Franklin Electric Co Inc (FELE) 2011 Q3 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the Franklin Electric Q3 2011 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference call is being recorded. I would now like to turn the conference over to Patrick Davis, Treasurer. You may begin.

Thank you, Latoya. And welcome to Franklin Electric's third quarter 2011 earnings conference call. With me today are Scott Trumbull, our Chairman and CEO; John Haines, our CFO; Robert Stone, SVP of Americas Water; and Gregg Sengstack, SVP of Fueling and International Water.

On today's call, Scott will review our third quarter and year-to-date business results and John will review our third quarter and year-to-date financial results. When John is through, we will have some time for questions and answers.

Before we begin, let me remind you that any forward-looking statements contained herein, including those relating to market conditions or the Company's financial results, cost, expenses, expense reductions, profit margins, inventory levels, foreign currency translation rates, liquidity expectations, business goals, and sales growth involve risk and uncertainties. These risks and uncertainties include, but are not limited to, general economic and currency conditions, various conditions specific to the Company's business and industry, weather conditions, new housing starts, market demand, competitive factors, changes in distribution channels, supply constraints, effect of price increases, raw material costs, technology factors, integration of acquisitions, litigation, government and regulatory actions, the Company's accounting policies, and future trends and other risks which are detailed in the Company's SEC filings and are included in item 1A of part one of the Company's Annual Report on form 10K for the fiscal year ending January 1, 2011, Exhibit 99.1 attached thereto and in item 1A of part two of the Company's quarterly reports on Form 10-Q.

These risks and uncertainties may cause actual results to differ materially from those indicated by the forward-looking statements. All forward-looking statements made herein are based on information currently available and the Company assumes no obligation to update any forward-looking statements.

I will now turn the call over to our Chairman and CEO. Scott?

Thank you, Patrick. Franklin people worldwide again achieved outstanding quarterly financial results. Sales, operating income and net earnings were all records for any third quarter in the Company's history, while at the same time, we invested in our future by increasing RD&E spending by 31%. We feel that this performance reflects the success of our global efforts to align with the strongest distributors for our products and to concentrate our manufacturing in facilities that provide the best cost and best quality for our customers.

As has been the case throughout 2011, during the third quarter, we continued to be negatively impacted by rising raw material costs. Raw materials are our largest cost factor, representing about 45% of sales. During the third quarter, raw material spending, as a percentage of sales, increased by 200 basis points compared to the prior year. However, largely as a result of the facilities restructuring and lean initiatives that we've been implementing over the past several years, we were able to more than offset these increases with labor productivity improvements, fixed cost control and operating leverage.

As a result, despite the high raw material costs, our gross profit margin, as a percent of sales, increased by 130 basis points compared to the third quarter last year. And our operating income margin after non-GAAP adjustments improved by 240 basis points. So that was really the highlight for us in the quarter, raw material spending up 200 basis points and still being able to improve operating income margins by 240 basis points.

While we've seen recent fluctuations in commodity markets, we've continued to see increases in our overall raw material costs. And as a result, we've announced price increases of 3% to 5% effective in the first quarter 2012 in markets that represent about 75% of our consolidated sales. We currently plan to implement price increases during the second quarter of next year in markets that represent most of the balance of our sales.

Our global water business represented 80% of our consolidated sales during the quarter and grew by 17% compared to the third quarter prior year. Excluding both acquisitions and foreign exchange effects, our water sales grew by 7% compared to the third quarter prior year. And water operating income, after non-GAAP adjustments grew by a healthy 30%.

Our water sales and earnings grew across most of our global regions. But our team in the US and Canada turned in the strongest performance during the quarter. Our water sales in the US and Canada represented 41% of our consolidated revenues and grew by 13% compared to the prior year. All of this growth was organic. Sales of pumping systems for industrial and irrigation applications in the US and Canada grew by 30% during the quarter as drought conditions in the Southwest continued to spur strong demand in the agricultural market. Our US and Canadian sales of residential ground water and residential waste water pumping equipment grew by 9% during the quarter, driven primarily by share gains in a healthy replacement market.

Water sales in developing regions represented 29% of our consolidated sales and grew by 23% compared to the third quarter prior year. Excluding the recent Impo acquisition in Turkey, our sales in developing regions grew by about 6% compared to the prior year. We achieved double digit sales growth in both Latin America and Asia Pacific during the quarter. However, our sales in Africa and portions of the Middle East declined due in part to the political disruption that's been occurring in these areas.

The integration of Impo, the Turkish pump company that we acquired during the second quarter, is on track. We're laying the groundwork to cross sell Impo-produced pumps and motors in most of our global market regions, while at the same time we remain focused on expanding Impo's leading market position in Turkey. During the third quarter, our Impo management team was able to increase local currency sales by 45% compared to the third quarter last year.

Our business in Europe represented about 10% of our consolidated sales and increased by 9% compared to the third quarter prior year. Excluding acquisitions and the impact of foreign exchange rates, our European sales declined by 7%. In Europe, while we achieved double digit sales growth in the UK, France, Benelux, Scandinavia and Italy, these gains were offset by declines in Spain and Greece, due primarily to general economic conditions, and by a decline in Germany due to unusually wet weather.

Our fueling business represented 20% of our consolidated sales during the quarter and continued to generate solid operating performance improvement. Overall fueling sales grew by 27% and by 8% excluding acquisitions. Operating earnings increased by 45%. Our fueling operating income margins have steadily improved throughout the year as we've made progress on the integration of the PetroTechnik acquisition that occurred in September last year. During the third quarter, our fueling management team achieved an operating income margin of 21%, which fully restores the business to the pre-acquisition margin levels, but on a significantly higher sales base.

Turning to our outlook for the fourth quarter, we're anticipating that our global water sales will grow by 5% to 9%, which is modestly lower than our year-to-date water sales growth rate exclusive of the impact of foreign exchange rate changes. We currently believe that foreign exchange will have a neutral impact on our fourth quarter water sales, while on a year-to-date basis, it has increased our sales growth rate by about 460 basis points. We believe that our water operating earnings after non-GAAP adjustments will also grow by 5% to 9%, as raw material costs continue to rise as a percentage of sales, while our announced price increases will not start impacting our margins until the first quarter next year.

We believe our fourth quarter fueling sales will grow by 9% to 13% and that our fueling operating income after non-GAAP adjustments will grow at twice the rate of sales or by 16% to 21%. We believe our fueling operating income margins will continue to improve as we benefit from the PetroTechnik integration and we realize operating leverage on a growing sales base.

So, on a consolidated basis, we believe our fourth quarter sales will grow by 6% to 10%, our consolidated operating income after non-GAAP adjustments will grow by 8% to 12%, and our consolidated earnings per share after non-GAAP adjustments will increase by 15% to 20%.

I'll now turn the call over to John Haines, our CFO, who will provide some additional information on our financial performance.

Thank you, Scott, and good morning.

Our fully diluted earnings per share were $0.80 for the third quarter 2011, a record for any third quarter in the Company's history, and an increase of 54% compared to the 2010 third quarter fully diluted earnings per share of $0.52. As we note in the tables in the earnings release, there were non-GAAP adjustments for restructuring charges in the third quarter of 2011 and 2010 that impacted operating income and EPS that were not operational in nature. We believe presenting these matters in this way gives our investors a more accurate picture of the actual operational performance of the Company.

In the third quarter of 2011, the Company's EPS included $0.02 of restructuring charges. Therefore, the EPS after these non-GAAP adjustments was $0.82 versus the reported $0.80. In the third quarter of 2010, the same adjustment was worth $0.01 and our adjusted EPS after these non-GAAP adjustments was $0.53 versus the reported $0.52.

Third quarter 2011 sales were $224.4 million, an increase of 19% compared to 2010 third quarter sales of $188.4 million. Water system sales were $179.4 million in the third quarter 2011, an increase of $26.5 million or 17% versus the third quarter 2010. The Impo acquisition, completed in the second quarter of 2011, contributed $9.9 million or about 6% to sales. Excluding acquisitions, water system sales grew by 11%. Foreign currency translation rate changes increased sales $5.7 million or about 4% compared to sales in the third quarter of 2010. As Scott indicated, higher sales in the US and Canada, primarily from industrial and irrigation pumping systems, contributed to the sales growth in the quarter versus the third quarter of 2010.

Water systems operating income, after non-GAAP adjustments, was $29.6 million in the third quarter 2011, an increase of 30% versus the third quarter 2010. The third quarter operating income margin after non-GAAP adjustments was 16.5%, and increased by 170 basis points compared to the third quarter of 2010. This increased profitability was the result of operating leverage on increased sales and productivity improvements.

Fueling system sales were $45 million in the third quarter 2011, and increased $9.5 million or about 27% from the third quarter 2010. Excluding the PetroTechnik acquisition, third quarter sales were $38.4 million and grew by about 8% with most of the growth in the United States and Canada. Fueling systems operating income after non-GAAP adjustments was $9.6 million in the third quarter of 2011 compared to $6.6 million after non-GAAP adjustments in the third quarter 2010, an increase of 45%.

The third quarter operating income margin after non-GAAP adjustments was 21.3%, and increased by 270 basis points compared to the 18.6% of net sales in the third quarter 2010. The Company's consolidated gross profit was $73.7 million for the third quarter of 2011, an increase of $14.3 million or 24% from the third quarter of 2010 and a record for any third quarter in the Company's history.

The gross profit as a percentage of net sales increased to 32.9% for the third quarter of 2011 from 31.5% for the third quarter of 2010. The gross profit margin improvement was due to leveraging fixed costs on higher sales and productivity initiatives.

Selling, general, and administrative expenses were $44.8 million in the third quarter of 2011 compared to $39.6 million from the third quarter of 2010, an increase of $5.2 million or about 13%. In the third quarter 2011, increases in SG&A attributable to acquisitions were $2.6 million. Excluding acquisitions, SG&A expenses were $42.2 million in the third quarter of 2011, an increase of 6.5%. Additional increases in SG&A costs during the third quarter of 2011 resulted from increased costs from marketing and selling related expenses, increased research, development and engineering expenses and increased information technology related expenditures for acquisition integrations. As a percent of sales, SG&A expenses are 100 basis points lower in the third quarter of 2011 versus the third quarter of 2010.

The effective tax rate for the first nine months of 2011 was about 27%, which the Company believes is a reasonable estimate for the balance of the year. The projected tax rate will continue to be lower than the 2010 tax rate before discrete events of about 30% and the statutory rate of 35% primarily due to the indefinite reinvestment of foreign earnings and reduced taxes on foreign and repatriated earnings after the restructuring of certain foreign entities. The Company has the ability to indefinitely reinvest these foreign earnings based on the earnings and cash projections of its other operations, current cash on hand and available credit.

At the end of the third quarter 2011, the Company's cash balance was $128.1 million, which was $6 million higher than the end of the third quarter 2010. Since the end of 2010, the Company's cash position has declined by $12 million. Major uses of cash during the first nine months of 2011 included acquisition expenditures of $31.8 million, stock repurchases of $10.6 million and working capital increases of $21.3 million.

Impo, which was acquired in the second quarter, accounts for all of the increase in the Company's debt as of the end of the quarter. The Company had no outstanding balance on its revolving debt agreement at the end of the third quarter 2011 or at year end 2010.

Finally, on October 28th, 2011, the Board of Directors of the Company declared a quarterly cash dividend of $0.135 per share payable November 23rd, 2011 to shareholders of record on November 10th, 2011.

This concludes our prepared remarks. And we'd now like to open the call up for questions.

Thank you. (Operator Instructions) Our first question is from Joe Radigan of KeyBanc. Your line is open. Pardon me, Joe, please check to see if your line is on mute.

I'm sorry about that. This is Joe on for Matt. Maybe first, can I get your assessment of channel inventories currently? And then, looking forward, can you reconcile your expectations between distributors managing year-end inventories in this environment versus their incentive to meet their annual rebate targets versus maybe some pre-buy activity ahead of the price increase? How are you thinking about that for the fourth quarter?

As far as inventories go, in our major market in the US and Canada, we don't believe that there is -- been have any material increase in inventories over the course of the year and that inventories are well under control at the distributor level. In Europe, we believe at the distributor level and at the customer level, there may be modestly higher inventories than normal for this time of year coming out of the season. But I would say in most of our markets, we don't see channel inventory as a major issue. And I'll ask Robert Stone to comment on distributors reaching out for year-end rebate levels and targets, what have you.

Joe, this has been a pretty good year, at least in the Americas and especially US/Canada for most of our customers. And most of them are actually well on their way to hitting their purchase targets. So, for the balance of the year, we do not anticipate a lot of incentive to increase purchases prior to year end. I think the purchase pattern we will see will be more of a normal pattern and with a little buying to hit some rebate levels, but not dramatic.

I've been concerned, Joe, that it might even have the opposite effect. We've done -- our sales in the US and Canada especially, which is where we have most of our targeted rebates, our sales in this market have been very good this year. And I think many of our distributors are going to look at the fourth quarter and feel that they sort of have it in the bag. And their incentive, if anything, will be to defer purchases into January, because they know that we always ratchet the targets up based on the prior year's purchases. So, there is some concern in the back of our minds that some of our distributors, particularly the ones that have really benefited this year from the strength of our business, may actually defer some of their purchases.

On the other hand, we have a price increase coming into effect, which could have an impact on purchase patterns as well. Although we certainly don't have plans to do anything to cause people to unnecessarily buy up before the end of the year.

Okay. So when does that price increase go into effect? Is that January 1st or -- you said the first quarter. Is it January 1st or is it later than that?

Well, it will go into effect early in the year. But by the time it really becomes effective as we work through -- we wouldn't count on it being fully effective until mid-first quarter.

Okay.

And that's for our water system business in the US and Canada. We also have some price increases in fueling that would come into effect late first quarter.

Great.

And that's typical, Joe. That delay is very typical of an increase announcement.

At the end of the third quarter, can you describe the pricing activity? Did you see a lot of quarter-end discounting? Or has that tapered off and that gives you confidence that you're going to be able to get pricing earlier in the year? How has that competitive environment looked recently?

We have not seen any unusual competitive pricing activity. There's always promotions from time to time and that sort of thing. But, really, I would describe the pricing environment as normal and not concerning at this point.

Okay. And then, you've had organic growth in water now for I think it's 7 consecutive quarters. Can you talk a little bit about what the key components of that are, whether it be how much is distribution growth versus pricing versus new products versus share gains? I'm just trying to get a sense for how sustainable this trend is without having a recovery in housing.

Okay. First of all, we are really encouraged by the performance of our water business, especially given that for the most part what we're looking at is replacement sales. We have very little new housing activity. So we view that as upside. The organic growth that we've achieved, recall that 40% of our sales in water on a global basis in our water segment are in developing regions. And we've had, over the whole course of this, good, very good organic growth in the developing regions of the world, over that whole 7-quarter period. Certainly, we've had really good growth in Africa, the Middle East, Asia Pacific. Latin America has been very strong, including Brazil. So that's been very helpful.

And I would say another factor that has driven our growth has been share gains in the US and Canada. Now, we supply in the US and Canada really two segments, ground water pumping and residential light commercial water, waste water pumping. And on the ground water side, that product line is divided into two product categories, submersible motors and ground water pumps. And our share in the submersible motor business, as you know, is high. It's stable. It's been a bellwether for our company. But we're a relatively new player in the pump business in the US and Canada. And so our share of the pump business, there's still a lot of room for growth in share in US/Canada in pumps. And that's where a lot of our growth in the US and Canada has come from, is gaining share in pumps. And we think between water, waste water and ground water, we only have 15% to 20% of the pump market. And we think we can get a lot -- we deserve a lot more of it than that. And so I think that those share gains, particularly on the pump side of our business in the US and Canada, are certainly sustainable.

One thing that is I think a headwind for us going into 2012 will be the sales of our ag irrigation related products, in 2011 having been unusually strong because of the drought in the Southwest. We mentioned that our third quarter sales of those kind of products were up 30%. That's an extraordinary growth. And our second quarter sales were very good too. Now, that's going to start tapering off in the Northern Hemisphere. The irrigation season is starting to become behind us. But as we go into the second and third quarter next year, that's going to be a tough comp for us. So, to that extent, I think we'd be looking at a little bit of a headwind. But other than that, I don't see an awful lot that is not sustainable with respect to the factors that have been driving our growth.

A thing we pointed out on the call is on a year-to-date basis, FX has been about a 400 -- I know you mentioned organic growth, but FX has improved our overall sales growth rate this year by about 400 basis points. And as we're looking at it now and projecting forward, right now who knows what currencies are going to do, but our assumption is essentially flat. And so that improvement year-on-year as a result of FX is, at least in our forecasts, expected to diminish.

Great. Thanks very much, Scott.

Thank you. (Operator Instructions) Our next question is from Mike Halloran of Robert Baird. Your line is open.

I just want to start on the puts and takes on the water margin guidance for the next quarter. It seems kind of flattish year-over-year. I understand the timing and the price increases going in January-ish. And you pointed out a couple hundred basis points of pressure in this quarter. Obviously mixed with the irrigation products is going to be an issue or a pressure point on the margin in the next quarter as well. So could you talk about the positives and negatives that go in there?

I'd say that the major negative is exactly what you said. While we've seen some recent leveling of commodity cost increases, most of our purchases are of components made out of commodities. And so while the commodities have leveled off, the components that we've purchased, we're still getting some increases in those. Now, we're hopeful that we're going to be able to start turning those in the opposite direction. But the costs that are going to flow through our income statement in the fourth quarter are components that we bought in the second and third quarter. And so we have pretty good visibility on what kind of a pressure that's going to put on our margins as they come out of inventory and go into our products and go into cost of goods sold.

So we think that we're going to continue to see raw material costs as a percentage of sales increase. And we're not going to have -- our price increase doesn't go into effect until the first quarter. So that's going to be the major factor in causing why we are forecasting that our margins will be flat to prior year in water in the fourth quarter. It will be just that material costs have caught up with the price increases that we implemented earlier in the year. And the combination of productivity and operating leverage won't be enough in the fourth quarter to offset those increases.

Our fourth quarter mix, as you pointed out, is probably also not going to be quite as rich as our mix has been in the second and third quarter, because we do well on the ag irrigation kind of products that have been selling well. But I think the major issue is rising raw material costs and the price increases not coming along to restore our margins or the growth in our margins until first quarter.

Fair enough. And then, can I get some thoughts on the Europe demand environment? I know it's not a huge portion of your revenue base. But I wouldn't mind some thoughts on the organic decline there, what you view as sustainable on a go-forward basis. Obviously, it's going to be a choppy market given the macro concerns, but I'm just curious how you guys are looking at it.

I'll ask Gregg Sengstack, who runs our international and fueling businesses to comment on that.

Mike, you've characterized the situation well. As Scott pointed out, in the third quarter, there was some softness in the demand, both because of underlying economic issues and also some unusual weather patterns, which is why we said we think inventory is a little bit higher than normal for this time of the year in the channel. With that said, these markets have been, Southern European markets, Northern African markets, where we've had political or financial uncertainty have been uncertain for some time. So we don't see a compelling reason to see demand being further weakened from these levels.

We are going into the offseason. So it will be choppy through the end of the year and into the first quarter next year until we see the seasonality kick in. But overall, again, we're a very large replacement business. We're continuing to expand our distribution in Europe through the Middle East with the acquisition of Impo. So with those underlying, organic opportunities on the upside, we're continuing to see a favorable outlook for Europe. But as you pointed out, it's going to be choppy for a period of time.

Fair. And then, on the ag side, any read on how some of the markets on the ag side that are just starting to hit their peak season, see how some of those markets are starting to trend at this point?

Well, I will say that while I pointed out that in the Northern Hemisphere ag is going to be a headwind for us as we go in especially to the second and third quarter of 2012, just because we may be able to duplicate our sales, but you can't count on and we wouldn't wish a drought on anyone. But we can't count on weather patterns being the same. The opposite is true in the Southern Hemisphere. Both Southern Africa and Australia are traditionally strong ag markets for us. And they were unusually wet this year, probably for the same macro weather pattern that caused the drought conditions in the Southwest. And we believe as we go into 2012 that the ag business in the Southern Hemisphere has the potential to be a plus for us year-on-year, because the comparisons are relatively easy. I'd ask either Robert or Gregg if they have any other thoughts on that.

I think that's exactly right, Scott. And South America was a very mixed bag this year. We would expect overall, though, the season to be a slightly better if the weather pattern is normal in South America.

And what's the split of your business on the ag side between north and south?

It's larger in North America than it is in the Southern Hemisphere.

Okay, that makes sense. And then, last one for me, just some thoughts on the new product development side of things, and how the coal seam gas methane pump's progressing from a customer acceptance standpoint. I understand it's not going to be a meaningful part of your revenue base even potentially until late this year, next year or, sorry, late '12, if not '13. But I wouldn't mind hearing an update on the progress.

Okay. Mike is referring to a new product initiative, an important new product initiative that we have underway to develop a pumping system for extracting water from deep coal seams. And as the water is extracted, it releases the pressure in the seam and allows natural gas to flow to the surface in the annular space between the drop pipe and the well wall. And this is a technology for extracting natural gas, represents roughly 10% of the US natural gas supply. And there have been large coal seam gas deposits recently discovered and are starting to be exploited in Australia and also in Southern Africa, India, China as well. So it's a technology where we see a lot of investment in the oil and gas industry over the next 10 years as these coal seam gas deposits are extracted.

Up to now, the technology for getting the water out from very deep seams has been basically oil field pumping technology, which is very expensive relative to the equipment that we supply. And the development here involves retaining our cost structure, while providing a system that's capable of operating under these great pressure and environmental conditions that are down there in these deep coal seams. And so, we've worked on that, developed a system. We're in beta test with that system. We have planned to have 35 to 40 sites installed by early first quarter next year. We're on track to hit that. And we'd like to be in a position with experience in the well, down in the hole, sufficient experience to bring this product into the market in third quarter of next year.

So it's still in development, but it's early days with the systems that we have in place, we're quite encouraged. They've all been functioning very well. The customers that we're working with I think have been comfortable with what they've seen. They haven't been in the ground long enough at this point for us to declare victory. But we're encouraged by what we've seen.

Great. Well, I appreciate the time as always.

Thank you. Our next question is from Joe Radigan of KeyBanc. Your line is open. Pardon me, Joe, please check to see if your line is on mute.

Sorry about that. Just a couple of follow ups. In the release, you talked about a supply agreement, a long-term supply agreement that's expiring in the fourth quarter and isn't going to be renewed with a fueling equipment competitor. Can you talk a little bit about that, what drove that? Is there a new flammable proof UL-listed motor available? And could that be a larger competitive threat down the road? Or what exactly is going on there?

No, that was just referencing a supply agreement that was a multiyear agreement entered into in the late 90s that has been fulfilled. And there are a couple of competitors, ourselves and one other principally, that supply pumps to this market. And they've chosen to use a different motor to support their pump to compete in the marketplace.

Okay. And then, on the fueling side, has all the manufacturing for PetroTechnik been moved in house at this point? Or is there still -- I'm just trying to get a sense for the sustainability of the fueling margins that you put up in the quarter. Obviously, your incrementals are good. But is this kind of the run rate going forward? Can they improve even more as you continue to get operational efficiencies from PetroTechnik? Kind of talk about the margin profile of that business a little bit.

Sure, Joe. First off, PetroTechnik did not do its own manufacturing. It had the design, marketing and sales activity. But it purchased most of its products, almost all its products outside from third parties. So we have consolidated all the business end and we still have the opportunity to insource production where we see appropriate to improve margins and improve the competitiveness of that product line. As we talk about more broadly about the fueling business and opportunity for margin growth, keep in mind that our existing product lines also have very robust margin and margin growth opportunities because of the secular nature of the business. Our pumping systems, more people are moving to pressure style systems around the globe. There's still a large part of the market to convert.

In vapor management, which is a technical product based on software, typically a higher margin product. We continue to get good organic growth. It was a real leader for us internationally in the quarter. Vapor recovery, well established, stable in North America and the California and Texas markets. But outside of that, we're introducing a product line for the European mandate that we've discussed in the past that'll be coming in place by 2018. We continue to see, while it's been [nadir] here and China, we continue to see that the Chinese and Indians are going to be focused on vapor recovery over this decade. And as well as our pipe and containment with the acquisition of PetroTechnik we see some opportunities for system design improvements to make that product more robust and to improve the margins there. So I'm not going to give a margin forecast, but I will say that we have opportunities to continue to improve as we get operating leverage, get greater share and through better and improved designs.

Okay. Great. Thanks a lot, Gregg.

Thank you. There are no further questions at this time. I'll turn the call back over to Scott Trumbull for closing remarks.

Thank you for your interest in Franklin Electric. Goodbye.

Ladies and gentlemen, this concludes today's conference. You may now disconnect. Good day.