Q4 2023 Johnson Outdoors Inc Earnings Call
Yeah.
Everyone and welcome to the Johnson outdoors fourth quarter 2023 earnings Conference call.
Days call will be led by Helen Johnson, Leipold, Johnson outdoors, Chairman and Chief Executive Officer also on the call is David Johnson, Vice President and Chief Financial Officer.
Prior to the question and answer session. All participants will be placed in a listen only mode.
After the prepared remarks, the question and answer session will begin if you'd like to ask a question during that time. Please press star one one on your telephone keypad.
This call is being recorded your participation implies consent to our recording this call. If you do not agree to these terms simply drop off the line I would now like to turn the call over to Pat Penman from Johnson outdoors. Please go ahead Ms Penman.
Thank you good morning, everyone. Thank you for joining us for our discussion of Johnson outdoors results for the 'twenty two 'twenty three and fiscal fourth quarter. If you need a copy of today's news release. It is available on our website at Johnson outdoors Dot com under Investor Relations.
I also need to remind you that this conference call may contain forward looking statements. These statements are made on the basis of our current views and assumptions and are not guarantees of future performance actual events may differ materially from those statements due to a number of factors, let me beyond Johnson outdoors control.
These risks and uncertainties include those listed in our press release and filings with the Securities and Exchange Commission. If you have additional questions. Following the call. Please contact Dave Johnson or me.
It is now my pleasure to turn the call over to Helen Zhang.
Thanks, Pat Good morning, everyone and thank you for joining us I'll begin with an overview of the fiscal year and fourth quarter results and then I'll share our perspective on the performance and outlook for our businesses.
They will review financial highlights and then we'll take your questions.
During fiscal year 2023, we saw the end of the elevated pandemic driven demand of the past few years that combined with higher inventory levels at retail led to challenging results for the year total company sales declined 11% $663 8 million.
Dollars compared to $743 $4 million in the prior fiscal year net.
Net income for the year was $19 $5 million or $1.90 per diluted share of <unk>, 56% decline from the prior fiscal year.
Operating profit decreased 82% to 11 $7 million versus $66 $3 million in the prior fiscal year with the decrease in sales volumes and a 13% increase in operating expenses significantly impacting profitability.
Our fourth quarter was particularly impacted by a significant slowdown in demand sales in the fourth quarter, ending September 2023, or $96.3 million compared to $196 4 million in the prior year fourth quarter.
Fourth quarter results also reflect the challenging comparison between quarters.
Last quarter in fiscal 2022 was when supply chain restrictions ease and when we sold a significant number of backlog customer orders.
So it was a tough quarter in a tough year as demand in the outdoor recreation marketplace.
Moderate and we also began to see a return to the pre pandemic traditional seasonality of order patterns.
In the challenging marketplace competitive dynamics continued to be aggressive affecting pricing looking forward. We anticipate these dynamics will continue and we are committed to innovation and help our brands grow and succeed.
In fishing innovation is key to sustaining our leadership position. We are excited by the broad line of new products, we announced during the third quarter of the fiscal year.
<unk> announced the quest series, the all new Brushless trolling motor technology, giving anglers ultimate control and the tough fishing environment and coda also wants to restage of all its bound Mount Trolling Motors with a brand new look and updated technology suite full of angler friendly enhancements and a more seamless.
Integration with Hummingbird technology we.
We are fishing industry leaders, we have great brands and we're committed to returning.
Retaining their position in this marketplace. We are excited about the momentum for the breadth of new innovation, we announced and we will continue to work hard to give anglers the best fishing experience possible and our diving business. We saw positive growth as global dive markets, especially European markets continued to recover we will leverage our.
Innovation and brand building efforts to ensure scuba program named the world's most trusted dive brand.
Our camping and watercraft recreation businesses faced significant declines with strong pandemic fueled demand of the past few years retail we still have high inventory on their shelves and consumer spending has slowed in camping, we recently announced that we made the tough decision to exit our Eureka product line.
To increase our focus on the jet oil franchises gip, all have experienced tremendous growth over the past five years and we're working on leveraging the brand equity into expansive growth opportunity.
In watercraft Recreation, we're excited about <unk> award, winning revolutionary E paddle plus drive this cutting edge technology as a power.
Pedal drive.
Combined pedal empowered to propel the fishing experience to the next level.
This technology is new to the world.
Going forward to shipping old town pedal plus soon.
While we are disappointed in our fiscal year results with laser focused I'm working hard to outperform the challenging marketplace to improve our profitability. Despite current economic headwinds in marketplace softness we will continue to invest in our key strategic drivers.
Understanding our consumers' sustaining innovation leadership, identifying new sources and paths of growth in our markets and continually optimizing our digital consumer experience.
Our ongoing hard work on these priorities ensures that our portfolio of market leading brands.
Is well positioned for success and that we will continue to deliver long term growth for Johnson outdoors.
Now I'll turn the call over to Dave for more details on the financials.
Thank you Hal and good morning, everyone I want to highlight a few items from a quarter of the year.
As Helen mentioned fourth quarter results were significantly impacted by the slower demand as well as high inventory at retail and customers managing inventory more tightly.
Especially as new bound Mt motor transition.
For fiscal 2023 operating profit margin was one 8% compared to eight 9% in the previous fiscal year.
Margins for the year was 36, 8% slightly improved from last fiscal year.
While we experienced improved materials and freight costs versus last year. Those gains were nearly offset by increases in inventory reserves and unfavorable absorption due to reduced sales volumes.
Operating expenses increased 13% or $27 $3 million versus the prior year.
Deferred compensation expense increased $9 $3 million as a result of marketing plan assets to market and was entirely offset in other income.
We also recognized $2 $4 million in expense related to the exit of the Eureka brand.
Additionally, we experienced higher warranty expense of approximately $7 million.
Research and development costs increased $3 $7 million in.
And higher marketing and professional services costs further drove the operating.
<unk> increase versus fiscal 2022.
Net income for the year was $19.5 billion versus the prior fiscal year of $44 $5 million. The effective tax rate was flat to prior year at 24, 4%.
Inventory remains elevated and is higher than last year by about $12 $8 million were focused on carefully managing inventory levels as we navigate a challenging marketplace.
I expect we will see inventory levels decline by the end of the fiscal year.
Looking ahead, we remain focused on strengthening our operating margins with active cost savings program and prudent expense management.
Our balance sheet continues to have no debt and our cash position enables us to invest in opportunities to strengthen the business.
We remain confident in our ability to deliver long term value and consistently pay out cash dividends to our shareholders.
Now I'll turn to the operator for the Q&A session.
Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, one moment for our first question.
First.
Just in terms of the.
Our first question comes from Anthony <unk> with Sidoti Anthony Your line is open.
Thank you okay.
Okay. So so again, thank you for taking the questions.
So first I guess just in terms of.
The.
I guess first.
In terms of the inventory comment that retail.
Are you seeing this across all your brands or is it more isolated to fishing.
Just wanted to get a better understanding of what's going on in the marketplace.
We do see.
It varies by business, but there is a.
There is inventory.
At retail that.
Is slowing down demand, making our buyers a little bit.
Yes.
Questionable about the orders they place so I think it really is in the outdoor industry pretty much across the board.
Okay got it Okay and then okay.
Can you comment on the monthly progression of sales throughout the quarter end.
Given that you are more than two months into your current first fiscal quarter.
What can you share with us with regards to demand. So far is it similar to the fourth quarter or better or worse just just.
Ballpark kind of estimate if you could share that'd be great.
Yes.
The quarter kind of progressed declined.
A decline kind of as the season wound down so we've really seen it go back to.
Traditional seasonal.
Marketplace, if you will but it is.
<unk> versus.
Where it probably should be so.
As we look kind of look into the next quarter, we're still seeing a challenging marketplace.
No.
We're hopeful for a good season, but right now it looks pretty challenging.
Yeah.
Got you okay.
It's a swing it's really a swing in the post pandemic.
We had such great performance and now it is it is.
Getting back to <unk>.
More of a stable market, which.
I think everybody thought was coming its always hard to predict the level of it but.
We've got to work through.
That period, but hopefully the season does.
And the energy we need.
Mhm, so should we kind of go back and look at our models and look basically see.
So now that we're past the pandemic like you said.
Man.
It has dropped off.
Or are we getting back to the seasonality that you had let's say in fiscal 18 or fiscal 19, where you saw really.
March and June quarters, with big revenue numbers.
I guess the shoulder season will likely be December September quarters.
Is that what you are seeing now is that a fair assessment of how things.
We will look like in fiscal 'twenty four and beyond.
Yes, I believe we will get back to traditional seasonality of the business and.
As we pointed out last year's fourth quarter was really high due to just fill.
Phillip refilling the shelves so.
We'll get back to more of a traditional portion of the season.
Mhm.
Thanks, Dave.
No.
You mentioned, the new product lines from <unk>.
As for bolt town have you guys already seen.
Purchase orders come in for those.
Or how.
How should we think about that.
Yes, I mean, we traditionally get.
The orders pre season, but as we said we do have that.
We.
Our customers have inventory on the shelf.
That's a key we've got we've got to move through that.
So I would say that the.
The uncertainty is due to the inventory they've got.
We're hoping that it moves through.
And we will see those orders come in but we are seeing.
They are coming in now.
Okay. That's good here and then in terms of the fourth quarter.
So the inventory reserve impact on gross margin could you comment on that.
Yes.
No.
Part of it was due to the exit of the Eureka business.
Also just across the board we were looking at our inventories and decided to take some reserves.
So the levels so.
I feel good about the inventory level that we have now and then it's saleable.
We just we took some increased reserves kind of across the board.
Got you. Okay. So so overall you don't think there is much in terms of inventory obsolescence risk.
As long as the the marketplace and the consumer behaves as we expect I think we're in okay shape.
Obviously I have to get those inventory levels down, but if we have a season that we expect will be able to do that.
Got you okay. Thanks for that Dave and then.
So I look back.
When you announced the Eureka exit.
Talked about a $4 million charge and it looks like it was $2 4 million instead.
Correct.
Okay.
No it was.
$2 4 million hit the operating expense line.
Okay.
Yes, yes that was just the operating expense effect and part of that was actually a contribution of inventory a donation of inventory.
So the rest is in the gross margin.
Okay.
Alright, so overall so so the gross margin okay. There was some.
From from Eureka, Okay got it Okay and then.
You also called out higher warranty R&D marketing and other costs.
Any way you guys can quantify that and do.
Do you think these higher costs are something that we should also expect in fiscal 'twenty four.
Yeah.
I think the warranty expense is getting back to a normalized level. So I would expect that to level off and move with sales going forward.
I think thats.
That was a little bit of the increase was a little bit of a onetime increase so.
I think the.
The marketing expense the <unk> expense I think that's something that we'll continue to we'll keep investing there to make sure we.
Maintain our market.
Viability and our share there. So I think that'll be that'll be something that will remain elevated and will continue to invest there.
We do this is has been a very competitive.
Marketplace and we've got that.
We're investing in the promotions to make sure that we are.
Lee.
Compete from a pricing standpoint, and from consumer promotion standpoint.
Gotcha.
Thanks, Helen and Theres, just a couple of.
Quick other questions if I may.
So as far as the defined the cost savings program that you talked about how should we think about.
Firstly, if you could just exchange a.
A little bit more give us maybe some some details as to what you are trying to do.
On the cost savings side, and then how should we think about the impact on your profitability as a result of that.
Sure.
We've got a.
And intentional and broad cost savings program.
We feel good about going into this fiscal year. Most of it is focused on product cost in the supply chain.
And.
Like I said, it's intentional and I think it's going to bear some fruit for us.
This year and into the future.
So that.
That will help gross margin.
And.
Hopefully it will help.
A meaningful way, but we got to see it play out.
We will also continue to look at expenses beyond just the product costs and make sure we're prudent there.
It looks throughout the enterprise for.
Efficiencies with our expenses too.
Gotcha, Okay, and lastly, do you have an estimate for Capex for F. 'twenty four.
I think it will be comparable to 23.
Okay.
Understood, Okay, alright, well, thanks, very much and best of luck.
Thanks, Thank you.
Thank you as a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced.
I'm showing no further questions at this time I would like to turn the call back to Helen Johnson Leipold for closing remarks.
Just wanted to thank you all for joining and I hope everybody has a happy holiday.
Thank you have a great day.
Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
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Everyone and welcome to the Johnson outdoors fourth quarter 2023 earnings Conference call today's call will be led by Helen Johnson, Leipold, Johnson outdoors, Chairman and Chief Executive Officer.
So on the call is David Johnson, Vice President and Chief Financial Officer.
Prior to the question and answer session. All participants will be placed in a listen only mode.
After the prepared remarks, the question and answer session will begin if you'd like to ask a question during that time. Please press star one one on your telephone keypad.
This call is being recorded your participation implies consent to our recording this call. If you do not agree to these terms simply drop off the line I would now like to turn the call over to Pat Penman from Johnson outdoors. Please go ahead Ms Penman.
Thank you good morning, everyone. Thank you for joining us for our discussion of Johnson outdoors results for the 2023 in fiscal fourth quarter. If you need a copy of today's news release. It is available on our website at Johnson outdoors Dot com under Investor Relations.
I also need to remind you that this conference call may contain forward looking statements. These statements are made on the basis of our current views and assumptions and are not guarantees of future performance actual events may differ materially from those statements due to a number of factors many beyond Johnson outdoors control.
These risks and uncertainties include those listed in our press release and filings with the Securities and Exchange Commission. If you have additional questions. Following the call. Please.
Dave Johnson or me.
It is now my pleasure to turn the call over to Helen definitely helpful. Thanks, Pat Good morning, everyone and thank you for joining us I'll begin with an overview of the fiscal year and fourth quarter results and then I'll share our perspective on the performance and outlook for our businesses Dave.
Dave will review financial highlights and then we'll take your questions.
During fiscal year 2023, we saw the end of the elevated pandemic driven demand of the past few years that combined with higher inventory levels at retail led to challenging results for the year total company sales declined 11% $663 8 million.
Compared to $743 $4 million in the prior fiscal year net.
Net income for the year was $19 $5 million or $1 90 per diluted share up 56% decline from the prior fiscal year.
Operating profit decreased 82% to 11 7 million versus $66 3 million in the prior fiscal year with the decrease in sales volumes and a 13% increase in operating expenses significantly impacting profitability.
Fourth quarter was particularly impacted by a significant slowdown in demand sales in the fourth quarter, ending September 2023, or $96.3 million compared to $196 4 million in the prior year fourth quarter.
Fourth quarter results also reflect a challenging comparison between quarters.
Last quarter in fiscal 2022 was when supply chain restrictions ease and when we sold a significant number of backlog customer orders.
So it was a tough quarter in a tough year as demand in the outdoor recreation marketplace moderated and we also began to see a return to the pre pandemic traditional seasonality of order patterns.
In the challenging marketplace competitive dynamics continued to be aggressive affecting pricing looking forward. We anticipate these dynamics will continue and we are committed to innovation to help our brands grow and succeed.
In fishing innovation is key to sustaining our leadership position. We are excited by the broad line of new products, we announced during the third quarter of the fiscal year I.
<unk> announced the quest theory, the omni brushless trolling motor technology, giving and anglers ultimate control and the tough fishing environment.
<unk> also wants to restage of all its bound Mount Trolling Motors with a brand new look and updated technology suite full of angler friendly enhancements and a more seamless integration with Huntingburg technology.
We are fishing industry leaders, we have great brands and we're committed to returning.
Retaining their position in this marketplace. We are excited about the momentum and the breadth of innovation, we announced and we will continue to work hard to give anglers the best fishing experience possible and our diving business. We saw positive growth as global dive markets, especially European markets continued to recover we will leverage our.
Innovation and brand building efforts to ensure scuba program named the world's most trusted dive brand.
Our camping and watercraft recreation businesses faced significant declines with strong pandemic fueled demand of the past few years retail we still have high inventory on the shelves and consumer spending has slowed in camping, we recently announced that we made the tough decision to exit our Eureka product line.
To increase our focus on the jet oil franchises, Jeff will have experienced tremendous growth over the past five years, and we're working and leveraging the brand equity to endure expansive growth opportunity.
In watercraft Recreation, we're excited about <unk> award, winning revolutionary E paddle plus drive this cutting edge technology as a power.
That'll drive that combines paddle empowered to propel the fishing experience to the next level.
This technology is new to the world and we're looking forward to shipping old town pedal plus soon.
While we are disappointed in our fiscal year results, we're laser focused and working hard to outperform the challenging marketplace to improve our profitability. Despite current economic headwinds and marketplace softness we will continue to invest in our key strategic drivers.
Understanding our consumers' sustaining innovation leadership, identifying new sources and paths of growth in our markets and continually optimizing our digital consumer experience.
Our ongoing hard work on these priorities ensures that our portfolio of market leading brands.
Is well positioned for success and that we will continue to deliver long term growth for Johnson outdoors.
Now I'll turn the call over to Dave for more details on the financials.
Thank you Hal and good morning, everyone I want to highlight a few items from a quarter of the year.
As Helen mentioned fourth quarter results were significantly impacted by the slower demand as well as high inventory at retail and customers managing inventory more tightly.
Especially as new bound Mt motor transition.
For fiscal 2023 operating profit margin was one 8% compared to eight 9% in the previous fiscal year.
<unk> margins and for the year was 36, 8% slightly improved from last fiscal year.
While we experienced improved materials and freight costs versus last year. Those gains were nearly offset by increases in inventory reserves and unfavorable absorption due to reduced sales volumes.
Operating expenses increased 13% or $27 $3 million versus the prior year.
Deferred compensation expense increased $9 $3 million as a result of marketing plan assets to market and was entirely offset in other income.
We also recognized $2 $4 million in expense related to the exit of the Eureka brand.
Additionally, we experienced higher warranty expense of approximately $7 million.
Research and development cost increased $3 $7 million in.
And higher marketing and professional services costs further drove the operating expense increase versus fiscal 2022.
Net income for the year was $19 $5 billion versus the prior fiscal year of $44 $5 million. The effective tax rate was flat to prior year at 24, 4%.
Inventory remains elevated and is higher than last year by about $12 $8 million were focused on carefully managing inventory levels as we navigate a challenging marketplace.
And I expect we'll see inventory levels decline by the end of the fiscal year.
Looking ahead, we remain focused on strengthening our operating margins with active cost savings program and prudent expense management.
Our balance sheet continues to have no debt and our cash position enables us to invest in opportunities to strengthen the business.
We remain confident in our ability to deliver long term value and consistently pay out cash dividends to our shareholders.
Now I'll turn to the operator for the Q&A session.
Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, one moment for our first question.
Okay.
First the.
Just in terms of the.
Our first question comes from Anthony <unk> with Sidoti Anthony Your line is open.
Thank you okay.
Okay. So so again, thank you for taking taking the questions.
So first I guess just in terms of.
The.
I guess first.
In terms of the inventory.
Inventory comment that retail.
Are you seeing this across all your brands or is it more isolated to fishing.
Just wanted to get a better understanding of what's going on in the marketplace.
We do see it.
It varies by business, but there is a.
There is inventory.
At retail that.
Is.
Is slowing down demand, making our buyers a little bit.
Yes.
Okay.
Questionable about the orders they place so I think it really is in the outdoor industry pretty much across the board.
Okay got it yeah, Okay and then okay.
Can you comment on the monthly progression of sales throughout the quarter end.
Given that you are more than two months into your current first fiscal quarter.
What can you share with us with regards to demand. So far is it similar to the fourth quarter or better or worse just just.
Ballpark kind of estimate if you could share that'd be great.
Yes.
The quarter kind of progressed declined.
Declined kind of as the season wound down so we've really seen it go back to.
Traditional seasonal.
Marketplace, if you will but it is.
<unk> versus.
Where it probably should be so.
As we look kind of look into the next quarter.
Still seeing a challenging marketplace.
No.
We're hopeful for a good season, but right now it looks pretty challenging.
Got you okay.
It's a swing it's really a swing in the post pandemic.
We had such great performance and now it is.
Getting back to <unk>.
More of a stable market, which.
I think everybody thought what's coming it's always hard to predict the level of it but.
We've got to work through.
That period, but hopefully the season it does.
And the energy we need.
Mhm, so should we kind of go back and look at our models I'd like basically see.
So now that we're past the pandemic like you said.
<unk>.
It has dropped off.
Or are we getting back to the seasonality that you had let's say in fiscal 18 or fiscal 19, where you saw really.
March and June quarters, with Big revenue numbers are then the.
I guess the shoulder season will likely be December September quarters.
Is that what Youre seeing now is that a fair assessment of how things.
We will look like in fiscal 'twenty four and beyond.
Yes, I believe we will get back to traditional seasonality of the business and.
As we pointed out last year's fourth quarter was really high due to just fill like refilling the shelves. So.
We'll get back to more of a traditional portion of the season.
Okay. Thanks, Dave so.
You mentioned, the new product lines from encode for.
For bolt town have you guys already seen.
Purchase orders come in for those.
Or.
How should we think about that.
Yes, I mean, we traditionally get.
The orders pre season, but as we said we do have that.
We.
Our customers have inventory on <unk>.
And that's a key we've got they've got to move through that.
So I would say.
The uncertainty is due to the inventory they've got.
We're hoping that it moves through.
And we will see those orders come in but we are seeing.
They are coming in now.
Okay. That's good good here and then in terms of the fourth quarter.
So the inventory reserve impact on gross margin can you comment on that.
Yes.
No.
Part of it was due to the exit of the Eureka business, but also just across the board we were looking at our inventories and decided to take some reserves.
So the levels so.
I feel good about the inventory level that we have now and then it's saleable.
We just we took some increased reserves kind of across the board.
Got you okay. So so overall.
There is much in terms of inventory obsolescence risk.
As long as the marketplace and the consumer behaves as we expect I think we're in okay shape.
Obviously I have to get those inventory levels down, but if we have a season that we expect will be able to do that.
Got you okay. Thanks for that Dave and then.
So I look back it looks when you announced the Eureka exit.
Talked about a $4 million charge it looks like it was $2 4 million instead.
Correct.
Okay.
No it was.
$2 4 million hit the operating expense line.
Okay.
Yes, yes that was just the operating expense effect and part of that was actually a contribution of inventory a donation of inventory.
So the rest is in the gross margin.
Okay.
Alright, so so so overall so so the gross margin okay.
Some.
From Eureka, Okay got it Okay and then.
You also called out higher warranty R&D marketing and other costs.
Yes.
Hey, you guys can quantify that.
You think these higher costs are something that we should also expect in fiscal 'twenty four.
Yes.
I think the warranty expense is getting back to a normalized level. So I would expect that to level off and move with sales going forward.
I think thats.
That was a little bit of the increase was a little bit of a onetime increase though.
I think the.
The marketing expense the <unk> expense I think that's something that we'll continue to we'll keep investing there to make sure we.
To maintain our market.
Viability and our share there. So I think that'll be that'll be something that will remain elevated and will continue to invest there.
This is a very competitive.
Marketplace and we've got it.
We're investing in the promotions to make sure that we are where we.
Compete from a pricing standpoint, and from consumer promotion standpoint.
Gotcha Okay.
Thanks Helen.
Couple of.
Quick other questions if I may.
So as far as the defined the cost savings program that you talked about how should we think about.
I guess, firstly, if you could just explain that a.
A little bit more give us maybe some some detailed as to what you are trying to do.
On the cost savings side, and then how should we think about the impact on your profitability as a result of that.
Sure.
We've got a.
And intentional and broad cost savings program.
We feel good about going into this fiscal year. Most of it is focused on product cost in the supply chain.
And.
Like I said, it's intentional in the end I think it's going to bear some fruit for us.
This year and into the future.
So.
That will help gross margin.
And.
Hopefully it'll help.
In a meaningful way, but we got to see it play out.
We will also continue to look at expenses beyond just the product costs and make sure we're prudent there.
Look throughout the enterprise for.
Efficiencies with our expenses too.
Gotcha, Okay, and lastly, do you have an estimate for Capex for F. 'twenty four.
I think it will be comparable to 23.
Okay.
Understood, Okay, alright, well, thanks, very much and best of luck.
Thank you.
Thank you as a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced.
I am showing no further questions at this time I would like to turn the call back to Helen Johnson Leipold for closing remarks.
Just wanted to thank you all for joining and I hope everybody has a happy holiday.
Thank you have a great day.
Thank you for your participation in today's conference. This does conclude the program you may now disconnect.