Dorman Products, Inc. (NASDAQ:DORM) Q4 2023 Earnings Call Transcript

Dorman Products, Inc. (NASDAQ:DORM) Q4 2023 Earnings Call Transcript February 27, 2024

Dorman Products, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning and thank you for standing by. Welcome to the Dorman Products Fourth Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note this conference is being recorded. I’d like to turn the conference over to David Hession, Dorman’s Chief Financial Officer. Thank you, sir. Please go ahead.

David Hession: Thank you. Good morning and welcome to Dorman’s fourth quarter 2023 earnings conference call. I’m joined today by Kevin Olsen, our Chief Executive Officer. First, Kevin will provide a business update. Then I will review the quarterly and full year financial results and provide our 2024 outlook. And then Kevin will provide closing remarks. After that, we’ll open the call for questions. By now, everyone should have access to our earnings release and earnings call presentation, which went out yesterday after the market closed. These documents are available on the Investor Relations portion of our website at dormanproducts.com. Before we begin, I would like to remind everyone that our prepared remarks, earnings release and investor presentation include forward-looking statements within the meaning of federal securities laws.

We advise listeners to review the risk factors and cautionary statements in our most recent 10-Q, 10-K and yesterday’s release for important material assumptions, expectations and factors that may cause actual results to differ materially from those anticipated and described in such forward-looking statements. We’ll also reference certain non-GAAP measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are contained in the schedules attached to our press release and in the appendix to this earnings call presentation, both of which can be found on the Investor Relations section of Dorman’s website. Finally, during the Q&A portion of today’s call, we ask that participants limit themselves to one question with one follow-up and to rejoin the queue if they have additional questions.

And with that, I will turn the call over to Kevin.

Kevin Olsen: Thanks, David. Good morning and thank you for joining us on our fourth quarter 2023 earnings call. Today, I will discuss our strategy, operating highlights and business activity. Please turn to Slide 3 if you’re following along in our deck. In Q4, we realigned our business along three segments consistent with the sectors of the motor vehicle aftermarket in which we operate light duty, heavy duty and specialty vehicle. In connection with our transition to segment reporting, we are initiating live quarterly conference calls to provide additional insight into these segments and the overall company. Before we dive into Q4 performance, we thought it would be helpful to step back for a moment and review who we are as a company and what we do.

Some of you have likely followed our story for years, but there are many listeners who are just getting to know Dorman. We are known as one of the leading innovators of repair solutions for the motor vehicle aftermarket. We deliver products from bumper to bumper across our legacy light duty business, our commercial vehicle focused heavy duty business and our UTV and ATV focused specialty vehicle business. We are an engine of continuous innovation across each of these segments. And while our heavy duty and specialty businesses are relatively new additions to the portfolio resulting from our acquisitions of Dayton Parts and SuperATV, we’re very excited about what the future holds. Moving on to Slide 4. As I mentioned, we’re leading the charge on innovation and we think the capabilities and approach of our new product development team are unique.

Over decades, our ideation team has built an immense network of relationships with repair technicians and end customers in the field that enable us to continuously cultivate a robust new product pipeline. Over the last three years, we’ve brought over 19,000 new SKUs to market across our three segments, such as our patented oil filter housing, a number of electronic control modules and an OE FIX line of pre-pressed axles, many of which have enhanced features designed to solve the repair problem created by the original equipment. The technical capabilities and experience of our new product development team enable us to provide a comprehensive suite of aftermarket solutions from bumper to bumper and across different drivetrains from ICE to hybrid to BEV.

We are truly agnostic to powertrain type. Our product development capabilities are further enhanced by our asset-light model that leverages our network of hundreds of suppliers globally. We utilize this diverse network to manufacture the vast majority of our products. With this approach, our team is able to work closely with our suppliers to ensure products meet our designs and specifications and we have the ability to efficiently and effectively flex production up or down as needed to best serve the needs of our markets. Moving on to Slide 5. We leverage our new product innovation engine across an expansive total addressable market of $165 billion. We have a significant opportunity to grow our share of wallet with a wide range of leading aftermarket customers.

Also, while our Heavy Duty and Specialty Vehicle segments collectively contribute a quarter of our top line today, we’re targeting growing those businesses to approximately 15% of top line each by the end of 2028. On Slide 6, you will find our strategy for driving growth and profitability by leveraging our innovation, capabilities to bring thousands of new products to market annually. In Light Duty, there’s a significant focus on growing IP centric categories like our advanced electronics, which have a large current OE share and premium margin potential. We see opportunities that draw on the digital investments that we’ve made to support our customers omni-channel selling approach to continue to broaden our distribution reach. We’re also taking actions to improve supply chain efficiency and optimize our distribution operations.

In Heavy Duty, we’re implementing the same Dorman playbook that’s been effective in our Light Duty business. We’re investing in new product capabilities to drive innovation and in our digital infrastructure to enable omni-channel presence. And we’re optimizing our manufacturing operations and supply network. Turning to Specialty Vehicle. The acquisition of SuperATV gave us access to high margin and rapidly expanding market specialty specialized transport vehicles. We’ve increased our focus on growing non-discretionary parts categories, including repair parts, which approximate 50% of this segment’s net sales. We’ll also continue to invest in the upgrade accessory categories that SuperATV is known for. Finally, we’re focused on growing our presence with the vehicle dealers, particularly in regions where we’re underpenetrated, such as the West Coast.

As we look back on our performance over the last few years on Slide 7, we’ve demonstrated a trend of top line growth, disciplined investment and cost control. In 2019 to 2023, our top line grew at an 18% CAGR, while we’re also been prudent operators as demonstrated by adjusted operating income growth above our peers. Before I hand it over to David, I want to provide you with my thoughts on our results. We ended the year with strong Q4 financial results, which were in line with our guidance. We delivered record net sales and EPS and significantly improved our margins. For the year, we generated record free cash flow, continue to pay down our debt and repurchase shares. Our innovation engine launched thousands of new products and solutions across all three segments and we drove efficiencies into and costs out of our operations during the quarter.

I’m proud of our contributors who were the driving force behind our strong performance as they come to work each day focused on how we can deliver innovative solutions to the aftermarket. I want to thank them for their ingenuity, dedication and hard work. Gross margin was a heightened focus area in the company in 2023. I’m pleased to report that our adjusted Q4 gross margin increased 640 basis points year-over-year and was up 180 basis points sequentially compared Q3. Throughout the year, we managed through significant inflation and implemented productivity measures in our operations, which enabled us to push our margins back up to 2018 levels. Gross margin improvement was also the engine behind the strong Q4 free cash flow that we used to pay down our debt and repurchase our shares.

Overall, Dorman continues to stand on strong financial footing. As I look forward, I’m optimistic about 2024. Industry fundamentals remain strong and while there is a level of macro uncertainty in global markets that have the potential to impact near-term results, I believe we have the team and plans in place to deliver strong results in 2024. At this point, I’d like to turn things over to David, so he can provide some deeper perspectives on our financial performance.

David Hession: Thanks, Kevin. I’ll begin by discussing Q4 and 2023 results and move to our balance sheet and capital allocation strategy, followed by our 2024 guidance. One note, our 2022 Q4 and full year results included a 53rd week. To make our results comparable, I’m going to reference our Q4 and full year results against 2022 results, adjusted to remove the extra week. A table reconciling reported results and results excluding the 53rd week is included in the appendix to the earnings presentation deck. Turning to Slide 8. Q4 net sales were $494 million, a record and up 3% year-over-year. Sales growth was primarily driven by higher volume, including the introduction of new products to market and price increases to offset inflation.

Moving to gross margin. This is the third straight quarter we’ve seen gross margin improvement. Our Q4 adjusted gross margin was 39.3%, a 640 basis point increase compared to last year. The year-over-year margin improvement was primarily due to lower cost inventory, cost savings initiatives and pricing actions to offset inflation. Our Q4 adjusted gross margin gets us back to margin levels we had in 2018 for tariffs and inflation. Shifting to SG&A. Adjusted SG&A expense was 23.9% of net sales, an increase of 90 basis points compared to last year. Higher wages, benefits and variable compensation expenses were the primary drivers of the income. Our Q4 adjusted operating income was $76 million, a 59% increase. Adjusted operating margin was 15.4%, up 550 basis points year-over-year.

And finally, adjusted diluted EPS in Q4 was $1.57, a record and a 69% increase versus last year. The growth was mainly due to the increase in adjusted operating income, partially offset by a higher tax rate and higher interest expense resulting from an increase in the variable rate of our credit facility. Please turn to Slide 9. Full year net sales of $1.93 billion were a record and an increase of 13% year-over-year. Sales growth was primarily driven by the addition of SuperATV, price increases to offset inflation and the introduction of new products to market. The net sales growth, excluding the impact of acquisitions was 3%. Full year adjusted gross margin increased 290 basis points to 36.1%. The same drivers that powered Q4 margin improvement also drove the full year margin expansion.

Adjusted SG&A as a percentage of net sales was 24%, up 280 basis points year-over-year. The higher percentage was due to the inflationary impact on wages, benefits and incentive compensation expenses, an increase in interest rates on our factoring programs as well as the addition of SuperATV. Our 2023 adjusted operating income was $233 million, an increase of 14%. And finally, our adjusted diluted EPS was $4.54, a 3% decrease due to the higher interest expense and a higher tax rate. Let’s move on to review our segment results starting on Slide 10. Q4 Light Duty net sales were $386 million, a 4% increase. Overall, light duty industry fundamentals remained strong and were encouraged by our performance in the quarter, recognizing we were up against a strong prior year comparable.

Compared to 2021, Q4 net sales were up 13%. End user demand for our products remained healthy. Based on our estimates, our customer point of sale outpaced our shipments on the quarter. Light Duty adjusted operating margin was 16.6% in Q4, a 750 basis point improvement year-over-year. High cost inventory due to rapid inflation in 2022 created margin pressures that lasted into Q1 of 2023, but have abated over the last three quarters. Pricing actions and cost savings initiatives to cover these inflationary costs also contributed to the margin improvement. After a challenging first half, the Light Duty business had a strong rebound. Moving on to Heavy Duty on Slide 11. Net sales were $57 million in Q4, a 9% reduction year-over-year against a strong prior year comparable.

During Q4 of 2022 we benefited from the customers restocking inventories as global supply chains rebounded from the impact of the global pandemic. In addition, we believe trucking demand was lower in 2023, resulting in reduced demand for replacement parts. Heavy Duty adjusted margin was 6.8%, a 240 basis point decrease year-over-year. Margin continued to be negatively impacted by the sell-through of high cost inventory that was sourced during peak inflationary times. As we work our way through this inventory and the cost savings and pricing actions taken to offset these inflationary costs go into effect, we expect to see margin expansion like the 380 basis point increase we saw in Q4 compared to Q3. Finally, as Kevin discussed earlier, we’ve made investments to grow sales and improve margins long-term, which may negatively impact operating margin in the near-term.

Shifting the Specialty Vehicle on Slide 12. Our Q4 net sales were $51 million, up 3% year-over-year. 2023 was our first full year of ownership of SuperATV and we’re proud of its performance. 2023 was a challenging year for the Specialty Vehicle industry overall. That’s particularly true for the sales of discretionary accessories, which we estimate make up 50% of this segment sales. Discretionary accessories sales are partially driven by dealer sales of new machines, which we estimate were slightly down year-over-year. So while we experienced softness due to these market factors, we grew 3% against these headwinds. We accomplished this growth through initiatives focused on growing our non-discretionary repair parts business, capturing share in the retail channel through promotional initiatives and expanding our dealer network, specifically in the Western region.

Specialty Vehicle operating margin is 15.7%, a 150 basis point decline year-over-year due to one-time non-cash charges. Absent these charges, operating margin would have been consistent year-over-year. Switching our attention to cash flow. As you can see on Slide 13, Q4 free cash flow was $49 million, a healthy increase from the $2 million of cash used last year. The improvement was driven by a $32 million increase in net income compared to 2022. Capital expenditures in the quarter of $11 million were $3 million lower than last year, which included investments to fit out our new distribution center in Whiteland, Indiana. Full year free cash flow of $165 million was a record and a $161 million increase over 2022. The primary driver for the improvement was inventory, which decreased $119 million.

Lower freight and material costs, combined with a reduction in our safety stock levels made possible by a rebound in the global supply chain, drove our inventory lower. I’ll turn next to our balance sheet and liquidity on Slide 14. During the year, we used our record operating cash flows to pay down $159 million of debt. As of December 31st, our net debt was $540 million and our net leverage ratio was 1.87 times adjusted EBITDA. Additionally, we had $543 million of total liquidity, including cash on hand. We believe our strong balance sheet positions us well to execute our strategic initiatives and provides us with flexibility in the event of unforeseen challenges. As shown on Slide 15, our capital allocation strategy strikes a balance between reinvestment in the business, inorganic growth and return of capital to shareholders.

Our longer-term goal is to maintain leverage below two times adjusted EBITDA or less than three times in the first year following an acquisition. We’ll continue to support our product innovation as a primary investment objective by funding necessary R&D and capital expenditures. We remain opportunistic regarding M&A, but ultimately consider it a core supplement to our organic growth. In addition, we believe using some of our free cash flow to opportunistically repurchase shares is a good use of our capital if other higher return opportunities aren’t available. Before I shift to guidance, I have one final point on our performance. We’re proud of our strong results in 2023, but are always striving to do better. Following the integration of two sizable acquisitions over the last few years, combined with being more efficient now that we’re back to more normal operating conditions, we determined there was an opportunity to drive further efficiencies across the company.

As a result of that assessment, in the first week of February, we enacted a companywide reduction in workforce program to streamline our business. We don’t expect this program to have a negative impact on our innovation, new product efforts or our ability to service our customers. The estimated charge for this program is $5 million and we forecast that it will yield $10 million of annualized savings. The expected partial year savings impact from this program is included in our 2024 guidance. The one-time $5 million charge will be included in our Q1 diluted EPS, but excluded from adjusted diluted EPS. Now I’d like to share our 2024 guidance included on Slide 16. We expect continued strong fundamentals in the light duty market in 2024 with shipments and customer POS more closely aligned as we move through the year, but still lagging in Q1.

Seasonally, Q1 is also the Light Duty segment’s lowest quarter of the year. Because of these factors, we anticipate relatively flat sales growth in Q1 before we see improvement in Q2 and through the second half of the year. For Heavy Duty after a challenging 2023, we expect a soft market to continue through the first half of 2024. In this environment, we’re focused on taking share and growing our business with trucking fleets who rely on us to help improve their bottom lines. Driving new product growth will also be a key area of focus. Finally, we expect to see a similar first half trend play out in the Specialty Vehicle market. The dealer channel is expecting a slow rebound in sales through the first half of 2024 and we also expect demand in the direct-to-consumer business to be relatively flat in the first half.

However, the Specialty Vehicle team is focused on taking share through new product launches geared around non-discretionary repair parts, adding new direct-to-consumer customers and building new dealer relationships. Based on these expectations, we’re targeting consolidated full year net sales growth of 3% to 5%. We expect our 2024 adjusted diluted EPS to range from $5.40 to $5.70 a share or a 19% to 26% increase. Over the course of the year we expect operating margin improvement as the savings from the Q1 reduction in the workforce program and other cost savings initiatives take hold. The benefits of these programs are expected to be partially offset by investments we’re making to further diversify our supply chain, as well as higher inflationary costs such as ocean freight and employee benefit costs.

Anticipating the question may be forthcoming, thought I’d get out ahead of it and let you know that we’re not issuing guidance at the segment level. With that, I’ll turn it back over to Kevin to conclude. Kevin?

Kevin Olsen: Thanks, David. As we close out our fourth quarter and lean forward into 2024, I’m confident in our ability to continue to drive innovation, to capitalize on the breadth of our diverse portfolio across segments and to draw on the many strengths and deep commitment of our team members. As we’ve proven year-after-year, we’ve continually found new ways to grow our business through new product categories, new markets and customer channels and our operating discipline. I would now like to open the call for questions. Operator?

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Q&A Session

Operator: Thank you. [Operator Instructions] Your first question comes from the line of Scott Stemper from ROTH MKM. Please go ahead.

Scott Stemper: Good morning, gentlemen, and thanks for taking my questions. Could you guys maybe talk about the cadence of end demand throughout the quarter. We heard from some retailers, a competitor of yours talking about how December things started to dip, but seems like things are coming back in January. And again, this is on the light duty side. Maybe just comment on that.

Kevin Olsen: Sure, Scott. Great question. Yeah, we actually saw a very stable cadence as we moved through the fourth quarter. Our POS or out the door sales of our products through our customers was actually up about 6.5% in the quarter. And if you look at December, it was roughly around that same amount. So we didn’t — we kind of saw the same cadence. I’d also point out that on the LD side, our sales growth was only 4%, so we’re still running a gap of POS to sell in growth as a result of inventory adjustments, you know, kind of across our customer base.

Scott Stemper: Got it. And next question. That 6.5%, is that on a same day basis, adjusting for the extra or one last week this year? And if not, what would that have been on a same day basis?

David Hession: No, that’s adjusted, Scott.

Scott Stemper: Okay.

David Hession: So it’s apples and apples.

Scott Stemper: Perfect. All right, I’ll get back into the queue. Thank you.

Operator: Your next question comes from the line of Bret Jordan from Jefferies. Please go ahead.

Bret Jordan: Hey, good morning, guys.

Kevin Olsen: Hey, Bret.

David Hession: Hey, Bret.

Bret Jordan: On the sales growth forecast for 2024. 3% to 5%, could you talk about what you expect to be price in that?

David Hession: Yeah. Good question, Bret. There’s certainly solid growth in the 3% to 5%, but there’s some volume in there. There’s some price in there, but for competitive reasons, Bret, we don’t break out the split, but included in the 3% to 5% is some volume along with some pricing.

Kevin Olsen: I’ll just add to that — I’ll just add to that, Bret that, you know, as we kind of look at 2023, we saw roughly the same thing. There was clearly some price growth across the industry in 2023, but we actually saw unit growth both for the full year and for the fourth quarter.

Bret Jordan: Okay. Great. And then on the Light Duty business, could you talk about in that mix how much is new to the aftermarket, sort of proprietary product versus things like full line product more in line with your chassis business, you know, because just we can break out what’s, you know, higher margin mix versus sort of more of the middle of the road.

Kevin Olsen: Yeah, we don’t — we don’t break out kind of different categories in that fashion, Bret publicly. I will say though that, you know, if you kind of look at the SKUs that we launch in a year like take 2023 for example, we launch just over 6,000 parts. Roughly 30% of those SKUs would be considered new to the aftermarket.

Bret Jordan: Okay. Want to tell me what the gross margin spread in that 30% versus the balances?

Kevin Olsen: Yeah. No, Bret, we don’t — we don’t break out again margins either by customer or by category.

David Hession: Well, now we’re doing calls now we’re going to get all this new information.

Bret Jordan: I appreciate it, guys.

Kevin Olsen: Thanks, Bret.

Operator: [Operator Instructions] Your next question comes from the line of Gary Prestopino from Barrington Research. Please go ahead.

Gary Prestopino: Hi. Good morning, Kevin and Dave. Hey, Dave, one thing you didn’t touch upon in your commentary was factoring in the quarter. Could you give us some idea of how much you factored and what was the cost into SG&A for the factoring?

David Hession: Sure, Gary. And as you know, that’ll all be included in the K, but the factoring in the quarter was $12.6 million in Q4 2023 compared to $14.2 million last quarter. So down $1.6 million. And it’s basically all volume, Gary. The rate was essentially the same year-over-year, but we factored $236 million, which was down $34 million from last year.

Gary Prestopino: Okay. And then as we go forward, if you just say hypothetically, keep the same factoring level on a quarter basis, if you get a 25 basis point decline in interest rate how is that going to impact the expenses related to factoring?

David Hession: Yeah. So I can give you, if you get a 1% change in factoring costs on an annual basis, it’s about $8 million, Gary. So quarter point would be roughly $2 million.

Gary Prestopino: Okay. That’s really helpful. Thank you. I’ll get back in the queue.

David Hession: Sure.

Operator: Your next question comes from the line of Scott Stemper from ROTH MKM. Please go ahead.

Scott Stemper: Just a quick follow-up. Just looking at the guidance from an operating margin standpoint, you guys were running, I guess, north of 15% coming out of the fourth quarter and coming out of the year. But if you look at your guidance, it looks like it’s expecting less than that, a couple of hundred basis points. Are you guys just being conservative or is there anything else out there that we should be aware of?

David Hession: No, Scott, I think if you — if you look at the guidance right, the top line is 3% to 5% growth, and as we said in the prepared remarks, we expect there to be some operating margin improvement as well. If you look at that there’s going to be the benefit of the reduction in workforce and the cost savings initiatives that will be partially offset by some of the investments we’re making to diversify our supply chain, as well as some inflationary pressures, particularly ocean freight and benefits. But there’s growth included in the guide.

Scott Stemper: Got it. Thank you.

David Hession: Perfect.

Operator: Your next question comes from the line of Gary Prestopino from Barrington Research. Please go ahead.

Gary Prestopino: Yeah, I think I’m going to try and ask this question on new SKUs a different way than what was asked. Historically, about 17% of your sales have come from new SKUs over the last three years. Did that change materially throughout 2023? And are you expecting that to kick up in 2024, given your ability to get new products out in the market?

Kevin Olsen: Hey, Gary, it’s Kevin. Good question. Yeah, we haven’t disclosed that number in a few years, but I would say, you know, the model has not changed nor the cadence of new products as a percent of our total business. I mean, I would say that the one — the one factor that has changed over the last few years is that our chassis business, which is a large, mature, slower growing line, is a much bigger portion of our total business. But in terms of our focus on kind of the small niche categories knew the aftermarket focus, that has not changed, and frankly, the volume has not changed.

Gary Prestopino: Okay. And then just from what you’re saying about, with your guidance, with the quarterly sequence, stronger top line in the back half of the year and continued growth in adjusted EPS in the back half of the year, despite some — you’ll have some challenging comps there, because in 2023 you pulled off some good numbers in the back half of the year.

Kevin Olsen: Yeah. Gary, I think if you look at Light Duty, we said it’s going to be relatively flattish in Q1, the improvement in Q2 into the second half and then both Heavy and Specialty, we expect to see a softer first half with improvements coming in the second half. So, yeah, I think if you look at that, the pacing is going to be the — the growth is going to come more in the second half than the first half.

Gary Prestopino: Okay. Thank you.

Kevin Olsen: Perfect.

Operator: Your next question comes from the line of Bret Jordan from Jefferies. Please go ahead.

Bret Jordan: Hey, on that same topic, I guess, as we look at flat light duty in the start of the year, and I think you said heavy duty challenging and specialty slow in the first half. Should we not factor in EBIT expansion in the first half? Most of this growth is going to come when you get sales leverage going into the second half of the year.

David Hession: Yeah. Bret, the first quarter is typically our lowest quarter, mainly driven by the Light Duty segment. But now the margin growth will be — after the first quarter will be ratable over the course of the balance of the year, but obviously coming a little bit heavier in the second half.

Bret Jordan: Okay. And then you talked about $119 million in inventory safety stock reduction. Are your fill rates or I guess, as you measure your fill rates consistent? Is your flow of product improved enough that you don’t need to carry that? Or has it had any impact on your availability?

Kevin Olsen: Yeah, I mean, Bret, it’s Kevin. I mean, our fill rates are back to kind of pre-supply chain disruption levels. You know, the reason that we had to take on, you know, additional inventory was because our lead times had just grown so much. You know, getting a product from Asia, manufactured on a boat, find a container on the ocean, getting through the ports, getting to our locations was taking a lot longer than kind of the pre-supply chain disruption. That’s kind of back to normal. So we were able to just reduce back to our normal safety stock levels. Plus you also had a lot of cost running off the balance sheet as well, that inflation that gets hung up on the balance sheet and inventory has rolled off as well.

Bret Jordan: Okay. And I guess on that same supply chain question you talked about, I think some investment in possibly source from new markets. Is that something, I guess, could you give us some updates as far as where we are, alternative low cost supply markets versus where you are today geographically.

Kevin Olsen: Yeah. I mean, it’s ongoing, right? It’s been ongoing for a couple of years now. We did talk about the investments, which I would categorize as moderate, and those investments have been going on for the better part of two to three years. You know, we have reduced our exposure — exposure to China, Taiwan over the last couple of years and we expect to continue to do that. We’re not going to give any details in terms of what percentage and what country. I’ll just tell you that it’s wide ranging, whether it’s a Pac-Rim or India or Mexico or Turkey or other locations around the globe. We continue to look to de-risk our supply chain.

Bret Jordan: Great. Thank you.

Operator: That does conclude our question-and-answer session, and that does conclude our conference call for today. Thank you for your participation. And you may now disconnect.