TAL International Group, Inc. Q4 2007 Earnings Call Transcript

Mar.17.08 | About: Triton International (TRTN)

TAL International Group, Inc. (TAL) Q4 2007 Earnings Call March 6, 2008 9:00 AM ET


Jeffrey Casucci - Vice President, Treasury and Investor Relations

Brian M. Sondey – President, Chief Executive Officer and Director

Chand Khan - Chief Financial Officer, Vice President


Greg Lewis - Credit Suisse

Jon Langenfeld - Robert W. Baird


Welcome to the TAL International Group fourth quarter and year end 2007 results conference call. (Operator Instructions) At this time, I would like to turn the conference over to Jeff Casucci, Vice President, Treasury and Investor Relations, TAL International Group.

Jeffrey Casucci

Good morning and thank you for joining us on today’s call. We are here to discuss TAL’s fourth quarter and full year 2007 results, which we reported yesterday evening. Joining me on this morning’s call from TAL are Brian Sondey, President and Chief Executive Officer; and Chand Khan, Vice President and Chief Financial Officer.

Before I turn the call over to Brian and Chand, I would like to point out that this conference call may contain forward-looking statements as that term is defined under the Private Securities Litigation Reform Act of 1995 regarding expectations for future financial performance. It is possible that the company’s future financial performance may differ from expectations due to a variety of factors.

Any forward-looking statements made on this call are based on certain assumptions and analysis made by the company in light of its experience and perception of historical trends, current condition, expected future developments, and other factors it believes are appropriate. Any such statements are not a guarantee of future performance and actual results or developments may differ materially from those projected.

Finally, the company’s views, estimates, plans, and outlook as described within this call may change subsequent to this discussion. The company is under no obligation to modify or update any or all of the statements it has made herein despite any subsequent changes the company may make in its views, estimates, plans, or outlook for the future.

These statements involve risks, uncertainties, and are only predictions and may differ materially from actual future events or results. For a discussion of such risks and uncertainties, please see “Risk Factors” in the company’s most recently filed annual report on Form 10-K filed with the Securities and Exchange Commission.

With these formalities out of the way, I would now like to turn the call over to Brian Sondey.

Brian M. Sondey

Welcome to TAL’s fourth quarter 2007 earnings conference call. Thank you all for taking time for this call. We are very pleased with our fourth quarter and full year 2007 results.

Fourth quarter adjusted pre-tax income was up 12% from the third quarter of 2007, and up 9% from the fourth quarter of 2006. Adjusted pre-tax income for the full year of 2007 was up 16% from the full year of 2006. And our pre-tax, or cash return on equity, increased about 3 percentage points to over 22% in 2007.

Our strong results in 2007 were supported by over 10% growth in well containerized trade, relatively high prices for new containers, and strong selling prices for used containers. This environment allowed us to maintain high equipment utilization and generate strong gains on the sale of our older containers.

Our core equipment utilization, excluding the impact of new factory units, was in the 94% to 95% range all year, while our used container selling prices and gains on sale of our older containers, trended upwards throughout the year.

We are also excited about the investments we made to grow our business in 2007, and we invested over $400 million in our equipment fleet last year. Our high level of investment in 2007 translated into a 15% increase in the size of our owned container fleet on a TEU basis, and nearly a 20% increase in the net book value of our revenue earning assets.

Our high level of investment and growth in 2007 was supported both by the high level of containerized trade growth as well as by TAL’s broad line of products. As we’ve discussed before, we’ve added several new product lines over the last few years, including chassis, finance leases and tanks.

We’ve been able to add these new products with relatively minor additional overhead expense since we were in these product lines before when we used to be owned by Transamerica, and since our current systems handle these products and since we are generally targeting our existing customer base with these new products.

The benefits of our investments in 2007 are best demonstrated in our fourth quarter results, since a large portion of our new dry containers went on hire during the third quarter, and since we closed our purchase of 57,000 TEU of previously managed containers in the fourth quarter.

Our fourth quarter 2007 leasing revenue and EBITDA were both up considerably from the fourth quarter of 2006, and we hope to see larger quarter-to-quarter improvements in 2008 as carryover 2007 new units continue to go on hire this year.

On these calls, I’d like to spend some time discussing our cash flow, and I think that the strength of our equity cash flow was demonstrated well in 2007. As I mentioned, we invested over $400 million in our business in 2007 and grew our revenue earning assets by nearly 20%.

In addition, we returned over $50 million to our shareholders through our dividend and share repurchase programs. We did all this while holding the ratio of our net debt to our revenue earning assets relatively constant, and well below the ratio allowed by our debt facilities.

I would also like to discuss our current financing activities. Since April of 2006, our asset securitization facilities have funded the majority of our assets. There are two components of our ABS program, term notes and a warehouse facility.

As of December 31, 2007, we had $567 million of term notes outstanding and $380 million outstanding under the warehouse facility. We initially planned to refinance the warehouse with a second term series, but the disruption in the asset-backed market makes that unlikely in the near term.

Fortunately, there is no liquidity event when the warehouse expires in April, since it automatically converts to a nine-year term loan with a small step-up in interest margin if it is not extended or refinanced.

As a result, our primary focus has been on arranging a new warehouse facility to finance our capital spending for the balance of 2008 and into 2009. We are in relatively advanced discussions in this regard and hope to wrap up a good portion of our total target amount before the current warehouse expires in April.

Because of the disruptions in the capital markets, we expect the interest margin on this new facility to be above the margin on our current warehouse facility. However, we use interest rate swaps to fix the interest rates on almost all of our debt, and fixed swap rates have decreased considerably over the last few months.

As a result, if fixed swap rates remain at their current low level, our effective fixed interest rate for new borrowings will likely be lower this year than it was for most of 2007, despite the anticipated increase in the interest margin on the new facility.

I’ll now hand the call over to Chand Khan, our CFO.

Chand Khan

Good morning and thank you for joining us, it is my pleasure to review the results of a very successful fourth quarter and full year of 2007. As we’ve said in the past, our EBITDA, pre-tax and net income was affected by unrealized losses and gains on interest rate swaps and the write-off of deferred financing costs, which we consider non-operational.

During this call, we will only review our EBITDA, adjusted pre-tax and adjusted net income, since we believe these financial measures more accurately reflects the company’s operational performance. For a full reconciliation between our reported financial results and our adjusted financial results, please see our press release.

Adjusted pre-tax income in the fourth quarter increased 9% to $24.8 million versus the prior year fourth quarter. Adjusted pre-tax income for 2007 increased 16% to $88.5 million versus 2006. Just as a reminder, we believe that our adjusted pre-tax results are the best measure of our business.

We record tax provisions of approximately 36%, but expect to pay a little or no U.S. Federal and state income tax for the foreseeable future. In addition, we have paid very little foreign income taxes. The reason for this tax deferral is the accelerated tax depreciation on our leasing equipment.

It should be noted that our adjusted pre-tax EPS on a fully diluted share basis was $0.75 for the fourth quarter and $2.65 for the full year of 2007.

Adjusted net income for the fourth quarter increased $1.3 million to $15.9 million, while EPS increased approximately 9% to $0.48 per fully diluted common share. Adjusted net income for 2007 increased $7.8 million to $56.8 million, while EPS increased 16% to $1.70 per fully diluted common share.

Over the next few minutes, I will review some of the contributing factors to our strong performance. We have discussed some of these items before.

First, we had strong utilization throughout the year. Utilization of our existing fleet, which excludes our new equipment in the factory, was 94% at the end of 2007, and was in the 94% to 95% range throughout the year.

Second, our owned fleet grew by 15%, while our total fleet grew approximately 7% on a TEU basis. Our total fleet at the end of 2007 was 1.1 million TEU. The growth in our owned fleet was a result of approximately 150,000 TEU of new equipment purchased in 2007 and on October 1, the purchase of approximately 57,000 TEU of previously managed containers.

These owned and managed containers are mostly on hire. During the fourth quarter and the full year of 2007, our leasing revenue benefited from strong utilization, the purchase of the above-mentioned managed containers, and the significant investment we’ve made in our fleet.

Third, gain on sale of our used equipment was strong in both the fourth quarter and full year of 2007, increasing $5.8 million in 2007 versus 2006. In 2007, we benefited from high selling prices and higher gains from the sale of older units. These older units typically have lower carrying value due to their age. In 2007, the average age of our units sold were 13.6 years, which is up from 2006.

Fourth, our gross equipment trading margin, which consists of equipment trading revenue and equipment trading expenses, increased for both the fourth quarter and full year of 2007. Gross trading margin increased $4.5 million in 2007 to $8.8 million due to strong demand and favorable selling prices for trading equipment.

The fifth item is our depreciation expense. The net book value of our leasing equipment increased $190 million in 2007. However, during this period, our depreciation expense decreased $2.2 million due to several factors. In November, 2006, 55,000 TEU of equipment became fully depreciated. This resulted in lower depreciation expense in 2007.

In November 2007, we experienced additional depreciation benefits when another group of containers became fully depreciated. It should be noted that as of the end of 2007, we had approximately 162,000 TEU of fully depreciated equipment, with most of these units still on lease to customers. On a TEU basis, this represents approximately 15% of our fleet that is fully depreciated.

It should also be noted that in 2007 we had lower depreciation expense as we started to depreciate our new units when the unit goes on hire as opposed to the date of acceptance from the manufacturer. This is in line with the physical utilization of the unit. Partially offsetting these decreases in depreciation was higher depreciation expense from both the purchase of new units and the previously managed containers.

Our EBITDA for the fourth quarter was $66 million and $242 million for the full year of 2007, both ahead of comparable periods. The EBITDA for 2007 was almost $15 million greater than 2006.

In the past, we have talked about accounting differences between operating leases and finance leases. In 2007, we billed $43.1 million to finance lease customers, but we only recorded $18.3 million in finance lease revenue. Our revenue earning assets which consist of leasing equipment, net investment in finance lease, and equipment held for sale, grew almost 20% from December 2006 to $1.5 billion at the end of 2007.

In 2007, we acquired over $400 million of revenue earning assets. At December 31, 2007, we had commitments to purchase $102 million in revenue earning assets. The first two months of 2007, we placed additional orders totaling $63 million. Therefore, our 2008 commitments and purchases now equal $165 million.

I will now turn you over to Brian for some additional comments.

Brian M. Sondey

I’ll now finish the prepared part of this call with some thoughts on our 2008 activities and current outlook. Overall, we finished 2007 in very good shape with strong core utilization, high disposal prices, and an inventory of new containers purchased at attractive prices relative to current market levels.

As we head into the first quarter, we typically experience our weakest period given that the first quarter typically represents the seasonal low point for dry container demand and disposals. However, we expect that the positive operating trends from the fourth quarter and especially strong disposal prices will offset some of the typical seasonal weakness, so that our dip in performance in the first quarter of 2008 should be relatively slight.

In addition, we have generated a large amount of lease commitments in the first two months of 2008. As I just mentioned, the first few months of the year are usually slow. However, in 2008, we have already received lease commitments for about $140 million of new containers. We expect most of these committed containers to be picked up during the second quarter of this year.

While it is not possible to know with certainty what drove the high level of deal activity in January and February, we believe that it was the result of our customers shifting their mix of procurement from buying to leasing due to the high current price of containers and perhaps the increased scarcity of readily available gross capital. You will need to see over the next few months whether the shift toward leasing continues.

For the full year of 2008, the macro environment currently seems positive. So, there is probably more uncertainty in the underlying market growth than there has been for several years. Clarkson Research Services continue to project containerized trade growth for 2008 in the 9% to 10% range despite the slowdown in the U.S. economy.

In general, strong growth in the Asia to Europe, intra-Asia and other trades is expected to continue to make up for slower growth in the U.S. trades. However, if the U.S. economy were to perform worse than expected or if the U.S. problems were to spread extensively to other economies, the Clarkson forecast may prove to be optimistic.

New container prices are currently very high, with the price of 20 foot dry containers in China currently over $2300 and this high-level of new container prices should provide a favorable environment for utilization, lease rates, and disposal prices if this price level holds. And finally, we have a large base of lease commitments that should underpin our utilization and growth for the first half of this year.

In summary, we are very pleased with our performance and results in 2007, and we are beginning 2008 with good operating momentum. We believe that TAL’s full year results for 2007 demonstrate an attractive mix for our shareholders of growth, profitability and current cash flow.

In 2007, we achieved double-digit growth in our assets and income. Our pre-tax or cash return on equity was over 22% for the year, and we’ve returned over $50 million to our shareholders through our dividend and share repurchase programs. For 2008, it seems like our favorable market environment should continue. And our performance metrics and deal activity are off to a good start for the year.

I would now like to open the discussion for any questions.

Question-and-Answer Session


(Operator Instructions) The first question is from Greg Lewis - Credit Suisse.

Greg Lewis - Credit Suisse

My first question is regarding the 57,000 TEU acquired on October 1. I guess that leaves your fleet with about roughly 5% of the total fleet being managed. Is this a business that for managing containers that TAL is thinking about potentially exiting?

Brian M. Sondey

I wouldn’t say it’s so much as an exit. I mean for us we don’t really think of the owned container portion of our fleet as being a significantly different business than the managed portion.

For us, I think, we really just like the container investments that we’re making, and given that we’ve been able to, in general, finance our container investments at fairly attractive rates, and given that we think we’re originating good transactions with good lease terms, in general our preference has been to keep the containers for ourselves.

That said, I think we’ll continue to look at the managed markets, the KG market for funds as a sort of second leg to our financing stool, and perhaps we’ve actually kind of thought of, should we dabble in that market a little bit more just to maintain our current presence and remain familiar with the current market terms and conditions in that market. But in general, we haven’t done a lot of managed deals recently mainly just because we like our investments.

Greg Lewis - Credit Suisse

But, so clearly, you prefer to own as opposed to manage.

Brian M. Sondey

In general, yes.

Greg Lewis - Credit Suisse

You mentioned that it was a pretty active January and February for container activity. Has that translated into increasing per diem rates?

Brian M. Sondey

Well, we’ve definitely seen per diem rates go up from the fourth quarter of 2007 to the first quarter 2008, and I think for two reasons. One is just the price of containers has been up fairly significantly, probably in the range of 20% or more over the last few months. And that translates fairly directly into higher lease rates.

In addition, just the inventory of available leased units or leasing units, has shrunk fairly considerably over the last probably five, four months or three months as the shipping lines have looked to sort of do forward commitments for leasing deals and that obviously has a positive supply and demand benefit for us.

Greg Lewis - Credit Suisse

On the financing, how much existing debt capacity do you have through all your debt facilities?

Brian M. Sondey

What we really sort of look at is the remaining capacity in our revolving facilities relative to our capital spending commitments. And I think as I mentioned, the current warehouse facility expires in the middle of April, and that’s just about the time that that facility also will be relatively maxed out with our capital spending.

I think it was Chand mentioned, between previous commitments and new commitments we’ve made, already reaches about $160 million for the year. And so, really, we do need to put our new facility in place to fund further capital spending beyond that amount and as I mentioned we’re in the process of doing that right now.


The next question is from Jon Langenfeld - Robert W. Baird.

Jon Langenfeld - Robert W. Baird

Have you noticed any issues, availability of capital or heard of any relative to some of the smaller players out there?

Brian M. Sondey

I haven’t had too many discussions, actually, with those players about their capital concerns, but our perception is that the current capital market environment actually might work to our favor to some extent, really for two reasons. I think the first, as you mentioned, is that while our access to capital has gotten more expensive, at least on a margin spread basis, our expectation is that capital is still readily available to us at a price.

Our feeling is, and some of the information we’re hearing in the market is that for more marginal players, capital may just really not be available, and that certainly will, if that’s true, limit their impact in the market. And I think as we talked a few times last year, that the impact of some of these smaller players and the access to capital they had, it was one of the things that was taking pricing down in the second half, really kind of throughout the peak season of 2007.

I think the other benefit, we’ve seen a little bit already this year in the deals that we’ve done, is just for our customers as well I think capital has become a little bit harder to find. And while I certainly think that the major shipping lines, given their size and importance and relationships will be able to raise capital, they are also enormous consumers of capital between their ship expansion programs and their terminal expansion programs.

And so, I think to some extent, we’ve always felt that for our shipping line customers that their vessels and the terminal facilities are really their strategic assets, where containers for them are sort of more of a cost of doing business. And we believe we’re seeing, although, again it’s sort of still early in the year to make too strong a call on this, but we do believe we are seeing a shift in the way our shipping line customers are thinking of their spending, sort of preserving their capital for their ships and terminals and perhaps using leasing more heavily for the container investments.

Jon Langenfeld - Robert W. Baird

Anything on the KG funds, I know you aren’t as heavily involved there but, has the credit market out there influenced that demand one way or another?

Brian M. Sondey

Well, certainly I think like everyone they are subject to higher borrowing costs and perhaps less leverage that they’ll get against the portfolios that they purchase, and so, that will have the effect I think ,of constraining the available KG Capital little bit.

I think the other thing that’s going to be interesting to watch is just we’ve seen in the past when container prices are very high the KG Funds tend to pull back from the market a little bit. And perhaps even increase their return requirements because of the risk of the residual amount may be less reliable relative to the cost of the equipment, especially as they deal with smaller leasing companies that don’t have the remarketing experience and track record and capabilities that we do.

And so, the combination we hope at least of the tighter credit markets and the higher container prices, and perhaps, again the challenges for the KG market, may all work together to constrain the participation of some of these smaller newer guys this year.

Jon Langenfeld - Robert W. Baird

And then in terms of the timing of some of this activity you’ve talked about here in January and February, so that we understand it, the orders are booked but not delivered or you’ve started to deliver them or where are you in that process?

Brian M. Sondey

Sort of unusually for us, we’ve booked the units and committed them well before the pick-ups. Typically I think my perception is we are generally used by the major shipping lines to help them manage uncertainty. And a lot of our containers that we get picked up really are booked and then picked up on short notice, when the shipping lines find themselves suddenly short of particular container types in particular locations.

The interesting thing about the January and February deal volume was that in general it’s for future pick-ups really in kind of the April, even into May period, where the shipping lines, again, were using it as a way to avoid buying containers, and again we need to see if that continues or not. But it wasn’t really as if they are booking them for immediate volume requirements. It was a way to preplanning for the year.

Jon Langenfeld - Robert W. Baird

And then you talked a little bit about this Brian, but just in terms of the lease rates relative to the asset price, we saw that slide again in the fourth quarter for the industry. It’s been on a downward tick here probably over the last decade or so.

What are the dynamics that are going to make that bottom out? Talking about the capital side, that’s certainly going to help, but are there other things that you see on the near-term horizon that make the incremental cash return on the investment rebound or at least stabilize?

Brian M. Sondey

Yes, it’s interesting. We definitely have seen the cash returns on new investments drop consistently. I’d say probably it’s been for more like three decades than even a decade. But I think the thing to note is our returns actually haven’t decreased over that time.

We mentioned that we continue to generate cash ROEs into the 20% and that’s actually about the place we’ve been in this company since probably the 80’s. And so, part of the reason that the revenue relative to the asset values has dropped is just that the costs have come down a lot as well. And this talks over the longer timeframe, Jon.

Where interest rates on an absolute level are way down compared to where they were ten years ago until very recently, with the securitization market, interest spreads were very, very low compared to where they were historically for leasing companies. The use of technology has greatly reduced our overhead expense.

For example, within TAL we probably have less than half the employees we had 15 years ago. And then recently we’ve also seen a shift in the type of leases that we’re doing. We’ve seen the shift toward long-term leases, which obviously cuts the ratio of lease revenue to our assets as well as the long-term leases that we’re writing are getting longer. We’re doing a lot more seven and eight year leases than we were doing in the past, and they are also getting much logistically tight.

Virtually all of the leases, I’ve said, that we’ve done in the past two years have required almost all of the containers to come back to Asia. And really we’re just sort of trading the customer less logistical benefits for them and less expense for us in return for lower lease rates. And I think a lot of it especially in the last two years, that trade-off has been driven by our customers’ desire to lower their costs wherever they can given that the challenge that they face on their fuel costs.

I think recently, especially in the latter part of ‘07, we were also experiencing a drop in rates just due to very aggressive competition. And so while all those things I described before didn’t really cut into our returns, probably the very aggressive pricing over the second half or second, third and fourth quarters of ‘07 did cut into our returns we think.

We do hope that the less impact of some of these smaller players, kind of a resetting of the lease rate expectations due to the higher cost of containers and just a better supply and demand balance of available leased containers all will help us over the next couple of months get our returns where we want them to be.

Jon Langenfeld - Robert W. Baird

Have you seen in the contracting thus far this year, I know the rates have moved around and the asset prices have moved around, but just in terms of the pressure, is it consistent, is it less better than what it was.

Brian M. Sondey

I tell you it’s certainly better. The deals that we did in January and February, I can’t say we are wildly aggressive with our customers, we were happy with the deals.

Jon Langenfeld - Robert W. Baird

And then what should we think about in terms of depreciation for 2008?

Brian M. Sondey

I think our depreciation in the fourth quarter kind of reflects our starting point, where we ought to begin the year. And then obviously, as we add new containers on lease over the course of the year, as we did in ‘07, the depreciation expense will trend up, up until the fourth quarter, where again another large vintage year of containers will become fully depreciated and will drop the depreciation in the fourth quarter because of that.

And so, I think just in terms of sort of a trend line, it ought to be relatively similar although at a new starting point from where we were in 2007.

Jon Langenfeld - Robert W. Baird

But does it drop in the first quarter like it has I think the last couple years because the vintage year didn’t hit till November, so you actually have a step-down into the first quarter?

Brian M. Sondey

Typically that does happen, but two things are going to offset that this year. The first is that we bought the 57,000 TEU of containers in the fourth quarter and I think we only have two months of depreciation on that in the fourth quarter. In addition, I think Chand mentioned that we modified our depreciation policy for new container purchases in 2007 where we started depreciating the containers at the early of the time it goes on hire to customers or at the end of the year.

And so we do have, if you look at the K we are going to send out in a couple of days here, about 3% of our units we bought in 2007 were still up higher as of the end of the year. And so those containers are going to start depreciating as of January 1.And so, taking all that into the mix, we don’t want to give too specific a forecast, but my guess is the fourth is a pretty good proxy for the first quarter.

Jon Langenfeld - Robert W. Baird

Same sort of a question in terms of gains on sale not related to the equipment trading, but just related to your book of business, what’s your outlook there?

Brian M. Sondey

We’ve continued to see sort of general positive trends on the resale of the containers and I think there is a lot of things that are driving it. There’s been, I think on earlier calls we had questions about what was going to be the impact of the slower construction market on the resale market in the U.S.

And in fact, we actually see prices on the rise in the U.S., not because construction is strong, obviously it’s not, but due to the weak dollar and greater demand for exports. We see a lot of freight forwarders buying containers to move goods out of the U.S. interior to other places. In addition, just the very high utilization of leasing of any fleets together with the high cost of containers has constricted the supply of containers into the aftermarket relative to demand. And so that’s been driving price upwards as well.

And so I think I mentioned in my notes that in 2007 we saw our prices rise steadily throughout the year, and we don’t see anything, at least that we see yet that’s going to start knocking them down.

Jon Langenfeld - Robert W. Baird

The $12 million of gains in ‘07, there is nothing abnormal we should think about that relative to what you are seeing today.

Brian M. Sondey

No, again 2007 was a very good year, and I can’t promise it’s going to be that way forever, but we see a continued very attractive environment for disposals.

Jon Langenfeld - Robert W. Baird

The reason for the uptick on the balance sheet of equipment held for sale, does that essentially mean that you have more units to sell here the beginning of the year?

Brian M. Sondey

Well, it really relates to purchase of third-party containers. That line item on the balance sheet includes both TAL units that are in the process of being disposed plus our trading inventory that we buy for our third-party business. And we’ve done a couple of relatively big deals on a third-party basis at the end of the year.

Jon Langenfeld - Robert W. Baird

You’ve bought them, but you haven’t sold them yet, so that would be something.

Brian M. Sondey

Exactly, typically there’s a sale cycle of 90 days or something like that.

Jon Langenfeld - Robert W. Baird

It must have been bigger than usual because I haven’t seen a number that high.

Brian M. Sondey

Yeah, it goes up and down quite frankly. So it doesn’t represent a slowing velocity of sales.

Jon Langenfeld - Robert W. Baird

Can you just give the average utilization both all in and then ex units that haven’t been deployed?

Brian M. Sondey

We’ve got a couple of tables in the K when it comes out, but the average utilization for the third quarter of ‘07 including everything was just under 92%. It was 91.9% for the fourth quarter. And we don’t actually calculate the average excluding the units, but the beginning in September 30 was 95.5% and December 31 was 94.4%, so right around 95% average.


There are no more questions at this time. At this time, I would like to turn the conference over to Brian Sondey, President and CEO, for closing comments.

Brian M. Sondey

I’d just like to thank everybody for your time on this call and for your continued support of TAL and we look forward to talking to you in the future. Thanks very much.

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