Compass Minerals International Inc (CMP) 2013 Q4 法說會逐字稿

Good day and welcome to the Compass Minerals fourth-quarter earnings conference. Today's conference is being recorded. At this time, I would like to turn the conference over to Theresa Womble, Manager of Investor Relations for Compass Minerals. Please go ahead.

Thank you, Camille. Thank you all for joining our call this morning. I am joined today by Fran Malecha, our CEO and Rod Underdown, our CFO. Before I turn the call over to them, let me remind you that today's discussion may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on Compass Mineral's expectations as of today's date, February 11, 2014 and involve risks and uncertainties that could cause the Company's actual results to differ materially. These differences could be caused by a number of factors, including those identified in Compass Mineral's most recent Forms 10-K and 10-Q. The Company undertakes no obligation to update any forward-looking statements made today to reflect future events or developments. You can find reconciliations of any non-GAAP financial information that we discuss today in our earnings release, which is available in the Investor Relations section of our website at CompassMinerals.com. Now, I'll turn the call over to Fran.

Thank you, Theresa and thank you all for joining us today to discuss Compass Minerals' fourth-quarter performance and outlook for 2014. Today, we are reporting both top-line and bottom-line improvements in the quarter and for the year versus 2012 results. Our sales increased 45% to $387.4 million for the quarter and 20% to $1.1 billion for the full year. Our adjusted EBITDA increased 68% for the quarter and 31% for the year. Excluding special items, net income for the quarter and the year improved 62% and we generated $239.3 million in cash flow from operations, which was 58% more than the $151.7 million we generated in 2012.

Now there were a number of puts and takes in the quarter and Rod will walk through those later. I will focus my comments on areas where we are making progress and building momentum, as well as the areas where improvements need to be made. As I look back, it's amazing what a difference a year can make. When we hosted our earnings call last February, many wondered if we would ever have a normal winter again. At that time, we were on the heels of a third consecutive quarter of significantly milder than average winter weather in dealing with all the headwinds that created in the market and for our operations. But last winter ended with a flurry of snow activity that helped alleviate some of those pressures. We still had the icing salt inventory issues at the customer level, which prevented 2013/2014 highway deicing bid volumes from fully rebounding to typical levels.

Another effect was lower average selling prices for highway deicing salt on those awarded bids, which is impacting the current winter season. Winter weather in the fourth quarter of 2013 was substantially above average. The total number of snow events in our 11 representative cities was 80% above the 10-year fourth-quarter average and more than double the number of events reported in the fourth quarter of 2012. This pushed fourth-quarter highway deicing volumes up 79% and consumer and industrial sales volumes up 26% compared to last year and resulted in total salt sales of just over $323 million. These higher sales volumes also helped lower our per-unit operating costs.

Based on our results to date, we are expecting highway deicing volumes to be similar to last year's 4.4 million tons here in the first quarter. This takes into consideration the fact that we have had a strong winter in North America in January, but also below-average winter weather in the UK and we will definitely see a more pronounced impact on our first-quarter highway deicing average selling price from last year's -- from last summer's lower priced contract awards.

With the winter being so widespread in our core North American markets, our ability to shift volume and redeploy deicing salt from one region to another to serve above-contract maximum is very limited. All of our available in-season shipments are going to serve existing customers. We expect first-quarter demand for consumer professional deicing products to increase our first-quarter consumer industrial volumes and this should have a positive impact on that business' average selling price. We expect that salt costs will be lower in the first quarter of 2013 as we carried lower-cost inventories into the new year. So taking all these factors into consideration, the first-quarter salt segment operating margin percentage should be similar to the 20% we reported last year.

Certainly the winter weather we've had so far in the first quarter should improve the 2014 supply/demand balance throughout the North American highway deicing market and perhaps even tip it in the favor of the producers. We do expect to mine more rock salt in 2014 in order to replenish inventories, which should benefit production costs. The current weather does bode well for the potential of the upcoming bid season for volumes in particular, but let me remind everyone that we still have two important months left in the winter and we will have to wait until the full winter is complete before making any judgments about what this winter means for the 2014 highway deicing bid season. We will provide more definitive updates about our production plans and the full-year outlook when we get further into the spring.

Now turning to our specialty fertilizer segment, here, it's been quite a difference in the past six months. When we spoke with you in July, there was some degree of uncertainty regarding our sulfate of potash business. Our earnings release happened to coincide with the news that one of the global potash marketing groups was disbanding so that one of those potash producers could produce a volume over price strategy for standard potash. While this event and its aftermath seems to have curbed the performance of many fertilizer producers, our business has shown strength and stability. We focused our sales on the highest netback markets in North America and we've continued to differentiate our SOP by marketing its superior value it can provide growers of specialty crops. The fact that we sold more tons than we ever have as a public company to our core Western US region this year is strong evidence that our strategies are working. We sold almost 100,000 tons of SOP in the fourth quarter at $626 per ton and we are expecting about a 10% year-over-year increase in sales volumes in the first half of 2014.

Although the demand side of our specialty fertilizer business was very steady during the fourth quarter, we did not reach our production cost goals for 2013. We have achieved some stability with improved reliability and uptimes at our Ogden, Utah facility. However, we are still not converting our pond-based feedstock into SOP at the rates that we would like. This means it has taken more pond feedstock to produce every ton of SOP. While we aren't pursuing improvements in that area, we will continue to opportunistically use MOP to supplement our production there. And as we mentioned before, using MOP in our production is more expensive, but the current price premium we are able to achieve in our key markets make this process profitable for the Company. This has helped ensure that we will have product available in the first half of 2014 to serve our customers during the spring application season at attractive prices. In summary, we are expecting a specialty fertilizer segment operating margin of around 27% for the first half of 2014.

Before I turn the call over to Rod for further elaboration on the financial details of the quarter, I'd like to update you on our strategic plans for 2014. We continue to evaluate our expansion plans at the Great Salt Lake. We have growing confidence in our ability to sell additional tons into high-value markets close to home, but the reality is that the Ogden plant has not been able to convert pond-based feedstock into SOP at desired rates. So we will continue to focus on producing as much SOP as possible there using both pond-based feedstock and MOP as a supplement as long as the economics make sense. This will allow us to continue our growth in key North American markets.

We have identified several incremental investments that we believe will improve our pond-based conversion rates at Ogden. As we gain more confidence in our ability to produce pond-based SOP, we will then begin to trim the scope of the larger scale plant expansion. We believe this approach will allow us to maximize our sales opportunities and demonstrate our process improvements while we determine the best approach for growing our SOP capacity in the future.

As this decision illustrates, we are beginning 2014 with an emphasis on performance and efficiency throughout the entire organization. We are pursuing opportunities to reduce costs and increase profitability all the while maintaining the highest level of safety, quality and performance. We are also pursuing growth opportunities internally and externally and we will seek acquisitions to augment our current businesses or to add complementary businesses. But keep in mind any acquisition would have to meet our risk-adjusted mid-teens target for internal rate of return rates. We will continue to be good stewards of the Company's balance sheet and we continue to protect and grow our dividend, which the Board of Directors just increased 10%, making it the 11th consecutive year of dividend growth. This direct return to investors has been and will continue to be an important element of our value proposition to investors. Thank you and now, I will turn the call over to Rod.

Thanks, Fran, and I'll start today with a review of our salt segment. Fourth-quarter salt sales increased 56% from last year's fourth quarter, again, as a result of the increase in sales volumes this year. The increase in snow events in our core North American markets compared to the prior year pushed total salt sales volumes to 4.7 million tons compared to the very mild 2012 fourth quarter when we sold only 2.8 million tons.

Consumer and industrial volumes in the quarter were up 26% from the prior year and most of that increase was related to packaged deicing demand, although non-deicing product sales volumes also grew respectively in the quarter and for the full year. This was the first meaningful year-over-year increase in consumer and industrial sales volumes in a number of quarters as our retail customers' deicing inventories became depleted by the widespread winter weather and therefore, sales were brisk once winter weather set in during December.

Our average selling price for consumer and industrial salt was 1% higher year-over-year as the benefit of stronger sales of consumer deicing products was muted by a larger percentage of those sales coming from lower-value packaged rock salt deicing blends. Average selling prices for highway deicing products were essentially flat with the prior-year result as the ratio of higher-value highway deicing salt to lower value rock salt for chemical customers was more favorable this year. This offset the impact of lower highway contract prices from last summer's bid season.

Average selling prices for all salt products, which, again, combines highway deicing and consumer and industrial products together, declined about 7% as a result of the stronger highway deicing sales this quarter when compared to last year when the sales mix was more influenced by the higher-value consumer in industrial sales. This products mix shift also contributed to the 16% year-over-year reduction in per-unit salt costs.

Salt operating earnings were $74.8 million, which was a 56% increase from $47.9 million in the prior-year quarter. The 2013 result includes a $4.7 million charge for a reserve related to a ruling against the Company from a 2010 labor issue. So excluding this special item, our quarterly operating earnings would have been $79.5 million or 66% above last year's result.

Those of you who have followed us for a while know we always provide an assessment of how the winter weather impacted our results. We do this in order to be as transparent as possible about the underlying performance of the Company and we use the consistent methodology each year. This quarter, we estimate that our sales benefit approximated $45 million to $50 million from above-average winter weather and our operating earnings benefited $10 million to $15 million. It's important to keep in mind that this estimate is based on bid results that we achieved. During the last bid season, average awarded contract prices were modestly lower and bid volumes partially rebounded, but not to levels we saw prior to the 2011, 2012 winter season. So our calculation of weather sales and operating earnings on a normalized basis factor in these market events.

Looking forward, we expect highway deicing prices to fall about 5% in the first quarter compared to last year, again, due to the lower contract prices from last summer's bid award. However, consumer and industrial average selling prices are expected to climb about 4% from prior-year results due to heavier demand for higher-value packaged deicing products this quarter compared to last.

Our current forecast for the first quarter of 2014 is to sell about 4.4 million tons of highway deicing salt and as Fran mentioned, this guidance factors in very robust sales in North America, but a rather mild winter so far in the UK. We expect our salt operating margin percent for the first quarter to be similar to the first quarter of 2013. Remember, we produce most of our salt ahead of the winter, so much of the product we sell in the first quarter of 2014 will have been produced in 2013.

We said last quarter we believed it would take an above-average winter to reset the supply/demand balance and we especially needed that to occur in southern regions of our service territory where highway deicing inventories were still quite high. While winter weather thus far has been well above average throughout all of our primary North American territories, so we expect that both customer and producer deicing inventories will have been significantly depleted when the winter is over. Beyond this, we won't really have a firm view on the bid season until it gets underway this spring.

Turning to our specialty fertilizer business, segment sales in the fourth quarter were up 8% compared to 2012 due to a 9% increase in sales volumes during the quarter. Average selling price was essentially the same as last year's at $626. Sequentially, from the third quarter, the average price was down $20 as a result of changes in regional and product sales mix rather than market pricing pressure. You will note that we sold more product, FOB the plant, which lowered gross selling price, but also reduced shipping and handling costs in the fourth quarter by about 17% year-over-year.

Specialty fertilizer operating earnings were $19.7 million in the quarter and this includes a $9 million benefit from an insurance settlement. That settlement relates to a mineral brine loss at our Ogden solar pond facility in 2010. So excluding this item, per-unit costs increased 4% compared to the fourth quarter of 2012 and increased about 5% on a full-year basis.

When stepping back and looking at full-year costs in the specialty fertilizer segment, production costs actually declined at our Ogden operation, but only by about $10 per ton. As Fran mentioned, the driver of the shortfall was lower-than-expected conversion rates of pond-based feedstock. There were also some mechanical issues, but those were less prevalent late in the year than earlier. As a result of the lower pond-based yields and because of the improved economics of supplementing our pond-based production with potassium chloride, we produced about a quarter of our SOP in the fourth quarter through this higher cost, though still solidly profitable production process.

When we factor in the effect of the higher-cost production and we trued up the final full-year cost per ton, which includes the adjustment impact of the per-unit cost for all tons sold for the full year, our reported fourth-quarter unit costs increased year-over-year. As a reminder, our all-in cost includes about $70 per ton of depreciation and $30 per ton each of royalties and SG&A. So for now, we are expecting in the first half of 2014 our costs to be approximately the same as the 2013 full-year cost of $377 per ton, which included the benefit of the special item in the fourth quarter.

We are expecting average selling price for specialty fertilizer to be about $620 for the first half of 2014. The timing of the regional sales is expected to result in a similar pattern to last year when the first-quarter sales price was lower than the second quarter. That being said, we see steady demand continuing as we enter the spring season. This gives us a relatively high degree of confidence in our volume guidance of 180,000 tons for the first half of 2014.

Many of you are aware of the drought affecting California right now. The drought has not pressured our sales in any unfavorable way thus far. With the potassium and SOP and the lack of chloride, our product plays an important role in actually improving water use efficiency. In short, SOP helps the growers use the water they do have more effectively. It is possible that the drought could reduce the number of acres planted in some of our markets and as a reminder, a large portion of our growers served have established root systems, but we'll continue to monitor the situation for any possible impacts as we progress through the year.

Lastly, I will run through some corporate items. Cash flow from operations at the end of 2013 increased 58% from the 2012 period mainly due to the higher earnings and the depletion of salt inventories. We ended the year with capital expenditures of $122.7 million. Because we have been spending on some infrequent, but necessary maintenance projects, our sustaining capital expenditures have been higher than typical. In 2013, our combined special and standard maintenance business capital was about $85 million. We also had about $15 million in tornado-related spending. Most of the remaining spending related to smaller payback projects and cost-reduction efforts at several of our operations.

In 2014, currently, we anticipate investing approximately $100 million in capital spending with about $90 million of that for maintenance of business, including about $30 million for the special infrequent spending projects. The remaining $10 million will be spent on investing in payback projects. We may identify additional payback investment opportunities during 2014 and of course, we will update our guidance should that occur.

We expect to report between $18 million and $19 million of depreciation and amortization per quarter throughout 2014. Our corporate and other segment operating loss is expected to be approximately $50 million in 2014 when compared to the $54 million we reported in 2013. The 2013 results included some costs related to the Company's reorganization and the 2014 outlook reflects efficiencies we gained through that action. We also incurred some professional costs we do not expect to repeat in 2014.

Interest expense in the quarter was $4.6 million and almost $18 million for the year and we expect similar quarterly amounts in 2014. The fourth-quarter tax rate of 27% lifted the full-year rate to 25%. We also expect the 2014 income tax rate to be around 25%. And so with that, I'll turn the call back over to the operator for questions. Camille?

(Operator Instructions). Mark Gulley, BGC Financial.

Hey, good morning, Fran. Congratulations on being able to maintain stable SOP prices. That certainly has not been the case for other crop nutrients. If I refer to page 7 where you go through some of the agronomic selling points, can you maybe dig a little bit deeper on how you are doing there, maybe express it in terms of the volume growth you might be able to achieve by selling more of your product in North America to the markets that you identify there.

Yes, I think the success we have had so far has really been moving volumes from lower netback regions further away from the plant into the higher regions closer to the plant, which really puts us more into California and the PNW as a result if you look at especially the crops that we have on the page that you've identified. Some of those crops are a little more sensitive to MOP than others, but generally there is more -- we see more opportunity in crops that just can't handle that chloride issue. And I think that is in both those regions that I talked about.

So it's a constant process for us. We continue to increase our customers in those areas, increase penetration and with people that we have on the ground expect that that will continue to build over time and I think it bodes well for, as we look at increasing production, whether we are doing that through using KCl or through more pond-based, which is our desire as we go down the road, it will match that demand build over time and not kind of destroy the pricing structure in the market.

Secondly, do you view even more MOP addition as a substitute for a plant expansion for maybe the foreseeable future?

I mean that's something that we certainly would put -- are putting into our equation. The risk in that is that the prices of both these go up and down and it's hard to predict those prices well into the future. We do know that if we can increase the pond-based production at returns that meet our requirements that that is the most stable opportunity for us to meet that market demand into the future. So we are going to weigh both those things and I think we are at a spot right now where we will try to continue to produce as much as we can probably using a little bit more MOP than we'd like, but we are going to do that because we can make good margins and build that market successfully.

Thank you.

(Operator Instructions). David Begleiter, Deutsche Bank.

Thank you. Fran, looking at prior-year periods where you've had very strong and depleting winter seasons, how would those next-year price negotiations progress?

I think if you look at the history of pricing over the last 10 or 15 years, actually, we do post that information to the market over time. We've averaged about a 3% to 4% price increase on average, but we've had a few years, including the last two, where we've had price reductions. The last two years have been 2% and 3%. And we've had years as high as 8% to 10% in terms of price increases and most of that was driven by certainly weather and strong winters. So we don't want to get too far ahead of ourselves here. We do have a couple months to finish up on our core shipments for the winter, but certainly as you look back in history, it should bode well for the upcoming bid season.

Fran, just on shipping and handling costs in Q1, are you incurring any additional costs due to the severe winter weather, either rivers freezing, etc.?

No, if you look at this winter, I mean it has been so strong everywhere and especially if you go back to that kind of late December weather, it was extremely cold. That created freezing in the river system in places that we haven't seen freezing happen and that has caused some problems getting barges to the market at times and certainly the same way with vessels through the lakes. In fact, now, we aren't shipping any vessels now as we've shut that program down for the balance of the winter, which is normal, but the last bit of that season was certainly more challenging just because of the cold weather.

So I think when you look at the cold temperatures, plus just the fact that winter has been heavy everywhere, we really haven't had the opportunity to take advantage of moving salt from one spot to the other and pick up some additional margin. We've just been really concentrating on getting everything to meet our current sales and we really haven't had a lot of time in between these storms to replenish ahead of the next storm coming like would be probably a more traditional pattern if it was average. So it is a good news story for us, but I expect that we will have some additional costs as we ship out the balance of the season.

Thank you.

Ivan Marcuse, KeyBanc Capital Markets.

Good morning. This is Andrew Dunn on for Ivan. So just to kind of confirm what you're saying there on the salt side, since you have had trouble moving some of those inventories around, do you anticipate that you might have to purchase from third parties going into the first quarter? Have you had to do a little bit of that already? And also just to make sure what you are saying is you are not really going to have any opportunity for any spot purchasing in the quarter as well?

Yes, I think we are saying that the spot opportunities just aren't going to be there and we just described kind of the reasons for that. In terms of meeting our customers' needs, we are doing that. I would say that nothing out of the ordinary this year in terms of making that happen. There is always some buying and selling that goes on, I think, to kind of match things off, but we expect to be able to meet our requirements.

Okay. Then on the SOP side, do you think you can maybe break down for us right now kind of the benefit you are seeing from this drought situation in California versus the increased demand that is coming from your own kind of increased marketing and sales efforts?

I don't think we can accurately predict that. We aren't hearing a lot about the drought from our customers in terms of the decisions they are making here in the short term. I think we'd be cautious if the drought continues and that will have an impact -- could potentially have an impact on the longer term, but it's difficult right now to really get down to that level. I think -- personally, I believe that the bulk of what we are seeing is from our efforts that we are making on the marketing side, but it is just difficult to get data to say it's here or it's there.

Certainly it is a challenging time in California for growers and we think we have a product that does add some value. As they go through these kind of conditions, we hope it's short-lived and we will continue to kind of manage our way through that along with our customers.

All right. Great. Thanks for your time, guys.

Thank you.

Joel Jackson, BMO Capital Markets.

Hi, thanks. Just a first question back on SOP. What are the opportunities here if you look at your Ogden plant and trying to increase the conversion rate? Are there opportunities here to actually throw more energy costs at it and maybe run the feedstock through more cycles of the evaporator crystallizer as opposed to have to spend more on the CapEx side to maybe improve the rate? Thanks.

Joel, it's Fran. I think the changes that we have talked about are more in the process and without getting into too much detail, I think there will be incremental capital fixes just to continue to debottleneck in order to improve our conversion. I wouldn't think it would be significant CapEx, but there's probably two or three projects that we either have on the go or would be initiating shortly. That should give us the benefit down the road.

Okay. And if you are sort of deferring committing to expanding Ogden until you can figure out investments or how to improve, where do you see sort of the growth in earnings for the Company? If your salt earnings are somewhat range-bound by the year-to-year fluctuations in weather, you've got a bit of growth related in new roads and things like that, but if you are not going to -- if the SOP business is not going to be expanded, where do you see the opportunities for growth coming or when do you make a decision to maybe repurchase more shares, repurchase shares or up the dividend significantly?

Well, we did up the dividend consistent with past practice, so that continues to be important to us and part of the value equation for investors. We look at things like margin expansion from our current operations and making them more efficient, especially on the salt side. We will continue to look for ways to increase higher-value production at places like our plant in Wynyard in Canada on the fertilizer side and we will continue to look for potential acquisitions that would complement or strengthen the fertilizer business overall and we haven't ruled out the pond expansion either. So we think that we will continue through the steps that we are making to improve supply, the production, which will increase the top line and then we think that, as that is successful, there will still be that expansion opportunity that we would size consistent with where we think this market will grow and continue to kind of maintain the strong margins that exist today.

So I think there is opportunities there. If we don't find those opportunities and are looking for ways to invest that money or return it to shareholders, we would certainly consider the financial alternatives to do that.

Thank you.

You are welcome.

Robert Koort, Goldman Sachs.

Hi, thanks for taking my question. This is Angel Castillo on for Bob. Just a quick question, regarding the breakdown of your SOP sales in exports versus domestic, could you give us a sense for where that is at today versus historically?

Yes, Angel, this is Rod. Historically, we've sold about 20% to 25% of our sales internationally. I think we had a year that was upwards of about a third. This year, we expect that -- this year, in 2013, that total was in the low teens, kind of just south of 15%. So a significant move downward.

Got it. And if I may, just to follow up on that, given this shift towards the US market, there has been a lot of news around additional low-cost capacity of SOP coming online in the US as soon as 2017. I was wondering how does this affect your strategy and the potential for your further expansion of the Ogden plant and how you view the outlook for SOP prices thinking of that.

There is, I guess, a handful of projects that are out there in various stages of trying to get to market. Many of those projects are based on converting polyhalite to SOP. That production process from our perspective just hasn't been proven commercially viable and I guess we will just have to see if those tons do come to market. Certainly that would be a number of years down the road if it actually happened. But we continue to watch those. It would require significant capital investment to bring them to market and certainly if the tons that are talked about would come to market all at one time, it would significantly impact pricing, which I think would certainly impact somebody's thoughts about making those kinds of investments.

So that is why I like our approach; we are taking a measured approach. We are continuing to add -- to bring more tons to the market. We think we can continue to do that as described earlier on the call and continue to build on our customer base in the key markets that are driving the kind of pricing that we are seeing. So that is really our perspective. We will continue to watch those projects, but they just seem to me to be I would say high price tag and just difficult from a process standpoint to be imminent.

Got it. Thank you so much for your time.

Thank you.

Mark Gulley, BGC Financial.

Yes, can you comment a little bit on snow events quarter to date given the continued harsh weather conditions, but perhaps you have already signaled what that means in terms of your shipments for this quarter. So if the events look pretty solid, could some of that perhaps spill over into the second quarter?

Yes, Mark, this is Rod. Snowfall in January and here in the first little bit of February has been very robust and active and I'm talking about now our North American markets. In the UK, it has been mild and so that is certainly affecting our outlook for Q1. But as we turn back and look at North America, I think our guidance is meant to indicate that much, if not almost all, of our inventory and productive capabilities during the quarter will be consumed and -- sold and consumed by our customers. There might be a little headroom there, but not a lot.

As we think about the guidance that we gave for the consumer business, I think it's always a little more tenuous to guide in that business. The retailers don't tend to like to buy late in the season, but they will when weather continues. And so I think as we think about our consumer and industrial business, we might have a bit more of a runway there, but we definitely need winter to continue over the next couple of months in order for that to be substantially higher than we've guided. So we will monitor it over the next few weeks and provide updates as the opportunities arise.

And as another follow-up, if I may, Fran, you did talk about the price impact of harsh winter weather on salt pricing, the subsequent winter. But if you look back at history, the last time we had a very harsh winter, 2008, it was followed by several years of well-above average pricing, in the 7% to 8% area even after that 10% in the following year. I know each winter is different and I know the supply/demand is rebalanced every winter, but could we see a couple years of above-average pricing following this one as we did following 2008?

Well, we hope so. A lot is going to depend on obviously the winter following and so on and so forth, but if you go back and look at history, it's a positive, I think, signal and our job here is to make sure that we are kind of maximizing our capacity and also maximizing margins, which price is driving that. So we have got a lot of experience here and I think we have got a group that is pretty motivated about the year ahead because the last year and a half or so has been challenging. We have, I think, done a good job of managing our way through that and the group is pretty motivated about what is happening out there right now and looking at the future.

Okay, thank you.

Thank you.

This does conclude the Compass Minerals earnings call for today. Thank you for joining us. You may now disconnect.