Kadant Inc. (KAI) Q1 2019 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Q1 2019 Kadant Inc. Earnings Conference Call. [Operator Instructions] As a reminder, this conference call may be recorded for replay purposes. It is now my pleasure to hand the conference over to Michael McKenney, Chief Financial Officer. Sir, you may begin.

Thank you, Brian. Good morning, everyone, and welcome to Kadant's first quarter 2019 earnings call. With me on the call today is Jon Painter, our Chief Executive Officer. Before we begin, let me read our safe harbor statement. Various remarks that we may make today about Kadant's future plans and expectations, financial and operating results and prospects are forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to known and unknown risks and uncertainties that may cause our actual results to differ materially from these forward-looking statements as a result of various important factors, including those outlined at the beginning of our slide presentation and those discussed under the heading Risk Factors in our annual report on Form 10-K for the fiscal year ended December 29, 2018, and subsequent filings with the Securities and Exchange Commission. In addition, any forward-looking statements we make during this webcast represent our views and estimates only as of today. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so even if our views or estimates change. During this webcast, we will refer to some non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is contained in our first quarter earnings press release and slides presented on the webcast and discussed in the conference call, which are available in the Investors section of our website at www.kadant.com under the heading Investor News. With that, I will turn the call over to Jon Painter, who will give you an update on Kadant's business and future prospects. Following Jon's remarks, I'll give you an overview of our financial results for the quarter, and we will then have a Q&A session. Jon?

Thanks, Mike and thank you all for joining us this morning to review our first quarter results and to update you on our business outlook for 2019. Overall, we had a good start to the year, with excellent operating performance leading to a solid earnings per share beat as well as record revenue and bookings. Let me start with the Q1 financial highlights. We had record first quarter bookings of 184 million, up 1% from the record performance last year. We also had record revenue, which was up 15% to 171 million. Gross margin decreased to 41.2% due to purchase accounting and the inclusion of lower-margin revenues from our recent acquisition. Adjusted EBITDA was up 27% to 30 million or 17.5% of revenue. We generated $0.96 of GAAP diluted earnings per share, and our adjusted earnings per share was up 16% to $1.24. FX negatively impacted our earnings per share by $0.08. Cash flow in Q1, which is historically a weaker quarter, increased 37% compared to the same period last year to 10 million. And finally, we finished the quarter with net debt of 304 million and a leverage ratio of 2.33. If you take a look at slide 6, you can see FX had a meaningful negative impact on our Q1 results, while the acquisition of Syntron had a positive impact. Our internal revenue growth, which excludes FX and acquisitions, was up a healthy 6%, while internal revenue growth and bookings decreased 8% compared to the record first quarter of 2018. As you may recall, we had an extraordinary level of bookings in the first half of 2018, so we expected difficult comparisons the first half of this year. That said, I'm very pleased with the level of bookings in the first quarter. Our Parts and Consumables internal growth in Q1 was also excellent, with revenue up 4.5% and bookings up 3.6%. Moving on to our bookings and revenue performance generally. Slide 7 shows a positive uptick in bookings in Q1 compared to the previous three quarters to a record 184 million, thanks to contributions from our recent acquisition. I should also note that we ended the quarter with a record backlog of 200 million. Q1 revenue increased 15% to a record 171 million, due largely to the contributions of our acquisition but also strong performance for our stock prep product line in Europe and North America and our doctor cleaning and filtration product line in North America. Another high point of the quarter was our Parts and Consumables business, which saw significant increases in both bookings and revenue. Parts and Consumables bookings increased 17% to a record 120 million, thanks largely to contributions from our recent acquisition. Revenue from Parts and Consumables in the first quarter was also outstanding, up 18% to a record 113 million and represents 66% of our total Q1 revenue. At 66% of revenue, Parts and Consumables continues to make up a significant portion of our total revenue. I want to note that after analyzing Syntron's business, we determined it's best to categorize its aftermarket replacements and upgrade business as Parts and Consumables. Using this classification, Syntron had Parts and Consumables revenue making up 82% of its total revenue in Q1. Next, let me review our performance in the major geographic regions where we operate, and I'll start with North America. The packaging market in North America started the first quarter of 2019 in an environment of weaker demand and new capacity additions. This led to containerboard operating rates at 91% in the first quarter, down from 95% in the prior year quarter. The underlying strength of the US economy is a tailwind, but there is still enough uncertainty in overall demand that packaging buyers are being cautious in building up too much inventory. A big question in the North American market is what role China will play in importing North American liner to offset the fiber shortage they're experiencing in China. On the housing front, US housing starts were down around 10% in the first quarter compared to a strong Q1 of 2018. March's annualized rate of 1.1 million housing starts, however, is still fairly healthy. The market does appear to be firming up as interest rates have come down making new homes somewhat more affordable. That said, we are seeing reduced capital project activity in our wood processing segment compared to the high levels we saw last year as many producers rush to increase capacity and modernize their facilities. This combination suggests that the outlook for capital projects will be weaker than last year but still at a reasonable level. The picture is brighter in the mining and aggregates market, which are primarily served by our new Material Handling Systems segment. We're seeing a strong level of project activity for our conveying products at our mining customers based on healthy industrial activity in North America. We're also seeing good activity in the aggregate space, such as sand, gravel and crushed stone, for our vibratory feeding and conveying products. As you can see on slide 9, revenue increased to a record 110 million, up 30% compared to the first quarter of 2018. While our recent acquisition was the major reason for the revenue increase, our internal revenue -- growth in revenue, which excludes FX and acquisitions, was a very healthy 7%, making North America the strongest region in the world for us. Bookings in North America were up 13% to a record 105 million. An increase in bookings in our Doctoring, Cleaning, and Filtration product line, partially offset declines in our wood processing and stock prep product lines. That said, the largest contributor to our bookings increase was our recent acquisition. Excluding the impact of FX and acquisitions, our bookings in North America were down 9% from an extremely strong Q1 of 2018. Before leaving North America, I want to report on how our material handling acquisition performed in its first quarter as part of Kadant. Overall, the business did quite well and executed according to plan. The business had revenue of 21 million, bookings of 24 million and was $0.07 accretive to our adjusted earnings per share in the first quarter. The management team attended our global management meeting in March and came away with several synergies to pursue. Looking ahead, we expect a solid year in 2019. On slide 10, we show our revenue and bookings performance in Europe. Market conditions in Europe are about the same as they've been for the last few years. The region seems to be dragged down by slowing export activity as its most important trading partner, China, is working through its own economic headwinds. Weak manufacturing in industrial sectors compounded by the ongoing trade disputes between the US and China and ongoing Brexit uncertainty continues to contribute to a fairly lackluster economic environment. First quarter revenue was down 6% year-over-year as a result of FX despite solid growth in our stock prep and wood processing product lines. Excluding the impact of FX and acquisition, revenue was up 2%. Bookings in Europe were down 9%, but only down 2% when excluding FX and acquisitions. All of our product lines were down in Q1 except wood processing, where bookings increased 25% compared to Q1 of 2018. In particular, we booked capital orders for five machines in Eastern Europe for our rotary debarking equipment used in the wood processing mills with a combined value of approximately 2.6 million. Overall, the market in Europe is stable, and we expect market conditions to remain somewhat soft due largely to the high level of political uncertainty and relatively weak demand. Turning now to Asia. We see the impact of the proposed wastepaper ban and the slowing economy in China. Q1 revenue was down 15% compared to Q1 of 2018. Bookings decreased 4% compared to Q1 of 2018, but increased 56% sequentially. As we talked about on prior calls, the containerboard producers in China are facing fiber shortages resulting from the government's decision to dramatically reduce imports of wastepaper into China. The build-out of fiber processing capacity in Southeast Asia by Chinese producers in 2018 in response to the wastepaper ban is continuing. And there is now more project activity by Chinese producers outside China than within China. Malaysia has recently emerged as the hotspot for investment with two of China's larger containerboard producers recently announcing plans to add nearly 3 million tons of new capacity over the next few years. Containerboard producers inside China, on the other hand, are taking extended downtime due to a lack of fiber and slowing demand. Consequently, we expect reduced demand for both capital and parts from our paper industry customers in China this year. Despite the challenging market conditions, we did have a number of capital projects booked in the quarter in China, particularly in our stock prep product line, where we booked three OCC system orders with a combined value of approximately 9 million as mentioned in our last call. In addition, there continues to be OSB projects in the pipeline, which if secured should help to offset expected softer bookings for capital sold into the paper industry. Finally, a few comments on the rest of the world results. The market conditions in South America, particularly Brazil, are still restrained but stable. Our revenue in the rest of the world was 14 million in Q1, up 45% compared to the same period last year and 31% on a sequential basis. Bookings were down 33% compared to a relatively strong Q1 of 2018, however, were up 18% sequentially. I want to conclude my remarks with a few comments on our guidance for Q2 and the full year of 2019. Despite some volatility in China and weaker demand for housing in North America, we're encouraged by our solid start to 2019. Based on our Q1 results and our outlook for the remainder of the year, we are reaffirming our full year revenue and adjusted diluted earnings per share guidance and raising our GAAP diluted earnings per share guidance. For 2019, we now expect to achieve GAAP diluted earnings per share of $4.84 to $4.99 on revenue of 700 million to 710 million. We expect our adjusted earnings per share to be between $5.20 and $5.35. Mike will give you more details on our guidance in his remarks. For the second quarter of 2019, we expect to achieve GAAP diluted earnings per share of $0.99 to $1.05 on revenues of 165 million to 170 million and adjusted diluted earnings per share of $1.07 to $1.13. I'll pass the call over to Mike for additional details on our financial performance. Mike?

Thank you, Jon. I'll start with our gross margin performance. Consolidated gross margins were 41.2% in the first quarter of 2019, down 310 basis points compared to 44.3% in the first quarter of 2018. The consolidated gross margins in the first quarter of 2019 were negatively affected by the amortization of acquired profit in inventory related to our recent acquisition, which lowered consolidated gross margins by 130 basis points. Excluding the impact of the amortization of profit in inventory, consolidated gross margins in the first quarter of 2019 were 42.5%, down 180 basis points compared to last year's first quarter due primarily to the inclusion of the lower gross margin profile of our recent acquisition. Our Parts and Consumable revenue represented 66% of total revenue in the first quarter of 2019 compared to 64% in the first quarter of 2018. As Jon noted, we've categorized Syntron's aftermarket replacements and upgrades as Parts and Consumables. Excluding the Syntron revenue from Parts and Consumables, would have been 64% in the quarter. Looking ahead, in the second quarter of 2019, we expect approximately a 60 basis point reduction in gross margins due to the amortization of acquired profit in inventory. Now, let's turn to slide 16 and our quarterly SG&A expenses. SG&A expenses were 49.3 million in the first quarter of 2019, up 3.5 million from the first quarter of 2018. This included an increase of 5.7 million from our acquisitions and a decrease of 1.8 million from a favorable foreign currency translation effect. The 5.7 million of acquisition-related SG&A expenses included a 0.7 million increase in amortization expense related to acquired backlog and a 0.8 million of acquisition costs. SG&A expense as a percentage of revenue decreased to 28.8% in the first quarter of 2019 compared to 30.7% in the first quarter of 2018. We expect continued improvement in this metric in the second half of 2019 as our revenue increases. Let me turn next to our EPS results for the quarter. In the first quarter of 2019, GAAP diluted EPS was $0.96, and our adjusted diluted EPS was $1.24. The $0.28 difference relates to $0.22 of amortization expense associated with acquired profit in inventory and backlog and $0.06 of acquisition costs. In the first quarter of 2018, GAAP diluted EPS was $0.96 and our adjusted diluted EPS was $1.07. The $0.11 difference relates to $0.05 of restructuring costs, $0.04 of discrete tax items and $0.02 of amortization expense associated with acquired backlog. The increase of $0.17 in adjusted diluted EPS in the first quarter of 2019 compared to the first quarter of 2018 consists of the following, $0.16 due to lower operating costs; $0.07 from the operating results of our acquisition, net of interest expense attributed to the acquisition; and $0.04 due to higher revenue. These increases were partially offset by $0.06 due to lower gross margin percentages and $0.04 from a higher effective tax rate. Collectively, included in all the categories I just mentioned was an unfavorable foreign currency translation effect of $0.08 in the first quarter of 2019 compared to the first quarter of last year due to the strengthening of the US dollar. Let me also take a moment to compare our adjusted diluted EPS results in the first quarter to the guidance we issued during our February 2019 earnings call. Our adjusted diluted EPS guidance for the first quarter 2019 was $1.11 to $1.17. We reported adjusted diluted EPS of $1.24 in the first quarter of '19. This $0.07 increase over the high end of our guidance range was principally the result of better-than-expected revenue, primarily from our stock preparation product line. Slide 18 presents our quarterly adjusted EBITDA performance. Quarterly adjusted EBITDA was 30 million or 17.5% of revenue compared to 23.5 million or 15.8% of revenue in the first quarter of 2018, up 6.5 million. Now, let's turn to our cash flows and working capital metrics, starting on slide 19. Cash flow from operations was 9.9 million in the first quarter of 2019 compared to 7.2 million in the first quarter of 2018. As you can see on the chart, we had an 11.4 million use of cash related to working capital, primarily due to cash outflows related to performance incentive compensation and inventory, which was offset, in part, by cash received from customer deposits. Free cash flow increased to 7.7 million in the first quarter of 2019 compared to 2.1 million in the first half of 2018, in part due to lower capital expenditures. As we have noted in the past, historically, the first quarter has been a weak quarter for operating cash flows, partly due to the payment of performance incentive compensation. We had several notable non-operating uses of cash in the first quarter of 2019. We paid a 175.3 million net of cash acquired for our material handling acquisition, 2.6 million for tax withholding payments related to the vesting of stock awards: a 2.4 million dividend on our common stock and 2.2 million for capital expenditures. I'd also add that in the second quarter of 2019, we made a final payment of 1.6 million for the material and handling acquisition related to working capital acquired. Let's now look at our key working capital metrics on slide 20. On a sequential basis, our days in receivables, inventory and payables have remained fairly consistent. Looking at our overall working capital position, our cash conversion days' measure, calculated by taking days in receivables plus days in inventory and subtracting days in accounts payable, was 110 at the end of the first quarter of 2019. Working capital, as a percentage of revenue, was 14.9% in the first quarter of 2019 compared to 12.5% in the fourth quarter of 2018 and 13% in the first quarter 2018. The sequential and year-over-year increase was due to our recent acquisition, which is only contributing three months of revenue to a metric that uses the last 12 months' revenue. Net debt that is debt less cash at the end of the first quarter of 2019, was 303.7 million, up from net debt of 129.7 million at the end of the fourth quarter of 2018. We had net borrowings of 182.6 million in the first quarter of 2019, which were primarily used to finance our material handling acquisition. As you can see on slide 23, our leverage ratio calculated in accordance with our credit facility, increased to 1.19 -- increased from 1.19 at the end of 2018 to 2.33 at the end of the first quarter of 2019 as a result of the increase in debt related to the acquisition. Under our credit facility, this ratio must be less than 4.0 during the next three quarters and then steps down to less than 3.75. We anticipate free cash flows will improve as we progress through 2019, and we will continue our strategy of paying down debt. A few comments on our guidance. As was the case in 2017 and 2018, we anticipate the second half of 2019's revenue and EPS performance will be substantially better than the first half of the year, with the fourth quarter being the strongest quarter of the year. I would also like to mention that in our February call, I noted our tax rate for the first quarter of 2019 would likely be lower in the remaining quarters of 2019 due to an anticipated tax benefit associated with the vesting of equity awards in March. The tax rate for the first quarter of 2019 was 26.4%, and as anticipated in our guidance, first quarter 2019 GAAP diluted EPS included a tax benefit of $0.03 related to the vesting of equity awards. While we will continue our strategy of paying down debt, the increase in our leverage ratio from 1.19 to 2.33 puts us one level higher in our credit facility pricing grid and will increase our borrowings margin by 25 basis points beginning in the second quarter of 2019. As a result, we would expect our quarterly interest expense for the remainder of 2019 to be higher than in the first quarter of 2019. This increase was included in the 2019 guidance that we gave during our February earnings call. And finally, both GAAP and adjusted EPS guidance included our initial estimates of purchase accounting adjustments, which are subject to change as we review and finalize evaluation work for the acquisition. We anticipate this review will largely be completed by the end of the second quarter of 2019. And as a final note, I would just like to add that this is officially Jon's last earnings call. I'm sure he will comment on that in his wrap-up comments. Jon, it's been a pleasure working with you. Although we will still be working together, you're off the hook for our future earnings calls. I know you're going to miss my reading [indiscernible] That concludes my review of the financials, and I'll now turn the call back over to the operator for a Q&A session. Operator?

[Operator Instructions] And our first question will come from the line of Chris Howe with Barrington Research.

Well, I suppose I should throw all these questions to Jon since this will be his last call.

I'm surprised Mike didn't say, now do all the hard questions. And I would say save them for Jeff because he is much smarter.

First off, in regard to China, the uncertainty on waste imports, can you mention some of the weakness you're seeing in the wood processing capital business? And operating rates in North America at 91%. As far as operating rates, getting these higher and seeing the weaker demand inflect positive, is that dependent upon the fiber shortage in China? So if the fiber shortage gets underway and linerboard starts to export to China, we should see operating rates increase and, in turn, North American packaging should see some improvement?

Yes, that's -- so that's definitely a scenario that it's -- the lower operating rates in North America are two causes. Well, as you're aware of the sort of end -- the end of last year or the early part of this quarter, the economy seemed a little bit softer, and I listened to IT's earnings call, and they were talking about the kind of the flooding impacting some of the fruit harvests and stuff like that which reduced demand. So you had somewhat softer demand situation and then some capacity coming online. So that's kind of where we are now. I think with this print of 3.2% GDP and stuff like that, maybe things are a little rosier for the North American economy generally going forward, we'll see. But then getting to the heart of your question. Then the question is, if there is some excess capacity in North America and more capacity is expected to come online in the next -- this year and next year, well, if China turns to buying liner from North America, how much of that will end up going to China and kind of bring those operating rates back up? I definitely think that's a scenario that's very likely to play out. The capacity that they're adding in Southeast Asia really won't be there in time if, in fact, China goes through and has a full ban by 2020. So they will need to import liner from North America and Europe. Now who knows they may defer that, they may give them a break till 2021. But if they do what they say, I would say that there should be some increased exports to China.

That's helpful. And as far as capital equipment demand outside of China, how is that progressing? Is that kind of at a steady state, awaiting what goes on in China?

So as I said kind of in my remarks that there is pretty decent capital project activity in Southeast Asia, but not so much in China proper. Then if I look at just sort of general demand in North America, it's pretty okay. I would say pretty -- not a rocket ship but pretty stable. And of course, I did comment that I think we don't expect as much for capital bookings on our wood products business in North America, and that really has as much to do with the fact that they sort of bought it all last year. They were -- they really pulled a lot of stuff forward in their desire to increase capacity last year. So I can kind of see that pausing a little bit.

Okay. And then I have one more question just in regard to Syntron. Any synergies to note in the quarter? And you mentioned a strong backlog driven by Syntron. Was this from their existing customer base that they brought on board? Or were you able to -- how much new business were you able to extract from Syntron?

So it's definitely tied to their existing business they brought on board. We are pursuing some synergies, but these have a lot gestation period. I wouldn't expect to see any revenue synergies this year from Syntron. These take quite a while. Usually, the timing typically is, Chris, we'll get their financial stuff integrated, and then we introduce some sort of best practices and that kind of thing. And then I would say you've got manufacturing synergies, sourcing and other places, and then really last and longest to get there is revenue synergies.

Okay, and then as we look further out, any debt targets for the end of this year. We're at 2.33 now. Where should we see that by the end of this year?

Well, Chris, we're going to be, of course, we'll be actively paying down our debt hopefully in the ensuing quarters. So I'm hoping we can get that down to 2.1, something like that. I don't think we'll -- I don't think we'll get below 2 this year, but we'll be working hard to get there.

And our next question will come from the line of Walter Liptak with Seaport Global.

Wanted to ask a couple about Syntron. You mentioned the 21 million in sales in the quarter. Can you talk about how that business is doing? Did they grow during the quarter? I know we didn't have that in the numbers last year.

So they booked 24 million. So as you might remember when we were introducing it, we kind of said there's sort of 12 months is 89 million. So frankly, the 21 million is a little below their run rate, but the 24 million of bookings is a little above. I mean I'm actually pretty happy with their profitability at the 21 million and their contribution to us incidentally at the 21 million. So I'm pretty encouraged about Syntron for the year. And I would say that the year looks -- their environment is good in terms of activity.

Okay. And so with that 24 million in bookings, you think the 89 million is still on track for the year?

Yes, we didn't give -- I don't think we gave a projection, but certainly, the 24 million could -- pretty much most of that should turn to revenue this year.

Okay. And with Syntron, Mike, you may have mentioned this -- how much was the purchase accounting in the quarter? And how much do you expect for the next quarter?

So there was $0.22 related to the backlog and inventory. And $0.06 for the acquisition costs. And I think we're done with the acquisition costs. And next quarter, we're looking at approximately $0.08, and that would be predominantly for the inventory component.

And then largely done.

And then we're -- yes, then we're pretty much done.

Okay. All right. And I wanted to ask about the parts that looked like they grew nicely. Was that in stock prep, where parts were up? Or do you count that in doctoring because doctoring had some nice growth, too?

It was pretty broad-based. Let me just take a peek here. I would say -- hang on there, Walt.

Okay. Yes. And I guess, the question, Jon, is the -- you're on a pretty tough comp, I think, with -- especially with doctoring, with the first quarter last year. And I wonder if like something has changed with the way the customer’s order? Maybe they put in blanket orders for parts early in the year and then those shipped through the rest of the year. Or is this because of some internal effort to try and grow that parts business?

I would say the parts business is sort of operating as it has. We typically managed to grow, excluding FX and acquisitions, in that low single-digit rate and maybe a couple -- for a few years, we're going generally higher, with slightly higher, but this to me is par for the course. I would say that the -- in terms of where it's coming from, it's also pretty broad-based. Even the wood processing business, which is down in capital, is -- the spares are holding up quite nicely. So it's as stable as you would expect for that.

That's great. Okay. And maybe a last one from me. You guys, a couple of years ago, have talked about 80/20 and how you've been testing that. I wonder if there is any update on that. If you are re-upping on that? Or is that something that goes on the back burner?

So we had, as you know, we're doing it with two of our divisions, and I would say they are showing good results, and we are going to move forward and do that with some other ones, but it's worked out, and we're happy with how...

[Operator Instructions] Our next question will come from the line of Dan Jacome with Sidoti.

You talked a little bit about the Syntron bookings at 24 million, encouraging versus 21 million revenues. So you had a -- book to bill is above 1. Can you talk a little bit more about maybe some of the markets that Syntron is into? I think you talked a little bit about the cement and the infrastructure. But what about like the food packaging? Did you see anything positive there? Has there been maybe some markets that thus far in 2019 may be surprised you versus what your -- the books you were looking at last year when you closed the transaction?

So I would say the -- one of the stronger areas is really the mining segment, and that's trona, used in production of glass; pot ash; and actually, coal's been pretty good. Even though -- for thermal coal, it's being used less and less in power plants, it is still exported. So that's been relatively stable, I would say. The other -- I would say, the next strongest area is probably the aggregates as I talked about. That's tied to both building and also infrastructure, and the food has been, I would say, going along as normal. So that's kind of packaging more than food processing.

Thank you. And I'm showing no further questions at this time. So now, it is my pleasure to turn the conference back over to Mr. Jonathan Painter, Chief Executive Officer, for any closing comments or remarks.

Thanks, Brian. Before I let everyone go, I want to summarize what I think are the three takeaways from the quarter. First, another strong quarter with record bookings and revenue; second, the Syntron acquisition is performing well according to -- and according to plan; third, we're maintaining our full year revenue guidance with the expectation of achieving record revenue and adjusted EBITDA in 2019. And before I end, as Mike noted, after 37 quarters, this is my last earnings call. I'll be more of a listener going forward. I want to take the opportunity really to thank the investment community for the support they've given me. I feel very lucky, and I think all of us at Kadant, that we have investors who really think in the long term. I mean people say sometimes the Wall Street pushes companies to be too short term, but I can say in my almost 10 years talking to investors, I've never had a conversation like that. And frankly, if you did push me, we wouldn't have listened, but it's nice not to be put in that position. I also want to thank the employees, who've made this company the company it is today. I think we're as strong as we've ever been. And I think we're very well positioned to hit new heights with Jeff and his team going forward. So I look forward to working with Jeff in his new role, and I'm very excited for the company. So with that, thank you very much. Jeff will update you on future calls. Thanks again.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude our program, and we may all disconnect. Everybody, have a wonderful day.