FedEx Q2 FY21 Earnings Call Transcript – December 17, 2020

A. Mickey Foster

Vice President, Investor Relations, FedEx Corp.

Good afternoon and welcome to FedEx Corporation’s second quarter earnings conference call. The second quarter Form 10-Q, earnings release, and stat book are on our website at FedEx.com. This call is being streamed from our website where the replay will be available for about one year. Joining us on the call today are members of the media. During our question-and-answer session, callers will be limited to one question in order to allow us to accommodate all those who would like to participate.

I want to remind all listeners that FedEx Corporation desires to take advantage of the Safe Harbor provisions of the Private Securities Litigation Reform Act. Certain statements in this conference call such as projections regarding future performance may be considered forward-looking statements within the meaning of the Act. Such forward-looking statements are subject to risks, uncertainties, and other factors which could cause actual results to differ materially from those expressed or implied by such forward-looking statements.

For additional information on these factors, please refer to our press releases and filings with the SEC. Please refer to the Investor Relations portion of our website at FedEx.com for a reconciliation of the non-GAAP financial measures discussed on this call to the most directly comparable GAAP measures.

Joining us on the call today are Fred Smith, Chairman and CEO; Raj Subramaniam, President and COO; Mike Lenz, Executive Vice President and CFO; Mark Allen, Executive VP, General Counsel and Secretary; Rob Carter, Executive Vice President, FedEx Information Services and CIO; Brie Carere, Executive Vice President, Chief Marketing and Communications Officer; Don Colleran, President and CEO of FedEx Express; Henry Maier, President and CEO of FedEx Ground; and John Smith, President and CEO of FedEx Freight.

And now, Fred Smith will share his views on the quarter.

Frederick W. Smith

Chairman, President & CEO, FedEx Corp.

Thank you, Mickey. Let me make one administrative comment. Due to the COVID-19 situation, we have four members of our SMC spatially distanced in the one room and then five members of the SMC are participating by Zoom with us. So, we may be a little clunky here handing off for the answers, but that’s the reason.

Let me first thank our FedEx team, nearly 600,000 strong. These team members have continued to keep the world moving amid the pandemic, transporting medicines, protective gear and all the things our customers need for daily life, and all of our B2B customers need to run their industries. And now our team is acting on months of rigorous planning to transport COVID-19 vaccines safely and on time. We have no higher priority as a company.

Time-definite express transportation of critical shipments is exactly what our air-ground network was built to do. And we have the experience, unmatched global network and technology solutions needed to effectively play our role in helping to eradicate this awful disease. Particularly important has been the recent roll-out of our new proprietary SenseAware ID system, which provides real-time visibility of vital shipments like the vaccines.

In addition to this critical work, we’re in the midst of our peak holiday shipping season where we expect record-breaking volumes. Our strong revenue and earnings growth during the second quarter is another reflection of the continued hard work of our team members and their commitment to our customers. We’re very confident in our strategies and extremely optimistic for FedEx’s future.

Let me now ask Brie, Raj and Mike, who I’d like to officially welcome to his first earnings call as our CFO, to provide their comments, after which we will take your questions. Brie?

Brie Carere

Chief Marketing and Communications Officer & Executive Vice President, FedEx Corp.

Thank you, Fred, and good afternoon, everyone. With the coronavirus in its third surge in many countries, the near-term economic outlook remains unclear. In the US, goods spending is above pre-pandemic levels, powered by gains in e-commerce. We are also seeing growth beyond the consumer as drivers of business activity are increasingly in place.

Inventory restocking and a strong recovery in capital goods spending are supporting industrial production. Positive developments on the vaccine front should strengthen the appetite for investment. However, the service sector does remain challenged and faces short-term uncertainty against the latest virus surge. When the health emergency ends and pent-up services demand is released, we should see a long growth runway.

International growth rebounded in the third quarter of calendar year 2020 with the goods sector outperforming services. Global industrial production and merchandise trade volumes are close to a full pre-COVID recovery. Sentiment among manufacturing firms is solid, while trade growth is becoming more broadly based around the world. China’s economy has surpassed pre-COVID levels and is leading a strong recovery in East Asia. In contrast, however, Europe has been slower to recover and faces short-term headwinds from virus containment. While uncertainty remains high, vaccine prospects are increasing confidence in the medium-term outlook.

As I discussed last quarter, the acceleration of e-commerce has had a profound impact on our industry. This holiday shipping season has certainly proved that. The pandemic has accelerated the growth of e-commerce volumes. In the first nine months of 2020, US e-commerce sales grew 33% year-over-year, while traditional retail sales, excluding auto, gas, and food services, grew a little more than 1% year-over-year. E-commerce package volumes are expected to more than triple to 111 million packages per day by 2026, up from 35 million in 2019.

On the last call, you heard me coin this peak season as the Shipathon, as we prepared for unprecedented levels of online shopping and shipping this holiday season. We have worked very closely with our customers to get the shop early, ship early message out to consumers, and we’ve been incredibly pleased with their response.

While available capacity across the entire industry has been severely constrained, we have worked with our customers to develop innovative solutions to meet their capacity needs this peak. The proactive steps we took to prepare for the growth of e-commerce, including the expansion of FedEx Ground’s seven-day-a-week US residential delivery, investments in automated facilities and our retail convenience network have certainly paid off.

We expanded Sunday residential delivery to nearly 95% of the US population in September. Since then, we have made more than 50 million Sunday residential deliveries. Our investment in seven-day delivery has given us a speed advantage for e-commerce that is near impossible to match without a national Sunday delivery offering.

The convenience of our retail network has led to record volume growth, with more than 60% increase in average daily volume from October 15 to November 30. We are very pleased with our Walgreens and Dollar General alliances and the services they are providing our customers and, of course, a huge shout out to the FedEx Office team who always does an incredible job at peak.

We have also set new record highs in returns volume for the past six consecutive months. With the return season upon us, we expect these record highs to continue over the next several months. I am incredibly proud of how we have grown our digital e-commerce portfolio.

FedEx Delivery Manager monthly enrollments have increased more than 70% year-over-year this fiscal year-to-date. And, of course, we are thrilled to expand our digital portfolio with the pending ShopRunner acquisition. It is no secret that the success in e-commerce lies at the intersection of a superb physical network and incredible digital capabilities. Raj will talk more about this later.

Turning to revenue quality, we have remained laser-focused throughout this peak on ensuring capacity for customers is at the right price, enabling us to provide the best possible service for all of our customers. Our revenue quality strategy requires the right balance of yield management, surcharges and, of course, product and customer mix.

As discussed last quarter, the implementation of several peak surcharges has played a critical role in our revenue quality strategy this peak, helping to offset, of course, the additional expenses associated with the unprecedented volume and the virus surging. I believe peak surcharges for the holiday season are the new normal for our industry.

In FY 2021 Q2, FedEx had a total US domestic residential package volume of 67% versus 57% a year ago. With the increase of residential packages in our networks, we’ve been very focused on effective yield and product mix. In FY 2021 Q2, we have increased SmartPost yield by more than 20% year-over-year and overall US domestic residential yields by 10% year-over-year. We announced yesterday that we would modify several surcharges post peak, and those will be effective January 18, 2021.

Finally, paramount to our revenue quality strategy is the growth of our small and medium segment. As such, we continue to protect the majority of our small and medium customers from the SmartPost peak and temporary surcharges. We are taking market share in the small and medium segment, and it is our strongest growing volume segment year-over-year.

We are increasingly digitizing our go-to-market strategies to improve their customer experience, while continuing to help the small and medium businesses grow their business despite the challenges they have faced this past year. As Fred discussed, FedEx is proud to be one of the two primary carriers of the COVID-19 vaccine in the United States. We will play a critical role in the distribution of vaccines around the world for months to come.

Now, let me turn to international. Current estimates indicate that as of October, the global air cargo market capacity was down 23% year-over-year due to the significant reduction in passenger aircraft line. Air cargo demand is expected to recover to pre-COVID levels faster than passenger capacity for key intercontinental lanes creating an opportunity for FedEx.

Currently, Asia to US and Asia to Europe passenger capacity is expected to recover to pre-COVID levels by 2023, and Europe to US is expected to recover by 2024. Our goal is to profitably take market share and keep it beyond the capacity shortage internationally. As such, we are prioritizing business from small and medium customers and reprioritizing any volume from resellers, ensuring we protect the business that will stay with FedEx for the long term.

We are balancing near-term profitability, while strategically growing our customer base internationally. With constrained capacity, we have adjusted transit times and embargoed our deferred services. We will continue to lean into international e-commerce, as it remains a significant international market opportunity. It will also enable improved flight density to further increase revenue per flight.

E-commerce will, however, drive lighter international parcels, so yield per pound will become an increasingly important metric. In Q2 2021, international export air express yield per pound was up double digits year-over-year globally.

So, in summary, I am incredibly pleased with our performance during this past quarter. We’ve nimbly navigated the Shipathon, all while planning for key initiatives that will positively impact our business for many years to come.

And with that, I’ll turn it over to Raj for his remarks.

Rajesh Subramaniam

President & Chief Operating Officer, FedEx Corp.

Thank you, Brie, and good afternoon, everybody. Let me start by echoing Fred’s sentiments in thanking our global team members, especially those on the front line who are working diligently to keep the world in motion during this truly unprecedented time.

We are in the midst of an extraordinary peak season with Shipathon, as we handle record-breaking volumes and deliver strong service for our customers. While our regular peak season falls in November and December, our preparations this year were months in the making. In many ways, we have been operating at peak-like levels since March, due to surges in e-commerce volume. We planned meticulously throughout this year, including collaborating with our customers on innovative solutions, enhancing capacity through new and repurposed facilities, and leveraging the flexibility of our network to ensure we are well positioned to deliver during our busiest holiday shipping season to date.

As we handle these record volumes, we’re also delivering the first wave of COVID-19 vaccine shipments here in the US. In fact, on December 14, at 5:53 AM Eastern, the FedEx Express courier made the first US vaccine delivery to Boston Medical Center in Boston, Massachusetts. Our team stands ready to transport additional vaccine shipments internationally as they become available. This effort is among the most important work in the history of our company, and we are honored and proud to be a part of the effort to help end this pandemic.

And as Fred highlighted, our unparalleled Express network was built for time-definite shipments such as these vaccines. The scale of the FedEx network is massive, comprised of 680 aircraft, 200,000 vehicles, and most importantly, our nearly 600,000 dedicated team members around the world. The power of our networks is such that FedEx can pick up a shipment in most any one part of the world and deliver to most any other part of the world in a matter of couple of days.

And the distinction between our networks means that each will have the dedicated resources they need to deliver quickly and safely. And it is precisely this power that will be critical in delivering our very important mission at hand, the mission to distribute COVID-19 vaccines. Simply put, a global health crisis of this scale requires a network of our scale to address. This is who we are and what we do.

Now, turning to Q2; we delivered strong results across the board. Mike will provide details, but I would like to highlight that we achieved volume, yield and significant profit growth in each of our transportation segments this quarter. These results were largely driven by many of the strategic investments and decisions we have put in place over the last 18 months to address the growing e-commerce market.

These include expanding the US Ground residential delivery to every day of the week; integrating SmartPost package volume into the Ground network to improve density; investing in technologies that enable real-time decisions and optimize the critical last mile; building our networks’ capabilities and expanding services to more efficiently handle an increase in large items, and accelerating the expansion of our retail convenience network with Dollar General, Walgreens and of course, our own FedEx Office locations.

These initiatives increase density, improve last-mile efficiency, and help us prepare for the peak season. Indeed, Q2 was a critical quarter for FedEx Ground with the culmination of many of these foundational initiatives.

Now, turning to FedEx Express, they simply had a banner quarter. This record revenue performance is a direct reflection of the global Express team’s laser focus on executing our profitable growth strategy and operational excellence. The TNT physical integration remains on track, even amid shutdowns during the pandemic. We continue to build a strong portfolio,

leveraging the benefits of further network integration to pave the way for success in Europe for years to come.

And finally, FedEx Freight had another outstanding quarter with a double-digit operating margin. The Freight team remains focused on profitable growth and revenue quality. As I said, the success of Q2 was a direct result of the strategy we kick-started nearly two years ago, and we are well-positioned for the future of FedEx.

During our September Shareholders’ meeting, we introduced our new strategic operating principles, which are: compete collectively, operate collaboratively, and innovate digitally. The shift in our operating principles is yet another step in our long-term future-ready strategy.

Let me take a moment to talk about each in turn. Compete collectively remains our core. Each FedEx operating company offers a unique value proposition, and they each play a vital role in delivering on customer expectations. It is when these companies compete collectively, under the powerful FedEx brand, that we unlock new opportunities for our customers.

Brie has already touched on the various ways we’re unleashing value for our customers, and so I will focus on the two new principles, operate collaboratively and innovate digitally. Operate collaboratively is an important and strategic shift for FedEx. While our networks and the expertise that lies within our operating companies are, and will remain, independent, we are building a holistic collaborative approach to compete in the dynamic market. By operating collaboratively, we help ensure that we have the right package in the right network at the right cost to serve. We’ve discussed various examples of collaboration in previous earnings calls, including last-mile optimization and FedEx Freight’s ongoing support of FedEx Ground. These are just a couple of ways we’re adapting, collaborating and utilizing different elements of our network to increase efficiency and reduce cost to serve.

The final principle, innovate digitally, is how we will deliver the future for our customers, shareholders and team members. The size and scale of our network and the many millions of packages that traverse it every day gives us a bird’s eye view of global supply chains and trends. Beyond our physical infrastructure is the technology that drives our network and generates a significant amount of data. We’re focused on using this data and technology to unlock stronger performance, strengthen customer relationships and drive greater efficiency.

Over the recent weeks and months, we have made significant strides on our journey to innovate digitally. First, the formation of FedEx DataWorks, a new organization focused on putting our data into context, and using it to transform the digital and physical experience of our customers and team members. Second is the recently announced agreement to acquire ShopRunner. This platform will accelerate our ability to play a larger role in e-commerce by connecting brands and merchants to new shoppers, thus improving online shopping experiences. ShopRunner’s existing customer brand and merchant base, product capabilities and team of professionals will drive significant value as we expand our e-commerce portfolio. This recent digital momentum, combined with our ongoing collaboration with Microsoft and the launches of SenseAware ID and FedEx Surround, will allow us to harness the immense data we collect to identify new ways to work even smarter. As Fred said, we remain very confident in our strategies and the future of FedEx.

With that, let me turn it over to Mike for his inaugural call as the Chief Financial Officer. Mike?

Michael C. Lenz

Executive Vice President & CFO, FedEx Corp.

Thank you, Raj, and good afternoon, everyone. Before I move into the financials, I’d like to highlight a few points as the new voice on the call. First, I’d like to recognize the legacy of Alan Graf in building the world-class team I now lead, and thank him for his leadership and guidance along the way. The values and standards he instilled are an exceptional foundation for me to build upon in the years ahead.

Next, I have appreciated the opportunity to meet with many of you on the call today over the past few years and hear your perspectives. I look forward to continuing that important dialogue and sharing what’s ahead for FedEx. And hopefully, with a post-COVID environment becoming more visible, the opportunities to connect will expand in the months ahead.

Finally, I must say how inspiring it has been to see Team FedEx in action from my new vantage point, from the executives on this call to the frontline team members working tirelessly as we speak to deliver in this unprecedented environment. It reinforces what we have said before, that the strategies we have in place are future-ready and make me truly excited for what lies ahead.

Turning to the results. I’m very pleased with our second quarter performance. Second quarter adjusted operating income increased 121% year-over-year, primarily due to International Priority volume growth of 32%, continued strong demand for US residential delivery, pricing initiatives, operating margin improvements across all our transportation segments, and a $70 million benefit from the reduction in aviation excise taxes provided by the CARES Act. These factors were partially offset by higher costs driven by the package volume surge and expanded service offerings at FedEx Ground, an approximate $215 million year-over-year increase in variable compensation expense, and an approximate $50 million in COVID-19-related costs to ensure the safety of team members and customers.

These COVID-19-related costs that we have quantified are limited to increased operating expenses related to personal protective equipment, medical and safety supplies, and additional security and cleaning services. And they do not include cost of network contingencies, including additional personnel in place to support our operations through the COVID pandemic.

For the quarter, all three of our transportation segments posted strong results. Driven by the strong global volume growth, Express revenues increased $1.3 billion. Coupled with solid operational execution, Express generated an adjusted operating margin of 9.1%, up more than 500 basis points, and a record second quarter adjusted operating profit of $943 million.

The Ground segment operating margin improved 110 basis points to 7.5% as our strategies to capitalize on the rapid growth of e-commerce continue to advance. The Freight segment earned a stellar 13% operating margin, the best second quarter margin in 15 years by focusing on revenue quality and aligning cost to volumes.

We incurred a pre-tax, non-cash mark-to-market net loss of $52 million related to amendments to the TNT Express Netherlands Pension Plan. Benefits will be frozen, and affected employees will begin earning pension benefits under a separate multi-employer defined contribution plan.

Our effective tax rate was 12.8% for the second quarter, compared to 2.1% in the prior-year period. This year’s tax rate was favorably impacted by a tax benefit of $191 million, primarily attributable to favorable depreciation guidance issued by the IRS during the quarter. That compares to the prior-year period, which included a tax benefit of $133 million on substantially lower earnings.

We ended the quarter with $8.3 billion in cash and equivalents, and with $3.5 billion available under our credit facilities. Looking forward, we are not providing a forecast of expected earnings per share for the remainder of fiscal 2021. While current business demand continued to improve in the second quarter, the current rise in COVID-19 cases globally adds significant uncertainty to demand forecast as well as operating costs, and clouds our ability to forecast full-year earnings.

However, based on the current trends in our business, we anticipate increased demand to result in higher year-over-year revenue and operating income at FedEx Ground and FedEx Express for the remainder of fiscal 2021. In addition, yield management and improved productivity is anticipated to contribute to revenue and operating income growth at FedEx Freight in FY 2021.

If our current trends continue, we expect higher variable compensation accruals and increased labor costs to be incurred during the remainder of fiscal 2021. In addition, we expect a higher effective income tax rate for the second half of the year versus the first half.

During the third quarter, we also expect to see headwinds from aircraft maintenance costs and the end of benefits from the CARES Act. In addition, the third quarter will have one fewer operating weekday versus last year.

We incurred $48 million of TNT integration expenses in the second quarter, down from $64 million in the prior-year period. We expect the aggregate integration program expense to be $1.7 billion through the completion of the physical network integration of TNT Express into FedEx Express in early calendar 2022.

As we approach the completion of the physical network integration in early 2022, we are evaluating opportunities and pursuing initiatives in addition to the integration to further transform and optimize the FedEx Express international business, particularly in Europe.

The cost of the ShopRunner acquisition, which Raj highlighted earlier, will not be material, and will be funded with existing cash balances. We expect to complete the transaction this month.

We continue to expect our FY 2021 capital expenditures will total approximately, $5.1 billion, which is $800 million lower than last year’s capital spending. While we won’t finalize our FY 2022 capital spending plan until our fourth quarter, we expect that our FY 2022 capital spending will increase versus this year.

In FY 2022, we plan to make additional investments in our FedEx Ground network driven by the surge in e-commerce demand. Our CapEx focus remains on strategic investments that will reduce our cost structure, improve our efficiency, and increase our capacity to profitably meet market growth demands.

I’ll close by reiterating our excitement and confidence in our future as we continue to benefit from our strong position in the US and international package and freight markets, yield improvement opportunities and cost management initiatives.

And with that, we can turn to the question-and-answer session.

QUESTION AND ANSWER SECTION

Operator: Thank you. We’ll go ahead and take our first question from David Ross with Stifel. Please go ahead.

David Ross

Analyst, Stifel

Yeah. Thank you very much. Henry, probably a question for you on the Ground side, and seeing growth there, and I know that there’s a lot of investments going on to make sure all the packages get delivered. Right now, it’s only showing about a 10% incremental margin, and everybody wants to get back closer to mid-teens.

How should we think about, everything going on at Ground, the investments weighing on the margin, and then the consolidation of SmartPost into Ground helping the margin as we move over the next couple of years?

Henry J. Maier

President & CEO, FedEx Ground, FedEx Corp.

Thanks, David. Well, as Mike said, margins in the second quarter improved 110 basis points, and operating income improved 61% year-over-year. Given the very unique environment leading up to peak, our resource ramp-up looked very different than it had in prior years.

Peak preparation expenses were much higher, and occurred much earlier than in the past as we anticipated, the potential impacts of COVID on resource availability, and the timing of customer volume coming into the network. We are, and have been – or we have been and continue to be extremely aggressive in the hiring of new package handlers. In fact, we’re still onboarding record numbers of package handlers as we speak.

We recognized new challenges for service providers and adding drivers and vehicles, so we pulled their peak settlement rates forward by a number of weeks to better enable their businesses, to be ready for peak. All of these things drove higher-than-normal operating expenses associated with peak preparation than we normally incur in Q2.

Merits and accruals for variable comp also affected year-over-year comparables. Investments in preparation for this year’s peak included capacity additions in the shape of 6 new regional sort facilities, 4 new automated stations, 8 new or expanded large package facilities, and expanding more than 50 facilities with additional automation and material handling equipment.

A number of these facilities came online much later this year than it is acceptable than in years past due to permitting and construction delays due to COVID-related shutdowns last spring. In fact, if you think about a regional sort facility, which employs about 500 handlers, the last one came online the weekend before Thanksgiving, which would have been 4 to 6 weeks later than would have been acceptable in any other year.

As Brie stated, in the second quarter, we expanded our coverage of seven-day residential service from 60% to 95% of the US population. This expansion required the addition of sorts in automated package processing facilities as well as the additional preloads that formerly didn’t exist on Sunday in roughly 50 stations.

Finally, assuming no significant change in the business conditions as we see them today, we expect margin improvement to continue year-over-year in each of the next two quarters. Thanks for your question.

Operator: And we’ll go ahead and take our next question from Brandon Oglenski with Barclays. Please go ahead.

Brandon Oglenski

Analyst, Barclays Capital, Inc.

Hey. Good afternoon, everyone, and thanks for taking my questions. Maybe this one is for Raj or Brie. Can you guys just dig a little bit deeper into the ShopRunner acquisition because I think in the prepared comments and also the release tonight, you talked about how you really want to integrate better with retailers and customers on an end-to-end basis? So, is this more about the current user base of ShopRunner or is this offering incentives to the retailers there or is this even more a play on the technology of the company? Thank you.

Rajesh Subramaniam

President & Chief Operating Officer, FedEx Corp.

Thank you, Brandon. Let me start, and then I’ll turn it over to Brie. Firstly, just to put it in perspective here, the technology and the talent are very critical components of this, and the fact that the technology platform that connects brands and merchants to consumers is very important. Now, the important thing also is the combination of those capabilities with FedEx’s capabilities, our physical and digital infrastructure.

And we have – ShopRunner being an established e-commerce platform that directly connects online shoppers with brands and merchants that they love and trust offering member benefits and the seamless checkout, and you combine that with our – together, our goal is to create a more open collaborative e-commerce ecosystem that benefits merchants and shoppers. So, we think it’s a great marriage. We think this is going to be very successful as we marry in the technology and talent from ShopRunner along with our capabilities.

I don’t know, Brie, you want to add a couple of points there.

Brie Carere

Chief Marketing and Communications Officer & Executive Vice President, FedEx Corp.

Sure. Thanks, Raj. We’re very excited about the ShopRunner acquisition, and having Sam and his team join us. We have some interesting product capabilities that I’m not going to be able to share all the details at this point. But I think the three things from a go-to-market and a value driver that we see in the very near term as we’re looking at the ShopRunner acquisition, the first is that we have the logistics capabilities to create greater certainty with the existing ShopRunner offering to consumers. We can work with their brands to make the reality even more efficient on their current offering.

Second, with their order catalog and their data visibility into these brands, we can see upstream earlier. This is an incredible advantage from a logistics optimization. Third, when you think about the post-purchase experience, and you can take ShopRunner’s order catalog with our post-purchase visibility into transit, we think that we will have a best-in-class post-purchase consumer experience. So, those are the first three things out of the gate, but we’ve got a lot more to come, and we’re super-excited. Great question.

Operator: And we’ll go ahead and take our next question from Bascome Majors with Susquehanna. Please go ahead.

Bascome Majors

Analyst, Susquehanna

Yes. Thanks for taking my questions. Looking forward, there’s so many crosscurrents driving really good results in parts of your businesses and challenges in others right now. I was hoping you could talk about some of the FedEx verticals, be they by customer or type of business or product that are really still quite a bit below the pre-COVID baseline. And whether or not you’re excited about the recovery in that space as we get deeper into next year and the year beyond? Thank you.

Rajesh Subramaniam

President & Chief Operating Officer, FedEx Corp.

Well, let me start by saying that we are excited about our performance across all our segments of the business this quarter. I mean, it’s just actually – very excited to see the progress we’re making here. If you look at – obviously, the fastest-growing segment is e-commerce. And as we continue to improve density and other metrics in our system, the performance is going to continue to even get better.

But to your point, the industrial production and the business segment is just recovering, and that there’s upside opportunity here. The inventory, the sales ratio, it’s an all-time low on for retail, and it is about six-year low for manufacturing. So, as they come back and the inventory restocking happens over the next few months, that should be an upside to our core business as well. So, we are excited about the progress we have made in the e-commerce space, growing very fast in that space. And the investments that we made is actually filling right into it.

At the same time, on the international segment, we’re seeing that we are in – clearly, the capacity that we provide today is a premium. We expect that advantage to continue. And as businesses continue to recover and the B2B segment comes back, that should be on top of our current trends. So, that’s what we expect. COVID-19 is choppy in the immediate short term, but the medium term, we’re optimistic about where these trends are going.

I don’t know, Brie, if you want to add to that?

Brie Carere

Chief Marketing and Communications Officer & Executive Vice President, FedEx Corp.

No. I think you covered. I think the only other detail that I would add is we’re not quite there yet from a recovery from a B2B perspective. We have seen strong momentum and some early, early signs coming out of Europe. That’s obviously where it’s most important to us from a business mix perspective. And my hats off to the European team; they have done some incredible work this year while their B2B business has not come back. So, that is additive to where we’re at right now for sure.

Operator: And we’ll go ahead and take our next question from Scott Schneeberger with Oppenheimer. Please go ahead.

Scott Schneeberger

Analyst, Oppenheimer & Co. Inc.

Yeah. Thanks so much. And that’s a great segueway to my question. I recall you citing on last call, last quarter call that you had B2B growth volume in August. I’m just curious to hear how it has trended since then, and you said it grew in Europe. Just if you could differentiate between Europe and the US, some trends you’re seeing what and you expect.

Rajesh Subramaniam

President & Chief Operating Officer, FedEx Corp.

Okay. I’ll start, and Don and Brie can help me. As we look at the United States, yeah, the B2Bs started to go into positive directions at the beginning of Q2, and this strengthened over the quarter as the industrial production has started to lap the pandemic crisis here, and then coming back on the other side.

Across the world, China is leading the way in terms of economic recovery and manufacturing, and Europe is lagging behind. So, in Europe, we’re seeing growth, but it’s primarily driven by B2C. And the B2B is still in the recovering stage below where pre-pandemic levels.

So, Don, do you want to comment on the international segments?

Donald F. Colleran

President & CEO, FedEx Express, FedEx Corp.

No. Raj, I think that’s helpful, and not a lot to add other than the fact that certainly the optimism comes around the continued rollout of the vaccines on a global basis as economies and countries and companies begin to recover and open back up, that’s when we expect to see our B2B volume recover.

As Brie mentioned, and you expanded on as well, we’re beginning to see some signs of life in our European business on the B2B side as well. Only a few data points, but it certainly introduces some optimism on that. The revenue growth right now is driven by B2C as B2B continues to improve on a sequential basis, certainly is additive to the European story.

Rajesh Subramaniam

President & Chief Operating Officer, FedEx Corp.

Okay. Thank you, Don. Brie, anything else?

Brie Carere

Chief Marketing and Communications Officer & Executive Vice President, FedEx Corp.

No. I think you’ve covered it.

Rajesh Subramaniam

President & Chief Operating Officer, FedEx Corp.

Okay. Thank you.

Operator: And we’ll go ahead and take our next question from Amit Mehrotra with Deutsche Bank. Please go ahead.

Amit Mehrotra

Analyst, Deutsche Bank Securities, Inc.

Thanks. Good evening. Mike, you talked about showing year-on-year margin improvement in the second half on a year-over-year basis. To be fair, the bar is a little bit low on that. And I was just hoping you could give us a little bit more color around that. Do you think the year-on-year margin expansion accelerates? It was great to see it in the fiscal second quarter for the first time in a long time. But do you think as some of the costs subside that were specific to the fiscal second quarter, that we might be able to see some acceleration in that year-on-year margin expansion?

I mean, just the broader question, too, Mike, if you can address, the problem for the last several years, obviously, has been the growth in Ground has been fantastic, but the margins have been impacted negatively as a result of that growth. With the pricing initiatives and the yield that you guys are showing, which is incredibly impressive, can we say now that the bottom is in for Ground margins, and subsequent quarters should see gains on the back of what we’ve been achieving over the last several quarters?

Michael C. Lenz

Executive Vice President & CFO, FedEx Corp.

Okay. There was a lot of questions in there, Amit. Let me try and just say, look, we certainly highlighted that we are incurring incremental costs and contingencies related to the pandemic, and that continues to create uncertainty in our near-term forecast. But as Henry outlined, we’re very confident about the trajectory of the Ground business and the initiatives we have in place.

Just to elaborate a little further, I mentioned that we anticipate spending more on capital expenditures in our Ground business for next year. The increase in facilities, which – that’d be both new automated facilities as well as of expansion of existing ones, that’s not the only lever we have and are working on to improve Ground margins and profitability.

We also will continue to deploy technology to further enhance that asset productivity as well as deeper collaboration with our customers to optimize the when, where and how we receive the shipments.

So, I’m not going to put a point forecast on things, but we’re trying to paint the picture here for you of all the initiatives and things that are coming together that are going to drive that going forward.

Operator: And we’ll go ahead and take our next question from Tom Wadewitz with UBS. Please go ahead.

Thomas Wadewitz

Analyst, UBS Securities LLC

Yeah. Good afternoon. I wanted to see your – the Express performance has been very, very impressive. You’re doing a great job capturing the opportunity, I think, in a variety of measures.

One in particular, the strength in international airfreight rate, I was just wondering if you could give some kind of – help us think about the magnitude of that, and how should we think about that as a potential headwind in the future. Is that something to be concerned about as you go to back half of – or as you go into fiscal 2022, that you might have some giveback on that benefit from really high international airfreight rates?

Frederick W. Smith

Chairman, President & CEO, FedEx Corp.

Don, you and Raj, do you want to talk about that or...

Rajesh Subramaniam

President & Chief Operating Officer, FedEx Corp.

Yeah. Let me kick it off, and then Don can answer. I think the point about when the capacity supply and demand start to balance is of, course, we have to look at that. We feel that as demand comes back, the capacity will be in short haul for quite some time. And our FedEx capacity will be at significant premium. And as Brie pointed out in her remarks, there’s quite a bit of runway ahead of us in this regard.

So, let me turn it over to Don for his comments.

Donald F. Colleran

President & CEO, FedEx Express, FedEx Corp.

Thank you, Raj. And thanks for the question. So, let me frame it from a market perspective. And I appreciate the comments on the Express’s team performance. Obviously, really proud of what they’ve delivered over the past couple of quarters.

When we look at the airfreight market, obviously, it’s a derivative of supply and demand, and conventional wisdom in market forecast would suggest that we don’t get back to pre-COVID capacity in the marketplace for somewhere in the range of 18 to 24 months. So, if you believe that to be true and we do, I think there’s continued reason to be optimistic about the supply and demand situation as it relates to our business going forward.

As Raj mentioned, as these vaccines continue to roll out around the globe and economies begin to recover, they’ll recover, I believe, at a faster pace than the capacity coming back in the market. So, my sense is, again, we don’t go back to pre-COVID levels in commercial capacity in the marketplace for 18 to 24 months and economies hopefully begin to recover prior to that, it creates an opportunity from a pricing environment. Brie, I’m not sure if you want to add to that?

Brie Carere

Chief Marketing and Communications Officer & Executive Vice President, FedEx Corp.

I think you’ve covered it, Don.

Operator: We’ll go ahead and take our next question from Jack Atkins with Stephens. Please go ahead.

Jack Atkins

Analyst, Stephens, Inc.

Hey, good evening. Thank you for taking my question. I guess this one’s for Mike. It’s a question for you on cash flow, if you don’t mind. There’s been a significant improvement in operating cash flow through the first six months of this year on a year-over-year basis. Looks like a good portion of that’s from lower payables. Is that related to the payroll tax accrual holiday related to CARES Act, first of all? Then I guess more broadly, with an increased focus on CapEx discipline now, do you anticipate being sustainably free cash flow positive moving forward, barring something unforeseen from a macro perspective? Thank you.

Michael C. Lenz

Executive Vice President & CFO, FedEx Corp.

Well, Jack, the answer to your first question is two big drivers of that. We made a $1 billion contribution to our pension plan in the first half of last year. And then you are correct, the deferral of the payroll taxes under the CARES Act shows up there at this point. The benefit from that, we’ve deferred just north of $600 million of payroll taxes under the CARES Act, and those will pay back in calendar 2021 and 2022. Look, it remains we are fully focused on improving returns and free cash flow, but I don’t want to get into giving you a forecast at this stage of the game, but we’re definitely prioritizing that as well as improving our capital efficiency.

Operator: And we’ll go ahead and take our next question from Jordan Alliger with Goldman Sachs. Please go ahead.

Jordan Alliger

Analyst, Goldman Sachs & Co. LLC

Yeah. Hi. I was wondering if you could put a little longer-term color on Ground margin thoughts in sort of way the higher amount of residential packages that is likely to stay in the system from here against some of the things and opportunities you’re doing around the air-ground optimization, bringing the postal business in house, et cetera. If you could just – obviously, a good start on the Ground side, I’m just sort of curious how you think about Ground out over the next year or two and directionally where that could go?

Henry J. Maier

President & CEO, FedEx Ground, FedEx Corp.

Hey, Jordan. This is Henry Maier. As I said, we expect margin improvement each of the next two quarters year-over-year. I think the important thing here, as you think about residential, is you’ve got to focus on the transformational initiatives that have been accomplished and the ones that are yet to come.

We talked about seven-day year-around, 95% of the US population. I’ve spoken on this call before about the great route optimization technology we rolled out, we put in the hands of our service providers, the in-sourcing of SmartPost volume has allowed us to experience a very real return on these strategic investments. For example, we’ve seen a 22% improvement in stops per hour Q2 year-over-year.

The average cost per stop has been reduced by 15% year-over-year. And causing our assets to sweat seven days a week, once again the in-sourcing of SmartPost has allowed us to reduce our fixed cost per package by 9% year-over-year in the quarter. And we’ve also seen a material reduction in miles per stop. These are all of the input cost trends you need to see to win in e-commerce. So, I would tell you that from where we sit, FedEx Ground today, we couldn’t be more positive about the future. Do you want to take the LMO question, Brie?

Brie Carere

Chief Marketing and Communications Officer & Executive Vice President, FedEx Corp.

From an LMO perspective, obviously, we’re excited to turn that back on. I think I covered the percentage of residential that’s already in the network right now. So, that remains an upside opportunity. We have gained share consistently over the last 20 years, and we’re very, very optimistic about the future and opportunities. That’s why I continue to share the growth of e-commerce in those numbers, 111 million packages in the market by 2026, there’s some significant room for growth there. So, we’re really excited about the FedEx Ground outlook.

Rajesh Subramaniam

President & Chief Operating Officer, FedEx Corp.

Yeah. Can I just add a couple of things here? I mean both Henry and Brie said it. There are twin areas. One is improved density and efficiency. And Henry already gave you the evidence of some of those and we expect those trends going forward. And second, this work on the revenue quality that Brie talked about. So, those – to look forward, we are optimistic about what Ground can deliver with these increased volumes that we’re getting. Thank you.

Operator: And we’ll go ahead and take our next question from Scott Group with Wolfe Research. Please go ahead.

Scott H. Group

Analyst, Wolfe Research LLC

Hey, thanks. Afternoon. So, I want to stick on Ground. Do you think the – is the 7% yield growth sustainable? And maybe since Ground margins aren’t at double digits yet, do you think there’s opportunity to push that Ground yield even further? And then just with the pricing, I mean do you – I guess, directly, do you see the opportunity to get to double-digit margins for a year? Can you get to low-teens margins for a year in Ground? I guess that’s what everyone’s trying to figure out.

Brie Carere

Chief Marketing and Communications Officer & Executive Vice President, FedEx Corp.

So, we’re going to continue to execute on our revenue quality strategy. We think that there has been some fundamental shifts in the market, and you saw the beginning of that this quarter with a 20% increase in our SmartPost product and the 10% increase from a yield in the residential business.

We believe surcharges will be a part of our pricing strategy moving forward for e-commerce. They are a necessary part. We also are going to continue to work on our product and our customer segment mix. And what do I mean by that? We are leaning into our Home Delivery product for growth. It is the best value proposition in the market. No one else can do seven-day. And we expect to continue to get a premium.

We also expect that that will continue to drive market share from small and medium customers who cannot move to a local operation, and they really do value the national speed advantage that we have. So, yes, I continue to expect strong yield performance for the FedEx Ground portfolio, and we’re confident that we have started to change some industry trends this year.

Henry J. Maier

President & CEO, FedEx Ground, FedEx Corp.

Scott, my crystal ball doesn’t go out much more than six months. So, I’ll stand by my statement about the next two quarters. I am highly confident of double-digit margins. I don’t know whether I want to get into a debate with anybody on this call about teens, so.

Operator: We’ll go ahead and take our next question from Duane Pfennigwerth with Evercore ISI. Please go ahead.

Duane Pfennigwerth

Analyst, Evercore ISI

Hey, thanks. Maybe a question for Raj on collaboration. Can you offer any metrics on the degree of collaboration between the segments year-over-year? For example, how much Express volume ran through Ground this quarter versus the year ago period?

Rajesh Subramaniam

President & Chief Operating Officer, FedEx Corp.

Okay. We have moved over more than 10 million packages from Express to Ground. These are primarily – I mean, these are rural and residential packages that because of e-commerce and the ability for us to have a day-definite system and a lower-cost day-definite system, we have moved more than 10 million packages into the Ground system.

In addition, FedEx Freight has done a lot of work for FedEx Ground as well. They’ve driven 40 million miles, up 80% year-over-year. There were 1.5 million packages that Freight has delivered, which is hard-to-handle packages, up more than 435%. There are several such numbers, but the collaboration is very active. And we are making sure that we put the right package in the right network and the right cost to serve.

Duane Pfennigwerth

Analyst, Evercore ISI

Thanks. What inning would you say we’re in?

Rajesh Subramaniam

President & Chief Operating Officer, FedEx Corp.

Did you say what inning?

Duane Pfennigwerth

Analyst, Evercore ISI

Collaboration, what inning?

Frederick W. Smith

Chairman, President & CEO, FedEx Corp.

Raj plays cricket. Raj plays cricket.

Rajesh Subramaniam

President & Chief Operating Officer, FedEx Corp.

Yeah. Great. There are innings in cricket, too. But yeah – no, we are just getting started, if that’s what you mean.

Operator: And we’ll go ahead and take our next question from Allison Landry with Credit Suisse. Please go ahead.

Allison M. Landry

Analyst, Credit Suisse Securities (USA) LLC

Thank you. So, I was wondering if you could give us a little bit more clarity on the increase in Ground CapEx in fiscal 2022. I mean, I guess just first, what’s the magnitude of the uptick in spending? And more importantly, I think you had previously talked about not needing to add incremental major hub capacity given that the growth over the next several years would likely come at a shorter length of haul and, therefore, you could push volumes out to the second tier and satellite facilities and really start to leverage the investments that you’ve made in the stores. So, is that still the right way to think about it? What’s sort of the nature of the increase in CapEx? So, just wanted to understand any sort of additional details to sort of get some clarification on that. Thank you.

Michael C. Lenz

Executive Vice President & CFO, FedEx Corp.

Hey, Allison, it’s Mike. So, I don’t have a specific number to give you on that as we are, as I said, in the midst of formulating our plans and putting it together for FY 2022. But unquestionably, the sustainability and acceleration of the e-commerce business that we have seen that everybody has highlighted is here to stay. And Brie spoke of this tremendous shift in the mix of residential business with not much advanced notice, yet Ground has quickly adapted, adjusted, and was able to increase margins.

So, that’s a testament to the execution of the team on all fronts, the commercial teams, the operational teams. So, that volume is going to keep coming. So, it’s essential that we do invest in certain assets going forward, but it’s not going to be the same nature and configuration as you might historically have considered it. So, I mentioned it’s facilities, it’s technology, it’s how we work with customers. But I’ll let Henry elaborate a little bit more on just kind of the nature of the facilities and how that works so you have a better sense of it.

Henry J. Maier

President & CEO, FedEx Ground, FedEx Corp.

Yeah. Thanks, Mike. Allison, I think the way you should think about this is we’re going to invest much more heavily on the edge of our business, which is the last mile space. So, if you think about this, our focus is going to be on much smaller automated satellites and stations, regional sortation facilities, which, if you’re not aware, sort about 12,000 to 15,000 packages an hour, they tend to be inbound only so that we can process direct loaded volume from large retailers.

They are much less costly to build and operate, because what we do is we go in and we modify an existing building. And we are able to get these up much quicker. In fact, the time to get them up and running is measured in months instead of years like some of the bigger construction projects we’ve had. They’re solely designed for the sortation of regional packages. And I think when you think about regional, you should think about overnight mainly. And one of the great advantages they have is, is that they can serve as a relief valve for spillover sortation at peak.

There’s a lot of other levers we can pull here. The ideal situation for us is to be able to load direct to van, not have to go through a destination facility. We’re investing heavily in technology tools that will give us the ability to do that. There is a lot of things we do, particularly this time of year at peak with mobile docks and annexes. And the ability to waive dispatch and run dual pre-loads in facilities that allow us to dual-use facilities when volume is at the level it is now that don’t require us to invest in the traditional brick-and-mortar.

And all that being said, we’re always going to have brick-and-mortar in our business, but many of the transformational initiatives I’ve talked about are intended to give us better real-time information about what’s coming, so we can make decisions that reduce our input costs. The main area would be re-handles, so that we can bypass a brick-and-mortar facility all together and load right to a vehicle that’s going to go deliver those packages in the neighborhood. So, hope that answers your question.

Michael C. Lenz

Executive Vice President & CFO, FedEx Corp.

And, Allison, that’s density yet again. You’ve heard us say it numerous times, but that is density and how we manage that yet again.

Operator: And we’ll go ahead and take our next question from Brian Ossenbeck with JPMorgan. Please go ahead.

Brian P. Ossenbeck

Analyst, JPMorgan Securities LLC

Yeah. Thanks. Good evening. So, another one for you, Henry, can you just talk about peak season costs, how they came in versus expectation? Sounds like you had to make a few adjustments, obviously, with everything that’s happened. So, do you feel like you’re well suited to handle the rest of peak and the returns after that? And then maybe you can just give us an update on – I think last call, you were talking about maybe needing to shift some customers over to the weekend, possibly incentivizing them to change their behavior a little bit. I imagine that’s probably not the case anymore, but if you can give us an update on that, too, I’d appreciate it.

Henry J. Maier

President & CEO, FedEx Ground, FedEx Corp.

Okay. I’ll take the first part and then I’ll let Brie take the second. But let me talk about peak. First of all, we haven’t actually had a conversation about that.

And since we’re in the midst of it, let me begin by saying I couldn’t be prouder of the Ground team. And what they’ve been able to accomplish this year, just like about everything else in 2020, which has been an extraordinary year, peak this year has been pretty extraordinary.

All the things that I talked about in terms of investments, resources, capacity, are all really driving one of the best peak seasons we’ve ever had in spite of COVID and all the other challenges we’ve had in this business. On average, FedEx Ground is delivering 25% to 30% of the volume a day early, and the average package spends about 2.4 days in the network in terms of transit, which is faster than last year in spite of the volume and the challenges I outlined.

I think the issues this year on the cost side were timing and a lot of unknowns. I talked about the building – the facilities came on much later this year because most governments were shut down for two months. So, we couldn’t get permitting that really slowed the timeline here. And even though our property and engineering team did a fabulous job in the race to the finish line here to get them up and running, facilities came on a lot later this year than normal.

In terms of the resources, particularly in the case of handlers, I would just say two things. When you bring on resources at the rate we’re bringing them on, they’re not very efficient. It takes time for these people to be taught their job. And there’s this ramp-up of two, three, four weeks it takes for a handler to learn their job. And once again, I mean, we’ve got a sizable portion of the handler workforce that is not as productive as they could be.

I think, I said on the call at the end of Q1 that our facilities are not designed for social distancing. So, out of an abundance of caution in keeping safety above all in our business, we’ve got to staff and man these buildings in such a way that we can keep our people safe while they’re at work. The unintended outcome of that is, is that we don’t get the desired or engineered throughput through all these buildings we would in the time pre-COVID. So, those are the things that are probably most material to the cost side of this.

As I said, also in the earlier question, we pulled peak settlement for our service providers forward because we knew they were going to have challenges with the recruitment of drivers. And we recognized early on that vehicles were in short supply. Once again, automotive manufacturing plants were shut down for two or three months, and new and used vehicles in the market right now are almost impossible to find. That meant that rental vehicles had to be procured much earlier and with commitments that were much longer than normal. And we made adjustments to settlement in those situations to try to defray some of the costs for our service providers.

Finally, let me just say one last thing. Our ISPs have done an unbelievable job this year at peak. I’ve lost track of the number of days we’ve had peak package delivery days, peak stop days, et cetera, and they have stepped up every step of the way this year. And I would reinforce again that the ability and flexibility of those small businesses to make decisions on the fly based on local conditions and the data we push to them about what their delivery is going to look like the next day, there’s nothing short of unprecedented and it is truly a differentiator on our business.

Brie Carere

Chief Marketing and Communications Officer & Executive Vice President, FedEx Corp.

And to answer the second half of your question, I think, Jill Brannon and her sales team have just done an incredible job leveraging our weekend capacity. The incentive is you use the weekend or you lose the capacity. And that has worked. Do we have opportunity? Yes, I believe we have incremental opportunity to further improve the productivity and density on the weekends. But again, we have created a peak capacity strategy that does require customers to pulse their volume more equally throughout the week. And our best largest customers are doing just that with us. They’ve been great partners, and I think you’ll continue to see us do a good job of that at peak moving forward.

Operator: And we’ll go ahead and take our next question from Allison Poliniak with Wells Fargo. Please go ahead.

Allison Poliniak-Cusic

Analyst, Wells Fargo Securities LLC

Hey. Good morning. So just to follow on that question, just you’re going back to that and working with your retailers to better balance the peak. I guess, one, was there a noticeable, I would say, pull forward about some of those volumes in November that was noticeable to you? And it sounds like the volumes are – you’re seeing some level of operational balance in December in terms of the peak. Any incremental color you can give there?

Brie Carere

Chief Marketing and Communications Officer & Executive Vice President, FedEx Corp.

Sure. We really were hoping to change shopping behavior, and we really didn’t see that, to be completely honest. We have seen, as a result, I think there’s far more awareness from consumers of the unprecedented year we’re having. What we did see is, the Ground team and the sales team did such a great job educating the merchant and the customer that we saw a lot better planning.

And as a result, we saw volume, and we are seeing volume earlier in the Express network. So, it was successful in that we were able to move some of the higher-value e-commerce into the Express network. And we have been successful in smoothing day of week within Henry’s network. We were not successful in getting all consumers to shop before the cyber weekend. So, that remains a goal, let’s just say.

Operator: And we’ll go ahead and take our next question from David Vernon with Bernstein. Please go ahead.

David Vernon

Analyst, Sanford C. Bernstein & Co. LLC

Hey, good afternoon. Brie, I wanted to follow up on that topic around sort of collaboration, right? You’re reporting some pretty healthy rate increases on the B2C side, 20% for SmartPost, 10% for the residential. How is the discussion going with retailers at this stage? Are they accepting this as take it or leave it?

Or how are they thinking about your product in the context of pretty significant rate increases. And as you think about the negotiations with them going forward, are they being more willing to participate with you on things like joint process, day of week injection, that kind of stuff that would help you kind of build a deeper relationship on the customer side?

Brie Carere

Chief Marketing and Communications Officer & Executive Vice President, FedEx Corp.

I would say, in general, the conversations have gone very well. The largest and most successful retailers in the US, they understand how important FedEx logistics is, quite frankly, to their growth strategy. And so, I think we’ve had some tremendous success. I do want to be clear on the SmartPost. It was about trading out as well. That’s a big part of the strategy. So, the customers that understand the value we bring, they’ve been great partners, and that’s enabled us to move forward.

And for those who don’t value our speed and our differentiated value proposition, as you can see in our growth numbers, there were lots of customers who did value that. So, it’s not a one-size-fits-all, but overall I would say that the team’s done a great job and that come January, we’ve already had – we have a full – Jill’s calendar for January is full as she moves into peak planning for next year, and I think this year has set new precedences for many years to come.

Operator: And that does conclude today’s question-and-answer session. I’d like to turn the call back over to Mr. Foster for any additional or closing remarks.

A. Mickey Foster

Vice President, Investor Relations, FedEx Corp.

Thank you for your participation in FedEx Corporation’s second quarter earnings conference call. Feel free to call anyone on the Investor Relations team if you have additional questions about FedEx. Thank you very much. Bye.