Applied Industrial Technologies, Inc. (AIT) Q4 2012 Earnings Report, Transcript and Summary

Welcome to the Fiscal 2012 Fourth Quarter and Year-End Earnings Call for Applied Industrial Technologies. My name is John, and I'll be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Julie Kho. Julie, you may begin.

Thank you, John, and good afternoon, everyone. On behalf of Applied Industrial Technologies, thank you for joining us on our fiscal 2012 fourth quarter and year-end investor conference call. Our earnings release was issued this morning before the market opened. If you haven't received it, you can retrieve it from our website at applied.com. A replay of today's broadcast will be available for 2 weeks as noted in the press release. Before we begin, I would like to remind everyone that we'll discuss Applied's business outlook during the conference call and make statements that are considered forward-looking. All forward-looking statements are based on current expectations regarding important risk factors, including trends in the industrial sector of the economy, the success of our various marketing strategies and other risk factors identified in Applied's most recent periodic report and also with other filings made with the SEC. Accordingly, actual results may differ materially from those expressed in the forward-looking statements. In compliance with SEC Regulation FD, this teleconference is being made available to the media and the general public, as well as to analysts and investors. Because the teleconference and its webcast are open to all constituents and prior notification has been widely and unselectively disseminated, all content of the call will be considered fully disclosed. Our speakers today include Neil Schrimsher, Chief Executive Officer of Applied, who will provide an overview of the quarter and the year. You'll also hear from Ben Mondics, our President and Chief Operating Officer, who will discuss operational activities; and Mark Eisele, Vice President and Chief Financial Officer, who will discuss our financial performance in detail. At this time, I'll turn it over to Neil Schrimsher.

Thank you, Julie, and thanks to all of you for joining us today. As we reported in our release this morning, our sales for the fiscal year were a record $2.4 billion, up 7.3% from 2011 sales. Net income for the year increased to a record $108.8 million or $2.54 per share, representing a 13.4% increase in earnings per share. Now sales for the quarter were $620 million, up 5.1% from the comparable quarter a year ago. This marks 10 consecutive quarters of year-over-year growth. Net income for the quarter was $32 million or $0.75 per share compared with $28.3 million or $0.65 per share in last year's fourth quarter. We're pleased with our performance across the company for both the quarter and the full year. We translated a 7% sales gain into strong earnings growth and cash flow, continuing our sound operating discipline and focus on operational excellence. Our operating margin achievement of 7.1% for the year was solid, especially when considering our ERP investment and when compared with 6.8% last year. Now last week, we announced the completion of our acquisition of the SKF Distribution businesses in Australia and New Zealand. We're excited to expand our global reach with this strategic acquisition. Australia and New Zealand are attractive markets with growing economies. The acquisition expands our global capabilities, adding 29 service centers in Australia and 8 in New Zealand, supported by a central warehouse in each country. The business is among the largest-bearing suppliers in Australia and New Zealand and also supplies seals, lubrication products and power transmission products. This acquisition is an excellent fit for Applied, considering the products offered, the vertical market served, the operational capabilities and a shared commitment to providing value-added solutions to customers. We see a significant growth prospects through the addition of complementary product lines and solutions. The annual sales run rate is approximately $83 million, and the acquisition will be accretive in the first year. In total, the business offers us a new foundation for growth. I'll now turn the call over to Ben to talk about the details of our operating performance for the quarter.

Thanks, Neil. Let me begin by providing a macroeconomic view of the industrial market. Industrial Production increased 0.4% in June after having declined 0.2% in May. In the manufacturing sector, output advanced 0.7% in June, reversing a decline of 0.7% in May and increased at an annual rate of 1.4% in the second quarter. In June, capacity utilization for manufacturing moved up 0.4 of a point to 77.7%, a rate 13.9 percentage points above its trough in June of 2009, but still 1.1 percentage points below its long-run average. In addition, the ISM Purchasing Managers Index registered 49.8 in July, an increase of 0.1 of a point from June's reading of 49.7. The index is slightly below the neutral threshold of 50. Overall, these indices remained at healthy levels and when combined with conversations with our customers and suppliers, we're optimistic about our fiscal 2013 prospects. Operationally, our fourth quarter gross profit was 27.9% as compared with 28.7% in the same quarter last year. The year-over-year change is mainly due to the LIFO benefit in the prior year quarter. Mark will provide additional detail. Our SD&A, as a percent of sales for the quarter, was 19.8%, an improvement compared with 21.1% in the same quarter last year. We achieved an after-tax return on assets of 13.3% for the quarter as compared with 12.6% last year, evidence of our continued focus on effective asset management. For the full year, gross profit was 27.6% compared with 27.7% the prior year, while SD&A as a percent of sales was 20.4% for the full year compared with 20.9% last year. Our after-tax return on assets for the year improved to 11.8% as compared with 11.1% last year. As for our ERP project, it is proceeding on schedule, and we are pleased with our progress to date. Our teams are busy building and planning for our first U.S. deployment in the fourth quarter of the 2012 calendar year. As we move into the new fiscal year, we are focused on and committed to expanding our value add with our customers and generating profitable growth. I will now turn the call over to Mark for a discussion of the quarter's financial results.

Thanks, Ben. Good afternoon, everyone. I'll provide some additional insight regarding our fourth quarter fiscal 2012 financial performance. Our sales per day during the quarter was $9.8 million or 5.1% above the prior year quarter with the same number of selling days in both the June 2012 and 2011 quarters. Of the total quarterly sales increase, acquisitions contributed 0.8%, and we believe the impact of vendor price increases was between 1% and 2%. Unfavorable currency fluctuations during the quarter of $4.3 million reduced sales by 0.7%. Our product mix during the quarter was 29.5% Fluid Power products and 70.5% Industrial products. Fourth quarter sales in our service center-based Distribution segment increased $26.9 million or 5.7%. 1.1% of this increase was due to acquisitions. Sales in our Fluid Power Businesses segment increased $3.3 million or 2.7% from the same period in the prior year. From a geographic perspective, sales in the fourth quarter from our U.S. operations were up $27.1 million or 5.5%. Sales from our Canadian operations increased $1.6 million or 2.1%. This increase resulted from $4.7 million of acquisition sales, partially offset by a $2.5 million reduction due to foreign currency fluctuations. Our Mexican operation sales increased $1.4 million or 8.1% despite unfavorable foreign currency fluctuations of $1.8 million. Our gross profit percentage for the quarter was 27.9%. This was 20 basis points above our third quarter run rate, although 80 basis points below our prior year's fourth quarter. Our gross profit margin below prior year was due to the impact of a larger LIFO liquidation benefit in the prior year compared to the current year fourth quarter. We have, however, continued to experience positive margin impacts as a result of higher supplier incentives. Our selling, distribution and administrative expenses as a percentage of sales was 19.8% for the…

Alright, thanks, Mark. And as you heard, we're pleased with the company's performance last year, and we're excited about the year ahead. For fiscal 2013, we are forecasting earnings per share of $2.90 to $3.05. This guidance assumes full year revenue growth of 9% to 13%, including the contribution of the SKF Distribution acquisition. Now we remain proud of our past achievements, and we are encouraged and energized by our future opportunities. We have a shared belief among our management, our associates and our suppliers that we can do even more to generate profitable growth. Applied has strong capabilities, great potential and room to grow. Our long-range strategic plan to accelerate profitable growth includes numerous opportunities across our business, and implementation is underway, including: one, leveraging sales capabilities, marketing tools and processes to expand our value-add and reach new customers; two, strengthening our position in attractive vertical markets while growing in our core segments; three, expanding our products and solutions, growing our core bearings and Power Transmission business at a rate greater than the market along with focused product expansion, logical product extensions and enhanced local capabilities; four, building on our fluid power market leadership via strength in products, solutions and value-added services for OEMs and MRO customers; five, enhancing our operational excellence by capturing the full benefits of our ERP system and driving continuous improvement with customers, suppliers and throughout our operations; and six, accelerating strategic acquisitions and leveraging our cash generation with strong financial position to extend into new markets. As we look out over the 3-year planning horizon, we've established strategic objectives, including growing sales revenues to $3.5 billion, increasing our EBITDA margin to 9% to 10% and improving our return on assets to over 13%. So nearly 90 years since our founding, we are well positioned and committed to profitable growth organically, via acquisition and through our technology investments. We're in exciting times, and we firmly believe our best days are ahead. So with that, we'll open up the lines for questions.

[Operator Instructions] And our first question comes from Jon Tanwanteng from CJS Securities.

So if I'm doing my math right given the midpoint of your guidance and approximately where the run rate for SKF was, it looks like the organic growth for 2013 is basically flat from 2012. Is there any upside to that or given what you just said on the strategic initiatives or is the focus at this point to look for external opportunities for growth?

I think if you'll back out the SKF numbers, obviously, we mentioned what those dollar amounts were. And if you look at them, it's a little over 3% compared to our fiscal 2012 dollar amount on sales. So if you back that out of the 9% to 13%, that's -- we're talking 6% to 10% from -- we'll just call it continuing operations that were in existence in June of 2012.

Right, and then you were's up 7.5-ish percent this year?

Yes, a little over 7%.

Okay. So I'm just wondering what do you think the upside from your, I guess, the non-acquisition opportunities are.

If we look at some of the economic outlook and such, right, many call GDP around 2%, maybe a little less. I think the industrial economy is performing better at around 3%. So we think the growth initiatives, the strategic plans are what enables that growth at a multiple of what is going to be a base economy in doing that. And then, as we talked about, the SKF contribution at maybe a little greater or right at the 3% mark.

All right, got it. Can you talk a bit more about the trends that you've been seeing in the end markets? I mean, what helped and hurt the quarter and what excites you or worries you as we enter the back half of the year?

Okay, this is Ben. Of the 30 industries we tracked, 24 were up in the quarter versus prior year, and we saw good growth in food and beverage, primary metals, durable goods, transportation equipment, petrochemical and some segments of the mining industry. And we saw a little bit of weakness in segments of the forestry products grouping. We also had a good quarter in the Government segment despite the headwinds and the budgetary constraints we see in the government.

And then going forward?

Going forward, as Neil said, we see strength in the industrial economy from our conversations with customers and suppliers in the major industries that we serve. They're still growing at a rate greater than the overall economy, and we feel good about the prospects for fiscal '13.

Our next question comes from Matt Duncan from Stephens, Inc.

Would you be willing to share with us what your sales trends look like month-to-month in terms of the underlying growth rate in the business? Was it pretty consistent through the quarter? Did it move around on you? Can you talk about that some?

Sure. Overall, for the June quarter, the trend was good. The June quarter overall was up 3.2% sequentially from the March quarter. We had a nice sales increase from March to April. The month of May, we experienced a slight drop, and then we bounced back in June.

Okay, on the SAP install, for a minute you mentioned that you guys are on schedule with that. It sounds like the U.S. go live starts in the fourth quarter. Remind us how long the go live process will be in the U.S., and then where are you guys against the budget on that process?

Matt, this is Neil. I'd say as far as the budget, we're on the budget. Mark outlaid there or outlined the '13 planned expense and capital on that. So in my opinion, that puts us on track. We'll start in the fourth quarter with the phased deployments around our DCs. We're committed to those goods-based deployments. We think it's right for the business as we march those across. So we'll start those in the fourth quarter of the calendar and continue those going across.

The calendar fourth quarter of this 2012, we'll begin.

And then how long does that process take to get it installed in all the locations in the U.S.?

We plan that, that would take us through to calendar '13.

Okay, so 5 quarters. Neil, looking at the growth plan you laid out a little bit, you talked about expanding products and strengthening in some verticals. Would you care to expand on that a little bit? What product categories are you looking at maybe trying to tangentially grow into and what verticals are you guys targeting?

Yes, I'm thinking, Matt, on the products, let's run for a while and further gain some traction. But I mean, these aren't really new to us. I mean, if you think about, we've got 13, 14 really big product categories. We've got position. We've got supplier relationships. They're in our offering. We just think we can do better and we picked a few of those to make the inventory around them, the product training around them, the supplier alliances around them that's really going to help us gain traction. And then what I like about it is once we further build that momentum category-by-category, adding the next one, we're going to have some great knowhow and capability. And our customers are buying these products too, and so we're transacting with them today so that just builds our confidence. So we're out, we're active. We've been doing it, we're seeing some result, and so we're pleased.

Okay, and so I guess the last thing for me, Neil, the organic growth rate decelerated just a little bit again in the quarter it sounds like the growth plan is targeted at getting that back up. And I guess if I'm doing my math right, I can think you guys said sort of 6% to 10%, if you back out SKF there's a couple of other small acquisitions there still flowing through, I guess the 2 deals in Québec. So maybe total organic growth kind of 5% to 9%. It was around 4% in the quarter. So how quick do you think you can start to accelerate that organic growth rate back up?

We have it for 6% to 10%. So we'll lay out the plan. Maybe there's some as we think about the plan development in the year. It will ramp more in the back half of our fiscal year, but we're running hard into those targets right now.

Our next question comes from Brett Linzey from KeyBanc Capital Markets.

Neil, you gave some good color around the long-term targets. Just in terms of the $3.5 billion sales goal, could you maybe parse out what you see as it relates to the organic and kind of base business growth, what comes from acquisitions? Just a little bit of color there would be helpful.

Brett, it's a good question. I would say organic to acquisition could be a 60%-40% ratio, could end up 50%-50%. It is 3 years out as we think about it. But in that 60% organic, 40% potentially acquisition maybe it goes to 50-50, but it's in that range.

Okay. Great, and then shifting gears to the SKF acquisition, one, maybe an update there, how's the integration tracking? I know you guys said it was going to be accretive in year one. Could you just talk about margins in that business, gross margins? I know you said it carries a little bit higher run rate on the expense side. Is it going to be dilutive, additive, neutral? Just a little bit of color there and any updates?

Yes, I'll start off kind of on the overall that, hey, we're very excited about the business and kind of as we outlined in the comments. The economies, the vertical markets, some common global customers. We think we've got a real opportunity to expand the product mix and complementary products. For us, as we think about it and it'll come out from an acquisition standpoint, it was in the mid-$30 millions. It's a traditional multiple that we have paid in this space. We are committed to continuing to be a disciplined strategic acquirer. That's not going to change. So the business will be accretive in this year going forward.

Okay, if I could sneak one more in here, just in terms of the M&A pipeline. I mean, as you look at it today, is it more domestically focused or are you going to use this SKF deal as more of a bouncing off point and leverage that geography? How should we think about the pipeline and where that's targeted?

Yes, I'd say the pipeline overall is good. I'd characterize it as robust. We're having a lot of good reviews and discussions. There's good activity in North America, and so we like Canada. We think we've got prospects in the U.S. and additionally, in kind of the Mexico, Latin America and kind of with the SKF opportunity. We're not closed to the right global opportunity as well. So there's good ample opportunities in that, but I think I've told and said a few times before, we're going to remain a good strategic disciplined acquirer. We know our business around core industrial distribution we think that can be defined rather a little broadly, and we can have our end customers in mind and take good guidance and input from our supplier base as well.

Our next question comes from Adam Uhlman from Cleveland Research.

First of all, a clarification. I missed the figure, Neil, you're quoting something about a $30 million or mid-30s for the targeted accretion for the SKF business. What was that?

I think it was referring to our purchase price. It was in the mid-30s.

Got it, okay. And then longer term, the $3.5 billion revenue goal with 50%, 60% of that or 7% to 8% organic growth would be a big step up from what the company has done in the past, then I'm just wondering if you have any work on how you build that up between the various sales initiatives that you outlined with the new product introduction and getting better at the core bearing business. Is there any way to kind of detail that out?

Well, I'll tell you, we've worked on our 3-year strategic plan broadly with the leadership team, looked at it by the initiatives, looked at it on a annual planning basis and then the 3-year plan, going through the process of good goal deployment with the team. So objectives tied around each one of those growth initiatives that we want to have around our core sales capabilities, around vertical markets, around the product expansions, the things that we believe we can do in fluid power. So we have each of the initiatives broke down into actions, good owners by leadership, and we're deploying.

Okay, and has there been any change in comp to help drive that acceleration of growth?

No, we think we've got the right compensation metrics that incent growth and serving our customers. We've got a good foundation and the culture to build on that with the associates, and I would say our associates believe, our management team believes, our suppliers believe that we can grow organically and serve and reach current customers and new ones.

Our next question comes from Jason Rogers from Great Lakes Review.

Looking at your ERP cost that'll be expensed for fiscal 2013, you said $15 million. Is that correct?

Yes.

And could you say how that's going to track for the fiscal year? Is it more front-end loaded, or how should we be thinking about that?

I don't have a specific breakdown for that, but I think it's going to be spread throughout the year. A lot of this expense is relating to the various go lives, and so it's -- we're going out and training the people in the locations that are going live. And so a big part of this is just some T&E expense for that. So that's I think it's going to be relatively ratable throughout the year.

Do you have a rough guess on what expenses may be left over for fiscal '14?

I think we're looking at having this basically the system will be built, and we will basically have this thing up and running fully during fiscal 2013. And our view is at the end of fiscal 2013, we'll have a couple of other implementations to go, but basically it's a done system. So a lot of that will be just through our normal 2014 budgetary process.

And it will be the remaining rollouts after the U.S.

Yes, and I'd say with it, right? Obviously, you've got some ongoing maintenance expense of running the system. We could add some T&E, T&L associated with the continuous improvement efforts of team members that we want to have going out. My view is this is normal business. Capital spend, in essence, is done. We always have good IT projects that we look to run through the business for the what's the capital, what's the expense, what's the benefits and the returns that we'll do. And really, if you look at kind of the long term on the business, we had good Applied associates come into this team that really weren't incremental expense to the business. As we deploy and run and operate, the project team returns to various jobs with an enhanced skill set to really help us run and operate going forward. So not a great incremental expense that way with those associates. We may have classified that as project expense, but they will wave in and they will wave back into the business.

Have you seen any early benefits from the system in Canada?

As we operate in Canada, we're pleased with the performance and their metrics, not as large of a volume base. I would say I'm pleased with the efforts that we're going through to look at the various value drivers and what we're doing pre-system in our current processes to get continuous improvement and then start to think about how the system, the business intelligence, the data can help us do that even better going forward. So just like any business with continuous improvement, as we get focused in these areas, we're finding benefits that we can generate now pre-system. And then as we deploy, we'll just use the system to help us do that, perhaps with a little bit more business intelligence, a little bit more efficiency that we can go faster and a little bit more speed.

Okay, sounds good. And then finally, did your guidance include any future share repurchases?

From the guidance perspective, we're trying to assume a stable share count so that we would have some purchases during the year to eliminate any dilution that may happen through shares being issued for, let's say, compensation plans and things.

Our next question comes from Brent Rakers from Wunderlich Securities.

Let me start I have 2 housekeeping questions first. Mark, could you spread out what the components of other expense were in the quarter? And then also maybe give us a quarter-ending headcount number?

Yes, the other expense was mainly related to some foreign currency fluctuations that had a run through our P&L for the Mexican currency for some. And there were virtually -- it's unrealized currency losses, but losses nonetheless. But the accounting required us to push that through the P&L versus through the equity section for this portion of that. So that's what that related to. What was your second part of the question, the headcount?

Yes, just the quarter-ending headcount.

Yes, with regards to the headcount, I don't have the exact number with me but Mark and I looked at it earlier, and net of acquisitions, we're flat year-over-year.

And then just to try to again understand some of the revenue growth targets, it sounded -- I guess my interpretation from the way you're talking about the revenue outlook organically for next year is you see a very similar rate of growth in the industrial economy, and for you guys in fiscal 2013 than you saw last year. Does that sound about fair?

Yes, we would see in industrial economy maybe based around that 3% range in doing it. So that would be the base-type input.

Okay, and then in terms of -- there was talk about increasing investment spending for the year, and I believe there was also commentary on the SG&A, that SG&A as a percent of revenues would be roughly flat year-over-year. Am I correct in my math that implies about $10 million of incremental investment spending? Does that sound about right?

Brent, I don't have the number right in front of me right now, but when we look at investing and growth initiatives, we look at it at a very granular level and by location, by initiative. And we build those things up and then we summarize them, but I don't have a specific number here.

Okay, and then I guess again I'm just trying to reconcile some of the organic growth. So with the investments, with this increase in investment spending, is that expected to transition to contributing to that organic growth number immediately this year? Is that 1% to that organic growth incremental, is that 2%? I mean, can you sign up kind of a number in terms of targets there?

Boy, Brent, it's hard to put it into percentages right now. But as Mark said, we've gone through it in detail on both assets, inventory investments to fuel growth, as well as some of the headcount side of things, customer-facing personnel to increase our sales initiatives. But I don't have the numbers and their percentages as what it contributes to the sales.

And then just last question in terms of historical perspective on this kind of ramp up or at least ramp up in growth-related spending. Could you maybe give us a sense for what this is going to be like this next year versus maybe some of the spending initiatives you've done, let's say over the last 5, 6, 7 years previous for the company. Is this significantly more aggressive than the company's been in the past? Or do you consider this as kind of ordinary course of business?

In some respects, it's more aggressive, and in some, it's maybe a redeployment of assets too. So in some areas where we were not seeing the traction we're redeploying into the areas where we see the better opportunities. So some of it's additional growth and probably greater than what we've done in the past, and some of it's just redeployment.

Our next question comes from Gregory Macosko from Lord, Abbett.

Just to follow up a little bit on Brent's question regarding the SG&A and investment spending. Did I hear you say in terms of the guidance that you suggested that the SG&A line as a percent of revenue would be basically flat for the year? Did I hear that right or not?

Yes.

Okay. So 20.5% was the number last year. So roughly that range for fiscal '13?

Yes.

And then the discussion of taxes, I didn't quite follow that. You said 34% to 35% for fiscal '13. That's basically what it was in fiscal '12 correct?

We ended up at 34.8% for fiscal 2012. So we're trying to put a range on the tax rates, and so we're -- obviously, if you look at that range, I mean, we think the preponderancy is that range will go lower.

But, I mean, 34% in effect, it's pretty close to where it was last year.

Correct. Nothing huge, hugely different.

Okay, and then finally, if I could ask, just so I understand the LIFO piece of things. I mean, basically in -- for all of fiscal '12, there was a -- do I understand it correctly that it was a $3.4 million benefit to the gross profit line. Is that correct or...

That would be correct. Yes, that was the total dollar amount of the LIFO layer liquidation benefit and that was basically flowing through the income statement in our fourth quarter. And so in essence, as we discussed in the press release today, that benefit resulted in the actual LIFO expense that we recorded for the quarter to be a benefit of $600,000. So the actual impact on the financials was for the fourth quarter, we recorded a $600,000 benefit because of LIFO. So the way we look at it is that this $3.4 million benefit was just LIFO expense we were able to avoid.

Okay, but the point is you're not expecting any of that going forward so that -- I mean, adjusting for that, looking forward, the gross margin will kind of relate to that number without that $3.4 million?

Correct.

And then finally, maybe I didn't follow the SAP investment situation, but did you call out the -- or talk about the cost for implementation expectations for fiscal '12?

Well, the total fiscal 2012 cash expenditures that flow through our SD&A expense was around $18.3 million, and so and then fiscal 2013, we're estimating them to be upwards of $15 million.

And then there was some flow-through in '14, but you're saying the majority will be completed in this current year?

Correct.

[Operator Instructions] And your next question comes from Joe Mondillo from Sidoti & Company.

Just sort of one question. I was just wondering if you could give any detail on -- I don't know if this was asked or not, so I apologize if it was. But in terms of the SKF acquisition if you can give any detail sort of what type of growth that business in that region has been experiencing and sort of what the profitability is like of the business compared to your business.

Yes, Joe, I don't have all of that in front, but we've got a good team coming on board, consistent management coming across from indy finance, general management in that, we've got integration manager on the ground teams over. So perhaps on future calls or when we're out, we'd be able to have a little bit more dialogue. But it's a good running business today as you would expect with a company like SKF, and we just believe, with the opportunity to bring added complementary products, it can further grow and be more valuable to the customers they serve in those markets.

Would you care to say or give an idea how accretive it would be this year?

I think we kind of worked around that one before.

And I guess lastly, what is your sort of plans in terms of other international region expansion?

We've said, as we walk through, we think we have good opportunities from a acquisition standpoint in North America. Obviously, Australia and New Zealand gives us some additional opportunities now, and I think in time, right, we work through them and see where there are good common customers, attractive vertical markets, common supply lines. In and around this industrial distribution space, there's going to be opportunities. We're not coming in with a bias that we have to do so much or x percent global. But obviously, we're not going to shrink away from some of those good opportunities. This Australia, New Zealand is very good, very attractive. So we're going to work that one very hard, and we're going to continue to work our opportunities up and down North America.

At this time, I'm showing we have no further questions. I will now turn the call over to Mr. Neil Schrimsher for any closing remarks.

I want to thank everyone for joining us today, the ongoing investment and interest in Applied, and we look forward to talking to you throughout the quarter. Thanks a lot.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.