook for the headcount.

Yes, Fadi, without getting into the details, we've outlined the moving parts this morning, so we're going to have a pretty substantial reduction in our general and administrative overhead, which we've already talked about.

Then as we look at how we react to volume, it's the moving pieces of what we can do in productivity so that we're not growing our headcount one-to-one with volume growth.

That's our intent year-over-year.

It's what we've been able to do and we're going to continue to do that next year.

Our next question is from the line of Allison Landry with Crédit Suisse.

Just following up on some of the pricing questions.

Earlier in the prepared remarks, you talked about the fact that you're still seeing some pressure in Intermodal and Coal, but just given that the core pricing gains have accelerated for 2 consecutive quarters, is it fair to infer that some of these pressures that you've been facing have begun to ease a little bit?

And if yes, maybe if you could talk about what might be driving that?

We have maybe seen a little bit of easing in that -- in the competitive pressure, but it's not substantial.

We're still -- I would say that we're getting good pricing and I think Rob referenced that outside of those 2 markets.

That's more like a 3%, so that's helping us to continue to put up good pricing numbers.

Okay.

And then as a follow-up question, one of your competitors discussed expectation for rail inflation for 2018 and cited something around 1.9%.

Is that how you're looking at it as well?

And maybe you could just share your view about that.

And, Rob, I know you mentioned the labor inflation of 4% to 5% this year, but could you remind us what the expectation for all-in inflation is for 2017?

Yes.

Allison, this year -- you're exactly right.

This year, we've said that all-in inflation is in around 3%, with labor 4% to 5%.

As we look to next year, we haven't finalized our numbers yet, but I would say both are going to look closer to 2%, all-in and labor.

Our next question is from the line of Brandon Oglenski with Barclays.

Lance, I guess, I wanted to follow up off of Tom's question with the volume outlook in 2018, and it's really not prescriptive for guidance next year.

But when you think about your franchise and we think about railroads in North America, I mean, there's clear examples of networks that can drive a lot of growth, it does seem to be a rather robust economy, both from intermodal and industrial energy perspective.

So I guess, as I look back through your slides at your last analyst meeting, there's always this modest volume outlook.

Is there anything structurally you can do on the network that can really leverage this low-cost base and really the irreplaceable assets that you have that can drive a faster growth outlook looking forward?

Or are you guys really just capped with the ebbs and flows of GDP?

Thanks for the question, Brandon.

I'll start backwards and go forwards in the question.

We are not capped as either an industrial production growth rate, a GDP growth rate.

When you think about our ability to grow, we're not behaving in a vacuum.

So part of the equation is how our franchise lays and what's happening in the underlying economies that we serve.

So fundamentally, our growth is built on global trade, industrial production, the industrial economy and U.S. consumption of stuff.

In that context then, we face competition, either modal competition or direct rail competition.

So when I build that model in my mind, when I'm setting my own expectations, I feel pretty optimistic about how our network lands on areas of potential growth.

We serve Mexico.

We enjoy virtually 70% of the to-and-from freight rail business with Mexico.

Virtually, 40% of our business is originated or terminated outside the United States.

We serve very large population and growing population centers in the western 2/3 of the United States.

And we touch a lot of different pieces of the economy.

So from a potential perspective, I feel pretty good about it.

After that, it's all about can we find a business that's re-investable and secure it in the competitive environment?

And that's always a wildcard and we're always positioning ourselves to be the high-value, best option with our customers, and we're going to continue to do that.

But to your point, Brandon, nothing would please me more than to see a really strong, robust growth environment because we know how to leverage that very, very effectively.

Okay.

I appreciate that.

And, Beth, I just want to circle back to your international Intermodal comments.

It does seem like we're seeing peak ocean volumes right now.

So can you walk us through again why you guys aren't seeing a lot of that expansion?

I think it's because you've seen some port ships with carrier consolidation.

But can you talk through that again?

I would say I believe we are seeing the volume.

Last year, we still had some Hanjin loads, which, of course, they went away and their volume kind of dispersed across the other carriers.

So if you took the Hanjin impact out, where we are sitting at the 1%, but if you took that Hanjin out of the comparison, we'd be at 5%, which is pretty commensurate with what's actually happening in the market.

The next question is from the line of Cherilyn Radbourne with TD Securities.

I wanted to ask one on productivity.

The train length question gets asked a lot, but you also had pretty good gains in terminal productivity year-to-date.

Just wondering if you can give us some color on what's driving that?

Cameron?

Inside our terminals, volume remains very predictable and very stable, and that allows you to really bear down on the productivity inside each and every terminal.

So that looks very positive as you think about the year 2018.

The only area of growth that we see where we might struggle a little bit is out in West Texas, as Beth mentioned.

The rest of the network looks very positive.

And then just separately, I appreciate this is low-value traffic, but just curious whether China's pending restrictions on scrap are having an impact on international intermodal insofar as they reduce the potential source of backhaul traffic.

Yes.

It is -- scrap paper is a portion of the backhaul traffic and it is, I'd call it, a mild concern.

We are pretty actively looking for other match-back opportunities.

And we've implemented some programs with our customers to -- and with the steamship lines to use their containers for domestic loads in places where we might not have domestic containers, which doesn't give them a match-back all the way to China, but if might give them a match-back to the West Coast.

So we're focused on helping them fill that gap and being good partners in that regard.

Cherilyn, that's something we don't talk a lot about, but that's a manifestation of -- kind of a granular manifestation of the value of having the franchise that we do is that we are -- we have a lot of exposure to match-back opportunities for West Coast exports, and that can be a real value-add for international steamship partners.

The next question is from the line of David Vernon with, AllianceBernstein.

I wanted to ask you a question about sort of the domestic intermodal market and what you guys can maybe do to help capitalize on that, that conversion opportunity.

Because the volume growth in a -- on a reported basis for Intermodal has always been a little bit lighter.

You guys have done a great job taking up yields.

I'm just wondering as you think about how you work with your channel partners, how you manage the 2 box pools that you have, how you take that intermodal product to market through streamline, is there something you can do that you can sort of accelerate that domestic opportunity?

And then as you think about what's happening in the Eastern market with one of your partners kind of redesigning maybe some of its intermodal services, if that's going to create either opportunities or challenges for you.

If you could comment on that, that'd be great.

Yes, so we continue to be very bullish on the opportunity that Intermodal provides domestically for Union Pacific over the long term.

And we are unique, as you've described, with our 2 box programs and the ability to bring assets to bear and help customers meet their supply chain needs.

So we are very focused on -- we're always looking at opportunities to get into new markets, provide new services, provide a stronger value proposition to customers.

And with that, we work across all the channel partners.

We see very strong parcel growth this year.

But as you say, the domestic -- the overall domestic has been a little weaker.

And that's really been more of a competitive pricing situation, and we are and we'll continue to be focused on yield.

We believe that with the tightening of the truck capacity, that's going to open up some opportunities for us.

You said a little bit about the CSX's changes in their intermodal network.

At this point, I think they're rationalizing some lanes that are local to them that maybe don't make as much sense for them to stay in, and we're just staying in real close communication to make sure that we preserve the viability of that UMAX product and put it in a position where it can grow as we have opportunities.

Recall, David, that we've got -- those 2 branded box programs, one each with each of our good partners in the East, BNS and CSX and they are both robust, potential growth engines.

Okay.

And maybe.

Rob, just thinking about the CapEx, obviously the 3Q numbers probably affected a little bit by the weather and some idling of work crews.

I wanted to get your thoughts on the ability to kind of keep CapEx in a little bit lower lever here as some of the growth is in some of the lighter-weight traffic areas and you've got some idle capacity from kind of the coal traffic coming off.

Yes, David, I would just say -- I assume you're talking about looking forward to '18...

Yes, long range.

Yes.

Like, I mean, maybe the next couple of years.

Yes, and we constantly -- of course, as a matter of process, are always in tuned to being as disciplined and wise about every capital dollar we spend, and it's based on a very rigorous evaluation of what the expected returns are.

But the guidance that we give you is that 15% of revenue spent.

I mean, again, as you know, that's not how we build our budget, but that's still the right way to look at it looking forward.

One thing, David, I heard you say that I want to make sure we don't leave you with this impression.

And that is, although the potential growth is happening in areas where we've got excess capacity.

We do have excess capacity in parts of our network.

But clearly, there are other parts, like down in Texas, where the capacity is much more constrained.

Yes.

No, I was just wondering if there was going to be any need to step up a little bit of growth CapEx to pursue the intermodal opportunity broadly, or if you feel like you can kind of work that through the existing capital on both, obviously addressing bottlenecks as they happen?

Yes, Rob's got it right from the standpoint of long term.

We're comfortable with where we've guided.

Our next question is on the line of Scott Group with Wolfe Research.

So I apologize if some of this was addressed.

We're bouncing between a couple of calls.

Hopefully, it can be coordinated better next time.

Just, Beth, for you on sand, what percent of the -- what percent of your sand business is going to Permian versus other basins?

And then what's the strategy as some of the local stuff comes online?

Is it, if it's going to come, there's nothing we can do about it?

Or do you think about changing the pricing on the longer-haul stuff to compete with the Permian sand?

Well, I don't think we've ever provided exactly what the percentage is of Permian, but we have a good size book of business into the Permian as well as the Eagle Ford, smaller books of business into Oklahoma and the DJ Basin sort of area.

And off the top of my head, I couldn't give any of the percentages if I had to.

But what I would say is they all provide some growth opportunities.

Permian will certainly be challenged by in-basin sand coming on that's of a certain mesh time.

We do believe there will be opportunities to continue to bring some of the coarser meshes in from the Wisconsin and Minnesota Range, and continue to compete in Permian.

And I would say the Permian overall pie, I think, is still going to continue to grow even with in-basin sand coming on.

So we'll certainly be looking to grow there, but we'll be looking to grow in Eagle Ford, Oklahoma and Colorado as well.

And as far as lowering rates to try to compete with local sand, that's a pretty tough proposition.

And I think we're always going to stay very focused on being reinvestable and getting a good yield for the assets that we're employing.

Okay.

That makes sense.

So if I just heard you right, you think even Permian sand volumes are up next year?

I think the whole Permian sand consumption is up next year.

It remains to be seen how much of that will get filled with local sand versus sand coming in from another location.

Okay.

That makes sense.

Okay.

And then, Lance, just in terms of the headcount reductions, is that -- I guess I'm surprised that, that doesn't take up the productivity target for the year.

So maybe just a thought there.

But more bigger picture, do you think, is this one of, "Hey, there's many things like this we can do"?

Or is this, "Hey, this was one specific opportunity and we did it but don't think that there's lots more like this"?

I'm just trying to understand if this was a one and done or one of many?

Yes.

So, Scott, I'll take your first question about productivity targets.

We have not changed our productivity targets.

This decrease in our overall general and administrative headcount is going to be absorbed into those.

Our communication with you and our drive amongst ourselves has always been we've set out our marker and we're doing everything in our power to get and accelerate productivity, as well as growth, as well as price, so that we can meet or exceed the markers that we've laid out.

And in terms of this particular action, reducing our overall headcount by 800, plus or minus, in this one action, clearly, I don't think that we're going to be taking that kind of action over and over and over again.

Candidly, it's something we'd prefer not to do if we don't need to.

But I would say that we have many granular projects inside of "Grow to 55 and Zero" that have anywhere between some relatively small impact to some relatively large impact that we're pursuing, and that will inform how much productivity we build into our plans in '18 and beyond.

Our next question is from the line of Walter Spracklin with RBC.

So just a clarification on the inflation for next year.

I know you mentioned labor in there.

Can you just break out labor as to what do you expect labor inflation to be in 2018?

I know you signaled that for Q4, but I just wanted to confirm on next year, what you were expecting in the labor side?

Yes, Walter, I earlier said that, to the question on inflation, and I was talking about 2018, that we expect overall inflation and overall labor to be closer to 2% versus what they're running this year.

And at this point, I'm not going to break out the labor component.

But of course, not only do you have wages in there, but you also have the moving part of the health and welfare.

Right.

Okay.

But you're not breaking that out for 2018 yet?

Not at this point, no.

And just the tax rate is still going to be steady at 37.5%?

Yes, that's reasonable assumption.

Yes.

Right.

And then the last one.

The other line in your Other line in the operating expenses, it does tend to move around a lot.

I know you've got -- your guidance has been kind of -- it was up and now it's kind of down.

And just wondering whether -- is that a line item that we should, when we look at our 2018, look at 2017 as an exceptional year in terms of being down?

Or is this a representative year now that we can build on some normal growth rate in line with your overall inflation going into next year.

I just want to make sure because that's a lumpy line item, whether there was something in 2017 that made it a little bit not necessarily repeatable for next year.

Yes, Walter, I would say -- I mean, I'm going to disappoint you because we are not going to give guidance on that number, not because we're withholding but because there is a lot of moving parts to your point.

And it can and will be lumpy.

So stay tuned.

But we generally say in the 150-ish neighborhood is what it looks like historically for other income.

But it can be lumpy.

I mean, you have lots of moving parts in there.

Sorry, I was referencing your Other -- in the other expenses.

Yes, we expect it can be lumpy as well, not maybe as lumpy as other income.

But we're not going to give guidance on that because, you're right, there are a lot of moving parts.

But we typically said in the $200 million range, but I would caution you that it can move up and down with unusual items.

Our next question is from the line of Ari Rosa with Bank of America.

So I wanted to start out on the network's fluidity metrics.

I think we saw a couple of those tick up in the quarter.

I was hoping you could just delineate what might have been due to the impact of Hurricane Harvey versus what you think in terms of fourth quarter and kind of resumption of positive progress and how you're seeing kind of network fluidity, not only for your network but also kind of interchanges with other carriers.

Interchanges with other carriers look very fluid across the network up and down the Mississippi.

No issues there.

Our own velocity was greatly impacted by Hurricane Harvey.

In fact, it's one of the larger events that our network has suffered from a weather perspective.

The opportunity looking towards 2018 lies in our train crews becoming more familiar with the PTC technology that we've rolled out both on the West and the Northern region, and we feel that is something that we can tackle internally.

It's not a technology problem; it's our crews becoming more proficient at using the technology.

Okay, that's helpful.

And then just to switch gears a little bit.

Obviously, there was the land sale this quarter.

I was hoping you could maybe discuss that a little -- in a little bit more detail and what additional opportunities there might be for additional land sales.

Yes.

We did announce a land sale earlier, but we announced it because of the size of it and wanted to give some perspective on the financial impact.

But I -- there's no -- we're not going to give any details on that specific transaction.

But I would just say that we have a sophisticated professional real estate organization.

So our selling real estate when we find an opportunity is something we continually do.

I mean, again, it could be lumpy, as I indicated in the other income question earlier on the call.

But I would say that's something our professional real estate folks are always looking at.

But it will be lumpy and we're continually looking at where there are opportunities, where it's an asset that is no longer needed for the long term for the benefit of the rail, and that's kind of how we approach it.

I'll tell you what, maybe I could ask a follow-up and just ask it slightly differently.

Where are you -- when you look at your network, where would you say you are in terms of your resource needs versus where you'd like to be?

You said some capacity tightness in Texas, but maybe some loose capacity in other areas.

Across your network, where do you feel you are on just general resource needs?

Yes.

So let's just walk you around real quick.

The major East-West line from the Pacific Northwest, California, NorCal, that runs through Wyoming and on into Chicago, in the Wyoming, Nebraska, Iowa, Chicago areas, we've got a lot of capacity there.

It was built up for our Coal business, and our Coal business is about half of what it used to be.

If you're over on the West Coast, West Coast has good solid open capacity.

We'd love to use that for more shipments up and down the I-5 and growth in Las Vegas, the SoCal area, and Phoenix.

When you move over down towards Texas and, let's say, North-South between Chicago and Texas and just Texas and Louisiana themselves, the North-South routes have good solid capacity availability.

We still have capacity in certain routes in Texas and Louisiana, but that's the area where when we're focusing on new capacity, when we're focusing on significant capital spend, it is likely to occur there.

Our next question is from the line of Bascome Majors with Susquehanna.

I want to follow up on a couple of earlier questions on what a tightening truckload market means for UP.

And specifically, do your contractual relationships with your key domestic intermodal partners, do they allow you the flexibility to push a bit harder on pricing next year or in tight years in general compared to the last few years that have been weaker?

Or are those escalators fairly fixed and really predefined on a year-over-year basis?

Beth?

Well, we don't typically give a lot of color on specific contractual arrangements with customers, but I would say that we have opportunities out there, most of the bid process for domestic Intermodal happens in the springtime, as you know, as they go out to bid for their whole books with beneficial cargo owners.

So if truck capacity remains tight and maybe even tightens with ELD, certainly we would hope to see some opportunity to address pricing in that bid period.

And we are very hopeful that our long-term partners are able to get pricing in their markets and that, that will flow to us as well.

And additionally, we really, really would like to see the volume growth along with it.

And I think in international Intermodal, which I felt like part of your question was towards, that tends to be long-term contracts.

Yes, [that certainly does].

Understood.

So in the domestic business, just to clarify, you should see some benefit in the parts of your business where you own the boxes and control some of the assets, perhaps coincident with the bid season.

But some of the longer-term contracts, either international or domestic, may be kind of less flexible to the near-term rise in the market.

Is that a fair way to put it or...

Yes, I think that's a very fair characterization.

Our next question is from the line of Brian Ossenbeck with JPMorgan.

Just a couple of quick ones.

Cameron, I know you mentioned some of the roll out with PTC and had an impact on velocity.

I just wondering if you could -- if you have a chance to quantify that?

And then also, what sort of milestones are you looking at next?

It sounds like you've got a better handle on what you need to do in some of the regions.

But are there any other milestones that you're looking at that could be significant, maybe not this year, but perhaps in 2018 getting to -- going live beyond that?

The velocity impact is somewhere between half mile an hour and mile an hour right now as we see it, because we have rolled out completely on the West and on the North.

The vast majority of that opportunity lies within the training and familiarity of the technology with our crews.

So it is something we can address.

Ahead of us is the Southern Region implementation in 2018.

We see no issues with meeting all the federal requirements in that year.

And we'll continue to problem-solve the technology when we run into areas that need a technology patch to solidify the whole PTC system.

Brian, I'm giving you a little kind of color on that velocity number that Cam just shared.

That's a very loosey-goosey number, right?

We try to parse that together as best we can.

It's kind of hard to tease that out specifically.

We said that it's a real impact and can't -- the most important thing that Cameron has in front of him is we believe the impact is all about crew behavior.

That -- so in your mind's eye, if I think about this, there's a screen in front of the crew and inside the PTC system, pretty much all it does is warn you when it's thinking you're going to need to take action.

So half the time, the screen is flashing at you a warning, and I think human behavior is to not have the screen tell you about the warning.

That's a little bit of a design issue that I think the overall industry's going to have to get into, because that drives behavior than to be more cautious than necessary and that then retards the overall velocity on the system.

So it's a pretty complex number of moving parts.

It's hard to say exactly what that impact is, but Cameron has given you a general idea of it is impactful and we've got a route forward to address it.

Okay.

But it sounds like it's more user interface and not something in the technology that you've encountered so far.

Yes, totally.

Okay.

And then just one quick follow-up on just cross-border activity into Mexico.

Obviously, we saw a new agreement between a competitor and the KCS at Laredo.

So wondering if you've actually seen any sort of impact on your business through that gateway so far.

We continue to grow through that gateway over the long run.

We are familiar with all competitive products and we understand, to our chagrin, we're not going to be able to handle every single carload that is made available to and from Mexico.

But we are very pleased with our partners and our products, and we're doing everything in our power to profitably grow those products.

The next question is from the line of Ravi Shanker with Morgan Stanley.

This is Diane on for Ravi Shanker.

Just a question regarding the tentative agreement reached between a group of labor unions and the (inaudible) rails.

Can you share your initial thoughts on how that agreement stacks up versus your expectations?

And also on the agreement, it looks like it states a 2.5% to 3% pay increase in 2018 and '19.

So wondering why that differs from the 2% labor inflation that you guys expect next year.

Thanks for the question, Diane.

Not surprisingly, I'm not going to able to make too many specific comments on either the negotiation or this specific tentative agreement.

I will tell you that tentative agreement is in industry, with about 60% of the industry's collectively bargained employment population and it is out for ratification as we speak.

Okay.

Do you have a time line for -- or what is our expected time line for the ratification?

Well, we don't have a specific time line for it.

All I can tell you is that each committee has to ratify vote.

And once that's accomplished, then we can call it a done deal and start implementing.

That's -- I think that's the detail I can give you.

The next question is from the line of Amit Mehrotra with Deutsche Bank.

So I joined a little late, sorry if this question is asked and answered.

But I wanted to just understand the breakdown between contracted and maybe transactional business next year, especially given the expectation for what truck capacity may do next year.

Just specifically, how much of next year's businesses are already contracted?

And maybe how should we expect -- if there is any lags between your ability to see core pricing growth for the overall enterprise versus maybe the backdrop of the overall market?

Yes.

We did get this one earlier and so I'll give you the same answer, which is that we see typically that our business is about 2/3 contracted and then about 1/3 moving in any particular year.

We've come to the end of our question-and-answer session.

I'll turn the floor back over to Mr. Lance Fritz for closing remarks.

Thank you very much, Rob.

For the last few months of the year, we expect our business to be similar to this past quarter, with year-over-year challenges in Coal and Automotive, somewhat offset by strength in other areas, such as Industrial Products.

As the economy continues to ebb and flow, we're going to focus on executing our value strategy.

We'll use innovation to enhance our customer experience, while continuing to drive resource productivity throughout the organization as we progress our "Grow to 55 and Zero" initiatives.

As we look ahead to 2018, our engaged team is laser-focused on building up on our recent success.

And with that, thanks, and we look forward to the next time we have an opportunity to speak with you.

Thank you.

This concludes today's teleconference.

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Thank you for your participation.