LL Flooring Holdings Inc (LL) 2022 Q1 法說會逐字稿

Hello, everyone. Welcome to the LL Flooring First Quarter 2022 Results Call. My name is Charlie, and I'll be coordinating the call today. (Operator Instructions)

And I'll hand over to your host, Julie MacMedan Vice President of Investor Relations to begin. Please go ahead.

Thank you, operator. Good morning everyone. And thank you for joining us today. I am joined by Charles Tyson, our President and Chief Executive Officer; and Nancy Walsh, our Chief Financial Officer.

As we begin, let me reference the safe harbor Provisions of the US 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 operating and financial performance of LL Flooring. Although LL Flooring believes that the expectations reflected and it's 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 LL Flooring's filings with the SEC.

During today's conference call, management will be discussing results on an adjusted basis, a reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures. And our explanation of why the non-GAAP financial measures may be useful are discussed in today's earnings release. The information contained in this call is accurate only as of the date discussed. Investors should not assume that the statements will remain operative after today and LL Flooring, undertakes no obligation to update any information discussed in this call.

Now I am pleased to introduce President and CEO, Charles Tyson, Charles.

Thank you, Julie. Good morning, everyone. On today's call, I will cover our first quarter performance, review progress on our 6 core growth strategies fueling our 3 year growth goal and our outlook for 2022.

First, I would like to start by thanking all of our associates for their ongoing hard work, serving our customers, improving our inventory levels and opening new stores, as we continue to navigate a volatile macroeconomic environment. During the first quarter, our teams continue to execute as we gained traction on our 6 core growth strategies, supporting our goals to deliver $1.5 billion of net sales with expanded operating margins by 2024. We were particularly pleased to deliver record double digit sales to pro customers and to have opened 7 new stores. Our first quarter financial results were in line with our expectations. Even though comparable store sales were down 3.6%, we achieved sequential improvement from down 6.7% last quarter and we delivered a 3.3% increase on a 2 year stack basis.

We faced macroeconomic headwinds from inflation and a shift in consumer spending to travel and leisure this year, compared to stimulus and nesting spending in the first quarter of 2021. Also in January, we experienced significant store closures related to the COVID-19 variant, including 3 Sundays when all our stores were closed nationwide. Thanks to the efforts of our supply chain and sourcing teams, during the first quarter, we increased total inventories by $64 million compared to December 31st, 2021. While much of that remained in transit throughout the quarter, it will benefit us going forward.

First quarter adjusted operating income of $4.8 million or 1.7% of net sales was also in line with our expectations and reflects continued chain cost pressures on gross margin, as well as the investments we're making to support our 3 year growth. Our balance sheet is strong and we have total liquidity of $231 million. In April. We commenced our share repurchase program and through April 29th, we've repurchased $1.5 million under that program, underscoring our confidence in our long term growth and profitability.

Turning now to progress on our 6 core growth strategies that will position LL Flooring for long term success. Our goal is to transform LL Flooring into the leading destination for hard surface flooring. We strongly believe we offer a compelling value proposition to customers with selection, expertise and service of a local store combined with the scale, convenience and value of a national chain. Now I want to share more details about the 6 core growth strategies we are investing in that will position us to achieve our long-term vision: accelerating new store openings, growing sales to pros, broadening awareness of the LL Flooring brand, improving the customer experience to deliver on the brand promise, innovating new products and driving our people and culture initiatives.

First accelerate new store openings. Opening new stores is an important strategy that will help us both increase convenience and build awareness of the LL flooring brand. We're on track to open 20 to 25 new stores in 2022, all in our standard format, which is a 1500 square foot showroom and attached 5,000 to 6,000 square foot warehouse with deep in-stock inventory, readily available for our customers. During the first quarter, consistent with our plan, we successfully opened 7 new stores across the South, Northeast and Midwest.

Second, grow sales to pro customers. Sales to pro customers are a key component of our long-term growth strategy. And we see a large opportunity ahead. During the first quarter, we posted another record quarter of pro sales with double digit growth versus the first quarter of 2021. Our pro relationship program continues to drive greater pro customer retention and higher sales per pro customer. Our strategy is to build and strengthen relationships with pros through a team comprised of local store talent and dedicated outside pro account reps in the major markets we serve, as well as our inside sales team. Pros really appreciate the dedicated expert service that our team provides and view us as a trusted resource that the makes their jobs easier. Through this program, which we call TSR for drive trial, build scale and earn retention, we have successfully increased the number of scale pros who spend more with us annually and we are retaining more of them. The TSR program is a key driver to our record growth sales to pros and we continue to make investments in this team.

Pros also value our dedicated everyday pro pricing and our pro website that makes it easier for them to do business with us. And they value our in-stock selection of trend rights flaws in their local store. Our store managers assisting customizing the local assortment to stock the floors our pros request. Once the pro places their order, we provide the additional service of storing materials at no charge until the pro is ready to complete their purchase. We also do not charge customers restocking fees. We continue to build awareness with pros. We've developed a pro digital marketing strategy that allows us to deliver personalized messaging based on the pros behaviors and where they are in their journey with us. We are able to tailor messages by segment, by market or by pro, delivering value to the pro by communicating with them based on their needs. We look forward to growing ourselves with pros through continued execution of our TSR relationship program, everyday low pricing, website assortment and personalized marketing strategies.

Moving to our third strategic growth driver, broaden awareness of the LL Flooring brand. We continue to progress on our long term journey to build brand awareness and equity and establish LL Flooring as the leading destination for hard surface flooring. Our research shows increased customer perception of style, quality, and category leadership for the LL Flooring brand versus Lum liquidators. And we are excited about the new LL Flooring brand as a catalyst for growth. One way we're building awareness of our new brand is through the store rebranding and new store openings.

Our rebranded showrooms highlight the quality and variety of our assortment as well as support a more curated and guided shopping experience for our customers with signage, featuring lifestyle photographs, so customers can envision our flooring in their homes and QR codes that customers can click through to our website to learn more about our products. We continue to evolve our marketing strategies and capabilities to increase relevance with our customers. That evolution includes a more targeted approach in our creative and segmentation, leveraging new content that is tailor made for specific media channels and delivers more impactful messages to audiences at different stages of their journey.

The fourth strategic growth driver is improving the customer experience to deliver on the brand promise. Shopping for flooring is a big purchase that requires careful consideration. Our goal is to be position LL Flooring as the go to expert in flooring through a comprehensive omni-channel experience, spanning our website, customer contact center, stores and for installation customers in the home. There are 3 key elements of our customer experience strategy, the digital omni-channel experience, the end store experience and the installation experience. Starting with the digital omni-channel experience, we are continuously improving our llflooring.com digital experience for customers. Integral to our digital strategy is providing online tools like pictures, as well as inspirational and educational content to guide customers on their journey to select the perfect floor.

We're also proud to help customers shop for floors from the comfort of their own home. We are one of the only retailers that offers flooring samples completely free without even a delivery charge. Another important component of guiding our customers through the flooring journey digitally is our customer contact center. We've expanded the number of sales agents with flooring expertise in our contact center. These agents guide customers throughout the flooring journey and help drive sales conversions. In summary, we provide multiple personal touchpoints, including virtual guidance to better educate customers, so they are ready to make this important purchase decision for their homes. While a majority of customers start the flooring journey online, most complete their purchase in one of our 431 stores across the country.

Our stores offer a welcoming environment where customers are immediately greeted by one of our personal flooring experts who can help them select the floors they love. We believe a key competitive advantage is the high touch service and expertise we provide in our stores and we continue to invest in our associates with competitive wages and benefits, extensive training programs and numerous career opportunities.

During the first quarter, we launched a new training program for associates called 'GREAT', which stands for Greet, Relate, Explore, and excite, Ask and answer and Tailor next steps. Through the great sales methodology, our associates will further develop their consultive and sales skills necessary to become a trusted advisor to our customers. We are really excited to roll out this program across our sales organization to reinforce our leadership position in providing expert service to our customers. Because the customer experience is so important to us, we have developed a customer feedback mechanism that provides us with daily customer feedback to help us improve our customer experience journey.

Next, the installation experience, we're pleased to offer an end-to-end solution to our customers from inspiration to installation. During the first quarter net service sales comprised of installation and delivery services increased 4.1%. We got off to a slow start in January due to the impact of COVID-19, but we were able to complete more installation projects, as the quarter progressed. We continue to focus on providing a superior installation experience by using technology and training to make the installation process as seamless, fast and easiest possible, for customers, associates and contractors alike.

The fifth growth strategy is innovating new products and delivering them at a compelling value for our customers. Our merchant and sourcing teams are proactively identifying trends and driving innovation to create exclusive product offerings and then partnering with the best sourcing providers around the globe to deliver our vision. We believe a key competitive advantage for us is our direct sourcing model. We partner with more than 85 manufacturers across 22 countries to deliver on trend private label products. Our direct sourcing strategy drives better innovation, lower costs, and heightened agility in adapting to global supply disruptions due to COVID or other factors.

We have continued to reduce our sourcing from China, as we broaden our supplier base from other parts of the globe. In the first quarter, we sourced only 16% of products from China down from 23% at the end of 2021, and down from 48% at the end of 2018, the year that tariff was first imposed. By going factory direct, we're able to achieve cost efficiencies that we pass on to our customers. For pros, we offer everyday low prices and for homeowners, we offer great values with the opportunities to capitalize on special promotions throughout the year. We also offer a best price guarantee for customers. Within our assortment of 500 plus choices, we uniquely stock each store based on local demand, which gives us the best opportunity to meet customer's needs at the local level.

For example, in our Connecticut markets, just under 50% of sales in 2021 were hardwoods, such as our bestselling Bellawood brand. While in Tampa, Florida, roughly 80% of sales were manufactured and performance flooring, including our new Duravana brand. And because we have a warehouse attached to our showrooms, our stores can easily stock what our pro customers and homeowner want, giving us an advantage over smaller, independent retailers. In short, we believe we have a strong, competitive advantage with our direct sorting, merchandising, assortment and stocking strategies that enables us to deliver quality on trend hard surface flooring in a customer assortment for customers at each local market.

Now I would like to speak about our sixth strategy, driving our people and culture initiatives. Our people are critical to achieving our goal to become the customer's first choice in hard surface flooring. In today's competitive market for talent, we feel good about our positioning as an employer of choice. We are building a culture that differentiates us and not only makes us an attractive place to work and build a career, but also drives our success. We believe engaged associates aligned with our values are critical to meeting our strategic growth objectives and delivering outstanding service to our customers.

During the first quarter, we completed our second annual employee cultural survey. We are pleased to report that we experience greater levels of participation with strong results and improvement year over year, reflecting both our commitment to our associates, as well as their increased engagement and enthusiasm, as LL Flooring employees. We continue to emphasize internal promotions and career pathing, extensive training and a culture that embraces diversity, equity and inclusion to strengthen our position as an employer of choice, as we look to attract and retain top talent.

In summary, we are excited about our 6 strategic growth drivers: accelerating new store openings, growing sales to pros, broadening awareness of the LL Flooring brand, improving the customer experience, the deliver the on brand promise, innovating new products and driving our people and culture initiatives will position us for accelerated top line and profitability growth over the next 3 years.

Turning now to our 2022 outlook. On our last conference call, we shared our outlook for 2022 to be a tale of 2 halves. With a challenging first half turning to growth in second half and positive growth for the full year. While we see more volatility in the macroeconomic environment at this time, our 2022 outlook remains unchanged. That said, we continue to monitor global and domestic inflation and the impact from rising interest rates on discretionary consumer spending, as well as the impact from supply chain disruptions due to COVID-19 shutdowns in China. Inflation hits 40-year highs in February and March and has been further exacerbated by the conflict in Ukraine.

We have also seen a shift in spending to travel leisure after 2 years of pent-up demand. Housing factors are mixed while existing in new home sales have slowed due to availability and affordability. We feel good about the remodel business based on the increase in home equity value and homeowners desire to improve their homes as they adapt their lifestyles to a hybrid work environment. With respect to the supply chain, we're monitoring the impact of COVID related shutdowns in China on our ability to secure inventory from that region, as well as increased material costs in Europe and our ability to mitigate these higher costs through continued pricing, promotion and sourcing strategies.

As previously stated, we've reduced our sourcing from China to just 16%. While we continue to monitor the economic trends impacting our business, based on what we know today, we still expect to deliver positive same store sales growth in 2022. The key reason for our confidence is that we remain on track to return inventories and our stores and distribution centers to optimal levels by the end of the second quarter. And as we have demonstrated over the past 2 years, we can be agile and navigate challenging macro environment while remaining laser focused on delivering our value proposition to our customers.

Our balance sheet and liquidity is strong and we're well positioned to achieve our outlook for 2022, as well as our growth objectives over the next 3 years. As a reminder, our goal is to achieve net revenue of $1.5 billion by 2024, representing a 9% CAGR from 2021 to 2024, combined with expanded operating margin. We are excited about the growth opportunities ahead and our ability to vision LL flooring as the leading destination for hard surface flooring. In closing in the first quarter, we gained traction on our 6 core growth strategies, including delivering record pro sales and opening 7 new stores and we are on course to deliver our goal to achieve $1.5 billion in net sales with expanded operating margin by 2024.

Our first quarter financial results were in line with the expectations we communicated on our year end call. We are successfully rebuilding inventories to optimal levels by the end of second quarter supporting our future growth. Our balance sheet is strong with no debt and strong liquidity positioning us well to achieve our outlook for 2022 and to execute our vision to position LL flooring as a leading destination for hard surface flooring, I look forward to reporting on our progress next quarter. I will now turn the call over to Nancy to share our financial details and outlook. Nancy?

Thanks, Charles. And Good morning everyone. Before I begin, I'd like to make sure everyone knows that I will be discussing non-GAAP adjusted numbers today, which eliminate certain items that are not indicative of our core business results. Please refer to our first quarter results press release for more details.

Turning to the first quarter results. During the first quarter, our associates did a tremendous job delivering results in line with our expectations in the face of significant macro challenges. Net sales of $279 million decreased $4.4 million or 1.6% versus the first quarter of 2021. This was due to a 2.3% decrease in net merchandise sales, that was partially offset by a 4.1% increase in net service sales. We saw a 19.8% increase in our average ticket, reflecting a greater mix of net services sales, which grew to 13% of net sales from 12% in the first quarter of 2021, as well as a higher merchandise average ticket. The higher merchandise average ticket was driven by pricing and promotion strategies as well as favorable product mix, which primarily reflected a greater mix of hardwood flooring and the launch of our new Duravana performance flooring brand. We saw a 23.3% decrease in transaction count compared to the same period in 2021, largely reflecting the decrease in sales to homeowners. First quarter 2022 comparable store sales decreased 3.6% versus the first quarter of 2021 but increased 3.3% on a 2 year stack basis.

Turning now to gross profit. Adjusted gross profit with $103.8 million in the first quarter of 2022, compared to $109 million in the first quarter of 2021. Adjusted gross margin was 37.2% for the first quarter of 2022, compared to 38.5% for the first quarter of 2021. The 130 basis point decrease in the first quarter 2022 adjusted margin versus 2021, primarily reflects significantly higher transportation and material costs, which were collectively up more than a thousand basis points that we were able to partially mitigate through pricing promotion and alternative country and vendor sourcing strategies. Nonetheless, our factory direct sourcing model and new product innovation are key competitive advantages as evidenced by the 200 basis point improvement in adjusted gross margin rate compared to 2019. While we continue to navigate higher supply chain costs in the near term, we are encouraged about our ability to expand gross margin rate over the long term.

Adjusted SG&A expense for the first quarter of 2022 was $99 million compared to $94.7 million in 2021. As a percent of net sales, adjusted SG&A for the first quarter of 2022 was 35.5%, an increase of 210 basis points for the first quarter of 2021 due to increased investment in our growth strategies, including new stores and pros initiatives, as well as continued investment in customer facing and distribution center personnel. Even as we increase our investment in growth initiatives, we continue to maintain disciplined expense management.

Adjusted operating income in the first quarter of 2022 was $4.8 million compared to $14.4 million for the prior year period due primarily to lower net sales, increased gross margin headwinds and higher SG&A spend to support our growth initiatives.

Adjusted operating margin for the first quarter of 2022 was 1.7%, a decrease of 340 basis points from 5.1% in the first quarter of 2021.

In the first quarter of 2022, we reported adjusted other expense of $69,000 compared to adjusted other expense of $1.1 million for the 3 months ended March 31st, 2021. The decrease was driven by lower interest expense as a result of the repayment of all outstanding debt during the second quarter of 2021. In the first quarter of 2022, we recognized income tax expense of $1 million dollars or an effective rate of 20.4%. This compared to income tax expense of $3.3 million or an effective tax rate of 23.4% for the first quarter of 2021, the lower effective tax rate in 2022 was due to the greater impact of permanent items on lower pre-tax income this year.

Adjusted earnings for the first quarter of 2022 of $3.8 million decreased by $6.4 million compared to the first quarter of 2021.

Adjusted earnings per diluted share of 13 cents compared to adjusted earnings of 34 cents for the first quarter of 2021, primarily due to lower adjusted operating income.

Turning now to the balance sheet. Inventory at the end of the first quarter was $319 million compared to $254 million at December 31st, 2021 and $225 million at the end of March, 2021. We were pleased to report that total inventory improved $64 million and available inventory per store increased $151,000 as of March 31st, 2022 versus December 31st, 2021. That said, well, total inventory improved, many of the shipments arrived late in the quarter, and we continue to experience inventory constraints at the store level and in some of the most popular SKUs during the first quarter. Encouragingly, we expect to return to optimal levels by the end of the second quarter of this year, as we bring in transit inventories into our stores and distribution centers.

As Charles noted, we are monitoring the potential impact on the supply chain from COVID-19 lockdowns in China and ripple effects in Europe, from the Ukraine conflict. Our balance sheet and liquidity remains strong. As a reminder, we repaid the entire $101 million outstanding debt during the second quarter of 2021. As of March 31st, 2022, we had $231 million of liquidity comprised of $56 million of cash and cash equivalent and $175 million of excess availability under the credit agreement. Net cash used in operating activities was $23.4 million for the first quarter of 2022, primarily driven by rebuilding inventories, partially offset by increased accounts payable and net income.

Turning now to 2022, we continue to navigate uncertainty in the macroeconomic environment related to inflation, consumer spending, global supply chain disruptions, COVID-19 and a challenging labor market. As a result, we are not providing financial guidance today. What I can share is that while new macroeconomic risks have emerged with the Russia-Ukraine conflict, and COVID-19 lockdowns in China, we are reaffirming our business outlook for 2022 that we reported on February 23rd. Our full year outlook assumes the macroeconomic headwinds will lessen as we enter the second half of 2022. We still expect to deliver positive net sales growth and comparable store sales growth for the full year as we gain traction on our initiatives.

Our outlook assumes that we will meet our hiring objectives in a continued tight labor market and we will continue to monitor the impact of inflation on consumer purchasing trends. During the second quarter, we continue to battle macroeconomic headwinds, but we still expect comparable store sales to improve on a percentage basis versus the first quarter of 2022, the biggest uncertainty in our 2022 plan remains gross margin. We are currently anticipating both transportation and material costs to increase in 2022. In addition, our plan assumes we are able to continue to use pricing, promotion and sourcing strategies to offset higher costs, and they remain significant uncertainty around the impact of inflation on consumer spending and our ability to pass on sufficient pricing to cover increased costs.

Turning to SG&A 2022 will be a year of investment to drive long term growth. These investments will support our goal of $1.5 billion in net revenue, coupled with expanded operating margin by 2024. We are focused on increasing investment behind our growth initiatives, including opening 20 to 25 new stores expanding our pro sales teams, investing more in our customer-facing organizations and investing in technology and digital enhancements to improve the customer experience. As a result of these investments, we expect SG&A as a percentage of sales to increase in 2022 compared to 2021. That said we are planning for sequential improvement in operating profit from 2022 to 2023 and from 2023 to 2024, as we generate increasing returns on our investments.

From a capital allocation perspective, we anticipate investing $50 million to $70 million in inventory in 2022. We also plan to invest in CapEx in the range of $28 million to $32 million in 2022, to support our growth strategies, such as new store openings and to complete our store rebranding as well as to increase operational efficiency. As a result, we expect to report negative free cashflow in 2022 with excess cash generation expected in 2023 and 2024. Our balance sheet and liquidity are strong and we have the financial flexibility to rebuild inventory, invest in our organic growth strategies and return value to shareholders through our share repurchase program.

In summary, we delivered first quarter results in line with our expectations. While we continue to navigate a challenging environment, we feel good about our full year 2022 outlook. We expect the increased investment in our growth strategies to drive top line growth in the second half and to support our 3 year growth goals.

Thank you all for your time this morning. With that, I'll ask to moderator to open the call for questions.

(Operator Instructions) First question comes from Laura Champine of Loop Capital.

So I saw in your 10Q that your average price per unit is up 10%, but what's going on with mix versus pure pricing.

So the average ticket went up 19.8%, and that's driven both by the net service sales, as well as the higher merch average ticket. And that as you mentioned, is a combination of the pricing and promo and the product mix and the product mix is mostly driven by a greater hardwood flooring and then the launch of our Duravana, which both, you know, have higher margins for us. So that's primary factors.

Okay. So it sounds like mix is actually up. So if I look at kind of the same unit, the same unit, what, what kind of price increase are you pushing through and how much of your cost increase are you able to recapture at this point?

Laura, we're not sharing specifics on that, but certainly the increased costs that we're seeing from both transportation, as well as material costs, we are partially offsetting that through pricing and promotion. So we are seeing the, as you called that of the costs go up as well, the retail price go up as well.

(Operator Instructions) Our next question comes from Seth Basham of Wedbush Securities.

First, just to follow up on that line of questioning from Laura, just thinking about your ability to pass through your higher cost in the price. What are you seeing in the marketplace right now? Your gross margins seem to be a little bit lighter than expected this quarter. Do you expect to monetarily recover the additional cost increases you're experiencing through the balance of the year?

Yes, that's, that's really a 2-part question. I'll cover the short term, which is, you know, we've seen what we believe is rational pricing in the marketplace and we have adjusted our retail pricing as we have needed to, based on the inflationary pressure that is coming through. And as we talked about in terms of mix, you know, we have not seen any elements yet of a trading down from customers, out of the premium products, particularly in the, in the new Duravana line and the solid wood program, we're very pleased with that Bellawood premium product. So the customers from a mixed perspective, to date are absorbing those prices. When you ask about the future, I think that the biggest question there is going to be, what impact does maybe external factors like interest rates have on potential discretionary spending. So I'm not going to comment about what the balance of the year might look like, hope that helps.

Yes. That does help. I'm just thinking about that demand environment. You guys have a relatively long purchase cycle. I think you said as much as 60 days or so. What are you seeing earlier in the purchase cycle from some of your indicators? Are you seeing decreased interest, decreased demand at this point in time?

So in the quarter, and I'll talk only about the quarter, obviously January was challenging, as we have said, we had a lot of disruption from COVID both with the shutdown in our stores for 3 full days, as well as an impact on installation business, where customers didn't want to have installers coming into the home and doing measurements. And so as we moved through February, that negative impact of COVID declining, actually increased the activities that we saw. As we said, we've been very pleased with what we're seeing in our pro-business and what our future, pro book, business looks like. And we have been pleased with the results that we are getting from the investments that we have made in our installation services business. And we have work to do on consumer, obviously where our transactions ended up for the quarter. Clearly we, we feel really good about the re-branding that we're doing, but that's a longer term journey. So we feel good about the overall demand that we saw coming through, Q1.

Got it. And lastly, for now you talked about headwinds from ocean shipping and you have some contracts up for renewal this spring. Can you give us some insight into how those contracts are being reset, and how much the headwind you expect ocean shipping to be for the next year?

Yes, I think it is going to be an interesting question to look, to see what happens with macro demand. Obviously the COVID interruptions in China are causing at least some supply chain slowdowns, but not as bad as we saw earlier last year with the shipping issues. So I think we feel very good about where we have ended up with our contract negotiations with our carriers. They have only just started, they started in May. So we have to see what happens to both the availability of containers versus a year ago and what happens more in the overall macro demand environment and what that does to pricing.

(Operator Instructions) At this time, we currently have no further questions. Therefore, this concludes today's call and I'll hand back over to Charles Tyson CEO for any closing remarks.

Thank you, operator. Thanks everyone for joining us today. Again, I want to thank our dedicated teams for their solid execution. While in the near term operating environment remains volatile, we are excited about our long term growth opportunity. We share everyone good health and safety, and we look forward to updating you on our performance next quarter. Thank you.

Ladies and gentlemen, this concludes today's call. You may not disconnect your lines.