Buckle Inc (BKE) 2009 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to The Buckle's third quarter earnings release. (Operator instructions). Members of Buckle's Management on the call today are Dennis Nelson, President and CEO, Karen Rhoads, Vice President of Finance and CFO, Kyle Hanson, Corporate Secretary and General Counsel, and Tom Heacock, Corporate Controller.

As they review the operating results for the third quarter, which ended October 31, they would like to reiterate their policy of not giving future sales or earnings guidance, and have the following Safe Harbor Statement. All forward-looking statements made by the Company involve material risks and uncertainties and are subject to change based on factors which may be beyond the Company's control.

Accordingly, the Company's future performance and financial results may differ materially from those expressed or implied in any such forward-looking statements. Such factors include but are not limited to those described in the Company's filings with the Securities and Exchange Commission.

The Company does not undertake to publicly update or revise any forward-looking statements, even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized. Additionally, the Company does not authorize the reproduction or dissemination of transcripts or audio recordings of the Company's quarterly conference calls without its express written consent.

Any unauthorized reproductions or recordings of the call should not be relied upon, as the information may be inaccurate. I will now turn the conference over to your host, Karen Rhoads. Please go ahead.

Thank you. Good morning, everyone.

Our November 19, 2009, press release reported that our net income for the third quarter ended October 31, 2009, was $33.3 million or $0.71 per share on a diluted basis, and that compares to $29.1 million, or $0.62 per share on a diluted basis for the prior year third quarter that ended November 1st of 2008.

Our year-to-date net income for the 39-week period ended October 31, 2009, was $85.2 million, or $1.83 per share on a diluted basis, compared to $70.1 million, or $1.50 per share on a diluted basis for the prior year 39-week period ended November 1st of 2008. Net sales for the 13-week third quarter increased 9.8% to $231.2 million, compared to net sales of $210.6 million for the prior year third quarter.

Comparable store sales for the quarter increased 4.3%, compared to the same period of the prior year, and our online sales, which are not included in comparable store sales, increased 41.9%, to $12.5 million for the quarter. Net sales for the 39 week year-to-date period ended October 31st, 2009, increased 15.4% to $623.8 million, compared to net sales of $540.6 million for the prior year 39-week period ended November 1st, 2008. Comparable store sales for the year-to-date period increased 9.7% compared to the same period in the prior year. Our online sales for the year-to-date period increased 50.8% to $34.3 million.

Gross margin for the quarter improved approximately 60 basis points to 44.2%. This improvement was driven by an increase in merchandise margins, which had a 90 basis point impact, and partially offset by an increase in buying, distribution, and occupancy costs, which had a 30 basis points impact.

The improvement in merchandise margins for the quarter was primarily a reflection of reduced markdowns as a result of strong sell-throughs on new products, which was partially offset by an increase in redemptions to our Primo Card loyalty program. The increase in occupancy costs was primarily the result of increased percentage rent in stores with strong year-to-date sales performance, increases in common area maintenance costs, and additional depreciation expense related to new fixture rollouts.

For the year-to-date period, gross margin improved approximately 140 basis points to 43.5%. This improvement was driven by an increase in merchandise margins, which had a 90 basis point impact and by the leveraging of buying, distribution, and occupancy costs, which had a 50 basis point impact. The improvement in merchandise margins for the period was primarily a reflection of reduced markdowns as a result of strong sell-throughs on new product, which was partially offset by an increase in redemptions through our Primo Card loyalty program.

Selling expense for the quarter was 18.6% of net sales, which was a reduction of approximately 10 basis points from the third quarter of fiscal 2008. The reduction was driven primarily by a reduction as a percentage of net sales in expense related to the incentive bonus accrual, and by leveraging of certain other selling expenses, which were partially offset by an increase in internet-related fulfillment and marketing expenses, advertising expense, and health insurance expense.

For the year-to-date period our selling expense was 18.9% of net sales, which was a reduction of approximately 40 basis points from the same period of fiscal 2008. The reduction was driven primarily by reductions as a percentage of net sales in expense related to the incentive bonus accrual, in-store payroll expense, and by the leveraging of certain other selling expenses, which were partially offset by an increase in internet-related fulfillment and marketing expenses.

General and administrative expenses for the quarter were 3.2% of net sales, which was a reduction of approximately 10 basis points from the third quarter of fiscal 2008. The reduction was driven primarily by reductions as a percentage of net sales in equity compensation expense, and expense related to the incentive bonus accrual, which were partially offset by increases in certain other general and administrative expenses.

For the year-to-date period, general and administrative expenses were 3.4% of net sales, which compares to 3.2% for the same period in fiscal 2008. However, excluding the prior year $3 million gain related to the involuntary disposal of one of our Company's corporate aircrafts, general and administrative expenses for fiscal 2008 were 3.7% of net sales. The 30 basis point reduction was driven primarily by a reduction as a percentage of net sales in equity compensation expense, and by the leveraging of certain other general and administrative expenses.

Our operating margin for the quarter was 22.4%, compared to 21.6% for the third quarter of fiscal 2008. For the year-to-date period our operating margin was 21.1% compared to 19.6% in fiscal 2008. Excluding the $3 million gain on the aircraft, our operating margin for the 2008 year-to-date period was 19.1%. Other income for the quarter was $1.2 million, which compares to $1.8 million for the third quarter of fiscal 2008, and other income for the year-to-date period was $3.7 million, compared to $6.2 million last year.

During the third quarter of fiscal 2008 the Company recorded a $1.8 million unrealized loss resulting from the other than temporary impairment of certain of its investments in auction rate securities. The unrealized loss which was recorded in the statements of income for the quarter and year-to-date periods ended November 1st, 2008, had a $0.02 per share after-tax impact on the reported basic and diluted earnings per share, for both the prior year quarter and year-to-date periods.

Our income tax expense as a percentage of pre-tax net income was 37.0% for the third quarter of fiscal 2009, compared to 36.0% in the third quarter of fiscal 2008, bringing third quarter net income to $33.3 million for fiscal 2009, versus $29.1 million for fiscal 2008, an increase of 14.5%. Year-to-date income tax expense was 37% of pretax net income for fiscal 2009, compared to 36.6% for fiscal 2008, bringing year-to-date net income to $85.2 million for fiscal 2009, versus $70.1 million for fiscal 2008, an increase of 21.5%.

Our press release also included a balance sheet as of October 31st, 2009 which included the following. Inventory of $118.2 million, which was essentially flat compared to inventory of $118.2 million at the end of the third quarter of fiscal 2008, and also total cash and investments of $167.2 million, which is following our October 27th dividend payment, which totaled $92.6 million. Our cash and investments compares to $237.8 million at the end of fiscal 2008, and compares to $182.8 million at this same time a year ago.

As of the end of the quarter inventory on a comparable store basis was down in the mid-single digits, and total markdown inventory was down compared to the same time a year ago. The decrease in markdown inventory was the result of a decrease in the 20% off category, partially offset by an increase in the 50% off category. We also ended the quarter with $135 million in fixed assets net of accumulated depreciation.

Our capital expenditures for the quarter were $9 million and depreciation expense was $6.4 million. We now expect our fiscal 2009 capital expenditures to be in the range of $46 million to $50 million, which includes anticipated investments made during the remainder of the year as work progresses on our new distribution center currently being built in Kearney, Nebraska. We broke ground on the 240,000-square foot facility in September, and we are targeting a completion date of July 2010.

For the quarter our units per transaction increased approximately 4.5%. The average transaction value increased approximately 6.5%, and the average unit retail increased approximately 2%. For the year-to-date period our UPTs increased approximately 3%, the average transaction value increased approximately 7%, and the average unit retail increased approximately 4%.

The Buckle ended the quarter with 404 retail stores in 41 states, compared to 384 stores in 39 states at the end of the third quarter of fiscal 2008. I will now turn the call over to Dennis Nelson, our President and CEO, who is calling in from the road today as he is out traveling stores this week. Dennis?

Good morning. I would like to start by highlighting the performance from our various merchandise categories that led to our 9.8% net sales increase for the quarter.

Men's merchandise sales for the quarter decreased approximately 1.5%. Positive categories on the men's side were denim, outerwear, and footwear. Average denim price points increased from $80.60 in the third quarter of fiscal 2008 to $85.90 in the third quarter of fiscal 2009. For the quarter our men's business is approximately 37% of net sales, compared to approximately 41.5% of last year, and the average men's price points increased approximately 6% from $50.10 to $53.

The women's merchandise sales for the quarter increased approximately 17.5%. Highlights were denim, woven tops, sweaters, outerwear, accessories, and footwear. Average denim price points increased from $85.60 in the third quarter fiscal 2008 to $92.40 in the third quarter of fiscal 2009. For the quarter our women's business is approximately 63% of net sales, compared to approximately 58.5% last year, and average women's price points increased approximately 3% from $43.75 to $45.10.

For the quarter, combined accessory sales were up approximately 5.5% and combined footwear sales were up approximately 22%. These two categories accounted for approximately 7% and 5%, respectively, of third quarter net sales which compares to approximately 7.5% and 4.5% for each in the third quarter of fiscal 2008. Average accessory price points were down approximately 4%, and average footwear price points were up approximately 10.5%. For the quarter, denim accounted for approximately 46% of sales, and tops accounted for approximately 35%, which compares to approximately 43.5% and 39.5% for each in the third quarter of last year.

Our private label business for the quarter was down just slightly as a percentage of net sales, due to the strength and variety of selection in our branded merchandise, but continued to represent slightly above 25% of sales.

During the quarter we opened four new stores and completed four substantial remodels. As of the end of the quarter, 216 of our stores were in our newest format. For the full fiscal year we will open 20 new stores in total, which includes one additional new store open the first week of November. We will also complete 22 substantial remodels in total during the fiscal year, which includes two additional stores that have already moved back in their remodel the space in fiscal November, and three stores that will move into the remodel space after the holiday.

With that we welcome your questions. Thank you.

Thank you. (Operator instructions). Our first question is from Anna Andreeva with JPMorgan.

Great, thanks so much. A couple of questions for you guys. Dennis, when you look at the merchandise mix for the holiday, given the strength of denim, and obviously price points are still moving higher, as you look at overall price points for the fourth quarter, do you think AURs could still be up, even if the men's category continues to be challenging?

I would guess the price points are going to be consistent with the third quarter price points.

So up low single digits?

Yes, that would be my expectations.

Okay. Great. And good job on the inventories. Look extremely well managed. How should we expect inventories to look at year-end?

I think we're taking the same approach as we have been, trying to offer a lot of new product, but still manage it tightly, so I would think we would be consistent with the end of the third quarter would be my expectation on that as well.

Okay. Great. So then kind of looking at merchandise margins, obviously you guys are still seeing nice upside here in the third quarter. Given your comments about inventories still being tightly managed and some upside in AURs, I am assuming we should still expect to see merchandise margins up in the fourth quarter.

That is our hope.

Karen, to you, staying with gross margins, you guys didn't get leverage on buying and occupancy on 4% comps, and I think previously you talked about needing 2% to 3% comps to get occupancy leverage, so how does your leverage point move up going forward? I guess should we expect you guys needing mid-single-digit comps in the fourth quarter and in 2010 to get occupancy leverage?

I think we'll continue to look at that, Anna. Historically you are correct it has been the 2% to 3% range, and we tried to point out today the few of the things that we had going on in the third quarter.

The percentage rent is always a function of which stores are performing strongest.,if it is a store that is already in a percentage rent category or store that is below the break point, so its sales growth does not kick in additional percentage rent dollars, so that's always going to vary a little bit. We had some common area maintenance increases from some of the landlords, and so we'll continue to look at that, and when we get the full fiscal year in revise that number.

What percentage of your store base is on percentage rents right now? That would be helpful.

That are actually above the break point paying percentage rent?

Right.

I do not have that number in here off the top of my head.

Okay. And then, Dennis, to you, I am not sure if you guys talked about any regional differences during the quarter? I guess we're hearing from a couple of retailers that Texas has been a little weaker and you guys have a decent size exposure there, so are you seeing any slowdown in that region, and any variability by region?

Well, Texas is still a good state for us, and we're happy with our Texas business. Karen, did you look at that a little closer on the others?

I think on the other regions we would look at California, Arizona, Florida, and Michigan; in general, those geographic areas are a little bit tougher. We have certain stores in those markets that are still performing well, but in general those would be the markets, Dennis.

Okay. Great. Thanks so much, guys. Good luck for the holiday.

Thanks, Anna.

Thank you.

Next we have Nicole Shevins with Goldman Sachs.

Hi, thanks. Good morning.

Good morning.

My question, is a lot of companies have talked about a fall off in sales trends at the end of October, and that's continued into November for some, so just wanted to see if you could talk about that a little bit?

That's something that we haven't disclosed selling by week, and not giving any forecast on sales.

Okay. And then just another question, some of the newer stores in the Northeast, just wanted to see if you can give us an update on how they're performing or any new thoughts on the potential store opportunity there?

We have been happy with our openings in the Northeast, and we have several in the PA and a couple in the New Jersey area planned for next year.

Have you talked about how many in those areas are opening for next year?

We would be able to come up with that list. I don't have that handy. Do you have that list handy, Karen?

No, I do not.

We would be able to find that information and disclose that.

Yes.

Alright. Thanks so much. Just one more on inventories. They were really well controlled in the quarter. I just wanted to see if there were any specific areas or categories that you're investing in for holiday where you expect customers to respond well to?

As you see our denim sales have continued to be good, and we would expect that to continue.

Great. Thanks so much.

Thank you.

Thank you. Our next question comes from Adrienne Tennant with Friedman Billings Ramsey.

Good morning.

Good morning.

I have a quick question also on the rent. As you sign new lease deals and they're in the Northeast environment, are you finding that the average rent is actually higher and, Karen, is that partially what's putting pressure on the occupancy going up, and will that continue as we go into 2010? Thank you.

Adrienne, you are correct that the new stores opened during fiscal 2009, in some of the markets that we have opened there are markets that have higher occupancy costs overall, and again I think it kind of varies by market. It is not just a general across the board that we're seeing those larger numbers, but it depends on the markets that we're opening in.

Okay. But that's offset on the top line by higher sales productivity as well, right, so the four walls on the new stores are comparable to the existing? Is that fair to say?

I mean, that is definitely our long-term goal, just off out of the gates some of the stores, newer markets are going to take a little more time to ramp up their sales, but definitely they should be -- have higher four-wall contribution overall.

Okay. Great.

As they mature.

As we go into the holiday quarter, the macro is still quite weak, is there anything different that you might be doing for Black Friday, or anything that you will be testing by way of new promotions or anything like that as we get into the fourth quarter?

Our strategy is pretty much consistent with our plan last year, where we have a few specials, but there is no big promotions planned for the holidays at this time.

Okay. Wonderful. Thank you. Good luck.

Thank you.

We'll go to Edward Yruma with KeyBanc.

Thanks so much for taking my question. I notice that you commented that you had lower expense bonus accruals during the quarter. Did you actually reverse performance bonuses due to the performance in the quarter?

No, there wasn't -- there was no reversal of any bonus accruals.

Got you. Could you give us a quick update again on your new store opening thoughts for 2010?

We're still looking at 20 new openings, and most likely 22 to 24 remodels. Got you. Finally, the Primo expense, the higher redemptions, I know you've called this out for a number of quarters now. Any drivers there or any changes to the program? Thank you.

I think that the program has continued to grow, and our guests are really embracing that program. Definitely with the higher price points, too, that's something that they really value, is that Primo Card and the opportunity to get that $10 off a future purchase.

Great. Thank you.

Next we have Liz Pierce with Roth Capital Partners.

Thanks. Good morning.

Good morning.

Good job on the quarter. Following up on the Primo question, I don't remember if you said this, do you have more card holders outstanding than you did a year ago?

Liz, right now our Primo Card is a manual punch card, so that's one of the items that when we convert in 2010 to our new point-of-sale software, we'll convert that to an electronic program, and we'll be able to gather a lot more data regarding that card. I think in addition to our guests really valuing that card and maybe hanging onto it a little longer than they did in easier economic times, I think part of it, too, is is with our private label card guests, that is a growing area for us, and they also get Primo Card punches, so I think that that's maybe helped increase it some, too.

Your feeling is you probably do have more cards outstanding?

Correct.

Okay. And then, Dennis, on the remodel how many are you doing for this year?

We were able to speed up three that we planned for next year at the end of this year, so that raised us to 22 this year.

Is their performance -- are you seeing out performance so the return on investment is generating something positive for you contribution wise?

Yes. I think we're getting a very good response to the remodels. Each market can be a little different, but it is definitely a competitive advantage and seeing some nice sales increase in those remodeled stores.

And on the inventory, are you guys willing to -- on the increase in the 50 off, was it in any particular category or was it more guys versus girls?

I don't remember looking at that sheet close enough to say. Can you, Karen?

No. I was just looking. I did not bring that in here with me. Liz, there wasn't one category that stuck out, kind of a single category that was kind of glaringly, this is where it is at. I think it was more in general across the board.

I guess what I am getting to, is when you think of this softening a little bit that we have seen in the men's business, is it, Dennis, a category that has you concerned that's taking the volumes down every month?

I think our team over the last two plus years really capitalized on the strong knit category and did very well, and now there is a little less newness out there. They are still managing that business as well, and have the inventories in line with any change of selling in those departments, and so we're still comfortable with where we're at there.

So seems to me there is a little bit more on the woven, and obviously on the sweater and outerwear categories, given the seasonal. Do you think that woven can be as strong as the knit was in terms of driving business?

I don't know if it is as big a category. It is still a very nice category for us.

Okay. And how are your layaway sales? You guys have always done layaway, and layaway certainly seems to be front and center this year. Have you noticed an uptick in those layaway sales?

The layaway sales have been very good, yes.

Alright. And then I think I just had one more question. Did you close a store this quarter?

Yes, we closed one in lifestyle center where the mall had just deteriorated to a point where it wasn't -- didn't make sense to stay open.

Are there any closings planned for Q4?

There probably will be a couple older malls that are just not cutting it that we might eliminate.

And are these -- do you have like co-tenancy or is it lease expiration, in terms of closing these?

It is either kickouts or lease terminations.

And, I am sorry, did you tell us what you thought inventory would be at the end of Q4?

At this point I am thinking it will be pretty consistent with the end of third quarter.

Okay. Down in the mid-single digits?

Yes, in that area, yes.

And, Karen, do you have actually the square footage for the end of the quarter?

We do have that. I can get that for you.

Okay.

Total square footage?

Yes.

I can email that.

Okay. All right. Thanks and good luck, you guys.

Thank you.

Thank you. We'll go next to Elizabeth Montgomery with Longbow.

Hi, guys. Congratulations on the good quarter.

Thank you.

I had a question I guess following up on the percentage rent. Is there any way that -- is it some of the -- is it the stores that are in the percentage rent territory, would those be become some of the older stores more in the initial markets, or is that really a function of the some of the newer markets have you entered over the past couple of years?

Any age of store, it is those -- we have some strong performing stores that are older stores as well as some open in fairly recent years, so, yes, the percentage rent really isn't driven by age of store.

Okay. So it is a different mix?

Yes.

Okay. And then can you speak to traffic trends in this quarter as compared to in Q2?

Elizabeth, we don't have people counters in the store, so I think anything we have on traffic counts really is more -- would be a subjective number, so I don't think we have statistics for you there.

Okay. Alright. We could try to back into it given the difference in the AUR, the UPTs and all of those things?

Correct. The same thing with conversion.

Yes. Okay. Quickly, the auction rate security write-down that happened last year, what line item did that hit? Was that in other?

We had a separate line item for that last year. It was on its own line item down in other income. There were two lines and one was the other than temporary impairment.

Okay. That's what I thought.

It was separate.

Thank you.

Thank you.

You're welcome.

Next is Laura Champine with Cowen and Company.

It is actually John Kiernan sitting in for Laura. Can you talk about what's driving the differences in transaction trends between men's and women's, or what your opinion of why there is such a divergence?

I think our ladies business has continued to hit on several new categories as well as denim being very good. Our variety of our top selection, outerwear, and maybe having a few more boots than a year ago has just really helped put the whole outfits together. And the strength of our people in our stores are doing a great job of working with their guests on outfitting and putting the complete package together, and I think it has really been a plus for our ladies business.

And with respect to mer -- margins I know Karen said that they benefited from lower markdowns. What was the benefit? Was there a benefit from IMU as well?

Do you have that, Karen?

There would have been some exactly from the IMU also, John. I mean, more --

Lower markdowns.

Right, very strong sell-throughs.

Okay. Thanks, guys.

Thank you.

Thank you. We have a question from Jennifer Milan with Sterne Agee.

Thank you. Just to get back to the question on discrepancies that you're seeing by geography, I know you talked about California remaining weaker on a relative basis and some people have been talking about improvement in California recently. Wondering if you can comment on whether you're seeing -- finding that to be the case as well.

I would say in general that it is certainly, when we comment on that it is kind of compared to some of the other states, and certain markets I would say we probably are seeing some improvement, and in other situations a lot of what affects our business is the quality and experience of our Management Team, and so it is more of an individual situation in a lot of cases than a particular market.

Okay. And then also, I know you made some changes on the men's side of the business for fall, implementing more newness and maybe less of a focus on graphic tees. Can you talk about some of the changes that you have made there and what you're seeing in terms of the impact to the business?

I think the approach was pretty standard. We've got a nice selection of sweaters, a wide selection of wovens, and we have a diverse group of fleece, lightweight knits, and hooded categories, as well as the outerwear, and the tees, which had been driving the business in the short-sleeved category, we have just continued to test new styles, new brands, and reduce the inventory to some degree there, to -- in response to the selling.

Are you seeing any improvement, or are you seeing other categories picking up to take over the business from the down trend in the short-sleeve tees?

I think like we mentioned, you know, the men's was down 1.5, but I think our team has done a nice job of having a balanced selection of product and good sell-through on the product we do have in, so we think compared to what I am hearing in most of the industry that they're doing a nice job with what is the demand on the men's product.

Okay. Thank you.

We'll go to Mike Smith with Kansas City Capital.

Good morning.

Good morning.

I guess my question would surround your online business. Have you done any study of that business to see whether those are comps that are actually being clicked in as opposed to people coming to the store, or are they from different part of the country?

I think a lot of our guests will shop both the store as well as the internet. We have a combination there. I don't know that we have a way to -- or I haven't studied the states as far as increased business where we have fewer stores. Do you have any comments, Karen?

Kyle might have more. Do you have anything on that, Kyle?

In general we do get the most business from the states where we actually already have store locations, but it is nice for, when we do go into a new market that if we have had shoppers with an online presence, then they're used to our product.

Thank you.

Thank you.

Next we have Barbara Wyckoff with Jesup & Lamont.

Hi everyone, good job. I have a question about denim. It's an important clarification for you. Is there any important newness in denim silhouettes, treatments, color washes, et cetera, that would drive incremental business in the spring season, or do you see it still staying skinny and dark, boot cut still being pretty important? Thank you.

What we see is that we offer a nice selection from skinnies, to actually certain markets flair bottom, and although a majority of the denim is darker, we have a variety of washes and we have quite a selection of fits. So I think our business, we attract a wide variety of guests to shop our market, from the young ladies that are younger teens and ladies of all ages, so we have kind of have a nice assortment for everyone out there.

Okay, thank you.

Thank you.

Thank you. Next we have Linda Tsai with MKM partners.

Yes, hi. How do you attribute the internet sales -- what do you attribute the internet sales uptick to in the quarter? Was it related to the new DC, or was it a way to clear inventory?

We do clear inventory through there. The fulfillment that we expanded has helped us be more efficient and do a very effective job of delivering the goods. But I think it is just a continued growth of guests getting to know us better and seeing a wider variety of selection on the internet, and just becoming more comfortable shopping on the internet. So I think it is kind of word of mouth, like in some of our stores, just growing that business.

Great. Are your suppliers being impacted by reduced credit from CIT's bankruptcy?

None that I know of.

Thanks and good luck for holiday.

Thank you.

(Operator Instructions). We do have a follow-up from Elizabeth Montgomery with Longbow.

Hi, guys. Thanks for taking this. I hoped you could give us the exact number that the executive comp is trending or how you think it is going to trend for this year?

The executive compensation is really driven by growth in three different areas -- comparable store sales, gross margin, and pre-bonus pre-tax net income. So that number is going to vary by performance in each of those three categories, so we really can't speak to exactly -- we don't know where the fourth quarter is going to be, so we can't predict where that bonus will be either, Elizabeth.

Can you say what it has been year-to-date?

No, I don't think we do give that number out.

Alright. That was worth asking. Thanks.

Thank you.

Thank you. And we have no one else in queue.

Thank you.

Yes, thank you.

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.