Circor International Inc (CIR) 2015 Q1 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the CIRCOR International first-quarter 2015 financial results conference call. Today's call will be recorded. (Operator Instructions)

I will now turn the call over to Ms. Jamie Bernard from Sharon Merrill for opening remarks and introductions. Please go ahead.

Thank you and good morning, everyone. On the call today is Scott Buckhout, CIRCOR's President and CEO, and Rajeev Bhalla, the Company's Chief Financial Officer.

The slides we will be referring to today are available on CIRCOR's website at www.CIRCOR.com on the webcast and presentation section of the investors link. Please turn to slide 2.

Today's discussion contains forward-looking statements that identify future expectations. These expectations are subject to known and unknown risks, uncertainties, and other factors. For a full discussion of these factors, the Company advises you to review CIRCOR's Form 10-K and other SEC filings. The Company's filings are available on its website at CIRCOR.com.

Actual results could differ materially from those anticipated or implied by today's remarks. Any forward-looking statements only represent the Company's views as of today, April 28, 2015. While CIRCOR may choose to update these forward-looking statements at a later date, the Company specifically disclaims any duty to do so.

On today's call, management will often refer to adjusted operating income, adjusted operating margins, adjusted net income, adjusted EPS, and free cash flow. These non-GAAP metrics exclude any pretax special charges and recoveries. The reconciliation of CIRCOR's non-GAAP metrics to the comparable GAAP measures are available in the financial tables of the earnings press release on CIRCOR's website.

I will now turn the call over to Mr. Buckhout.

Thank you, Jamie, and good morning, everyone. CIRCOR today reported revenue of $166 million and adjusted earnings per share of $0.60. On the top line, after adjusting for currencies, revenue from our international project businesses was up year-over-year. However, as expected, we saw a decline in our North American short-cycle business.

Our Aerospace & Defense group experienced lower sales, driven in large part by the exit of our structural landing gear products last year. From an orders perspective, we recorded strong bookings in our long cycle international projects business, driven by new customers and an improving win rate in the Middle East. Large project strength adjusted for currencies more than offset the significant decline in upstream short-cycle orders in North America.

Our Aerospace & Defense group recorded higher orders year-over-year, due in large part to bookings for fluid control products on commercial platforms. On our last call, we discussed the restructuring actions we are taking to mitigate the impact of market dynamics on our earnings and to align our businesses with lower near-term demand. These actions are on track to be completed by the end of the second quarter and we expect them to generate approximately $8 million of annualized savings.

In addition, today we are announcing further actions to generate an additional $5 million of annualized savings. These new actions are primarily volume related and should be largely completed by the end of the second quarter.

Please turn to slide 4. A couple of weeks ago we announced the acquisition of Schroedahl, a German-based privately-held manufacturer of safety and control valves. This acquisition is aligned with the capital deployment strategy that we presented at our investor day last September.

Schroedahl accelerates our penetration into the high-growth power generation market, including a strong presence in Asia. The Company has strong engineering capability and an excellent reputation for severe service products.

Schroedahl has a leading position in the niche market for auto recirculation valves, which protect pumps against overheating, collapse, or destruction. This business carries sustainable high margins because of its differentiated technology, its reputation for consistent high-quality products, and its severe service applications where the cost of failure is extremely high.

Strategically, Schroedahl fits nicely into CIRCOR, where we have the opportunity to leverage our global sales and operations footprint. As we look at the financial metrics for this acquisition, we paid net consideration of EUR76 million, representing about 8 times 2014 EBITDA. The return on invested capital exceeds our cost of capital in the first year. In addition, Schroedahl is it expected to be EPS accretive in year one.

We funded the deal with existing international cash and about $20 million of debt. We are excited to welcome the Schroedahl team to CIRCOR.

During the quarter, we initiated our $75 million share repurchase program. To date we've purchased 648,000 shares for about $36 million. As we initially communicated, we expect to complete the full program this year.

I should note that with the share repurchase program and the acquisition of Schroedahl our leverage ratio is expected to be less than 1.

Our simplification plan and operational excellence initiatives remain on track. We're making progress on many fronts, including customer on-time delivery, supplier delivery and quality, material savings, and factory productivity.

In line with our focus in these areas, we are excited to welcome our new Vice President of Global Operations, [Jay Lapointe]. Jay has a wealth of experience in operations and comes to us from DRS Technologies, where he was responsible for their global operations. Prior to DRS, Jay was a senior operations leader at United Technologies.

In his role at CIRCOR, Jay will be responsible for our operational excellence initiatives including everything from production planning through product delivery. Jay's near-term priorities are to drive on-time delivery across CIRCOR, improve productivity in Aerospace & Defense, and accelerate our simplification plan through the market downturn in Energy. From there, he will be driving continuous improvement through the expansion of the CIRCOR business system across our global operations network.

After Rajeev discusses our Q1 financial results, I will provide more context to our expectations with a review of our markets. Now I will turn the call over to Rajeev.

Thanks, Scott. Before I get into the energy results, you'll note that we have excluded last year's divestitures in our year-over-year comparison for both segments.

Starting with Energy on slide 5, Energy sales of $128 million decreased 16% over the prior year and 9% organically. This was primarily due to lower sales in our short-cycle North American distributed valves business, offset in part by higher sales in our large project businesses.

Energy's adjusted operating margin decreased 110 basis points to 13.8% as a result of lower volumes, currency headwind, and pricing pressure. Restructuring savings helped mitigate the bottom-line impact.

For Aerospace & Defense, please turn to slide 6. Aerospace & Defense sales of $38 million decreased 17% of the prior year and 11% organically. This was primarily due to the exit of the structural landing gear product lines and the completion of certain UK Navy projects last year.

Aerospace & Defense adjusted operating margin of 8% was down 150 basis points year-over-year, due in large part to unfavorable mix from the UK Navy and the loss of the CH-47 program. This was partially offset by ongoing operational improvements, including the exit of certain structural landing gear product lines. Operationally, we are making good progress in Aerospace & Defense as our adjusted operating margins improved sequentially by 300 basis points.

Turn to slide 7 for selected P&L items.

Our tax rate for the first quarter was 25.4%. We expect our second-quarter tax rate to be in the range of 28% to 29%. Corporate expenses decreased by $1.1 million in Q1 as we continue our cost reduction efforts across CIRCOR. In the quarter, we recorded a $1.5 million charge for restructuring actions, a charge of $500,000 related to the costs associated with the Schroedahl acquisition, and to charge of $400,000 related to additional equity compensation for the retirement of a senior officer of the Company.

These charges were offset by a special gain of $1 million associated with the completion of the previously-announced divestiture of Cambridge Fluid Systems. Adjusted earnings per diluted share was $0.60 compared with [$0.79] (corrected by company after the call) in the prior year, primarily as a result of lower volume and currency headwinds.

Turning to our cash flow and deposition on slide 8, during the first quarter we used $18.4 million in free cash flow. Our net working capital build drove a significant portion of the cash outflow, especially on the inventory side. The increase in inventory was due in part to the faster-than-expected declines in the distributed valves business in the quarter, as well as the impact of a strike at the Port of Los Angeles. Much of our distributed valves product comes from our factory in China and enters the US through LA. We expect our inventory situation to normalize in the second quarter.

During the quarter we spent $16.7 million under our share repurchase program. That equates to about 302,000 shares. Given the timing and the amount of the buyback, there was no impact to Q1 EPS. That brings us to our guidance.

Given the number of moving pieces, let me provide you with a baseline for comparison purposes shown on slide 9. For the second quarter of 2014, the divested businesses generated $13.5 million of sales and $0.03 of EPS. In addition, if you take the current exchange rate, especially for the euro, the year-over-year impact is a headwind of about $15 million on the top line and $0.09 of EPS. So adjusting for divestitures and currency headwind, Q2 2014 would reflect revenues of $178.9 million and adjusted EPS of $0.79.

Slide 10 summarizes the annualized impact of restructuring actions, as well as the savings in 2015 of $10 million. For Q2 we anticipate special charges relating to restructuring actions to be in the range of $3.1 million to $3.4 million, or $0.13 to $0.14 per share, including the actions we announced today.

Now for the second quarter of 2015, please turn to slide 11.

We expect revenue to be in the range of $145 million to $160 million, primarily due to lower volumes from our upstream, short-cycle businesses in North America. We expect adjusted EPS in the range of $0.45 to $0.55, reflecting the earnings impact from lower revenue and pricing pressure, offset in part by savings from restructuring and productivity.

This guidance includes revenue of approximately $6 million and adjusted EPS of $0.08 from the Schroedahl acquisition. The adjusted EPS does not include amortization related to acquired intangible assets, as that will be treated as a special charge in our reported results. Going forward, we will not break out Schroedahl from our guidance.

With that, let me turn it back over to Scott.

Thank you, Rajeev. Let me start by providing an overview of our first-quarter order intake as well as current market trends. Let's start with Energy.

As a reminder, about 37% of our consolidated revenue was in the upstream oil and gas segment last year. This includes most of our distributed valve and international projects businesses, as well as part of our instrumentation and sampling business. In our short-cycle distributed valve business, we expect continued pressure as a result of the significant drop in North American rig counts since the beginning of December.

As we look at the remainder of the year, we're expecting this business to be down 40% to 50% year-over-year, in line with market expectations. This includes lower end-customer demand as well as distributor destocking. In addition to the volume-related impact on earnings, not surprisingly we are seeing price pressure as customers attempt to take advantage of excess capacity in the market.

Within our long-cycle project businesses we saw strong order intake in Q1 that should translate into a sequential increase in revenue towards the end of this year. We're seeing strength in the Middle East, especially for gas projects, and decent activity in engineered projects in North America for LNG and downstream oil and gas.

Asia-Pacific is weak as a result of CapEx reductions and project delays.

Looking at instrumentation and sampling, we see good activity in the downstream market for sampling products in North America, while upstream oil and gas markets continue to be weak, especially offshore. In power, we continue to see good activity in Asia and the combined cycle segment of the North American market. Other markets are weak. We expect our Schroedahl acquisition to be a positive contributor to our future growth in this market since it has a stronger foothold in Asia than our legacy businesses.

In Aerospace & Defense, we see growth from increasing production rates on commercial platforms, certain military fixed wing platforms like the Joint Strike Fighter, and in missile production. However, we do not expect this growth to offset the headwind from the exit of structural landing gear product lines.

Let me sum up by leaving you with three important points. First, given the downturn in our upstream oil and gas end-markets, we are focused on those things that we control. We are managing our cost base and executing on our operational excellence and simplification initiatives. Our restructuring actions are on track and we will be implementing further cost-reduction actions as necessary.

The top priority is to take advantage of the downturn to remove as much structural cost as possible so that when this cycle inevitably turns up, we emerge as a leaner company with better operational performance and margins. Second, even as we focus on managing costs, we continue to carefully invest in growth. We are investing in areas where we see relatively short horizons to generate results. We've moderated without stopping some of our longer-term investments to align with market activity.

Our growth investments are primarily focused on building out our commercial team in high-impact areas, developing new products, and making CIRCOR easier to do business with. We plan to continue to leverage our strong balance sheet to capitalize on attractive M&A opportunities as we did with Schroedahl. We remain active in the market.

Third, we are starting to turn the corner operationally in our Aerospace & Defense business. During the past few quarters, all the work we have done to improve our operations is starting to show up in our results. As Rajeev discussed, we have gone from mid-single-digit adjusted operating margins in the second half of last year to 8% margin in Q1. We expect to see ongoing operational improvements through the remainder of this year, and we remain on track to exit the year with double-digit margins.

And, finally, regardless of the headwinds we are seeing in our markets, we remain focused on creating long-term shareholder value by investing in growth, expanding margins, generating strong free cash flow, and remaining disciplined with capital deployment.

With that, Rajeev and I are available to take your questions.

(Operator Instructions) Nathan Jones, Stifel.

Good morning, guys. Looks like a good execution quarter given obviously significant headwinds that you've got in the US business. Could you just start off repeating the impact on 2Q from Schroedahl for me, please?

Sure, Nathan. On the top line it's $8 million of revenue and the -- I'm sorry, it's $6 million of revenue and $0.08 of EPS.

Okay, thanks. Just focusing in on the upstream business, the US distributed valve business, I think 40% to 50% year-over-year revenue decline is reasonable given the rig count is down. Can you talk about the impact that destocking had in the first quarter versus what you are thinking it has for the rest of the year?

Nathan, I think the -- I'll talk in two pieces here. The revenue in the first quarter came in more or less where we thought, between that 10% and 15% down year-over-year.

Orders were actually down further than we thought. We mentioned somewhere around 20% orders declined in the first quarter. It was actually worse than that. It was north of 30% down in the first quarter on orders.

As we go through the rest of this year, as we mentioned, we are expecting orders down 40% to 50% and revenue to follow with that. It's hard for us to know exactly how much of the order decline is destocking versus just market. I am -- at some point the destocking, obviously, stops. The distributors get to a lower level of inventory and they start buying at market rates.

We're not sure exactly when that is going to happen. I know some of our peers have mentioned they think that that happens at the end of Q2 or shortly thereafter. We're not sure. That seems reasonable to us, but what we are planning on right now is 40% to 50% down for the rest of the year.

Yes, visibility is pretty low at the moment. Our checks through the distributors have shown that price hasn't been a huge impact yet, but that they are expecting it to be going forward. Can you talk about the impact on margins or the top line in the first quarter and then your expectations in the second quarter and beyond?

So price is becoming a bigger and bigger topic as time goes on here with the market downturn. We got hit by price in the first quarter in aggregate by about 50 basis points. We're expecting going into the second quarter that that is going to be a little bit worse and we look at the orders we're taking into our backlog that would say -- I would say it's more or less consistent with that guidance.

Okay, thanks. I will pass it on to somebody else and get back in queue, thanks.

Nathan, before you hang up there, just to clarify, the EPS impact for the Schroedahl acquisition of $0.08 is before any amortization associated with acquired intangibles. I don't know if you caught that in our script.

Just on that, are you excluding all of the intangibles' amortization or just the step-up purchase price accounting?

Just the purchase price accounting for whatever we acquired with respect to Schroedahl.

Okay, thanks.

Charley Brady, BMO Capital Markets.

This is actually Patrick Woo standing in for Charley. I just wanted to pick your brain a little bit about your expectations for global CapEx. I think last quarter you guys expected to be down around 20% year-over-year. Sort of wanted to understand where you guys are at for current expectations. If you can maybe break it down by region, your expectations, that would be helpful.

I will start and then maybe I will let Rajeev jump in. So we are still expecting global CapEx is going to be down around 20% in aggregate around the world. What we are seeing is a difference depending on the region.

So if you look at the Middle East, we are seeing -- we are not seeing -- frankly, we are not seeing much of a downturn in the Middle East. We're seeing good activity in gas. We are quoting -- a disproportionate share of our outstanding quotes are being done in the Middle East and so we are, I'd say, pretty optimistic about the current trends that we are seeing there.

We are seeing worse than 20% down in terms of activity in Asia. I think the cost of the projects in Asia usually leads to a more severe drop or I'd say an earlier drop in CapEx in that region, and we're certainly seeing that.

North America we are seeing, I'd say, a drop, but with parts of the market we are seeing some decent activity. As I mentioned the prepared remarks, we have decent activity in downstream in North America. We are seeing activity on the power side in North America, but we are certainly seeing lower activity overall.

Got it, got it.

Then for the North Sea, we're obviously seeing a lot less in activity as well. There's probably a couple of big projects that you read about that are ongoing, but a lot less in activity there.

I think offshore in general for us is down pretty significantly, so you will see our revenue mix shift where we had a fairly substantial portion of our revenue in 2013 and 2014 was offshore. That is going to change here in 2015 and 2016.

Understood. Up to $3 million additional savings that you guys just announced versus $5 million in the first quarter, what are the priorities in terms of how you guys are taking that out? I just wanted to understand what you guys took it out from in the first quarter and how that's going to differ in the second quarter.

Both of these actions that we just announced, one in Q1 and the one we just announced today, have two components to it. There's a volume piece and there is a structural piece, and we are looking across the enterprise. If you recall the one we announced in the first quarter, half of it was structural, half of it was volume driven.

The one we're talking about now, the $5 million, is focused more on the volume side and maybe about 20% of it is structural. And as I said, it's across the enterprise and it's managing through this downturn.

That's good. On the M&A pipeline, how does your pipeline look right now and sort of what areas are you guys actively looking?

It looks, I'd say, pretty good. We are having quite a few, I'd say, early-stage discussions. The priority right now is to integrate Schroedahl and so we're spending a lot of time and resources on that to make sure that we are successful and that we build some credibility here with M&A, but it's not to say we are not spending time on this.

So as I mentioned in the prepared remarks, we are active in the market. We are having quite a few discussions. We do have a lot of relationships with potential targets that I inherited when I got here to CIRCOR and we have continued to build on to that.

So I wouldn't expect anything in the very short term. We are focused on integration with Schroedahl, but over time we intend to be an acquisitive company. So we continue to build the pipeline.

Thanks, guys.

Joe Radigan, KeyBanc Capital Markets.

Good morning, guys. Scott, your comment on pricing about the 50 bps in Q1 getting worse based on backlog in Q2, was that a short-cycle comment? Or was that Energy overall? And can you kind of parse that between what you're seeing in the project piece of the business versus the short cycle valve piece?

Let me take that, Joe. Most of it is being driven by the short cycle. We do see some pricing pressure on the large project business, but it's a little different.

If you recall, on the short cycle a lot of the end-users and the distributors are the ones that are pushing for the pricing. On the large project business, there is a piece of it that comes into play with the competition and the competitors and what they are doing there. But the 50 basis points is biased towards the short cycle.

Okay. Then maybe a follow-on to that. How much --? Can you give a sense, Rajeev, of order of magnitude how much margin compression you expect to see in that business, or how you view trough margin in that business? And any kind of color around the margin profile that you can provide and where you expect it to go.

You're talking about the short-cycle business?

Yes, the short cycle. Just given the expectation that volumes and price get worse from here, how do you view the margin profile? And maybe layer in how variable is the cost structure in that business? Just some color around what we can expect from margins in that piece of the business.

Yes, there are two pieces to that. If I look back at the 2008/2009 timeframe, we did see some significant impact on margins, probably the 200 to 300 to 400 basis points in the aggregate. So it can get to that level when you get to the bottom.

And revenues, if you recall, dropped about 50% back then. We've done a lot in the recent past of trying to variablize our cost structure and drive -- use more suppliers and outsource some of the machining and those kind of actions that will help mitigate and help us react more quickly to the drop in demand here.

So it can be -- there is a substantial impact to the margins here, but I don't think it will be to the same tune as what we saw back in 2008/2009.

The bigger issue is not the pricing; the bigger issue is the volume. The magnitude of the volume drop is really what's hitting us harder.

With respect to the other part of your question about how variable is the cost structure, the majority of the resources that support our short cycle business are in the US and in China. In both of those businesses we can and are moving pretty quickly to reduce headcount and reduce cost, but with the magnitude of the drop in revenue, it's going to be hard to not have a margin impact. So price plays a role, but I would say it's a smaller role than the volume drop itself.

Okay, that's helpful. Then how comfortable are you with your share position in that market? Have you seen any changes there?

We haven't seen any material change. We actually feel pretty good in the sense that we have kept very close to our major distributors and the end-users and are managing through that. So the sales team has actually done a very good job of keeping very close to our customers.

We picked up a couple of new distributors in the first quarter that would be outside of the normal churn that you might see in that business. So we feel like we are doing pretty well from a share perspective.

Okay, great. Thanks, guys.

Ryan Cassil, Global Hunter.

Thanks for taking my question. The orders on the project business were better than expected. Can you talk about what your expectations are there and if those are sustainable going forward?

Sure. We did have a very good order quarter in the first quarter, and as you probably know, Ryan, this business is pretty lumpy. We had a strong orders quarter in the third quarter. We just had another strong quarter here in the first quarter.

We feel pretty good about the second quarter. I don't think it will be as strong as the first quarter, but I think you're going to see a good orders quarter from the large project business in the second quarter as well. You will also see a lift in revenue as a result of the orders in the third quarter last year and the first quarter this year. You'll see our sequential revenue start to pick up during the second half of this business.

So the direct answer to your question is we feel like we're going to have a good quarter in the second quarter on orders, but not as good as the first quarter.

Okay, okay, thanks. And then on the inventories, you said that they spiked a little bit in terms of days on hand and they should be normalizing as you go through the year. Should we expect to see a sourcing benefit as you guys work down that inventory, or is that still on to come?

No, no, we will; you're absolutely right. We've done a lot of work on the sourcing side, so the benefit is hung up in inventory and as we deliver that should fall through.

Okay, great. And then on the acquisition, I think you talked about $0.08 and $6 million on the revenue side. Is that a good run rate as we look at the out-quarters and is that including any sales synergies, which I think you guys were excited about with this opportunity?

The revenue for the $6 million is for the second quarter, so we started like mid-April. So you can pro-rata that. The business is relatively stable, so you are -- that is a good run rate here. However, our focus and Scott's and the team's focus is to drive the top line and to leverage the CIRCOR sales footprint to drive the top line.

For purposes at this point, it will be -- that's a good run rate to look at.

On your synergy question, your sales synergy question, the nice -- there's a couple of nice things with respect to sales synergy about the Schroedahl acquisition. Almost half of their revenue is in Asia and they are pretty largely focused in power generation.

Our power sales today is largely in North America. We don't have a lot of sales in Asia like we would like, and Schroedahl doesn't have a lot of sales in North America. So we do think there will be nice sales synergies in both directions for our legacy products as well as Schroedahl products. With the margins that Schroedahl brings, obviously the way we make this deal a home run is to drive the top line so we are focused on that. We are focused on cost synergies as well, but clearly the big opportunity here is to drive the top line.

Okay, all right, great. Thanks, guys.

(Operator Instructions) Nathan Jones, Stifel.

Just moving over to aerospace for a minute, I think the margins that you put up in this quarter were probably a couple hundred basis points better than you were expecting for the quarter. Can you talk about the progress that you made there and where the upside surprise came from in your mind?

If you recall, Nathan, when we talked about guidance, we said that we were looking at kind of mid to high single digits for the quarter and we came in at 8%, so not too much of a surprise. We did drive the operational benefit here.

Now I'll let Scott comment a little bit about some the things that we are doing to continue to drive margin improvement in that business.

We've talked in the past about operational issues in our Corona facility. We talked about some unprofitable product lines that we had and were kind of stuck with, as well as in France.

And what we're seeing is really across our French business, as well as our Southern California business, we are seeing much better operational productivity. We're seeing the benefit of exiting some unprofitable product lines, including the bigger one, which was the landing gear that we exited last year, but these are smaller things that we did as well.

And we were also -- we are also pushing up price. So where we have leverage in our Aerospace & Defense group, we are pushing up price. They have been quite successful so far over the last six months and we are expecting to see some more of that. So it is a fairly holistic approach to driving the margins up, but we remain on track to continue to drive them up to where we believe they should be, which is mid-teens.

And just to add to that, when we announced our $8 million restructuring program in February, the portion associated with the Aerospace & Defense business unit and group was already completed. So they acted fast and took care of the reduction in workforce then pretty quickly and that helped the quarter.

The aerospace business has had some operational challenges over the last few years, couple years. How far away are you, do you think, from an operational perspective from having that business where you think it needs to be?

There's a number of facilities that we have in our aerospace business that -- if you go back two years, we have four fewer facilities than we did two years ago. We will continue to consolidate over the next couple years and in the process we are also operationally fixing the isolated situations where we are struggling.

So it's not across all of aerospace. We have some very well-run facilities in aerospace, but there are some specific problems. Southern California, our Corona facility, has struggled. It's getting better, but has struggled and continues to, we will say, underperform.

I would say the same about our French facilities, the two facilities in France; getting better but not where we would like them to be. So in terms of horizon, when do we think that they're going to be operationally performing? I would say we are probably looking at six months in France and 12 months in Southern California before we are looking at it and saying we've got the productivity we expect; we've got the delivery and quality we expect.

Okay, that's helpful. Thanks a lot.

Nick Prendergast, BB&T.

Good morning. I just had a quick question here on SG&A. As a percentage of revenue it came in a little bit higher than we were expecting. Was there some -- maybe some Schroedahl acquisition costs in there?

No, there weren't. The absolute dollars actually came down from over $1 million. It's really just a function of the denominator, for the revenues being down a percentage to spike up. But the absolute dollars are down in the quarter and we would expect to continue to improve for the rest of this year as well.

Some of the restructuring that we are in the process of doing here is going to hit both SG&A but also the direct costs as well.

And that will help.

So that will help. And we should be largely complete with all the restructuring that we have announced by the end of this quarter and so you should see a different run rate as we get into the back half of this year.

Okay. Got it, thanks.

There are no further questions in queue at this time. I would like to turn the floor back over to Mr. Scott Buckhout for closing comments.

Okay. Thank you very much for joining us this morning and we'll look forward to talking with you again next quarter. Thank you.

Thank you and that concludes our conference call today. Thank you for joining us and have a great day.