TransDigm Group Inc (TDG) 2006 Q2 法說會逐字稿

Good afternoon. My name is Paige, and I will be your conference operator today. At this time, I would like to welcome everyone to the TransDigm Fiscal Year 2006 Second Quarter Earnings Call.

All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, press star, then the number two on your telephone keypad. As a reminder, today’s call is being recorded. Thank you.

I would now like to turn the conference over to Mr. [Sean Moroni], Director of Corporate Accounting and Investor Relations. You may begin your conference.

Thank you. Good afternoon, ladies and gentlemen. I would like to thank all of you that have called in today and welcome you to TransDigm’s first earnings conference call following our initial public offering. We will be discussing the results of operation for the three months and the 26-week period ended April 1, 2006.

You should have already received our earnings news release that was issued this morning. If you have not received the release, you may retrieve it by visiting www.TransDigm.com.

A replay of today’s broadcast will be available for the next two weeks. Replay information is contained in our news release.

Before we begin, the Company would like to remind you that statements made during this call which are not historical in fact are forward-looking statements. Forward-looking statements involve risks and uncertainties that could cause actual events or results to differ materially from those expressed or implied in the forward-looking statement. For further information about important factors that could cause actual results to differ materially from those expressed or implied in the forward-looking statements please refer to the information regarding forward-looking statements and risk factors included in the Company’s latest filings with the SEC. These filings are available through the Investor section of our website or through the SEC’s website at www.SEC.gov.

The Company would also like to advise you that during the course of the call, we will be referring to EBITDA -- specifically, adjusted EBITDA as defined -- and adjusted net income, both of which are non-GAAP financial measures. Please see the tables and related footnotes in today’s press release for a presentation of the most directly comparable GAAP measure and a reconciliation of adjusted EBITDA as defined and adjusted net income to that measure.

Now, having taken care of the necessary disclosures, let me introduce Nick Howley, our Chairman and Chief Executive Officer, who will provide an overview of the business through the first six months. Following Mr. Howley, Mr. Greg Rufus, our Executive Vice President and Chief Financial Officer, will discuss the financial results for the period.

Good afternoon, and thanks to everybody for calling in to hear about our Company. Let me first say hello to the various analysts and owners that I met on the recent IPO road show and also any of you who have invested in TransDigm since, and of course, also, anyone who is considering investment here.

As I think most of you know, we completed our initial public offering, and our shares began trading six weeks ago on March 15. We sold about 12.6 million shares at a price of $21 a share. This represented just about 28% of the outstanding shares, and the net proceeds to the selling shareholders were 245 million.

Since this is the first earnings conference call as a public entity, I’m going to assume that a number of you are new participants and don’t know too much about the business, so I’ll give just a quick overview.

To remind everybody, we’re a supplier of highly engineered aerospace components. Our components are used on almost all commercial and military aircraft in service today. Typically, our products are highly engineered to meet the specific needs of an aircraft design.

We estimate that about 90% of our sales in ’05 were proprietary. That means we own the intellectual property and the design. Similarly, we estimate that about 75% of our sales came from products from which we’re the sole-source provider.

Commercial business accounts for about three-quarters of our volume, with the balance, about a quarter or maybe a little less, being defense related.

We generate about two-thirds of our revenues from the aftermarket -- that is, typically to the end-users of the aircraft -- and about a third of our revenues from OEM sales. That’s sales to people that build the aircraft or provide systems aircraft builders. Historically, the aftermarket revenues have produced higher gross margins and been more stable than the OEM sales.

Because of the large installed base of products we have that generate an aftermarket, the high margins, and the relatively low capital expenditures, TransDigm has typically generated a very strong free cash flow. Generally, we’ve used this to either make acquisitions or to retire debt. We’ve been active in the acquisition area. We’ve made 15 acquisitions over the history of the Company.

Now, with some of that background behind me, let me turn to the latest financial performance. I’ll remind you that this is our second quarter. Our fiscal year begins October 1, so we just finished the second quarter.

In both the first and the second quarters of ’06, we had a lot of financial structuring activity.

In Q1, we paid off a promissory note in various related deferred comp plans. These totaled about $300 million. Almost simultaneously, we borrowed a holding company note of about $200 million.

In Q2, we had our IPO, or initial public offering. There were various cash and noncash expenses related to that activity. Greg’s going to go through with you, after I’m done, the details of the various special expenses that had to do with these financing activities.

But I’m glad to say that in spite of all this activity, generally, the Company and all our managers were able to keep their eye on the ball. Our operating performance stayed strong and slightly exceeded our expectations.

As I’ve said in the past, quarterly comparisons can be significantly impacted in our business by the OEM aftermarket mix, large orders, transient inventory fluctuations in the system, modest seasonality, and other factors.

I’m going to focus primarily on the year-to-date operating performance. I find it more meaningful, and it’s more reflective of how we look at the business. Also, generally, with a few differences, the trends in Q1 and -- Q2 in the first half are pretty similar.

If I remove the impact of acquisitions, the revenues for the first six months were up about 14% versus the prior year. The commercial markets continue to all pick up nicely. If I look at revenues by market segment -- and this is on a year-to-date pro forma basis versus the prior year, in other words, assuming we owned the same mix of businesses in both periods -- in the commercial segment, which makes up about three-quarters of our business, OEM revenues were up in the range of 25%. Again, this is six months to six months. Regional jets lagged that. Business jets are actually running ahead of that average, and the commercial transport is just about on that average number.

The commercial aftermarket is up between 15 and 20%. I’d say this may be difficult to sustain, this rate of aftermarket growth. There were a few retrofit orders in Q2, and generally, the activity level across the business was high. This is a time in the cycle that it’s good to watch for inventory builds, especially at the OEMs, but also to a lesser degree at the aftermarket. We don’t see a significant problem here at this time, but it bears watching, particularly as the cycle matures.

In the defense segment, which makes up a little less than a quarter of our business, the volume or revenue was down modestly. We saw a single-digit kind of percent decrease in the first half versus the prior year. We saw some pick-up in the second quarter versus the first quarter in both shipments and bookings. Hopefully, this continues, but it’s tough to predict in the near term. I remain cautious, and defense orders -- defense buys are still high compared to historical levels.

We didn’t make any acquisitions in the first half of 2006 after we made four in the last 14 to 15 months prior to that. We continue actively looking at a number of opportunities. We have a reasonable pipeline of candidates, more small ones, frankly, than midsize. We’ve remained disciplined in our process. The pricing, especially for businesses that go to auction, remains quite high. Predicting timing is always difficult, and as a general rule in this meeting and others going forward, we’re not going to discuss any specifics on acquisitions until they’re closed.

Moving on to profitability in the first half. Again, a lot of financing activity, and I’ll just say again Greg’s going to sort that out for you. I’m going to talk primarily about the operating performance. The numbers I give will generally be excluding the expenses associated with the financing and IPO activities.

As an overview, our adjusted net income was up 58% versus the first half of last year. Our adjusted EBITDA as defined was up 23% versus first half of last year. The adjusted EBITDA margins picked up about three-quarters of a point versus first half of last year, and that’s the 44.6%. This is in spite of the modest but somewhat dilutive impact of some acquisitions and rising OEM shipments.

The Q2 EBITDA, as defined again, of a margin of 46%, is rich. That’s a relatively high aftermarket content. That may not be sustainable at that level for the balance of the year with the potentially higher OEM shipments.

I’ll just remind you again that relatively small changes in mix can move margins a few points up or down from quarter to quarter in this business.

If I look at the full year 2006, again, assuming no acquisitions, we expect our revenue to be in the range of 425 million or up about 14% on a reported basis. This growth is about two-thirds organic and one-third acquired. The relatively high OEM run rate could negatively impact second-half margins modestly -- not a lot, but a little bit.

We expect the 2006 adjusted EBITDA as defined -- that is, excluding primarily the financing and IPO cost -- to be in the range of 185 million and EPS on the same basis as above -- and by that, I mean excluding primarily in various financing and IPO expenses -- should be in the range of $1.15 to $1.20 a share.

All in all, we expect 2006 to be a good year and a good start to our first year as a public equity. And with that, let me give it over to Greg to explain the financials a little more.

Thank you, Nick.

I will supplement Nick’s comments with a little more detail tied to the financials. I’m pleased to report that net sales for our second quarter increased by $16.9 million, or 18.5%, to 108.3 million. About 15 percentage points of that came from organic growth.

For the first half, net sales increased by 36.8 million, or 21.4%, to 208.4 million. About 14% came from organic growth, with acquisitions contributing 7 percentage points.

Gross profit for the first six months increased by 21.2 million, or 25.1%, compared with the same period a year ago, ending at 105.7 million. This increase is primarily attributable to higher sales and the full effect of our two most recent acquisitions.

Selling and administrative expenses for the latest quarter and first half were substantially higher than the comparable period the year ago, primarily due to expenses related to the IPO and the termination of two deferred comp plans in the first quarter.

Going forward, we expect SG&A as a percentage of net sales to normalize around an 11 to 12% level for the balance of the year.

Operating income increased by 8.9 million, or 26.4%, for the quarter and 13.9 million, or 22%, for the first half due to the factors just discussed.

Interest expense was essentially flat for both the quarter and the 26-week period.

With regard to income tax expense the effective tax rate was 38.4% midway through the year, compared to 37.1% effective tax rate a year ago. The increase was primarily due to the reduction of the past benefit recorded from foreign sales. This is due to a change in export tax law, which phases out foreign sales deduction by 2007.

Net income for the second quarter was 14.3 million compared to 8.8 million for the same period last year, a 62.9% increase. Through the first 26 weeks of the year, net income increased by 8.1 million, or 53.7%, to 23.3 million. The large percentage increase in net income is due to improved operational performance, which accounted for about 23%, with most of the balance attributable to leveraging relatively flat depreciation, amortization, and interest costs in both periods.

For the second quarter, adjusted EBITDA as defined increased $9.3 million to 49.8 million, or 22.9%, from the prior period. For the first half of the year, adjusted EBITDA was up 17.5 million, or 23.3%, to 92.9 million. As a percentage of net sales, adjusted EBITDA as defined was 46% for the current quarter compared to 44.3 in the quarter a year ago.

For the 26-week period, the percentage was 44.6% compared to 43.9% for the first half of fiscal 2005. As Nick noted earlier, the first-half EBITDA margin may not be sustainable for the balance of the year. In most circumstances, this is strictly a function of OEM versus aftermarket product mix.

As an aside, as we’ve said in the past, this illustrates a point we’d like to remind our investors about. You need to be cautious about quarterly comparisons in our business. Quarterly results can be impacted by large orders, OEM and aftermarket mix changes, etcetera, as Nick discussed earlier. As a result, we’d like to focus more on year-to-date numbers.

I will now switch topics and discuss the charges relative to the IPO and other financial structuring charges, which significantly impacted our reported EPS versus our adjusted EPS.

In the press release issued this morning, we have included a detailed reconciliation of net income to adjusted EBITDA as defined. These same pretax adjustments are also used to derive adjusted net income, which is used for our adjusted diluted earnings per share of $0.35 per share for the second quarter versus $0.30 unadjusted.

On a pretax basis, total adjustments are 3.3 million for the quarter and 7.8 million year to date.

Expenses related to the IPO in the second quarter were $2.3 million. Year-to-date adjustments include $3 million for IPO-related expenses and 4.8 million primarily resulting from the termination of two deferred comp plans in the first quarter.

For the second quarter, on an after-tax earnings-per-share basis, the $0.05 difference between adjusted diluted and diluted EPS is made up of the following items.

There was a nonrecurring IPO cash fee primarily for legal accounting and printing of a little over $0.02 per share. We had IPO-related option vesting expenses that were noncash of about a penny a share, and we had other noncash and nonoperating expenses a little over $0.01 a share.

For the first half of the year, on the same after-tax earnings-per-share basis, the fully diluted adjustment is $0.10 per share, which includes the second quarter activity just discussed plus an additional $0.05 per share relating primarily to the termination of the two deferred comp plans at the same time we repaid the promissory note in the first quarter.

Now, switching to the balance sheet, our total cash balance, which includes cash equivalents and marketable securities, declined from 104 million at September 30, 2005 to 32 million at the end of the first two quarters of this year, mostly reflecting the impact of refinancing-related expenses in the first quarter. However, we continue to generate strong cash flow from operations, and we are in 100% compliance with all lending covenants.

Finally, let me mention that we expect to file our 10-Q for the quarter on or about May 16. So there is no confusion around filing time, we presently are required to file two reports quarterly and annually with the SEC. The public entity is called TransDigm Group, Incorporated. Because of our current operating structure, a legal entity below TDG called TransDigm Holding Company must also file a 10-Q also as part of the debt indentures. Please take caution when retrieving the correct entity, and please ensure that it’s TransDigm Group, Incorporated.

With that, we will now open it up for questions that you may have.

[OPERATOR INSTRUCTIONS]

Robert Spingarn, Credit Suisse.

I hope you can hear me okay.

Coming in fine.

Thanks, Greg. Just a few questions here. I thought you had real nice margins in the quarter. Your sales guidance of 4.25 implies that 3Q and 4Q would run at $108 million run rate, flat with Q2. Is that right? Am I interpreting that correctly?

No, second half would be a little higher than that, Rob.

Well, could we do --

The guidance was 4.25 and we finished at 1.08 --

Right. I’m not comparing it to the first half run rate.

Oh, oh, oh. I’m sorry.

Saying that each quarter in the third and fourth quarter would mimic what we saw in the second quarter. In other words, 1.08 times three [indiscernible] the 100 you did in the first quarter adds up to the 4.25.

Yes, that math works.

Would that perhaps be a little conservative? Should we not see a little bit more of a ramp from quarter to quarter?

This is Nick, Rob. I would hope we might. You know, we got a little bit of -- as you know, the aftermarket was a little heavy in the second quarter. We had a few retrofits go out that won’t repeat, but I would be hopeful we could do a little better. But we’re trying to be reasonably conservative. I would hope we could do a little better.

Fair enough, Nick. I’m just thinking if the defense comes back -- that’s another one of my questions --

And I never -- you know what? I have to say I’m a little cautious of that.

Okay.

But I would hope we could do a little better.

Okay. All right. I wanted to -- and then the other thing I wanted to touch on there is your organic growth -- and you mentioned this, Greg -- was really -- you were heavily weighted towards organic growth in the quarter, more so than I might have expected, at about 16, 15.8% organic, and I’d say about in the high twos on the acquisition side. Is that about right?

Yes, you’re pretty close. It was a little over three, but you’re right on.

Okay. And is that typical, or will -- I know you said for the year, you’re thinking two-thirds, one-third, but if that continues, it would be more highly weighted toward the organic side.

Absolutely. It’s just the function of the timing of the comps with the acquisition.

Okay. Okay, understood. Can you give us, Greg, a little bit more detail on the free cash flow in the quarter?

Well, how about if I just address the year because I have that handy?

Okay.

You know, we started the year with 104 million. Simply put, we borrowed about 200 million, okay? We then paid off 300 million between the subordinated note and deferred comp, and we now have 32 million at the end of the first half. And I would expect in the second half of the year that the ops would generate at least that, if not a little more, by the end of the year.

Okay, and this is after CapEx or before?

After CapEx.

So generating around 32 million in free cash in the second half?

Yes.

Okay.

Yes, it’s more or less, and like I said, I’m hopeful it would be a little better.

Okay. And then just as a final question, Nick, we’ve got a lot of high utilization out there on the commercial side of the business and I suspect on the military as well. But in commercial, either at the transport level or at the more general aviation regional level, do you see that utilization deferring some of the retrofit work? Could we be building some backlog?

Let me be sure I understand your question, Rob. You mean building a backlog of orders or building inventory out in the system? Which is your question?

Building a backlog of orders or maybe both because aircraft are in the air and, therefore, not in the shop.

The real answer to that is, I felt, no. But I’ll speculate. You know, I look at the shipping rate of the aftermarket in the first half of this year against last year. You know, it’s up between 15 and 20%. That’s a pretty healthy pick-up. It seems to me that the orders are coming in and the products [are] being shipped out at a rate that’s pretty healthy in relationship to what -- the level shipping level. It doesn’t seem to indicate to me that there’s a lot deferred.

And you feel comfortable that those rates continue but we get a mix adjustment as the transport and [bus jet] OE increase?

No, what I said is I’m a little concerned that we can continue a 15 to 20% year-over-year growth in commercial aftermarket.

Okay.

You know, given the revenue passenger miles and that sort of thing, you know, that’s in excess of what the market would tell you it’s doing. But we do pick up some retrofit a little bit, but I don’t think it will go any higher than that, and I’d be a little more concerned if it was a little lower than higher.

Are there any share opportunities out there for new retrofits?

Well, we’ve gotten some in the first half. You know, they’re always a little spotty. Yes, we’re always working on it. I’m not at this point willing to get committed to them for the second half, but we’re always working on them, Rob. You know, that’s kind of what can give you a little lumpiness sometimes.

Okay. Thank you both very much.

Thanks.

Sure.

Joe Campbell, Lehman Brothers.

I have a couple of general questions rather than about the financials, which I thought were excellent.

A lot of the suppliers and the big OEMs are talking about constraints of material availability, and titanium is the one that’s most frequently mentioned. And although I haven’t heard from you that this is a problem, I thought I would raise it just because so many investors ask about it. For TransDigm, are these shortages affecting in any way either your cost of goods sold in an important way or your ability to deliver on time?

Joe, this is Nick. We haven’t seen that be a significant problem for us. The only place we have had some issue is on titanium. It’s -- like everyone in the world has. It has not impacted our shipments, and it should not, though it has built our inventory a little bit. What we’ve been doing is buying ahead to cover ourselves. I mean it’s not a ton of money because we’re not a real big buyer of it, but that’s the way we’ve been dealing with that. We’ve been sort of buying ahead, so we probably have a little more titanium in inventory than we might generally like, but we think it’s covering us pretty well to be able to keep making shipments if things get tighter.

And then the second thing that sort of is somehow related or often talked about in the same relationship is the desire of both the business jet size and the Boeing and Airbus guys to want to ramp up their production because the airlines want planes faster than the OEs can deliver them, both business and the transports -- whether or not you’re seeing any sort of ability of the supply system to kind of collectively get its act together and raise the rates any earlier than maybe earlier in the year, so, for example, Boeing said at the end of the year, “Gosh, we had a strike. We’d love to try and catch up, but the supply system probably won’t let us.” Do you see sort of collectively in your dealings with your OEs any inclination to pick up the rates any faster than perhaps you would’ve thought earlier in the year?

Joe, we get the same kind of rumors and preferences that you know about. I don’t think we’ve seen anybody act on it. We have seen people coming out with the usual inquiries about, “What if we increased this and what if we increased that, can you keep up with it?” You know, I can’t speak generically, but I can speak for our company. First, we haven’t seen anything specifically, you know, specific requests, “Can you crank up X percent?” -- or, excuse me, no specific orders. For us, anything that they’ve talked to us about would not be a problem for us to respond. We have plenty of capacity, and our suppliers seem to be okay. And I think that probably is the best I can --

Well, one of the things that usually happens is that people are a little nervous about ramping up, and then as they get going, everybody says, “Yeah, I can do that.” And I think we sometimes find that the rates go up faster than we were thinking --

That’s right.

-- because in the beginning, we’re a little tentative, and then we kind of look at it and we say, “Yeah, this will work.” Because sometimes we do get surprised, but we’ll hold on before anticipating more shipments than we’re now planning for.

Then, lastly, I wanted --

[Inaudible] cranked up yet, Joe. Today, we’re not getting cranked up. We’re not being asked how our deliveries crank up higher than what we would have expected.

On the M&A, we see the same and hear the same from other people that you mentioned about where there’s competition, the prices are kind of high. I wondered if, as you think of the things that you’re looking at and so on, who are the kinds of people that you find yourself competing with who are looking at the same properties you’re looking at?

I would say you always to -- there’s a whole bunch of private equity buyers out there for anything now, so you see some of them, but nobody else that’s really in the same category --

Not as many people that are in the same category as you are, where there’s an existing aerospace company growing larger, so much as it is just [LBO] houses buying --

Well, we see -- I would say, Joe, the last four we bought -- let me say this. Be careful of this. I think all four we ended up getting essentially sole-source, maybe one of them where it was kind of half a process. So there wasn’t really much of a competitor for them.

The ones where they’ve run an auction process, where there’s been a mix of strategic and private equity buyers, the prices have gotten pretty frothed up, like I said. The people we have seen in them -- oh, I think we saw Crane once or twice.

Oh, yeah.

I don’t think we’ve seen Parker. We’ve occasionally seen Triumph, but generally, we’re not buying the same things they’re buying. Occasionally, Esterline, but I can’t think of any -- now, I’m talking historical rather than recent history. Does that give you an idea?

No, that’s excellent. I appreciate it, and we don’t have any more questions. Thanks very much.

Thanks, Joe.

Your next question comes from Brooks Moore with Friedman Billings Ramsey.

Congratulations on your IPO and good first half. Just had a couple questions. CapEx -- what was it?

Could you speak up a little?

Your capital expenditures?

Okay.

Can you hear me okay?

Yes.

Okay. What was CapEx in the quarter?

No, I don’t have that in front of me. I think it was under $2 million.

Okay. And what do you expect for your fiscal year?

Nothing outside of the normal range that we talked about. Going to run about 2% of sales.

Right.

There’s nothing unusual planned in the second half of the year.

Okay. How about backlog at the end of the quarter? Can you give us that number?

I don’t have that in --

I don’t think we have that yet. I don’t think we’ve disclosed it. But the backlog is generally rising. We’re booking more than we’re shipping.

Okay. Seems like in prior quarters, you have disclosed that.

Well, we will when the Q comes -- did we disclose that in the Q, Greg? I don’t recall.

Yes, we did disclose it in the Q. We don’t have it [racked] up for this call.

Okay, okay. And then what was the range that you said you were targeting for SG&A as a percentage of sales?

Oh, for the second half of the year, between 11 and 12%.

That’s of revenue, right?

Of revenue.

Right. You’re there in the second quarter, actually, at 11.5%.

Yes. But when you take -- when you look at the first quarter, the first quarter was unusually high.

Right, right. Okay, got it. That’s all I have. Thank you.

[OPERATOR INSTRUCTIONS]

[Matt Vitorius], Barclays Capital.

I was just curious, the [hold co] note, I had originally thought that that was a bridge financing to the IPO. What’s the plan for that? Is that permanent financing?

No, with regards to our capital structure, that’s just part of the overall piece. I don’t know where that came about. When that first came out, a couple people had that idea, but it’s not.

Okay. So that’s a permanent piece? If anything, you expect to keep that outstanding for the foreseeable future?

Well, you know, we continually examine our capital structure to determine what makes the most sense for the Company --

Right.

-- in terms of minimizing our cost to capital. While we maintain our operational and strategic flexibility, we have not made any definitive decisions regarding the refinancing or any debt or anything at this point, but we do constantly look at it.

And what’s the cost of that loan because I don’t recall.

LIBOR plus 5.5, I believe, of the unsecured piece.

Okay. And then just quickly, I think in your latest couple Qs, there’s been mention of a -- was it the Department of Defense looking into some of your pricing. Is there any update there? Has anything changed? Have you resolved that issue?

I say nothing’s changed. There was an audit that’s completed, and actually, it’s now public information. It generally was as we expected and as we disclosed in the past.

So you don’t think you’ll have to -- I think they had asked that maybe you’d --

There’s a request for a voluntary refund.

Right, right.

And there’s a request to negotiate some different contracts going forward or a different contractual basis. We’re still in the midst of talking about that. So we just can’t predict where that will land.

Okay, but I guess that will come out as it develops then?

Yes.

Yes.

Okay. Thanks a lot, guys.

At this time, there are no further questions. Are there any closing remarks?

No, if there are no other questions, we would like to thank everybody for participating in our call today. We look forward to meeting many of you face to face over the coming year, and thank you for -- oh, Steve, my light’s flashing. I think Rob has -- one more question only, Rob.

Question on something that Nick said. I thought I might as well bring it up now. Nick, you referred to small and mid-sized acquisitions. Could you define what you mean there?

Can I? Rob, I don’t have a good definition of that.

Just what you mean -- when you say small, are you saying 10 million and under and maybe --

I’m talking EBITDA now or maybe transaction price, let’s say. By small, I’d mean maybe less than 25, $30 million kind of acquisition price.

Okay.

You know, and mid, I’d mean maybe that 75 or 80, maybe 100, something like that.

Okay.

Just to give you a rough range. We see more -- as you know, as we’ve told you before, we see a lot of little stuff is what we’re seeing.

I see. Thank you very much for the color, guys. Nice quarter.

Thanks.

And with that, I believe that concludes our call, so I’ll turn it back over to the operator.

Thank you. This concludes today’s conference. You may now disconnect.