Earnings Call Transcript - LECO Q1 2020

Operator, Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Lincoln Electric Holdings Incorporated First Quarter 2020 Earnings Conference Call. At this time, all participants' lines are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand over the conference to your speaker today, Amanda Butler, Vice President of Investor Relations. Thank you, and please go ahead, ma'am.

Amanda Butler, Vice President of Investor Relations

Thank you, Chris, and good morning, everyone. Welcome to Lincoln Electric's 2020 First Quarter Conference Call. We released our financial results earlier today, and you can find our release as an attachment to this call's slide presentation as well as on the Lincoln Electric website, in the Investor Relations section. Joining me on the call today is Chris Mapes, Lincoln's Chairman, President, and Chief Executive Officer; Vince Petrella, Executive Vice President; and Gabe Bruno, our Chief Financial Officer. Chris will begin the discussion with an overview of our first quarter results, and together with Vince, will discuss Lincoln's management of COVID-19. Gabe will cover the first quarter performance in more detail, and following our prepared remarks, we are happy to take your questions. Before we start our discussion, please note that certain statements made during this call may be forward-looking, and actual results may differ materially from our expectations due to a number of risk factors. A discussion of some of the risks and uncertainties that may affect our results are provided in our press release and in our SEC filings on forms 10-K and 10-Q. In addition, we discuss financial measures that do not conform to U.S. GAAP. A reconciliation of non-GAAP measures to the most comparable GAAP measure is found in the financial tables in our earnings release, which, again, is available in the Investor Relations section of our website. And with that, I'll turn the call over to Chris Mapes. Chris?

Chris Mapes, Chairman, President, and CEO

Thank you, Amanda. Good morning, everyone. Before we get started, I'd like to thank Vince for his outstanding contributions as CFO to Lincoln Electric. Vince has stepped down as our CFO but is continuing to work with us to ensure a smooth transition. I would like to formally introduce Gabe Bruno, our new CFO, who has been with Lincoln for 25 years and brings a wealth of knowledge and experience to the position. Vince and Gabe will be leading the call with me today. Looking at the first quarter, we continued to operate throughout the quarter as an essential infrastructure sector business across substantially all of our facilities, and achieved strong margin performance in an increasingly challenging environment. Despite first quarter sales declining 7.5%, our adjusted operating income margin declined only 40 basis points to 12.6% on favorable mix, price cost, and benefits of our cost reduction actions. This resulted in an 18.2% decremental margin performance in the quarter. Adjusted earnings per share decreased 14.5% to $1.00 per share. Cash flow generation reflected seasonality, but free cash flow improved versus the prior year. Returns were strong with ROIC at 19.7%. We also returned $140 million to shareholders through a combination of our 4% higher dividend payout rate and $110 million in share repurchases in the quarter. As we ended the quarter, we benefited from a strong balance sheet and ample liquidity as we prepare the business for more challenging conditions ahead. Our employees have shown great resilience and perseverance maintaining operations during this time. Across the organization, our priority has been keeping our team safe while we serve customers. We have aggressively implemented new procedures that include CDC and World Health Organization-recommended best practice hygiene and sanitation protocols, entry and exit screenings, social distancing, and have implemented flexible and remote working arrangements, in addition to many other actions. We continue to monitor guidance from federal and local authorities, and we are actively adopting new measures as recommended. The focus of first quarter operations was to maintain a steady supply of product, which we achieved. Our teams established local and regional operational contingency measures, expedited select raw materials as needed, and built excess inventory ahead of potential supply chain disruptions or mandated closures. During the quarter, our five Chinese facilities were closed for approximately one month due to government mandated shutdowns, but orders resumed to normalized levels by early March. The balance of our global business did not experience any material impact from COVID-19 until mid-March when many of our global locations instituted aggressive new procedures to protect employee safety while continuing to serve customers. As demand compressed significantly during the last two to three weeks of March, we are expecting more challenging operating conditions in the second quarter. An increase in customer facility closures and the continued risk of possible supply chain disruptions are expected to result in lower operating activity and higher inefficiencies in the business. Moving to slide five, looking at organic sales trends in the first quarter, our two Welding segments contracted, while Harris sales increased on higher retail channel and HVAC activity. All regions saw a further deceleration in demand as the COVID-19 impact late in the quarter compressed an already challenged industrial sector, prompting an expansion in our cost reduction actions. Since mid-March, we've seen a significant deceleration in demand. April month-to-date sales orders have trended in the low 40% range primarily due to customer closures. Our order patterns appear to have troughed over the last three weeks, and while there is limited visibility from customers and government discussions around partial re-openings, the data suggests that the second quarter should be the trough in demand. While each down cycle is unique and the shape of the recovery is unknown, we've outlined some of the recent prior peak-to-trough historical performance across our main end markets to provide perspective. Generally, declines have been in the mid-30% range and have compressed over 12 to 18 months with an equivalent recovery timeframe. And now, I will turn the call over to Vince to outline the actions we have taken to mitigate the impact of lower demand in our business.

Vince Petrella, Executive Vice President

Thank you, Chris. Turning to slide six, we expanded our cost reduction actions in the quarter and are benefiting from prior actions that eliminated travel, discretionary spending, and froze new hiring and wages. In the first quarter, we achieved approximately $7 million in benefits primarily from temporary actions. In April, we significantly reduced hours to 32 hours per week in our main U.S. operations, eliminated overtime, and we have deferred all wage increases. In the quarter, we commenced the rationalization and closure of three manufacturing facilities, and further reduced headcount to align with demand. Our actions are now expected to realize $40 million to $45 million in annualized cost savings in 2020, of which 45% is expected to reflect permanent cost reductions. We expect to exit 2020 generating between $6 million and $7 million in permanent cost savings per quarter. We incurred $6.5 million in pretax rationalization charges in the first quarter, and anticipate incurring an additional $10 million to $15 million in rationalization charges through the balance of the year. We are prepared for further cost reductions and will determine the appropriate timing of implementation as the second quarter progresses. The lack of visibility on timing and the shape of the recovery has led us to carefully phase in cost reduction actions over time. Turning to slide seven, we are confident in our ability to navigate through this challenging period. Disciplined management of our balance sheet provides us with an investment-grade profile at 1.85 times gross debt to EBITDA, which positions us well below our 3.5 times gross debt to EBITDA debt covenant. We have ample room to endure a severe contraction in demand and are confident in our current liquidity position.

Gabe Bruno, Chief Financial Officer

Thank you, Vince, and hello everyone. Moving to slide nine, our consolidated first quarter sales decreased 7.5%, led by an 8.6% decline in volumes from lower demand in our Welding segments. Our first quarter gross profit margin was generally steady with prior due to positive price costs, favorable mix, and the benefits of cost reduction actions. Our SG&A expense declined 6.7% in dollar terms, driven by lower employee costs and discretionary spending. The SG&A ratio increased 20 basis points to 21.3% of sales. Reported operating income decreased 14.2% to $81.1 million, or 11.5% of sales. Operating income results included approximately $7.3 million in special item charges related to rationalization and asset impairments, primarily from severance related to our international welding cost reduction activities. Excluding these special items, adjusted operating income decreased 10.5% to $88.4 million, or 12.6% of sales, a 40 basis point decline versus the prior year. Acquisitions had a 40 basis point diluted impact to our adjusted operating income margin in the quarter. First quarter reported and adjusted effective tax rate was 26.8%, compared with 23.1% in the prior year period. The increase was primarily due to discrete items and mix of earnings. We expect the balance of our average 2020 effective tax rate to be in the mid-20% range. First quarter diluted earnings per share decreased 18.8% to $0.91, compared with a $1.12 in the prior year.

Chris Mapes, Chairman, President, and CEO

Thank you, Gabe. We're managing the business with tremendous flexibility and agility given the need to ensure the safety of our employees, customers, and communities while continuing to operate and serve customers who have mission-critical applications. Our product development and commercial initiatives have continued to advance as well this quarter. Our Harris Products Group team designed, developed, manufactured, and delivered a customized gas distribution system in five days that delivers oxygen to individual patient beds at a New York City field hospital. The Harris team continues to provide gas, oxygen regulators, and systems to help healthcare and government agencies respond to the COVID-19 threat. In a new era of social distancing and travel restrictions, our North American commercial team rapidly deployed a new digital platform to engage our customers in live product demonstrations and educational webinars. Year-to-date, we've engaged over 5,000 customers worldwide online, and we'll be using digital solutions to support the launch of 30 new products this year. We're confident in our ability to navigate this unprecedented challenge with the strength of our balance sheet, strong cash flow generation, and the continued commitment and dedication of our global teams. Thank you, and I will now pass the call back to the Operator for questions.

Operator, Operator

Thank you. And our first question comes from the line of Rob Wertheimer with Melius Research. Your line is now open.

Rob Wertheimer, Analyst

Thank you, and good morning, everyone. I noticed your commentary on orders and I'm trying to determine if this is the bottom. How does this compare to your worst months or weeks in 2009? Can you provide a comparison of the downturns during both periods and explain how you are managing through this situation? It appears you're considering different responses based on how the situation develops, but are you expecting a prolonged downturn? Thank you.

Chris Mapes, Chairman, President, and CEO

Yes. Rob, this is Chris. Look, I appreciate the question. As you can imagine, it's a challenging window to try to evaluate the data and understand how we think we may trend here over the next several weeks, but as I compare it to 2008 and 2009, certainly the change that we saw in the dynamic in the business was the swiftness of the downturn. When the business globally started to turn down, and we saw that in the middle part of March, it turned out pretty materially, and then down in the low 40% from a global welding perspective. We've been tracking this data for the last 60 to 90 days, seeing the impacts of COVID-19 very early with our China operations. Our five-day, 10-day, and 15-day trends show a bottoming at this level. I'd like to see some more data to get more confidence in it, which is why I'd like to monitor it over the next two to three weeks. While each down cycle is unique, the swiftness of this downturn is certainly a change from the prior pattern, but I've got confidence in our ability to navigate through this cycle. Our teams have done great work in a very challenging environment. Certainly one of the differences for the leadership team this time versus '08 and '09 is managing the importance of employee health. That's a different dynamic when you're trying to operate as an essential business around the world.

Rob Wertheimer, Analyst

Okay, thank you. I'll follow up. Thanks.

Operator, Operator

Thank you. And our next question comes from the line of Saree Boroditsky with Jefferies. Your line is open.

Saree Boroditsky, Analyst

Hi, sorry. Can you hear me? Good morning, and congratulations to Vince and Gabe on your new roles. You mentioned order levels reaching normalized levels in China in early March. Do you think you can apply what you saw in China to other regions, and if so, when would you expect order levels to normalize?

Chris Mapes, Chairman, President, and CEO

Well, it's difficult for us to imply that the order dynamics in China will replicate across our larger businesses in Europe and the United States. Certainly in China, we saw those order numbers move back to a more normalized level within 30 to 45 days. More normalized being plus or minus 5% versus the prior year, and certainly happy that we have seen that business provide that type of recovery. If you were to imply that across the rest of the business, that would suggest we should have, over the next 30 to 45 days, a recovery back in our European and U.S. business. But at this point, it’s too challenging to extrapolate that across our portfolio at Lincoln Electric, and that's why we will continue to evaluate the data, determine whether we see improvements, or if we need to take further actions to mitigate a longer downturn in those markets.

Saree Boroditsky, Analyst

I appreciate that. And then just within the 40% order declines in April, can you provide some color on what you saw by end market or region? And are you seeing any impact from destocking?

Chris Mapes, Chairman, President, and CEO

I can't say that I have seen enough context to know about any destocking levels. I would tell you that, as you would expect, with the virus starting in Asia-Pac, we started to see that China business return to normalized levels, the impact was earlier in Europe. We have seen the Europe numbers be slightly more favorable than the average, and the Americas numbers are slightly unfavorable to the average. From an end market perspective, obviously when you've seen these demand numbers drop that swiftly, automotive, transportation, and heavy industries have been significantly hit by the impact.

Saree Boroditsky, Analyst

I appreciate the color. Thanks so much.

Operator, Operator

Thank you. And our next question comes from the line of Joe O'Dea with Vertical Research. Your line is now open.

Joe O'Dea, Analyst

Hi, good morning. Congrats and best wishes to you, Vince, and congratulations on your new role, Gabe. The first question, just related to margins. Of the $40 million to $45 million in 2020 cost savings, can you talk about how that flows through from a cadence perspective? And anything you're willing to say around expectations around decremental margins in the second quarter?

Gabe Bruno, Chief Financial Officer

So, Joe, this is Gabe. As we've disclosed, 45% of the overall cost savings we've identified is permanent. So expect an acceleration of temporary savings as we progress into the second quarter, which will be driven by our alignment to demand. Expect more, as Vince had identified, $7 million in the first quarter, and expect that kind of trajectory into the second. You think about decrementals, and assuming our current level of volumes, which Chris has mentioned we've disclosed, in the low 40s, we would expect decrementals in the 35% to 45% range. You saw the first quarter was pretty healthy at 18.2%, and we've been aggressive in identifying and progressing with cost savings, but that's the framework we're working towards.

Joe O'Dea, Analyst

That's really helpful. Any thoughts on the demand side? It's tough to predict, but based on your cost strategies, we could move from 18% into the 35% to 45% range. How might that shape up in the second half as more of the cost actions come into effect?

Chris Mapes, Chairman, President, and CEO

Well, I think in general, it's difficult, Joe, to project out with the volume assumptions we see. That framework seems reasonable for us to monitor. When we look at 2008-2009, we saw declines that were significant, with a recovery timeframe that generally equaled out. I feel good about the team's ability to navigate this current situation, and there's optimism about how products will be received coming out of cycles.

Joe O'Dea, Analyst

Sure. No, I appreciate that. You gave some helpful context in terms of declines if we go back to the '08-'09 period, and overall down 30%. When we look at the 12 months post that trough revenue was up 20%. And can you talk about the trends that you have seen and maybe what you would expect to see out of a recovery with respect to equipment demand versus consumables demand? I think presumably consumables leading out, but generally how long then equipment demand could lag that with maybe some CapEx sensitivity in the early days of a recovery?

Chris Mapes, Chairman, President, and CEO

Well, part of that depends on the shape of the recovery, which is currently difficult for us to estimate. We have invested in product development, as we did back in '08 and '09. New products were a success for us and helped drive the recovery. This time around, similar trends may emerge where equipment may recover more quickly than it has in past cycles. Our positioning in the market remains strong with exciting new products introduced recently that are expected to perform well as we navigate through the recovery phase.

Joe O'Dea, Analyst

Got it. I wanted to ask one more question about oil and gas, which is down 33%, with 14% to 16% as your revenue exposure. Can you remind us how the breakdown looks for upstream, midstream, and downstream? Additionally, how do you assess this from a structural perspective, particularly the risks in upstream given the volatility we have observed in that market?

Chris Mapes, Chairman, President, and CEO

When we think about our mix within oil and gas, we've got about 16% or 18% that's upstream. We're 55%-60% that's around midstream, and our downstream assets are somewhere around 20% to 25%. The recent shock within the global oil industry is just now permeating around the world. We have already seen some large projects postponed, and I will say it's too early for us to understand the longer-term dynamics, but cycles tend to be longer in oil and gas.

Joe O'Dea, Analyst

Thanks very much.

Operator, Operator

Thank you. And our next question comes from the line of Nathan Jones with Stifel. Your line is open.

Nathan Jones, Analyst

Good morning, everyone.

Chris Mapes, Chairman, President, and CEO

Hello, good morning, Nathan.

Nathan Jones, Analyst

I just like to start with a question on the potential for further cost reduction actions. I think you said as 2Q 2020 progresses, can you talk about maybe what the decision points are along the way there, what you would need to see to enact further cost-cutting actions and what kind of levers there off to pull?

Chris Mapes, Chairman, President, and CEO

What we intend to do is continue to monitor the demand profile. I mentioned earlier the trends we've seen within the global welding portion of the marketplace. We need to see some improvements in that data in early June to determine whether we need to move forward with further actions. We have evaluated a couple of structural opportunities that we might look at accelerating, but those would have little impact in Q2 and most of the effects would be in Q3 and Q4.

Nathan Jones, Analyst

Okay, and then a couple questions around cash. Can you talk about the decision to repurchase shares in 1Q 2020? I know you said you're suspending them going forward, and then just any other things that you're doing to manage cash. I'm thinking particularly about receivables collection, whether you've seen any extension on that side, whether you foresee any issues with your customers actually being able to pay their bills here at the moment?

Vince Petrella, Executive Vice President

So as far as our decision to purchase shares in the first quarter, we found the share price to be attractive and compelling, but decided to suspend that program temporarily until we have better visibility in terms of the recovery that we expect to occur this year from this COVID-19-induced compression in the industrial space. From a cash management perspective, we are very closely monitoring our working capital components, particularly our receivable and DSO on a geographic and end market and customer basis. We're managing our payables carefully, reviewing cash flows very closely.

Nathan Jones, Analyst

Have you seen any issues or any stretching out of DSOs or anything like that so far?

Vince Petrella, Executive Vice President

No, from a macro perspective our DSOs are holding up very well. There are anecdotal and specific cases of issues but nothing that has risen to the level of affecting the group in a material way.

Nathan Jones, Analyst

Okay, thanks very much. I'll pass it on.

Operator, Operator

Thank you. And our next question comes from the line of Mig Dobre with Baird. Your line is now open.

Mig Dobre, Analyst

Thank you. Good morning, everyone. I just want to go back to your April comments. I want to make sure that I understand this properly. Americas maybe declining a little bit more than that 40% average; International, I think you mentioned a little bit less; any color on how Harris is progressing in April?

Chris Mapes, Chairman, President, and CEO

Harris has held off maybe just slightly a little better than the average, not surprising when you think about the segments that it is participating with. It has an element within that business which is welding but also an HVAC component associated with that and a small component in medical applications or oxygen regulators and some technologies we've developed around that piece. So that portion of the business certainly has held up a little bit better, but we are seeing that downturn in demand also in the Harris business at this point.

Gabe Bruno, Chief Financial Officer

Mig, I would just add that we're seeing similar trending from a relative perspective. Harris was holding up better than the welding businesses in the first quarter and into the latter half of March, but we're certainly seeing a step down year-over-year in Harris, but not to the levels that we've pointed out for the Welding segment.

Mig Dobre, Analyst

Understood. And then you gave us perspective on the decremental margins here, but I'm wondering if there is any variation from that average at the segment level that you think is worth calling out?

Chris Mapes, Chairman, President, and CEO

No, I don't think anything that’s really material at this point in early April. I feel comfortable with where we've positioned the business. I like the fact that we have further actions we can take if we don't see improvements within the structure of the business, or don't see the rate of improvements we want to see. I believe our performance in Q1 amplifies our confidence in our ability to manage through the cycle.

Mig Dobre, Analyst

I see. Then lastly for me, maybe a little more color on the automation business. I guess looking at the first quarter, we've still seen some pretty meaningful declines here. I'm wondering how that progressed into April, and I'm also sort of wondering what you're doing with this business in terms of adjusting the cost structure because obviously the decrementals you won in your Americas segment look pretty good. So I'm wondering how automation played into that and how you're thinking about this business going forward? Thanks.

Gabe Bruno, Chief Financial Officer

I can start by telling you that the year-over-year performance from a top-line perspective in automation was a double-digit year-over-year decline, with a little compression that was higher than the overall welding business.

Chris Mapes, Chairman, President, and CEO

We had taken actions to mitigate some of our cost structures in that area as we were exiting 2019, so we saw benefits associated with that in Q1. The order book as a percentage basis isn't down anywhere near the levels we're seeing in the core business. However, the concern is that if capital investments become more materially impacted, that could lag compared to what we’re seeing from an order perspective, and we may need to look at taking some other actions within that business, but that business performed relatively closely to expectations. I'll reiterate my confidence in our investments in automation. Those continue to provide productivity and quality improvements across businesses.

Mig Dobre, Analyst

But just to clarify, in terms of your cost savings action, what you've done already and what you're contemplating going forward. Is the automation business more or less impacted than the segment average?

Chris Mapes, Chairman, President, and CEO

At this point, early in this decline, automation has been more impacted than some of our other welding businesses.

Mig Dobre, Analyst

Okay. Thank you.

Operator, Operator

Thank you. And our next question comes from the line of Chris Dankert with Longbow Research. Your line is now open.

Chris Dankert, Analyst

Hey, good morning, guys. Just echo the hearty congrats to Vince and welcome Gabe. You guys typically don't give a lot of granular detail by country, but just could we get a quick update on specifically China growth rate in the quarter and kind of what the EBIT loss might have been there in 1Q.

Chris Mapes, Chairman, President, and CEO

The year-over-year performance has stabilized. There was a rebound in March, as all manufacturing units became online from being erratically run from the end of January into early March, and we would tell you that from a year-over-year perspective, it has remained relatively stable in both revenue and earnings from that part of our business.

Chris Dankert, Analyst

Got it, got it. Thank you. And then just do you still expect a fairly even split in the cost savings between Americas and international with these new cost out actions?

Chris Mapes, Chairman, President, and CEO

I can't make out the question. If you have it, can you email it to Amanda, and then we'll move on to the next question?

Chris Dankert, Analyst

Sounds good.

Operator, Operator

Thank you. And our next question comes from the line of Walter Liptak with Seaport. Your line is now open.

Walter Liptak, Analyst

Hi, thanks, good morning. I wanted to ask about the additives business. I expected it to experience significant growth. Did you see any growth in the quarter, or is it in decline? If it is declining, by how much?

Gabe Bruno, Chief Financial Officer

We did not see the growth we expected in the additive business in the quarter. We're continuing to invest in that area of the business. It's a long-term catalyst for us, but I would tell you that even if we successfully drive what we hope to from this year, it probably won’t be material enough to call out from a revenue perspective. We continue to invest in technologies, and we are expecting to slowly start opening our site up as we exit Q2.

Walter Liptak, Analyst

Okay, got it. If I could ask - just kind of a follow on, just thinking about your own supply chain. It sounds like you didn't have it, and you built some inventory, but you didn't have any issues, and I wonder where you think you might have critical parts supply issues, and if you are doing anything to manage your supply chain?

Gabe Bruno, Chief Financial Officer

Our teams managed through issues very well, but we recognize that as the global economy starts to reopen, there will continue to be challenges around supply chains. There could be challenges ahead as the global economy starts to reengage, but our teams did a spectacular job managing through the issues we had in Q1.

Walter Liptak, Analyst

Okay, got it. Thank you.

Chris Mapes, Chairman, President, and CEO

Welcome.

Operator, Operator

Thank you. And our next question comes from the line of Steve Barger with KeyBanc Capital. Your line is now open.

Steve Barger, Analyst

Hey, good morning, guys. It's been good working with you; enjoy your retirement.

Chris Mapes, Chairman, President, and CEO

Thank you.

Steve Barger, Analyst

I'll follow up on the automation conversation. I know we're early in the virus-driven slowdown versus what we were already seeing last year in terms of things slowing down, but what is your team hearing from customers in terms of how automation fits into their cycle planning, or how they're thinking about managing their own cost structure going forward, given what we've just been through with the coronavirus and tariffs before that?

Chris Mapes, Chairman, President, and CEO

Yes, it’s a difficult question to give you clarity on. As we were exiting Q1, many discussions kicked off, and some materialized but a couple were paused due to the challenges customers faced with completing evaluations. Over the next 30, 60, 90 days, we will see if businesses start to reengage with the pandemic and the challenges in their own operations. However, I still believe that the need for automation to drive productivity, particularly with these challenges, could end up benefiting our automation segment over time.

Steve Barger, Analyst

Yes, and I appreciate all the tough decisions around the next class actions you've taken given the speed of the decline, but how are you talking to the team about service levels or taking market share, if your competitors stumble, or if, say 3Q or 4Q is not as bad as feared at this point?

Chris Mapes, Chairman, President, and CEO

Yes, we’re having as many conversations about being commercially offensive as anything else. We decided globally to manufacture products as we had essential businesses, employees, and raw materials. We did not hesitate; our service levels have stayed strong. Our inventory position is healthy, and we are prepared to service the markets as they spring back. We will not miss that opportunity. It's why we didn't apply all the cost reduction activities available because we want our individuals ready to respond. We are well positioned, and our inventory has been strong, especially in the international business. We'll continue top performance as we migrate through the pandemic.

Operator, Operator

Thank you. And I'm not showing any further questions at this time. So, this concludes today's question-and-answer session. I would now like to turn the call back to Gabe Bruno, Chief Financial Officer, for closing remarks.

Gabe Bruno, Chief Financial Officer

Thank you, Chris. I'd like to thank everyone for joining us on the call today, and for your continued interest in Lincoln Electric. We look forward to discussing the progression of our actions and strategic programs in the future. Thank you very much.

Operator, Operator

Ladies and gentlemen, this concludes today's conference call. Thank you for participating, and you may now disconnect.