Advanced Drainage Systems, Inc. (WMS) Q2 2021 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to Advanced Drainage Systems Second Quarter Fiscal 2021 Results Conference Call. My name is Laura, and I'm your operator for today's call. [Operator Instructions] I would now like to turn the presentation over to your host for today's call, Mr. Mike Higgins, Vice President of Corporate Strategy and Investor Relations.

Good morning, everyone. Thank you for joining us today. With me here, I have Scott Barbour, our President and CEO; and Scott Cottrill, our CFO. I would also like to remind you that we will discuss forward-looking statements. Actual results may differ materially from those forward-looking statements because of various factors, including those discussed in our press release and the risk factors identified in our Form 10-K filed with the SEC. While we may update forward-looking statements in the future, we disclaim any obligation to do so. You should not place undue reliance on these forward-looking statements, all of which speak only as of today. Lastly, the press release we issued earlier this morning is posted on the Investor Relations section of our website. A copy of the release has also been included in an 8-K submitted to the SEC. We will make a replay of this conference call available via webcast on the company website. With all of that said, I'll turn the call over to Scott Barbour.

Thanks, Mike. Good morning, everyone. Thank you for joining us on today's call. We had a strong second quarter of fiscal 2021, with 10% net sales growth as demand and business activity remain favorable. I want to thank the ADS and Infiltrator employees for their execution and diligence in making that happen. I also appreciate our customers for working with us in new and imaginative ways to serve the construction markets. We generated strong performance in key growth states, including Florida, the Carolinas, Tennessee, Georgia and Utah as well as more broadly across the South and Southeast regions of the United States. As a whole, we benefited from our national presence and geographic exposure as well as our increased residential exposure from Infiltrator and the focused homebuilder programs at ADS. Infiltrator once again exceeded revenue expectations with 63% sales growth in the second quarter. Infiltrator continues to see double-digit growth in tanks and leachfield products, with particular strength in Florida, the Carolinas, Georgia, Tennessee and Alabama. Recall, the Infiltrator results are for 2 months of the prior year quarter, given the timing of the acquisition, which closed July 31, 2019. In the residential end market, legacy ADS sales increased 15% this quarter. We see favorable dynamics in new construction, repair/remodel and on-site septic. Orders, backlog and sales remained strong through the period, with very limited impact from the slowdown in residential starts earlier this year. As a whole, we are well positioned for growth in the residential market. On the front end of the cycle, the ADS products and go-to-market strategy are positioned for the land development phase, whereas Infiltrator products come in play towards the end of the cycle when construction is nearing completion. Additionally, both Infiltrator and ADS have a repair and remodel component that is strong and growing. Its home improvement activity and existing home sales continue to rise. About 1/3 of the Infiltrator sales are related to repair and remodel. And at ADS, the repair and remodel exposure is covered through our retail and national accounts. The company's exposure to the residential market has increased to 38% of domestic sales compared to 28% at this time last year. Sales in our nonresidential end market were up modestly, led by strong growth in HP Pipe and Storm Tech retention/detention chambers as we continue to benefit from our exposure to horizontal construction. We are tracking very closely to the segments of the nonresidential market that continue to do well such as data centers and warehouses as well as geographies that are experiencing growth like the Southeast and Atlantic Coast. Importantly, we believe ADS is well positioned to continue to grow above market due to our conversion strategy, national coverage and water management solutions package. And given what we see in the market today, we believe the second half of the year will be similar to the market conditions we experienced in the first 6 months. Agriculture sales were down just slightly this quarter as we called out to a tough comparison period. Still, the agriculture sales team has had a great first half of fiscal 2021, with sales up 14% year-over-year. In addition, the fall selling season is off to a great start as we continue to benefit from the programs we put in place around organizational changes, new product introductions and improving execution in the agriculture market. International sales increased 3%, driven by double-digit growth in our Canadian business. Canada is doing well across both the construction and agriculture end markets. Mexico, on the other hand, is not performing as well, having been more significantly impacted by the COVID-19 pandemic. Overall, strong demand is causing some regional- and product-level constraints. Lead time and inventory levels are stretched as we get into this part of the season. Based on this strong demand and our desire to more fully capitalize on opportunities in our core end markets, we are stepping up our capital investments, which we now expect will total between $80 million and $90 million for this fiscal year. The focus of our investments will be to improve safety, increase capacity for future growth and improve productivity. We will rebuild finished goods inventory in the second half of the year by level-loading production at our facilities in our traditionally slow months, preparing both ADS and Infiltrator for good customer service and normal lead times. This build will depend on our second half demand, ramping up new capital and dealing with the COVID-19-related circumstances like employee retention, absenteeism and local conditions. Frankly, this is consistent with the environment we've been managing since the pandemic hit. We are also making investments in talent, including the recent addition of a senior leader to accelerate new product introductions, marketing and innovation. As highlighted in a press release this morning, we created a new product management and marketing organization to accelerate the development, launch and marketing of new products to meet customer needs. I'm pleased to announce Brian King joined our organization in September to lead this effort as the Executive Vice President of Product Management and Marketing. Brian has 25 years of successful product management experience, and we're excited to have him join our team. Moving to our profitability results. We achieved another quarter of record adjusted EBITDA during the period. Adjusted EBITDA margin increased 820 basis points overall with a 640 basis point increase in the legacy ADS business. This was driven by favorable material cost, leverage from the growth in Pipe and Allied Products, execution of our operational initiatives and contributions from the proactive cost mitigation steps we took earlier this year. Infiltrator also achieved record profitability in the quarter due to strong demand, favorable material costs, contributions from our synergy programs and continued execution of their proven business model. The synergy programs are right on track to achieve the run rate targets we've previously communicated. As we look ahead to the second half of the year, we are optimistic as our order book, project tracking, book-to-bill ratio and backlog all remain positive. We expect the normal seasonal patterns to apply to the second half of our fiscal year as installation activity slows down in geographies with colder temperatures. We also have some profitability headwinds coming up in the third and the fourth quarters, including inflationary costs for materials and labor. We are working to offset these headwinds through pricing actions, operational productivity initiatives and our synergy programs. In summary, we did a very good job executing this quarter. We're focused on safety, managing through the COVID-19 environment, servicing our customers and driving these new levels of profitable performance. Though uncertainty still exists regarding the broader market environment, we are well positioned to capitalize on residential development and horizontal construction, while continuing to generate above-market growth through the execution of our material conversion and water management solution strategies. We remain focused on disciplined execution as we look to build off a very strong first half of our fiscal 2021. With that, I'll turn the call over to Scott Cottrill to further discuss our financial results.

Thanks, Scott. On Slide 6, we present our second quarter fiscal 2021 financial performance. Net sales increased 10%, with 4% growth in our legacy ADS business plus 63% growth in our Infiltrator business. Sales growth in the legacy ADS business was led by a 15% sales growth in the residential market, which remains robust. As Scott discussed, demand in our nonresidential market remains stable, with pockets of strength in horizontal construction, data centers and warehouses. Overall, sales were solid throughout the quarter, and this trend has continued through October. Sales grew in Infiltrator across their portfolio, driven especially by strength in their leachfield and tank product lines. Infiltrator continued to benefit from the underlying strength in the repair and remodel market as well as growth in single-family housing. This growth was further accelerated by their material conversion strategy. From a profitability standpoint, adjusted EBITDA increased $56 million or 47% compared to the prior year. Adjusted EBITDA for the legacy ADS business increased $33 million or 35%, with strong performance from our sales, operations, procurement and distribution teams. ADS is very well positioned to capitalize on the current stability in our end markets due to our market-leading position, national relationships, breadth of products and services as well as our geographic and end market diversity. These attributes make us the premier partner and leader in the industry and led to the margin expansion and strong financial performance in the quarter. Infiltrator's adjusted EBITDA increased $21 million or 86%, benefiting from strong demand, favorable pricing, lower input costs, productivity improvements as well as our synergy programs. Moving to Slide 7. Our free cash flow increased $112 million to $257 million as compared to $135 million in the first half of fiscal 2020. These impressive free cash flow results were driven by the strong sales growth and profitability we achieved in the first half of fiscal 2021 as well as execution on our working capital initiatives. Our working capital decreased to right around 20% of sales, down from 22% at this time last year. Further, our trailing 12-month pro forma leverage ratio is now 1.5x, slightly below our target range of 2 to 3x leverage. We ended the quarter in a very favorable liquidity position as well, with $204 million of cash and $339 million available under our revolving credit facility, bringing our total liquidity to $543 million. The favorable changes we have made to our capital structure have also resulted in no significant debt maturities until 2026. While pleased with our conversion of adjusted EBITDA to free cash flow in the first half of this year, we will need to make strategic investments in working capital and CapEx during the second half of this year to position us to take full advantage of expected growth as well as to make the necessary investments to support our productivity initiatives at both the legacy ADS and Infiltrator businesses. In addition, we continue to assess bolt-on acquisition opportunities through our disciplined acquisition process. Finally, on Slide 8, we introduced our guidance for fiscal 2021. Based on our performance to date, order activity, backlog and current market trends, we currently expect net sales to be in the range of $1,790,000,000 to $1,840,000,000, representing growth of 7% to 10% over last year; adjusted EBITDA to be in the range of $495 million to $515 million, representing growth of 37% to 42% over last year. And we expect to convert our adjusted EBITDA to free cash flow at a rate of around 60% for the full year, driven by our strong results as well as the investments we just discussed. With that, I'll open the call for questions. Operator, please open the line.

[Operator Instructions] And our first question comes from Mike Halloran of Baird.

So a couple of questions here, first on the demand side. How parsed out how you're thinking about the back half of the year? The commentary around order rates, backlog, funnel, everything seems directionally positive. Guidance is kind of stable year-over-year. Is that timing mix just giving yourself a little push in case weather or COVID becomes a bigger headwind? Just help me understand kind of those puts and takes a little bit.

So Mike, Scott Barbour. So I would say that we were off to a really good start in October. It was a lot like September in the prior quarter, and September was particularly strong. We, I think, are a little more conservative in our fourth quarter. It tends to be the most variable quarter around weather, and we feel like we have a bit of a tough comp to last year. We had very favorable construction weather conditions last January and February, March, and both Infiltrator and ADS benefited from that. So we've kind of looked at that and put in what we would call the average scenario for our fourth quarter. Our near term is, as you described. I mean we continue to move along at a pretty good clip. And we think we've got a good handle on kind of, let's call it, our 60-, 90-day horizon. But as always, there's a lot going on out there in the world. And I think we want to be prudent just a bit on the conservative side.

And Michael, to Scott's point on that pull ahead in Q4, second half last year concerning -- we did talk about that being around $20 million, about $10 million because of COVID uncertainty and people wanting their orders before the end of March as well as about $10 million due to the warm weather.

That's a good point. I forgot about that.

Yes. Very good context there. And then what's the latest thought process internally? I know you typically say you need to get towards Thanksgiving a little later, so you can start getting a view on what the next 12 months after looks like. But how are you thinking about the nonres market or nonres pieces of your portfolio today? Obviously, the conversion and your marketing efforts are driving outperformance versus end market. But any early thoughts on how you're thinking about how the next 12 to 18 months might shape up on that side and the ability to navigate what are going to be probably pretty disparate trends amongst the verticals within that nonres space?

Yes, I think those will be disparate trends. There perhaps could be disparate trends geographically. I think we continue to believe the Southeast and Florida, the Southern Atlantic Coast will be a good nonres environment. We've seen some things rebound in Texas and California here recently. So those have kind of opened back up. We might even see a spring back in the Northeast from a nonresidential perspective. I think it will kind of come down to the -- like we talked about before, our new projects initiated and financed. But we have a pretty good funnel of quotations and we hear good things around availability, of course, of money but also of people willing to go forward on projects. So a lot -- I would say probably we feel better today than we did last time we spoke.

And then last one from me. Just puts and takes on the margin side here. How are you thinking about the pricing equation, your ability to capture price in the marketplace versus some of the inflationary pressures that you're seeing on the materials side? And how should we think about that cadence and any lag impacts over the next few quarters?

So we've been waiting for that question from you. We went out with a price increase in October and it stuck, and we're kind of seeing that. We feel like -- that we're going to fight the inflationary cost, particularly in resin with 4 tools: it's the pricing, which we've already gone out into the market with; the level-loading we're going to do to rebuild our inventories but also load our factories, which should help our off-season conversion cost -- you know, it'll go on the balance sheet and come out on the P&L early next year; the productivity programs, which are gaining traction; and then the fixed assets that we're putting in place and automation we're putting in place, this should be paying off. Obviously, that one's a little -- doesn't have as much impact near term, but already that wheel is beginning to turn for us in certain areas. Not as fast as I'd like, but certainly beginning to turn. So those are the 4 weapons I will use against the inflationary environment, which is certainly going to be there. But we're going to fight that fight on inflation every day.

Our next question is from Matthew Bouley of Barclays.

Wanted to ask about some of the commentary you made about -- if I misheard you, please correct me, but about needing to make investments in CapEx in the second half and some of the inventory build that you're looking to do will somewhat depend on, I guess, both demand and ramping capacity. So I guess, are you actually running up against capacity constraints anywhere at this point? And I guess, overall, just any more detail on some of these investments you're looking to make.

Yes, that's a great question and one we spend a lot of time working on. The answer to your question is, yes, we are running up against capacity constraints. It's a build -- both businesses are build-to-stock. We have extreme seasonality. So we've got to kind of build ahead of that and drain down and build back. But even doing that at both companies, we're -- we've run very hard since basically May. And as we look into next year, we're going to have to make additional fixed asset capacities to give us more seasonal capacity, to give us more overall capacity. And if you think about it in terms of like Infiltrator, a couple of more presses earlier than we had anticipated. And Roy and his team were right on top of that, and we were able to kind of get that in the pipeline. On the ADS side, it's getting some assets into key areas, the growth areas we have. And that is a combination of new assets and maybe moving some assets and some different production planning and inventory strategies, which we, by the way, have been successfully executing and are now kind of building upon those ideas. So my goal, Matt, is to give us better peaking, both better absolute capacity and better peaking capacity in, call it, that June through October time frame. In that way, we can meet surges in demand and better availability and service to our customers. And frankly, I think that's our -- one of our strongest growth programs is getting those things in place.

Got it, okay. That's very helpful. Second question, I wanted to ask about some of the regional dynamics. I think, Scott, you talked about making a lot of progress and it sounded like some areas in the Southeast. Just curious if you could broaden that out a little bit. Some of the markets you've previously talked about is kind of medium-term opportunities like Texas and California, just places where you thought about being a little bit less penetrated than other markets. I'm just curious kind of what's the state of things today? Where are we on those markets there or just any other markets broadly where you feel like the penetration -- where you're looking to make further progress?

Yes. We -- our Southeast and Florida penetration plans is our key states in the crescent going. I mean -- I think that's going pretty well. Texas, they've had a heck of a year in Texas from just an overall economy, COVID-19, oil prices going down, a couple of hurricanes, lots of uncertainty. So I think there was kind of a natural -- just a tough market here for a while, though in the last months, 2 months, it's began to accelerate and come back into year-over-year growth. I think our penetration is probably maybe up a little bit, flattish, up a bit. We're really strong in Houston, which got hit the hardest, and it's coming back very strong right now. In Dallas, in San Antonio, Austin, we're penetrating better every day. We still don't have the full suite of approvals that we want that we're working towards, but we're making progress. We're making really good progress. And our team down there is doing a really nice job on that, working that with the -- our local -- I mean, the local people that are the influencers to get that approval. California, again, kind of shut down like the Northeast did, tough to get in front of customers. We were flattish, down some. But again, over the last 2 weeks -- I mean, last 2 months, began to come back. We won a really nice distribution center out there with a big well-known e-commerce company, and we're shipping against that order right now. And there's some more out there on the T-box that we're pursuing. So I think we're in the hunt and in the game. Not where we want to be, but we're on the field and playing hard.

Our next question is from John Lovallo of Bank of America.

The first one on the price mix and materials bucket. I mean, obviously, that was a big contributor year-to-date around, I think, $43 million on a year-over-year basis in EBITDA. It sounds like the back half gets a little bit more challenging. But is it fair to assume that, that bucket is still going to be a good guy in the EBITDA walk in the back half?

Yes. John, those walks are, as you know, year-over-year, so that will still be a good guy. As we walk through the second half, it will get a little bit more constrained as we go, but that will be a good guy in the second half. And equally important, as we look at the second half versus the first half, we're holding on to kind of that spread, as we call it, which is what we aim to do as we move forward.

Okay, that's encouraging. And then the residential exposure at around 38% now. Where do you think this could trend over the next year or 2? And is there a mix that you believe is optimal for your business?

Well, that's a good question. I think -- here's my answer, John, is I think because the residential for ADS is growing faster than the overall company, it's going to go up some as a percent of sales. And clearly, Infiltrator being 100% residential, in a good growth market, growing faster than the nonresidential ADS, I think we're going to mix up that way. Now what that ultimate destination is? I don't know. We'd have to go back and run through that. I don't have an exact number for you. But it's going to trend north, I think, over the next months and years, which is okay. I think that's fine. I mean, certainly, for us, Infiltrator is such a well-run and profitable operation, that's a nice mix tailwind for us in lots of ways. And then the residential penetration of ADS, pretty good business through the HP. We've improved our cost position on that. We've improved our pricing on that. So we're -- we think as that product, we're just as happy if it grows fast as if N-12 grows fast right now, if not a little happier.

Okay. And then maybe one more from my end, if I may. You recently hired a new head of your international segment. Any early reads on kind of how he's looking at the business in terms of opportunities and challenges?

So obviously, the big challenge for Tom right now is Mexico and understanding really the market dynamics down there in the face of a much worse COVID-19 impact on their economy, which is layered on top of a dramatic change in kind of, let's call it, government spending or where the government is spending their money. So Tom's -- we're working with an outside firm to kind of help us on a market study there. So really, I would expect, much like we did in agriculture a year or so ago, to have a completely fresh look at that market, have a very fresh look at how we go to that market and where the right spots of attack are. He's very good at that kind of thing. And I would say that's been a big priority of his over the last couple of months.

Our next question is from Garik Shmois of Loop Capital. Jeffrey Stevenson;Loop Capital;Analyst: This is Jeff Stevenson on for Garik. My first question is on inventories. And I'm just wondering what the extended lead times from capacity constraints? Are they matching in distributor sell-through right now?

I really don't know the answer to that. I mean a lot of our stuff is delivered right to the job site. It's not really stocked by the distribution, as you would classically think. So I don't know that, that match up, I have super-great visibility on that. What we do send to stock at certain distributor stores appears to be on a fairly normal pace right now. So I wouldn't say they're greatly mismatched. Jeffrey Stevenson;Loop Capital;Analyst: Okay. That's helpful.

And just to fill, this is Mike Higgins. Just to kind of put some more context around what Scott said, about 80% of what we do goes directly to a job site. So the kind of distributor stocking dynamic doesn't have a huge impact.

It's a little different for us.

Yes, it's different from us versus the other building material companies or construction product companies that rely on the distributors to kind of pull through and sell through and deliver to the market. Jeffrey Stevenson;Loop Capital;Analyst: Got it, got it. And then given that you rapidly got your leverage targets down after the Infiltrator deal, I'm just wondering if you could talk more about your kind of capital allocation priorities moving forward and kind of where you see things next year.

This is Scott. Yes, we're extremely excited about that execution and where our leverage is. So we're equally excited about the opportunities that are in front of us organically. So between the Infiltrator business, the demand, the productivity, the synergy initiatives, there are just so many things. I call it a target-rich environment, that we are accelerating not only that CapEx, but then as well the organizational structure behind that, the foundational build-out, if you will, to support that CapEx as well as the OpEx. If you look at that Brian King announcement for product management, innovation, again, we're going to make investments there to accelerate growth and productivity initiatives. So extremely excited. So that's the bulk of it. The acquisition side of it, we've talked about our disciplined process. We've talked about how we're bringing resources to bear to invest in that vertical, if you will, as well. We're excited about how that funnel is building back out. It will be a very disciplined process. We'll make sure that we deploy that capital effectively when we're ready to. But we are very active in that space as well as we build it out. So those, by far, are the 2 pieces of our capital deployment and allocation strategy that we are solely focused on right now.

[Operator Instructions] Our next question is from Josh Pokrzywinski of Morgan Stanley.

So a bit of a layered question here, so feel free to take it in pieces. So always appreciate the color and the profit waterfall, it's very helpful. If I look at kind of the last couple of years here, you're roughly double your average contribution on price/materials mix. And then the volume piece or the volume leverage of that is maybe a bit lower than where you've been in the last couple of years. Just kind of putting together some of the commentary from the earlier questions, I guess, first, how do we think about that price cost or mix contribution relative to the past couple of years? It sounds like there's some headwinds building, but it's still a good guy. I guess, is that your way of saying, we're going to mean revert? And then how do we think about that volume portion of the profit walk, given that there's some capacity investments and some of your comments about that disparate market and geographic growth. So there's a lot there. Feel free to take it in pieces, or we can circle back on things. I'll kind of leave it to you.

Okay. So that is a multilayered question, Josh, and there's a lot to unpack.

Admittedly, I warned you.

Yes. You did. Okay. I'm going to give it a shot. I think Cottrill will probably jump in here. But appreciate that the size of those bars will move around over time as conditions in the business move around over time. So let's take the volume. Pre-COVID, our -- particularly our nonresidential was on a pretty good tear and our conversion strategies were on a tear. The Allied Products were growing much faster. So volume was a bigger contributor at that time, for sure. Simultaneously, we've seen kind of record-low resin and input materials that kind of troughed down there in the summer, and we were able to hold on to all of that. So kind of the size of those bars changed a bit. And that doesn't bother me too much. As long as I'm kind of increasing 100 basis points a year, we've obviously had a very good step-up year, but from our 3-year plan, at our Investor Day, we said that's what we're going to try to track to. And I appreciate that the size of these bars will change. And by the way, the manufacturing and transportation, we're now offsetting inflation. We're giving a little bit back. A lot of dynamics under there, but we really like the conversion cost trail that we're on. Now as we look forward, and I anticipate the size of those bars will change a bit. Now my job, Scott's job, our team's job is to make sure that the size of the bars change but the overall trajectory is the same. So as we move into these headwinds of resin coming off the floor, we went out with pricing for that. We think we got it covered with stock. But that evolves over a couple of months. We also work like heck on the recycling and the version on the input costs from a procurement standpoint. We're pretty good at that. But then what we also have to do is, again, the size of the bars change, convert in the off-season very effectively, get the capital in place for both productivity and additional capacity, which by the way, we will be leveraging in existing facilities. So there's some method to our madness as we walk through that. And I mean that will be something that will unfold over our next quarters and conversations. But that's how I'm looking at it. That's how Scott and I are managing the team and the operations on that.

Got it. And that's helpful. So just as a follow-up to that on the volume side, with those capacity investments that you talked about, should we expect that, that incremental margin just on volume to get better, get worse? Obviously, the...

It should get better.

Play there besides capacity investment. Okay, got it.

You're right, we should be leveraging that.

Yes. A lot of our improvements come through kind of that contribution margin side of the house. So that should play out there as well.

No, you're right. You're right. I mean we're starting up a piece of equipment this week. And we have big expectations for that piece of equipment as we move into next quarter and the next year. And I can tell you, at 5:30 Eastern Time, 4:30, that plant manager's time, he was already on the e-mail, us going back and forth, ramping up that piece of equipment. And the challenges you face in that and how we're kind of doing it, but this guy is right on top of it. And I'm really proud of how they're tackling that. And we're going to go through more of those over the next year at both Infiltrator and at ADS as we ramp that stuff up. And that will give us that better surging capacity. It will leverage those facilities very nicely, as you said. And then we get to really walk up that curve of productivity with those new assets.

And we have no further questions at this time. Gentlemen, do you have any closing remarks?

Yes. I'll make some closing remarks. We really appreciate everyone joining the call and the questions and the quality of questions, very, very good. And we appreciate that opportunity to kind of give more color. We'll continue to focus on the health and safety of our employees. It's really important for us now, particularly as we move into this kind of Thanksgiving, Christmas season, the wintertime, providing essential stormwater management and on-site septic wastewater solutions. For our customers and communities, we think that will continue to be in good shape and an essential activity. As you can see from our -- the questions and discussions, we're going to continue to protect our profitability, our balance sheet, that cash flow. We expect some uncertainty to arise over the next months, but it's what we've been managing through. I think we've been doing a pretty good job of that. It's not easy out there. I was at our factories in Florida early last week. They're busy as heck. It's not easy wearing a mask, staying distant and all those kinds of things. So I really appreciate what our employees, both in the factories, at logistics and transportation, which is so critical for our service, and all of the people that are working in sales and our staff functions. It's a different way of working, but we are beating our way through it and enjoying it and having a good time right now. I mean we're -- it's fun to be on the kind of the role that we're on. So with that, I'll conclude the call, and we appreciate everyone's participation.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating, and you may now disconnect.