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[Audio Gap] Steve Tadlock, our CFO, who will review our financial results. Following his remarks, I'll provide some thoughts on our outlook for the near term before opening the lines for Q&A. Steve?
Thanks, Scott. In Q3, revenues of $60 million were 10% lower than the prior quarter, but ahead of expectations. Product revenues at $36 million were 12% lower sequentially, while the U.S. onshore rig count fell by 37% quarter-over-quarter. Product gross margins increased to 45% of revenues, up 810 basis points on a sequential basis due in part to $5.4 million in tariff-related benefits to product cost of goods sold during the quarter up from $3.1 million during the second quarter.
Rental revenues were approximately $10 million, down 14% from the second quarter. While revenue was higher than the latter months of the second quarter on average, it was significantly lower than the April run rate. Although gross margins declined on a sequential basis, we were able to maintain positive margins through the achievement of cost reductions in both direct and branch expenditures. Field service and other revenues in Q3 were $14 million, relatively flat versus the second quarter. This represented just under 31% of combined product and rental-related revenues during the quarter, well ahead of expectations. We expect field service revenue to be slightly under 30% of product and rental revenue during the fourth quarter. Gross margins increased almost 1,500 basis points sequentially, largely due to lower payroll and depreciation expenses and a continued rationalization of our field service vehicle fleet.
SG&A was down $0.3 million sequentially to $8.4 million during the quarter. The decrease was primarily attributable to lower payroll-related expenses. We expect SG&A to be approximately $9 million in Q4 2020 with stock-based compensation expense flat at slightly over $2 million.
Third quarter adjusted EBITDA was approximately $25 million, up from $22 million during the second quarter. Adjusted EBITDA for the quarter represented 41% of revenues. Adjustments during the third quarter of 2020 included $2 million in stock-based compensation.
Depreciation expense was $9.8 million during the period, down from $10.5 million during the second quarter due largely to the reduction in our fleet of service trucks. Our public or Class A ownership was relatively stable in Q3 and was 63% at the end of the quarter. This should result in an effective tax rate of approximately 19% in Q4 2020, assuming no changes in our public ownership percentage.
GAAP net income was $10.9 million in Q3 2020. This was inclusive of a $1.9 million noncash expense related to the revaluation of the tax receivable agreement liability. Book income tax expense was negligible during the third quarter as the company recorded a $2.2 million benefit associated with the revaluation of our deferred tax asset as a result of changes to our forecasted blended state tax rate. Internally, we prefer to look at adjusted net income and earnings per share, which were $9.5 million and $0.13, respectively, compared to $7.4 million and $0.10 per share in Q2 2020. We estimate that the tax rate for adjusted EPS will be 25.5%.
During the third quarter, we paid out $6.8 million resulting from our quarterly dividend of $0.09 per share. The Board has also approved a dividend of $0.09 per share to be paid in December of this year. Early in the third quarter, we also made our annual TRA payment and associated distribution of approximately $23 million. The recent payment was especially large due to our strong 2019 results and the associated tax savings arising from our corporate structure. We expect the next payment and the associated distribution to be substantially lower in 2021 as such disbursements vary directly with imputed tax liability. Net of the aforementioned TRA and dividend-related outflows, our cash position increased by $3 million during the quarter to almost $274 million at September 30, highlighting the continued free cash flow generation of the company. For the quarter, operating cash flow was $19 million, and our net CapEx was negligible.
As disclosed in our release, Cactus recognized $6 million in refunds during the quarter associated with tariff exclusions granted in March of this year. The refunds reduced cost of revenue with $5.4 million being allocated to our product business. As previously disclosed, we were notified in August that the tariff exclusions granted in March on certain imported goods were not extended by the USTR. At this point, we do not expect any further meaningful tariff refunds to be received due to prior exclusions.
The capital requirements for the business remain modest as evidenced by a reduction to our net CapEx guidance for 2020 to be between $17.5 million and $22.5 million.
That covers the financial review, and I'll now turn you back to Scott.
Thanks, Steve. We often note that Cactus has performed well historically during market downturns, and this was the case during the third quarter. As most E&Ps understand, there is little room for further price -- service pricing concessions, our attention turns to efficiency gains to lower well costs. This aligns well with our offerings, which provide disproportionately high time savings and productivity gains.
In our product business, market share grew to nearly 38% during the third quarter. This was driven by new customer additions, including privates and increased market share with recently acquired customers. One particular area of strength was at Haynesville, where our rigs followed increase during the quarter despite the region's overall decline in activity. Recall that our customers typically utilize us to source all their wellhead and production tree equipment. Additionally, given that our equipment is tailored to pad and batch drilling programs, the larger and relatively well capitalized operators tend to appreciate our value proposition. Since there are still large operators who have yet to realize the efficiency gains offered by our equipment and services, our conviction as to further market share gains remains strong.
Based on our customers' most recently disclosed plans, we believe that the U.S. rig count bottomed out in August and expect further rig additions through the year-end. For this reason, we expect Cactus' rigs followed to increase by approximately 20% during the fourth quarter. Product revenues are expected to witness a similar increase. Our general expectation is for a general increase in rig activity through the fourth quarter but recent oil price weakness now provides some reason for caution for the remainder of the year.
Our product EBITDA margins were expected to be in the low 30% during the fourth quarter, flat or slightly higher than our product EBITDA margins during the third quarter, excluding the impact of the $5.4 million arising from tariff refunds.
On the rental side of the business, revenue was in line with our prior guidance for a low double-digit percentage decline. While our third quarter activity was improved from levels seen in May and June, our second quarter benefited from a relatively strong April, thus hindering our ability to record sequential growth. That said, we believe that our further focus on DUC reductions early next year should provide opportunities for expansion of our rental business, although we have the same concerns mentioned earlier regarding the impact of oil price weakness.
We continue to maintain discipline in evaluating business opportunities for our rental equipment, recognizing the value of our goods and -- recognizing the value our goods and services bring to customers. This discipline was key to our ability to maintain EBITDA margins above 70% during the third quarter. Looking to Q4, we expect flattish revenue on a sequential basis, assuming there's not a significant slowdown tied to recent oil price weakness or the holidays. We'll continue to exercise pricing discipline and currently expect EBITDA margins in the mid-60 percentage for the fourth quarter.
Revenue from our innovations was meaningfully depressed during the early parts of the third quarter, but improved sequentially each month. As an update on R&D in our rental business, we've made substantial progress during this year on the development of additional products, which will further eliminate iron from location and allow users greater remote capabilities. These remote capabilities provide our technicians, other contractors and our clients with safer, real-time digital monitoring in automation of frac activities. Importantly, these additional offerings require minimal capital expenditures. Nonetheless, we expect to be paid for such enhancements, and we anticipate a more constructive environment next year.
Regarding field service, revenues in this segment continued to be driven by both our product and rental activity. This segment typically witnesses lower margins during the fourth quarter due to seasonal elements. And accordingly, we expect to see EBITDA margins slightly below 30% for the fourth quarter, still higher than we've achieved in recent years. We attribute most of this improvement to bind sequestration.
Internationally, while travel restrictions have impeded our momentum, in most markets, we are currently prepping equipment for our first shipment into the Middle East. This should begin to benefit revenue in 2021, and we expect to provide additional details next quarter. Regarding M&A, we continue to believe that consolidation within our industry makes the most sense where there is scope for significant tangible synergies. As I remind you regularly, management are long-term investors in this business and highly aligned with our shareholders. As activity rebounds, our team will continue to evaluate capital deployment with returns and free cash flow as our main priorities.
In summary, we're optimistic about the opportunities that the upcoming activity recovery will present. Structurally, Cactus is now better positioned than it was only a year ago. As activity and revenue begin to recover, we expect Cactus' results [Audio Gap]high-quality products for a price that's unacceptable to you guys? Or is that just some conservatism around seasonality in the fourth quarter? Just trying to understand the guidance thought process there.
Yes, George, it's primarily price related. Pricing when you say is not exactly where we want it to be, it's not even close to where we want it to be.
Okay. Fair enough. And the market share you guys have put together on the wellhead side in terms of rigs [ fall ] continues to be impressive and outpace our expectations for sure. The 38% with kind of the commentary that you guys think you can grab incremental market share, is that more of a longer-term prospect? Or are you seeing continued market share gains as we progress through the fourth quarter? And where do you see those opportunities? Is that driven by some of the E&P consolidation? Or is it selling more products to the same people? Or where are you guys seeing it?
George, you seem to have cramped 4 questions into 1.
I try.
Okay. I mean obviously, market share is always an interesting topic for our group of investors. So let me say first that if we look at our market share gains to date, they've been disproportionately leveraged towards majors and privates. So our core customer base, which are the large publicly traded E&Ps, while we've experienced increases, it's fair to say, they've lagged. So as we look forward to this quarter and the first quarter of next year, we now have a little bit better -- much better visibility into that group. And I would look to that group to account for the additional market share gains. So the large E&Ps, at least in our customer base, have lagged behind those other 2 groups, and they provide us with optimism that we have not reached the ceiling.
Your next question comes from the line of Chase Mulvehill from Bank of America.
So Scott, you kind of mentioned capital allocation and M&A, so you kind of opened Pandora's box here. So I'm going to try to see if I can dig a little deeper. On the capital allocation side, obviously, you've got about $280 million of cash on the balance sheet. You've got a dividend. So how do you think about allocation between raising the dividend, buying back shares or kind of saving some cash for M&A?
What a surprising question. Let me first tell you that if -- we've just come off the trough in terms of activity. So having cash is not a bad thing. That's point number one. The second point is we clearly have enough money, and we continue to generate free cash flow that sustainability of the dividend or even an increase would not be problematic. Share buybacks I've never been a fan of, I think maybe I was for 1 quarter since we went public, but that may have been when the price was $8. But I'm just not a fan of that. I think the timing rarely works out.
When it comes to M&A opportunities, which I really can't comment very much, except to say that there are an increasing number of opportunities out there. And we haven't moved on any, as you know, and I'm hesitant to give you any further color, except to say that I'd be very surprised over the next years if better opportunities don't present themselves. That's not to say we'll take advantage of them because we do believe that there have to be tangible synergies, not just an expansion of product offerings. And you know we only want to do -- we want to engage in an expansion that is end-user oriented and takes advantage of our supply chain. So I guess the playing field is rather limited. But having said that, I mean this industry is under stress. And with stress, I think, comes opportunities. So we want to keep the money for the near term and see what develops. If nothing develops as we come out of this downturn, then we're going to have to address return of some of this capital to our shareholders. Remember, we're the biggest shareholders. So having the $275 million or $280 million on our balance sheet is the prospect of harvesting that is pretty attractive to the main shareholders in this business.
Yes. Makes sense. And so I won't dig deeper into M&A, I'll kind of leave it there. But if I can come back to tariffs, obviously, you talked about it a little bit. We'll see kind of what shakes out with the President here and what it means for tariffs. But the fourth quarter guide on the products margin side, I actually missed it, but I'll listen to the replay for it. But on the guide that you gave for 4Q product margins, how much tariff headwind do you have in there that could potentially unwind at some point next year?
So the guide was low 30s for Q4. And as far as tariff headwinds, I mean, last quarter, we said on an absolute worst-case scenario, if it didn't get extended, it would be 3% impact, and we noted 1% to 2% is more likely on an absolute basis. I think we still believe that 1% to 2% is the more likely scenario and preferably -- probably more close to the 1 with Joel working with supply chain a lot and his team in China. So I think that's kind of what we're anticipating, but a lot of moving parts there.
Your next question comes from the line of Tommy Moll from Stephens Inc.
Scott, I wanted to start on the market share topic. You indicated that a lot of the gains have come from larger E&Ps and privates versus your more traditional customer base.
No, most of the gains have come from majors and privates.
From majors and privates, okay. Would you say that a lot of the gains result from interactions and conversations that predate the downturn in March and that it's just coincidental that the gains have occurred during this downturn? Or do you think that something in the industry and the customer set has shifted since the price of oil collapsed and it's allowed you to take advantage of that shift?
Yes, the latter.
And any color you could offer there?
Tommy, it's the same every time we see a downturn, about people that previously were reluctant to speak to you because they were okay with their suppliers, are now forced to look wherever they can look. And I think that most customers realize there's not much blood left in the turn up. So pricing concessions from service companies have clearly peaked. And so where do you look next? You look -- that's the easiest place to look, right? So they look there first. And now they are having to look much more deeply at productivity and efficiencies. And then it's my feeling that as our customers look at their peers and they see their peers using Cactus, they're obviously curious as to why. And so I think that market share sort of begets market share. And then as those engineers as well move to other companies, they take -- they tend to take us with them. So I would have to say most of this is -- the impetus for most of this has been a renewed focus on efficiency and productivity.
Shifting now to consolidation among E&Ps, there's been a lot of it lately, potential for more certainly in the coming months. From a big picture strategic standpoint about your market opportunity in North America shale, how do you see that shifting as we speak here, as the wallet consolidates on the customer side?
Yes, well, let me speak about specifically what consolidation we've seen to date, and then I'll speak to how I see the future in terms of consolidation. So to date, with the exception of Chevron, we've been on both sides. So we've had exposure to both sides of the transaction. We have found historically that it's not going to surprise you that if we do business with the acquirer, we continue to do business. But we've also seen that when we do business with the target, it opens the door for a trial. So whether or not they entertained the trial before, they sort of have to entertain the trial now, and we've been -- our success rate with trials is quite high, as you know.
The downside to consolidation, I think both to date and going forward, is that we expect there to be some rationalization of the combined CapEx of the 2 entities. So I'd hope for the best. If you have a customer that had 10 rigs, buying a customer with 5 rigs, at least in the near term, you have to expect that it's not going to equal 15. They're going to step back, they're going to try to evaluate the best prospects, they're going to pause a bit. On the other hand, long term, I think it bodes well for the industry because as I hope you'll agree, it means that those that survive are going to be financially stronger, which means that maybe a year or 1.5 years post merger activity will pick up. And those customers have typically been attracted to our value proposition.
So it's my long-winded way of saying so far, so good, but we have to be a little bit cautious about capital -- about CapEx.
And we have a question from Stephen Gengaro from Stifel.
Two for me, you've covered a lot. The first being you mentioned potential or likely shipments to the Middle East next year. As you think about earnings expectations in the model and et cetera, when do you think you start to see a material contribution from the international side?
Yes, we're going to talk about that in the next call.
Okay. Do you want to give us a preview? I guess not.
It's early.
It's early. No, I understand that. The other part is on the rental side, any impact you see from consolidation at that level? And how does it impact it on the rental side versus the product side?
We're talking about E&P consolidation, right?
Yes. I guess that plus what you're seeing on the service side as well.
Yes, well, I haven't seen any consolidation yet on the service side of the business, although I think it's fair to say that the weaker players are getting weaker. They just -- they're probably -- it's a -- they're in early stages of needing working capital continue -- to continue, and I think they're going to struggle to come up with working capital, both to finance receivables and then money to affect repairs. But to be fair, to date, I haven't seen much -- we haven't seen much. In terms of E&Ps, in general, the larger the company, the more attractive our rental offerings become. So consolidation among E&Ps is -- I think, will be a long-term benefit to our rental proposition -- value proposition.
And your next question comes from the line of Scott Gruber.
Yes. Circling back on a couple of previous questions, first on the tariff impact, when would we see the full impact the -- of the tariffs given the inventory cycle? Assuming no change in policy, obviously.
Yes, I mean, typically, it would be about 6 months or so. So you'd be looking at Q1 into Q2. So full impact is probably in Q2.
Got you. Got you. And then also coming back to the capital return question, obviously, your free cash generation prospects are very strong in the recovery, but this industry is still inherently volatile. So with regard to the base dividend, Scott, is there a payout ratio, whether you look at it on earnings or cash flow? Will you just start to get less comfortable? Like how high would you take it just given the volatility of the business?
Yes. I would just say that we clearly set it at a level where we felt comfortable that we would be able to increase it steadily over time. I don't think we want to get into on the call specific payout ratios that with the analysis of kind of how we set the level, but certainly, we would like to be in a position where we can pay the dividend and continue to grow the cash balance.
Your next question comes from the line of Jacob Lundberg from Crédit Suisse.
I guess to start, just wanted to dig in to product margins a little bit. So maybe a little bit of pressure still coming over the next couple of quarters from the tariffs kind of rolling back in. But maybe a bit of color on some of the levers you have there to drive those margins back towards kind of 2019 or even first half of 2020 levels. Is it just volume? Or is there anything else you can do to get there a little faster if the market is looking flattish? And maybe any thoughts around kind of time to achieve that?
Well, the easiest way to achieve it is to raise our prices, right? And I don't see an opportunity to raise prices until -- I don't want to -- we never talk about prices on purpose, but there is no appetite for price increases right now. In terms of -- I mean I'm looking at Joel. That's the greatest determining fact. That's the gating issue is I don't think anyone in this industry, I'm confident having been involved with 2 current competitors previously, Joel and I. No one has a lower product cost basis than Cactus. No one. And I think that it's fair to say that we -- each year, we've reduced our costs for like items. We're the big player. So we get the best pricing. We have the most leverage with suppliers. We probably have the deepest relationships. We're also very loyal to our suppliers, and I think they reward us. But -- so there's a lot of cost reductions that are flowing through our system right now. And that's the reason that Steve says the tariff headwind, although worst-case scenario looks like 3%. It's more like 1%. The reason for that is not because we're raising our prices to our customers. It's because we've been successful lowering our product costs. I wish I could give you a better answer. But...
Yes. And obviously, volume is key, right, because we include our indirect expenses in our margins that we report. So the more the top line grows, the more leverage we get on that figure.
We have a question from Kurt Hallead from RBC Capital.
Good to hear from you guys. Good update too. I appreciate that. So Scott, my angle, I guess, is on the rental side of the business, and I know you've made a very concerted effort to develop a new technology and kind of referenced it on the call again today. Just was wondering if you can give us an update as to what percent of your rental business came from new technology deployments in the quarter. And then you talked about how you pretty much E&Ps have squeezed the lemon as much as they can on pricing and now the focus is on efficiency, which I would think would bode really well for your technology acceptance as you get into next year. So I wonder if you can comment on that as well.
I'll take the first part. The innovations were high single digits as a percent of rental. But I think Scott noted in the script that, that started from a very low base at the beginning of the quarter. So trending up the right direction by the end of the quarter.
So your question about efficiencies. The problem we have right now, Kurt, is this, the rental business has been has been hit. In a similar fashion is the pressure pumping business in terms of expectations for lower prices. And to be quite frank, we have competitors who are willing to provide -- and not just small competitors, large competitors who have seriously compromised pricing during this downturn and -- including some of their higher tech offerings which makes it very problematic.
Now while I continue to believe, and this whole group believes, that what we have working right now and we hope to deploy next year is the next generation from what's available in the industry. I can't promise you that these customers are going to pay for it. They just seem to be less willing to pay for those on the frac side than they are on the drilling side in our experience. And because frac related innovations historically have consumed a disproportionately high share of capital, we're just not going to invest until we feel very comfortable that customers are going to pay for that.
As I mentioned in the script, the good news is a high percentage of our new enhancements require very little capital, at least in comparison to frac valves. But nonetheless, we expect to be paid for it. And what I've learned in 43 years in this business, once you begin to give that away, it's very hard to get it back.
Yes, that's for sure, and that's really good color. I appreciate that.
That's it or are you done?
I guess you -- okay.
No, no, it's all right. You can keep going, I'm listening. Keep going.
I mean I think you got a lot of -- you have the most most years of experience in this industry at Cactus and it's more of an art than a science. And so we're not driven just by volumes. We're -- we've never traded -- pardon me, market -- we've never traded market share for margins, and we're not going to start.
And we have a question from Sean Meakim from JPMorgan.
So to come back to the market share topic in products, you all really scaled this business in the last downturn. So it's not a surprise you're doing it again, but I think the magnitude is what's maybe surprising people today. So can we just unpack a little more of the progress with the majors specifically in that business? It seems like that's always been a pretty big prize that we've been looking to see how that develops. So if we just dial in to maybe how much of a factor those customers have been in the recent share gains and maybe like what inning we are in terms of penetration with the majors?
I think on a percentage -- I'm only going to talk to you on a percentage basis. Sean, on a percentage basis, I think the majors accounted for the highest percentage, as I say, of growth. But they were closely followed by privates. And so it was a large percentage, so it's progressing very well, but I'm not going to postulate as to where that's going to end up. I just want to emphasize to you that if I look at our market share gains, I've been very surprised that they have not resulted from the large publicly traded E&Ps. And having said that, that group, which is the core of our business, has indicated to us that they have plans to increase their rig count during late fourth quarter and into the first quarter. So that's why I'm optimistic about market share gains.
We just -- we have a very aggressive sales staff, and they've done very well in penetrating really all segments of the customer base right now.
Well, I appreciate that, Scott. And the other topic I wanted to maybe dig into a little more. So you've got some shifting competitive landscape for products and rentals. As you noticed, your sales force is really trying to dial in to get each side. Customers are focused on efficiency. They have a little more time on their hands, maybe at the moment. Is there any more commentary you can give us on the efficacy of cross-pollination between those 2? Again, we've always talked about the rentals being kind of your first lead in. Let's just say the major has 1 type of customer. Can we maybe get just a little more commentary on how those you have been able to cross-pollinate in the last quarter or 2?
Yes, I don't see any cross-pollinization. It really is 2 independent -- pardon me, by and large, it's like dealing with 2 independent customers. The completion group completely separate from the drilling group.
And your next question comes from the line of Blake Gendron from Wolfe Research.
I'm going to follow Sean's line of question there just on procurement and some of the shifting dynamics that you've seen. And really, the question boils down to market share lumpiness one way or the other. I would imagine with the large customers, it's fairly bureaucratic in you're selling maybe into a handful of rigs, whereas with the privates, you might have a company man who only uses Cactus and won't go any other way. So I guess my question, are you seeing with consolidation, maybe market share becoming a bit more lumpy where your wins will be bigger chunks of share and your losses similarly? Or is procurement still very much at the rig level and you expect to see kind of smooth undulations as you ultimately try to increase your share moving forward?
Yes, procurement for our product business is not at the field level. So it's at the headquarter level. And then depending upon the customer, the very large independents, it's led by procurement. I would say the medium-sized E&P is publicly trading smaller ones. It's driven by -- mostly by engineering folks. But it's very hard. Procurement loves to get involved. It's very hard for procurement to push back on efficiency gains. And so it's not like an international tender where they take 6 bids and then a buy. Our efficiency and productivity contributions play a large part.
In terms of the consolidation of the industry, the truth of the matter is for all but the 1 I mentioned, we've been on both sides. So when I look at market share gains, as I said, I think the risk is that they rationalize their CapEx as they try to high-grade their prospects. So short term, I think we'll probably see a reduction in their combined rig counts. Long term, I think we'll see an increase in their combined rig counts.
I would also just add I think the trend continues that if you have 1 customer, you get all of the rigs. That's been our experience. So when -- but it's not that you don't flip a switch and then all of a sudden have all their rigs. That's the intent when they -- when you win that customer, but it takes a period of time to get on to all those rigs as the other company moves off. So you're asking, do you see more lumpy adds? Yes, they're lumpy. If you look start of 1 quarter to end of another quarter, but it's more gradual in our eyes because we're seeing adds through the month as we work up to 100% of the rigs.
Got it. That makes sense. And then 1 more, if I could. Just on the new innovations, could you help us maybe frame what the contribution there is? It seems like last quarter, it was all about price and optimizing costs for the operator. Wondering if you expect a reacceleration of the new product innovations. And then pretty interesting commentary around the remote capabilities. We've heard a lot about it from the diversified service providers, not necessarily on the product side. So on that, any sort of cost implication for you guys where you can maybe move structural margins higher because you're doing things more remotely?
Yes, well, I think that when we first engaged in some of the more innovative products for our frac rental program, it was to build a moat around and protect our legacy frac products. I think that's still the case. So it remains to be seen what the industry is willing to pay. There's a lot of remote activity going on right now. As you know, it's accelerating. We honestly believe, and I've never misled this group, that we have a much better mousetrap. It's just -- we'll just have to see how much the industry, our customers are willing to pay for that. I still feel like it's pretty much expected that we're going to move forward in that regard. And I look at it as probably the greatest contribution is going to come from increased utilization of our current assets. In other words, I'm not seeing customers pay a whole lot more for the innovations that have been commercialized over the last 6 or 9 months.
Got it. Understood. So you see it more as a revenue implication, building the moat, maybe getting some more market share on the rental side as opposed to we can streamline our costs, we can maybe rationalize the folks that are monitoring operations and with that sort of thing. It's more revenue as opposed to a cost driver for you guys.
You're -- that's exactly right, yes.
But obviously, we have very healthy EBITDA margins on the rental side. So any revenue implications and good results on the bottom line.
[Operator Instructions] There are no further questions at this time, presenters. Please continue.
All right. Thanks, everybody. Stay safe, and I appreciate your support of the company.
Ladies and gentlemen, this concludes today's conference call. Thank you for joining. You may now disconnect.