Meritage Homes Corp (MTH) 2004 Q1 法說會逐字稿

Welcome to the Meritage First Quarter 2004 Earnings Results conference call. Today's call is being recorded. At this time, for opening remarks and introductions, I'd like to turn the call over to you, Mr. [Alan Oshiki]. Please go ahead, sir.

Thank, Operator, and good morning everyone. Welcome to the Meritage Corporation conference call to discuss operating results for the First Quarter 2004. Along with this conference call, you may also follow along with a slide show presentation, which can be accessed through the company's website, which is www.meritagehomes.com.

Participating on the call today, from the company's management, are John Landon and Steve Hilton, Co-Chairmen and Co-Chief Executive Officers, and Larry Seay, Chief Financial Officer. Before we start, I'd like to remind everyone that, during the course of this conference call, certain projections and other forward-looking statements may be made regarding future events or the future financial performance of the company.

We refer you to the disclosures that the company files with the Securities and Exchange Commission, specifically those contained in the company's most recently filed Form 10-K and its first quarter earnings press release. These documents describe important factors that may cause actual results to differ materially from those contained in any projections or forward-looking statements that may be made during this conference call. We also refer you to our first quarter press release for the definition and discussion of our use of EBITDA, which is a non-GAAP financial measure. I'll now turn the call over to John Landon. John?

Good morning, and thank you for joining us as we discuss Meritage's first quarter 2004 results. After the formal presentation, we would be happy to answer any questions you may have. We will begin the presentation on Slide 4. This year's first quarter was truly remarkable. For the first time in the company's history, Meritage generated over 2000 sales orders in a single quarter. As a result, we set all time records for new home orders and backlog, both in terms of units and dollar value. The value of sales orders was up 43 percent over last year's first quarter and dollar backlog reached 900m, up 35 percent. We also set first quarter records for revenue, up 49 percent; net earnings, up a very impressive 71 percent; and diluted earnings per share, which increased 67 percent over the first quarter of 2003.

On the strategic front, with our January acquisition of Citation Homes, Meritage now operates in five of the top ten single-family housing markets in the U.S.; Los Angeles, Phoenix, Dallas-Forth Worth, Houston and Las Vegas.

We are also proud of the recognition the company has received this quarter. Meritage was recently included in the Fortune 1000, ranking number 864 on this prestigious list. In January of this year, we were added to the Standard & Poor's Small Cap 600 Index, and we were included in the Forbes Platinum 400 list as one of America's best managed big companies. Meritage was one of only five companies on this elite list with a five-year annualized return to stockholders of more than 50 percent.

Turning to Slide 5. Following such strong first quarter results, we are raising our earnings per share guidance for 2004, to a level that represents a 21 to 24 percent annual increase. Our confidence in doing so is also based on the strong outlook for our industry. The recent weakness in homebuilding stocks suggests that many equity investors perceive that moderately rising interest rates threaten the growth of our industry.

We look forward to demonstrating that our long record of growth is supported by strong fundamentals that go well beyond low interest rates. First, housing demand is less interest rate sensitive in today's low inflation environment. This is partly because of the low absolute level and the narrower cyclical range of interest rates. But, in addition, the increasingly sophisticated mortgage market cushions the effect of rate swings, while allowing buyers to find attractive products across the yield curve.

Second, job growth remains a key demand driver. Consequently, we are encouraged by recent signs of improvement on the job front and believe that job growth will help maintain a strong level of housing demand.

Third, a constrained supply of land is allowing larger, mostly public builders with their superior financial resources to gain market share, develop purchasing leverage and greater operating efficiencies. The limited supply of lots also promotes pricing power in many markets, while curtailing the overbuilding that can lead to price discounting.

Finally, we can only be encouraged by the record of the past decade, which demonstrates that public builders have grown and prospered through a variety of interest rate and employment environments. While we are optimistic, Steve and I are cautious with respect to potential changes in demand. Accordingly, we believe that Meritage, because of our conservative operating and financial strategies, is prepared for whatever shifts in demand may occur.

Moving to Slide 6. Reflecting the success of our growth strategy that focuses on organic growth, supplemented with selective acquisitions, home closing revenue for the first quarter rose 49 percent to 424m, and the number of homes closed increased 38 percent to 1,569, both of which are first quarter records. This brings a three year compounded annual growth rate of 54 percent for revenue and 45 percent for home closings.

Slide 7. Regionally, home closings increased in each of our markets, with California leading the way with a gain of 94 percent overall and 58 percent, excluding our Citation Homes acquisition. Closings were up an impressive 52 percent in Arizona, as we see the impact of deliveries in communities we opened in the second half of 2003. Closings rose a solid 24 percent and 20 percent respectively in Nevada and Texas.

Slide 8. The average price of homes in backlog was approximately $275,000, up 4 percent from a year earlier. The average priced home in our Texas region was relatively steady, up 4 percent, and average prices in Arizona and California decreased 8 percent and 6 percent respectively, reflecting a shift toward more moderately priced homes in those markets. In Nevada, the 28 percent jump in the average home price reflects our actively selling community in Las Vegas, being at the upper end of our typical price range there. We continue to enjoy some pricing power in all of our markets, but particularly in Nevada and California.

Slide 9. The 67 percent increase in diluted earnings per share and 70 percent increase in pre-tax earnings reflected the nearly 50 percent rise in revenues and 123 basis point increase in pre-tax margin to 10.3 percent. The primary factor in this margin expansion was our ability to leverage SG&A expenses during the quarter, which dropped 139 basis points to 9.9 percent of revenue. Our gross margin declined 24 basis points to 19.6, but was up 32 basis points before the impact of a $1.8m purchase accounting adjustment related to our Citation Homes acquisition and before a small increase in interest amortization included in our cost of closings.

As you all know, there is a myriad of pricing cost and mixed factors that go into our gross margin. The net effect is that our gross margin has been relatively steady in a narrow range with modest quarterly fluctuations over the past several quarters. I will now turn the call over to Larry Seay. Larry?

Thank you, John, and good morning everyone. At Meritage, we continue to believe that conservative balance sheet management is a key component to our success and our growth plan, which in turn, helps us provide solid returns for our stockholders. At the quarter end, we had approximately 696m in real estate inventory, representing an annual turnover rate of 1.9 times, down slightly from 2.1 times at the end of the 2003 first quarter. At March 31, 2004, we had approximately 35,200 lots under control, an increase of 31 percent over the same period in 2003, and about a 5-year supply, based on projected annual closings, as compared to a 4.8-year supply at March 31, 2003.

We currently control roughly 87 percent of our lots through option contracts. We also reduced our spec inventory during the quarter to 13 percent of backlog, down from 22 percent at the end of 2003, and down slightly from 14 percent at the end of last year's first quarter. Along with prudent balance sheet management, providing solid returns to our stockholders is a high priority at Meritage. For the trailing four quarters, we provided after tax returns of 11.5 percent on assets, 27.7 percent on equity, and 14.2 percent on capital.

Although return on assets and capital are down slightly from the prior year's quarter, they have increased from our December 31, 2003 numbers. Our interest incurred for the quarter was 8.2m bringing our trailing four quarter interest incurred to 29.1m. Based on this, our interest coverage ratio, which measures trailing four quarters EBITDA interest incurred, remained solid at 7 percent or 7 times and reflects the somewhat higher interest incurred over the bank line rate from issuing additional senior notes last year.

In addition, just last week we priced 130m senior notes with a coupon of 7 percent due 2014. The proceeds of this issue will be primarily used to pay down our bank credit facility. The [offering of] notes will not be registered under the Securities Act, and the notes may not be offered or sold in the United States absent registration or an applicable exemption from registration. This notice does not constitute an offer to sell or solicit or an offer to buy these notes.

Our net debt to capital ratio at the end of the quarter was 45 percent, compared to 46 percent at the end of the previous year's first quarter and at the low end of our target range of 45 to 55 percent. Debt to trailing four quarters EBITDA remained relatively steady, compared to last year's first quarter at 1.9 times.

Our liquidity at quarter end was very strong, with approximately 265m of additional bank credit available under our 400m bank credit facility. After consideration of our most restricted bank covenants, approximately 137m of this amount was available to borrow.

A few of you have asked that we provide the restated community count numbers for 2003. Accordingly, I'll give you those numbers now. For the first quarter, we've already given you that at 107 communities. For the second quarter of '03, the number was 117. For the third quarter of '03, the number was 124. And for the fourth quarter, those numbers were already disclosed in our last year call of 129 communities. I will now turn the call over to Steve Hilton. Steve?

Thank you, Larry, and good morning everybody. Onslide 13. We are very upbeat about our 2004 results of strong earnings and financial position and also, our strong orders and community and lot positions. As John mentioned earlier, the first quarter of 2004 marked the first time in the company's history that Meritage generated more than 2,000 new home orders in one quarter.

Orders in Texas increased a solid 20 percent, as the Houston market remained strong, and the Austin market continues to recover. As we anticipated, orders in Dallas-Fort Worth are relatively stable as compared to last year's first quarter. New home orders in Arizona increased 81 percent with all divisions up at least 45 percent. Acceleration in Arizona is primarily due to the successful introduction of new communities during the second half of 2003. Orders in California more than doubled in the quarter overall and were up 90 percent, excluding the Citation Homes acquisition.

Currently, demand is very strong in California, and Meritage is prepared to deliver with our ready supply of lots. The Nevada market is also extremely strong. However, orders there were down 55 percent in the quarter, as we had only one active selling community on March 31, compared to 5 a year earlier, as a result of selling out of some communities faster than anticipated. However, we currently have 6 new communities in process, which we anticipate will open for sales in Las Vegas in the second and third quarters.

Slide 14. For the first time in Meritage's history, we closed the quarter with 900m in order backlog, up 35 percent from a year earlier. As a result of the strong orders in Arizona and California in the quarter, unit backlog was up 90 percent and 52 percent respectively in those markets. Although unit backlog is up a modest 5 percent in Texas, we remain positive about the Texas market and believe we will see growth in both orders and closings there in 2004. Support for orders in the coming quarters will come from our success in increasing the number of communities in which Meritage is actively selling, which is at 21 percent higher than last year at the end of the first quarter.

Marrying the healthy increase in orders in California is a 78 percent increase in active communities over the past 12 months, from 9 to 16. Likewise, our Texas region has increased their active community count from 62 to 81, or 31 percent. Arizona was operating in 31 communities at March 31, the same as a year earlier. However, the number of lots we control rose approximately 14 percent. As we discussed previously, we expect to introduce 6 new communities in Las Vegas during the middle quarters of this year and plan to have 7 active communities open for sale there by year end, in order to capitalize on strong new homeowner demand in that market.

Slide 16. Support for this projected growth in communities in 2004 and beyond comes from our strong lot position, which, as Larry indicated earlier, stands higher by 31 percent overall at March 31, 2004, than a year earlier. The number of lots in our control is higher in each of our markets, with California the most land constrained of all of our markets, sharing in the greatest increase at 119 percent. Even without the approximate 1,300 lots controlled through Citation Homes, the number of lots we control in California is up 70 percent, supporting the 78 percent increase in communities there.

We continue to adhere to our growth strategy of staying in our existing markets through startup operations and by selectively acquiring builders in new markets. We consider revenues to be organic one year after purchase, and organic revenue has been the major component of our growth in recent years. While we continue evaluating potential acquisition candidates, we have assumed no acquisitions in our 2004 plan, resulting in 97 percent of our projected $1.8b in revenue in 2004 coming from organic operations, up from 86 percent in 2003.

Slide 18. In view of our excellent backlog, the level of active communities and quality lot positions, we are currently projecting home closing revenue to be approximately $1.8b for 2004, up 23 percent over 2003. Assuming future growth in the 20 to 25 percent range, including potential acquisitions, we anticipate reaching 3.3b in revenue by 2007.

Slide 19. As a result of our projected revenue growth in 2004, we anticipate diluted earnings per share to approximate 8.25 to 8.50 per share in 2004, up 21 to 24 percent from 2003, and increased from our previous guidance of 7.50 to 7.85. It also represents a four year compound annual growth rate of 27 to 28 percent.

Thank you, Steve. We are very pleased with the performance during the first quarter of 2004 and are optimistic about what lies ahead in the remainder of 2004. That ends our formal comments, and we'll now open the floor to questions. The conference call operator will provide you with instructions on how to register your questions. Operator?

Thank you. Our question and answer session will be conducted electronically today. (Caller instructions.) And Margaret Whelan, with UBS has our first question.

Good morning, guys.

Good morning.

Congratulations on a great quarter. I have a couple of questions. The first one is on Las Vegas. Steve, you mentioned you're opening the communities. Have you opened any of them already?

We have started taking reservations in a few of those communities, and we haven't booked any sales yet, but the reservation demand is extraordinarily strong.

Then so, in terms of the sales pace, it's probably a little bit better than - will be a little better than you expect?

Yes, yes.

In all of your markets, in particular on the West Coast, I know a lot of the bigger builders are starting to worry about the low end of the market and talking about going up into the move up, which, of course, will compete directly with your products. Do you see the potential for your land strategy to change or will you be able to keep optioning as much of the land going forward?

We don't see any reason why we can't continue to option land. And, as I mentioned earlier, our strategy in California is to move our price point down as far as we can, and I think we're making progress in doing that in Sacramento and in East Bay.

OK. So, going forward, you don't think there'll be more profit participation or any - you won't have to own any of the land more - sooner in the process?

No, I don't see any difference in that area.

OK. John, are you seeing any changes in your market on that end?

No. I think it's - all the good deal is, is you've got to be smart and be plugged in, but, no, I don't see any changes. I think the low end, since we don't do a lot of the low end in Texas, and we have a couple communities in Phoenix, it's business as usual competing and just having to focus on your business.

We don't do a large percentage of business in any market in master plan communities, and that's where a lot of the profit participation comes in from the land developer. We're buying one off parcels from farmers or ranchers or smaller developers. We're not necessarily forced to give up some of those profits to the land owner.

Yeah, and the fact that you're not as focused on quantity and scale as the big guys, probably gives you an advantage in that respect.

Right.

In terms of the cost side, your growth margin was down a little bit, and I know there was some purchase accounting in there, but can you talk about lumber prices and land, just the trend during the quarter?

John?

You know, I think lumber prices, obviously they have gone up significantly, but this isn't the first time. Lumber prices, it's a commodity. They go up and down, and you have to manage it. And the times when they go up, sometimes you take a little bit of hit to margin, but, on the flip side, you get it back when it goes down. So, other things that are moving around, I think, are all in line with what we expect.

And the land is as a percent of your price or of your - ?

Well, land continues to be probably, obviously, the largest component of a home price. But land continues to go up and more so in the West Coast where land continues to rise, but I'd say in all our markets we see land continue to appreciate.

Margaret, our land costs, our finished lot costs, as a percent of total sales, has remained relatively constant over the last several years, at around 20 to 21 percent.

Yeah.

And we continue to see that be the thing.

Fortunately, sales price of homes have gone up in step with the land price.

OK. And then just, finally, in terms the premium options your buyers are taking, what's that running now as a percent of your price?

Larry, do you have that?

Yeah. It's around 10 to 15 percent is our option pricing, our average option pricing as a percent of the total sale.

I don't think it's really changed in the last year, has it, you think, Larry?

No, it's been relatively constant, too.

Great. OK, well done on the quarter. Thank you very much.

Thank you.

Thank you.

Moving on, we'll take our next question from Robert Manowitz, with UBS.

Hi, good morning. Just wondering if you could sort of count on a percentage basis the buyers that are purchasing your homes that already own some sort of housing, and therefore, would have an existing mortgage.

Are you talking about people that have bought a home, but have a home to sell, or are buying a second home?

No, the guys who you're selling homes to who are already homeowners, and, therefore, would walk away from mortgage rates that they've locked in, let's say, over the last year at 5½ to 6½ percent, and, theoretically, would be locking in, in the future, perhaps at higher rates.

Oh, well, [inaudible], the homes we sell are move up homes. We don't sell that many first time buyers, so I would say almost everybody that we sell to has a home already or are selling a home to move into our home. Is that what you're looking for?

Yeah, exactly. I didn't know if you had sort of a percentage, if it was 80 percent or 90 percent or 70 percent.

Would you say it's probably more than 80 percent, John?

Yeah, I would say, even though we categorize sometimes our businesses, first time move up or second time move up, sometimes that first time move up buyer, actually isn't a first time buyer, just buying a more expensive home. But I would say that 80 percent is probably a good number of people that have owned a home before. Or maybe they don't own a home, they've owned one before, but they're renting currently. But whether or not they own now or they've owned in the past is probably around 80 percent.

Great. Thanks so much.

We'll now hear from Mike [Kinder], with Citigroup.

Yes, I was wondering if - you threw out an EPS guidance revision for the year. I was wondering if you could give us an EBITDA translation for that.

We haven't typically provided EBITDA translation, but the ratios would remain relatively constant. So I would just encourage you to extrapolate that based on past ratios.

OK. And on the first quarter, how much did Citation contribute, roughly?

I don't think we've broken that out separately in the past, and we typically haven't talked about what individual divisions have made separately. So I'm not certain we want to provide that today.

OK, and then the last question was on the availability number you gave at the end of the quarter. You said 137m limited by covenants. Pro forma for the bond deal, what's that number come out to?

It'd be about the same number, because we're just trading one type of debt for another type of debt.

OK.

So it's not going to affect that availability.

OK, thank you.

You're welcome.

We'll now take a question from Craig Kucera, with Friedman, Billings, Ramsey.

Hi, good morning.

Good morning.

Can you comment on - you had a great quarter as regards to sort of your SG&A in relation to revenue, and can you comment on why maybe that was a little bit lighter than some of us were expecting and kind of your expectations for the rest of the year?

Larry?

That is lighter just simply because we were able to increase our revenue so much. It really is a leveraging of SG&A, increasing revenues without having to add additional overhead. You know, you will see that I think the comparisons of prior year revenue won't be quite as positive going forward, so you're not going to get that high leverage off of SG&A in the next three quarters. But, on the other hand, as a total percent of revenue, we'll stay in the relative ranges that you've seen before, which has been in the 9 to 10 percent range. So I wouldn't necessarily start saying that you're going to see that type of leverage every quarter going forward in your projections.

OK, great. One thing I wanted to ask, which you were able to continue to push pricing and - but we're not seeing the same kind of margin expansion we're seeing from some of the other builders. Can you kind of comment on how you decide and maybe you you're incentivizing your local managers to make those decisions, whether to price things a little slower, to move them through faster, or kind of, I guess, just give me a little bit more color on how that choice is made?

You know, it's really a market by market, where we've got division presidents that watch each store, and they're watching their sales velocity, their sales pricing, their gross margins, and their job is to balance that to maximize the profit in each community. And there's really no exact science to it. It's a lot of just monitoring your marketplace and monitoring your competition and trying to maximize your results.

I think one of the reasons why we don't have as much margin expansion as some of the other builders is because we're not developing as much land. And a lot of the land that is going through our books is land that we've purchased more recently, as opposed to later at lower prices. And over 85 percent of the land that we control are through options, and so we're not developing as much land as some other builders are, which means our land basis is a little bit higher.

Also, our stated goal is to make a 10 percent plus pre-tax margin, and over the last few years, it's kind of been in between 10 to 11 percent. So we manage our business to get that number. And if we can get more revenue by keeping it in that range, I think that's one of the ways we've also achieved the growth rates. We haven't raised our bogey and tried to make 13 or 14 percent. We manage to that 10 to 11 percent range.

OK, appreciate the insight. Finally, can you give me a little color on maybe some of the price appreciation and land appreciation you're saying in some of your key markets?

Well, certainly a lot more in California and Nevada. You know, I think home prices in some of those markets are appreciating 10, 15, 20 percent a year, and land prices are appreciating at that rate or even higher than that. I think in Arizona and in Texas, it's a lot more moderate, in line with more the national average. Wouldn't you say that, John?

Yeah, and we also have to keep in mind that the land portion of the total sales price ranges anywhere from 10 percent to maybe 20-some percent, and then you add your development costs on top of that. So even with the large increase in land, it doesn't - it has a relatively small percentage impact on the total sales price of the home. So, you always have to keep that in mind. But from a price appreciation on land, I agree with Steve. It goes anywhere from maybe 5 to 10 percent to, in some markets, we've seen upwards of 20 plus percent appreciation of land year over year.

OK, thanks a lot. Congrats on a great quarter.

Thank you.

Thank you.

I'd like to remind our audience, if you'd like to ask a question, please press star, one at this time. Moving on, we'll hear from Sam Kerner, with Franklin Resources.

Good morning, and great quarter. I have a couple of questions for you. I know you're probably just being conservative, but given a 35 percent increase in your backlog dollar value, can you help reconcile - just help me walk through how you get to 10 percent EPS growth guidance for the second quarter?

Well, I think, you know, part of that conservativeness is because we had a softer fourth quarter last year. I think you've got to go back and really look at those numbers because that's a big component of what we're going to be closing in the next quarter. Larry, do you want to - ?

Yeah, our unit sales in the fourth quarter were only up 7 percent, so I think you're seeing the great sales we're having this quarter are going to translate into a second half weighted closing pattern. So I think we're just saying that you're going to see a flat to a slight dip in the second quarter, coming back with a real strong second half. And maybe we're being a bit conservative, too, but at this time, that's the kind of guidance we feel comfortable in providing.

OK, yeah. I mean, one of the things that comes up is just looking at - it's a wonderful thing to see you beat quarter after quarter, and I certainly applaud your conservatism. But I'm just wondering if you ever go back and say maybe perhaps we were a little too conservative, just given the magnitude of your beat on each quarter?

Certainly hindsight is 20/20, but I'd rather be on the conservative side than on the aggressive side. And we have had some quarters where we've kind of burned through our inventory a little faster than we expected, which resulted in the following quarters not being as robust because we didn't have the homes to sell in certain markets. And I think that's a little bit what happened last year in the fourth quarter, which is going to result in a less robust second quarter this year, compared to the first quarter. But I think you just can't look at a business on a quarter to quarter basis. You've got to look at it over a longer period of time. And our backlog is certainly makes up more than one quarter, and we think for the first half of the year our earnings should be up more than 30 percent.

OK, great. And can you give some updated guidance in terms of deliveries on your Southern California and San Antonio operations?

Well, I'll talk about Southern California, and then I'll let John talk about San Antonio. We're just ramping up several new communities. We're not looking for a super big year. This year, I think we previously stated we were looking at about 175 closings in Southern California, but we're ramping up our position out there to hopefully achieve 1,000 deliveries within a three to five year timetable. So, we're not looking for a huge impact from Citation Homes this year, but we think next year they're going to make a real meaningful contribution to our bottom line.

And thinking about San Antonio, in 2003 we entered San Antonio through a start up. We began our first models in April, and we were profitable our first year, and now for our first partial year in operations there. This year is still a ramp up year. We still only have one - as of 3/31, we had one model park open. We had 3 more in trailers. We control over 2,000 lots there. We expect to be open in around 8 communities by the end of this year. So we expect next year to really have a significant growth in that market.

We're booking nice sales. We're very pleased with the progress that we're having there, and, on a percentage basis, we're going to have a large increase year over year, but that's just because it was such a small base from '03 to '04. But we're still in a ramp up mode and expect - we like that market. The market feels real good, and our position, we think, is outstanding. So we're expecting to be able to grow San Antonio long term, to grow it to 800 to 1,000 units a year. And that's probably a three to five year horizon.

OK, great. And can you walk me through why you raised the 140m debt? I realize you just mentioned moments ago that you raised it to pay down your credit line. But this is senior debt, it's got a higher coupon, and here you are paying down a low coupon revolver. What was your rationale for that?

Well, I think there's a lot of reasons. Number one, we want to have the dry powder to be able to continue to expand our business over the long term, but not rely on short term financing. And we do have the ability to prepay some of our senior notes, I believe it's in May of '06. And we want to be able to have the favorably priced debt available to us now to have that money to repay those notes when the time comes in two years. So, we think we can put the money to good use in the meantime, and then have the liquidity and the capacity to repay it at that time.

OK. You know, putting the money to good use might include an acquisition. I'm curious if you could speak to what the current market for pricing is for acquisition candidates.

John?

Yeah, I don't think we've seen any change. We typically have been in the market for buying builders that we can grow, and we like to buy one that's a platformed entry into a market. We can double the size of that business within a very short time after purchasing them. And we're looking at about a four times cash flow to maybe, with earn out potential, of maybe approaching five times cash flow.

OK, excellent. Thank you, and, again, great quarter.

Thanks.

I'd like to give our audience a final reminder that if you'd like to ask a question or make a comment at this time, please press star, one. Once again, to ask a question, that is star, one, and we'll pause for just a moment. It appears we have no further questions at this time. I'll turn the call back over to our speakers for any additional or closing remarks.

Thank you, operator. Thank you for joining us today. We look forward to reviewing our second quarter 2004 results for you in July. Thank you.

Thank you.

Thank you.

That has concluded today's conference call. I'd like to thank everyone for their participation.