Simpson Manufacturing Co., Inc. (SSD) Earnings Call Transcript & Summary

Greetings. Welcome to the Simpson Manufacturing Co. First Quarter 2023 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Kim Orlando. You may begin.

Good afternoon, ladies and gentlemen, and welcome to Simpson Manufacturing Co.'s First Quarter 2023 Earnings Conference Call. Any statements made on this call that are not statements of historical fact are forward-looking statements. Such statements are based on certain estimates and expectations and are subject to a number of risks and uncertainties. Actual future results may vary materially from those expressed or implied by the forward-looking statements. We encourage you to read the risks described in the company's public filings and reports, which are available on the SEC or the company's corporate website. Except to the extent required by applicable securities laws, we undertake no obligation to update or publicly revise any of the forward-looking statements that we make here today, whether as a result of new information, future events or otherwise. Please note that the company's earnings press release was issued today at approximately 4:15 p.m. Eastern Time. The earnings press release is available on the Investor Relations page of the company's website at ir.simpsonmfg.com. Today's call is being webcast, and a replay will also be available on the Investor Relations page of the company's website. Now I would like to turn the conference over to Mike Olosky, Simpson's President and Chief Executive Officer.

Thanks, Kim. Good afternoon, everyone, and thank you for joining today's call. With me today is Brian Magstadt, our Chief Financial Officer. My remarks today will provide an overview of our financial results, key growth initiatives and capital allocation priorities. Brian will then walk you through our Q1 financials and fiscal 2023 outlook in greater detail. Net sales in the first quarter totaled $534.4 million, an increase of 8.3% year-over-year. In North America, our net sales of $406.3 million declined 7.4% year-over-year, primarily due to lower volumes. Significant precipitation on the West Coast during the first quarter drove materially softer sales in our residential end market, contributing to the decline. As a reminder, builders use a higher volume of Simpson content in homes in the Western and Southern regions of the United States to meet stricter building codes that address higher wind and seismic requirements. In our commercial end markets, sales also declined year-over-year. However, revenues from our sales to OEM customers, although small, increased year-over-year. While we continue to believe our North American net sales will be pressured by a softer housing market in 2023, we expect to maintain our industry-leading position as the partner of choice due to our strong business model and competitive differentiators. These include an increasingly diverse portfolio of products and software and a commitment to developing complete solutions for the markets we serve, a dedication to innovation, extensive product engineering and research and testing in our state-of-the-art labs; unparalleled product availability and delivery standards on our vast product offering across multiple distribution channels with typical delivery within 24 to 48 hours; field support, technical support, literature and digital tools to help select and specify our products and online ordering tools to make it easier to do business with us; and our long-standing reputation, relationships and engagement with engineers, building officials and contractors to design safe or stronger structures and improve construction practices, along with helping to develop talent, provide career opportunities to alleviate labor shortages in the construction industry. In addition, we remain focused on continued growth in our 5 end use markets, many of which are not tied to U.S. housing starts. I will touch on our progress there in a moment. Turning to Europe. First quarter sales totaled $124.2 million. Including Europe, net sales was an $80 million contribution from ETANCO, reflecting a modest year-over-year increase. Our net sales were partially offset by lower sales volumes resulting from ongoing macroeconomic challenges in Europe and foreign currency translation. As April 1 marked the 1-year anniversary of ETANCO acquisition, I'd like to comment on our progress, key learnings and synergy accomplishments to date. The acquisition was accretive to our earnings in the first quarter of 2023, and we remain on track with our defensive synergies of procurement optimization, footprint, rationalization and manufacturing and operating expense efficiencies. In regards to our office of synergy opportunities, while we have made strides to expand our market share and cross-selling opportunities in several countries, the continued persistent weakness in the European macroeconomic climate will delay some of our offensive synergy opportunities. Longer term, we remain confident in the health of our business model in Europe. In all of our operating segments, we believe our ambition to outperform the housing market will be supported by a broader set of offering to our customers along with the ongoing transition to wood construction and regulatory requirements that encourage new construction solutions. Our consolidated gross margin for the first quarter was 47.3%, primarily reflecting strong cost control. Our first quarter operating margin of 22.1% was pressured as expected by a higher cost environment as well as ongoing planned ETANCO integration expenses. We remain committed to ongoing expense management and executing the areas of our business that we can control. Brian will elaborate further on the key drivers of our margin performance shortly. I'd now like to turn to a discussion of our end use markets, which encompasses our growth initiatives. We made solid traction through the first quarter in a challenging environment. First, beginning with our commercial market. In line with our growth initiative to be the partner of choice, our inventory availability and rapid delivery standards resulted in various new customer wins as well as new product launches to support our structural steel initiative. Second, in our OEM market, we have seen strong growth across all OEM customer types and continue to work on developing the market for mass timber, one of our key growth focus areas. This aligns with our initiative to being the innovation leader in the markets we operate. And third, within the national retail space and as part of our focus on growing our business above market relative to U.S. housing starts, we continue to show positive traction on our Outdoor Accents line by broadly expanding our offering into many home centers during the first quarter. We are very pleased to have our industry-leading offerings prominently displayed by our home center customers, driving further brand recognition and promoting product sales. Turning now to capital allocation. Our priorities remain focused on organic growth opportunities, returning value to our stockholders via dividends and opportunistic share repurchases and paying down the debt we incurred to finance the acquisition of ETANCO. In regard to organic growth, we are focused on key investments to strengthen our business model, including our growth initiatives and the integration of ETANCO. We are also continuing to evaluate expansion opportunities to support and maintain our industry-leading position such as our previously announced Ohio manufacturing and distribution facility as well as our equipment investments to drive productivity and maintain our best-in-class customer service. While finalizing the integration of ETANCO remains our priority, we continue to evaluate potential M&A opportunities that would accelerate our key growth initiatives and strengthen our business model and manufacturing efficiencies. Looking ahead, while we expect the operating environment in 2023 will remain choppy, we are confident in our ability to continue to achieve our company ambitions, including our goal to grow above the market relative to U.S. housing starts with profitability in the top quartile of our proxy peer group. Our progress will be supported by our strong business model and our commitment to remain responsible stewards of capital, along with the anticipated growth in our 5 end use markets and the dedication of our 5,000-plus strong Simpson employees. Simpson's mission was created by our founder, Barclay Simpson, and his values remain the cornerstones of how we operate our business today. A key component of our business model is to maintain our long-standing relationship with engineers, building code officials and contractors to improve construction practices. Our actions include training our customers and hosting national programs to provide educational content for the building industry at large. We believe these efforts further help to maintain our leadership role in industry knowledge and developments, drive brand awareness, inform customers about nuisance and products and innovations and help attract new customers. We are proud to play a large part educating and powering our industry as we further Barclay's mission to help people design and build safer, stronger structures. With that, I'd like to turn the call over to Brian, who will discuss our first quarter financial results in greater detail.

Thank you, Mike, and good afternoon, everyone. I'm pleased to discuss our first quarter financial results with you today. Before I begin, I'd like to mention that unless otherwise stated, all financial measures discussed in my prepared remarks today refer to the first quarter of 2023, and all comparisons will be year-over-year comparisons versus the first quarter of 2022. Now turning to our first quarter results. As Mike highlighted, our consolidated net sales increased 8.3% to $534.4 million. Within the North America segment, net sales decreased 7.4% to $406.3 million, primarily due to lower sales volumes. In Europe, net sales increased 141.4% to $124.2 million, primarily from ETANCO, which contributed $80 million in net sales, partly offset by lower volumes and the negative effect of approximately $2.8 million in foreign currency translation. Wood construction products represented 85% of our total first quarter sales, down from 88%. And concrete construction products were 14% of total sales, up from 12%. Consolidated gross profit increased 6.8% to $252.9 million, primarily due to the $30.6 million contribution from ETANCO at a 38.3% gross margin, which resulted in a gross margin of 47.3% compared to 48% last year. On a segment basis, our gross margin in North America increased to 50.6% compared to 49.7%, primarily from lower raw material costs, partially offset by higher factoring tooling, warehouse and freight costs as a percentage of net sales. Our gross margin in Europe increased to 37.5% from 33.9% due to lower labor, factoring tooling, warehouse and freight costs as a percentage of net sales, offset in part by increased material costs as a percentage of net sales. From a product perspective, our first quarter gross margin on wood products was 48% compared to 48.1% in the prior year quarter, partly due to the addition of ETANCO, and was 41.8% for concrete products compared to 46.9% in the prior year quarter. Now turning to our first quarter costs and operating expenses. Total operating expenses were $133.1 million, an increase of $26.6 million or approximately 25%, driven primarily by increased costs from ETANCO as well as by increased personnel costs from an expansion of our workforce supporting engineering and sales activities. The operating expenses attributable to ETANCO include $4.2 million of amortization expense. As a percentage of net sales, total operating expenses were 24.9%, an increase of approximately 330 basis points compared to 21.6%. Our first quarter research and development and engineering expenses increased 30.8% to $20.7 million, primarily due to higher personnel costs in pursuit of our future revenue-generating opportunities aligned with our strategic growth initiatives as well as higher professional fees in travel in North America. $1 million in R&D and engineering additional costs were attributed to ETANCO. Selling expenses increased 32.1% to $48.7 million, primarily due to $8.4 million from ETANCO as well as increased personnel, professional fees and travel-related costs in North America. On a segment basis, selling expenses in North America were up 12.8%, and in Europe, they were up 143.8% mostly due to ETANCO. General and administrative expenses increased 18.5% to $63.7 million, primarily due to $11.5 million from ETANCO, which includes the aforementioned $4.2 million in amortization of the acquired intangible assets. As a result, our consolidated income from operations totaled $118.4 million, a decrease of 4.9% from $124.4 million. In North America, income from operations decreased 15.7% to $114.4 million due to a combination of lower gross profit and higher operating expenses. In Europe, income from operations was $13.5 million compared to a loss of $1.4 million, which includes ETANCO's operating income of $8.5 million, which is net of integration costs of $1.4 million and the previously discussed gross profit and operating expenses. On a consolidated basis, our operating income margin was 22.1%, a decrease of approximately 310 basis points from 25.2%. Our effective tax rate increased to 25.1% from 23.7%. Accordingly, net income totaled $88 million or $2.05 per fully diluted share, which is inclusive of $0.6 million of net interest expense. This compares to $94.6 million or $2.18 per fully diluted share. Now turning to our balance sheet and cash flow. Our balance sheet remained healthy. At March 31, 2023, cash and cash equivalents totaled $252.5 million, down $48.2 million from our balance as of December 31, 2022. Our inventory position at March 31, 2023, was $576.4 million, which was up $19.6 million compared to our balance at December 31, 2022. We will continue to focus on effective inventory management to ensure we retain our strong levels of customer service and on-time delivery standards in light of the ongoing uncertain economic environment. During the first quarter, we generated cash flow from operations of approximately $3.1 million compared to $44.7 million. At quarter end, our debt balance was approximately $572.6 million, which is net of capitalized finance costs. And we have $300 million remaining available for borrowing on our primary line of credit. During the first quarter, we invested approximately $27 million for capital expenditures and acquisitions and paid $11.1 million in dividends to our stockholders. Next, I'd like to discuss our 2023 financial outlook. Based on business trends and conditions as of today, April 24, we are updating our guidance for the full year ending December 31, 2023, as follows. We now expect our operating income margin to be in the range of 19% to 21%. Key assumptions include continued anticipated softness, although to a lesser extent than our view at year-end, and our top line, given slowing housing starts in the U.S., consistent with what we are seeing in the beginning of Q2 based on sales trends in April, cost of goods sold, which reflect lower steel costs as compared to our weighted average peak in Q3 2022 as well as to our view at year-end. Increased operating expenses, we believe, are needed to continue to position the company to make meaningful share gains in our markets and growth initiatives, not associated with U.S. housing. And a slightly lower ETANCO operating margin profile than the rest of the company, including intangible amortization as well as $6 million to $8 million in expected total annual integration costs. Next, we continue to expect total annual interest expense on the outstanding $150 million revolving credit facility and $427.5 million outstanding term loan to be approximately $9.7 million, including the benefit from interest rate and cross-currency swaps, mitigating substantially all of the volatility from changes in interest rates. Our 2023 effective tax rate is expected to be in the range of 25% to 26%, including both federal and state income tax rates and assuming no tax law changes are enacted. Lastly, we expect capital expenditures to be in the range of $90 million to $95 million, including approximately $22 million to $25 million to be utilized for the previously discussed Columbus, Ohio facility expansion, with the balance of that project to be spent in 2024. In summary, we were pleased with our quarterly financial performance and continue to believe the future looks bright for Simpson despite ongoing macroeconomic uncertainty. Looking ahead, we remain focused on continuing to provide a superior level of service and value to our customers and executing against our long-term growth strategy while, at the same time, maintaining diligent expense management in today's complex, dynamic environment. We look forward to updating you on our progress in the coming quarters. With that, I'd like to turn the call over to the operator to begin the Q&A session.

[Operator Instructions] Our first question comes from the line of Tim Wojs with Baird.

Maybe just to start on the guidance. You raised it by about 100 basis points versus the prior guidance. And -- but Q1 from a margin perspective was clearly better than the updated EBIT guide. And it sounds like you're past kind of the peak pain on margins from a raw material perspective. And I guess the end market is actually maybe a little bit better than what you thought 3 months ago. So I guess my question is really just doing 22% EBIT margins this quarter with a guide of kind of 19% to 21% for the year, what actually kind of gets worse here from a margin perspective?

As we're looking through the balance of the year, where we would expect a similar trajectory quarter-over-quarter compared to 2022, with potentially some additional weakness in the back half of the year, probably more in the fourth quarter. So as we see slightly better volume outlook compared to where we were a few months ago, looking at continued -- the inputs into cost of sales, our headcount hiring plans to further our strategic initiatives would get us to that range. So again -- sorry, lastly, with that fourth quarter potentially being a little weaker than Q4 of last year.

Okay. So is it a seasonality thing? Because I don't think historically, you've really had this kind of Q1 is the highest or kind of peak margin quarter for the year. I mean is there anything specific with Q1 [indiscernible]?

Well, we certainly -- as we look at quarter-over-quarter, I think last year, Q1 was the peak from an operating margin perspective. But just in general, seeing a little better input costs into our gross margin. And although SG&A as a percent of revenue is higher, this year, we've got lower integration costs impacting that.

Okay. Okay. And then I guess maybe just on the SG&A point, I mean how do you think about spending, I guess, just big picture on SG&A despite kind of a year-over-year decline in sales? So I mean would you kind of treat the SG&A spend very independently from kind of what you're seeing in the macro? So this year is kind of a normal SG&A spend year from maybe a growth perspective, even though the top line is a little pressure. Is that the best way to frame it?

Yes. So Tim, it's Mike. We continue to invest in areas that are linked to revenue-generating opportunities. So for example, we've added people that will help us go after the multifamily business. We've added some engineering and sales efforts related to some of the growth initiatives. And we believe all that combined really helps us continue to go after our 3 financial ambitions. It's above market growth and profitability in the top quartile versus our proxy peer group for operating income and ROIC.

And given the spend relative to revenue, we would expect it to be up compared to last year, although offsetting some of that will be the integration costs that we incurred in 2022 to the guide that we've noted, that's much less than where we ended up last year.

Okay. And then maybe just the last one. Just -- can you give us some context around maybe what you're seeing from a demand perspective relative to 3 months ago? And how did you kind of conceptualize or just kind of talk about what revenue growth might decline this year versus maybe what it was before? And maybe wrap in kind of how April is trending because it sounds like maybe the quarter ended pretty strongly and it started pretty well in April.

Yes. So Tim, we continue to hear from our customers that we think this year is going to be better than what they had thought last year. Brian mentioned that in the prepared remarks. For sure, housing starts are going to be a little bit negative. They're a mixed story. So California, as you probably saw from housing starts, down significantly from a market perspective. We're not down nearly as much as the Western housing starts are set up. Our -- the data came out. If you look at other parts of our business, the East Coast and Southern U.S., relatively good versus prior year, and we think good versus the market. Multifamily, we still think is again relatively good in this market. And then our OEM business, we're still feeling pretty good about versus -- growth versus prior year and some of the ambitions we have for that particular area.

Is there a way to put kind of a number on it?

Yes. Tim, as you know, we're not releasing our -- the numbers on the markets within our North American segment. But we view that, that will show up in our ability to grow faster than the market is how we think you'll be able to keep track of that.

Our next question comes from the line of Kurt Yinger with D.A. Davidson.

Two questions on steel. First, I think, Brian, in your prepared remarks, you sort of mentioned that part of the increase to the operating margin guidance was a lower anticipated steel cost. So I guess, first, is that right? And then second, given the move that we've seen, can you maybe just help us think about how much more steel prices would need to get up -- go up before you started to be concerned about the margin outlook that you put out there?

Sure. So from the steel perspective, a slight benefit there. As we've commented in the past, steel as a -- or a material as a percent of cost of sales is the largest component relative to labor, factoring tooling and the other cost of sales. So slightly better outlook there compared to where we were at the beginning of the year. And then from a pricing perspective, as we've noted in the past, we're typically looking at a significant move upward or downward that we would expect to be sustainable before we would make any pricing changes. So right now, we're continuing to monitor the market. We did buy steel over the last couple of quarters to get us through, so we can maintain our very high service level. And we'll just continue to monitor the steel prices in relation to our business and make a judgment at that point on if we need to make any adjustments.

Got it. And is it fair to think that -- I mean even if we saw steel prices tomorrow go up pretty significantly, that you wouldn't necessarily feel that on the gross margin line until Q4 or maybe even 2024 kind of at the earliest?

It certainly does take a while for current purchases to be impacting the cost of sales. Based on, I think, what you're alluding to there, the high inventory that those purchases would impact the weighted average cost in -- also in relation to our consumption of material and production, and it does take multiple quarters for that to be fully reflective.

Got it. Okay. And then on one of the earlier questions, you kind of talked about volume a little bit, but I was hoping you could just talk directionally in terms of where kind of traditional distribution and builder business trended in the quarter versus kind of the home centers. And then you alluded to a very wet Q1 in California. It starts in the West being very weak. So I guess where else in the portfolio did you see a pretty meaningful offset to what I expect for some sizable pressures in that area?

Yes. So Kurt, we are -- instead of looking at the business by channel, we're really trying to hone in on to buy those 5 end use market segments. We think that tells a better picture. Just independent of that, we have seen a couple of our channels that service the large production builders maybe be down a little bit more than our channels that would serve -- tend to serve smaller and midsized customers. But if you take a look at those 5 market segments, so residential housing starts down 18%, so revenue and volume will be below prior year. Again, mixed signal, mixed story there. Multifamily, good. Eastern and Southeastern United States, good. Our commercial business, the market there is down 10%, again, creating some headwinds there. We do expect revenue volumes to be below prior year, but we do think that will perform better than our residential business. If you look at our national retail business, here, the market is flattish. Timing from prior year, prior quarter and a couple of other impacts have us a little bit below where we want to be in the first quarter, but we're seeing good point-of-sale data. So we're optimistic that we'll recover and be above market for the year in that area, and that our building technologies are this segment that's also fairly highly correlated with our residential, so pretty much the same story there.

And our next question comes from the line of Daniel Moore with CJS Securities.

Maybe shift gears to ETANCO. You mentioned the offensive synergies continue to get pushed and yet pretty good results, moderate growth in a really choppy environment. So what's going well there? Is it cross-selling? Is it share gains at this point? And just how sustainable is that kind of flat to positive growth outlook as we think about Q2 and the remainder of the year?

So Dan, more and more as we start doing the cross-selling and all the synergies and combining legal entities, we want to focus more on our overall European story. But that being said, just a couple of quick comments from a ETANCO perspective. Again, we're continuing to be very excited about the business model. We're super excited about the team and everything they're working on. If you look at first quarter versus first quarter of prior year, so before we closed the deal in April of 2022, they did grow the business -- or we grew the business this year, first quarter, ETANCO mid-single digits over prior year. And if you look at all of our overall business in Europe, France is actually performing fairly well for us. And as you know, that's one of our biggest and most profitable countries in Europe. So we're, again, pretty excited about the story. The defensive synergies we continue to push for, offensive synergies are going to get pushed out a little bit for reasons we discussed. The overall slow market is making us a little bit cautious in how we invest. But we believe we're on track for our business case, albeit maybe extended a little bit.

Okay. That's helpful. And shifting back to North America, it sounds like pricing was roughly flat. Was there any impact from the price declines implemented in the quarter? Or should we expect a little bit more this quarter coming up?

Dan, it's Brian. So on -- in North America, not a significant price impact, primarily due to timing this year compared to last year when pricing has been implemented on a go-forward basis. I wouldn't expect it to be materially different than what we've previously announced.

Okay. And just one more, if I may. If I look back over the last few years, just talking about seasonality, revenue in Q2 typically up double digits versus Q1 sequentially. Are there any factors you can point to that would cause that seasonality to be meaningfully different this year? Or should we expect to kind of a typical seasonal uptick?

Should be seasonal. One of the interesting things over the last couple of years is the seasonality has been a little bit less of an impact. Let's take weather out of that for the moment due to the lack of -- or, yes, the lack of skilled labor in light frame wood construction. The volumes that we would normally have seen in Q1 to Q2 hadn't necessarily been that traditional seasonality because with, again, the skilled labor going to work when items that were -- that go into a new start, for example, were challenged on a supply chain perspective. When they were getting those items -- and not necessarily related to Simpson, but it could be windows and doors, appliances, what have you, they were just -- builders were continuing to build. So at least on that segment of our business, the seasonality had been less of an impact over the last couple of quarters. Now this year, with the very wet winter so far -- or the wet winter on the West Coast, we should see more of an anomaly -- or more of a difference between Q2 and Q1. But I'm going to say less so than in the past. Part of it is when we're looking at the total company, Europe may be less seasonal now with the addition of ETANCO.

And our next question comes from the line of Julio Romero with Sidoti & Company.

Maybe to start on ETANCO. I know you mentioned ETANCO sales were up mid-single digits year-over-year, but when I look at it on a sequential basis, it seems like the sales pace really did pick up a bit sequentially compared to the prior 2 quarters. Can you maybe just speak to that sales pickup sequentially? And if anything to call out there?

Well, Q4 to Q1, we're going to have more selling days just due to the holidays in Europe in December from -- I don't have the detailed Q3 just today. But as Mike noted, nice results of the ETANCO business in general. So the -- well, I don't think we've got any more to add there.

Okay. That's fair. And I know you said you're thinking about Europe as more of a consolidated kind of entity. Maybe when I look at the operating margin you posted...

Julio, I should add that a little bit of pricing benefit in Q1 for ETANCO.

Yes. Remember, Julio, that a big majority of the commercial business from ETANCO is on an individual quote level. And so we're tracking gross margins and pricing pretty closely. And as a result of some of the cost increase in Europe, we have increased prices on the ETANCO product line that's helped us a little bit quarter-over-quarter.

That's very helpful. And I guess just thinking about Europe, on a consolidated basis, the 10.8% operating margin you posted is pretty healthy. Is that just a function of ETANCO? Just if you could just speak to the operating margin you posted at all within Europe.

A lot of it, yes. But the business in Europe, connector business, the concrete repair business, showed some good margin trends in Q1 relative to prior quarters. So part of the offensive and defensive synergies with ETANCO, to Mike's point a moment ago, to benefit Europe overall, we do see a little bit of that reflective in the non-ETANCO part of the European business.

Yes, Julio, the operating margin of our European business in 2021 was around 7%. And so when you look at our numbers for quarter 2, there were some acquisition costs in there. But roughly, operating margin relatively similar to what was a very good first quarter minus acquisition cost last year. So I think that's a sign of we get a little bit more critical mass in there. We can run things a little bit more efficiently, and we really haven't had the synergies kick in, which again makes us confident in the business case going forward.

Got it. That's helpful. And then maybe last one for me. I know it's a very small part of the overall pie, but just on Asia Pacific, if you could maybe touch on that. Can you give us a quick commentary on Asia Pacific and maybe a refresher on some of the initiatives you have going on there?

So what we've got going down there from a sales perspective is primarily Australia and New Zealand. And we sell a lot of fasteners down in that market. We've got initiatives around additional connector and anchoring business there, additional concrete repair business. But we got into Australia via acquisition about 18 years ago and have slowly added additional countries. We've -- working on growing that one slowly. We did make a small intangible patent acquisition down there that benefited a portion of the quarter from a top line revenue perspective. Now that being said, Asia Pac from assets also includes production facilities in China, sourcing offices in Asia as well. So they manufacture a significant amount of the company's anchoring products, mechanical anchor products in our China facility. So when we look at Asia Pac, from a sales perspective, Australia and New Zealand. From a total operations perspective, we also have some production facilities and sourcing down there.

And we have reached the end of the question-and-answer session. This also concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.