Invacare Corporation
Q3 2018 Earnings Call Transcript

Published: 6 Nov 2018

[Operator:]

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Invacare 2018 Third Quarter Conference Call and Webcast. [Operator Instructions] This conference is being recorded, Tuesday, November 6, 2018. I will now turn the call over to Lois Lee, Invacare's Director of Treasury and Investor Relations. Please go ahead.

[Lois Lee:]

Thank you, Rochelle. Joining me on today's call from Invacare are Matthew Monaghan, Chairman, President and Chief Executive Officer and Kathy Leneghan, Senior Vice President and Chief Financial Officer. Today, we will be reviewing our third quarter 2018 financial results and providing investors with an update on our transformation. To help investors follow along, we have created slides to accompany this webcast. For those dialing-in, you can find a link to our webcast slide presentation that we will be referring during today's call at invacare.com/investorrelations. Further information can be found in our SEC web filings. Before Matt begins, I'd like to note that during today's call we may make forward-looking statements about the Company that, by their nature, address matters that are uncertain. Actual future results may differ materially from those expressed in our statements today due to various uncertainties and I refer you to the cautionary statement included on the second page of our webcast slide and in our third quarter earnings release. For an explanation of these items considered to be non-GAAP financial information that will be discussed on today's call such as constant currency net sales, constant currency sequential net sales, constant currency SG&A, free cash flow, EBITDA, and adjusted net earnings and loss; please see the notes in the Appendix of our webcast slides and in the related reconciliations in the earnings release posted on our website. On Slide 3 of today's agenda, we will review the financial results for the third quarter 2018, as well as provide an update of our transformation strategy and progress to-date. We will close with any questions you may have. I will now turn the call over to Matt Monaghan.

[Matthew Monaghan:]

Thank you, Lois good morning. As people familiar with the Company know, we operate globally in three geographic areas with similar product groups in each geography. Our Europe business is healthy, grew slightly in the quarter, and is working through a prolonged product transfer that is relatively isolated although affecting results with higher than forecasted costs during the transition. Our Asia Pacific business is also healthy with a headwind in a part of the Australia business that should be temporary in nature. It was a tough quarter in North America. Mobility and seating sales growth, improvement in the IPG business, and effect of closing two FDA warning letters were not enough to offset the substantial reduction in respiratory and lifestyle products. We spent a fair amount of time today talking especially about North America and what has developed. Turning to Slide 4 I'd like to provide a high level view of the factors that impacted results this quarter, tariffs. With regard to tariffs like many other companies we experienced significantly higher material costs with increased prices on materials directly affected by tariffs and materials from domestic suppliers raising prices. Because imported finished goods are not yet affected by tariffs, our competitors who source finished goods from China are not yet impacted, which leaves us at a meaningful disadvantage as a vertically integrated U.S. manufacturer. During the quarter, North America HME incurred approximately $1.3 million in additional costs related to these tariffs. This is significantly higher than previously estimated as domestic suppliers raise prices more than anticipated. We're focused on identifying and executing remediation actions to potentially offset this negative impact going forward. We anticipate these cost increases will continue to be a headwind to our business. As a result of these rise in material costs, in October we initiated a price increase to our U.S. customers for respiratory and lifestyles products to partially offset higher cost. Despite the strong clinical, business, and services values we offer, these higher prices may make our products less competitive. We'll continue to implement actions to mitigate the impact of tariffs on our business. In certain areas like complex rehabilitation products, we continue to absorb significant cost increases. With regard to national competitive bidding in the U.S., there is renewed activity which you'll recall affects lifestyles and respiratory products. As published last week, CMS will open reimbursement of the urban zip codes on January 1, 2019, which have been exclusively awarded to a single bid winner in each area. We believe the impending reimbursement changes are reducing purchases by providers until the effect of the new reimbursement rules are understood in each bid area. This could have a negative impact on sales beyond the first quarter 2019, as markets resettle between incumbent for providers and new entrants. In the meantime both groups may be cautious to invest in new equipment. Respiratory sales in third quarter reflected this anticipated rule change especially in sales in traditional non-portable modalities. Lifestyle products are also affected to a lesser extent. In Europe, as discussed previously we have been consolidating operations with two simultaneous movements from Sweden and from Switzerland to an existing facility in France. In third quarter of 2018, we incurred unfavorable manufacturing variances of approximately $0.5 million related to these transfers. Excluding the impact of these unfavorable variances, gross profit would have shown year-over-year improvement and inventory levels would have been substantially lower. Once the product transfers have been completed, we expect to realize annual cost savings of $3.3 million. We forecast the transition will continue through fourth quarter. Had any one of these occurred in the quarter, it would have been more manageable. The fact that all of these are occurring at the same time has led to the challenging results we see which leads to us restructure. During the past few months in North America, we have taken actions to streamline operations to improve the long term outlook of the segment. In September we reorganized North America HME to simplify the management structure and later forecasted flattening of net sales in other previously mentioned headwind. In November we announced a reduction in force which impacted approximately 50 associates. We expect to incur total pretax cash restructuring charges of approximately $1.2 million, which will be expensed during the fourth quarter of 2018. Once completed, we expect to realize approximately $5 million in annualized pretax savings. While these decisions are never easy, they were necessary to scale the business to the Company's current size, market needs, and profit level. Our focus in North America is to grow the business through profitable sales with appropriate costs. Now let's review results from the quarter. Slide 6, provides key highlights of third quarter 2018 compared to last year. Reported net sales decreased 2.5% from $250.9 million to $244.6 million. Operating loss was $5.3 million, an improvement of $0.6 million. EBITDA was negative $1 million, an improvement of $1.2 million. GAAP loss per share improved $0.21 to a loss of $0.36, which included a benefit from the net gains on the convertible debt derivatives. Adjusted net loss per share improved a $0.01 to a loss per share of $0.40. Free cash flow usage was $2.5 million compared to a usage of $4.8 million last year. Reported net sales decreased 2.5%, and constant currency net sales decreased 2.2% compared to last year primarily due to lower sales in North America HME of respiratory and lifestyle products and due to decreased sales in Asia Pacific. Gross profit decrease compared to last year was $5.2 million, and gross margin declined by 140 basis points. The gross margin decline was primarily driven by rise in material costs associated with U.S. tariffs, higher freight costs incurred in North America HME in Europe, and unfavorable operational variances in Europe. Constant currency SG&A expenses continued to decline compared to last year by $5.4 million or 7.1% primarily as a result of lower deployment costs. Compared to last year, operating loss improved $0.6 million to a loss of $5.3 million, and EBITDA improved $1.2 million to negative $1 million. Both operating loss and EBITDA improved due to reduced SG&A. Operating loss and EBITDA also benefited from a decrease of $0.8 million in equity compensation expense compared to third quarter of 2017. I'll now turn the call over to Kathy, to review segment performance and the balance sheet.

[Kathy Leneghan:]

Thank Matt. Turning to Slide 7, during the third quarter 2018, reported net sales in Europe increased 0.7%. Constant currency net sales increased 0.4% compared to last year, as a result of increased sales of mobility and seating, offset by declines in lifestyle and respiratory products. Sequentially, constant currency net sales grew 8.5%, which is consistent with historical seasonal trends. However, as guided, sales in Europe may decline in the fourth quarter 2018, as we strategically apply the transformation to this segment to focus on more clinically valued higher margin products. Sales are expected to grow in 2019. Gross profit dollars decreased $0.2 million compared to last year, primarily due to increased R&D, unfavorable manufacturing variances and increased freight costs related to product transfers. Operating income decreased $0.2 million impacted by the same items noted for gross profit as well as increased SG&A expense. On Slide 8 from North America/HME, reported sales decreased 7.3% and constant currency net sales decreased 6.9% compared to last year. Mobility and seating increased 8.9% compared to the same quarter last year. We believe respiratory and lifestyle products declined compared to last year and sequentially due to the previously mentioned uncertainty regarding reimbursement changes related to National Competitive Bidding, which will be implemented in January 2019. Gross profit and gross margin decreased compared to the third quarter last year, primarily due to lower sales, unfavorable material costs and higher freight expense, both of which were impacted by tariffs. Operating loss increased slightly by $0.4 million compared to last year, primarily related to lower gross margins, partially offset by reduced SG&A. Turning to Slide 9. In the IPG segment, reported net sales increased to 8.4% and constant currency net sales increased to 8.8%. The increase was primarily related to interior design projects and bed products. Gross profit and operating income improved compared to last year, principally due to increased sales and reduced warranty expense. On Slide 10, Asia Pacific, reported net sales declined 19.5% compared to the same period last year and constant currency net sales decreased 13%, primarily driven by decreased sales in institutional products, primarily bed products in Australia as well as declines in mobility and seating and lifestyle products. Operating income decreased by $0.4 million compared to the third quarter 2017, as a result of net sales declines, partially offset by reduced R&D expense. On Slide 11, we report that free cash flow in the third quarter 2018 was negative $2.5 million, an improvement of $2.3 million compared to the third quarter 2017. Previously, the company guided free cash flow usage for 2018 would be similar to 2017. However, we believe that cash flow usage may increase given the headwinds described previously, including tariffs, National Competitive Bidding uncertainty and increased inventory related to the net sales decline, specifically in respiratory products and the product transfers in Europe. Of course, we are being diligent in managing our cash flow usage for the remainder of the year, and we believe the cash balances and available borrowing capacity under our credit facility should be sufficient to fund our transformation. As of September 30, 2018, we have 0 drawn under revolving credit facility. As reflected in the cash conversion days, day sales and receivables were approximately 44 days at the end of the third quarter compared to 48 days as of December 31, 2017. Days in inventory were 73 at the end of the third quarter as compared to 67 as of December 31, 2017. The increase in days in inventory was impacted by excess inventory of respiratory products in North America and increases in Europe due to the slower-than-anticipated completion of the product transfers, which approximates $5 million. I will now turn the call back over to Matt.

[Matthew Monaghan:]

Thank you, Kathy. On Slide 13 is our update on our long-term commitment of $100 million EBITDA run rate. In Europe, we forecast sales to grow in 2019, benefiting from the introduction of some exciting new products in lifestyle and mobility and seatings. Once we have finalized the product transfers, we should see lower inventory levels and seize the expedited freight cost, which should lead to increased net sales, improved gross margins and reduce working capital. In North America, the focus is on continued growth in mobility and seating products and implementing a multichannel approach to post-acute care and respiratory products. However, there's significant market dynamics impacting the North American business, as previously discussed, which will need to be addressed in our revised plan. In mobility and seating, we will continue to streamline the business to realize improved gross margins and offset the impact of tariffs by offering high-quality products with state-of-the-art technology, which reduces the providers total cost of ownership. The post-acute care respiratory, we will continue to implement actions to mitigate the impact of tariffs on our cost structure and address declining sales caused by market instability related to the changes in reimbursement. Due to the unpredictable nature of legislation related to current and potential additional tariffs, there may be risk in achieving this goal within our original time frame and due to the pace of change, it is too soon to declare specific impact on our plan. With regard to cost reduction, we have and will continue to act to drive efficiencies in our organization and to engage our associates to be more for customers and their clients and to simplify how we work. These actions will align our cost to reflect changing markets, which we expect will continue to contribute to achieving our long-term EBITDA goal. We remain committed to returning to profitability and growing the business. With that, I'd like to thank you for taking time to be on the call this morning. We'll now open the phone lines for questions. Rochelle?

[Operator:]

[Operator Instructions] And our first question we'll hear from Bob Labick with CJS Securities.

[Bob Labick:]

I wanted to start with the national competitive bidding changes. If we could talk a little bit if you could explain the - I guess the change of rates for our reimbursement rates for the products that you sell and if the market itself has changed or if this is more of a - it sounds like an inventory drawdown or correction in a transition, so just help us understand if this is kind of short-term transitory or if the market itself and the reimbursement has changed and therefore you think looking ahead there's a different dynamic?

[Matthew Monaghan:]

The way we see the legislative update from CMS which came out last Thursday, essentially no change for respiratory reimbursement. Really the change will just be in the availability to seek reimbursement in bid areas that have been previously exclusively awarded to a single provider in each area. So you can imagine an incumbent provider who had all the business in a bid area, the best case is they lose no share but there's probably some likelihood that other providers will then begin coming into those bid areas. And it’s reasonable to expect that incumbent providers are hesitating before they make big equipment purchases coming into next year. The new entrant providers in each of these bid areas to the extent if they are any, and we assume there will be some because these are the more densely populated bid areas that should be somewhat easier to serve than this sparsely populated rural area those new entrants are probably going to see what it takes to conduct business in our bid areas where they have not been conducting business recently in respiratory. So they may try on a small scale before they make big investments in equipment. The result of both incumbents and new entrants hesitating on equipment purchases we think it’s going to suppress respiratory sales temporarily until the new dynamics work out and we get to a new balance of who is providing equipment in each bid area. That could take some portion of first quarter or beyond just depending on how long it takes for each of those bid areas to settle out. We have no way of accurately forecasting that but the guidance that CMS came out whether its final rule making on November 1 was very much in line with what the industry consensus view was in third quarter late summer, and so we believe that’s what was baked into already declining sales in third quarter. Does that answer your question?

[Bob Labick:]

Yes, no that’s helpful. So it sounds like at some point in the first half of next year the market should be kind of back to normal so to speak and then you would expect resumption in sales at whatever levels those would be but the disruption to end?

[Matthew Monaghan:]

Yes, it's right. I think the market is still stable but there is still a number of end users coming into the market at a consistent rate that needs therapy, providers need to buy new and replacement equipment at some rate. I think this is just a short-term hesitance as there is a shift in provider mix in each of these urban bid areas.

[Bob Labick:]

And then the other big topic obviously tariffs. Can you talk about some of the potential things you may be able to do I guess once you know the final rules or tariffs that are in place to help mitigate the impact and then remain competitive?

[Matthew Monaghan:]

Yes, and this is the challenge and we remain committed to $100 million of EBITDA as probably all the listeners are aware depending on what public media outlet you read, tariffs could get significantly worse in the short-term whether they get significantly better in the short-term and that short-term nature of this entire thing is leading us to not be too precise on the impact for $100 million EBITDA plan but we assume in some reasonably short period of time maybe within a quarter we’ll be able to reassess that over which time we’re undertaking certain measures like resourcing raw material to the best version of suppliers we have. However, raw material that’s imported and raw material that’s domestically sourced have all gone up. So then it’s looking at the normal kind of design changes and productivity that can be had to lower use of raw materials in certain cases or to convert from raw materials to semi finished products by moving value added from something that we may do in factory that we operate in North America to something that a supplier can do more cost effectively. We of course look at all the harmonized tariff codes to make sure that our products are being imported appropriately and that we’re not inappropriately being tariffed due to the dynamics in the marketplace and all the customs and duty houses going through a lot of change themselves, and then looking at what we've sourced as finished goods overseas which takes a little bit longer to do but if we come into a view that finished goods are going to be exempt or not on the tariff schedules for a contracted period of time, that maybe an alternative too. We hate to see what is a positive U.S. national domestic economic policy be punitive to us in the long-term, and we will continue to try to benefit from this however we can.

[Kathy Leneghan:]

And we've also applied for exclusions on the first 2 rounds of tariffs, but there's no guarantee that those will be approved and an exclusion is only good for one-year time frame.

[Matthew Monaghan:]

In September, many of the elements that go into our products that we turn into finished goods were subject to a 10% tariff, which could become a 25% tariff by January 1, if no other changes are taken. In addition, other tariffs are being suggested that are much broader for impact in January. At the same time, we believe if heads of states get together then tariffs may go away rather quickly. However, what is difficult is for domestic producers, who have raised their prices to match with the tariff import rate is those prices decay back to more normal levels more slowly. Thus, we're trying to figure out all of that at the same time that these dynamics are still unfolding.

[Bob Labick:]

And then last one from me, I'll jump back in queue. You expressed that and you still remain comfortable with the balance sheet and liquidity to get through the transformation. You're obviously talking about some near-term headwinds that sound like there - over the next quarter or 2 or so, just tell us how - which will push out, obviously, reaching higher profitability. So can you tell us how you feel about the balance sheet and your thoughts on cash flow? Obviously, you mentioned this year, going into next year and beyond?

[Matthew Monaghan:]

Sure. We do feel comfortable that the balance sheet will take us through the transition - transformation that we expect. The change to our outlook this year, we had long guided that cash flow for 2018 should be the same as 2017, which will be the usage of $40 million, including an incremental $10 million of CapEx. We did forecast a slight decline in fourth quarter of respiratory. We hedged a little bit and thought this National Competitive Bidding change might dampen sales a little bit. We didn't think it was going to dampen sales as much as it has, and we've absorbed a lot of cash and working capital respiratory products in North America, which may take a quarter or more to move, but we're confident that, that's good inventory, and we'll ultimately liquidate in a reasonable period of time. And then this transition of manufacturing from Sweden, Switzerland to France has also consumed an extra quarter's worth of inventory due to the prolonged transformation there. That's also good inventory and good customer relationships, and once we get that straightened up and that will liquidate also. So temporarily, we've unfortunately consumed more cash in working capital due to those two one-time events. It will be, I think, relatively digestible here in the short term, but we wanted to give people guidance that, that $40 million number might change somewhat as we end the year, but not on a permanent basis. I don't know, Kathy, do you have a different comment on that?

[Kathy Leneghan:]

No, I think you're right. I think the inventory, obviously, is good inventory. So it's just a matter of time when we can convert that into cash. And so it just probably will not happen in the fourth quarter, which is why we gave the guidance that we would be slightly off at 2017 numbers. But we're being very diligent with the cash that we are spending. Previously, we would have said on the direct-to-consumer for the POC that we were going to spend roughly $2 million to $3 million in advertising spend. We've got our brand awareness out there. We're spending money but not to that level. So we are looking at things to make sure that we can manage the cash very well.

[Matthew Monaghan:]

And in the long term talking about the $100 million, Bob, we still see a lot of options to get there, and we'll be under - as soon as we see how the North American market is going to stabilize in the next, let's say, 45 days with customers and tariffs and how competitors are compelled to react, hopefully similarly to us, we'll be revising our plans somewhat, and we still feel very comfortable in our ability to achieve those end objectives.

[Operator:]

And next we'll move on to Matthew Mishan with KeyBanc.

[Matthew Mishan:]

The first, I just want to start with - you also mentioned that you're seeing some consolidation of health care customers in the release. What is you - what do you mean by - have you seen consolidation or you expect consolidation?

[Matthew Monaghan:]

Both. We've definitely seen consolidation on the complex rehabilitation side. There's some really great customers that are doing things to increase their share in the North American market. Private equity owned managed by sharp operating teams with a real strong vision of how to make the country great in terms of provision of complex rehab technology. Those customers are good partners of ours, and we're focused on driving their success to the extent we can through the products that we have, and the unique technology we have should enable them to not only give great products to their end-user clients but also operate their businesses more cost effectively. So everyone should win that way. But we wanted to highlight for folks that there's customer concentration in the complex rehab space. We have concentration in the post-acute care space with large-scale distributors. We're continuing to leverage their platforms in the marketplace to make sure their customers have great services, not only in the durable products that we provide but in disposable and consumable products that our end customers also when you think of long-term care facility. And it's good to have those as allied partners for the same reason. We think we're bringing a strong brand to their distributorships, and we strive to put the right kind of value that will differentiate them to the extent they carry our products, but we wanted to make people aware that those market dynamics are out there.

[Matthew Mishan:]

And then, I've been jumping around on a bunch of calls today so far. I just want to make sure I fully understand. What are you now saying about the time line and the pathway to the $100 million of long-term normalized EBITDA? Are you extending that out past 3Q '20 at this point? That was - I'm just not sure.

[Matthew Monaghan:]

Yes. So to be really transparent, we understand what we think a version of the outlook is based on tariffs and other consequences here. And the simple fact is it's just happening too fast to tell people. What we wanted to raise on today's call is there's some risk in our revision, but we simply don't have a place to put our next flag on where that could be. So here are a couple of scenarios. Let's say, after today's election something happens and the tariffs are immediately taken away that has one significant change to the marketplace. However, usually prices decay back down to a former level over a less than instant periods of time. And we assume, that if that were the outcome then we could may become relatively close to the same outcome of $100 million of EBITDA at the same time. If on the other hand, heads of state don't get together and in the next 3 months tariffs that are already at 10% of impacting us at $5 million to $7 million a year, go to 25%. And finished goods that procured by our competitors are still not on the tariff list, that will have a substantially different and negative outcome. That would probably take more than a small amount of time to put back into that plan. And so simply, over the next 45 days or 60 days as we get towards year-end and see whether those tariffs come into effect. Ends up forcing us to have 2 broader range of potential outcomes in our plan to stay here on November 6, that is A or B. But I can reflect that our internal confidence remains that there are enough things that we can do in our business to effect that same outcome of $100 million to be a viable great business in the geographies where we participate. We just have to decide over the next 60 days, what our assumptions are going to be for how 2019 plays out, and then we'll get right after it. Our commitment is to try to meet that $100 million EBITDA run rate on plan, on target. As described in the next 60 days, we're going to be reviving the pathway to get there.

[Operator:]

And next we'll move to Jim Sidoti with Sidoti & Company.

[Jim Sidoti:]

So I just want to be clear on the tariffs. Are you saying that because you purchased raw materials, you had a competitive disadvantage from other suppliers that purchase finished goods that the tariffs are only on the raw material?

[Matthew Monaghan:]

Tariffs are affecting raw materials and less-than-finished goods. Something like electric motors, which isn't quite a raw material beyond the list. I'm listing to the echo here. But finished goods are not yet on the schedule of tariffs that have come into impact in September. So therefore, if a competitor is buying finished goods, they would be not affected by tariffs to this extent or to any extent. And as you will recall, we close our China facility in roughly September 2017. So it would be responsive agile North American supplier, which at least at this point of time there's a potentially significant disadvantage.

[Jim Sidoti:]

And what specific tariffs are impacting at the moment is it aluminum or is it other raw material steel?

[Matthew Monaghan:]

Steel and aluminum. I would say motors and actuators, the impact of freight. And freight is really two reasons that the cost of freight and then lots of people expediting the importation of goods before tariffs continue to escalate. Is soaking up a lot of capacity in the freight world and driving costs up. So all those are driving costs for us.

[Jim Sidoti:]

And with regards to reimbursement, you think it will be another few weeks before that starts to work itself out, and you think by 2019 those markets should come back to historical levels. Is that correct?

[Matthew Monaghan:]

CMS introduced an update to their legislation or rule making last Thursday afternoon. Reimbursements remain unchanged relatively with a few tiny changes actually, but relatively unchanged. But the big impact is effective January 1, all those bid areas that have formerly been exclusively awarded to the bid winner, which was the reward for bidding to a low level is going away, and now CMS, effective January 1, will allow any qualified provider to seek CMS reimbursement in those bid areas at the award-winning price from the prior bid - the prior auction. So the problem is, the incumbents are - on a good day will keep their share. And all the other days, there's potentially going to be entrants coming into those. And I think it will take at least a quarter, first quarter 2019 for that to settle out, but I have really no way of predicting. It won't settle out before 2019 because those bid areas won't open up until January.

[Jim Sidoti:]

And when is the next period when bidding will occur?

[Matthew Monaghan:]

Essentially two years from January.

[Jim Sidoti:]

So two years from now, as your customers putting bids, there's really no advantage to keep the bid roll because you're not going to guarantee 100% of the market, right?

[Matthew Monaghan:]

Well, 50% of North America is already in that sort of scenario. Only half of the CMS spending zip codes were in this sole source award scenario and the other, the more rural districts have been awarded on a nonexclusive basis to anyone seeking reimbursement at the low cost. So half of the country is already operating this way. In January, effectively all the country will operate that way. So I think by the time we get 2 years from now, which seems like forever in the future, it could be very similar to how the market operates in a familiar fashion but other things could happen too.

[Jim Sidoti:]

But two years from now, if you don't have any whole source, there's no reason to bid lower is what I'm saying?

[Matthew Monaghan:]

Yes. I can't predict market dynamics too well in those scenarios, although there has been suggestions that some relief may be provided and that CMS would accept bids at higher than the lowest historical values. So as they've looked at the provision of care, the difference in cost to provide care in rural versus urban areas, there is some discussion of relief, and I think all that will play out maybe starting a year from now or 18 months from now as that date gets closer, if CMS holds to that date and scenario. By then if they've harmonized the U.S., the alternative could be they make no additional changes.

[Operator:]

And that will conclude today's question-and-answer session. At this time, I would like to turn the call back over to Matt Monahan with any additional or closing remarks.

[Matthew Monaghan:]

Thank you for your time and attention on today's call. There's a lot going on in our marketplace, and we appreciate the investor's interest in our company and listening to how we're thinking about managing these very dynamic times. We look forward to continuing to be in touch. And Lois, and I, and Kathy are available for follow-up questions, which you can coordinate through Lois. Thank you, and have a good day.

[Operator:]

And that will conclude today's call. We thank you for your participation.