Applied Industrial Technologies Inc (AIT) 2022 Q4 法說會逐字稿

Welcome to the fiscal 2022 Fourth Quarter Earnings Call for Applied Industrial Technologies. My name is Ingrid, and I'll be your operator for today's call. (Operator Instructions) Please note that this conference is being recorded.

I will now turn the call over to Ryan Cieslak, Director of Investor Relations and Treasury. Ryan, you may begin.

Thanks, Ingrid. And good morning to everyone on the call. This morning, we issued our earnings release and supplemental investor deck detailing our fourth quarter results. Both of these documents are available in the Investor Relations section of applied.com.

Before we begin, just a reminder, we'll discuss our business outlook and make forward-looking statements. All forward-looking statements are based on current expectations subject to certain risks and uncertainties, including those detailed in our SEC filings.

Actual results may differ materially from those expressed in the forward-looking statements. The company undertakes no obligation to update publicly or revise any forward-looking statement. In addition, the conference call will use non-GAAP financial measures, which are subject to the qualifications referenced in those documents.

Our speakers today include Neil Schrimsher, Applied's President and Chief Executive Officer; and Dave Wells, our Chief Financial Officer.

With that, I'll turn it over to Neil.

Thanks, Ryan, and good morning, everyone. We appreciate you joining us. I'll start today with some perspective on our fourth quarter results, current industry conditions and our expectations going forward. Dave will follow with more specific detail on the quarter's performance and our forward outlook, including fiscal 2023 guidance, and I'll then close with some final thoughts.

So overall, very encouraged how we ended the year. We achieved another quarter of record performance across sales and earnings. EBITDA grew 27% and EPS was up 34% on 19% sales growth. We also continued to expand EBITDA margins, achieving new highs above 11% for the second straight quarter despite ongoing inflationary headwinds.

All these numbers include meaningful LIFO headwinds as well. In total, these are strong results to end the year that included significant progress on many fronts, including continuing to position the company for long-term success through continuous improvement actions, growth investments and reinforcing our balance sheet through debt reduction.

We also drove significant improvement in our return on capital metrics throughout the year. I want to thank our Applied team for their ongoing commitment and strong execution. Our outperformance throughout the year validates our industry-leading position and strategy, and we're very excited to build on this momentum going forward.

So several key points to highlight in more detail. First, underlying demand remains strong across both segments through the quarter with trends accelerating during June. Trends were positive in all our key industry verticals with particular strength in metals, aggregates, mining, pulp and paper, chemicals, lumber and wood and other various heavy industries.

In addition, we believe we're capturing incremental growth opportunities from our industry position and service capabilities. Combined with ongoing price contribution, year-over-year organic sales growth of approximately 19% represented the strongest quarterly performance for all of our fiscal 2022, even though we're facing more difficult prior year comparisons. Growth was also strongest in June, and we're seeing mid-teens year-over-year sales growth sustained into early fiscal 2023.

We know there's been a lot of discussion and questions around broader macro uncertainty and if that's impacting our business. Needless to say, we're keeping a close eye on various cross currents, but we have not seen any meaningful signs of slowing in our business to date. And on of the messages, I want to reinforce here today, we believe the results you're seeing from Applied particularly reflect our differentiated industry position and benefits from various initiatives, we executed on in recent years, which have strengthened our internal capabilities and growth profile. We have great confidence, our strategy and company-specific unities provide sustainable growth and margin catalyst going forward.

So to provide some more detail across the various areas of our business, we're seeing very encouraging trends within our service center network. Sales in our Service Center segment were up 1% organically over prior year levels. This is one of the strongest quarterly growth rates we've seen in this segment in some time. Volumes continue to build as the quarter progressed, and we're now up a healthy double-digit percentage over prepandemic levels of fiscal 2019. Into early fiscal 2023, positive momentum is sustaining in the shorter-cycle area of our business with segment orders and booking rates remaining supportive.

We believe this performance highlights structural growth and earnings improvement that is materializing within our service center network as we play an increasingly critical role across the industrial sector today. Part of this reflects greater required maintenance activity and technical support needs from our customers. With U.S. manufacturing capacity utilization near a 20-year high, our service center customers are increasing the frequency of maintenance and repair activity and releasing new capital spending and maintenance projects on production infrastructure.

Our scale, local and consistent service capabilities and technical knowledge of higher engineered motion control products and solutions are driving greater growth opportunities across both legacy and emerging end markets. We're also seeing solid traction across our strategic initiatives focused on talent, sales process optimization and analytics. This is driving greater and more efficient capture of new business, which is contributing to solid cost leverage and operating margin expansion across the segment. Overall, our service centers are in a solid position to sustain this favorable performance moving forward.

Positive underlying demand is also persisting across our Fluid Power and Flow Control segment. Within Fluid Power, our backlog remains at historical highs, with firm order trends sustaining within all 3 of our core application verticals, including industrial, off-highway mobile and technology.

Our design, engineering and software coding expertise earn greater demand as customers focus on reducing power consumption and CO2 emissions, navigate a tight labor market, and integrate more predictive maintenance into their equipment.

In addition, we're seeing smart machine technology accelerate at a rapid pace. Our Fluid Power team is deploying some of the most advanced solutions tied to IoT, telematics and electrification for fluid power systems. Component delays and supply bottlenecks remain hurdles within the system build and assembly focused area of our business, but our team is doing a great job managing these dynamics and our backlog provides growth visibility into fiscal 2023.

In addition, demand continues to expand for our higher-margin process flow control products and solutions. (inaudible) activity and capital spending on process infrastructure remains positive in core end markets, such as chemicals, refining, petrochemical, utilities and metals. Our flow control solutions are increasingly used in applications tied to our customers' decarbonization efforts and other required infrastructure investment as end markets transition around new energy requirements.

Additionally, we're seeing notable progress in cross-selling our flow control solutions through our service center network as we connect strategic and local accounts to these leading process capabilities. We see further momentum building into fiscal 2023 as we execute on this meaningful opportunity. As it relates to our expanding automation platform focused on next-generation robotics, machine vision and digital solutions, we continue to see strong growth in orders and backlog. Customer interest in new business opportunities are being reinforced by our labor constraints and evolving production considerations post the pandemic.

These trends are expanding the need for automation and our leading engineering capabilities across functions such as material handling, production inspection, machine tending, palletizing and quality control. We're making traction with our greenfield expansion initiatives and developing new approaches to best serve our embedded customer base and further enhance our market position, including through proprietary turnkey solutions and leading application expertise. We see significant potential to further scale this platform into fiscal 2023 and beyond both M&A and organic initiative. Overall, the growth momentum sustaining across our core operations and emerging solutions is encouraging.

At the same time, our teams remain focused on driving strong returns as this growth continues to manifest through both consistent execution, and continuous improvement actions. We saw this once again during the fourth quarter where we responded well to inflationary pressures industry-wide by implementing further price actions and other countermeasures. Cost leverage also remained solid. Combined, these dynamics continue to drive strong EBITDA margin expansion despite ongoing LIFO expense headwinds.

When looking at fiscal 2022 in total, we recorded $26.5 million of LIFO expense, which represented an over 70 basis point headwind and on our margin trends during the year. Despite this meaningful hurdle, we held gross margins relatively unchanged and expanded EBITDA margins by over 90 basis points to new record levels. This is a tremendous accomplishment by our team and provides strong evidence of the underlying margin and return improvement potential across supply as we continue to execute our strategy.

Lastly, we ended fiscal 2022 with a healthy balance sheet with net leverage at 1.2x and over $1 billion in balance sheet capacity. We remain disciplined and focused on deploying capital that enhances our scale, growth profile and competitive position going forward. This includes organic investment opportunities as well as through additional M&A with an active pipeline that we look to execute on during fiscal 2023.

While our capital deployment priorities have not changed, we remain flexible to return capital through other avenues, if necessary, including opportunistic share buybacks. Given our long-term earnings potential and the intrinsic value we see across our company, as you saw in our release today, our Board approved a new 1.5 million share repurchase program that refreshes our buyback capacity for future share repurchase activity.

Now at this time, I'll turn the call over to Dave for additional detail on our financial results and outlook.

Thanks, Neil. And just another reminder before I begin. As in prior quarters, we have posted a quarterly supplemental investor presentation to our investor site. This is available for your additional reference as we discuss most recent quarter results and our fiscal 2023 guidance.

Turning now to our results for the quarter. Consolidated sales increased 18.5% over the prior year quarter. Acquisitions contributed 30 basis points of growth which was more than offset by a 50 basis point headwind from foreign currency translation. The number of selling days in the quarter was consistent year-over-year. Many of these factors, sales increased 18.7% on an organic basis. Average daily sales rates increased over 9% sequentially versus the prior quarter and were above almost seasonal patterns.

As it relates to pricing, we estimate the contribution of product pricing on year-over-year sales growth was approximately 500 basis points in the quarter. Just a reminder, this assumption only reflects measurable top line contribution from price increase on SKUs sold in both year-over-year periods.

Turning now to sales performance by segment as highlighted on Slides 6 and 7 of the presentation. Sales in our Service Center segment increased 21% year-over-year on an organic basis when excluding the impact of foreign currency. Growth was solid across all of our core end markets, the strongest within mining, metals, pulp and paper, energy, aggregates, rubber and plastics and lumber and wood. Segment growth also continues to benefit from traction with our sales process initiatives and ongoing pricing actions. Within our Fluid Power and Flow Control segment, sales increased 15% over the prior year quarter, with acquisitions contributing 1 point of growth.

On an organic basis, segment sales increased 14% year-over-year and over 30% on a 2-year stack basis. Segment sales continue to benefit from strong demand within technology end markets as well as across metals, chemicals, refining, utilities, pulp and paper and mining verticals. Extended supplier lead times and inbound component delays weighed a bit on segment sales growth during the quarter, but the overall impact remains limited to date.

Moving to gross margin performance. As highlighted on Page 8 of the deck, gross margin of 28.9% declined 47 basis points compared to the prior year level of 29.4%. During the quarter, we recognized LIFO expense of $10.8 million compared to $3.7 million of LIFO income in the prior year quarter. The resulting net LIFO headwind had an unfavorable 136 basis point year-to-year impact on gross margins during the quarter and reflects supplier product inflation and ongoing inventory expansions year-to-date.

As a reminder, the LIFO income recorded in the prior year period were related to year-end adjustments for inventory layer liquidations. Overall, underlying gross margin trends were in line with our expectations during the quarter. Our team continues to respond well to broader inflationary dynamics, reflecting broad-based channel execution, pricing actions and ongoing margin countermeasures as well as solid freight expense management. As it relates to our operating costs, selling, distribution and administrative expenses increased 8.5% compared to prior year levels.

SD&A expense was 18.6% of sales during the quarter down from 20.3% during the prior year quarter. We are pleased with what was another solid quarter of cost control and operating leverage. While we are facing ongoing inflationary headwinds including higher employee-related expenses, we continue to see strong cost discipline and efficiencies from our operational excellence initiatives, shared services model and technology investments. SD&A During the quarter also benefited from slight favorability tied to our self-insurance performance as well as lower deferred compensation expenses.

Overall, our solid sales growth gross margin improvement and cost leverage drove a 26.5% increase in EBITDA over prior year levels, which represents an over 43% increase when excluding the impact of LIFO in both periods.

In addition, EBITDA margin of 11.3% increased 72 basis points compared to prior year levels. This includes the unfavorable 136 basis point year-over-year adverse impact attributed to LIFO. Including reduced interest expense, reported earnings per share of $2.02, was up over 34% from prior year earnings per share levels.

Moving now to our cash flow performance. Cash generated from operating activities during the fourth quarter was $53.7 million, while free cash flow totaled $47.3 million. For the full year, we generated free cash of $169 million, which represents 66% of net income. We continue to see solid cash generation across our business despite greater working capital investment over the past year. As it relates to capital deployment, we remain active throughout fiscal 2022, including reducing debt by $139 million or 17% from prior year period-end levels.

We also deployed $73 million towards dividends, share buybacks and M&A during the year. We ended June with approximately $185 million of cash on hand and net leverage at 1.2x EBITDA, which is below the prior year level of 1.8x adjusted EBITDA. Our revolver currently has approximately $490 million of available capacity and an additional $500 million accordion option. We also have incremental capacity on our AR securitization facility and uncommitted private shelf facility. So overall, our liquidity remains strong.

I'll turn now to our outlook, which is detailed on Page 10 of our presentation. We are establishing full year fiscal 2023 guidance, including EPS in the range of $6.65 to $7.30 based on sales growth of 3% to 7% and EBITDA margins of 10.8% to 11.1%. Our sales outlook takes into consideration the greater economic uncertainty that has manifested itself in recent months. While we have not seen any meaningful signs of slowdown to date, we remain constructive on our company-specific growth opportunities. And we believe it is prudent to take a balanced approach to our initial outlook given the current economic backdrop. Of note, our sales guidance assumes decelerating underlying sales growth trends as the year progresses.

At the midpoint, we're assuming high single-digit year-over-year growth in the first half of the year and low single-digit growth in the second half of the year. In addition, based on quarter-to-date sales trends through early August, we currently project fiscal first quarter organic sales to grow by a low double-digit percent over the prior year quarter.

From a margin and cost perspective, we assume ongoing inflationary pressures including year-over-year LIFO expense headwinds as well as ongoing growth investments and the impact of our annual merit pay increase on January 1. Our LIFO assumptions assume a sustained impact from supplier price increases and ongoing inventory investment, but some easing in LIFO expense in the second half of the year as these dynamics begin to tail off. combined with lower top line growth and lingering supply chain constraints. Guidance assumes more modest operating leverage relative to fiscal 2022, pending further transparency on broader economic and inflationary trends.

Lastly, in regards to cash generation, we expect free cash flow to be higher year-over-year in fiscal 2023. We expect ongoing investment in our operational inventory levels but a more modest build relative to fiscal 2022, including some benefit from the conversion of work-in-process inventories as well as progress on other working capital initiatives.

With that, I will now turn the call back over to Neil for some closing comments.

Thanks, Dave. So as we begin fiscal 2023, which is our 100th year as a company. There is a strong sense of pride and excitement throughout Applied. Underlying this is our view that we're playing an increasingly critical role across the industrial space today, especially when you consider customers' labor constraints, equipment optimization initiatives and increased manufacturing investments across North America.

We're also motivated by our ongoing evolution as a company as we enhance and leverage our core service center operations while expanding across higher engineered solutions tied to advanced automation, industrial power and process technologies. The progress we're making on this evolution is optimizing our growth and margin trajectory for the future. We're keeping a close eye on the broader macro environment. The current backdrop is driving greater uncertainty as to how industrial activity might track in coming quarters.

As such, we're taking a prudent initial approach with our fiscal 2023 guidance. We're focused on continuing to execute on our commitments and remain constructive, given the positive momentum sustaining across our business today, which we believe partially reflects various structural demand tailwinds within our core end markets and channels. We also believe our diversification and expansion into verticals such as technology, life sciences and other higher-growth areas, combined with a greater mix of longer cycle markets has enhanced the breadth and durability of our growth trajectory -- greater evidence of manufacturing reshoring and investment in U.S. production capacity are other encouraging signs, and there remains significant potential to gain further traction with our cross-selling initiative.

Long term, we see great potential to further scale our industry position and EBITDA margin profile. Our multifaceted strategy is presenting many new and relevant catalysts, which will drive an ongoing evolution at Applied and further enhance our market position. Given these dynamics and our team's operational discipline today, we're establishing new intermediate financial targets, including sales over $5 billion and EBITDA margins over 12%. We believe these objectives are well within the company's capability and can be achieved within the next 5 years or sooner depending on broader macro, macro conditions, the cadence of M&A and other factors.

Overall, our team is engaged and ready to execute on these next milestones, which we believe provides the framework for significant value creation for all stakeholders. Once again, we thank you for your continued support. And with that, we'll open up the lines for your questions.

(Operator Instructions) Our first question comes from the line of Ken Newman with KeyBanc Capital Markets.

So for my first question, I just want to try to balance some of the optimistic comments you made versus the guidance that you put up this morning, particularly for the first quarter and the second half. I think you mentioned that sales were up mid-teens through early August and the guidance calling for organic to be up low double digits. I just want to clarify whether that is really driven by higher conservatism? Or is there something -- that you want to pull the reins in a bit?

I can start as we look for the -- continuing on the first quarter, right? We talk about what we're seeing in the mid-teens now. Our guidance really around the first quarter would say organic sales would be up low double digit. We think gross margins are likely unchanged, perhaps slightly down to the fourth quarter that we closed. And we think our incremental margins would be like in the fourth quarter, say, around that 17%. And then as we look out further at the guide, right, we could see if conditions moderate, sales would be more high single digits for the first half and potentially a little more softening in the second half.

So today, right, we do not see that in our customer interactions and dialogue, work with suppliers and others. But we're mindful as we said in remarks, right, on cross currents and other things that could influence...

I'd just add, Ken, that we do have a little bit tougher comp when you look at the August, September time frame around out the quarter, which gives us that low double-digit expectation for growth for Q1. I'd also add that on the 3% to 7% full year organic growth guidance, that does include in the back half of the year, market contraction, then it went into that spectrum you're looking at.

So we're offsetting that with the positive momentum that we see coming into the year, a nice backlog position, particularly in our project-oriented fluid power, flow control automation businesses, some positive price contribution carrying through as well as thinking about our flow control business, and some of the longer later cycle that's lags from the other areas of the business and came back and it's going to continue to provide some momentum.

So that coupled with cross-selling opportunities shrinking momentum, offsetting what we're assuming to still be a kind of negative trend in terms of market for the back half of the year.

Got it. Yes. So it sounds like it's mostly a conservatism and maybe a little bit more comps at the top end of the guide here.

First of all, exactly. Yes.

Right. From a follow-up, I'm just curious, can you talk a little bit about what's embedded in the current guide in terms of the pricing cadence. Obviously, price was up sequentially from the prior quarter. Would you expect price contributions to be up sequentially from fiscal 4Q? And when do you think we start to see a peak in some of those prices just given that you're a little bit more exposed to some of these later-cycle industries versus your competitors?

Yes. I would say overall, now we're not going to guide on price. But perhaps as color or starter, we could say price contribution overall for '23 could be similar to fiscal '22. But as you would expect, right, the cadence will reverse. So perhaps starts higher as we go into the first half, and we finished this calendar year and then starts to moderate back in the second half. But I think a starter guide would be similar for the full year in '23 as it was in '22.

Our next question comes from the line of Chris Dankert with Loop Capital.

I guess on the intermediate term numbers you guys gave here, that 12% EBITDA margin figure, is that -- should we think about that as a cross-cycle number, just because if I look at the EBITDA margin, you guys put up this year, add back life, you're already pretty well into the 11 -- so just trying to get my arms around how to think about that EBITDA margin outlook or target over time.

Yes. So we think about it over the cycle, the contributors would be we would grow mid-single digit. We would look to continue acquisitions and so perhaps acquisitions contribute 300 basis points of growth. We would have some gross margin expansion in that period and the incrementals would be in the mid- to high teens that would go in. And so as we've talked, the timing can be impacted by just what are going to be the general market conditions in the environment. And so if there is a pullback and a slowdown in that period, perhaps we're in that longer time frame of the 5 years. If not, or more just kind of a general recessionary modest pullback, we'll have the opportunity to get there sooner.

Got it. That's very helpful. And then just to think about the guide for the year a little bit more granularly should we think about the growth rates across businesses being fairly similar? Or I mean, it seems like based on the performance to date that the distribution business would be growing a bit faster. So just any thoughts there would be great.

Yes. So the guidance assumes the fluid power, flow control automation segment, slightly outpacing service center growth, just given the strong 22% that we had in that piece of the business and just that robust backlog position that we entered the year with. So slightly outpaced growth out of the project oriented business.

Got you. Got you. And then maybe just one quick kind of housekeeping question. Any comment on your corporate and other expense for the year, probably being near $100 million. Just kind of if you could size us there.

I see nothing really different year-over-year there, kind of in line with what you've seen historically.

Got you. Congrats on the year, and really looking forward to a strong '23.

(Operator Instructions) Our next question comes from the line of David Manthey with Baird.

I was sitting here mashing star 1, so I need to follow directions, I guess. Rational outlook makes sense. Dave, maybe you could describe gross margin outcomes, all else equal, if inflation flattens out completely. So for example, if inflation goes to 0 in a given year, do you claw back some or all of the LIFO headwinds you're seeing right now?

It's not going to be looking at a time, Dave, because when you think about the kind of the nature of this business and in the randomness and some of the demand that we talked before with 1/3 of the SKUs repeating in a given period, there's going to be a longer tail of LIFO, you've got the inflationary impact, kind of (inaudible) tomorrow, we'd still see a longer tail as you do replace some parts that have not been replaced in the last year plus and hit the radar.

So the guidance does assume that longer tail, some of that inflationary impact continuing really through the first half of the year until things cool a bit. So the guidance generally assumes a LIFO impact limited to what we saw this year. And then the opportunity does exist then obviously, maybe you get out in the back half of the year, but more likely future years to be able to realize either by sort of the cooling of inflationary impact or certainly rare liquidation like we saw in Q4 of our fiscal '21. Some LIFO tailwinds as a result of kind of the runup that we've seen. But going to see a great deal of that materializing in our fiscal '23.

Yes, makes a lot of sense. And then as a follow-up, the -- in the release, you mentioned cost leverage despite inflation. And I guess that's telling us that revenue inflation is greater than your SD&A inflation. Neil, maybe you could help me with how do you know that you're operating more efficiently versus just benefiting from generalized inflation as it affects your model.

So I think one would look at where we focus and that we've made investments and that we're seeing productivity in the back of the house and whether that be continued opportunities around shared services, warehouse management, other initiatives that we are operating efficiently in support of the business.

And so our investments are more forward facing in engineering and technology as we expand into those solutions that are touching and impacting customers on the side. So that has been our balance. We're getting some natural inflation that comes through on medical and some other areas in. But we think, all in all, we're doing a very effective job of managing those in the model and going forward.

It's been part of the improvement in our incrementals, and we think can contribute to us going forward.

With the addition to team to look at that overall staff cost includes the delivery time and labor and really do the benchmarking based on that total cost of staffing just to demonstrate where we're seeing that productivity and kind of set that expectation as we continue to move forward, maintaining that efficiency.

Our next question is the follow-up from the line of Ken Newman with KeyBanc Capital Markets.

Thanks for the follow-up here. Sorry if I missed this in the prepared remarks, but did you give any color on how the automation business did in the -- I'm curious if you can just give some color on what run rate revenue is like for that business now (inaudible) now may just talk a little bit about the M&A pipeline for some of those targets within that sector.

Sure. And sales in the quarter for automation were up mid-single digits, I think, 6% plus or so in that side. We talked about order rates and backlog expanding. The automation group did prior quarter comp was a plus 40%. So competing against a high comp in that side. I think the month of June was double digit. So we remain highly pleased with the group and the opportunities that were opening up, greenfield expansion continues to progress on that side. And in our M&A priorities, automation is one of those, along with fluid power and flow control.

So good activity going in developing more turnkey solutions that we feel we can take across a lot of market segments from a discrete automation side that are underpenetrated. So we think that's going to be a nice contributor for us going in. And as we think about the business going forward above the high end of the guidance, that would be the expectations for fiscal '23.

We did say it too in the prepared remarks that maybe some of that growth opportunity in addition to the tougher comps was dampened just a bit by supplier constraints in May (inaudible) you do that. The team has done a very nice job of still continuing net order trajectory and nice growth against those tougher comps while managing through some of the supply chain issues.

Yes. I'm curious, are you running into any installation bottleneck -- so we have heard about a couple of issues. I think from one of your supplier partners experienced a pretty big fire at their largest production line. Is that having an impact on deployments at all?

So overall for us limited to no. And I think some of that impact is more on logistics oriented market rather than engineered solutions as it goes across. So we feel like in our solutions, we are doing a nice job. I mean, obviously, there's supplier engagements and expedites and doing it. And things may move, but they're small period move out. So the product range, the engineered range that we are more focused on has not seen or had the same level of impact.

And maybe just one more for me. Obviously, the leverage seems to be in a really strong place. You're expecting free cash generation to be better this year. Any update how we should think about what are the primary priorities for capital deployment, whether it be for M&A or then your purchase program or something else?

So I'd say priorities first are growth, right? And we can make organic investments in that and M&A. So those will be the first level priorities, will continue to be a dividend payer, dividend increases And then as we touched on the share repurchase authorization re-up in that. It is an opportunity. But we think in the environment, we will have opportunities for continued growth in that side. We said consistently, we'll be mindful. We will not just stack cash for long periods of time, and we can redeploy those back to shareholders. But we think the best moves that we can take would be to further grow the business across -- especially as we develop these engineered solutions.

(Operator Instructions) At this time, I'm showing we have no further questions. I will now turn the call over to Mr. Schrimsher for any closing remarks.

I'll just simply thank everyone for joining us today. We look forward to talking with you throughout the quarter. Thanks, again.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.