WD-40 Co (WDFC) 2016 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Good day and welcome to the WD-40 Company second fiscal quarter 2016 earnings conference call. Today's call is being recorded.

(Operator Instructions)

I would now like to turn the presentation over to the host for today's call, Ms. Wendy Kelley, Director of Investor Relations and Corporate Communications. Please proceed.

Thank you. Good afternoon and thanks to everyone for joining us today. On our call today are WD-40 Company's President and Chief Executive Officer Garry Ridge and Vice President and Chief Financial Officer Jay Rembolt.

In addition to the financial information presented on today's call, we encourage investors to review our earnings presentation, earnings press release, and Form 10-Q for the period ending February 29, 2016. These documents are available on our Investor Relations website, at investor.WD40company.com. A replay and transcript of today's call will also be made available at that location shortly after this call.

On today's call, we will discuss certain non-GAAP measures. The descriptions and reconciliations of these non-GAAP measures are available in our SEC filings, as well as our earnings presentation.

As a reminder, today's call includes forward-looking statements about our expectation for the Company's future performance. Of course, actual results could differ materially. The Company's expectations, beliefs and projections are expressed in good faith, but there can be no assurance that they will be achieved or accomplished. Please refer to the risk factors detailed in our SEC filings for further discussion.

Finally, for anyone listening to a webcast replay or reviewing a written transcript of this call, please note that all information presented is current only as of today's date, April 7, 2016. The Company disclaims any duty or obligation to update any forward-looking information, whether as a result of new information, future events or otherwise. With that, I'd now like to turn the call over to Garry.

Thanks, Wendy. Good day and good afternoon from, believe it or not, a wet and rainy day in San Diego.

Today we reported net sales of $94.6 million for the second quarter of FY16, which was a decrease of 3% from Q2 of last fiscal year. Net income for the second quarter was $13.7 million compared to $11.3 million in Q2 last fiscal year, an increase of 21% year-over-year. Diluted earnings per share for the second quarter were $0.94, compared to $0.76 for the same period last fiscal year.

As we review our results for the second quarter, we will be doing so under the umbrella of our 55/30/25 rule and our strategic initiatives. While global sales continue to be negatively impacted by changing foreign currency exchange rates, our gross margin has increased to over 55% in the second quarter, which has contributed to the record net earnings and diluted earnings per share.

Before we dive into the sales results, let's take a moment to review our strategic initiatives, as well as our long-term targets. Strategic initiative number one is to grow WD-40 Multi-Use Product. Our most important strategic initiative is to take the blue and yellow can with the little red top to more places for more people who will find more uses more frequently. We believe we can grow WD-40 Multi-Use Product to approximately $600 million revenue over the next 10 years.

Although global sales of Multi-Use Product were down 4% in this quarter compared to last year, we saw growth of the Multi-Use Product sales in the Americas. The declines we saw in our other trade blocks were primarily due to the unfavorable impacts of foreign currency exchange rates, unstable market conditions in Russia and the timing of customer orders in the Company's Asian distributor markets. Additionally, our new EZ-REACH product continues to exceed our original assumptions and end user feedback thus far has been positive.

Strategic initiative number two is to grow the WD-40 Specialist product line. Our goal under this initiative is to leverage the power of the shield to develop new products and categories within defined geographies and platforms. We believe we can grow WD-40 Specialist to approximately $125 million in revenue over the next 10 years.

In the second quarter, sales of WD-40 Specialist were $5.4 million, which represents a 20% increase over the second quarter of last year. We are optimistic about the long-term opportunities for the WD-40 Specialist product line; however, there will be some volatility in sales along the way, due to the timing of promotional programs, the launch of new product offerings, and the building of new distribution.

Strategic initiative number three is to broaden product and revenue base. Our goal under this initiative is to leverage the recognized strengths of WD-40 Company to derive revenue from new sources and brands. A great example of how we have executed against this strategic initiative is the small acquisition we made in 2004 of GT85. GT85 is a multipurpose maintenance product sold mainly in the United Kingdom in the bike trade channels.

In the last 18 months, we have successfully integrated the brand into our line of products in the United Kingdom, it has been given a refreshed tray dress to appeal to bike enthusiasts, and we have expanded the GT85 product line to include a wet lube, a dry lube, a degreaser, a cleaner, a silicon shine, and a bike wash. GT85 has become the poster child for what a great acquisition looks like for us.

Strategic initiative four is to attract, develop and retain outstanding tribe members. Our long-term target under this initiative is to grow employee engagement to greater than 95%. At the end of the second quarter, we had a total of 437 tribe members globally. We took our biannual employee engagement survey earlier this year; and I'm happy to report our overall global employee engagement score remains the envy of many organizations, at 94%.

A question I get a lot is how do we maintain our culture in a growing organization? In the last two years, we've grown our headcount by over 10% and many of these tribe members are spread out all over the world. We cultivate high employee engagement by creating a culture based on care, candor, accountability and responsibility, guided by our values and nourished by learning. Our employee engagement score is a reflection of the way of life at WD-40. It's truly about the people at WD-40 Company.

Strategic initiative number five is operational excellence. Our goal under this initiative is best summarized by one of our core values here at WD-40 Company, make it better than it is today. We are continuously focused on optimizing resources, systems and processes, as well as applying rigorous commitment to quality assurance, regulatory compliance and intellectual property protection. We measure ourselves against this operational excellence initiative by executing against our 50/30/25 business model and by making improvements to the processes and systems, while safeguarding the blue and yellow can with the little red top.

We continue to make progress on several initiatives, including transitioning all of the 50 US states to the lower VOC formula we launched in California in FY14, focusing on category leadership all around the globe, and continuing to implement the upgrade of our ERP system in EMEA.

That now completes the update on our strategic initiatives, so let's move on to more details of our second quarter results, starting with sales. Consolidated net sales were $94.6 million in the second quarter, down $2.7 million versus last year. In the second quarter, we generated approximately 40% of sales in currencies other than the US dollar. Therefore, changing foreign currency exchange rates continue to be a significant headwind for us. If you were to remove all of the foreign currency exchange impacts, our consolidated revenue would have been $98 million, up slightly over the second quarter of last year.

Consolidated net sales were reduced by about $3 million due to the impact of the strengthening of the US dollar against the functional currencies of our subsidiaries. This is what we refer to as translation-related exposure, or constant currency, and it impacts reported results in Canada, Australia, China and the EMEA segment. In addition, consolidated net sales were reduced by about $400,000, primarily due to the weakening euro against the pound sterling. This is what we refer to as transaction-related exposure, and it only impacts reported results in our EMEA segment.

Now let's take a closer look at what is happening in the individual segments. Our second quarter results are really a true reflection of the diversity of our business across geographies, trade channels and economies. We'll start with the Americas.

Consolidated net sales in the Americas, which includes the United States, Latin America and Canada, increased to $45.5 million in the second quarter, up about 2% from last year. On a constant currency basis, sales in the Americas for the second quarter would have increased to $45.9 million, up 3% compared to prior year.

Sales of maintenance products increased about 3% in the Americas, primarily due to higher sales of Multi-Use Product in Latin America as a result of higher levels of promotional activities and increased sales of WD-40 Specialist in the US, driven primarily by new product introductions. In the US alone, maintenance product sales increased by about 3%, driven primarily by the added distribution of WD-40 EZ-REACH and promotional activities.

Maintenance product sales in Latin America were up 23% in the quarter, due to the timing of customer orders and the success of certain promotional activities, particularly those in Mexico and Chile. As a reminder, we sell our products in US dollars in Latin America, so currency does not impact our reported results in this region.

The increases were partially offset by declines in maintenance product sales in Canada, which were down 32% during the quarter. These declines were primarily due to the changes in foreign currency exchange rates, as well as lower sales associated with unstable market and economic conditions in Western Canada as a result of suppressed activity in the oil industry.

Our maintenance products exclude our home care and cleaning products. We continue to consider our home care and cleaning products, particularly those in the US, as harvest brands that continue to generate meaningful contribution and cash flows but are generally expected to become a smaller part of the business over time. Sales of our home care and cleaning products in the Americas during the second quarter decreased about 4% from last year.

Let's jump across the pond now and take a look at EMEA. Consolidated net sales in EMEA, which includes Europe, the Middle East, Africa and India, decreased to $35.6 million in the second quarter, down about 8% from last year, primarily due to the negative impacts of foreign currency exchange headwinds, as well as continued unstable market conditions in Russia. On a constant currency basis, sales in EMEA would have decreased by $1.2 million, or 3%, when compared to the prior year period.

We sell into EMEA through a combination of direct operations, as well as through marketing distributors. Reported consolidated sales in the EMEA direct markets, which accounted for 67% of the regional sales, increased 1% during the quarter, to $23.8 million.

It's also helpful to look at our results in local currencies in which we conduct sales transactions in our direct markets. In pound sterling-based direct markets, sales decreased by 5% in the quarter, primarily due to decreased distribution in the retail channel in the UK. In euro-based direct markets, sales increased by 17% in the quarter, primarily due to increased sales of WD-40 Multi-Use Product and WD-40 Specialist.

Now let's turn to our EMEA distributor markets, which accounted for 33% of EMEA sales during the second quarter. Distributor markets sales decreased 22% in the second quarter, to $11.9 million, due primarily to a 34% decrease in sales in Russia as a result of unstable market conditions in the region. Although market conditions have begun to stabilize, we experienced significant declines in the second quarter of this year compared to the second quarter of last year.

Now let's look at Asia-Pac. Consolidated net sales in Asia-Pacific, which includes Australia, China and other countries in the Asian region, decreased to $13.4 million in the second quarter, down 4% from last year. Changes in foreign currency exchange rates had an unfavorable impact on sales. On a constant currency basis, sales in Asia-Pacific would have been $14.1 million, an increase of 1% compared to last year.

In Australia, net sales in US dollars were $3.9 million in the second quarter, down 7% compared to last year. In its functional currency, the Australian dollar, sales were actually up 7% in the quarter. This growth was due to increased distribution and the continued growth of our maintenance products business.

In China, net sales remained relatively constant compared to last year, at $2.9 million. In its functional currency, the Chinese RMB, sales were up 1% for the quarter. This growth was due to an increased distribution, particularly in southern China, and higher levels of sales resulting from promotional activities. We are optimistic about the long-term opportunity in this region, although we expect a lot of volatility along the way due to the timing of promotional programs, the building of distribution, shifting economic patents, and a varying amount of industrial activity.

In our Asian distributor markets, sales were $6.5 million in the quarter, down 2% to last year. This decline in sales was driven primarily by the timing of customer orders. Our Asian distributor markets are not impacted by currency translation, since we sell our products in US dollars in that region. So I'm going to take a break and I'm going to hand it over to Jay, who will continue the review of the financials. Thanks, Jay.

Thank you, Garry. First, let's take a moment and review that 55/30/25 rule, the long-term horizon targets we use to guide our business.

As you may recall, the 55 represents gross margin, which we target to be at 55% of net sales. The 30 represents our cost of doing business, which is our total operating expenses excluding depreciation and amortization. Our target is to be at 30% of net sales. Finally, the 25 represents EBITDA. If our gross margin is 55% and our cost of business is 30%, our EBITDA will be very close to 25%.

First, the 55. In the second quarter, our gross margin was 55.4%, compared to 52.6% last year. Gross margin was positively impacted by 300 basis points from major input costs and another positive 70 basis point impact from various other items. These gross margin improvements were partially offset by changing foreign currency exchange rates and higher advertising and promotional discounts, which had an adverse impact on our gross margin of about 90 basis points.

Starting with our major input costs, which include petroleum-based specialty chemicals and aerosol cans, crude oil is really one of the primary feedstocks of our petroleum-based specialty chemicals and falling oil prices have been a net positive for our gross margin. However, as we've seen, it's quite impossible to predict what crude oil prices will be tomorrow or the next year.

When the cost of our crude oil goes up in the future, we will most likely see some pressure on our gross margin, although, as we've said, our long-term gross margin target of 55% is not contingent upon oil staying at any particular price point. We cannot control the global market dynamics, such as the price of crude oil or fluctuating currencies, but we will continue to be focused and deliberate in managing the rest of our business so that we can maintain our gross margin at a level close to our target of 55% over the long-term.

Let's talk briefly about some of those other items that impacted gross margin in the second quarter. Isolated price increases that we implemented in the last 12 months had a net favorable impact on gross margin of 30 basis points. These were implemented in Asia-Pacific in the third quarter of 2015 and EMEA over the last year.

Gross margin was also positively impacted by 40 basis points due to sales mix changes and other miscellaneous items. This improvement was primarily driven by sales mix shift in EMEA, where a higher percentage of our sales took place in our higher margin direct markets compared to last year. These improvements to gross margin were partially offset by changing foreign currency exchange rates.

In the second quarter, foreign currency exchange rates adversely impacted our gross margin by 20 basis points. This is because in EMEA, our cost of goods are primarily sourced in pound sterling, while approximately 45% of our revenues are generated in euros, 30% in pounds sterling and the remaining 25% US dollars. The euro deterioration against the pound more than offset any benefit from the strengthening US dollar. As a result, revenues in total were worth less in pounds sterling, thus decreasing our gross margin.

Higher advertising and promotional discounts also had an unfavorable impact on our gross margin of 70 basis points. The cost of promotional activities, such as sales incentives, trade promotions and cash discounts that we give to our customers, are recorded as a reduction to sales. The timing and magnitude of these activities can cause fluctuation in gross margin period to period.

Now, a look at the 30, our cost of doing business. In the second quarter, our cost of doing business was approximately 35%, compared to the 33% last year. In the second quarter, the reported revenue decline, as well as increased SG&A expenses, negatively affected our cost of doing business percentage.

While our target is to have our cost of doing business at 30% of net sales, we plan to continue to make investments in support of our fifth strategic initiative, operational excellence. This includes investments in quality assurance, regulatory compliance and intellectual property protection in order to safeguard our blue and yellow can with the little red top. We expect to move closer to our long-term target of 30% over time as revenues grow.

For the second quarter, 79% of the cost of doing business came from three areas, people costs, or the investments we make in our tribe; also the investments we make in marketing, advertising and promotion. As a percentage of revenue, our A&P investment was 5.3% in the second quarter. And then freight costs, the cost to get our products to our customers.

That now brings us to EBITDA, the last of our 55/30/25 measures. EBITDA was 22% of net sales in the second quarter, compared to 18% in the second quarter of last year. This increase was primarily driven by the improvements to gross margin that I discussed earlier.

That completes the discussion of our 55/30/25 business model for the current quarter, but now I will discuss a couple of other items worth noting. We recorded foreign currency exchange gains of $1.3 million within our other income and expense in the second quarter. This is compared to $1.5 million in losses last year. This significant change was primarily due to the relative movement in foreign currency exchange rates, as well as the fluctuation of nonfunctional currency balance sheet accounts, particularly those associated with our UK subsidiary.

The provision for income taxes was 28% in the second quarter, compared to 29.6% last year. The lower tax rate was driven by increased taxable earnings generated from foreign operations which are taxed at lower tax rates, as well as the permanent extension of the R&D tax credit.

Net income for the second quarter was $13.7 million, versus $11.3 million in the prior year. Changes in foreign currency exchange rates had an unfavorable impact of $600,000 on the translation of our consolidated results this quarter.

Diluted earnings per common share were $0.94 in the quarter, compared with $0.76 for the same period last fiscal year. Diluted weighted shares outstanding decreased to 14.4 million shares from 14.7 million shares a year ago.

Now a word about our capital allocation. We continue to return capital to our shareholders through regular dividends and share repurchases. On March 22, our Board of Directors approved a regular quarterly cash dividend of $0.42, payable April 29 to stockholders of record at the close of business on April 15. Based on today's closing price of $107.04, the annualized dividend yield is 1.6%.

During the second quarter, we repurchased a total of 69,000 shares of our stock at a total cost of approximately $7 million under our share repurchase plan. Our latest share repurchase plan became effective March 1, 2015 and it provides authorization to acquire up to $75 million of the Company's outstanding shares through the plan's expiration date of August, 2016. As of the end of the second quarter, we had $44.2 million remaining under the plan. Since the beginning of FY11, the Company has repurchased over $200 million in shares.

So with that, let's turn to our FY16 guidance. We strengthened our earnings guidance to take into account today's lower crude oil prices, but we've also lowered our guidance for net sales. Assuming foreign currency exchange rates remain close to current levels, net sales growth is projected to be between 2% and 4%, or between $385 million and $394 million.

Gross margin for the full year is expected to be around 55%. Advertising and promotional investments are projected to be between 6% and 6.5% of net sales. And net income is projected to be between $49 million and $50 million. Diluted earnings per share is expected to be between $3.40 and $3.47, based on an estimated 14.4 million weighted average shares outstanding.

As a reminder, this guidance does not include any future acquisitions or divestitures and assumes currency exchange rates and crude oil prices will remain close to current levels for the remainder of the fiscal year. That completes the financial overview. I'll turn it now back to Garry.

Thanks, Jay. Let's summarize what you heard on the call today from us. You heard that foreign currency exchange rates continue to be a headwind and reduced our net sales results by approximately $3.4 million. You heard that our second quarter results are a true reflection of the diversity of our business across geographies, trade channels and economies.

You heard that the Americas segment is performing well and in line with our expectations, with a 3% growth of maintenance product sales in the second quarter. You heard that our second-quarter sales for WD-40 Specialist were $5.4 million, which represents a 20% increase over the second quarter of last year.

You heard that most of our direct markets in EMEA continue to grow in their local currency transaction currencies. You heard that crude oil prices continue to be a tailwind. You heard that net income and earnings per share both set new records in the second quarter. And you heard that we revised our FY16 guidance to reflect our current view of market conditions and the business environment.

In closing, I'd like to share a quote with you from Ralph Marston. "Start strong, stay strong and finish strong, while always remembering why you are doing it in the first place."

Thank you for joining us today. We'd be pleased to now open the conference to your questions. Back to the operator.

(Operator Instructions)

Liam Burke, Wunderlich.

Thank you. Good afternoon, Garry. Good afternoon, Jay.

Hello, Liam.

Garry, the sales in the Americas were pretty strong, particularly in the US, up 3%. Was there any particular strength in the -- was there any promotional benefit you had or was there anything in the MRO industrial channel that was particularly strong, or did you just see across-the-board strength?

There's nothing we would necessarily call out, Liam. I think that business in hardware home improvements is doing reasonably well. We certainly had some benefit from EZ-REACH. And of course, Specialist was up across all trading blocs, which included the US. We launched a new Specialist product called Spray Gel in the quarter, which was well received. So I think overall our development of our maintenance product strategy in the US is meeting our goal at the moment.

New product introductions or the brand extensions provided a lot of lift this quarter. Is that what you're saying?

I wouldn't say, given that the total sales of Specialist were only $5.4 million across the globe. But certainly, they've delivered incrementally to our business in the US.

Okay. And Jay, for the first half of the year, the cash flows were down year-over-year. Is there anything that you would anticipate you not reaching your free cash flow objective for the full year?

Not at this time. We've had a strong second quarter, and the timing of the sales in the second quarter pushed our AR up. And we also had some increases in our inventories to help facilitate the transition to the new 50-state [via] California formula. Some of it's, I would say, just timing and event driven.

Okay. And on the inventory front, the investment, the incremental investment you made as you redid your distribution channel, are you through that series of investment?

As far as the impact on cost, yes. Yes.

Okay. Great. Thanks, Garry. Thanks, Jay.

About a couple of years ago, we got beyond that.

Okay. Thanks, Jay.

Linda Bolton Weiser, B. Riley.

Hello. Thanks. It was raining here today in New York, as well. But anyways, it was interesting what you said about the impact on your Canadian business of the oil industry downturn. I'm just curious, would that be something that would appear in some other regions of the world or is that Canada has the biggest exposure, but what about the US? Is there oil industry impact there?

There has been a little. But I think the extent of it in Canada is much larger in the Western regions of Canada. We did see a reasonable impact on our business in supplying the oil industry there that was much more material to the Canadian business than it is to the US business. Jay, do you have a comment on that?

If you just look at the Canadian economy in total, that they're much more dependent on the natural resources than the US economy is at this time.

Okay. And then you mentioned something in the UK business about, I think, losing some distribution or is that in the B2B business or is that at retail? And if you've actually lost some distribution, is that a negative impact now for a couple of quarters until we anniversary that affect?

No. I think it's more event driven. We were talking about primarily the UK in pounds in the quarter. It's not anything that we would be alarmed about. I think we'll just see it, we have other efforts in the remaining part of the year. So it's not a trend. It was more of an event driven. But we weren't delisted from anybody.

Okay. Got you. And then on the change in your sales guidance, if you really analyze the FX changes since you last reported, I really think there hasn't been that many real material changes.

Correct.

Okay. So the reduction in your guidance is kind of more excluding all the currency impacts, you're expecting less growth?

What we would have hoped is we would have picked up a little from the first quarter. But it's really the impacts of, if you look at where it is, it's Canada and it's Russia are the two biggest areas, currency flowing through. So we're expecting to have more volume growth in the third and fourth quarter than we had in the first and second. We just won't make up a little bit we would have liked to have made up.

Okay. And on the topic of Russia, just studying over the comparisons for that piece of your business, I think next quarter, in the third fiscal quarter, you start to come up against the easy comparisons.

Absolutely correct. This quarter was the worst comparison. It dropped off substantially in the third quarter.

Right. So I was actually thinking, I was modeling that that EMEA distributor market would actually be up a little bit in the third and fourth quarters. Is that a reasonable assumption or not?

We think it should be leveling out now. I think the impact is we're about to lap the major impact. But due to last year, we started to see a revival in the business in Russia, and then it just went in the basket again and it really dropped off in the third quarter. So we would think that it's going to start to stabilize now.

Okay. So it sounds like maybe flattish rather than up

I would be more comfortable with flattish.

Okay. Got you. And then just in terms of the low petroleum-based input costs that we're seeing that's been helping your gross margin, are you starting to see any pricing come down competitively? Are competitors reacting to that and starting to see lower pricing or less ability to price up, I guess?

It's also what we're seeing, and it's actually reflected in our results when we talk about the reduction in gross margin due to discounts and allowances, what we are doing is supporting our customers somewhat with promotional events to offset the unpredictable nature of oil. Some others are probably doing that, as well.

I don't think we look at that as a competitive threat really, Linda. But we certainly want to make sure that we're doing the right thing in passing any sustainable value through to our end users. The challenge we continue to have is this oil thing is really hard to manage. We are running some promotional activities in different markets to support passing through to the end user, not necessarily to offset any competitor activity.

Right. Okay. All right. And then it sounds like EZ-REACH is going quite well. And I think you had said maybe by the end of the fiscal year, it would have pretty full distribution in the US. Is that still the case?

We hope so. We're certainly now at a position to be able to supply the whole US market. Initially, our reduced distribution was due to our ability to ramp-up automation to make one of the critical components. We're now through that and we are able to get full distribution or supply the market. We'll then be looking at our needs to take it to some of the other appropriate markets around the world. Australia and Europe, some of the European countries will be the first ones.

Do you think international sales could occur as early as the first quarter of FY17?

Maybe. But more likely the second quarter, I would think.

Okay.

We're just in the middle of our business planning process right now for FY17. So I know a number of markets are looking at their opportunities to include EZ-REACH in their launch plans. Those business planning activities won't be completed for a few weeks, and then they have to all be signed off. So that will be compared against available volumes to make sure that we can meet our promises. We will be taking EZ-REACH to the appropriate markets around the world in a deliberate and planned manner.

Okay. And then in the Asia distributor markets, this has come up as a mention a couple of times. I know there was a transition issue a year ago or so. Is the issue that you keep mentioning there, is that a macro thing or is it just your execution with distributors?

It's just timing. Currently, we ship most of the distributor market business for Asia out of Long Beach in California. Because most distributors buy in large volumes, you can have sales flop around quarter to quarter. We are going to see growth in the Asian distributors in the full year, just as we did last year. But it's just a timing issue. So it's nothing we're really overly -- sorry, it's nothing we're concerned at all about.

We're happy with the way the Asian distributor markets are tracking. And what you're seeing, as you would realize, is not unusual. That's why you remember the different events that we talk about. We bring them up so we make everybody aware of them. But then when you look year-over-year, you see the growth. It's just fewer customers being shipped larger quantities, and that can impact recording revenues.

Okay. And finally, in terms of the tax rate, I guess I was putting in 29.5% for the next two quarters. It sounds like, is 28% more of a better estimate for the tax rate?

I think 29% is probably closer on an ongoing effective rate.

Okay. And the other item, the other income that was related to FX, that was pretty big in the quarter. Is that able to be projected? It's probably not easy to project for the next couple of quarters. Are you expecting another big amount coming up?

It would really depend on the movement of currencies, and our forecast really envisions currencies remaining stable. Now that won't happen. But it depends on which way they move and how much.

Right. Okay.

So at the moment, we've envisioned it flat. Do I believe that to be the right answer? No. But there is no right answer.

Right. I got you. Thank you very much guys. Take care.

Thank you.

Thank you, Linda.

Ladies and gentlemen, that does conclude our allotted time for questions. We thank you for your participation on today's conference call and ask that you please disconnect your line.