Newell Brands Inc.
Q1 2022 Earnings Call Transcript

Published: 29 Apr 2022

[Operator:]

Good morning, and welcome to Newell Brands' First Quarter 2022 Earnings Conference Call. . As a reminder, today's conference is being recorded. A live webcast of this call is available at ir.newellbrands.com. I will now turn the call over to Sofya Tsinis, Vice President of Investor Relations. Ms. Tsinis, please go ahead.

[Sofya Tsinis:]

Thank you. Good morning, everyone. Welcome to Newell Brands' First Quarter Earnings call. On the call with me today are Ravi Saligram, our President and CEO; and Chris Peterson, our CFO and President, Business Operations. Before we begin, I'd like to inform you that during the course of today's call, we will be making forward-looking statements, which involve risks and uncertainty. Actual results and outcomes may differ materially, and we undertake no obligation to update forward-looking statements. I refer you to the cautionary language and risk factors available in our earnings release, our Form 10-K, Forms 10-Q and other SEC filings available on our Investor Relations website for a further discussion of the factors affecting forward-looking statements. Please also recognize that today's remarks will refer to certain non-GAAP financial measures, including those we refer to as normalized measures. We believe these non-GAAP measures are useful to investors, although they should not be considered superior to the measures presented in accordance with GAAP. Explanations of these non-GAAP measures and available reconciliations between GAAP and non-GAAP measures can be found in today's earnings release and tables as well as in other materials on Newell's Investor Relations website. Thank you. And now I'll turn the call over to Ravi.

[Ravichandra Saligram:]

Thank you, Sofya. Good morning, everyone, and welcome to the New Newell on our first quarter call. We are pleased with the strong start to 2022. Building on the momentum from the prior quarters, as our team remains laser-focused on executing with excellence in a challenging environment. Core sales grew 6.9% against a difficult 20.9% comparison. While normalized operating income and normalized earnings per share increased 10.4% and 20%, respectively, despite significant ongoing inflation. This demonstrates the power of our diversified portfolio and the nimbleness of our model. We're significantly better today at leveraging our brands to scale growth and efficiency. Our strategy is working. And we have put a strong foundation in place for sustainable and profitable growth. Q1 marked the seventh consecutive quarter of core sales growth for your brands. In Q1, our core sales growth was driven by pricing as volume was relatively flat. Core sales grew in 5 of 7 business units, including food, driving Outdoor & Recreation, Baby and Commercial. The Outdoor & Recreation and Food businesses led the charge with double-digit increases versus the prior year period despite difficult comparisons. Home Fragrance and Home Appliances declined in the first quarter as they lapped a significant surge in demand in the year ago period due to the pandemic and the passage of stimulus in the U.S., importantly, on both a 2-year and 3-year stack basis, core sales increased in the double-digit range for all 7 business units a fantastic achievement. As we shared last quarter, given the ongoing supply chain challenges that have beset the industry, retailers accelerated orders of seasonal products into the first quarter, particularly in the Outdoor & Recreation and Writing businesses, which contributed to the strong top line results. We are proud of the fact that we were able to fulfill these orders despite external obstacles, showing the team's resilience and agility as well as the power of One Newell as anticipated. We experienced normalization in category and consumption trends relative to last year, which was turbocharged by the stimulus in the U.S. while domestic POS was below the elevated year ago base. It remained well ahead of 2019 and '20 levels, showing that the behavioral shifts we have seen through pandemic are enduring. Our diverse all weather portfolio is well positioned to capitalize on the evolving consumer trends surrounding hybrid work, Homes hub as well as increased focus on well-being, outdoor activities and sustainability. We continue to sharpen brand positioning, enhance our marketing and innovation muscle and improve our execution in the marketplace, substantially strengthening our iconic purpose-driven brands. These actions have unlocked another quarter of strong growth from many of our largest brands such as Coleman, Breo, Rubbermaid, Rubbermaid Commercial Products, Sharpie, Paper Mate. 14 of our top 20 brands grew in Q1 versus last year. We are continuing to elevate the digital IQ of the organization and believe our early investments behind omnichannel execution are driving stronger connections with our customers and consumers. In early April, we launched a new creative kitchen in Hoboken, New Jersey, which is a new dream kitchen space and inspiration incubated and also up a steady stream of recipes and tips connecting people with the latest kitchen innovations, food and kitchen trains. Together with our partner, we will produce cutting-edge and inspiring content for all digital platforms, showcasing our innovations, hosting live events with the studio audience and partnering with influencers and customers to engage with media. This is really exciting. This is a great way to showcase our new and differentiated innovations and food and appliances that satisfy consumers' unmet needs. One such product is the recently launched Rubbermaid Dura-Lite Bakeware, an all-in-one bakeware solution of broiling, baking, freezing, serving and storage. Innovation is the lifeblood of every consumer products company, and we have been hard at work reigniting this growth engine at Newell brands, leveraging consumer shop insights, foresights analytics and latest growths. From a geographic perspective, core sales in North America great nearly twice the rate of international markets as EMEA softened against a difficult comparison and the impact on consumer sentiment from the unfortunate war in Ukraine. Let me now shed some light on business unit results, starting with , where we saw continued momentum, both in our top line and market share as the fundamentals remain in excellent shape. Core sales grew for the fifth straight quarter, mapping a strong double-digit Increase in the year ago period driven by North America, Latin America and Asia Pacific. While the commercial/office channel still remains below pre-pandemic levels, we're winning there as well, and we are seeing year-over-year growth in this channel as people return to offices, albeit in a hybrid environment. Writing and creative expression blew and fine writing all grew in the quarter, helping to offset the decline in legging due to chip shortages. Given the ongoing supply challenges across the industry, retailers accelerated some of their back-to-school orders into Q1, which contributed to the strong results. We believe we are well positioned for the upcoming back-to-school season and we'll have strong merchandising plans in place to capture consumer demand. In Baby, the core sales increase was driven by North America and APAC markets. From a category perspective, both baby gear and Baby Care grew core sales even as the business lapped a double-digit comp that was aided by the stimulus in the U.S. This is particularly impressive given the pervasive supply challenges that have been pressuring availability of products. Food delivered an excellent quarter. Core sales grew at a low double-digit pace, even as it lapped a very difficult double-digit year ago comparison, reflecting strong growth across the fresh preserving, cookware and bakeware, as well as food storage and kitchen organization categories. March marked the largest global sales in over 5 years for fresh preserving, a fantastic result, fueled by strong consumption and innovation. This business goes from strength to strength, and our teams continue to leverage favorable trends and new product launches to draw consumers into this category even as mobility continues to improve, and more people are returning to work in office. Kitchen remains an integral part of consumers' lives. In the context of a hybrid work environment and a highly inflationary backdrop, we believe that food consumption at home will remain ahead of pre-pandemic levels with our leading brands well positioned to capitalize on these trends. Home Fragrance core sales and consumption declined against a record first quarter performance a year ago. This pandemic-driven demand and category trends have slowed down as expected. Modest core growth in EMEA was not enough to offset declines in North America. On a 2- and 3-year stack basis, core sales grew in the strong double-digit rate. Similar to home appliances, we expect the category to continue to normalize through the balance of the year, but feel good about brand health and new product pipeline, both within and outside the Cambro category. Core sales growth for home appliances declined low single digits as the business lapped a significant surge in consumption last year when it grew nearly 39%. Hard core sales in Latin America were more than offset by declines in other regions. Both 2- and 3-year STACK core growth rates were in the strong double-digit range. Given the challenging comparisons, we expect a slowdown in consumption to continue in this category as shopping behavior normalizes. The Outdoor & Recreation business continued its excellent momentum and still the show once again as core sales increased 22.9% on top of 7% in the year ago period with Q1 marking the fifth consecutive quarter of growth. The strong performance was broad based across all regions and major businesses driven by retailer optimism regarding the upcoming season with outdoor participation expected to remain robust. Our customers place some of their orders for outdoor equipment earlier than usual due to the unpredictable supply chain environment and the seasonal nature of the category. Strong top line and share momentum in the beverage business persisted in Q1 as our innovation and brand-building efforts behind Contigo and bubba continue to gain traction with the category further benefiting from increasing consumer mobility. Core sales growth for the Commercial business accelerated to 7.4% against its toughest comparison of the year, led by North America and Latin America. Strong momentum in the quarter was supported by pricing. We're also seeing improved product availability and view our portfolio diversity across both commercial and retail verticals as an advantage. Commercial cleaning, material handling, refuse and recycling, outdoor and organization and washroom were the major drivers of cross sales growth, helping to offset softness in disposable lows, which are lapping a high base period due to COVID. We're encouraged by strong order book and believe that return to office bodes well for the commercial categories. The external environment has remained quite difficult in the first quarter as prevailing headwinds surrounding supply chain and inflation were further exacerbated by the unfortunate war in Ukraine. Even as inflationary pressures have gotten more onerous than we previously anticipated due to the ongoing political situation and its impact on cost are resolved to restore gross margin and drive operating margins remain higher than ever. Despite the significant impact from inflation, Newell's normalized operating margin improved about 50 basis points versus last year, ahead of our expectations, largely reflecting incremental pricing actions and stronger management of overhead costs. We are proceeding swiftly with mitigating actions, giving us confidence to reiterate our outlook for the year, in spite of about $80 million of incremental inflation. We still expect 2022 to be a year of margins even though inflation has continued to move against us. Our outlook calls for top and bottom line growth despite a challenging and uncertain macro backdrop. For 2022, we remain focused on 5 key priorities

[Christopher Peterson:]

Thank you, Ravi, and good morning, everyone. During the first quarter, we built on the business momentum driving a better-than-anticipated outcome on both top and bottom lines through swift and decisive actions to mitigate the impact of inflation and supply chain challenges. Our actions over the past 3-plus years to drive sales growth, reduce complexity and overhead costs, double down on productivity, improve working capital management and build supply chain agility have put us in a much stronger position to effectively address today's challenges. Before we get into the quarterly discussion, let me provide some perspective on the current operating environment. Inflation remains stubbornly high, and our expectation for the full year has moved up slightly since February. The war in Ukraine took up energy prices, which, in turn, resulted in higher than initially anticipated costs for resin and transportation. We now expect inflation to account for about 9% of cost of goods sold in 2022 similar to last year and about 1% above our previous forecast. We continue to anticipate that ocean freight, source finished goods and wages will see the largest year-over-year increases. We remain laser-focused on offsetting the inflationary pressure and improving the company's gross margin by implementing the following actions

[Operator:]

. And our first question will come from Bill Chappell with Truist Securities.

[William Chappell:]

First question, I guess, just kind of talk about elasticity that you're seeing or if it's maybe too early kind of across the business units and kind of expectations for -- that's built in for recession or no recession as we move to the back half?

[Ravichandra Saligram:]

Bill, I'll have Chris comment on elasticity and then I'll talk about your second part of the question.

[Christopher Peterson:]

Yes. So, so far, what we're seeing on pricing elasticity is that it is better than what our historical models would suggest. In other words, we're not seeing the typical volume impact from the pricing we've taken. And I think that's really a function of the fact that the inflationary cost pressure is affecting all manufacturers. And so as we move prices higher in most of our categories, competition has also moved prices higher. And so in many cases, there's not a price gap that's been created that's leading to elasticity. We continue -- it's still early days on this. We continue to monitor the situation. As we mentioned in the first quarter, pricing was the primary contributor to the company's core sales growth of 6.9%, with volumes relatively flat. For the balance of the year, what's embedded in our outlook is that there will be some price elasticity. We continue to expect for the outlook for the year, pricing to be a high single-digit contributor to core sales growth and volume to be down mid-single digits. So we have not changed that view in the outlook for the full year. That's consistent with what we said when we started the year.

[Ravichandra Saligram:]

Bill, so the second part of your question, and maybe I'll expand it, which you may not have intended. But I presume you're really -- the question is about recessionary conditions, the health of the consumer and the impact. Did I get that right?

[William Chappell:]

Yes, absolutely.

[Ravichandra Saligram:]

Okay. So here is, I think we -- while consumption in the first quarter was down versus last year, we have to recognize first quarter was a very peculiar quarter in the sense of you had that -- in 2021, you had the big stimulus in January, the big stimulus in March. And some of the consumption growth when we look back and say was just gigantic and take out illustrate with, say, Home Solutions. And I think on core sales, Home Solutions grew about 34% if my memory tells me correctly last year. And Home Fragrance, which is part of that really was the biggest contributor. It was far bigger than the 34%. So -- and consumption. So if you think about that, consumption was even higher. And so to lap something like that, it's very extraordinary. So it is very tough right now to parse out what is price elasticity, what is stimulus. So we think that stimulus has been the big, big aspect. So going forward, there's no question that we'll have to be quite sensitive on some of the lower-income consumers and the channels they shop and which is very well positioned, though, because we have for most of our brands, we are very big on good, better, best. And in the last 3 years, we've sharpened that very much to make sure that there's really good differentiation between good, better, best. And so I think that allows us to cater to the different types of consumers. So I think that's the second part is a lot of our messaging in advertising, social media were very much now on a value-based messaging and making sure even though we've taken price increases with the strength of our brands, trying to show that we are a great value. And the other aspect is, I think the fact that we've launched a lot of innovations. Those innovations are providing the uniqueness that show, hey, even though we've taken our price. I think consumers are looking for value rather than the absolute price point, and we think where we remain a good value. So I -- and look, there are many categories where -- now we're actually seeing consumption increases riding in different parts of the world. We are seeing consumption increase. And now -- and as the office channel opens up, we think that will continue to accelerate, and we are gaining share. So just think about it, right, with our Sharpies, Paper Mate, we have fantastic gross margins. We are growing and growing share. So I think we are fairly buoyant on that. Commercial, which last year was very tough for the Commercial business because of inflation and with office is pretty much closed. Now it's coming back and boy, that business this first quarter, up 7%. It's growing back. I'm very positive about end users, even though we've taken a lot of price increases, they are because the Rubbermaid Commercial brand is so strong, and we have put so many innovations like Rubbermaid Bret with wheels, material handling, with new technologies. So I think the power of innovation is helping that. The last comment I've made is we have been striving for distribution improvements and new channels. And I think that is helping us getting incremental distribution. So going after new consumers. And then the last comment would be, as we have -- we're really mastering the -- what I call the 360-degree consumer journey and shopper journey. As the world is becoming more omnichannel, how do you target them? How do you reach them in the moment of where they start thinking about the category to the moment of decision-making? And I think all of this will help us in our journey. So on the whole, yes, there is some concerns about consumer demand out there, but I remain buoyant. And if anything, I just think on the top line, look, one other quarter where we've beaten our own expectations, and I think The Street, so I feel pretty good about it.

[Operator:]

And our next question will come from Wendy Nicholson with Citi.

[Wendy Nicholson:]

I wanted to ask about Project Ovid because it's clearly yielding benefits, and it's an important part of your sort of next step towards higher margins. So Chris, are you seeing any challenges in terms of implementing Ovid? Or any of the things that you're trying to do? I'm just wondering if the supply chain is getting in the way or if there's any impact in terms of the timing of the savings you're going to generate from that program?

[Christopher Peterson:]

Yes. Thanks, Wendy. And it's very topical and top of mind, not just for me but for many of our employees around -- across the company. We are very much in implementation phase. We remain largely on track with the original timeline that we've set. Recall that Ovid is a phased implementation. And just to give you a sense of where we are in the program, last year, we did the detailed design work. We've now completed the systems testing work, and that has gone well. We have already executed the centralization of customer service. We've already executed the centralization of our distribution and transportation internal organization. We've now largely completed the implementation of a transportation outsourced provider, which is a key enabler. Those transitions have happened. We're currently executing where we're headed to, which I alluded to in the prepared remarks, is in early July, we will turn on the first wave of the Newell distribution company. And that will affect the Food, the Home Appliance and the Baby businesses, which will move into the new Newell distribution company. And so that is a big milestone for us. We have made a tremendous progress with most of our retail partners. Recall that we had different sets of payment terms by business unit. We've now negotiated with the majority of our retail partners to basically harmonize those and go to a single set of payment terms for Newell, which we'll be implementing as we move into July. We've got the two new distribution centers, the new build distribution center in Pennsylvania is now open and fully operational, which we are excited about. And the Gastonia, South Carolina will be opening this fall. So we are very much in the implementation phase. I think I said previously that this year will remain an investment year for the company as we're largely doing the implementation work this year. When we get to next year in 2023 is when we expect the Ovid program to turn into a cost savings benefit for the company.

[Ravichandra Saligram:]

Wendy, I would like to add 1 thing. If we had done Ovid, tried to do Ovid 5 years ago, I think it could have been a disaster. Even 3 years ago, it would have been difficult. Just imagine with our company where we've had 33 separate supply chains, unifying them into one. What we've created is a culture of One Newell. And that is so important to the execution of this. We'll have more than 500 people involved in this project. Chris has done a terrific job leading this initiative. But we've galvanized all the people because they believe in One Newell. We've been able to overcome the silos and to -- and the business units have given up control on the stuff to say, "Hey, we think it's right for the company to have one distribution company. This whole concept of one order, one invoice, one truck is very powerful." So I think looking 10 years from now, people will look back and say, this was one of the most extraordinary decisions you have made.

[Operator:]

And our next question will come from Andrea Teixeira with JPMorgan.

[Andrea Teixeira:]

I was just hoping you can update a little bit more on the Writing segment and the puts and takes we should be seeing ahead of your peak season. And from that, any -- we've heard a lot of supply chain issues in many parts of the world, in particular, obviously, as you know, in China. So I know you source some of the things from there, but you also source from Mexico. So if you can give us like a little bit of an update there. And so that we understand embedded in your second quarter guide, you have increased market investments that I understand you were just on that end, not flowing through all the upside we saw in EPS for the first quarter into the full year. So I was just trying to bridge the EPS guidance with what you've done so far.

[Ravichandra Saligram:]

So I'll tackle the first one and then have Chris tackle the second, Andrea. So the Writing business look had a banner year last year 23% growth. Last year is just great. So -- but we've got -- we're off to a great start in first quarter. And the brands remain very strong, whether it's Sharpie, whether it's Paper Mate. There's a good set of innovations. We've also got innovations that are coming in later part of the year. So -- and it's not just a U.S. thing. We're doing well in Europe. We're doing well in Australia. We just saw share increases in different parts of the world. So I would just say that -- and even the activity side is beginning to have a little bounce. So I would say the Writing business is very strong. And now with the Office segment opening up. And I think that will be -- that will add because that was a decent size of our overall business. And so I think that will help as well, and we're winning already better than others. And this is thing about having powerful brands. So overall -- and I think retailers deliberately because they want to make sure that they were ready for the season did that, I think, so far, we don't see any red flags on the season. If anything, we see positive views. And the only part of the business that we have some issues, which is purely supply chain related is the Dymo brand because of chips. And if we have the chips, we would just do even better. Though even there, we've been launching innovations. We've got a new innovation with a new type of chip that we've been able to source. So -- but that is the one that is holding us back a little bit, especially in Europe. But that's -- otherwise, it's in fine shape. So I'd say overall, very positive about the business as we look forward to the year.

[Christopher Peterson:]

Yes. On the supply chain question, what I would say is our supply chain remains -- the external environment remains challenging. And you mentioned a couple of the challenges with China and their Zero COVID policies. That has affected us with regard to lockdowns that they've implemented in Shenzhen and Shanghai. We do source some products from those regions. But that being said, as I mentioned in the prepared remarks, I think the decisions that we've made to build inventory on top-selling SKUs, to solidify our labor force, to accelerate automation and actually, we're now in the implementation phase of Ovid. And so the ocean freight -- we now are moving more ocean freight than ever to the East Coast as opposed to the West Coast, which has diversified our ocean freight shipping lanes. All of those things have us in a position where our supply chain is in better shape today than at any point since the pandemic started. Our in-stock rates of retailers have improved significantly. Our fill rates are improving. We still have issues, as Ravi mentioned, on things like Dymo where there's chip shortage. So we're not out of the woods everywhere. But we are in a much better position today on the supply chain than we have been since the pandemic started.

[Ravichandra Saligram:]

Sorry, quick one, quick thing. I forgot to mention, Andrea. On the actual Writing business itself, we self-manufacture in the states in Tennessee. And while yes, there are always some components that come from different parts of the world, that has been actually a good competitive advantage for us and it remains so. So that's encouraging us all. Sorry, Chris.

[Christopher Peterson:]

On the question on the guidance, what I would say is that certainly, we're excited about the Q1 results coming in better than we expected. There was a portion of that, that is related to customer order timing being earlier in the season that we think is not necessarily incremental for the year. There is a portion of the Q1 results that was ahead of our expectation, and that would be incremental for the year. On the other hand, we've had incremental inflation that we've built into the outlook for the year of $80 million, as we mentioned. And so there's a number of moving parts. We think that the Q1 results give us confidence to maintain the outlook for the year despite the incremental inflation that we're going to incur, which largely is coming in Q2, 3 and 4. So we feel good about the outlook, and that's how I would describe sort of where we are from a guidance perspective. The other point I would note is Q1 is our seasonally smallest quarter. And so, although we started off better than we expected, we're just heading into the big seasonal periods here over the next 3 to 6 months.

[Operator:]

And our next question comes from Peter Grom with UBS.

[Peter Grom:]

Congrats on the strong results. So I just wanted to ask about the core sales outlook. Maybe first, can you just help us understand what you're seeing from a category perspective in terms of POS. There's just a lot of uncertainty around the health of the consumer and what that means for durables demand. And I know ScanData hasn't been a great indicator of your performance over time, but it has slowed here in the U.S. So just -- any thoughts around what you're seeing across your core categories would be helpful. And then just maybe following up on that and kind of following up on Andrea's question, but maybe focusing more on the core sales outlook. And is there something you're seeing around demand that caused you to reiterate your core sales outlook? I know you mentioned the shift in customer ordering patterns. But you delivered 6% in the first quarter, you expect low single-digit growth in Q2. So that would just imply a pretty meaningful slowdown in the back half despite much easier comparisons to kind of get to the flat to plus 2% range for the year. So just any thoughts there or maybe how we should think about the magnitude of those shifts in ordering patterns.

[Ravichandra Saligram:]

All right. Let me give it a shot. So Peter, look, I think always have in context. Last year, we grew 12.5% core sales growth. Before that, for 3 years, this is a declining company and 5%, 6%, in those times, people would have said 0 to 2, oh my God, that's great for Newell. So at least that's positive that everyone is now saying why only 0 to 2. So I take that as a complement. And look, if there's anything that's probably upside, more upside than downside. Having said that, right now, there's -- you're right, the first half, but we've had that acceleration, right, and that we've talked about. Then the big question, Mark, is in the second half, there will be a couple of uncertainties

[Operator:]

And our next question will come from Kevin Grundy with Jefferies.

[Kevin Grundy:]

Great. Congrats on the strong results and the tremendous progress that you guys have made with the organization, it's been remarkable. So congrats on that. A couple of questions for me. Chris, just on the guidance, which I think collectively people kind of view as conservative, which is understandable given the environment. But you did say commodities move higher, so that's probably about $0.15. What implicitly, I guess, is better because you guys are kind of seemingly sitting tight with everything else? So maybe just comment on that. And then, Chris, just with respect to buyback sort of setting aside the unique buyback with your largest shareholder around the proceeds. Maybe just outline again a little bit on timing. It just seems like there's a strong argument to be made that you guys could be moving sooner than later, very positive on the business. The results are good. The balance sheet and free cash flow are much, much better. The margin opportunity is enormous, particularly in a more stable sort of cost environment. That you kind of pull that together for stock trading at 10x EBITDA, like why the decision not to lean in now when the stock could be materially higher if you deliver on what you think you can do? So your comments there would be helpful.

[Christopher Peterson:]

Very good. So let me start with inflation. So you're right, the incremental $80 million of inflation that we've now baked into the outlook. Basically, we've been offsetting that through 3 things or plan to offset that through 3 things. There's some selective incremental pricing that we plan to put in the market this year that will cover a portion of it. We also think that we have an opportunity to optimize particularly promotional spend, which is another big lever that we're seeing an opportunity to partially offset. And then the third piece is we are doubling down on opportunity to drive more overhead cost savings. And so those 3 elements we see upside in that basically we're using to offset the incremental inflation, which is allowing us to sort of hold the outlook for the year. And that's what's baked into the plan. On the buyback question, we authorized, as part of the CH&S divestiture, $375 million. We -- as I mentioned, we bought back $275 million in Q1. We did execute a 10b-5 program that executed in the month of April, and we bought back $50 million additional in the month of April. And so we've got $50 million remaining that we will look to do prior to the end of the year. As you know, our cash flow is stronger towards the end of the calendar year based on the seasonality of our business. So we do expect to generate good cash flow. We do expect to complete the incremental share repurchase program this year. And then we'll look to incremental opportunities as we get closer to the end of the year.

[Operator:]

Thank you. A replay of today's call will be available later today on our website, ir.newellbrands.com. This concludes our conference. Thank you for your participation. You may now disconnect.