Kadant Inc Q2 FY2024 Earnings Call

Good day, and thank you for being here. Welcome to the Q2 2024 Kadant Earnings Conference Call. All participants are currently in listen-only mode. Please note that this conference is being recorded. Following the speaker's presentation, there will be a question and answer session. I will now pass the call to your speaker today, Michael McKenney, Executive Vice President and Chief Financial Officer.

Thank you, Josh. Good morning, everyone, and welcome to Kadant's second quarter 2024 earnings call. With me on the call today is Jeff Powell, our President and Chief Executive Officer. Before we begin, let me read our safe harbor statement. Various remarks that we may make today about Kadant's future plans and expectations, financial and operating results, and prospects are forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to known and unknown risks and uncertainties that may cause our actual results to differ materially from these forward-looking statements as a result of various important factors, including those outlined at the beginning of our slide presentation and those discussed under the heading Risk Factors in our annual report on Form 10-K for the fiscal year ended December 30, 2023, and subsequent filings with the Securities and Exchange Commission. In addition, any forward-looking statements we make during this webcast represent our views and estimates only as of today. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so even if our views or estimates change. During this webcast, we will refer to some non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures is contained in our second quarter earnings press release and the slides presented on the webcast and discussed in the conference call, which are available in the Investors section of our website at www.kadant.com. Finally, I wanted to note that when we refer to GAAP earnings per share or EPS and adjusted EPS on this call, we are referring to each of these measures as calculated on a diluted basis. With that, I'll turn the call over to Jeff Powell, who will give you an update on Kadant's business and future prospects. Following Jeff's remarks, I'll give an overview of our financial results for the quarter, and we will then have a Q&A session. Jeff?

Thanks, Mike. Hello, everyone. Thank you for joining us this morning to review our second quarter results and discuss our business outlook for the second half of 2024. I'll begin by reviewing our operational highlights for the second quarter. I'm pleased to report we had another well-executed quarter, with record demand for aftermarket parts, combined with strong capital business, leading to record revenue, record adjusted EBITDA, and record adjusted EPS. Our acquisitions made in the first half of the year are performing well, and integration efforts are on track. Overall, market demand, particularly in North America, remained solid in the second quarter across all operating segments. Turning next to Slide 6, I'd like to review our Q2 financial performance. We achieved a number of financial records in the second quarter, driven by our recent acquisitions and strong capital shipments. Revenue increased 12% to a record $275 million, while organic revenue, which excludes acquisitions and the impact of foreign currency translations, was $250 million. Strong execution contributed to a record adjusted EBITDA of $62 million and represented a record 22.5% of revenue in the second quarter. Record aftermarket parts revenue, combined with strong performance in capital shipments, contributed to the solid margin expansion of 150 basis points. Our adjusted EPS was also a record at $2.81. Despite sluggish industrial demand in Europe and Asia, second quarter bookings increased 17% compared to the same period last year. Organic bookings were up 5% and in line with our growth expectations. We have a healthy backlog and expect bookings in the second half of 2024 to be comparable to the first half of the year. Capital project activity remains good, but the timing of these orders is less certain. I'll provide more detail on this when I review our operating segments. I will begin with our flow control segment. As you can see on Slide 7, our flow control segment had solid bookings in the second quarter of 2024. We benefited from strong aftermarket demand and contributions from our DSTI acquisition. Organic bookings were up 5%. Revenue in the second quarter declined 4% from the previous period record of $96 million as business activity was dampened by weaker manufacturing activity in Europe and China. Our aftermarket parts revenue remained strong in the second quarter and made up 72% of total revenue. Solid operating performance led to an adjusted EBITDA margin of 29.2%. The integration of DSTI, which was acquired at the beginning of June, has been going well, and we are honored to have this leading producer of fluid rotary unions and related flow control products now a part of Kadant. As we look ahead to the second half of 2024, we expect demand to follow its historical pattern and moderate slightly in the second half. As many of you know, the first half of the year is typically our strongest in terms of bookings as our customers prepare for and execute annual spring maintenance shutdowns. Overall, the fundamentals of our end markets remain healthy, and we are well positioned to capitalize on our new products and opportunities. Our industrial processing segment benefited from our acquisition of Key Knife, completed in the first quarter, as well as the strong bookings performance in prior quarters, leading to a record second quarter revenue of $115 million, up 28% compared to the same period last year. Organic revenue was up 13%, led by growth in our wood processing product line. Bookings also benefited from our recent acquisition and were up 22% compared to the second quarter of last year. Organic bookings were up 5%. Strong operating leverage boosted adjusted EBITDA margin 350 basis points to 25.7%. Looking ahead to the second half of 2024, we expect capital project activity to strengthen across all product lines in this segment. In our material handling segment, we achieved record revenue of $68 million in the second quarter with solid contributions from our acquisition of KWS, a leading manufacturer of screw conveyors and related bulk material handling equipment. Aftermarket demand for our high-performance bailers and bulk material handling equipment was also notable in the second quarter. Bookings in our material handling segment were up 28% compared to the same period last year, due in part to the KWS acquisition. Excluding this acquisition, newer activity was up 6%, led by strong bookings at our bailer product line. The record-setting revenue, combined with solid execution by our businesses in this segment, led to a record adjusted EBITDA margin of 23.2% in the second quarter. We remain encouraged by the number of infrastructure projects underway and additional projects being planned resulting from the significant amounts of public investment at the federal and state level. Even though the timing of capital orders can shift, we expect demand in the second half of the year to be comparable to the levels we've experienced in the first half. As I conclude my prepared remarks, I want to emphasize how pleased we are with the integration process of our recent acquisitions and how our operations teams around the globe are executing strategic initiatives to create and capture more value. Looking ahead to the second half of 2024, the persistent economic headwinds lead us to believe demand for industrial products will be similar to the first half of the year. That said, our backlog is healthy, and we are well-positioned to capitalize on new opportunities that may emerge as the year unfolds due to our ability to generate strong cash flows. We are raising the low end of our adjusted EPS guidance and expect to deliver strong financial performance again this year. And with that, I'll turn the call over to Mike for a review of our financial performance in Q2 and our guidance outlook for the remainder of the year.

Thank you, Jeff. I'll start with our second quarter performance and some key records. Revenue was a record $274.8 million, up 12% compared to the second quarter of '23 and up 2% excluding acquisitions and FX. Gross margin was 44.4% in the second quarter of '24, up 90 basis points compared to 43.5% in the second quarter of '23. Excluding a 20 basis point negative impact from the amortization of acquired profit and inventory, adjusted gross margin in the second quarter of '24 was 44.6%, up 110 basis points compared to the second quarter of '23. This increase was principally due to higher margins achieved on our capital projects in all our segments and especially in our industrial processing segment. Parts and consumables revenue represented 63% of revenue in the second quarter of '24 compared to 62% in the prior year. SG&A expenses as a percentage of revenue increased to 25.5% in the second quarter of '24 compared to 24.5% in the prior year period due in part to nonrecurring acquisition-related costs. SG&A expenses were $70 million in the second quarter of '24, increasing $10 million compared to $60 million in the second quarter of '23. This included an increase of $8.2 million from our acquisitions and $1.6 million in acquisition-related costs, partially offset by a $0.5 million favorable foreign currency translation effect. Our GAAP EPS increased 5% to $2.66 in the second quarter compared to $2.54 in the second quarter of '23, principally due to higher revenue and gross margins. Our adjusted EPS was a record $2.81 in the second quarter of '24, up 11% compared to $2.54 in the second quarter of '23. The second quarter '24 adjusted EPS exceeded the high end of our guidance range by $0.31 due to higher revenue and better gross margins than forecast. We had record revenue in the second quarter of '24 due to contributions from our current year acquisitions. All of our segments had higher-than-expected gross margins due to the mix of capital projects in the period. Adjusted EBITDA increased 20% to a record $61.8 million compared to $51.6 million in the second quarter of '23 due to record performance in our industrial processing and material handling segments for both adjusted EBITDA and revenue. The adjusted EBITDA margin was also strong in both of these segments, with our material handling segment achieving a record 23.2%. As a percentage of revenue, adjusted EBITDA was a record 22.5% compared to 21% in the second quarter of '23. We had a sizable sequential increase for adjusted EBITDA, increasing 18% compared to the first quarter of '24 due to strong performance in all three segments and especially in our material handling segment due to improved results in our baling business. Our adjusted EBITDA margin of 22.5% in the second quarter of '24 represents the first time we've exceeded 22%. Turning to our cash flows, operating cash flow increased 25% to $28.1 million in the second quarter of '24 compared to $22.5 million in the second quarter of '23. Free cash flow was up 69% to $23.1 million in the second quarter of '24 compared to $13.7 million in the second quarter of '23. We paid $59.3 million for acquisitions and borrowed $61.2 million, primarily to fund acquisitions in the quarter. In addition, we repaid $25.3 million of our debt obligations. Our other nonoperating uses of cash in the second quarter '24 included $5 million for capital expenditures and $3.8 million for a dividend on our common stock. Let me turn next to our EPS results for the quarter. In the second quarter '24, GAAP EPS was $2.66. And adding back $0.15 of acquisition-related costs, adjusted EPS was $2.81. In the second quarter '23, both GAAP and adjusted EPS were $2.54. As shown in the chart, the increase of $0.27 in adjusted EPS in the second quarter of '24 compared to the second quarter of '23 includes increases of $0.20 due to higher gross margin percentage, $0.20 from the operating results of our acquisitions, excluding the associated borrowing costs, and $0.06 due to higher revenue. These increases were partially offset by $0.18 due to higher interest expense and $0.01 due to higher operating expenses. The operating results, excluding acquisition-related costs, from our acquisitions contributed $0.20 to our second quarter earnings. Recent acquisitions are included in each operating segment, and the integration process is going well. There are growth opportunities and synergies that we will work towards capitalizing on as we continue to integrate these acquisitions. Collectively included, all the categories I just mentioned was an unfavorable foreign currency translation effect of $0.03 in the second quarter of '24 compared to the second quarter of last year due to the strengthening of the U.S. dollar. Looking at our liquidity metrics on Slide 15. Our cash conversion days, which we calculate by taking days in receivables plus days in inventory and subtracting days in accounts payable, decreased to 124 at the end of the second quarter of '24 compared to 128 last year. Working capital as a percentage of revenue increased to 18% in the second quarter of '24 compared to 16.7% in the second quarter of '23 due to the lack of a full year of revenue in the calculation for our recent acquisitions. Our net debt, that is debt less cash, increased $42.7 million sequentially to $270.1 million due to borrowings for our recent acquisitions. Our leverage ratio, calculated in accordance with our credit agreement, increased to 1.22 at the end of the second quarter of '24 from 1.12 at the end of the first quarter of '24. At the end of the second quarter of '24, we had $67 million of committed borrowing capacity and an additional $200 million of uncommitted borrowing capacity under our revolving credit facility. In addition, our strong balance sheet and low leverage ratio allows us to access additional sources of capital if needed. Now I'll update our guidance for '24. We are raising the low end of our full year revenue guidance by $5 million and now expect $1.045 billion to $1.065 billion. Similarly, we are raising the low end of our adjusted EPS guidance and now expect $9.80 to $10.05, which excludes $0.60 of acquisition-related costs due to the inclusion of our second quarter acquisitions. We now expect GAAP EPS to be $9.20 to $9.45, revised from our previous guidance of $9.39 to $9.69, which included acquisition-related costs of $0.36. Our adjusted EPS guidance for '24 reflects our expectation for slightly lower earnings in the second half of the year. This is primarily due to lower gross margins expected due to the mix of projects and higher interest expense resulting from our acquisition borrowings. Our '24 guidance compared to '23 includes an unfavorable foreign currency translation impact of approximately $5.5 million in revenue and $0.09 on adjusted EPS. The unfavorable foreign currency impact represents a $0.23 decrease from our guidance given at the beginning of the year. Future actions by central banks may impact the U.S. dollar and other currencies, which could have a significant impact on our guidance. Our 2024 guidance includes the operating results and associated borrowing costs from our most recent acquisitions completed in the second quarter. Both GAAP and adjusted EPS guidance are calculated using our initial estimates of purchase accounting adjustments, which are subject to change as we review and finalize the valuation work for our 2024 acquisitions. Our revenue guidance for the third quarter of '24 is $257 million to $269 million. And our adjusted EPS guidance is $2.36 to $2.48, which excludes $0.05 of amortization expense associated with acquired profit and inventory and $0.04 related to acquired backlog. We continue to anticipate gross margins for '24 will be 43.5% to 44.5%. We expect recurring SG&A will be approximately 25.8% to 26.3% of revenue. This excludes acquisition costs of $2.1 million for the first half of '24 and backlog amortization of $2.8 million, including $0.6 million in the third quarter and $0.7 million in the fourth quarter '24. We now expect net interest expense of approximately $19 million. And we continue to expect our recurring tax rate will be approximately 26.5% to 27.5% in '24. And we now expect depreciation and amortization expense will be approximately $48 million to $50 million in '24. That concludes my review of the financials, and I'll now turn the call back over to the operator for our Q&A session.

Thank you. Our first question comes from Ross Sparenblek with William Blair. You may proceed.

Just given the recent M&A, it'd be great to just get a sense of what the organic growth was for price consumables in the first and second quarter.

One second there, Ross.

Just knowing that, yes, all three of those were highly accretive to parts and the growth has been pretty material as of late.

I don't have it parsed by parts and consumables. I have it in aggregate. So I'll have to come back to you on that, Ross.

And then maybe just given the lumpy start to 2023, if it kind of normalizes bookings, are we to kind of think that this is a run rate and the first half was more just normalized? Or is there anything else to read into that may have affected the kind of 250 that we stand on today?

Well, as we discussed around this time last year, we anticipated that the first half of the year would mirror the latter part of last year, with some acceleration expected in the second half. However, it appears that North America has performed better than the Federal Reserve anticipated, which has influenced their plans regarding interest rate cuts and economic reacceleration. Now, we believe that growth will be fairly flat, contrary to our earlier expectations of potential rate cuts and growth acceleration by this point. Some sectors have shown strength, particularly in capital, with numerous active projects. The main concern is timing, as many of our customers are awaiting a confirmation from the Fed that the economy has stabilized and that rate cuts will begin. Consequently, we remain cautiously optimistic in our outlook for the second half of the year.

So if we're taking $25 million of acquisitions bookings every quarter, then the implied, if everything is flat in the second half, is maybe 5% down organically for the year for bookings?

Yes. That's about right, Ross.

And maybe just one more on bookings, if I can. Second quarter on the capital equipment was in line with expectations, but steel is down probably 40% year-to-date. So maybe just give us a sense of where that shift out on price and volume? Then anything else you hear from customers? I know you noted that industrial processing is set to improve in the second half, which could be a little bit of outgrowth.

So go back on that, Ross, are you talking on the bookings front?

Yes, the bookings. So it looks like you had, what, equipment was $73 million, roughly flat with $77 million, but we do have some deflationary steel in there. Just trying to get a sense of volume or the underlying demand.

Yes, I would say it's really connected to volume.

Just wanted to start on the outlook. Can you maybe just talk to kind of the organic performance that's assumed for Q3? And if I think about kind of the DSTI acquisition now rolled in, very modest uplift to the full year outlook. Is it fair to still look at that as kind of contemplating very low single-digit kind of organic declines this year?

Yes, I think that's fair, Kurt. In my comments, I mentioned that from our January forecast to our July forecast for the year, we lost $0.23 due to translation and foreign exchange. On the earnings per share front, we lost about $17 million. So we're facing a bit of a headwind there.

And I guess just going back to bookings. I mean, how would you kind of describe the 2Q performance relative to your expectations? And I guess, in terms of kind of potential timing of improvement on the capital side? Do you feel like shipments and sales on that front are pretty well spoken for at this point? And what you're seeing kind of over the back half of the year is largely going to determine how the beginning of 2025 sets up?

To your first question, I believe the parts were stronger in the quarter than we anticipated, while capital may have been a bit weaker, primarily due to the timing of projects. Regarding capital moving forward, the timing can greatly influence outcomes, especially during uncertain periods. If our smaller capital projects are booked in the third quarter, we still expect some of that to contribute to revenue this year. The larger projects, which are based on percentage completion or over time, will also generate some revenue. However, it’s important to note that as the year advances, more capital bookings are likely to shift towards next year as we approach the end of the year.

And then just lastly, on gross margins. It sounded like the performance there on the capital side was better than expected. I mean, was that just kind of a mix of some of the sizes of projects or what, I guess, operating segments they fell in? Or was there anything else that might kind of persist benefiting the margins on the capital side?

Yes, I would say that we performed better on our gross margins for capital compared to last year and against our forecast. Overall, our gross margins have come in stronger in the last few quarters compared to expectations. As you may remember, we had excellent gross margins in the first quarter, and we again saw strong gross margin performance in the second quarter. Looking ahead to the latter half of the year, we expect gross margins to decrease slightly. However, I believe this presents an opportunity for us if we can continue to exceed expectations in gross margins.

I guess, is that just a little bit kind of better pricing management? Or maybe anything to do with some of the 80/20 initiatives?

I would say that the 80/20 principle is a significant factor influencing our gross margin. When I reflect on capital, particularly comparing it to the second quarter of '23, the capital margin performance was relatively weak at that time. However, we experienced strong performance this quarter, which really stood out.

I just have a question on the EBITDA margin, the adjusted EBITDA margin. You retained a record this quarter. Is it possible, given the sales outlook that you're going to be able to keep it at 22% for the back half of the year?

I don't believe that will happen. With the gross margins decreasing slightly, I think that will also lower the EBITDA margins.

It's just that some of the puts and takes here with the interest expense and then the DNA that you've cited for the year is going to be higher than I expected. So I was just wondering how that would all flush out. But we should be below that 22% threshold for the back half of the year?

Yes. I think yes, and I think we'll finish out the year, of course, below that mark.

Great quarter. I want to ask about this to clarify. The organic orders, I believe you mentioned, were up about 5% across the board. Is that correct?

Yes.

And I wonder if you could just break out how that trended on parts versus capital projects?

Yes. That was, I think, similar to what Ross was asking on. So I would say it was kind of split between the two, parts would be the stronger component.

And then I guess a follow-up too from that prior question. Just wanted to make sure I understood that in the back half, you're thinking that the orders that we should be expecting would be down about 5%? Or was it down not 5% in the back half of the year, but down 5% for the full year?

For organic for the full year, yes, that's fairly close. I have this down about 4%.

So that implies that we should be thinking about just the CapEx projects in the back half of the year just not being as strong because of some of those timing issues or whatever that you talked about?

Yes. We've said on the bookings front, kind of demand being relatively consistent with where we are currently.

I can say that North America has performed better than many had anticipated. China is still facing challenges as it recovers from lockdown and deals with structural economic issues primarily related to development. The rest of Asia is showing some improvement. In Europe, the situation varies by country; Germany, the Netherlands, and the U.K. have likely been in a recession but may now be stabilizing. The European Central Bank is starting to lower interest rates, which gives hope that we will see these economies begin to recover as we approach the end of this year and into next year. This pattern has been quite stable over the past few quarters, and we expect it to continue for the next few quarters. North America remains the strongest region.

Can you guys hear me? There we go. Back on the geographic, I mean, if you could maybe just parse out what the strength has been in North America? And then also second question, just on Asia. Is it just China a couple of years of over-earning and we're kind of hitting a run rate? I know the OSB business sounds I guess, pretty strong there, and you guys are continuing to outgrow the market. Just to get a sense, what products or businesses directly are driving those.

In North America, all the businesses are performing very well. The material handling sector has achieved record results. Flow control parts have been a strong driver of our business, and the industrial processing group has also performed well. Overall, our segments have outpaced the rest of the world due to stronger economic conditions, leading to better growth rates. In contrast, China is facing challenges as personal consumption declines. Their focus on exports is directed towards markets that are weak, and much of their internal growth relied on real estate development. However, they have overbuilt and are trying to navigate through this situation. Several major developers have gone bankrupt or been acquired. They are working to stabilize their economy, but I don't see this as a lasting trend. They have structural issues to address, and I anticipate gradual improvements moving forward. However, the recovery is taking time, especially since they experienced lockdowns for a significantly longer duration than other parts of the world, which has made it slower for them to tackle these structural challenges.

As we consider the decision to replace the lower efficiency mills each year, are you seeing strong market share there? Is it remaining stable? There appears to be a good run rate, but does it continue to decline? Or can you provide more specifics?

You talking about globally or just in China?

Just in China.

In China, our market share remains strong, typically around 70% to 75%. This trend continues as they tend to purchase significant amounts of new capacity at once, then bring it online, which often leads to the exit of smaller, less efficient competitors. This process typically follows a 2 to 3-year cycle before they make another large purchase. We are often surprised that they keep adding new capacity even when operating rates are low. One factor contributing to this is the country's vast size, which is making transportation costs more significant. As a result, they are starting to build mills closer to demand locations to lower those costs. Thus, mills are beginning to distribute more widely across the country. However, our market share remains firm, even though they are currently in a lower buying phase of the cycle.

Is there anything we could look at as like a leading indicator to get a sense of this dynamic of expansion into the Tier 2, Tier 3 cities? Just continue to look at customer CapEx is only a few guys and indicates a pretty big slowdown on the horizon, but that doesn't seem to correlate with the strength you guys are seeing.

It's interesting to note that when examining fast markets, which are likely the leading economic indicators, and the data they've published over the past two decades alongside China's activity, we observe that investments often exceed what the fundamentals would suggest. This is due to two main factors: many smaller mills are shutting down, and it's challenging to track these smaller entities as they close. Additionally, there are often concerns about future permitting issues. For example, with the implementation of climate change initiatives, these mills worry that if they don't secure the necessary permits now, it could become much harder to do so in the future. This is why we see them expanding into different regions and obtaining permits for new projects now, as they believe it is easier to navigate the process at this time than it might be later. While the future remains uncertain, this is a common rationale we encounter; they are eager to get their projects permitted while the situation is still favorable.

Just one follow-up. If you look back kind of over the last two years, we've seen capital equipment sales outpace capital equipment bookings, which would make sense as you kind of work down the backlog of projects kind of from the 2020-2021 time period. I guess if we look forward and say capital equipment bookings are going to be pretty consistent in that $70 million to $80 million range, would you expect a lot of variability still on kind of the sales side? Or do you think that would be a relatively good proxy for how to think about the revenue?

Well, I think it's a reasonable proximity on the revenue front also.

Is there anything in the last two years regarding bookings compared to sales on the capital side that might have changed in terms of how sales are recognized alongside bookings and the timing? Or do you think it's primarily just the backlog dynamic?

The backlog dynamic is playing a big role in what you're seeing on the revenue front.

Capital bookings have been softer for several quarters. Since interest rates began to rise, capital bookings have been weaker than our expected normal run rate, particularly from the second quarter of last year and in the first two quarters of this year. As I mentioned, everyone seems to be waiting for the Fed to declare victory and for the economy to begin reaccelerating.

In relation to a previous question, you mentioned market share, particularly in China. Considering global market share and how you're managing the business, it seems that due to your management of the Kadant businesses and M&A, as well as the 80/20 process, you might have more commercial strength than before. Are you seeing any increase in market share for either capital projects or aftermarket services?

Well, as you know, we have a very high market share in most of our markets already. However, I believe we have gained market share in certain areas. Specifically, on the OSB side, we have significantly increased our market share over the last 10 years, capturing most of the new orders during that time. Our market share in that particular business has improved. Additionally, we have introduced new products that generate revenue from existing customers, which means we are not just taking market share from competitors; we are generating new revenue through products that were not previously available. So, I think it's a combination of both factors, but we already hold a very high market share in most of our markets.

How about on the aftermarket side? Is there like a program or process? Or do you think it's just a market that's improved as capital projects are a little slower?

No. I believe a significant portion of our research and development efforts focuses on supporting our aftermarket business by creating new aftermarket parts that perform better, last longer, and provide a better return on investment. This focus is evident as we see our parts revenue continue to grow. There are numerous smaller competitors in this space attempting to capture market share, which presents both risks and opportunities. As we innovate and introduce new products that enhance performance and offer better returns for our customers, there is potential to not only lose market share but also gain it.

And I would now like to turn the call back over to Jeff Powell for any closing remarks.

Thank you, Josh. So before wrapping up the call today, I just want to leave you with a few takeaways. Despite the weaker economic conditions in certain areas of the world, the second quarter was another record-setting quarter, and our operations teams deserve a lot of credit for producing these results. We have strong market positions and expect stable demand during the second half of this year as project activity continues to show signs of resilience. And with that, I want to thank you for joining us today, and we look forward to updating you next quarter.

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.