Kennametal Inc. (KMT) Q3 2022 Earnings Report, Transcript and Summary

Good morning and welcome to the Kennametal Third Quarter Fiscal 2022 Earnings Call. All participants will be in listen-only mode. [Operator Instructions]. Please note, this event is being recorded. I'd now like to turn the conference over to Kelly Boyer. Please go ahead.

Thank you, operator. Welcome, everyone, and thank you for joining us to review Kennametal's third quarter fiscal 2022 results. Yesterday evening, we issued our earnings press release and posted our presentation slides on our website. We will be referring to that slide deck throughout today's call. I'm Kelly Boyer, Vice President of Investor Relations. Joining me on the call today are Chris Rossi, President and Chief Executive Officer, and Damon Audia, Vice President and Chief Financial Officer. After Chris and Damon's prepared remarks, we will open the line for questions. At this time, I would like to direct your attention to our forward-looking disclosure statement. Today's discussion contains comments that constitute forward-looking statements and, as such, involve a number of assumptions, risks and uncertainties that could cause the company's actual results, performance or achievements to differ materially from those expressed in or implied by such statements. These risk factors and uncertainties are detailed in Kennametal's SEC filings. In addition, we will be discussing non-GAAP financial measures on the call today. Reconciliations to GAAP financial measures that we believe are most directly comparable can be found at the back of the slide deck and on our Form 8-K on our website. And with that, I'll turn the call over to Chris.

Thanks, Kelly. Good morning, everyone. Thanks for joining today's call. We're going to start with an overview of the quarter, highlighting some key points on our continuing strong results despite the changing macroeconomic environment, followed by our expectations for Q4. Damon will then go over the Q3 financial results and Q4 outlook in more detail. And finally, I'll make some summary comments before opening the call for questions. Beginning on slide 2 on the presentation deck. We posted strong operating leverage again this quarter as well as improving margins through the disciplined execution of our commercial and operational excellence initiatives. We delivered sales of $512 million, an increase of 8% organically year-over-year and 5% sequentially. This was slightly above our normal sequential trend despite continuing challenges in transportation, China, and stopping sales in Russia late in the quarter. By end market, the strongest year-over-year performance was in aerospace at 29% growth and energy at 25%, followed by earthworks at 13% and general engineering at 8%. Transportation decreased by 7% year-over-year, however, was better than expected. All end markets increased sequentially. Transportation continues to be affected by supply chain challenges, most notably in China due to COVID-19 related lock downs, as well as more recent disruptions due to the Ukraine conflict. We continue to believe underlying transportation demand remains strong. And as such, we expect that recovery will follow the resolution of supply chain issues. On a regional basis, we saw strong year-over-year growth of 15% in the Americas and 9% in EMEA. Asia Pacific declined at a rate of 4%. As was the case last quarter, outside of China, the rest of Asia Pacific performed well. Despite these challenges, our commercial and operational excellence initiatives drove strong operating leverage and improved margins. Adjusted EBITDA margin increased significantly by 300 basis points year-over-year to 18.3%. Adjusted operating expense as a percentage of sales declined by 160 basis points year-over-year to 20.7%, close to our target of 20%. Adjusted EPS improved to $0.47 compared to $0.32 in the prior-year quarter. And free operating cash flow was $13 million. We bought back $15 million of shares, reflecting the confidence we have in our strategy to drive growth and margin improvement over the long term. So in summary, Q3 was a solid quarter despite the significant and unexpected macroeconomic disruptions created by the Ukraine conflict and the China COVID-19 lockdowns that transpired after the quarter began. Looking ahead to Q4. We believe the macroeconomic environment will remain dynamic and difficult to predict due to continuing supply chain issues, the effects of COVID-19 lockdowns in China, which have already significantly limited sales thus far in Q4, and the repercussions of the Ukraine conflict, especially in Europe. These disruptions are masking what would otherwise be strong revenue growth due to the strength of most of our end markets, particularly aerospace, energy and earthworks. Overall, we expect Q4 sales to be in the range of approximately flat to positive 3% year-over-year, including the negative effect of 3% from foreign exchange. We expect cost inflation to continue in Q4. However, our proactive pricing actions and productivity improvements are helping dampen the effect on margins. Damon will go into more detail on the outlook later in the presentation. Now let's turn to slide 3 where we have highlighted a wide range of recent wins that were made possible by leveraging our strengths in sales, application engineering and product innovation, as well as efficient and consistent manufacturing performance to drive higher levels of customer service. We posted another major win with an electric vehicle manufacturer. In this case, we provided a solution on an additional family of EV components, thus broadening our leadership position in the space. We also saw share gain in wind energy by expanding into other turbine components, reflecting our ability to deliver innovative products for improving customer productivity. In mining, we won incremental share of wallet with an existing customer after helping them drive productivity improvement in other areas of their business. In the energy space, a large oilfield services company selected us as a sole source supplier due to our ability to optimize a complex product design and consistently manufacture. And finally, in process industries, our expertise in additive manufacturing and material science allowed us to shorten lead times and provide greater design flexibility in flow control devices, which drives increased productivity for the customer. These wins give us confidence that our commercial and operational excellence initiatives will continue to drive growth, share gains and improve margins as we demonstrated this quarter. And with that, I'll turn the call over to Damon.

Thank you, Chris. And good morning, everyone. We'll begin on slide 4 with a review of Q3 operating results on both a reported and adjusted basis. We posted strong results again this quarter. Sales increased by 6% year-over-year and 8% on an organic basis, with business days contributing positive 2% an FX negative 4%. On a sequential basis, sales increased by 5%, slightly above the normal Q2 to Q3 seasonal trend despite worsening conditions in China due to COVID-19 lockdowns and the effects on our Shanghai distribution center and customers, as well as in EMEA and the broader effects related to the Ukraine conflict. As Chris mentioned, we stopped selling in Russia towards the end of the quarter. The effect was not material in the quarter, but will reduce our sales by approximately $20 million on an annual basis. Adjusted gross profit margin increased 90 basis points sequentially and 110 basis points year-over-year to 32.7%. Adjusted operating expenses as a percentage of sales decreased 160 basis points year-over-year to 20.7%. Adjusted EBITDA margin was up significantly by 300 basis points to 18.3%. The strong year-over-year margin performance was mainly due to price more than offsetting raw material increases, volume and associated absorption, partially offset by higher manufacturing costs, including COVID-19 absenteeism and higher depreciation. The adjusted effective tax rate in the quarter was 27.7%, in line with our outlook of 26% to 28%. Reported GAAP earnings per share of $0.42 cents versus $0.26 in the prior-year period. On an adjusted basis, EPS was $0.47 versus $0.32 in the prior year. The main drivers of our improved adjusted EPS performance are highlighted on the bridge on slide 5. The effects from operations this quarter were $0.19 cents, including approximately $0.03 of simplification, modernization carryover benefits. The factors contributing to the substantial improvement in EPS year-over-year are the same as the drivers of our strong margin performance this quarter that I just reviewed. The year-over-year quarterly EPS was negatively affected by $0.05 related to taxes and negative $0.02 due to currency. Slide 6 and 7 detail performance of our segments this quarter. Metal Cutting sales increased 5% organically year-over-year versus flat in the prior-year period. Currency was a negative 5% effect in the quarter and business days was a positive 2%. On a year-over-year basis, all end markets excluding transportation posted gains this quarter, with aerospace continuing its strong momentum at 29%, general engineering at 10% and energy at 9%. Although transportation declined by 7% year-over-year, it was better than expected. Sequentially, all end markets improved including transportation. Regionally, the Americas led with year-over-year sales growth of 11% followed by EMEA at 9%. Asia Pacific declined by 7%. Like last quarter, the decline was concentrated in China due to COVID-19 lockdowns, mainly affecting transportation and energy end markets. As Chris mentioned, we continue to believe underlying transportation demand remains strong. And as such, we expect that a recovery will follow the resolution of supply chain issues. Adjusted operating margin increased 290 basis points to 11.1%. The increase was driven mainly by favorable pricing versus raw material increases and higher volume and associated absorption, partially offset by higher manufacturing costs including COVID-19 absenteeism and higher depreciation. Our growth initiatives remain on track. We are continuing our pricing actions to ensure we price for the value of our products and look to cover the inflationary pressures in the current environment. Operational excellence is also on track as we continue to drive productivity and leverage our modernized facilities. Turning to slide 7 for Infrastructure. Organic sales increased by 12% year-over-year versus a 3% decline in the prior-year period. There was a positive effect of 1% due to business days and a negative effect of 1% due to currency. Regionally, the Americas continued its strong year-over-year growth at 20%, followed by EMEA at 13%. Asia Pacific was flat year-over-year. As in the first and second quarters of the fiscal year, the strength in the Americas was driven mainly by improvements in the US oil and gas market, as seen in the continued increase in the US land only rig count. By end market, energy was up 33% year-over-year, earthworks was up 13% and general engineering was up slightly at 1% growth year-over-year. Sequentially, energy continued its strong growth followed by earthworks. Adjusted operating margin improved by 190 basis points year-over-year to 12%. This increase was mainly driven by price exceeding raw material cost increases and higher volume and associated absorption. As in the case of Metal Cutting, we remain on track with our commercial and operational excellence initiatives. Now turning to slide 8 to review our balance sheet and free operating cash flow. We continue to maintain a strong liquidity position, healthy balance sheet and debt maturity profile. At quarter-end, we had combined cash and revolver availability of $773 million and we're well within our financial covenants. In dollar terms, primary working capital increased year-over-year and sequentially to $676 million, due mainly to an increase in inventory resulting from higher material costs, the unexpected decline in sales in China, as well as strategic decisions on safety stock due to continuing supply chain issues. On a percentage of sales basis, primary working capital was relatively flat sequentially at 31.2% and a significant decrease on a year-over-year basis. Net capital expenditures were $22 million, relatively flat year-over-year. We now expect fiscal year 2022 capital expenditures to be approximately $105 million, slightly lower than previously forecast due to supply chain constraints with suppliers, longer lead times and COVID-19 absenteeism. Our third quarter free operating cash flow was $13 million versus $47 million in the prior-year quarter. The decrease in free operating cash flow is due to greater-than-expected increase in working capital, mainly inventory, reflecting the unexpected and rapid change in the external environment this quarter that I touched on a moment ago. We paid a dividend of $17 million in the quarter. And finally, we repurchased $15 million of shares during the quarter. Since inception of the program earlier this fiscal year, we have repurchased $50 million in shares as part of our $200 million program. The full balance sheet can be found on slide 13 in the appendix. Now let's turn to slide 9 to review the outlook for the fourth quarter. We expect sales to be in the range of $510 million to $530 million, which represents a year-over-year growth range of approximately flat to 3%. This outlook reflects recent market disruptions including the broader effects of the Ukraine conflict on sales in Europe and the elimination of sales in Russia. In addition, the outlook assumes limited China sales in April through mid-May due to the effect of COVID-19 lockdowns on our Shanghai distribution center and many of our customers. These disruptions and the continuing negative effect from foreign exchange are masking what would otherwise be a strong revenue growth, mainly in aerospace, energy and earthworks. On the cost side, as discussed on previous earnings calls, higher raw material costs as well as well as other inflationary headwinds continue. We expect to offset them through value-based pricing appropriate for this inflationary environment and productivity. Adjusted operating income is expected to be a minimum of $55 million. On a year-over-year basis, margins will be negatively affected by lower price net raw favorability this quarter versus the prior-year period and higher general inflation. However, it's important to note that, sequentially, margins will be relatively flat, despite increasing inflationary cost. This is a solid result made possible by proactive value-based pricing and our focus on driving productivity through operational excellence. On a full-year basis, we expect depreciation and amortization to be approximately $135 million, increasing around $10 million year-over-year, capital expenditures to be approximately $105 million and primary working capital as a percentage of sales to be approximately 31%. These assumptions together translate to free annual operating cash flow of approximately 75% of adjusted net income, below our long-term target of 100%, primarily due to higher working capital and lower-than-expected sales in China and Europe. And with that, I'll turn the call back over to Chris.

Thanks, Damon. Turning to slide 10, let me take a few minutes to summarize. We posted another solid quarter, as demonstrated by our strong operating leverage and improving margins, despite the rapidly changing macro environment. Our product innovations and commercial and operational excellence initiatives position us well to drive further share gains and improve margins. Our strong balance sheet and free operating cash flow give us flexibility to continue investing in our long-term strategic initiatives while optimizing the balanced capital allocation strategy. Looking forward, underneath the recent market disruptions, we believe most of our end markets are performing well, particularly aerospace, energy and earthworks. Finally, we remain confident in our strategy and our ability to drive share gains and improve margins. And with that, operator, please open the line for questions.

[Operator Instructions]. First question comes from Steve Volkmann from Jefferies.

Damon, I wonder if you could put a little sharper pencil on your comments around assuming continued interruptions around European demand due to Russia-Ukraine, your direct business in Russia and then China? How much do you think that is kind of headwind in your fourth quarter thinking?

For us, as we talked about, the direct sales for Russia are around $20 million annualized. So, usually, a little bit more second half weighted. So, let's call that $5 million to $7 million of a sequential headwind. When we look at China, what we've seen and what we've been able to ship in April and our assumption that will be limited through mid-May, I would say that that's affected our sequential sales in the range of $10 million to $15 million. So, those would be the ones that we're sort of quantifying. There's a little bit of an indirect in Europe as well related to things like supply chain challenges for automotive that were smaller. I think the other point that I would highlight is we talked on the FX, and if you think about FX sequentially from Q3 to Q4 and where the dollar is, we would estimate that's about $5 million to $7 million of a sequential headwind as well. So, when you put it all together, I would say $20 million to $30 million of an effect relative to what we thought when we talked about three months ago.

I think the consensus that we had talked about in the last call was the fourth quarter somewhere around $543 million, $545 million. So, that puts us right in the middle of where we thought we'd be when we started the quarter. The Russian and China lockdowns, obviously, we didn't anticipate that.

As a follow-up, it seems like things are really starting to take off in energy, oil and gas and mining, et cetera. It's been a while since that's happened. I guess I'm expecting that should be a strong positive mix for you in those end markets, but can you just comment on whether that's still the case and how we should think about that for 23?

I think energy, in particular, is certainly a positive mix for us. And mining is also, but more from the perspective – maybe not so much historically, Steve. Mining adjacencies and some of the areas we're expanding into, as we're doing that, we're realizing our value proposition is pretty sound, and so we think that that type of business could actually be more profitable than the historical. So, both of those, just in simple terms, to answer your question, would be a positive mix for us from a profitability perspective.

The next question comes from Steven Fischer from UBS.

When you add up the puts and takes, can you maybe just, at least directionally, give us a little help on what you're assuming in Q4 for Metal Cutting versus Infrastructure, I guess, organic growth and volumes?

Steve, we don't really give any specifics by business unit. But I think if you look at the outlook we gave you in the sequential and you use the midpoint, right, it's going to be up modestly. I think what you can assume in knowing our businesses is we do see a sequential improvement in infrastructure from Q3 to Q4 related to the road construction season. And so, again, I think what you'd be seeing is that isn't a natural increase there. I think everything else would sort of fit within that overall outlook that we gave you.

Just to clarify the China comment, what have you assumed sort of for the second half of the quarter after mid-May?

Our assumption right now, as I mentioned on the call, or the prior conversation, is that we have assumed about a $10 million to $15 million reduction in sales here in the first half of this fiscal fourth quarter versus the third quarter. We would expect that our warehouse would begin to open here in mid-May and our customers would reopen and we would start to resume, I'll call, normalized sales. We don't expect any sort of recovery in the sales that we have lost here in the first half of this quarter related to the warehouse being down in the customers, but we've assumed normal in the back half.

Okay, normalizing. Got it. Lastly, you mentioned the transportation was better than expected. Can you just kind of give us what your expectations were and maybe what drove it better than you expected? Was that something operational internally? Or was it just the market, your expectation of the market was just much worse? Maybe you could just level set for Q4?

In terms of transportation, our expectation was the transportation actually would be flat sequentially and it was a little bit stronger. And I think that's just reflective of the fact that, in general, the supply chain bottlenecks, they're still there, for sure, in transportation, but they started to recover better than we thought. Our expectation for Q4 is the transportation will still remain flat. The good news is there's some signs that the chip issue is starting to starting to resolve itself. Unfortunately, the war in Ukraine has caused some significant disruptions with wiring harnesses and stuff and it's caused some shutdowns of production. But the car companies are clever, and they're working through all that. But we think the right estimate for transportation, Q3 to Q4 is still to be flat. And depending on how well they fix some of these things, there could be some upside to that.

Our next question comes from Julian Mitchell from Barclays.

Just wanted to start off on the operating margin front. So, as you said, I think your guidance implies operating margins year-on-year are down 140 bps or so with flattish sales. So, just trying to understand, is all of that decline sort of price net of costs? How do we think about that decline or that pressure on margins playing out beyond the current quarter when you look at spot input costs and the price measures that you're pushing through? What impact does that have maybe looking out to September or December?

Julian, I think in terms of the year-over-year difference, the big driver was the price raw favorability is less in the fourth quarter this year than it was last year and then general inflation. Those are the two big drivers. The reason that Damon emphasized the point that we maintain flat margins sequentially is because we believe that our pricing actions, which we have been proactive, as you know, we've sort of been price positive price raws throughout the year, and so that was part of our pricing strategy. Plus we're driving productivity. And we expect, as we go through next year, to do the same thing and make sure that our pricing actions are commensurate with the inflationary environment we have and will continue to drive productivity, which is again why we are emphasizing that keeping the margins flat in this environment actually was a positive and was proactive action on our part.

Just from a year-on-year standpoint, do we think that this is the quarter of maximum pressure year-on-year from price cost and inflation and then it eases sort of gradually beyond this quarter?

Well, I think, Julian, the answer is, when I think about the absolute delta and what we were positive price versus raws, if you remember, we were very positive in the first half of this fiscal quarter. And we talked about the increasing cost continuing to flow into our P&L. And then, as we periodically priced, we see that improvement. But as I think about the first half of next year, we know these material costs and other inflationary costs are continuing to increase sequentially, which is what you're seeing in the quarter here. We know that will continue in the first half and it will continue to squeeze that price versus raw benefit we saw last year. Will be bigger last year than it will be in the forthcoming quarters here. Again, as Chris said, we're going to maintain our diligence on pricing for value and trying to make sure that we're doing our best to offset these inflationary costs. And keeping margins flat in the fourth quarter is a an example of our aggressiveness in looking to do that. But, again, I think you've got to remember what we had in the first half of this current year and how we were significantly positive price versus raws.

My follow-up. Damon, maybe this is more one for you, just around working capital, because I think that a lot of companies have complained about super strong revenues and demand putting upward pressure on working capital and that's hurting cash flow. Now, it seems the sales are falling a bit short and that's also putting upward pressure on working capital and downwards pressure on free cash flow. So maybe help us understand, from here, how that plays out? And your inventories, I think close to a high 20s share of revenue, how long does it take for those to get back to that low 20s historical rate?

I think, Julian, for us here, if you look in the quarter, our inventory went up just around $30 million from Q2 to Q3 and our working capital as a percentage sales is right around 31%. And as I said on the scripted portion, we would expect that to be there at fiscal year-end of right around 31%. But if I think about what happened this quarter, there was a couple of things. And you know, in our inventory, our finished goods, a lot of that is ordered and shipped very quickly. So, we always talk about having the right inventory to ship. And with what's happened here in Russia and China, we have built that inventory that's now sitting in our finished goods and looking for alternative homes for that. But in addition to that, as these material costs have continued to increase through the quarter, that's increased the overall value of our inventory. And as we look at where tungsten prices are right now, we know that we'll continue to increase the value of the inventory as we move into the fourth quarter as well. So, those are probably two of the biggest drivers influencing the overall working capital. The third one, as we've said this before, we are being very careful to run our operations and we made some decisions to strategically add some inventory for certain materials here in the third quarter, and that was probably the third component. Our goal is to try to get closer to this 30% of sales. But again, a lot is going to depend on that top line as we need to continue to see the markets continue to recover, but we think around 31% for the fourth quarter and then sort of hopefully trending around that to lower 30% as revenues continue to improve.

Julian, I would just add. So, Damon mentioned the sales that unexpectedly went away for the reasons we talked about. But, operationally, what that means is since you already loaded the factories months in advance of that and we're producing that higher level, we are we are modernizing, we are lean, but for a factory to make that kind of adjustment, it's going to take several months to sort of work through that. So, it's the suddenness of the sales coming away that was a big driver in the inventory increase.

The next question comes from Tami Zakaria from J.P. Morgan.

My first question is on incremental. Can you help us understand how to think about incrementals for the next fiscal – more specifically, if raws prices stay where they are, do you expect to realize sort of the normal incrementals in the full fiscal of next year? Or how should we think about incrementals in the first half versus the back half?

I'll make a couple comments. On the price versus raws, that's something that we have a long history of being able to stay ahead of. And so, as we operate the business going forward, that's something we still expect – as Damon and I both said, we'll expect it to at least be neutral on price raws as we can going forward through our proactive pricing actions. I think, Tami, to think about – in terms of the incremental, we're in a higher inflationary environment than historically we've been in. All companies are experiencing that. And so, I think the thing to keep in mind is that, as we adjust price to offset these raw materials and higher general inflation, as price becomes – covering costs becomes a larger portion of our revenue. As we've said before, that doesn't lever. And what we need in the factories to lever is actually revenue that generates more pieces through the factories. We spent a good portion on modernization, we've got these factories that are ready to perform, but they need more piece volume. So, as you're doing your model, you've got to factor in that the more of our growth that comes from price covering costs, that's not going to lever. It's got to be the revenue portion that generates more volumes in factories. Do you add anything to that, Damon?

I think the only other point I would add, Tami, especially in the first half of fiscal 2023 and no different than what we talked about here in Q4 of 2024, is given the positive price versus raws and the very strong operating leverage we saw in the first half of this year, again, when you adjust for those temporary cost actions that were in effect a little bit over a year ago, our leverage in the first half of this year was very strong, which we alluded to being positive price versus raws. And so, again, in any quarter, when you look at Q1 of 2023, you have to factor that in as you think about that quarter leverage year-over-year.

The next question comes from Dillon Cumming from Morgan Stanley.

Maybe if I can stay on the line of questioning on 2023 for a second. Ex-transportation, it still feels like the bulk of your end markets are still an improvement sequentially into the fiscal fourth quarter. Hoping to get some normalization in China and potentially Europe over the next few months. But sitting here today, are you kind of able to underwrite 2023 as a growth year-over-year volume perspective. I know, Chris, you still kind of alluded to the incremental contribution from pricing. Just would be curious from a volume perspective what your view is going into next year.

I think we're obviously not giving our FY 2023 guidance, but just a little color on transportation, for example. We think that the demand pattern is still strong there. There's a lot of pent up demand, and so the supply chain issues, the fact that they've gotten worse here because of Ukraine and a little bit on COVID and China, those will eventually rectify themselves. So, we feel good that transportation still has runway ahead of it to grow. I don't see the energy situation and some of the mining improvements, I don't think those are short term. I think that's going to continue to trend in the right direction. Aerospace has not recovered to pre-pandemic levels. So, I think we still feel pretty good about that growth trajectory there. Also, general engineering, a portion of that is obviously affected by transportation. So, that will that will improve as transportation improves. And if we look around the world, most of the prognosticators still have expanding PMIs and manufacturing indices. So, we think there's the opportunity for growth next year, at this point.

Maybe it's my last question on customer inventory levels. I guess there's been some more conflicting reports in the channel with regards to customers potentially holding more inventory than needed for the same reason that I think Kennametal has been holding higher safety stock over the last few quarters here. I think you've been clear in prior quarters that you've never really seen a restock. So, I would just be curious to get your view around that dynamic.

We haven't seen the normal restocking that you would see when these type of businesses typically come out of a downturn, but we do see general inventory build in some regions. But, generally, as we've said before there's still reservations on customers, they're being careful about how much that inventory build happens. Obviously, those that are supporting things like medical, aerospace and process industries, which tend to be a little less cyclical and are growing, that's probably where that inventory build is being done to support it. And I would say, on the infrastructure side, customer inventory, I'd say, is sort of stable and it's kind of normalized across markets based on the demand they see. So, again, not the normal restocking you would see, especially in Metal Cutting, but where there's positive growth trajectories that are pretty solid and long term, like in medical and aerospace and some of the process industries, I think that's where it's happening.

There are no more questions in the queue. This concludes our question-and-answer session. I would like to turn the conference back over to Chris Rossi for any closing remarks.

Thanks, operator. And thanks, everyone, for joining the call today. This quarter, I think, is another proof point that our strategic initiatives are working and we feel very good and confident in the investments that we've made as a company to modernize our factories and to demonstrate the return on those investments and the profitability improvements possible as we drive higher volumes through these factories. As always, we appreciate your interest and support. And please don't hesitate to reach out to Kelly if you have any questions. Have a great day. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.