LL Flooring Holdings Inc (LL) 2008 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Lumber Liquidators first-quarter earnings conference call. With us today is Mr. Jeff Griffiths, CEO of Lumber Liquidators and Mr. Dan Terrell, CFO of Lumber Liquidators. As a reminder, ladies and gentlemen, this conference is being recorded and may not be reproduced in whole or in part without permission from the Company. I would now like to introduce Ms. Leigh Parrish of Financial Dynamics. Please go ahead.

Thank you. Good morning, everyone, and thanks for joining us today. Before we begin, let me take a moment to reference the Safe Harbor provisions of the United States securities laws for forward-looking statements.

This conference call may contain forward-looking statements that are subject to significant risks and uncertainties, including the future operational performance of Lumber Liquidators. Although Lumber Liquidators believes that the expectations reflected in its forward-looking statements are reasonable, it can give no assurance that such expectations or any of its forward-looking statements will prove to be correct. Important risk factors that could cause actual results to differ materially from those reflected in the forward-looking statements are included in Lumber Liquidators filings with the SEC. The information contained in the call is accurate only as of the date discussed. Investors should not assume that the statements will remain operative at a later time. Lastly, Lumber Liquidators undertakes no obligation to update any information discussed in this call. And now I would like to introduce Mr. Jeff Griffiths, President and CEO. Jeff?

Good morning, everyone. Thank you for joining us for Lumber Liquidators' first-quarter 2008 earnings call. With me on the call today is Dan Terrell, our CFO.

I would like to begin today with a review of some of the highlights of the first quarter 2008 performance. Dan will then review our financial results and our outlook for 2008. I will return to discuss our ongoing strategy and open the call to questions.

We are off to a very strong start in our first full year as a public company. As we entered 2008, one of our primary goals was to build on the solid momentum that we generated during the second half of last year, and we are very pleased to have been able to achieve this objective. We are continuing to realize benefits from our infrastructure investments and the improvements we have made to our operations by bringing discipline, expertise, and depth to our growing business. Further, our performance continues to be driven by our appealing value proposition of price, selection, quality and availability and our ability to leverage this into new markets.

Highlights of our performance in the first quarter include a 24.5% increase in year-over-year net sales, comparable store sales growth of 7%. Significant expansion in both gross margin and operating margin, and the near doubling in year-over-year net income.

On our fourth-quarter conference call, we discussed the important investments we made in our Company's infrastructure over the past two years as we laid the foundation for sustainable growth over the long term. As expected, we began to more fully realize the benefits from these investments in the first quarter of 2008.

The operating improvements we made across our organization are enabling us to have better store sites that are now based on analytics, an improved in-stock position, improved consistency in our pricing and enhanced presentation of our merchandise in our stores, more appropriate staffing levels in line with customer traffic and marketing that is more aligned with our target customers.

Overall, our ability to operate more efficiently helped drive our year-over-year improvement in gross margin. We maintained our enhanced product mix with an expanded selection of higher margin premium products, as well as increased discipline in retail pricing while we were also opportunistic in our purchases of inventory and took advantage of several liquidation deals during the quarter. We believe much of the gross margin improvement we generated in the first quarter is sustainable moving forward.

We were also pleased that we began to more fully leverage our infrastructure investments as we grew our store base and increased our top line. We expect that going forward, we will be able to continue to leverage the enhancements we have made to our operations as we implement our growth strategy and expand our footprint and build on our market leadership position. We are on track in our plan to open approximately 30 to 40 new stores in 2008. We opened nine new stores during the first quarter and have opened an additional six stores in April for a total of 15 so far in 2008. While a majority of the stores we have opened this year are located in new markets, on a long-term basis, we will continue to aim for a relatively balanced mix of openings in new and existing markets.

The initial results from the stores that we opened to date this year are ahead of our expectations. We owe this success in large part to the use of better analytics for our site selection, the hiring of more personnel to staff new stores, and more uniform and comprehensive preparation for each new store opening, all of which have had a positive impact on our new store performance. We continue to be able to ramp up our new stores very quickly and operate profitably in all of our individual locations within a short time frame.

We are very pleased that our efforts to position our business for sustainable growth have begun to yield dividends in the form of profitable expansion and solid operating results for the first quarter. Our performance is particularly gratifying given the difficult retail environment. We remain excited and optimistic about our future and expect that our customers continue to respond to our strong value proposition. We will be able to extend our positive momentum over the long term.

I will be back in a few moments to discuss our ongoing strategy, but first I will turn the call over to Dan to speak about our first-quarter results and our outlook for 2008. Dan?

Thank you, Jeff, and good morning to everyone. As Jeff mentioned, I'm going to provide you some additional detail on our results for the first quarter 2008 and then provide our outlook for the year.

Net sales for the three months ended March 31, 2008 grew to $114.5 million in the first quarter of 2008 from $92 million in last year's first quarter, an increase of 24.5%. Comparable store net sales increased 7% on top of an 8.5% increase in the first quarter of 2007. Our growth in comparable store net sales was primarily driven by increased volume, which we generally measure in square feet, and a slight increase in the average retail price per square foot sold. Consumer demand continues to be driven primarily by our expanded product assortment, particularly the premium products in each category and our commitment to a more consistent in-stock position, including moldings and accessories.

Also in the first quarter of 2008, net sales benefited from special liquidation deals through the sale of those products and the incremental traffic they generate due to related promotions.

As Jeff noted, we opened nine new stores during the first quarter of 2008, ending the quarter with 125 stores in 43 states. We have opened 32 new stores in the 12 months from March 31, 2007 to March 31, 2008. Overall, our new stores are outperforming our expectations and continued to contribute significantly to our top-line growth.

Gross margin increased to 35% from 33.2% in the prior-year period. Building on positive trends from the third and fourth quarters of last year, effective execution of initiatives in the areas of store operations, merchandising and logistics all helped us continue to expand gross margin in the first quarter of 2008 as we maintained our retail pricing discipline, expanded our selection of higher margin premium products and controlled our cost of goods sold. Our gross margin also benefited from our decision to take advantage of liquidation buys during the quarter at substantially lower average unit costs.

Selling, general and administrative expenses were $32.3 million or 28.2% of net sales for the first quarter of 2008 compared to $26.8 million or 29.1% of net sales for the first quarter of 2007. The decrease in SG&A as a percentage of net sales was due to our ability to leverage our expenses as we grew net sales. Our ability to leverage SG&A expense was primarily due to a reduction in advertising expenses as a percentage of net sales, the 9.9% in the first quarter of 2008 from 11.4% in the first quarter of 2007, as a result of a shift in timing of certain advertising programs compared to the first quarter of 2007, as well as our ability to leverage national advertising across a larger store base.

Partially offsetting this leverage, we saw SG&A increases in our labor and occupancy costs as a result of our growth in our store base, labor costs due to our store support infrastructure investment completed in the current quarter and certain other costs, including legal and professional fees.

Net interest in other income for the first quarter of 2008 was $213,000 versus net expense of $119,000 in the prior-year first quarter. Net income for the first quarter of 2008 nearly doubled to $4.3 million or $0.16 per diluted share based on approximately 26.8 million weighted average diluted shares outstanding. In the first quarter of 2007, net income was $2.2 million or $0.10 per diluted share based on approximately 23 million weighted average diluted shares outstanding.

Our net income in the first quarter of 2008 reflects a higher effective tax rate of 46.2% in the first quarter compared to 38.6% in the first quarter of 2007. As we outlined in our release, the effective tax rate increase is primarily due to $700,000 of additional income tax related to the nondeductible portion of the cumulative stock-based compensation costs from the previously disclosed Variable Plan. We currently expect that the effective tax rate for the full year of 2008 will be from 38.5% to 39.5%.

Turning now to our balance sheet, we have $32.6 million in total cash and cash equivalents at March 31, 2008 and remained free of long-term debt. Merchandise inventories totaled $95.9 million at the end of the first quarter, up from $72 million at December 31, 2007.

Three primary factors influenced this increase. The timing of certain international purchases, the slight seasonal impact anticipating second-quarter sales, and an increase in special liquidation deal inventory.

As some of you may know, we consider inventory available for sale where the products have been received and inspected at either our central distribution center or at a store location. Our inbound and transit or on-the-water inventory is primarily our international purchases and generally include our inventory from the day it is loaded onto the ocean vessel at the foreign port. Inbound and transit inventory was approximately $24 million at March 31, 2008, up from $12 million at December 31, 2007, primarily due to the timing of the merchandise scheduled for receipt in late April and early May.

Available for sale merchandise inventory was $72 million at March 31, 2008, up from $60 million at December 31, 2007 and $56 million at March 31, 2007. Merchandise inventories are increased from year end in anticipation of second-quarter sales, which has historically been our strongest quarter. However, relative to our store base, we have decreased merchandise inventories from the end of last year's first quarter due to more effective merchandise planning.

The increase in available for sale inventory is also a result of liquidation buys that both Jeff and I mentioned earlier. We believe that the increased availability of liquidation deals will continue in the near term and we anticipate continuing to evaluate appropriate buying opportunities in the future, where we can take advantage of our ability to purchase inventory at a lower cost. This may have an impact on our total merchandise inventory levels from time to time, but with that said, we expect that our merchandise inventories, and particularly available for sale inventory will continue to trend relative to our store base and anticipated demand.

Working capital was $81 million at quarter end with a current ratio of 2.45 times. This compares with working capital of $76.8 million at the end of the fourth quarter of 2007, and current ratio of 3.12 times.

Capital expenditures totaled approximately $1.6 million for the first quarter of 2008, and were used primarily for fixtures and leasehold improvements for new stores in our corporate office, upgrades to our Web site, and certain routine purchases of computer hardware and software.

Turning to our outlook for the year, we continue to expect to generate total sales for the year in the range of $475 million to $490 million with comparable store net sales growth in mid single digit range. We continue to anticipate earnings per diluted share in the range of $0.70 to $0.78.

We're moving forward on plan with regard to new store openings and continue to expect 30 to 40 new store locations this year. Finally, we continue to expect capital expenditures of approximately $5 million to $7 million in new stores, maintenance, and upgrades in 2008.

I'd now like to turn the call back over to Jeff for his closing remarks.

Thanks, Dan. As I mentioned earlier, we're very pleased with our performance for the first quarter. We're confident that given our enhanced infrastructure, solid foundation, and flexible business model, we are well positioned to grow the business over the long term. We maintain a firmly established leadership position as the largest specialty retailer of hardwood flooring in the U.S. in a highly fragmented market.

However, since we are a company with a relatively small store base, we continue to have a strong opportunity for expansion across the U.S. Further, we're able to leverage our highly adaptable and low-cost store model as well as our national advertising to quickly and successfully enter new markets.

In addition to opening new stores, we continue to grow our market share by broadening the accessibility of our products through our multiple sales channels, which include our catalog, Web site, and call center. We have increased the effectiveness of these channels by more closely aligning their offerings with those of our stores. As a result, we found that our customers are using these channels to educate themselves about our products, and that their increased knowledge is helping to drive higher sales.

As I mentioned earlier, we're very pleased with our growth to date this year, especially given the challenging economy. Our customers continue to be attracted to Lumber Liquidators' strong value proposition and the operational efficiencies we have achieved as a result of our investment in infrastructure that have enabled us to turn in strong results and grow the Company even in this current environment.

As we move forward into 2008, we will continue to implement our multi-pronged growth strategy, which improves includes growing our net sales, expanding our margins, leveraging our brand marketing across multiple channels, and expanding our low-risk, high return store base. We are pleased to have been able to execute all of the components of our growth strategy in the first quarter and look forward to doing so throughout the year.

I would like to close by reiterating some of the highlights of our business model that are contributing to our success. We continue to build on our position as the leading specialty retailer of hardwood flooring in a highly fragmented market. We have a great value proposition and a great low-risk, high-return store model. We have strong infrastructure in place and are realizing the benefits of the foundations that we have established for the business. All of this makes us confident in our ability to continue to grow and expand our market share. We would now like to answer any questions that you may have. Operator?

(OPERATOR INSTRUCTIONS). Matt Fassler, Goldman Sachs.

I would like to start out with one quick question about sales and demand, and that relates to traffic and ticket, if you could disaggregate comps into ticket size and transaction size, that would be helpful.

Average ticket in the quarter increased slightly over the prior year, which was -- we see that as a good sign, especially considering a large quantity of transactions we have in the liquidation products. And second of all, demand continues to be strong.

New orders are tracking about where we expected them to be. Growth in orders is similar to last year and the average number of days outstanding to fill orders continues to decline, which I think is an indication of our stronger inventory position.

Great. Next question, relates to gross margin sustainability. Clearly -- I guess some of the benefit, some of the increase this quarter related to special buys. You might have said how much. If you could kind of repeat that. And then, if you could just remind us on the seasonality of gross margin through the year, how Q2 tends to compare to the rest of the year, that would be great.

We did not specifically break out the impact of the deals, margin versus the overall margin. But the deals certainly did have a positive impact on the margin in the quarter. We do believe most of this is sustainable going forward. We still have a very strong level of inventory and deal product. There still is quite a bit of deal inventory available out there, so we think for the next few quarters it will be strong. But I would say maybe a 15 to 30 basis point.

You're saying that's what the benefit was?

Matt, we did some analysis on it and we put a disclosure in the 10-Q that we believe the sale of the products was approximately 35 basis points. And then, we know that the deals created promotional opportunities that drove incremental traffic. And we've estimated that that traffic that we were able to convert to our proprietary products was 15 to 30 basis points in addition.

Of revenue or of gross margin?

The gross margin benefit. So the maximum would be 65 basis points. The minimum may be 50 basis points, which would give us a sustainable margin of approximately 34.5 to 34.3.

Can you refresh our memory on the seasonality of gross margin? As you think about the promotional calendar, how does the second quarter tend to look relative to the rest of the year?

Historically the second quarter has been the lowest. We have a once a year event in late April, and that has a -- certainly does have an impact on the margin. If you look at, historically, the margin in the second quarter has been the lowest. And we did build that into the plan this year.

So if last year gross margin was down 70 basis points sequentially, would that be a good way to think about Q1 to Q2?

Fair.

Sorry?

Yes, that would be fair.

Got you. And just another quick one. You spoke about changing, Dan, the timing of advertising. Is that going to pop back into -- is that going to pop back into another quarter or is that essentially gone?

There is some timing of the programs relative to last year that we're making specific mention of. So we were a little bit under plan in the first quarter, and we did plan for some leverage of the national advertising. The planned quarterly spend was different in the first quarter of this year than it was the first quarter of last year. So it's not that a program is slipping. It's just that we plan to spend differently quarter in and quarter out.

Got you. Okay, guys. Thanks so much.

Mitch Kaiser, Piper Jaffray.

Thanks, guys. Good morning. In terms of the opportunity on the closeout side, would you view that as kind of stable recently or does it seem like availability is accelerating or how should we be categorizing that?

There's been a lot more product available than what we have historically seen. And we expect that to probably continue, maybe for at least another quarter, which we should be able to get benefit for that throughout this quarter that we are in now and maybe even into the third quarter. It's possible that we will continue beyond that, but we're not making any assumptions at this point that it will.

Okay. That's fair. And in terms of the types of products that you are getting, is it premium or is it more of the entry-level or how should we think about that? Is it pretty consistent across the board?

It's a pretty wide range. I would say the quality of the product that we're receiving is higher than what we have been accustomed to, which, again, certainly has helped drive the stronger margins. But it's been -- there's been entry-level product. There's been seconds, but there's, like I said, been more premium product than what we have historically seen.

Okay. And then I know you disclosed in the 10-K a potential partnership with a national installation contractor, Dan and Jeff. Could you just update us on kind of where you stand with that, if you may at this point?

It's a task that we've been running for a number of months. We started last year on a relatively small number of stores. I believe we're up to about 25 or 30 stores now. It's been going very well. And we will continue to cautiously expand it. And we've been very pleased with it so far.

Okay. At this point, the financial arrangement between the two, between you guys and them hasn't worked out or anything like that, I would assume?

It's immaterial. It's really (multiple speakers) our focus is primarily better service to the customer.

Okay. Good. And then lastly, just a number question. What tax -- or rather, not tax rate. What share count should we be estimating for the full year, if I may?

Mitch, we were at 27.5 million or so. You saw that we were at 26.8 in the first quarter. We don't have a history of stock option exercises, so we need to build some estimates in as to what options will get exercised in the weighted average calculation. But 27.5 is probably a pretty good measure to use for the full year.

Okay, fair enough. Thanks, guys. Good luck.

John Baugh, Stifel Nicolaus.

Congratulations on a great quarter. A couple of things. Can you explain -- I would assume to some degree consumers are trading down in this environment, yet I believe you have offered in general a higher mix of product at least mix associated with gross margin like your accessories and moldings. Can you kind of explain what's -- who's winning that battle between those two forces if you would?

I think there are a couple different ways to look at that. Just externally within the product offering that we have as a Company and then comparing us to our competition. First, looking at us within the Company, because we have made a significant effort to improve our in-stock position on all of our regular goods, and we've also expanded our assortments in each category by adding more high-end premium products in each category, we've been able to move up our sales within each category away from more of the entry-level products to a better balance of the higher margin products.

At the same time, because we've made significant improvements in our in-stock position in moldings and accessories, and we have increased the level of staffing in the stores, particularly during high traffic times, we've been able to spend more time with the customer and get more add-on sales with those high margin products.

When you compare us with our competition, we are -- what we've strived to do is in our -- we've always striven to be a price leader. So that our retails, average retails, particularly on the higher-end products are significantly lower than what our competitors are offering similar products for. So when customers comparison shop, they trade themselves down from our competitor to us, but still end up buying the more premium products for us. So it's a combination of all those factors that have helped drive those results.

Great, thank you. Advertising, where would you expect that to come in for this year as a percentage of revenues, if can ballpark it or range it?

John, we have said before we look for annual leverage and we indicated that that is somewhere around 30 to 40 basis points.

Great. And in terms of the special buys that you are getting, is there a large percentage of that that is happening in the international arena? And would that partly explain the increase in in-transit?

No, most of the special buys are domestic sources. The increase in in-transit is primarily driven by our specific goal of trying to improve our in-stock position in two categories, one being the handscrape, which has grown significantly over the past year, both solids and engineered. And we have had -- it's been a challenge for us to keep our inventory levels at the appropriate level, so we have been playing catch-up in that category for quite a while. We have found some additional sources over the last few months. And we had some pretty significant increases in orders to try to meet sales demand in a better way.

We also have been, for really the past year and a half, we have been looking for additional sources of Bellawood product, particularly the exotics from Latin America; because historically, it's been a challenge for us to keep consistent in-stock levels in a number of those species. So as we found some additional suppliers that were getting comfortable that they can meet our high level of quality standards, we have increased some orders in those too. So it's really more driven by those two categories.

Okay. And last question on Floor Trader and their logo, are you doing anything legally at this point are you just telling them to cease and desist and be nice or is there something more formal going on there?

This is Livy Haskell. I'm the General Counsel for the Company. And generally we have a policy we're not going to comment on our investigations into matters such as that. I will say that we are aware of Floor Trader.

Okay, so there's no -- I did not read the 10-Q cover to cover yet. There's nothing in there on that subject?

No, there's not.

Okay. Thank you very much. Good luck.

Hardy Bowen, Arnhold & Bleichroeder.

Jeff, the retail pricing, which I guess we've been surveying, are there any thoughts as to just generally what we should be doing there?

Retail pricing (multiple speakers)?

As to the big discount that we have in the upper line product from home Depot and whoever and smaller discounts in some of the others. Are we adjusting these or not adjusting them or --?

Sure. We are a price leader. We're committed to being competitive, being lowest priced. That's what really has -- one of the things that has driven the successful growth of this business. We are constantly shopping our competition to make sure that our pricing remains in that range. And we're committed in more competitive products, lower-end products, the difference in price is going to be more narrow than it is in the high-end premium products. And that remains today.

And the cost of product coming from overseas is -- do we expect this to be relatively stable because we are buying more product and that's offsetting whatever currency situations there are? Or do we expect that to start going up or going down in the future?

We're certainly feeling some of the pricing pressures related to the currency and related to the fuel cost increases. But the volume going up and some of the logistics initiatives we've implemented are helping to offset some of those cost increases. But we do feel the pinch from the currency, not directly. Again, we -- our purchase orders are denominated in the dollar. Again, these are generally longer-term relationships we have with the vendors and we buy a significant amount of their output.

And I guess we have been thinking about consolidating more product in China. Have we begun to do that or where is that -- our thinking?

We're in the process of interviewing some third-party companies to assist us with that. We should start to see something later this year.

Okay. Thanks.

(OPERATOR INSTRUCTIONS). Mike Mork, Mork Capital Management.

Two questions. As to consumer, what type of value proposition do you offer? If it was a comparable piece of hardwood project that maybe cost $3000 at one of your competitors, how much less does it cost at your place?

It varies from product to product. We believe that we are anywhere from a few cents to 30% to 40% lower, but it really depends on the product.

Okay, but on the average it might be 10% to 15% -- something like that?

I don't break it out by average really.

Okay. And then on your tax rate, you said in the first quarter it was 46.2% compared to 38.6% last year. And for the full year you expect to be 38.6%. Are you going to spread this lower tax rate over the remaining three quarters or will you -- how is that going to work?

We're going to anticipate a range for the whole year of 38.5% to 39.5%. And there is an opportunity to reclaim some of that income tax expense that we recognized in the first quarter, should there be option exercises during the year. We've made some estimates, prudent estimates of what those options may be. And given our going forward effective rate, that's where we've come up with the 38.5% to 39.5% for the full year.

Okay. Very good, and great quarter.

Maurice [Dion], [Jannell] Management.

All of my questions on the cost of merchandise and the impact of the dollar I think were answered. I would just ask you, I'm curious what kind of cost pressures you are seeing on the advertising side across media this year?

Maurice, nothing significant. I know some planning of our advertising spend a little bit better this year than we have historically allowed us to get some quantity breaks in the raw materials, but nothing significant on a pricing pressure upward.

So despite the fact of being an election year, you are not seeing any price increases yet. Do you think that may happen as you get closer to the fall?

Well, we planned the spend this year in advertising -- understanding it's an election year. And that will be built into the budget in the estimates that we've given.

Thank you, guys.

Brian [Zacharia], [J.A.M.] Partners.

I just have a question kind of on the heels of lower discretionary incomes and falling home prices and anecdotal evidence that HELOC draws are being stopped by Washington Mutual and Countrywide. What kind of economic trends would have to occur that would kind of put your guidance at risk?

I think a couple of things to keep in mind. If you look at the -- we have a relatively small store base. It's 131 stores spread out over 30 states. So we don't have -- we are not -- it's not like we have maximized our exposure in any one market. We have a relatively young store based, so the vast majority of the stores are still immature, and we have a great value proposition. So we think that to your first point, consumer discretionary spending is going to decline, people are going to start to look more for values. And we think that it's a great way to save money. Our average ticket is relatively low, $1700, $1800, so it's not like someone is taking out a home equity loan to do a floor in their house.

So we feel like that yes, we're being somewhat impacted today, but that the operational improvements that we've made have offset that. And we think that these incremental improvements are going to continue. And that the fact that we've been able to be opportunistic and take advantage of a lot of these great liquidation deals that are out there, that we've been able to offset that. We haven't really seen any weakness. Our open orders remain strong. New stores continue to exceed our expectations. So again, we feel like that it's all moving in the right direction for us.

So kind of some of the commentary that maybe a 20% further drop in home prices, further contraction of credit, none of that you think would materially impact your guidance for at least 2008?

Yes, Brian, we set the guidance with kind of a prudent estimate of no improvement, if not some weakening based on where we were when it was crafted. There isn't a magic metric that we can point to that says when this turns higher, our results will get better, or if it gets worse, our results will weaken as well. But we try to take a very prudent approach to our 2008 guidance.

Okay, and you are not seeing, I guess, just on a store kind of level, you have like I guess 17% of your stores are in California and Florida in kind of some hard-hit areas from a housing perspective. And you are not --

Our sales are spread. We actually don't get 10% of our sales from any given state, so even California and Florida don't represent individually more than 10% of our sales.

Right, and you are not seeing any of those kind of macro trends playing out on a state level?

We don't really disclose a lot of the regional impacts, but we're certainly not immune to the same macro environment that other people are operating in. So we are not fully penetrated in a lot of individual markets in Florida or California, but certainly we are experiencing what other retailers are in those areas, just possibly not as dramatic as they are.

Okay great. Thanks a lot.

(OPERATOR INSTRUCTIONS). At this time there are no further questions. I will turn the conference back to management for closing remarks. Please go ahead.

Thank you for joining us on today's call and for your interest in Lumber Liquidators. We look growth to speaking with you again soon.

Ladies and gentlemen, this concludes the Lumber Liquidators first-quarter 2008 earnings conference call. We would like to thank you for your participation. Have a pleasant day. You may now disconnect.