Q2 2022 Federated Hermes Inc Earnings Call
Good day, ladies and gentlemen, and welcome to the Federated Hermes Q2, 2022 analyst call and webcast.
At this time, all participants have been placed on a listen only mode and the floor will be open for questions and comments. After the presentation. It is now my pleasure to turn the floor over to your host Ray Hanley President of Federated Investors Management company, Sir the floor is yours.
Good morning, and welcome leading today's call will be Chris Donahue, Federated's, CEO and president of Federated, Hermes, CEO , and President and Tom Donahue, Chief Financial Officer.
And joining us for the Q&A are soccer to save me.
The CEO of Federated Hermes limited, our international business, and Debbie Cunningham, Chief investment officer for the money markets.
During today's call we may make forward looking statements and we want to note that Federated Hermes actual results may be materially different than the results implied by such statements. Please review our risk disclosures in our SEC filings.
Assurance can be given as to future results and Federated Hermes assumes no duty to update any of these forward looking statements Chris.
Thank you Ray good morning, all I will review Federated Hermes business performance, Tom will comment on our financial results.
Last week, we proudly announced the agreement to acquire CW of Henderson and Associates, Inc.
Cargo based registered investment adviser with more than three decades of experience specializing in the management of tax exempt municipal securities in SMA products.
W. Henderson manages approximately $3 $6 billion in assets.
The expected edition will enhance and complement our existing muni team and strategies where.
Where we manage about $13 billion at the end of the second quarter.
It will also enhance our overall SMA business, where we currently manage about $26 5 billion in 35 equity and fixed income strategies.
The transaction is expected to close in the third quarter.
And we welcome all of the employees of CDW Henderson, just Federated Hermes and look forward to working together to develop growth opportunities and to continue to provide outstanding performance and customer service.
Turning now to Q2.
In a quarter that presented challenging markets across asset classes.
Our business mix enabled Federated Hermes to end the quarter with an increase in both total assets and revenues as growth in money market assets offset decreases in long term assets.
Looking first at equities.
More than 90% of the decrease in assets during Q2.
Due to market losses, and the impact of foreign exchange rates.
Equity total net redemptions were $969 million.
This included approximately $1 1 billion.
In institutional separate account redemptions by BT P S.
Our equity mutual funds and SMA produced combined net sales of just under $600 million.
These net sales were driven by the strategic value dividend strategy.
The domestic strategy had Q2 net sales of about $1 9 billion with both the funded $1 billion in the SMA at 900 million producing solid net sales.
The strategic value dividend fund was recently highlighted in the Wall Street Journal article as the top fund among the 32 out of 3800 42 actively managed U S stock funds to finish the rolling 12 months period, ending with Q2 in positive territory.
Tori based on Morningstar data.
The article further noted that the fund was the only one with double digit positive returns for that period.
We saw Q2 positive sales in 16 equity fund strategies, including several international strategy, such as international strategic value dividend.
Asia ex Japan International equity and.
And STG engagement.
Net redemptions were concentrated in growth strategies about $955 million, reflecting difficult market conditions for these strategies.
We continue to emphasize asset classes and strategies that have responded well in past inflationary periods, including dividend income international emerging markets and value strategies.
We are also expanding our equity product line, including the recent launch of a bio diversity equity fund.
In collaboration with London's Natural History Museum.
The funds invest in companies that are helping to preserve and restore biodiversity.
Our equity fund performance at the end of the second quarter compared to peers with solid using Morningstar data for the trailing three years at the end of Q2, 57% of our equity funds were beating peers and 29% were in the top quartile of their category.
For the first three weeks of Q3.
Buying the equity funds and SMA had net redemptions of $50 million.
We had 16 equity funds with positive net sales in the first three weeks of July including strategic value dividend Asia ex Japan, MDT small cap core and MDT small cap growth.
And international strategic value dividend among others.
Turning now to fixed income Q.
Q2 saw net redemptions of about 2 billion down slightly from Q1.
Fixed income separate account net sales of $1 8 billion were offset by $3 8 billion of fund net redemptions.
Fixed income separate account net sales were driven by multi sector strategies.
Within fixed income funds net redemptions of about $1 $4 billion occurred in the three ultra short funds. In addition high yield funds had about $900 million of redemptions.
Most categories of bond funds had net redemptions, reflecting another quarter of difficult market conditions. Even so we had 11 fixed income funds with positive net sales in the second quarter <unk>.
Including capital preservation adjustable rate.
<unk> of Muni micro short climate change high yield credit inflation protected securities among others.
Regarding performance at the end of the second quarter end using Morningstar data for the three trailing years.
66% of our equity funds of our fixed income funds.
We're beating peers and 22% were in the top quartile of their categories.
For the first three weeks of the third quarter.
Fixed income funds and SMA had net redemptions of about 524 billion again, mainly from the ultra short funds $256 million.
<unk>.
Okay.
High yield of $172 million each trending better.
During this same period. However, we had 14 fixed income funds with positive net sales led by municipal high yield advantage Fund total return bond fund and Conservative municipal micro shorts.
And the author alternative private markets category net sales up $25 million included positive sales in real estate.
Prudent bear MDT market neutral and trade finance.
These however were largely offset.
<unk> net redemptions and absolute return credit.
Infrastructure private equity and unconstrained credit.
We recently closed the second vintage of our European direct lending private market strategy with nearly $600 million of committed funding.
Of the 19 investors, who make these commitments 13, where new investors. We expect these fundings to occur over the next nine to 12 months.
We launched our fifth vintage of Peck Vec, our co invest private equity structure. In 2021, we were pleased to hold our first closing in the fourth quarter of 'twenty, one with $350 million we.
We held our second closing last months, adding a significant Korean institution and bringing our total raised to $401 million.
Due to demand we will continue to market <unk> five for the remainder of 2022.
Okay.
We recently launched our third vintage of the horizon private equity fund with commitments so far.
1.15 billion, including $1 billion from Bts as we announced this past may.
We began Q3 was about $2 4 billion in net institutional mandates yet to fund into both funds and separate accounts.
About $1 $9 billion of this total is expected to come into private market strategies, including direct lending $900 million.
Private equity $500 million and unconstrained credit $500 million.
Now moving to money markets.
Assets increased about $19 billion in the second quarter compared to the first quarter with nearly all of the growth coming from money market funds.
The fund's benefited from higher yields from continued elevated liquidity levels in the financial system money funds also benefited from higher yields relative to deposit alternatives.
Our money market mutual fund market share, which includes sub advised funds was about seven 3% at the end of the second quarter up from six 9% at the end of the first quarter.
With the recent increases in short term interest rates.
Money fund minimum yield related waivers have nearly six.
We continue to believe that the higher short term rates will benefit money market funds over time, particularly as compared to deposit rates.
Taking a look at recent total assets managed assets were approximately 631 billion include.
Including $436 billion in money markets 80.
<unk> two 5 billion in equities.
88 billion in fixed income 21, 5 billion in alternative private market and $3 billion in multi asset.
Money market mutual fund assets were at 296 billion.
Thank you Chris.
Total revenue for the quarter increased $41 million or 13% from the prior quarter due mainly to lower money market fund minimum yield related waivers of $66 3 million.
An additional day in the quarter and higher carried interest in performance fees, partially offset by lower average long term assets.
Which reduced revenue by $22 6 million.
And <unk>.
Lower average money market assets, which reduced revenue by.
<unk> 9 million.
Q2 carried interest and performance fees were $2 5 million compared to about 100000.
Q1.
Operating expenses increased $33 million or 14% in Q2 compared to Q1, driven by $48 5 million of higher distribution expense from lower money market fund minimum yield related waivers.
The decrease in compensation and related expense from the prior quarter reflects Q1 <unk>.
<unk> expenses for severance.
Recently.
Higher stock compensation and payroll taxes.
And lower Q2, FX rates per pound Sterling based compensation.
Higher advertising and promotional and travel and related expenses were due mainly to seasonally lower Q1 expense and rebounding travel opportunities in Q2.
As we move from the low travel volume during the pandemic.
With short term rates higher in Q2, the negative impact on operating income from money market funds minimum yield related waivers decreased to about 500000 compared to $18 million in Q1.
These waivers are now de Minimis.
Nonoperating results after subtracting the impact attributed to the Noncontrolling interest reduced earnings per share for the quarter by about <unk>.
Due to the negative market impact on our investments.
At the end of Q2 cash and investments were $430 million of which about $379 million was available to us.
Debt at the end of Q2 was 397 million.
Mostly from the $350 million of long term debt added in Q1.
During Q2, we repurchased two 9 million shares.
Of our stock for approximately $90 million.
Chris mentioned.
His comments are a large UK.
That completed their planned multi year drawdown of public equity strategies, and we continue to have a great relationship with this long.
Charge clients since we purchased Hermes from them and completed that purchase last year <unk> continues to be a great client and we have a great relationship and private markets.
Real estate infrastructure and looking forward to growth further and private lending also.
Chris also mentioned that we recently announced the definitive agreement to acquire substantially all the assets of CW Henderson and Associates, Inc.
Subject to customary closing conditions.
The initial purchase price for the transaction is expected to be $30 million based on current asset levels.
Assuming a certain level of consent to assignment of CW Henderson investment advisory contracts.
Are obtained.
The transaction also involves the opportunity for CW Henderson to earn a series of contingent purchase price payments.
Which can't total as much as $20 million.
The aggregate $20 million in the aggregate and can become payable annually for the next five years based on certain levels of net revenue growth being obtained.
We expect the transaction to be accretive by about one half of <unk> and.
In the first year, excluding the upfront transaction costs.
Ali that completes our prepared remarks, and we'd like to open up the call for questions now.
Certainly ladies and gentlemen, the floor is now open for questions. If you have any questions or comments. Please press star one on your phone at this time, we ask that while posing your question. Please pickup your handset listening on speaker phone to provide optimum sound quality.
Hold while we poll for questions.
Your first question for today is coming from Patrick Davitt. Please announce your affiliation then pose your question.
Hi, good morning, everyone.
Okay.
Questions on kind of the money fund flow dynamics, obviously, you had a monster June took a lot of share in the second quarter, but now in July youre back an outflow, but the industry is still insignificant inflow. So what do you think is driving that sudden divergence in how should we think about your ability to take your fair share of these deposit rotation.
The balance of the year.
First point and then I'll, let Debbie comment is very very very difficult to make a long term comment on a couple of weeks and so we have big clients I'm looking at the lift and you've got.
2 billion $4 billion 6 billion.
$3 billion days up and up and up and down.
So far here in July and it's just tough to make a prognostication from that.
For more Debbie we will have a comment.
Thanks, Chris and ultimately I'm, just going to say that on the very negative days, we had a pre authorized client yes.
Parcher from about a year ago that was set for this summer. So we had some flows in outflows in may They started in May June July they got larger.
If you net those out that single one large client that has moved into another type of product.
With their underlying client flows.
We are above the industry flows with that sort of data. So so basically large clients similar to what Chris was saying in this case three authorized that we knew about and were not right.
Okay, Great. That's very helpful. And then a quick follow up on the call I just want to make sure I heard correctly that you said that the V. TBS is kind of finished with the balance of the planned drawdown from from <unk>.
The merger yes.
Yes.
Alright, Thank you very much.
Your next question for today is coming from Dan Fannon. Please announce your affiliation then pose your question.
Thanks, Good morning, Dan Fannon from Jefferies.
Wanted to follow up on the money market business and make sure we understand kind of the.
The flow through for the income statement.
As we think about exiting <unk>.
Geography of the fee waivers and how we should think about the economics of those products flowing through now kind of normalize with both on the revenue side as well as thinking about the relationship with distribution expense.
Dan It's Ray I think that's largely true I mean the <unk>.
Yield improvement happened.
Even coming out of Q1 continued into Q2 and of course some of that came in late.
So.
The waiver recovery.
Was nearly complete you will still see a little bit of.
In your terms normalization in Q3, but it's largely complete and so yes, the geography is.
At this point reflective of what it will look like.
Based on the current assets current channels.
Current funds.
All of that that can change around obviously, but that would be based on.
Client changes not not the yield waivers.
Okay.
Yes.
On the distribution expense line item.
Our full year or full quarter, sorry run rate.
You should expect that number to go up just based on only on full restoring of the waivers.
Like radio said what happens with assets.
And we'll see what happens with the rest of the distribution expense line item.
Understood and I believe there is also within.
Investment management fees and advisory fees as well as other service fees that mix also is that similar.
There'll be some recovery in that again, assuming the full flow through of the of the full quarter just like the distribution expense.
Yes, we are talking about them both combined.
It's true of the line items as well yes.
Got it and then.
Just looking at expenses in the back half of the year, obviously travel is picking up some of the more discretionary things.
Other areas to think about whether either you or <unk>.
Spending less or spending more.
From what we're seeing in the kind of first half levels any kind of.
Forward looking commentary around the second half of the year would be helpful.
Well I would expect.
Incentive comp to to increase.
I've stopped predicting that but so at least say I expect it to go up.
The ebb and flow we've on boarded over 170 people. This year. So you got to get the run rate of those people wins.
Most of those were replacements.
So the number was low but then you have the stock stock based compensation and severance thing that kind of balance each other out.
So overall on the on the comp just say the incentives are expected to go up we just talked about distribution. So I.
I don't need to go into that one.
Advertising, which includes conferences.
That's probably a similar run rate.
Our systems and in communications, we continue to invest and we got a deal with inflation on our market data.
Cost.
Professional fees inflation.
Danny.
Installation.
And.
I expect that's about.
I'll have to say on that.
Okay. Thank you.
Your next question is coming from Kenneth Lee. Please announce your affiliation then pose your question.
Hey, good morning, and thanks for taking my question.
You mentioned in the prepared remarks ongoing fundraising for the P/e funds.
The direct lending fund as well I'm just wondering how would you characterize the current fund raising environment.
What are you seeing in terms of institutional investor demand.
For these products in the current environment. Thanks.
Sacrum and let you take a swing at that one.
Okay.
Alright, Thank you very much indeed.
So.
If we look at.
In general demand that.
For most of our private assets business I'd say the demand is very strong man. This is evidenced by the fact that.
We closed our direct lending higher than we expected.
We also have the three investments.
Our private equity funds, which was very encouraging and remember.
That case this is a commitment for several years.
We've seen commitment to infrastructure as well.
We also announced one.
Joint venture.
Property fund so it depends.
Time of onset.
What we are seeing I can't speak for the whole market. That's what we are seeing is that the demand for private assets.
Great that's very helpful.
And just one follow up if I may just in terms of the money market fund side on the regulatory side.
Any updated thoughts or any updates around that area. Thanks.
There arent any real updates can we.
We continue to repeat the sounding joy of the beauty of money market funds. We continue our efforts to talk with all of the commissioners.
Talk to the staff.
Even to talk to treasury when we can about the importance of these money funds in the market.
The only update that I would have to be timing.
The rumors are notice rumors that perhaps in October they might finalize the rule what will be in it I don't know as you know.
Our comments have been that swing pricing as a plague on money funds and it's a novel plague and that it's never been tried before.
<unk>.
We have also commented that.
All you have to do is to attach the fees and gates.
From the liquidity requirements.
And you're all set to go and let the board decide how to run these funds and use all the tools. They have in order to do the best fiduciary response for the.
Customers.
So.
That's a little summary, just fix what was broken declare victory and move on has been our message.
Got it very helpful. There. Thanks again.
Your next question for today is coming from Ken Worthington. Please announce your affiliation and pose your question.
Hi, Good morning, Ken Worthington from Jpmorgan, So first on SMA.
I believe strategic value is a big part of SMA strategic value appears to be like just crushing it at the moment.
But SMH have.
And reasonable redemptions.
So I'm trying to sort of.
Figure that out how should we expect fund sales here to rebound in the SMA version of strategic value as we look forward.
I'm a bit surprised that that maybe things don't look better in sma's, given how long of a strategic value Sterling, but anyway, how help me reconcile the strength of strategic value and the weakness of SMA sales.
Ken It's ray.
So on.
SMA is.
The total net inflows for the.
Quarter.
We're just under $1 billion and yes, yes, most of that was from <unk>.
Strategic value, but our fixed income SMA.
At that inflows and some of the other equity strategies had net inflows, though again strategic value was the bulk of it.
So SMA as a part of what we report.
The separately managed account assets.
And.
So when youre seeing the negative there youre picking up.
The $1 1 billion that we talked about with coming.
Coming from Bts to complete their draw down and then other clients puts and takes.
But the SMA business in and of itself.
<unk> had a very solid quarter.
Okay, great I'll, probably screw that up but thank you.
And then on the planned client redemption.
Money market funds that you announced that's taken place over the last couple of months how.
How much is left with that client or are they are they mostly cleaned up and that redemption or are there is there still significant money left to come out.
As part of that planned redemption. Thank you.
Debbie.
Yes, the vast majority of that is out there is still some tail to clean up but the majority of Bernstein.
Okay, great. Thank you very much.
Your next question is coming from Michael Brown, Please announce your affiliation and pose your question.
Hi, Mike Brown from K B W.
Good morning.
I wanted to take a step back in and.
And your thoughts a little bit about the outlook here for the money fund business obviously.
In a very rapid pace and rate hikes here from the fed and the market's pricing and actually cut next year. So I know you don't have a crystal ball on the forward curve changes all the time, but.
Whether you whether you.
Corporate industry research or your own historical experience.
How do you how should we think about how the money flows Muni fund flows could perform over the next 12 to 18 months and obviously, it's very fluid, but just be interested to hear your thoughts.
From a longer term perspective, Mike.
Put a chart in our booklet that shows you the increase in the money supply going up.
On average, 7% over some long long long period, and the money funds going up both in industry and in February of course, federated growing higher than industry, but.
Going up slightly higher and what that tells you is that as the money stock goes up people need to put it somewhere and the money market funds as a group are very very valuable and efficacious place.
For short term cash whether or not people are worried about inflation or up rates are down rates or whatever so these things have proven for half a century.
<unk> very resilient.
Securities and places for short term cash we would expect that to continue.
And I would certainly expect.
Especially given what the fed has done to see increased flows all of that subject to whatever the SEC comes up with which probably doesn't get put into effect until sometime in 'twenty three but you cannot let this question go by without hearing Debbie's view on it.
Thanks, Brett.
Yeah, I wouldn't say at this point, we are very optimistic Michael we're still looking at a bed that is increasing rates you know and as they should be.
With respect to inflation fighting that continues to be their number one goal is to bring inflation back under control. We had you know the PCE came out this morning at four 8% on a year over year basis airplanes, six month month over month doesn't put us higher than expectation. So we're not.
I can't think that they feel comfortable that their goal is being achieved yet at this point. However, if you look at sort of when they started raising rates and they started it with only 25 basis points back in March you know were not even six months into the process and it generally.
There's leads and lags that are.
Different in nature, but generally it takes about six months for <unk>.
Increasing rates to impact other types of statistics in the marketplace. So we think that they are.
Gaining control, but certainly not there yet our expectation we'll continue to see.
Larger increase in front end, then so another 75 basis points likely in September .
And then may be trailing off.
In the fourth quarter and into the first half of 2023, and if you look at you know a terminal rate of somewhere in the 3.5% to 4% area and that holding them for maybe about six months or so depending upon again what is happening.
Told us data dependency is now even more.
A raise a catch phrase that it has been historically and so theyre going to try to react on a dime they might be well and react to new news and additional news as it comes out so we're continuously listening to fed speak we're continuously watching the data as it comes out and we'll go with it.
They give us after each statistic.
With the hopes that you know that what they've done so far starts to be felt.
But agreeing with what what Chris was saying the flows are our incoming the money stock has increased and were not at zero rates anymore. So it's a good environment for people to take cover it's a good environment for new cash flows can be place. It's a good environment for people to earn something in a positive sense.
Versus other asset classes at this point.
Okay.
Great. Thank you. Thank you for all that color, Bobby and Chris I really appreciate that.
And then just change gears to capital allocation so.
We had $90 million of share repurchases in the quarter, you announced the acquisition of CW Henderson, which seems like a nice fit here.
Can you just share an update on how you're thinking about capital allocation going forward and then just touch on if youre seeing any other attractive acquisition opportunities at this time.
Okay.
Sure Mike.
So you know we borrowed $350 million.
And 3% to 9% 10 year money.
And we when we borrow that we knew we knew we were going to get it and we started buying shares we expected to by eight to 10 million shares by the way we thought that rates were going to go up and our stock price was undervalued. So.
With the last three quarters our pace.
Got us to about 10 million shares.
And we also have the money to pay for the CW Henderson acquisition.
So I'd say I think.
Buybacks should scale back from there.
From the recent pace.
If you look at the history.
We've completed about 15 buyback programs since going public and reduced our share count by 33% and right now we have Ah.
5 million share program that is approved and available to us and we will remain active.
In terms of M&A.
We are.
That's perfect. We just announced the deal and then then we're getting asked what's the next deal.
So we still need to close that deal and have that.
That put our efforts to grow which we expect to happen.
Our team on the M&A side and on the <unk> side.
Which is a <unk>.
A lot of opportunities.
We are still active and out there, but I don't have anything specific to talk about there.
Okay, Great I appreciate that and certainly don't mean to imply that.
You're going to go on an acquisition spree just now.
Was interested in the thoughts there.
I appreciate it thanks for taking my questions.
Thank you.
Your next question for today is coming from John Dunn. Please announce your affiliation and pose your question.
Yeah, Hey, John Dunn Evercore ISI.
Could you maybe touch on where the sales discussions in kind of underlying growth of the K picture is for the Kaufmann small cap fund.
I missed some of your words there John .
Please repeat okay, yeah sure Okay, sorry about that maybe could you just touch on where the sales discussions and maybe the underlying gross to K picture is for the for Kaufmann small cap.
Okay and then in general as you know we closed that fund was closed for over a year. The asset figures were up at 10 billion. Neither in the $6 billion range. So we opened it back up because we were getting.
Yeah.
Commentary from some clients.
This would be the time to average in or buy in on the growth side.
On the small cap growth side. So at this point I'll, let ray tell you some of the dynamics sure. John If you look at the redemption trend in that fund.
In Q1.
It was.
About $638 million.
That dropped to three.
365 million for Q2 and.
Through the early part here three weeks of Q3, it's running at more.
More like 58, so it continues to trend downward.
Those are the numbers anecdotally.
Our sales force our regional consultants are having.
Theres a lot of conversation about when is the right time to get back into this strategy.
And the growth but into this strategy in particular, given its long term history.
The record and strength of that team so.
What we've seen so far is diminishing and redemptions and we're anticipating.
Ongoing improvement as there is considerable interest in that strategy.
Great and then maybe just one other on another recent drag on flows.
You talked about better.
<unk>.
Ultra shorting high yield funds do you think that could continue to.
Trend closer to if not to neutral you know less of a drag.
Well.
The word I had in their originally was there less worse and then that was amended to say they were better.
So that still continues.
But the only good thing you can say about those redemptions like with any as once they're gone they're gone.
And.
That's about what we're dealing with there those are still viable products and we even had one of our high yield offerings have positive flows.
So ray will give you some of the details on that.
But those.
We don't see them stopping anytime soon.
Yes, save kind of picture I mean, if you look at high yield collectively.
Where we had.
About $860 million of redemptions in Q2, that's now more like about $170 million.
Again.
Theres been challenge with that asset class with credit.
But.
Our clients certainly know our long term record and the strength of the team we have and so you know as.
As conditions improve and as people become.
More confident in things like high yield exposure, we would fully expect that that would.
Continue to improve and eventually get back to inflows on the ultrashort side. It's all part of the spectrum of what's happening with with liquidity options. So Chris mentioned.
<unk>, having some inflows obviously cash has had inflows when when you get the kind of rate movement that Debbie has talked about.
And you had clients who moved out to ultra short when.
When money market yields were.
Down close to zero, and you can get 1% or plus or minus Senate ultrashort.
There's less reason to do that now.
And so.
Certainly I'm sure has some of that money, that's left ultrashort wash up into the money market part of the.
The complex, but the pace of the.
The net redemptions looks to be decreasing.
It went down slightly in Q2 compared to Q1, and it's trending to be down more.
Then through the very early part of Q3.
Yeah.
Understood Thanks very much.
You do have a follow up question coming from Patrick Davitt, Patrick Your line is live.
Hey, guys. Thanks for the follow up just real quick one on the Big money Fund.
Loves that you were talking about it this summer I assume given what's clearly a pretty big chunk of money that the fee rate on that was quite small is that a fair assumption.
Yes.
It's hard for us to talk about any particular client, even though of course, we haven't named him but.
If you.
The best we could do would be to look at the overall blended fee rates Patrick.
Because it is an intermediary.
There is both revenue and related distribution expense.
And.
But there wouldn't be a reason to highlight this one.
Differently than others.
Okay. Thanks.
There are no further questions in queue I would like to turn the floor back over to Ray for any closing remarks.
Well, thank you very much Holly and that concludes our call and we thank you for joining us today.
Yeah.
Thank you ladies and gentlemen, this does conclude today's conference call. You may disconnect. Your phone lines at this time and have a wonderful day. Thank you for your participation.