Colfax Corporation
Q3 2013 Earnings Call Transcript

Published: 24 Oct 2013

[Operator:]

Good day, ladies and gentlemen, and welcome to the Colfax Corporation third quarter earnings call. [Operator Instructions] As a reminder, today's conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Farand Pawlak, Director of Investor Relations. Mr. Pawlak, please begin.

[Farand Pawlak:]

Thanks, Janine. Good morning, everyone, and thanks for joining us. My name is Farand Pawlak and I'm Colfax's Director of Investor Relations. With me on the call today is Steve Simms, President and CEO; and Scott Brannan, our Chief Financial Officer. Our earnings release was issued this morning and is available on the Investors section of our website at colfaxcorp.com. We'll also be using a slide presentation to supplement today's call, which can also be found on the Investors section of the Colfax website. Both the audio of this call and the slide presentation will be archived on the website later today and will be available until the next quarterly call. During this call, we'll be making some forward-looking statements about our beliefs and estimates regarding future events and results. These forward statements are subject to risks and uncertainties, including those set forth in our SEC filings. Actual results may differ materially from any forward-looking statement that we might make today. Forward-looking statements speak only as of today, and we do not assume any obligation or intent to update them, except as required by law. With respect to any non-GAAP financial measures during the call today, the accompanying information required by SEC Regulation G related to those measures can be found on our earnings press release and supplemental slide presentation under the Investors section of the Colfax website. Now, I'd like to turn it over to Steve.

[Steven E. Simms:]

Good morning, and thank you, all, for joining us today. This morning, we released our third quarter results with reported net sales of $1.15 billion, an increase of 6% over the same period last year. This consists of 4% growth from acquisitions and a negative 1% impact from foreign exchange, resulting in organic increase of 3%. In addition to increasing sales year-over-year, we continue to see strength in our gas- and fluid-handling order book with double-digit order growth in the third quarter. We had a strong quarter operationally in both segments, with overall margins expanding from 10.9% in the second quarter to 11.1% in the third quarter, and a year-over-year improvement of 220 basis points. I'm particularly impressed with ESAB's ability to deliver increased profitability in the absence of top line. While fabrication technology volumes fell short of our expectations, segment operating profit margins for the quarter continued to expand both sequentially and on a year-to-year basis, up to 11.4%. This increased profitability is the direct result of the CBS tools and the traction they have gained. Our continued improvement in working capital and operating cash flow on a sequential and year-on-year basis, is further evidence of the impact our CBS tools are having across the organization. Our restructuring activities remain slightly ahead of plan, and with only 1 quarter remaining, we feel confident in our ability to deliver the goal for 2013. Adjusted EPS for the 2013 third quarter was $0.56 per share, which includes $0.04 per share related to a noncash adjustment to deferred tax balances. This represents a 70% increase versus the $0.33 per share reported last year. Now let's take a look at our business segments. For gas and fluid-handling, net sales for the third quarter were $511 million, an organic increase of 8%, compared to $465 million in last year's third quarter. Orders for the third quarter were $533 million, an organic increase of 16%. With respect to our end markets, please refer to the slides for specific growth rates. As in previous quarters, I'd like to, again, reinforce that significant variation can occur across sectors due in large part to 2 key factors

[C. Scott Brannan:]

Thanks, Steve. As Steve mentioned earlier, sales for the third quarter were $1.015 billion, up 3% organically compared to the 2012 third quarter. Adjusted operating income was $112 million, representing an adjusted operating margin of 11.1%. Fabrication technology's adjusted margins were 11.4%. Gas and fluid-handling's adjusted operating margins were 13.3%. Corporate and other costs were above expectations at $13.5 million for the quarter. Most of this higher spending is attributable to cost associated with the merger and acquisition activities conducted during the quarter. Excluded from adjusted operating income are restructuring costs of $8.7 million incurred in connection with the cost-reduction projects discussed earlier, and $600,000 of cost associated with asbestos insurance coverage litigation. Interest expense was $17.5 million for the quarter, which includes approximately $4 million of noncash amortization of debt discounts and deferred issuance costs, as well as facility fees and the cost of bank guarantees and letters of credit. Our effective tax rate, for adjusted net income and adjusted net income per share, includes approximately $5 million related to the impact of corporate tax rate reductions enacted in the quarter. This is a noncash benefit, as the lower rates are applied to our net deferred tax liabilities. There is no impact on tax that's expected to be paid. This reduced our effective rate by 5.4 percentage points to 21.7% for the quarter. We expect an effective rate of 28% to 29% for adjusted earnings for the 2013 fourth quarter. Operating cash flow for the third quarter was $101 million. Inventory balances decreased $18 million in the third quarter and working capital, in total, finished flat with where it started the quarter. Finally, backlog in gas- and fluid-handling was $1.45 billion at quarter end. Our book-to-bill ratio for the third quarter was 1.04

[Steven E. Simms:]

Last quarter, I commented on how busy we were on the M&A front, and those efforts have yielded results. First, in early September, we announced the binding offer to acquire the global infrastructure and industry business of the Fläkt Woods Group. This transaction is a great complement to our fans business, as it significantly expands our presence in India, which will see significant power investment over the coming decade. It also strengthens our presence in industrial fans, particularly in the configured fans sector. It expands our install base, and we can address with our aftermarket offerings and, of course, it provides cost-synergy opportunities. In addition, just after the end of the quarter, we announced the acquisition of CKD Kompresory. Just as the global infrastructure and industry acquisition complements our fans business, CKD strengthens our compressor business by expanding Howden's product line to include multistage, centrifugal compressors which broadens our presence in the important Russian market and adds a low-cost production facility in the Czech Republic. You should not read anything into the fact that our acquisition activity has been focused on the gas- and fluid-handling segment. However, these deals clearly illustrate many of the things we like about this part of our business, specifically, solid long-term secular growth drivers, in particular, demand for power, oil and gas and natural resources; the ability to differentiate through product technology, application expertise and service; and significant opportunity to grow aftermarket sales, just to name a few. In addition, they're good examples of our acquisition strategy. Not only will the transactions be attractive financially, both companies are ones we proactively identified as strategic complements to our existing operations. We expect to close both deals in the fourth quarter. While the timing of future acquisitions is hard to predict, I'd like to reinforce that our acquisition pipelines remain robust and we're excited about a number of additional opportunities that will provide a strong complement to our core business. In summary, with the acquisition of Charter now 18 months behind us, we're executing well on our restructuring activities and remain slightly ahead of plan. I continue to be pleased with the performance of our associates in each segment and their ability to execute regardless of market conditions. As highlighted above, by leveraging tools of CBS, we are consistently driving productivity in both working capital and our fundamental cost structure. As a result, we've experienced significant gains and profitability despite a sluggish global economy. At the same time, these productivity gains have also begun to free up cash that we are now reinvesting in each business to drive long-term, sustained organic growth. New products like the MR 400 and the SMART pump at fluid-handling, the numerous new products that we are now beginning to see from ESAB and the many contract wins by Howden are illustrative of the growth investments we have planned for the future. Finally, and perhaps most importantly, we continue to build our talent pool by aggressively developing our internal team, while selectively recruiting new team members from the outside. The combination of this two-pronged approach has enabled us to successfully drive the integration of Charter, while also integrating a number of critical bolt-on acquisitions. We're excited about where we are in the journey, but clearly recognize that we have much to do. With that, I'd like to open it up for questions and answers.

[Operator:]

[Operator Instructions] The first question is from Jeff Hammond of KeyBanc Capital Markets.

[Jeffrey D. Hammond:]

Just on the welding weakness, can you just talk about where specifically you're seeing -- and I think one of your competitors talked about softening in consumables, and maybe just address the negative price mix and how that played out.

[Steven E. Simms:]

From a top line standpoint, I wouldn't go into a ton of detail. I'd say that, overall, what we saw was in the trends generally improving, compared to what we've historically seen in Europe. North America continued to be soft. By that, I'd say, in the low single digits. South America, sort of flat to slightly down. Asia, sort of the same. I think those are the key. Yes.

[Jeffrey D. Hammond:]

And price mix?

[Steven E. Simms:]

And for mix -- sorry, from a mix standpoint, we did see some shift in mix. From a pricing standpoint, 2 comments I'd make. We implemented pricing in the second quarter of last year, so we've actually lapped that period. So we have not seen additional pricing at any significant level. We also have not seen any significant deterioration in pricing at this point. So the changes that you see there are largely from mix.

[Jeffrey D. Hammond:]

Okay. And then just on the order momentum. I mean, you mentioned some lumpiness. I mean, should we look at order growth -- I mean, is this -- as you look at maybe quoting activity, what does that suggest? More of kind of the flattish orders that you've seen for the year or more of this acceleration that you saw in the third quarter.

[C. Scott Brannan:]

I think for the fourth quarter, we expect to see continued growth in orders, perhaps not quite as strong as the third quarter, as we did have a couple of very large orders in the third quarter. But consistent with all we said last quarter, we do expect to see the orders strengthening over our performance in the first half of the year.

[Steven E. Simms:]

And Jeff, were you focused on gas- and fluid-handling, I assume, or were you still talking -- was it...

[Jeffrey D. Hammond:]

Yes, gas and fluid. Right, right.

[Steven E. Simms:]

The only thing I would add is that -- and we've talked about this on previous calls, what we do start to see is, if I look at the quality of the opportunity funnels on gas- and fluid-handling, particularly in fluid-handling, we think that we'll start to see the marine market start to improve a little bit here, as we see the full impact of our new product, the SMART pump. And the high level of interest that we're seeing there would suggest we'll see a nice build on orders and going to lead to an improvement on shipments into 2014.

[Operator:]

The next question is from John Inch of Deutsche Bank.

[John G. Inch:]

So could you also talk about, Steve, China and welding. I realize it's not a big business, but were there any discernible trends, and maybe just your China business or the other segments as well?

[Steven E. Simms:]

China, for us, first on the fabrication side of the business, overall trends are slightly down on the top line. I think that's been -- overall, what I'd say is that China is a continuation of what you've heard from us over the first half of the year

[John G. Inch:]

Just remind us, Steve, shipbuilding pricing in China was really weak. You guys don't have a lot of exposure there. Is that correct, on the ESAB side?

[C. Scott Brannan:]

We do have some, John. We service primarily through a joint venture operation. So it doesn't show up in the revenue line.

[John G. Inch:]

Okay, great. That would do. You took restructuring up by about $10 million. So I'm just wondering, you're obviously making -- with the margin performance and the weaker ESAB results, you're making a lot of progress. Where are you spending the extra money? And I'm just curious, Steve and Scott, what your thoughts are toward -- at some point, you're going to-- you can exclude restructuring in the presentation of earnings because of Charter. But you point out Charter was 18 months ago. What are your thoughts toward including restructuring charges that obviously kind of recur here going forward in your presentation of numbers?

[C. Scott Brannan:]

Well, taking those 2 separate questions, the ESAB restructuring spending is not in any area that's different than what we have discussed in earlier calls. We did do a significant restructuring of our distribution capabilities. And as the accounting work, as people continue to work, the charges get taken over time, they're not all reflective in the third quarter. And then we did have some personnel reductions of reasonable significance in the fourth quarter across a number of global geographies. In terms of the accounting presentation, we take your point that the Charter transaction was so significant relative to us that the earnings would be -- would not make a whole lot of sense if we didn't exclude the restructuring. We are considering our presentation for next year, and we have not -- we're not quite ready to make a commitment one way or the other today. But we are considering when the appropriate time to no longer exclude that would be. And we are trying to make a transparent and meaningful presentation to investors. And at some point, we will definitely do that and we'll probably have more to say about that in December at our Investor Day.

[John G. Inch:]

That's totally fair. Just last, Steve, you made a comment about acquisitions in gas and fluid. And I think you said something, "Don't expect, though, that this will be the primary focus for acquisitions." Does that imply that you respectively would consider acquisitions in the welding business? And I'm not sure what actually the implication is of what you were trying to say.

[Steven E. Simms:]

Sorry, John, let me clarify. The comment was really, one, we love what's going on in gas- and fluid-handling. I think the acquisitions we executed are a great example of what we see in future acquisitions in that space, and it just again reinforces how attractive that space is in terms of the growth, the kind of margin that we can get and the synergies that will come along. My comment was that even though timing has been where the first few deals we've done this year have been largely around gas- and fluid-handling, we're equally excited about fabrication technology and have a pipeline of opportunities that's comparable to fluid-handling. And we'll see that materialize, I believe, over the next 6 to 9 months.

[Operator:]

The next question is from Kevin Maczka of BB&T Capital Markets.

[Kevin R. Maczka:]

I'm wondering if you can say a little bit more about the gas and fluid margin outlook for Q4. I think you said it will be up slightly. But I'm just wondering why it might not be up more than that, given the usual seasonal uptick that we always saw in the legacy business and the order momentum and the productivity gains that you're always pursuing.

[C. Scott Brannan:]

The clear answer to that one, Kevin, is the mix of sales. While sales will be up, as I said, mid to high single digits, it will essentially will be all additional before market project revenue. And as you know, the before market margin is less than the aftermarket. So it really is a mix issue that causes the margins to only uptick slightly. The project margin on before market and aftermarket is not deteriorating. It's purely a mix issue.

[Steven E. Simms:]

What I would say, Kevin, is that we're pretty pleased, as you might imagine, with the great work that our gas- and fluid-handling team have done in building those margins. Our goal there, particularly for Howden, is to achieve the 15%. As we've committed the past week, we feel completely comfortable. I should say Ian Brander and his team feel completely comfortable that they can deliver 15% in the timeframe we've committed in. And maybe at some point, we'll have an opportunity to go beyond that. So there'll be a little movement from quarter-to-quarter, but generally, the trend line is very much in line with the 15% bogey we've talked about before. Just to hit it off, I'll also the say the same for ESAB. I know Clay and his guys are equally confident in their ability to reach the 13% operating profit numbers that we've committed to, and I think are increasingly confident that that's something that's in sight.

[Kevin R. Maczka:]

Okay. And shifting over to ESAB, one more from the -- you touched on price and the negative price mix we saw here in the quarter. I'm just wondering if you can touch on price cost. Is the cost side of that relatively stable as well, like prices? And would you expect that to see a little bit more pressure in Q4? Is that part of the reason other than just the volume sluggishness that's causing you to think margins there will be down a bit sequentially, even though again, you're making such gains in your operation?

[C. Scott Brannan:]

Yes, that is a fair observation. As we've discussed on our earlier calls, price cost has generally been favorable over the year. We are seeing some reversal of that trend, although not significantly, but some small reversal of that trend, and that this factored into the fourth quarter guidance.

[Operator:]

The next question is from Nathan Jones of Stifel.

[Nathan Jones:]

Steve, in your prepared comments you were talking about the environmental investments required in steel facilities in China as an opportunity in 2014. I was just hoping you could provide some more color on that potential timing and potential size of that opportunity.

[Steven E. Simms:]

It's difficult to provide dimensions just yet. We're just being pulled into a number of opportunities there. They're just beginning to firm up, so it's not completely clear. I hope by the time we have our Investor Day in New York that we'll have a bit more clarity. Certainly in conjunction with budgets, but it's still just not clear. It appears to be a significant opportunity. I would probably say that it's probably not on the order of magnitude of what we've seen in our SCR remediation, but certainly attractive. What we're excited about is that -- because the Chinese government is still firming up their requirements and beginning to think through the timetable, so we don't have that answer. But what we like about it is the gas-gas heater configuration that is critical to this FGD scrubbing process is something that's uniquely provided from Howden. So we think we're well positioned to comply -- or assist in the compliance with that driven legislation once it takes hold. So I'd love to give you a better answer than that and a better dimension, but we just can't just yet.

[Nathan Jones:]

Does that imply -- just having a better idea by December, imply that you think that the meeting in China in November is going to firm up those plans?

[Steven E. Simms:]

We're hopeful. It may push beyond that, given the magnitude. But we're hopeful that we'll know sooner than later.

[Nathan Jones:]

Okay, fair enough. In Asia, obviously, the margin progression there is pretty good. Obviously, some more cost to take out there. And it looks like you're attacking the equipment side of the business, which is obviously higher margin, so potentially a better mix going forward there. You just also said Clay is confident of getting to the 13%. Is there any idea that maybe we can get past that 13% fairly quickly from here?

[Steven E. Simms:]

I would say, I think I've commented on that before. I believe 13% is a fair objective for the team. And I think, as we've talked before, any time you're in a turnaround of that magnitude, you go through a period of time where the first phase is one of -- certainly, it can be quite intimidating. Remember when we acquired the business, we were -- it's tough to compare because of the changes in accounting. But when we acquired the business, it was a 5% or 6% operating income business. So Clay and his team, at 11.5%, 11.4%, have done a very nice job of really turning the business around. So in the early days, it's probably a bit intimidating as you think about going from 5% to 13%. But as you get closer to that figure and your program starts to gain traction and the culture starts to shift, which we've seen at ESAB, the confidence level grows significantly. I think that's sort of the phase we're in that you go through in a turnaround. And I think, increasingly, we're confident in that number and I think we'll start to see a way clear to maybe go a little bit beyond that. I think it will be premature to change that goal, given that we're only 1.5 years into this. But clearly, our strategic plans and our budgeting activity, led by Clay and his team, will look for ways of going even beyond that. You rightfully saw -- Nathan pointed out that by focusing on the equipment side, one is we are leveraging a strength that we already have particularly in a number of the items that we've just launched, and we think we see outstanding margins there. But we're not taking the pressure or the attention off of our consumables. The key behind CBS is to drive productivity on a consistent basis and productivity, net of any volume gain or net of any material cost increase. So we'd like that we can do better on consumables, as well as the equipment side. As you know, historically, Charter didn't make investments to speak of in the equipment business. And you can see from the Essen show with Clay and Ken Konopa and Steve are starting to do on the equipment side.

[Nathan Jones:]

Yes, those investments are starting to bear fruit. One more for me. On the approach to the market from ESAB in China -- I know from talking to Scott that you guys are going to look at how you're approaching that market strategically, and I think the plan was to do that in the second half of this year. Is there any progress on that? Or is that something you might want to share with us at Investor Day in December?

[C. Scott Brannan:]

I think we'll probably like to defer that until the Investor Day. We are going through our budgeting process here in the next few weeks, and we'll have a better -- be able to give you a more thorough response at that time.

[Operator:]

The next question is from Jason Feldman of UBS.

[Jason Feldman:]

So M&A accretion, I think, you noted that for the fourth quarter is going to be pretty much neutral, given some of the costs. Can you comment as well on the accretion from recent M&A for next year, or is that also a December topic?

[C. Scott Brannan:]

That is going to be a December topic. We did disclose the historical EBITDA of the acquired businesses in the press releases. We are still finalizing the fair value accounting adjustments. And -- so rather than give an estimate and then change it later, I think we'll defer that into December as well. We will have much more clarity then.

[Jason Feldman:]

Okay, fair enough. Steve, I think you mentioned that -- when you're kind of going through geographically the trends for ESAB, you mentioned that Europe was improving. Do you have a sense -- is that actual underlying end-market conditions getting better? Or is it perhaps getting a little more traction with some of your growth initiatives and whatnot?

[Steven E. Simms:]

It's a modest improvement. I would say we're probably recovering a bit of share on 2 fronts. We have, as I mentioned in the commentary here, what we've been able to do, particularly -- Clay's led this, is to really redeploy some of the cost reductions that we've implemented and restructuring to drive growth, and Europe is a core market clearly for us. And so we have significantly strengthened the team there both on training of team members that are in the organization already. We have selectively recruited from the outside, commercially, to build there. We didn't highlight CBS on the operational side for ESAB this quarter, but -- in the communication. But the guys are continuing to do outstanding work in their plants, particularly those that serve the European markets. So our service levels are up, our quality levels continue to improve. Our responsiveness has improved dramatically. So the combination of a stronger organization in terms of development and recruiting, the new products that are now starting to come through, the restoration of very good service levels and quality levels across the board, really trying to turn our sales organization loose to recover perhaps lost market share that they've experienced over the last 5 years. So I don't think the market has improved, as much as we may be gaining back a little of what we lost over the last 5 years or so.

[Jason Feldman:]

Okay. And then the last thing, kind of a similar topic. It's hard nice to hear, as you were saying early in the call, that you're able to redeploy some of the savings -- the cost savings into growth initiatives and various other types of initiatives. Do you feel that you have the latitude to do what you want to do there? Or do you feel you confined by kind of the margin promises that have been made? And did that kind of influence -- or you're kind of reluctant to maybe talk about beyond the 13% until you get a better sense of what investment opportunities there may be within fabrication technology?

[Steven E. Simms:]

I don't think we feel hamstrung by the challenge that we have established for ourselves. I think we, the team at ESAB, Howden and, of course, fluid-handling, we all go through a pretty thorough strategic planning process, so we all feel comfortable that we can deliver our commitments and make the right, smart targeted investments like the ones that you're seeing here. So I think this is a pretty good example of the team being able to deliver a pretty good quarter. We would love to see more organic growth. We think that we could really leverage it at that point. But we delivered a pretty good quarter in terms of driving operating margins. I think, as both Scott and I highlighted, we were able to not only improve it by over 200 -- I think 240 basis points in the quarter, we also reinvested in growth programs. You see 3 or 4 new products launched in Germany. So I think we have the right balance. I believe we can achieve 13%, and I think we can accelerate the volume of new product activity. Remembering, again, that Charter had not invested in the equipment business in nearly 5 years. So I think what you've seen is a fairly short order from Ken Konopa and those guys in the ESAB businesses really getting after it. And not only taking out cost, but investing in growth.

[Operator:]

The next question is from Liam Burke of Janney Capital.

[Liam D. Burke:]

Steve, you mentioned the traction you're getting with Warrior and then a couple of new product introductions on the ESAB side of the business. Where are you in terms of your -- are you satisfied in terms of new product introduction pipeline and then the mix of new products vis-à-vis existing ESAB products?

[Steven E. Simms:]

That's a good question. That's a good question. I'm excited about the volume of new products that are starting to come through the pipeline, and we're excited about what we believe -- the target that we've established. I think the guys have done a wonderful job of segmenting the global market, prioritizing the geographies that are critical to winning and have really started to align resources to execute. The other key component is, I think, that they're doing an outstanding job of improving the product development process. The key is being able to increase the speed and the velocity and our capacity in the product development process, so that's coming. I would say that where we are, we've made significant strides, but it's not where we want to be and it's not -- I'm sure the team would say this is hardly acceptable given the vision that we've established. This is just a small trickle in what we think will become a higher velocity flow here within the next 12 months or so. We have invested significantly in training of our organization, acquiring talent from the outside, of guys that we've done over the years that are very, very skilled in product management. And we've tapped resources around the world that can help to double our capacity or, let's say, significantly increase our capacity, where we can leverage open innovation and relationships that had not been created or developed in the past by ESAB. So I think it's still early days. We like what we're seeing. I think this is just an early snapshot of the velocity that we'd like to see from the product development process.

[Liam D. Burke:]

Great. And then on the gas- and fluid-handling, you mentioned the China project and the industrial -- the general industrial end market. Are there other geographies or end markets that are showing any kind of strength?

[Steven E. Simms:]

Well, it depends a bit on which part of the business that we're focused on. What I'm encouraged by is that we are seeing a resurgence in our fluid-handling business. I think through much of last year, we described the fact that we had seen a depletion of our deferred -- or our backlog. We saw ourselves losing business and share in a number of markets, certainly in a couple of cases. And we've really seen a restoration of the order book in our fluid-handling side of the business. And -- so we've seen strength in particularly oil and gas. As I've mentioned in the comments, we made a major commitment in the Middle East. And as a result, we've seen a stronger partnership with one of the key players in Saudi Arabia. We've also had great success here in North America working with GE and Siemens. So we are starting to see that fill out in terms of expansion.

[Operator:]

Next is Jim Krapfel of MorningStar.

[James Krapfel:]

It sounds as though you're confident about closing on acquisitions in the fabrication technology segment, but do your current market valuations give you any pause?

[C. Scott Brannan:]

I think we were indicating that over the 6 to 9 months horizon, we thought it would be likely that the things in the pipeline could come to fruition, so I wouldn't want anybody to think that we were implying anything real near term. But there certainly are fabrication technology opportunities in the M&A pipeline, and the things we are looking at are at multiples where we can make our required return hurdle similar to the multiples that were on the last 2 disclosed deals.

[James Krapfel:]

Okay. And then is $35 million of cost cuts still in the cards for each of the next 2 years?

[C. Scott Brannan:]

Yes.

[Operator:]

The next question is a follow-up from Jeff Hammond of KeyBanc.

[Jeffrey D. Hammond:]

My follow-up has been answered.

[Operator:]

I am showing no further questions in the queue and would like to turn the call back to Mr. Pawlak for any final remarks.

[Farand Pawlak:]

All right. If there are no other questions, then I'd like to thank you, again, for joining us today. We look forward to updating you next quarter.

[Operator:]

Ladies and gentlemen, thank you for participating in today's presentation. This does conclude the program, and you may all disconnect. Everyone, have a good day.