Applied Industrial Technologies Inc (AIT) 2011 Q3 法說會逐字稿

Welcome to the fiscal 2011 third quarter earnings call for Applied Industrial Technologies.

My name is Kim, and I will be your operator for today's call.

At this time, all participants are in a listen-only mode.

Later, we will conduct a question and answer session.

Please note that this conference is being recorded.

I will now turn the call over to Mr.

Richard Shaw.

Mr.

Shaw, you may begin.

Thank you, Kim, and good afternoon, everyone.

On behalf of Applied Industrial Technologies, welcome to our third quarter call.

Our earnings release was issued this morning before the market opened and if you haven't received it, you can certainly retrieve it from our website at www.applied.com.

A replay of today's broadcast will be available for the next two weeks and the archive information is contained in the press release.

Before we begin, I would like to remind everyone that we will discuss Applied's business outlook during the conference call and make statements that are considered forward-looking.

All forward-looking statements are based on current expectations regarding important risk factors, including trends in his industrial sector of the economy, the success of our various marketing strategies, and other risk factors identified and in Applied's most recent periodic report and also with other filings made with the SEC.

Accordingly, actual results may differ materially from those expressed in the forward-looking statements.

In compliance with SEC regulation FD, this webcast is being made available to the media and the general public, as well as to analysts and investors.

Because the webcast is open to all constituents and prior notification has been widely and unselectively disseminated, all content of the call will be considered fully disclosed.

Our speakers today include David Pugh, Chairman and CEO of Applied, who will discuss our overall performance during the quarter.

You'll also hear from Ben Mondics, our President and Chief Operating Officer, who will discuss operational activities, and Mark Eisele, Vice President and Chief Financial Officer who will discuss our financial performance in detail.

Here to get us started is David Pugh.

Thanks, Rick.

I hope you have had time to digest the numbers.

We delivered a strong third quarter, thanks to a recovering economy and combined with operating excellence by our associates across the board.

We achieved a respectable 16% increase in our sales over last year against increasingly difficult comparables and that continues a string of positive sales gain since the start of our fiscal year.

This is especially gratifying considering that the segments related to new construction, which has been one of our traditional strengths, are still slow to recover.

We've done well in mitigating this mix challenge.

We continue to grow profitably and we continue to provide strong cash generation.

All in all, a solid quarter.

While the top line success is coming from all fronts, our operations in Canada and Mexico and our fluid power businesses are doing exceptionally well with fluid power having finished up the quarter on a record month.

Our fluid power business, through their application expertise and their investments in keeping pace with advancements in technology, will be a solid building block for our future.

So even with good sales increases, operating in this environment requires touching all the bases on a daily basis.

There is really no single focus for us.

Supplier increases driven by cost of raw materials are on the increase.

As a result, margin maintenance is a battle and we did very well managing this in the quarter.

Our associates are selling the value inherent in our delivery model.

Cost control is in good balance.

We are absorbing the ERP expense at a rate above initial expectations, and we are still maintaining good operating margins.

Mark will comment on this a little bit later.

Considering when and where to add back personnel in this current environment, requires the wisdom of Solomon, as we make assessments as to which segments can sustain today's growth.

Ben and his managers are doing an excellent job here.

Asset management is another complex balancing act, as we trade off the benefits of rebates against LIFO layer liquidation while absorbing price increases and meeting the needs of a growing sales volume.

I'm very pleased with the attention given to this and the results driven by this attention.

These benefits don't just happen.

They are achieved by thoughtful actions.

Our supply chain team is handling this very effectively.

The ERP project is moving well.

It's required the engagement of many of our most experienced people.

Others have readily and capably stepped into the gaps that it has created.

While we are not at a point to definitive quantify the benefits of this project today, we watch this progress closely and I'm very confident the returns will well exceed our corporate hurdle rates for strategic projects and will allow for even greater operating leverage in the future.

As we look across the full scope of our operations, we are pleased with what we see in place and in the opportunities for continued improvement.

With that I'm going to turn it over to Ben to talk about the details of our operating performance for the quarter.

Thanks, Dave, and good afternoon, everyone.

To echo Dave's comments, we are pleased with our third quarter performance.

And taking a look at the economic indices that we follow, industrial production increased 0.8% in March and was almost 6% above its year earlier level.

The boost in March was its biggest increase this year and above most expectations.

Manufacturing output increased 0.7% in March, its fourth consecutive month of strong expansion and it is now 6.6% above its year earlier level.

Capacity utilization for manufacturing advanced 0.4% to 75.3% a rate 3.7% below its average from 1972 - 2010, but almost 11% above its low in June of 2009.

The ISM purchasing manager's index continues to hold strong and steady at 61.2 in March, while a slight decrease from February's reading of 61.4 follows eight months of steady increases, with the last three months all above 60.

A reading above 50 indicates that the manufacturing economy is generally expanding, and below 50 indicates that it is generally contracting.

Nearly all major indicators show that manufacturing continues to perform well.

At quarter end, 26 of the top 30 industries we track showed an increase over the prior year third quarter.

Of those 26 industries, 17 posted double digit growth, and among those, seven posted growth of more than 20%, proof that the manufacturing up turn is indeed very broad.

In the wake of the massive and tragic Japanese earthquake and tsunami, we have worked to keep our customers informed about the impact on our Japanese suppliers.

Most of the manufacturing operations are located in southern Japan and the damage reports are minimal.

Overall, we haven't seen major disruptions to our Japanese supply chain.

We are keeping a close watch on this situation in the event that there are any changes, and we extend our thoughts, our prayers and our continued good wishes to the Japanese people.

In situations like this, it is the know-how and sourcing expertise of our associates that can be so valuable.

That bank of knowledge, combined with our depth of inventory allows us to continue to keep our customers' operations running.

For a third quarter, SG&A is a percentage of sales improved to 20.9% from 21.3% in the same quarter last year.

Year to date our SG&A is at 20.8%.

Our SG&A percent has improved because of stronger sales and our cost control efforts.

We are working to adjust our staffing to better match the increased demand.

However, our goal here remains to keep our core SG&A growth rate at about half the rate of our sales growth.

At quarter end, our employee count was 4,639, a net increase of 148 associates compared to last year's third quarter.

Excluding the UZ and SCS acquisitions, our employee count is down 66 since March of 2010.

As you know from our previous earnings calls, our new ERP system is at the forefront of our current operational activities.

SAP is our selected software provider and at this time we are working diligently with Accenture, our systems integrator, to examine our business processes which will in turn help us to transform our technology platforms and enhance our business information and transactional systems.

Mark will provide an update on the breakout of capital expenditures and operating expenses shortly, and I must say we are very pleased with our progress on the project at this stage.

I will now turn the call over to Mark Eisele for a discussion of the quarter's financial results.

Thanks, Ben.

Good afternoon, everyone.

Let me provide insight for our third quarter fiscal 2011 financial performance.

Our third quarter sales per day increased during the quarter to $8.8 million, a 1.9% increase above our second quarter rate and 14.6% above our prior year quarter.

There were 64 selling days in the quarter, one more than the third quarter of last year.

Of the total quarterly sales increase of 16.4%, acquisitions contributed 2.2%, currency fluctuations represented 0.8%, the impact of one additional selling day represented 1.6% and we believe the impact of vendor price increases was less than 1%.

Our product mix during the quarter was 29.8% fluid power products and 70.2% industrial products.

In total, sales in our service center based distribution segment increased $61.5 million, or 15.8%, and sales from our fluid power businesses segment increased $18.3 million, or 19.2% from the same period in the prior year.

From a geographic perspective, sales in the third quarter from our US operations were up $59.1 million, or 13.8%, with acquisitions accounting for 1.4% of the increase.

Sales from our Canadian operations increased $18.2 million or 40%.

This increase includes $5 million from acquisitions and $3 million due to foreign currency translation.

Our Mexican operation sales increased $2.5 million or 21%, of which $0.8 million is attributable to foreign currency translation.

Our North American operating facilities increased by 1 due to the opening of one US service center location.

As of March 31, we now have 474 operating facilities.

Our gross profit percentage for the quarter was 27.7% as compared to 26.8% in the prior year's quarter.

Gross margin improvement was driven by both the distribution base segment and the fluid power businesses segment.

We saw increased margins at the point of sale primarily in our US operations.

Overall, LIFO benefits in the quarter were only $400,000 as disclosed in this morning's press release and related to LIFO layer liquidation benefits.

Additional LIFO layer benefits could be achieved in the fourth quarter if further quantity reductions are achieved or realized.

As several major suppliers have price increases scheduled this quarter the variability of our inventory quantities at June 30, 2011, will likely be greater than normal.

While the amount, if any, of fourth quarter LIFO layer liquidation benefits is undetermined at this time, we believe the fourth quarter gross profit margin should be comparable to the third quarter rate.

Our selling, distribution and administrative expenses as a percentage of sales of 20.9% for the quarter decreased slightly from the second quarter rate and is 40 basis points below the prior year third quarter rate.

SG&A expenses increased from the prior year in absolute dollars by $15 million or 14.6%, compared to a sales increase of 16.4%.

Acquisitions increased our selling distribution and administrative expenses at a higher rate as these organizations have a higher cost structure to support their operations when compared to our historical structure.

Other absolute dollar increases are due to expenses related to improved performance levels, the reinstatement of our 401(k) match, the reinstatement of our traditional profit sharing levels and of course the additional expense attributable to our ERP implementation.

We expect SG&A expense as a percent of sales for the fourth quarter of fiscal 2011 to be similar to the third quarter rate.

In our January conference call we forecasted SG&A expenses related to our ERP project at $4.2 million for the rest of the year.

As a result of hiring The Integrator and starting work on the project in January, we saw actual ERP expense in the third quarter of $3 million and we are now estimating $4.1 million of expense in the fourth quarter.

Total capital expenditures related to ERP have been $11.1 million year to date with the expectation of an additional $2.3 million for the remainder of the year.

The projected total capital spend for this year of $13.4 million is revised down from the previous estimate of $18.7 million.

Of the $30 million estimated to be spent in fiscal 2012 on ERP, we originally forecast 75% to be capitalizable and 25% to be immediately expensed through operations.

We are now estimating that that breakdown will be closer to 50/50.

Our effective tax rate for the quarter was 35%.

The decrease is a result of the non taxable life insurance gains and the recording of not previously anticipated tax credits in the quarter.

We believe our effective tax rate for the fourth quarter will be in the range of 36.5% to 37%.

Our consolidated balance sheet remains strong.

Shareholders equity is now $613.2 million, up $58 million from June 30.

Inventory turns continue to improve in the quarter and reached another all time high.

Overall receivables balances increased in line with our sales increase and our DSOs showed improvement in the quarter.

We provided updated annual earnings guidance for fiscal 2011 in this morning's press release which increased our sales range to between $2.19 billion and $2.25 billion, and with increased earnings per share to a range of $2.10 and $2.25 per share.

Now I'll turn the call back over to Dave Pugh for some final comments.

Thanks Mark and Ben.

As we have stated, it was a solid third quarter with balanced contributions coming from all areas of the company.

Looking ahead, while they are probably a couple of storm clouds on the horizon, such as the impacts of oil price inflation and global credit concerns, I've never felt better about all of the aspects of our financial and operating condition.

We continue to monitor market fluctuations and the competitive landscape to make sure we have the intelligence that we need to make good decisions.

We maintained a corresponding capacity for change which always allows us to move quickly when necessary.

We have the process controls in place to provide excellent maintenance and oversight.

Perhaps most importantly, we have the availability of resources to fund aggressive strategic initiatives.

We expect a strong fourth quarter to complete a very successful year as indicated by our revised guidance.

And now, with the help of our operator, we'll open it up for questions.

Thank you.

We will now begin the question and answer session.

(Operator Instructions) At this time we have a question from Matt Duncan from Stephens Inc.

Please go ahead.

This is Jack Atkins on for Matt.

Congratulations on a solid quarter here.

Thanks, Jack.

My first question is on gross margin.

Mark, you touched on this in your prepared remarks, but gross margin was up 50 basis points sequentially.

It sounds like that is just due to really strong point of sale pricing.

Do you think that is sustainable?

And also what do you think is really behind that?

Yes, we do believe that's sustainable.

As we've talked in the past, gross margin enhancement and pushing gross margin has been our -- one of our top of my priorities and initiatives this year.

So we were happy to continue to see traction there and we saw some major traction in this March quarter.

We don't expect to give any back in the June quarter.

Jack, this is Ben.

If I could add to that, it's a lot of different activities.

It's managing the whole price costs, relationship, as well as some mix issues in our customer base.

So, overall, I think our team is doing a great job of managing that piece of the business.

Okay that's great to hear.

Then when I think about your sales trends throughout the quarter, could you maybe go through how your sales trended year over year in January, February, March, and then what you are seeing so far in April?

Yes, Jack, I'll jump in on that.

We saw sales per day increase in February then increase again in March.

In our forecast, and as we talked in the past, we expect them to continue to increase throughout the fourth quarter as well.

So far, the April sales, as of yesterday's sales runs, we feel very comfortable with our forecast sales going forward in this fourth quarter.

April would support the increased guidance we've given.

Okay, that's great.

Then, Mark, you mentioned in your prepared remarks that you are anticipating a price increase this quarter.

Could you maybe quantify the magnitude that you expect there?

And then also what your guidance assumes in the fourth quarter for price?

We have several major suppliers with price increases announced that will be happening in the May/June time periods.

We don't expect to have the impact of pricing on our sales to be that great from these because they are happening closer to the end of the quarter than the beginning of the quarter.

We stated in the call that the impact on pricing in the March quarter was less than 1%.

I think that percentage will increase in the June quarter, but I don't think it's going to be -- I think it will be a little over 1%, probably under 2% still.

I think the impact of these price increases that we are seeing from suppliers are in the 4% - 6% range.

But traditionally, when we see the mix, through our product line, it traditionally ends up a little bit under half of those rates.

Okay that's helpful.

Mark, just to make sure I have the growth break breakdown correct here from your prepared remarks.

You said 2.2% of the growth was from acquisitions, and then 1.8% of the growth was from (inaudible) is that correct?

0.8% was from currency fluctuations.

0.8%.

Okay that's great.

Thank you very much.

Sure, Jack.

Our next question comes from Adam Uhlman from Cleveland Research.

Please go ahead.

Hi guys.

Good afternoon.

Thanks Adam.

Mark, could we dig in a little bit to the pull forward of the SAP costs?

It doesn't sound like the total program costs have changed, is that correct?

We just pulled a little bit of the expense forward into this year and next?

That is correct.

Okay.

Got it.

And you guys had mentioned that you haven't outlined the specific benefits that you target from the program, but could you remind us what your hurdle rates are for strategic investments like this?

Yes.

We are looking -- obviously we are looking at investments to cover our cost of capital and to be in excess of that.

And our traditional costs of capital that we utilize is in the 10% - 11% range.

So we expect these returns from this program to be greater than that, which we stated that we expect them to be.

Also, on your previous question on the overall expense, while the total hasn't changed, we haven't really spent -- we are not pulling forward our expenditures, it is just the mix between capitalized versus expense is really changing so we are able to expense more of this up front as opposed to capitalize.

So, I just wanted to make sure I was clear on that.

We will spend a little bit less in fiscal 2011 than we initially projected, but the amount that we are expensing on our income statement is higher than we projected.

Our projection of what we are going to spend in fiscal 2012 is exactly the same as what we had before, but we believe a larger amount of that will show up as an expense on the income statement as opposed to be capitalized, which would then, of course, be depreciated in future years into expenses.

Okay.

Thanks for that clarification.

Then just a quick follow-up.

Can you guys just talk about what you are seeing in your government business?

Yes.

The government business, if you look at it purely year over year, we have some good growth in the government business, but most of it is due to the acquisition of UZ.

If you look at the same store, so to speak, sales were relatively flat, and we had some project business in the prior year that did not repeat, but day-to-day government business is growing nicely.

We do expect some headwinds in the future here with budget constraints, both at the federal and the state local level.

So, still have a focus on it, still seeing growth, and still looking forward to growing our share in that market, although we do see some headwinds.

Thanks very much.

I'll get back in queue.

Thank you our next question comes from Jeff Hammond from KeyBanc Capital Markets.

Good afternoon, guys.

Hi, Jeff.

Just not to rehash, but can you run through the ERP expense for full year fiscal 2011, ERP expense for full year fiscal 2012?

Yes, Jeff.

I would be happy to.

In the first half of fiscal 2011, the amount of expense that hit our P&L was $800,000.

Then, in the third quarter, $3 million hit our income statement as expense, and we are projecting $4.1 million in the June quarter, the fourth quarter.

For fiscal 2012, we are expecting to spend $30 million total dollars expenditures and we think that will breakdown 50/50 between capitalized and expense, so that the expense rate for fiscal 2012 will be about $15 million, which is, which will be very close to this, if you look at the $4.1 million we are spending in the June quarter, it is basically that rate for the next four quarters.

Okay.

So fairly spread out?

Yes.

Okay.

Yes, well, we believe it will be fairly spread out, but it can move around, definitely.

Okay.

And then you called out the gain in other income.

What else was in other income?

The $100 million or so?

We had some foreign currency translation gains and other income is one of the primary things in there.

And we also had some gains on the fair market value of some securities we owned for various non qualified benefit plans for the associates that flow down through there.

Okay and then, finally, clearly you guys continue to have kind of a bulletproof balance sheet.

And I'm just -- how are you seeing the M&A landscape?

How do you think, I saw the dividend raised, but how are you thinking about balancing share repurchase versus M&A?

I know it seems like valuations are starting to move back up.

Jeff, we are very interested in growing our business through M &A.

We have some nice targets on the horizon and hopefully we can talk more about that in the next quarter.

Okay.

Okay, thanks, guys.

Our next question comes from Joe Mondillo from Sidoti & Company.

Good afternoon, guys.

How are we doing?

Good, thanks.

One question, really.

Most of them have been answered.

Just in terms of the top line growth that you have been seeing, any particular markets or type of customers that you are seeing that sort of are -- have been -- drove the solid growth in this quarter or as of late or is that just all around?

Yes, Joe, we, as I stated earlier, it was a broad-based expansion across most of the industries that we serve.

A couple that really stick out, one of our largest SIC codes that we serve is machinery manufacturers and some good growth in the machinery area.

Primary metals was strong, chemical manufacturing, but overall in a large majority, most of our industries we serve we saw good growth.

Okay.

And just out of curiosity, I saw the Philly Fed index came out today, I don't know if you guys follow that but it slowed down quite a bit.

I was just wondering your thoughts on that, just to get curiosity of how actual that index is?

Joe, I'm not sure.

We have not seen that, that is not normally an index that we typically track, so I don't think we can comment.

Okay.

All right.

Fair enough.

Thanks a lot.

Thank you.

Thank you.

Our next question comes from Brent Rakers from Morgan Keegan.

Good afternoon.

I guess first, not to harp on the SAP conversion, but we've now had three quarters, I guess three changes in some of the OpEx outlook.

Maybe if you could re-explain exactly what prompted the change in allocation from OpEx to CapEx?

Brent, there are specific accounting rules as to what you are -- how to categorize the expenditures into capital versus expensing and the rules are very complicated, and they are not always as clear as you would like them to be.

When we are forecasting things, before we start the project, we are forecasting buckets of time that people are spending and assuming certain amounts in various buckets and those buckets are then either capitalizable or expensed it at certain points in time during the project and they change as the project goes forward.

As we started the project in January/February the forecasts became real and we actually signed with The Integrator, with Accenture, at the end of January, during February.

We started working the project and as things actually happened they got into different categories based upon the implementation plan that Accenture has to do this.

Other integrators, and the other integrator that was in competition with Accenture had a completely different plan and their times would have been in different buckets at different time periods.

So, it gets back down to what we were forecasting something we hadn't started yet and now that it's becoming a reality, we are having more clarity and more -- that forecast is becoming a true estimate.

And, Mark, I think on the last call you gave 2013 - 2014 numbers and then OpEx, CapEx allocations there as well.

You didn't do that on this call, is that correct?

Yes, I think we stated in the last call that we thought that total spend on the project would be $71 million, in that area, and we gave the details of fiscal 2011 - fiscal 2012.

I think we just stated, obviously the numbers get smaller in those other two years, but in the out years the amount of expense versus capital gets greater as well.

So, my view, in fiscal 2013-2014, is that we'll probably have a greater than 50% of the expenditures in those years will be expensed versus capitalized.

Mark, again not to get nit picky, but if we've moved buckets around and now we are taking more OpEx earlier on because those buckets have gotten executed now, wouldn't that mean in 2013 - 2014 there would be less OpEx and more CapEx?

Not really.

Because in those out years a lot of the expenditures are after the system has been built and now you are implementing what you have built, and you have to expense that because that is training costs and things of that nature.

The things that you can really, truly capitalize, is just the actual coding of the IT codes to actually build the software.

The things around that, the care and feeding of the software, is expense items.

Okay.

Okay.

Great.

And then, we've talked a lot about gross margins, and I guess we are coming off over the last year and a half of low 26's I think, and now we are in the mid 27's.

And I know, maybe if you could talk through some of the components of that, in terms of the improvement and rebates, the improvement in point of sale pricing and then Ben, I think, also brought up mix which I just want clarification on what is meant by the mix comment as well.

Yes, I guess I'll start off.

A lot of moving parts here, and one of the things we've seen in the current quarter, the March quarter, is a larger mix of business in our smaller accounts.

We still have tremendous competitive pressures out there.

In our major accounts, our national accounts, still competitive pressure, still challenges in passing along any price increases.

But, in the non-contractual business, our teams are, our team is doing very well in managing that.

I'll let Mark speak to the other components.

A couple of other components where we saw improvement that impacted our margins are things like scrap expense.

Our scrap expense on an overall basis for the corporation was down this quarter compared to our projections, compared to prior year, and so that obviously helps improve the gross profit percent for the quarter.

Same thing for our freight expense, through the amount of freight.

While it's not huge, it's a big number and we were more efficient as a percentage of sales from a freight perspective so that that also had a slight improvement in margins as well.

I would say most of the things that we looked at, that are the components of the gross profit margin calculations were positive, but the biggest positive and the yeoman's amount of the work on that really related to the efforts that our service centers and our specific fluid power businesses did when their direct sales transactions with customers.

Okay, and then maybe just a couple more quick questions.

You have commented about fourth quarter tax rate.

I know it's still a ways off, but fiscal 2012 planning for tax rate, and then maybe also in the quarter, anything unusual in terms of bad debt expense?

Nothing really unusual for bad debt expense in the quarter.

We are still experiencing very low rates of charge offs with our customers, our DSOs remain good, our aging of our accounts receivable remain the best ever.

It continues to be excellent with the very small percentage of past dues from that.

But our bad debt expense for the quarter this year compared to a year ago was virtually identical.

And I think you can sort of back into that through the cash flow statement, it's about $800,000 of bad debt expense this quarter.

It was the same amount last quarter, but that amount is a little bit higher than our first two quarters of bad debt expense as well.

But we feel pretty good about that.

One of the other things on the bad debt expense that we see is, we get the -- we utilize these rating agencies like D&B to help rate our customers.

And D&B has these credit scores and stress scores for customers and over the last several months they have really tightened those up.

So, customers that used to have stress scores of 2 - 3 now have stress scores 4 - 5.

We don't think anything's really changed with the customers.

We just think the agency has gotten tougher on their grading of them and since that happens, when we look at our overall allowances, we say gosh, if they are saying they are riskier, then we need that put on a higher allowance for that.

So, that is sort of an impact also.

Right then just not to forget the tax rate long-term.

Yes, I did forget that already, Brent.

I think our tax rate, while we haven't solidified things going into fiscal 2012, I would say probably around 37% - 37.5% rate would probably be a good rate going forward for now for projection purposes.

Great.

Thank you.

Our next question comes from Holden Lewis from BB&T Capital Markets.

Please go ahead.

Good afternoon.

This is actually John Cooper on for Holden.

Just a quick one regarding the tax for this quarter.

I think last quarter you had a small tax benefit of $1 million - $2 million.

Was there anything like that in fiscal Q3 tax?

We had two things that really drove the rate down in Q3.

We did receive some life insurance gains for policies, and those, of course, are non taxable.

So, we get income for which we didn't have to pay tax on, which drove the rate down.

And then we also had some tax credits that we had not anticipated getting that we were able to achieve and get the benefits for on our tax return that we filed for June 30, 2010, that we filed at March 15, and so those flew through the rate reconciliation in this third quarter.

We do expect those benefits to continue for the June 11 year, as well as ongoing, as well.

All right.

Any I guess kind of dollar amount impact that was had?

I don't have the exact dollar amount right in front of me, but for the life insurance gains, I believe the gain and I think we had this in the footnote was around $1.7 million.

And so you can figure out just what the calculator, if you don't pay tax on it, what the impact on the effective rate is.

I think it was over 1%.

I just don't have it in front of me, though.

Okay that's great.

Thank you.

Sure.

Thank you.

That was our final question.

Great.

Thank you, Kim.

And thanks for being with us today.

We are pleased with the quarter and are very confident the fourth quarter is going to end a very successful year for us.

Thanks again, have a good afternoon.

Thank you, ladies and gentlemen, this concludes today's conference.

Thank you for participating.

You may now disconnect.