Ladies and gentlemen, thank you for standing by and welcome to the Tempur Sealy Fourth Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session.

I would now like to hand the conference over to your speaker, Aubrey Moore, Investor Relations. Thank you. Please go ahead, ma’am..

Thank you, operator. Good morning, everyone and thank you for participating in today's call. Joining me in our headquarters are Scott Thompson, Chairman, President and CEO; and Bhaskar Rao, Executive Vice President and Chief Financial Officer. After prepared remarks, we will open the call for Q&A.

Forward-looking statements that we make during this call are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Investors are cautioned that these forward-looking statements, including the company's expectations regarding sales, earnings, net income and adjusted EBITDA and anticipated performance for 2021 and subsequent periods involve uncertainties. Actual results may differ due to a variety of factors that could adversely affect the company's business.

The factors that could cause actual results to differ materially from those identified include economic, regulatory, competitive, operating and other factors discussed in the press release issued today.

These factors are also discussed in the company's SEC filings, including, but not limited to, annual reports on Form 10-K and the company's quarterly reports on Form 10-Q under the heading Special Notes regarding forward-looking statements and/or Risk Factors. Any forward-looking statement speaks only as of the date on which it is made.

The company undertakes no obligation to update any forward-looking statements. This morning's commentary will include non-GAAP financial information.

The press release contains reconciliations of this non-GAAP financial information to the most directly comparable GAAP information except as otherwise discussed in the press release as well as information regarding methodology used in our constant currency presentations.

We have posted the press release on the company's investor website at investor.tempursealy.com and have also filed it with the SEC. Our comments will supplement the detailed information provided in the press release. And now with that introduction, it's my pleasure to turn the call over to Scott..

Thank you, Aubrey. Good morning and thank you for joining us on our 2020 fourth quarter full year earnings call. Our thoughts continue to be with those around the world whose lives have been impacted by the global health crisis.

I want to say a sincere thank you to our employees, who have helped us manage successfully through this unprecedented time, while also managing the challenges of the pandemic on themselves and their family.

I'm proud of the team's commitment and their efforts to ensure the safety of our employees and the customers despite the challenging operating environment..

Thank you, Scott. Before going into the details of the quarter, I'd like to call out a few financial highlights. As compared to the prior year, gross margin improved 160 basis points to 45.9%. Adjusted operating margin improved 470 basis points to 18.9%.

Adjusted EBITDA increased 57% to $240 million and adjusted earnings per share for the quarter was $0.67, an increase of 97%. Before we discuss the results by segment, I would like to briefly touch on change reporting that better aligns with how we manage our global business.

Historically, we have reported Mexico in the international segment, and during the fourth quarter, we began to include it in our North American results. For ease of comparison, we have recast our segment financials to reflect this change and made it available on our Investor Relations website. Turning to North American results.

North American sales increased 21% in the fourth quarter. On a reported basis, the North American wholesale channel increased 19% and the direct channel increased 30%. The stronger-than-expected North American sales were broad based across channels and retail partners.

North American gross profit margin improved 150 basis points to 43.4% as compared to the prior year. This was primarily driven by favorable floor model costs and fixed costs leverage on higher unit volumes. These improvements were partially offset by brand mix from New Sherwood OEM sales, which are a slight headwind to gross margin rate.

North American adjusted operating margin improved 450 basis points to 20.9% as compared to the prior year. The improvement was driven by operating expense leverage, as well as the improvement in gross margin. This was partially offset by incremental advertising investment. Turning to international.

Sales increased a robust 26% on a reported basis, the largest quarterly growth rate for the International segment in the company's history. On a constant currency basis, international sales increased 18% with the direct and wholesale channels experiencing similar growth rates.

The stronger-than-expected international sales were broad based across geos and channels. As compared to the prior year, our international gross margin improved 150 basis points to 59.9% driven by fixed cost leverage, as well as operational efficiency gain. This was partially offset by increased commodity costs.

International operating margin improved 420 basis points or 29.8%, driven by operating expense leverage, which include cost reduction, and improved gross margin performance. Turning to the company's global performance. Adjusted operating margin was $200 million and adjusted EBITDA was a record $240 million, up 57% from last year.

The increase in adjusted EBITDA was primarily due to higher sales volumes, lower floor model and launch cost and expense leverage. These benefits were somewhat offset by higher advertising investment. Regarding commodities, input costs were a slight headwind in the fourth quarter, but largely in line with our expectations.

We have a history of taking price on products to offset industry inflation. Most recently, we have implemented pricing actions during the fourth quarter that have fully mitigated the anticipated input costs headwinds at that time. However, as we've entered 2021, input costs have continued to increase beyond our initial expectations.

We continue to monitor these costs and expect to take additional pricing actions as needed. The adjusted tax rate was 22%, driven by a favorable change in tax legislation that is not expected to occur in '21. The result was an adjusted EPS for the quarter of $0.67, up 97%. Now moving to the balance sheet and cash flow items.

We generated record operating cash flow of $157 million in the fourth quarter and record full year cash -- operating cash flow of $655 million. The cash cycle was favorable by 10 days in the fourth quarter versus 2019. This was principally driven by improved days payable and receivables. At the end of the fourth quarter, net debt was $1.4 billion.

Our leverage ratio per credit facility is 1.7x, down more than 40% from the same period in the prior year. Over the last two quarters, we redeemed our 2023 senior notes in full and last -- in over the last few weeks, we have upsized our revolver by $300 million.

We expect this will lower our cost of debt resulting in an annual interest savings of approximately $18 million pre-tax. We continue to optimize our debt structure against our long-term capital allocation plan. You might find it interesting that in the current market, we could issue bonds at an effective rate below 4%.

Our 2026 bonds are not callable until later this year, but we expect further interest savings as our cost of debt has fallen. The company also repurchased $130 million of shares in the fourth quarter, and over $330 million of shares for the full year 2020.

The Board has also authorized an increase of our share repurchase program, bringing the total available under the repurchase authorization to $400 million. Looking ahead, we have several growth initiatives, including expanding our share of the North American OEM bedding market. We estimate that the OEM market is about 20% of the total U.S market.

We're using our manufacturing expertise to drive sales, diversify our sales stream and capture manufacturing profits from bedding bands beyond our own. We began leaning into this new sales stream last year and sold about $150 million of OEM products in 2020.

Looking forward, we believe that in 5 years, the run rate of this business could exceed $600 million of annual sales. In order to support our OEM business and other growth initiatives, we plan to invest an incremental $150 million of CapEx by 2023.

We expect this will increase our U.S pouring capacity for Tempur material, specialty and base foam by approximately 50%. In 2021, we expect total CapEx to be between $125 million and $140 million. Now turning to our 2021 guidance. We pulled guidance in early 2020 as we ran into a very uncertain world due to COVID-19.

Based on our ability to manage the business to the current conditions and the resiliency of our model, we are comfortable reestablishing formal guidance. For the full year 2021, we currently expect sales growth between 15% and 20% with EPS to be between $2.30 and $2.50. This implies EBITDA will be between $875 million and $925 million.

We expect to achieve this from double-digit sales growth driven primarily in North America, stable gross margins and share repurchase activity.

Our expectations consider gross margins improvements within our brands, brand mix headwinds as Sealy and OEM operational constraints begin to ease in the second quarter, investments in new innovative products and record advertising spend. Lastly, I would like to flag a few items for modeling purposes.

For the full year 2021, we currently expect D&A to be between $160 million and $180 million; interest expense to be between $55 million and $60 million; the tax rate to be about 26% and the full year average diluted share count to be 207 million shares. With that, I'll turn the call back over to Scott..

Thank you, Bhaskar. Great job. Before we open up for Q&A, I want to share a few thoughts on why our team is confident that we will continue to deliver shareholder value over the long-term. First, we fundamentally believe the bedding market is a stable growing industry, with high return on invested capital when the business is run properly.

Second, we believe the importance of mattresses in consumers lives will continue to accelerate as consumers connect overall health and wellness with a good night's sleep. As the population ages and more consumers make this connection, we believe they will continue to prioritize their mattress purchases.

Third, we have a track record of delivering differentiated products from the original Tempur material over 30 years ago, to now the Ergo Smart Base Sleeptracker. These products have all strengthened our competitive position, and all stemmed from our commitment to being a consumer centric innovator for the total global addressable suite market.

Fourth, we expect to further strengthen our dominant competitive position. For consumers and retail partners, we are the preferred provider of premium differentiated bedding products. While our powerful omni-channel strategy allows us to adapt to consumers behavior.

Lastly, we believe that our robust cash flow and fortified balance sheet positions us to manage through difficult operating environments and provide the flexibility to take advantages of industry and market opportunities. Before we open up for Q&A, I want to briefly touch on the latest sales trends.

In the U.S., sales trends have accelerated from the fourth quarter. The Asia Pacific market sales performance has also accelerated, while our European markets are dealing with significant restrictions on retail activity related to COVID-19. In total, international sales have decelerated.

On a worldwide basis, we currently expect the first quarter sales growth to approximate the fourth quarter growth rate of 20%. With that operator, please open the call up for questions..

Our first question comes from Curtis Nagle with Bank of America. Your line is open..

Awesome. Thanks very much for the question. So maybe as much as you can, could we break apart some of the bigger pieces of the revenue guidance, really strong at up to 20%. How much is that is capacity adding? How much is that share gains, pricing, mix? Any kind of guidelines in terms of how to think about that would be really helpful..

Yes, first of all, thank you for your question. First of all, I'd say, yes, we expect all that. Certainly we've had, we continue to get share gains. And in fact, if you look over the past 18 months, I'm sure that our share gain has been the largest share gain in bedding history.

We continue to see not just better velocity of our products in our current retailers, but we continue to win new distribution in the U.S. We certainly have seen good acceleration as we talked about on the prepared remarks in both the TempurPedic product and the Sealy product.

The Sealy product has been constrained primarily in the U.S and that'd be Sealy and Sherwood product, mainly due to Innerspring, as you know. I suspect that probably -- in the fourth quarter, it's hard to compute exactly because we had some customers on allocation, but we probably lost $100 million or so in sales in Sealy in the fourth quarter.

We expect going forward for that situation to clean up and call it by the end of the first quarter beginning in the second quarter, we are expecting not to be in a constrained environment from a component standpoint. So we're expecting an acceleration in Sealy..

Thank you. Our next question comes from Peter Keith with Piper Sandler. Your line is open..

Hi. Thanks. Good morning. Great results, guys..

Thank you..

Scott, you mentioned at the end of your prepared remarks that consumers are recognizing the need for a better mattress to get a better night sleep and I was hoping you could just opine on what has caused that great unlock and how you guys can feed into it because it seems like it could be a pretty powerful driver for the Tempur brand going forward?.

Yes, thank you. Look, we saw ASP growth in the quarter. We look at it, you have to step back from a couple of things. I mean, first of all, clearly there's health and wellness. It's been going through the world, clearly the pandemic has accelerated that trend and we see it all over the world.

But you also have an ageing population in the developed nations. And generally when you see that we also see more concern about sleep, bedding surfaces and better ASP. So I think you've got, what I will call the health and wellness trend accelerating, plus you've got an ageing population.

And I think it bodes well for what I'll just call high end bedding, which does certainly play into the TempurPedic brand and the Stearns & Foster brand..

Thank you. Our next question comes from Bobby Griffin with Raymond James. Your line is open..

Good morning, buddy. Thank you for taking my questions and congrats on navigating a very challenging year..

Thank you..

I guess, Scott, I want to maybe unpack the guidance just a tad more. Clearly, a lot of moving parts and macro and economies probably the hardest to predict.

But when you look at commodity, supply chains and maybe some of the other aspects, which one of those are the biggest variables or wildcards this year for the EBITDA guidance? And have you assumed some wiggle room where if the supply chain doesn't come back to 100%, but by 2Q or commodities run a little bit, you have some leisure, some cushion inside that guidance..

Sure. The guidance was put together like we always put it together, we try to put it in the middle of the fairway. And certainly there's some upside in guidance and there's some risk in the guidance and we've continued to try to put it in the middle of the fairway. From a component standpoint, we've got pretty good visibility now.

From a component standpoint, that's been a tough one in the last couple of quarters. But it's certainly gotten better here recently. And so we're feeling much better about the component side. On the commodity side, as you know, the business model is such that commodity get pass through to the end customer, there may be a delay of a quarter or so.

But we've shown great success over time of passing those commodity increases on, with most recently -- what, in the fourth quarter, Bhaskar, we had the last price increase. Look, with the current commodity environment, I would expect that we'll probably have some additional price adjustments in the first half of the year.

So I don't think that's a big risk of the forecast. And the model is to pass that through. I will tell you that from an experience standpoint now with the pandemic, we feel much better about being able to operate and operate well in the environment. All over the world, we see particular countries closed and reopened and closed and reopened.

So I think we've got a pretty good handle on what the consumer does during closing, right after closing. And anything short of hard retail close, quite frankly, it's pretty good business during hard closing, that particular country is certainly soft for a while. But when it comes out of closing, certainly very robust sales.

So I think we put all that together and felt very comfortable kind of reinstating our guidance, because the environment is not as uncertain as it was this time last year..

Thank you. Our next question comes from Keith Hughes with Truist. Your line is open..

Thank you. Question on the revenue guidance for '21. Obviously, your U.S. -- your North American business is going to be strong.

What kind of framework are we looking at for international? Is that business expected the up in '21, or be a little weaker than that given what's going on in Europe?.

Yes, I think we're expecting to be up. I think we are trying to be very transparent. Look, Asia is very good. Asia is all the way back. China is performing best it's ever performed in China. So just look, Asia is back. Barring something unusual, we don't see any issues there and expect very good growth.

When you get to Europe, it's a little more challenging. Up until recently we see from the fourth quarter, obviously from the international numbers, even Europe had a very strong quarter. Look, they're currently in lockdown. Assuming they come out of lockdown, it'll be fine.

But we're expecting international market to grow in the first quarter, even experiencing the lockdowns in Europe. But I do think that probably 2022 will be the big year for international because we'll have considered -- we'll expect continued growth in Asia. And then we've got new product launches coming into the EU, in the European market in 2022.

So a little bit of investment year in Europe in 2021. But again, we expect growth in the international segment for the year 2021..

Thank you. Our next question comes from Seth Basham with Wedbush Securities. Your line is open..

Thanks a lot, and congratulations on an outstanding year..

Thank you..

I just want to follow-up on some of the earlier questions, just helping us understand what gives you guys the confidence in the sales outlook. And what's driven the acceleration in U.S sales in first quarter to date.

Is there anything related to new distribution, more penetration with existing accounts, like Mattress Firm, backlog reduction, or any other variables that we should consider that are different relative to recent trends?.

Sure. And I'll try again, and then we'll pass it over to Bhaskar to see if we can do a better job on it since we're not getting -- we are not communicating maybe clearly. Look, first off in the new distribution, it got -- we got it in and then it got a little bit disrupted because of the pandemic.

And usually new distribution takes a while to take hold. So look, all of the new distribution that we've gotten over the last 18 months, all those accounts are performing very well. We continue to have some reasonably good size floor shifts in the U.S. And it's about product, and it's certainly about execution.

And it's certainly our investment in advertising. As you might remember, what was it this time May ….

Right..

… May of last year, kind of in the middle of the pandemic, we made a decision to start investing heavily in advertising to help drive industry and help the industry work through the pandemic. And those investment have been very good. And they show up not only in our sales, but they show up in our brand health stats that we look at.

Additionally, our -- look, our retail stores are doing well. If you look at our direct-to-consumer business worldwide, it's about a run rate of about $500 million. As we sit here today, if you go to North America, I believe our North America direct-to-consumer business is now probably the fourth or fifth largest bedding retailer in the U.S.

that continues to be a very good growth segment. And then, look, we stepped out into private label and OEM businesses, which are completely new sectors. The Sherwood acquisition is performing very well from a private label standpoint. That growth has been very good and its performing above pro forma and above our expectations.

And recently, we're working on the OEM area and it's just getting started, but that's incremental business that's doing well. And we would expect it to continue to do well.

Bhaskar, anything to add?.

I don't think so..

Thank you. Our next question comes from Bob Drbul with Guggenheim Securities. Your line is open..

Hi, good morning. Just wondering if you could just maybe elaborate a little more on as you look at '21 the marketing level or the dollars that you're thinking. And I guess just sort of the trends on what you're seeing from like the cost of advertising, sort of how you're spending those dollars? Thanks..

Sure. I'll start and let Bhaskar finish. First, I guess the point I should make is, if you look at the direct online advertising, which is something I always like to talk about, because you talk about online growth, you really should talk about advertising too, because they go hand-in-hand, anybody can buy business.

But cost of customer acquisition costs in the U.S., again fell in the fourth quarter. So advertising efficiency in our direct business continues to improve. From a media mix standpoint, it's going to be obviously a little heavier elevation than last year, good bit of digital good bit of social.

Going to lean in to Stearns & Foster brand in a bigger way. But from a dollar standpoint, it will be the largest dollar investment that the company's ever made in advertising.

On a rate basis, Bhaskar, how are we doing on a rate basis?.

So the way I think about it is that it's all about brand product channel really got to be out there to support those brands. So our thinking is on a rate basis, on a year-over-year rate would be up. However, it's not only about the here and now, but investing for the future.

So we want to make sure that we're in the hearts and minds of the consumer when they’re in the market to purchase the mattress..

And certainly we need to be supportive of the new Sealy launch that we have coming and we're in the process of..

Thank you. Our next question comes from Brad Thomas with KeyBanc Capital Markets. Your line is open..

Thanks. Good morning and congrats on the quarter and all the momentum in the business. My question was around how to think about the cadence of sales through the year here in 2021. You gave commentary on 1Q.

It would seem to me that the 2Q is set up to be very strong against an easy comparison and with the momentum that you have, any more color on how to think about how good 2Q could be would be helpful.

And then as we think about lapping these really strong growth numbers in 3Q, 4Q, are you expecting growth? Are there any quarters, where at this point, we might be thinking about a negative number for revenues? Thanks..

Good question, Brad. So the way -- a way to think about it without getting into parsing the quarters, we gave you a way to think about Q1, perhaps consistent with the fourth quarter you're spot on.

As you think about 2Q and the way we think about it is really 2Q and 3Q together, perhaps there were some pent up demand that when we exited 2Q that perhaps build over 3Q. So what I would expect is, is that second quarter be a nice growth here or sorry, a nice growth quarter.

And as I think about from a full year standpoint, sitting here today, we would expect growth in every quarter..

And I think one thing people might be missing is the strength of the distribution wins got muted by the virus. And as the virus issues cleaned up, those distribution wins have really done well and they set a very solid foundation for the growth that you're seeing in the forecast..

Thank you. Our next question comes from Laura Champine with Loop Capital. Your line is open..

Thanks for taking my question. You've talked in the past about the growth opportunities at Sherwood, which seem significant.

Do you think that impacts overall ASP in 2021? Or are the new product introductions strong enough you think to lift ASP overall this year?.

Sherwood as an individual business unit, we're expecting significant growth, but its size is such that it's not really material that it would impact ASP numbers overall, right, Bhaskar? It's a new growth leg. But I don't think you'll see it in ASP, or really even in gross margin..

Thank you. Our next question comes from Atul Maheswari with UBS. Your line is open..

Good morning. Thank you so much for taking my question. Scott, your EBITDA margins are now back to 2012 levels, which is when I believe you'd acquired Sealy.

So going forward, do you believe margins can expand further from here? And if so, what would drive those gains? It's more of a 3 to 5 year outlook that you have?.

Good question, Atul. The way as I think about margins, and how we manage the businesses that we're always looking for incremental EBITDA. And as we -- as I think about it is that we said this in the prepared material, is that we would expect project -- product margins to increase within products, as well as brands.

How those mix is really up to the consumer. If you think about specifically in 2021, one of the items that we pointed to is that we expect Sealy to become unconstrained in the second quarter and beyond.

So that will give us a bit of a headwind from a brand mix standpoint, however, also we called out is that we would expect to invest in advertising, which is from a go-forward standpoint, healthy from a brand standpoint.

So as I think about our margin opportunity, I would continue to believe that there's opportunity from a Tempur standpoint, also from a direct standpoint, and that should buoy our gross margins and our operating margins. However, most important thing is driving incremental EBITDA..

Thank you. Our next question comes from William Reuter with Bank of America. Your line is open..

Hi, good morning. So even with more aggressive shareholder friendly activities, with the EBITDA growth you're still going to be well below your target range of 2x to 3x this year.

Are you expecting that there's additional M&A? Or are you doing this out of an abundance of caution just given the uncertainty of what 2022 or '23 could look like? I guess, how should we think about that?.

Yes, great question. Look, I think with the pandemic, we thought it would be prudent to run kind of the lower end of leverage until some of that uncertainty is cleared. Clearly, we're running below target. We'll probably run below target here for a little while longer.

Then like always we'll continue to look at opportunities whether it be in share repurchase, or whether it would be in M&A.

The current market of M&A, it's difficult and that there's a lot of money out there and hard to get to normalized earnings considering the pandemic, but we will continue to be active and I think over the next 2, 3 years, there are certainly some M&A activity that you should expect from us.

And as the market normalizes, we'll continue to look at our leverage ratio..

Thank you. Our next question comes from Carla Casella with JPMorgan. Your line is open..

Hi.

On the growth of the OEM business, do you use M&A to get to that? And are there any key manufacturers today that you can call out that you're manufacturing for or brands that you're manufacturing for? Or is it mostly for private brands?.

Yes. There's no M&A activity in that area. We need to successfully reach our goals. As you might remember, we have had a significant call out on future CapEx last quarter to stand up some new manufacturing facilities. But we can do all of that internally.

As far as calling out private labels, the private labels would be for some of the largest retailers that you've heard of. And then some of the OEM brands, we generally keep those quiet, but they're the ones that you've heard of in the marketplace, and we continue to talk to others.

It's a great business from the standpoint it allows us to spread our fixed costs. And so we're going to continue to move forward in that area..

Thank you. Our next question comes from Jenna Giannelli with Goldman Sachs. Your line is open..

Hi. Thanks for taking my question. This is kind of a follow-up on Bill.

Given the strength in the balance sheet, the low leverage where it is, have you given any thought -- I mean, granted you have access to the markets, as you pointed out, but have you given any thought on your rating? And whether it might make sense to grow IG? Or is that a goal or a desire at some point in the future?.

Yes, look, I think I'd love to do my own rating. I probably would rate it a little differently, which we currently are, but they will let me do those things. But certainly I would argue that we'd do some re-rating. As far as investment grade, I don't think there's any strategic reason why we need to be investment grade.

But certainly we think our current rating just probably needs a little bit of work..

Thank you. Our next question comes from Keith Hughes with Truist. Your line is open..

Yes, I just want to follow-up on the product launches you outlined several. On the TempurPedic launches in '22, well that'd be both in Europe and North America.

And do you have any feel for price point, what's you will focus on refreshing in those?.

That would be -- '22 would be international. And international you may know, Tempur is just -- is not just premium. It is like super premium in the international market. And as part of that launch, we're going to try to increase our addressable market internationally. So it's more aligned with the market we're going after in the U.S.

So that's a '22 Tempur launch internationally. And this year, we’ve got Sealy in the U.S..

Thank you. Our next question comes from Peter Keith with Piper Sandler. Your line is open..

Hi. Thanks for the follow-up. I just want to dig into a bit more on the raw materials. So we're certainly in an environment where there's pretty strong inflation with both chemicals and steel.

You guys are kind of downplaying the impact, I guess, could you compare it to 2018, which was a year when you saw the dual inflation dynamics and that was a $50 million, $60 million EBITDA headwind.

What's different today that's allowing you to minimize the overall impact?.

Yes, first of all, I would probably push back a little bit on downplaying. We totally agree with you, that we've got an inflationary environment in most of the inputs in our business. And if we came across as downplaying it, I apologize. What you might have heard is a greater confidence in the ability to pass through the price increase more rapidly.

A few years ago, we might have to wait a quarter or two before we get passed through in the current environment because the inflation is so great and the market is so good, I think what you're hearing is our confidence that we can push through the price increase quicker and not have the negative impact in our financials for a quarter before we pass it through.

But, yes, we're certainly expecting that there's a pass through to the end consumer in the first half of this year. That should mitigate the impact on our financial statements..

Thank you. This concludes the question-and-answer session. I would now like to turn the call back over to Scott Thompson for closing remarks..

Thank you, operator. To the over 9,000 employees around the world, thank you for what you do every day to make the company successful. To our retail partners, thank you for your outstanding representation of our brands. For our shareholders and lenders, thank you for your confidence in Tempur Sealy's leadership team and the Board of Directors.

That ends our call today operator. Thank you..

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect..