Vector Group Ltd (VGR) 2011 Q2 法說會逐字稿

Welcome to Vector Group's second quarter 2011 earnings conference call. Before the call begins, I'd like to read a Safe Harbor statement. The statements made during this conference call that are not historical facts are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by forward-looking statements. These risks are described in more detail in the Company's Securities and Exchange Commission filings.

Now I'd like to turn the call over to the President and Chief Executive Officer of Vector Group, Howard Lorber.

Good morning and thank you for joining us on Vector Group's second quarter 2011 earnings conference call. With me today is Ron Bernstein, the President and CEO of Liggett Vector Brands and Liggett, and Bryant Kirkland, Vector Group's Chief Financial Officer.

On today's call, I will provide an update on our business and review Vector Group's financials for the second quarter and first half of 2011. Ron will then discuss Liggett's performance for the period and provide insight on industry developments in what continues to be a challenging tobacco environment. After that we will answer your questions.

Let me begin by saying that we entered 2011 with the objectives of continuing to build market share for Liggett with our Pyramid brand while also delivering profit growth for the Company. I am very pleased to report that through the first half of the year, we have met both of those goals. We will provide more detail when we discuss our financial and tobacco business performance a little later in the call.

With respect to real estate through the first half of 2011, we continue to see positive signs in a challenging market environment at New Valley and Douglas Elliman. As we have indicated on previous calls, we believe there are good investment opportunities in this market, and we plan to make appropriate investments when the opportunities meet our criteria.

Before turning to the financials, I want to briefly update you on the tobacco litigation environment, and specifically developments with respect to the Engel cases in Florida. As noted in prior calls, the Engel progeny cases are now the primary focus of our litigation activity. There are approximately 5,785 cases pending in both federal court and Florida State court. We, along with the other industry defendants, continue to believe that the Engel process is materially flawed and unconstitutional.

(technical difficulty)

-- with cash and cash equivalents of approximately $320 million as of June 30, 2011. Additionally, as of June 30, 2011, the Company held investment securities and partnership interests with a fair market value of approximately $100 million.

Now let's turn to the key financials for the three months and six months ended June 30, 2011, for Vector Group. For the second quarter ended June 30, 2011, Vector Group revenues were $291.2 million compared to $268.5 million in the 2010 second quarter. The Company recorded operating income of $38 million in the 2011 second quarter compared to operating income of $21.1 million in the 2010 second quarter. Excluding a $14.4 million pre-tax charge related to the litigation judgment in 2010, operating income was $35.4 million for the second quarter of 2010.

Second quarter 2011 net income was $30.3 million, or $0.36 per diluted share compared to $19.2 million, or $0.19 per diluted share, in the 2010 period. Excluding pre-tax gains from the liquidation of long-term investments of $19.5 million, changes in the fair value of derivatives embedded within our convertible of $9.4 million and the sale of a town home of $577,000 and the loss on the extinguishment of debt of $1.2 million, second quarter 2011 net income was $13.2 million, or $0.17 per diluted share.

Excluding the charges related to the litigation judgment at $13.8 million and our pre-tax gains from changes in fair value of derivatives embedded within our convertible debt, second quarter 2010 net income was $19.6 million, or $0.26 per diluted share.

Vector Group revenues for the six months ended June 30, 2011, were $551.6 million compared to $490.5 million in the 2010 six-month period. The Company recorded operating income of $69.4 million in the 2011 six-month period compared to operating income of $52.1 million in the prior-year period. Excluding a $14.4 million pre-tax charge related to the litigation judgment in 2010, operating income was $66.5 million for the 2010 six-month period.

Net income for the 2011 six-month period was $49.7 million, or $0.64 per diluted share compared to $31.2 million, or $0.39 per diluted share, in the 2010 period. Excluding pre-tax gains from the liquidation of long-term investments of $23.6 million, changes in the fair value of derivatives embedded within our convertible debt of $8.9 million, and the sale of a town home of $3.7 million and a loss on the extinguishment of debt of $1.2 million, net income for the six months ended June 30, 2011, was $28.5 million, or $0.37 per diluted share.

Excluding the charge related to the litigation judgment and $11.1 million of pre-tax gains from changes in the fair value of derivatives embedded within our convertible debt, net income was $33.2 million, or $0.44 per diluted share, for the six months ended June 30, 2010.

I will now turn the call over to Ron Bernstein for a review of the performance of our tobacco business. Ron?

Thanks, Howard, and good morning to everyone. As Howard mentioned, we continued to be squeezed with the performance and growth of our tobacco operations in the second quarter of 2011 in a demanding environment. We are particularly pleased that we were able to increase both retail and wholesale shipments during another period in which the overall industry continued to decline.

It has now been more than two years since we implemented our tobacco growth strategy in conjunction with the April 1, 2009, federal excise tax increase. And based upon our execution to date, we continue to feel positive about the course we're on. I will elaborate more on our performance in a moment, but first let me turn to the financials. Please note that financial reporting for Vector Tobacco is combined with Liggett.

For the three and six months ended June 30, 2011, Liggett revenues were $291.2 million and $551.6 million compared to $268.5 million and $490.5 million for the corresponding periods in 2010. Operating income for the three and six months ended June 30, 2011, was $42.2 million and $78.6 million compared to $26 million and $61 million in 2010. Operating income in the second quarter of 2010 included a $14.4 million pre-tax charge related to a litigation judgment.

Turning to market performance, despite conditions that have become more challenging, we continued our trend of driving market share growth in the second quarter of 2011. According to Management Science Associates, for the quarter ending June 30, 2011, Liggett's wholesale market share was almost 3.7%, an increase of more than 0.25 share point over the second quarter of 2010.

In terms of retail data, shipments for the industry decreased by 3.9%, while Liggett's retail shipments increased by over 2.5%. Lorillard was the only other company to realize retail gains for the quarter, on the heels of its recent introduction of a new product, a non-menthol version of its Newport brand.

Liggett's retail market share increased to almost 3.9% compared to approximately 3.6% in the prior-year period. And while second quarter industry wholesale shipments declined by over 1% compared to the prior-year period, Liggett continued to outperform the market, with wholesale shipments growing by almost 6% over the second quarter of last year. The result of all that is that in the first half of 2011, I'm pleased to say that Liggett was the fourth-largest manufacturer in the industry, up from fifth a year ago.

The primary driver for Liggett's volume growth at both retail and wholesale continues to be the strong performance of Pyramid, which was redesigned, repackaged, and reintroduced to the market in April 2009. According to Management Science Associates, through the first half of 2011, Pyramid was the seventh-largest brand in the US in terms of both retail and wholesale shipments and, in addition, was the second-largest discount brand in the country. We continue to see strong acceptance of the brand at the retail and consumer level.

Since the 2009 reintroduction, we have been focused on building Pyramid as a national brand rather than a brand with regional strength. To achieve that goal, we defined benchmarks throughout the US to measure our effectiveness over time. Through the first half of 2011, we continued to see excellent progress in building Pyramid nationwide, with strong increases in distribution through all channels in all geographies.

We expect that progress to continue. With the recent addition of major national chains like 7-11 and a broad range of other important regional chains, Pyramid is now sold in over 65,000 stores nationwide, and we expect that number to continue to grow at a rapid pace.

Importantly, leading into 2011, we carefully increased the price of Pyramid. While this benefited our margins, our pricing approach was designed to keep Pyramid competitively priced, and we believe we have struck the appropriate balance. As a result, we believe Pyramid continues to offer consumers the best value proposition in the marketplace. The brand's continued growth in the first half of the year validates the approach we've taken and reflects Pyramid's strong appeal to adult smokers.

Having said that, it's important to note that industry dynamics in the second quarter of the year remain difficult, and there was significant pricing pressure in the discount category. Additionally, we continue to believe that the big three cigarette manufacturers are putting stringent and potentially anti-competitive requirements on retailers. Of note, all of them, and several smaller companies, increased pricing entering the third quarter of 2011. It is too early to predict how those price increases may affect the market, given the requirements that are placed on some retailers regarding final pricing to the consumer.

In addition, there are also a number of companies that we believe are evading federal taxes by knowingly mislabeling roll-your-own tobacco as pipe tobacco. While this appears to be a clear and blatant violation of US tax law, Congress and regulators have been slow to address the problem, and it continues to grow at an alarming rate. The result of this mislabeling is that the sale of pipe tobacco has increased by 350% following the April 2009 federal excise tax increase. It now represents almost 19 billion cigarette equivalents per year as compared to 2.5 billion cigarette equivalents in the year prior to the tax increase. Importantly, it is our belief that the federal Treasury has been denied more than $1 billion in taxes it expected to collect since April 2009, and we believe that loss will exceed $1 billion for calendar year 2011 alone.

While these and other competitive activities created real challenges in the second quarter, Pyramid continues to grow. Going forward, while we expect competitive market pressures to continue, we do expect Congress to act at some point to end the pipe tobacco tax evasion. In any event, we're prepared to meet these challenges head-on in the marketplace as well as the halls of Congress, and we have been doing so.

As I've discussed previously, since 2005 we have carefully balanced our approach to pursuing volume and margin opportunities in the market. That continues to be the case, and our objective is to achieve sustainable, profitable growth in our business over the long term. So as we have built Pyramid, we have also improved profit margin on our other core brands -- Liggett Select, Grand Prix, and Eve. The margin increases we achieved in other brands, as well as with Pyramid, helped generate the profit growth we attained during the second quarter.

As we've previously explained, Liggett and all companies with an MSA grandfathered market share exemption determine the value of that exemption by multiplying their respective share exemption percentage by taxable industry shipments. These companies, including us, also increased the value of the exemption by an inflation factor of a minimum of 3%. As a result, the historical 2.5% to 3% annual industry decline typically balances with the inflation factor, keeping the value of the MSA exemption relatively stable. However, for each percent that industry shipments decline above 3%, we estimate that we lose approximately $1.8 million of our exemption value.

In 2009, due to the large federal excise tax increase, the industry suffered a taxable shipment decline of 8.6%. In 2010, the taxable shipment decline was 5.4%, which significantly outpaced the wholesale shipment decline of 3.8%. Based upon those numbers and the projections of others, we estimate that shipments will decline in the range of 3% in 2011. First half indications are consistent with that estimate, but it remains subject to change as the year progresses.

As you know, since June 2009, the tobacco industry has been subject to the regulatory authority of FDA. While the process is developing, there continues to be a great deal of uncertainty regarding FDA's regulation, and many open issues remain. We are closely monitoring FDA's various activities, including that of their advisory committees, and we remain confident that we will be able to comply with all aspects of the legislation.

We have been incurring costs associated with the implementation of FDA requirements and will continue to do so in the future. Based on our current estimates, which are subject to change as regulations are issued in the future, we expect the costs to remain in a manageable range and to be absorbed over an extended period of time.

As a reminder, in March 2011 the TIPSAC Advisory Group stopped short of making a recommendation to the FDA to ban menthol, as some speculated they might. The TIPSAC position was considered a positive for the industry, given all the speculation swirling on this issue. However, the process is not complete, as FDA will make the ultimate decision on how to proceed on this and many other issues.

In June, the FDA revealed the nine pictorial images that are scheduled to be required on cigarette packaging and advertising beginning in the fall of 2012. These images, which are rather graphic, will be required to be posted on the top 50% of the front and back of cigarette packs and cartons and will also be required to be on 20% of any cigarette advertising. Liggett is taking steps to plan for this change.

Let me wrap up my comments by again saying that we are very pleased with Liggett's performance through the first half of 2011. Our entire team remains committed to meeting the challenges of a difficult and competitive marketplace while pursuing opportunities that we believe will enhance the long-term strength and profitability of Liggett. There is no doubt that there will be new challenges, but I remain confident that Liggett is well positioned to meet them and to continue to succeed.

Thanks for your attention, and back to you, Howard.

Thanks, Ron. We are pleased with our performance and continue to believe that Vector Group is well positioned. We have strong cash reserves, have significantly grown our market share in the past 27 months, and will continue to benefit from our favorable terms under the MSA.

Additionally, we are proud of the Company's uninterrupted track record of paying a regular quarterly cash dividend since 1995 and an annual 5% stock dividend since 1999. The Company once again reaffirms that our cash dividend policy remains the same.

Now, operator, would you please open the call for questions.

Yes, sir. Thank you. (Operator Instructions.) Fred Burns, Merrill Lynch.

I just wanted to ask you a quick question regarding, I've noticed in the last two or three years that Vector Group's overall debt position is up to somewhere in the neighborhood of about $900 million. And that's up fairly significantly in the last four years or so. I think you were carrying $300 million to $400 million in total debt. So the question that I have for you is, given that your quarterly dividend payments are running around $25 million and that your debt service payments are around $31 million a quarter. And correct me if I'm wrong in those figures and let me know what they are.

But given the fact that we're up around $56 million in debt service and dividends, it seems to me that you seem to be borrowing money in order to continue to finance the payout of the dividend. I want to know how you guys are able to continue this and why you're adding the leverage to your balance sheet, because I don't see you making any other acquisitions.

BK, would you go through the numbers?

I will. Okay, Fred, let's start with the total debt that I'm getting at principal or face value is around $696 million. Of that number --

Let me just stop for a second. So I don't know where you got $900 million.

If you look on the balance sheet that's reported on various, like Yahoo Finance, it shows the total debt of the organization at about, I think, $900 million, including revolvers, term debt, and just overall debt of the organization, not just the bond debt.

Go ahead, BK.

Okay. Let me get, I need to get him the convertible number, because obviously, the convertible debt is in the money, right?

Look, how I look at the balance sheet, okay, different from you, is the fact that when you take out the convertible debt --

It's around $256 million.

All right. When you take out the convertible debt and look at the balance, and then you look at our cash and cash from investment equivalents, they're about equal. So I view the balance sheet completely different than you view the balance sheet.

The question that is, why is the -- if you guys are keeping that amount of cash on the balance sheet and you're borrowing at 11%, A, why have you, what are you using all that cash for? You're not making any acquisitions, you're not adding to any significant real estate purchases. Why pay the 11% coupon to the bondholders and not be doing something with that?

Well, that's not accurate. First of all, we just made, went to contract on a $190 million acquisition of the Toy Building in Manhattan in partnership with Steve Witkoff, which will be a project, probably, by the time we're done, of over $300 million. It will be a conversion to residential.

Okay.

So that's one. That just happened. It was in the newspapers about four or five weeks ago. Second of all, I think we've done a good job of finding interesting situations for acquisitions, some of them being public companies where we didn't get far enough to actually make an acquisition, but we made substantial gains in the equities of those companies.

That's correct.

And third of all, we'd like to have the cash for opportunities like yesterday and what may come in the future. So we're very comfortable, this management is very comfortable with operating the balance sheet the way it is. And I think the results have shown, over the years, with the continuation of our dividend, that we've done a good job of taking care of the shareholders, and at the same time managing our cash in a reasonable fashion.

Thank you.

Ken Bann, Jefferies.

Yes. You mentioned in the Q that you've recently increased the prices on Eve, Liggett Select, and Grand Prix. I was just wondering, those price increases, were they in line with the price increases of competitive products? And did you see, on the wholesale or the retail side, people loading up on those products in inventory before the price increases during the quarter?

No. Actually, our price increases on those brands preceded the price increases from Philip Morris, Reynolds, Lorillard, and Commonwealth. So we govern our strategy relative to pricing, relative to what we're reading in the market and what we see as opportunity. So we took an increase. There was not any real anticipation of it, because nobody knew we were doing it. So there was no real loading associated with it. And then shortly after we raised prices, the rest of the industry raised prices. And so there was no real impact to us one way or the other.

So on a relative basis, they're still priced at the same discount as they were previously. Is that what you're saying?

Yes.

And all the growth in units, I presume, in the quarter was from the Pyramid brand?

Yes, that's correct.

And did the other brands, did they decline in units?

Yes, they did.

Can you tell us by approximately how much they were declining in units?

We haven't been giving out that data, but the bottom line is, the way that we're managing this is to assure that we have net growth, and that's what we were able to achieve.

Okay. And are you -- you had big sales and long-term investments in the quarter. Are you contemplating selling other of your long-term investments over the near term, and can you talk a little bit about that sale in the quarter?

I think the sale, I guess, was the Strategic Hotel Group, BK?

No. What he's speaking about is, there were two sales. One was a liquidation of the ICON Fund with about a $19.5 million gain, and then the other was, we did have a small gain from the last of the Strategic sale, and that was $1.5 million. And we recognized $20.5 million on that.

We're happy to say that we're very liquid. We really like what we have in our portfolio now. We don't talk about individual securities. We don't have a lot. And the ones we do have are still up substantially, so we're comfortable with our management portfolio.

And the ICON Fund liquidation -- was that basically your decision?

No, he decided, actually. Funny, he decided two things. Number one, when he looked at his money he was managing, the bulk of it was his anyway. And number two, with these new SEC rules that were coming out. And number three, he was very concerned about the market. I happened to see him yesterday, and I think he was right on all aspects. Of course, for himself personally, he probably hurt himself on what he did, but he was concerned about the market. So we got out, along with everyone else.

Right, okay, great. All right, thank you.

(Operator Instructions.) Mitch Pindus, Wells Fargo.

Actually, my question is mostly directed at Ron. Ron, it seems like you're doing a great job with the Pyramid. I'm seeing them now at 7-11's around town. I'm seeing them in other states. I see signage outside. Are there any plans to start getting back into the international market, as you've been out of it now for, what, 10 to 12 years?

Yes. We've pretty much -- it's been about 11 years, I think, since we got out of the international markets. And we have believed, and continue to believe, that there are significant opportunities for us in the US market because of the advantages that we have because of our MSA exemption. And we're trying to build on that and build profitable margin on top of that. And so far, that's going in a good direction.

The international markets have continued to be hyper-competitive. And while we would evaluate situations that came up on a case-by-case basis, we're not focused on the international markets. We believe we have a lot of upside opportunity in the US market.

I understand. So if I remember right, the market share last year was roughly 3.5% in 2010. What are you running now?

On a retail basis, we're just under 4%.

Just under 4%. And the MSA exemption is up to -- what is it, just under 2%, I believe, right?

1.92% of the market, yes.

So what are your margins for that, up to 1.92%, and then for everything above that? How do they compare?

We don't look at it that way. Basically, our goal is to have positive margin on all of our brands. And if you look at the range of our profitability, we are about at reaching profitability that's equal to, at this point, our MSA exemption. We have anticipation of it increasing beyond that.

As you know, historically we've operated at a deficit to the MSA exemption because of the competitive environment that's existed over these years. So what we're doing is building ourselves up to that and getting above it. But all of our brands are priced at a level where they should be profitable above the cap.

Okay. Switching gears for a moment, I have seen that you've been putting some of that money to work. And, Howard, I was wondering if you could talk about some of the recent acquisitions you've made. I saw about the -- there's a lot of info out about the Toy Building that you're buying. Can you talk about some others?

The only new one really is, right now, the Toy Building, which we haven't closed on yet. We're in contract to purchase it. We have bids in on another building which is residential, a rental building that would be converted to condos. We still have the development site that we're doing the foreclosure on, which we're getting closer on, so that will be a major project. So I think we're positioned well with the real estate.

Also looking at potential expansion of the Douglas Elliman name. When our franchise agreement with Prudential expires in about 16 to 18 months, we're considering what to do about that. One of the negatives to it is the fact that we're restricted in certain areas where they have given out other master licenses. We actually have people coming to us wanting to franchise the Douglas Elliman name. So we're probably going to do something with that.

So we have a lot of different things going on, and we're being careful, again, with our cash. But I think our strategy has worked. The investments we did make have turned out pretty well. So unless the market goes down 500 points every day, I think we're in good shape.

So when you close on the Toy Building, how much cash do you anticipate having after what you're allocating toward the reconstruction, or I should say the development of that project?

I don't know yet on the financing. I guess it's changed this morning from last week. So I can't tell you how much cash we're putting in. So I really can't answer the question because I don't know yet anyway.

Okay. All right, thanks, guys.

Tito Weisberg, Caspian.

I had a question. If you're looking at the gross margins as a percentage of revenues, this quarter those were roughly flat. How can we better understand it? Like the price increases aren't real high, and what percentage of the revenues are deriving Pyramid and from the other brands in terms of trying to model out, like what's going to happen in the next couple of quarters?

Yes, the simple way to look at it is as we reported over the last -- since we reintroduced Pyramid in 2009 -- that in 2009 and 2010, we were investing into the growth of Pyramid. And we have been modestly increasing our prices so that we are not in a net investment mode anymore. So as Pyramid's volume goes up -- and remember, volume is a very powerful thing. I'm just going to use a round number. If you have a 10-billion-unit brand and you can raise it by $1.00, that equates to $50 million to the bottom line. So the key in terms of our strategy is building Pyramid so that we can get the economies of scale when we raise pricing and generate more profit to the bottom line.

So we are in the process of doing it, and the fact that we are increasing our volume and our profit while we're doing that reflects the fact that we have been able to generate more margin off of the other brands, even as they are declining, and also starting to generate margin on Pyramid while it still is growing.

Okay. Have you provided information on how many units you are currently running on Pyramid?

No, we have not.

Oh, you have not. Okay.

Ken Bann, Jefferies.

My question has already been answered. Thank you.

Jake Blair, Highbridge.

I just have heard you repeat a few times on this call the notion of your real estate investment track record having been beneficial to shareholders. And I question that a bit, because I've tracked the cash flows in and out of the business, and they have, frankly, not been particularly attractive returns. And so I'm curious. Obviously, you've done well with the stock portfolio, and ICON was a welcome relief from -- well, spared you from yesterday, I'm certain.

But what's different about the investments that you've made recently with shareholder money, the Toy Center, et cetera, than when you approached Aberdeen? You may actually make some money on Chelsea 11 if you sell the penthouse. But again, I question your judgment over the course of the last five or six years. And so now you're again using shareholder money, and I'd like to hear how you're thinking about this differently, given the amount of money you've put out in the last year. Thanks.

I think probably we don't agree with your assessment, so let me start with that. So if you look at the investments right before the market crashed, right before the real collapse, we managed to end up, we'll be getting a fairly decent return on our Chelsea investment. Even at the lowest price we think the penthouse will sell for, we're still thinking of a mid-teens. Is that about right, BK?

That's correct.

Mid-teens investment over the worst economic crisis that any of us have probably lived through. Aberdeen, we ended up with a small, small loss. It depends on what you call real estate acquisitions, okay? I'd look at things like Douglas Elliman as a real estate brokerage as opposed to real estate, but basically, that has been a phenomenal investment.

Yes, look, I wouldn't argue with that. I think Douglas Elliman has been such an attractive thing for this Company. And frankly, I'd maybe even at some point encourage that we see some of the results from that matriculate to the shareholders in a more meaningful way than the incremental dividend. But again, look --

I know other real estate investments like one of the hotel REITs that we went in to try to recapitalize and the stock ran up, and yet we made a very substantial profit on a small investment. What was that profit, BK?

$20.5 million.

Right. And how much did we invest?

Just a minute. I think the number was around $10 million.

In a very short period of time, right?

Now, look, we can debate this stuff we can't see, which is unfortunate, because I don't know how to follow those numbers, given -- .

Well, I think we invested about $10 million and we sold it for $30 million profit.

Okay, well, I'm glad to hear that. But the numbers I can follow, it looks to me like you guys -- and I'm giving you your mark at Chelsea 11, I'm giving you your mark at Ascena. But you put $86 million out between Koa, Regis, Ascena, Aberdeen, Chelsea 11, and you've gotten back $73 million.

My issue is, again, you're using a lot of money. And I think the first caller, who didn't, unfortunately, have the benefit of the appropriate debt levels in front of them to ask this question, is a valid one. You've used a tremendous amount of shareholder money, we're in a terrible New York City real estate market, there is enough investment bankers being fired to question the sale of any future luxury condo, and yet we haven't seen any material increase in the dividend despite the tremendous amount of cash and very high cost of borrowing.

So if you have plans to think about that differently, I'd like to hear it. If not, I think it's appropriate to tell people how you're going to, what you think the difference in these most recent acquisitions is versus what's happened more recently.

Again, your assessment of the Manhattan real estate market is completely erroneous. We see the data every day, so the market has been very good in the last year to year and a half, especially at the high end. And I think the rest --

Then why didn't the last Aberdeen townhouse sell for more?

That was a cost problem. We had a partner that, obviously, didn't perform what they were going to perform, and that was really a cost problem. It was a cost issue, not a sales issue. Okay? I don't think I have any other comments to make on the subject. Operator, are there any other calls?

I'm showing no other questions in the queue, so I'll turn the call back over to you, Mr. Lorber.

Well, thank you all for being on this call. And as always, we're happy to answer any questions. You can always call myself or BK regarding Vector and Ron Bernstein regarding any Liggett questions. And we thank everyone for being on this call. Have a good day.

Thank you, ladies and gentlemen. This concludes today's teleconference. You may now disconnect.