Call Start: 10:00
Call End: 10:39
Federal Signal Corporation (NYSE:FSS)
Q2 2016 Earnings Conference Call
July 28, 2016, 10:00 ET
Ian Hudson - Vice President and Corporate Controller
Jennifer Sherman - President and Chief Executive Officer
Svetlana Vinokur - Vice President, Treasurer and Corporate Development
Ken Newman - KeyBanc Capital Markets
Marco Rodriguez - Stonegate Capital Markets
Walter Liptak - Seaport Global
Welcome to the Federal Signal Second Quarter Call. Today's conference is being recorded. At this time, I'd like to turn the call over to Mr. Ian Hudson, Vice President and Corporate Controller. Please go ahead.
Good morning and welcome to Federal Signal's second quarter 2016 conference call. I'm Ian Hudson, the Company's Corporate Controller. Brian Cooper, our Chief Financial Officer is unable to participate in today's call as he is recovering from a sports related injury. Brian has had a successful surgery and is expected to make a full recovery. While recovering he is still performing his duties as our CFO and he is currently expected to return to the office in August.
In Brian's absence I will be presenting on today's call alongside Jennifer Sherman, our President and Chief Executive Officer. We’re also joined today by Svetlana Vinokur, Vice President, Treasurer and Corporate Development
We'll refer to some presentation slides today, as well this to the earnings news release which we issued this morning. The slides can be followed online by going through our website federalsignal.com, clicking on the investor call icon and signing into the webcast. We've also posted the slide presentation and the news releases under the Investor tab on our website.
Before we begin, I'd like to remind you that some of our comments made today may contain forward-looking statements that are subject to the Safe Harbor language found in today's news release and in Federal Signal's filings with the Securities and Exchange Commission. These documents are available on our website. Our presentation also contains some measures that are not in accordance with U.S. Generally Accepted Accounting Principles. In our news release and filings, we reconcile these non-GAAP measures to GAAP measures. In addition, we will file our Form 10-Q later today.
I'm going to start today by addressing our financial results. Jennifer will then provide her perspective on our performance, current market conditions and our outlook for the remainder of 2016. After our prepared comments, Jennifer, Svetlana and I will be prepared to address your questions.
Our consolidated second quarter financial results are provided in today’s earnings release. The second quarter financials included one month of operating expenses results of Joe Johnson Equipment which we acquired on June 3rd.
Please also note the historical and current year information presented in the release exclude the results of the Fire Rescue Group which was discontinued in connection with the sale of the Bronto Skylift business that was completed in January this year.
Consolidated net sales for the second quarter were $172 million down 16% compared to the prior year period and operating income of $14.3 million was down from $29.2 million last year. This quarter's reported operating income included point $0.4 million of acquisition and integration related expenses. Consolidated operating margin was 8.3% compared to 14.2% a year ago. Income from continuing operations was $9.4 million for the second quarter compared to $18.2 million last year, that translates to GAAP earnings of $0.14 per share which compares to $0.29 per share last year. On an adjusted basis EPS for the second quarter this year was $0.17 which again compares to $0.29 per share last year.
Orders reported in the second quarter were $187.3 million reflecting a 7% improvement compared to the prior year period and a 38% increase compared to the first quarter of 2016. The increased orders were largely driven by orders acquired in the Joe Johnson Equipment transaction which we completed at the beginning of June. We ended the quarter with a consolidated backlog of $150 million which was up $14 million or 11% from the end of the first quarter.
Importantly our financial condition continues to be extremely strong facilitating investments such as our acquisition of Joe Johnson Equipment as well as return to shareholders in the form of dividends and share repurchases which exceeded $21 million this quarter. As you can see in our group results the lower demand from industrial market that we began to see in 2015 has translated into reduced operating results in Q2 of this year especially when compared to a very strong Q2 last year.
Sales at ESG were down 19% versus last year primarily due to decreases in shipments of vacuum trucks and street sweepers, lower shipments of vacuum trucks that are tied primarily to ongoing softness in oil and gas market whereas the reported reduction in street sweeper sales is associated with fewer large fleet shipments when compared to the prior quarter. On this lower sales volume ESG is operating income dropped to $14.9 million. ESG's operating margin for the quarter was 12.5% down when compared to a record 19.9% a year ago. Orders at ESG were up 18% year over year benefiting from the Joe Johnston acquisition, excluding the effects of the Joe Johnson acquisition, ESG orders were up $5.7 million or 6% compared to the prior quarter and $28.6 million or 36% compared to the first quarter of 2016.
While demand in order flow from our municipal markets continues to be solid, industrial markets remain soft. Jennifer will go into more detail on some of the contributing market factors and impact in her remarks.
At SSG sales were down 10% compared to last year's quarter reflecting lower sales of industrial products that related to impacts in oil and gas market and softness in industrial markets generally, partially offset by improved sales into global public safety market. Our U.S. public safety business also delivered improved operating margin and operating income for the quarter. SSG's operating income for the quarter were $6.6 million compared to $7.3 million last year and operating margin was consistent with last year at 12.5%.
Orders at SSG were down 14% mainly due to lower orders for industrial products from international market. As we have noted previously most of SSG's business normally operates with relatively low backlog. Corporate operating expenses of $7.2 million were largely unchanged from a year ago with increases in professional services fees incurred in connection with the acquisition being largely offset by lower employee compensation cost.
Turning now to the consolidated income statement, the reduction in year-over-year sales translated to lower gross profit. Gross profit was also negatively affected by a $0.5 million charge, non-cash charge related to purchase accounting. This was the additional cost of sales during the quarter after a quiet JJE inventory which stepped up to approximately a sale value as part of the initial purchase price allocation.
These step ups will affect our earnings but not our cash flow for the next couple of quarters. On this basis consolidated gross margin of 26.1% for the quarter was down from 29.6% last year. Selling, engineering, general and administrative expenses of $30.3 million were down 3% compared to the prior quarter. During the current quarter, we also incurred $0.4 million of acquisition and integration expenses in connection with the Joe Johnson transaction.
Those costs primarily consisted of legal and professional service fees, all of these factors roll into the company's $14.3 million of second quarter operating income. Other items affecting the quarterly results include other income of $0.3 million largely related to foreign currency transactions and a $0.2 million reduction in interest expense resulting from our lower average level of debt. Tax expense for the quarter was down as a result of our lower income with an effective rate for the quarter of around 34% which was slightly lower than the 36.4% in Q2 last year because of a small discreet tax benefit recognized in the quarter.
Our full year effective tax rate for 2016 is currently expected to be about 35%. From a cash perspective we are projecting a cash rate of between 15% and 20%, the difference between our effective tax rate and our cash tax rate relates to the use of deferred tax assets to reduce our tax payment. These assets primarily consist of net operating loss carryforwards and tax credit carry forward. On an overall GAAP basis we therefore own $0.15 per share from continuing operations in Q2 compared with $0.29 a share in Q2 last year.
To facilitate earnings comparisons we typically adjust our GAAP earnings per share for unusual items recorded in the quarter in the current year or the prior year. In the current year quarter we made adjustments to GAAP earnings per share to exclude the purchase accounting effects and acquisition expenses that I just discussed. On this basis our adjusted earnings from continuing operations for the second quarter was $0.17 per share compared with $0.29 per share in Q2 last year.
Turning now to balance sheet and cash flow we generated $10.6 million of cash from continuing operations in the quarter compared to $13 million during Q2 last year. The comparability of operating cash flow between the current year and prior periods is adversely impacted by the non-cash settlement of $11.4 million of accounts receivable that were due from Joe Johnson Equipment as of the acquisition date.
As I mentioned earlier we completed the acquisition of JJE for an initial payment of $96.9 million during the quarter and also received additional sales proceeds of $5.7 million relating to the sale of our Bronto Skylift business that closed in January of this year. With total debt of $67 million and cash on hand of $39 million we ended the quarter with $28 million of net debt. Availability under our credit facility at the end of the quarter was $240 million, and our leverage ratio was low at 0.7 times. We are obviously in a strong financial position. At this point we have significant flexibility to invest in organic growth, pursue acquisition opportunities and return value to shareholders. On that note we paid a dividend of $0.07 per share during the quarter amounting to $4.3 million and we recently announced a similar dividend for the third quarter.
We also increased the level of our share repurchases during the quarter spending $16.8 million to buyback approximately 1.3 million shares at an average price of $13 per share. We typically approach shared repurchases opportunistically and this quarter's repurchase activity brings total repurchases in the first half of 2016 to $33.1 million, that compares with a share repurchases of $10.6 million in all of 2015. We had about $36 million remaining under our share repurchase authorization as of June 30th.
That concludes my comments and I would now like to turn the call over to Jennifer.
Thank you, Ian. I'd like to start by providing some color on the second quarter. Our results for the quarter and this year continued to reflect a tale of two markets. Our municipal markets which constitute about 60% of our revenues remained solid. It was pleasing to see us reported increase in total orders which was largely driven by the JJE acquisition. But even after excluding the effects of the JJE acquisition ESG orders were up about 36% on a sequential quarter basis and up almost 6% versus the prior quarter, much of that was due to steady performance in municipal market and we are optimistic about a couple of near term opportunities for larger fleet orders. While there is some caution in municipal market in any election year we continue to see steady demand in the U.S. as well as in Canada. The growth and improving profitability of our U.S. and European public safety system businesses which are part of our safety and security systems group were also encouraging.
These businesses make life bars [ph], sirens and related products for municipal customers in the police, fire and heavy duty markets. They continue to gain share and benefit from a number of new products introductions in recent year. While municipal markets remain solid our industrial markets continue to be impacted by the lingering effects associated with the downturn in the oil and gas market.
Within our Environmental Solutions Group, an overhang of used equipment at reduced prices continues to impact demand for the new equipment we sell from customer service saying oil and gas and other adjacent industrial markets. As you’ve seen this has impacted ESG's revenues and margins. As a result income in industrial order activity has remained low with the biggest effects occurring in our vacuum truck line. As we indicated last quarter, we’re uncertain how long the influx of used equipment may have continue affecting our demand but we are laying our plans to manage through softness that may persist well into 2017.
Within our Safety and Security Systems Group, industrial orders particularly orders for our emergency warning systems business have also been adversely impacted by a number of large projects being cancelled or delayed. We're not losing these orders, they just aren't as many opportunities due to the ongoing uncertainty in the industrial and oil and gas markets. We are sizing our business activity to match current demand and have taken actions to reduce our cost including early retirement, reductions enforced [ph], expense control and cost savings on direct material. While we are focused on cost management, I also want to emphasize that we continue to invest in topline growth in key opportunities for the future of the business. These investments include sales resources and the development of additional new products for example an improved street sweeper design.
We're also working on a line of the new jet stream accessory products and we've introduced our new Tier 4 compliance street sweepers ahead of many of our competitors. In addition, we’re moving forward with new offerings for the utility market. We have a dedicated and focused team working on the launch of the line of tools for hydro excavation and our ParaDIGm purpose built vacuum truck design for that market.
The ParaDIGm went into full production in the third quarter and while we expect it will take time to earn an expanded position in this market we are encouraged by the initial level of interest in this product. Within in our Safety and Security Systems Group we are launching a redesign of many of our industrial product offerings and are adding additional engineering and product manager resources to support a number new product development projects.
Our balance sheet continues to be strong which helps us to navigate through our near term market challenges, continue our needed investment and return value to shareholders. In the second quarter, we paid over $21 million to shareholders in the form of cash dividends and opportunistic share repurchases, that is our highest cash return to investors in a single quarter in almost 15 years. So far this year we've returned almost $42 million of value to shareholders. This time last year we talked about our appetite for adding at least $250 million from acquisitions to our revenue run rate by 2018. With that goal in mind we were delighted to complete the acquisition of JJE as a meaningful step along that path.
Looking further down the road we continue to seek additional acquisition opportunities, like Joe Johnson future acquisitions will need to meet our acquisition criteria and are likely to include businesses with recurring revenue or product lines that leverage our channel or our manufacturing capability. I'd like to spend a few minutes on the strategic rationale behind the Joe Johnson Equipment acquisition. As Ian mentioned we closed the transaction beginning of June and our integration team is continuing to make great progress. Joe Johnson is a strong municipal equipment distributor and operates in four areas of business starting with new equipment sales. Although about 90% of their new equipment sales are municipal customers, we plan to use their platform to increase our industrial sales in Canada. They have strong parts and service business that nicely complements Federal Signals existing industrial platform in the United States.
We aim to leverage their equipment rental and used equipment businesses. Rentals and used equipment our additional offerings that will allow us to serve additional customers in both in this industrial municipal markets helping us reach more of the market for Federal Signal equipment. We believe that there are significant opportunities in all of these areas.
Now that we've completed the transaction, I also want to take some time to go into the detail on some of the financial reporting implications of acquiring as a significant customer and how this considerations impact our outlook for the year. As we noted in February when we announced the JJE acquisition and on our first quarter earnings call, a likely accounting implication resulting from a JJE acquisition would be a change in the timing of revenue and profit recognition that should normalize over time.
With the closing of the acquisition in June, the initial response to our new rental equipment offering has been encouraging, therefore we are considering accelerating some investment in the rental fleet both in Canada as we execute in our strategy of increasing sales of our industrial products as well and in certain strategic U.S. geographies. This temporary deferral of profit results from units transferred to JJE that if these are not been sold through to end customers or as has been placed in a rental fleet.
Previously we would recognize revenue and profit in both cases when the units would shipped to JJE, now under a common ownership model those transactions are considered inter-company sales and do not resolve an immediate profit recognition. Specifically for the units transferred to JJE for subsequent sales to an end customer the associated profit is not recognized until unit sell through. This is more of a short term profit deferral as those units typically flow through to the end customer within 60 to 90 day. However for units transferred to JJEs replacement in a rental fleet, the profit deferral maybe long term as the upfront revenue and profit recognition is effectively replaced with rental income and the profit on the eventual sale as a used piece of equipment.
To give you an idea of how the profit deferral works, I thought it might make sense to walk through an example. During the month of June we transferred 26 units to JJE, of those 11 were transferred in anticipation of a sales to an end customer whereas as the other 15 units were intended to be placed in a rental fleet primarily in response to demand for rental offerings from our dealer and direct sales force in the U.S. Prior to the acquisition of JJE upon shipment of these units to JJE in June we would have recognized approximately $1.8 million of gross profit with a corresponding amount of revenue. However, now that we own JJE, these shipments are inter-company transactions and we do not recognize any revenue or profit in Q2 for these sales as the units adjusted for end customers were not yet solved through to the end customers before the end of Q2 and a units added to the rental fleet would have only generated a month of rental income.
In subsequent months we expect to see the reversal of previously deferred sales and profit offset by the addition of new deferral. For example of the $1.8 million profit deferred in Q2 we expect to recover a vast half of that during the remainder of 2016 as units are sold through by JJE. The other half will largely be deferred into the equipment it sold out of the rental fleet, it appears to be expect to be about three years. As a consequence we expect this should normalize over a period of about three years.
With that I would like to move on to our earnings outlook, as we mentioned we continue to benefit from relatively steady municipal markets and we remain confident in our businesses and markets for the long term. However softness in oil and gas and related industrial markets continued into the second quarter. With our strong balance sheet and ongoing actions to bring our cost structure in-line with current demand we are well-positioned to work through the industrial headwind.
We’re committed to pursuing additional strategic acquisitions and maintaining appropriate levels of investment in our sales efforts and new products to build momentum for future growth. The ongoing softness in industrial demand has weighed on our orders and revenue outlook during the first half of the year particularly in our businesses that serve oil and gas related end market and we do not believe these market will recover meaningfully during the second half of the year. On a positive note, some of this decline has been offset by healthy municipal demand, our cost reduction initiatives and sales of newly introduced product.
When we provided our outlook for 2016 early in the year, we mentioned the likely accounting implications of the JJE acquisition on the timing of revenue and profit recognition which I just described should normalize over a period of about three years. We now expect this temporary profit deferral could reduce our 2016 EPS outlook by upto $0.05. Considering factors, we are adjusting our 2016 EPS outlook from a range of $0.70 to $0.80 to a new range of $0.65 to $0.75.
With that I think we’re ready to open the line for questions. Operator?
[Operator Instructions]. We will go first to Steve Barger with KeyBanc Capital Markets.
Hey, good morning. It's actually Ken Newman on for Steve. Thanks for taking my call. I had a question on operating cash flow, it was lower in the first half of the year just due to the reasons that you mentioned in the slides, in the press release. Curious if you could talk about what you expect for free cash flow generation for the rest of the year or at least for the full year in total?
Ken, this is Ian, I will take this one. Obviously the cash flow in the first six months of the year especially as we just presented it is impacted by the transaction as we described and the associate non-cash settlement of the receivables from JJE. The working capital that we have is it -- if you look at it as a percentage of sales it is distorted this quarter largely because of the acquisition as well as the inventory and rental fleet step up in value. So that is impacting for the quarter, I mean we've only had one month of results of JJE and so we expect that to normalize over time certainly later this year and we expect that our cash flow is obviously going to pick up in the second half of the year.
Understood. Looking at ESG margin decline, can you break out for us how much of that was mix, how much was volume and what pricing did in the quarter?
I think pricing range remained pretty stable. It's a combination of both mix and volume, so hydro excavation trucks that we sell into the oil and gas market, have higher margins. So we're feeling the impact of that going forward but the encouraging news is that we talked about the improvement in the ESG orders particularly on the municipal side and they tend to have not as good margins as the hydro excavation trucks but healthy margins.
Got it. That's helpful. One more and then I will jump back in line. You know we're seeing a lot of companies having a hard time finding organic growth, curious -- as you look at your competitors are they remaining rational and is there anything that you can do to stimulate growth outside of price actions. You mentioned a couple of new products coming into market anything else that you're looking at?
On the new product development side, we're very focused on our innovation initiative particularly on the ESG side we have -- we introduced new product to the utility market and we plan on introducing additional products into that market and we also introduced our recycling products in our trailer jetter product earlier this year. On the SSG side we’re undergoing some redesign of our industrial core products and we continue to benefit from the new products that were introduced on our public safety system side. So as we move forward we're very focused on you know how do we utilize our existing technologies to open up new market opportunities for us or is there opportunity for some of our existing products to new geography.
Okay. And just a follow up I mean as you look at your competitors, would you say that the remaining rational in terms of price actions?
But we think that we’re able to differentiate our product and we've been -- we remained aiming pricing.
We will go next to Marco Rodriguez with Stonegate Capital Markets.
Good morning. Thank you for taking my questions. I was wondering if you could talk a little bit more about the Joe Johnson integration, just kind of providing this sort of color you might be able to in terms of just the timing how long you expect it to kind of move through and what sort of perhaps cross training you might be doing with the salespeople.
Sure you know we have Joe Johnson and one of our Jetstream General Manager are leading that project and we have a team focused on the strategic objectives that we set forth behind the acquisition which is also tied to the earns out that we previously discussed and as we mentioned on the call we have a new product offering, the rental equipment, the initial demand has been encouraging there as we discussed. With respect to used equipment, we've done cross training because we've introduced our Jetstream, our guzzler and Westech products to Joe Johnson's Canadian sales force so they've been trained on those products and we plan on leveraging their service centers and their sales team to increase sales of those products and then on the parts and service side we now have a aggregated 25 locations across North America that should allow us to better service our products in those strategic areas where our customers reside and then we also believe this used equipment offering is we've sold some used equipment but we'll have more of that available to sell and that will -- it's something that thus far has been received very positively. So we're encouraged, we're in the early days, we just closed the transaction in about six weeks ago. We're encouraged by the progress we've made today.
Got you. And I think if I heard you correctly in your prepared remarks you were looking to basically kind of accelerate some of the rental business after this acquisition here with Joe Johnson, what sort of investments do you need to make to kind of make that happen if you will?
We announced the acquisition, we talked about an incremental $15 million to $20 million in their rental fleet. We have obviously certain internal metrics that guide when we make those investments and the market reaction to the rental offering both by our dealers that we're going to re-rent to and by our industrial salesforce in certain areas has been encouraging. So we anticipate that the amount likely won't change but we could be making those investments earlier than we originally thought.
Got you. Okay and then other quick question I had here was just kind of all from a modeling perspective. Have you guys gotten a handle on how your DNA is going to change once you bring Joe Johnson in here?
Marco, this is Ian. Yes we have obviously we have the rental fleet that is going to be an asset that we're going to depreciate overtime, you will see when we file our Q later today you'll see how we're trying to depreciate that, the policy that we're going to apply. So we thought about it. It's obvious that -- our D&A is obviously going to increase overtime because of the addition of the fleet. So, yes you'll get a feel of how we're thinking about modeling it when we file the Q later today.
Our next question comes from Walter Liptak with Seaport Global.
I got into the call a little bit late so just wanted to ask about JJE and can you provide what you expected the back half revenue and profit contribution would be and I realize this is going to be a long term story and with the accounting changes, really a [indiscernible] company but I wondered about you know revenue and profits.
We typically don't break out the results of the JJE is now part of our ESG Group and we don't break out those results. Beyond that to state that it's thus far and in the very beginning period it's performing at or better than we had modeled, it's part of the acquisition analysis.
Well I think when we think about it we obviously -- there is a chain now because of the interplay between ESG and JJE now, it's a different dynamic to what we previously had before the acquisition and so that's really what is reflected in the deferral impact of up to $0.05 that we referenced.
Okay. Just switching gears over to the oil and gas commentary that you made, you know a lot of our companies saw bottoming in the first half of the year and you know I realize that you may not have visibility into 2017 but if you can comment on you know any trends or comments from customers you think were at least bottomed and the market will be stable for your oil and gas exposure especially the hydro excavators?
Yes we’re assuming for the second half of the year that it is going to remain the same with respect to the first half of the year and we are -- our internal plans have the overhang that we've talked about leading into 2017. Over the last couple months we haven't seen it deteriorate further. So that's encouraging but we're not expecting any meaningful coverage for the second half of the year and we believe it's overhang of excess inventory will bleed into 2017.
Okay, makes sense. And then lastly any update on the [indiscernible] loss litigation, were any of the trials started? Are things moving forward the way that you thought they were for the year?
We have not had any trials in the first half of the year. We had put out a press release that we’re successful in getting one of the cases dismissed. We have two trials scheduled perhaps three depending on the timing in the second half of the and we're moving forward aggressively defending those cases.
We will go to Ken Newman for a follow-up question.
So ESG revenue was $235 million in the first half, curious, do you expect second half revenue to be flat or up versus the first half?
I think it would be up in the second half of the mainly because of I mean we're going to have the effects of the Joe Johnson acquisition for the year that wasn’t in there in the first half of the year.
And we also talked about the increased orders. We tried to break it out for you with Joe Johnson Equipment without Joe Johnson Equipment and we are encouraged by the sequential improvement.
Got it. So those orders -- another way of saying that is the orders could be monetized before the year is out?
Some of them, yes.
Okay And then I guess moving to ESG margin, I mean if we look at the margin in this quarter is that a good proxy for the back half for ESG?
I mean we're not expecting the mix to change significantly, so we're not expecting to see an increase in for example hydro excavators which are higher margins. So I think there are going to be some impact with the JJE acquisition which you'll need to factor in but it should be a stable margin basis, yes.
Okay. And then moving over to ESG, I mean given the view on mix in the 2017 how do you think about the margin for that segment? I mean is that sustainable in the 13% range?
A lot of it depends on mix. We also have the impact of the JJE acquisition moving forward, you know but we do remain confident in our long term margin targets for JJE [ph].
And then I guess lastly I mean you did talk about focusing on strategic acquisition, can you talk a little bit about what's in the pipeline currently? Any active projects and how should we think about deal size as we progress over the call it, the next 6 to 12 months.
Sure we have a number of active projects in the pipeline and we look at our management bandwidth, we completed the JJE acquisition. So right now we are focusing more on the SSG side but if something were to pop on the ESG side and we thought it made sense to me at the bandwidth we would move forward. You know the areas we're focusing on are you know either they are adjacent, we're staying pretty close to the core. Does this acquisition give a factor to new geographies? Can we leverage channels and market, are there adjacent markets with new products. Those are all some of the acquisition criteria that we're looking at very closely and obviously acceptable return.
So I would say the pipeline is healthy right now and we’re pursuing a number of options. We’re looking at more bolt-on, less than $100 million type opportunities.
Great. I do have one more, it's going back to JJE. Could you talk a little bit about the organic growth rate for that business in the quarter understanding that you know the results are a little mixed just given the accounting here but you know just the organic growth rate where you're finding cost savings and did JJE generate cash in a standalone basis?
So from a standalone kind of contribution, JJE except for the month of June contributed about $10 million of revenue and just a little shy of the $1 million of operating income.
Okay. There are no more questions. In closing I'd like to reiterate that we are confident in the long term prospects for our businesses and our markets. We'd like to express our thanks to our stockholders, employees, distributors, dealers and customers for their continued support. Thank you for joining us today and we'll talk to you at the end of the third quarter.
Ladies and gentlemen that does conclude today's conference. Thank you all for joining.
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