Regal Rexnord Corporation (RRX) Q2 2013 Earnings Report, Transcript and Summary

Greetings, and welcome to the Altra Industrial Motion's Second Quarter 2013 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, David Calusdian, Executive Vice President and Partner for Sharon Merrill Associates. Thank you, Mr. Calusdian, you may begin.

Thank you, Jen, and good afternoon, everyone. Welcome to the call. With me today is Chief Executive Officer, Carl Christenson; and Chief Financial Officer, Christian Storch. To help you follow management's discussion on this call, they will be referencing slides that are posted to the altramotion.com website under Events & Presentations in the Investor Relations section. Please turn to Slide 1. During the call, management will be making forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are inherently uncertain, and investors must recognize that events could differ significantly from management's expectations. Please refer to the risks, uncertainties and other factors described in the company's quarterly reports on Form 10-Q and the annual report on Form 10-K, and in the company's other filings with the U.S. Securities and Exchange Commission. Except as required by applicable law, Altra Holdings does not intend to update or alter its forward-looking statements, whether as a result of new information, future events or otherwise. On today's call, management will refer to non-GAAP diluted earnings per share, non-GAAP income from operations, non-GAAP net income and non-GAAP free cash flow. These metrics exclude certain items discussed in our slide presentation and in our press release under the heading, Discussion of Non-GAAP Financial Measures, and any other items that management believes should be excluded when reviewing continuing operation. The reconciliations of Altra's non-GAAP measures to the comparable GAAP measures are available on the financial tables of the Q2 2013 financial results press release on Altra's website. I'll now turn the call over to Altra's CEO, Carl Christenson.

Thank you, David. And please turn to Slide 2. We're pleased with the overall results despite sales being down 3.6% when compared with the second quarter last year. The capital-intensive end markets that we serve, including metals, mining and energy, remained particularly weak during the second quarter, which resulted in revenues and net income that were lower than we expected. Earlier in the year, many of our customers believed that they would see an improvement in the second half of the year. Many of them have revised their outlook and now expect very little, if any, growth in the second half. Many have also used terms like, "choppy" or "uneven" to describe demand patterns. The good news is that we've recently experienced stronger bookings, with incoming orders improving in June, both sequentially and versus June of last year. This stronger order rate has also continued into the third quarter. Although revenues were off modestly, we continued to see margin improvement. Gross margin was up 20 basis points year-over-year to 30%. Non-GAAP net income, essentially flat when compared with last year despite a tax rate that was over 10 percentage points lower a year ago. Since the second half of 2012, we focused on improvements in selected underperforming businesses. Our restructuring plan in Europe is having the effect we thought it would, driving significant margin expansion despite the economic issues in that region. Based on economic reports we follow, it appears that the outlook for Europe is improving, while the outlook for North America and Asia is slightly worse than we expected. Although our results in the quarter were not what we had hoped, we are optimistic about our opportunities for continued margin improvement going forward. As some of our end markets improve, we expect to reap the benefits of these -- of this increased operating leverage. We're also pleased with cash flow generation in the quarter. Through the first 6 months of 2013, cash flow from operating activities was $36 million, a 33% increase over the same period in 2012. We also paid down nearly $22 million on our credit facility during the quarter. Now please go to Slide 3, and I'll talk about some of our specific end markets. I begin with our distribution channel, which is predominantly comprised of sales of aftermarket parts and original equipment parts for small OEMs. In the second quarter, distribution sales were up slightly from the first quarter. We expect modest year-over-year growth in the distribution channel in the second half. Turning to Turf & Garden, demand in Q2 was off slightly, and sales were down year-over-year. We suspect the unusual soggy spring caused consumers to put off outdoor equipment purchases. Industry forecasts still call for market improvement in the second half of the year when we believe our sales will be essentially flat with the comparable period last year. We recently received delivery schedule changes from some customers that indicate the seasonal decline in demand will be pushed out somewhat. We again performed well in the ag market in the second quarter. The new product programs we've discussed on past calls continue to ship on schedule. We expect that these programs and other new product development efforts will make significant revenue contributions during the remainder of this year and throughout 2014. Business in the transportation market remains strong, maintaining the momentum we had built in the first quarter. As was the case in Q1, demand from automotive OEMs drove this performance. We're benefiting from the ramp up of the automotive programs that we're on, and bookings continue to do well. Moving to the materials handling market, it's really a mixed tale. The elevator and forklift programs our products are on are doing quite well in a steady market. Forklifts tend to be a good mid-cycle indicator as buyers wait to order these products until they are reasonably confident in their own business and in the economy. Our positive performance in these markets was somewhat offset by weakness in the Crane & Hoist markets. Meanwhile, the conveyor system market continues to be flat. Now let's discuss our late cycle markets, beginning with energy. The upstream component of oil and gas segment of the energy market continues to be weak, following lower rig counts, lower new rig builds and excess pressure pumping capacity. This sluggishness is in contrast to the increase in oil production in North America. We are beginning to see some positive signs in frac-ing, but these have not yet translated into an increase in orders. These remains a very good long-term market segment for us. The global power generation market, where we're still seeing a shift towards distributed power, slowed a bit but is still quite strong. Alternative energy was quite soft. The wind turbine market has performed as expected given last year's delay in extending the PTC, which resulted in shipments slowing dramatically earlier in the year. The mining and metals market were again very weak, continuing the trend of the past several quarters. We believe demand in these markets will be soft well into 2014. Aerospace and defense sales continued to be strong during the second quarter, driven by activity in the commercial aircraft market. With that, I'll turn the call over to Christian, and then I will close with a discussion of our strategic initiatives.

Thank you, Carl, and good afternoon, everyone. Please turn to Slide 4. Reported sales for the second quarter were lower than we had expected as North American sales declined 6.2%, European sales were down 1.3% and the rest of the world was down 2.1%, excluding the effect of the Lamiflex acquisition. Foreign exchange rates had a negative impact of approximately 10 basis points, while price was scalable by 90 basis points. Despite lower sales when compared to the prior year, gross margin continued to improve and came in at 30%, which is 20 basis points higher than in the prior year. As Carl mentioned, our restructuring and profit improvement plan is having an effect as we expected. Non-GAAP operating margins declined 120 basis points to 10.2% as a result of increased SG&A, primarily related to the Lamiflex acquisition and the incremental start-up cost of our China plant. Second quarter net income was $10.7 million, or $0.40 per diluted share, compared with net income of $10.6 million, or $0.40 per diluted share, in the second quarter of 2012. Non-GAAP net income in the second quarter of 2013 was $10.9 million, or $0.41 per diluted share, compared with $11.2 million, or $0.42 per diluted share, a year ago. In short, the benefits of lower interest expenses were essentially offset by the effect of lower volume and the higher tax rate in the quarter. We recorded a tax rate of 31.3% in the quarter, which remains below our guidance for the year. This compared with our tax rate of 21.2% for the second quarter in 2012, which was artificially low due to the reversal of a tax reserve as a result of a tax settlement. Slide 5 is a reconciliation of our non-GAAP measures. Please turn to Slide 6. Our book equity was $245.3 million compared with $232 million at year end of 2012. Cash and cash equivalents were $61.5 million at the end of the quarter compared with $85.2 million at year end 2012. The strong cash flow during the quarter allowed us to pay down our revolving credit and term loan facilities by almost $22 million. In April, we entered into an interest rate swap, allowing us to fix a portion of our variable rate interest expense through 2016, reducing our risk at a rate of 63 basis points. The underlying notional amount of the swap matches the term loan portion of the facility and the related amortization schedule. Slide 7 reviews our working capital performance. Working capital decreased 3.1% in the quarter, sequentially to $173.9 million. Capital investments during the quarter totaled $5.5 million, and depreciation and amortization was $7.1 million. Please turn to Slide 8 and our guidance. While the European PMI has hit an 18-month high in July, we no longer believe in a significant second half recovery. Significant weakness in certain late-cycle markets combined with a somewhat rationalist [ph] PMI in the U.S. provides for an uncertain outlook. The one encouraging sign was that after a very difficult April and May, orders improved in June, and this positive trend continued into the third quarter. We expect now that the second half of the year will be in line with the comparable period a year ago, both from a revenue and EPS perspective. Lower year-over-year interest expense will be offset by a higher tax rate and higher SG&A expenses related to our strategic initiatives. We continue to expect a strong cash flow generation and a free cash flow for the full year of approximately $50 million. We are revising our guidance for the full year as follows: we now expect full year sales from a range of $715 million to $730 million and non-GAAP EPS in the range of $1.52 to $1.64; our expected tax rate for 2013 should be approximately 31% to 33% before discrete items; and we expect capital expenditures in the range of $20 million to $23 million; depreciation and amortization will be in the range of $28 million to $30 million. With that, I will turn the discussion back to Carl.

Thank you, Christian. And I'd like to provide you with a brief summary and an update on our strategic initiatives. While most of our -- oh, please turn to Slide 9. While most of our customers have reduced their outlook for the second half of the year and we do not see any catalyst that is going to significantly improve the demand picture, we do believe that both end users and OEM customers are being extremely cautious and frugal. Inventory reductions, minimum -- minimal capital expenditures and limited project activity have all contributed to lower demand, particularly in the capital-intensive markets we serve. The recent increase in our incoming orders and the economic outlook in certain parts of Europe gives us some confidence that we could see improvement in the future. The third quarter is typically our weakest, due to seasonality of some of our businesses, and we expect that this will also be the case this year. We continue to make good progress on our strategic initiatives. The improvement in the underperforming businesses is right on track, and we expect to continue to see steady progress from these businesses. The operational excellence component of our strategy is progressing very well. On our last call, I mentioned we are working with a well-known Japanese Lean consulting firm on this effort. We're quite happy with this relationship, and it's really helping us to extend the Lean culture throughout our organization. One critical aspect in our Lean journey is that we have the complete involvement and commitment of our senior leadership team, and I am excited to see how active this group is. We are also inviting Lean experts to each of our facilities. At one facility in Indiana, we're in the midst of a conversion to Lean accounting from traditional cost accounting. Combined, these steps will help drive the next stage of our Lean evolution. We also continue to make progress on the new pricing strategy. We will initiate price increases stemming from our strategic pricing initiative at 4 business units beginning next week. This is the first phase of the initiative, and we are optimistic that this strategy will deliver our desired results. We expect to begin to see the initial benefits in the second half of this year. We continue to pursue top line growth opportunities as well. Our product development initiatives of the past few years are coming to fruition in terms of program wins, and we are committed to work collaboratively with customers on new products. Our focus on expanding Altra's presence in emerging geographies is progressing, primarily in China and South America. In China, we have started shipping to customers from our new facility. And in Brazil, we are pleased with the success of the Lamiflex acquisition, which we completed about a year ago. And we are executing on our plan to take more products into Latin America. Despite sluggish activity in the Brazilian economy, our performance in Brazil has been very good. The Lamiflex integration continues to go well and we are optimistic about our opportunities in that market. In terms of acquisition opportunities, we have a very strong balance sheet, and we are ready to execute on our acquisition strategy. In closing, while our end markets continue to be a challenge, our operational improvements at several underperforming businesses, European restructuring and recent cost saving efforts are delivering the positive impact we thought they would. And as I just mentioned, we are capitalizing on opportunities for top line growth as well. With that, we'll open it up for your questions.

[Operator Instructions] Our first question comes from the line of Mike Halloran with Robert W. Baird & Company. Michael Halloran - Robert W. Baird & Co. Incorporated, Research Division: So could you help me get to your rationale for the back half of the year on the revenue side, first and foremost? I'm hearing you talk about normalizing trends as you work through the second quarter, a better June than you saw in what were tough April and Mays. It's sounds like the distributor destocking side has normalized down, so there should be some pull-through on demand there. And then selling days work in your favor in the back half of the year as well. So you have those on one hand, and then on the other hand, it appears like you're talking about sequentially worse trends than normal seasonality would imply. So could you help me get to the -- how you're getting to the revenue expectations for the back half of the year in light of all those things?

At a low end of the range, we're assuming essentially flat revenues year-over-year. And at the high end of the range, about a 3.5% improvement year-over-year for the second half. So what we need -- what needs to happen for us in order to achieve the high end of that range would be that we continue to see an improvement in the incoming auto rent -- trends that we've seen in June and into July. If that was to continue, we could hit the high end of the range. If that won't continue, then we feel we're going to be about where we were last year. We don't see anything out of Europe right now that would say it's going to get worse. Particularly, the numbers coming out of Germany are starting to trend positive, business confidence is rising. The PMI has turned above 50. So we don't see much, much downside to the prior year numbers.

And I think I'll just add, Mike, that -- at the beginning of the year, I think a lot of our customers and distributors thought that they would see some uptick in the back half of the year. They've tempered that enthusiasm and don't expect to see that. And while we're seeing some good order trends now, we just wanted to be cautious and make sure that we didn't indicate something that we couldn't deliver. Michael Halloran - Robert W. Baird & Co. Incorporated, Research Division: Okay. So then the follow-on to that is, when you think about the pull-through from an incremental perspective, first, were you surprised by the decremental margins you saw in the quarter? And any way you could kind of split out how much of the decline, from a margin perspective -- or how much of the margin downside was volume related versus some of these SG&A initiatives on the cost side that might have hurt or impacted the margins as well?

So we analyzed -- the quarter was -- essentially, year-over-year, we had a benefit from low interest expenses that converts into roughly $0.09 a share. We gave all that up. About $0.04 of that was volume at a deleverage of about 35%. The higher tax rate year-over-year -- last year's tax rate was artificially low due to a tax settlement and some other factors. But if I normalize last year's tax rate, it was still a detriment, about $0.04 for us. And then high SG&A expenses of about $0.02, and that's probably what surprised us the most, is that -- where SG&A came in compared to what we had projected. Michael Halloran - Robert W. Baird & Co. Incorporated, Research Division: So then the SG&A line, because when I think about the back half of the year, you're thinking flat to up on the revenue line, and earnings are expected to be roughly neutral. With the interest savings, I would have expected some upward movement in the back half of the year relative to that, but sounds like the SG&A line is curtailing that. I would have thought some of these expense savings also might have been able to roll through and help out a little bit. Maybe you could talk about that dynamic as well when you work to the back half of the year here?

The back half of the -- the biggest impact in the back half of the year will be tax rate-related. If you look at our tax rate in the third and the fourth quarter of last year, it was very low, particularly, I believe, in the fourth quarter, where it was -- we actually had a loss in the fourth quarter due to the refinancing, and that really monkeyed up the tax rate in the fourth quarter of last year. That's the biggest headwind for us. And then the second is SG&A, and that's something we're analyzing and trying to figure out ways to counteract that. Some of that relates to the startup cost in China. A lot of that is running through SG&A. Some of that relates to initiatives like SPA, the strategic pricing initiative, and so forth. But there's something else that we need to call in balance as we go through the year. Michael Halloran - Robert W. Baird & Co. Incorporated, Research Division: And last one then, just on that, and I'll leave it to somebody else. The SG&A headwind in the back half of the year, is that on a quarter-to-quarter basis? About -- it's expected be about the same as it was this quarter?

That's -- yes. That's about right.

Our next question comes from the line of Matt Duncan with Stephens Inc.

I want to dig a little bit more on the guidance for second. It looks like maybe to get to -- if I use the midpoint of your revenue guidance, to get to the midpoint of your EPS guidance, I've got to assume that your gross margin is down from where it's been running and/or the SG&A dollar costs are actually going to be up a little bit from where they've been running. And I suspect that you're probably being a little bit conservative with this EPS guidance you've given us, just to make sure you don't have to cut that again. But I want to make sure I understand sort of what would drive either of those 2 things, because it seems like the gross margin ought to be going up with the strategic pricing initiative kicking in, and you're probably trying to control the SG&A cost a little bit. So just kind of flesh those out a little bit, if you would?

Yes, you're right that -- particularly at the lower end of the ratio, I would assume a slight deterioration in our gross profit margin, which is difficult for us to project given that mix does impact our gross profit margins. So we're going to see some positive trends out of the pricing as that takes effect in August, but then probably really start to see the benefits probably in September. There's probably a 30-, 60-day lead time before these prices actually are affecting shipment. And so we're cautious in terms of estimating what the mix would look like. Some of these late cycle business that we have, like mining-related, are very profitable businesses. And as those markets have deteriorated to the degree they have, we are cautious in our projection.

Christian, can you remind us, in terms of the pricing initiative, what kind of impact that ought to have on gross profit margins?

Yes. So we have said that, particularly for 2014, we would expect 50 basis points in improvement. In this first round, you're probably looking at half of that. The other half will come as we go through round 2 and 3, which we will also conclude this fiscal year. And that those price increases will go in effect January 1.

Okay. All right. So then if we're stress testing the guidance, if you're sort of midpoint of the revenue guide, that's about a 1.5% revenue growth rate, and that would put you, in terms of quarterly revenue dollars, about even with what you had, maybe a little bit below what you had into 2Q, and then it just becomes a function of mix because it sounds like you're going to get 20 or so basis points, especially in the fourth quarter from the pricing initiative. On the SG&A front, are there any costs that you guys are trying to take down there right now, that you can flex down with the revenues running a little bit lower than you thought? Or is it really a function of just kind of trying to hold the line on the number you had in the 2Q?

We're analyzing that right now and putting together the plan, but we're not prepared to say exactly what's included in that right now.

Okay. And then last thing for me and I'll hop back, the M&A pipeline. Carl, can you give us an update on what that's looking like? I know you guys have been actively trying to find something. Are you finding many opportunities out there?

I think if you look at M&A activity overall, there's not -- it's down this year compared to last year pretty significantly. However, we are seeing some opportunities, and we continue to look. And I'm very hopeful we're at the point where the balance sheet is in great shape to make an acquisition. The management team is ready to make one. So we are looking very hard to try to find the right company to join the Altra team.

Any chance you could get something closed by year end, or is it maybe getting a little late for that?

I'm going to reserve comment till end of the year.

[Operator Instructions] Our next question comes from the line of Scott Graham with Jefferies & Company.

I wanted to just get a feel for you on -- when you say that your customers really are now expecting no improvement in the second half. I'm just wondering if you can maybe be a little more specific about that. Because you sell to a lot of different markets, a lot of different customers, and I guess I'm pretty sure you don't mean everybody called you up one day and said, "We're lowering our budgets." So just maybe you can get a little bit more granular on which end markets in particular seem to be looking weaker in the second half than previously thought?

Yes. So I think one of them would be the industrial distribution channel, where we -- where I think if you looked at the comments that they made earlier or late last year, kind of early this year, I think they've probably toned back some of the enthusiasm. Not saying that they're not going to grow, but I think they've cut the growth rates back to what they expect. And some of that's anecdotal and talking to some of our smaller distributors, which aren't public companies. So -- and it does vary by end market. We have some end markets, energy. We've got one distributor there that's doing really, really well for us and expects to continue to do very well through the year. There's another guy who's actually in the mining business that -- with replacement parts. He's doing very, very well. So it is a mixed bag. But when we average it out across the distribution channel, the enthusiasm has certainly been tempered. But it's not that they're expecting it to be flat to down. I think they're still expecting growth, but much lower growth than they expected at the end of last year. And I think that's true, Scott, when I read some of the releases of some of the big industrial companies, too. They're -- they have toned back their growth expectations in many cases for the back half of the year.

So that's the principal group of customers in your distribution business?

So our distribution business would be the industrial distributors, but then some of the big industrial conglomerates, global conglomerates, are our customers. So when you read their releases, you can get a flavor for what they're talking about happening in the end markets we serve.

Right, correct. But I mean -- it's not like metals and mining, which are large markets for you, that's already -- those have already been difficult markets. They're not saying that things are getting worse, are they?

No, no, no. So it -- no, it's -- and you're right. It's market specific. And I think just as we average it out over some markets, overall, the markets that we serve, the tone is not as enthusiastic.

Understood. Okay. So 2 questions now about your pricing initiatives. So I know you're working very hard at the execution of this. My first question is the easy one. What dollar sales does this affect?

$150 million.

That's what I thought. Right. Okay. So that's no change from what you previously said, right?

Right.

Okay. Now when you affect this, are those conversations -- have they already taken place with the customers? I'm sure you're not going to just sort of pop the hatch and say surprise, so like how does that work exactly?

We give customers 60 days notification on price changes typically. Sometimes, it's less than that. Sometimes, it's more than that. But typically, it's 60 days. And so we notified them back at the beginning of June, end of May, that prices were going to go into effect the beginning of August. And so then you start the negotiation and discussions with those customers on a specific basis where you have to. So these were announced or -- and it's -- and in this strategic pricing initiative, there are several buckets of pricing. And so one piece of it was announced in late May or early June that's going to go into effect in August, and then there is other parts of it that we'll be implementing on $150 million worth of revenue throughout the rest of the year on a case-by-case basis. So that's more specific leg work that has to be done.

And keep in mind that we also said that we think we can affect about 60% of that $150 million. So there was $150 million worth of revenues that went into the analysis. Some of those revenues you can't get to because either they're already priced right or because of contractual agreements that leaves you about 60%, which you can actually impact with this price increase. Right?

Right. And of that 60%, what has been -- to see back from the customers you've negotiated with, is this -- essentially, is this 20, 25 basis points of some certain for the second half? Or are there still negotiations that have to take place? Or is this 60% really 30%? You see where I'm going with this?

So the first piece that's been done has been -- it's relatively not negotiable. It's -- I don't want to get into too much specifics, but think of the smaller customers that are buying lower volume and getting better prices than a big customer buying higher volume, which is -- it's just not negotiable. And so most of this first phase that's going into effect in August 1 would be the non-negotiable piece. And then that's why I said it's going to take us the rest of the year to get that other part as that -- then the more complicated ones that have to be negotiated and go out and work on it. So the first piece [indiscernible].

And so this first piece, your conversations with these customers, have they gone well? Don't you -- are you going to get this increase or are a number of customers going to walk? Kind of scale that for us.

So we've done some of it, not as sophisticated as this, but some of it on our own. And we're getting one business where we -- at a price increase at 45 customers. And 3 of those customers have elected not to do business. So it's 3 out of 45, but the gross profit on the 42 that are left is significantly more than what we would have had if we kept the 45.

Our next question comes from the line of Jeff Hammond with Keybanc Capital Markets.

Just on distribution, you said it was up sequentially. Is that kind of more in line with seasonality? Or did you actually see underlying fundamental improvement? And just what do they say about just inventories and destocking?

So I think in general, most of the distributors have not been destocking. We've seen some selective destocking. But for our products -- now there are some areas where I -- I think that they are working on their inventory levels, but I think it hasn't been a significant impact on us in the second quarter. Maybe in the first quarter, we saw a little bit of destocking, but not a huge number. But they're certainly working their assets. And then the increase from first quarter -- are you asking about sequential increase, Jeff?

Yes. Is that just a seasonal pickup, or is that -- was it a stronger pickup than that?

No, I think some of it had to do with the fact that there was some nominal inventory adjustments done in the first quarter that didn't occur in the second quarter. And then I think it was just a slight improvement in their business. I think the MRO business seems to be pretty good. I mean, there seems to be good activity in replacement parts business. But where we're missing the business is on the projects and on the capital expansion side of it. So when you look at the project and CapEx, type of products that we sell and projects that we would get involved in, it's down significantly more than that MRO piece.

So what -- can you give us a sense of what the MRO piece would run at for -- because you said North America, I think, down 6%. What would distribution have been running at?

Quarter-over-quarter, so compared to last year?

Yes.

Oh, boy. Maybe I can get back to you on that, Jeff. Yes.

Okay. And then just as you've looked into kind of June picking up and into July, were there any specific end markets that stood out? That -- where you're seeing some inflection points to the good?

It was across the board, very good order rates, but we did have some of the ag business that we've been working on. We had one of the largest orders we've ever gotten in the company during -- for an ag project we've been working on. That was pretty exciting. And then I think in the energy piece, which had been down, we saw a little bit more pickup there that was very encouraging. Let's see. Now we've seen some requests in the steel business, which we haven't seen any project work for. It's been -- they've been very tight on capital spending, but we've seen some requests. They didn't -- they weren't orders, but they were requests for quotation that we haven't seen for a while. So I think there's the -- some of the later-cycle, higher capital-intensive businesses are probably where we've seen the activity pickup at a little faster rate than some of the other -- the incoming orders were pretty good across the board.

At this time, there are no further questions. I would like to turn the floor back to management for any closing comments.

Thank you. Thanks, Jen, and we enjoyed seeing many of you at our first-ever Investor Day back in May, and we were very pleased to have reported progress today on some of the initiatives that we discussed during that meeting. I'd like to thank you for joining us this afternoon, and we look forward to updating you on our progress in the future. Thank you.

Thank you. Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.