Earnings Call Transcript - EAF Q2 2023

Operator, Operator

Good day ladies and gentlemen and welcome to the GrafTech Second Quarter 2023 Earnings Conference Call and Webcast. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. This call is being recorded on Friday, August 4th, 2023. I would now like to turn the conference over to Mike Dillon. Please go ahead.

Mike Dillon, Senior Vice President

Thank you. Good morning and welcome to GrafTech International's second quarter 2023 earnings call. On with me today are Marcel Kessler, Chief Executive Officer; Jeremy Halford, Chief Operating Officer; and Tim Flanagan, Chief Financial Officer. Marcel will begin with opening comments. Jeremy will then discuss safety, sales, and operational matters. Tim will review our quarterly results and other financial details. Marcel will close with comments on our outlook. We will then open the call to questions. Turning to our next slide. As a reminder, some of the matters discussed on this call may include forward-looking statements regarding among other things performance trends and strategies. These statements are based on current expectations and are subject to risks and uncertainties. Factors that could cause actual results to differ materially from those indicated by forward-looking statements are shown here. We will also discuss certain non-GAAP financial measures and these slides include the relevant non-GAAP reconciliations. You can find these slides in the Investor Relations section of our website. A replay of the call will also be available on our website. I'll now turn the call over to Marcel.

Marcel Kessler, CEO

Good morning everyone. Thank you for joining GrafTech's second quarter earnings call. I will begin by highlighting four key points we will discuss on our call today. First, our performance for the second quarter was consistent with our expectations and represented a sequential improvement in key metrics. This included quarter-over-quarter growth in sales volume and adjusted EBITDA as well as a sequential reduction in recognized costs on a per ton basis. Second, while we continue to see improvements in our business, market indicators point towards further softness in steel production for the remainder of the year. With the resulting impact on the demand for graphite electrodes, our expectations for the second half of 2023 are more tempered. However, we remain optimistic about 2024 recovering to improved levels of demand. Third, we continue to successfully execute our plans and strategies as we manage the business in response to the short-term challenges in the environment. And fourth, we remain optimistic about the long-term outlook for the business. We are taking actions that we believe will optimally position GrafTech to benefit from medium to longer-term industry tailwinds and deliver shareholder value. As Jeremy and Tim will provide more detail on our second quarter results, let me turn to the current business environment. Steel industry production remains constrained by global economic uncertainty. At the macro level, the global manufacturing PMI as reported in July has fallen to a six-month low and business and consumer confidence continues to be subdued. This contributes to steel industry output remaining below prior year levels with most regions showing production declines. This in turn has resulted in ongoing softness for near-term demand for our products. As a result, we have lowered our volume expectations for the second half of 2023. We now estimate our sales volume for the full year of 2023 will be in the range of 95,000 to 105,000 metric tons as compared to our previous estimate of 100,000 to 115,000 metric tons. Sales volume in the third quarter is expected to be broadly in line with sales volume for the second quarter of this year. We remain optimistic for recovery to improve levels of electrode demand and sales volume in 2024. Based on the latest outlook from the World Steel Association, global steel demand outside of China is projected to increase by 4% in 2024. Year-over-year growth is expected in all key regions in which we participate. This includes a projected 6% year-over-year increase in European steel demand, a 2% increase in North America, and a 3% increase in the Middle East, all of which should drive demand recovery for graphite electrodes. We recognize steel industry performance will be dependent on natural conditions. As such, we continue to focus on those things that are within our control to manage near-term market uncertainties. This includes proactively reducing our production volume to align with our near-term demand outlook. Closely managing our operating costs, capital expenditures, and working capital levels, and making targeted investments to further improve our competitive positioning and support long-term growth. We continue to be pleased with the execution of our plans and the progress to advance our business. Let me briefly highlight several accomplishments since our last call, starting with our manufacturing operations. Our facility in Monterrey, Mexico continues to run as expected. We continue to make significant progress on our risk mitigation strategies related to connecting pins and initiatives to increase our operational flexibility. As you will recall, early in the second quarter, we received the regulatory approval to restart production activities at our St. Marys facility in Pennsylvania. Following this milestone, we began production operations at the plant, with activities expected to further ramp up in the coming months to increase our operational flexibility. Turning to the commercial front, during the second quarter, we announced the opening of a new sales office in Dubai, increasing our presence in this important region. It supports our commercial strategy to operate with a global footprint as we expand our sales and technical service capabilities in key geographies. In addition, we entered into new multi-year electrode sales agreements with certain customers in North America and Europe. This reflects their confidence in GrafTech's ability to reliably deliver high-performing products over time. We also continue to make progress on the sustainability front. We joined the United Nations Global Compact and are excited to participate in this important initiative alongside many other leading companies. We look forward to building upon our ESG strategies for the benefit of the environment, our business, and our stakeholders as we help shape a better and more sustainable future. To that end, we encourage you to read our latest sustainability report that we recently made available on our website. Finally, during the second quarter, we completed a $450 million senior secured notes offering. As Tim will discuss further, this offering and the related repayment of our term loan extend our debt maturity profile by about four years. At the same time, we remain focused on maintaining sufficient liquidity to navigate the current environment via our working capital management and other initiatives. This supports our financial flexibility as we take actions that we believe will optimally position GrafTech to benefit from industry tailwinds and deliver shareholder value. I will spend a few moments on those tailwinds at the end of our prepared remarks. But first let me turn the call over to Jeremy.

Jeremy Halford, COO

Thank you, Marcel, and good morning, everyone. I'll start my comments with a brief update on our safety performance, which is a core value at GrafTech. We are pleased that our year-to-date recordable incident rate for 2023 reflects substantial improvement from the prior year level and continues to place us among the top operators in the broader manufacturing industry. We will remain highly diligent in this area and seek to further improve this metric as we continue working toward our ultimate goal of zero injuries. Let me now turn to the next slide for an update on a few industry trends and additional context for our second quarter results and our outlook commentary. As Marcel indicated, the overall performance of the steel industry has remained somewhat constrained. During the second quarter, we saw further sequential improvement in certain market indicators. However, these metrics remain below year-ago levels. Global steel production outside of China in the second quarter was approximately 208 million tons. This represented a 4% sequential improvement from the first quarter, but a 2% decline compared to the same period in the prior year. On a year-to-date basis, global steel production outside of China is down 4% through the second quarter with most regions showing production decline. Turning to global capacity utilization outside of China. For the second quarter, the rate was flat on a sequential basis at 66%, but remained down by approximately 400 basis points compared to the second quarter of last year. And looking at other market indicators, global steel pricing declined during the second quarter alongside steel demand, with most market projections pointing to a continuation of subdued steel pricing and demand in the near term. On a regional basis in Europe, weak macro fundamentals have persisted including a soft construction market and high inflation rates that continue to impact confidence. Last week, the European Steel Association issued their latest 2023 outlook noting that they expect a 3% decline in used steel demand for the full year. This compares to the previous projection of a 1% decline. In the U.S., utilization rates picked up in the second quarter averaging 77%, although they may be low year-ago levels. The sequential increase reflects continued strength in the U.S. construction sector. Overall, this significant global economic uncertainty continues to be an overhang on industry demand in the near term. However, in the medium and longer term, we remain bullish on steel industry fundamentals for the reasons we've previously indicated, thereby supporting future graphite electrode demand. Turning to the next slide and GrafTech's second quarter performance. Our production volume was approximately 25,000 metric tons, representing a 43% year-over-year decline, but up nearly 60% on a sequential basis compared to the first quarter. This resulted in a combined capacity utilization rate for our three primary electrode facilities just below 50% for the second quarter compared to 31% in the first quarter. Subject to market conditions, we expect utilization rates at our manufacturing facilities to increase in the second half of 2023 compared to first half levels. This reflects our continued focus on proactively managing production volume to align with our evolving demand outlook. Turning to sales. Our second quarter sales volume of approximately 26,000 metric tons was in line with the outlook we provided on the last call. While representing a 38% year-over-year decline, sales volume was up 56% on a sequential basis compared to the first quarter as we continue to recover from the impact of the Monterrey suspension. Shipments for the second quarter included 8,000 metric tons sold under our LTAs at a weighted average realized price of $9,000 per metric ton and nearly 18,000 metric tons of non-LTA sales at a weighted average realized price of approximately $5,600 per metric ton. As anticipated, the weighted average price for non-LTA sales was below the first quarter level. Net sales in the second quarter of 2023 decreased 49% compared to the second quarter of 2022. In addition to the lower sales volume, the ongoing shift in the mix of our business from LTA to non-LTA volume contributed to the year-over-year decline. As we proceed through the third quarter of 2023, the softness in the commercial environment that we have discussed has tempered our expectations. Specifically, the year-over-year decline in global steel production and the constrained steel utilization rates have limited the ability of our customers to significantly reduce their electrode inventory to typical levels. Furthermore, with the recently revised outlook from the European Steel Association and considering the typical seasonal slowdowns in Europe, our near-term outlook for European electric demand is cautious. Given these dynamics, we anticipate our sales volume for the third quarter will be broadly in line with the second quarter. For the fourth quarter, we expect a sequential increase in sales volumes. Factoring all of this in on a full-year basis, as Marcel mentioned in his remarks, we estimate sales volume will be in the range of 95,000 to 105,000 metric tons for 2023.

Tim Flanagan, CFO

Thanks, Jeremy. For the second quarter, we had a net loss of $8 million or $0.03 per share. Adjusted EBITDA was $26 million, a decrease from $158 million in the second quarter of 2022. The decline primarily reflected the lower sales volume, higher year-over-year costs on a per metric ton basis, and the continued shift in the mix of our business towards non-LTA volumes. Adjusted EBITDA margin was 14% in the second quarter. Expanding on costs, as reflected in the reconciliation we provided in the earnings documents posted to our website, cash COGS per metric ton excludes depreciation and amortization, as well as cost of goods associated with byproduct sales and other non-cash factors. Reflecting the full-year impact of raw material, energy, and freight cost increases that occurred throughout 2022, we continue to sell higher-priced inventory during the second quarter of 2023. In addition, during the quarter, our cash costs included approximately $10 million of fixed costs that otherwise would have been inventory if we were operating at normal production levels. Factoring all of this in for the second quarter of 2023, our cash COGS per metric ton were approximately $5,250, in line with our expectations. This represented a 7% sequential decrease compared to our high watermark of $5,600 in the first quarter of 2023. Looking ahead, we continue to expect our cash COGS per metric ton in the second half of 2023 will be below the level recognized in the first half of the year, but will be above our previous expectations and I'll provide some more color on that here in a moment. As we've anticipated, we're starting to see relief from some of the inflationary pressures for certain key elements of our cost structure including decant oil, energy, coal tar pitch, and freight. However, given where we're at in the fiscal year and with our current inventory levels, this won't have a meaningful impact on our costs in the second half of 2023. Furthermore, the decline in our volume outlook has a two-pronged effect on the cash COGS per metric ton that will be recognized in the second half of this year. First, with the lower sales volume, this extends the time it takes to work through higher-priced inventory on our balance sheet. Secondly, with the corresponding decline in production volume, we will continue to recognize fixed costs that otherwise would be inventory had we been operating at normal production levels. As a result, we remain focused on managing our controllable costs and working to bring down our inventory levels. As we look ahead, we continue to expect market pricing to decline further in the medium to long term for certain key elements of our cost structure. For these reasons and with the anticipated increase in our capacity utilization and sales volume levels improve in 2024, we remain optimistic that our cost per metric ton will improve as we move beyond the current year. Now turning to cash flow. In the second quarter, we used $9 million of cash in operating activities, while adjusted free cash flow was essentially breakeven for the quarter. Our second quarter adjusted free cash flow included the benefit of approximately $24 million related to the settlement of interest rate swaps. The majority of this benefit was a result of terminating our interest rate swaps in connection with the repayment of our $434 million term loan balance at the end of the quarter, which I'll speak more about in a moment. We anticipate that the second quarter would represent the low watermark for cash flow in 2023 and that continues to be our expectation. With our focus on managing our costs, capital expenditures, and working capital levels, we continue to expect adjusted free cash flow to be positive for 2023. Moving to the next slide. During the second quarter, we completed a private offering of $450 million senior secured notes due December 2028, which coincides with the maturity of our existing $500 million senior secured notes. As the net proceeds of this offering were used to repay the term loan that was due in the first quarter of 2025. This effectively extended our debt maturity profile by nearly four years. Our gross debt to adjusted EBITDA ratio was 3.8 times as of June 30 compared to 1.7 times at the end of 2022, reflecting a decline in EBITDA for the first two quarters of 2023 on a year-over-year basis. On a net debt basis, we ended the quarter at a ratio of 3.3 times. As of June 30, our liquidity was $337 million, consisting of $132 million of cash and $205 million available under our revolving credit facility. This reflects the financial covenant that limits borrowing availability under our revolver in certain circumstances. However, we do not anticipate the need to borrow against our revolver in 2023. Further, we remain confident we have ample liquidity between the cash on hand and the borrowing availability to navigate the current market conditions and to continue to make targeted investments. For the full year, we'll continue to expect our capital expenditures will be in the range of $55 million to $60 million.

Marcel Kessler, CEO

Thank you, Tim. Let me reiterate that we remain confident in our ability to overcome near-term headwinds. We are successfully executing our plans to navigate the current environment and are encouraged by the progress our teams continue to make. We remain optimistic about the long-term outlook for our business and are taking actions that we believe will ultimately position GrafTech to benefit from sustainable industry tailwinds. Specifically, decarbonization efforts are driving the transition in steel with electric arc furnace steelmaking continuing to increase its share of total steel production. In 2022, EAF accounted for approximately half of global steel production outside of China, which increased from 44% in 2015. With this trend of EAF share growth expected to continue, we anticipate demand for graphite electrodes to experience accelerating growth. We are currently tracking more than 200 announcements of planned EAF capacity additions by steel producers around the world. We estimate that these additions, along with production increases at existing EAF plants could result in incremental annual graphite electrode demand outside of China of 200,000 metric tons by 2030. This compares to global annual graphite electrode demand in 2022 outside of China of approximately 680,000 metric tons. On a regional basis, reflecting these industry announcements, this could translate into incremental graphite electrode demand as follows: 65,000 metric tons in Europe, 25,000 metric tons in North America, and over 55,000 metric tons in the Middle East and Africa. In addition, the demand for petroleum needle coke, the key raw material used to produce graphite electrodes, is also expected to accelerate. This is driven by its use to produce synthetic graphite for the anode portion of lithium-ion batteries used in the rapidly growing electric vehicle market. Based on analyst estimates regarding the projected growth in electric vehicle sales and battery pack sizes, we estimate this could result in global needle coke demand for use in EV applications, increasing at a compound annual growth rate of over 20% through 2030. We view the growing demand for needle coke as another positive long-term trend, as higher demand should result in elevated pricing. Given the high historical correlation between petroleum needle coke pricing and graphite electrode pricing, this trend should translate to higher market pricing for electrodes. We are well positioned to capitalize on these favorable industry tailwinds. We operate three of the highest-capacity electrode manufacturing facilities in the world. With these facilities and the recent restart of St. Marys, we have strategic flexibility and a global footprint that gives us proximity to large EAF steelmaking regions. Further, through our Seadrift production facility, we remain the only large-scale graphite electrode producer that is substantially vertically integrated into petroleum needle coke. These sustainable competitive advantages are critical differentiators and foundational for our ability to serve our electrode customers. As we discussed on the last call, we also see long-term value creation opportunities beyond our existing electrode business. Specifically, we continue to study the ways in which we can participate in the anticipated growth of the EV battery market via two potential avenues. First, by leveraging our assets and technical know-how in the area of petroleum needle coke production given the expected demand growth for this key raw material. To that end, we have recently filed a permit application to significantly expand the production capacity at Seadrift. Second, by leveraging our graphitization resources and expertise to produce synthetic graphite material for battery anodes. While we have not yet made any firm commitments, we continue to test our needle coke and graphitization capabilities with several third parties and we are confident in our ability to meet the specifications and quality required for battery applications. We are excited about the possibility of participating in the growth of the EV battery market and look forward to sharing more as we can. In closing, we are effectively executing our plans to manage the current environment and I want to thank the entire GrafTech team for their continued efforts and commitment. Our long-term thesis remains intact. We are an industry-leading provider of a consumable product that is mission-critical for the growing electric arc furnace method of steelmaking. We possess a distinct set of capabilities and competitive advantages. Lastly, as a result of our disciplined capital allocation strategy, we have a strong balance sheet and ample liquidity to navigate the near term. For these reasons, I remain confident in our ability to deliver shareholder value. That concludes our prepared remarks. We will now open the call for questions.

Operator, Operator

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. The first question comes from Katja Jancic of BMO Capital Markets. Please go ahead.

Katja Jancic, Analyst

Hi, thank you for taking my question. Maybe starting off with the spot pricing environment, I think you mentioned you expect spot prices to decline sequentially. Can you provide more color on the magnitude of the decline you're expecting?

Marcel Kessler, CEO

Yeah. Thank you for your question Katja. So as we have noted, the second quarter price for our non-LTA side is below our first quarter levels as was anticipated given the softer environment. And as Tim noted, I think there's some expectation that we may see further declines in the second half of the year. And I fully understand the desire for more clarity on pricing expectations further into 2023 and beyond. However, for competitive reasons, we are going to refrain from providing our expectations on near-term pricing and the impact as we have limited visibility on pricing further out.

Katja Jancic, Analyst

Understood. Maybe then on the cost side. Previously you expected the full year 2023 cost to be up about 20% year-over-year. I'm assuming that is moving higher now, or how should we think about it?

Tim Flanagan, CFO

Yes, you are correct. We initially anticipated an increase of 17% to 20%. Last quarter, we guided towards the high end of that range on a year-over-year basis. We expect to exceed that high end, but we believe it will still be below our average for the first half of the year, which sits at approximately $5,400 on a cash COGS basis. Therefore, we expect to be above the 20% increase level.

Arun Viswanathan, Analyst

Thanks for taking my question. Just wanted to clarify a couple of things. So did you say that the Q3 sales volume would be similar to Q2?

Tim Flanagan, CFO

That's correct, Arun.

Arun Viswanathan, Analyst

Okay, great. Thanks for that. So given that then you've done about $40 million of EBITDA in the first half. The second half, I guess you will have similar volume in Q3, but maybe slightly higher volume in Q4. Would you get some more fixed cost leverage on that? And so maybe your EBITDA is a little bit slightly better sequentially in Q3. There's some seasonal benefits as well and energy costs are a little bit lower. So how should we think about EBITDA maybe in Q3?

Tim Flanagan, CFO

Yeah. So as we think about starting with the fixed cost leverage, we anticipate we'll continue to have some fixed costs that are expensed directly to the P&L that otherwise would be inventoried in the third quarter. And this reflects our intention of managing production levels in line with our overall commercial demand and our sales volume expectations. Kind of layering on top of that as well is, while we've released some inventory during the first half of the year, we anticipate releasing more inventory and using as much of what we have on hand to support the sales forecast in the back half of the year as well. So, we would expect the plant still not to be running at what we would consider normal or target levels. They'll be running harder than they have in the first half of the year as we commented, but we'll still have some fixed cost leverage challenges in the back half of the year as well.

Arun Viswanathan, Analyst

Right. Thanks for that. And then, given that you're guiding to about that $95,000 to $105,000 of sales volumes, $100,000 of sales volume. That implies kind of a 50% utilization of your overall capacity. Is that right? And what is it going to take to really get back to a more normal environment? Is it, I guess, a number of factors including a better Europe, maybe some better industrial backdrop. I ask, because there's some conflicting factors out there. On the one hand, we have a pretty robust automotive market. There is some reshoring and infrastructure projects that seem to be supporting better steel utilization and again, you cited the mid-70 steel utilization rate for US 77. So why are electrode utilization rates so low, I guess is the overall question?

Tim Flanagan, CFO

Yes. So from a volume perspective, right, you asked what will it take to get back to more normalized volumes. I think if you start by reflecting on 2023, there's really two factors impacting sales volume in 2023. First of all, you've got the Monterrey situation, which is kind of unique to us. And then you've got the overall macro environment that's weighing on kind of each of the regions of the world differently, right? You see a more robust U.S. market still not performing at the same level it was a year ago but you're seeing some strong performance as you noted. And in automotive, construction is continuing to be strong. And then I think there's a pretty optimistic outlook for infrastructure spending more broadly with the $2 billion plus of spending that's anticipated on that front. Conversely, I think if you look at macro environments in other regions of the world, I think it's a little bit more challenged. Jeremy mentioned, the European Steel Association's kind of revised outlook for the year being down to a 3% reduction in the current year versus what they previously thought was a 1% reduction. So the combination of those things I think you really have to go region by region to understand the dynamics and how that's affecting electrode demand. I think as we have moved through Monterrey, largely this year with the strong operation of the plant thus far, continuing to work on the pin mitigation strategy and rebuilding our pin inventory and the fact that we fully expect to be engaged with our customers in the commercial negotiation process here in the second half of the year, we think we're taking that challenge off the table as we head into 2024. So, really the determination of where things and how things return to more normalized levels is the macro environment of each of those regions and how you see recovery.

Curt Woodworth, Analyst

Yeah. Thanks. Good morning. With respect to the fixed cost under absorption and some of the stuff you mentioned in terms of the inventory, how should we think about what your cost structure should look like on a normalized basis? So if you were to assume more normalized utilization and kind of run some of the spot coal tar pricing, decant oil pricing, can you give us a sense of what that could look like today?

Tim Flanagan, CFO

Yes, thank you for the question, Curt. Looking back a couple of years, we've been around $3,600 a ton on a cash cost of goods sold basis. Since much of our cost structure is market-driven, we should be able to return to that level as the coal tar and decant oil markets normalize. We've observed improvements, particularly in several areas, with favorable commodity price movements contributing positively, which will continue into 2024. However, other cost elements, especially labor, tend to be stickier due to inflation, so we might not fully address those costs. While we aim to reach the $3,600 target, doing so soon or without investment is unlikely. We expect to see significant cost reductions as we approach next year, with fixed costs improving and better leverage from returning volumes. We’re also benefiting from some variable cost improvements and will keep working diligently to manage our fixed costs, maintaining efficiency at our plants. We'll see good movement as we head into next year, but getting back to the $3,600 level may not be feasible.

Marcel Kessler, CEO

Yes. So, a couple of thoughts. I don't think we can comment directly on market shares. I don't think we have enough transparency around that. In regards to the impact of Monterrey, I think we've talked about that in some detail on the last two calls, right? During that suspension in late 2022, we lost the ability to negotiate volumes especially for the first half of 2023, and maybe even to some extent in the second half. So, that was the worst possible time for that suspension. So that is really the key driver of the impact and underperformance and the disconnect between what you're highlighting here, the steel utilization rates versus the electrode plant utilization rate. I think it's the indirect impact of Monterrey, the loss of that negotiation window during the most critical negotiation time, in late 2022. So, as we have highlighted on this call as well on the previous call, I think we have entered into several what we call electrode service agreements which are multi-year agreements, typically of three to five years out. We have several customers in both the United States and in Europe. Now, they are quite different in their structure from the LTAs and obviously very different in terms of pricing, they are more closely tied to the current spot pricing. Now we are at a premium given the long-term nature of it. So that the structure is essentially the premium over current spot price and typically includes some inflation protections for us. Now, they are not yet material in terms of overall volume for 2023. We don't expect it will be material in 2024. But we do actually - in light of the challenges we've had with Monterrey, we take great comfort that our customers continue to be relying on us as a reliable supplier of high-quality electrode through these multiyear service agreements.

Tim Flanagan, CFO

And I would just add to that as we look out to 2024, it's probably premature to start talking about specific volumes just given the fact that the bulk of those negotiations start here at the end of the third quarter and into the fourth quarter. But from our standpoint where we sit today the fact that as Jeremy commented, Monterrey is running well. We've rebuilt our pin stock inventory. We continue to execute on the plans at St. Marys to get that plant up and operational as well. We fully expect to be engaged in that process as we have been in past years absent the 2022 cycle. So we feel pretty good heading into that negotiation window.

Jeremy Halford, COO

I think at the end of the day, customers have and will continue to appreciate our value proposition right? We're the only company, the only Tier 1 company. And in fact one of the only electrode producers in the world that makes pin at multiple sites. We've got so we can provide a surety of supply now that nobody else can. We have industry-leading customer service both through our technical service representatives as well as our architect product. And we're present in their regions. We have not only an operating but also a commercial presence in several regions. So we expect that to support our commercial efforts as we head into that negotiated season.

Operator, Operator

Thank you. This concludes our question-and-answer session. I will now hand the call back over to Mr. Kessler for closing remarks.

Marcel Kessler, CEO

Thank you, Operator. I would like to thank everyone on this call for your interest in GrafTech. And we look forward to speaking with you next quarter. Have a good weekend.

Operator, Operator

Ladies and gentlemen, this does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.