Hexcel Corporation (HXL) Q2 2008 Earnings Report, Transcript and Summary

Good day, everyone, and welcome to this Hexcel Corporation Second Quarter 2008 Earnings Conference Call. As a reminder, today's conference is being recorded. For opening remarks and introductions, I would now like to turn the conference over to Mr. Wayne Pensky, Chief Financial Officer. Please go ahead, sir.

Thank you. Good morning, everyone. Welcome to Hexcel Corporation's 2008 second quarter earnings conference call on July 22, 2008. Before beginning, let me cover the formalities. First, I want to remind everyone about the Safe Harbor provisions related to any forward-looking statements we may make during the course of this call. Certain statements contained in this call may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. They involve estimates, assumptions, judgments and uncertainties caused by a variety of factors that could cause future actual results or outcomes to differ materially from our forward-looking statements today. Such factors are detailed in the company's SEC filings including our 2007 10-K and last night's press release. Lastly, this call is being recorded by Hexcel Corporation as a copyrighted material. It cannot be recorded or rebroadcast without our express permission. Your participation on this call constitutes your consent to that request. With me today are Dave Berges, Hexcel's Chairman and CEO, and Michael Bacal, our Communications, Investor Relations Manager. Purpose of this call is to review our 2008 second quarter results detailed in our press release issued last night. First, Dave will cover the markets then I will cover the financials before taking questions. So, let me hand the call over to Dave.

Thanks, Wayne. Our top line continues to race ahead of expectations. In the second quarter our sales were over 24% higher or 17.5% in constant currency terms than last year's quarter, with a particularly strong showing in Europe. Startup costs for our four new facilities, further weakening of the dollar and some high input costs puts pressure on our results, but we still grew adjusted net income by 16% for the quarter and 32% year-to-date. We do continue to expect EPS of 90 to $0.95 for the year. As we discussed last quarter, the incremental fixed and startup costs of new facilities in Spain, Germany, France and China has slowed our margin expansion record and cost us about 200 basis points of gross margin in the second quarter. Each of our new European facilities has now demonstrated our capability to achieve the required technical standards and we have now moved to the customer qualification stage, with our new A350 fiber and A350 prepreg system being on of the first priorities. We aim to have these European plants to at least cover their cost in the second half. We expect our Chinese prepreg plant for Wind Turbine Blades to open on schedule in October and to cover its incremental costs next year. As I am sure you are aware this quarter has seen another 16% year-over-year decline in the value of the dollar versus the euro. This costs us about a 110 basis points of gross margin and 130 basis points of operating income compared to last year despite our hedging program. So as usual our comment on each market year-over-year growth trends using constant dollars to better understand the real volumes. For reference our reported top lines sales of $359.9 million represent apparent sales growth of about $70 million over last year, but was really $54 million in constant dollar terms. Commercial Aerospace sales were about $199 million for the quarter up over 25% in constant dollars from last year, a dramatic rise. Over the big shift to Europe exacerbating our currency frustration as aerospace sales are mostly in US dollars, but manufactured in Europe. Sales to Airbus and its subcontractors were up over 30% for the second quarter in a row and we benefited from growth in all platforms. A380 sales were up year-over-year but still short of 2005 and 2006 sales levels for the second quarter. Obviously, the big Airbus news in the quarter was our wind supply prepreg utilizing our carbon fiber for primary structures on the new A350. We are obviously very pleased to have been selected and for signing the largest contract in our 60 year history. I trust you can now better appreciate why we opened three new plants in the three principal countries in which Airbus manufactures. We hope to be selected for a wide range of additional materials in years to come as the A350 detail design is developed. Sales to Boeing and their related subcontractors were up about 12% for the quarter as compared to last year's period, but down sequentially. We saw significant number of deferrals for materials intended for the 787frustrating our inventory improvement programs. Sales to all other aerospace customers are up over 25% for the sixth consecutive quarter as bill rates for business jets, regional jets and turban probes remains strong. At the macro level despite to concerns of our fuel cost and the global economy over 300 new orders were booked by Boeing and Airbus at last weeks formed air show adding to their combined backlog that was already over 7,300 aircrafts. Even a 30% cancellation scenario would live a five year backlog at current rates. But more importantly, high fuel cost increase demand for newer, larger, composite rich aircraft. 20% of the aircraft build by Boeing Airbus year-to-date were white body aircraft. But over a 30% of the year-to-date borders and the backlog of white body. Sales to space and defense markets were 75 million for the quarter up over 21% in constant currency. Although sales to this market are typically lumpy by quarter, sales for the year clearly appeared to be stronger than expected. For the quarter, strong global demand and Rotorcraft and European military aircraft were the main drivers of our growth including the large 8400 M transport with its composite wing and propeller which is beginning to gain some traction. Overall reported sales for our industrial markets of $85.8 million are basically flat in constant currency versus last year. As usual, wind energy sales were strong and remain on track for mid teens growth, and historically European market for wind energy has become much more global and so much of manufacturing footprint. Our biggest glass prepreg customers have begun g to build turbine blades in China and we are following with the plant there that we opened in October. They are also adding significant capacity in North America, and yesterday we announced a new glass prepreg facility in Colorado to serve them. We will begin construction later this year and expect the plant to begin full production in the second half of 2009. Now let me turn it back to Wayne for some additional comments and then I will turn back to you with some guidance and remarks.

Thanks Dave. Gross margins for the quarter decreased to slightly more than $76 million or 21.2% of sales as compared to 24.3% gross margin for the second quarter of 2007. In summary startup cost caused about 200 basis points of the difference, exchange rate issue is about 110 basis points and the higher commodity material, utility and freight rate is about a 100 basis points. We expect startup cost tend to be subside as the year progresses, while until the new facilities are fully utilized their contribution to margin leverage will be less than average. While we have limited the impact of FX with hedging it still makes a difficult year-over-year comparisons and it will continue to be a problem a next year for dollars that has not strengthened. As for commodity and energy related cost, we are increasing prices as contracts and market conditions permit and implementing cost reduction actions. Selling, general and administrative expense is $6 million to $30 million for the quarter, it's about two-thirds of the increase coming from currency effects. Research and technology expenses were $0.5 million lower than last year, as last years results were impacted by the development and qualification cost of our HexMC products. Adjusted operating income increased $3.6 million, a 10% increase. Adjusted operating margins declined a 10.6% this quarter from 11.9% in 2007. The incremental cost startup the new facilities cost of 170 basis points of the operating income line, and exchange rates cost us about a 130 basis points in the quarter. In other quarter we recorded $7.6 million of additional environmental reserves included another operating expense to remediate our former Lodi, New Jersey manufacturing facilities sold 1986. This facility was part of our five chemical business which we exited completely in 1992. While we have an agreed plant to clean this site, we continue to develop information about site contamination and have recently concluded that the extent and projected length of time to complete the remediation is likely to be greater than we have previously anticipated. As we discussed in the recent past we are undergoing a significant review of our tax strategy for the future. While the early reviews let us to reinstate $14.7 million of US deferred tax assets that had previously written off, which also result in a $14.7 million cash savings over the next few years. As background in 2003 we had an ownership changes defined by the US Internal Revenue Code, that’s put a limitation on the use of net operating loss carry forward prior to the ownership change, but this lacks action will now be able to use all the net operating loss carry forward that have incurred in prior to the ownership change. This gain was partially offset by the elimination of our pension obligation terminated US to five pension plan for which we recorded a $3.6 million tax provision. The offset to this provision was to other comprehensive income and as non-cash. Excluding the benefit of these actions our effective rate remained a 38.5% for the quarter. We continue to review strategies to improve our tax efficiencies and our next challenge is to be able to reduce our ongoing overall effective rate. Our net income from continuing operations was $26.7 million or $0.27 per diluted share on a GAAP basis. If we adjust for the onetime tax benefit and the environmental reserve is just discussed and our adjusted non-GAAP net income was $0.21 per share as compared to the $0.18 per share for the second quarter of 2007. On Friday we sold our joint venture interest in BHA to Boeing, Boeing will now have a majority of interest in BHA, but China is holding a remaining minority stake. As part of the agreement we have reaffirmed and fully defined our long-term contractual relationship with BHA and Boeing which include selling our materials to BHA, as well as providing final assembly of BHA components for Boeing by our engineered product segment. The total sales price was $22.3 million and we expect to record an after tax gain of approximately $12 million in the third quarter or $0.12 per diluted share. The sales price is 1.7 times last year sales and the cash was assumed in our full year net debt guidance, but the gain was not part of our EPS guidance for the year. Net debt did increase by almost $31 million in the quarter to $376 million. Higher capital spending as well as other working capital needs to fund the sales growth through the increase. We expect the second quarter to be the peak of our net debt for the year. Capital spending for the quater is $42.3 million as we are attempting to accelerate our capacity expansion program projects in light of searching customer demand. Now back to Dave for update on our guidance.

Thanks Wayne. With the 787 delay the A350 win and the extreme movement in exchange rate and energy related cost e should revisit our 2008 guidance in this media release. First we do see strong sales continuing the despite the 787 delay, and in fact expect sales now to be on the high end of our 10 to 15% growth range in total. This A350 win and then new US wind expansion lead us to increase our capital expenditure forecast earned in 75 million into our year end net debt expectation to the 340 to 360 million range. With our recent remodel check on and the proceeds from the BHA sale we continue to be comfortable with our capital structure. As per operating margins the dollar has weakened about 15% against the year as compared to our guidance in December, and if it stays with that level our 12 to 12.5% operating margin goal would translate to 11.3 to 11.8 for the year, despite our hedging program. Finally, the oil related cost surging continued weakness the dollar have created new challenges, we have reaffirmed our EPS guidance of $0.90 to $0.95 a share, excluding one time items such as tax gains and Burnell charges. Thank mostly to the expected strength of sales going forward. Beyond 2008, we believe that us the cost of fuel clients, the case for wind energy and newer, larger, lighter air crafts like the A350, 787 and A380 become even more compelling. In December we indicated our 2010 sales could reach $1.7 billion assuming the successful ramp up of the A380 as the B787. While the prospects for full rate of those two programs by then may now be in question, we believe the 1.7 billion rate is still achievable due to wind used actually iridium and return program and the A350 in defense programs. So we are still very encouraged about the long term and we would be happy now to take your questions.

(Operator Instructions). Lets take our first question from Nigel Coe with Deutsche Bank.

Thanks, good morning.

Good morning Nigel.

I just want to clarify on the ramp of course for the European plants, do they cable across for the whole or set not the year or do they kind of break even during the second half of the year?

Well, the fourth quarter is better than the third quarter and we hope to get them to cover for the whole of the half, though it will be faced through the fourth quarter.

Okay. So dragging the fourth quarter, pause this condition fourth quarter, net neutral for the second half the year?

Correct, as far as being negative startup cost, of course, we wont reach average company wide gross margins until they really get fully utilized.

Understood, understood. And then on the euro drag, are you currently hedging the euro and I am just wondering is there a big difference seen in your hedge rates and what becomes between this?

Yes Nigel, we are currently hedge, we average in sort of roughly year in advance of basically what’s heading us this year as more or less last years actual rates, and we will continue to sort of roll in the pain.

Okay, so the drag continues for the rest a year?

Correct.

Okay.

And just to be clear Nigel that was as part of our guidance, I mean.

Oh, sure.

So the hedging is a 1%.

And we are hedged – for this year we are about 75% hedged or about 50% hedge for next year.

Okay great. And then its finally, maybe Dave, can you give dislocate on the HexMC, that’s certainly an exciting product, I am just wondering if how much traction that’s getting so far?

Well, its position on the 787, its pretty well defined because of qualification timing, we may have gotten a lot more on head the product really been discovered or excepted sooner in the program. So, I think we will be happy with how its going, how production is going, the tooling of course is, and qualification cost are generally behind us where we cover those in place as the 787 gets built. So all eyes now are on the A350 and the extent that we can get a HexMC products on that. So of course we have whole new customer now familiar with the HexMC concept that we have got to convince in the coming months and years but we are hopeful.

Great. Thank you all.

And we will take your next question from John Mcnulty with Credit Suisse.

Well, this is (Inaudible) on behalf of John. How are you?

Good morning. Good.

A follow-on on the dollar exchange rate impact. What exchange rate are you -- is embedded in the full year guidance?

When we gave guidance for the full year on sales, for example, we did it at a constant currency with respect to last year. So we didn’t try to anticipate the sales increase related to those current exchange rates. And for operating income, we are hedged far enough along that the rates shouldn’t have that big impact on the earnings per share number for this year.

Okay. And with the recent A350 contract Wayne, how much additional capacity do you think you will need to bring online to support the platform and when should we expect to see this spending?

Well, we will require a lot of additional capacity as you might imagine with the contract that’s almost -- they got the run rate potential of 50% of our current business. But what we have really done is laid most of the foundation of where the capacity what we added if possible that there might be enough volume at some other tier I player to have another satellite plant, but generally the concept is to expand covering fiber lines in our Spanish plant and then our Salt Lake plant and then build out more prepreg lines in these new European prepreg plants. So there will be a significant amount but it will be a little bit easier to digest I think as we go forward. We hope that what we are putting in place now and in the first half of next year will be sufficient for the ongoing development program and we will be able to add in steps over the next three years the big capacity as we can watch the market develop and balance out the cap spending over three years.

Okay, great. Thank you.

We will take our next question from Steve Levenson with Stifel Nicolaus.

Thank you. Good morning.

Hi Steve.

Are you seeing other opportunities in existing aircraft designs where manufacturers of plant save weight and how does that new resin you introduced, the autoclave resin play into that?

How does -- I think those are interesting development projects but I think existing programs generally don’t get reengineered even though it might be nice to take weight up because the certification cost. To me it seems most of the efforts in the industry to deal with fuel costs are trying to accelerate the new lighter aircraft at Winglets. Winglets do have additional materials for us. But I would like to the move towards newer aircraft as the big, big driver for Hexcel. Hardly enough to register on any of the older aircraft.

Okay. And then be on the actual airframe, what do you see going on with your engine customers like GE, do you think use some composites in the same case in the section blade just something that will expand to and…?

I think (multiple speakers)…

Talking to anybody about open rotor designs?

I think there is a real good momentum in engines and the cells by all of the players. GE of course is kind of the leader in it having introduce the composite fan blade for the 777 a number of years ago. That obviously has been very successful because they are incorporating it on the GenNX engine. Others are developing and talking about and you saw this at the show last week talking about trying to make fan blades through infusion processes which would mean fiber sales and resin sales if we were successful rather than prepreg. But everybody is sort of after the same thing. The big, big gains in fuel economy of the 787 are in part weight reduction and in part engine, maybe equal parts of our literature. So there is a lot of move towards engine improvement and of course and open rotor, if we were to go there I would be surprised if composites didn’t have a place. The A400 M is the new European Transport. I think you have seen it. It's got four turbo prep engines but those engines have very large blades that are and our eight probes, there are eight bladed per probes. So it’s a significant amount, to the bigger the rotating part, the more likely they need likely composites all the way to win turbine blades.

Okay, last question on the aerospace side is Hex tool, do you see that being used in A350 part manufacturing or other of your trials that despite or with instant?

Well Hex tool we thing is got a lot of potential on a very interesting product it really is -- as you know HexMC variation is used to tooling, to make a tools lighter weight, reworkable, replace very expensive and hard to get invar metals. It's going to take a while for people to accept them. Lots of trials where going on. Lots of tooling shops are working with it though they never had any experience with it. I think it will find a home, and then I can guess in future and it will be significant volumes to us. It may not be first round tooling, it might be spare or second round tooling.

Okay thanks. Now, on the wind side is Colorado going to – what section would be a clone of the China plant?

Similar rate now as we look at our customers plans Colorado has the potential to build faster than China, but the same concept.

And do you want make understood on what the outlook might be?

Not yet.

Not yet.

Not yet.

Okay.

But it's substantial and could be more than China and it could be fast. Alright if you have followed what our key customers who use prepaid technology are doing in the US you might get a good sense of it though.

Well that’s going to be the next question. I know that there are being sort of cancellations from the companies that are not your customers because of cracking blades. What sort of things do you hear in from the wind turbine blade manufactures on using prepregs instead of making them the old clean shave way.

Well just to be clear for the building form on the call the cracking blades are not our material not prepreg it all in fact. And I have no idea what there real problems are whether or not prepreg would solve them. But we would like to think that will create a stamp to prepreg technology. But whether it does or not, some very big players are going very fast and using maximum amount prepreg and if the blades get larger for a next generation turbines I don’t think they will get really huge except in the couple of rear cases. But I think that larger the volume of prepregs that they have to take those goes up by acute factor. So I have never been so optimistic and positive about wind in seven years here. Its building capacity, our customer building capacity in China and US really breaks the European deadlock that we sort of dreaded in the past. And the commitment to use prepregs as the technology in those new plants seems diminished the rest goods someone might go away from prepreg. So we are very happy with our positioning.

Great thanks very much.

Sure.

And we will go next to Christina Fernando with UBS.

Hi good morning. This is for Dave, today you have reaffirmed the revenue guidance for 2010 of 1.7 billion back year end that should be in December you had a also set a targets of said per 15% margin in 2010. Do you think that quality role?

Well, I will answer with the great real confidence if you could tell me what’s going to happen the oil and FX, and little bit humble my inability to control the global currency in to oil economy. I think if exchange rates stabilized or balance back to where it maybe, they should be, I mean, I don't know were they should be but it seems to be this can't continue. I certainly think it is achievable, it is certainly are targeted and it has been for long time we are discouraged with oil prices like they are. Almost everything we make or do start with oil. I think we have done a good job in managing through that, we’ve had had lots of contractual relationships that a key person getting burned by that, but oil over the long term that’s a pain for heath deployment and we need to be able to either other economies, so it’s a stretch, but it obviously -- I mean it clearly is what our goal is.

And then can you give us an update on the USEC contract and is that still -- is this still on track to start contributing later this year?

Well the contract hasn't changed at all. Their schedule was to just start late this year whether or not they holder that with the delays they have had is something is being discussed. But I see no indication that they are backing off their plan or their ability to get the product launched.

Alright. And then one more thing, what is the opportunity for Hexcel to gain content on the C series now that they of course officially launched?

Well as with any new airplane there are lots of opportunities for lots of different materials. The C series, I believe is advertised now as being 46% composite. Even though most of the physiologist metal the fact that the wing will be even more composite than the 787, that gives them confidence that they will be up to that level of composites. So you know, from the engine to the missile, to the airframe there is a lot of potential for all of us in the composites business. It’s way to early to indicate it, but we are very much on top of it.

And actually one last. You mentioned in your comments about your portray to take cost out and what area is there are the greater opportunities?

You mean what we are going to do to try to make our numbers for the year?

Sure, yeah.

Well just sort of every old man have the budget we have -- we have got a very strong to make the numbers kind of commitment in this company and we are all discouraged by the head winds that we face and we recognize, we are going to have to find ways to economize to get where we need to get for this year or so, no specific big project, we don’t have any big restructuring announcement or any such thing, it’s a more blocking, tackling and making sure that we maximize the efficiency of the plants. We had some difficulties in the second quarter that you know, with sudden violent ramp up in Europe compared to the US were in the last six quarters the US of the less foreclosures of last year at least the US was growing at a frantic pace and Europe was somewhat idling and that we had complete reverse of what 787 delay and Airbus coming on strong again. So, it wasn’t the most graceful flip-flop in growth rates for us and we expect to get that stabilizing yet more efficiency out of our plants. Most importantly we had got to get those new plants contributing. It all comes down to gross margin this quarter. I think we have done good job on operating and net income leverage. You know, if you look at the first six month of the year, our gross margin is down 260 basis points, just that operating income is only down 30, net income is up 40. So SG&A is in good shape or being well controlled and the other elements we have just got to get the plants caught up to the capacity increase.

We would love to phase these plants in, in a more gradual fashion, but of course the markets growth was not exactly came at and it’s what we need to do to keep pace.

Thanks.

Sure.

(Operator Instructions). At this time, we will go next Al Kaschalk with Wedbush Morgan.

Good morning guys.

Hi, Al.

Dave I was wondering if you could comment based on the previous questions in the wind business. Has your confidence or optimism about when changed your order pattern that you are seeing from your customers, in other words you have previously talked or commented about three month visibility or no short duration on that visibility. Has that extended out and can we read that into that based on these acceleration and facilities?

Well, we ship as they require materials, not to some order commitment. If they -- I mean same in the aerospace, we don’t ship to advance order whether they needed or not, we are very much JIT and almost all of our businesses. So our visibility is really about how many molds our customers have and are they successfully using them. Secondarily as you recall two year ago if they’ve got barring and other components that they need to have use the blade that they are making. So we try to monitor all of those things. So our views as a future is as stronger or better now because we know new molds are being put in place in China and in Colorado and if we are able to be the supplier of those, of the material for that that’s going to be incremental step buffing capacity for us following our customers. So that’s what how we see it. Now, launching a new plant in Colorado was not done without some understanding of what the passive growth would be and some agreement with our customers for the demand.

Okay, and are you seeing any competition in the marketplaces related to existing customers or potential new market opportunities new customers for yourself?

Are you taking wins specifically?

Yes, sorry.

Well, as you know our competition there is good like Swiss Company, I am assuming that they are growing at a teratic paces like we are, these kinds of growth paces are our – I mean, our challenges about keeping up with the, growth that's there these are -- aren't big share shifts going on, I don’t think anyone has the stromic for that customers or suppliers at this stage. I have not seen anybody new in the prepreg, a glass prepreg business that concerns with this stage.

And following on order pattern in terms of other and the commercial aerospace that’s been a very strong performer for the last six or seven quarters. Anything in the near term horizon that we should think should decelerate that growth or expect more the same as oil prices remain pretty high?

Well, I have got tell you that its so diverse, its hard to give an easy answer, but just general market dynamic that we keep an eye on, and often lot of industry hex report that business jets below 50 passengers are clearly on the way, we overbought in the US, partly because the two-tier pilots structure, there are non-economical people, they need to fly fewer bigger aircraft now between nodes part of the upsizing that I talked about earlier. The small – so the small regional jets are probably going to come under pretty surge price or presume, they are very positive in terms of – so that doesn’t heard us a lot. Business jets have been going at crazy pace, they are still going very strong mostly because of new wealth in oil rich countries in Russia and elsewhere, but I got to think the US is going to slow down a little bit, again not a big participant in our composite sales other than couple of aircraft which are the – the aircraft are tend to sell pretty well in this environment. On the upside larger, regional jets are still doing well, they have more composite. And surprisingly we have mentioned there is a couple of quarters in the row, several probes that we have thought were gone in this industry for a number of year having a resurgence. So you are starting to see people talk about doing fewer frequencies two hubs again, and maybe several probes handling the next line, because the guys are just so insufficient from the fuel usage standpoint and probes are also efficient. It happens that the ATR Series from Italy is a pretty composite in terms of aircraft, even now it’s a old aircraft, it was one of the early adaptors or composite in a good portion of their wing, and it happens bombardiers several probe, Q4 1000 I think its called now that we do some significant engineered materials work for that program. So those toward are often I think those stay maybe keep going up.

Very helpful, finally on the gross margins you talked about improving pricing situation but very much environment slash market attendant. Could you add a little bit additional color on what you are doing or how far you are through the book of business in terms of getting price increases through or what that entails otherwise doing something?

I didn’t give you a little general color, I can give you a specifics, but, you know, when contracts – and often lot of our business is done on longer term contract, sometimes a year, sometimes five year, sometimes life of program, it’s a wide range, but generally this contract is non-spot by almost everything we do in fact now that we’ve gotten out of the weaving businesses. Those longer term contracts we obviously have seen the environment, had seen FX changes, seen oil going up some, equivalent went from 20 to that unsustainable 60 level when we started talking more about price up on new contracts. So I would say almost every new contract over the last year has had some price increase in it because of what’s been going on. Was it enough to cover this surge to $140, $150 oil, maybe not, but again we have most of our – many of our supply contracts also newel down. So we are talking about here really as around the edges the transportation surcharges, natural gas boost, the equivalent increase which is substantial, that is the basis for carbon fiber. Those things that we are not covered we need to find a way to manage through that. So where we don’t have from our long-term contracts we are trying to push through price as we can. Where we have long term contract it need to renewed, we obviously have new data to support price increases. So overtime we hope to match those out, but this quarter it put us back a little bit we need to catch it up as we go forward.

Is the – and the new contract charge you take existing ones and get discussion on a way, is there an existing channel where the price up or down sort of left to the market conditions and then if we are outside that channel up or down that you have to come under the table to discuss?

We have a wide range of contracts and contracts totals and we try to factor in the realities of life as we do those and negotiate what we think will be contracts that will be okay through the period, and it’s a wide range of solutions to deal with that, whether it’s a higher fixed price to begin with or clauses that compensate for changes, I cant really be any more specific in that.

Okay, thank you.

You are welcome.

And ladies and gentlemen, that does conclude today's conference call, we appreciate your participation and you may disconnect at this time.