Sleep Number Corporation (SNBR) Q2 2011 Earnings Report, Transcript and Summary

Welcome to the Select Comfort Second Quarter 2011 Earnings Conference Call. [Operator Instructions] Today's call is being recorded. If you have any objections you may disconnect at this time. I would like to introduce Mr. Mark Kimball, General Counsel. Sir, you may begin.

Thank you, Angie. Good afternoon, and welcome to the Select Comfort Corporation Second Quarter 2011 Earnings Conference Call. Thank you, all, for joining us. I'm Mark Kimball, Senior Vice President and General Counsel. With me on the call today are Bill McLaughlin, our President and Chief Executive Officer; and Wendy Schoppert, our Executive Vice President and Chief Financial Officer. In a moment, I'll turn the call over to Bill. Following our prepared remarks, we will open the call to your questions. Please be advised that this telephone conference is being recorded and will be available by telephone replay. It also will be archived on our website at sleepnumber.com. Please refer to the details set forth in our news release to access the replay on our website. Please also refer to the news release for a reconciliation of certain non-GAAP financial measures included in the release or that may be discussed on this call. The primary purpose of this call is to discuss the results of the fiscal period just ended. However, our commentary and responses to your questions may include certain forward-looking statements. These forward-looking statements are subject to a number of risks and uncertainties outlined in our earnings release and discussed in some detail in our annual report on Form 10-K and other periodic filings with the SEC. The company’s actual future results may vary materially. I will now turn the call over to Bill for his comments.

Thank you, Mark, and thank you for joining us today for Select Comfort's second quarter 2011 update. Let me start by saying that second quarter was another important step toward a record year for our company, with operational and financial successes across the business. And more important, second quarter, again, demonstrates the growth potential of this business. We continue to make steady progress toward goals to enhance our position as the leader in quality sleep and to consistently deliver profitable growth. Since recovering in 2009 from the macroeconomic crisis, we've now increased the operating profit performance year-over-year for 2.5 years or 10 consecutive quarters. Second quarter operating profit was at a record level, both in dollars and margin rate, building on first quarter achievements. In the second quarter, revenue increased 16% supported by company-controlled channel comp increase of 20%. We continue to outpace the industry. And operating profit increased 77% versus prior year, with a margin of 10.9% reflecting focus on profitable growth to accelerate earnings. And we ended the period with a cash and marketable securities balance of $98 million and no debt. What's important to note is that we maintained a strong cash balance during our seasonal low quarter. As we look at current and future performance, there are 5 key competitive advantages that contributed to second quarter success, and we expect them to continue to help drive long-term profitable growth. They include proprietary products, the Sleep Number brand, distribution and store strategy, the margin and cash potential of our overall business and people and culture. First is the unique line of Sleep Number bed and bedding products, which feature personalized comfort and other attributes that address real consumer needs. With unmatched value that consumers are just beginning to discover, our products have significant growth and share potential. This is evidenced by our more developed markets, where we estimate market share to be 2 to 3x the national share -- national average share of just 5% of the total industry revenue. Second is the Sleep Number brand, which is a young iconic national brand that only fully transitioned from Select Comfort during the past year. Our most immediate source of growth is increasing consumer awareness of our brand and also ensuring that they know where to find it. The size of this opportunity is measured by brand awareness relative to industry share leaders. Today, top of mind consumer awareness of the Sleep Number brand is only about 25% that of the leading mattress manufacturers, and awareness of our 375 stores is far less than leading mattress retailers. We see a general correlation of awareness to share, which suggests significant opportunity to fuel growth as we increase awareness and understanding of the Sleep Number brand and its exclusive distribution. Our third advantage is distribution and optimization of company controlled selling channels, our retail stores in particular. We are still learning the potential for how high we can take sales per store. We also are determining the total number of stores to ultimately target. We are investing in local media and adjusting store base with a careful eye on maximizing each store and developing each market. It is clear that significant growth opportunities remain in the United States, which will be our distribution priority for the next several years. Fourth is profit margin and cash generation, taking advantage of our vertically-integrated business model to accelerate earnings and self fund organic growth. Our goal is to achieve a cash balance designed to sustain investments through market hiccups and to take advantage of our core business investment opportunities. Our intent is to continue increasing operating profit margin from the historic high rates of 9% to 10% to targeted 12% to 15% in the coming years. People and culture is our fifth advantage and likely our most important. A highly engaged and aligned team of mission-driven individuals is key to customer satisfaction and to sustained growth. Our goals will include maintaining and building on record employee engagement levels and to ensure retention and productivity, all contributing to long-term success. As I stated earlier, leveraging these competitive advantages contributed significantly to second quarter performance and will continue to be our focus during the second half of the year and beyond. In the quarter, we continued to advance our first competitive advantage, our Sleep Number products with the relaunch of our top-of-the-line i10 model. It included a $200 price increase to reflect enhanced features, and we defined success by mix, by maintaining or increasing participation in overall sales. The relaunch has been successful. Next week, we will continue advancing our core line specifically the upper 2/3 of our line. The Performance Series and the Innovation Series will be relaunched and enhanced, featuring exclusive Sleep Number dual-air technology inside to help consumers better understand what makes our beds so unique. Prices on these models will increase $100 to $200 per unit. We've consistently pointed to our second competitive advantage, the Sleep Number brand as the top priority for this year. More specifically, our focus is on increasing consumer awareness in consideration of our unique products and where to find them in our dedicated stores, website and call center. During the quarter, we made significant progress against this goal particularly during the Memorial Day consumer event. Building on learnings from the first quarter and President's Day, we again employed national TV advertising along with evolving creative and advancing digital presence. We expect to continue this formula in the third quarter to support the Labor Day event, which is our largest and most important event of the year. Third is distribution, and leverage of company-controlled selling channels, which remains an area of focus and opportunity for growth and more significantly, margin expansion. Average sales per store now just under $1.5 million is near peak historic level and is 25% greater than a year ago. Selling expense in the quarter was 24.2%, which represents a 300 basis point improvement versus prior year, the result of increased revenue per store. Two perspectives to help you better understand our focus on the margin expansion opportunity within distribution in stores. First, all else being equal, if we sold less than one additional bed per store per week, we'd add an incremental $100,000 to average annual sales per store. And when you roll that up, it equals about $0.13 of incremental earnings per share in a year. Second, while our average sales per store is again nearing $1.5 million, at the end of the second quarter, 13% of our stores were already generating over $2 million and more -- or more on a trailing 12-month basis. This demonstrates our opportunity to significantly continue increasing store throughput and margin expansion. In the second half, we'll continue to focus on selling leverage. We expect a slight increase in net stores primarily focused on completing the pilot program of non-mall stores, which continues to perform well. Our fourth advantage involves one of the most significant changes in our approach following the macroeconomic crisis, which is our focus on profitable growth and conservative balance sheet management. While we will continue to invest in strong long-term top line growth, we are even more committed to margin expansion to accelerate earnings. We now have the potential this year to approach a 12% full year operating margin. We also are on track to remain debt-free, with cash and marketable securities balance nearing our target for minimum cash balance plus a reserve to invest in organic business growth opportunities. Lastly, the past quarters saw changes in our organization structure and leadership. These changes offered insight into our growing ability to develop and promote from within in order to sustain our unique culture and minimize transition risk. We were sorry to see 2 long-term colleagues leave, yet happy for them to be able to follow their life plans. It is equally exciting and rewarding to see Wendy Schoppert assume the responsibilities of CFO; Shelly Ibach to expand her responsibilities as Chief Operating Officer; and Kathy Roedel to focus on accelerating the development of our products, service, supply and supply chain capabilities. Going forward, we will continue building our internal bench and selectively hire outside to add needed skills. The first half of the year has been very rewarding both for what we've achieved and how it has been accomplished. We've driven record performance by advancing competitive advantages and sources of long-term growth. Our products, the Sleep Number brand, distribution, profit margin and cash and people and culture. I'll now turn the call over to Wendy to provide more details about second quarter performance and our outlook for the year.

Thanks, Bill, and good afternoon to everyone on the line. I'd like to start by sharing that when I joined the company 6 years ago, I was attracted by and excited about the Sleep Number products, our iconic brand, unique culture and significant growth opportunities. And that passion has never been stronger as I take on this new role as CFO. Jim Raabe left a strong legacy, and I'm looking forward to building on that strength with the talented finance team we have here at Select Comfort. My remarks today will focus on providing detail behind our second quarter results. And throughout this commentary, I'll provide insight into our current outlook for the remainder of 2011. During the second quarter, we achieved earnings per share of $0.20, an 82% increase versus last year. These results reflect steady progress against our strategic priorities, and our record second quarter represents one more successful step forward in our pursuit of sustained long-term profitable growth. Total sales during the quarter increased 16%, and sales in our company-controlled channels grew by 18%. This increase was driven in part by a 7% unit growth in our company-controlled channel. We also experienced strong growth in our average selling price during the quarter with company-controlled channel ASP up 11% year-over-year. Our ASP growth was driven by a higher attach rate for adjustable foundations and bedding, as well as product mix improvement and pricing actions. On a comp basis, we grew sales by 20%, and just a reminder that we are now reporting a company-controlled multichannel comp, which includes retail stores, call center and e-commerce versus our previous retail-only same-store sales measurement since this is the best representation of our business. On a month-by-month basis, we experienced our strongest comps during May and June. As Bill mentioned, our Memorial Day event in late May, early June benefited from our investment in national TV. This continued optimization of our media spend, both on a national and local basis, combined with strong execution by our sales team drove our top-line growth during the quarter. And we achieved this performance against the backdrop of a still uncertain macroeconomic environment. As many of you know, ISPA has not been yet reported June sales. But as we review year-to-date industry data through May, we're pleased to see we are picking up market share with monthly sales growth rates that are trending higher than the industry. As we project forward to the balance of the year, we expect to continue to outpace the industry and gain market share with company-controlled comps anticipated to be in the mid- to high-teens. We are especially pleased with our strong profit results during the quarter, which reflects our targeted and disciplined approach to investing in growth, best represented by the strong flow-through we're experiencing with our incremental sales. Our operating income during the quarter of $17.6 million and operating margin of 10.9% were both second quarter records for the company even after adjusting for a $1.1 million reduction in contingent liability. Gross margin also was a second quarter record for the company at 63.5%, which was 130 basis points higher than the prior-year period. The year-over-year improvement in gross margin is due to strong product mix and manufacturing efficiencies as well as price adjustments made during the first half of 2011. As we look out to the remainder of 2011, we expect gross margin to be at or above the levels we experienced during the first half of the year, as we benefit from price increases. Sales and marketing expenses as a percentage of sales improved to 43.7% from 45.3% last year. Similar to first quarter, we realized the leverage in our selling expenses where the percentage of sales declined by 300 basis points. This was partially offset by planned increases in media and other marketing. Media increased by 25% during the quarter to $20.1 million or 12.4% of sales. This media percent of sales is consistent with our previous communication of 12.5% as our target for 2011. Incremental media investments have been focused on national advertising in support of our major consumer events, in digital media and in local advertising in targeted growth markets. G&A was 8.1% of sales on a reported basis and 8.8% of sales after adjusting for the $1.1 million reduction in contingent liabilities. This compares favorably to the 9.3% we reported during the second quarter of last year. Currently, we expect full year 2011 G&A to be approximately $58 million to $60 million. Cash and marketable securities were $98 million at the end of the quarter. As Bill mentioned, second quarter is our seasonal low point for sales and high point for cash needs. So we were pleased to see only a small decrease in cash from the $102 million balance at the end of the first quarter. Also as expected, our capital expenditures increased from $2.7 million in the first quarter to $6.9 million in the second quarter as our investments in stores and systems began to ramp up. We continue to expect full year 2011 CapEx to be in the range of $25 million to $30 million. And as we continue to generate strong free cash flow, cash and marketable securities by the end of the year are expected to be well over $100 million and nearing our target range to cover our minimum cash balance with some investment reserve. We will share our plans for excess cash with an eye toward maximizing value for our shareholders as those plans are finalized next year. Finally, given the strength of our second quarter and current short-term outlook for the business, we have raised our earnings guidance from between $0.85 to $0.93 per diluted share to between $0.90 to $0.96 per diluted share, which is approximately 60% to 70% higher than the $0.57 per share we reported last year. Our outlook assumes we end the year at approximately 380 stores, with company-controlled comps in the mid- to high-teens, gross margin at or slightly better than the first half and media as a percentage of sales sustains at approximately 12.5%. Our outlook assumes no further deterioration in consumer sentiment, which of course, has a significant impact on discretionary spending in our industry overall. To summarize, we are very satisfied with our performance during the quarter, which further positions us for a record year in 2011. That said, the uncertain macroeconomic environment causes us to remain very disciplined as we continue to invest in programs to fuel our long-term profitable growth. I'll now turn it back over to Bill for final comments.

Thank you, Wendy, and thank you also to Select Comfort employees and partners. Your confidence, creativity and disciplined execution are advancing us toward our goal of enhancing our position as the leader in quality sleep. You also are enabling us to ensure that we achieved consistent profitable growth. And thank you to our long-term shareholders who continue to share this powerful vision for our company. Back-to-back record quarters means that we're within sight of a record year. Though total sales are expected to be short of 2006's historic high, we are prepared to deliver record operating profit in the range of the peak historic level with significantly greater margin. This then sets a new level of performance to continue improving upon into 2012 and beyond. We are focused on executing with excellence during the second half of the year, advancing the business by fully leveraging all that makes us unique, our products, the Sleep Number brand, distribution, profit margin and cash expansion and people. Let me finish by stating that this is an opportune time to consider the long-term potential of this unique business. So we sincerely thank you for your time today and look forward to keeping you updated with progress. Angie, let's now open the call for comments and questions.

[Operator Instructions] Our first question comes from Mark Rupe.

It's Longbow Research. Any surprises that happened during the quarter, whether it's from a product sell-through, margin, attach rates set that were kind of relative to your internal expectation? Any positive surprises?

I think Mark, we were pleased to see that the Memorial Day support continued following the Presidents' Day support with the national advertising. We had the preview of it in the first quarter but again, you'd like to see it happen a second time, and that was good. And then the i10 continued to be very well received. And again, that reinforced the work we were doing on product enhancements was being well regarded by the consumer.

Okay, so the learnings on Memorial Day media were similar to Presidents' Day then, which is good?

Yes, they were.

Okay. And then as far as looking for Labor Day, correct me if I'm wrong, that's still going to be incremental versus last year, on the national.

Yes, that's right. This will be the first time we have supported Labor Day with national. Now, Labor Day is our more -- most mature consumer event, if you will. We've developed that in the past, probably more aggressively than we had either Presidents' Day or Memorial. But we still do believe there's a significant lift to be had there.

Okay, perfect. And then on the new P&I Series, I guess, enhancements, the $100 to $200 increases. Is there kind of a blended annual run rate? What impact that would be to kind of the pricing?

Sure, Mark. As you look at all the pricing increases, some of the smaller ones we've taken to date as well as the rest of P&I Series on average, about 4% would be a good assumption.

Kind of a run rate, okay. And then I know that -- I think you called out 13% of your stores were over $2 million. If that was the case, how does that compare maybe during 5 years ago when you were really churning really well? Was that at a similar level or was it lower than that at that point in time?

I'd have to go back and look at that, Mark. But what I can tell you is it's about twice the rate of where we started the year.

Brad Thomas.

I wanted to just kick things off asking about performance of the non-mall stores, how things are going and if there's any update to your current enthusiasm for that concept.

Well, just to step back for anybody who's new. Historically our company-owned stores were always in enclosed malls or lifestyle centers. And at the beginning of this year, we initiated a pilot program with a goal to open 20 stores outside of traditional malls in more high-visibility locations. And as of today, I believe we have about 12 opened, and we are on track to have 20 opened by the end of the year. They are all in high-traffic areas. There's really no geographic logic to them. We have them and some of them in highly-developed Sleep Number markets and others in lower Sleep Number developed markets. But the decision rule has generally been that we want to see them do equal to or better than the mall counterpart in the markets. And to date, they continue to do well. But we do want to see them through more of a full year cycle because obviously, traffic changes in enclosed malls during the holiday season. And we'd like to see these stores perform through that period of time before we make a long-term decision. I will also say though, Brad, that at the same time we've been opening new mall stores, and what we're learning there is that with improved -- with quality locations and good support, those are performing quite well, as well. So I think the long-term answer is going to be a blend of both.

Great. And what's the thing [ph] at this point in terms of openings and closings for the back half of the year?

Well, we do expect to end the year at about 380 stores, so that's plus 5 versus where we are today. There will be some puts and takes to get us to that point.

Great. And then it sounds like you referenced perhaps not only some macro data points of issues with consumer confidence but perhaps some issues that you saw in terms of store traffic, but I don't want to presume that. Did you see anything inter-quarter that suggested that your customer maybe pulled back a little bit as gas prices went up?

Well, Brad, I mean, we look at the same indices I'm sure you do looking at consumer sentiment, which we saw in a little bit of up and down during the quarter. What I would say over and above what you're seeing in our results for the quarter is that we're not planning for any immediate recovery there, remaining disciplined with our investments and cash. And we're just -- we're focusing on what we can control and the continued progress on all the strategic initiatives we've talked about to date.

I would just reiterate what Wendy did say in her comments though that May and June was where we saw the strength within the quarter. And that was somewhat reflecting Memorial Day but I think also reflecting some of our building media and product excitement.

Okay. And then one last point, if I could. As you roll out the new performance and innovation lines, will we see any impact on gross margin in the third quarter as you mark down some of the old line and get them out of your stores? Or are you able to do that with a minimal impact to the P&L?

Well, one of the great things about our business model is that we are just in time. Right? And so other than floor models, we really don't have any significant transition expenses to this new line.

Budd Bugatch.

This is actually Chad from Raymond James filling in for Budd. If I could probe a little bit into the guidance. It looks like you took the midpoint of the range up for the year by $0.04 and beat street expectations for this quarter by about $0.03. And while I don't know what your internal expectations were for the quarter, it suggests that the second half EPS outlook isn't a whole lot different than where you were 3 months ago. Yet it looks like you're bumping up the comp guidance by 200 or 300 basis points for the balance of the year. Could you kind of reconcile that for me or help me think about your rationale for that?

Well, your comment about the expectations being about the same for the second half would be correct. I mean, what I would say overall for the outlook is we did have a strong first half. We remain in still a bit of an uncertain consumer environment. The comp in the second half of that mid- to high-teens is pretty much in line, slightly lower than what we saw in the second quarter. But as Bill mentioned, we're being prudent here because Labor Day is, as he said, our most mature consumer event. We had a very strong Labor Day last year, and Q4 has proven to be a volatile time for the consumer. The other thing I would add is that when you dig into the numbers, you'll see we're expecting our EPS leverage to be about 2 to 3x that of sales even while we're investing here in growth in the second half.

Sure, sure. And then you commented about a strong Labor Day last year. I think seasonally Q3 and Q1 have typically been pretty close. I think in recent years, Q3 has been a little bit above Q1. Will we think that Q3 revenue this year is perhaps below Q1 given the strength last year?

I would say that Q3 this year has the same opportunity to be as strong as Q1 or stronger this year. So much depends on Labor Day and where the consumer events are, how the consumer event performs.

Okay. And one last question for me, if I could. You guys have obviously increased media spend this year pretty significantly, and that's driving some or helping drive some pretty good comp results. As we think about media spend and kind of next year and beyond, would it be fair to think about that as kind of growing at the same rate as sales? Or do you think it would continue to increase as a percentage of sales?

Well, we have not gotten into guidance for next year or plans for next year. But I would say that this year, we came into the year raising our media spend from 11.5% last year to 12.5% this year. We did that to give us the room to keep learning, learning in the process early, early. But I would expect that media as a percent of sales next year probably is more or less in line to where we are this year.

Eric Hollowaty.

Stephens Inc. Most of my questions have been answered, but a few quick ones. Wendy, in explaining gross margin you mentioned a number of things that you benefited from, including the attachment rate, the mix shift and the pricing. Is there any way to just kind of help us think about in a relative sense how those contributed, which are the most important?

Sure, yes. Probably the best thing to do is to share them with you in their order of significance: The first one was product mix, that was a strong contributor in the quarter; followed by manufacturing efficiencies, which we've seen consistently; and the third being the price increases that we took in the first half.

Great. And on the product mix, would you say that, that is being driven by largely the emphasis on the i10 that you had in the quarter or the attachment rates? Or how do you think about what's been chiefly responsible for that?

Sure, yes. Well, you're right. The new i10 launch was a strong contributor to our mix, showing the success of that new product launch. We also did see a higher mix on our -- both our bedding collection as well as our adjustable foundation.

Okay, great. And was there something you were -- was there a special initiative you were comping against in the quarter on the direct and e-commerce side, as well as the wholesale side? Or how should we think about some of the pullback we saw there, which was obviously, well offset by the growth that you saw at retail?

As you said, Eric, they're relatively small portions of our business, but they're important. We are a multichannel retailer. Now, I think what really has happened here is that through our advertising, we have been very overt in calling attention to our stores and our website redesign. We really encourage people to go visit our stores. That's where consumers get the full benefit of being able to experience the Sleep Number bed and to see some of the bedding accessories and all. So it is a bit of an overt move to get people to visit the stores. In time, I think it will all start to balance out a little bit more. But yes, right now we are really focused on calling people's attention to the fact that we have stores.

I would just add to that, that when you look at how we're managing the business, we really are working on maximizing our overall company-controlled channels and really letting the consumer make that decision and allowing them to interact with us wherever, however, whenever they wish to do so.

Sure, that makes sense. And then Wendy, I guess one final one for you. The contingent liabilities reduction, what is that actually? Could you just help us understand what happened there?

Sure. To start with, we, like everyone, evaluate our reserves on a quarterly basis. This particular reduction in reserve relates to the failure of a business partner of ours back in late 2009. And so with just the passage of time and as development of relevant facts, we made a determination to reduce the reserve.

[Operator Instructions] John Baugh. John Baugh - Stifel, Nicolaus & Co., Inc.: Stifel, Nicolaus. Let's see. The selling expense leverage, you mentioned 300 basis points in Q2. Was that similar, refresh my memory, to what you did in Q1? What would be the leverage expectation on the second half?

It was similar, John. And I think as you go forward, that's probably ballpark to what we would expect in the second half as well, assuming that the sales rate may be a little bit lower so that the leverage will be in line with whatever the sales growth is, obviously. John Baugh - Stifel, Nicolaus & Co., Inc.: Okay. And then, refresh or repeat again the brand awareness comments you made, Bill, and where that sits today. And then I'm curious as to sort of over time how that gap is closed. And then you also mentioned a store awareness number being significantly lower than that. I'd love some color on that.

Yes. Well, we've clearly seen that our overall share growth or market potential is related to -- is correlated to the level of awareness of our brand. And the way we look at awareness is what's our absolute awareness unaided, meaning we just say to consumers, tell us a mattress brand that you're aware or you think of. About 13%, 14% of people will mention Sleep Number brand. And you're into the 50s, 60s for the industry leaders like Sealy and others. And so that's the gap that we refer to that we're about a quarter of what the leaders are in that potential. And then the other one that's interesting and this is what has shaped a lot of our marketing over the years here, so far, is that if you go to consumers and say, "Great, where would you buy a Sleep Number bed?" Only 3% or so were aware that we have stores, our dedicated stores. And so that's why you see in our advertising an increased emphasis on not only the brand and its unique benefits with better sleep, better for couples and pain relief and all, but also exclusively available at Sleep Number stores. John Baugh - Stifel, Nicolaus & Co., Inc.: That's great. And then you commented that the off-mall stores are "doing well" but you want to see the whole year. I certainly understand that. I'm trying to get something out of you that you may not want to divulge, I don't know. But would you expect them to be tracking? You said you wanted to do equal or better than a mall store over the course of the year. Would the expectation be that, say, for the first 9 months of the calendar year, you would need to be well ahead of a mall store and then probably give some back to remain ahead for the year? And if that's so, are you tracking at that rate currently?

I don't really want to get into the rate that they're performing, John. But what we're really looking at is what's the right location for stores in a market that is convenient for our consumers, that has -- and the locations that have the potential to be $2 million, $3 million, $4 million, $5 million stores for us. And I don't think it's going to be -- the difference of the season is going to have to be pretty significant to make some of these fall off, make the strategy not work. We do want to see it play out for a year before we make a significant investment into the future. But I think they're doing well. John Baugh - Stifel, Nicolaus & Co., Inc.: And if you purposely opened, you mentioned, 12. I don't know how many you opened, I forget the first log [ph] . But they've been open for a while. Were those opened fairly distant from malls? Or were some of them fairly close? You would expect if they're close to a mall they wouldn't perform as well, but I don't know.

Some of them are close to a mall that we don't have a store in. What we're doing is spacing our stores to optimize the market. And we're just finding the best locations that we can secure in a market.

At this time, I would like to turn the call back over to our speakers for closing remarks.

Okay, if there are no further questions at this time, then we will conclude the call. We wish to thank you all very much for joining us, and we look forward to reporting again following our third quarter. Thank you.

Thank you. That does conclude today's conference. Thank you for your participation. You may now disconnect from the audio portion.