Q3 2019 Earnings Call
Good afternoon, ladies and gentlemen, and welcome to the CSX Corporation third quarter 2019 earnings call.
A reminder, today's call is being recorded.
During this call all participants will be in listen only mode. Following at present station, we will be conducting a question and answer session.
You asked a question press star one.
For opening remarks and introduction.
During the call over to Mr., both Slater, Chief Investor Relations Officer for CSX Corporation.
Thank you and good afternoon, everyone. Joining me on today's call is Jim Flynn, President and Chief Executive Officer, Mark Laws Executive Vice President of sales and marketing, Kevin doing Chief Financial Officer, and Jamie <unk> Executive Vice President of operations on Slide two is our forward looking disclosure sought by or non-GAAP disclosure on.
I agree with that it's my pleasure to introduce President and Chief Executive Officer, Jim.
Good afternoon. Thank you Bill.
Before we begin the presentation I'd like to first congratulate the over 21000 strong GSX workforce for a great job.
Delivering a really good quarter.
Again show them that they are the safest most customer focused and best operators in the industry.
Licking their own a record with an all time low operating ratio for a U S class one railroad.
The 6.8% was no easy task, so hess hats off to all of them.
I'd also like dimensions. Several recent leadership announcements beginning with the appointment of Kevin both to Chief Financial Officer, and Jamie Boyd Chuck to executive Vice President of operations. Both cabinet Jamie are skilled leaders will play a big rules in the Companys transformation.
Excellent additions to our executive team.
Very pleased that add Harris will remain a key part of the executive team as we drive hard to get even better.
Sexes Lucky to have both Ed and Jamie to the best operators in our business.
We also announced changes in sales and marketing as Mark builds a new team that is Tim intensely focused on identifying and capitalizing on opportunities to grow the topline.
And I'm logs recently joined as Vice President of energy.
Adam deep knowledge of the commodity market is a valuable addition.
The recent appointments up for a phase our as senior Vice President of marketing and hardware, Adam as Vice President merchandise sales demonstrate our commitment to working with our merchandise customers deploying new creative ways to first.
Value to our customers, which will then drive long term profitable growth.
CSX is service has never been this good now at the time to harvest the opportunities.
With that let's turn the presentation, beginning with slide five and our financial results. The third quarter results are straightforward with only a few unique items, which Kevin will point out.
Third quarter EPS increased 3% to one dollar eight versus last year's figure of a dollar five our third quarter operating ratio improved by 190 basis points to as I said, a new record up 56.8.
Turning to slide six star crude service is driving industry, leading merchandise volumes as customers continue to trust CSX with a greater share of the frame.
Despite the softer industrial economy in merchandise volumes held flat.
The strength of merchandise was offset by declines in coal intermodal and other revenue, resulting in a 5% decline in total revenue to $3 billion.
I'm encouraged by the performance of our merchandise franchise had it not been for the Philadelphia refinery explosion at the end of June merchandise volumes would have been up approximately 2% for the quarter versus declining industry volumes and total merchandise revenue increased one.
Were said flat volumes as pricing gains were partially offset by mix headwinds.
Intermodal did cross a decline Olson revenue declined 11%, a 9% lower volumes much of this associated with the impact of Wayne Rationalizations implemented last fall and early this year.
We have no left the first round of lane rationalizations, and we'll lap the final 5% of rationalizations at the beginning of next year.
Coal revenue decreased 12% and 9% lower volumes with declines in both domestic and export markets due to lower national natural gas prices and weaker export demand.
Lower benchmark prices.
Finally, the decrease in other revenues with private primarily driven by lower storage revenue and intermodal facilities and demurrage charges.
Moving on to slide seven I am pleased with the continued positive momentum in our safety performance.
Our fr a personal injury rate was again the best in the industry and we further improving upon last quarter of record Fr. A train accident results to set New company Records for both two was train accident and the lowest accident rate.
We still have opportunities to improve technologies, such as the increased use of automated track inspection cars and drove our helping to identify small problems before they become big issues that are also help improving our day to day execution across the network.
We constantly strive to make the railroad as safe as it can be.
Moving to slide eight let's quickly review our operating performance.
Velocity improved both sequentially and year over year.
Well increase slightly for the quarter, but we see opportunities to improve this metric going forward.
We also said another fuel efficiency record.
CSX is the only you lets class one railroad to operate below one gallon of fuel per 1000 gross ton miles.
Not only does this reduce costs what the environmental impact of this is significant.
This is partially enabled by the increased use of distributed power, which has been a focus of the operating team this technology, which CSX had historically not support deployed.
Allows us to disperse locomotives are off to trade, which improves fuel efficiency and enhance safety and reliability by reducing sit at training separations.
Corridor, we averaged 87 distributed power trains per day.
Well, we frequently operate with overall harder.
On slide nine most importantly, as we focus on running up at a railroad, we're creating better service for our customers. We continue to improve trip planning compliance figures for both carload and intermodal customers.
With 75% of merchandise cars, and 94% of intermodal containers getting their hourly trips planned targets, both new quarterly records.
We're not providing individualized real time plant tracking to our intermodal customers and we'll be rolling that information out the merchandise customers in the fourth quarter.
These new tools again differentiate CSX from other rails and our customers are very excited about the tool.
Although handed over to Kevin will take it through the financials.
Thank you Jim before I get started I want to thing Jim in the board for their support and confidence I'm excited to continue to work with us great team.
Turning to slide 11.
I'll walk you through the highlights of the summary income statement.
As Jim mentioned total revenue was down 5% in the third quarter.
At the impact of intermodal and coal headwinds as well as lower fuel recoveries and revenue.
More than offset the benefit of pricing gains across.
<unk>.
<unk> expenses declined 8% year over year really a great performance.
The team continues to drive efficiencies across all areas of our business overall third quarter expense results reflect the company sustained operating improvements is significant progress and labor an asset efficiency.
For running through the expense line items I want to note a couple of unique items in the quarter.
Including a 22 million impairment related to an intermodal terminal sale agreement.
That headwind of 15 million related to stay fuel tax matters.
These two items totaling 37 million impacted methanol.
And fuel expense respectively.
Real estate fell 65 million and gains this quarter, an increase of $12 million year over year.
We continue to see a pipeline of real estate opportunities.
So the impact of these transactions will remain uneven from quarter to quarter and year to year.
Labor and fringe expenses were 8% lower with average headcount headcount down 6%.
Our ongoing refinement of the operating plan continues to drive savings from fewer crew starts.
Enabling a 9% year over year reduction in active train and engine employee base and driving a 6% improvement in crew utilization as measured by gross ton miles per active trading and engine employee.
See any overtime and relief starts are also down 12% in 77%, respectively. As we operate more efficiently.
As I mentioned on the second quarter call overtime as a strong focus area across all operating departments.
Reward force efficiency and management execution, we reduce overtime across all operating departments by nearly 14% sequentially.
Additionally, the less active locomotive count was down 11% year over year in the quarter.
Combined with fewer cars online.
Hey car repair efficiencies helped drive an 8% year over year reduction in our mechanical workforce.
Also while velocity onetime originations and on time arrivals improved sequentially quarter to quarter, Jamie in the operating team are confident there remains additional opportunity continue to continue to improve train speed as well, which further deliver cost savings.
I must know expense improved 12% or 59 million versus the prior year.
Driven by efficiency in operation support cost.
Savings related to lower volumes.
We continue to see efficiencies attributed to lower active locomotive count.
Driving savings and locomotive materials and maintenance costs.
Railcar repair costs were also lower driven by significantly fewer train accidents in the quarter.
In addition, we are intensely focused on driving engineering if its efficiency.
This led to significant savings in the third quarter on materials travel vehicles and outside services.
Our continued train planned refinements also drove savings improved travel repositioning expenses.
Which were down 10% year over year.
Fuel expense was down 45 million or 17% year over year in this quarter.
These savings were driven by a 13% decrease in the per gallon price record efficiency and lower volume.
Our focus on utilization of distributed power.
Do you management software combined with trained handling rules compliance drove another quarter of record fuel efficiency.
As I noted earlier there was also a unique item related to stay fuel tax matters, but at a 15 million unfavorable impact in the quarter.
Looking at other expenses.
Depreciation increased 1% due to the impact of larger net asset base.
Going forward, we should expect sequential increase of approximately 15 million to depreciation in the fourth quarter.
Mainly related to group life depreciation study on equipment assets that occurs every three years.
Losses associated with previous asset sales are amortized over the life of the remaining assets.
It's obviously has no impact to free cash flow.
Equipment Reds expense increased 17% as the impact of inflation and other items more than offset the benefit of lower volume related cost and efficiency gains.
As we do reduced well and improved days for load we should see further improvements.
Equity earnings increased 3 million in the quarter due to higher net earnings at our affiliates.
Looking below the line.
Interest expense decreased primarily due to higher average debt balances.
Income tax expense increased 13 million for <unk>, primarily due to cycling of 2018 benefits related to the settling uptake state tax matters.
Absolutely unique items, we would expect an effective tax rate of approximately 24.5% going forward.
Closing out the TNL.
As Jim highlighted in his opening remarks, CSX delivered nearly 1.3 billion of operating income in third quarter inline with 2018, despite weaker volume environment.
We also delivered a record operating ratio of 58.6%, 56.8% and improvement of 190 basis points and earnings per share a one dollar an eight cents, representing a 3% improvement over third quarter 2018.
Turning to the cash flow side of the equation on slide 12.
We continue to invest in our core track infrastructure to provide safe and reliable train operations.
Year to date capital investment is down 49 million or 4% year over year.
Overall, our reduced asset intensity has enabled us to sustain lower levels of capital investment without compromising safety or reliability.
The level of PTC spending has also come down significantly and the last two years.
Free cash flow remains a focus for this team.
Generating operating improvements, while driving better capital as to the efficiency as produce differentiated free cash flow growth.
Growth in CSX is core operating cash flow generation, including improvements in working capital drove a 15% increase in adjusted free cash flow to 2.8 billion through the third quarter.
Year to date, we have returned nearly 3.4 billion to shareholders, including approximately 2.8 billion and buybacks and 600 million and dividends.
Dividend payments in the quarter reflects a 9% increase from 22 cents to 24 cents per share we announced in February .
This year.
Net of the lower share count.
With that let me turn it back to Jim for his closing remarks.
Great. Thank you Kevin.
Turning to slide 14, let's wrap this up by reviewing our outlook for the year.
Great demand is generally in line with the expectation soda set out at the end of last quarter. When we adjusted our forecasts to reflect what we felt was a realistic view of softer underlying economic activity.
Nothing in the industrial economy has really changed.
Despite the swing from a plus 1% to 2% growth environment to down 1% to 2% environment, we're maintaining our full year operating ratio guidance at below 60%.
And we are still on course for a record operating cash flow.
These are impressive accomplishments.
We will fundamentally change CSX over the last two years not just in how the company operates but also the way we approach our business and our customers. We are encouraged by our customers positive response store approved service and are working tirelessly to flight innovative new ways to better serve their needs.
Despite the significant progress made today, we're still means there are still meaningful opportunities to operate more efficiently and reliably as we move towards our goal of being the best Ron Railroad in North America.
Thank you and I'll turn it back to Bill. Thank you Jim to the interest of time I would ask everyone limit themselves to one question and one follow up only if necessary.
We will now take questions.
Thank you we will now be conducting a question and answer session and our first questions come from Chris.
I'm, sorry, Chris Wetherbee with Citi Research Your line is open.
Great. Thanks, Good afternoon guys.
Maybe.
Please turn on on sort of Youre, obviously significant progress here yet again in spite of meaningful volume declines I guess when you think about.
Outlook.
Beyond sort of the near term target of sub 60, and the efficiency and other opportunities that you highlighted are still on the table. How can we start thinking about things I guess, maybe putting your had on for 2020 in thinking about what the world May look like is this going maybe more of a return to volume and a little bit less operating ratio when thinking about 2020 or.
Maybe a little bit more operating ratio just want to get a sense, how you're thinking about sort of guiding the business into 2020, which hopefully has a more stable volume outlook.
Great Chris.
Well first of all we're not going to get into 2020 or just yet.
Well it will ramp up the fourth quarter here and then we'll start trying to give guidance.
As to what 2020 is going to look like.
I guess.
Only just some general comments and then either maybe Kevin.
Or more on a jump in with some additional commentary, but just to general comments.
It's difficult still very very difficult to gauge.
Where the overall economy.
He is going.
I think weve, so we feel very confident for the fourth or confident for the fourth quarter.
Yeah.
As we call what we thought was a pretty.
Soft outlook going forward and and so we're going to have to wait and see start figuring out.
What the revenue is going to look like next year, but.
Again generally speaking our plan is to grow this business and to the extent that we can grow this business, we're going to do.
And then secondly, our plan is to run this company as efficiently as we possibly can and we're going to continue to focus on it. So this is not a.
These are not mutually exclusive I'm going to do both at the same time and that's what we've been shown we can do this year.
Okay. That's very helpful. If you'll allow me of quick follow up sort of along those lines.
Some changes within some of the sales positions the business and it seems like merchandise is an interesting potentially.
Big opportunity for you move forward can you talk a little bit about sort of the opportunities that you see maybe sizing around some of them as we move forward 2020, and beyond just kind of get a sense of what you see the opportunity for CSX and merchandise.
Sure Chris It's Mark.
Well. Some this is not something this is new and we've been talking about it for quite some time, though.
We look at the future of this business, we see a huge opportunity in our in our merchandise segment two thirds of our business.
I think going back a quarter to when we initially put a kevin as the head of marketing.
Highlighted the fact that.
We were going to grow our marketing department, because traditionally CSX did not have wunderlich traditional marketing department, Kevin did a great job in a short time that he was there a bringing in some people both externally and internally.
Looking at some things differently and.
Focusing on growth we've now with these recent.
Additions moved.
The rugo her as a senior VP of strategy into the head of marketing department. So he's going to carry all done and we split out the the sales and marketing rolls from a lot of our directors.
Some people used to where dual head. It adds no. We've got to directors of sales and in three weeks group, we have got directors, a marketing and so you know as Jim said in his opening remarks and intense focus on on the marketing sector on the merchandise sector.
Clearly.
We look at the size of the opportunity in the North American spend for transportation every year, there's a lot of truck volume out there and we believe that by renewing our focus.
The merchandise segment.
And looking for truck conversion opportunities that we're going to growth there capture that market share. So a huge focus for us going forward and we're pretty excited by the work that's already been started.
Got it thanks very much for the time I appreciate it.
Yeah.
Thank you.
Thank you and our next question comes from Allison Landry with Credit Suisse. Your line is open.
Thanks, Good afternoon could jump on the on the how our during the quarter I wanted to ask about that coal yields they seem to have held up a little bit better sequentially than I would've expected given the export benchmarks. So maybe if you could talk about that the mixed trends within the segment in the quarter and compare that to what you saw.
And the second quarter and then if you could just maybe comment on how we should be thinking about Q4.
Yes, let me, let me highlight mix Allison.
He's got the mix question, So let me address that.
Overall, and we can get into call if you want but.
Overall, we experienced negative mix within most of our business segments this quarter.
And as I've talked about many many times and as usual you see within each business segment and again in coil.
There was always ups and downs so between the commodities.
All the different AARP use and we'll continue to see these mixed issues.
Quarter to quarter.
We don't manage the business.
So for home mix falls in any given quarter and we're focused on delivering long term sustainable growth.
But clearly on the on the on me.
But on the east on the call side.
We did have negative mix on coal so a lot of that was a shorter haul business to some utilities in the north.
I think there was a phenomenal we saw in the second quarter and we also had.
Some growth to to some shorter haul growth to mobile.
Mines and Alabama so.
And less less going export as the export.
The export volumes were impacted by the benchmarks. So as I said lot of mix issues going in the overall in each of the commodities, but again in coal just given.
The decline in some of the longer whole exports and then we picked up since order hole.
Utility business so.
That's an old continued.
Okay perfect.
You have any thoughts on on on Q4, just given the the one quarter look back in the benchmark for for the export that well.
Q3.
No I would say that export the Mets side, which again is two thirds of our export coal.
The business was soft, but the global steel markets continue to weaken the with the industrial slowdown and the some of the sourcing issues in Europe .
As impacted obviously the metrics the benchmark prices.
As you know the majority of our work on trucks reprice quarterly so in Q3, we were less impacted by price because the price of the export the metrics and Sparks in Q2 were relatively strong.
But as we move into Q4.
And given the idea where the benchmarks were in Q3.
And where they are today of about 150 Bucks a clearly there is going to be some ARPU impact in Q4.
Perfect. Okay. Thank you.
The next question comes from Todd Wadewitz with CBS . Your line is open.
Yeah. Good afternoon, it's Tom.
I wanted to ask you on the.
Over time initiatives, Kevin it it sounds like getting a lot of traction on that pretty quickly.
Which is great wanted to see if you could give us kind of a ballpark of.
Maybe on an annual basis, how large is the opportunity for.
Cost savings from reduced overtime is it 50 million is that.
Just some kind of a ballpark for that and perhaps how much of that you would have captured on run rate basis in the third quarter.
Yes, we haven't gotten real specific but it's not a single meals million digits tens of millions of dollars. If we execute across the mechanical engineering and the 20 employees on the field.
It's a large opportunity for us still going Florida, where we've just begun im sure Jamie can talk more to all the efforts that we've we started probably in the late second quarter as we saw some of the volumes come down and started to focus on this this item.
Yes on one of the obviously, what we've really seen some good traction is on that engineering and mechanical side, we have seen some traction on the transportation and but thats, where our bigger opportunity is and that's the team spends time.
I would in the field visiting locations and continuing to look for opportunities. That's one of the larger opportunities that we see out there are still left on the team going forward.
Tom going back to the magnitude of the size I think previously I mentioned in many categories worth 30% plus over.
Overtime as a percent of straight time, so the opportunity still pretty significant there.
Okay, and then I guess a related question to that ended per worker.
Comp and benefits in the quarter were a little bit lower than we expected down about 2% year over year.
Was that primarily a function of lower overtime was there something going on that.
Sen of comp or something else.
And that's something we should model on fourth quarter in terms of lower inside or lower per worker cost.
Now, let's say it was a combination I think you've got it right.
No certainly overtime played a factor in that you did see.
Some of it slightly lower incentive comp year over year as well.
We will continue on a good trend here going forward.
Okay, great. Thanks for the time and good corner.
Thanks, Tom.
Thank you next call.
From Ken Hoexter at Bank of America Merrill Lynch. Your line is open.
Hey, great good afternoon, and congrats on a solid operating ratio great to see.
Jim maybe just your thoughts on if you're you mentioned it kind of nothing's changed in the outlook, but maybe get a little more specific if theres anything shifting in particular call metals fertilizer, taking a step down is there anything in the market that you look out that that alters your view as you look out.
So.
All of the.
All the all of the external metrics to try and get a sense for where the business is going.
Our have seemed to somewhat stabilized at this low or.
Operator.
These numbers.
Into it and when I get my opinion my personal opinion is it took a while for them to get there and if they're going to turn or rail, it's going to take a while for them to turn back up.
Well there is some sense more says today.
Optimism than maybe there was 10 days ago. These these metrics in these numbers are not going to turn around and a couple of weeks. So.
We see this kind of slow growth environment throughout the quarter and as we get near to the ended the year hopefully we can see have a little more light show and.
Pathway beyond the end of this year and won't in a better to opine on it.
Appreciate that night I guess for my follow up then.
Since you're sticking with your 60 sub 60 or are you somewhat indicating a.
A step up in a hard fourth quarter margin or any reason you're not taking it down just given the run rate for the three quarters is sub 58, yet you're not going to a sub 59 or even out of 58 are you, indicating something is going to happen in the fourth quarter or are just being.
Keeping a high number as a.
He bogey.
Boy.
When we were.
You are a couple of lower at about 18 months ago getting like I said, we're going to get to what 60.1.
I Didnt hear you said why that easy question.
So.
Yes, we're going to get to our target.
We said, we would be to our target.
A year or early.
And.
Clearly had not.
Put into our plan is kind of a softening.
In the overall economy, not only in the U.S., but globally impacting.
All of our business units year kind of at one time.
So we're kind of there are we being cautious no I think we're being we're we have the same realistic view point of the economy today that we had three months ago. When we when we told everybody. We didnt see a hockey stick a couple of into second half of the year.
In terms of growth.
So here you know what is traditionally.
The fourth quarter from a seasonality perspective.
We expect a similar kinds of behavior on the cost side this year.
So that's just I think it's just a realistic assumption as we always do.
I hope, we do better than that.
But putting it to say that we're going to have an annual operating ratio below 16.
In this year.
It is a pretty good pretty good achievements in a difficult time.
I don't disagree just your three quarters, then you're already at 58 shot at just seem like I didn't know if you were sending a signal that you expected a deterioration in fourth quarter beyond normal, but I appreciate the insight thanks Jim.
Right.
The next question comes from.
Malhotra with Deutsche Bank. Your line is open.
Thanks, operator.
By the way congrats.
And then Jamie on the new appointments well deserved.
I wanted to ask a question about the operating ratio shockingly and just just the company's ability to maintain or you know grow profits.
In in a down revenue environment. Because this is supposed to be a business would theoretically high incrementals and decrementals its capital intensive business. So I'm just trying to understand how much one way you have on the cost and efficiency side, because he decided to put that in extra. This this this time.
On the looking forward looking slide and so I'm just trying to understand how much room. There is on the cost in the fishy efficiency side, that's going to allow you to continue to hold the line on profits will grow profits on a year over year basis.
In an environment, where revenue continues to be challenging are down.
Okay, well just clarification, so I can answer that.
Question correctly.
I think our slide in terms of what we're talking about in terms of efficiency and operating ratio as I've stated sneak Jack slide that we use three months ago, and I think thats. The exact slides used in the quarter before that well unless unless I'm mistaken I think you added significant remaining opportunities to further improve I mean, where nitpicking here, but I think you added another.
Bullet regarding efficiencies and surface inefficient further further improvement there.
Well I said, we're always try to we always try to get better and we we believe there's a lot opportunity out there for us to continue to get better.
Hell of a lot easier to get to a better number with little bit more robust.
The economic in an environment.
So.
We're going to we're going to continue to all was always always folk focus on efficiency at a run in the railroad is in the best way living possibly keds and we believe.
There are many many opportunities out there for us to continue to do that and.
If I don't think does anything different than I've ever said before going to comment in terms of other opportunities, yes, they might be a little more difficult to find identify and in execute on but they're all kinds of opportunities out there for us to get better.
We've always believed that we've always been optimistic and bold and our convictions and where we thought we can take the company.
In the I don't think anything's really change.
So would you be Jim would you be I'm just trying to understand this is just follow up to this question.
As you look out over the next 12 months I know you're not talking about 2020, but just conceptually given the opportunity you see on the cost side could could revenues. If revenues are flat to down next year do you think you could see you're on your or improvement in 2020.
Well again, well given is well give you had a more solid.
Of that.
At the ended the quarter.
Aspirationally dual I think that when this team.
I can repeat.
Fantastic job. They did the this is a this year.
With the revenues.
Again as I said in my comments, we started the year thinking that revenues were going to be up.
As much as 2%.
And now, we're saying that revenues could be down as much as 2%.
And for us to have the delivered this.
Operator 56.
The operating ratio.
With nothing sort of short of amazing am I going to challenge group and his group going to except to the challenge to try to do the sensing again next year.
I certainly hope so.
In terms of putting it into books and saying that that's our forecast we're going to waive the three months.
Before we make that make that chemicals that that's that's very fair and then my second question is just on the pricing environment.
When I just look at revenue per Rtms kind of adjusted for other income and ex fuel. It continues to moderate and I know, it's not a perfect metric to a proxy for pricing because there's a lot of stuff that goes into a specialty mix, but can you just talk about kind of when we should see revenue per RTL.
You know what does that a proxy for and can we extrapolate that into the overall pricing environment. Just you know, making it harder to get pricing in the volume environment any any comments around that would be helpful.
Yes, I mean, it's mark.
Well, so I won't repeat what I told Allison when I when I talked about the mix.
Clearly that's.
The significant impact in the revenue for our Jim, but let me, let me address the pricing because I always get this question on price.
And then maybe your crystal clear, we're not sacrificing.
Volume for price or price for volume.
Within the merchandise and intermodal our same store sales pricing in Q3 was the strongest what we've seen in the past three years.
And all our contracts that come up for renewal in the quarter, we exceeded our same store sales pricing so.
And we're going to continue to to a price to the value.
The business and price to the value of the service that we provide and but but again.
You know on ARPU and then the revenue for our Jim you're always going to see.
Mix issue, so, but don't read into it that it's a pricing issue, we're still continuing to generate the is the best price for the value of our product.
Okay. That's very helpful. Thanks, guys and congrats on the great results appreciate it.
Thanks.
Your next question comes from Brandon Oglenski from Barclays. Your line is open.
Good afternoon, everyone and congrats again to Kevin and Jamie well deserved so Jim maybe just to clarify last one of the questioning I think you know some investors have gotten really focused on maybe more glossy quote unquote PSR presentations that your competitors and you know the maybe the common thought here.
At CSX really has nothing more to go on precision scheduled railroading. So maybe in that context, you guys have head count down roughly in line with attrition. This year I think you're sticking with that I mean should we be thinking that when we get back to a growth environment Theres still more to go on the cost side or can you scale into this.
New level of costs with a lot more growth I guess, how can you help us on that line.
Well, yes, we don't have slogans, but we're working on making it the fixing that whatever we can.
What we're doing is yeah, I mean, we're we're responding to a softer environment and.
Looking for it.
The weekend, where we service or safety.
What we're doing here is that we're building in an enormous about operating leverage into this organizations. So when the economy that if a when the economy begins to turnaround.
And.
Begin to see a slight uptick in a better a environment to work in.
You know we're going to see.
Yes.
Impacts of that leverage.
And we're not going to you know we have today, we have like the way we run the company day has created a tremendous amount of.
So well.
Opportunity for us.
On the capital side.
One because we freed up a tremendous amount of capacity because the way we run the railroad today, and we said many times, we could probably 30% growth into the organization without adding any additional capital and the same is true on the operating side.
We've got capacity at our existing shrinks today, where we can put a lot of growth.
On the railroad.
Incrementally.
And not have to start the adding that expenses.
And so of both from a cash perspective, and an operating perspective, I think we're well positioned.
Two.
To perform well.
In either direction, either a soft environment or in a strong part of it.
I appreciate your time I'll keep its one.
Thank you.
Your next question is from Brian Olson Beck with JP Morgan Your line is open.
Hey, good evening. Thanks for taking the question first one just follow up on the extra capacity seen mark.
Are you thinking in terms of some of the bigger chunks of food conversion how is some of the larger shippers and maybe some of the industry's received.
Better service that better tools increased visibility.
What's your sense as to when you can start to make some of those conversions conversions, even at a smaller scale.
Right and we're seeing it we're seeing it today, we're seeing it every day.
You know I would say.
I'm Blessed and my team is left.
You know the the work that a in Jamie and their teams have done.
Yeah.
Jamie deserves to be sitting at the stable today.
Just two and a half years to really give us the service products at my team now has the ability to grow themselves.
And we think.
Up into the truck conversion opportunities that this franchise has never been able to go after in the past is exciting and so we're seeing those structure conversions today, we're seeing it across the board well across our merchandise segments.
Large things to talk about right now no, but we're seeing incremental volumes from existing customers Dane and deal we're talking to customers, who may be houstons job shipped by rail, but because of the poor service at the they experienced over the last couple of decades.
And in rail is a thought and I've been using truck ever since those are the kinds of shippers that where there were talking to and were and we're penetrating that.
Well as markets in that business and we're being successful Wilson. We're also on the technology side.
As Jim mentioned in his opening a trip playing compliance is a huge huge game changer for our customers.
No and as we said we rolled this out three intermodal.
In October 1st and our merchandise customers will see tripling compliance visibility December one on ship CSX. A this is a game changer for them. They will see every car they ship on CSX.
And every lane and our performance against the trip plans, we rolled this out a couple of weeks ago, what our and our customer engagement form and I can tell you customers are excited so.
We've got great visibility into their service no. Other railroad is doing this.
With that we're blessed with a great service that we got a that the operating team has worked very hard to delivered to us and so right now it's for us to go out and identify that those opportunities and convert on them with the new team that I put in place here over the past week.
I think mark appreciate all the details there Kevin maybe a quick housekeeping for you the.
And your line continues to come down reasons, you mentioned on the merge into storage.
The current.
Run rate that you expect for rest of this year and just wondering.
As shippers.
To do with the new operating models that are being rolled out.
You asked do you think to steves emerge in general do you think it's Steve structurally higher.
Some shippers just use.
George as part of cost of doing business, where do you think this eventually goes back.
Sort of where it was.
Sorry.
Yes, I think look I think we told you we expected to come down as it's kind of trended in that direction.
As of the run rate going forward somewhere between the second quarter.
Run rate in the third quarter is probably where we land. So in that 100 and Gen $120 million range is probably the new normal.
Unless something dramatically changes from here I might lead Mark.
Talk to the additional opportunities but look its.
I think we expect the does.
In the without something meaningfully changed from here probably at the same run rates.
Well.
Okay. Thank you.
The next question comes from Scott Group with Wolfe Research Your line is open.
Hey, Thanks afternoon guys.
So I want to ask the productivity question, maybe a little bit more directly do you think you can do another mid single digit reduction in headcount from here and then does a 57 along with revenue down five give you more confidence that ultimately you can run this business not next year, but longer.
Term it closer to mid Fiftys or if you're growing revenue.
Scott This is Kevin.
Look I know that focus has been a head count I know you know we report head count numbers every quarter.
Labour represents roughly 35% of our cost base, there's a lot of other costs to go after as well.
We're looking at those I think you saw great improvement in MSR, though which is a huge cost line item for US there is other ways.
Reduce costs than pure headcount reductions as we talked about overtime as a huge category for us.
So we're getting a there's a lot of other areas for those of US to go after just that just simply head count.
You know if the volumes continue to be challenging we'll look for new ways to.
The drive costs down.
We run faster.
And take down well the.
The asset drop out in the costs costs go down significantly. So we'll look at every way to go out go after these costs.
In the Youre more broadly.
Sorry.
Yes.
Scott I guess, we're not going to get in this morning's wanting to know we've said.
We think we have opportunities to continue to improve efficiency side.
We said that we would.
Uhhuh.
On efficiency in England environment and in a bad environment, when we started the year.
And you know we thought it some people think we could but we really show in the world.
You know there's no there's no limit to what part and work and ingenuity can the for does.
Okay, That's fair and just Jim just one other it's been a busy three months in Washington with rate case proposals analysis Sorial.
Proposals in the lawsuit from you guys on one man crews, maybe just give us a lay of the land as you see it in DC and any other proposals from the Florida real concern.
Your thought maybe some color on this lawsuit on the one person crews just.
Do you see broadly as you see it.
Well I would now what I'm.
Open like let you know my real thoughts are about what's going on in Washington DC.
So I'll just stick with what's going on it you know what the STB.
Oh.
The STB after a number of years as not being like really fully staffed.
Stepping up and take care some issues that.
Had been lingering out there for a long time and I think they're just doing their job.
And they put forth some suggestions what you've been kicked around for a long times in terms of is there a way to change simplified and modify some of the procedural.
Steps that shippers have to go through if they have the complaints and I think the industry. We have the we have thoughts on what they want to talk about the rest of the industry does as well and I think we'll work through all of that.
In in due course.
It is similarly on you know trying to begin to have some discussions at least about war revenue adequacy license knee.
That's a long term process. So I just think that the STB is kind of working back to work and.
Being getting a business in an industry that is regulated you're just work with the regulator outerwear in due course, so I'm not freaked out about anything that's going on there.
You know and.
Hey, we're starting to your comments about.
Litigation will over.
Labor negotiations, we're just now starting a long process.
To begin the new round of industrywide bargaining.
And you know everybody starts out trying to posture and get themselves in the right position and so again nothing out of the normal with normal course, some business. There. So I think you know it's just.
Yes, just business as usual than the and we'll we'll continue to.
We'll continue to remain vigilant and active.
In that area, what I said nascent did you see I try not to go there, let's say of schools they have.
Thanks, guys.
The next question comes from Ben Hartford with Baird. Your line is open.
Hey, good evening guys.
Jamie maybe just some perspective on.
Your view looking into 2020 from an EPS perspective.
Hi, good progress on chain train velocity improvement, but 12 hours were flat.
Any specific projects into 2020 that have on the horizon that you're thinking really affect change, particularly on the dwell hours.
Side.
We talk us through to the next 12 months for us in from an operations point of view. Thanks.
For sure. Thanks for question Ben.
The operating team is completely focused on controlling costs, but providing the best service as Mark mentioned and not only providing the best service, but doing it safely. So as we continue to assess the market conditions.
And making sure that we're nimble enough to make moves that we need to heading into the next quarters. We're getting out there is an operating team.
Been able to work really close with the guys over the last couple of years and developed a fantastic team of Railroaders out there.
And then to your point dwell was one of those metrics that isn't where we want it to be.
Particularly on the network side as well and that comes along with car hire and car hire is a big expense that we want to continue to work towards going into the next few quarters and just getting out to field being out there traveling with the guys spent the past couple of years really outperforming most of my worker lot of my work.
Here in the network Center.
With the team now we're kind of spread or wins again note. There are working with those the operating guys in the ground and making sure that the team has.
Taking a look at every every opportunity. We have also has to continue to bring those costs that anybody that ultimately this is visible providing the best service, we can and given our marketing team a product that they go out does continue to sell while we continue to drop those costs.
Any notable projects on the immediate horizon or is this going to be.
From here forward.
There's a lot of projects out there with respect to getting outs as I mentioned getting on the ground trend.
Minimum every two weeks taking a CMO.
Flying into different terminals last week, we made a trip over to St. Louis.
On an ounce sat down with the operating team the team up with some ideas on how we can move cars quicker faster and and reduced head count. So those opportunities are what we're going to continue to push and drive forward. The senior Vice presidents football through learn Bryan Maher traveled with meals, there and we're finding the external.
Talent, we have sorry internal talent, we have within our company and.
Must start as quick as we can animal sufficient that's where we're going to continue to do pushing forward with the assets.
Sure.
Justin long with Stephens Your line is open.
Thanks, and congrats on the quarter, Jim you mentioned, the industrial environment in your view that things really haven't changed relative to your expectation.
Last quarter, but could you comment on what you're expecting on the retail side of the equation and just curious to get any updated thoughts around peak season, and maybe why intermodal volumes could look like once we lap all the rationalizations and start to see more normalized numbers in 2020.
Yes, sure just in your area.
Again there.
One of every one of the issues we've been struggling with.
Throughout the year.
Is the fact that everything.
Whether it's the stock warfare, whether as interest rates, whether it's all of these consumer driven.
Sides of the economy, we are all doing so well and we saw very early in the.
That.
Industrial economy.
Separating and was not performing very well at all and so last quarter, where when you know I've said this was a confusing.
I think we I think we had a pretty good sense of where things were going.
And.
No it's proving out to everything moves through the second half with that I'll, let mark Mark wasn't totally on top of intermodal and what the whether or not we're going to have a peak or not to answer your other question and Justin.
Our expectations for peak or somewhat muted. This year I think we'll see a little bit of a bump but not a note. The traditional fall peak I mean, you know stuff is still coming into the sort of the you consumer economy is still doing relatively well so.
You know the the apparel in the toys and the a plastic Christmas trees and stuff or come is still coming in but as we all know.
You know intermarriage intermodal carries a lot more than just that kind of stuff to carry a lot of stuff that goes into the industrial economy machinery, and auto parts and well bunch of other stuff. So.
Because of the economy as industrial economy being solved.
And I D P being so weak, yes affected a lot of the intermodal volumes.
You know fourth quarter.
Those are the economy and because of the consumer economy.
We're we're hoping to have.
A relatively good.
Most Thanksgiving holiday.
So you know into their Christmas timeframe hopefully.
People order a lot of stuff online and we able to closure and the owner of a but moving a lot of that stuff. So.
I think that'll that'll help or.
Volumes.
This quarter, but.
Going into going into next year as we said, we're not going to give you a lot to below the guidance there, but it really depends on a on what's driving the call I mean, where we are but longer term.
Longer term as we get through all these lean rationalizations and.
Get through all this mess.
You know into you know goods sold economy.
No I would expect intermodal to do very well.
Okay, great and maybe as that quick follow up for Kevin.
Gains on sale there was that.
Relative to what we saw in the first half on just quarterly run rate could you talk about what you're expecting from gains on sale perspective in the fourth quarter and then any early read on what we should be looking at in 2020.
Yes.
65 million was a little bit above the normal run rate that you've seen historically.
I would expect something well below that in the fourth quarter or something more on the normalized rate and in that in London twenties low Twentys range.
For the fourth quarter, a we'll wait that will hold off on 2020 to go through we still have a great pipeline.
Timing is always difficult to predict on when those.
The actions will hit, but I know mark and his team of.
Can you to see a really good pipeline.
Going forward.
Okay, Great I'll leave it at that thanks for the time.
Jordan Alexander with Goldman Sachs. Your line is open.
Hi, just real quick question I know it may be tough because of that de marketing of the lanes in intermodal, but I'm. Just curious when you look at domestic versus the international intermodal can you give a little color on both those pieces of business, you know relative order of magnitude weakness or or or thereabouts. Thanks.
Oh.
ER.
Our international business has been.
Stronger than the domestic mill so.
So the domestic demand as I talked about just a just a minute ago. The domestic business has been impacted by by a number of factors are the economy of certainly certainly one of them, but I think.
Clearly a lot of capacity.
We saw very tight truck capacity last year, clearly a lot of new trucks came into the market a lot of new drivers opened up a lot of additional capacity and so I think intermodal has been competing with that with that truck capacity. This year places, obviously, and then tried and true spot prices.
Come down.
Since the last year, there still above sort of the five year average, but surely prices have come down so I think domestic business. While good it's just been solved and but our international business is still relatively okay.
Just a real quick follow up just for perspective.
You have a sense for what proportion is just international versus domestic of the total carloads or revenue in the intermodal.
Yes.
It's about 50 50.
50 cents, thanks very much.
Absolutely.
Okay.
Next question is from body Shawn Moon at your line and I always say 40, percents actually see useful answer in the future.
Perfect color.
Yes.
Yeah.
Who spotty so.
Sorry, you're on them.
If you take your phone off.
What what me gifts for the Port antigen.
Oh, sorry.
And your ready for the next question correct. When seven yes. Please next question year on year, Fadi Schuman with BMO capital markets. Your line is open.
Okay. Thank you.
No. He then feedback so sorry bodies.
I apologize but.
Just a follow up on this intermodal conversation maybe.
One I mean Youre service products is obviously getting a lot better and not pool is highly efficient and correct me if I'm wrong in intermodal you tend to have less capital intensity as far as how you run the business is there all over the medium Tom given.
The truck opportunity he a potential to reinvest or to accelerate growth or do you don't think that's the needed.
Strategy to grow intermodal well, you know fatty as mark.
This company spent a lot of capital dollars over this year over the past.
Decade, or so to grow intermodal volumes.
And it was not very successful.
And so a you know today, we have a you know we've spent the last a year to have two years reengineering.
The traditional hub and spoke intermodal.
Franchise. There was there was built over the over the past a little while I'm. So to answer your question no.
I don't believe unwell thing, we believe that we need to spend any significant capital dollars.
To continue to grow our intermodal franchise the team's focus right now it's about taking touches out of the system.
As you know the morry the more you touching handle on intermodal container their costs go up in the profitability goes down and so.
We're focused on streamlining that business I'm getting it as efficient as possible and bringing on additional capacity, what we got ample capacity now to grow intermodal.
And when the volumes.
We'll return to Jim's point economy will turn around and when intermodal volumes do come back we have ample capacity and then work now without.
Spending any additional capital or two to move that product.
Okay, and just still so follow up on the previous question. So if can fluctuate truckload punctuates the flat to slightly down in the next 12 months.
Can you still grow domestic intermodal in that environment.
Well.
The majority of our intermodal business was locked up and long term contracts body. So.
We don't have any.
Any short term opportunities to replace a lot of the business.
So again a lot of the focus has been.
It's been a or me.
On the cost so I think efficiency so.
But clearly as a as the economy comes back in and we handle more intermodal business and our and our handling it.
The more efficient way.
Yeah, I mean, we'll we'll we can grow the business that way.
Thank you.
The next question comes from Ravi Shanker with Morgan Stanley . Your line is open.
Thanks, Good evening, everyone just a clarification the solid call Gemini you said something.
Along the lines out.
A 5% or rationalization and land.
Can you just clarify that little bit is this.
More intermodal lean rationalization and into any 20 is this what leftover from 2019 ones, what exactly where you blank.
It's Mark let me, let me, let me be clear in.
And just so everybody has all the facts here.
In January .
January of 2018, we began the rationalization.
7% of the franchise last October .
October 1st of last year.
We took out to an additional 3%.
Rationalize additional 3% of the lanes and then in January of this year.
We did another 5%.
So we have to Jim's earlier comment we will be lapping in the fourth quarter.
The 3% rationalization that we took out last year and then in January and will be a will be.
You can rationalizations will be completely behind us.
Got it shows a no more actually items and Duane.
No.
Okay, and just as a follow up thanks for the color on the export coal pricing and.
The quarter do you mean said it into next quarter I think Bosqi you guys have said that.
You have a take or pay is a in the export coal business to a certain extend a until youre contracts written you a is that again under.
The same quarterly cadence, you're talking about or is that more of an annual thing in a kind of did not have any impact in a in threeq you.
Both Ravi I know both on the thermal side on the Mets side.
We have built into the contracts.
Contract minimums so.
As I mentioned I think in.
In Q2.
Given the weakness in two and everything that was going on globally with thermal coal.
We were experiencing you know the slowdown in volumes and and we saw we saw show.
Our customer shipping it to their contract minimums.
That does not change given the continued weakness in in export coal benchmarks.
Right.
Something that doesn't come up.
We still expect our export coal.
You know volumes to hit sort of the 39 to 40 million ton range for the year.
Last year, we did about 43 million tons and.
But even with everything that's going on we still expect to be between 30 940 million. This year and broadly just to clarify we didnt have any liquidated damages in the third quarter.
Correct.
I understood.
Do you articulated much better than I did in terms of the the minimum volumes shipped a it so somebody just to kind of I know you guys not talking about 2020, but if the benchmark were to stay.
<unk>.
You would expect that 40, you could be lower next year once the minimum shipment levels a reset.
No if I.
If I could only predict what's going to happen to things that are completely out of my control.
You know metric that met benchmarks and Apiay twos and.
You know.
No I don't have a clue.
It's going to happen.
To the economy, a little bit glu, what's gonna happening to export benchmarks.
So I guess my Anthony every night and.
And and Craig, but clearly, yes headwind right now.
Do you want me both Mark it's understandable. Thank you so much.
Right.
[noise] Bascome majors with.
On a financial group your line is open.
Yeah, Kevin I know you're firmly in the shift so she can you share your priorities for the financial organization your balance sheet management capital deployment and.
Over the next two three years, what could change and what definitely won't thank you.
Thank you for the question my priority as cash.
Thank you know when we look across the organization.
Talking to my team last week, sometimes we prioritized OE over over capital and I think we have a lot of ability to look at our capital spend and.
Focus there and make that a lot more efficient.
There's no theres opportunities do you mean, I now said right across from each other we're talking every every day about on sharing information about where we see the opportunities whether its overtime like we mentioned a time and time again that was a new initiative and.
He is working closer and closer with all the people in finance.
And just to uncover those opportunities.
There's there's opportunities everywhere.
There are small buckets of up to a lot of dollars over time.
But that's my priority is really looking at particularly just the return on capital if Theres really high return projects out there that we can invest and we generated a lot of cash flow today I would love nothing better when my organization to come with me was 20% plus.
Return projects. So we can invest in our business to drive value overtime, that's really where I'm focused on the next.
A.
Two months procurement also has been my area and I know that group is doing a great job of.
Finding different additional cost savings from our suppliers working with them.
But we're not afraid of investing in the business going forward.
Thank you congrats.
[noise], David Vernon from Bernstein. Your line is open.
Hey, guys. Thanks for taking the time.
So mark I wanted to ask you. The export quick question, a little bit differently. If you think about two to Threeq you did we see any weakness in the rate you guys were getting on the export shipments that you still retained or any sort of increase or decrease I'm just to kind of how that how that has has moved im just wondering kind of on what percentage of the time did you guys came in right now is hedged at prices from earlier in the year.
Well again on the thermal side these contracts or annual contracts are they were in for that's right.
You know negotiated Lee I think you into a 29.
19, so those.
No one time.
There are tied to just to the benchmarks and that benchmark for if you're doing a lot higher the beginning of the here late last year.
On the Mets side, as I said, they get repriced or quarter.
Most of them some of them or monthly but.
George <unk> or our quarterly.
And.
As I said in Q2.
You know the benchmark prices was over 200 Bucks Q3.
Although 160 ish, so we're going to feel that impact the heading into Q4.
But how did we see that from Twoq to Threeq.
We're just going to be showing up in fourq.
No we saw.
We saw it in in our thermal on the volumes.
In Q3, and we saw in volumes and met as well.
But not not in the rate.
We saw some and Doug.
Yes, it accumulates the beginning of the process where were is worth because of the lag.
Getting other processes and yet we'll see more of it as give us a fourth order in next year. The rigs were sell for thermal the rates were set.
And really it's been a volume play okay.
Maybe just done on the petroleum products business can you give us a sense for what you're running right now in terms of the split between crude and NGL and for the crude shipments is this mostly Bakken origination coming into the east coast like what would what he was some some some idea of what the flows on the crew that cylinder business.
[laughter] I don't want to speak to specifically, because others or let's say.
But.
We're moving crude crude today.
Mostly is mostly from the Bakken.
We've had obviously with a with the a refinery a explosion in we've seen some slowdown there.
Which has impacted us for the for the remainder of the year.
But it's probably as much as I want to go you know we.
I should mention.
Most on the on coal and on all the accrued.
Business and.
We brought in the Adam.
Our new VP of energy.
He is taking a fresh look at a at all these portfolios and and test.
You know figuring this out for us clearly.
There. These are interesting commodities to manage but a items are very very smart guy and he's doing a great job looked at a different things to to help us out longer term so look forward to.
Updating everyone a future on that.
Oh, any any split on the crude and NGL.
No I don't want to get.
No right now.
We're not we won't slipped at all for.
Your last question today comes from Walter Spracklin with RBC capital markets. Your line is open.
Thanks for much of thanks to switch me in here.
Jim you you made reference to some technological innovations that you might or are currently looking toward implementing I know, there's at least one other rail that investing significantly in.
In those technologies.
How much would you say and maybe there's a better question for Kevin how much of your current capex or below is dedicated to let's.
Sure.
Technological innovation or type of type of projects.
And and what's your strategy there is it more to see what.
And then if it works will will devote dollars to it or would you see yourselves.
Adding more incremental dollars.
I hope to look for these technological innovation opportunities.
Yes, hi, thanks for asking the question.
Right now our our.
Yes, a bunch of questions.
I'll try to answer mall.
What we spend today out of the.
The total amount, it's a very small amount.
Oh, but it had a meaningful impact on what we do a in many respects.
Starkly speaking.
The rail industry on CSX being no differently, and we were kind of beholden to the supplier to come up with new ideas and technology I think now we worked collaboratively.
With the way to do things.
And Ah we talk about just ourselves a rail industry about what works and what doesn't work at how we can do things more effectively and efficiently and leverage technology and technology is changing all the time, so creating new opportunities for us so.
Probably.
Number one probably should and therefore, probably will that dollar amount that we spend on technology to help us run the railroad more efficiently will be called bigger, but it's clearly.
It's never going to get to the point, where were you know it's equal to what we spent.
Rail so.
And we're all over everything whether its automated.
Artificial intelligence to help us to dispatching.
Using more and more technology at our local load others not just.
The PTC, but other technology, that's available out there to help US do things is more effectively and efficiently I mean, just this little and we've got a a three of these cars that are out there what are other or to do a constant inspection of our of our rail in the subsystem and everything else.
We've seen as we've seen a big improvement.
In our.
Reducing our slower.
Our incidence of rail Brinker all of this because we captured earlier then whatever the when we weren't doing as much so.
Well, let were leverage you back out of that.
As much as we can't we're going to add more again next year and next year and next year in next year because.
Hard to.
You know.
It's hard to put a dollar value on what can happen. If you have a big derailment associate it with a rail break if you knew you had a railcar up there that could have found it before that happens. So we're all over it and we're going to continue to do that.
I would say the be Amir.
It will creep up overtime.
Looking out way out is there anything and maybe Jamie you might have seen some of that hasn't cross Jim's desk, yet or is there anything.
On the horizon conceptual that if implemented.
Really put hit the ball over the other park here in terms of.
Those type of disruptive technologies.
Oh I'm looking at no I think a lot of technology that we're on too.
The only thing that I would really mentioned on top of those are trained inspection portals not only were looking at the track. We're also making sure that X Ray vision and take cameras footage cars more modular inspection portals.
We've got a we've got a very strong IP development department within CSX, probably one most impressive.
Seen in the industry.
We are.
Developing some yard intelligence crew intelligence. The crew intelligence is really something that I truly believe as we've been working on a per up on a year now almost done that.
I don't allow us to look 12 to 24 hours in advance to make sure that our crews are lined up where they need to be.
And then position where that needs to be so as much as we bounced a railroad there's still going to worry about availability in that crude intelligence and and some of the intelligence at our team is working on here at CSX is is going to really help us carry forward.
Appreciate the time.
Thank you I'll turn the call back over to the speakers.
Thank you everyone for joining I believe that concludes our call through that.
[noise]. This concludes todays teleconference. Thank you for your participation in today's call and you may disconnect your lines.
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