Cactus Inc

NYSE:WHD

Earnings Call Transcript 2022-Q1

[Operator]

Welcome to the Cactus First Quarter 2022 Earnings Conference Call. My name is Vanessa, and I will be your operator for today. [Operator Instructions]

I will now turn the call over to John Fitzgerald, Director of Corporate Development and IR.

[John Fitzgerald, Director of Corporate Development & IR]

Thank you, and good morning. We appreciate your attendance on today's call. Our speakers will be Scott Bender, our Chief Executive Officer; and Steve Tadlock, our Chief Financial Officer. Also joining us today are Joel Bender, Senior Vice President and Chief Operating Officer; Steven Bender, Vice President of Operations; and David Isaac, our General Counsel and Vice President of Administration.

Please note that any comments we make on today's call regarding projections or expectations, future events are forward-looking statements covered by the Private Securities Litigation Reform Act. Forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control. Risks and uncertainties can cause actual results to differ materially from our current expectations. We advise listeners to review our earnings release and the risks factors discussed in our filings with the SEC.

Any forward-looking statements we make today are only as of today's date and we undertake no obligation to publicly update or review any forward-looking statements.

In addition, during today's call, we will reference certain non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in our earnings release.

With that, I'll turn the call over to Scott.

[Scott Bender, President, CEO & Director]

Thanks, John. Good morning to everyone. I'm pleased to report that Cactus posted its fifth consecutive quarter of adjusted EBITDA growth of greater than 10% by capitalizing on continued increases in customer drilling and completion activity. Our results highlighted the consistency and predictability of this business.

Some first quarter highlights include: Revenue increased 12% sequentially. Adjusted EBITDA improved by 16% sequentially. Adjusted EBITDA margins were 29%, up 80 basis points versus the fourth quarter. We paid a quarterly dividend of $0.11 per share and ended the quarter with $298 million in cash and no debt.

I'll now turn the call over to Steve Tadlock, our CFO, who will review our financial results. And following his remarks, I'll provide some thoughts on our outlook for the near term before opening the lines for Q&A.

So Steve?

[Stephen Tadlock, CFO, VP & Treasurer]

Thank you. As Scott mentioned, Q1 revenues of $146 million were 12% higher than the prior quarter. Product revenues of $94 million were up 12% sequentially, driven primarily by an increase in rigs followed. Product gross margins at 35% rose 60 basis points sequentially due to leverage of our fixed cost base and continued cost recovery efforts.

Rental revenue was $22 million for the quarter, up 16% versus the fourth quarter of 2021, driving an increase in gross margins of 820 basis points sequentially, due primarily to lower depreciation as a percentage of revenue. Field service and other revenues in Q1 were approximately $30 million, up 10% versus the fourth quarter of 2021. This represented 25% of combined product and rental-related revenues during the quarter.

Gross margins were 16%, down 210 basis points sequentially, with the reduction largely attributable to labor inflation, higher fuel costs and increased third-party service expenses, all of which are being addressed in the second quarter.

SG&A expenses were $14.1 million during the quarter, up $1.2 million versus the fourth quarter of 2021. The sequential increase was primarily attributable to higher payroll-related costs, driven by higher stock-based compensation expense. During the first quarter, we also incurred approximately $600,000 of SG&A expense evaluating growth opportunities. We expect fees and expenses related to growth opportunities to be a more regular part of our focus this year.

Despite these nonoperational expenses, SG&A declined to 9.7% of revenue, down from 9.9% during the fourth quarter of 2021. We expect SG&A to be $14 million in Q2 2022, inclusive of stock-based comp expense of approximately $2.3 million. Q1 2022 adjusted EBITDA was approximately $42 million, up 16% from $37 million during the fourth quarter of last year.

Adjusted EBITDA for the quarter represented 29% of revenues compared to 28% for the fourth quarter of 2021. Adjustments to EBITDA during the first quarter of 2022 included approximately $2.7 million in stock-based compensation and $1.1 million related to the revaluation of the TRA liability. We did not add back any of the aforementioned fees related to the evaluation of growth opportunities during the period.

Depreciation expense for the first quarter was $8.7 million and a similar amount is expected in the second quarter. We reported income tax expense of $2.7 million during the first quarter, which was inclusive of a $1 million tax benefit related to the revaluation of our deferred tax assets and a $1.7 million tax benefit related to equity compensation.

During the quarter, the public or Class A ownership of the company averaged 78% and ended the quarter at 79%. Barring further changes in our public ownership percentage, we expect an effective tax rate of approximately 21% for Q2 2022.

GAAP net income was $27 million in Q1 2022 versus $20 million during the fourth quarter of 2021, with the increase driven by higher operating income and a lower income tax expense. We prefer to look at adjusted net income and earnings per share, which were $22.9 million and $0.30 per share, respectively, during the first quarter versus $18.7 million and $0.25 per share in Q4 2021. Adjusted net income for the first quarter excluded $1.1 million in other income and applied the 26% tax rate to our adjusted pretax income generated during the quarter. We estimate that the tax rate for adjusted EPS will be 26% during the second quarter.

During the first quarter, we paid a quarterly dividend of $0.11 per share, resulting in a cash outflow of over $8 million, including related distributions to members. The Board has approved a dividend of $0.11 per share to be paid in June.

We ended the quarter with a cash balance of $298 million. Operating cash flow was approximately $17 million, and our net CapEx was $7 million. Inventory rose by approximately $16 million sequentially due to further increases in inventory in transit, higher cost of goods and the previously mentioned decision to increase product safety stocks to ensure timely delivery.

Given the uncertainty regarding the global supply chain, our decision to manufacture additional inventory was taken with a view to alleviating customers increasing concerns regarding certainty of supply. Working capital outflows are expected to moderate in Q2, which should benefit cash flow relative to the first quarter.

Capital requirements for our business remain modest and we'll continue to exercise discipline with regards to growth expenditures. The first quarter included additional rental assets and expansion to our Bossier facility as we opportunistically purchased an adjacent parcel of land for nearly $3 million. Our net CapEx guidance for 2022 remains at $20 million to $30 million.

That covers the financial review, and I'll now turn the call over to Scott.

[Scott Bender, President, CEO & Director]

Thanks, Steve. As previously mentioned, we reported strong revenue growth across all of our business lines during the quarter and adjusted EBITDA margins reached their highest levels since 2020. U.S. product market share remained strong at 41% during the period as rigs followed increased by over 11%.

Despite lower rig efficiencies from our customers during the period associated with service industry constraints, product revenue per U.S. land rig followed increased due to cost recovery efforts, outperforming our prior expectations. Product EBITDA margins improved by 50 basis points in the first quarter, while incremental product EBITDA margins were a robust 40% during the period.

Looking at the second quarter of 2022, we anticipate Cactus' rig followed from our existing customer base to increase in the high single digits percentage wise. Product revenue is expected to increase 10% in Q2 despite expectations for further reductions in drilling efficiencies during the period. We anticipate product EBITDA margins to be in the low 36% range during the second quarter. Additionally, we've recently commenced a trial with one of the larger independent operators in the U.S.

While geopolitical tensions and lockdowns in China have led to further cost headwind, Cactus remains confident that the compensation it receives will reflect the differentiated equipment and service we provide together with our elevated inventory levels. Cost recovery efforts commenced in the middle of last year. Since then, the company has continuously maintained an active dialogue with its customers as supply chain challenges persist.

Internationally, our first South American product order of a high dollar wellhead system is currently in the process of being delivered from Bossier City. We also expect to book our first product order in the Mid-East around midyear, although our focus to date has remained on honoring our U.S. commitments rather than pursuing high-volume international opportunities.

From a supply chain perspective, we've had no major shutdowns at our facility in the Far East. However, transit times continue to increase -- continue to increase given disruptions related to loading vessels and ocean freight. As mentioned previously, Cactus stocked up on inventory during the preceding months. Additionally, while many of our competitors rely solely on international locations to source equipment, we continue to have the benefit of our Bossier City facility which further distinguishes us relative to our peers.

We expect our rigs followed to increase with both public and private operators going forward, and we continue to win business with new private customers as we demonstrate market focus and differentiated equipment and our ability to execute. Additionally, certain public operators have for the first time in recent memory announced increased CapEx budgets.

On the rental side of the business, revenues increased by over 16% during the first quarter and are up nearly 80% year-over-year. For the second quarter, rental revenues are expected to increase by additional 10% and EBITDA margins are anticipated to be up modestly during the period.

In field service revenues continue to be driven by both our product and rental activity. Revenue as a percentage of product and rental revenue is expected to be approximately 25% during the second quarter. Labor rate inflation as well as higher fuel-related costs are expected to represent continued headwinds to margins. However, we currently forecast field service EBITDA margins to increase into the low to mid-20% range during the second quarter as we implement cost recovery initiatives.

Regarding our outlook on M&A, the number and quality of opportunities in the market has increased in recent months. This management team continues to believe that M&A can be a useful tool to expand geographically or enhance our competitive positioning. However, we will continue to evaluate opportunities with a focus on returns to our shareholders. The ability to return cash to our shareholders remains an attractive avenue that we'll continue to carefully assess.

Lastly, we announced during the quarter that David Isaac, our Chief Administrative Officer and General Counsel, is retiring. I want to thank David for his outstanding service over the last few years and wish him well in his retirement. We're also proud to announce that Will Marsh will be joining the team to fill this role. Will comes to us from Bracewell and previously spent over 20 years with Baker Hughes as their Chief Legal Officer and General Counsel. Will's unique industry experience and knowledge of international operations, capital markets and M&A will be a great asset to this team.

In summary, Cactus remains well positioned to assuage any customer concerns regarding certainty of supply and quality of service.

And with that, I'll turn it back over to the operator, and we may begin Q&A. Operator?

[Operator]

[Operator Instructions] We have our first question from David Anderson with Barclays.

[David Anderson, Barclays]

Your business continues to perform well in both products and rentals. You're constructive in the near term, oil fundamentals are really supportive. Growth is, of course, never in a straight line. I just want to get some of your thoughts on some of the risks out there. Aside from global demand, what's the most concerning to you over the next 12 months? Is it the private, kind of potentially running out of inventory, a large capital spending? Is it industry-wide kind of lack of equipment that could level of growth? Is it customers experienced some pricing sticker shock? Just how are you kind of sort of kind of thinking about some of those risk -- niches out there?

[Scott Bender, President, CEO & Director]

Yes, David, I think that my near-term concern has to do with ancillary supply issues because we're hearing a lot of comments about pipe availability, you know this, rig availability, sand availability, even cement availability. So I think that there's a desire probably to increase activity beyond the industry's capacity to support that. And I've mentioned that in previous calls that, that was my greatest concern, it's probably even more a concern today.

Unless you're a very large publicly traded E&P and you've secured supply, I think you're going to see some of these privates come under pressure to add rigs as a result of that. I think longer term, there's no question that the quality and availability of drilling prospects, particularly in West Texas, is diminishing. I also think that the larger publicly traded E&Ps probably have a more secure inventory of prospects in some of the independents. So near term, it's really supply constraints. It's not sticker shock over price increases.

[David Anderson, Barclays]

Yes, it sounds like you're able to push through pricing, at least in your products pretty effectively. So now, Scott, you're a man who've seen some cycles before. This one to me feels like...

[Scott Bender, President, CEO & Director]

David, are you saying, I'm old?

[David Anderson, Barclays]

Scott, we're in the same category, my friend. I'm too. This one to me at least feels like 2004 again. When activity ramped up, and equipment was tight. We've heard from some of the larger service companies in the past couple of weeks and they view this being a margin cycle and not a build cycle. Can you comment on that? Do you agree with that? I mean, 2004, again, but this time, we're seeing capitalists across everywhere, driving pricing and returns. Your returns on my numbers are already in the -- could be in the low teens this year, which is pretty remarkable. But maybe just kind of comment on how you think this could play from that perspective?

[Scott Bender, President, CEO & Director]

Yes, I think that it's probably fair to say that we're entering into a period of potential meaningful margin expansion. And I think that volume expansion in terms of shipments is going to be constrained. And unlike I think some of our peers, we have the capacity to manage increased volumes. So we could potentially benefit from -- and I think we will, frankly.

I think we have 2 opportunities. I think we have margin expansion opportunities, and we have volume expansion opportunities. But that is going to come, quite frankly, with increasing our market share. And I think even though no one's asked me that question, I'm anticipating I'll get asked that question since I always do. I think the fact that we have inventory on hand bodes probably well for market share gains at a price that we deem to be acceptable. So I've said before, we're not going to chase market share for the sake of market share. So probably primarily margin expansion.

[Operator]

We have our next question from Stephen Gengaro with Stifel.

[Stephen Gengaro, Stifel]

Well, you brought up market share. So maybe I'll just start with -- when we think about -- and you mentioned some trials that you're doing with a large independent. And I think you also mentioned this expectation maybe that share gains a bit. Can you speak a little bit to kind of what you've seen as far as the dynamics you've had with the private over the last year? I mean it seems like you have gained some traction with the privates. Just kind of curious if you can add some color around that?

[Scott Bender, President, CEO & Director]

Yes. So as you know, privates have never been the core of our business. So the fact that we've been able to maintain a market share north of 40% given that privates account for well over 60% of the active rigs is, I think, supportive of our claim that we've done much better with privates today than we ever have before. But having said that, this business was not built on privates. We're built on the publicly traded, the larger operators, be they IOCs or be they independents.

I think that our penetration of privates is, I think it's undeniable. It's going to increase this year because I think the privates are becoming much more sophisticated. They're consolidating. And as they become more sophisticated and larger, then our product becomes far more attractive to them.

They're not -- as you know, they're not nearly restrained from a capital perspective. And we're doing our level best to call on those customers for -- with whom it makes economic sense for us to pursue that business. So I feel pretty good about the privates. I would feel a whole lot better though, if some of our -- if our public companies actually do increase their activity level. And we're seeing some of that right now. So I'm optimistic that combination could push our market share higher.

[Stephen Gengaro, Stifel]

Great. And then can you talk about a little bit more about the sort of the interplay between, we'll call it, cost recovery efforts and rig efficiency/timing of rigs getting added? And how you think that kind of unfolds over the next few quarters. And I imagine some of that's going to be just pace of rig additions. But any color you could add around that sort of revenue per rig number, which was awfully healthy in the quarter, given some of the headwinds?

[Scott Bender, President, CEO & Director]

Yes. So I think the rig efficiencies, as I mentioned, are going to continue to suffer. And it's really a function of several factors. One is that, in general, the privates you know are less efficient than the publics. So to the extent that the privates make up a higher percentage of the total rig count, you're going to see rig efficiencies overall decline. I think that -- there have been episodic supply chain disruptions with our customers, where we've been on location waiting for other service company to arrive or complete a job, and that's becoming, unfortunately, more frequent.

I think that you're seeing a lot of marginal equipment being deployed and you're going to see a lot more marginal equipment being deployed as we pass through the 700 level in the U.S. rig count on the way to maybe just under 800 by year-end. So rig efficiencies are not our friend. And we do measure those. They vary by basin, but overall, they have absolutely declined, and we're also seeing a few customers drilling longer laterals. That's not necessarily a reflection of their efficiencies.

But I believe -- I think this team believes that we'll be able to sustain our dollar per rig by our cost recovery efforts. And so it's more to an earlier question, it's really about margin expansion, I think, for the rest of this year, perhaps than huge activity gains.

[Operator]

We have our next question from Cameron Lochridge with Stephens.

[Cameron Lochridge, Stephens]

So I wanted to start just on the supply chain, a couple of questions there. One, just if you could talk a little bit about where you're seeing some of the biggest bottlenecks today? And what kind of -- what kind of gives you the confidence and the visibility to those potentially improvement going forward? And then just related, as it relates to South America, Middle East, how challenging is it to get equipment into those geographies? And what are some of the levers you can pull to potentially offset some of that?

[Scott Bender, President, CEO & Director]

Well, Joel is in the room today. He can talk about what's happening in China. So Joel?

[Joel Bender, Senior VP, COO & Director]

Yes. I mean the biggest challenges from China for us right now are just the vessel loadings and the vessel sailings right now. That situation, we understand is going to improve mid-May. We have a lot of containers stage right now in our forwarders facility at the port ready to be loaded. We've been able to pick up a few spot vessels here and there, but we've been moving product mainly through charters, which has help us move anywhere from 50 to 100-plus containers on a vessel.

So we feel like that's going to improve, but we did make a choice last year to elevate our inventory and raise the levels that we talked about so that we'd have stock available for customers. I feel like the issue of sailings is going to be challenging for the remainder of the year. If we have these COVID spikes over there, certainly, that's going to cause us a couple of extra weeks in terms of delivering a product to the U.S.

In terms of product moving to other areas like the Middle East, South America, we haven't seen any challenges in terms of that. Those kind of shipments are available and the product is moving, again, depending upon where the product is coming from. South America typically comes from Bossier City. So we're able to move that. Any product that's going to come out of the Far East has its issues. And again, it's the issues you're seeing today. And I think that will sort of be episodic as well.

[Cameron Lochridge, Stephens]

Got it. No, that's helpful. And then just maybe as a follow-up, going back to the discussion on cost recovery. I mean, I think it's safe to assume all of your competitors are experiencing similar pressures just across their portfolios. I guess I was just wondering, just anecdotally, if there's anything you could share on what some of your competitors -- I know you don't like talking about competitors, but I'm going to try anyway. What some of your competitors may be doing relative to price recovery or cost recovery and how you see them potentially either working to move things in the same direction as you are or holding things back for the sake of share? What are you seeing there?

[Scott Bender, President, CEO & Director]

Wow, Cameron, I wish you wouldn't ask a question like that. You know that. First of all, you know that there's -- there'll never be a customer that comes up that says, Cactus, you can raise your price by X percent because your competitors just came in here and demanded a price increase of Y. So they don't really share that with us. I think that in general, our larger competitors are being more responsible in terms of cost recovery. I think that some of the smaller players are being probably less responsive to their increase in costs.

However, having said that, I expect that, that will change over the course of this year simply because many of our smaller competitors don't have access to working capital lines. And if they don't raise their prices or implement some sort of cost recovery, I think they could find themselves squeezed out of this market. There are not a whole lot of lenders, as you know, that are willing to extend credit to smaller oilfield service companies still. So in general, yes, our larger competitors are being, I think, more responsible.

[Cameron Lochridge, Stephens]

Got it. Got it. Sorry to put you on the spot there, but I just wanted to make that clear.

[Operator]

Our next question is from Ian MacPherson with Piper Sandler.

[Ian MacPherson, Piper Sandler]

Scott, we always appreciate your peak into the crystal ball on rig count limits over the next few quarters. And we're looking towards exiting this year around 700 Lower 48 rigs. Do you think that, that will be challenged to be attained based on rig constraints or lead times? Or do you think we get there? And then after that, I had a follow-up question on rig count beyond that threshold.

[Scott Bender, President, CEO & Director]

Ian, are you talking about horizontal rig count because I think the U.S. rig count is going to exit the year just closer to 800, frankly, the total U.S. rig.

[Ian MacPherson, Piper Sandler]

Really?

[Scott Bender, President, CEO & Director]

Yes. So I don't know where you -- from where you got the 700. But we're already very close to 700 -- and you're seeing a couple of 2, 3 rigs being added every week.

[Ian MacPherson, Piper Sandler]

Yes. The drilling contractor guidance for this calendar quarter was definitely slowing down in aggregate, but certainly not -- yes.

[Scott Bender, President, CEO & Director]

I think no question that the rate of increase. We had some weeks, you'll recall, was double-digit rig count increases. I think those are probably -- well, not impossible. I think that we're going to settle into that 2 to 3. But we've got a long way to go before the end of the year. So I think there's room for us to approach the 800. I think that next year, 2023, if I think about that, I think that our average rig count for 2023 will be more in line with the exit of 2022.

So maybe just below or around 800 rigs, which would represent about 12% average increase 2023 versus 2022. So I think that, yes, there is -- there are a lack of high-spec rigs, but the beauty of capitalism. If there's demand out there and the price is right, maybe $35,000 a day, I think you'll see some rigs come on the market.

So I know when we plan our business, right now, we're thinking in terms -- particularly in terms of supply chain, about supporting an average count next year of about 8.

[Ian MacPherson, Piper Sandler]

Okay. So I guess where I wanted to go with the question is when we go from 700 rigs to 800 rigs, I think there's got to be a mix with the last 100 rigs that are going to be just definitionally maybe less efficient, less walking rigs, less total super-spec and then how -- maybe if you agree with that or don't agree with that but then how your value prop is and an efficiency enabler compounds in that scenario?

[Scott Bender, President, CEO & Director]

Yes. So I absolutely agree with you there, Ian, that the next 100 or so rigs will exhibit far less efficiencies than the rigs that are currently running. And so the way we plan our business is that we look at each customer, we look at their projected rig count and then we do a calculation that we refine on a rolling basis their average wells drilled per month.

So each customer has its own profile. And I think that maybe for the first time, we may have to adjust that depending -- we may have a customer that has 8 super-spec rigs and maybe 2 lower-tier rigs, we may have to sort of adjust that approach, but we have the capability to do that and we'll do so.

[Operator]

We have our next question from Don Crist with Johnson Rice.

[Don Crist, Johnson Rice]

You called out field service costs in the press release and some mitigation efforts that you're doing there. Can you quantify what you're doing on the -- either the labor or the fuel side to bring down those costs from?

[Scott Bender, President, CEO & Director]

Well, there's nothing I can do. On the fuel side, we tried to buy some hybrid vehicles, but none of them are available, that's the truth. It is what it is. Really, in terms of cost mitigation, there is not a whole lot that we can do in terms of labor and fuel. So what we're really talking about is cost recovery initiatives that we implemented beginning of the second quarter. There was just no other way. There's -- supply chain is one thing, but when it comes to diesel and people, there's just nowhere to go. We already operate in a very, very high utilization rate for our service techs. So pretty impossible for us to operate any higher.

I think that an area that has been a burden as we -- I think we reflected upon has been third-party contractors. So we're raising the price quite frankly of deploying third-party contractors because they're raising the price to us. Now we don't -- we don't deploy them widely. But you can imagine, we use a lot of outside crane services, mobilization services, on-frac jobs, demobe services, on-frac jobs, many of that -- much of that work is provided by third-party contractors, and they've been -- they've not been bashful because there's no capacity there. And we were probably, frankly, slower than we should have been in passing that on to our customers.

[Don Crist, Johnson Rice]

Okay. And I'm going to ask a question that gets asked every quarter. With the port of cash that you have on the balance sheet, which, frankly, is a great thing to have, is -- are there any new initiatives or share -- giving money back to shareholders, et cetera, that you all are looking at specifically? Or do you think you just keep that cash on the balance sheet for now?

[Scott Bender, President, CEO & Director]

Let me answer that. Really, I have 2 answers. The first is, as you can tell by our SG&A for the first quarter, we are really the most active we've ever been. And looking at M&A opportunities, they're better and they're more of them. So I know that our investors have a limited amount of patience for that. But I've said before, the management team owns 20% of this business. This is our money. We're going to be very careful about how we deploy it. And we're going to make sure that wherever we deploy it, we have a clear sight -- line of sight to a 30% return on our capital employed. That's not immediate, but that's a clear line of sight.

So taking us a while because we're being very careful, but we're looking at more deals than ever. So I really feel like that cash will be used in that endeavor. We also are committed to sustaining our dividend with a view to being able to periodically increase the dividend. So they're not mutually exclusive. I think we want to do both. And until we feel like the opportunities are no longer viable, then I think we're going to probably sit on most of this cash.

[Don Crist, Johnson Rice]

And I appreciate the color on that and the candidate response. Can we assume that if you're looking at some M&A opportunities that it would be something that you possibly did in either a previous company or have experience in? Or do you think you'd step out into something that is new when you'd have to bring new managers, et cetera, in to run that for you?

[Scott Bender, President, CEO & Director]

Yes. So I think I've said this many times. Our preference is consolidation within the industry. It's what we know. We do it well. And for us, it's the lowest risk avenue for deployment of our cash. So that's our number one priority. But there are other businesses out there that we're seeing right now that share the same customer base that are manufacturing oriented that are differentiated in terms of their technology and could potentially use our extensive service network. So we would step out if it made sense. But obviously, I think you can appreciate this.

The rewards would have to be deemed to be better than -- or rather the risk/reward ratio would be different from if we were to acquire somebody who's a competitor just because it would be a slightly riskier proposition for us.

[Operator]

We have no further questions. I will now turn the call over to John Fitzgerald for closing remarks.

[John Fitzgerald, Director of Corporate Development & IR]

Thanks, everyone, for your participation. We look forward to following up with you on the next call.

[Scott Bender, President, CEO & Director]

Thanks, everybody. Have a good day.

[Operator]

And thank you. Ladies and gentlemen, this concludes today's conference. We thank you for participating. You may now disconnect.