LGI Homes, Inc. (LGIH) Q4 2016 Earnings Report, Transcript and Summary

Welcome to LGI Homes Fourth Quarter 2016 Conference Call. Today's call is being recorded and a replay will be available on the company's website later today at www.LGIHomes.com. We have allocated an hour for prepared remarks and Q&A. [Operator Instructions]. At this time, I will turn the call over to Rachel Eaton, Chief Marketing Officer at LGI Homes. Ms. Eaton, you may begin.

Thank you. Welcome to the LGI Homes conference call discussing our results for the fourth quarter and full year of 2016. Today's conference call will contain forward-looking statements that include among other things, statements regarding LGI's business strategy, outlook, plans, objectives and guidance for 2017. All such statements reflect current expectations. However, they do involve assumptions, estimates and other risks and uncertainties that could cause our expectations to prove to be incorrect. You should review our filings with the SEC, including our risk factors and cautionary statements about forward-looking statements section for a discussion of the risks, uncertainties, and other factors that could cause our actual results to differ materially from those anticipated in these forward-looking statements. These forward-looking statements are not guarantees of future performance. You should consider these forward-looking statements in light of the related risks and you should not place undue reliance on these forward-looking statements, which speaks only as of the date of this conference call. Additionally, adjusted gross margins and non-GAAP financial measures will be discussed on this conference call. The presentation of this information is not intended to be considered an isolation or as a substitute for the financial information presented in accordance with GAAP. A reconciliation of adjusted gross margin to gross margins, the most comparable measures prepared in accordance with GAAP is included in the earnings press release that we issued this morning and in our annual report on Form 10-Q for the fiscal year ended December 31, 2016 that we expect to file with the SEC later today. This filing will be accessible on the SEC's website and in the Investor Relations section of our website at LGIHomes.com. Joining me today are Eric Lipar, LGI Home's Chief Executive Officer and Charles Merdian, the Company's Chief Financial Officer. With that, I will now turn the call over to Eric.

Thank you, Rachel, and welcome to everyone on this call. We appreciate your continued interest in LGI Homes. During today's call, I will summarize the highlights from the fourth quarter and the full year. Then Charles will follow-up to discuss our financial results in more detail. After he is done, we will conclude with comments on what we are seeing this quarter and our expectations for 2017 before we open the call for questions. 2016 was another year of strong results. We delivered our best month of closings in December with 467 record quarter closings and a record-breaking year. In addition, for the full year 2016, net income, revenues and average sales price were all time highs. 2016 also marked our third full year as a public company. Our primary objective when we went public in 2013 was to access the capital markets to fuel our growth by replicating our business model across the country. Over the past three years, we have grown the size of our organization and today LGI Homes is closing homes in 10 states, has become the 15th largest homebuilder in the country and was recently named the 2016 Builder of The Year by Professional Builder Magazine. We would like to thank the team at Professional Builder for this recognition. We are incredibly proud of this honor and believe it is a true testament to our systems and processes, which have allowed us to grow in scale over the years. Most importantly, we would like to thank our employees and our 16,000 customers. Without you, this achievement and our record-breaking results would not be possible. At the start of 2016, we provided guidance announcing our expectations to deliver between 4,000 and 4400 homes and we have 62 to 67 active communities by the end of the year. In addition, we provided guidance that we would deliver basic earnings-per-share to our investors in the range of $3 to $3.50, all while maintaining both our gross margins and adjusted gross margins at or near industry-leading levels. Operating as a public company, we believe it is very important to execute on the guidance that the company provides to the market. For the third year in a row, I am pleased to announce that we met or exceeded our guidance in all areas. With 63 active communities at year-end and 1139 homes closed during the fourth quarter, we closed a record-setting 4,163 homes during 2016. In addition, we generated home sales revenue of just over $838 million, which represents a 33% increase in revenue over 2015. This was driven by a 22% increase in home closings, combined with an 8.8% increase in average sales price for the year, also exceeding our guidance to the market. These strong results have enabled us to deliver basic earnings per share of $3.61 for 2016, which is above the range of our original market guidance of $3.00 to $3.50 per share and a 36% increase above our basic earnings per share of $2.65 for 2015. Additional highlights of the year include our expansion into new markets. In 2016, we closed our first home in the Seattle market as well as opened our second and third communities and ended the year with 53 closings. 2016 also marked the first year that we had closings in the Colorado Springs, Jacksonville and national markets. For the first time in our history, Dallas Fort Worth became our leading market was 792 closings for the year, surpassing Houston, which finished with 687 closings. All five of our divisions experienced closing growth in 2016. The Texas division was up 15.5%. The Southwest up 30%. Florida up just over 50%. The Southeast up 8% and as we mentioned earlier, the Northwest division went from zero closings in 2015 to 53 in 2016. Consistent with our stated strategy, we continue to diversify our operations. For the year, the share of our home closings in our divisions outside of Texas, increased from 45% of our home closings in 2015 to 49% in 2016. For more detailed financial results, I'll now turn it over to our Chief Financial Officer, Charles Merdian.

Thanks Eric. Home sales revenues for the quarter were $236.8 million based on 1,139 homes closed, which represents a 34% increase over the fourth quarter of 2015. Our average sales price was $207,928 for the fourth quarter an 11.3% year-over-year increase and slightly above our third quarter average sales price of $205,613. Sales prices realized from homes closed during the fourth quarter range from the 140s to over $520,000. In the fourth quarter, approximate average sales prices were $202,000 in Texas, $243,000 in our Southwest division, $181,000 in our Southeast division, $199,000 in Florida and $332,000 in our Northwest division. For the year, we closed 44 homes in our [Toronto] communities, representing approximately 1% of our overall closings. Going forward, we expect closings from our Toronto communities to continue to be a small percentage of our overall business. Gross margin was 27.2% this quarter, compared to 26.5% for the same quarter last year. Our adjusted gross margin was 28.5% this quarter, compared to 27.6% for the fourth quarter of 2015, which is on the higher end of our expected range as we realized higher overall average sales prices and the benefit of managing our overall construction costs. For the year, gross margin was 26.4% compared to 26.5% for the full year of 2015 and adjusted gross margin was 27.8% for both 2015 and 2016. Adjusted gross margin this quarter excludes approximately $3.2 million of capitalized interest, charged to cost of sales during the quarter, representing 137 basis points and we expect this to increase by 20 to 40 basis points throughout 2017, primarily due to rising interest rates. Combined, selling, general and administrative expenses for the fourth quarter were 12.7% of revenues, compared to 13.1% in the fourth quarter of last year. Selling expenses for the quarter were $18 million or 7.6% of home sales revenue, compared to $14 million or 7.9% of home sales revenue for the fourth quarter of 2015, a 30 basis point improvement. Selling expenses as a percentage of home sales revenue improved primarily as a result of operating leverage realized related to advertising costs and increased revenue. General and administrative expenses were 5.1% of home sales revenues compared to 5.2% of home sales revenue for the fourth quarter of 2015, a 10 basis point improvement and consistent with the third quarter of this year. For the full year 2016, combined, selling, general and administrative expenses were 13.1% of revenues compared to 13.8% in 2015. For 2017, we expect to realize operating leverage offset by additional overhead related to our recent software implementation, compliance costs related to Sarbanes-Oxley and entry into new markets. We typically expect the first quarter to have the highest SG&A ratio as our first quarter generally results in the lowest closings on a per community basis during the year. Pretax income for the quarter was $34.9 million or 14.8% of home sales revenue, an increase of 120 basis points over the same quarter in 2015. We generated net income of $23.2 million or 9.8% of home sales revenue for the fourth quarter of 2016, which represents earnings per share of $1.09 per basic share and $1.01 per diluted share. For the year, we generated net income of $75 million or $3.61 basic earnings per share and $3.41 diluted earnings per share. As mentioned on previous calls, weighted shares outstanding for calculating diluted earnings per share are impacted by our outstanding convertible notes. Under the treasury stock method, the convertible notes are dilutive if the market price of our stock exceeds the $21.52 per share conversion price of the convertible notes. In the fourth quarter of 2016, our average stock price was approximately $31.50, exceeding the conversion price and therefore the convertible notes were determined to be dilutive. This resulted in approximate 1.3 million share increase to the weighted average shares outstanding for the diluted EPS calculation for the quarter. Fourth quarter gross orders were 1,117 and net orders were 808. Ending backlog for the year was 446 homes and the cancellation rate for the fourth quarter was 27.7% and for the year, our cancellation rate was 24.5%. We ended the quarter with a portfolio of 29,460 owned and controlled lots and as of December 31, 13,167 of the 20,992 owned lots were either raw or under development. As of December 31, we had approximately $50 million of cash, $718 million of real estate inventory and total assets of $815 million. Our gross debt to capitalization was 53% and net debt to capitalization was 49.7%. We had $325 million outstanding under our credit facility as well as $85 million of convertible notes outstanding at December 31. Our credit facility was increased by $25 million in December of 2016 and increased an additional $15 million in February of this year, bringing the total available to $400 million. Utilizing our universal shelf registration statement, we established our second aftermarket common stock offering program during September of 2016. Under this program, we may issue and sell up to $25 million of our common stock from time to time. We do not issue any shares related to the ATM program during the fourth quarter and have approximately $15.5 million remaining under this program. At this point, I would like to turn it back over to Eric.

Thanks Charles. In summary, we had another impressive quarter and a phenomenal 2016. Let me provide some guidance and thoughts on what we are seeing for the upcoming year. Closings for the first few months of the year have totaled 396, which is less than the 477 clothing that we started last year with. The primary reason our closings are down year-over-year is our inventory of completed homes was not as high as we would've liked. We ended 2016 with 1,560 homes at various stages of construction, compared to 1,710 homes at the end of 2015, giving us fewer homes to close in the first quarter of 2017. We believe the situation will correct itself over the next few months as we are bringing in new inventory online, both in the forms of home construction and new development sections due completion. In addition, we recognize that sales were down year-over-year in November. However, sales over the last 90 days have been solid. December through February, net sales were up approximately 19% over the same three months last year. As we have previously stated, our goal is to close more than 4,700 homes in 2017. We believe we will close 375 -- between 375 and 425 homes in March, surpassing last year's March closing number of 367 and gaining momentum to reach our closing goal in 2017. We are an organization that recognizes results, which is one of the key reasons we're foreclosing each month. Variability in monthly clothing is inevitable, but transparency is important to us and it drives our success. Therefore, we continue to be committed to reporting monthly closings. Now let me provide some guidance and thoughts on what we are seeing for the upcoming year. Based on our strong sales performance today and assuming a continuation of today's housing market conditions for the remainder of the year, we offer the following guidance. As previously mentioned, we expect to close more than 4,700 homes in 2017. We expect Texas to again be our leading division, making up approximately 45% of our closings in 2017 compared to 51% in 2016. We plan to continue to expand into new markets this year. Because we are a systems-based company with proven processes in place, we believe our expansions into these new markets are well positioned for success. Our goal is to simply duplicate what we have accomplished thus far in our current markets. Our expectation is that each of these markets will perform at a high level, produce results consistent with our existing communities and will be accretive to our operations. To update you on the new markets, we had our first home closings in Raleigh and in Portland in the month of January. We're also on track to have our first community open in Winston-Salem North Carolina and Minneapolis Minnesota by the end of the year. We ended February with 65 active communities and we believe we'll have between 75 and 80 active selling communities by the end of 2017. We believe our average sales price in 2017 will continue to increase as a result of product and geographic mix as well as favorable market conditions, allowing us to end the year with an average sales price between $210,000 and $220,000. In addition, we believe 2017 gross margins as a percentage of home sales revenues will be in the range of 25% to 27%. We expect adjusted gross margin, which excludes the effects of interest and purchase accounting will continue to be strong and consistent with our results in 2016. We believe our adjusted gross margin for 2017 will be between 26.5% and 28.5%. Given our guidance of delivering more than 4,700 home closings along with an increase in average sales price and consistent gross margins, we believe our basic earnings per share for the full year 2017 will be between $4 and $4.50 per share. In summary, we are very pleased with our results for the fourth quarter and the full year of 2016. We are poised to take advantage of continued growth opportunities in new and existing markets and believe we are well-positioned to increase our revenues, community count and earnings, allowing LGI Homes to achieve our long-term goals and objectives of market leading returns for our shareholders. Now we'll be happy to take your questions.

Thank you. [Operator instructions] Our first question comes from Michael Rehaut with JPMorgan. Your line is open.

Hey, this is [Neil] on for Mike. So, I guess first question. I appreciate the discussion around maybe a weaker first couple months of the year and we understand the volatility in monthly closings, but can you speak a bit to the demand drivers that are giving you confidence in the near term?

Yeah Neil, this is Eric speaking. Great question and when we look at demand, first thing we look out is the amount of leads and the amount of traffic that's coming in into our office and November was a little slower, but for the last 90 days, particularly last even 30 days, leads are up and they should be up because we got more community count, but even year-over-year we're seeing strong demand and we talked about it during the script is sales over the last 90 days are up approximately 19% year-over-year. So, it feels really good. Last week was the best sales week we've had in LGI history. So, we're feeling confident that the closing number will catch-up to where sales are and we'll close more than 4700 this year.

Okay. That's helpful. And I guess second question, looking at the mid to upper single-digit ASP increase here and we understand the impact of having more closings outside of Texas, but on the cost side do you see land and labor cost increasing at a similar rate as before or you maybe adjusting prices to account for higher rate?

Yeah, I think that should continue in 2017. We think land prices, construction cost, labor cost, cost to do business in the different cities, cost to develop land will continue to increase and we will plan on in 2017 doing exactly what we did in 2016 is increasing our average sales price to offset those costs and keep gross margins consistent.

Okay. Makes sense. Thank you.

Thank you.

Thank you. Our next question comes from Jay McCanless with Wedbush. Your line is open.

Hi. Thanks for taking my questions. First one I had, can you talk about the pace of community openings and getting to the I think 75 to 80 is the guidance you guys have given. Can you just walk us through how that's going to go on, on quarterly basis?

Yeah. Thanks for the question Jay. Yeah, we think it's going to be pretty evenly spread throughout the year. We opened new communities on a quarterly basis. We strongly believe in sales and training, in our culture here at LGI. So, we actually structure a new community opening and training classes on a quarterly basis and are committed to bringing all the new salespeople here to our corporate offices in Texas for training. And we believe of the increase in community count of 12 to 17, it will be pretty equally spread among the four quarters.

Okay. Great. And then the second question in terms of mortgage availability and then with the volatility we've seen in rates, what are you guys hearing on the lending side and what are you hearing from the field in terms of availability for mortgages?

Yeah. I think availability from the mortgages and the mortgage underwriting criteria I think is consistent. I think it's loosen off and there's enough credit availability that we can hit our numbers, but I would say it's pretty consistent with where it's been over the last year and rates, obviously, rates are higher than they were pre-election. We are selling in most of our communities with interest rates 50 to 75 basis points higher than we were pre-election and so far over the last 60-90 days, we have not seen a negative impact in demand or sales and I think that the increase in interest rates are being offset by positive things happen in the economy and it feels pretty good.

Okay. Sounds great. Thanks for taking my question.

Yeah. Thank you.

Thank you. And our next question comes from Nishu Sood from Deutsche Bank. Your line is now open.

Thanks. Eric, I wanted to go back to the slower closing start to the year and the lack of inventory I don't think I remember in your history since you've been public, two months in a row being affected by inventory shortages. Typically, it's just a one month issue. So, I wanted to dig into that. Especially it seems to contrast with the statement about the fourth quarter where you had a terrific gross margin and you mentioned management of construction, managing construction well. So, if you're managing construction well, how does that end up with an inventory shortage that is enough to affect two months as opposed to the typical one? So, wondering if you could help us fit that altogether?

Yeah, sure Nishu. Great question. I think there's many factors that went into the closings being down year-over-year in January and February and we talked about the primary reason was lack of homes and we believe that was the primary reason that comes in two folds. One is construction either not starting enough houses, not building houses efficiently as we like. We definitely have room for improvement, especially in our outer state markets to work on our efficiencies and get homes built quicker. Also, a big factor is in some of our top performing Texas communities we had really strong 2016. December, we had a great month to pull forward some closings and the next sections of development just weren't ready yet. So, we got five really high performing communities in Texas that literally had almost no closings in January and February and over the next couple months they will be ramping up and producing 8 to 10 closings per month on average. So, there's some development timing in there as well and we can always improve. Constant never-ending improvement is part of our culture. So, getting these developments on the ground, taking further ahead, make sure the timing is appropriate and sales were not great in November. So, don't get me wrong. We could have used more sales on that related, that would have impacted January and February as well. That's sounding as the primary reason, but we can always use more sales.

Got it. That actually leads to my second question here. Your model is pretty different than pretty much every other builder out there, much quicker turnaround, the vast majority of your homes are -- 100% are -- close to 100% are spec. So, the idea of stacking up demand across two weak months of closings whereas demand was still stronger, how are you folks managing that because I think you've told me the past 60% of your customers buy on their first visit. So, your customers and your whole process used to building up a backlog, so you mentioned that demand has been pretty strong. I think you mentioned the 19% order figure up year-over-year. We rarely talk about orders on these calls or backlogs, but what's happening to the excess of demand against a lack of inventory? You're building up a backlog or are you just losing those customers? Your sales force are just keeping in touch with them, let them know when inventory is going to come back in line. So, how's that playing out on the ground?

Yeah, you're correct in the first statement. We're building up inventory for example in the top performing communities in Texas. If the next section is ready -- is not ready, we keep selling and we're just pushing out the closing dates from our traditional 30-day close where the house is finished to more of a 60 to 90 to even a 120-day close in some cases. And that leads to more cancellations and greater time to get a deal closed, but we are going to be able to keep in a lot of those closings. They're just going to close later and we're just going to create a bigger pipeline and then once the sections are ready, then we'll start more houses than we normally would and closings will catch up.

Got it. And one other one if I could, your guidance seems to imply a huge improvement in SG&A about 80 bps, Charles if I calculate it correctly, but you mentioned some additional expenses this year. Am I in the right ballpark there that that's a great performance that's implied there? What would drive that because you already had seemed to been bumping up against your longer-term -- your, longer-term normalized SG&A levels?

Yeah, great question Nishu. So that will be a little on the higher end of what we're expecting. So, I think when you take a look at what we're guiding to in terms of more than 4,700 closings, take that into account in terms of where we think we are going to be in each one of the categories, whether it's ASP, gross margin, we think there is some opportunity still left in SG&A. We're thinking more in lines of 20 to 40 basis points for this year, the first quarter, I am sorry, is going to be a little higher than average given what we talked about in terms of where we expect the first quarter closings to be. So, given the first quarter start, we'll see a little bit more leverage in the back end, but overall for the year, we think we'll be closer to that 20 to 40 bps range.

Okay. Thank you.

You bet.

Thank you. Our next question comes from Stephen East with Wells Fargo. Your line is open.

Thank you. Good morning guys. Charles, I just wanted to make sure did I hear orders in the fourth quarter were 1117, is that correct?

Gross orders, yeah.

Gross orders and net orders, I missed that, I apologize.

Yeah, no problems. Net orders were 808.

808, okay. And I appreciate the last three months up 19%, if you just look at January and February, as we look for 2017, what was the order growth in January and February?

January was down 14%. February was up 24%.

Okay. Thanks. And then there have been a couple other builders that have gone into their backlog and just looked at their general customer coming in and run some sensitivity analysis on them based on interest rates moving. Have you all done that for your either backlog or the buyers that you seem pick what time you want maybe last six months or something like that and seem just what interest rates would have an impact on what's been in your book of business in recent past?

Yeah, we haven’t looked at the backlog in that level of detail Stephen, but we do know that obviously higher interest rates leads to higher monthly payments for the consumer and there are some customers that no longer qualify just on the basis of a 50 basis point increase in rates. I think also pertinent to your question, is there are customers that feels like over the last year 60-90 days that are picking some smaller plans. That's one of the things that we've been looking at is how to keep our homes affordable in a couple of our communities nationwide over the last six months to a year, we've instituted some smaller square footage plans. We have a few communities now that we have one car garages available to keep their price point affordable. So, we think we may see some homes closing at a slower average sales price and a customer selecting a 1400 or 1500 square foot, instead of a 1600 to 1800 square feet as one of the offsets to rates increasing.

Yeah, got you. Okay. Thank you. And then just as you look at your business Eric, as you've grown your footprint and you got a couple more that just came -- couple more cities that just came on and you have a couple more in your pipeline this year. Are you comfortable with your current infrastructure, your management infrastructure? I know Charles mentioned the IT side of it. So, if we look at your infrastructure holistically and then break it apart, are you comfortable where you are, what are you thinking you need to do if not as you go through '17?

Yeah, I think we're comfortable with our infrastructure. For sure we've had a lot of growth. We added a lot of new employees. We have new Vice Presidents and a lot new managers and a lot new sales people and we've experienced a lot of growth outside of Texas. And we've definitely experienced growing things and not all communities are operating as efficiently as we would like, but that is built into our guidance and that's expected and we believe we have the processes and systems in place to mitigate those risks. And we have a very consistent structure in place when we open up a new community. So, some markets can doing better. Some markets are doing better than others, but overall we feel really good about the business and our guidance for this year.

All right. Thanks a lot.

You're welcome.

Thank you. Our next question comes from Carl Reichardt with BTIG. Your line is open.

Hey folks. Wanted to go back to Nishu was asking about related to January and February construction. So, if you got an issue of getting phases open in part in Texas and then getting vertical construction up, is that due to that labor shortages to management planning or to weather or are there other factors that impacted that on those three?

Yeah, I would say to those three, not so much on the weather fronts and also capital planning comes into that place into that equation as well Carl because when we put new sections on the ground, we are planning for a certain absorption pace and we could have probably done a better job of forecasting in some communities increased absorptions and gave ourselves a little bit more room because when we have better than expected closings in a certain community, there is a finite number of closing that we can have before that next section is going to be ready. So, capital efficiency is an allocation comes into that as well.

Okay. And then to play catch-up then, is that -- can we expect then that gross margin cadence over the course of the year is going to have a little more negative impact in the, say this quarter and maybe into the next and then bulk up in the last half? Let's operate under the assumption to increase cadence, you got to pay subs more. You got to work a little bit harder. Is that something that we should be thinking through.

I think from a gross margin standpoint, it's going to be lower in the first quarter because the volume is not going to be there, but for the rest of the year, that 26.5% range, 26.5% to 28.5% on an adjusted basis, we think that's pretty consistent. That's where we've been over the last eight quarters and I think it's going to remain consistent in the second, third and fourth quarter.

Okay. All right. Super guys. Thanks very much.

All right. Thanks Carl.

Thank you. Our next question comes from Alex Barron with the Housing Research Center. Your line is open.

Yes. Thanks guys. Can you comment on your closings in the first couple months of the year? Were they down pretty much in every market or was it more concentrated in one region than others?

That is a great question Alex. I would say we didn't have that many closings per community basis anywhere. So, I would say, they were down in every region, but I think Texas has the biggest impact because Texas is our leading market, leading region on a closing basis. So not having some inventory in our top performing communities in Texas I think had the greatest impact on January and February.

Got it. And I was wondering if you guys maybe would consider reporting the orders along with the closings, just so that investors could take greater comfort in what's happening because obviously, your orders are doing fine. Is that something that you might consider perhaps in the future?

We will consider it.

Got it. And then lastly as you're increasing the average price, can you comment on what gives you the comfort that the sales piece will remain similar to what you've seen in the past and as you enter new markets as well?

Sure, sure Alex. The average sales price we actually look at it as in their more expensive communities where average sales price increases. We actually forecast a little slower absorption pace per community although revenues might not necessarily be slower. So, if you look at our 4700 number in our community count guidance, we are actually forecasting slightly slower community count or community sales per community, and that's one of the reasons because of the continued raising of average sales price, especially in the new markets.

Got it. Okay. Well, good luck for the rest of the year, thanks.

Thank you.

Thank you. [Operator instructions] Our next question comes from Barry Haimes with Sage Asset Management. Your line is open.

Hi guys. Thanks very much. Quick question, knowing that you guys sell primarily on the weekends, the fact that both Christmas and New Year's sell on the weekend this year, was that a meaningful impact in terms of orders on those weekends and therefore closed the January, February closings number. Just was wondering, you mentioned inventory being the biggest piece, but was this a factor as well thanks?

Yeah, December sales were actually up year-over-year, but I would agree with that Barry, it definitely falls into the bucket of items that impacted when Christmas Eve and Christmas Day are on Saturday and Sunday, that's not ideal for us. You're correct, the majority of our sales do come on weekends. So, I would contribute that as a factor, but not as much as inventory.

Great. Thanks. Good luck guys.

Thank you.

Thank you. And I am showing no further questions at this time. I would like to turn the conference back over to Eric Lipar, Chief Executive Officer for closing remarks.

Okay. Thanks, everyone for participating on today's call and for your continued interest in LGI Homes. Everybody have a great day.

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program and you may now disconnect. Everyone have a great day.