Q2 2023 WW Grainger Inc Earnings Call
Good morning, and welcome to the W. W. Grainger second quarter 2023 earnings Conference call.
At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
Please note this conference is being recorded.
I will now turn the conference over to our host Kyle Bland, Vice President of Investor Relations. Thank you you may begin.
Good morning, welcome to Grainger second quarter of 2023 earnings call with me are DJ Macpherson, Chairman and CEO , Andy Mary, whether senior Vice President and CFO .
As a reminder, some of our comments today may include forward looking statements actual results may differ materially as a result of the various risks and uncertainties, including those detailed in our SEC filings reconciliations of any non-GAAP financial measures with their corresponding GAAP measures are found in the tables at the end of this presentation and in our Q2 earnings.
Please.
Of which are available on our IR website.
This morning's call will focus on our second quarter 2023 results, which are consistent on both a reported and adjusted basis for all periods presented we will also share results related to monitor row. Please remember that monitor was a public company and followed Japanese GAAP, which differs from U S GAAP and as reported in our results one month in arrears.
As a result, the numbers disclosed will differ somewhat from monetize those public statements now ill turn it over to D. G.
Thanks, Kyle good morning, and thank you for joining us today I'll provide an overview of our second quarter performance and then pass it to <unk> to walk through the financials in detail.
As we work our way through 2023 Greenfield continues to stay focused on what matters, most providing our customers with the products and services they need through exceptional service everything we do is grounded in our Grainger edge framework, which I'd like to highlight today in the context of our recently released ESG report I would encourage you all to check out the full report at Es.
Grainger ESG dot com.
<unk> has long been a leader in ESG, both for our customers and in our own operations internally, we have laid out for near term ESG focus areas that are important parts of both our culture and operations early indications show that we are making meaningful progress.
I'll start with our customer sustainability solutions in 2022 revenue and high touch U S business for environmentally preferred products was more than $1 billion and has increased steadily over the last few years customer.
Customer conversations around their environmental footprint and become commonplace.
We're well positioned to help customers in this space on the right side, you'll see how we are helping our customers achieve their goals by tying sustainability to our product and service offerings. We recently worked with a large container terminal operator that was in search of an opportunity to offset fossil fuel based energy use enhanced its grid resilience and reduce cost.
So our sustainability services offering the customer purchased and will install more than 300 solar panels. These.
These panels will help them avoid approximately 4000 tons of Cotwo emissions over the next 20 years, the equivalent of 9 million milestone and buy a car. This is just one example, but we partner with our customers like this every day connecting them to our network of service provider partners and helping ensure we can be the go to partner for everything they need to run safe reliable and sustainable.
<unk> <unk>.
Second supplier diversity Granger plays an important role and champion businesses owned by underrepresented groups, including women minorities, LGBTQ plus and people with disabilities through this program last year, we spent more than $2 billion on products from our diverse supplier base and continue to make further progress as we expand partnerships.
This space.
Third energy and emissions since 2018, we reduced our global absolute scope, one and scope two emissions by 26% nearing our 2030 goal of a 30% reduction.
And finally diversity equity and inclusion D is a continuous journey. We are proud to have been named one of Fortune's Best places to work for women. In addition to being recognized by other organizations for our work to celebrate and support all team members no matter their ethnicity orientation age disability or veteran status.
Each of these near term priority is an important part of our ESG focus and are helping us to scale our actions to make a greater impact for both grainger and our customers. Our team will continue to follow the Grainger edge as we make progress toward our own near term initiatives and partner with our customers as they work to achieve their ESG goals together positively impacting the communities.
Where we operate.
Now to review highlights for the quarter as you can see we again delivered a strong quarter of performance as we continue to show up well on supporting our customers as expected year over year growth rates are decelerating, but demand remains reasonably steady.
For the quarter, we finished with daily sales growth of 9% or 10, 1% on a daily constant currency basis.
Our results again were driven by positive performance in both segments, most notably within the high touch solutions segment, which outpaced the broader MRO market by approximately 525 basis points in the U S.
Total company operating margin was 15, 8% an increase of 190 basis points over the prior year as improved gross margin performance was driven primarily by continued supply chain efficiencies and lower freight and container costs.
Combine this with our strong topline growth and we delivered substantial EPS growth robust operating cash flow and continued ROIC of over 40%.
We also returned a combined $265 million to grainger shareholders in the quarter through dividends and share repurchases alongside these great results, we continue to make progress against our strategic initiatives.
And the high touch model, we are advancing our proprietary product and customer information management systems that fuel our growth engines and allow us to advance marketing merchandising and seller investments in the U S.
This assortment business is seeing some macro related demand softening in the U S. But overall the team continues to focus on providing reliable service, while increasing repeat purchase rates with core BTB customers zoro and growing with enterprise customers and monitor them.
Lastly, a few weeks ago, we announced our plans to construct a new 500000 square foot distribution center outside of Portland, Oregon, which will support our customers across the Pacific Northwest and is expected to open in 2025. In addition, we are implementing three smaller bulk style distribution centers in Pennsylvania, Texas, and North Carolina, which are.
Each slated to open over the next few quarters. These investments enable us to keep up with strong customer demand and allow us to extend our industry, leading service capabilities, which deliver a best in class experience focused on next day complete fulfillment across the United States as.
As we remain focused on what matters I am pleased with the progress we have made through the first half of 2023 with a strong execution and as market demand remains reasonably steady we're raising the midpoint of our full year 2020 through revenue and EPS guidance I will now pass it over to D to go through the details.
Thanks D G.
Starting with slide eight you can see the high level results for the total company, including strong daily sales growth of 10, 1% on a daily constant currency basis.
Although year over year growth rates decelerated compared to Q1 as inflation cool and as we lap a tougher prior year comparison daily sales dollars remained strong and we are on track to deliver a great year.
Total company operating margin was up 190 basis points as expanded gross margins in both segments were further aided by SG&A leverage in the high touch solutions North American segment.
In total we delivered diluted EPS in the quarter of $9 28.
Which was up 29% versus the second quarter of 2022.
Diving into segment level detail.
For the second quarter, we continued to see strong results within our high touch segment with daily sales at nine 9% fueled by revenue growth in all geographies.
Although year over year growth rates have slowed as we lapped prior year price inflation volume growth remains healthy and was generally in line with our expectations for the quarter.
In the U S. We continue to see positive growth in nearly all customer and segment. However, this does include pockets of softness including accelerating growth in manufacturing and commercial services.
However, given our diversified customer base.
This is countered by strong growth in other areas, such as government and health care.
In Canada, the economy remains stable and.
And we are seeing strong results with Canadian daily sales up about 7% in local days in local currency.
For the segment GP margin finished the quarter at 41, 7%.
200 basis points versus the prior year.
Product availability levels remain high resulting in fewer packages and shorter distant shipments in the current year as service returned to near pre pandemic level.
This one coupled with lower fuel and container rate is driving significant fuel and supply chain tailwind in the quarter.
Product mix was also favorable primarily due to improved product availability and a higher mix of margin accretive products and services.
Price cost spread was slightly negative after adjusting for non recurring and nonrecurring 40 basis point supplier rebate benefit recognized in the quarter.
As expected the favorability captured in 2022 began to unwind in the second quarter and we expect this to continue for the remainder of the year as we trend towards our long term neutrality target.
At the operating margin line, we saw an improvement of 230 basis points year over year as the GP favorability fell to the bottom and revenue growth more than offset continued demand generation investments in head count and marketing.
Overall this was another strong quarter for the high touch North American segment.
Looking at market outgrowth on slide 10, we estimate the U S. MRO market grew between four five and 5%, indicating that we achieved roughly 525 basis points of outgrowth in the quarter.
Although this is a sequential slowdown from Q1, we capped a very strong prior year quarter and performance remains above our annual target to outgrow the market by 400 to 500 basis points through economic cycle.
We are well on our way towards achieving that target again in 2023.
Moving to our endless assortment segment sales.
Sales increased four 5% or 10, 1% on a daily constant currency basis, which adjusts for the impact of the depreciated Japanese yen.
So our U S was up two 8% while amount of Taro achieved 12, 6% growth in local days local currency.
At a business level monetize continues to execute well and is driving solid year over year revenue growth as they increased registered users and grow the enterprise customers.
As Earl while slower growth, partially reflects a tougher prior year comparison, we're seeing slowing demand across their customer base.
Similar to Q1 noncore BDC business remained a headwind in the quarter and was down in the mid teens year over year.
Further we have seen a slowdown in <unk> core <unk> business, which makes up a majority of <unk> revenue.
While we are still growing in the high single digits with these core customers macro related factors are impacting demand given the <unk> end market mix as well as their tilt to smaller sized businesses, which seem to be struggling more in this environment.
We expect both of these headwinds to persist for the remainder of the year.
Stepping back Zoro has delivered great results over the last few years as we've added skus from our assortment increased registered users and serve both core and now noncore customers well during the pandemic.
As we plan for our next leg of growth the new local leadership team is focusing their efforts to drive repeat profitable growth with core b to b customers.
This should help propel our results through the cycle as we continue to provide a one stop endless aisle with easy to find product and a no hassle delivery experience for smaller less complex businesses in the U S.
From a profitability perspective gross margin for this segment expanded 50 basis points versus the prior year due to continued freight efficiencies and strong price realization at monetize pro which offset unfavorable product mix at zoro.
Operating margins declined slightly year over year to eight 6% as gross margin favorability was offset by continued investments in marketing and slower than expected top line growth at zoro.
On slide 12, we continue to see positive results with our key endless assortment operating metrics.
On the left hand side in line with prior quarter growth total registered users grew nicely with zoro and monetize combined up 16% over the prior year.
On the right. We also continue to see growth of the Zoro SKU portfolio, which grew by 200000 skus in the second quarter and stands at over $12 2 million in total.
Now looking forward to the rest of the year.
Given our strong share gain to date and the continued supported demand environment. We are raising the midpoint of our full year 2023 outlook by increasing the lower end of our revenue and earnings ranges.
Our revised outlook includes daily sales growth of eight 5% to 11% for total company, which is roughly a 75 basis points increase at the midpoint compared to the prior range.
<unk> continues to trend slightly higher than expected as we continue to gain share amidst a reasonably steady demand environment.
The strength and high touch is offsetting lower than expected top line performance with endless assortment, primarily due to the softness at zoro as previously mentioned.
Altogether at the total company level, we are confident in our ability to drive growth in the second half and achieve our updated estimates.
Looking specifically at July we started the third quarter strong and reported month to date sales up over 8%, which is roughly 50 basis points higher on a daily constant currency basis.
From a margin perspective gross both gross profit margin and operating margin rate expectations remain unchanged from our previous update.
From a seasonality perspective, we expect Q3 margin rate to decline sequentially quarter over quarter.
As the one time supplier rebate recaptured this quarter falls off and as price cost favorability continues to unwind.
Couple this with a continued rapid demand generation investments and we expect total company operating margins to be lower in the back half of the year. However, we are still on track to finish 2023 with full year operating margins at an all time high.
All in the resulting revised EPS raised range has been raised and stance between $35 and 36 75.
Supplemental guidance covering cash flow and share repurchase which has also been raised can be found in the appendix of the deck.
In summary, I look forward to the remainder of 2023, feeling confident in our team's ability to continue to serve our customers well achieve profitable growth and drive strong results for our shareholders.
With that I'll turn it back to D. G for some closing remarks.
Thank you D. I am very proud of the ways. Our team continues to show up and support our customers our capabilities and deep understanding of our customers' operations positions us well in the back half of the year and into the future.
When we stay focused on the things that matter, helping our customers find the right products and solutions, providing exceptional service and investing in our supply chain and digital capabilities. We will continue to grow and gain share through any cycle with that we will open the lineup for questions.
Thank you and.
And ladies and gentlemen at this time, we will conduct a question and answer session.
If you would like to ask a question. Please press star one on your telephone keypad.
Information tone will indicate that your line is in the question queue.
We will allow one question and one follow up question.
You May press Star two if you would like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Our first question comes from Tommy Moll with Stephens. Please state your question.
Good morning, and thank you for taking my questions.
Good morning.
I appreciate the insight you gave on zeroes topline trends through the quarter on the BDC versus the B to B side, and you highlighted that even though on the <unk> side. There was some weakening though it was still up I think you said high singles in the quarter.
So my question is is there anything more you can tell us about the b to b deceleration in terms of end market or customer type or anything else you could provide there would be helpful. Thanks.
Yes, yes, yeah Tommy.
Take that yes. So if you think about the vertical industry mix zoro serves some of the fastest growing segments in the Grainger model the high touch model.
Would be government healthcare.
Some some manufacturing like aerospace zoro does not participate in those really at all and then the other the other trend. We're seeing is zoro is there a small businesses a lot more than that a greater does and those customers appear to be a little softer than the larger customers that we serve so those two factors have a significant have the cigna.
If it could impact zoro did increase the repeat rate in the quarter, but they have some work to do to continue to increase the repeat rates were working hard to do that.
But the segment mix is a pretty big.
Impact on Zoro right now.
Thank you that's helpful. D. G and then I also wanted to ask about.
The distribution center, you announce for Oregon, I guess, it's a two part question. One just anything you can give us in terms of timeline to break ground cut the ribbon when most of the Capex hits and then second part just a higher level question should we view this as any shift in our competitive strategy or emphasis.
Part of the country or it's more you just outgrew the existing roofline you had needed to expand.
Yes, so yes.
We break ground on a couple of weeks and like we said 2025 is when the building will be fully up and.
So thats the timeframe on it what I would say is that we have been serving the northwest out of our branches and out of a very small distribution center in Seattle, and we have outgrown that pretty substantially.
And we've also been serving out of Patterson, California, So putting the building up in the northwest allows us to have more skus in market better service. It also allows us to lower transportation cost because we have much shorter routes from that building to our customers in Seattle Portland throughout.
Throughout the northwest so it's basically just a normal course of action, where we evaluate our our footprint and continue to expand where it makes sense.
Thank you. Our next question comes from Ryan Merkel with William Blair. Please state your question.
Hey, good morning, Thanks for taking the questions.
A couple questions on gross margin.
So how should we think about gross margins in the second half is it is it around 39 is that the right metric and then does it dip a little bit in <unk>, and then increase sequentially a little bit in <unk>.
So thanks for the question I think if you kind of focus on the guide and then kind of look at what that implies.
For us.
We're expecting GDP to decline slightly mostly due to the.
Hi Tech impact and what we have been stating pretty pretty much all year that we started the beginning of the year related to the online of price cost.
You recall last year, we took.
As we continue to say pricing cost continues to be somewhat lumpy, we can't time, those things exactly right and so.
We're going to see higher costs sequentially as we as we go through the year and a little slightly lower price.
So we expect GDP to decline a bit in the second half.
Got it Okay. That's helpful. And then just a higher level question on gross margin I think.
The guidance you put out there for 25 was high touch gross margin about 40% were a good bit above that here in 'twenty three.
Are you planning on updating that outlook anytime soon or how should we think about any new thoughts you might have there.
So youre exactly right and what I will say, we've done really well.
Through.
This period.
Period of cost inflation and our ability to.
Price to the market and priced well.
As I said I stated last quarter things still remain to be fluid.
And while we're gaining some supply chain efficiencies as we would expect.
As well as diesel fuel and things like that coming down from from some high.
I'm still looking to have a couple more quarters here and we will definitely take a look at our outlook here in the future and provide an hour.
Update.
Thank you. Our next question comes from David Manthey with Baird. Please state your question.
Yeah.
Thank you good morning.
So on the sustainability of the gross margin.
In high touch you sited freight and supply chain and mix.
Various factors on the endless assortment as well.
Are these.
Factors of those any of those really prone to reversion or should we expect gross margin at least within a band to be reasonably sustainable until we get that shift between high touch and endless assortment back. It seems like that trend is going counter to what the usual trend would've been which would be to outgrow.
Hi, touch you can talk about that a bit.
Yes, I do think Thats, the right way to look to think about it. So we are getting some tailwind or we have this year, specifically related to supply chain afraid it efficiency efficiencies, which you know are somewhat significant in those can flip on us at any time, but right now we feel like were in line with where the.
Fuel is as well as we've gotten some benefit from those friction costs that we talked about <unk>. Just mentioned is talking about transportation costs and extra leg extra leg. The transportation that we had over the over the prior years, we're fairly normalized.
In those areas.
Getting close to pre pandemic levels as it relates to that we did have in the quarter. Some one time favorability of about 40 basis points related.
To that one time rebate and we are seeing as we kind of talked about price cost in the quarter turned slightly negative, which we expect to continue.
So those are some of the puts and takes as it relates but again, our target 40 ish.
2025, we're not we're not changing at this point in time, but I do feel very good about the stability of a high touch margin in that range.
The other thing I'd add to that Dave is that the.
The transportation cost can fluctuate the supply chain efficiencies, we are for all intents and purposes at this point back to where we were before the pandemic those should stay right that we want those won't reverse that that was all pandemic driven in terms of all the inefficiencies we had in the system. So that should say should that those pieces of it should stay stable.
Okay. Thank you and then.
You mentioned price as a driver for high touch, but then you've been saying here in this negative price cost position.
<unk> you had mentioned that it's.
It's a little tricky to line things up exactly from a timing standpoint, what opportunities you have to take actions over the next six months say to reestablish price cost neutrality. If you plan to do that at all.
Well again.
<unk> team works really hard.
Remain price competitive that's our other tenant.
That gets us to a price cost neutrality and are always looking for opportunities.
To price.
And optimized price with our customers over time, so I would say that's the biggest opportunity we have related to price and the futures ensuring that we're optimizing in each of our customer segments have the appropriate price for the goods and services that we're providing them, but remaining price cost compare.
<unk> is the key to adhere that really buoyed our growth our volume growth over the cycle.
Thank you.
Our next question comes from Chris Snyder with UBS. Please state your question.
Thank you.
I also wanted to ask on price cost.
The prepared remarks.
That price cost was negative in the quarter.
At least on a year on year basis, but then you also said that price cost favorability will unwind in the back half of the year, if I heard that.
So the climate conflicting a little bit I don't know if the year on year versus sequential thing, but can you just maybe help me think through that thank you.
Yes, so price cost in this quarter when you adjust for the onetime supplier rebate was slightly negative.
And as we started the year we provided.
Provided the outlook that as the year continues to flow that we would become price cost negative because we had favorable price last year.
And cost did not come in as we had expected because we had the opportunity to continue to work with our supply base on the cost inflation, which is now coming this year. So that is why price cost will become more negative as we go into the second half of this year.
Okay. I appreciate that thank you and then I guess, maybe just kind of following up on the gross margin topic is there any way to think about maybe that level of price cost on the wall and into the back half of the year and then also on the 40 basis points supplier rebate and any just more color on.
That usually have something that we think are coming in the fourth quarter. Thank you.
Yes, so I wouldn't over pivot on the on the one time adjustment that was related to a prior period, it's not something that we would expect.
To continue and I would say the other thing I would add if you look look at our price cost over a over a longer period, maybe a two year period, we do not expect it to be negative that's how we end up.
Hitting our target is price cost neutrality over time.
So I would not read into that some of the impacts that we're going to have in the second half.
Of this year are expected to continue any longer than that period.
Our next question comes from Christopher Glynn with Oppenheimer. Please state your question.
Thanks, Thanks for taking the question.
I had a question on endless assortment.
Curious how you considered the thought that perhaps the fundamental kind of algorithm for 16% to 18% growth to 25.
Temporary lull or may be more practical to.
We consider long term.
Perhaps high single digits low double digits I know Zorro is rationalizing some of the customer mix and monetize ROE has some different strategies around customer demographics that have been bitten.
A bit in flux as well so curious.
What might be a practical.
Right on that metric.
Yes so.
The first question, Chris I think similar to sort of gross margin outlook.
We want to see probably a few more quarters of performance to understand how this plays out.
The monitor our business in Japan.
As continue to perform pretty well and.
Not not obvious that they're going to be at a different place than they have historically going forward at this point and we do think that some <unk> issues are fairly temporary.
As they unwind some consumer business and some other other <unk> business with the changes that are going on so not really ready to talk about sort of changing the outlook in the future, but certainly we will consider consider that as the year goes on.
Sure.
Okay, Great and then just curious on the SGA spend rate in the second quarter.
And a good benchmark to think about stability and that kind of dollar rate range for the second half.
Yes, I think that.
That's a good thing to consider.
Yeah.
Thank you. Our next question comes from Jacob Levenson with Melleous Research. Please state your question.
Good morning.
Yes.
Good morning morning.
If you'll humor, one more price related question among working and then we can move on.
Just high level trying to get a sense of.
Whether your suppliers are talking.
Talking about or have already put through mid year price increases or or if theyre talking about further price increases in the latter half of the year or whether there was inflation coming down were really it was passed but.
But cycle if you will.
Yes.
We're working with our supply base to get back to some of our normal inflation cadent.
Net.
It does not so normally during the pandemic so as it relates to this year I think we have a good handle on what we believe our cost inflation will be and we've embedded that in our guide and of course later in the year, we will start working with them on what 2024 looks like yes.
We've talked about this at the beginning of the year, Jake I think that almost all of the inflation, we're going to see this year as wrap from last year and so we're seeing puts and takes ups and downs with suppliers, but in general there's just not a lot of additional inflation coming in from our suppliers.
Okay that makes sense.
Switching gears to inventories for a second.
I know Youre your inventories was a dollar term sundar stabilized here I'm sure.
Question.
Math in there, but how are you thinking about stocking levels going forward.
Or maybe said differently is there.
They are at near normal postal sort of supply chain disruptions from Covid, but this is what we're saying the last couple of years.
That's might be higher than it was back in 2019 or so.
Yes.
I would say is we generally.
They have two premises and when we think about inventory levels. The first one is to start to see service levels. So based on the velocity of items, we have set targets for the service we want to provide on those items that is competitively advantaged and we basically stopped to that the other as we look at wasteful inventory inventory that isn't productive and make sure to manage.
That down I don't think we're necessarily in a in a new world. We still have some elongated supplier lead times now those have mostly come down and as those continue to come down I suspect, we can be mostly back to where we were.
Historically from an inventory perspective to revenue.
Thank you.
Our next question comes from Patrick Baumann with Jpmorgan. Please state your question.
Hi, good morning.
Just I got one more on price sorry about that.
Is there an update to how you think youre going to finish the year.
Price and high touch.
And just curious if youre seeing any changes in demand do you have to see with respect to.
Thank you make changes with your web pricing ahead of like making changes in the CRP just curious if youre seeing any changes to we have to see related to moves you're making there.
And then on zoro within the price discussion has that has that been holding up as well as it has in the high touch segment.
So I'll start.
Yes.
We've made some.
Pricing changes earlier in the year.
We don't see in the U S and need to make any significant.
Pricing adjustment for the balance of the year, but the pricing team is always in the market.
Looking at price and making sure that we are competitively priced.
The zoro business I will say from a gross margin perspective operates a little bit.
Differently and are targeting a different customer segment as D. G.
Alluded to.
And they also.
They have their own pricing algorithm and pricing team that is focused on remaining competitive with the customers that they are serving and have taken action.
To price their product in line with the inflation that they've.
That's been passed on to them.
And then the price for the year there.
And high Tech.
Price price set high touch for the year do you have an update on that that was part of the question alright.
Alright.
So.
It still remains around 4% to 5%.
That hasnt changed.
And my follow up is on inventory.
Again I.
I guess I'm, just curious what drove the better than expected cash guide the upgrade to the guidance was it was it.
Turning to hold a little bit less inventory than you than you previously planned or is there something else.
No. It really the operating cash outlook is really due to the top line improvement and high touch that really flow through.
And as it relates as a result of that we took the opportunity to operate update.
Operating cash flow guide.
75 million.
$1 million at the midpoint.
Okay. Thank you.
Thank you.
Our next question comes from Dan Dray with RBC capital markets. Please state your question.
Andrew Your line is open please limit yourself.
We think it's probably Deane dray since we know that it is sorry Deane dray.
Yes.
Your line is open. Please go ahead RBC capital markets.
Okay, we will move on.
And that's the final question for today, So I'll now turn the floor over to D. G. Macpherson for closing remarks. Thank you.
Alright, Thanks, Rick Thanks for joining the call today.
I would say as the year is playing out pretty much as we expected we talked a lot about price cost. It's actually played out almost exactly like we expected beginning of the year. So there are really no surprises generally in the market at this point, we continue to feel good about our performance our share gain our profitability and feel like we're well positioned to have a really strong <unk>.
Second half relative to to the market and so we're going to continue to work on that.
And distribute appreciate you being on the call and we look forward to seeing you and talking to you down the line. Thanks, so much.
This concludes today's conference you may disconnect your lines at this time. Thank you all for your participation.