Haverty Furniture Companies - Q1 2024

Transcript

Operator (participant)

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Havertys' first quarter 2024 earnings call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Should you require operator assistance during the conference, please press star zero to signal an operator. Please note this conference is being recorded. I will now turn the conference over to your host, Richard Hare, Chief Financial Officer.

Richard Hare (CFO)

Thank you, operator. During this conference call, we'll make forward-looking statements which are subject to risk and uncertainties. Actual results may differ materially from those made or implied in such statements, which speak only as the date they are made and which we undertake no obligation to publicly update or revise. Factors that could cause actual results to differ include economic and competitive conditions and other uncertainties detailed in the company's reports filed with the SEC. Our Chairman and Chief Executive Officer, Clarence Smith, will now give you an update on our results, and our President, Steve Burdette, will provide additional commentary about our business.

Clarence Smith (CEO)

Thank you for joining our first quarter conference call. Our Q1 sales were down 18.1% to $184 million, with comparable store sales down 18.5%. Total written sales were down 12.6%. We continued with strong gross margins of 60.3% and controlled cost, which allowed us to produce a pre-tax profit of $3.2 million compared to $15.4 million in last year's Q1. We're well prepared for the Memorial Day event, the most important of the first half, with energized marketing plans and exciting lineup of new products, excellent balanced inventories, and new in-store signage. Our board approved a 6.7% increase in our quarterly dividend, which is our 12th year of consistent dividend increases. Havertys has paid a dividend every year since 1935.

Our strong balance sheet, with over $100 million in cash, allows us to return capital to our shareholders and invest in infrastructure and stores in our markets. In 139 years of furnishing homes throughout our regions, Havertys has consistently gained market share, especially in difficult times. The falloff in furniture demand, following the dramatic sales increases due to COVID, has had a major impact on the industry. The industry struggled to supply timely furniture deliveries in the gangbuster years during COVID, but once that backlog cleared up, we experienced a significant negative impact throughout the industry. We pulled forward roughly two years of sales and then experienced a two-year slide back to pre-COVID. This time, there will be many players who won't survive the recovery.

While the first weakness was felt at the lower end of the market, it has impacted all the industry, and we believe that that will continue until housing begins to edge back positive. Home sales in the South have a very high correlation to our business. Clearly, interest rates are a major factor in housing. In the past year, we've seen numerous furniture failures of major manufacturers and retailers with the demand slide, and we expect to see more competitors struggle and players fail. These are times when it becomes clear that this industry, closely tied to housing, cannot handle heavy debt leverage. Major debt positions, combined with higher interest rates, is a fast slide to bankruptcy in the furniture world. We have zero funded debt and are strongly positioned in the best states and fastest-growing markets in the country.

We believe that we're uniquely well positioned to continue to grow our market share in these important growth areas in the coming years. We're investing in store growth and upgrading our store and operating systems to better serve our customers. We have a couple of major remodeling projects underway in major markets, which should be completed by next month. We believe in financial resilience for sustained financial growth. We're on track to reach our goal of opening five new stores this year and five in 2025. I recently attended our new store opening in Southaven, Mississippi, entering our seventeenth state in a major growth suburb of Memphis, Tennessee. Southaven was the first store opening of four from former Bed Bath & Beyond stores, which will allow us to gain strong locations and market areas where we have not been able to find sites.

In the next three months, we will be opening stores in three markets in Florida: Destin, central to the Emerald Coast, St. Petersburg, cementing the southern coastal site in our Tampa region, and Pembroke Pines, our southernmost store in Southeast Florida, reaching into Miami. All these stores are in adjacent markets and locations where we have significant brand awareness, existing distribution, and experienced management in place. We know that these strengths, combined with excellent locations at below-market rates, are a solid foundation for success. By Labor Day, we will have 33 stores throughout southern Sunshine State, our largest state, followed by Texas, with 22 stores. We're very excited to announce plans to return to Houston, Texas. Havertys left Houston over 40 years ago, and it is the largest market in our footprint where we do not have stores.

We will open our first store in a former Bed Bath & Beyond building in The Woodlands area later this year, and follow with a Baybrook Village store in Q1 2025. We expect to have more stores positioned to serve the greater Houston market in the next two years. We have delivered furniture in the northern suburbs of Houston for many years from our Austin and College Station stores. We believe that we'll be well-positioned and well-received in Houston, and a major strengthening of our position in Texas. We are investing in brick-and-mortar, building our team's expertise, growing our design service, upgrading products, and expanding customization and special order capabilities. All our teams are driven to be the best home furnisher in the country, and to gain profitable market share throughout our regions. I'll now turn the call over to Steven Burdette, President.

Steven Burdette (President)

Thank you, Clarence, and good morning. Our first quarter results continue to show the headwinds that we are facing with the housing crisis and interest rates. However, we continue to be encouraged by our team's efforts to ensure that Havertys is furnishing happiness to our customers. Store traffic continues to be a struggle in all markets. However, we did see a slight improvement in February and March in our traffic numbers coming off January, which was impacted by weather. Our design business continues to gain momentum with an increase of over 10% in total dollars for the quarter, driven by our average design ticket increasing over 3%. The number of customers engaging with our design program was up over 19%. Our supply chain network continues to operate without any significant disruptions.

We have been able to negotiate our new freight rates for 2024, beginning in May, so that we feel comfortable with our margin projections for the year. Our inventories continue to be in excellent condition, and we're down at quarter end, almost 20% from Q1 2023, and almost 2% from year-end 2023. Our vendors continue to be great partners as lead times remain four to seven weeks. This has helped to continue to drive our special order business, which was up 13.5% in dollars for the quarter. As you know, we introduced our new marketing campaign, Furnishing Happiness, to include with a regret-free experience. This messaging circles around four pillars that we feel are key to our customers' happiness and experience: choices, quality, design, service.

Our concern with the decrease in written business has centered around our decrease in traffic. As a result, we recently made a change in our media planning and buying partner. Effective April first, we brought in Carmichael Lynch Media to overhaul our paid media approach. We believe that how they buy, manage, and optimize media will result in better targeting and greater efficiencies, resulting in a higher return on our media investments. Carmichael Lynch Media will partner with EP+Co, our agency of record, to develop impactful communication strategies tailored to increase awareness of Havertys and our Furnishing Happiness with a Regret-Free Guarantee campaign. Our new media approach will be fully implemented for Memorial Day, our largest promotion the first half of the year. Additionally, we are focusing on more local store marketing efforts to help complement our paid advertising campaigns.

We feel this combination of awareness-building media with community-building local store efforts will positively impact traffic. Extending financing will continue to be a part of our holiday promotional events, and we continue to rightsize our staffing to match our current conditions through attrition in all areas of the business. Now I will turn the call over to Richard.

Richard Hare (CFO)

Thanks, Steve, and good morning. In the first quarter of 2024, net sales were $184 million, or an 18.1% decrease over the prior year quarter. Comparable store sales were down 18.5% over the prior year period. Our gross profit margin increased 120 basis points to 60.3% from 59.1%, primarily due to product selection and merchandising mix. SG&A expenses decreased $9 million, or 7.6%, to $109.4 million. As a percentage of sales, these costs approximated 59.4% of sales, up from 52.7% in the prior year quarter. We experienced decreased selling costs, advertising, distribution, and transportation expenses during the quarter.

Our interest income was approximately $1.6 million during the first quarter, as we earned more on our cash deposits due to higher interest rates. Income before income taxes decreased $12.2 million to $3.2 million. Our tax expense was $800,000 during the first quarter of 2024, which resulted in an effective annual tax rate of 25.1%. The primary difference in the effective rate and statutory rate is due to state income taxes and additional tax benefit from the vesting of stock awards during the year. Net income for the first quarter of 2024 was $2.4 million, or $0.14 per diluted share on our common stock, compared to the net income of $12.4 million, or $0.74 per share in the comparable quarter last year.

Now, turning to our balance sheet. At the end of the first quarter, our inventories were $92.1 million, which was down $1.9 million from the year-end balance and down $22.2 million versus Q1 of 2023. At the end of the first quarter, our customer deposits were $40.9 million, which was up $5.1 million from the December 31, 2023 balance, and down $5.5 million versus the Q1 2023 balance. We ended the quarter with $111.8 million of cash and cash equivalents, and we have or we had no funded debt on our balance sheet at the end of the first quarter.

Looking at some of the uses of our cash flow, CapEx was $6.4 million in the first quarter, and we also paid out $4.8 million of regular dividends. We did not utilize any of our share repurchase program during the first quarter of 2024, and we have approximately $13.1 million of existing authorization in our buyback program. Our earnings release list out several additional forward-looking statements indicating our future expectations of certain financial metrics. I will highlight a few, but please refer to our press release for additional commentary. We do expect our gross margins for 2024 to be between 60% and 60.5%. We anticipate gross profit margins will be impacted by current estimates of product and freight costs.

Our fixed and discretionary type SG&A expenses for 2024 are expected to be in the $290 million-$292 million range. The variable type costs within SG&A for 2024 are expected to be in the range of 19.9%-20.2%. Our planned CapEx for 2024 remains at $32 million. Anticipated new or replacement stores, remodels, and expansions account for $27 million. Investments in our distribution network are expected to be $2.5 million, and investments in our information technology are expected to be approximately $2.5 million. We do expect our unanticipated effective tax rate in 2024 to be 26.5%. This projection excludes the impact of vesting of stock awards and any potential new tax legislation.

This completes my commentary on the first quarter financial results. Operator, we would like to open up the call for questions at this time.

Operator (participant)

Thank you. At this time, we will be conducting a question-and-answer session. If you would like to ask a question, please press star, then one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. If at any time you wish to remove your question from the queue, please press star two. For participants using speaker equipment, it may be necessary to pick up your handset for pressing the star keys. Once again, to ask a question, please press star one. Our first question is from Michael Legg with The Benchmark Company.

Michael Legg (Equity Research Analyst)

Hey, guys. Good morning. Thanks for taking my questions.

Clarence Smith (CEO)

Good morning.

Michael Legg (Equity Research Analyst)

Just wanted to dig into the decision to enter the Houston market again. Maybe can you elaborate on why you chose Houston and the opportunity you see there? Thanks.

Clarence Smith (CEO)

Well, Houston is the largest market that is in our distribution footprint. We used to be there, we talked about that, and we've been trying to figure out a strategy to come back in for quite a while. So we got, one store, our main store that we're going into in The Woodlands area is a former Bed Bath & Beyond store that we've got under lease, and it's, an extraordinarily good lease. The second store down in, Baybrook Village is also, one of their spin-off companies and also in a great position. So we know that, it's a major market, and we need to have more than a couple of stores, so we have plans to expand that over the next several years and reach out to the growth areas of Houston.

We can serve it now from our Dallas facility that's in place. We already deliver there, as I mentioned, in the northern markets. It is a terrific, large market where they know who we are, and we can serve it well, and we're finally getting positioned to move back in.

Michael Legg (Equity Research Analyst)

Great. Great. Yeah, that's super helpful. Great to hear. And then as a follow-up, maybe if you could just comment on the competition and promotion you're seeing out there in the industry. You know, how promotional are some of your competitors getting in this market environment? And then maybe a quick comment on just any price increases you've been able to put in place. Thanks.

Steven Burdette (President)

Yeah, this is Steve. I would tell you, we really haven't seen a change in our, the cadence from, you know, how our competitors or promotion and, you know, pricing things out. So we really have not seen a change there or an adjustment. Commented on the last call, we did see, credit promotions are being tightened down because of the cost. We have seen that are not being offered, on that side of it. So from that vantage point, we don't see any real changes off of that. Now, from our side of it, as I commented, we made a change in our media partner, and we're very excited about that-

Michael Legg (Equity Research Analyst)

Mm-hmm.

Steven Burdette (President)

and what that can bring to us, and we're focused on driving traffic. And one thing they're really gonna do is look at a plan by market, an individualized plan. Instead of being more of a, fewer plans, we're going in basically having individual plans by market that we're really excited about. You know, because Dallas is gonna be different than Birmingham, is gonna be different than Tampa.

Michael Legg (Equity Research Analyst)

Mm-hmm.

Steven Burdette (President)

So we're really excited about that, and we're looking forward to seeing the results of that, and what they're gonna do for us.

Michael Legg (Equity Research Analyst)

Great. Great. That's all I had. Thanks for the time, guys.

Clarence Smith (CEO)

Thanks,Michael.

Operator (participant)

Our next question comes from Anthony Lebiedzinski with Sidoti & Company.

Anthony Lebiedzinski (Equity Research Analyst)

Good morning, and thank you for taking the questions. You know, nice to see the balance sheet strength here and the dividend increase as well. I know you touched on a little bit, but just wanted to see if you guys can quantify as far as the trends in the written business. You mentioned that February and March was better than January because of the weather. If you could just maybe go over the numbers, if you could. I don't know if this is significant to you guys or not, but Easter fell earlier this year than last year. Did that have any notable impact on the business?

Richard Hare (CFO)

Anthony, hey, it's Richard. Let me hit the written business, and then Steve's got some comments on Easter. But in terms of the cadence, January, we were down in written business almost 20%, very difficult month. Then in February, we were down about 8%, and then March, it improved, we were down about 5%. So you can kind of see, started out really difficult environment in January with the improvements in February and March.

Steven Burdette (President)

Yeah, and the Easter effect was really offset by the leap year effect of February. So we kind of look at those two together, when you look at it, Anthony, and if you combine them, I think we were down a little less than 7% combined between the two months. So they were equal days there when you, you lost Easter, but you picked up leap year.

Anthony Lebiedzinski (Equity Research Analyst)

Got it. Okay, yes, I forgot about that, and thanks for pointing that out. So, obviously, you, good thing that you're reentering Houston. You do have a strong balance sheet. Would it be possible for you guys, do you think, to accelerate the growth? I know you talked about five stores that you're looking to open this year and next, but again, given the dynamics in the marketplace that are going on now, is there a chance that you may accelerate that in future years, the pace of store openings?

Clarence Smith (CEO)

I think so. It depends on the opportunities. We, as I mentioned, I think there are gonna be more opportunities. We are very good at converting existing space to Havertys. Most of our growth has been that. We open and we'll open a new store that's being built when we have to do that, and there'll be a few of those in the next years, or we are planning. But I do believe there are gonna be more opportunities for us, and we're prepared to do it. We've got a team to do it and a staff to do it, and we're good at converting. So as those things happen, we're ready, and we're gonna be ready to jump on them.

So, yeah, if you look way back, Anthony, the biggest acquisitions of stores we did were HomeLife. That was Sears HomeLife, done around 2000, and I think we opened nine or 10 at one time, and we were able to execute that, and that was 20 years ago. So we know we can do it. We just wanna make sure they're good opportunities. We expect that to be there.

Anthony Lebiedzinski (Equity Research Analyst)

All right. Thank you, Clarence, for that. And then, Steve, you mentioned some efforts to right-size staffing. Did that already take place in the first quarter? Are you looking to do that coming up here, and kind of which areas of the business? I know you guys did a big staffing reduction right after COVID initially hit four years ago, then you rehired some people back. But you know, how should we think about that as far as timing and potential size as far as personnel reductions?

Steven Burdette (President)

I would think about it as it is ongoing, and it's fluid, and we're managing it to the business, and as we go. So we're constantly looking at that and evaluating that, Anthony.

Richard Hare (CFO)

Yeah, let me add to that, Steve. Anthony, we continue to. We always reassess and evaluate all areas of our business for cost efficiency. So during this past quarter, I believe our headcount was down to 2,487. I think we were down 71 people versus the end of the year. Most of that was in distribution and home delivery. As the demand came down, so did the need for additional support there. And generally speaking, in other areas of business, just one in particular, we're evaluating our entire lease portfolio for opportunities for further reduction of expenses.

Looking at, you know, all of our retail distribution and corporate leases for areas where we can, you know, get savings and extend the term on certain leases. So it's a constant process.

Anthony Lebiedzinski (Equity Research Analyst)

Got it. The last question from me before I pass it on to others. So, kind of, you know, given where your share price is today, what is your appetite now for share repurchases?

Clarence Smith (CEO)

Well, we meet with our board every quarter, and we've got a meeting later this in a few weeks, and we evaluate it every quarter. We've got authority now for about $13 million, and we'll get in as it makes sense for us.

Anthony Lebiedzinski (Equity Research Analyst)

Understood. Well, thank you very much, and best of luck.

Clarence Smith (CEO)

Okay.

Richard Hare (CFO)

Thanks, Anthony.

Clarence Smith (CEO)

Thank you, Anthony.

Operator (participant)

Our next question is from Budd Bugatch with Water Tower Research.

Budd Bugatch (Senior Research Analyst)

Good morning, Clarence, Steve, and Richard.

Clarence Smith (CEO)

Morning.

Budd Bugatch (Senior Research Analyst)

I know it's these are challenging times for the industry, as you noted, Clarence. And you talked about expecting to see more disruption, and we've seen enough of it already. Are you seeing any of that with your suppliers? I know you, Steve, you mentioned you got four to seven weeks in good supply pattern with your suppliers, but I'm just curious to see if you can give us any more color that you may be seeing.

Clarence Smith (CEO)

I can't say I've seen anything that will impact our direct suppliers. I must admit, I was a little concerned with the Leggett release. They're the main player in the industry. It tells you a lot about what the industry is going through there. But we haven't seen anything that's disrupted our flow of product with our main suppliers.

Budd Bugatch (Senior Research Analyst)

Okay. And you talked about January and February and gave us the cadence on that, but, in conjunction with what you just mentioned and other things that we're hearing, April has seemed to have hit another real significant air pocket. And I know you don't like to comment on the current quarter, but, I also know you don't wanna surprise people either. So can you give us a flavor of what you're seeing in the industry now or from a macro standpoint or how it affects Havertys?

Clarence Smith (CEO)

We've both been around a long time, and I will say that historically, April is the slowest month. One, if not the slowest month of the year for a couple of reasons. One is because of Easter, and the other is because of tax season, that type of thing, Tax Day. I don't think you'll see anything much different than what we've historically seen about April.

Budd Bugatch (Senior Research Analyst)

Okay. I mean, Telsey have made the same comment, so about being the cruelest month. So yeah, and I know April and, you know, Easter and Passover, we always used to joke when I was doing what you do, it was either late or early, but it was never on time. And

Clarence Smith (CEO)

Well, the good thing is that it's behind us. You know, Easter hit early, so it's behind us, and now we're moving on.

Budd Bugatch (Senior Research Analyst)

Okay. When do you open up St. Petersburg? Just curious, from that standpoint.

Clarence Smith (CEO)

Bud, we're hoping, third quarter, you know, mid-third quarter. Hoping to get before Labor Day.

All of the problems have just been getting the approvals from Florida, as you know, how difficult it is to get.

Budd Bugatch (Senior Research Analyst)

We remember that remark. I understand.

Clarence Smith (CEO)

Right. We were able to open very quickly our store outside Memphis, but Florida is a little different.

Budd Bugatch (Senior Research Analyst)

I got you. And last for me, on the expense side, Richard, and thank you for all the detail and the color you give, and that's really very helpful to help people understand the structure of furniture retail. Are you seeing any cost issues that are worrisome? We're starting to see rate issue for the way people are paid, so I'm curious if you're seeing that or how you're... What you can give us color on that.

Richard Hare (CFO)

Yeah, I'll just say nothing that really keeps me up at night. You know, just your standard inflationary increases, but they're low single digits. Steve, I think, mentioned it in his opening remarks that we, we've locked in on our freight contract, so we're got that behind us, and things are back to more historical levels there. But, you know, I guess it's probably not so much a cost problem, but a revenue, you know, revenue issue with the way business is. But we continuously look at other areas to find cost efficiencies, and we'll continue to do that.

Budd Bugatch (Senior Research Analyst)

Any of the freight issue, any with Baltimore or any of the turmoil in the oceans giving you problems?

Richard Hare (CFO)

No, Bud, we do not use the Baltimore Port, so that has not caused us—it will not cause us any disruptions. And, you know, the overseas, what's going on in the Red Sea and all of that, that movement's going around, you know, already diverted, going a different path. It's just extending the lead time, you know, by a couple of weeks. But that's not any impact to our customers. We plan for that, and we know where it is. So no disruptions there from, you know, to impact our customers.

Budd Bugatch (Senior Research Analyst)

Okay. Thank you very much, and best of wishes on the balance of this year and beyond.

Clarence Smith (CEO)

Thank you, Bud.

Richard Hare (CFO)

Thank you, Bud.

Operator (participant)

Our next question is from Cristina Fernández with the Telsey Group.

Cristina Fernández (Managing Director and Senior Research Analyst)

Hi, good morning, everyone. I wanted to ask about the industry or revenue assumptions behind the guidance, and if, you know, maybe, Clarence, you can touch on it. It seems like, you know, the order trends were, you know, got a little bit better, less worse, as the quarter progressed, but at the same time, you talked about the challenges in the industry and, you know, in some business, some companies going out of business. So do you think, we should expect similar trends as we saw in the first quarter, or we're getting closer to that point where there could be an inflection in demand at some point this year?

Clarence Smith (CEO)

Well, we have, we have said that we thought things would be better in the second half. I don't know if we're feeling that or expect that from what we're hearing from the Fed and the marketplace. It is definitely difficult. We've been down for a long time in written business. I think that will be softening up. I think it'll be less down, but we don't see, I don't have visibility to the point where we think it's gonna be positive anytime real soon. But, and I think we're saying the same thing in the industry. I haven't heard anything positive from other players. I think it's across the board, frankly. And it's now moved into the better end of the market, as I mentioned.

I mean, it started in the lower end of the market. It's now hit... I think it's hit everywhere. And we're not a lot of people release retail sales, but I think it's a trend that is in place. I hope that it turns around soon. We're certainly positioned to do that, and we hope some of the new things that Steve talked about with a new marketing and certainly new merchandise will resonate to help that happen.

Cristina Fernández (Managing Director and Senior Research Analyst)

Yeah, that makes sense. And yeah, that seems consistent with what we're hearing. So wanted to follow up on that point with Steve on the marketing side. Can you expand more on, like, where are the efficiencies? Or kind of what's changing to what you've been doing versus what you're gonna do going forward? Anything else in addition to the comp, I guess, market-specific marketing? Are we gonna see a change in, like, medium digital versus print? I don't think you do too much print, but perhaps TV or some of the other channels that you've been traditionally using.

Steven Burdette (President)

You know, Cristina, we're not gonna play our hand, obviously, because we haven't done it yet. I mean, we're just now starting it, and our big advertising for the quarter will be around and focused on Memorial Day. But obviously, all those things that you just mentioned are on the table. I mean, we're looking at it by market. To me, that's one of the most exciting things. You know, The Villages, for example, will be different marketing than Atlanta and, you know, those type things. So yes, there will be. In some markets, we could use print. In some markets, we may be doing more broadcast. We will look at it individually and attack it to how we can create more awareness, to, you know, drive people into the funnel and get them to our stores.

So, there'll be more to report on that as we go forward with it, but, we are excited about it. They are making changes that are different from our approach that we had been, executing on. And so that's what, you know, we'll have to see the results as it goes forward.

Cristina Fernández (Managing Director and Senior Research Analyst)

The last question I had was on the merchandising. So last call, there was some talk about outdoor and the introduction and expansion of that category. Any comment from the early reads, how that's doing or any other merchandising initiatives we can track for the rest of the year?

Steven Burdette (President)

Well, from an outdoor perspective, it is in now. We got it in, and we're glad to see it. We've got some early results. It's not in all our stores. It's in, you know, about a little less than half our stores. But the early results have been very positive. It's two different groups and some, you know, fire pits and things with it. So it's not a huge assortment, but assortment enough that we can satisfy that customer's request if they need that. You know, from a category perspective, we're seeing strength, obviously, in upholstery. That continues to do well. I talked about special order business continues to trend up. It was up 13.5%.

So we're very excited about that and what our designers are able to provide and the options we're able to offer our customers from that side of it. Bedroom, dining room have been a little bit of a struggle, been softer than we had hoped in the first quarter of things. And bedding has been pretty stable, I would say right now. So that kind of gives you kind of an overview. But we do have a lot of new product coming. We're in that cadence now. We've gotten back into that. Our merchants are flowing new product in, and we, and we're excited about it. Our teams are excited about it because obviously, that gives, you know, new choices for our customers.

Cristina Fernández (Managing Director and Senior Research Analyst)

Great. Thank you.

Steven Burdette (President)

Thank you, Cristina.

Operator (participant)

Gentlemen, there are no further questions at this time. I'd like to turn the call back to Richard Hare for closing comments.

Richard Hare (CFO)

Well, we appreciate and thank you for your participation in today's call, and we look forward to talking to you in the future when we release our second quarter results later this year.

Operator (participant)

Thank you. This concludes today's conference. You may disconnect your lines at this time.