Knoll, Inc.
Q2 2017 Earnings Call Transcript

Published: 28 Jul 2017

[Operator:]

Good morning, everyone, and welcome to the Knoll Second Quarter 2017 Conference Call. This call is being recorded. This call is also being webcast. Presentation slides accompanying the webcast. In addition, this call may offer statements that are forward-looking, including without limitation statements regarding Knoll's future outlook for the industry and economy. These forward-looking statements are based largely on the Company's expectations and are subject to a number of risks and uncertainties, certain of which are beyond the Company’s control. Actual results may differ materially from the forward-looking statements as a result of many factors, including the factors and risks identified and described in Knoll’s Annual Report on Form 10-K and as other filings with the Securities and Exchange Commission. The call today will also include references to non-GAAP financial measures. Reconciliations of these measures to the most comparable GAAP financial measures are included in the presentation slides that will accompany the webcast. Now, let me turn the call over to Andrew Cogan, the President and CEO of Knoll. Thank you.

[Andrew Cogan:]

Thank you. Good morning, everybody. Joining me on today's call is Charles Rayfield our Principal Financial Officer. As we continue our search for a CFO, Charles and the entire finance team have more than ably stepped up and are doing a terrific job. In fact, as you may recall in April, we went live with the finance and procurement phase of our ONEKnoll ERP initiative. Thanks to Charles' leadership and that of many others in the ONEKnoll finance and procurement teams, we've not experienced any meaningful disruptions to our business and the first quarter we've closing the new system has gone smoothly. The next phase of our implementation is scheduled for early 2019. Our Q2 results demonstrate the benefits of our continuing strategy to diversify our sources of revenue into higher design, higher margin, more residentially-oriented segments, which do not have the volatility of our contract Office business. In the quarter, these non-Office segments collectively held their own. Margins in our studio segment were just under a strong 17% and coverings remained north of 22%. While Office margins fell from 8.8% to 4.3%, overall the Knoll, Inc. we were able to protect our profitability with operating margin just over 9% as we closely manage discretionary spending across the enterprise. About what we would expect margin wise with Office demanded a lower level. Double digit growth at HOLLY HUNT led the studio segment and offset contract-related weakness in the Studio segment in both Europe and North America. Studio segment sales were modestly helped year-over-year by our DatesWeiser and Vladimir Kagan acquisitions though DatesWeiser as expected continue to be a drag on our bottom line and the economy moved DatesWeiser to a stunning standalone showroom on the 11th floor of the Merchandise Mart that used to be occupied by Edelman business. Edelman retained their residential showroom in the building and we are on track with rolling out DatesWeiser nationally and hiring dedicated sales rep in key targeted markets. Already we're seeing a positive impact on client engagements from this added capability and are securing business from Knoll clients who in the past gone elsewhere to meet their ancillary conference and meeting room requirements. Our covering segment growth was led by Spinneybeck FilzFelt while KnollTextiles lagged. We're encouraged by the incoming order trends and improvements to the business that the leadership team at Edelman has made. Perhaps less obvious and contained within our reporting segment is that close to 20% of our Knoll, Inc. sales are driven by residential buyers and interior decorators. These sales include the bulk of HOLLY HUNT, half of Knoll Europe and Edelman, a third of KnollStudio and a smaller piece of KnollTextiles. These sales go through our showroom as well as a variety of retailers, independent showrooms and our own online shop and store New York City. In the quarter, residential demand grew in the mid to upper single digits as we continue to see the consumer for these higher-end designs doing well. In many ways on the Office side, the second quarter was a continuation of a challenging condition we saw in the first quarter. We ended the quarter with backlog still down versus prior year. A weak industry environment in April where the orders declined 6% year-over-year compounding this situation and made it more challenging to fill our plans with second quarter shipments. In addition, in the quarter, we faced our second most difficult shipment comparison of the year as we're up against 9.7% sales growth in the second quarter of last year. The contract weakness we experienced was most acute in our Office segment, but did also impact portion of our Studio and Coverings businesses. This is interesting time in the contract space, with a variety of cross currents influencing demand. As you can see in the month -- you can see this in the monthly volatility of the Bismart data. On the positive side, reported business confidence, corporate profitability and service sector employment are all improving. However, we are not seeing this translate into the levels of office-space absorption and reduction in vacancy rates that one would expect. Perhaps a lack of clarity on economic policies, tax rates and the like are holding back corporate investment. Similarly, you have sectors of the economy like financial services, legal, accounting and consulting spending while areas like energy and government have been more subdued. There is equal push and pull of secular changes that are also impacting demand. These are very much on display in the account and are impacting our results. On the positive side, we're seeing very strong demand in growth for products that help our clients create healthier, more productive work environment and the economy continues to expand the breadth and depth of our ergonomic and adjustable table options. More and more frequently we're seeing inclines in both traditional cubicles and freestanding benches, substituting adjustable high tops for fixed type work services. This has the effect of raising the average selling price of an individual's work area. Innovative new products like the high low we introduced at NeoCon are designed to support workers in these high-performance adjustable environment. Additionally, in the decoupling of six work services from panels and the elimination of paper-based storage, clients are moving away from traditional storage products and files to new type of storage that is both mobile and more freestanding. Some of our newest and fastest growing lines like our anchor collection, which is won Best of NeoCon Gold Award, respond to these trends while our legacy storage products declined. Again, another example of the push and pull of positive and negative forces offsetting each other. We're also seeing the amount of space allocated per individual worker continue to decline while clients allocate more of their workspace to group and collaborative activities. This can result in a net reduction in furniture content per worker and many of the most progressive environments like the immersive Rockwell Unscripted base workplaces we shut NeoCon it can be hard to tell where the individual space ends and the group space begins. For us where we have strong share in the individual workstation benching market, it is important that we target shared growth in these growing group and ancillaries of the Office. Doing so can offset shifts in budget allocations. This is creating a new phenomenon where instead of just against the usual suspects, we're increasingly focused on the proliferation of smaller and midsized ancillary players that have in the past coexisted within our dealers. Success here will come from a mix of initiatives across our constellation of office, hospitality and residential brands, including expanding our new residential -- ancillary product capability which we've continued to do with everything from new products like Rockwell Unscripted with over 30 products in different categories to pixel training tables and DatesWeiser conferencing tables. Additionally, we've taken actions to expand the number of Knoll salespeople we have inside our dealers to make sure we are leveraging our strong partnership to see more Knoll products specified in these ancillary areas. One of the positive trends we're seeing is the increased interest in natural materials from stellar to wood. These materials can help humanize the workplace and connect one better with the natural environment and that spurred the economy introduced the most significant enhancement to our wood capability with a major upgrade to our fishing line Toronto that improves the range of our finishes and also improves efficiencies and reduces cost. These dryer more open point natural finishes can bind with their higher gloss closed or sibling are perfect for today's more residential and hospitality like workplaces. As we expand the breadth of offering at the higher end we're simultaneously expanding the depth of our price point we cover as well with our case family of products and these simple, well-designed solutions including entry level adjustable tables, lounges and work chairs have enabled us to both capture opportunities where Knoll Solutions have been substituted out in the past as well as expand the types of clients we can serve. We're encouraged by the response in NeoCon to new options in this family. The combination of the macro and micro factors are generally leading to an environment with fewer large opportunities and lesser not for more sellers as well outside our dealers to capture the growing number of small and midsized opportunities we're tracking. Year-to-date our feet on the street has growth just over double digits with targeted increases in specific high-potential markets. I believe we're getting closer to the tipping point where these positive economic forces and secular trends combined with Knoll specific initiatives that we've undertaken over the past year will start to outweigh the forces that have been holding us back. Trends in Rockwell Unscripted demand, the ramp of our newest introductions and increase in the funnel of a number of opportunities we're tracking with our added feet in the street as well as increased mockup activity particularly for some of our newest products all suggest the worst of our contract declines are behind us. Furthermore, while our shipments have no doubt lagged this year, orders have been more or less in line and expect us to continue to grow our backlog as we move through the year entering 2018 in much better shape than we did 2017. In the quarter, our investment in lean continue to grow and we had an additional nine events across our plant. These events resulted in increased throughput and reduced space accounting inventory. On the average, we're seeing over $100,000 in benefit per our lean event and as the excitement -- and as the excitement in our capacity affect these transformation build, we're excited about the potential for improved office margins. In addition, we're able to rationalize our headcount in our Office manufacturing operations through the modernization of equipment and as a result, restructured out about 100 positions in our plants. We saved a payback from this restructuring of about a year. Finally, I think it's important to note that organizationally we've never been stronger. As we've continued to line our leadership team against our various customer and business segments, we've made some important assignments in addition. Today David Schutte, formally our Chief Marketing Officer and most recently, President of HOLLY HUNT is now up to speed in his expanded role as EVP of our specially businesses with our Studio and Covering leaders reporting directly to him. David has 20 plus years of industry experience across both workplace and residential markets. Enabling David to make this move was the addition of Rick Kilmer to the team as President of HOLLY HUNT. Rick comes as most recently from Interface where he led their consumer efforts. Before that Rick had extensive experience in both contracts and residential furnishing. Rick is another great addition to the team and earlier this month, Scott Cameron joined as a Senior VP of Operations reporting to Joe Coppola our Chief Operating Officer. Joe is the unheralded leader of our operations turnaround in terms of both reliability and profitability. Joe's vision of lean has been essential to our progress. The addition of Scott Cameron who came to us after a successful career at PP&G only adds firepower to Joe's team. These are the just the few players behind the scene that make Knoll the special place it is. Now let me turn the call to Charles to take you through out results in more detail. Charles?

[Charles Rayfield:]

Thank you, Andrew. Knoll's second quarter net sales decreased $26 million or 8.8% from a year ago. Our Office segment was down $26.2 million of 14.6%. The decrease in Office segment was due to a combination of lower government sales and fewer large commercial projects. Our Studio segment sales decreased $0.6 million or 0.7%. Double digit growth at HOLLY HUNT and the incremental sales from DatesWeiser were offset by decreases in contract shipments in both KnollStudio and KnollEurope. Covering segment sales were up $28 million or 3.1% driven primarily by higher volume in the Spinneybeck Filzfelt business. Gross margin decreased 150 basis points from 38.7% a year ago to 37.2%. This decrease was driven by the Office segment where lower volume had an unfavorable impact on fixed cost leverage that was partially offset by net price realization. During the second quarter of 2017, the company executed certain restructuring activities. These activities consisted of headcount rationalization and modernization of equipment in the Office segment. As a result, we recorded restructuring charge of $2.2 million related to cash severance and employment termination related expenses. We also expect non-cash charges of approximately $5 million later this year related to the settlement of pension obligations associated with the affected employees. Excluding the $2.2 million of restructuring charges, adjusted operating expenses in the second quarter were $75.5 million compared to $80.6 million in 2016. The decrease is largely related to lower incentive accruals from decreased profitability as well as lower sales commissions related to the reduction in volume in our Office segment. Interest expense was up $0.6 million from a year ago resulting from an increase in the outstanding balance of our revolving credit facility in addition to an increase in interest rates. The increase in the outstanding balance in our revolving credit facility was due primarily to our discretionary pension plan contributions in the fourth quarter of 2016 as well as our recent DatesWeiser and Vladimir Kagan acquisitions. Our tax rate for the quarter was 35.7% up from 32.3% in Q2 of 2016. The tax rate was affected by the mix of pretax income and the varying rates in the countries and states in which we operate as well as a favorable income tax examination ruling received from a non-US income tax jurisdiction during the second quarter of 2016. We estimate that our full year effective tax rate will be between 35% and 36% inclusive of the tax benefit recognized in the first quarter of 2017. Adjusted net income for the second quarter of 2017 was $14.3 million down from $21.6 million for the same period in 2016. Adjusted diluted earnings per share was $0.29 and $0.44 for the second quarter of 2017 and 2016 respectively. Regarding our balance sheet and cash flow, cash and cash equivalents were up $2.9 million for the quarter at approximately $5.9 million. Operating activities provides $28.4 million of cash in the quarter. We use the excess cash generated from operating activities to invest in the business and pay dividends. Investing activities included capital expenditures for the quarter of $10.1 million compared to $8 million in Q2 of 2016. The increase in capital expenditures are reflective of our strategy and continued commitment to invest in our manufacturing and information technology infrastructure as well as our showrooms. Total cash used by financing activities was $16.5 million. The primary use of cash in financing activities was the repayment of our revolving credit facility. The other primary financing outflow during the second quarter of 2017 included the payment of dividends of $7.3 million. Our balance sheet continues to remain strong, while the reduction of EBITDA and the increased outstanding debt modestly increased our leverage ratio from 1.37 at year-end to 1.57 at the end of the second quarter and we remain comfortably within all debt covenants. Thank you. We'll now take any questions.

[Operator:]

Thank you. [Operator instructions] And our first question comes from Matt McCall with Seaport Global. Your line is open.

[Matt McCall:]

Thanks. Good morning, guys.

[Andrew Cogan:]

Good morning, Matt.

[Matt McCall:]

So maybe let's start with the topline, Andrew you referenced a tipping point and maybe some of the reasons you're comfortable saying that and you also said you think the worst of the declines are behind you. Is that implying that you expect incremental declines maybe at a decreasing pace? I know your comp gets and I am talking about Office specifically, your comp gets a little bit tougher before obviously getting easier. So is it get through one more quarter and then the growth should keep those two points together, the tipping point and the worst of the decline.

[Andrew Cogan:]

I think you're absolutely spot on Matt.

[Matt McCall:]

Okay. Okay. So, all right. That's helpful. The Studio and Coverings, can you remind us of the exposure they have to Office and specifically I'm curious about those parts of the Office market that are, the legacy components that are seeing maybe the secular weakness?

[Andrew Cogan:]

Sure. I think of that. I think on the Studio side at least half of that business, approximately half had some correlation with contract furniture demand. I think Studio ultimately will be the beneficiary of more focused on ancillary areas, but what really hurt -- what was the headwind this quarter was there are lesser to a handful of large contract studio only projects that we just didn't have repeat this year. So, some of the large project dynamics, fewer large projects that we've seen in the office business has impacted Studio. On the Textile side, I think to your point of legacy challenges a lot of textiles used to go on vertical panels and those kind of areas when you clearly is a panel opportunity shrinks that continues to put some downward pressure on the contract textile business. And we're working to offset that with more focus on areas like wallcovering and upholstery and things like that, but I think that business is a little bit in transition from a secular standpoint.

[Matt McCall:]

So just a percent of revenue in Studio and Textiles…

[Andrew Cogan:]

You can use about 50% is kind of contractor workplace related let's say and I think in textiles you could probably use a similar amount. Those businesses have higher residential, as we said about a third of KnollStudio is residential and then I'd say that the balance is probably hospitality and those type of applications.

[Matt McCall:]

Okay. And just to clarify the 50% of both segment that's tied to contract, that's not -- 50% is tied to the product contract that is seeing the most pressure.

[Andrew Cogan:]

No, it's tied to the total contract.

[Matt McCall:]

Okay. All right. So, the next question I have, last quarter I think we had talked about Q1 being the low point for Office market and I believe I remember there was some expectation around seeing maybe an average of 200 basis points per quarter, I know wasn’t going to be liner, but can you talk about the expected margin trajectory in Office and maybe tie into the comment, the impact of both FX and also the restructuring that you referenced?

[Andrew Cogan:]

Sure. I think the biggest drag on Office margin has really been absorption. That's the single biggest challenge when we're not as busy, we under-absorb fixed costs and then the Office business particularly on the gross margin side takes a hit and that goes right to the bottom line. So, I do believe we troughed in the second quarter from an office margin standpoint as we get busier in ramp up and I think we have one more quarter of difficult comps, but then we would expect to see the office margins recover in everything. Again, last year I think we were just under double-digits, I think the Office business again it's lumpy, it's volatile, the margins move around a bunch, but again, I think it's upward from here. In terms of tailwind to tailwinds, I think that currency has been a tailwind for us now, it's a bit of a headwind as the CAD has weakened. And while inflation hasn't been as big of a drag so far, this year, we currently have some exposure to steel in some other areas. So, I definitely would see some incremental headwind, but all that said, absorption has been the biggest challenge and as we get busier in the plants, the margins will I think nicely come back.

[Matt McCall:]

Okay. Okay. So just to clarify -- you said a little bit low than double-digits, you were talking about the back half of '16 in the office space was a little bit more double digits and that sound like a reasonable number for the back half of this year. Is that what you're implying?

[Andrew Cogan:]

Well listen, again we have one more difficult comp particularly in Office in the third quarter. I think that was what we had 10% 11% top line growth and remember everyone was doing really crummy last year and we were significantly outperforming. So again, you got to be careful in this business because its lumpy, everyone is on a slightly different project cycle. So again, I think the margins will head back towards where we ended last year as we move through the year. I don't think they're all of a sudden going to get there in the third quarter, but I think -- I think the second quarter was more of an anomaly in terms of how low they were and we wouldn't expect it to stay in that kind of lower level going forward Matt.

[Matt McCall:]

Okay. All right. Thanks Andrew.

[Operator:]

Thank you. And our next question comes from Budd Bugatch with Raymond James. Your line is open.

[Budd Bugatch:]

Good morning, Andrew. Good morning, Charles. Thanks for taking my questions. Andrew you've always been pretty good at forecasting the industry and you rightly saw some of this headwind and you did say you think you're close to a tipping point. Maybe you could give us a little bit more color as to why you think that and how that will manifest and maybe if you will take a guess at pinpointing when you think that tipping point.

[Andrew Cogan:]

Sure, and thank you, Budd. I think a couple things. One is again as we look at our internal data and everything I look at the pipeline of opportunities and we're seeing not necessarily in the dollars, but in the numbers of opportunities a meaningful ramp up in the number of opportunities. I'm sure some of that's market recovery related and I am sure a big chunk of it is we've increased our front end sales force by almost 15% from where we were at the end of last year. So, we are certainly covering the market both inside our dealers and on other opportunity from a much more robust standpoint than I think we were earlier in the year and we felt we needed to do because again more small opportunities you need more feet on the street to cover those. So, we're seeing that and we're seeing the awarded pipeline. When I look at the pipeline for the balance of the year, both the total opportunity set it up as well as the portion of that we've won. We've seen improvement in things like win rates. We're seeing ramp up in new products like Rockwall and other things starting to accelerate. So, when I kind of put the macro stuff and we saw it when we look at the absorption data Budd we see absorption still not as robust as one would expect, but in the second quarter the rate of absorption doubled from the first quarter. Now it's still half the rate it was last year or so, there is still some challenges there, but the direction is positive. The direction on the data points I am talking about, the new products, the pipeline the awarded pipeline, all are positive trends and I just have a better sense of momentum within the business, which is encouraging. So, in terms of now trying to tell you when that's going to happen, I don't want to be so bold as to do that, but I think the third quarter will be less worse and I think we stabilized in the fourth. To me the thing I'm most focused on is I think we will end the year with a very strong backlog going into 2018 and that will position us particularly in the Office segment to get on to a strong path of growth on both the top and bottom line again. So, the three or four quarters have been tough, will be tough, but I think that some are transient and I can tell you internally we're very confident and feel like the things we're doing are working. We got the right people against the right challenges and we'll move forward and the business is always going to be lumpy. And I think as I said last year sometimes lumpy is good and you look like a hero and sometimes it lumpy bad and you look like a joke. And you got to just be consistent and that's what we've tried to do as we manage through some of this volatility.

[Budd Bugatch:]

Okay. You do have that Rockwell Unscripted, the showroom was heavily focused on Rockwell Unscripted at NeoCon and you've begun taking orders on that, can you maybe give us some color of that success…

[Andrew Cogan:]

We compare it to the antenna launch, which was our last major platform launch and it's running actually slightly favorable to that. Antenna ended up being close to $100 million product line and we feel very good about the trajectory there. I think it's about frankly Budd more than just Rockwell though. The new finishing program we launched was exceptionally well received. We're swamp with mockup requests for new finish. The adjustable products we've shown have had great interest and are generating orders growth and our whole K series of products are under the radar, broadening of our price points, consistent with our level of quality and all that is also very effective. So, I don't think it's just Rockwell. I think there is many things and then I couple that with more feet on the street and some aggressiveness and tenacity in our salesforce and I feel like we're heading in the right direction, but it's going to take another quarter or two to show that to you all.

[Budd Bugatch:]

Okay. And you seeing anything in costs that worry you or concern you and is there a need to do anything with the pricing? Have you done that or do you plan to do that?

[Andrew Cogan:]

There definitely is still inflation in that and that is accelerating as we move through the year. So, we probably use less fuel than others. So not as big a hit and the weakening dollar particularly again the Canadian, on the euro we're pretty much hedged. So, while it may affect some specialty costs, we'll get benefit from our very profitable European business and sales there. The CAD is a little bit of an incremental headwind going through the back half of the year and each penny is somewhere around $500,000 to $750,000 of cost of goods headwind. We did do some restructuring up there which will help offset some of that but there is some concern on the CAD side of things right now.

[Budd Bugatch:]

Got you. Okay. Thank you very much.

[Andrew Cogan:]

Okay. Thank you, Budd.

[Operator:]

Thank you. And our next question comes from Kathryn Thompson with Thompson Research. Your line is open.

[Steven Ramsey:]

Good morning. This is Steven Ramsey on for Kathryn. On the tough comps in Office totally make sense, but thinking about large projects a few peers have also called out some sluggish large project demand. I am wondering if you have a perspective on large project demand being down on a longer-term basis past one or two quarters if you see just a longer-term weekend large project demand picture.

[Andrew Cogan:]

I think the large project stuff can be very volatile. I just look between our first and second quarters from order standpoint, which then would become shipments let's say second and third, we saw actually the number of large projects actually double in the second quarter from the pace we're running in the first quarter. So, it can move around a lot intra quarter. On a bigger picture basis, I think secularly there will be fewer large projects, which makes sense given that companies are shrinking real estate you still have some compression of the average selling price per person the furniture content per person. So, it is taking more people to generate the same dollars of demand and that's also one of the reasons we're focused on okay if the individual part of that may be smaller, we got to capture more of the total vibe of what our clients are doing that's in feeding, that's in meeting room, that's in other ancillary categories and we're very focused on that both from a sales coverage and a new product development standpoint.

[Steven Ramsey:]

Okay. And then and maybe I missed this in the comments, the ERP system ramp up, can you quantify the dollar impact to sales? Was that a big headwind in Q2?

[Andrew Cogan:]

I think it was obviously a much bigger headwind in Q1. It certainly didn't help Q2. We didn't load the first week of Q2 very aggressively, but I think the bigger impact in Q2 was frankly just a punk April and we had thought we would better fill the quarter and it just didn't happen. The quarter we just never gained that back from a slow April orders start.

[Steven Ramsey:]

Okay. And in Office, the decline in sales, did that -- are you seeing that slowdown the actual operational improvement for margins in Office or are those initiates progressing as planned still?

[Andrew Cogan:]

I think those initiatives progress as planned. There was no disruption to that, but you don't see the benefit of that because absorption becomes so a much larger headwind and so while those things are all going on and there was no slowdown in any of that, you don't get the benefit because absorption just erodes it -- under-absorption erodes it.

[Steven Ramsey:]

Okay. And then last question on Studio, the roll out of DatesWeiser and Vladimir Kagan into the existing networks sales is that going to bring more improvement in margins or sales or both and will be a mover in what we'll see in results in the next couple of quarters?

[Andrew Cogan:]

Well first of all the Vladimir Kagan goes through HOLLY HUNT and I think that probably is somewhat incremental from a margin standpoint. In terms of DatesWeiser I would say that's probably more of the topline help than it is bottom line margin help. In the coming quarters, we expect both of those to ramp up with more impact. Kagan already is having great impact. Dates has been a little bit slower but we actually had a really fabulous win this week that was a joint very high-profile opportunity that we would not have won if we had not been able to bring a combined Knoll office DatesWeiser approach to the client. So, we're feeling very good about that but again with our new sales people they just started in the last quarter, takes them three to six months to get up to speed. So, I think next year I think DatesWeiser will be meaningful incrementally. This year it's really a lot of learning curve and thinking stuff up.

[Steven Ramsey:]

And the Studio, the search for acquisitions and the non-Office businesses, has that been put on hold or slowed down with the CFO search?

[Andrew Cogan:]

No, the CFO search has nothing to do with that. We have a very I would say robust team, but we have a strong leader of our whole M&A effort that's something that myself, David Schutte, others on the team are directly involved in and Charles and his colleagues are more than capable of helping us execute anything we uncover. So, I think zilch in terms of impact there.

[Steven Ramsey:]

Excellent. Thank you, guys.

[Andrew Cogan:]

Okay. Thank you.

[Operator:]

Thank you. And I am showing no further questions at this time. I would like to turn the call back to Mr. Andrew Cogan for any closing remarks.

[Andrew Cogan:]

Okay. Thank you all for joining us on the Summer Friday and onward everybody. Take care. Good bye.

[Operator:]

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone have a great day.