XPO, Inc. (XPO) 2022-05-10 Earnings Call Transcript

Welcome to the XPO Logistics Q1 2022 Earnings Conference Call and Webcast. My name is Laura, and I will be your operator for today’s call. [Operator Instructions] Please note that this conference is being recorded. Before the call begins, let me read a brief statement on behalf of the company regarding forward-looking statements and the use of non-GAAP financial measures. During this call, the company will be making certain forward-looking statements within the meaning of applicable security laws, which, by their nature, involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those projected in the forward-looking statements. A discussion of the factors that could cause actual results to differ materially is contained in the company’s SEC filings as well as in its earnings release. The forward-looking statements in the company’s earnings release or made on this call are only made as of today, and the company has no obligation to update any of these forward-looking statements except to the extent required by law. During this call, the company also may refer to certain non-GAAP financial measures, as defined under the applicable SEC rules. Reconciliations of such non-GAAP financial measures to the most comparable GAAP measures are contained in the company’s earnings release and the related financial tables or on its website. You can find a copy of the company’s earnings release, which contains additional important information regarding forward-looking statements and non-GAAP financial measures, in the Investor section of the company’s website. I will now turn the call over to Brad Jacobs. Mr. Jacobs, you may begin.

Good morning, everybody. Thanks for joining our call. With me today in Greenwich are Ravi Tulsyan, our CFO; Matt Fassler, our Chief Strategy Officer; Mario Harik, our CIO and Acting President of LTL; and Drew Wilkerson, President of North American transportation. As you saw, we delivered a quarter of record results with solid beats across revenue, net income, adjusted EBITDA and adjusted EPS, including our eighth straight quarterly beat on adjusted EBITDA. We grew revenue by 16% over last year’s first quarter, generating the highest revenue of any quarter in our history. We also had first quarter records for net income, adjusted EBITDA and adjusted EPS, which was up year-over-year by 58%. To reflect our momentum, we raised our full year financial outlook by more than the first quarter beat. We’re now guiding, at the midpoint, to adjusted diluted EPS growth of 26%. Both of our core North American businesses, LTL and truck brokerage, delivered double-digit revenue growth in the quarter. Our LTL network today is a very different business than it was just 6 months ago. Many of the network improvements we’re driving are ahead of plan. We expect our adjusted operating ratio to improve sequentially by more than 400 basis points for the second quarter. And we continue to expect our adjusted operating ratio, excluding real estate gains, to inflect to year-over-year improvement later in the quarter, and for the full year to be at least 100 basis points better than 2021. Our goal is to create a world-class LTL carrier that delights our customers and our shareholders. Turning to North American truck brokerage. We’re continuing to fire on all cylinders there. Our volume growth exceeded 20% for the sixth consecutive quarter. This best-in-class brokerage business is continuing to take share and do it profitably. First quarter margin dollars were up 21% year-over-year and rose 5% sequentially, outperforming typical seasonality in large part due to the effectiveness of our digital platform, XPO Connect. I’m pleased that we have a brokerage veteran lined up to lead the spin-off: Drew Wilkerson. Drew will be CEO, and he’s been the main architect of our brokerage growth since joining us in 2012, most recently as President of North American transportation. He’ll have a long runway to grow the business as a pure-play brokerage company. The spin-off process is on track, as is the planned divestiture of our European operations, which had an excellent first quarter. And finally, we’re pleased with the deleveraging we achieved in the first quarter. In 3 months, we brought our net leverage ratio down from 2.7x to 2x, which is at the top edge of our target range. So in sum, we produced an excellent quarter and raised our outlook. We have multiple company-specific avenues for value creation, including the spin-off of our tech-enabled brokerage platform, the ongoing transformation of our LTL business, the divestiture of our European operations and our continuing deleveraging. Now I’ll ask Ravi to cover our results and our balance sheet. Ravi?

Thank you, Brad, and good morning, everyone. Today, I will discuss our first quarter results, our balance sheet and liquidity and our outlook for the balance of 2022. For the first quarter, we delivered strong year-over-year growth in revenue, adjusted EBITDA and adjusted diluted EPS. Revenue in the quarter was a record $3.5 billion, up 16% year-over-year. The net impact of fuel prices and FX accounted for 2 points. Organic revenue growth for the quarter was 14%. We grew adjusted EBITDA by 15% to a Q1 record of $321 million. Adjusting for gains from real estate sales, the year-over-year growth in adjusted EBITDA was 25%. This reflects particularly strong growth in our brokerage and other services segment. Looking at a 2-year stack, adjusted EBITDA was up 55%. For the quarter, our adjusted EBITDA margin was 9.2%. Excluding gains from real estate sales, this was an improvement of 60 basis points year-over-year. Operating conditions in the quarter were favorable, and the pricing environment stayed firm. This was partially offset by inflationary pressures on labor and purchased transportation. Corporate costs in the quarter were down 19% year-over-year as we continue to optimize our corporate cost structure following the spin-off of GXO. Our interest expense during the quarter was $37 million compared to $65 million in the year-ago period. This reflects the paydown of approximately $3 billion of debt last year. The effective tax rate for adjusted EPS during the quarter was 23%. Our adjusted earnings per diluted share for the quarter was $1.25, which was up from $0.79 a year ago, an increase of 58%. This increase was primarily driven by higher adjusted EBITDA and lower interest expense. We generated $200 million of cash flow from continuing operations, spent $137 million on growth CapEx and received $3 million of proceeds from asset sales. Growth CapEx was up $63 million year-over-year with the majority of the additional spend going towards equipment purchases for the North American LTL business. As a result, our free cash flow was $66 million, which was above our expectation. This includes the impact of $15 million of cash outflows related to transaction costs that were not contemplated in our free cash flow guidance. We are making significant progress on our strategy to create 2 pure-play transportation powerhouses, and we remain on track to complete the spin-off of our tech-enabled brokerage platform in Q4 of this year. As part of our strategic plan, we took an important step last quarter when we completed the sale of our intermodal business for cash proceeds of $710 million, which represented a multiple of approximately 10x 2021 EBITDA. Including the proceeds from the sale of the intermodal business, we ended the quarter with $1 billion of cash on the balance sheet. This cash, combined with available debt capacity under committed borrowing facilities, give us $2 billion of liquidity at quarter end. We had no borrowings outstanding under our ABL facility. After quarter end, we repaid $630 million of 2025 notes. This was another significant step in our plan to reduce our debt and deleverage our balance sheet. Our net leverage at quarter end was 2x adjusted EBITDA. We are ahead of schedule on our deleveraging plan, and we now expect to be below 2x leverage before year-end. In light of our strong first quarter results and ongoing earnings visibility, we updated our full year guidance after market close yesterday. Our new full year guidance for adjusted EBITDA is $1.35 billion to $1.39 billion. The update reflects our first quarter outperformance, the sale of the intermodal business and our strong outlook for the remainder of the year. The real estate assumptions we gave you in February remain the same. For the second quarter, we expect our adjusted EBITDA to be $360 million to $370 million. Pro forma for the intermodal sale, the midpoint of our second quarter EBITDA guidance implies a year-over-year growth rate of 15%. We have raised our outlook for full year adjusted EPS to a range of $5.20 to $5.60. This increase reflects our new EBITDA guidance and the reduction in interest expense resulting from our paydown of debt. The midpoint of our adjusted EPS guide implies year-over-year growth of 26%. On the cash flow front, our outlook for full year free cash flow remains $400 million to $450 million. As a reminder, our outlook excludes all transaction-related cash outflows. Our full year guidance for depreciation and amortization expense is approximately $385 million, down from $400 million, reflecting the sale of the intermodal business. We expect interest expense of $150 million to $160 million, down from $170 million to $180 million previously. There is no change to our previous guidance for CapEx and the tax rate. In conclusion, we are continuing to execute on our strategic plan, and we remain excited about our prospects for the balance of 2022. I will now turn things over to Matt.

Thanks, Ravi. I’ll review our first quarter operating results, starting with our North American LTL segment. We grew LTL revenue by 15% year-over-year to $1.1 billion, the highest revenue of any quarter in our history. Excluding fuel, we grew revenue by 9% year-over-year. We had a 0.8% decline in tonnage per day, which represented 4.1 percentage points of acceleration from our fourth quarter growth rate as our network flow improved. The 4% increase in the level of weight per day from the fourth quarter nicely outpaced typical seasonality. Yield, excluding fuel, increased 9% year-over-year. Our weight per shipment growth of 2% increased from flat in the fourth quarter, and our length of haul increased 0.2% versus a 1% increase in the fourth quarter. Adjusting for these factors, underlying pricing trends were stronger. The LTL pricing environment remains firm, and we’re driving yield with our own company-specific pricing initiatives. Our yield growth is even stronger this quarter to date. Our LTL adjusted operating ratio was 85.7%. That’s 140 basis points higher than the first quarter a year ago and significantly better than the 200 basis point year-over-year increase we guided to in February. Both numbers exclude gains from real estate, and note that, consistent with our guidance, we booked no such gains in the first quarter. And sequentially, our adjusted OR improved by 180 basis points from the fourth quarter, which was notably better than our typical seasonality. The single biggest driver of the year-over-year increase in our adjusted operating ratio was the higher cost of purchased transportation. Third-party linehaul miles as a proportion of total linehaul miles increased in the quarter to 24.5% from 23.9% a year ago. This aligned with our plan to use more third-party linehaul in the near term as volume recovered prior to our onboarding new capacity. In addition, most of our purchased transportation is subject to contractual pricing. Headwinds from this pricing are starting to abate as we cycle big truckload price increases from a year ago, and as new linehaul contracts cycle in. Those are the highlights for North American LTL. In our brokerage and other services segment, we grew revenue by 17% to a record $2.4 billion and adjusted EBITDA by 31% to a record $164 million. Adjusted EBITDA margin for this segment expanded by 60 basis points to 6.7% from 6.1% a year ago. The largest revenue and profit driver in this segment is our North American truck brokerage business, which had another outstanding quarter. This will be the core business of our planned spin-off later this year. We increased our brokerage loads per day by 23% versus a year ago and up 52% from 2 years ago. First quarter truck brokerage revenue rose 38% year-over-year. Margin dollars rose 21% against another tough comp and nearly tripled from the first quarter of 2020. On a sequential basis, margin dollars in the first quarter were 5% higher than in Q4. Our truck brokerage growth reflects our strong execution in a dynamic market. Drew will speak more about the specific drivers in a minute. Organic revenue in Europe grew 5%, accelerating by 2 percentage points from the fourth quarter. We saw acceleration in organic revenue growth in both the U.K. and in France, our two largest European geographies, and we’re pleased with our resilience in the context of uncertainty in the European environment. We expect to continue to build on our position as a leading provider of truck brokerage and LTL in the U.K., France and Iberia within our broader pan-European platform. We’re grateful for some external recognition we received during the quarter. General Motors named us Supplier of the Year for the fourth straight year. In addition, we were recently given VETS Indexes employer status for our strong record of hiring members of the military community. Last week, we published our fourth annual sustainability report, which details our progress on ESG initiatives and our materiality index for 2021. You can download this report online. Finally, I want to mention that we plan to hold separate investor events later this year for both our brokerage SpinCo and our LTL RemainCo prior to completing the spin. We’ll use those events to give you a deep dive into our longer-term vision and key financial targets for each stand-alone company. Now I’ll turn it over to Mario for his comments on North American LTL.

Thanks, Matt, and good morning, everyone. As Brad said, LTL is a very different business than it was 6 months ago. Our network is much more fluid and balanced. We’re realizing significantly stronger service metrics in key areas such as on-site transit and freight handling. The sharp rebound has brought our network efficiency back to pre-pandemic levels. Our investments in capacity are on track, and we’re rolling out new, proprietary technology to improve pricing and drive further productivity. Most importantly, there is widespread excitement across the LTL team around the many new initiatives we’ve launched to optimize the network. I’ll give you an example. This month, we kicked off a national initiative to further improve the quality of our trailer loading and on-time delivery. We’re also engaging with customers on best practices in how they package their freight. When we announced this initiative, it triggered a tidal wave of enthusiasm in the field. In just a few weeks, we’ve seen great momentum building in the organization. Our goal is to create a world-class LTL carrier that delights our customers and our investors. It won’t happen tomorrow, but the commitment is there, and we’re already moving in that direction. I wanted to give you the backdrop first because the transformation we’re undertaking in LTL helped us beat our guide for adjusted operating ratio in the first quarter. In February, we guided to 200 basis points of year-over-year degradation, reflecting our continuous progress in moving the operating ratio back toward year-over-year improvement. In reality, we did better than the guide. Our Q1 degradation was just 140 basis points. This gave us an adjusted operating ratio ex real estate of 85.7% for the quarter. We expect to inflect to year-over-year improvement in adjusted operating ratio at some point later this quarter, as we said we would. And we’re on target for a year-over-year improvement of more than 100 basis points in adjusted operating ratio ex real estate for the full year. We plan to drive hundreds of additional basis points of OR improvement in the coming years to get the ratio well into the 70s. And importantly, the underlying trends are favorable. We reported record first quarter revenue of $1.1 billion, which is 15% higher than last year. Our year-over-year yield improvement was a first quarter record at 9%. Tonnage was down slightly year-over-year within the rates we told you to expect. When you look one step deeper, the sequential trends are also positive. Growth in revenue per shipment accelerated every month in the quarter. Our yield also accelerated throughout the quarter with the strongest gains coming in March. We’re operating in a very robust pricing environment. Our tonnage in the quarter was up 4% sequentially, which is better than typical seasonality. Usually, our tonnage is flat from Q4 to Q1. And as I mentioned, the momentum in our operating ratio is building ahead of plan. We expect our second quarter adjusted operating ratio to improve by more than 400 basis points from Q1 to Q2. So the business is very much on track. Now I want to cover some of the first quarter actions we took to expand our capacity and deploy technology. These are the two main areas where we’re investing in growth. We recently opened new terminals in California and Georgia. These sites bring our net new doors to 345 since October, against a target of 900 net new doors added by year-end 2023. So we’re more than 1/3 of the way there. The San Bernardino terminal will serve growing demand from manufacturing and retail in Southern California. And the Atlanta terminal expands our capacity in one of the largest LTL regions in the South. It also gives us a larger gateway into Florida. These 2 sites will be growth levers for us in 2023 and going forward. We’re also making great progress in expanding our fleet of trailers. In the first quarter, our manufacturing facility in Arkansas produced more trailers than any other quarter in our history. We also opened new fleet maintenance shops in Florida, Ohio, Nevada and New York, which will help us manage maintenance costs. We continue to budget for growth CapEx at 8% to 9% of revenue this year. And, again, we’re on plan. On the technology front, recent developments include the ongoing application of our proprietary pricing platform, which is driven by advanced automated analytics around customer shipment data. This means our pricing experts are now able to focus more time on analyzing account performance, and we can negotiate with better results. In Q1, our price increases on contract renewals accelerated to 11%. In April, we brought on board David Phalen as Senior Vice President of Pricing for LTL. David’s career includes decades of success in optimizing pricing for transportation sectors, including the airline industry, where he specialized in pricing and yield management. In other developments, we launched automated billing for accessorials to make sure we capture those revenue dollars. And we rolled out a new digital dashboard with self-service tools to enhance the customer experience. This quarter, we’ll be introducing proprietary cost models to enhance visibility into cost management levers as well as new piece-level tracking functionality for our network. So to sum it up, our comprehensive growth and optimization strategy for LTL comes down to one goal: we’re creating a world-class LTL carrier. And we have every confidence that we’ll succeed at this goal, just as we succeeded in dramatically increasing LTL returns over the first 6 years we owned the business. We continue to expect to generate at least $1 billion of adjusted EBITDA in LTL in 2022. This is nearly triple the adjusted EBITDA generated by the LTL network in 2015, when we acquired it from Con-way. What you’re seeing from us in 2022 is that we’re full steam ahead, laser focused on efficiency and superb customer service. And our momentum will continue to grow, because we have the support of our people, who are some of the best LTL operators in the industry. Now Drew will cover truck brokerage. Drew?

Thanks, Mario. North American truck brokerage had another very strong quarter. We continue to do what we do best, outpace the industry on volume growth, operate at a strong margin and use our experience and technology to make sure our customers’ freight gets where it needs to be. In the first quarter, our loads were up year-over-year by 23%, driving a 38% increase in revenue. It was our sixth consecutive quarter of load growth over 20%. And margin dollars were up year-over-year by 21%. That’s more than double the increase in the fourth quarter. Gross margin per load increased sequentially from the fourth quarter, and our margin percentage was a very healthy 16%. So a strong start of the year, and we continued with the same strong trends in April with both volume and margin percentage. We built our model as a growth engine that’s working exactly as we intended. There are five compelling advantages specific to our platform. First, 68% of our business is contract based, and about 75% of that contract revenue is locked up on an annual basis. This gives us good visibility into the future revenue performance. Second, we have many long-term customer relationships with blue-chip market leaders across diverse verticals. These customers think of us as a strategic partner. Our top 10 brokerage customers have an average tenure with us of 15 years, and our top 20 customers have a tenure of 13 years. Third, we’re continuing to expand our pool of independent carriers who provide our customers with truck capacity. This massive capacity is at the heart of our value proposition. As of March, we have relationships with 88,000 carriers in North America and access to more than 1.5 million trucks. Fourth is our XPO Connect technology, which continues to attract customers and carriers to our business. Our first-mover advantage with brokerage technology is one of the main drivers behind our rapid growth. XPO Connect lets us capitalize on two interrelated secular trends that work in our favor. More shippers are outsourcing truckload transportation to brokers, and increasingly, these shippers want digital brokerage capabilities. At the same time, more carriers are realizing that we can give them access to thousands of loads on a daily basis. Carriers and customers love to do business with us because we have a state-of-the-art digital platform. In the first quarter, the number of registered carriers on XPO Connect year-over-year was up 39%, registered customers were up 41% and weekly carrier usage was up 59%. We also surpassed 700,000 cumulative downloads of our mobile app. And 74% of our loads were created or covered digitally in the quarter, which is up 4 points sequentially. That number is already trending higher in the second quarter. The fifth compelling advantage is our exceptional truck brokerage management team, all of whom will be joining the spin-off. It’s a privilege to work with these great operators and technologists since the early days of XPO. Together, we’ve built a best-in-class brokerage platform that delivers outsized results and puts us in a strong position to spin off as a pure play. As a new company, we’ll manage about $7.5 billion of transportation spend and continue to innovate the business to grow it from there. From day 1, it will be easier for investors to appreciate our flexible, asset-light business model, our economic resilience and our very high return on invested capital. We’re excited to take this business to the next level as a separate public company when the spin-off is complete. With that, I’ll turn it over to the operator, and we’ll go to Q&A. Question-and-Answer Session

If you think about the consumer to services, obviously we’re in the goods business, so we’re moving both consumer goods and industrial goods. Obviously, the industrial economy is still on its way back. Mario spoke about the opportunity for loosening of supply chains to - as we see more raw goods and unfinished goods make their way into the - make their way into our customer supply chains. You’re going to see better revenue momentum from industrial customers, and there have been signs of that continuously in LTL. The consumer has obviously had a couple of very good years. Consumer has very strong balance sheet and is in very strong shape. And if you think about our brokerage business, where load growth was up 23%, consumer customers - or rather consumer companies comprise the majority of our customer base and revenue in that business. So that’s some indication of what we’re seeing from the consumer. Q - Bruce Chan:

Ladies and gentlemen, we have reached the end of today’s question-and-answer session. I’d like to turn this call back over to Brad Jacobs for closing remarks. Brad Jacobs:

This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation. Enjoy the rest of your day.

[Operator Instructions] Our first question comes the line of Ken Hoexter with Bank of America. Q - Kenneth Scott Hoexter:

Our next question comes from the line of Scott Group with Wolfe Research. Q - Scott Group:

I think a sale is.

Our next question comes from the line of Chris Wetherbee with Citigroup. Q - Christian Wetherbee:

Our next question comes from the line of Brandon Oglenski with Barclays. Q - Brandon Robert Oglenski:

Our next question comes from the line of Tom Wadewitz with UBS. Q - Michael Paul DiMattia:

Our next question comes from the line of Jonathan Chappell with Evercore ISI. Q - Jonathan Chappell:

It’s Matt. I’ll speak about the impact that the divestiture of intermodal had on our guidance for the second - for the rest of the year. And hopefully, that will help you get an answer to your question.. So if you look at the delta from the guidance that we issued at the end of the fourth quarter entering the year and the guidance that we just gave you today, we had about $60 million of adjusted EBITDA modeled for intermodal for quarters 2 through 4. That’s obviously out. The guidance change reflects that coming out plus the first quarter beat, which versus the midpoint of the range was about at $38 million, and at the midpoint about $12 million of additional EBITDA. So, an intrinsic raise for the rest of the business for quarters 2 through 4. Obviously, the increase in EPS range reflects all those factors as well as the lower interest expense, reflecting the debt paydown from the proceeds of the intermodal transaction.

That’s helpful, Matt. And obviously, intermodal is a better-margin business. But, I mean, is there any just guide you can give at all, 20, 50, 70 basis points, what that may mean to the pro forma adjusted operating ratio in brokerage going forward? Or is it too early to say? A - Matthew Jeremy Fassler:

Our next question comes from the line of Allison Poliniak with Wells Fargo. Q - Allison Ann Marie Poliniak-Cusic:

This is Drew. On the second part of your question, we’re in the early innings of continuing to go out and take market share within our truck brokerage team. Obviously, we’ve grown volume by 20% for 6 consecutive quarters. So overall, this is - the trucking industry is a $400 billion for-hire trucking market. Of that, brokers have about $88 billion. And we’re - our brokerage is roughly $3 billion. So when you look at it, we’ve only got about 3% share of the market. Our technology has given us first-mover advantage and is allowing us to continue to go out and take share.

Our next question comes from the line of Scott Schneeberger with Oppenheimer. Q - Scott Andrew Schneeberger:

Yes. So thank you for the question. So on the cycle, you look at it right now and rates are up on a year-over-year basis overall. As we start heading into the back half of the year, there are a few indicators that show you that capacity could actually tighten as the year goes on. First, you’ve got beverage season, which is coming in, and that’s going to create about 100, 120 days where your major beverage distributors pick up their volume during that time. You also have DOT checkpoint week that comes in over the summer, which typically causes a little bit of chaos in the market. And the third thing is you have a lot of built-up demand that’s sitting in the ports of China that’s going to come over and hit the U.S. ports. So all of that tells you that it could tighten up a little bit as we head into the back half of the year. On our digital orders, it’s something that you’re going to continue to see go up into the right. I don’t think that there’s a limit to what we can do. Obviously, we’ve invested in technology from day 1. It’s been an 11-year investment for us, and it’s something that has allowed us to become sticky with both the customers and the carriers that we’re working with. So we expect that to continue to go. And it’s one of the things that - our technology, as you hit on, is one of the things that allows us to come in and have best-in-class EBITDA margins, and we’ll continue to see gains off of that.

Great. Appreciate that. And then Brad, as the founder and largest shareholder, you had in April another transaction in the shares. Could you just update us and remind us kind of your strategy with regard to your ownership in the company going forward? A - Brad Jacobs:

Q - Bascome Majors:

Well, our search and the management lineup is still ongoing. We don’t have anything new to add to that. In terms of timing, as soon as it makes sense. We’re not going to rush it. We’re not going to delay it. As soon as it make sense, then we’ll do it. In terms of the other question you had about internal versus external, we’re considering all possibilities. So long story short, we’re staying flexible, as we always are.

Our next question comes from the line of Christopher Kuhn with Benchmark Company. Q - Christopher Glen Kuhn:

Thanks for the question, Christopher. Our digital orders trend in line with our overall orders as far as margin percentage goes. It does allow us to leverage the SG&A leverage, though, Christopher. So the EBITDA margins can be higher. Q - Christopher Glen Kuhn:

Our next question comes from the line of Brian Ossenbeck with JPMorgan. Q - Brian Patrick Ossenbeck:

Yes, absolutely. Thank you for the question. On big picture, we’ve got a model that is proven as working. So we want to continue to execute the model. It has allowed us to go out and to grow volume by over 20% for the last 6 quarters, and it’s allowed us for the last 8 years to outperform the industry revenue growth by more than 3x. So we’re going to continue to execute on the model. But there’s three things that I’m focused on right now. The first is continuing to build out an exceptional management team that complements the great operators and technologists that we have in the business. The second piece is to go out and continue to delight our customers and service our customers extremely well and go out and continue to outperform and take market share. And the third is to continue to evolve XPO Connect. Our goal for XPO Connect is to have that to be the go-to tool for shippers as they are using that to make their transportation decisions, whether it’s what mode of transportation that they’re using, whether it’s what day of the week they’re shipping something or if they should consolidate something. We want that to be their go-to tool. On the third - on your last point on headcount, we are continuing to add headcount as we go forward. And as you look at it, over a 5-year trend, volume still significantly outpaces head count that we’ve added. Q - Brian Patrick Ossenbeck:

Our next question comes from the line of Bruce Chan with Stifel. Q - Bruce Chan: