A O Smith Corp (AOS) 2013 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the A. O. Smith Corporation first quarter 2013 earnings call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session with instructions to follow at that time.

(Operator Instructions)

As a reminder, this conference is being recorded. I would now like to turn the conference over to your host for today, Ms. Patricia Ackerman, Vice President of Investor Relations and Treasurer. Ma' am, you may begin.

Thank you, Ben. Good morning, ladies and gentlemen, and thank you for joining us on our first quarter 2013 conference call. With me participating in the call are Paul Jones, Executive Chairman, Ajita Rajendra, Chief Executive Officer, and John Kita, Chief Financial Officer. Before we begin with Paul's remarks, I would like to remind you that some of the comments that will made during this conference call, including answers to your questions, will constitute forward-looking statements. These forward-looking statements are subject to risks that could cause actual results to be materially different. Those risks include, among others, matters that we have described in this morning's press release.

In order to provide improved transparency into the operating results of our business, effective with this first quarter of 2013, we are providing non-GAAP measures, including adjusted earnings, adjusted EPS, and adjusted segment operating earnings that exclude certain items as well as non-operating pension costs consisting of interest costs, expected rate of return on plan assets, amortization of actuarial gains and losses, and curtailment. Prior year results are provided on a comparable basis. Paul, I will now turn the call over to you.

Thank you, Pat, and good morning, ladies and gentlemen. I get to make a few brief comments this morning, but they are going to be quite enjoyable. In the first quarter, we begin to see the benefits from the recovery of new construction activity in the US. Here are a few highlights from our very strong quarter. Our organic growth drove sales 9% higher to $510 million, sales of A. O. Smith branded products in China grew 15%. Our adjusted earnings of $0.96 per share were 41% higher than the $0.68 recorded last year. Incremental margins associated with the higher volumes of water heaters and boilers drove earnings higher. Based on our solid performance and strong balance sheet, we recently increased our quarterly cash dividend by 20% to $0.24 per share. We also announced the 2 for 1 stock split in the form of a 100% stock dividend. John will now describe our results in more detail.

Thank you, Paul. Sales in the first quarter of $510 million were 9% higher than the previous year driven by higher volumes of residential and commercial water heaters in the US and higher sales of A. O. Smith branded product in China. Adjusted earnings of $44.7 million improved 41% from our first quarter performance last year. As we announced earlier this month, we are transferring residential water heater production from our Fergus, Ontario plant to other North American facilities and expect the majority of our production will be consolidated by July 1. As a result of the capacity rationalization, we incurred a pretax restructuring charge of $12.7 million in the first quarter related to employee severance costs and impairment of long lived assets. Additional restructuring charges are expected to total approximately $5 million for the remainder of the year. Excluding restructuring costs, we expect operating savings will offset operating inefficiencies in 2013. We expect the majority of the operating inefficiencies to occur in the second quarter. We project pretax annual savings of approximately $10 million in 2014.

Adjusted earnings in 2013 excluded after-tax non-operating pension cost of $3 million, after tax restructuring and impairment cost of $9.5 million, and after-tax gain of $6.1 million related to a settlement with a former supplier. Adjusted earnings in 2012 excluded after-tax pension costs of $1 million and an after-tax net gain of $16.8 million related to the sale of RBC shares. Adjusted earnings per share of $0.96 per share improved 41% compared with $0.68 per share last year. Adjusted EPS in the current period excluded non-operating pension costs of $0.06 per share, restructuring costs of $0.20 per share, and a gain from a settlement with a former supplier of $0.14 per share. Adjusted EPS in 2012 excluded non-operating pension costs of $0.02 per share and a gain associated with the sale of our RBC shares of $0.36 per share. Sales in our North America segment of $379 million increased 7% over last year. The segment includes our US and Canadian water heater and boiler operations. Higher volumes of residential and commercial water heaters in the US as well as higher boiler volumes more than offset lower sales in Canada.

The results of our China, India, and European water heating businesses and our water treatment business in Asia are captured in our rest of world segment. Segment sales of $138 million increased 11% compared with last year, driven by higher sales in China, which more than offset lower sales in Europe and the Middle East. We are encouraged by the market acceptance of our newer A. O. Smith branded products in China. We continue to innovate our product lines with features and benefits which provide value to our customers and differentiate our brand. Recent innovations include an ultra quiet gas tankless water heater product line and water treatment products which have longer lasting filters and waste less water. The return on our investment in engineering and innovation is one of the success factors of our business in China.

North American adjusted operating earnings of $59 million was 38% higher and adjusted operating margin of 15.7% was 2.5 percentage points higher than last year. Improved performance was due to higher incremental margins associated with increased volumes of water heaters and boilers in the US as well as improved pricing associated with the price increase effective in the second quarter of last year. Rest of world adjusted operating earnings of $18 million improved 28% compared with last year. Higher sales and below normal promotion expenses, due to the Chinese new year holiday, and a smaller loss at our non-A. O. Smith branded water treatment business, more than offset higher expenses in India related to new distribution outlets and manufacturing inefficiencies due to seasonality of sales. As a result, operating margin gained almost two percentage points.

Our adjusted corporate expenses were $12.5 million, an increase from the prior year primarily due to lower interest income as well as higher stock-based compensation costs related to shorter amortization periods. Cash provided by continuing operations was $37 million in the first quarter compared with $15 million last year, primarily driven by higher earnings from operations which were partially offset by higher working capital requirements to support sales. Our liquidity position and balance sheet remains strong. Our debt-to-capital ratio declined to 16%. We have sizable cash balances located offshore, and our net cash position was over $220 million at the end of the first quarter.

We project our cash flow from continuing operations for 2013 to be between $210 million and $230 million. Our capital expenditures are expected to be $80 million to $90 million which includes approximately $40 million for capacity expansion in China and India to meet growing demand for our water heaters in those regions. Our depreciation and amortization expense is expected to be between $55 million and $60 million this year. I will now turn the call over to Ajita who will summarize our outlook and acquisition strategy.

Thanks, John. Good morning, ladies and gentlemen. Our outlook for 2013 includes the following assumptions. First, we expect our sales growth of A. O. Smith branded products in China to be approximately two times China's GDP rate in 2013, largely driven by product with new features and benefits that provide value to our customers. We also have seen a positive impact in sales coming from online purchases, and we expect online sales to more than double in 2013 from $5 million last year. We also continue to evaluate the productivity of our distribution footprint and our customers are doing the same thing. As a result, a net 300 stores were closed in the first quarter. And we ended the quarter with approximately 5,200 outlets. The closure of underperforming stores had little impact on overall first quarter revenue in China which grew at 15% compared with last year.

Second major assumption in our outlook. We expect our Lochinvar brand to continue to benefit from the transition from lower efficiency non-condensing boilers to higher efficiency condensing boilers. Lochinvar branded condensing boilers continue to offer a compelling payback in the form of energy savings, and we have built a reputation for innovation and product quality. As a result, we expect Lochinvar branded sales to grow 10% in 2013, well ahead of GDP growth in the US. I should remind everyone that we do have some seasonality related to the boiler products that we sell for hydronic heating. We typically have sales and profits of our Lochinvar branded products in the second half of the year that are lower -- that are higher than in the first half of the year. Third, we are cautiously optimistic about the developing recovery in US housing. We expect residential water heater volumes in the US to be 200,000 units higher this year than last year based on an upward direction of our housing completions forecast.

Even though our commercial volumes were very strong in the first quarter, which we believe was largely due to a pre-buy related to a northern California regulatory change, we expect commercial volumes to be up only about 1% for the full year. Our business is performing well and our balance sheet and cash flow are strong, which affords us the confidence to continue to pay a very competitive dividend yield. As such, we increased our dividend by 20% last week. Our outlook for the US water heater business has fundamentally improved from three months ago when we originally announced our 2013 guidance. We have increased our 2013 adjusted EPS guidance to between $3.40 and $3.56 per share. The midpoint of our new range represents a 13% increase over 2012 adjusted EPS of $3.08 per share. This guidance does not include the restructuring charges associated with the plant rationalization, the settlement with the former supplier, non-operating pension costs, or future acquisitions.

Our GAAP EPS guidance is now expected to be between $3 and $3.16 per share due to the impact from the restructuring charges partially offset by the settlement, neither of which were in our GAAP guidance at the beginning of the year. This continues to be an exciting and transformative time in our Company. We have cash and borrowing capacity for additional acquisitions and our pipeline of acquisitions supporting our stated growth strategy to expand our global footprint in water heating and water treatment solutions is very active. As we presented at our analyst day last fall, we expect to grow organically over 7% per year which would result in $2.4 billion of sales in 2015. Adding our dry powder and making some assumptions about acquisitions, we expect to achieve revenues in excess of $3 billion with one third from higher growth regions in the world. Using these assumptions, we expect our existing businesses to deliver earnings of $4.30 a share in 2015. We expect to achieve $5 per share in 2015 when use of our cash and borrowing capacity are added to our organic growth.

Based on core competencies and our strategic focus for growth is simple, hot water and clean water. We are pursuing actionable acquisitions in these two areas around the world. We are also pursuing acquisitions which expand our core product lines. We are particularly keen on products and technologies that offer energy and water efficiency gains. And finally, we are considering water related adjacencies which can leverage our distribution and brand to provide value to our shareholders. Our integration of Lochinvar is complete. We have the human capital, financial resources, and strategic focus to continue to add companies to our global platform which creates shareholder value, and our business development teams are pursuing opportunities all over the world to do just that. You have seen this next chart before and we show this only as a reminder that we will be a financially disciplined acquirer. Our transactions will be focused on creating returns for our shareholders. Ladies and gentlemen, that's the end of our prepared comments and now we are open for questions.

(Operator Instructions)

Our first question comes from the line of William Bremer from Maxim Group.

Good morning, Paul, Ajita, John, and Pat. Fantastic quarter, absolutely fantastic. Can you give us a little color on the Lochinvar contribution for the quarter? And if you could give me even a little bit more granular, the after-market contribution there?

Well, Lochinvar did as we expected in the US. It was up about 10% in sales and profits were up even more than that. I don't have the detail on the spare parts, et cetera, but you would expect that to be lower in the first quarter than it was in the fourth quarter with the (multiple speakers).

And John, the operating margin there. You're up as well?

Yes.

Significantly? If we do sequentially to the fourth quarter, was it as high as that? Can you give us a little bit.

No. I don't think that. I don't have the numbers in front of me. I don't think it would have been as high as the fourth quarter but it was sequentially up from last year's first quarter.

Okay. And in addition, can you give us an update on the water treatment facilities and the recurring revenue there?

Water treatment, the A. O. Smith branded water treatment, continues to do very well. We expect that to be up over 50% this year. Last year, it had sales of $20 million so we expect it to be up over 50%. We've come without a new product that wastes less water and also has a longer term filter but I think it's a unique filer to our systems so as we go down the road I think we will pick up more and more replacement filter business from that product. So A. O. Smith branded water treatment is doing very well. We've made a lot of cost improvement in the legacy non-A. O. Smith branded water treatment. We expect to see nice improvement from the losses that they had last year.

And my last question, just a little housekeeping, corporate expense line came in a little bit higher than what I anticipated, and given the restructuring that you are voicing and implementing, what should be a nice run rate for '13 there?

I think we went out at the end of the year and said approximately $48 million for the year on an adjusted basis. And we think $48 million to $49 million is still reasonable.

Okay. Thank you all. I appreciate it.

Our next question comes from the line of Sanjay Shrestha from Lazard Capital Markets.

Good morning, guys. Once again, fantastic quarter. Couple of questions. Coming back to that margin question for North America, even after you exclude the Lochinvar contribution, sounds like your core residential and the commercial business had almost a record margin here. So, one, wanted to ask you sort of, is that thinking right? And two, sort of help us remind the contribution margin as the housing starts continue to improve here. And was there anything that one-time that says this is not repeatable going forward?

Really nothing one-time in there. We mentioned that there was a little pull forward of commercial. Bottom line, Sanjay, is we think the industry had its highest quarter in the last five years. We've been talking about the incremental volume would be very beneficial to our bottom line, and we sought in this quarter. Very strong both residential and commercial, and as I said, those both quarters were we think records for the last five years so that's a big contributor to the margin improvement.

And mix was helped by the higher proportion of commercial sales.

Okay. So all right. Got it. That's what we thought. So now shifting gears a little bit, guys, so when we think about China, and you guys have done a great job there in terms of evaluating stores performing well versus lack thereof so but as we look at your existing footprints in China, how would you sort of break that down in terms of exposure in the tier 1 cities versus tier 2 and tier 3? And especially more for tier 2 and the tier 3 cities, what would you say is sort of the growth driven by store addition versus the same-store sales growth at this point?

Well, we saw very good same-store growth in both tier 1 and tier 2 cities. We have more tier 2 and tier 3 stores now than we do tier 1.

Sure.

And as we talked about, that's an opportunity for us to get to those cities quicker than, say, you know, our large customers who have to build a department store, if you will, we can put up specialty stores, et cetera. So we saw very good same-store sales in both tier 1 and tier 2.

Okay.

If there's anything that was a pleasant surprise in China is the online sales coming on very strong. That's been good.

Got it. Got it. That's all I had, guys. Congratulations again. Fantastic performance.

Thank you.

Our next question comes from the line of Matt Summerville of KeyBanc.

Good morning, everybody. This is actually Joe Radigan on for Matt. Just a couple questions. Can you give a little more color on the commercial pre-buy? What were commercial sales up on a percentage basis in the quarter and then can you quantify the magnitude you think you got a benefit from the pre-buy, and is this a new regulation, or is this the same regulation we talked about last year?

Well, it's kind of the same regulation but it applies to Northern California this time. We think the industry and ourselves were up double digits commercial over last year. Our GAAP is about half of that related to this pre-buy. It's really a factor of you could manufacture the product up through the end of the year and still sell it, and we think our distributors wanted to get that product in-house, it's lower priced than the new product that will come out so we think that helped in the quarter.

Okay. And then can you talk about your product mix in China? What percentage of sales are coming from new products or these up featured products? What is your product pipeline on that front look like going forward? Do you expect to be able to get a formal price increase like you have successfully done the last couple years, or is this year more a reversion kind of to the way it used to be where you get a little bit of ASP bump because you're selling an up-featured product?

I'm not anticipating a formal price increase as we've had the last couple of years. We will be coming out with a new electric model line that might have a little bit higher cost because of different features, but we're certainly seeing a positive from the super quiet tankless that we came out with. We came out with it in 16 liters last year. We're expanding that across a bigger product line and that it does provide so there is some positive mix that we anticipate.

Okay. Then last question, in terms of the announcement to shutter the Fergus facility, was that move driven by kind of as you looked at your capacity needs or was it just the weakening of construction markets there? And then what does your utilization look like in North America after that closure? Can you just comment on the decision that -- the factors that went into the decision there?

This is Ajita. We're always looking at our footprint and looking at ways to make it as effective as possible and so that is essentially what we've done. It's not seeing any long-term trends of weakening of construction in Canada versus the US. It's just optimizing our footprint. From a capacity viewpoint, we can comfortably take care of any sort of increases that we anticipate out in the future.

Thanks, Ajita. Thanks, John.

Our next question comes from the line of Todd Vencil from Sterne, Agee.

On the residential strength that you are seeing, are you -- thanks for talking about that. Are you seeing any particular regional strength there, or is it spread out evenly?

I think it's spread fairly equally. There's strong new housing starts again today so we're just taking a wait and see where there's been a lot of fits and starts on new housing but clearly there was some benefit in the first quarter.

Yes, and it's across the board.

Okay. And you said the incremental there is strong. Is there any way you can put a number on what the incrementals from the additional volume look like or you think they are going to look like? I think you've talked about 35-ish% in the past?

I didn't do the calculation but between the combination of commercial and the residential that's probably not an unreasonable percentage, 30% to 35% when you add the two.

Okay. And then on -- you switched to the strategic actions or things you're looking at. You mentioned water related adjacencies. Can you talk about that a little bit and just expand on what that might encompass?

I'll be general, because obviously I can't get too specific, but we've been very clear in our strategy in terms of we are in the heating water and cleaning water business. We're a water technology company. And those are the types of acquisitions that we will go after. And so we'll be spreading out a little bit further from just the water heating that we've been doing so far in North America. And we are looking at regions of the world that are growing faster than US GDP but not focusing entirely on companies or segments that are outside of the US. We are looking at growth markets that's going to increase the growth potential of our total portfolio.

Okay. Thanks a bunch.

Our next question comes from the line of Scott Graham of Jefferies.

So you are doing a lot of things and upgrading products in China that look like they're really working. Could you maybe give us a little bit more on what your plans are for that for the next year or so? Is this essentially a large product line or set of product line refreshments that are going on? Is it affecting the company stores? Is it affecting all channels? Give us maybe a little bit more about what you're doing.

Scott, it's the ongoing process of renewing our products in China, and I wouldn't say that it's anything new or unusual. It's the pipeline that we have that we keep driving all the time. And so the pipeline is pretty full in terms of new products that are going to be coming out in the future. And it's the nature of our business in China because it's a consumer appliance, and it's something that needs renewing and a new look and a fresh look all the time. But also, in addition to the fresh look, we add features and benefits and where we can over time we charge extra for those features and benefits, and the Chinese consumer is very willing to pay for those as long as they see value. And our teams there have been very successful in doing that over time and continue to do that. We do have quite a few of them coming out right now, but we always have quite a few coming out.

Fair enough. Could you talk about where you think inventory levels are in the wholesale channel right now? North America.

I think, you know, nothing unusual. I can't quote any numbers. Again, that type of information is very tough to come by. Be we don't know of any unusual building of inventory or driving down of inventory.

Okay. And I guess the last question is, of course, on the M&A pipeline. I know with Paul you are starting to move away from the operations with Ajita fully in control. Just wondering, has that given us an additional thrust on the M&A side? How does the pipeline look? Anything you can give us on that would be helpful.

Scott, we have been working on it pretty steadily since actually the balance sheet got in better shape after selling the motor business. I do think we have maybe a little more energy level right now with the teams that are out scouring the world right now. Obviously there's nothing we can talk about at this time, but it's a very robust effort. I want to reiterate what Ajita said. It's still a discipline process. We're not going to do something that doesn't add shareholder value. Our focus is getting returns to shareholders, and we're not going to waiver from that. Other than that, there is as you know there's nothing I can specifically talk about.

That's fine. Thank you.

(Operator Instructions)

Our next question comes from the line of Ryan Connors of Janney Montgomery.

Just had a question for you on this -- you laid out some longer range guidance for 2015, and I apologize if I missed some of the assumptions there but can you just give us a little more granularity on your kind of modeling to get to that $4.30 number and specifically the contribution of top line versus margin and then also whether the CAGR there over the next two years is pretty linear in your mind to get to that figure or whether we accelerate in '14 and then decelerate? Any kind of color you can give us around how you are getting to that number will be helpful.

Sure, Ryan. We talked about a 7% to 7.5% organic growth from 2011 through 2015. 2011 adjusted for a full year of Lochinvar and for the most part, we would think that would be relatively linear as we continue, we think, kind of a gradual increase in new housing, et cetera. We think Lochinvar will continue to grow at the 10%. We think China will grow at about the 15% or so. We think North America will continue to grow as housing starts increase. I think we've put -- I don't have the numbers in front of me but I think we said that North America we think will return about a 14.5% EBIT margin and rest of world will get the 13%. So I think everything we've seen we're comfortable with those forecasts.

Okay. And then just one other question, keeping in the vein of guidance. Echo the sentiments of the others, obviously a great quarter, at least versus our expectation -- the guidance for '13 kind of implies a little bit of a deceleration in the growth rate going forward. So any commentary you can give on what your thoughts are there, whether you think maybe us and the street were a little just ahead of things or any comments you can have on the huge upside in the quarter and then a little more of a limited upside in the guidance would be helpful, too. Thank you.

We were surprised by the strength of the residential commercial. I know I'm repeating myself but it was the best quarter for both of those in five years. So we're stepping back and taking a look and trying to make sure that it's real and it is going to hold. We did have some one time items, like we said, the pre-buy of the commercial, et cetera. So as we've been in the past, we're being conservative to make sure we have good visibility but it was an extremely good first quarter and again, when we get the volume, we are in a position to provide very hefty margins.

Our next question comes from the line of Samuel Eisner of Goldman Sachs.

Had a couple questions here on the guidance and the expectations for North America. John, I know you were just saying that you were surprised by the strength in the quarter. Was there any benefit from maybe delay in spending post-Hurricane Sandy that benefited insulations and water heaters or boilers in kind of the northeast region?

No, we don't think we got anything, for example, in the boiler business. When it happened in the fourth quarter, they had to replace cast iron with cast iron because they had to get it done quick. So we don't think that there was any benefit in the quarter from a delayed from Sandy. That would be our guess.

I think we saw the Sandy benefit last year.

Right. Right.

Okay. So no overhang there. Your expectations, I know you upgraded the guidance for the year, did you call out what the actual expectations are for housing starts for 2013?

We've forecasted that we will see about a 200,000 increase in the residential market, and that's really a move of completions from about 650,000 to 850,000. So we're calling the replacement business to be flat. Commercial, because of the strong first quarter, we've raised that also a couple of thousand units, I think from 148,000 last year to 150,000 this year. So we have, you know, we have built in a little bit higher increase, and that certainly contributed to the increase in the estimate.

Great. And just, you know, switching gears over to rest of world, I think you called out that there was less of a loss in the non-branded structural product as well as lower promotional items. Was any of that one-time? Should we expect it to come back in as we look forward throughout the course of the year? Maybe if you can just talk about that.

I think for China, the lower promotion expenses of let's say $2 million to $2.5 million were one-time. We think because of the Chinese New Year's holiday we did not spend as much during that time period so we think that will pick back up in the following three quarters. The non-A. O. Smith branded had very nice improvement in profitability, and we expect that to continue throughout the year.

So that I would say that's more structural rather than one-time.

Certainly on the non-A. O. Smith branded we've made some significant, we think, manufacturing and operating efficiencies. We think that will be continuous.

Great. I appreciate the color. Thanks so much.

Our next question is a follow up from the line of William Bremer of Maxim Group.

Yes, just a quick one. You sort of voiced the pre-buy here in commercial. How much do you feel really contributed to the stellar gross margins of 35 spot 2? Was it 50 basis points? Was it 100 basis points? What's your gut on that?

On the commercial?

Yes.

I would to have do some math. As we've said historically, gross margins of, say 35%, that commercial, Lochinvar, and China are above that. And that residential is below that. We've said that publicly. Obviously commercial being strong is a big benefit for us.

Okay, that's all I have. Thank you.

Our next question is from the line of Robert Kelly of Sidoti.

Maybe I missed it. Did you put a dollar value of the commercial pre-buy?

No, we didn't.

It's just you thought it was half of the double-digit increase?

(multiple speakers) units up over we think double digits for the industry. We know they were for us.

And you thought the pre-buy was half of that?

And we thought the pre-buy was about half of that.

Okay. Great. Just as far as the comments on the residential side, is there any way to parse out the strength as you call it, whether it was coming from the replacement or the new construction side of the business?

I don't think we have real visibility into that. We certainly would assume some of it is coming from the new construction as the numbers have been coming out fairly strong. So, you know, I think the replacement, our best guess, is holding pretty steady.

The replacement business tends to be steady. So when we see a spike it's usually driven primarily by new construction.

Okay. Fair enough. And then as far as the strength you are seeing in res and commercial, any plans to implement price increases in 2013, now that volume seems to be picking up?

Obviously, we don't talk about pricing ahead of time, but over time we try to make sure that we balance out any cost increases with price increases, over time.

Okay. And then just one kind of on the long range guidance. Talking about a full year, 14.5% for North America when you get to 2015, I mean, obviously, you are stressing that 1Q may have had some prop to it just given commercial pre-buy, but we're well north of that today in your seasonal low quarter, Lochinvar gets stronger in the back half of the year. Is it -- and then the 35 incremental margins. Is there some -- what sort of -- should we rethink the goal for 2015, just given that things seem to be picking up here and your margins are coming in a lot better than expected from the cost savings from Calgary?

It's too early to reset the goal. Again, we had very, very strong quarter from a volume standpoint. Traditionally, the first quarter is the strongest quarter from a commercial and a residential standpoint. We sought even stronger than we expected. You are right, Lochinvar helps in the back half of the year but we also have the third quarter water heater business is the weakest for us of any quarter, so I think it's too early. We're certainly very pleased with the performance this quarter, and we'll continue to evaluate that as we go on.

Okay. One final one. You talked about maybe getting more conviction, just given how surprised you were by the strength of res and commercial demand in 1Q. Anything that transpired since the end of the March quarter that gives you pause or has demand held up pretty solid?

No, I think things are on track.

Right.

Great. Thank you.

Not much has changed.

Thanks.

Thank you. And I'm showing no further questions in queue and would like to turn the conference back over to management for any closing remarks.

Thank you for joining us this morning, and we are happy to answer your questions. You know how to get a hold of us. Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program, and you may all disconnect. Have a great rest of the day.