Q4 2024 MSC Industrial Direct Co Inc Earnings Call
Good morning, and welcome to the MSC industrial supply fiscal 'twenty 'twenty, four fourth quarter and full year conference call. All participants will be in listen only mode should you need assistance. Please signal a conflict specialist by pressing the star key followed by zero after today's presentation.
There will be an opportunity to ask questions.
Ask a question you May press Star then one on your telephone keypad to withdraw your question. Please press Star then two please note. This event is being recorded.
Speaker Change: I would now like to turn the conference over to Ryan Mills head of Investor Relations. Please go ahead.
Speaker Change: Thank you and good morning, everyone welcome to our fourth quarter fiscal 2024 earnings call Erik Gershwin, Chief Executive Officer, Martina Mcisaac, President and Chief operating Officer.
Speaker Change: Kristen access Grande Chief Financial Officer on the call with me today during.
Speaker Change: During today's call, we will refer to various financial data and the earnings presentation and operational statistics documents, both of which can be found on our investor Relations website.
Speaker Change: Let me reference our safe Harbor statement found on slide two of the earnings presentation. Our comments on this call as well as the supplemental information we are providing on the website contain forward looking statements within the meaning of the U S security laws.
Speaker Change: These forward looking statements involve risks and uncertainties that could cause actual results to differ materially from those anticipated by these statements.
Speaker Change: [noise] formation about these risks is noted in our earnings press release and other SEC filings.
Speaker Change: In addition, during this call we may refer to certain adjusted financial results, which are non-GAAP measures. Please refer to the GAAP versus non-GAAP reconciliations in our presentation or on our website, which contains a reconciliation of the adjusted financial measures to the most directly comparable GAAP measures I'll now turn the call.
Speaker Change: Over to air.
air: Thank you Ryan.
Speaker Change: Good morning, everyone and thank you for joining us today.
Speaker Change: Before I start I'd like to share a couple of thoughts on recent current events.
air: Our Hearts go out to all of those affected by the major Hurricanes that hit the south east in recent weeks.
air: We're maintaining momentum in our high touch solutions.
air: Which is our first mission critical pillar.
air: During fiscal 'twenty, four we improved our implant program count by 29% to 342.
air: In total installed vending machines by 9%.
air: More than 27000 at fiscal year end.
air: This growth helped our national accounts average daily sales outperformed the IP index.
air: By roughly 150 basis points for the full year.
air: Large account wins continue to be powered by our ability to improve our customers' operations.
air: In fiscal 'twenty four we.
air: We presented roughly $500 million in documented savings to our customers.
air: These savings come from tooling recommendations.
air: Factoring process improvements.
air: Inventory management solutions and more.
air: Second.
air: Progress continues on our next mission critical pillar.
air: Reenergizing the core customer.
air: While core customer growth rates remained suppressed.
air: Progress is being made on the critical initiatives that are needed to turn the tide.
air: MFC direct dot com enhancements are advancing as expected.
air: During the last three months, we improved the overall site experience, including including upgrades to our search algorithms.
air: Shown in the op stats posted on our Investor Relations website.
air: E Commerce represents a little more than 60% of total company revenues.
air: Roughly half of which is from sales on MSC direct dot com.
air: As communicated on the last call.
air: We expect the site to be ready to support an enhanced marketing effort with.
air: With the launch of these enhancements in our fiscal second quarter of 2025.
air: Further.
We completed our web pricing realignment during fiscal 'twenty four.
We see opportunities to continue fine tuning and.
air: And we'll capitalize on those over time.
air: The fiscal year on slide six.
air: Average daily sales declined four 7%.
air: Which includes a headwind of approximately 160 basis points from non repeating public sector orders in fiscal 2023.
air: At a roughly 70 basis point tailwind from acquisitions.
air: Fiscal full year gross margins of 41, 2%.
air: Improved 20 basis points year over year.
air: This performance was mainly driven by benefits from non repeating public sector orders in the prior year.
air: And our gross margin countermeasures.
air: Which were partially offset by negative price cost and lower margin acquisitions.
air: As a result of lower sales and higher operating expenses driven by our strategic investments.
air: Both reported and adjusted operating margin declined 190 basis points year over year to 10, 2% and 10, 7% respectively.
air: Which is at the high end of our most recent guidance range.
air: Together.
air: This resulted in reported earnings per share of $4 58, and adjusted earnings per share.
air: $4 81.
air: Approximately 17 cents of the dollar 48 year over year adjusted EPS decline.
air: Due to headwinds from higher interest and other expenses.
air: Looking ahead to fiscal 2025.
air: The year begins with a continuation of the challenging outlook, we faced in fiscal 2024.
air: Conditions remained soft.
air: As evidenced by IP readings, particularly for our top manufacturing end markets.
air: The majority of which are contracted.
Automotive and heavy truck.
air: Primary metals.
air: Advocated metals.
air: And machinery and equipment are all week.
air: Aerospace remained positive in the quarter.
air: But forward looking expectations have been tempered due in part to the recent strikes in the sector.
air: Appreciation and incentive compensation trends.
air: Along with increasing benefits from the current productivity pipeline.
air: And with that I'll now pass the call over to Martina.
Martina Mcisaac: Thank you Eric and good morning, everyone I'm excited to start joining our quarterly earnings call.
Martina Mcisaac: Turning to slide seven let's dig into some of the focus areas of productivity, we have in the pipeline starts.
Martina Mcisaac: Starting with network optimization through our recent study we identified a portfolio of opportunities to unlock productivity in.
Martina Mcisaac: In fiscal year 'twenty five will begin to execute on a portion of these with focus on core process upgrades in three critical areas.
Martina Mcisaac: First we have an opportunity to streamline the supply chain for our OEM fastener and see park categories.
Martina Mcisaac: We intend to consolidate our demand planning and procurement and simplify the flow of materials to leverage our purchasing power and take cost out of our network.
Martina Mcisaac: Second we are upgrading our use of technology in our system wide inventory planning and allocation.
Martina Mcisaac: We want to ensure that we have the right inventory as close to our customers as possible to reduce both cost and carbon.
Martina Mcisaac: By upgrading our planning algorithms, we intend to improve service levels to the customer and work more collaboratively with our suppliers, while we continue to realize working capital benefit through more efficient inventory management.
Martina Mcisaac: And third we see opportunity to optimize our management of inbound and outbound freight.
Martina Mcisaac: The shift in our business to planned demand coupled with the more sophisticated demand forecasting and allocation of inventory will lead to a reduction in split shipments and a lower reliance on air freight.
Martina Mcisaac: The combined benefits to both cost of goods sold and operating expenses of these three actions are expected to be $10 million to $15 million in combined annualized savings.
Martina Mcisaac: Yes.
Speaker Change: Or in other customers declined approximately 7%, while the public sector declined approximately 28% due to large non repeating orders in the prior year.
Speaker Change: Excluding.
Speaker Change: This impact public sector sales would have shown a year over year decline in the mid single digit range.
Speaker Change: Sequentially average daily sales improved approximately 3% in the public sector.
Speaker Change: National accounts performed roughly flat and core customers declined approximately 2%.
Speaker Change: From a solution standpoint, we continue growing the number of implant programs and installed vending machines.
Speaker Change: However, the average daily sales performance of these solutions reflect the current demand environment as the continued growth of our installed base was largely offset by lower levels of activity.
Speaker Change: And vending Q4 average daily sales were flat year over year and represented 17% of total company net sales.
Speaker Change: Sales through our implant programs grew 5% year over year and represented approximately 16% of total company net sales.
Speaker Change: Moving to profitability for the quarter gross margin of 41% improved 50 basis points year over year, and 10 basis points quarter over quarter sequentially outperforming historic seasonal patterns.
Speaker Change: Our team's ability to quickly rectify the issues that hampered gross margin during the rollout of our enhanced pricing structure. In Q3 was the primary driver of sequential improvement in the fourth quarter.
Speaker Change: Operating expenses in the fourth quarter were approximately $297 million and $296 million on a reported and adjusted basis respectively.
Speaker Change: On an adjusted basis operating expenses were up $7 million compared to <unk> of last year.
Speaker Change: Combined with lower sales year over year. This resulted in a 320 basis point increase in adjusted operating expense as a percentage of sales.
Speaker Change: $10 million.
Speaker Change: And a tax rate between 24, 5% and 25%.
Speaker Change: Strong free cash flow generation is expected to continue in this fiscal year and to be approximately 100% of net income.
Speaker Change: To assist in modeling the cadence of sales for the remainder of the fiscal year to the bottom of the slide provides historical quarter over quarter averages and key considerations.
Speaker Change: Lastly, we have the same number of business days year over year throughout each quarter in fiscal 'twenty five as shown at the bottom of the chart.
Speaker Change: And with that we will open the line for Q&A.
Speaker Change: Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys.
Speaker Change: Any time Youre question has been addressed and you would like to withdraw your question. Please press Star then two.
Speaker Change: First question comes from Tommy Moll with Stephens. Please go ahead.
Tommy Moll: Good morning, and thank you for taking my questions.
Speaker Change: Morning, Tommy.
Tommy Moll: So you called out on slide four.
Tommy Moll: Top five industry groups.
Speaker Change: Which is helpful.
Speaker Change: Particularly given some of the divergence there.
Speaker Change: And so I'll ask a question that we may not get the exact answer to but if you can just point us Directionally I think it would be helpful to the investor community.
Speaker Change: Do you have any rough rules of thumb.
Speaker Change: On how much of your business each of those.
Speaker Change: Five industry is drives or do you think of them collectively as a.
Speaker Change: No.
Speaker Change: Rough fraction of your your overall revenue I'm, just trying to get a sense of how we can think about those five and the magnitude they may have.
Speaker Change: And we really don't know at this point, we would expect the initiatives to kick in in the second half, which are some of the considerations that we've noted on the slide.
Speaker Change: But beyond that I do.
Speaker Change: I don't have any more to share as to what we have visibility into at this point.
Speaker Change: Yeah, Ryan I'll, just add a little color there.
Speaker Change: Two variables one is as as Kristian said, how quickly the initiatives come online and you'll look as I've said in the prepared remarks, we're encouraged by the execution that we're seeing here coming off of a 24, where we had hiccups in one area of the company.
But but variable number two was also the macro and you know part of the reason we didn't give our normal annual framework here is because visibility is fairly limited and we just don't know post election, you have interest rates coming down we don't know how quickly do things ramp we do know that we've been a long time with very low levels of MDI readings and at some point hits.
Speaker Change: He says at some point in the not too distant future things are going to turn but we just can't call. It.
Speaker Change: Yeah, No I appreciate that it's very murky to put it lightly okay and then SG&A. So it sounds like you have a step up in <unk>, a little higher <unk> I guess, a two part question does it stay stable from there in the second half off the <unk> levels or you talked about some <unk>.
Speaker Change: Opex you know cause.
Speaker Change: Cost cutting that you may be doing so can you quantify that and I'm just curious how much of that will help in 'twenty five or if there's a lot of that in 'twenty six.
Speaker Change: Yeah, I can add a little more detail on that Ryan so for the second half the way that I would think about that relative to the information I. Just provided on first half is really volume becomes the big drivers of how every year layering in your volume assumptions in the second half that's the big mover I'm on Opex on a dollar basis.
Speaker Change: There is a lot of movement within that specific to investments in productivity as you noted.
Speaker Change: So we are expecting a decent amount of productivity generation in fiscal 'twenty. Five you heard Martina mentioned a few of the projects that we're working on in the network optimization study.
Speaker Change: We've got the benefits from Columbus that'll be building in the second half.
We're also dealing with some increased DNA throughout the year.
Speaker Change: And we've got some investment that will still remain throughout fiscal 'twenty five so all of those moving pieces kind of taken together from a modeling perspective I would really just encourage you to look at how the.
Speaker Change: The volume is coming in and and I would directionally use like 8% to 10% of volume on that.
Speaker Change: It took me a 10% of revenue volume based expenses.
Speaker Change: Okay very helpful. Thank you.
Speaker Change: Yes.
Speaker Change: Yeah.
Speaker Change: The next question comes from David Manthey with Baird. Please go ahead.
David Manthey: Hi, good morning, everyone.
David Manthey: Seems like we're all circling around the same thoughts here, but.
Bruce.
Speaker Change: We look out and say hey.
Speaker Change: Our ambitions for this company or to return it to being a growth company huge fragmented market strong value proposition, we still feel very good about the end markets that were levered into here despite near term softness the outlook on most of these end markets is actually quite good. So we feel what's critical to getting back to al.
Speaker Change: The growth above market and margin expansion is we have to get the growth engine going.
Speaker Change: And the protocol productivity pipeline going so what you're seeing is us being cautious about not pulling levers on the cost side that would impede momentum on the bigger picture.
Speaker Change: I would tell you that if we reached a different conclusion and felt this business was not we're not poised for growth you'd see us taking a different playbook on the cost side.
Speaker Change: I appreciate the commentary thank you.
Speaker Change: The next question comes from Chris Dankert with loop capital markets. Please go ahead.
Chris Dankert: Hey, good morning, Thanks for taking the questions.
Chris Dankert: Hey, I guess first of all Kristen. Thanks, so much for kind of running through all of those components on US you know the one piece that I think we were kind of hoping for an update on that wasn't include there was just on the on the digital investment any quantification on kind of the incremental spending in fiscal 'twenty five versus 24 on the digital and the marketing aspect.
Kristen Grande: Yeah, Chris It. So there is additional incremental investment and then I would add to that on the sequential DNA increase we mentioned a good chunk of that is from the investment we've been making into digital and technology and previous years.
Speaker Change: I'm not going to size. It specifically, we gave a lot of components on Opex. If I. If I give you the whole range of an investment in productivity I might as well get it might as well given full year Opex annual guidance, but I hope that the color. We provided on the first half. It is at least helpful to get through the first and second quarter.
Speaker Change: Yeah, no fully appreciate that thank you and I didn't get the detailed is extremely helpful. I guess, just secondly on on the website rollout search functionality can you kind of give us an update on how is that progressing still too you know the most recent plan and then any kind of update in terms of a.
Speaker Change: Soft or hard launch on the kind of enhanced marketing investments when when that kind of goes live here.
Speaker Change: Yeah, Chris So what I'd tell you let me start on the web what I would say as you know I've been pleased with how the team has rallied in the past few months and the Punch line is we're on plant and you know I've talked to in the prepared prepared remarks about upgrades in terms of site navigation in terms of our search algorithm and I think the way to think about that is they're going to.
Speaker Change: Continue to roll out this is not going to be a one and done a big Bang, they're going to continue to make progress and you know what we've talked about our commitment on the last call was hey that by our fiscal in our fiscal second quarter that the website would be ready to support our marketing efforts and we absolutely believe that that's a that's the case so we're on plan.
Speaker Change: With the upgrades are with respect to marketing I I'm not going to give too. Many details just you know, it's it's competitively sensitive, but what I'd also say there yeah, we would be on <unk>.
Speaker Change: We are on track there with with marketing in Q2, what I.
Speaker Change: Maybe a little color just in terms of timing what I'd say on the on the expense side I think I think kristian covered it in roped it in with our investments.
Speaker Change: Investment spending you know from a timing standpoint.
Speaker Change: You know our fiscal two runs December through February you can imagine December we're anticipating being a little bit of likely a little bit of a choppy months.
Speaker Change: To see how things play out post election, but you have holidays and such so I'm certainly after that would seem to be a logical time, when we would ramp up the activities on the marketing front and he you know it'll be a pretty broad based marketing campaign, but I'm not going to go into too many details.
Speaker Change: Makes sense. Thanks, so much for the color there guys.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: The next question comes from Kt Sasha with Keybanc. Please go ahead.
Speaker Change: Hey, good morning, guys.
Speaker Change: Good morning Katy.
Speaker Change: Hum.
Kt Sasha: Wanted to go back to Tommy's question, a little bit just on operating leverage can you give any detail about how you're thinking about that outside of 125 and I. Appreciate that you know visibility is really limited, but if we if the macro does improve through the year any sense of how incrementals should react to that.
Speaker Change: Yes.
Speaker Change: Yeah sure so maybe Katy I'm I'm I I'll talk longer term and then.
Speaker Change: Kristian feel free to add any color you want but.
Okay do you look big picture, obviously 24, it was a challenge and what we're describing here is 25 the years coming out of the gates is a challenge and it's really a combination of a softer macro combined with fixed cost step ups that we had that we had anticipated.
Speaker Change: I did mention that our outlook longer term as more encouraging and we we've talked about expanding we could getting back to expanding operating margins. We still believe that the business has the capability here a strong incremental margins. So if you look at the set up and what we can't give you right now is timing because we can.
Speaker Change: Can't predict the environment, but improving execution certainly on the high touch side of our business. There is embedded market share through implant inventing what's happened at subdued spending levels. So when the economy returns in these sectors and we know it will but we don't know when we would expect an outsized rebound on the topline.
Speaker Change: For sure and then from there you know what we also described as we look beyond 'twenty five.
Speaker Change: Fiscal 'twenty four 'twenty five we've had unusual step ups in opex as we were talking about earlier that normalizes as well.
Speaker Change: Get beyond.
Speaker Change: Fiscal 'twenty five and so from there we would expect this business to get back to the historic kind of incremental margins that the business is capable of producing and you know if you wanted what does that mean, certainly 20% or north of 20% is where we expect to be.
Speaker Change: Okay. Thanks, that's really helpful. My last question is on the Hurricane in Aero strike. So Eric I know you quantified the impact of those in the quarter, but any detail on how much of an impact.
Speaker Change: Arrow has been or is that still yet to be seen and then given kind of the incremental weakness in a D. S. From September to October was that mainly driven by hurricanes or are there any other color there that you could provide.
Speaker Change: Yeah, Katy I can I can start and maybe I'll hit the question on Aero first.
Speaker Change: Zero throughout FY 'twenty four it was a really a strong point for us in terms of growth.
Speaker Change: We still saw growth through September but sequentially, we did see negative growth in the arrow.
Speaker Change: And markets that we're really watching that situation closely and I'm one of the key things we'll be looking for of course is when does everything resolved, but then what are the expected production rates beyond that and what is the ramp up of that look like.
Speaker Change: So definitely something we're watching carefully and then I believe your second question was on the.
Speaker Change: The hurricane impact, which Eric had touched on them. So we are a if you think about what we said for September and October and then what we get from the midpoint. It would imply that on avs in November is down a little bit more than 5%.
Speaker Change: And there is that improvement, though within that because of hurricane headwinds easing coming out of October.
Speaker Change: And Katie maybe just a little more color would be with what we've seen over the past.
Speaker Change: Month, and a half years removed from fiscal 'twenty four it its fiscal 'twenty five obviously, David Dave Manthey had noted that sequentially things are.
Speaker Change: Softer than they've been historically, where we've seen this interestingly, we break out our business into public sector core customers and then the national accounts the core customer is sort of <unk>.
Speaker Change: Been relatively stable in the performance. If you look at the growth rates has been pretty consistent now for a few quarters now we expect that to inflect and that's our goal is to get that to inflect.
Speaker Change: But the change recently has actually been in the large accounts arena and that's an area, where we have the tightest handle on our market share position and we feel really good about execution and yet things have softened their further and we can directly tie that back to some of these end markets and the softening that we've seen there over the past even eight weeks beyond the hurricane noise.
Speaker Change: Got it okay. That's very helpful. Thanks for taking the question.
Speaker Change: The last question comes from Patrick Baumann.
Speaker Change: JP Morgan. Please go ahead.
Patrick Baumann: Hello. Good morning. Thanks, Thanks, a lot for let me hop on here good.
Speaker Change: Good morning.
Speaker Change: How are you just.
Patrick Baumann: Maybe I don't know if it's who wants to take the question on gross margin first of all a very nice recovery in the quarter.
Patrick Baumann: So good to see execution. There can you talk about the expectations for gross margin like the cadence through the year like it in the sense that would there be reasons for it to do anything other than normal seasonality from the first quarter guide that you provided.
Patrick Baumann: For example, with the core customers I think I think he's still make higher gross margin there than in the rest of it.
Patrick Baumann: Most of the company.
Patrick Baumann: And so I would assume if it starts to outgrow the rest of the company that would help you outperform normal seasonality.
Patrick Baumann: Or maybe there's something you can offer on the pricing environment for the year in terms of price cost, how youre thinking about that developing.
Speaker Change: Would you make seasonality different for gross margin any any color around gross margin cadence and things that would make it different than normal seasonality would be helpful.
Speaker Change: Yeah happy to provide a little color on that that and you're absolutely right. The core customer is definitely higher gross margin. So as we think about potential outcomes for the year and where gross margin might trend. That's one thing that we are looking closely at is what the pace and degree of recovery is there and how much that may help us in the second half.
Speaker Change: But based on what we have line of sight to right now we'd indicated Q1, we expect it to be 48%.
Speaker Change: What we're seeing for the sequencing in a year is probably a similar level plus or plus or minus 20 basis points throughout the year on price cost I think we touched on this earlier, we're expecting to be flattish from Q4, and then improving throughout the rest of the year and so that's that's a little bit of color I would add we got some productivity coming online within.
Speaker Change: The gross margin space in the second half.
Speaker Change: So I would say if you're sequencing I'd, probably look at that 48, plus or minus 20, best as opposed to starting to historic sequential movement in gross margin.
Speaker Change: Okay. So that's a little bit better than that historical them, because usually fourth quarter, usually fourth quarter comes down a bit so that's.
Speaker Change: That's correct.
Speaker Change: Okay and then.
Speaker Change: It's still early days past that we are going to get more specifics on that as we progressed through the year, but you know based on way of insight do you know that's that's how I give you some added color.
Speaker Change: No helpful. I appreciate that Kristen and then maybe one for Martina first of all nice to hear you on the call look forward to meeting you at some point.
Speaker Change: On the on the customer coverage enhancements you talked about can you talk a little bit more about the complexity of this.
Speaker Change: I'm asking because the last time I remember the company tried to.
Speaker Change: Yeah.
Speaker Change: We're kind of at Salesforce effectiveness, there was like a change in roles and responsibilities among sellers and it.
Speaker Change: Cause like a lot of disruption despite pilots that we're encouraging initially so maybe if you can talk about exactly whats changing here for the sellers and then in the territory coverage and the service optimization.
Speaker Change: Plans that you.
Speaker Change: You highlighted in your in your prepared remarks.
Speaker Change: Hey, Pat So maybe what I'll do is that we.
Speaker Change: We're also happy to have Martina joining these calls I'm going to just let me just because of the historic perspective, I'll start and then I'll turn it over to Martina.
Speaker Change: One thing I had a couple of points to make clear because obviously it is a <unk>.
Speaker Change: Sensitive given given our history I think number one is there's no strategy change here in terms of seller deployment and how we go to market. This is this is about tightening up the execution of the <unk>.
Speaker Change: Current plan and strategy as opposed to.
Speaker Change: Our new strategy and I think the other thing and then I'll turn it off with a Martina that gives me confidence beyond obviously, a lot of pressure testing and piloting and learning in the company as you know Martina brings with her a wealth of experience in a lot of areas. This being one of them with a really good track record of doing this before which would certainly help so.
With that I, just wanted to make clear not a not a student body left here at all in terms of strategy, so sorry about that yeah.
Speaker Change: No that's fine yes. Thanks for the question. So it is not a change in strategy I think that any large organization that runs a large direct sales force.
Speaker Change: It doesn't matter of hygiene to constantly review, where either a deployment and make sure that we have trained people on that that's potential that we're using this moment to look at at territory design, but we do respect customer relationships and the sensitivity of them, which is why you know as we said we're gonna make these.
Speaker Change: Just over the next couple of quarters them, but this is about this is about covering more and the best potential and and I think it should be an ongoing good practice not not an event. So we start here and then that that's part of our hygiene going forward.
Okay. So I think I heard you say that you're not moving youre not planning to move sellers with.
Speaker Change: With strong relationships with customers off of those customer accounts, just because of a change in the territory.
Speaker Change: Absolutely what what we've what we've tried to targeted are areas, where we have under capacity or excess capacity and make sure that we can deploy the resources that we have in the most effective way so a solid relationship would not be interrupted.
Speaker Change: Very helpful. Thanks. Thanks, so much best of luck with all of this.
Speaker Change: You bet. Thank you.
Speaker Change: Yeah.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Ron Mills for any closing remarks. Please go ahead.
Ron Mills: Thank you for joining us on today's call and we're looking forward to seeing you at upcoming Investor conferences and talking to you on our next earnings call in January 8th Goodbye.
Speaker Change: Yeah.
Speaker Change: This conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: Yeah.
Speaker Change: [music].