TriNet Group, Inc. (TNET) Q1 2021 Earnings Report, Transcript and Summary

Good afternoon, and welcome to the TriNet First Quarter 2021 Earnings Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Alex Bauer, Investor Relations. Please go ahead.

Thank you, operator. Good afternoon, everyone, and welcome to TriNet’s 2021 first quarter conference call. Joining me today are Burton M. Goldfield, our President and CEO, and Kelly Tuminelli, our Chief Financial Officer. Our prepared remarks were prerecorded. Burton will begin with an overview of our first quarter operating performance. Kelly will then review our financial results. We’ll then open up the call for the Q&A session. Before we begin, please note that today’s discussion will include our 2021 second quarter and full-year guidance, and other statements that are not historical in nature or predictive in nature or depend upon or refer to future events or conditions such as our expectations, estimates, predictions, strategies, beliefs, or other statements that might be considered forward-looking. These forward-looking statements are based on management’s current expectations and assumptions, and are inherently subject to risks, uncertainties and changes in circumstances that are difficult to predict, and that may cause actual results to differ materially from statements being made today or in the future. Except as may be required by law, we do not undertake to update any of these statements in light of new information, future events or otherwise. We encourage you to review our most recent public filings with the SEC, including our 10-K and 10-Q filings for a more detailed discussion of the risks, uncertainties and changes in circumstances that may affect our future results or the market price of our stock. In addition, our discussion today will include non-GAAP financial measures, including our forward-looking guidance for net insurance margin, adjusted EBITDA margin and adjusted net income per diluted share. A reconciliation of our non-GAAP financial measures to our GAAP financial results, please see our earnings release, our 10-Q filing or our 10-K filing for our first quarter of 2021 and full year of 2020 reconciliation respectively, both of which are available on our website or through the SEC website. Reconciliation of our non-GAAP forward looking guidance to the most directly comparable GAAP measures is also available on our website. With that, I will turn the call over to Burton for his opening remarks, Burton?

Thank you, Alex. The first quarter of 2021 saw a continuation of many of the positive trends that TriNet experienced throughout 2020. Our strong customer base showed resilience as well as significant growth in the first quarter of 2021. I am proud of the TriNet team and their ability to help our customers navigate the current economic climate. We continue to put our customers at the center of everything we do and in the first quarter, we were again rewarded with strong operating and financial performance. During the first quarter, we grew GAAP total revenues 1% year-over-year to approximately $1.1 billion. I am especially pleased with this revenue growth as the year-over-year comparison was positive against the pre pandemic quarter in 2020. Furthermore, this revenue growth was supported by our installed base of customers who have committed to TriNet at high retention rates and grow with us during the first quarter. Extrapolating of our Q1 trend and the continued reopening of the U.S. economy, I would expect continued outsize hiring in our install base throughout 2021. GAAP earnings per share grew 15% year-over-year to $1.51 per share. Our revenue growth coupled with the reduced healthcare cost and expense management drove our first quarter GAAP EPS growth. Finally, we finished the first quarter with approximately 326,000 WSCs down 3% year-over-year, and down 2% sequentially, versus the fourth quarter of 2020. These year-over-year and sequential metrics reflect lower churn than what we've seen in a typical January, but also lower contribution from new sales when compared to our pre pandemic experience. We are increasingly optimistic as we look out on the balance of 2021. The lower churn or higher retention rate we saw in January was in part driven by our 2020 recovery credit program. In fact, we lost less than 1% of the customers who participated in the 2020 recovery credit program. Furthermore, the strength and resilience of our customer base was key to our first quarter volume and business performance. Our customer base hired the most new employees during a first quarter in our 30 plus year company history. Putting together the higher retention with the strong customer hiring, three of our core verticals, technology, financial services, and life sciences significantly outperformed our other verticals. This outperformance even includes absorbing an incremental percentage point of uncontrollable attrition from mergers and acquisitions in our technology vertical. This increased M&A activity and technology reflects a vibrant industry already on the rebound. Turning to new sales during the quarter, we close some of the sales GAAP from our pre pandemic sales performance, but still have an opportunity for improvement. As inferred from our forward-looking guidance found in our earnings release, we expect new sales momentum to build during the year. As we look forward to the second quarter, and the balance of 2021, we are encouraged by how the economic reopening and recovery has positively impacted TriNet. Although we do not guide to WSC count, I am confident in the growth of WSC's during the second quarter. We look forward to updating you as the year progresses. For nearly a decade, we targeted our sales and service efforts on our core verticals including technology, financial services, professional services, life sciences, non-profit and Main Street. In doing so, we have built a group of dynamic customers who represent the innovative spirit of America's small and medium sized businesses. We remain confident in the effectiveness of our vertical strategy. The true value of this customer base revealed itself during the pandemic. While we work tirelessly in service of our customers, our customers responded by continuing their relationship with TriNet while managing through the economic shock. Beginning in June of 2020, as the pandemic related lockdown started to ease, our installed base began to hire workers, a trend that has continued unabated since that date. As noted, the first quarter of 2021 saw TriNet’s customers hire the most new employees in any first quarter in TriNet’s history, the value proposition remains particularly strong. Prior to the pandemic, our customers experienced fierce competition for talent, TriNet provide them with an advantage through our differentiated service and benefits offering. As the economy improves throughout 2021 and business reopening accelerate across America, we expect our installed base to leverage our solution while continuing to hire and compete for scarce talent. In the first quarter the technology vertical with the hiring growth leader. We also experienced strong hiring from the financial services and life sciences verticals. The economic reopening and recovery has highlighted that TriNet is much more than a vendor to our customers. An example of this relationship is the creation of our 2020 recovery credit program. This recovery credit program is our effort to share with our customers the excess costs savings we generated from underutilized health services, primarily in April of 2020. Through the first quarter of 2021, we have accrued a total of $140 million from the 2020 recovery credit program. Beginning in the fourth quarter of 2020, we have been busy returning these funds to our customers. In fact, in the first quarter, we’ve returned $27 million to our customer base. As a result of the 2020 recovery credit program, well over 50% of our installed base, who have renewed with TriNet are now signed to annual contracts. This has the impact of stabilizing our installed base, increasing our predictability and improving the renewal dialogue with our customers. During the first quarter, we again saw significantly lower health costs. As a result of this performance, we once again put all of our stakeholders first and established a new 2021 credit program. For this program, we accrued an incremental $25 million. The 2021 credit program is structured differently from our recovery credit program. It is our expectation that health costs will rebound over the course of 2021 which has already been captured in our forecast. As such, the amount of the 2021 credit program available to our customers will be contingent upon the full year performance of our health costs. Kelly will provide more details later. Ultimately, we believe the primary long-term outcome for 2021 credit program and the 2020 recovery credit program will be measured by greater customer satisfaction and retention. Finally, as the economic reopening and recovery take hold, we expect new sales to continue to improve throughout 2021. As we previously noted when the pandemic began, and the lockdowns proliferated, beginning in March of 2020, our new business growth drops significantly from our pre pandemic levels. Our prospects became far more concerned with the front of their business versus the back office of the business, or the survivability of their business rather than their HR services. In response, we had to change our approach to new sales, as well as the count for social distancing, which became the norm. As we reflect on our first quarter 2021 new sales performance, we finally saw the gap with our pre pandemic performance begin to shrink. We continue to add customers in our core verticals as we highlighted how being with TriNet is so much more than a vendor relationship. And as we look forward to the rest of 2021, we expect to build new sales growth through the balance of the year, as business activity re accelerates. In summary, I am pleased with our financial performance. Our vertical strategy has once again become validated through the durability of the customer base, and our customers continued record hiring and growth in the first quarter. Our 2020 recovery credit program achieved an acceptance rate of well over 50% across the fourth quarter of 2020 and first quarter of 2021 contributing to retention and resolving in a more predictable customer base. New sales are recovering, but we still have the opportunities for improvement, consistent with guidance outlined our earnings release, we expect sales to improve throughout the year. Ultimately, TriNet has demonstrated its commitment to our customers throughout the pandemic and beyond. And we believe we can leverage that commitment to drive growth in the future. I will now turn the call over to Kelly for a review of our financial performance. Kelly?

Thank you, Burton. Our view our first quarter financial results before discussing second quarter and full year 2021 guidance. With respect to our first quarter financial performance, I am very pleased with our results. We again benefited from our recent trends, strong performance from our installed base coupled with reduced health costs. During the first quarter GAAP total revenues increased 1% year-over-year, and professional service revenues were down 2% year-over-year, reflecting the 3% lower ending WSC's. GAAP total revenues came in slightly below our guidance as we accrued $37 million in the first quarter, $12 million for the existing recovery credit programs started in 2020 and an additional $25 million for our new 2021 credit program. Combined, these items reduced GAAP revenue by 3%. The 2021 credit accrual differs from our 2020 recovery credit program. First, this contra revenue accrual is allocated against insurance revenue only. Second, dispersion of this accrual is contingent upon the full year performance of our health costs. It is our expectation that health costs will rebound in the second half. If costs do rebound greater than what we're currently anticipating the accrual will be reduced proportionally in line with the excess costs up to $25 million. If costs do not increase greater than what we're forecasting, these funds will be made available to a portion of our customers. In the quarter average WSC's declined 4% to 321,000, compared to a pre pandemic first quarter 2020. As Burton discussed, we once again benefited from our customer selection as our installed base continue to hire. We did see some volume headwind of nearly 1% as our technology vertical experienced higher than normal M&A activity. Finally, we believe we have fortified our installed base for 2021 through our 2020 recovery credit program. Net service revenue in the quarter increased 9% year-over-year, largely driven by the outperformance of our net insurance margin. For the first quarter, we delivered a net insurance margin of just over 17% versus our first quarter guided range of 12.5% to 14.5%. Net insurance margin outperformed in the quarter, as we benefited from larger positive claims development as our fourth quarter reserves were paid during the first quarter. Given the higher paid claims activity in December, we had assumed higher levels of incurred but unpaid health costs. In fact, COVID-19 testing and vaccination costs were slightly higher than our forecast. However, once again, these higher than forecasted COVID-19 related costs were more than offset by reduced overall health services utilization, as we saw the paid claims activity in January and February play out. This underutilization enabled us to set aside $25 million for our 2021 credit program. In the first quarter, we delivered and adjusted EBITDA margin of 53%, five points above the top end of our guidance. We spent approximately $60 million to repurchase approximately 744,000 shares of stock in the first quarter. In addition, we reshaped our debt structure during the quarter, issuing longer dated debt at a favorable 3.5% interest rate. Our first quarter effective tax rate was 25%. In the quarter, the rate was lower due to the timing differences from the tax treatment of employee equity compensation. GAAP net income per share increased 15% to $1.51, compared to $1.31 per share in the same quarter last year, exceeding the top end of our guidance range by $0.17. Adjusted net income per share increased 18% to $1.66 compared to $1.41 per share in the same quarter last year, which exceeded the top end of guidance by $0.27. Overall, we view the first quarter as a really good start to 2021 as our core performance funded both the customer credit and allowed us the ability to lock-in longer duration debt. Turning to our 2021 second quarter and full year outlook. I will provide both GAAP and non-GAAP guidance. Please recall, that the initial accrual in second quarter of last year for our 2020 recovery credit program represented approximately 6% of GAAP total revenues and professional service revenues for the period. For the second quarter of 2021, we expect GAAP revenue growth of 12% to 14% year-over-year, and professional service revenue growth to be in the range of 10% to 14% year-over-year. Please note that in the second quarter, we expect to accrue just $5 million for our 2020 recovery credit program. The second quarter will be the final quarter where we accrue any meaningful amount for the 2020 recovery credit program. As such, the total amount accrued for this program and made available to customers will be $145 million. Regarding net insurance margin, we are forecasting a second quarter margin of between approximately 10% and 11%. In the quarter, we expect COVID related costs to continue primarily comprised of testing and vaccine administration as well as the normalization of healthcare utilization. Additionally, please recall that our adjusted EBITDA margin and earnings per share in the second quarter of 2020 benefited significantly from the reduced health costs, as health behaviors changed in response to COVID-19 protocols last year. We do not anticipate that recurring. We are forecasting our second quarter 2021 adjusted EBITDA margin to be in the range of 35% to 39%. We expect second quarter GAAP earnings per share to be in the range of $0.59 to $0.74 per share, or down versus last year due to last year’s significant underutilization of health costs. Finally, we expect second quarter adjusted earnings per share to be in the range of $0.70 to $0.86 per share. Turning to our full year guidance. Given our very strong first quarter performance, we are making a few changes. As I discussed earlier, we do expect health costs to rebound in the second half of 2021. In light of that we believe our full year guidance is partly de-risked by the fact that our 2021 credit program will be adjusted downwards by up to $25 million, should we experience additional health costs above our current expectations. Furthermore, the strong hiring and retention of our core verticals has improved our outlook and we've pulled up the bottom end of our guidance range. We are now forecasting our year-over-year GAAP revenue growth to be 9% to 11%, lifting the bottom end of our range by one point. Our professional service revenue forecast is now 8% to 10% year-over-year growth, an increase of two percentage points. The increase in our professional service revenue growth forecast is a result of strong hiring growth, retention in our core verticals and resilient pricing. We expect our 2021 net insurance margin to remain in the range of 10% to 11%. And we will closely be watching the developments in trends given our expected increase in utilization of health services in the second half of the year. Our full year 2020 adjusted EBITDA margin is now expected to be in the range of 38% to 40%, up one point on the bottom end of the range. We now expect GAAP EPS to be in the range of $2.86 to $3.31, an increase of $0.07 on the low end of the range, while the high end of the range remains unchanged. This reflects our strong core performance, which is funding the 2021 credit program, as well as covering the increased costs associated with our recently completed debt offering. Adjusted net income per share is now expected to be in the range of $3.42 to $3.90 or down 23% to down 12% year-over-year. The new adjusted net income per share guidance reflects a $0.07 increase to the bottom end of the guidance range. With that, I will return the call to Burton for his closing remarks. Burton?

Thank you, Kelly. In summary, our long-term commitment to our vertical strategy resulted in a vibrant and resilient installed base of customers. Our customers hire new employees at record rates, and we continued our strong financial performance. We once again leveraged our unique business model and financial performance to offer another credit program for the benefit of all our stakeholders. As the vaccination process takes hold, and the economy continues to reopen, we will continue executing our vertical strategy and build momentum in our business. We are well positioned to return to volume growth in 2021. Operator.

[Operator Instructions]. Our first question today comes from Tien-Tsin Huang with JP Morgan.

Thank you, thanks so much for your remarks. Maybe I'll start Burton asking you. Good afternoon to you guys. Burton, I’ll ask you about new sales. I'm curious if you're thinking or your target for new sales for the calendar year has changed versus 90 days ago, I know your prior outlook assumes some different ranges or outcomes around new sales. But as the rhythm of sales, are you thinking around that changed at all, or is insurance still sort of the hold up some of these to make a change here?

So I think about it every day Tien-Tsin. We started to close that gap from the pre pandemic quarter, which was very encouraging, as far as I can tell. I can't tell you when we return to normal, which includes selling in front of our prospects. I'm very happy with the rollout of the vaccines. And I love the way the model is showing during the pandemic, as reflected by not only closing the gap, but retention rates, et cetera. But you know me well enough to know I'm pretty impatient. And I'm glad that the gap is shrinking. But I want to be selling more to those right customers and the right verticals at the right price. So I'm cautiously optimistic and I'm highly focused in this area.

Yes, we'll keep tracking it. Maybe I'll ask my quick follow-up on the net insurance margin outlook here. Q1, like you said was way better than expected, full year is unchanged. The recovery does this new credit makes a lot of sense. I'm curious, just the line of sight on utilization healthcare utilization for the rest of the year. Has that thinking, change that at all. I know you have some cushion with the credit. But I'm just another question around visibility on the utilization side? Thank you.

Good to hear from you Tien-Tsin. As I'm thinking about utilization, and kind of what we saw in the month of March, we did see things like normal doctor visits come back, we did see lower utilization in terms of the flu and respiratory things probably due to social distancing. But we also saw higher utilization, as I mentioned in my prepared remarks, of both testing and vaccines. We're cautious as we're looking forward, because we're not sure how big that bounce back will be. And we think our guidance really reflects that level of caution. And it's just prudent that's early in the year.

Okay, thank you, Kelly. Thank you, Burton.

Thank you.

Our next question comes from Kevin McVeigh with Credit Suisse.

Great, thank you so much, and congratulations on the results.

Thank you, Kevin.

You're very welcome, Burton. It's well done, for sure. As you're thinking about the retention of folks that are leveraging the credits versus non -- your new way to maybe think about the brackets of overall retention, and then what the experiences for folks that are taken the credit versus not?

Kevin, I'll take that. When I'm looking at people that have participated, for the customers that participated, I think Burton mentioned in his prepared remarks that, over 50% of our renewal base has participated fully in our recovery credit program and they've less than 1% of those have traded. So we have had a noticeable difference in terms of attrition between those that fully participated in the recovery credit and those that didn't. Did that answer your question?

It did. I apologize, I missed that. And then, Kelly as you thinks about the margins at the lower end. Is 10% the floor in terms of as you would think about the progression of the quarters where would it have to be the full year before you reverse any of that? So in terms of from a downpipe side perspective, can we think it as 10% for floor would have to see the full year played out before you'd revisit those accruals?

I think we're going to be prudent and we're going to watch the year as it develops. I appreciate the question. But we did set 10% as the low end of our guidance, for sure.

Super, thank you so much.

Thank you, Kevin.

Our next question comes from Andrew Nicholas with William Blair.

Hi, good afternoon.

Good afternoon.

I understand the current environment is a bit unprecedented from a health care utilization perspective. But I'm wondering, given you've now instituted the second credit program, when do you expect it to become a more permanent aspect of your pricing strategy going forward. If you could kind of walk us through the thought process for why that would or would not make sense, in 2022, and beyond that can be really helpful. Certainly it seems like the program and its 2021 form will help limit some of the variability, you experienced on the insurance margin side, which I would imagine would be a positive development for the company going forward? So, just your thoughts there would be great.

Yes, great question. So, the transparency and value creation for our customers is a real critical aspect of our model, which as you know, is pretty unique in our industry. And you mentioned a couple of the key points are lack of volatility, et cetera. But the bottom line is, our first program, the recovery credit program demonstrated to our customers, the depth of our partnership, and the foundation for the long-term relationship, and it was expressed in a clear benefit. And as Kelly told you, over 50% of our WSC's are employed by customers who have committed to the annual contracts with the program, and of those customers less than 1% of the trade. So, it worked out and exceeded my expectations. As you look at it going forward, this was a way for TriNet stakeholders to benefit from the recovery credit program. And I am going to continue to look for innovative ways that we can differentiate ourselves by partnering with the customers.

Makes sense. Thank you. And then for my follow-up changing gears a little bit. I was hoping you could help us get a better sense for how you're thinking about the impact of the past year on the worker's comp book. How much of what I would assume was much lighter claims activity in 2020. How much that has already been accrued for? And if not, when would you expect that to flow through in the form of prior period adjustments? Thank you.

I appreciate the question. We did see favorable performance in workers’ comp in 2020. Most certainly, as we're looking forward, I think we priced our workers comp appropriately given the environment and given our expectations for loss. And we will continue to watch the trends and see how it comes out. I think you've noticed though some -- a portion of periphery development coming through maybe a little bit smaller this quarter than we've seen in past years.

Great, thanks again.

Thank you.

[Operator Instructions]. Our next question will come from Sam England with Berenberg.

Thanks for taking the questions. The first one. I was just wondering as we come out of the pandemic, how you think remote working trends might impact both TriNet and the PEO industry in general. And has it been something that's driven some of the new inquiries that you're seeing?

Yes, a great question. So, I believe we're emerging from the COVID pandemic in a solid position. And that our customers will continue to hire additional employees to support their business and growth plans. Many of those employees will be remote. And there's tremendous complexity, particularly if you cross state lines as it relates to hiring and retaining those employees. That complexity is suited particularly well for our business model, because we can make sure that they're paid right, the taxes are paid, right, and they have great benefits in all 50 states. So I believe that the combination of the model itself as well as our long-term commitment to this vertical strategy, and the hiring that's occurring bodes well for the future.

Great, thanks. And then the follow-up, I was just wondering how you thinking about the M&A environment in 2021 and also longer term. As the pandemic didn’t impacted, people's willingness to sell businesses? Yes, some thoughts around, that'd be great.

Yes, Sam, this is Kelly. I'll take that one. One thing I noted on the M&A front, I think it is still a robust M&A environment. I think Burton in his prepared remarks talked about the M&A for the tech sector, and that it had about a 1% impact on our WSC count due to robust M&A market. How we're thinking about M&A specifically, it really hasn't changed. In terms of capital prioritization, first, we're going to look at organic growth. Second, we will look at M&A, but it's got to fit our strategy and the type of business or geography where we want to be. And then lastly, we will participate in share repurchase opportunistically and at least to cover up dilution.

Great. Thanks very much.

Thank you.

Our next question comes from David Grossman with Stifel.

Thank you, good afternoon.

Hi, David.

Hey, Burton. I was hoping maybe you could shed a little more light on the WSC dynamic. I think, Kelly, just reiterate what you had said in your prepared remarks about a point impact from M&A. But if I look at that sequentially, it looks like WSCs were still down sequentially, than after normalizing for that. So, maybe you can help us understand just kind of where we are in this dynamic of kind of puts and takes in that WSC base. And with the recovering economic situation, is there some dynamic that -- and you had really high retention, just wondering why?

Yeah, let me take that. And then I'll pass it on to Burton to add anything he wants to relate to that. But if we look at it sequentially, usually first quarter or January, rather, is when a lot of people change PEOs. And they change it because they want to keep their WSCs sees with one W2 for the year, possibly. But, we do see probably the most churn in the month of January. After that we have seen growth. And as I'm thinking about our sectors, we saw hiring in tech, financial services and life sciences very strong. So even though there was a lot of M&A activity, we still saw a very strong net hiring and hopefully as the vaccine comes out that or as more people get fully vaccinated, and things open up even more, we'll see other sectors follow on. Actually in the first quarter, and then I'll pass it to Burton. For every single vertical except non-profit, we saw positive hiring, if that helps. Yes, Burton, you want to add anything?

Yes. David, so I would point you to Main Street, which has not recovered yet. When I pointed to his professional services fees were up and I was pleased with the revenue generated from our PSF [ph] taking out the net insurance margin. For me, it was a strong quarter, and I believe that frankly Main Street will recovery over time as well. So the hiring in the other verticals was great. Main Street has not recovered for us yet. But ultimately, I am very comfortable with where we ended Q1 is a great quarter to start from for the rest of the year.

Yes. One other thing to add to that is, you may not have seen it yet. If you look at our guidance, specifically, we did raise our PSF guidance by about two points. And so our guidance really includes our view of WSCs into the future and our perspectives on hiring sales attrition, and I think it bodes well by being able to raise our PSR guidance by 2%.

Right. So just kind of rolling all that together, though, is it really the sales dynamic in calendar 2020, that cadence the WSC growth in the march quarter, just given, again, retention, it sounds like was really good and hiring was pretty good, except for maybe Main Street. So isn't that dynamic that we're saying in the first quarter? I mean, of course, medically, we ended the quarter; you're going to have growth, if you hold that for the balance of the year. But just really trying to understand, is it really just a new sales dynamic last year that gated the WSC counts in the beginning of the year? -- At the end of the first quarter?

Yes, typically, we have seen to Q1 beat down lower sequentially in January, and new sales did close some of the gap, but it is the lagging pre pandemic. We were actually a little bit better from ending WSC perspective, and within our regular -- in our initial guidance.

Got it. And then just going into the recovery credit, I just want to make sure I understand the various dynamics there. So, it sounds like we're setting up a buffer right, for some of the volatility that we typically would see, well, continuing to get back and enhance retention. So, I don't know, if there's going to be a new normal. But, I think historically, we were thinking of what, like 11% to 13% net insurance margins in a normalized environment? Is that how you want us to think about the business with the credit, coming and going, year in and year out? Or do you have a thought on what the more normalized level should be including, kind of the accrual of the recovery credit or release when appropriate?

Our guidance for 2021 really is a 10% to 11% combined net insurance margin. We don't attempt to make money on health insurance overall. But we do price it to be able to cover our costs and our balance sheet risk. So, 10% to 11% is appropriate for 2021. And we're going to continue to watch trends as we move forward. But I'm not going to give us full year -- further outlook in that at this point, David.

Got it. And just one last question. Sorry, for the third question here. Did you say, this is just a cleanup modeling question. Did you say 3.5% interest on the new debt, or do you want to just, maybe you just can let us know what you think your interest expense will be for the year?

Yes, sure. It was the 3.5% coupon on $500 million of debt that was refinance. So, in terms of the guidance that we gave on a year-on-year basis, or quarter-on-quarter, I should say, we built in roughly $0.11 incremental associated with interest expense by being able to lengthen out that debt.

Okay, that's $0.11 year-over-year.

Yes. $0.11 really, versus our guidance we gave last quarter. So we answered, it'll hit us by about $0.11. So by not raising the top end, in effect was raising guidance by $0.11 could we cover off the debt financing costs.

Got it. Okay, great. Thanks very much,

Thanks, David.

This concludes our question and answer session as well as today's conference call. Thank you for attending today's presentation. You may now disconnect.