RH (NYSE:RH) Q4 2023 Earnings Call Transcript

RH (NYSE:RH) Q4 2023 Earnings Call Transcript March 28, 2024

RH isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Ladies and gentlemen, thank you for standing by. My name is Desiree, and I will be your conference operator today. At this time, I would like to welcome everyone to the RH Fourth Quarter 2023 Q&A Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the conference over to Allison Malkin of ICR. Please go ahead.

Allison Malkin: Thank you. Good afternoon, everyone. Thank you for joining us for our fourth quarter fiscal year 2023 earnings conference call. Joining me today are Gary Friedman, Chairman and Chief Executive Officer, and Jack Preston, Chief Financial Officer. Before we start, I would like to remind you of our legal disclaimer that we will make certain statements today that are forward-looking within the meaning of the federal securities laws, including statements about the outlook of our business and other matters referenced in our press release issued today. These forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially. Please refer to our SEC filings as well as our press release issued today for a more detailed description of the risk factors that may affect our results.

Please also note that these forward-looking statements reflect our opinion only as of the date of this call, and we undertake no obligation to revive or publicly release the results of any revision to these forward-looking statements in light of new information or future events. Also, during this call, we may discuss non-GAAP financial measures, which adjust our GAAP results to eliminate the impact of certain items. You will find additional information regarding these non-GAAP financial measures and the reconciliation of these non-GAAP to GAAP measures in today’s financial results press release. A live broadcast of this call is also available on the industry relations section of our website at ir.rh.com. With that, I’ll turn the call over to Gary.

Gary Friedman: Thank you, Allison, and good afternoon, everyone. I’m going to start with our prepared comments, which are included in our press release and shareholder letter. To our people, partners, and shareholders, fiscal 2023 was a year of diversity, innovation, and investment for Team RH as we faced the most challenging housing market in three decades while investing in the most compelling product transformation and platform expansion in our history. We have positioned the RH brand to gain significant market share in 2024 and beyond while building the foundation for a global expansion across the United Kingdom, Europe, Australia, and the Middle East over the next several years. While aggressively investing in the downturn has put pressure on short-term results, it also positioned us to capitalize on the long-term opportunities that present themselves during times of disruption and dislocation.

We’ve demonstrated our confidence in our strategy by repurchasing 7.6 million shares of our stock during fiscal 2022 and 2023, representing approximately 35% of the shares outstanding, and believe that investment will create meaningful long-term value for our shareholders. Turning to our fourth quarter and full year results, revenue was negatively impacted by $40 million in the fourth quarter due to the severe January weather and shipping delays related to the ongoing conflict in the Red Sea. We do expect the majority of the deferred revenue will be realized in 2024 when transit times normalize. Adjusted operating margin was 9.1% and 13%, and adjusted EBITDA margin was 15.3% and 18.2% for the fourth quarter and the full year, respectively, reflecting deleverage from lower revenues, increased markdowns to support our product transformation, and investments in international expansion.

Every act of creation is first an act of destruction, Pablo Picasso. We have spent the past 18 months destroying the former version of ourselves and are in the process of unleashing what we believe is an exponentially more inspiring and disruptive RH brand, inclusive of the most prolific product transformation and platform expansion in the history of our industry. Our product transformation plans for 2024 include the launch of our new RH Outdoor Sourcebook, the most dominant and disruptive collection of luxury outdoor furniture in the market arrived in homes late February through mid-March with 14 new collections. The initial response has been exceptional and we expect to gain significant market share in this important category in fiscal 2024.

The unveiling of our new RH Modern Sourcebook is scheduled to be in home late April through early May with 30 new collections across living, dining, bedroom, and bathroom, including original designs from the Harvey Probber Estate, one of the most influential modern designers of the past century. We expect the launch of RH Modern will further accelerate our demand trends in the second quarter and throughout the second half of 2024. The second mailing of our new RH Interiors Sourcebook is planned to be in home late May through early June with new collections and improved in stocks, which should also provide an additional lift to demand in the second quarter and continue to build through the second half of 2024. We will be mailing an updated RH Contemporary Sourcebook in late July through early August with new collections and a compelling value proposition, which we believe will also accelerate demand trends.

A second mailing of the RH Modern Sourcebook and third mailing of the RH Interiors Source Book are expected in the second half of 2024 with additional new collections, refreshed galleries, and improved in stocks. These mailings will result in a doubling of our sourcebook circulation and customer contacts in 2024 versus 2023. Our data would suggest the increased number of contacts alone should provide another lift factor for our business. We are also increasing print and digital advertising across major home design publications in 2024. You will see our ads in Architectural Digest, Elle Decor, Veranda, Gallerie, World of Interiors, Luxe Interiors and Design, Business of Home, the Financial Times, plus the Wall Street Journal and T Magazine design issues.

As you know, we acquired Waterworks in 2016, arguably the most desired brand in the luxury bath and kitchen category. The Waterworks team has done an outstanding job over the past seven years, further elevating the brand and building a highly profitable business model that can scale. Waterworks, like most other luxury brands in the home space, generates the vast majority of their revenues from the trade market, selling to architects, designers, developers, and builders. While RH is a significant trade business, the vast majority of our revenues are generated by consumers. We believe there is a significant opportunity to amplify the Waterworks business on the RH platform by exposing the brand to a much larger audience, similar to how we’ve expanded other mostly trade-focused businesses and brands over the years.

Our plan is to launch with a 3,500 square foot Waterworks showroom in our newest and largest design gallery in Newport Beach, California, opening in the fourth quarter of 2024. We will also be developing a Waterworks sourcebook with plans for a test mailing in 2025. Waterworks today is just shy of a $200 million business with mid- to high-teens EBITDA that we believe has the potential to become a billion dollars-level brand on our platform. Let me shift your attention to the expansion of our platform. Our plan to expand the RH brand globally, address new markets locally, and transform our North American galleries represents a multi-billion dollar opportunity. Our platform expansion plans for 2024 include the opening of five North American design galleries, including Cleveland, which opened last week, Palo Alto, Raleigh, Newport Beach, and Montecito, all with integrated RH interior design offices, restaurants, and wine bars.

The opening of our first RH interior design studio in Palm Desert, California. We believe there’s an opportunity to address new markets locally by opening design studios in neighborhoods, towns, and small cities where the wealthy and affluent live, visit, and vacation, as well as augmenting some of our design galleries in larger markets with additional design services in standalone design studios. We will also be opening two international galleries, one in Brussels, which opened last week, and Madrid, opening this summer. Both galleries are located in beautiful historical buildings that elevate our product and render our brand more valuable. Unfortunately, RH Paris has been delayed until Spring of ’25 due to construction restrictions relating to preparations for the Olympic Games this summer.

We are also pleased to announce RH Sydney, the Gallery in Double Bay, a five-story development with a rooftop restaurant and wine bar, received council approval last month with plans to open in fall of 2026 in what we believe is the most vibrant and desirable location in Australia. Now let me turn you to our outlet. While we expect business conditions to remain challenging until interest rates ease and the housing markets begin to rebound. We expect our demand trends to accelerate throughout 2024, due to the extensive transformation of our assortment, we do expect revenue to lack demand during the year by approximately four to eight points until we read and react to new collections, reduce back orders, and shorten special order lead times. Therefore, we will be guiding and reporting both demand and revenue growth each quarter during fiscal 2024 so shareholders and investors can accurately analyze the business.

We believe it’s also important to note that we are forecasting to end the year with an increased backlog of approximately 110 million to 130 million due to revenue lagging demand throughout 2024, which will negatively impact operating margin adjusted EBITDA margin by approximately 140 basis points for the year. Additionally, investments and startup costs to support our international expansion are estimated to be at approximately 200 basis point drag for 2024. For fiscal 2024, we are forecasting demand growth of 12% to 14% and revenue growth of 8% to 10% on a 52 versus 52-week basis. We are forecasting adjusted operating margin in the range of 13% to 14% and adjusted EBITDA margin in the range of 18% to 19%. For the first quarter of fiscal 2024, we are forecasting demand growth of positive mid to single digit and revenues of negative low single digits.

We are forecasting adjusted operating margin in the range of 6% to 7% and adjusted EBITDA margin in the range of 12% to 13%. Now let me turn you to the RH business vision and ecosystem, the long view. We believe there are those with taste and no scale, and those with scale and no taste, and the idea of scaling taste is large and far-reaching. Our goal to position RH as the arbiter of taste for the home has proven to be both disruptive and lucrative as we continue our quest to build the most admired brand in the world. Our brand attracts the leading designers, artisans and manufacturers, scaling and rendering their work more valuable across our integrated platform, enabling RH to curate the most compelling collection of luxury home products on the planet.

Our efforts to elevate and expand our collection will continue with the introductions of RH Couture, RH Bespoke, RH Color, RH Antiques & Artifacts, RH Atelier and other new collections scheduled to launch over the next decade. Our plan to open immersive design galleries in every major market will unlock the value of our vast assortment, generating revenues of 5 billion to 6 billion in North America and 20 billion to 25 billion globally. Our strategy is to move the brand beyond curating and selling products to conceptualizing and selling spaces by building an ecosystem of products, places, services and spaces that establishes the RH brand as a global thought leader, taste and place maker. Our products are elevated and rendered more valuable by our architecturally inspiring galleries which are further elevated and rendered more valuable by our interior design services and seamlessly integrated hospitality experience.

Our hospitality efforts will continue to elevate the RH brand as we extend beyond the four walls of our galleries into RH Guesthouses where our goal is to create a new market for travelers seeking privacy and luxury in the $200 billion North American hotel industry. Additionally, we are creating bespoke experiences like RH Yonceville, an integration of food, wine, art and design in the Napa Valley. RH1 and RH2 are private jets and RH3, our luxury yacht that is available for charter in the Caribbean and Mediterranean where the wealthy and affluent visit and vacation. These immersive experiences expose new and existing customers to our evolving authority in architecture, interior design and landscape architecture. This leads to our long-term strategy of building the world’s first consumer facing architecture, interior design and landscape architecture services platform inside our Galleries, elevating the RH brand and amplifying our core business by adding new revenue streams while disrupting and redefining multiple industries.

Our strategy comes full circle as we begin to conceptualize and sell spaces, moving beyond the $170 billion home furnishings market into the 1.7 trillion North American housing market with the launch of RH Residences, fully furnished luxury homes, condominiums and apartments with integrated services that deliver taste on time value to discerning time-starved consumers. The entirety of our strategy comes to life digitally with The World of RH, an online portal where customers can explore and be inspired by the depth and dimension of our brand. Our authority as an arbiter of taste will be further amplified when we introduce RH Media, a content platform that will celebrate the most innovative and influential leaders who are shaping the world of architecture and design.

Our plan to expand the RH ecosystem globally multiplies the market opportunity to 7 trillion to 10 trillion, one of the largest and most valuable addressed by any brand in the world today, a 1% share of the global market represents a $70 billion to $100 billion opportunity. Our ecosystem of products, places, services and spaces inspires customers to dream, design, dine, travel and live in a world thoughtfully curated by RH, creating an emotional connection unlike any other brand in the world. Taste can be elusive, and we believe no one is better positioned than RH to create an ecosystem that makes taste inclusive and by doing so, elevating and rendering our way of life more valuable. Never underestimate the power of a few good people who don’t know what can’t be done.

For the past 23 years, we’ve heard others tell us what can’t be done and for the past 23 years, we failed to listen. We avoided bankruptcy by being accused of lunacy. While others have been shrinking and closing stores, we’ve been building the largest and most inspiring spaces in the world. When Wall Street didn’t think our stock was worth buying, we bought 60% of it ourselves. When everyone told us we should be working from home, we were in the center of innovation working on rebuilding our new home and it’s almost ready for prime time. From the largest product transformation in our history to the most inspiring retail experiences in the world, from couches to caviar, beds to bellinis, architecture to airplanes, homes to hotels, Guesthouses, from Pittsburgh to Paris, Los Angeles to London, Boston to Brussels, Miami to Munich, and San Francisco to Sydney, soon the world will be within our reach.

Never underestimate the power of a few good people who don’t know what can’t be done, especially these people. Onward Team RH. Carpe diem. And now we’ll open the call to questions.

Operator: Thank you. The floor is now open for your questions. [Operator Instructions] We’ll pause for just a moment to compile the Q&A roster. Our first question comes from the line of Simeon Guttman with Morgan Stanley. Your line is open.

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Q&A Session

Simeon Guttman: I think the most important element of the outlook is the sales guide, because it hasn’t been growing, and now we’re flipping to growth. So I wanted to see if we can approach it from two sides, and I’d love to hear your perspective. First, on one side, if you end up meeting or beating this outlook that you’ve given us, if we look back, I mean, it clearly could be the products resonating more than you thought, or should we look at it as, you gave us more of a conservative trajectory than what even the business is implying today. And on the other side of that, if you end up falling short of it, was it either product didn’t resonate, or maybe there was more pent-up demand, and you’re over-reading that curve. Curious how you think about both sides of it.

Gary Friedman: I think you just covered the answer in many ways. I would say, look, we have visibility trends in our business that can help us connect the dots. I mean, if you read the letter a few times, and you look at the pieces that add up to directionally where we’re going, we feel very confident in the plan we’ve laid out, the guidance we’ve laid out. And this is what we’ve been working on for the past 18 to almost 24 months. So it’s been a lot of thought, a great attention to detail. We’ve been flying at the highest levels, and we’ve been into the lowest levels of detail inside the company and the organization to rebuild the brand from the bottom up. And I think this is the best work we’ve done. I think this is the best team we’ve ever had.

And I think what we’re about to do is going to create another leapfrog for our age, just as we’ve done every seven or eight years, if you looked at our history when we’ve done transformations like this. So we’re highly confident. We think we have enough data and information to read. If you were in our Center of Innovation right now, you’d be looking at all the whiteboards that I’m looking at. And every category of our business laid out every month with demand this year, last year, two years ago, percentages, trends, book drops, collection units. I mean, this is built up at a very detailed level. No one has a crystal ball. I always tell the team as we buy inventory or do anything, every plan we have is some degree wrong. The question is, is it more right than wrong?

And is it directionally right? And have you identified the risks in the plan and the things that maybe you haven’t seen as you’ve been building something up from an optimistic vision perspective? And we believe we’ve done that. We’ve been here with all of the key leaders, all the key team members at every level, building this, again, for a long time, talking about how many trips to Asia, how many trips to Europe, how many… We don’t have meetings in our company, we have adventures. Because we say meetings is about arranging and organizing the status quo, and adventures is about leading people somewhere they’ve never been, doing things they’ve never done, and in search of better ways and brighter days. So, we’ve been through countless adventures.

I think we’ve looked at all the data that’s available and created new data. So, I personally feel great. I think the team feels great. I think if you came here and you spoke to the people really doing the work, I think they’d all feel great. Our competition might not feel great over the next couple of years, but that’s not really our problem.

Simeon Guttman: As a follow-up, if I can ask about Europe, if you can share how much of Europe’s sales is in this guide, and I guess you’ll ever get comfortable sharing the Europe forecast. I don’t know, every gallery may be different, and there’s a wide range. And then, I guess the 200 basis points, that’s, I think, the first time maybe we’ve gotten explicit quantification. Does that taper quickly or slowly, and is that like the peak, or call it international investment? And now that revenues build, even as you add more galleries, we don’t step back from that level further. Thanks.

Gary Friedman: It’s a long question, so let me maybe take the same amount of time and process it. Look, Europe, I’d say there’s a few points. If you kind of motor up and think about what we’re in the very early process of doing, first stand back and say, what have we done so far? Last year, in mid-June or so, we opened an extraordinary, never seen before, multidimensional experience in the English countryside, that we opened through a lens of conversation, not commerce. And the why that we’ve articulated between that was we, fortunately and unfortunately, we did a package real estate deal that enabled us to get two irreplaceable locations in London and Paris, but also required us to take other locations we had to open sooner.

As a result, these smaller markets are not benefiting as we first opened. We didn’t think they would. From the brand awareness, Alo, the key markets would provide and will provide. So, Arch England was born out of that kind of conundrum of, hmm, not really opening in the places we’d want to open first. And there was a big expense if we didn’t do that, and other lease requirements and other hurdles that would have been a little messy. So, that’s what drove us. Because we weren’t going to be able to open London and Paris first, that drove us to say, what can we do? What would we do? What kind of investment would we make that would introduce RH to Europe and the broader United Kingdom in an inspiring and unforgettable fashion? Why is that important?

I think it’s important because just about every luxury brand in the world is from Europe and the UK, except for a couple. You can argue that we have Ralph Lauren and Tiffany. Ralph isn’t pure luxury, right? So, there’s a bigger, broader distribution strategy there that’s a big part of that business. So, if you said pure luxury, what are the pure luxury brands in the U.S. that are really top of mind internationally and have been for a long time, I’d say it’s Tiffany. And the French just bought it just a couple of years ago. So, I started first and foremost, I wouldn’t say Americans are described internationally as tastemakers, as architectural thought leaders and so on and so forth. You look at the beautiful historical architecture across Europe and the U.K., and then you look at the U.S. and you go, okay, if you start in the East Coast, you’ve got some, and you start moving West and it kind of falls off a cliff pretty quickly.

And so, how does an American brand that hasn’t really been doing what it’s been doing for very long and looks like we did 15 to 20 years ago, a kind of [chachky] [ph] little shop with back scratchers, selling back scratchers and moon pies, things that, how do you want to introduce yourself if you want to earn the respect of the tastemakers, of the placemakers, of the people that kind of not only set the standard, but set the direction for consumers broadly around the world? And that’s how we came up with the idea for RH England and opened Aynho Park, a historic 17th century estate, 73 acres. That’s why we invested in probably among the best architecture and design libraries that’s not an institutional location, but a private collection in the world.

That’s why we have three restaurants, the third one opening this spring. We wanted to introduce ourselves in a way that no brand has introduced itself to Europe and the United Kingdom. Did we think we were going to do a lot of volume out there? No, not initially. Did we think we’re going to open the market to the internet? Yes. And we’d learn from that. And we’d learn likely from how the divine trade profited from it. That came to us and connected with us and interacted. And we also knew that we’re opening somewhere where in the winter months, in the late fall and early spring months, it gets dark as early as 3.30 out there. And it’s really cold. And not a lot of people are going out there. I mean, they might have been going out there more during COVID because there’s nowhere to go.

The last thing you want to be is in a big city. So we did something very unusual. And that’s why if you go to that Gallery or if you’ve been there, the first thing you see when walk into the entry is a unicorn. And it talks about how unusual and inspiring we believe the place is. And I think we’ve introduced ourselves in a way that’s captured people’s attention and imagination. And I think the conversation is the right conversation. And I think that conversation will build as we’re open for full spring, summer, and we have all three restaurants open. And we’ll really learn a lot more. But that’s why we did that. And the next galleries we’ve opened have been open weeks. We opened in mid-November or something in the 20 weeks for the German galleries.

Yes. Okay. So, yes. It’s months. And so in places we’ve never been, and not necessarily what I’d say. Paris and London are two of the most famous cities in the world. They’re two cities anchored in fashion and style and so on and so forth. [Indiscernible] in there too because we also have we’re making, I think, you’re doing something extraordinary in Milan, but those all we’re going to take longer. And so we’re not opening in the order that we wanted to open in. But it was always our intention to open in Paris and London first in iconic locations from a brand awareness point of view. But what we’ve learned so far, as I tell you, there’s a higher mix of trade than we anticipated or seen anywhere. And trade is exterior, interior designers, and more of a B2B business, hospitality, contract kind of design.

So, it’s a much higher mix of trade right out of the gate. And would that surprise us? Not really, because the consumer doesn’t really know us yet. But if you’re someone who’s aware of the home, if you’re aware of design, if you’re an interior designer, if you’re doing commercial projects or residential projects, you know RH. And you may have likely shopped from us in the U.S. or you’ve been to our key galleries. And so what I like about that is it’s really the right people and the most influenced people who are out indexing today. We didn’t anticipate that. We didn’t think about that. But when I do think about that, I think I’m very, very happy about that. I think it wouldn’t be good if it indexed the other way because you want to get the right people, especially if you think about where we’re trying to take this brand.

So the right people, the people most interested in architecture, interior design, and taste and style are coming to us at a higher mix. And that deals with building our book of business, which is an important part of this business, building the pipeline of design projects, both in our trade business and in our own internal interior design business. And so when we look at the book of business for RH England and we look at the trends now that we’ve been open, that business from a retail point of view, like a gallery point of view, is going to be right about where I think we thought it’d be directionally for opening in such an unusual location and thinking about what might happen. What surprised us the most, I’d say, is the direct web business is slower than expected.

We thought that the web was going to be a much larger mix of the total since we were opening an entire country. And so when we stand back and reflect on that and say, okay, what didn’t we think about? What did we miss in that analysis? I think it’s just the overall time it might take to build the brand and ramp the brand to a consumer. And also the first gallery in the U.K., kind of not deemed by anybody. I mean, what’s the population of Aynho Park? 300 people, right? Like we opened in a town of 300 people. And there’s nothing really that close to 30 minutes to Oxford. So we had some major things. A few other places. But it is a place that people aspire to go to spend time with, especially in the late spring, summer, early fall period. And also, we have plans once we get our feet on the ground to think about long-term doing events and other things on that property to bring the right people.

And we also have some partnerships happening that actually have sourced us to do different events dealing with whether it’s beautiful high-end car brands, or the racing and things that happen and a lot of the prestigious things that happen out in the English countryside. And then I think the other thing I’d say, I’m just giving you a kind of context of how we think of Europe right now, is we didn’t open with the full assortment. And I think when we go back and we’re analyzing that, that part of the assortment that we didn’t open with is probably really important to consumers and the web business. So building awareness that opens up the internet and the web business to get that to move more quickly is going to be important. But I think a lot of it is going to take opening the key iconic galleries in London and Paris and Milan and so on and so forth.

These big ones with restaurants and champagne and caviar bars and wine bars and barista bars and architectural design libraries and all the really incredible experiential things that people are going to discover the brand and say, what is this? But right now, the only one with those experiences is in a very unpopulated part of England and it’s going to take longer to be discovered. But when people discover it, it is the right people and it is the right conversation. So we’re super happy about that. But I say we’re still so early, right? You got to let the book of business build. We’ve got to kind of get our feet on the ground. And I’m massively optimistic long term and I’m massively optimistic because I think there’s no one like us in the market.

I think we’ve got to open these big galleries. That’s what’s going to build the brand. We’ve got to open in the big key cities that define fashion and taste and style and be in that conversation. But I like that the trade business is over indexing because those are the right people. They’re the influential ones. But it’s going to take a while. We’re just out of the gate and we’re not out of the gate in the order that we would have liked to. But nonetheless, we’re out of the gates and we’re learning. That’s the important thing. And all of these things are going to benefit from the product transformation that we’re going through and all the things we’re doing that we have in the pipeline. I only listed out what we’re doing in ’24, what we’re doing beyond that and what we have coming for ’25.

And there’s some things I can’t even put in the big long view because I don’t want to be too specific and give any information to the broader industry. Like next year, I think we’re going to launch something that’s really big. And it’s going back and forth. I don’t want to put it in this letter or not. But we’ve got enough in this letter. When I look back and look at this letter, I go like, okay, it’s kind of ridiculous. This is very exciting. We don’t need to tell everybody what’s in the pipeline. But we’re feeling really, really great about where the brand is, where it’s going. I think Europe is going to take a while, building great brands. You’ve got to be very, very strategic. You’ve got to be very smart. You’ve got to be patient. You don’t go rushing and build one of the great brands in the world rushing to the finish line.

We say fastest as slow as we go, but we also say we have to do less and think more so we can do more. So it’s spent a lot of time thinking, deepen the data, really analyze things right, do the next thing, do the next thing, do the next thing. But I really like where we are. I like where we’re going. I like everything that’s unfolding. And I especially like how we’re positioned for the other side of this kind of difficult housing market, right? The worst home sales in 30 years, that’s a long time. And how we’re positioned for that rebound, I think is better than anyone on multiple levels too. Like when I look at the whole assortment, whether I’m looking kind of at the level we’re at, if I try to look at people above us and I look at people below us, I just think we’re going to be holistically disruptive across a pretty big size of the market we’re trying to hit.

I think we’ve opened up the aperture a bit without compromising the most important tenants of what we’re trying to build. So long rambling answer, hopefully gave you a few data points that were important.

Operator: Our next question comes from the line of Steven Forbes with Guggenheim Securities. Your line is open.

Steven Forbes: Gary, given the spread between the first quarter demand guidance and the full year, I was just curious if you maybe help us better think about how the business is rescaling or ramping on the back of the recent store resets. And then how should we think about the cadence of resets on a go forward basis married together with the cadence of source mailings that you talked about in the letter?