Polaris Industries (PII) Scott W. Wine on Q2 2016 Results - Earnings Call Transcript

| About: Polaris Industries (PII)

Polaris Industries Inc. (NYSE:PII)

Q2 2016 Earnings Call

July 20, 2016 9:00 am ET

Executives

Richard Edwards - Director-Investor Relations

Scott W. Wine - Chairman & Chief Executive Officer

Michael T. Speetzen - Chief Financial Officer & Executive Vice President

Kenneth J. Pucel - EVP-Operations, Engineering & Lean

Analysts

Scott L. Stember - C.L. King & Associates, Inc.

Robin M. Farley - UBS Securities LLC

Jaime Katz - Morningstar, Inc. (Research)

Gerrick Luke Johnson - BMO Capital Markets (United States)

Joseph Spak - RBC Capital Markets LLC

David S. MacGregor - Longbow Research LLC

Michael A. Swartz - SunTrust Robinson Humphrey, Inc.

Tim A. Conder - Wells Fargo Securities LLC

Jimmy Baker - B. Riley & Co. LLC

Craig R. Kennison - Robert W. Baird & Co., Inc. (Broker)

Mark E. Smith - Feltl & Co.

Joseph Nicholas Altobello - Raymond James & Associates, Inc.

Drew Lipke - Stephens, Inc.

Seth Woolf - Northcoast Research Partners LLC

Operator

Good morning. My name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Polaris Q2 2016 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.

I would now like to turn the call over to Mr. Richard Edwards. Please go ahead.

Richard Edwards - Director-Investor Relations

Thank you, Michelle, and good morning, everyone, and thank you for joining us for our 2016 second quarter earnings conference call. A slide presentation is accessible at our website at www.polaris.com/irhome (sic) [ir.polaris.com] which has additional information for this morning's call.

Today, you will be hearing prepared comments from Scott Wine, our Chairman and Chief Executive Officer; Mike Speetzen, our Chief Financial Officer; Ken Pucel, our Executive Vice President of Operations, Engineering and Lean is also here to answer questions.

During the call today, we will be discussing certain topics, including product demand and shipments, sales and margin trends, income and profitability levels and other matters including more specific guidance or expectations for the 2016 which should be considered forward-looking for the purposes of the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from those projections in the forward-looking statements. You can refer to our 2015 10-K for a more detailed discussion of those risks and uncertainties.

Now I will turn it over to our CEO, Scott Wine. Scott?

Scott W. Wine - Chairman & Chief Executive Officer

Thanks, Richard. Good morning, and thanks for joining us. Polaris generated a lot of news in the second quarter, but the ratio of good to bad was out of balance. Our hardships which I will discuss in plenty of detail were very public. But on the plus side, Indian continues to grow and gain market share, demand for our new GENERAL is exceeding expectations and our Huntsville plant is ramping up production of both RANGERS and Slingshot. Another piece of positive news came in early June when our Victory Empulse took second place in Isle of Man.

While we are certainly pleased with the progress and performance of our electric bikes and their advanced lithium-ion powertrain, it struck me that we were celebrating something other than winning which is not the attitude that made Polaris the world leader in powersports. We play to win. We emphasize winning the right way rather than just claiming victory. As we work through a series of fire-related recalls and battle through an increasingly competitive market, our team is also preparing to play more aggressive offense in the second half and inspire a few more favorable news ratios.

Second quarter sales were up 1% to $1.13 billion, aided by another strong quarter in motorcycles, up 23% and a boost from adjacent markets in their first full quarter with Taylor-Dunn. Whereas the defense sale were up nicely, as our innovative DAGOR vehicle is gaining traction with and orders from more Department of Defense customers.

Parts, garments and accessories and international both saw revenue increases of 5% in the quarter, although the headline was certainly the 6% drop in ORV snow sales. We cannot accurately allocate the impact of the RZR recall on retail sales, but we do know that it curtailed demand in the quarter. We also estimate that we lost a few points of side by side market share which was not unexpected but is unacceptable.

Net income and earnings per share were down sharply, 29% and 27% respectively, as we incurred significant warranty-related cost and continue to face currency and mix headwinds. In sharp contrast to a year ago, when we were battling through the Spirit Lake paint problem, Ken Pucel's lean and VIP efforts are providing much needed savings and quality improvements that will continue to increase.

Our efforts to improve inventory management are paying dividends, pushing cash flow up more than 280% in the quarter. The extensive and ongoing product recalls related to fire risks in our vehicles impact every Polaris stakeholder in some way, but our primary focus is on our customers, keeping them safe, completing their safety bulletins so they can ride and rebuilding their trust and confidence in Polaris. As we work aggressively to accomplish these goals, we have become much smarter about the thermal risks across our product lines which drove additional recalls in the second quarter.

We have discovered gaps in our design, development and manufacturing processes and are urgently addressing these gaps, while also working to improve our post sales surveillance process to increase our speed of response when issues occur. We have more work to do and we'll move forward with urgency to continue to mitigate safety issues for our customers.

Mike Speetzen will discuss the impact on our financial results which include our best understanding of future thermal-related costs that are both probable and estimatable. I want to provide a bit of additional color on the recent promotion of Craig Scanlon, Chief Marketing Officer, and the realignment of Slingshot in Steve Menneto's motorcycle business.

Both of these moves were made to more productively support growth, not for defensive reasons. Craig played a vital role in building the RZR brand in business and has overseen off-road vehicle marketing for the past eight years. As we look to expand the global reach of the Polaris brand and optimize how we leverage technology and tools to drive growth, there is no one I trust more than Craig to make this happen.

We will seek to marry his in-depth knowledge of our industry and company with leading edge analytics and talent to create more impactful, efficient and measurably effective marketing process. For Slingshot to grow at an accelerated pace, it requires infrastructure. As Craig shifted his focus from product launch to profitable growth, he realized that most of the framework in resources he needed were present in Steve Menneto's motorcycle business and the synergies between the two would allow us to begin reaping the benefits almost immediately. Steve's extensive and experienced sales organization will help us expand customer awareness and improve lead conversion, and the advances being made in lean and cost down were readily transferred. Likewise, our motorcycle engineering and product management teams are already finding opportunities to apply their wealth of knowledge to Slingshot's further development. And with the scale afforded by this combination, Slingshot is poised to grow faster and more efficiently.

The off-road industry was weak in the second quarter, and overall, North American retail was below our expectations with declining ATV sales and a side-by-side market that was essentially flat. Our retail was weaker than planned, down low double-digits for the quarter. While we're concerned about the industry, we are more focused on issues within our control, namely improving our retail performance by addressing two specific areas, quality and market share.

What made Polaris number one in off-road vehicles is outstanding product performance, powerful brands and industry leading Net Promoter Scores. RZR and bodies all of these, but retail sales declined sharply after the recall was announced in April. The team implemented countermeasure plans in May that drove improved retail and share performance for the remainder of the quarter and we expect this momentum to carry into the second half.

While we are understandably frustrated with declining market share in both ATVs and side-by-sides in the quarter, we are comfortable with the share erosion that's confined to a few specific products and Matt and his team have a very strong competitive response which we believe will turn the tide in the second half. As I mentioned earlier, motorcycle retail continues to be a bright spot, even with the competitors' aggressive investments in marketing and retail financing.

Victory retail was up high teens for the quarter, driven by Octane in the midsize market and the Magnum X-1 bagger in the heavyweight segment. Indian retail was up over 20% for the quarter, powered by strong demand for both Chieftain and Roadmaster.

Our new Springfield and Chieftain Dark Horse models exceeded retail expectations, and Scout continues to set the pace in the midsize segment. Slingshot's strong first half growth of profitability should continue as we expand awareness in model offering. Steve and his team are staying on the gas with exciting news that will continue to fuel motorcycle growth in the second half.

Fixing quality and safety is our top priority and getting that right will help drive better retail in the latter part of the year. We've made consistent and significant progress in our efforts to reduce dealer inventory with second quarter ORV inventory down 8% year-over-year. Motorcycle dealer inventory was up, keeping pace with demand, while also reflecting our limited ability to paint bikes during the same period last year.

We're not yet where we want to be nor where our dealers want us to be, and we would not call this an ideal state. But we will continue to aggressively monitor retail and dealer inventory trends and work towards further improvement in the second half. With the ramp up of Huntsville, we will begin to transition RANGER and RZR to retail flow management or RFM which provides shorter lead times and better overall inventory management for us and our dealers.

I will now turn it over to Mike Speetzen, our Chief Financial Officer, for a review of our financial results and outlook.

Michael T. Speetzen - Chief Financial Officer & Executive Vice President

Thanks, Scott, and good morning, everyone. This morning, I will provide a brief update on each of our segments and review our updated guidance for the remainder of 2016. First, as Scott mentioned, during the quarter, we booked additional costs related to warranty and other recall related expenses totaling approximately $25 million.

We are working aggressively to offset these expenses with additional cost down efforts as well as benefits from favorable currencies. However, given these costs, as well as a weaker industry environment, we are revising the lower end of our EPS range to $6 and lowering the upper end of the EPS range to $6.30 for the full-year 2016. The range reflects EPS being down 7% to 11% compared to the full year 2015. On a constant-currency basis, earnings per share would be down 2% to down 7%.

Our 2016 revised guidance assumes the following. The currency rate for the Canadian dollar is assumed at levels slightly lower than the current rate. Currencies are expected to negatively impact full year pre-tax profit by approximately $30 million which has improved from previous guidance. Share count is expected to be down approximately 3% for the full year. Year-to-date, we've repurchased 1.7 million shares and we'll continue to repurchase shares at these stock price levels.

Dealer inventory is expected to be about flat at year end which implies shipments. In aggregate, we'll closely track against retail sales for the remainder of the year. As a result, total sales are expected to be in the range of flat to down 2%. On a constant-currency basis, this equates to total company sales being down 1% to up 1% compared to 2015. Currency is anticipated to negatively impact full-year 2016 sales at the high end of the range by about $35 million or about 1%. We're assuming the second half industry to be slightly better than the first half, which represents improvement from Q2 levels.

On a segment reporting basis, sales expectations are revised as follows. ORV and snowmobile sales are expected to be down mid-single-digits versus previous guidance of sales down low to mid-single-digits. Motorcycle sales are anticipated to be up double-digits percent versus previous guidance of sales up high teens. And global adjacent markets sales are expected to be up mid-teens percent.

Now let me provide more details around our segments, starting with ORV and snowmobiles. ORV and snowmobile segment sales were down 6% in Q2, driven primarily by weak industry trends and the impact from product recalls during the quarter.

Sales were also negatively impacted by currency as well as a higher promotional spend environment as we fought a tough competitive environment. For the full-year 2016, our ORV and snowmobile segment sales are expected to be down mid-single-digits percent which implies second half sales will be down in the low single-digit range.

Despite a weaker industry than anticipated, market share gains continued in our motorcycle segment. Sales increased 23% in Q2 as product availability improved considerably and demand for all three of our brands remained strong. Growth was also driven by increased PG&A related sales. We are however lowering our full-year guidance for motorcycles to be up double-digit percent, taking into account weaker industry trends.

Global adjacent market sales increased 14% in the second quarter, driven by market share gains in XM and the added sales from the Taylor-Dunn acquisition. In addition, our defense business was up over 30% and our PG&A related sales for the segment increased 21%.

We expect full-year 2016 sales growth to be up mid-teens percent. Parts, garments and accessories sales increased 5% in the second quarter; growth was driven by all segments of the business, primarily by part sales. International sales increased 5% in the second quarter. Growth was strongest in Latin America and Europe, driven primarily by motorcycles, as demand for Indian and Victory accelerated throughout the quarter. Aixam Mega's market share driven growth also boosted sales in Europe.

Moving on to gross margins. Gross margins were down 325 basis points, reflecting additional warranty as well as continued pressure from foreign exchange. I'd also point out that the warranty costs incurred in Q2 reflect ongoing quality and safety issues, including a higher assumed completion rate for the RZR 900 and 1000 recalls and associated cost to attain that higher completion rate. We are maintaining our full-year 2016 gross margin guidance to be down 70 basis points to 120 basis points. This assumes foreign exchange would be an approximate 80-basis point headwind for the full year.

On a constant-currency basis, gross margins would be up 10 basis points to down 40 basis points. Our full-year gross margin guidance not only includes the additional warranty costs mentioned earlier, but also reflects stronger than originally anticipated savings from our cost down VIP initiatives.

Operating expenses are now expected to increase up to 100 basis points as a percentage of sales, given the product liability, acquisition, severance, legal and other recall-related costs taken in the first half of the year. We continue to make the necessary tradeoffs between preserving critical engineering investments and optimizing or eliminating unproductive processes to improve our results. Despite the top line pressure, we have approved additional engineering spend in the second half to ensure important growth opportunities are realized. The expectations for the remaining P&L items have not changed from our previously-issued guidance.

Finally, given the one-time events that have occurred this year, as well as a weaker industry than expected, I'd like to make a few comments around our expectations for Q3. Given weaker industry trends and continued foreign exchange headwinds, we're expecting sales growth for our ORV and snowmobile segment in the third quarter to be down low double-digits over the prior year.

We expect motorcycle sales to continue to grow in Q3, but at a more modest rate than in the first half of the year. Overall, company sales are anticipated to be down mid-to-high single-digits versus the prior year.

Gross margins in the third quarter are expected to be similar to 28.5% reported in the third quarter of last year, which is a significant improvement from the first half of 2016. The improved performance will be driven by lower foreign exchange headwind, coupled with the stronger savings from our cost down VIP initiatives versus Q3 of last year as well as the first half of this year. Lastly, we anticipate Q3 operating expense dollars to be about flat to Q3 of last year.

While our first half 2016 results have been disappointing, there are a few areas of performance worth noting. First, dealer inventory is in line with our expectations year-to-date with ORV being down 8%, with RZR down double digits.

Second, our cash flow performance has improved significantly from a year ago, increasing over 280%, driven by improved working capital management. Factory inventory is down from last year, which reflects the efforts underway to improve our internal discipline and management systems.

And lastly, as I mentioned earlier, we're realizing significant savings from our cost down value improvement projects Ken and his team are aggressively pursuing. These reflect our commitment to drive improved quality, a lean enterprise, and work to improve our cost structure.

With that, I'll turn it back over to Scott for some final thoughts.

Scott W. Wine - Chairman & Chief Executive Officer

Thanks, Mike. Between what could be charitably termed a tumultuous run-up to the presidential election, the volatility surrounding Brexit and generally elevated geopolitical risk, the global economy appears much closer to a recession than an uptick in growth. We expect the powersports market to reflect this, growing slowly in the second half, largely due to weaker comps in the oil producing states in the latter part of the half. The market will remain highly competitive, but the Polaris lineup will be much more difficult to beat.

With paint offerings now plentiful, and exciting new bikes shipping soon and Slingshot benefiting from access to better tools, support and infrastructure, we expect our motorcycle market share gains to continue throughout the second half. Off-road vehicle sales will improve and we will stem the tide of our share loss as our outstanding sales team continues to elevate customer engagement with new vehicles and embody our resolve to protect and grow market share.

We will work to reduce dealer inventory while developing and implementing better tools and technology to help our dealers drive profitable growth. The ramp up of off-road vehicle production in Huntsville is an important milestone partly because we are now out of the plant building business for the next several years, but more so because our newest leanest factory will provide improved quality and a template for process improvement across all of our manufacturing plants, while also providing the capacity and delivery we need to accelerate the rollout of retail flow management for our side-by-side vehicles.

RFM is only one aspect of our lean journey as we are combining upgrades to our supply chain with aggressive quality improvements, manufacturing excellence initiatives and product development efficiency. These efforts will reduce the number of safety and quality issues, while driving in conjunction with our value improvement projects, meaningful cost reduction.

Coupling this with strong cash flow we are generating from decreased working capital, we are well positioned to fund further operational improvements as well as an exciting list of growth projects. The results from some of these investments will be on display next week at our dealer show in Nashville which will highlight how we are incorporating technological advances, including better performance and handling, into the newest products to join our industry leading armada.

With that, I'll turn the line over to Michelle to open up the line for questions.

Question-and-Answer Session

Operator

Thank you. Your first question comes from Scott Stember from C.L. King. Your line is open.

Scott L. Stember - C.L. King & Associates, Inc.

Good morning, guys.

Michael T. Speetzen - Chief Financial Officer & Executive Vice President

Good morning

Scott W. Wine - Chairman & Chief Executive Officer

Hey, good morning.

Scott L. Stember - C.L. King & Associates, Inc.

Could you maybe talk about the recall, you did indicate that you've gone through a process of identifying future items, and I think there was a recall for – on the RANGERS side. Maybe just quantify the size of what you're looking for and whether you think that the majority of the recall charges and issues are behind you right now?

Scott W. Wine - Chairman & Chief Executive Officer

Well, if you listened to my accounting speech during my prepared remarks, I did say that we had all of our probable and estimatable cost included in the guidance that we just issued over the second quarter results. I will tell you that the work that Ken and his team are doing to go through our products and ensure that there's not fire risk in our vehicle, it's a massive project. I don't think it's – as I said in my remarks, there's still more work to do. But we don't foresee things that are drastically different from what's been included in our results and our forward-looking guidance.

Scott L. Stember - C.L. King & Associates, Inc.

Okay. And then on the R&D side, I guess you pointed to some gaps and maybe just talk about on how you're addressing the R&D process, I don't know if this is all part of the answer that you just gave. But if, I mean, R&D spend going forward, will it be more on a case-by-case basis or are we – or is there a change in the process going forward?

Kenneth J. Pucel - EVP-Operations, Engineering & Lean

Yes. So this is Ken Pucel. And we did an internal diagnostic on the root causes of the recalls. And we traced them back to the quality system elements and the design control elements, and we're putting systemic fixes in place to address those. We're also increasing our spend and our investment in safety and design capabilities in those areas. So you're going to see some systemic fixes that come across our engineering capabilities as a result of that.

Scott W. Wine - Chairman & Chief Executive Officer

One of the things that Mike alluded to is the significant increase in VIP savings, I mean obviously we had a lot of cost and we offset some of those with the great work that Ken and his team are doing. And part of the savings that we get will go to fund these investments in safety, but I want to make sure we're clear, there is no cost that we won't spend to correct these quality and safety issue. This is not about protecting our P&L. This is about getting these problems resolved and behind us as quickly as we possibly can. And Ken and the team have really done a nice job, I think, of getting their arms around this and putting a plan in place to drive much improvements going forward.

Scott L. Stember - C.L. King & Associates, Inc.

Okay. And...

Richard Edwards - Director-Investor Relations

You got one more, Scott?

Scott L. Stember - C.L. King & Associates, Inc.

Yes, Multix

Richard Edwards - Director-Investor Relations

Okay, just one more.

Scott L. Stember - C.L. King & Associates, Inc.

Can you just talk about how that's shaping up right now?

Scott W. Wine - Chairman & Chief Executive Officer

Well, we had some product issues when we first launched it. We fixed those in the second quarter and we're very pleased with the new product that's going out. We are – the sales are lagging our expectations early. Obviously, we're building out the distribution network and the – now that we've got the transmission fixed, we feel like we'll have a much better opportunity going forward. So we had a board meeting last week and I think both us and Eicher and the entire team are encouraged by the opportunity in front of us, but certainly not excited about the results year-to-date.

Richard Edwards - Director-Investor Relations

All right. Thanks, Scott. Next question?

Operator

Your next question comes from Robin Farley of UBS. Your line is open.

Robin M. Farley - UBS Securities LLC

Thanks. Yeah, just wanted to understand, looking at your full year guidance for motorcycle and the slightly lower growth rate, it seems to imply that second half sales for motorcycles will just be up in the single-digit range and that's just a step down from the levels in the first half. I wonder if you could just give us some color around that. Thanks.

Scott W. Wine - Chairman & Chief Executive Officer

Well, predominantly, what that reflects is ongoing industry weakness. We're going to outperform the industry and we're going to continue to gain market share, but...

Michael T. Speetzen - Chief Financial Officer & Executive Vice President

Yeah. Robin, I think the other aspect to keep in mind, we've got year-over-year dynamics. We were short on motorcycle deliveries up until we got into third and fourth quarter when we got the paint system back up and running at a level. So we saw some pretty significant motorcycle sales increases. I think the fourth quarter was 30% plus. So there's a little bit of the lapping. From a retail standpoint, we anticipate and continue to be strong in the second half, but our shipments will pace down a bit as (24:14) inventory up to levels that pretty much are meeting the profile expectations of each of the dealerships which started back in the fourth quarter of last year.

Robin M. Farley - UBS Securities LLC

Okay, great. Now that makes sense. Thank you. And then just as a follow-up. On off-road sales, it looks like the implication is off-road, I guess off-road and snow combined, second half would be down around 3% or so. And did you say in your initial comments, I don't know if I heard this, that you expect that to sort of roughly track what you think retail sales would do as well or did I hear that wrong?

Michael T. Speetzen - Chief Financial Officer & Executive Vice President

No, I think I used the word aggregate in there on purpose because overall the company's retail delivery is tracked with what we're doing from a dealer inventory and a retail standpoint or shipment perspective, but there are differences between the two. Off-road vehicles will probably be a little bit stronger from a retail standpoint just slightly.

Operator

Your next question comes from Jaime Katz from Morningstar. Your line is open.

Jaime Katz - Morningstar, Inc. (Research)

Hey, good morning, guys. Thanks for taking my questions. I'm curious about the gross margin, it looks like it's going to still be down around 70 basis points to 120 basis points for the year. And with the third quarter flat, it looks like the fourth quarter should have a pretty nice tickup in gross margins. So I'm curious where you guys see the most opportunities to take margin improvement in that final quarter and whether or not that has something to do with being more prepared for the ORV market conditions this year?

Scott W. Wine - Chairman & Chief Executive Officer

Jaime, there's two aspects and I'll let Mike provide the details of it. The big one obviously as we get into the fourth quarter is when we took the drastic reduction in RZR shipments into the channel to try to protect dealer inventory and that drove a massive mix change for us which wasn't helpful in the fourth quarter of last year. So, one aspect, just the comparables get much better. The other important point is I cannot overstate the work and the results that we're getting from what Ken Pucel and his team are doing with our lean and VIP efforts, I mean it is – it really is a long, long list of projects that are delivering significant savings and that builds momentum throughout the year. So, naturally, by the time you get to the fourth quarter, you should get better results from that. And then thirdly, I hope you're going to be able to make it down to Nashville next week because we believe that the plan that Matt Homan and his team have with products going into the second half is exciting and should be helpful to us both from a margin perspective and a share perspective. Mike, do you want to add any color?

Jaime Katz - Morningstar, Inc. (Research)

Okay.

Michael T. Speetzen - Chief Financial Officer & Executive Vice President

Yeah, I think I guess I would just add when you look first half to second half as well, obviously, we're assuming that the warranty costs obviously abate and that helps. And then really that second half year-over-year volume increase is up about, call it, 1% to 2% versus we were down in the first half. And it's really important to think about the mix. I mean we had very strong motorcycle mix in the first half. And although our margins are improving they're still, call it roughly 40% lower than what we have on off-road vehicles. And as we get into the second half, as Scott indicated as we lap that fourth quarter, you get a little bit more favorable mix dynamic with motorcycles being essentially down, given the fact that we charged the inventory channel last year, and then the pullback we had last year and ORV being offset with some growth in the fourth quarter of this year.

Jaime Katz - Morningstar, Inc. (Research)

Okay. And then it sounds like this throughput is starting to match better to demand, and I'm curious with Huntsville coming online this quarter, how has this changed capacity utilization rates for you guys? Is there maybe some slack in the manufacturing process now? I mean you guys were sort of bumping up against capacity constraints in the past. So does this give you a little bit more flexibility to be more nimble and meet demand a little bit better?

Michael T. Speetzen - Chief Financial Officer & Executive Vice President

Well, that's an insightful question because that's exactly what it gives us. We've been at about 107% capacity at peak during Q3 in the past and bringing on Huntsville allow some slack in the system. It allows us to focus on the value streams and drive lean and eliminate costly over time. And so that's one of the enablers that Huntsville is giving us.

Operator

Your next question comes from Gerrick Johnson from BMO Capital Markets. Your line is open.

Gerrick Luke Johnson - BMO Capital Markets (United States)

Hey, good morning. In your gross margin discussion, there is no mention of sales allowances, you were quite promotional in the quarter. So how much did additional programs impact margin in the quarter?

Michael T. Speetzen - Chief Financial Officer & Executive Vice President

Yeah. I mean promo was definitely, was definitely up. As we look at the year, the impact from proportional activities in the, call it, 20-basis point to 30-basis point range, it was a little heavier in the second quarter. But from a full year standpoint, that gives you a sense of how much we're looking at.

Gerrick Luke Johnson - BMO Capital Markets (United States)

Okay. And I just wanted to clarify what you're seeing about the impact from recall. You said all the probable and estimatable costs we're in 2Q results and guidance. So how much are you building into for the future quarters? I mean we have the $25 million in this quarter, and I guess, what, about $9 million in the first. And also if you could break those down between gross and operating? Thank you.

Michael T. Speetzen - Chief Financial Officer & Executive Vice President

Yeah. So we – I'm not going to get into a lot of details behind the cost for obvious reasons. But I think, Scott's point around saying they're probable and estimable is that we've included everything in, what we've reported so far in terms of forward guidance other than any promotional activity that were required to reserve for given the shipments we've made, now that we think we'd have to do in terms of stimulating demand. There would not be any additional cost that we would have built in in the forward guidance.

Operator

Your next question comes from Joe Spak from RBC Capital Markets. Your line is open.

Joseph Spak - RBC Capital Markets LLC

Hi, good morning. First question is with ORV retail down in the double-digits and shipments only down 6%, was that because you shipped – you had to ship more RANGER in advance of the changeover to Huntsville, and if so, does that reverse in the third quarter?

Scott W. Wine - Chairman & Chief Executive Officer

Yeah. There's a little bit of that, but you have to remember that there's international sales and PG&A sales, which were both at least from a PG&A standpoint were up in the quarter when you compare those two numbers. The 6% ORV snow is the total reported sales and the down double-digit – low double-digit retail is just North America.

Joseph Spak - RBC Capital Markets LLC

Okay. And then sticking on I guess inventory, if you look at what you guys are saying on sales, it's actually bringing you somewhere back to let's say 2013, somewhere in the 2013, 2014 timeframe. And if you look at your inventory chart on, I guess it's slide eight, right, you're still well above that and I recognize motorcycles are growing and you also just talked about some slower demand there as well. So can you just help us get comfortable with, because you did say you're fairly comfortable with dealer inventory. So can you just help us with that dynamic?

Scott W. Wine - Chairman & Chief Executive Officer

So you're asking, why is it still up over 2013 levels if we're saying it's reasonable, is that your question?

Joseph Spak - RBC Capital Markets LLC

Yeah, I mean if your sales level is closer to sort of – on the ORV side, anyway closer to 2013, 2014 levels, like why should it be so much higher especially if motorcycles are slowing?

Scott W. Wine - Chairman & Chief Executive Officer

Well, we've got obviously quite a few more dealers than we had and we've got a much larger spectrum of products. So, we obviously look at DSO internally, we don't share that externally. And I said very clearly that we were not yet at optimal levels, but we were getting there and we feel like with the second half plans, we can. The whole idea of RFM coming online is that we have lead times down, so that we can continue to migrate this down. So it's all part of our plan to have a competitive advantage with how we deliver and how we stock inventory in our channel.

Michael T. Speetzen - Chief Financial Officer & Executive Vice President

And I think, Joe, we obviously don't get into a lot of the details, but the devil's in the details relative to, if you peel that number back, we're actually down in our off-road vehicle business and up in motorcycles. When we think about it, the compare point back to the end of, say, 2015, we were woefully short from a channel perspective with our motorcycle business. And so we're making sure that getting into that peak selling season in Q1, Q2 that we're going to have the appropriate level of inventory. So we're making sure that we're down and back in the areas that are most critical and the areas that have been the biggest pain points for the dealers.

Operator

The next question comes from David MacGregor from Longbow Research. Your line is open.

David S. MacGregor - Longbow Research LLC

Yeah. Good morning.

Michael T. Speetzen - Chief Financial Officer & Executive Vice President

Good morning.

David S. MacGregor - Longbow Research LLC

I wonder if I could just get you to talk a little bit about within the ORV space and sort of just bifurcating between utility and recreational, how are you thinking about kind of competitive pressures these days and how are you prepared to respond to that?

Scott W. Wine - Chairman & Chief Executive Officer

We have prided ourselves for a long time on always having the best product in the industry. And I do believe that if you look at our off-road lineup, that fact holds true right now, but from a marketing perspective, when one of our larger competitors launches a 1,000 cc utility vehicle and our largest is a 900 cc, that's not a great competitive position to be in, even though our product is better, hands down. It's not great from an advertising and marketing perspective, especially when there's a good brand on it. And we feel, I mean I'm extremely encouraged when we asked Matt to step back into this role, with so much experience in the industry, the plan that he and the team have built for the second half from both a product standpoint and the way we communicate and market these, I'm really, really encouraged by it. I think if you get a chance to come down to Nashville next week, you'll get a very firsthand effort at both the simplicity and the directness and the performance of what we're going to introduce. It's pretty encouraging. On the RZR side, we're hands down the industry leader there and I don't think you're going to see us let off the gas at all, while we continue to drive significant improvements in quality and safely.

David S. MacGregor - Longbow Research LLC

Just as a follow-up, with respect to the motorcycle business, you've got such a strong offering in the cruiser category. You've had Roadmaster in touring, now you're rolling out Chieftain Dark Horse. From this point forward, should we expect to see a lot more in the way of new product introductions in the touring and that segment of the market, or do you focus maybe a little further down market and focus more on the light cruiser where you've had pretty good successes with, Scott?

Scott W. Wine - Chairman & Chief Executive Officer

Well, we don't talk about forward product plans. But what you've seen is that, and I really applaud what Steve and the team have done, is they've gone after the opportunities to get volume and get share and where we had product weaknesses. And I think in some of the areas where we've not been as successful at gaining market share, you'll find this year that we'll reinforce those areas and give ourselves a better chance to get more volume.

So I don't think motorcycles will disappoint anybody in the second half of what they have from a product perspective.

Operator

Your next question comes from Michael Swartz from SunTrust. Your line is open.

Michael A. Swartz - SunTrust Robinson Humphrey, Inc.

Hey, good morning, everyone.

Michael T. Speetzen - Chief Financial Officer & Executive Vice President

Good morning.

Scott W. Wine - Chairman & Chief Executive Officer

Good morning.

Michael A. Swartz - SunTrust Robinson Humphrey, Inc.

Just looking at your guidance for the full year, and in the third quarter, you gave us some details. I guess looking at the OpEx side of it, it would imply that there's a pretty big reduction in OpEx and particularly in the fourth quarter, I guess in reported dollars. Could maybe walk us through and help us understand some of the levers there, some of the buckets from where you're really getting a lot of those cost savings?

Michael T. Speetzen - Chief Financial Officer & Executive Vice President

Yeah. So the – it would appear that there is a reduction and there is. But it's really driven by the fact that we've had some one-time costs in the first half. When you calibrate for those costs, essentially we're up, call it, 2% from first half to second half when you normalize for that. And again we disclosed in the first quarter call that we obviously had some legal related costs and we've obviously – we've got some more that in the second quarter. I won't get into the details of that but that gives you some of the first half to second half dynamic. But I also think it's safe to assume that we're continuing to put pressure on any areas that aren't related to growth, from a cost standpoint, so we're going to continue to modulate given the fact that our top line has fallen four, five points short of where we're expecting at the high end of our range. And so we're going to continue to have pressure and focus there. And then you always have comp related accrual adjustments that are going to happen later in the year, and given our performance, it's safe to say that some of that's going to be the play as well.

Scott W. Wine - Chairman & Chief Executive Officer

And we don't want to overlook the tremendous efforts. When we put Dave Longren into this enterprise-wide cost effort to lead this, what we call all-out-assault on cost, they are taking a pretty aggressive look at all of our areas of spend. Some of those are – we spend a lot of money in OpEx and I think they're finding opportunities. And so, if you add that to the work that Ken's doing with VIP, I mean there is a significant opportunity for us to drive productivity, both in the second half and into the next several years.

Michael A. Swartz - SunTrust Robinson Humphrey, Inc.

And then, Scott, I think you've made the comment earlier in the call that you saw some select pockets of share erosion on specific, I guess specific product lines. I guess how much of that is related to the warranty, the recall environment versus what you're seeing from competitors, maybe you can just flesh that out for us a little bit?

Scott W. Wine - Chairman & Chief Executive Officer

I would say that most of the share loss was not related to the recall. I think it was very, very inconvenient. But I don't know that, specifically around RZR that people bought competitive products during that period of time. We got after it pretty quickly, so we could have product in the dealerships. The bigger issue was on value ATVs and the utility side of the business and I'm encouraged and comfortable with the plan that Matt has, as I've said, a couple of times.

Operator

Your next question comes from Tim Conder from Wells Fargo Securities. Your line is open.

Tim A. Conder - Wells Fargo Securities LLC

Thank you. Scott, I wanted to just circle back on the recall just, hopefully, put that thing to rest. The RZR response rate, and I think the Consumer Product Safety Commission had said on that they wanted a much higher response rate than they normally do and we're targeting close to 80%, what is that response rate that you guys have had on that?

Scott W. Wine - Chairman & Chief Executive Officer

Well, 30 to-date, we typically get about 50 in these efforts and we're tracking ahead of that right now, and we're going to be re-double our efforts with the dealer and Mike talked about the fact that we're going to target a higher rate. I mean we really are stressing to our customers that there is a potential for fire as you hear, and we want them to get these fixed. But there are some of our customers that would just rather ride and they haven't had any issues and they don't want. So we're really trying to work through that and partner with the CPSC to improve our communications and go back out to our dealers and encourage all of the people to have these products to bring it in, and we'll continue to drive this aggressively going forward.

Tim A. Conder - Wells Fargo Securities LLC

Okay. And then on the ORV, PG&A, what really drove that versus or the PG&A in general versus the softness you've seen on the ORV whole goods side?

Michael T. Speetzen - Chief Financial Officer & Executive Vice President

Well, I mean, Tim, in times like this when the industry is down, you've got folks who are riding the equipment longer, and if you look at where the growth in PG&A was, it was primarily around parts. So you got folks that are extending the life of the vehicle, so they're buying more replacement and service parts as a result of that and that's really where the growth comes from.

Operator

Your next question comes from Jimmy Baker from B. Riley & Company. Your line is open.

Jimmy Baker - B. Riley & Co. LLC

Hi, good morning, guys.

Michael T. Speetzen - Chief Financial Officer & Executive Vice President

Good morning.

Scott W. Wine - Chairman & Chief Executive Officer

Good morning.

Jimmy Baker - B. Riley & Co. LLC

When you look at what's happening in the ORV environment, a pretty significant deterioration from an industry perspective and then you mentioned the industry has also put some pressure on your motorcycle guidance. I guess if you zoom out and look over the next few years, what level of improvement in that external backdrop do you need to achieve your 2020 plan?

Scott W. Wine - Chairman & Chief Executive Officer

Well, we have not – we've looked at our 2020 plan through a series of lens, including a recession in the near-term, and obviously, we feel like we've underperformed. I mean obviously we're saying and allocating a lot of the weakness to the industry, but we've underperformed from a quality and even a product line of perspective. And I think you're going to see that we turn that around quite well going forward. And so we don't need a dramatic upturn in the industry. What we need is just not for the industry to continue to decrease. That would be patently (42:40) unhelpful.

Jimmy Baker - B. Riley & Co. LLC

Sure. And just looking at your updated guidance for this year, it looks like despite the lower earnings outlook, you increased your buyback assumptions. Are you being opportunistic here during a more challenging period or are you shifting your philosophy as it pertains to capital allocation in favor of that buyback?

Michael T. Speetzen - Chief Financial Officer & Executive Vice President

Yeah. I don't know that we've really signaled that we're increasing the buyback. We certainly have gone at it much earlier and that's really where the implied EPS benefit is coming from. We've repurchased about 1.7 million shares at this point. We indicated that we would be going after around 2.9 million shares. We have been opportunistic as I indicated in my prepared remarks, I mean these share price levels and knowing what we know about prospects of the business we do is very attractive investment and then one of the best acquisitions out there. So we're going to continue to take that philosophy going forward.

Scott W. Wine - Chairman & Chief Executive Officer

But just to be clear, there has been no shift in our corporate-wide capital allocation philosophy. We're going to invest in growth first. We're going to pay a healthy dividend. We're going to use acquisitions to help us drive strategic growth and then we're going to use buybacks. And that's been – we've been really consistent in that and – but that doesn't mean we also won't be opportunistic.

Operator

Your next question comes from Craig Kennison. Your line is open.

Craig R. Kennison - Robert W. Baird & Co., Inc. (Broker)

Good morning. You've addressed a lot of questions on the powersports side. So maybe I'd like to ask about your global adjacent market business, specifically on Taylor-Dunn, what have you learned so far, and what is the product and distribution strategy we should think about?

Michael T. Speetzen - Chief Financial Officer & Executive Vice President

We really like the Taylor-Dunn business first of all, and actually from a performance out of the gate, it's been one of our best acquisitions yet. I mean, really, really off to a good start. It's helpful also. When Bob Mack joined, he had the corporate development role, but he also took on the adjacent markets. And with a lot of experience in this space, he's very helpful as we look at the ways to manage distribution.

We're not – we kind of learned our lesson with some of our products. We can't just take everything and throw it to our powersports channel. Taylor-Dunn's got a pretty good distribution network. I think they're located in areas where they're easily accessible to big factories and they do that quite well. And from a lean perspective, the factory is not very lean itself, but they have almost a made to order model that we really like.

We do see synergies with all of our work in transportation businesses because we've got Taylor-Dunn, that sells a people mover. We have got GEM that has a people mover. We've got Goupil and Aixam Mega that have people mover. So Bob's looking at all of these products and trying to optimize, well, from a product standpoint and a distribution standpoint, how we serve customers globally with that effort. And I think you will learn more about that next week in Nashville when we do our management presentation.

Craig R. Kennison - Robert W. Baird & Co., Inc. (Broker)

And then to follow-up on Jimmy's question. You still need to acquire a fair amount of revenue to hit the 2020 plan. What does that M&A environment look like today?

Michael T. Speetzen - Chief Financial Officer & Executive Vice President

Bob gave me a hard time last call when I said we had a robust funnel, and the outlook – we're not – the way in which you implied, Craig, is that we're going to buy to get bigger, and that is absolutely not what we'll do. We will look for opportunities to put ourselves in businesses that we can help accelerate growth and profitability over time. And we do see a lot of opportunities to do that. But I – we said long-term there's $1 billion or $2 billion worth of acquisitions and we've not shied away from that at all.

Operator

Your next question comes from Mark Smith from Feltl & Company. Your line is open.

Mark E. Smith - Feltl & Co.

Hi, guys. I just want to follow-up on the global adjacent markets. Just given your guidance here in the second half, is the strength really coming from Taylor-Dunn and military, or is there anything else to call out that's really driving that growth?

Michael T. Speetzen - Chief Financial Officer & Executive Vice President

Well, obviously Taylor-Dunn on a year-over-year basis is fully incremental, so that's helpful. Military, as I mentioned, really encouraged by the engagement we're having with our military customers, specifically with DAGOR but also with MRZR, where lots of opportunities there. And what our team's done in Europe with Aixam, that's essentially a duopoly and we continue to gain notable market share and are encouraged by the growth outlook in that business. So it's fairly broad based when you look at the various opportunities we have to drive growth in. We launched a new GEM product last year and there's been good customer engagement there as well and we're looking to see if we can accelerate that as well. I mean it really is a good opportunity with our portfolio of products there to have a good opportunity for growth, really almost across the board.

Mark E. Smith - Feltl & Co.

Okay. And then just a follow-up question here and it might be a bit broad, but if we look at off-road vehicles and kind of losing some share here recently, how much of this do you really feel is due to near-term negative impact from recalls versus low prices from competitors? Or is there something else, just competitors being good, I mean what do you really put it down to that you've lost some share?

Scott W. Wine - Chairman & Chief Executive Officer

I think it's more related to our product lineup than anything else. I mean we put ourselves at a product disadvantage, and as I've said, it's more in the value ATV segment and the utility segment, that was difficult to defend it. It drove our promotion costs higher as we try to compete with not our best products. And like I said, I'm really confident in the plan that Matt and the team have put together on how we address this. It is a very competitive industry, but as you've seen really over a decade, we're not afraid to compete against really big, really good players. And we believe we've got the sales team, we've got the distribution, we've got the brand and I think we'll have the product as well.

Operator

Your next question comes from Joe Altobello from Raymond James. Your line is open.

Joseph Nicholas Altobello - Raymond James & Associates, Inc.

Hey, guys, good morning. Just staying on the ORV market share trends you guys are baking in the guidance for the back half, how quickly did you expect to go back to gaining share? Is it late this year or is it early next year?

Scott W. Wine - Chairman & Chief Executive Officer

We guided essentially flat in the second half. We said we're going to protect share and that we had a little bit of help from a share perspective in the fourth quarter when they compare, not too tough. But we believe long-term this is still a market where we can gain market share. What we can't – it's not going to be a u-turn. We'll turn it, but it's going to take us a little while and it's a broad-based effort and I've given a lot of appropriate credit to the work that Matt and his team are doing. But Tim Larson and his sales team on the front end are really driving very, very good tools to help our dealers compete and sell against the other brands. And I think you're going to see that pay dividends in the second half and going into 2017 as well.

Joseph Nicholas Altobello - Raymond James & Associates, Inc.

Okay. That's helpful. And just a follow-up on that in terms of just trying to tease out the weather impact, the recall impact in the quarter, could you provide some color on RANGER versus RZR retail sales and how trends progressed throughout the quarter as the weather got better into June?

Scott W. Wine - Chairman & Chief Executive Officer

Well, we said that retail got less bad as we went throughout the quarter, obviously, with the recall announcement in April was impactful, we didn't have products to sell in dealership and then we saw improvements as we quickly got after that.

Michael T. Speetzen - Chief Financial Officer & Executive Vice President

Yeah, Joe, I guess the way I look at it is, one, it's difficult for us to separate the two, but RZR retail was obviously down significantly more than RANGER and that was pretty much anticipated given the impact from the recall. As Scott said, April retail was really bad and things sequentially got better into May and June. And given the fact that we were in the middle of the recall at that point pretty heavily, that tells us that the weather impact early in the quarter was probably pretty heavy and with the recall pulled out, we would've probably seen pretty significant improvements in the retail trend.

Operator

Your next question comes from Tim Conder from Wells Fargo Securities. Your line is open.

Tim A. Conder - Wells Fargo Securities LLC

Yeah, thank you. I wanted to shift to the financial services, in the back of the deck you had some stats there, a little bit more penetration in approval rates, any changes that you're seeing with your retail partners in underwriting standards, any little bit looser standards, more local competition to go against Sheffield that maybe stepped in to take out maybe just a hair of that, of the Capital One share that has exited? Sheffield took the majority of it but any comment along those fronts, gentlemen?

Michael T. Speetzen - Chief Financial Officer & Executive Vice President

Yeah. So the – if you look in the appendix, Tim, you can see there our penetration rate's up, I think around 3%, 3 percentage points. And that's really being driven in connection with some of the promotional programs that we have underway from a financing standpoint. From a standards perspective, really nothing notably has shifted from what we've communicated previously. We have one retail partner that we've been working with to try and target deeper into the lower credit bands, but we're doing it in a very deliberate manner where we're really taking an in-depth look at credit profile to understand if credit scores are low because they lack the credit history as opposed to having black marks in the credit history. And I think our loss rates, which are not materially different than where they've been in the past are reflective of the fact that we're continuing to have discipline in that arena.

Tim A. Conder - Wells Fargo Securities LLC

Okay, great. Thanks, Mike.

Michael T. Speetzen - Chief Financial Officer & Executive Vice President

You bet.

Operator

Your next question comes from Drew Lipke from Stephens. Your line is open.

Drew Lipke - Stephens, Inc.

Yeah. Good morning, guys. Drew on here for Trey. Just quick question from me, can you – as we look at the GENERAL and the trends that you're seeing there, is that helping to mitigate at all the RZR sales that you're seeing and then on the RANGER recall that was announced at the end of the quarter, realized that was pretty limited. But what are your expectations for any kind of impact we could see from that recall announcement?

Michael T. Speetzen - Chief Financial Officer & Executive Vice President

We do not think that the GENERAL is offsetting RZR weakness. We tend to find more or less the utility customer coming down, but by and large, the performance of GENERAL has done exceptionally well in the first half and we're encouraged by the opportunity for continued growth in the second half. What was the second part of the question?

Richard Edwards - Director-Investor Relations

The RANGER recall? The RANGER recall question (54:34).

Michael T. Speetzen - Chief Financial Officer & Executive Vice President

Just like with RZR, I don't know that it had too much of an impact on long-term trends. But we just really have a competitive issue with RANGER that we need to get addressed. Our product lineup is not exactly right and this is like the fifth time I've said it, we're going to correct that.

Drew Lipke - Stephens, Inc.

Okay. And then just last one from me, as we kind of take a step back and look at the earnings weighting for the second half of the year, it seems to be very heavily weighted to the second half relative to the last several years for you guys, can you just kind of give us some confidence around that?

Michael T. Speetzen - Chief Financial Officer & Executive Vice President

Yeah, so I mean, we've looked at it pretty extensively. It is heavier, although it's not too far out of the range, but the thing to keep in mind is the distortion that we've had coming into, out of the fourth quarter, where we pulled earnings back pretty substantially given the shipments and then we continue to see weakness and quite frankly inventory adjustments and the recall through the first half. You have to really normalize for that.

So, when we normalize all those items and we look at first half to second half, the EPS split is literally almost completely in line with what we've seen historically, number one. Number two, don't underestimate the impact of the cost down VIP work that Ken and his team are doing. It was substantial in the second quarter and it will continue to gain momentum. Ken and the team have a very robust mechanism to track, and we know the lineup of projects that are either in the hopper and we'll wait for that to turn to inventory or the projects that were just in the cusp of closing down and making sure that they start to go into the financial statement. So those two things are really going to be the key drivers. Outside of that, the volume uplift and the normal margin rates that we would expect to get off of that is pretty much what we're counting on.

Operator

And your final question for today will come from Scott Stember from C.L. King. Your line is open.

Scott L. Stember - C.L. King & Associates, Inc.

Just a follow-up question. I think in the first quarter about $9 million of the $30 million, was related to actual recall if I'm not mistaken. Could you maybe just break out the $25 million in the second quarter, how much hit cost of goods sold versus how much hit operating expense?

Michael T. Speetzen - Chief Financial Officer & Executive Vice President

Yeah. Actually, in the first quarter, the recall costs were probably closer to $12 million. And then I would say as you get into the second quarter, you're talking about a number that's $15 million plus.

Scott L. Stember - C.L. King & Associates, Inc.

Okay. That's all I have. Thank you.

Michael T. Speetzen - Chief Financial Officer & Executive Vice President

Okay.

Richard Edwards - Director-Investor Relations

Michelle, go ahead, let's take this last question and then we'll be – we'll have to close it up, okay.

Operator

Okay. So your last question will come from Seth Woolf from Northcoast Research. Your line is open.

Seth Woolf - Northcoast Research Partners LLC

Good morning, everybody. Thanks for taking my question. Just real quick, I didn't know, did you guys quantify the impact that the oil patch had on the overall industry and if you did and I missed it, would you mind repeating it?

Michael T. Speetzen - Chief Financial Officer & Executive Vice President

No, we did not talk about it. We saw a pretty significant weakness. Typically, we get asked a lot about ag and oil. Ag was down in the quarter low single-digits, oil was down call it close to 20%, and that's where we look at the specific states. The thing I would caution about overreacting to that is, is that clearly the recall played a significant part in that impact to our shipments. And so I think it's safe to say that we don't believe any of the underlying characteristics from an oil standpoint have changed. But certainly, the recall had a pretty significant impact to the second quarter.

Seth Woolf - Northcoast Research Partners LLC

Okay. Thank you. And then just real quick on the motorcycle business, I think when you – after you saw some of the dislocations at retail from the RZR recall, you kind of – you gave the (58:41) updated 2Q guidance more or less with how (58:48). And at the time, I think you said that motorcycle growth was still strong. So I'm just curious is that – did you see a deceleration or further deterioration in the end of June that made you rethink guidance as you got – as we sit here today?

Michael T. Speetzen - Chief Financial Officer & Executive Vice President

Well, I mean, we certainly as we indicated, the industry, the motorcycle industry was notably weaker. I mean the industry itself was essentially flat in the first quarter, and it was down kind of mid single-digits in the second quarter. So we certainly were feeling the weight of that. I mean the fact that we still grew 23% and we had retails in the mid teens was consistent with what we talked about.

But it is safe to say that it was a little bit below our expectations, and that's why we pulled the full year guidance down from the high teens to the kind of mid low double-digits. And as I mentioned in my remarks though, the broad based success in motorcycles with both Octane and Scout in the midsize segment and then across the board on Victory and Indian, it's a pretty good momentum going into the second half. And we're encouraged by everything, except the industry stats for motorcycles.

Richard Edwards - Director-Investor Relations

Okay. I want to thank everyone. That's all the time we have. Thank you everyone for participating in this morning's call, and those of you who are participating in our analyst event next week, we look forward to seeing you next Monday and Tuesday. Again, thank you and good bye.

Operator

Thank you, everyone. This concludes today's conference call. You may now disconnect.

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