Copart, Inc. (NASDAQ:CPRT) Q1 2023 Earnings Call Transcript

Copart, Inc. (NASDAQ:CPRT) Q1 2023 Earnings Call Transcript November 17, 2022

Copart, Inc. misses on earnings expectations. Reported EPS is $0.51 EPS, expectations were $0.56.

Operator: Good day everyone, and welcome to the Copart Incorporated First Quarter Fiscal 2023 Earnings Call. Just a reminder, today’s conference is being recorded. For opening remarks, I would like to turn the call over to Gavin Renfrew, Vice President of Global Accounting of Copart Incorporated. Please go ahead, sir.

Gavin Renfrew: Thank you, and good morning. During today’s call, we’ll discuss certain non-GAAP measures, including adjustments to income tax benefits related to stock-based compensation. We provided a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures on our Investor Relations website and in our press release issued yesterday. We believe these non-GAAP measures, together with the corresponding GAAP measures, are relevant in analyzing our results and assessing our business trends and performance. In addition, our comments today include forward-looking statements within the meaning of federal securities laws, including management’s current views with respect to trends, opportunities and uncertainties in our markets.

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These forward-looking statements involve substantial risks and uncertainties. For more detail on the risks associated with our business, we refer you to the section titled Risk Factors in our annual report on Form 10-K for the year ended July 31, 2022, and each of our subsequent quarterly reports on Form 10-Q. Any forward-looking statements are made as of today, and we have no obligation to update or revise any forward-looking statements. With that, I’ll turn the call over to our co-CEO, Jeff Liaw.

Jeff Liaw: Thank you, Gavin. Good morning and welcome everybody to our first quarter call. We’re pleased to report strong results for the first quarter of fiscal 2023 in the context of a complex global economic backdrop and a significant weather event will describe in more detail today. Many of the unusual conditions that we’ve described on our previous calls persist today, though with some apparent stabilization, including new vehicle shipments shortages, high used car prices in a broadly inflationary environment. Gavin and I will provide our customary data points throughout our call on these themes and others, but I wanted to start by highlighting our recently published inaugural ESG report. If you haven’t read it already, I’d encourage you to do so.

In that report, we address the topic of sustainability across a number of different dimensions, environmental sustainability, global economic empowerment, enterprise sustainability, and community sustainability and recovery. Events of the past few weeks have in particular underscored our commitment to the fourth of these pillars. But I’ll take a moment to briefly summarize the first three. On the first of these subjects, environmental sustainability. Copart is a keystone enabler of the circular economy. Our business enables the reuse and recycling of vehicles, their components and materials substantially reducing what would otherwise be the carbon footprint of the transportation sector. In fact, upon tabulating our Scope 1 and Scope 2 emissions, as well as the carbon emissions that are averted by our marketplace, we estimate that we save a hundred times as much in carbon dioxide equivalents as we emit in our business.

On the second aspect of sustainability, global economic empowerment. Our business is instrumental in improving access to mobility for residents of developing economies. In fiscal 2022 alone, we sold vehicles to members in 160 countries with approximately one quarter of our volume purchased by members in emerging economies as defined by the United Nations. While those of us on this phone call today, like we take physical mobility for granted, it is undoubtedly a critical enabler for access to education, healthcare, economic advancement, and leisure worldwide. And we’re proud to play an important role in increasing its availability for people around the world. On the subject of enterprise sustainability, we make strategic decisions with a 20-year horizon.

As a result, we own the vast majority of our real estate, ensuring its availability for our business and our customers for generations. We maintain a strong balance sheet to ensure that we have the flexibility to invest in our business and our customers’ success regardless of economic conditions at the time. And finally, we are committed to our role in ensuring the sustainability and health of the communities we serve, most notably in our rapid response to major weather events. In late September of this year, Hurricane Ian made landfall in Florida. On a unit volume basis, Ian will be the single largest storm event in Copart’s 40-year history. This category for storm included heavy rainfall and winds in excess of 150 miles per hour and cut a path through the heart of the state.

Ian proved to be a storm of historic proportions. The robustness of our response was the fruit of seeds we’ve been planting for years. As you’ve heard us articulate at length on prior calls in anticipation of increasing storm frequency and severity, we’ve made proactive investments in land, technology, heavy equipment, trucks, drivers, and personnel in the form of our dedicated cat response team. In this instance, of course, our investments paid off perhaps in economic efficiency, yes, but most importantly, in substantially enhancing the service we can provide our clients and their customers in their most acute times of need. We deployed more than 800 Copart employees from around the country to the affected areas, many while the hurricane still lingered over the state.

In just the first 10 days of the event, we retrieved over 15,000 units and unprecedented efforts enabled both by our third-party subhauler network, as well as our company owned tow trucks, transporters, loaders, and Copart employed drivers. From the first day of this event, we leveraged nearly 350 acres of Copart owned dedicated cat only storage capacity within the affected region, allowing us to quickly receive an inventory, nearly 70,000 units through the end of the quarter. In turn, expediting the settlement process for policyholders who are eager for economic relief. To put our catastrophic storage capacity in context, the 1,500 acres of land that we own for the purpose of catastrophic storage alone represents as much land as another major provider of insurance auction services owns in total.

As we’ve noted following major storms in the past, we view our pre-storm preparations and our robust response as investments in the strong and durable partnerships we enjoy with our insurance sellers. We tend to experience operating losses in major weather events. Hurricane Ian in the first quarter is no exception with $25 million in extra cost incurred by our business, offset by $9 million of revenue in the period. Our elevated cat related expenses include premiums paid for towing and transport, logistics, travel and lodging, and increased overtime and labor expenses for our team. As such, in the quarter, the impact of Hurricane Ian was approximately 200 to 250 basis points of gross and operating margin rate compression. Finally, in November we completed a two for one stock split, our six such split since 1999.

We view this split as an opportunity to improve the liquidity of our stock, making it more accessible to our employees and retail investors. And with that, I’ll turn it over to our VP of Global Accounting, Gavin Renfrew, to walk through some key operating and industry statistics and our fourth quarter financial results.

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Gavin Renfrew: Thank you, Jeff and good morning. I will start with the key statistics that we provide each quarter. Global unit sales increased 1.9% year-on-year for the quarter with US increase of 1.3% and international increase of 5.5%. Excluding catastrophic events from both periods last year and this year for the first quarter, US unit sales grew by 1.9%. Insurance business grew relative to one and two-year comparison due to share gains and the continued recovery and driving activity and accident frequency and severity. Notably, record high used vehicle prices have for the past several quarters negatively impacted total loss frequency and have tempered overall insurance volume growth. For the first time in nearly two years, we’ve observed a small sequential increase in total loss frequency of 20 basis points, while auction returns remain near all time highs and the ASPs continue to outpace the strong used car price environments on a percentage basis.

Elevated used vehicle values and therefore, insurance ACVs continue to reduce total loss volume relative to what it would otherwise be. Though up slightly sequentially, total loss frequency for the third calendar quarter in 2022 was down year-on-year, falling by 220 basis points versus the same period in 2021. If vehicles were totaled at the same rate as in prior years, we would’ve observed industry total loss volumes 10% to 15% higher. While total loss frequency has declined over the course of the last two years, we still believe this to be a relatively short-term scenario. We appear to be observing some stabilization in total loss frequency based on the past two sequential quarters. Regardless, it is our view that the market will inevitably revert to its 40-year historical norm of steadily rising total loss frequency.

Accident severity, repair complexity, and duration repair labor costs and rental car costs will contribute to said reversion boys by Copart’s best-in-class auction liquidity and global buyer base as we continue with significant resource investment into member recruitment, registration, retention, et cetera. While supply chain bottlenecks persist today, we do anticipate that the eventual unwinding of these conditions will lead to a moderation of used vehicle values, ultimately trending back to lower levels in the future. We appear to be experiencing a moderation of these forces now with Manheim’s used vehicle index now at its lowest points since August, 2021. A decline in wholesale auction values may cause reduction in our ASPs, but would almost certainly coincide with offsetting volume increases as well.

We anticipate that lower ACBs and increased vehicle availability will inevitably reverse the observed short-term total loss frequency and volume trend previously noted. While overall, US non-insurance unit volume is relatively flat up approximately 0.2% in the quarter, excluding lower value cards from sources such as wholesalers and charities, we believe we are substantially outperforming other wholesale auction channels, both physical and digital. Next onto our financial results. For the first quarter, global revenue increased $83.2 million or 10.3%, including a $23.6 million headwind due to currency. Global service revenue increased $59 million or 8.8% for the first quarter, primarily due to higher average selling prices and increased volume.

US service revenue grew 10.3% for the quarter, and international experience decrease of 2.4%. We saw continued strength in ASPs, which grew 5% year-over-year for the quarter with US ASPs up 6.4%. The Manheim indexes declined from the January record levels, but remains historically elevated ending October at 200, a decrease of 10.6% year-over-year. Purchased vehicles continued to comprise an increasing percentage of our overall revenue mix, driven by both strong used car values and growth and volume, particularly in our cash for cars business in the US and from international expansion. Purchased vehicle sales for the first quarter increased $24.2 million or 17%, with US purchased vehicle revenue for the quarter up 10.8% and international up by 27% for the quarter.

Purchased vehicle cost of sales grew $24.7 million or 19.5% in the first quarter. As a result, purchased vehicle gross profits decreased slightly by $0.5 million or 3.1% during the quarter. Global gross profits in the first quarter decreased by $15.5 million or 4%, and our gross margin percentage decreased by approximately 600 basis points to 41.4%. US margins decreased from 50.3% to 44.1% and international margins decreased from 33.1% to 27.2%. The year-over-year margin decline was primarily attributable to two factors. 200 to 250 basis points of the quarter decline was due to elevated Hurricane Ian costs being directly expensed in the quarter. The balance of our margin contraction is attributable to a mixed shift to purchase vehicles. A modest reduction in purchase vehicle margins and cost inflation in both towing and labor offset partially by higher revenue per unit and volume growth.

However, we believe we can continue to increase margin and returns on capital over time as we benefit from scale and find further operational efficiencies through technology and innovation. I will now move to a discussion of G&A expenditures, excluding stock compensation and depreciation expenses. G&A spend in the quarter increased $3.4 million or 8.3%. While G&A can be volatile from period to period over the longer term, we anticipate G&A to decline as a percentage of revenue as we grow our business and create additional leverage. Our GAAP operating income decreased by 5.6% from $330.1 million to $311.5 million for the first quarter, including a $4.1 million headwind due to currency. Excluding catastrophic events from both periods, operating income decreased by 3.3%.

First quarter income tax expense was $67.3 million, it takes 21.5% effective tax rate. Adjusting for the tax benefits associated with the exercise of employee stock options on a non-GAAP basis, our effective tax rate would’ve been 21.7%. First quarter GAAP net income decreased 5.6% from $260.4 million last year to $245.8 million this year. Adjusted to remove the items detailed in our pro forma reconciliation included in our press release, non-GAAP net income decreased 4.7% from $257.4 million last year to $245.2 million in the first quarter of FY 2023. Our global inventory at the end of October decreased 3.6% from last year and was flat when excluding low value units like wholesalers and charities. That is comprised of a year-over-year decrease of 6.3% for US inventory, down 2.6% when excluding low value units and an increase of 17.1% for international inventory.

For the first time in recent history, the number of total losses as a percentage of overall accidents has been declining. As a result, our inventory levels are lower than they were a year ago, despite incremental inventory attributable to unsold vehicles picked up during the quarter from Hurricane Ian. Now to briefly update our liquidity and cash flow highlights. As of October 31st, 2022, we had $2.8 billion of liquidity comprised of $1.5 billion in cash and cash equivalents and an undrawn revolving credit facility with capacity of over $1.2 billion. Operating cash flow for the quarter, decreased by $1 million year-over-year to $311.6 million driven by lower earnings due to the additional expenses incurred in the quarter from Hurricane Ian.

We invested $152.7 million in capital expenditures in the quarter with over 80% of this amount attributable to capacity expansion as we are continuing to prioritize investments in physical infrastructure. Despite unusual near-term forces that have suppressed unit sales relative to where they would’ve been, we continue to invest in capacity with the conviction that we and our customers will need it. That concludes our prepared remarks, and we are happy to take some questions.

Q&A Session

Operator: Thank you. At this time, we’ll be conducting a question-and-answer session. Thank you. Our first question will be coming from the line of Bob Labick with CJS Securities. Please proceed with your questions.

Bob Labick: Good morning and congratulations on strong operating performance.

Jeff Liaw: Thanks Bob. Good morning.

Bob Labick: I wanted to start — two quick questions related to the hurricane and thanks for all the around it as well. Just we’re just trying to get a sense of the sequential costs, maybe unit costs excluding the hurricane impact in the quarter. How are you seeing changes in towing, fuel, labor, et cetera? It’s, obviously, been elevated and rising. Has it begun to flatten out? Is it declining? Is it still rising? Just trying to get a sense of the trends of the cost to process a unit given the noise of the hurricane.

Jeff Liaw: Yeah. And so, excluding the hurricane, Bob, I think in broad terms, certainly costs are elevated relative to a year ago. I think your question specifically on sequential trends, I think we’re seeing stabilization in many cases. Of course, gasoline is an easily trackable proxy for some of those underlying costs. Diesel prices remain elevated, certainly relative to a conventional gasoline. But broadly speaking, we’ve seen stabilization in those underlying variables.

Bob Labick: Okay. Great. And then you gave us some stats here too, and we know you’ve spent — I don’t know, I’ll estimate hundreds of millions of dollars on incremental land in the last even few years, and a lot of that for cats. And given the greater severity of hurricane forecast and whatnot, how do you feel about your current capacity? Are there expectations to continue to add more land, or where do you stand in that regard?

Jeff Liaw: Yes. So, we are — we expect to continue investing in land very substantially, both for day to day operations as well as for catastrophic readiness. You’ve seen that quote elevated investment profile since the spring of 2016. And we continue to aggressively pursue land to support — to support our core business as well as to address the spikes that, of course, occur in the context of catastrophic events.

Bob Labick: Okay. Great. One more for me, I’ll jump back in queue.

Jeff Liaw: Yeah.

Bob Labick: Just switching over to Germany. Could you just give us an update on volumes, quantitatively are they growing? When did they become meaningful? And then, also related to Germany, is that site integrated into the kind of US website? Meaning can international buyers that buy on the US site also seamlessly bid on cars in Germany and can alerts on cars they may like? Or is that potentially a future opportunity?

Jeff Liaw: Got it. Fair question and I’ll take a step back and generalize more broadly in Western Europe period. So, , Germany and Spain together, and I’ll leave Finland aside, but Finland has an insurance and total loss model that looks a lot more like the US and Canada and the UK. So a gross settlement model. In Spain and in Germany, we continue to grow our volume with insurance sellers very significantly on a year-over-year basis, and certainly a multi-year basis as well. So, the progress is strong. We have traction with a number of different insurance carriers. As we’ve noted on prior calls, the ultimate objective is to secure nationwide agreements and to default to a gross settlement model across all policyholders in those markets.

We continue to advance the ball in that regard. On your question of member crossover and such, we do have crossover marketing efforts. It is perhaps some day an opportunity to consolidate the entire auction platform into one today. The German auctions and even, frankly, yard by yard auctions in the US are still distinct online events. The member bases have overlapped. In some cases, meaningful overlap. There are separate registration and participation channels.

Bob Labick: Okay. Got it. Thank you very much.

Jeff Liaw: Thanks Bob.

Operator: Our next question comes from the line of Craig Kennison with Baird. Please proceed with your question.

Craig Kennison: Hey, good morning and thank you for taking my questions as well. I wanted to follow up on Hurricane Ian. I believe you mentioned 70,000 assignments through the end of October. Do you think that will be the total, or could there be more on the way?

Jeff Liaw: More, but modestly so.

Craig Kennison: Got it. And then I know in the past, sometimes you take losses overall on catastrophes when they’re particularly expensive, like something like this. Is that the expectation this time around? Or could you see kind of revenue offset costs in the coming quarters such that this would be closer to breakeven?

Jeff Liaw: A fair question, Craig. I think, in the aggregate, so if you were to take a truly bird’s eye view of the catastrophic events, certainly taking into account the many millions, likely hundreds of millions of capital we’ve deployed to build the catastrophic facilities to buy the equipment, the trucks, the transporters, the loaders and to train and employ the people, and the technology, specifically for cat that we’ve also developed as well. In the aggregate, by the time you consider those costs, the catastrophic events are surely not a profitable endeavor for us, but a necessary one. We don’t root for catastrophic weather events, but we do believe that they draw the contrast still greater between us and others in the industry in terms of our capabilities in those times of stress. So, in the aggregates, no, they are not profitable events for us.

Craig Kennison: Thank you. And then trying — we are trying to understand the impact of ASPs as they are correlated with the Manheim Index and used car values. Is there any data you can share with us with respect to ASPs maybe in the month of November, just to get a feel for what the year-over-year declines might look like as it relates to your model?

Jeff Liaw: You’ll find we don’t, as you know, comment intra-quarter about the current quarter. But I would say that through the end of the first quarter, ASPs were still up in somewhat meaningfully year-over-year. 5% of the number, if I have the number correct off the top of my head here. So, ASPs were rising year-over-year. Manheim certainly down over that same period, so we are correlated. There are some leads and lags and so you’ll never see a perfect regression there between us and other such third-party variables. But the market, broadly speaking, I think we still observe vehicle shortages. If you wanted to go buy a new car today, you might not have your pick or if you did, it might not come for two or three or four months down the road.

Craig Kennison: Thanks. And lastly, I wanted to ask about Europe and your appetite for land there. We’ve certainly got a strong US dollar today and you have an urgent need to land over the course of decades, I suppose. Would you be inclined to be more aggressive in Europe to acquire that land now that you’ve got momentum in business and you’ve got maybe an advantage on currency?

Jeff Liaw: Not more so, meaning we have an appetite for meaningful land investments to support our major incumbent businesses in Europe as well as our growing businesses in Europe. The currency is, in near-term — it’s a nudge in that direction, but it’s not a meaningful influence. We’re buying this land for 10, 20 and 50-year use. So, variations of 5%, 10%, 20%, 30% even, don’t necessarily affect that calculus.

Craig Kennison: Got it. Thank you.

Jeff Liaw: Thanks Craig.

Operator: Our next question is from the line of Bret Jordan with Jefferies. Please proceed with your question.

Unidentified Analyst: This is Patrick on for Bret Jordan and thanks for taking our questions. If you could talk a little bit more about recent volume trends. Are there any signs of volumes picking up as volumes drop or any signs of recent market share gains?

Jeff Liaw: On the volume question, and there are many different ways to slice this question into its component parts with our insurance sellers. As Gavin noted, in some meaningful detail, we are observing a literally once in a lifetime suppression of total loss frequency, which we believe will eventually abate and reverse very meaningfully. That, I think we would say, has stabilized. Driving activity has picked up. Depending on the country you’re talking about, it’s picked up a lot in Europe where the driving was more suppressed a year ago than it has been in the US. So driving frequency, times, accident frequency times, total loss frequency is plus or minus the volume equation plus the market share question that you posted a moment ago.

So, in the aggregate, I think we’re seeing stabilization on total loss frequency but still a year-over-year decline, and we’re seeing an increase in driving frequency and accident certainly are picking up as well. On the question of market share, we aren’t in a position. In general, we don’t comment on individual accounts. If you look at long-term arc of history, I’d say we generally speaking have earned more market share over the years both in insurance and outside of insurance. So, in our non-insurance businesses in which we serve automotive dealers, rental car fleets, financial institutions, among others, we believe we continue to gain share relative to other providers in that space.

Unidentified Analyst: Got it. Thank you. And then how do you guys see the competitive landscape changing with the RBA deal with IIA? Are there any synergies that you guys see?

Jeff Liaw: I’d say — I’ll generalize a half step here. We take our competition very seriously, and we view our competitors set expansively. So, in earning the right to sell vehicles on behalf of our clients, we compete against every other path those vehicles can take. So, whether it’s hand selling, retailing, repairs and certainly consignment through other wholesale auction platforms, so we are constantly investing and innovating to deliver the highest possible returns so that we win more of those head-to-head comparison against the alternatives and to eclipse the rising standards we set for ourselves as well. But to address your question specifically about another provider of auction services in the insurance space, we don’t think a change in corporate ownership particularly affects how each of us competes in the marketplace.

So, whether they are controlled by private equity or an activist hedge fund or one corporate holding company or another, we think our stability as a founder led independent company represents a durable and distinctive competitive advantage. In practice, we manage our business with a long-term investment horizon, which in turn creates the accumulating advantage of owning our own land, our technology platform, building a global buyer base in our team.

Unidentified Analyst: Got it. That’s helpful.

Jeff Liaw: Specifically, of course, those questions are better posed to the buyer and seller of that specific transaction.

Unidentified Analyst: Fair enough. Thanks guys.

Operator: The next question is from with JPMorgan. Please proceed with your question.

Unidentified Analyst: Hi, guys. on for Ryan Brinkman. I just had a question on how you guys are looking at margin compression given declining used vehicle values commodities. And is there anything you can do with — by — like adjustment retention rate, change that affect that?

Jeff Liaw: What rate?

Unidentified Analyst: Your retention rate or anything you guys can do to like offset margin compression?

Jeff Liaw: Do you mind just rephrasing that? I’m not sure I understand your question.

Unidentified Analyst: Yeah. So, given that used values — used vehicle values are normalizing lower along with commodities like, is there anything you guys can do on your side by adjusting your retention rate to offset that? Or how are you guys looking at that going forward?

Jeff Liaw: Retention rate? Got it. So, with — as used vehicle prices soften, we will see — we will eventually see perhaps a softening in the selling prices of our cars, which is a self margin dilutive. We will, at the same time, see an increase in volume because a big part of the suppression of total loss volume today is those high used vehicle prices. So, when we see that additional volume flow through the system, that is margin accretive. Beyond that, as for other actions we can take, we certainly have levers in the business available to us which we explore on a recurring basis, including deploying still more technology and automation and so forth in our business, among other things. I think you know we don’t comment on our fee schedules and how we manage that long-term. But suffice it to say, the business delivers enough value to our members and sellers to ultimately recover and generate a good return on capital.

Unidentified Analyst: Yeah. Gotcha. And are there any data points that you guys are looking at that we should keep track of in terms of this that would help out?

Jeff Liaw: In this, being used car prices?

Unidentified Analyst: Yeah. So, anything you guys are like particularly keeping eye on that we should also look at?

Jeff Liaw: Probably nothing insightful. So, we track the Manheim used vehicle index and ADA. We track anecdotally what’s happening in the auction space, broadly auto retailers and the like. So, nothing that’s not broadly available in what we track.

Unidentified Analyst: Gotcha. Helpful. Thank you.

Operator: Thank you. The next question is from the line of Ali Faghri with Guggenheim Partners. Please proceed with your question.

Ali Faghri: Hi. Good morning. Thanks for taking my question. Was there anything different than your cat response that allows you to process these cars quicker than historically? I think with the storm in mid to late September, I guess I was surprised to see that you were already selling through this inventory in October. I think historically, it’s taken at least 60 days, especially for cat events.

Jeff Liaw: I think, it’s an evolution of our capabilities, but we’ve invested over the years. But certainly, we have in recognition of rising frequency severity of these storms, have invested in that technology. We haven’t gotten to the details of what that means. But in the technology platform, in processing titles, in receiving cars, in helping the insurance companies by absorbing much of the physical work that they used to do, there are many different individual levers pulled to collectively expedite the process on behalf of our sellers.

Ali Faghri: Okay. Great. And then just a follow-up here on total loss rates. They were up modestly sequentially. Do you think we’ve hit the trough there on total loss rates, and we should now see them start to climb higher from here?

Jeff Liaw: A difficult forecast, I’ll leave because that — underlying that then is your belief about used vehicle prices, in particular. The other forces, I think we’ve got a fair bit of conviction in, which is to say that the eventual rising tide is repair costs will rise and will continue to rise because of vehicle complexity. Every car that rolls off the line today is meaningfully more complex than one, five years ago, and probably one a year ago. I saw anecdotally a recent description of a Ford focus having 300 microprocessors in it and a Ford electric vehicle having 3,000 of them for example. And I think that will play itself out over the years and decades to come. So, those forces, I think, are well known. Repair costs will rise.

International demand for Copart vehicles will rise. The near-term variable is what happens to the used car prices, and that forecast is difficult to make in isolation. It does appear to be softening somewhat. But as for how that will play out over the next six to 12 months, that’s harder for us to say.

Ali Faghri: Great. Thanks Jeff.

Jeff Liaw: Thanks Ali.

Operator: Thank you. At this time, we’ve reached the end of our question-and-answer session. I’ll hand the conference back to Jeff Liaw for closing remarks.

End of Q&A:

Jeff Liaw: Great. Thanks everyone, and we’ll talk to you next quarter. Have a good day.

Operator: This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.