Marriott Vacations Worldwide Corporation (VAC) Q2 2013 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, thank you for standing by. Welcome to the Marriott Vacations Worldwide Second Quarter 2013 Earnings Conference Call.[Operator Instructions] This conference is being recorded today, July 18, 2013. I would now like to turn the conference over to our host, Mr. Jeffrey Hansen, Vice President, Investor Relations. Please go ahead, sir.

Thank you, Liz, and welcome to the Marriott Vacations Worldwide Second Quarter 2013 Earnings Conference Call. I'm joined today by Steve Weisz, President and CEO; and John Geller, Executive Vice President and CFO. I do need to remind everyone that many of our comments today are not historical facts and are considered forward-looking statements under federal securities laws. These statements are subject to numerous risks and uncertainties as described in our SEC filings, which could cause future results to differ materially from those expressed in or implied by our comments. Forward-looking statements in the press release that we issued this morning, along with our comments on this call, are effective only today, July 18, 2013, and will not be updated as actual events unfold. Throughout the call, we will make references to non-GAAP financial information. You can find a reconciliation of non-GAAP financial measures referred to in our remarks in the schedules attached to our press release, as well as the Investor Relations page on our website at ir.mvwc.com. I will now turn it over to Steve Weisz, President and CEO of Marriott Vacations Worldwide.

Thanks, Jeff. Good morning, everyone, and thank you for joining our second quarter earnings call. This morning, I will discuss our results for the second quarter of 2013, which represents yet another quarter of strong growth in our adjusted development margin and adjusted EBITDA. I'll also provide updates on our business strategies and outlook for the second half of the year. I will then turn the call over to John, who will provide additional detail on our financial results. And we'll then open the call for your questions. The second quarter continued our trend of solid financial results. Adjusted EBITDA increased $20 million to $48 million, reflecting across-the-board improvements. Our total contract -- the total company contract sales were down 7% year-over-year, which was not completely unexpected, as it was driven mainly by the closure of underperforming offsite sales distributions in our Asia-Pacific segment late last year. North America contract sales were essentially flat quarter-over-quarter due to fewer sales tours as our owners' usage behavior continues to evolve. As our enrolled week-based owners utilization of the Points product has increased, owners are taking advantage of the flexibility of the points program to book shorter lengths of stay or elect alternative usage options like our Explorer program. These changes in owner usage patterns have created some short-term challenges in generating owner tours. We continue to adjust our tour servicing methodologies and incentives and are confident this near-term reduction in tours will be mitigated over time. To that end, we are maintaining our guidance that North America contract sale will be up 5% to 10% for the full year. Longer-term, we remain focused on balancing our sales growth between existing owners and new buyers as we continue to drive development margin improvement. Offsetting the slight decline in tours was 8% growth year-over-year in North American volume per guest, or VPG, reaching $3,211 in the second quarter. This was driven mainly by a 1 percentage point improvement in closing efficiency over last year, combined with the increased pricing. We were also very pleased with our adjusted development margin performance that grew over 4 percentage points to 17.1% in the second quarter. Continued improvements in marketing and sales spending drove nearly 3 percentage points of the increase, primarily from the shutdown of less efficient offsite sales distributions in our Asia-Pacific segment and improvements in Europe. Product cost accounted for the remaining improvement, mainly driven by the ongoing success of our inventory repurchase program. Looking at our North America segment. Our adjusted development margin improved nearly 3 percentage points to 19.5% in the second quarter, with roughly 2 percentage points being driven by lower product cost rates and 1 percentage point from marketing and sales. As you can see, we are making great strides towards our longer-term goal of 20% or better for development margin. As we mentioned in the last quarter, we expect our rental business to have a solid year, and the second quarter was right in line with our expectation, again, driven by North America. As we continue to improve our understanding of our owners' usage patterns, we are able to make more inventory available for rent, which resulted in capturing additional transient rental revenues. We saw this benefit in the second quarter with a 9% increase in available keys and an 11% increase in our transient keys rented versus the second quarter of last year. For the quarter, total company rental revenues net of expenses were $9 million, up $7 million from the prior year. Our resort management and other services business showed a steady improvement, up $3 million over the second quarter of 2012 to $16 million. This improvement was driven by increases in club dues and management fees, as well as improvements in our ancillary operations. In our Asia-Pacific segment, we once again are seeing the benefit from the closing of underperforming sales distributions last year, with development margin growing by $1 million. Our Asia-Pacific strategy remains unchanged, continue to drive development margin improvements, while seeking new destinations that will provide strong on-site sales distribution. In our Europe segment, adjusted segment results saw a $4 million improvement in the quarter, resulting from a $3 million increase in adjusted development margin driven by lower sales and marketing cost. We remain on strategy to sell out of this region and continue to operate and manage our portfolio of European resorts. Shifting to G&A, cost increased $2 million over the second quarter of 2012. Our second quarter results benefited from $1 million of incremental savings related to our organizational and separation related efforts, as well as $1 million from lower depreciation expense. However, our G&A costs also reflected normal inflationary growth, a higher legal costs and incremental stand-alone public company costs. For the full year 2013, we anticipate our G&A cost will increase year-over-year, driven mainly by inflation, the impact of a 53rd week of costs due to our fiscal recording calendar and higher legal and public company costs. However, we expect these increased costs to be partially offset by roughly $5 million of savings related to our organizational and separation related efforts, which we expect to realize throughout the full year. Given the strong first half and our outlook for the remainder of the year, we feel comfortable that we will finish the year at the higher end of our adjusted EBITDA and adjusted development margin guidance. We are also increasing our cash flow guidance, which John will speak to in a moment. Our strategies have not changed. We remain focused on top line and adjusted EBITDA growth, as well as continued development margin improvement. And with that, I'll turn the call over to John.

Thank you, Steve, and good morning, everyone. The second quarter continued the trends of improved development margin and increased adjusted EBITDA we saw in the first quarter. Our largest segment, North America, saw a $13 million improvement in the sale of vacation ownership products or what we call development revenue. This improvement was driven by $11 million of favorable revenue reportability and $3 million of lower sales reserve, as the performance of our notes receivable portfolio has improved over last year. Contract sales in the quarter were flat due to lower tour flow, as Steve mentioned. The favorable revenue reportability had a $3 million positive effect on reported development margin, increasing the margin by 130 basis points to 20.8%. Conversely, in the second quarter of 2012, due to promotional activity, reported development margin was impacted unfavorably by $3 million, reducing development margin by nearly 200 basis points. Adjusting for the impact of reportability in both years, development margin increased 2.7 percentage points to 19.5% in the second quarter from 16.8% last year. We have said before that reportability can affect our results on a quarter-over-quarter basis. However, we do not expect revenue reportability on an annual basis to have a material impact on our North America margins. Staying in North America, market and sales costs were responsible for nearly 1 percentage point of development margin improvement over the second quarter of 2012. This resulted from a 1 percentage point improvement in closing efficiency, as well as higher pricing, driving an 8% growth in VPG. Marketing and sales spend was effectively flat quarter-over-quarter on increased development revenue. Product cost in this segment improved nearly 2 percentage points even though the second quarter of last year benefited from a positive product cost true-up of $3 million. Our 2013 product cost improvements reflect the success of our inventory repurchase program. We continue to believe product costs will remain at approximately 33% for 2013. In our rental business, our second quarter results improved in North America by $7 million. As we continue to better understand owner behavior, including their tendencies to bank their points, we were able to open transient rental availability sooner in the year, allowing us to drive higher revenues. Shifting to our rental outlook for the year, Marriott Rewards pre-Spin liability costs, which negatively impacted 2012 full year results, have moderated, but remain a potential headwind in the second half of the year. Also, realize that the first half of the year is typically stronger for our rental business than the second half due to seasonality. However, we do expect the second half of 2013 to be better than last year, and we still expect year-over-year results to be materially better for the full year versus 2012. Shifting to our resort management and other services business, revenue net of expenses improved $3 million to $16 million in the quarter. Most of the improvement in the quarter came from our internal exchange company, which produced an additional $2 million of improved results year-over-year, as well as improved ancillary operations. In our Asia-Pacific segment, our development margin continued to improve, increasing by $1 million to $2 million on significantly lower sales volume due to the shutdown of less effective offsite sales galleries in the region. Turning to our Europe segment. I want to take a moment to talk about an issue that we identified in the second quarter. During an internal review, we discovered that certain sales documentation that we had provided some of our buyers did not meet the technical format required under applicable European regulations. The result of this was that the period of time that the purchasers had to resume their contracts was extended beyond the normal rescission period. Remember, under GAAP, revenue cannot be recognized until the rescission period has ended. Originally, we recorded revenues from these sales based on the rescission periods in effect assuming compliant documentation had been provided to the purchasers. As a result, we recognized revenue in incorrect periods between 2010 and 2013. During the second quarter, we took corrective measures, including providing proper documentation for purchasers who were still in an extended rescission period. As a result, approximately $9 million of pretax income was recognized in the second quarter of 2013 related to these sales. Putting aside the timing of the revenue recognition, the bottom line impact to the company was that approximately $2 million of sales ultimately rescinded, which equates to approximately $1 million of pretax income. It is important to note that this issue was isolated to our Europe segment, and there was virtually no other impact to the company's financials. However, since this income was previously reported in prior-year results, for comparability, we have excluded the income from our adjusted results in the second quarter and made corresponding adjustments to the prior periods. Turning to our financing business, revenue net of expenses were down $4 million in the quarter, as reduced expenses from lower foreclosure activity roughly offset lower interest income year-over-year. However, after subtracting interest expense from our securitized debt, our financing profit was up $1 million over the second quarter of 2012. For the full year, we expect financing revenue net of expenses and securitized interest expense should be flat to 2012. In terms of the securitization market, while we have seen some increase in interest rates, rates remain extremely low compared to historical levels. We expect to complete a securitization later in the third quarter on terms more favorable than the securitization we completed last year. Turning to our balance sheet and liquidity position, since the end of 2012, real estate inventory balances have declined $19 million to $862 million, and total debt outstanding decreased $31 million to $687 million, including $643 million in nonrecourse debt associated with securitizations and $40 million of mandatorily redeemable preferred stock of the subsidiary. At the end of the second quarter, cash and cash equivalents totaled $104 million, and we had $124 million of vacation ownership notes receivable available for securitization. We also had $160 million in available capacity under our revolving credit facility at the end of the quarter. With respect to our free cash flow, we have had positive movement in several areas that have favorably affected our 2013 free cash flow outlook. First, you may recall that we previously projected our cash taxes would exceed our tax provision by approximately $5 million. Now with some successful tax planning, particularly around our election to use the installment method as it relates to our finance contract sales, we are now expecting our cash tax position to turn around significantly, providing a cash flow benefit of over $40 million as compared to our previous estimates. Recall prior to the Spin-Off, Marriott International handled these tax efforts. As part of standing up our new tax process in conjunction with the Spin-Off, we are focused on opportunities to improve cash taxes, as well as reduce our overall effective tax rate. While the $40 million include certain onetime benefits, we do expect future cash flow improvements from these tax planning efforts. Second, in consumer financing, we have seen slightly higher cash sales, as well as higher notes receivable collections than we had previously forecasted. These changes are improving our projected cash flow position by roughly $20 million. These changes have enabled us to raise our outlook for adjusted free cash flow for the year, excluding the impact of organization and separation related charges and litigation settlements by $65 million to $120 million to $135 million. Remember, the $120 million to $135 million guidance includes near-term puts-and-takes which are still affecting our free cash flow in 2013, including the Marriott Rewards pre-Spin liability pay-down, lower cash taxes and lower inventory spend. Our 2003 (sic)[2013] free cash flow, normalized for these items, would be between $115 million and $120 million, which is approximately $5 million to $10 million higher than last quarter, reflecting the improvement from lower cash taxes. In addition to our adjusted free cash flow guidance, as a result of a lower projected effective tax rate for 2013, we are also raising our adjusted net income guidance to $72 million to $78 million and adjusted fully diluted earnings per share guidance to $1.94 to $2.10 for the full year. Lastly, as Steve discussed, we believe the full year adjusted EBITDA and adjusted development margin should be at the higher end of our issued guidance range for 2013. Our second quarter was a solid continuation of the year and is providing great momentum for the second half. In closing, we continue to meet and exceed our established targets and are very pleased with the progress to date. And while we do not know what the future holds, we are cautiously optimistic that the macroeconomic conditions will continue to improve through the remainder of 2013. As always, we appreciate your interest in Marriott Vacations Worldwide. And with that, we will now open up the call for Q&A. Liz?

[Operator Instructions] And our first question comes from the line of Robert Higginbotham with SunTrust.

To start with, and just to make sure I understand your comments around the tour flow issues during the quarter, is it that typically or historically your tours would be full-week long but then the availability of those units is now a little bit more volatile? Is that what is happening?

You're partially on track. Under the old week-spaced sales program, where people were in residence for 7 days consecutively, they typically would not have a problem taking a couple of hours out of a day to go take a tour. Now under the points-based program, which as you know, many of our week-spaced owners have converted to, they are -- generally have -- are -- they are for shorter lengths of stay, call it 4 or 5 days, and they are also using their points to do other things, like take cruises, go on safaris and all the other stuff. So we have less of an opportunity to encourage our owners to take tours. That's point number one. Point number two, as you know, we converted to the point-based program in summer of 2010. We have been talking to our owners since then about the advantages of joining the points-based program. And as you might imagine, we've now been through the bulk of those owners in terms of talking to them. So as we pivot to more first-time buyers, we are getting fewer owner tours going to first-time buyers. As we have made that transition, it takes a while to generate more first-time buyer tours than it does owner tours. As I said, this is a very short-term issue for us, and we believe that we're well-positioned to be able to respond to it.

I guess, that's kind of the heart of my question to make sure I understand that. I don't -- not sure I understand what is short-term about that. I mean, that seems it's structural.

When you say you think it's structural, I've -- we've always said that we wanted to move from 60% owners to -- and 40% first-time buyers to more of a traditional 50-50 split. We are moving in that direction. And I don't see that to be a structural problem at all.

Robert, I -- well, I think what he is saying is, the shorter stays and some of the alternative usage, time will tell that usage could go back to longer, Robert, we'll see, but, yes, we don't know. What Steve's saying obviously is, we'll react to those changes and go after more new term buyers, which is our strategy anyway to replace those cores.

Okay, so it's more of a transition from that 60-40 mix to the 50-50. Once you get there, it's a little more stable.

Correct.

Correct.

Okay. So moving on to rental, to make sure, again, I understand those comments. It sounds like you were able to make more inventory available earlier in the year versus last year, and so you saw a huge improvement in rental revenues for the second quarter. My question is, to the extent that, that was dynamic where -- well, is that a dynamic that's related specifically to the second quarter to the extent that you're releasing inventory or making it available earlier in the year such that we shouldn't expect to see that same level of strength in the back half of this year?

Yes, I'll give you an initial comment and let John chime in as well. As we have moved into Points, we obviously had -- while we have modeled certain availability of rental inventory based on people going outside the system for cruises, et cetera, we had no assurances of that our estimates were going to be accurate. What we found last year was that there was a higher take-up rate. I think we've talked about this in some of the investor meetings that we've had, that the number of people using our Explorer program exceeded our expectations by a considerable margin. So I would say, last year, we were more conservative about making that rental inventory available for sale earlier. This year, we switched based on that -- the knowledge we were able to gain last year. We had better forecasting in place to be able to make our decisions about when to release that inventory for rental. And now we're seeing the benefit of being able to do so and monetize that what otherwise would be vacant inventory.

Okay, so that sounds like an improvement in your management of that, that you should see through the rest of the year, there's...

Yes, well, there's one real caution here. And one of the reasons why we went through some pains to kind of call this out. Keep in mind, the first half of the year in our business, rental revenues, because of ADRs and everything else, are traditionally higher than the second half. So while it may be tempting to kind of annualize through Q2 and say, "Well, okay, rental revenues net of expenses are going to be X," I would encourage you not to think of it that way. I'll give you one other kind of factoid, which we hope will not repeat itself this year. Through the second quarter of last year, we had about $10 million of rental revenues net of expenses on the books. At the end of the year, we finished at essentially flat, at a net 0. That was because our Marriott Rewards cost, which are really not within our control for those points that were issued pre-Spin, came back at a higher rate than what we had anticipated. We believe that a, our top line revenues in the second quarter will be better than they were last year for the things we talked about earlier. And we are quite hopeful that the Marriott Rewards cost will not increase as they did last year. But I just want to caution you that in terms of your model, et cetera, you might not want to kind of straight line the second quarter results.

Got it. That's helpful. And this might be splitting hairs a little bit, but when you look at your adjusted COGS, it was -- cost of sales of vacation ownership, it was about 33.3%. Granted that's about 33%, which you've talked to more recently, but you've kind of -- for a couple of quarters, that is. But you've kind of suggested more recently that it would be below that number, and I'm just wondering if there's anything that did not come through as expected.

Well, I recall very specifically saying that we think our product cost is going to run 33% for the year. If you want to quibble over 0.3, I guess we can certainly do that. I'm not suggesting that your calculation is incorrect, but we still believe that it's going to be 33% for the year.

Okay. And in more recent times, you kind of suggested that it will be both -- close to 33% but below 33% was my point. Last thing and I'll let someone else on, on the securitization front. I'm kind of surprised that your comments around being -- about to make a deal that's more favorable than last year given the increase in rates. I guess, my question is, how is that possible, number one? And then, I guess, even more importantly, how should we think about funding costs and spreads next year and beyond?

Well, I think it's possible because we did our deal around this time last year. If you look, interest rates and spreads continue to get better in the securitization market over the fourth quarter. And, really, even through the first part of this year, you've seen an inflection point of those interest rates back up, but they haven't gone up as high as they went down from last year. So my comment being from a historical -- and last year, if you remember, we did it all in -- our cost of funds was about 2.6%, which for us was a all-time low. And just given where levels are at, we still expect to do maybe something inside of that hopefully this third quarter, so obviously, a little bit more volatility, but the market -- the rates still remain at historic lows. On a go-forward basis, obviously, I can't predict what interest rates are going to do, but remember, we price off kind of the 3-year LIBOR swap rate because that's the weighted average length of these securitizations. So I think you're seeing more volatility towards the 10-year and the longer-term rates than you'd see towards the shorter term. So as those rates potentially move up, that would -- obviously from a -- what we might do this year, you might get lower spreads. But remember, on a more normalized basis, our overall interest rate has typically been more in the 4% to 5%. So we are still burning off securitization deals at that higher interest rate. So even if you were doing new deals at 3%, 3.5%, you're still improving the overall portfolio spread because you're still below kind of your weighted average rate on your books.

And our next question comes from the line of Bob LaFleur with Cantor Fitzgerald. Robert A. LaFleur - Cantor Fitzgerald & Co., Research Division: I want to get a little more in depth about the whole shift of sales from an overreliance on existing owners to more frontline sales. How much of that is proactive, as in you guys saying, "Okay, it's time to make the move from 60% to 50%," and how much of it is reactive and just seeing that the programs you were using to get more out of existing owners just aren't as effective as they were a year or so ago? And talk about the various levers that you have because obviously, there's margin differentials between the 2 baskets, there's close rate differentials. And I guess, kind of in the context of that conversation, what exactly are you managing that business for? The guys who are running that business, are they managing for specific metrics, like tour volume or VPG? Is it a revenue number? Because there's so many different ways that you can make that up. If you could just kind of talk about that and help us better understand how that business is being managed day-to-day.

All right. That's a round-up question. Let me see if I can take each of the pieces as we go along. The industry hit the downturn late '08[indiscernible] everybody in the space started getting out of their higher-cost, lower-yield channels, which were largely focused on our first-time buyers, and they were rewarded to try to establish to their existing customer base.[indiscernible] because we knew, a, these are people that were familiar with the product or like the product and b, they carried a lower cost. Now as the economic environment has changed, not dramatically, but it's been incrementally getting better, we all knew that at some point in time, it was going to go back to[indiscernible] several different reasons for that, obviously getting more first-time buyers. Every time they get a new first-time buyer, they not only come with sales, they also come with a basket of referrals, but we would not have normally gotten, which ultimately results in lower sales and marketing. At the same time, with us, our first-time buyer average contract price is higher than our average contract price with our existing owners because our existing owners are essentially topping off their tank by buying additional points to add to what they already have. So we have already -- we had always anticipated, in fact, I think even going back to the[indiscernible] roadshow that we did 1.5 years ago, we said that we aspire to get back to more of that 50-50 mix. So we have to working[indiscernible] to try to do it but we weren't[indiscernible]. We've made a commitment to the investment community that we want to improve our development margin. So we didn't want to just start them -- opening up a lot of first-time buyer channels that were not cost efficient. And at the same time, we wanted to try to get more first-time buyers. The way the sales organization is managing that is incentive is a combination of the revenue growth and cost control. They are virtually equally weighted in terms of how their compensation programs work. So if you think that through, that we want more sales on the top line, but we also want to do them at the appropriate sales and marketing costs, which is -- given certain targets that we've established for them. So while it might be tempting for a sales person to go out and simply get kind of that high-cost, high-volume sale, it -- they get pulled back because they say, "Well, wait a minute, that's going to -- I'm going to get messed up in terms of my compensation because my sales and marketing comps are not going to work right." So we've had those metrics in place for a long time. We believe it is the right way to do it. We continue to kind of tweak those on a year-over-year basis based on specific things we want to try to accomplish. But that's essentially the approach we've used. Did I touch your questions? Bob? Hello? Robert A. LaFleur - Cantor Fitzgerald & Co., Research Division: Yes, sorry about that guys. You had a bit of phone issue there, so you faded in and out a little bit, but I think I got most of it. And I have one more question, which is much simpler and much shorter, and that's, if you could give us an update on the land sale program, expected timing and proceeds, how you're thinking about that now versus when you were looking at it that's been...

Yes, our view has not changed materially. We still think that it's between $150 million and $200 million over the next several years. We continue to get a fair amount of interest on many of our parcels. One of the things that we have said, and just so that everybody knows, we will announce a land sale when it closes, not when we have either a letter of interest or letter of intent or a contract. We'll announce it when we close because, as you know, these things can go bump in the night at the last moment. But I'm happy to report that there -- the level of interest has not only remained the same, it's actually gotten a little stronger. And we still feel very confident about those numbers.

[Operator Instructions] And our next question comes from the line of Chris Agnew with MKM Partners.

Can I follow up on the tax benefit this year, and just -- is that onetime in -- a permanent onetime benefit this year, or is that reversing anytime soon? And what are the implications from the tax planning that you're putting in place for 2014?

Yes, Chris, it's actually -- there is going to be future benefit out of it. There is some higher onetime benefit this year due to -- the rates changed a little bit in 2012, which allows us to recapture what we did in 2012, as well as obviously get the benefit here in 2013. But the way to think about it in terms of reversing, as long as we're in the financing business, right, you're going to be originating new notes. And all this is effectively doing is putting you on a cash basis for tax so that on sales that we finance, we take the note, while we'll now pay the taxes when we receive the principal collections or collect that sales price, if you will, on those notes. So it should -- over time, it will continue to build. And that's why on a more normalized basis, I think last time we had said expect our cash taxes in our provision or -- basically to be the same on a more normalized basis. And then we've adjusted it now so that there's about $10 million or so of -- on a more normalized basis of positive cash flow because we think we'll continue to get that over the foreseeable future.

Got you. And just to clarify, what should we be thinking about in terms of the provision in -- just for the income statement?

For this year...

For the full year.

Yes, for the full year, we're probably a little bit over 40%, give or take, call it 40.5%. And most of the improvement there, what we've been seeing, it was in the international area, which has hurt us in the past, if you remember in terms of a higher effective rate, due to some of the changes we've made in Europe and Asia. And now we'll have more tax -- well, income internationally, as well as we did get some favorable lower tax rates in 1 foreign jurisdiction. That's going to bring down that effective rate here this year.

Okay. Got it. And then, can I -- sort of a minor point, but can you talk about the extended rescission in Europe? Was there a change there? Or what was the change year-over-year in your reported results? And then also, what are the implications for the third quarter stroke, maybe second half of the year, if any?

Yes, there shouldn't be any implications related to the reportability issue going forward just because we put the right documentation in place. So I wouldn't expect, from a reportability, to see any going forward. Yet -- the -- there was -- there were changes that occurred in the regulations over in Europe, and so part of what caused this extended rescission period was the fact that some of the documentation wasn't complete that we had provided. We did an internal review, and upon finding the issues, we corrected that here in the second quarter. From a GAAP perspective, it just becomes a timing issue because, as I mentioned, the overall contract sale volume that rescinded because of this period that was extended was a couple of million dollars in contract sales or about $1 million or so of profit. So obviously, we have that inventory to resell, but all we've done is -- for this year and then the prior year numbers will be adjusted as we go forward for comparability purposes is recast that revenue recognition based on those extended rescission periods. Because obviously, we didn't know there was an issue when we recorded that revenue originally, so we used the normal rescission period. But GAAP now, since we found out afterwards, caused us to go back and kind of recast it. So it makes, for reported GAAP purposes, it very lumpy, and that's why we've kind of adjusted it back to really what went on from a pure economic perspective in terms of when the contracts were signed, when we closed on them and how that revenue originally flowed through the P&L.

[Operator Instructions] And I am showing no further question. Please continue.