Lincoln Electric Holdings, Inc. (LECO) Q1 2023 Earnings Report, Transcript and Summary

Greetings, and welcome to the Lincoln Electric 2023 First Quarter Financial Results Conference Call. [Operator Instructions] And the call is being recorded. It is my pleasure to introduce your host, Amanda Butler, Vice President of Investor Relations and Communications. Thank you. You may now begin.

Well, thank you, Gerald. And good morning, everyone. Welcome to Lincoln Electric's first quarter 2023 conference call. We released our financial results earlier today, and you can find our release as an attachment to this call's slide presentation as well as on the Lincoln Electric website at lincolnelectric.com in the Investor Relations section. Joining me on the call today is Chris Mapes, Lincoln's Chairman, President and Chief Executive Officer; Gabe Bruno, our Chief Financial Officer; and Steve Hedland, Chief Operating Officer. Chris will begin with quarterly highlights, Steve will provide a discussion of end market trends, and Gabe will cover our quarterly financial performance in more detail as well as our full year 2023 assumptions. Following our prepared remarks, we're happy to take your questions. Before we start our discussion, please note that certain statements made during this call may be forward-looking, and actual results may differ materially from our expectations due to a number of risk factors. A discussion of some of the risks and uncertainties that may affect our results are provided in our press release and in our SEC filings on Forms 10-K and 10-Q. In addition, we discuss financial measures that do not conform to U.S. GAAP, and a reconciliation of non-GAAP measures to the most comparable GAAP measure is found in the financial tables in our earnings release, which again is available in the Investor Relations section of our website at lincolnelectric.com. And with that, I'll turn the call over to Chris Mapes. Chris?

Thank you, Amanda. Good morning, everyone. Turning to Slide 3. I'm pleased to report another record quarter of sales at over $1 billion, a milestone for our organization. We also achieved record adjusted earnings per share performance at $2.13 and generated a record $124 million in cash flow from operations, all of which demonstrate solid momentum in the business, continuous improvement in our operational performance, leveraging our Lincoln Business System, and Higher Standard 2025 strategy initiatives. And it reinforces how our innovative solutions, automation leadership and industry-leading application experts are winning in the market. While we have challenging profit margin comparisons in the first half of this year, we're very pleased by the strong sequential profit improvement across all of our reportable segments. This is most notable in our International Welding and Harris Products Group segments, which contributed to a consolidated 16.3% adjusted operating profit margin in the quarter. Our ROIC performance remained top decile at 22.4%, and we continued to return cash to shareholders with a 14% higher dividend payout rate and share repurchases. We remain focused on putting our customers first, implementing our long-term strategic initiatives and pursuing a balanced capital allocation plan, which is continuing to yield strong results. The first quarter also marked the inclusion of Fori Automation in our results, which had a slightly dilutive impact to margin as expected. We are pleased to report that the integration of the organization is on track and we're looking forward to supporting growth and margin expansion in the business as we work to deploy our Lincoln Business System in the operation, which will support driving Fori's margins to our mid-teens percent target by the end of 2025. We are also on track with our EV charger initiative and are actively investing in our operational platform ahead of our targeted fourth quarter start of production. These investments provide capacity to produce up to 500 units per month. All of this work is a true testament to our unique high-performance culture and our values rooted in integrity and the golden rule. And during the quarter, I'm proud that our team was recognized externally for why I believe truly sets us apart, our culture. This year, we were awarded for the fifth time as on of the world's most ethical companies by Ethisphere and for the second time by Newsweek as one of America's most trusted companies. These endorsements, as well as our solid first quarter momentum, position us well at the start of the year and our global team is energized to execute on our higher standard strategy. Now to share more details on our first quarter performance, here is Steve Hedland, our Chief Operating Officer.

Thank you, Chris. And good morning, everyone. Turning to Slide 4, our 8.5% growth in organic sales reflected strengthening demand through the quarter, ending with strong March results. We also had one additional shipping day in the quarter. On a consolidated basis, we achieved organic growth across all three product groups led by strong sales in equipment, which increased low teens percent with strong demand across both our direct and distribution channels. We also achieved a high single-digit percent increase in automation. Both automation and equipment backlogs reached record levels from strong capital investments across key end markets, including automotive, heavy industry and energy applications where our innovative solutions continue to win in the market. Regionally, we are seeing the highest levels of industrial and project activity in Americas, Asia Pacific and the Middle East, with uneven areas of performance in Europe, primarily due to challenging comparisons in the first half of this year, led by our decision to cease operations in Russia in 2022. Excluding the challenging comparison, European organic sales increased low single-digit percent. Similar to the fourth quarter, end markets continue to trend positively in four of our five end markets accounting for approximately 85% of revenue exposure. We are expecting continued strength in transportation due to resilient production levels and continued capital spending on new platforms. We expect ongoing demand from heavy industries, notably in large equipment systems to support agriculture, construction and mining. Energy project activity is expected to continue, both in oil and gas to support accelerated investments in LNG and pipe as well as an on- and offshore wind projects. Shipbuilding and defense applications, while small on a relative basis are expected to accelerate. We are seeing continued challenges around the consumer at retail. In construction and infrastructure, we are seeing strong orders for our proprietary automation solutions serving that sector. However, the timing of projects against the challenging prior year comparison and some softening in nonresidential spending is the primary driver of the quarterly decline in that sector. And now I will pass the call to Gabe Bruno to cover first quarter financials.

Thank you, Steve. Moving to Slide 5, our consolidated first quarter sales increased 12% to $1.039 billion. The increase reflected a 5.7% benefit from acquisitions, a 4.3% increase in price and 4.2% higher volumes. These increases were partially offset by a 1.9% unfavorable foreign exchange translation, primarily from the euro and Turkish lira. Gross profit dollars increased approximately 8% or $26 million versus the prior year on higher volumes and benefits from acquisitions, which is primarily Fori Automation. These gains were partially offset by an approximate $4 million unfavorable impact from foreign currency translation. In addition, a $2 million LIFO charge was recorded in the quarter. Our first quarter gross profit margin decreased 140 basis points to 34.2% due to acquisitions and the timing of price actions to offset inflation. Our SG&A expense increased approximately 14% or $23 million, primarily due to $12 million of higher incentive compensation and employee-related costs, as well as approximately $8 million from acquisitions. SG&A as a percent of sales increased 30 basis points to 18.3%. Reported operating income increased 2% to $164 million. Excluding approximately $5 million of special items, from rationalization charges and the amortization of step-up of acquired inventories, adjusted operating income increased 4% to $169 million. Higher volumes solid operational execution and contributions from acquisitions drove higher profit dollar growth, which helped to partially offset the unfavorable impact of raw material and wage inflation. Foreign exchange translation had an unfavorable $2 million impact. Our adjusted operating income margin decreased 130 basis points to 16.3% and primarily reflecting acquisitions and the timing of price actions. Interest expense net in the quarter more than doubled to $13.2 million. The increase reflects higher borrowings from the $400 million term loan we entered into in November 2022. Our first quarter effective tax rate as reported and adjusted was approximately 21.5% and due to our mix of earnings and discrete items. This compares to an adjusted tax rate of 20.7% in the prior year. We continue to expect our full year 2023 effective tax rate to be in the low to mid-20% range, subject to the mix of earnings and anticipated extent of discrete tax items. First quarter diluted earnings per share was. $2.09. Excluding special items, adjusted diluted earnings per share was a record $2.13. We incurred a $0.03 unfavorable impact to EPS from foreign exchange translation. Moving to our reportable segments on Slide 6. Americas Welding segment's first quarter adjusted EBIT increased approximately 19% to $133 million. The adjusted EBIT margin decreased 60 basis points to 19.2% from acquisitions. Americas Welding sales increased 23% in the quarter led by a 16% increase in organic sales. The segment generated 11% higher volumes from growth across all of their product lines on strong regional industrial productivity and capital investment. Additionally, U.S. exports strengthened in the quarter. This demand strength increased backlogs to record levels in both equipment and automation. Price primarily reflected prior actions taken to mitigate inflation, and we expect additional price contribution starting in the second quarter to recover rising costs and to position us to achieve our neutral price cost position for the full year. Acquisitions contributed 9% sales growth in the quarter. Moving to Slide 7, the International Welding segment's adjusted EBIT decreased approximately 20% or $8 million to $30 million. The segment incurred a $1 million unfavorable impact from foreign exchange translation. The adjusted EBIT margin declined 260 basis points to 11.4% due to lower cost absorption and the timing of pricing actions. We expect our margin performance to remain relatively steady sequentially and then improve to the lower end of their EBIT target range of 12% to 14% in the second half of the year. Organic sales were relatively steady versus prior year as 5.7% lower volumes were offset by price. As Chris mentioned, the volume decline was largely due to challenging prior year comparisons in Europe, including our decision to cease operations in Russia. Excluding these prior year factors, volumes would have declined at a more modest low single-digit percent rate. Price increased approximately 6%, primarily reflecting prior pricing actions. Moving to the Harris Products Group on Slide 8. First quarter adjusted EBIT decreased approximately 3% to $19 million. The adjusted EBIT margin increased 10 basis points to 14.5%, reflecting effective cost management and operational improvements from integration activities. Harris' organic sales declined approximately 3% on approximately 4% lower volumes and slightly higher price performance. Volume strength in Specialty Gas Solutions and HVAC was offset by continued weakness in the retail channel, which we expect will continue through the first half of 2023. Moving to Slide 9. We generated a record $124 million in cash flows from operations in the quarter, resulting in an 85% cash conversion. Average operating working capital decreased to 19.6% on improved inventory levels. Inventory remained elevated to support sales to mitigate challenging supply chain conditions that persist in our equipment portfolio and reflects the impact of acquisitions. Moving to Slide 10. We invested $19 million in CapEx spending and returned $70 million to shareholders through our higher dividend payout and approximately $32 million of share repurchases. We maintained a solid return on invested capital of 22.4%. Turning to Slide 11 and our full year assumptions. We have raised our full year sales growth rate assumption to a low to mid-teens percent rate given new pricing actions that are effective in the second quarter, as well as better-than-expected demand trends in Americas and in automation, which has raised equipment and automation backlogs to record levels. Our updated organic sales assumption is now in the mid- to high single-digit percent range, still split approximately fifty-fifty between volume and price. This compares to an initial assumption of a mid-single-digit percent organic sales growth rate. We have lowered our interest expense assumption range to $45 million to $55 million in the year to reflect interest rate swaps entered into in March for $150 million and the reduction in our short-term debt. Our weighted average interest rate on $1.2 billion of debt is now 4%. We are maintaining all other assumptions. Given limited visibility in the back half of the year, we remain focused on putting our customers first, winning in the market and managing the business through the cycle to continue to generate value for all of our stakeholders. And now I'd like to turn the call over for questions.

Thank you. Ladies and gentlemen at this time we will be conducting a question-and-answer session. [Operator Instructions] Bringing to the stage Bryan Blair from Oppenheimer. Your line is now open.

Thank you. Good morning everyone.

Good morning, Bryan.

I was hoping you could offer a little more color on the demand environment. I guess kind of following up on Steve's prepared remarks what you are seeing in early Q2, whether are there any notable changes relative to the Q1 profile, whether in the Americas or international markets?

Yes, really no significant changes. We were very excited and pleased with the continued progression of the demand model and the fact that our backlog was so strong as we were really strong as we were exiting 2022 and stronger as we were exiting the Q1 of 2023. Obviously, we're only the first couple of weeks in, in April. It's way too early to be thinking about it. But with the backlog we have and the strength on the multitude of markets moving favorably, we're very positive on our demand profile. And that's also one of the reasons why we felt like it was necessary to provide you an updated expectation as it related to our growth for the full year.

Excellent to hear. And it would be great to hear a bit more about the continued momentum in automation. So, what's your team contemplating for all-in automation growth this year or I guess, framed differently, what's a reasonable run rate relative to the $850 million that you had coming into the year?

Well, you know with the growth that we've seen and the significance of the backlog, it's very easy for us to see automation now at closer to a $900 million run rate than maybe where we started the year. We just have got some really solid momentum in some solutions that we're providing to the marketplace. Our advanced engineered systems have been strong. And I really think it goes back to some discussions that we've had for the last several quarters that potentially with the inflation that people are still confronted within the marketplace, and the wage inflation, and the scarcity of employees, we couple that with potentially some reshoring. We're still in a very low cost of capital environment, and we could be in a longer-term secular trend where automation is really an opportunity set for us, and we are seeing it in the business today. So, we know we are running at a faster rate, closer to $900 million. We are still very interested in continuing to acquire businesses in that space. I am very excited about the first few months of Fori’s integration into Lincoln Electric. The Fori team and employees that we found there are very passionate about what they're doing. We found a group that we think fits very well with us. So I think that is going to be a catalyst for this business as we move forward because it brought a couple of solutions that we didn't currently have in the core basket within Lincoln Electric, especially with the AGV profile, and those solutions, how they fit into advanced automation cells. So lots of positive threads and still excited about our continuing build-out of the automation business at Lincoln Electric and as you can imagine a lot of confidence that we'll meet that $1 billion target and should exceed that $1 billion take when we're talking about our higher standard 2025 objectives.

All understood. Very encouraging. Thank you.

[Operator Instructions] Our next question comes from Mig Dobre from R.W. Baird. Your line is now open.

Thank you. Good morning, everyone.

Good morning, Mig.

I guess I want to follow up on the previous question that was asked here in terms of demand. I guess the way I kind of heard it in the prepared remarks, demand accelerated through the quarter. So I guess I'm a little bit curious what – essentially what picked up relative to where we were maybe three months ago? And then are you sort of seeing any of your verticals or end markets growing in excess of your own kind of internal expectations? So differently, what surprised you?

Well, Mig, I guess a couple of comments, and then I'll let Gabe chime in also. But I think the first thing was you know our business very well, not uncommon for us to be accelerating as we're moving into the March and April time frame in our business. So I would share with you that out of the gate in our business, our July – or our January was just a little softer than what we thought, and we saw a lot of acceleration through the quarter in a very, very busy March window for us. So I can't tell you that when I can point to any particular segment or area of the business, it just started out the first couple of weeks a little slower than we had expected. And then we felt and experienced that acceleration through the rest of the quarter. I'll also tell you that I think our automation business which tends to move a lot of products out at the end of the year because you have some individuals that want to get that capital in their books at the end of the year, and there's some targeting around that. Our automation business probably doesn't start in the first couple of weeks of the year out as aggressively as maybe some of our other product categories, and we saw that again in automation. But our automation business performing very well, I mean, record backlogs for that business even without the backlog accretion that we had from the Fori business. So the depth of the backlog and the depth of the momentum was very broad. But to specifically answer your question, I can't really point towards any one region or any one segment that would have minimized the start, but we saw acceleration throughout the quarter.

Yes, Mig. So I would just follow up and just highlight the strength that we saw in the Americas, right? 16% organic sales, the strength you saw in volumes the mix broad-based. The one thing that I spend a lot of time monitoring is what's going on with industrial production and PMI when I saw the flash PMI last week, it kind of pointed to some of the activity we were seeing as we progress towards the end of the quarter. So it may not be a perfect correlation, but we did see strengthening, and I just highlight the strength that results pointed to in the Americas, including the automation continued strength.

Okay. That's helpful. Obviously, the one area in your slide that you highlighted maybe the weaker construction and infrastructure. I understand the comparisons comp and the year-over-year comp, but maybe you can give us a little more of a sense as to what's happening in non-residential and it's better to understand sort of your exposure, right? So what is your perspective on that market? What are you selling into this market? And where you are reporting softness, what exactly are you seeing there?

Yes. So Mig, in non-residential construction we sell a very wide set of products and solutions, both equipment, consumables and automation. And we have some very compelling automation solutions for customers that are engaged in the structural steel for building construction and project work and the like. And that just tends to be very lumpy for us in terms of how we recognize the revenue, when the system is completed and shipped out of our Zeman business that we acquired, and the Burlington business that we acquired about a decade ago. And so it's just a very choppy portion of the business for us. The residential side is clearly weaker with what the Fed is doing to try and cool the economy. We still see a lot of interest in our automation solutions and our other products for the non-res market, but it's just a very choppy segment for us.

Yes. And Mig, this is Chris. I would add that, look I expect there'll be a lot of conversations around whether this particular softness is driven by some of the challenges in the United States around the banking issues. And I can share with you that we've not seen any of that in our business. We don't have – we haven't seen situations where we've had people come forward and say they need to change their demand patterns or they're waiting on their demand patterns because of financing. So we recognize that's a potential risk, but we are not seeing that in our business today, in our core business or our automation business.

Right. It would be a bit early for you to see that, but I appreciate that perspective nonetheless. Maybe my final question, going back to the charging product that you're working on; maybe a quick update here in terms of where you are in your capacity build out, anything that we need to understand in terms of how you see demand evolving over time? And how are you going about commercializing this product at this point? Thank you.

Yes. So Mig, this is Steve. We remain on track with our schedule to launch into production in the fourth quarter of this year. There's a lot of activity going on several fronts in terms of industrializing and readying the design for production, making the investments and the manufacturing capacity and having lots of very positive discussions with prospective customers. So I'd say we're still on track for our targeted fourth quarter start of production. If you look at the sort of general business press and some of the commentary on social media, it just reinforces our belief that there is an unmet need in the market for a much more robust and reliable charging solution. There's a lot of articles and social media posts about people's frustration of pulling up to a charger that's off-line and we believe we're going to be able to help address that. So we remain very confident in our value proposition. The feedback we're getting from prospective customers is very encouraging. So we just need to stick to our plan and keep driving it.

Appreciate it. Thank you.

Thank you. [Operator Instructions] Our next question comes from Walt Liptak of Seaport Research. Your line is now open.

Hi. Thanks. Good morning, everyone. Thanks for taking my question. I wanted to ask about the international volumes and understanding that they're difficult comparisons. When do you think that you'll be through sort of those tough comps and maybe onto some positive volume comps? And then I think in the prepared remarks, you talked about the second half international margins being in the 12% to 14% range. And so I wonder what the pluses and minuses are in getting to the high end of that range?

Yes. So Walt, just think about an environment that we believe is relatively stable through all the noise with Russia and timing of projects and that sort of thing. We're seeing a little bit more strength in Asia, some pressure continued in Europe; but in overall, stability in terms of actual activity. When you think about that in the context of our margin profile, we knew that we had to take some actions on the pricing side to address some of the volume pressures we had back half of last year to drive a higher level of conversion costs. So we believe that that would continue to improve as we progress into the back half of the year. You saw the improvement in this first quarter, and we expect that to continue into the second quarter and then to progress into our EBIT range that we target in the back half. Those are the drivers.

Okay. Great. So the high end of that 12% to 14% has more to do – the pricing is already in place, it's got more to do with whatever the volumes are?

Yes, I think that's very consistent with the way we thought about that business. That team has done a really good job of repositioning that business for success from a cost structure perspective in the broad markets but especially in the European markets. And as we've said, that business now needs some volume. And I was very excited about the sequential improvements that the team made, and certainly as Gabe said, there's a little more noise than the numbers. When we take out the noise, I would say, stabilize. So I think that quite frankly as we migrate through the rest of this year, we should be able to see a little bit of that volume. And with that, be able to drive that business more confidently in our range targets that we have for them from a higher standard perspective.

Walt, maybe just one more comment on that to keep in mind, Walt, is that when you look at our consolidated business, we're at 2019 levels. But on the international side, we are not yet at 2019 volumes. We do expect as we continue to drive our volumes that will be at the higher end of the range.

Okay. Got it. And then just as a follow-on, you mentioned Asia strengthening. I wonder if you could just provide a little bit more color how is the China market doing?

Well, as you're well aware, Walt, China is not a significant piece of the overall portfolio at Lincoln Electric, and certainly we saw some of that reopening in China. I would also share with you, though that when we think about broad Asia, so really nice strength in the offshore markets and portions of our business in Asia and Southeast Asia, some strength. So coming off of very favorable comparisons but trending favorably.

Okay. Alright. It sounds great. Thank you.

Thank you. [Operator Instructions] Our next question comes from Steve Barger from KeyBanc. Your line is now open.

Hi. Thanks. Chris, last quarter you noted much of your automation business was America centric. And I know it's only been a quarter since you said that, but I think traditionally Europe was already ahead in terms of general automation adoption. So can you talk about how you'll approach that, and how big you see the untapped non-U.S. market being?

Yes. Look, that's a great question, Steve. And I would tell you that as we build out our automation portfolio, we've been – we've had an opportunity to look at a lot of different solutions and assets and people and we stayed very focused in identifying those solutions and organizations that were accretive to the strategy, but also had those solutions that were driven towards industries and markets and profit pools that we thought could be successful for us over the longer term. And we stayed pretty diligent to that approach. So we've tried not to be regionally focused. As you're well aware, you could run this strategy and say you're looking for some balance within regions. We've stayed very disciplined in our approach in looking at those solutions and then where we have opportunities, a great example of that would be in the structural steel marketplace, where we found a solution a few years ago, and then our accretive value was taking that solution and providing it globally. So we might not be always manufacturing that particular solution in the local market, but we could be providing part of those automation solutions in the local market. I still see elements of Europe and Latin America as upside opportunities. And the reason I feel so strongly about that, Steve, is that when we think about our business and are talking to our customers globally, over the last couple of years, the challenge with finding labor and the inflation in labor has been a global phenomenon. It's not been just a U.S. phenomenon. Those are the secular drivers then which drive demand. And so I think that creates a very favorable opportunity set for us to be able to continue to look at, identify and expand our automation business globally.

Yes. And obviously, integration is a local business and you've bought some great regional companies in the U.S. to help kind of spread the portfolio. Have you found that that distribution channel or the integration channel is the same in Europe and Latin America as it is here? Or do you have to adapt to some kind of different structure that those markets have evolved towards?

No. I don't think we have a huge adoption. Actually, we've been seeing that we've been able to get some leverage. I think the big catalyst for Lincoln Electric has been the fact now that we have scale. Remember, when we were talking about this business just a few years ago, and it was $300 million or $400 million, and we were a lot more lumpy in our discussions. As we build out more scale, and as I said earlier, now this business trending more towards $900 million a year on a run rate basis. That scale has allowed us to take some of these systems and processes and assist us globally in the way we're looking at and managing some of these businesses. So I don't necessarily see something globally that tells me we need to run this business differently in a certain area of the world, but there certainly are different types of opportunities depending upon the solution and the business that we have in those markets, but very positive on what we're accomplishing in the automation business and the upside that we have for the company over the next few years.

Got it. And in terms of the technology strategy, you've obviously built a great external portfolio of robotics and IoT-enabled equipment, I don't think we've talked about as your internal data strategy as much. Are you collecting shop floor information for analytics and better decision-making? Or where are you in your own internal kind of technology progression?

Yes. Steve, we've taken a very customer-first approach to that. So versus us necessarily pushing some requirement out there to the marketplace as it relates to what we would do with the data. We've taken a customer-first approach. So if a customer comes to Lincoln Electric and they need help with that data; are we grabbing that data and providing that data back to them so that they can become more productive? Absolutely. But it really does depend on what that customer is looking for, and as we learned where that customer is in their IoT or data analytics journey. And sometimes we need to make sure that those customers are walking before they're running, and some of them are more advanced. But quite frankly we see it as a way for us to allow our teams to work with our customers to become more productive. And we also see that we do have some offerings where quite frankly, we do sell some of those products out as additional services or subscriptions for particular capabilities, but that's a small portion of our business today.

Yes. And Steve, I'd add in our own operations, we're investing in IoT solutions where it makes sense. So we're investing in systems that provide up-to-date assembly instructions and engineering drawings for our equipment manufacturing assembly. So as we make minor design changes to that equipment, people operating on the shop floor have the most recent information and work instructions and prints to work off of. And then in the consumable part of our business, being able to interrogate the PLCs on the equipment and add other sensors so that we can monitor the production process to drive higher productivity and higher quality. So we're investing in those kind of technologies. I wouldn't say we're doing it as a blanket approach. We're trying to drive some predefined Industry 4.0 strategy but we're investing where it makes sense for us.

Understood. Thanks.

Thank you. [Operator Instructions] Our last question comes from Adam Farley from Stifel. Your line is now open.

Thank you. This is Adam Farley on for Nathan Jones. What impact if any to date is spending associated with the IIJA having on demand for your products? And do you expect a meaningful tailwind as the infrastructure bill spending picks up over the next call it, 12 to 24 months?

Yes, Adam, it's hard to point to specific sales or orders in terms of things that we would attribute specifically to the Infrastructure Act. There is expectation that it will provide a tailwind to demand in the future, but as of yet in our orders and sales, I wouldn't point to it as a material uplift in the business.

Okay. Thank you for taking my question.

Thank you, Adam. This concludes our question-and-answer session. I would like to turn the call back to Gabe Bruno for closing remarks.

Thanks, Gerald. I would like to thank everyone for joining us on the call today and for your continued interest in Lincoln Electric. We look forward to discussing the progression of our strategic initiatives in the future. Thank you very much.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.