Earnings Call: Q2 2018

Aug 13, 2018

Earnings release

Good afternoon. My name is Casey, and I will be your conference operator today. At this time, we would like to welcome everyone to the Premium Brands Holdings Corporation Second Quarter twenty eighteen Earnings Conference Call. Thank you. I will now turn the call over to your host for today, George Paliogo, CEO of Premium Brands and Will Kalutych, CFO of Premium Brands. Mr. Paliogo, please go ahead, sir. Thanks, Casey, and good morning, everyone. I would like to welcome you to our twenty eighteen second quarter conference call. I will be turning the presentation over to our CFO, Will Kaludic, for an overview of our financial results for the quarter, after which I will make a few brief comments. This will then be followed by the Q and A segment of the presentation. Will? Thanks, George, and good morning, everyone. Before discussing our results for the quarter, I would like to caution you that to the extent we make forward looking statements during our presentation, our forecast and assumptions are subject to change and actual results may vary. Please see our 2017 MD and A, which is filed on the SEDAR website, www.sedar.com, for details on some of the factors that could cause our actual results to differ from our current expectations. Turning to our results. Our revenue for the quarter grew by $184,100,000 or 31.9% to $761,500,000 Acquisitions accounted for $147,200,000 of the increase, organic volume growth for $37,900,000 and price inflation for $3,900,000 These factors were partially offset by the effect of a stronger average Canadian dollar, which resulted in a $4,900,000 negative translation impact on our U. S.-based businesses revenue. Our organic volume growth rate for the quarter was 6.6%. This was above our long term targeted range of 4% to 6%, but below our expectations due mainly to temporary headwinds in several of our seafood businesses. These included supply chain disruptions resulting from a poor West Coast salmon fishery and challenging weather in the Gulf Of Mexico that prevented fishermen from taking their boats out. Our adjusted EBITDA for the quarter increased by $19,100,000 or 34.7% to $74,200,000 While most of this improvement was driven by our sales growth, an expansion of our margins also contributed to our EBITDA margin increasing our EBITDA margin increasing to 9.7 as compared to 9.5% in the second quarter of last year. This expansion was despite inflationary labor and freight cost pressures, which many of our businesses were able to partially mitigate through improved operating efficiencies. During the quarter, we incurred $500,000 in start up costs for two projects: the construction of a state of the art 105,000 square foot distribution and custom cutting facility in the Greater Toronto Area and the reconfiguration of our production among our three artisan bakeries in the Vancouver Lower Mainland. Both of these projects will drive future growth in our earnings and cash flows and are expected to be completed later this year. Our adjusted earnings for the quarter increased to $35,000,000 or $1.1 per share as compared to $27,900,000 or $0.94 per share in the 2017, largely due to our top line growth, partially offset by higher financing and amortization costs associated with our business acquisition activities. Looking forward for fiscal twenty eighteen, we have increased our revenue and EBITDA guidance. We are now projecting revenues of between $3,010,000,000 and $3,070,000,000 and adjusted EBITDA of between $278,000,000 and $287,000,000 This guidance reflects both our recent acquisitions of Yorkshire Valley Farms and Select Foods as well as our revised outlook for our legacy businesses. In terms of financing activities, we were very busy this quarter. We raised $345,000,000 in new capital through the issuance of $172,000,000 of convertible debentures and $173,000,000 of common shares. We also issued a notice of intention to redeem our outstanding 5% convertible debentures, which resulted in $22,800,000 of the debentures being converted to equity and $500,000 repaid in cash. At the end of the quarter, we had approximately $168,000,000 of unused capacity on our senior credit facilities. And our total debt to adjusted EBITDA and senior debt to adjusted EBITDA ratios at 2.1:one and 3.5:one, respectively, were both below our long term targeted ranges for these ratios. Looking forward, we intend to use a portion of our excess debt capacity to fund a variety of growth initiatives, including capital projects and business acquisitions. Turning to our investment activities. Since the beginning of 2018 and including our recent Yorkshire Valley Farms and Select Foods acquisitions, we've deployed over five fifty three million dollars in capital, consisting of approximately $12,000,000 for various project capital expenditures and $541,000,000 for acquisitions and business investments. We are very excited about what this means for the future of our company as the expected long term return on these investments is higher is 15% or higher. In terms of dividends, during the quarter, we declared a dividend of $15,800,000 or $0.04 $75 per share, which on an annualized basis works out to $1.9 per share. Our free cash flow for the trailing four quarters was $135,000,000 as compared to dividends of $56,000,000 resulting in a payout ratio of 41.5%. I will now turn the presentation back to George. Thanks, Will. As Will outlined in his prepared remarks, we remain on track to deliver another record year of top and bottom line growth. 2018 will be the fifteenth year in a row that we deliver record year over year results. During this period, we have experienced competitive threats, rising commodity prices, supply chain disruptions, labor shortages, trade related issues, the Great Recession and a myriad of other challenges. But our conviction to the vision that the future belongs to companies producing high quality foods under strong authentic local brands has never wavered. Today, we're more excited than ever about our prospects and how we are positioned to capitalize on the current consumer trends that are dramatically changing the food industry. We're also very pleased to be welcoming a number of new partners and their businesses to our unique ecosystem this quarter. These include: Albertus, Concord Meats, The Meat Factory, Penguin Meats, Country Prime Meats, Frandan Seafood and Yorkshire Valley Farms. All of these companies have best in class management teams who share our values and vision for the future, and I have no doubt that they will thrive under our umbrella. Looking forward, despite our level of activity over the last few quarters, I'm pleased to report that we continue to enjoy an especially robust pipeline of opportunities and fully expect to add to our portfolio of specialty food companies in the near future. I will now turn the presentation over to Casey for the Q and A part of the presentation. Casey? Great. Thank you. And your first question here comes from the line of Derek Lessard with TD Securities. Congratulations on a great quarter. Just wondering if you could shed some light about the specifics behind the slowdown in foodservice in Western Canada from your perspective? And I guess along the same lines, when do you expect to get normalized margins on your Quebec meat program? Yes. I think in general terms, Derek, we have seen a slowdown in terms of traffic at some of our foodservice customers A lot of it was in June. We had strong April and May, and June We don't know if that's related to the slowdown in real estate, to the weather, but anyway, that's what happened. And, obviously, we are pleased with the progress we've done with respect to distribution to specialty retail, but foodservice was slower than we had anticipated. Have you seen that pick up again since June, George? July was similar to June. Okay. And maybe just on your margins sorry, on your guidance. Just to clarify, are you still expecting the 13% organic growth in the Specialty Foods segment? And second, is the decrease in the top end of the EBITDA range tied only to Food Distribution? Yes. That's exactly it, Derek. And reflecting what's happened again, the little bit of a slowdown in the foodservice segment and then disruptions in the seafood supply chain. Okay. So that longer term 4% to 6% target, how should we look at that in terms of revenue growth? In terms of the distribution group? Yes, Will. Yes. The big driver this year was going to be in that group, the expansion of the new GTA facility. With that now coming online towards the end of the year and the challenges in the seafood group, yes, we're probably looking at closer to the to be within that 4% to 6% range. Your next question comes from the line of David Newman with Desjardins Capital Management. So just to frame this properly, I think your organic growth was 13% to begin with, then it was 10.5%. And with the GTA facility now towards 2019, you said 4% to 6% in PFD. What do you think the specialty foods could be by the end of the year in terms of organic growth? Yes. We haven't changed our outlook on the specialty foods. Okay. So is it still kind of well, 10,500,000 overall? It's kind of what you're sort of assuming for the year? Yes. I think that's roughly what it works out to, David. I don't have the math in front of me right now. Okay. Very good. And then on the guidance, what do you guys sort of anticipate in sort of the margin outlook? Obviously, you saw lower wholesale costs overall in terms of the commodities. So when you bake that into your margins, how does that reflect through? I have to think this environment is conducive to you guys. Yes. The commodities were relatively neutral in the quarter overall with there was some favorable pickup on some of the beef and pork commodity inputs. But seafood, our margins got hurt a little bit with the rising cost rapid rise in the cost there. So our guidance is based on a slightly favorable commodity environment overall for the balance of the year. But we're hopeful that maybe that's conservative, that there does seem to be some deflationary trends there. Okay. In general terms, David, with a lot of the headline news on trade, of course, and tariffs, there seems to be more protein backing up in North America more recently, and that's driving protein prices and commodity prices down. Yes. So we don't know where that's going to go. But again, from the visibility we have right now, it's probably flat to deflationary on the commodity front. Yes. At the same time, I'm looking at your value added products that you provide. I have to think and you're seeing no signs of a slowdown in terms of growth on your specialty food side. So it seems to be that would be sort of margin enhancing. Well, certainly, if the trends continue, would be the case. Final one for me guys. Just on the seafood side. Is there any actions that you guys are taking on supply chain? Or is there anything that you can do to sort of mitigate this? And so maybe just some color on that. Well, again, I think that there's not much we could do on some of the fisheries. If what we've always talked about is that we just love the demand dynamics of seafood. There's a lot of demand for seafood and we can move a lot of seafood. But a lot of times, the supply chain is challenging for various reasons. And we've invested a lot of time and effort in trying to find new supply chain sources. And we've basically gone global with respect to our supply chain for seafood. We're really excited with some of the initiatives we have in place. But there's not much we could do if the Berkley Sound fishery doesn't come in this year. There's not much we could do about that. Okay. And let's squeeze one more in. I saw the select is being old and the buddies. I thought that was kind of intriguing. And any update on trays, other QSR pilot projects or airline and C store, a lot of the other avenues beyond your main customer that you're looking at? We're very excited with what we're doing with our Sandwich group. Our Sandwich group had a very good quarter overall. We've made progress on many, many fronts there. The Select Food acquisitions, we basically bought a book of business and moved it into a Buddy's facility that was underutilized. But also, Select Foods was a large player in private label. So this gave us another channel to sell through. We brought some good people on board from Select Foods that have a good background in private label. So that gave us another channel to go along with airlines and C stores and retail, of course, and QSR. We're very pleased with that transaction. Excellent. Thanks, guys. Thanks, David. Your next question comes from the line of Leon Agassarian with National Bank Financial. Please go ahead. Your line is open. Hi, good afternoon guys. So just to follow-up on an earlier question. I mean you mentioned the foodservice distribution out West. I mean there was a slowdown in June, seems to be a little bit in July. So can you talk to us a little bit about like what kind of clientele that was? I mean because all the numbers that we're seeing from some of the restaurant guys, the public ones anyway, seem to indicate a pretty strong presence in the West. I mean, are you talking about larger restaurant chains or smaller guys? Just kind of some color there, please. I think overall, Leon, the restaurant industry has gone through a time where a lot of our costs have been inflationary. For example, they had to give increases in terms of wages due to minimum wage. I think that there seems to be a little bit of a sticker shock with respect to the fact that they've had to increase prices on their menus. So I think maybe some of the dollars are there, but not necessarily the traffic there. So the traffic has been impacted. Now it might be this summer. It might be the World Cup. It might be other factors that have impacted the slowdown. But there's definitely been a slowdown in traffic. Okay. Fair enough. And and, you know, kind of digging into that a little bit more, I mean, mentioned the fisheries being one factor and then and then, you know, some of the distribution to the to the restaurant chain. So can you quantify that a little bit for us maybe, Will, in terms of, which one in order of magnitude was the most important? The seafood was definitely the more dramatic impact on the quarter. And that was just to be clear, that was just because of there wasn't enough supply. That was reaching to your Yes. And it was a combination. It was sort of a perfect storm. We had weather issues in the Gulf Of Mexico, which supplies a variety of species that we sell across the eastern part of the country. Then we had a poor initial sockeye salmon run on the West Coast. And then we also had a poor tuna fishery. So it's quite rare for all three of those. But now unlike the foodservice that George mentioned that the softness seems to be continuing into the third quarter. We have seen a the West Coast sockeye salmon fishery seems to be going very well, the second round of it in the Johnson Strait. And the businesses or the fisheries on the Gulf Of Mexico have picked up dramatically. So it seems to be in a very unusual set of circumstances that are temporary that shouldn't carry through to the third quarter. And just to be clear, Leon, as I said earlier, this is not an issue of demand. There's plenty of demand for our seafood. It's an issue of supply. If you don't have the supply, you can't sell it. So that's the major issue. If a fishery is poor, then obviously, we don't have much to sell. The demand is very robust when it comes to seafood. Okay. I think that's clear. Just a couple of questions on some of the initiatives on the factories that you guys have. So number one, on the Phoenix sandwich plant. I mean, you mentioned as well that in the segment, sandwich business did well. Just kind of want to see where you are in terms of the ramp up at Phoenix. You also see that you're increasing another line here with the project expected to be completed in the 2019. So can you maybe give us some color there as to what the ramp up looks like? Yes. Pfenex has eight lines going now, and they're in the process of installing two fully automated lines. And again, what was the second question, Lian? Just in terms of that line itself. So that's expect those two lines are the ones that you're referring to that will be completed in the 2019? That's correct. Yes. Okay. And then one final one for me would just be on the Toronto one, on the GTA You expected that to be completed by the end of the year and then kind of being more operational in 2019. I know it's obviously very early, but what are you kind of expecting in terms of that facility once that's up and running in 2019? Can you give us maybe an indication as to what type of ramp up we should be expecting there? Well, it depends on a number of scenarios, Leon. And again, as we've done in other situations, we move into a market, and we obviously have organic growth initiatives, but we also have acquisition targets as well. And unfortunately, I can't comment But we are very excited with what we see in that market. We've made a number of acquisitions at this point that will benefit the speed of ramp up in that facility. And we're also looking at other acquisitions that will bring some critical mass to that facility sooner rather than later. And your next question comes from Stephen McCoy with BMO Capital Markets. I just had a couple of follow-up questions here. Just on Western Canada, I mean, guess, you just mentioned sort of that the fisheries business shouldn't carry into Q3. So I assume when you think about some of these issues lingering, it's mostly related to distribution side in Western Canada. Is that right? Yes. Correct. And Western Canada was more of a it was more of a story of sales being flat versus down versus in the seafood group, we actually did see contraction because of the supply chain disruption. Okay. Okay. That's helpful. And then you mentioned in your prepared remarks or the commentary from the press release just around several the opportunity over the long term for several of your business segments to reach the $1,000,000,000 mark. Can you just talk a little bit about which ones you view as the most attractive or most likely to get there? And kind of how much of it is organic, how much of it is would be M and A? Well, in terms of organic and M and A, Stephen, again, the answer is both. As you we're very acquisitive. Everything we own today, we acquired at some point Will and I acquired at some point from when we founded Premium Brands back in 02/2001. But we really like what we see in seafood. We believe that our seafood platform could become a $1,000,000,000 platform. Our protein group, which includes meat snacks and dry cured meats and now Italian meats with the acquisition of Concord Meats, could become a $1,000,000,000 platform. And our distribution group, I think that our distribution group continues to grow, and we see our way to $1,000,000,000 as well. Yes. Okay. And mean, think about the distribution side, potentially getting to $1,000,000,000 would that entail expanding outside of Western Canada? Well, our distribution group is across Canada, coast to coast. There's a few gaps that we have that we need to fill. And again, the expansion in Ontario is a very exciting project for us. And as I mentioned earlier, we are looking supplementing that project with some acquisitions. And we are very strong in Quebec, of course, with CSE and the Maritime. So we are across Canada today, but we are looking opportunities to fill in some gaps. Right. Okay. Okay. And then just finally, we're sort of early days or a couple of months into the Oberto acquisition. I'm just wondering if you can give an update on how that acquisition is performing, particularly with respect to some of the top line synergies that you're hoping to achieve? Yes. Oberto's as well as Concorde were very, very significant acquisitions for us and very transformational to some of our platforms in general. Albertos is a 100 year old brand. It's an iconic brand based in Seattle. It's a national brand. It has distribution all across The U. S. And I'm extremely pleased with how things have gone so far. As you know, we're not necessarily driving things through cost synergies. We drive things through gross synergies. There's been a number of discussions with the Alberta's management team in terms of how to leverage some of the know how we have in some meat snacks, including sticks and how to leverage that know how in terms of launching high end sticks into The U. S. Market. We've also had discussions as to how to leverage our Italian platform to launch an Italian line under the Abertos name. Abertos is a 100 year old Italian brand. Again, there's a lot of discussions, a lot of opportunities there. And we're really excited and we believe that Albertus will become a very key part of our strategy to grow our meat snacks platform in The U. S, very much like the way that SK was in sandwiches. Okay. That's great. And then just one final one, if I could. You mentioned the certainly no end in sight in terms of your acquisition pipeline. I assume there hasn't been any change to your acquisition strategy in terms of the segments of the market you're pursuing? No, no. Again, we have a number of platforms, obviously, and we're always trying to grow them geographically and also to strengthen them by acquisition. So we're not going to expand outside of those platforms. Great. Okay. Thank you so much. Thank Your next question comes from Sabad Khan with RBC Capital Markets. Please go ahead. Your line is open. Just on the premium food distribution segment, just given that, I think, the earlier commentary around keeping guidance flat for the year, I guess, you assuming that those headwinds in Western Canada are kind of largely just a 1H event and you're expecting a recovery in the back half? Is that fair? Well, again, no, we're we've built into our expectations a flatter sales curve for Western Canada than we originally expected. Again, the seafood segment, we expect to pick up again to get back on track. And on Eastern Canada, the GTA facility should hopefully provide a little bit of pickup at the end of the year. But the Western Canada, we are expecting to stay relatively flat. Or at at least at, you know, at this point, that's what we're seeing. Okay. And then on the Phoenix sandwich facility, is there a plan still to ramp that up over the three to three point five year period? Or are you looking to maybe extend that ramp up time line given that you're using some of the capacity at your facility that's required? Well, again, our plan is to get to 10 lines at this point. As you know, we purchased a number of plants more recently with the acquisition of Rayburn and Buddy's. So we do have the luxury today of having extra capacity in our system. And obviously, we're assessing the opportunities we have in the pipeline and deciding where we will do what. So I can't give you an answer right now, but we are very pleased that we have unutilized capacity This is the first time in the history of our Sanddish group where we have some extra capacity to deal with growth. Okay. And then just on the sandwich business, are you expecting that or sorry, on the seafood business, are you expecting that kind of once the supply chain issues clear up, that business should do better? Or do you kind of need to see demand pick up from your customers as well? No. We expect that once the supply chain issues are resolved that we will continue our growth path that we've been on with that platform because we like that platform, and we've been doing very well there. Okay. And then just one last one. I guess on the commentary around acquisitions, you indicated that you could complete some more in the near to medium term. How do you think about your balance sheet capacity and kind of financing those acquisitions, call it, over the next six to twelve months? As I mentioned in my comments, right now, we have a nice lots of room in our current facilities and the ability to extend those facilities. So certainly, outside of a very large transaction, we're very comfortable with where we are today. Your next question comes from John Zamparo with go ahead. Your line is open. Hey, thanks. Good afternoon, guys. Hey, John. Some of my questions have already been addressed, but just a couple left. The time line for the Toronto Seafood facility now at the end of the the year. Can you talk a bit about that construction project? Is there anything in particular to be aware of causing those delays? It's just normal stuff, John. The project itself is on budget. There's no change in our guidance in terms of the capital cost of it. It's just it's a tight market for trades, and sometimes negotiations take a little longer. And the team there that's heading that project are feeling pretty good that they're over the last hurdle now and they're on the downhill trend to getting this finished. So they're feeling pretty good that this is it. We should hit this deadline. Okay, great. Freight costs are an ongoing topic in the space. You mentioned it in the quarter. I assume it's in your outlook for the year. But can you share your thoughts on 2019 and how that might look for freight rates and maybe labor costs as well? Yes. So labor and freight, while it's an interesting one for us. From a premium brands perspective, there was no sort of single material cause or impact. But when you add it up across all of the business, it was probably about a $1,000,000 to $1,500,000 impact across all the business. And different businesses are dealing with a different issue in different ways. Some of them on the labor side are finding new efficiencies, investing in automation, just pursuing a variety of ways to replace labor with alternatives. On the freight side, some of our businesses are putting through selling price increases, doing deal with it. Our distribution businesses are using surcharges. So again, it's something it's an issue. It's being actively managed. And could there be some impact in 2019? Possibly. We don't expect it to be a material one as long as sort of the current environment continues as it is. Okay, great. And lastly, I appreciate the commentary on the evolution of the various platforms into billion dollar businesses. I'm trying to get a sense of how you think about that. The capital that you invest in those platforms, do you base it on the dietary trends and where you think those are going? Or is it multiples in the space? How do you look to prioritize each of those platforms? Again, John, we've built the business of premium brands from day one by focusing on what we believed were the long term emerging trends. Part of our success is because of that, right? And we like our platforms. We believe that all of them are competing in the space that is generally growing from the point of view of consumer demand for various reasons. As I mentioned in my prepared remarks, people out there are looking for better, cleaner food. And again, those are the themes that we talk about every day, and those are the themes that we invest in, either organically and by acquisition. That's not going to change. Your next question comes from Alex Diacon with Canaccord Genuity. Just on the line here for Derek Dley. Just a couple of things that were already touched on. But we talked about the sandwich production facility. I just want to see if, roughly speaking, are you able to quantify what the excess capacity is right now on the sandwiches business? As George mentioned, so Phoenix is currently has eight of its 12 potential lines. We've got two fully automated lines going in there and then another capacity for another two lines. So in terms of a percentage basis, I can't give you a specific number because we move products around through different plants. But certainly, there's capacity to support our growth for the next one to two years. Okay. Okay. That's helpful. Just other than sandwiches, I mean, you called out a couple of other items that were kind of driving the organic growth at Specialty Foods. I was just wondering if you might be able to give us some more insight into what's going on in some of the other product lines there like meat snacks, cooked protein products. Is it customer wins? What's kind of going on there? Well, again, it's a number of factors, again, driven by consumer trends and demographics. We're really excited with what we see in meat snacks, for example. Meat snacks are growing faster than the rest of the food space. They have been. Meat snacks at the high end of the spectrum are growing even faster. There's a lot of meat snacks that are not the best quality. So consumers are looking at the ingredient decks and the nutritional decks and making their decisions. Consumers are looking to eat more protein as opposed to sugary snacks. We like those type of trends. We like the cooked protein trends as well, the concept of cooked, minimally processed protein. This is an area where we've invested a lot of capital in and a lot of effort in. And again, millennials seem to want the convenience of being able to consume good protein without bringing the pathogens home with raw meat. So we have a lot of very exciting initiatives when it comes to cooked protein. I think today we are the largest manufacturer and seller of cooked kebabs in North America. We like that area. Again, similar trends to what I mentioned in terms of cooked protein. And finally, seafood. I think that aging baby boomers seem to want to eat more seafood, include more seafood into their daily diets. And that's one of the reasons why we like that space. So there's a lot of very positive trends that are driving our growth, and this is why we're in these segments to begin with. Okay. Great. So it sounds, I guess, it's fair to say that this is more of an increase in velocity from the sounds of it as opposed to distribution wind and stuff like that? I would say that both. Your next question comes from Derek Lessard with TD Securities. Please go ahead. Your line is open. Yes. Last one last one for me on the Select Foods acquisition. And I think you talked about buying a book of business. Just wondering how their asset looks in terms of quality? And are there plans in the sandwich business in particular to keep all of the asset? Or is there an opportunity at some point to extract some cost efficiencies even though that's not what you typically do? Well, so Derek, Select Foods, we always talk about premium brands acquisitions and specific groups doing sort of bolt on acquisitions that strengthen their unique or specific business. Well, this was a bolt on acquisition by our Sandwich Group. We did not buy a plant. Like George says, it was just a book of a business. The equipment was moved purchased, moved over into Buddy's Lakeville facility. It was done on a weekend. Monday, it was up and running, that has gone extremely well. And we're very excited about the synergies of just rolling this business into a plant that had some excess capacity. Your next question comes from David Newman with Desjardins Capital Management. Gentlemen, just a quick follow-up, housekeeping side. If you look at the SG and A, do you anticipate you might be able to get some SG and A leverage in the second half? And I'm just sort of thinking about FX might start working your way and weather. And I know the comps get a bit easier. But maybe just sort of the SG and A, are we at the high watermark right now? Yes. We should be. Certainly, we invest in a lot of additional infrastructure there in a number of businesses. And that kind of started early last year, second quarter last year. So year over year comps should be starting to feed through in the third quarter. Whether it's the third quarter or the fourth quarter that, that starts making an unnoticeable difference, I can't comment. But on the second half as a whole, yes, you are correct. And definitely, you've got some projects coming to fruition here, and that should help as well, right? Yes. As the well, again, GTA is the big project in the distribution group, and that's not going to start contributing until towards the very end of the year. Right. But on the Specialty Foods group, yes, you're right. And there are no further questions at this time. I will turn the call back over to Mr. Paliogo for closing remarks. I'd like to thank everybody for attending today. Thank you very much. And ladies and gentlemen, this concludes today's conference call. You may now disconnect.