WW Grainger Inc

XMUN:GWW

Earnings Call Analysis

Stable Performance Amid Macro Challenges

Grainger reported a 3.1% increase in sales, with daily organic constant currency sales up 5.1%. The High-Touch Solutions segment saw a 3.7% growth, driven by volume and price increases. Endless Assortment business grew 11.7% on a daily constant currency basis but faced profitability challenges with a 70 basis point decline in margins【7:2†source】. Overall, EPS rose 5.2% to $9.76. Due to market softness, the 2024 revenue guidance was adjusted to $17-$17.3 billion, with EPS projected between $38 and $39.50【7:4†source】. Operating margins remained strong at 15.4%, down 40 basis points from the previous year【7:0†source】.

Steady Sales Growth Amid Soft Demand

The most recent quarter showed consistent performance, with total company sales up 3.1% or 5.1% on a daily organic constant currency basis. This growth comes despite a persistently soft demand environment, particularly in the U.S. and Japan. The High-Touch Solutions segment saw sales increase by 3.1% on a reported basis and 3.7% on an organic constant currency basis, driven by strong volume growth and moderate price contributions across all geographies.

Profit Margins and Earnings

Operating margins for the company were strong at 15.4%, although down 40 basis points from the prior year. Gross margins remained flat year-over-year. The company's diluted EPS for the quarter was $9.76, up 5.2% from the previous year. Return on Invested Capital (ROIC) was 42.6%, and the company returned $345 million to shareholders through dividends and share repurchases.

Segment Performance

The High-Touch Solutions segment performed well, with sales driven by strong volume growth. In the U.S., nearly all customer end markets were up, with warehousing, contractors, and healthcare customers showing the largest gains. The Endless Assortment segment saw a 3.3% increase in sales, or 11.7% on a daily constant currency basis, mainly due to growth in core B2B customers and improved repeat purchase rates.

Challenges and Adjustments

The company faced several challenges, including the depreciation of the Japanese yen and softer demand pockets in the U.S. As a result, they trimmed the top end of their earnings guidance range. The updated guidance now forecasts total company daily organic constant currency sales to grow between 4% and 6% for the full year 2024, translating to a reported sales range of $17 billion to $17.3 billion and an EPS range between $38 and $39.50.

Strategic Investments and Future Outlook

Grainger continues to invest in demand-generating activities like marketing, seller headcount, and enhancing digital capabilities. Despite macroeconomic uncertainties, the company remains optimistic about its ability to drive growth and strong profitability in the second half of 2024. Management emphasized their commitment to growing SG&A slower than sales over time and maintaining strong operating cash flow and share repurchase expectations.

Earnings Call Transcript 2024-Q2

[Operator]

Greetings. Welcome to W.W. Grainger Second Quarter 2024 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded.

I will now turn the conference over to Kyle Bland, Vice President of Investor Relations. Thank you. You may begin.

[Kyle Bland, executive]

Good morning. Welcome to Grainger's Second Quarter Earnings Call.

With me are D.G. MacPherson, Chairman and CEO; and Dee Merriwether, Senior Vice President and CFO.

As a reminder, some of our comments today may include forward-looking statements that are subject to various risks and uncertainties. Additional information regarding factors that could cause actual results to differ materially is included in the company's most recent Form 8-K and other periodic reports filed with the SEC.

This morning's call will focus on the adjusted results for the second quarter of 2024, which exclude $16 million of pretax restructuring costs incurred in the quarter. Please remember that we have also included a daily organic constant currency sales growth metric within these materials to normalize for the divestiture of our E&R Industrial sales subsidiary, which was sold at the end of 2023.

Definitions and full reconciliations of this and any other non-GAAP financial measures with their corresponding GAAP measures are found in the tables at the end of this presentation and in our earnings release, both of which are available on our IR website. We will also share results related to MonotaRO. Please remember that MonotaRO was a public company and followed Japanese GAAP, which differs from U.S. GAAP, and is reported in our results one month in arrears. As a result, the numbers disclosed will differ from MonotaRO's public statements.

Now, I'll turn it over to D.G.

[Donald Macpherson, executive]

Thanks, Kyle. Good morning, and thank you for joining the call.

As we pass the midpoint of 2024, I'm proud of the way the team continues to show up for our customers, providing a flawless experience on each transaction. Our team members are consistently living the principles outlined by the Grainger Edge and in doing so, we become a trusted partner for our customers, creating tangible value each day.

One of the best examples of the value that we create for our customers is by simplifying their purchasing processes. Complicated and high-cost purchasing processes are common in our space, wasting our customers' time and money. Fortunately, we are well equipped to help customers solve this challenge by assisting them in choosing the right digital solution, setting up necessary workflows and approvals and providing systems training to maximize the benefits.

Recently, during negotiations on a multiyear agreement, one of our national account managers identified opportunities where our team could help the customer meet their process improvement goals, most notably in streamlining their procurement systems, engage our internal EDI ePro team who worked with the customer to connect their purchasing platform to Grainger. Together, through enterprise-wide integration and training, we were able to move nearly all of the customers' MRO transactions to a digital channel, helping them to consolidate orders, lower PO processing costs and driving several hundred thousand dollars in annual savings.

These process improvements are part of a broader engagement with this customer. We also help them reduce inventory levels and drive product standardization, further saving them time and money. This example is just one of many where our team works to understand the customers' operations, tailor our solutions to meet their needs and drive lower cost.

Moving on to our second quarter performance. We delivered another solid quarter of results amidst a slow, yet generally stable demand environment. Total company reported sales were up 3.1% or 5.1% on a daily organic constant currency basis, with positive contributions from both segments. In the High-Touch Solutions segment, we remained focused on our growth engines and delivered tangible value for our customers, resulting in another quarter of solid performance. Within the Endless Assortment business, our focus on gaining new customers and increasing repeat purchase rates is paying off, and we continue to make progress with these initiatives.

From a profitability standpoint, total company operating margin of 15.4% remained strong, but as anticipated, was down 40 basis points versus prior year. EPS finished the quarter at $9.76, up 5.2% versus the prior year. Beyond the P&L, we achieved ROIC of 42.6% and operating cash flow remained healthy in the quarter, allowing us to return a total of $345 million to Grainger's shareholders through dividends and share repurchases. Overall, the business continues to perform well as we stay focused on the customer and the things that matter.

While 2024 is playing out largely as expected, further yen devaluation and continued pockets of demand stops in the U.S. remain as headwinds. With this, we've trimmed the top end of our earnings guidance range, which Dee will discuss in a bit.

Now I'll turn it over to Dee.

[Deidra Merriwether, executive]

Thank you, D.G.

Turning to Slide 7. You can see the high-level second quarter results for the total company, including 5.1% growth on a daily organic constant currency basis. The quarter played out largely as anticipated, despite the persistent demand softness D.G. mentioned.

Operating margins were down 40 basis points year-over-year, generally following normal seasonal trends. Gross margins were flat year-over-year as the number of items offset within the period and SG&A delevered 40 basis points as we ramp our demand generation investment. In total, we delivered diluted EPS for the quarter of $9.76, up 5.2% or $0.48 over the prior year period.

Moving on to segment level results. The High-Touch Solutions segment continues to perform well with sales up 3.1% on a reported basis or 3.7% on a daily organic constant currency basis. Results were driven by strong volume growth and moderate price contribution across all geographies in the period. In the U.S. specifically, nearly all customer end markets were up year-over-year with warehousing, contractors and health care customers having the largest gains. For the segment, gross profit margin finished the quarter at 41.7%, flat versus the prior year. In the quarter, we expensed an unfavorable lap of roughly 40 basis points from the nonrecurring rebate benefit captured in Q2 of 2023, which was offset by several small tailwinds in the current year period. When excluding the unfavorable lap of nonrecurring rebate, price cost was roughly neutral in the quarter.

SG&A delevered 40 basis points in Q2 as DC capacity came online, and we continue to invest in demand-generating activities like marketing and seller head count. Annual merit increases that went live in April were offset by productivity actions and lower variable compensation expense within the period. Overall, it was a solid quarter of growth and profitability for the High-Touch Solutions business.

Looking at market outgrowth on Slide 9. We estimate that the U.S. MRO market, including volume and price, grew in the quarter between 2.5% and 3%, with price contributing nearly all of the growth. Within our High-Touch Solutions U.S. business growing at 3.6% organically, our mathematical market outgrowth in the quarter was roughly 100 basis points in total. This includes approximately 300 basis points of volume outgrowth contribution netted against the continued price tailwinds when comparing our price contribution to PPI.

As we said before, there is no perfect way to measure the MRO market, and we're currently in a cycle where the headline PPI and IP metrics don't completely reflect what we're seeing in the MRO specific space. With the differences in product and customer mix, these disconnects happen from time to time and cause short-term noise within our external market share gain calculation.

Given the current dislocation we're seeing this year, it's unlikely we will mathematically achieve our market outlook target in 2024. However, we have several different ways, including both internal and external data points, to understand our relative performance and know we're performing quite well in the current environment. History would suggest that this dislocation will normalize over a multiyear period and we believe this metric remains useful in tracking our relative performance over time. We're still generating strong returns on our demand-generating investments, which gives us confidence that over the long term, we will continue to outload the market by 400 to 500 basis points annually on average.

Now turning to the Endless Assortment segment. Sales increased 3.3% or 11.7% on a daily constant currency basis, which adjusts for the impact of the depreciated Japanese yen. Zoro U.S. was up 8.7%, with MonotaRO achieving 13.2% in local days local currency. At a business level, Zoro saw improved growth from core B2B customers who were up mid-teens in the quarter. Performance was driven by B2B customer acquisition and improved repeat purchase rates, which were aided by service enhancements to increase same-day shipping and better communicate delivery date.

Headlines from the continued unwind of noncore business, including B2C and B2C like volumes started to dissipate in the quarter but remained down low double digits year-over-year. We expect these B2C headwinds to continue to subside as the year progresses.

At MonotaRO, sales were strong from continued growth with enterprise customers, coupled with solid acquisition and repeat purchase rates with small and midsized businesses. On a reported basis, these results were all offset by continued foreign exchange rate pressures as the yen continues to show incremental weakness against the dollar.

On profitability, operating margins for the segment declined 70 basis points to 7.9%. This decline was driven by lower gross margins at MonotaRO from product and customer mix headwinds combined with SG&A deleverage at Zoro as the business ramps marketing investments and re-baselines on lower B2C and B2C like volume. As these volumes normalize, this should create a better baseline to relever the business going forward. Overall, for Endless Assortment, we're encouraged by the strong progress in the quarter, and are on track to finish the year at or above our original expectations.

Now moving to the updated outlook for the remainder of 2024. As D.G. mentioned at the beginning of the call, we are trimming the top end of most estimates to reflect continued market softness as macroeconomic uncertainties persist in the U.S. With this, we are now expecting total company daily organic constant currency sales to grow between 4% and 6% for the full year of 2024. When including the continued deterioration of the Japanese yen, this translates to an updated reported sales range between $17 billion and $17.3 billion and an EPS range between $38 and $39.50. As you can see on this slide, we flowed these changes through and have also made slight tweaks to the margin outlook based upon how we're performing in the first half.

I want to note, while we continue to remain diligent on managing expenses and measuring returns, given the softer topline, our ability to generate leverage is challenged this year as we invest in our growth engines to power long-term share gain. Setting that aside, we remain strongly committed to growing SG&A slower than sales over time and have a track record of doing so. Supplemental guidance ranges, including increased operating cash flow and share repurchase expectations can be found in the appendix of this presentation.

On seasonality, as we move to the second half of the year, we expect relatively normal sequential growth from Q2 to Q3 and into the fourth quarter. There are some puts and takes from a profitability perspective. but we anticipate operating margins and earnings to remain healthy and relatively consistent in the third quarter when compared to the second.

As we start the third quarter, a number of external factors have impacted our results in July. The sales started to ramp in the final few days of the month. This led preliminary July sales results to finish up roughly 2% on the total company daily organic constant currency basis. Of note, this number will be approximately 100 basis points higher if you normalize for the tough comp caused by an elevated level of project-related service engagement in July of last year. Altogether, at the total company level, we're performing well and are confident in our ability to drive solid growth and strong profitability in the second half of the year.

With that, I'll pass it back to D.G.

[Donald Macpherson, executive]

Thanks, Dee.

As we head into the second half of 2024, a number of macroeconomic uncertainties remain ahead, but our teams are committed to focusing on what matters most, meeting our customers' needs and creating value for their businesses. We know that our ability to serve our customers better than our competitors relies on having a strong culture where team members can have a meaningful and fulfilling career.

Among several other recognitions this year, Grainger was recently named the best workplace for millennials. These awards are a testament to the well-rounded culture we've built to help us fulfill our purpose. I'm confident that Grainger will continue to be recognized as an employer of choice because of the emphasis we put on living our principles. One of those principles, starting with the customer, it's key to achieving great results for all stakeholders. And I'm confident that we will continue to do that in 2024 and for years to come.

And with that, we will open the line for questions.

[Operator]

[Operator Instructions] Our first question is from Tommy Moll with Stephens Inc.

[Thomas Moll, analyst]

I wanted to start on the High-Touch business, where once again, the midsized customers outgrew the large. And my question is really, how much do you think this is a function of share gain versus some other factor? How important to the midsized customers is the digital capability versus that level of importance for the larger customers? And what do you think the runway is ahead on these favorable trends for the midsize?

[Donald Macpherson, executive]

Yes. Thanks, Tommy. I think most -- almost all of the growth in midsize customer and the outgrowth would be share gain. The reality is that -- and I think most people know the story. We, at one point, were close to $2 billion in revenue. We got down to $800 million. We're back up to where we were. We think there's a long runway ahead. We believe that the digital capabilities we've built and the customer and product information assets we built help us with midsized customers significantly. And so really, we think it's what we're doing to build relationships with them through digital capabilities, a lot of those customers when you look at how they buy, start digital and that's their main channel.

[Thomas Moll, analyst]

Shifting gears. D.G., last quarter, you referenced inflation being stickier than expected and talked about some corrective price actions slated for early May. I'm just curious for an update there, how is realization. And do you still think you'll land in price cost neutrality by the end of this year?

[Donald Macpherson, executive]

Yes. Yes. We do believe we'll land in price cost neutrality by the end of the year, the price realization -- the realization of the pricing actions on May 1 have been basically as expected. We talked about at the beginning of the year, we were a little bit behind on price increases. We are making some of that up as the year progresses. And notably, gross profit remains strong. So we are not concerned about ending the year as we expect.

[Operator]

Our next question is from Dave Manthey with Baird.

[David Manthey, analyst]

You may have mentioned this, but June average daily sales running up 7 after sort of 4 to 5 all year? Is there anything we can read into that? And again, I apologize if you mentioned it, but did you make any comments on the trends in July so far?

[Deidra Merriwether, executive]

Yes. On the reported remarks, we noted that preliminarily, July is rolling up around 2%. However, if you recall, we believe if you normalize for some project-related service revenue -- outside project-related service revenue we had last year, that would -- that would put us north of 3% for July.

[Donald Macpherson, executive]

I would just say that, Dave, that I think that June, July, the differences are probably noise. We actually don't think there's -- we look at daily run rates, we aren't concerned about anything, and there's nothing that I would say that would necessarily cause us other than noise.

[David Manthey, analyst]

Yes, makes sense. And then I know other international is small, but we're talking $300 million drag on overall profitability, maybe a distraction, I don't know. Could you update us on the other international operations and what you're targeting there medium term?

[Deidra Merriwether, executive]

Yes. The majority of that is Cromwell plus some other charges in other. But the Cromwell business has been working towards profitability. And if you recall, our results last year, they exited the year profitable and they continue to see profitability this year. Now in this quarter, they had a little bit of a challenge with some gross margin related to customer mix, but we expect them to end this year profitable as well. And we feel like the U.K. is an important market for us. And we just -- with Brexit and some other challenges over the last couple of years has kind of delayed some of our strategic plans in that business. But that -- we feel that business is doing really well and have outgrown the market the last 6 quarters.

[Operator]

Our next question is from Ryan Merkel with William Blair.

[Ryan Merkel, analyst]

I wanted to go back to pricing. What do you expect for '24 now? And any more color you can provide on the May and September increases? Was that on specific products? Or was that across the board?

[Donald Macpherson, executive]

So I guess what I'd say is we follow 2 tenets, we want to make sure that we are priced competitively, and we want to make sure that over time, we're shooting for price/cost neutrality. I think we will do that this year. Our price increases this year will be modest overall. Our cost increases will be modest overall on product cost. But we are making adjustments both at May 1 and September 1 and those adjustments aren't meaningful. In aggregate, we would expect to be in that 1% range that we talked about roughly at the beginning of the year.

[Deidra Merriwether, executive]

1 or 2.

[Ryan Merkel, analyst]

Okay. Got it. That's helpful. And then just back to the macro, D.G., any factors you would point out that caused you to lower the second half or maybe just rank the things that drove that? And generally, what are you hearing from customers about the outlook?

[Donald Macpherson, executive]

Yes. I think what we're seeing is what everybody is seeing, if you look at sort of the general demand environment, it's pretty slow. It's consistent, though, there's not a lot of panic. There are certain industries that have had significant challenges this year, pockets of automotive, pockets of other. I won't get into too many details about those, but certainly, there are -- there are pockets of weakness that have been significant and some pockets of strength. And I think that just continues to be the case. We expect -- I think we came in thinking that volume this year would be flat in our market, roughly something like that, and it's probably going to be down 1 now. So that's probably -- given what we've seen, that's probably the biggest change we have in our projections.

[Operator]

Our next question is from Jacob Levinson with Melius Research.

[Jacob Levinson, analyst]

On the marketing investment, I know you guys have a tight feedback loop there and understanding where to -- where to push the accelerator or not. But is that spend something that you would look to actually flex up in sort of a swappier macro environment? Or is it really not demand dependent, if you will?

[Donald Macpherson, executive]

So the way we measure marketing, we look at -- we run tests all the time. And that guides us on how much to spend. So the -- you could argue that in certain macro environment, those tests might show different results. But in general, that's not going to change how we think about spending. We're spending to levels that give us a margin return that we expect. And none of that's changed, and I wouldn't expect that to change through time.

[Jacob Levinson, analyst]

Okay. That makes sense. And then just on the distribution investments that you're making, I know that's been pretty well telegraphed back at your Analyst Day a few years ago. Can you just help us understand where you are in that cycle? And maybe just give us a sense of maybe what the utilization rates look like today in your network.

[Donald Macpherson, executive]

Yes. We're -- the network is pretty busy, I'd say. We -- we probably -- I think we talked about this in 2022. We were probably a bit behind. It was difficult to actually build anything during the pandemic to get materials and finished things. We have -- we have remedied some of that situation, we've put in 3 new bulk warehouses, the building in the Northwest, the shell of the building is up and we will start receiving by the end of this year and start shipping next year. We have a building in Houston that is just land now, but that's going to go up as well. So we've talked about those 2 and announced those 2 buildings. I would say that the biggest bulge in capital right now, we would project would be probably next year as we finish those 2 buildings out and then we expect to be in probably more normal times after that and being a little bit better shape from capacity perspective. But the plan has just been executed exactly as we expected and timing that we haven't changed on any of that.

[Operator]

Our next question is from Deane Dray with RBC Capital Markets.

[Jeffrey Reive, analyst]

This is Jeff Reive on for Deane. My first question is on the Endless Assortment segment, pretty nice organic growth this quarter. I know one of your peers had some e-commerce stumbles recently. Curious if you're winning share there or if that may be created an opportunity to do so?

[Donald Macpherson, executive]

I wouldn't necessarily tag what happens to us -- to any specific competitor. The market is quite big that Zoro in the U.S. plays in. I think what's happened with us is we've gotten much better at getting better repeat rates, and we've been able to get better acquisition also this year. So the 2 things we focus on have gone better, but I wouldn't tag it to any competitor.

[Jeffrey Reive, analyst]

Got it. And then just on guidance, the kind of turning the high end. I think you called out kind of the weaker macro and yen devaluation. If you had to kind of peg a percentage to each of those buckets, kind of how should we think about it?

[Deidra Merriwether, executive]

Can you repeat that? I'm trying to make sure I'm following your question around guidance.

[Jeffrey Reive, analyst]

Yes. Yes. So you trimmed guidance and basically called out, it's a combination of a weaker macro and then also the yen devaluation. I was curious if you could just kind of point to -- kind of give a percentage to each one into the kind of the reasons behind the trimming of the guidance. Is it more macro, is it more yen?

[Deidra Merriwether, executive]

Okay. So more macro, so probably 2/3 macro and probably 1/3 yen.

[Operator]

Our next question is from Christopher Glynn with Oppenheimer.

[Christopher Glynn, analyst]

Just Slide 19, you show the verticals for HTS and really pretty remarkable balance across there with just a couple of flat, everything else up. Was curious about the double-digit categories, warehousing and other and then contract are up high single digits. I think other is a bit of a grab bag, but those numbers for those sectors seem a little incongruous with general macro. So curious if you could opine there.

[Donald Macpherson, executive]

Yes. I mean so for contractors, in particular, I'd also make a point that we're pretty small. So we start with a pretty small base. So I'm not sure that you can compare that to what's going on in the broader market. Warehousing, there's some comparisons to last year with some customers that are positive right now that's driving that. I wouldn't read too much into those just to be fair. I think that we're performing fairly consistently across the segments and then you have sort of in-year impacts that are a little unusual into some of them.

[Christopher Glynn, analyst]

Okay. And then second question is on Zoro. Could we get an update on the path to margins? Clearly, demand gen is going very well there back to mid-teens for the B2B, but kind of low single-digit margins. How should we -- maybe just want to revisit the path there to get to target margins?

[Donald Macpherson, executive]

Yes. What I would say is that probably low point, it was probably fourth quarter was last -- end of last year. We think from now on, we're going to get better consistently, and we'll be able to get SG&A leverage as we move forward given the growth rates we're seeing. So it will start to get better through the back half of this year and we think into next year as well. And so we're pretty confident that we'll start the rise. It's not going to be fast. It's going to be very consistent in terms of getting improved margins into the business.

[Operator]

Our next question is from Patrick Baumann with JPMorgan.

[Patrick Baumann, analyst]

Quick one maybe for Dee. Can you talk about the external factors that you mentioned impacting the July growth rate. And you mentioned a ramp back toward the end of the month and something about sequential growth from second quarter to the third quarter, but my line cut out. So just wondering if you could rehash what you were saying on that.

[Deidra Merriwether, executive]

Yes. Well, if you look at just July, you're talking about July now and not the prior quarter, right? When we started this month, the month started a little slow. There were a number of things that happened. There was some weather-related impacts that didn't go in our favor. There was also a well-known IT outage that impacted a number of our customers as we cover a lot of people in the U.S. And then there was just some general holiday softness. This is really unique because a lot of it happened around the same time. So really, really hard to measure. I'll say the good news is the last week of the month has been -- was really strong for us. And so that is a good sign. So those were some of the impacts that we noted on a go-forward basis.

I think you're asking the next question sequentially. Sequential sales, am I correct, from like this quarter to the next. If you look at that from a topline perspective, we expect that to be reasonably consistent Q2 to Q3 and then through the fourth quarter. And then as it relates to some of our other metrics from a sequential perspective, we're expecting profitability -- sequential growth from the revenue number that I just talked about. We expect profitability. There's going to be some puts and takes there, but we anticipate operating margins and EPS to also remain relatively consistent through the balance of the year.

[Patrick Baumann, analyst]

Okay. And then I may have missed, but did you talk about the restructuring you did in the quarter? Was it -- just kind of what was it? And what is the expected benefit from it? Is there more to come in terms of the restructuring? Or was it kind of isolated just to the second quarter?

[Deidra Merriwether, executive]

Sure. As we've talked about making sure that we could continue to invest in the cycle to ensure that we have long-term share gain. A part of that is making sure that we're paying for some of those investments through productivity actions. And so our entire business is really focused on continuous improvement and looking at how we can drive productivity. So a lot of those actions were focused on voluntary actions with team members and that happened both in the U.S. and internationally quite a bit. We see that as a onetime specific incident. However, our focus on continuous improvement is longer term. And we -- in doing those things, we are gaining scale on our non-demand generating expenses, and we expect that to continue through the cycle as we continue to invest in demand generation.

[Operator]

We have reached the end of our question-and-answer session. I would like to turn the conference back over to D.G. for closing remarks.

[Donald Macpherson, executive]

All right. Thanks for joining us. It must be a busy day because we didn't get as many questions as normal. But I appreciate you joining. And I would just reiterate that we are -- we feel really good about where we're at. We're going to continue to invest in the core capabilities that we need to build to make sure that we can serve customers better than our competitors. That's really what we're focused on. And we're also focused, as Dee said, on driving productivity through the business. We think doing both of those things at the same time is absolutely critical for our long-term success.

So I hope you enjoy the rest of your summer, and thanks. Thanks for joining our call.

[Operator]

Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.