Peabody Energy Corp (BTU) 2018 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Peabody First Quarter Earnings Call. As a reminder, today's call is being recorded. And I'll turn the conference now to Mr. Vic Svec, Senior Vice President and Global Investor and Corporate Relations. Please go ahead.

Okay. Thank you. Good morning, everyone, and welcome to BTU's first quarter earnings call. With us today are President and Chief Executive Officer, Glenn Kellow; and Executive Vice President and Chief Financial Officer, Amy Schwetz.

During our formal remarks, we'll reference a supplemental presentation that's available on our website. That's at peabodyenergy.com. And on Slide 2 of this deck, you'll find our statement on forward-looking information. We encourage you to consider the risk factors referenced here as well as our public filings with the SEC. I'd also note that we use both GAAP and non-GAAP metrics, and we refer you to our reconciliation of those measures in this presentation as well as our earnings release.

As we've noted on previous calls, most income statement measures are not comparable to the prior period. That's due to the adoption of fresh-start reporting as of April 1, 2017.

And with that, I'll now turn the call over to Glenn.

Thanks, Vic, and good morning, everyone. In the first quarter, Peabody achieved solid year-over-year performance, record free cash flow generation and a number of additional milestones, all of which occurred against some operational challenges that now provide the opportunity for cost and margin improvements as the year progresses.

As noted on Slide 3, first quarter volumes, revenues and adjusted EBITDA increased over the prior year. Liquidity rose to $1.65 billion, and we generated record free cash flow of $573 million or well over 10% of our enterprise value. Included in free cash flow is $254 million in collateral that was released through March. I'll remind you that it was just this quarter that all the company's preferred shares converted to common stock. That creates a more simplified capital structure and allows the future earnings to fully accrete to common shareholders.

We've previously stated that our focus in 2018 would shift towards returning cash to shareholders. On that front, we have significantly accelerated our share buyback activities. And just today, we announced that we're literally doubling down on our share repurchases by expanding our buyback program from $500 million to $1 billion. We also initiated and paid our first quarterly dividend as part of what we believe to be a sustainable program.

In recent weeks, we successfully repriced the company's senior secured term loan. This provides additional financial and operational flexibility, extends the maturity profile and reduces our cash interest expense.

Finally, we sold noncore assets, including surface lands in Australia as part of our ongoing resource management activities.

Before I turn the call over to Amy, I'd also like to recognize several accomplishments we've had on the ESG front. First, our Wild Boar Mine in Indiana was honored with the 2018 National Reclamation Award by the Interstate Mining Compact Commission for its dedication to environmental protection. This mine also received the Excellence in Mining and Reclamation Award from the Indiana Department of Natural Resources in 2017.

In Australia, a member of our Wilpinjong team was honored with the prestigious New South Wales Women in Mining Award, and a colleague from the Metropolitan Mine was named runner-up in the Gender Diversity category.

At the corporate level, Peabody was awarded Employer of the Year among Energy and Natural Resource Companies in the 2018 Corporate LiveWire Innovation & Excellence Awards. The company also was recognized with 3 Communitas awards for excellence in corporate and social responsibility and community service.

That's a quick summary of our actions over the past few months. Amy will now discuss our results for the quarter.

Thanks, Glenn. Peabody's record free cash flow generation in the first quarter was driven by a number of factors. To review, let's start by going through the income statement and balance sheet items relative to the prior year.

Beginning on Slide 4, first quarter revenues rose 10% over the prior year to $1.46 billion on continued strength in seaborne coal pricing and increased Australian metallurgical coal shipments. Income from continuing operations, net of income taxes, totaled $208 million during the quarter, including DD&A of $170 million and interest expense of $36 million. As a reminder on DD&A, we expect declines in 2019 and beyond as contract amortization established during our initial fresh-start balances rolled off.

Net income attributable to common stockholders totaled $107 million. Diluted EPS from continuing operations was $0.83 for the quarter, which included the impact of $103 million noncash dividend charge related to the full conversion of all preferred shares to common in January.

On Slide 5, overall adjusted EBITDA increased $23 million from the first quarter of 2017 to $364 million as strong seaborne coal pricing overcame the impact of operational conditions in both Australia and the U.S.

Looking first at Australia. Adjusted EBITDA reflected an improvement of $43 million over the prior year. Our seaborne thermal segment again delivered strong margins of 31% despite lower volumes and higher costs. As expected, first quarter volumes were suppressed by a scheduled longwall move at the Wambo Mine. In addition, we mined through an area at Wilpinjong where there was a gap in coal due to geology. Those issues have since been resolved, but export tons were lower than expected as we worked to first satisfy volumes required by our domestic contract. We would expect thermal volumes to increase sequentially as the year progresses.

First quarter export thermal volumes totaled 2.1 million tons at an average realized price of $78.18 per short ton. Total thermal realized pricing reached $53.42 per ton, a 10% increase from the first quarter of 2017.

Our Australian met coal segment was again the standout this quarter, leading the platform in total contributions and adjusted EBITDA margins of 36%. Met coal revenues rose 42% to $466 million on increased sales volumes and strong seaborne pricing compared to the first quarter of 2017.

During the first quarter, we sold right at 3 million tons of met coal at an average price of $153.04 per short ton. Met coal costs declined modestly from the prior year to $98.44 per ton and temporarily rose above the higher end of our annual guidance range due to a scheduled longwall move at the Metropolitan Mine and temporary weather-related challenges as well as heavy faulting that slowed down production at the Millennium Mine.

These operational constraints are now behind us, and our Australian metallurgical costs per ton moved to the lower end of our annual guidance range in March. I'll also note that our North Goonyella Mine continued its streak of strong performance with 55% adjusted EBITDA margins this quarter.

Turning to the U.S. Total adjusted EBITDA declined $54 million compared to the prior year due to lower realized pricing and temporary cost increases across the platform. You'll recall that our Western segment also benefited in the first quarter of 2017 from a $13 million contractual settlement with a customer compared to about $3 million this quarter. Higher costs are largely attributed to pit sequencing issues related to dragline outages at some of our operations.

In the Midwestern segment, costs per ton increased 13% due to heavy rains, in which some of our mines had nearly 1 foot of rainfall in the first quarter, as well as scheduled repairs and maintenance and higher diesel fuel prices. In addition, Western costs rose 2% over the prior year due to a planned longwall move at the Twentymile Mine. I'll point out that 3 of our 4 longwall mines had moved in the first quarter.

Overall, we would expect U.S. costs to decline to our full year targeted range over time as maintenance completed during the first quarter increases equipment availability and weather conditions improve across the platform.

We've mentioned before that we have flexibility regarding logistics and production. During the first quarter, we were able to meet increased customer demand for committed volumes as overall U.S. utility stockpiles reached their lowest monthly level since September of 2014. As a result, we increased our U.S. committed position to 95%, largely through the sale of mid-tier PRB coal, which led to a $0.07 per ton decline in our average 2018 PRB priced position.

Let's now move to the balance sheet on Slide 6. As you've likely heard me say, we continue to believe that 2018 will be a strong year for earnings and an exceptional year for converting those earnings to cash. We ended the quarter with $1.65 billion of liquidity, including $1.42 billion in cash and an additional $236 million of available borrowing capacity under our revolver and accounts receivable securitization facility. We also secured $333 million in third-party surety bonds in Australia, enabling the release of $254 million in collateral through March, with the remaining balance expected to be freed up in the second quarter.

The release of this collateral as well as cash tax refunds of $61 million contributed to positive operating cash flow of $580 million and record free cash flow of $573 million, including $35 million in Middlemount cash contributions during the quarter.

I mentioned that we completed noncore asset sales in the first quarter as part of our ongoing portfolio management activity, including the sale of surface lands in Australia. Cash proceeds from these transactions totaled $23 million in the first quarter, with an additional $28 million expected to be realized in the second quarter.

As we alluded to last quarter, we are also reducing onerous future contractual take-or-pays and are eliminating $4 million in reclamation liabilities through the sale of our 50% interest in the prep plant and rail facility associated with the Millennium Mine.

Regarding our long-term debt goals, we previously stated a targeted range of $1.2 billion to $1.4 billion over time. I'm very pleased to note that we have achieved the high end of our targeted level with the recent repayment of $46 million on our term loan as part of our repricing amendment.

Through the recent repricing, we were able to not only lower our interest but also extend our maturity profile by 3 years to 2025 and modify certain terms. We project approximately $5 million in annual cash interest savings as a result of the additional debt repayment and interest rate reduction.

As you may recall, given our strong operating performance, this is our second amendment to our term loan since emergence. Over this period, we successfully reduced our interest rate by a total of 175 basis points and secured incremental operational and financial flexibility to execute on our financial approach. And with the term loan now extended to 2025, our first tranche of debt, $500 million of senior secured notes, is not due until 2022. This compares to $1.45 billion in funded debt due in 2022 at this time last year.

Also, during the quarter, one of our rating agencies upgraded Peabody's corporate debt rating, reflecting the company's recent strong financial performance.

Turning to Slide 7. We've made it clear that in 2018, we would be shifting our focus from debt repayment to greater returns of cash to shareholders. We are already making good progress on this commitment with the allocation of $239 million of cash to shareholders this year. In the first quarter, Peabody initiated and paid a cash dividend of approximately $15 million, which management believed to be part of a sustainable dividend program. We also accelerated our share buyback activities, with 4.4 million shares repurchased in the first quarter and another 1.3 million shares repurchased thus far in April. Overall, we have repurchased approximately 11.5 million shares or 8% of our initial shares outstanding for a total of $400 million since the program initiated. Our current shares outstanding are 125.8 million, which translates to 128.8 million on a fully diluted basis.

Just today, we announced that we are expanding our share repurchase program to $1 billion in reflection of our financial strength and default position to return cash to shareholders.

The company has capacity under our debt agreements to make significant progress on our upside share repurchase program due to our performance to date. In addition, we are evaluating amendment to our bond indentures given our operational performance and significant progress made on releasing collateral. We believe at the right price, this additional capacity would provide incremental flexibility to accelerate and/or expand our shareholder return program.

On Slide 8. Peabody continues to execute on our stated financial strategy: generate cash, maintain financial strength, invest wisely and return cash to shareholders. Through our strong cash flow generation, we have been able to drive further savings and interest expense. We are thoughtfully allocating capital and utilizing our filters for internal and external investments. All of these activities continue to give us the ability to advance our shareholder return program.

I'll now turn the call over to Glenn to discuss the industry conditions and our focus areas for the second quarter.

Thanks, Amy. Let's begin with seaborne supply and demand details on Slide 9. During the first quarter, we continued to see strong seaborne pricing despite some rebasing from peak levels. Within seaborne thermal coal, Newcastle's spot prices have reached $103 per ton compared to $82 per ton in Q1 2017, supported by increased imports in China, India and Southeast Asian countries. I'll mention that Peabody has secured additional fixed price agreements to capitalize on strong thermal pricing levels.

We now have approximately 5.5 million tons locked in for 2018 at an average price of $76 per short ton and some 2 million tons committed for 2019 at an average price of $75 per short ton. We also expect to price an additional 2 million short tons on the JFY that runs from the second quarter 2018 through the end of the first quarter 2019. We also are beginning to layer in volumes for 2020.

Through March, India imports were up 6 million tons compared to the prior year as utilities rebuild stockpiles and domestic production fails to keep pace with demand. China imports also rose nearly 16 million tonnes through March as cold weather drove a 10% increase in power consumption and impacted domestic production and rail systems, while ASEAN demand increased on continued strong economic growth and expanding coal-generating capacity.

Turning now to seaborne metallurgical coal. Global steel production rose 4% through February. During this time, India imports increased 21% compared to the prior year, nearly offsetting reduced demand from China despite strong domestic steel production.

During the first quarter, [prompt] seaborne hard coking coal prices increased approximately $60 compared to the prior year to an average of $228 per tonne. The index-based pricing settlement for premium hard coking coal was set at $237 per tonne. This compares to the benchmark settlement of $285 per tonne in the first quarter of 2017.

In addition, the first and second quarter benchmark prices for low-vol PCI was settled by Peabody at $156.50 and $155 per tonne, respectively. Recently, as we anticipated, we've seen a tightening in the pricing differential between premium hard coking coal and PCI.

In terms of supply, both Australian thermal and metallurgical exports were in line with prior year levels through February. Whilst we've seen a fair bit of media coverage regarding the dispute between Aurizon and the Queensland Competition Authority, we are not anticipating any impact to Peabody shipments on the Goonyella line at this time and are maintaining our full year guidance targets. [Current] impacts mainly occurring on the Black borderline, which Peabody does not utilize. We will continue to monitor the situation, and longer term, we hope to see common sense prevail.

During the quarter, we also saw some robust prices paid for Australian metallurgical coal assets. We believe that has impressive readThrough results for Peabody's Australian platform, both in met and thermal coal.

On Slide 10. While seaborne coal dynamics were largely positive in the first quarter, U.S. coal demand was impacted by strong gas and wind generation. Overall, coal generation was down 3% through March despite a 20% increase in heating degree days. The decline was driven by lower natural gas prices as well as increased wind generation. During this time, PRB utility coal consumption was flat with the prior year, while demand from other coal-producing regions declined 6%.

Despite domestic demand constraints in the first quarter, U.S. thermal exports increased approximately 38% over the prior year. Increased exports, combined with lower overall U.S. coal production, led to strong inventory draws compared to the prior year. As a result, overall utility coal inventories declined approximately 10 million [tons] from the prior year. In addition, Southern PRB stockpiles fell to 53 days of maximum burn, down 7 days from March 2017.

With that, let's cover our priorities and expectations for the second quarter on Slide 11. To begin, we look at sequential increases in our Australian thermal volumes from quarter-to-quarter through 2018 as well as improvements in costs. Next, performance for our Australian metallurgical costs segment is expected to rebound in the second quarter, mitigating the impacts of a planned longwall move at the North Goonyella Mine that will bridge the second and third quarters.

Third, we anticipate improved cost performance in the Midwest on increased equipment availability, while PRB will experience lower volumes during the traditional second quarter shoulder season.

Finally, we will continue to execute on our stated financial approach with a strong emphasis on returning cash to shareholders through our upsized share repurchase program and sustainable dividend.

Before we move into questions, I would like to turn to Slide 12 and take a moment to focus on the third component of our financial approach: invest wisely. We noted at our Analyst and Investor Day that we're committed to earning a higher multiple to enhance shareholder value. We've been clear about our investment filters and would note that our expanded share repurchase program represents a way for us to invest more in the company we know and like the best.

There are several comparisons to punctuate that point. Based on a trailing 12-month average, Peabody outperformed the S&P Mid-Cap 400 on operating margins by 84% and on EBITDA margin by 88%. Profit margin totaled 16% for BTU compared to just 6% for the S&P 400. Our return on common equity far exceeded the average company in the index, and BTU also compares very favorably on free cash flow metrics. We've stated that margins matter and returns matter for Peabody. We also believe these measures make a difference to our investors. And whilst we are not yet a member of the S&P MidCap 400, we believe we meet the necessary qualifications on that front.

Based on these comps, we consider Peabody to be a highly compelling investment and one of the reasons we continue to invest in the company through our share purchase program. We also believe that BTU offers a powerful vehicle to deliver results and generate value across the cycle. We aim to earn a premium multiple uplift over time through strong operating performance from our diversified platform, a disciplined capital allocation approach and healthy returns above our cost of capital.

That concludes today's formal remarks. At this time, we are happy to take your questions. Operator?

(Operator Instructions) And we'll take our first question from Michael Dudas from Vertical Research.

Australia. First, Glenn or Amy, your customer base from the metallurgical side, could you just remind us, is it shifting a bit? India has been a very big consumer, at least the growth has been quite strong there. How are you positioned there relative to other traditional markets? And are those customers starting to feel a bit more resigned to the fact that normalized pricing for the products that they're purchasing are probably going to be at a higher level than they would have thought 6 or 12 months ago? Are you getting a sense of that with your discussions? That is my first question.

I think, Michael, as you indicated, we certainly favor a traditional relationship market approach given our platform. So those traditional markets of Japan, Taiwan are our central markets; increasingly so India, as you've indicated, with China actually being about the same size as India. I think because of that, we continue to make sure that we provide high-quality products into those markets. And we know that they certainly look to us to continue to provide quality products into those relationship [barriers].

It's probably worth noting, just as a follow-up to that, that although the pricing mechanism is rapidly changing, we really only sell about 30% of our volumes on a spot basis, with the remainder being under some sort of contract over the course of the year.

Okay. Fair enough. And my follow-up is, Glenn, you mentioned about the Aurizon situation, and you're somewhat insulated from it, which is helpful. But as that develops, are you seeing other issues on inventories and rail import in Australia? Is that also, you think, a limiting factor throughout -- into the summer and into the fall on the potential shipments out of Australia?

I can't speak for us -- I can only speak for us in terms of what we're seeing. We're obviously continuing to execute well. I'll go back to the fourth quarter of last year where the team did an outstanding job to move through logistical constraints and whatnot to deliver. I think we've got a solid execution in the first quarter, and I'd expect to see that continuing. In fact, what we've indicated is we'd expect to see sequentially increasing thermal volumes, for example, moving through the course of the year.

And our next question comes from Lucas Pipes of B. Riley FBR.

Amy, I wanted to touch on the capital return profile a little more. And specifically, I wanted to ask how much capital you are able to return over the remainder of this year under the existing bond indentures.

Sure. You know what, we think at this point in time, we have a significant amount of flexibility to begin our second tranche of $500 million. But I will say that we know that this is a question that is on the minds of our investors, and that's why we are exploring the amendment process for us to be able to say with certainty to investors that we've got the capacity to complete the second $0.5 billion of our share repurchase program. It's something that we think at the right price is something valuable for our equity holders to have. And that's why we're beginning that review process right now.

I appreciate that. I think it's fair to say that investors look at your liquidity and your free cash flow profile, and I think it's great how you doubled down on the share repurchases. But as you put it, I think there's also an expectation that maybe more is to come. So is it possible to give us a number in terms of how much capital you could return this year?

I think what I would say is that capital returns to shareholders are probably going to be our largest nonoperating-related use of cash over the course of the year. That will be a shift from last year where we were more focused on debt reduction. The other thing that I would say about our share repurchase program and would hope is evident from what we've done on the first $500 million program is this is not a management team that intends to utilize shelf programs. The denominations that we have put out there are programs that, as a team, we intend to execute on. And you can see that in the pacing that we've had over the last several months that as our cash flows have increased, particularly with the return of that collateral in Australia, that we've picked up the pace on our share repurchase program.

That's very helpful. And maybe one related question. Obviously, investors are highly focused on capital returns. But at the same time, there are some concerns, and I think this is -- applies to the -- across the industry that operations are not fully capitalized and that in some way, the capital returns are maybe kind of borrowing from the future. So when you think about your operating portfolio on an annual basis and on average, how much do you think you have to spend in terms of sustaining capital in order to maintain current levels of output?

I think we've spent a lot of time sort of taking investors, we'd hope, through the process that we undertook in terms of thinking about sustaining capital levels. We've indicated for 2018 and for 2019 that we would have slightly higher CapEx programs, particularly aimed at supporting our Wilpinjong, Wambo and North Goonyella activities to really underpin the strength of that platform. Going forward, we'd indicated around about $125 -- sorry, $225 million -- in excess of $200 million, I'd say, of sustaining capital would be the run rate required, notwithstanding 2018 and 2019 levels.

We've spent a lot of time within the organization focused on maintenance. And you can -- you saw some of that actually in our first quarter costs as we look forward. But we do pride ourselves on running our equipment well but also monitoring our equipment to determine when the optimal time is to perform that maintenance. Some of the costs associated with the upkeep of our fleet you see in our operating costs and some of it that you see in capital. But I think, overall, our operators feel like they are well positioned to deliver tonnage into the future.

And our next question comes from Mark Levin of Seaport Global.

A couple of just quick modeling-related questions. So tax refund cash for 2018, Amy, maybe how to think about that on a yearly basis and also maybe on a quarterly basis, if you know.

Yes. So as we indicated, we received $61 million in the first quarter. We've actually started to receive some refunds in the second quarter as well. We've got about $23 million in -- so far in the second quarter, with just a little bit more expected to come in over the course of the year. As we look forward to 2019, you'll recall that we had a benefit in the fourth quarter of 2017 related to AMT tax credits. That was an $85 million benefit, and we expect to see about 50% of that in 2019 and then the remainder of that to come in over 2020 and 2021. So the tax refunds will be a component of our cash flow through 2021, although with decreasing size benefits in those years.

Got it. Great. And then with regard to met price realization. So if I take your average realized met revenue per ton in the quarter and I kind of look at it against a -- what the benchmark settlement was, it comes out, after the conversions, to around just, call it, 71%, 72%. The met world is obviously becoming more opaque in terms of pricing and how to model pricing given the varying types of contract structures. I mean, should we be thinking around like -- obviously, we all will have our own different expectations for what met prices are. But is that kind of 71%, 72% of the HCC settlement the right kind of ZIP code to be thinking about realizations?

You can think about it that way or we'll oftentimes split it or slice and dice it a little bit more. So thinking about our mix of PCI to hard coking coal as being somewhere around 55% to 65% PCI. And then if we break it down a little bit further, for both our HCC products and our PCI products, we generally realize between 85% to 90% of the benchmark pricing for each of those products.

I'm sorry, Mark, those are annual ranges within a given quarter. You can understand that you only have boats that kind of move in and out of a particular quarter and can adjust your mix by 5 percentage points or so.

Got it, got it. And then last question goes back to Glenn on Aurizon. So the railroad itself is talking about maybe 20 million tons of potential lost coal on an annualized basis. And if you look at their mix, it's about 70% met. So that's about 14 million, 15 million tons of met. I know most of the impact so far has been on Black water, not on Goonyella. But I guess one would assume if they're talking about losing that many tons, that a good chunk of that would probably be on the Goonyella side. If in fact the regulators there can't reach a decision, how should we think about like a -- or reach a compromise, I should say. How should we think about a worst-case scenario for Peabody? Is it 1 million tons? Is it 2 million tons? I know you have take-or-pays and you expect them, but in a situation where they declare a force majeure, what's the worst-case shipment number to be thinking about, if there is no resolution?

And just drilling in on Aurizon a little bit further, as you know, this is part of a rate case that's occurring between the rail operator and the Queensland Competition Authority, in which both sides really articulate, negotiate a particular position. They've come out talking about potential worst-case impacts associated with taking maintenance practices to one level. We'd really -- whether it was Australia or the United States, we'd really expect rail providers to be seeking to maximize the competitiveness of the integrated rail chain. So I wouldn't like to speculate on impacts to Peabody other than we've demonstrated that to date, we've still been able to ship strongly. I think it's going to come down to the continued discussions and negotiations through that Competition Authority process. I would say each respective shipper, their mine, their loading capacity, their location on particular rail would be important. Contract positions with respect to available capacity, short positions, et cetera, may be a determining factor, and then overall, I'd say relationships between particular customers and the rail operator. We're holding our guidance. We have no reason to believe anything would be different on that front, and we expect to continue to ship.

And we will take our next question from Brett Levy of Seelaus & Co. And we will move on to our next question from Matthew Fields of Bank of America.

I wanted to ask about capital returns as well. I know that you're talking about getting flexibility in your bond indentures. But right now, it seems like you have unlimited RFP capacity when you're under 1.25x total leverage, which you have a good amount of headroom under right now and especially with sort of the way the world looks in your guidance. So I'm wondering sort of why the sort of urgency to put statements like that in your press release to try to get something done. Is it really accelerating buybacks? Or is it, hey, we have secured bonds. We'd like to refi them with unsecured bonds? Can you just talk a little bit more about that calculus?

Sure. So I think that probably, urgency is a little bit strong a term in terms of where we view that we're at with this process. It is about flexibility. We like the tenor of these bonds. We like the rates on these bonds. And so we are headed not necessarily in the refinance space at this point in time. The governor that we're looking at in the bond indenture is the C&I calculation related to payments [then]. And what that calculation doesn't necessarily reflect is the cash flow generation outside of net income that we have had over the past 12 months, particularly with the return of collateral in the form of cash to us. And so we are trying to correct -- or our goal would be to correct that imbalance through an amendment. That being said, we do have flexibility and some headroom that we built in that C&I calculation. And so if this isn't something that is economically attractive to us over time, then I think that we can and will wait for the day that it is.

And I would now like to turn the call back to Mr. Kellow for any additional or closing remarks.

Okay. Thank you for your questions and for taking part in today's call. It was a strong start to the year on a number of fronts. We demonstrated our ability to generate significant free cash flow as well as our commitment to returning that cash to shareholders. To all our employees, thank you for your ongoing focus on safe, productive workplaces. And to our shareholders, bondholders, lenders and sell-side analysts, thank you for your continued interest and support. Operator, that concludes today's call.

And this concludes today's conference. Thank you for your participation, and you may now disconnect.