Chatham Lodging Trust

NYSE:CLDT

Earnings Call Transcript 2023-Q2

[Operator]

Good morning, and welcome to Chatham Lodging Trust Second Quarter 2023 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions]. Please note, this event is being recorded.

I would now like to turn the conference over to Chris Daly, President of DG Public Relations. Please go ahead.

[Chris Daly, President, DG Public Relations]

Thank you, Jerry. Good morning, everyone. Welcome to Chatham Lodging Trust Second Quarter 2023 Results Conference Call. Please note that many of our comments today are considered forward-looking statement as defined by federal Securities Laws. These statements are subject to risks and uncertainties, both known and unknown, as described in our most recent Form 10-K and other SEC filings.

All information in this call is as of August 2, 2023, unless otherwise noted, and the company undertakes no obligation to update any forward-looking statement to conform the statement to actual results or changes in the company's expectations.

You can find copies of our SEC filings and earnings release which contains reconciliations to non-GAAP financial measures referenced on this call on our website at chathamlodgingtrust.com.

Now to provide you with some insight, to the Chatham 2023 second quarter results, allow me to introduce Jeff Fisher, Chairman, President and Chief Executive Officer; Dennis Craven, Executive Vice President and Chief Operating Officer; and Jeremy Wegner, Senior Vice President and Chief Financial Officer.

Let me turn the session over to Jeff Fisher. Jeff?

[Jeff Fisher, Chairman, President and CEO]

Hey, thanks, Chris. And good morning, everyone. I certainly appreciate everyone being on the call this morning with us. For the fifth consecutive quarter we've outperformed the industry RevPAR growth with RevPAR growth over 5% for the quarter, driven by pretty equal increases in both occupancy and ADR.

Relative to 2019, RevPAR was down slightly just a little more than 1% for the quarter. In fact, versus 2019 RevPAR sequentially improved each month of 2023 through June. Relative to '19 RevPAR improved each month of the quarter, with RevPAR down 3%, 2% and 1%, a key indicator that business travel continues its recovery across the country. This is particularly impressive given the loss of most of the intern business in Silicon Valley, Bellevue, Washington and also in Austin, Texas. The loss of intern business impacted performance for about one-third of the second quarter and will impact two-thirds of this quarter and will make third quarter comparisons to last year and 2019 tougher.

Having said that interns will return in much larger numbers next year for tech companies, which should provide outsized growth next year and beyond for us. Portfolio occupancy rose to 79% in the quarter despite the intern loss, which is up from 77% last year and not far off the 2019 occupancy of 83%. Within the week weekday occupancy read 78% in the quarter, and June weekday occupancy of 81.3% was the highest level since the pandemic.

ADR was up $3 over last year and up $6 over 2019. Again, looking at the weekday business traveler, weekday ADR was up $6 over last year, and the June weekday ADR was $186. That's the third highest since the pandemic and only slightly behind June and July 2022 ADR of $187. ADR's continued to be pushed by our operators all days of the week. Interesting point, that is that last weekend's ADR for the company was over $200.

Outside of our tech-driven markets we really are seeing nice growth year-over-year with each of our top markets, other than of course, the three tech markets led by Washington DC, our coastal Northeastern Hotels and Los Angeles producing RevPAR growth of 11%, 10% and 7% respectively. Those three markets accounted for over 25% of our EBITDA leisure travel remained strong with our leisure markets producing strong RevPAR growth in the quarter. We can look at Destin, Florida, up 8%; Portsmouth, New Hampshire, up 24%; and Anaheim up 2%. Fort Lauderdale, up 14% and Savannah, up 4% with Portland flat, but opportunities are strong going forward.

Driven by our 5% RevPAR growth we were able to generate year-over-year EBITDA, FFO and FFO per share growth. We delivered 5% FFO per share growth over the last year, producing FFO per share of $0.43, compared to $0.41 last year. Our FFO per share of $0.43 exceeded consensus estimates of $0.40 per share.

Operationally, we were able to generate operating margins of 49%, flat to last year and the 2019 second quarter and hotel EBITDA margins of 41%, just below the prior year and 2019 levels of 42%. The key driver on the expense side was holding hourly wages flat year-over-year. Interestingly, when you exclude the five tech hotels, margins were up 40 basis points to 2019 levels, again shows you the inherent upside, once those hotels start performing.

With good flow through, we were able to generate corporate level cash flow before CapEx and common dividends of $22.25 million up approximately 10% over last year. With the excess cash-flow we were able to repay a $20 million maturing mortgage. With only $70 million of maturity mortgages between now and June 2024 we're in an excellent position to address all remaining maturities this year and next year.

We continue to pursue external growth opportunities, though we must of course be mindful of our cost of capital while assessing in place cash flow yield and growth projections on potential acquisitions. With the significant rise in interest rates, brands becoming more focused on renovation requirements and a bunch of maturing debt occurring throughout the industry, we believe there'll be soon some opportunities to acquire hotels that fit into our high-quality portfolio in the back half of this year, and certainly into next year.

With 39 hotels, we can acquire one or two hotels, and it significantly moves the needle with respect to EBITDA and FFO growth. The good news is we have substantial internal growth upside, as I said, inherent in our existing portfolio, with the ultimate recovery of Silicon Valley and Seattle, as well as the return of the intern business in Austin. If those hotels reached 2019 RevPAR in 2024, that would generate incremental portfolio RevPAR growth of approximately 7% and incremental FFO per share growth of $0.32. If you include the Austin intern business, that will add another 50 basis points to RevPAR and FFO per share of another $0.02.

So including all those hotels -- those seven, if you use current consensus estimates for 2023 adjusted FFO per share would increase almost $0.34 per share, which alone would represent an almost 30% increase. That certainly is substantial upside as you look at our company and look forward.

Before I turn it over to Dennis, I want to spend a few minutes updating everyone on what we're seeing currently in Silicon Valley and Seattle. Obviously, the loss of the intern business hurts our current year results especially this quarter. But coming off the massive layoffs last year and early this year big tech is now posting big profit numbers. All of the big tech is talking about investing significant dollars into CapEx and product development.

International travel continues to improve with deployments in San Francisco, San Jose and Seattle at their highest level since the pandemic. Seattle deployments are actually up over 2019 levels. Again, encouraging news and a good data point to show underlying trends are getting better and better. International occupancy at our two Sunnyvale hotels was approximately 22% in the second quarter, with most of the demand coming from Korea, China and India.

General business travel demand trends are encouraging in the valley. We're experiencing an uptick in demand from TikTok. Electric vehicle related lodging demand continues to grow, of course. And we've recently seen group requests with an increase on size, now hitting into the hundreds for late Q3 and early in the fourth quarter, though the absolute attendee numbers for Apple's fall programs are down to 2019 they are occurring, and we should hopefully see some demand out of that.

Of course, part of this development relates to AI, which will remain a significant growth opportunity across all the industries. Every tech company is assessing and developing generative AI tools into their operations. The video service now in Accenture just announced a partnership to accelerate AI development further.

And additionally, reshoring chip manufacturing and semiconductor tech investment is going to be a huge tailwind for tech. And in support of this movement just two months ago, Applied Materials, which has forever been one of our top five accounts in Sunnyvale announced plans to build a $4 billion 180,000 square foot R&D facility in Sunnyvale, just blocks from our two Sunnyvale Residence Inns. The facility will be a state-of-the-art facility for collaborative innovation with chip makers, universities, and ecosystem partners. Some of those partners include AMD and NVIDIA and Western Digital, all customers of ours.

We've owned these hotels for many years. And we know that these companies are continually evolving, investing and developing the world's greatest technologies. As these technologies evolve, and these companies continue to grow our hotels, as they always have in the upcycle will recover and our earnings will accelerate rapidly.

With that, like turn it over to Dennis.

[Dennis Craven, EVP and COO]

Thanks, Jeff. Our portfolio performed significantly better than the industry with second quarter RevPAR growth of 5%, again exceeding industry performance by approximately 85%. This trend of beating the industry will be challenged in the third quarter due to the intern loss for two-thirds of the quarter but certainly will continue into 2024.

Silicon Valley, our largest market comprising 15% of EBITDA saw occupancy growth slightly, year-over-year despite the loss of most intern business and still down a little bit to 81% occupancy in 2019. ADR is where the most opportunity is and we need to see continuing demand growth to be able to drive ADR. ADR was $184, down 3% versus last year and off 23% versus the 2019 second quarter ADR of $240.

RevPAR was off 28% versus 2019 levels. Weekday occupancy in the valley was 77% in the quarter. Silicon Valley EBITDA was $4.6 million, which was down about $600,000 from last year and down about $3 million versus 2019 levels.

In other key tech markets, Seattle RevPAR was off 9%, which hides a favorable underlying trend. Occupancy was actually up 1% year-over-year to 73% but still down to 84% occupancy in 2019. Second quarter ADR of $187 was off 5% versus 2019. EBITDA was $1.3 million in the quarter, down from 2022 second quarter EBITDA of $1.8 million and $2 million in the 2019 second quarter. And Austin RevPAR was off 5% versus last year, again due to the loss of the intern business. The summer in Austin is the seasonally slower months. So it's certainly more difficult to replace that lost intern revenue there. Excluding the interns RevPAR would have been up approximately 3% to 4%.

In other top market, our coastal hotels in New Hampshire and Maine continue to outperform with RevPAR up 10% in the quarter, driven by 24% growth at our Hilton Garden in Portsmouth, and 11% in Exeter.

From a leisure standpoint Portsmouth certainly reminds us of kind of where Portland was five or so years ago. Los Angeles with three hotels represents 9% of our EBITDA and we saw RevPAR grow 7% in the quarter. All three LA area hotels grew RevPAR in the second quarter. Washington DC which comprises 8% of our EBITDA we were able to generate meaningful RevPAR growth of 11% in the quarter.

Again, all three DC Hotels grew RevPAR. Our Embassy Suites in Springfield saw RevPAR grow 17%, as we are finally seeing some return to office and business travel back in the market. As a reminder in Springfield TSA moved its headquarters there, in the early stages of the pandemic and is just really starting to return to office.

Our Residence Inn, Foggy Bottom produced RevPAR growth of 8%. And interestingly enough, for the second quarter RevPAR was $212, the highest of all hotels in our portfolio in the quarter. Last of our top markets, the greater New York and Dallas markets continued to edge higher with both seeing RevPAR growth in the low single digits.

Our five highest hotels with absolute RevPAR were again, top of the list, was our Residence Inn, Foggy Bottom, which had ADR $267 in the quarter, followed by our Marina del Rey Hilton Garden Inn with RevPAR of $202. And then our Residence Inn, Fort Lauderdale, Hampton and Portland, and Residence Inn, San Diego Gaslamp all with RevPAR over $190.

A post-pandemic high of 21 of our 36 comparable hotels achieved RevPAR higher than the 2019 second quarter. Additionally, 27 of our 36 comparable hotels, or approximately three-fourths of the portfolio achieved ADRs higher than 2019 levels. We continue to see an average length of stay approximately 10% longer than our historical levels. It's come down certainly from pandemic related stays, but on a long-term basis should remain a bit longer due to the more flexible work arrangements that exist in today's business climate.

For the quarter total hotel revenue of $84 million was up 3% to last year. We generated incremental GOP flow-through of approximately 30%. In a challenging operating environment, we were able to maintain margins essentially flat year-over-year, primarily by holding hourly wages flat. This was offset by approximately 150 more hotel employees compared to last year. At this point, we're pretty close to being fully staffed at most of our hotels. And that would represent, if we've kind of stabilized at these levels, would represent about a 17% headcount reduction over pre-pandemic levels.

If you look at our five hotels in Silicon Valley and Seattle, our operating margins were over 51% in the quarter versus 58% last year. Operating margins on that business, very profitable, given the less amount of services required. Our top five producers of GOP in the quarter were our Gaslamp Residence Inn, the sixth straight quarter its lead the portfolio, followed by our Embassy Suites Springfield, and then notably our two Sunnyvale Hotels, and then fifth, our Spring Hill Suites in Savannah. What's missing out was our Residence Inn, Bellevue.

So despite a huge gap to make up with the loss of the intern business, three of our top six GOP producing hotels in the quarter were our tech-driven hotels. With respect to CapEx, we spent approximately $8 million in the quarter and expect to spend about $30 million total in 2023. That includes $22 million of renovation costs at five hotels. During the third quarter, we have commenced the renovation of the Courtyard, Charleston, Summerville, which is expected to be done by the end of the third quarter.

With that, I'll turn it over to Jeremy.

[Jeremy Wegner, SVP and CFO]

Thanks, Dennis. Good morning, everyone. Our Q2 2023 hotel EBITDA was $34.7 million, adjusted EBITDA was $31.9 million, adjusted FFO per share was $0.43, and cash flow before capital was $22 million.

While we've seen cost increase due to the reinstatement of certain brand standards, and the impacts of inflation on a number of key line items, we were able to generate a solid GOP margin of 48.5% and hotel EBITDA margin of 41.3% in Q2, which were only down 60 and 70 basis points respectively from our margins in Q2 '22.

Our balance sheet remains in excellent condition and we are continuing to execute on our plan to address debt maturities. As of June 30, Chatham’s net debt-to-LTM EBITDA was 4.1 times, which is significantly lower than our pre-pandemic leverage, which is generally in the 5.5 to 6 times area, despite the fact that EBITDA is not fully recovered to pre-pandemic levels. In Q2, we used the final $15 million of availability under our delayed draw term loan to repay the maturing loan on the Courtyard Houston. And subsequent to the end of Q2, we repaid the $19.7 million dollar loan on the Hyatt Place, Pittsburgh with available cash.

Year-to-date through July, we have refinanced or repaid $109 million of debt, which leaves us with only $40 million of remaining debt maturing in 2023. We expect to access the CMBS market over the course of Q3 to raise approximately $50 million to $100 million of proceeds, which would address our $40 million of remaining 2023 maturities and a portion of our 2024 maturities. The cost of this financing is likely to be in the mid 7% area. We expect the total proceeds from our planned Q3 financing activity together with our undrawn $260 million revolving credit facility will provide enough liquidity to cover all of our 2024 debt maturities.

While we're not going to provide guidance at this point, I would like to provide some color around how one could think about potential performance in Q3. Quarter-over-quarter comparisons have been pretty noisy over the last few years on both revenue and expenses due to the pandemic and the recovery from it, as well as different demand drivers staffing levels, franchisor requirements and volatile utility pricing.

If you look back to both 2018 and 2019, in each of those years our Q3 RevPAR was approximately $3 higher than our Q2 RevPAR. So that may provide some general context for how to think about what we might expect for Q3 RevPAR versus our Q2 RevPAR of $144.

On the expense side, with the loss of the interns in Silicon Valley, Seattle and Austin for two-thirds the quarter third quarter margins will be pressured as we benefited from higher RevPAR and minimal housekeeping requirements for that business in Q3 '22. Additionally, incremental headcount year-over-year to fully staff our hotels going into the summer will impact Q3 more than Q2.

In Q3 interest expense, net of interest income is also likely to increase by about $500,000 versus Q2 due to both our planned financing activity and the impact of increasing SOFR on our term loan interest expense. Although the exact amount of any increase in interest expense will depend on the ultimate amount of financing we complete, rates at the time of execution and transaction timing.

This concludes my portion of the call. Operator, please open the line for questions.

[Operator]

We will now begin the question-and-answer session. [Operator Instructions] Our first question is from Ari Klein with BMO. Please go ahead.

[Ari Klein, BMO Capital Markets]

Thanks, and good morning. On the expense side it looks like your hourly wages were flat year-over-year, which I thought was a positive. Just talk about the sustainability of that or how you're expecting that maybe to grow moving forward. As I guess headcount overall maybe is -- sounds like you're almost fully staffed there.

[Dennis Craven, EVP and COO]

Hey, Ari, this is Dennis. Yeah, I mean, I think -- listen, certainly, the wage pressures of the last several years have come down. And I think you're probably hearing that from a lot of people just from an hourly wage perspective. It's still a tight labor market, but I think even going back to last summer as occupancy levels ramped up, we were -- because we run a higher occupancy, we were able to retain as many people as possible and provide them full schedule.

So that certainly helped in terms of stabilizing the workforce. And yeah, we feel pretty good there. I mean, listen, there's certainly going to be inflationary increases on wages, but we've absorbed over a 25% increase in the last three plus years. So it's expected as the labor pool continues to come back to work that hopefully the significant increases moderate here.

[Ari Klein, BMO Capital Markets]

Thanks. And then Jeremy, just maybe on the balance sheet, you mentioned tapping the CMBS market later this year, which will address the maturities this year and a portion next year, but there's still a significant amount out there for next year. How should we think about the timing of addressing some of those?

[Jeremy Wegner, SVP and CFO]

Yeah, I think after we do what we're planning on doing in the balance of this year, sort of all the remaining maturities will be backstopped by the revolving credit facility. So I think we'll probably -- there's no kind of gun to our head to take out the rest of it and replace 4.5% money with 7.5% money right away. So I think we'll probably be Q1 in next year before we start doing more CMBS. And hopefully rates are lower by then. But in any case, don't want to pay the higher rate sooner than we need to on that.

[Ari Klein, BMO Capital Markets]

Got it. And last one, just not on Silicon Valley. I think you made up about 63% of lost intern business in the quarter. Jeff, you talked about some of the positive tech trends you're seeing. Do you think that number goes higher in the third quarter, and then -- yeah, I think you also mentioned expecting the intern business to come back next year? Is that based on conversations you've had with some of the companies or how should how are you thinking about that?

[Dennis Craven, EVP and COO]

Yeah, I mean, listen, this is Dennis. I'll answer and Jeff can chime in, I think the 63% replacement, we'll be in the range of that, whether it's 60% or 65%. But can't say, but certainly we're pleased with basically coming right in the middle of that 50% to 75% range that we provided last quarter. So that's all a good sign.

I think with respect to intern programs, they are, there are intern programs happening this year. It's just significantly down from prior years. So to able to be absorbed by other housing or especially in the Seattle and Sunnyvale market. So any discussions we've had, there's been nothing concrete for next year. But we've owned these hotels for a long time, and the intern business has been part of that. And we know they're going to come back, it's just a matter of the magnitude of it.

[Ari Klein, BMO Capital Markets]

Appreciate the color. Thanks.

[Operator]

The next question is from Anthony Powell with Barclays. Please go ahead.

[Anthony Powell, Barclays]

Hi, good morning, everyone. I guess, another question on the intern business. I was surprised about Austin being a big contributor there. I mean, I should have expected that. But what percent of total EBITDA on an annual basis or total revenues is comes from the intern business on a statewide basis. Just to understand the magnitude of the business throughout the portfolio.

[Dennis Craven, EVP and COO]

If you go back to pre-pandemic levels, Anthony, total intern EBITDA was around -- I guess, total intern revenue, sorry, was around $6 million for the five hotels, not including Austin. So EBITDA it's kind of a 60% margin was around $3.5 million. You had another couple of millions of -- or about a million of revenue, sorry, for Austin. So $7 million in revenue on $300 million pre-pandemic, was kind of the order of magnitude and where I think on a stabilized basis we would want to play as opposed to taking almost $12 million of it last year.

[Anthony Powell, Barclays]

Got it, understood. Okay. And just going to acquisitions, I think you talked about maybe doing some deals in the back half this year, early next year. Your cost of debt is about, 7%, it seems like on your line, close to that in line and 7.5% in CMBS. Are you seeing yield on acquisitions that are above that? Just curious how you're underwriting the cash on cash when your account for cost of capital when doing acquisitions?

[Jeff Fisher, Chairman, President and CEO]

Yeah, hi, Anthony. So look, there's very few deals being done, as you know, and expectations have certainly changed a little bit on the part of the sellers. We're working on one thing now that certainly has a yield in excess of 7%, is in excess of 8%. But they're far and few between and some of that yield, frankly, comes from our ability to just manage better and complex positions in a cluster of other hotels that we've got in the neighborhood.

So it's kind of that special opportunity that we're able to use, island [ph] hospitality for, to really maximize, the cash flow and the return. But as Dennis said, and as I said, we're looking at cost of capital, don't worry, and we're certainly not interested in doing anything that's not at least marginally accretive. And that may come from recycling of capital, from the sale of a hotel, and simply matching -- almost matching the funds on an acquisition, with an in place return that is in excess of 8%.

[Anthony Powell, Barclays]

Got it. Thank you. Maybe one more on Los Angeles, any impact of the writer strike and the actor strike that you've seen in recent weeks?

[Dennis Craven, EVP and COO]

Yeah, we haven't really seen any, any real material impact, Anthony. We are the Valley so a little bit on the edge there and hotel has been performing very strong.

[Anthony Powell, Barclays]

All right. Thank you.

[Jeff Fisher, Chairman, President and CEO]

I think the only thing I would say -- I would add to that Anthony is Marina Del Rey, one of our largest pieces of business there as is airline, FedEx related as opposed to entertainment related. So that business continues.

[Anthony Powell, Barclays]

Got it. Thanks.

[Operator]

Thank you. [Operator Instructions]. The next question is from Tyler Batory with Oppenheimer. Please go ahead.

[Tyler Batory, Oppenheimer]

Thank you. Good morning. Just want to unpack some of your commentary a little bit more here. When we look at RevPAR on a year-over-year basis, looks like a deceleration in June and into July. I know the intern business is impacting that. If you kind of ex that out, just talk a little bit more about performance in the portfolio, and maybe it's helpful, if you can kind of quantify just how much of a drag this lost intern business is going to be on Q3 RevPAR overall?

[Dennis Craven, EVP and COO]

Yeah, I'll start, and if anyone to add, but yeah, Tyler, this is Dennis. I mean generally those five hotels are impacting our RevPAR by about 700 basis points. So it's a significant impact. I think it will be a little more difficult in the third quarter to replace that lost business, just given kind of the amount that we took last year. But having said that, like 63% recovery, at least through June.

So all-in-all, I think it's pretty noteworthy to be able to be where we are as a portfolio.

[Tyler Batory, Oppenheimer]

Okay, and some of the leisure numbers that you provided us -- some of peers talking about step -[ph] business, slowing a little bit more. Some issues in terms of not being, kind of having as much pricing power. Just talk a little bit more about what you're seeing in some of your leisure markets, shuffling the commentary on some of the weekend ADRs, you seem pretty optimistic there.

[Dennis Craven, EVP and COO]

Yeah, I mean, I think, in Jeff's prepared comments he talked about -- I think he listed out separately, each of our, what we would kind of characterize as primary leisure markets with the only one that wasn't up was Portland, and quite honestly, we left some money on the table there. So it really would have been. But the other ones including even Destin, Florida, up 8%, and Fort Lauderdale, up 14% I think is, noteworthy given, I think what you've seen probably from some of the other REITs that have already reported with pretty significant RevPAR decline.

So I think, again, it just kind of a testament to the not only the locations, but also just the assets are in slightly different markets compared to some of those white-hot markets previously.

[Jeff Fisher, Chairman, President and CEO]

Yeah, I mean, you look at -- look another advertisement, frankly for being in the select service business. It's just -- these are not resort, four and five-star or even three-star resorts that are fly-to markets. These locations were specifically handpicked for what they are. And these kinds of numbers prove it out, especially in a general leisure pullback, certainly compared to 2022, that some of the other full-service hotel REITs are probably not report or already have reported.

So we are definitely pleased with the resiliency of the model and the cash flow that we get out of these hotels.

[Tyler Batory, Oppenheimer]

Okay, okay, that's helpful. And then in terms of business travel, I mean, if we exclude the Silicon Valley hotels, some of your peers have talked about corporate travel, that recovery, kind of maybe being a little bit more slow. I mean, kind of, what are you seeing -- what's your opinion on the future trajectory in terms of business travel?

[Dennis Craven, EVP and COO]

I mean, listen, I think, our weekday occupancies in the second quarter, even including Silicon Valley, as a portfolio, our weekday occupancies were, 76%, 77% for the entire portfolio, which fairly comparable to weekend occupancies for the quarter. So I think in terms of our markets and our customers, it's been pretty stable, and it continues to edge higher. So I think for us and for our markets that we're in, that continuing -- it used to be a year ago that Monday, Tuesday, Wednesday were the lowest RevPAR nights of the week, and for our portfolio, they're now becoming our highest RevPAR nights of the week.

So I think for our general overall portfolio, and even including Silicon Valley, that occupancy, underlying occupancy strength is and continued growth even if it's from 75% to 78% or 78% to 80% is encouraging.

[Tyler Batory, Oppenheimer]

Okay, great. I am going to leave it there. Appreciate the detail.

[Dennis Craven, EVP and COO]

Thanks, Tyler.

[Operator]

This concludes our question-and-answer session. I would like to turn the conference back over to Jeff Fisher for any closing remarks.

[Jeff Fisher, Chairman, President and CEO]

Well, again, thank you all for being on the call. We've kind of set the table a little bit for Q3 that, perhaps certainly won't be as good as last year. That does not indicate any kind of go forward trend at all other than what we focused on relative to that specific business. And as we move out of that quarter, and especially into next year, as I commented we really do see some pretty substantial upside here and growth in earnings. So appreciate that, and we will look forward to talking to you again soon.

[Operator]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.