Jerash Holdings (US) Inc (JRSH) 2019 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Jerash Holdings Fiscal Third Quarter Results Call. (Operator Instructions)

At this time, it is my pleasure to turn the floor over to your host, Matt Kreps, Investor Relations for Jerash. Sir, the floor is yours.

Good morning, and thank you. We'd like to welcome everyone to the Jerash Holdings Fiscal Third Quarter 2019 Results Conference Call.

With me today are Rich Shaw, Chief Financial Officer; and Karl Brenza, Head of U.S. Operations. Sam Choi, our CEO, is traveling on critical customer activities today. Today's call is being recorded and will be available for playback. (Operator Instructions)

Before we begin, a quick reminder about forward-looking statements made during the course of this call. Statements made by Jerash management during the course of this conference call that are not historical facts are considered to be forward-looking statements subject to risks and uncertainties. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for such forward-looking statements. The words believe, expect, anticipate, estimate, will, guidance, outlook, indicate, suggest, forecast, target, growth and other similar statements of expectation identify forward-looking statements.

Forward-looking statements are subject to certain risks, uncertainties and important factors that could cause actual results to differ materially from those reflected in the forward-looking statements. These risks and uncertainties are detailed in Jerash's public filings with the U.S. Securities and Exchange Commission.

Participants on this call are cautioned not to place undue reliance on these forward-looking statements, which reflect management's belief only as of the date hereof. The company undertakes no obligation to publicly release the results of any revision to its forward-looking statements, which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

We will also be discussing non-GAAP measures on this call. A reconciliation of non-GAAP measures we discuss during this call is available as Appendix A to the press release we issued this morning.

I will now turn the call over to Rich Shaw, CFO of Jerash Holdings. Please go ahead.

Thank you, Matt. Hello, and thank you for joining us today. It is an exciting time to be at Jerash with record revenue results, new customers, profitability, dividends and an agreement in hand to expand capacity by over 1.5 million pieces to further fuel our growth strategy. In fact, Jerash posted a record revenue third quarter at $18.7 million in sales for the period ended December 31, 2018, an almost 62% increase year-over-year. That brings our year-to-date revenue total to $70.5 million, which is 16.6% -- which is an 16.6% increase and greater than our $69.3 million of revenue for the entire previous fiscal year.

I will take the next few minutes to provide an overview of our operational results, then Karl will discuss our continued expansion efforts to ready for even greater customer demand that we anticipate for fiscal 2020.

As I mentioned, record fiscal third quarter revenue reflected strong volumes as we ramped up a number of contracts for warm season garments. We also accelerated some of our fiscal fourth quarter deliveries at customer requests. As such, we are raising our full year revenue outlook to a minimal of $82 million, which will be a record year, and position us for still further top line expansion in fiscal 2020.

This quarter, gross profit declined to 17.1%, an unusually low level reflecting a few factors. First, we increased volume, but mix in the second half is historically less favorable, resulting in typically lower margins than first half production.

The second factor was a strategic decision to seize market share in the warm weather pants category through a special discount program. This will help us in balancing first and second half revenue as well as diversifying mix.

And third, we accepted a late-breaking urgent order from a current customer that yielded single-digit margins. We occasionally had done this in the past when our customers faced a production issue at another vendor, and it usually results in a new or extended order and significantly enhanced goodwill with such customers. We expect that to be the case in this situation. We have already seen a substantial increase in capacity indications from this customer for fiscal 2020.

Even with the third quarter dip, year-to-date gross margins are at 23%, and we expect gross margin to return to more normal levels in the next quarter for a solid finish to our full year. SG&A expense in the third quarter was $2.2 million, in line with our target model, reflecting increased headcount for growth as well as public company operating cost compared to prior year.

Operating income in the third quarter was $1 million, driven by the short-term gross margin decline. We recorded an income tax benefit of nearly $600,000 relating to favorable tax decisions relating to the U.S. Tax Cuts and Jobs Act. Taking all of this into account, GAAP net income was $1.6 million or $0.14 per diluted share.

Adjusted EBITDA for the third quarter was $1.4 million or $0.12 per share. This is a bit unusual in that the almost $600,000 tax benefit we booked actually reduced EBITDA in this case. A table reconciling these adjustments is included in our press release.

Given the unusual events of the third quarter, looking at our results for the first 9 months provides a better understanding of Jerash's progress and profitability in fiscal 2019 and how we are set up for further growth in fiscal 2020, which begins in April.

Through the first 9 months of fiscal 2019, Jerash reported revenue of $70.5 million, an increase of 16.6% from $60.4 million in the prior year 9 months. Gross margin over the first 3 quarters of fiscal 2019 was 23% compared with 26.2% in the same period of fiscal 2018.

Fiscal 2018 gross margins were enhanced by a greater-than-typical first half revenue mainly due to outsized jacket orders. Fiscal 2019 is affected by the third quarter dip, again, an unusual circumstance. Perhaps most important is that this illustrates how Jerash is now able to leverage a strategic market share decision in 1 quarter with minimal impact to our full year performance.

GAAP net income through the first 9 months of fiscal 2019 was $5.3 million or $0.47 per diluted share, which included charges of $3.4 million in noncash stock-based comp expense and $1.3 million in income tax reserves compared with $11.4 million or $1.18 per diluted share through the first 9 months of fiscal 2018, which included only $117,000 in stock-based comp expense, 0 tax and no public company costs.

Taking these differences into account, adjusted EBITDA for the first 9 months of fiscal 2018 was $11.1 million or $0.97 per diluted share compared with $12.4 million or $1.28 per diluted share in fiscal 2018. Diluted shares outstanding were $11.4 million in the current year 9 months and -- were 11.4 million shares in the current year 9 months and 9.7 million shares in the prior year comparable period.

Turning to the balance sheet. Cash and restricted cash at December 31 was $30.4 million or $2.68 per diluted share. Accounts receivable was $13.1 million, up from $5.2 million at March 31, 2018, and inventories were $12.1 million compared with $20.3 million at March 31, 2018. We believe our balance sheet provide a strong position to evaluate acquisition opportunities that would contribute to both sales and profitability based on strict internal financial parameters. We've also confirmed the $0.05 per share dividend for this quarter.

As you can see, through 9 months, Jerash has reported strong top line sales growth, managed gross margins efficiently and produced consistently strong profitability. We believe this model will scale efficiently for the year ahead, an important consideration given the significant capacity expansion that we just announced and our plans for further capacity expansion given our strong balance sheet.

While gross margin declined this quarter, we showed tremendous progress with another record revenue quarter, continued profitability and an important agreement to expand capacity to position the company for exciting growth ahead. We believe that Jerash is positioned as a value stock with a compelling growth thesis as well as a dividend payer with sufficient cash flows to fuel further returns through strategic expansion.

With that, I will turn the call to Karl for a discussion of our growth strategies.

Great. Thanks, Rich. Appreciate that. So clearly, this third quarter and the first 9 months of the year were strong as we continue to execute on our growth efforts. Importantly, we were able to show another record revenue quarter with discounts focused on share gains and still achieved strong net income metrics, even with short-term reduction in gross margins.

Jerash has been producing at or near planned capacity throughout much of this past year, which has made expanding annual capacity a top priority. The high priority for planned expansion has increased even further given that our customers are giving us early 2020 indications of sizable production order and capacity allocation increases. For example, one current customer has already requested an increase of more than 600,000 pieces for this coming fiscal year, which is from April to September of 2019.

We concurrently have a number of new customers seeking to commence working with Jerash as well. This is not a surprise given our status as a proven high-quality producer and a favorable trade status between Jordan and both the U.S. and EU. In short, our customers understand we offer a compelling value proposition, and they are seeking to maximize their economic benefit by expanding their relationship with Jerash.

To support this growth ahead in fiscal 2020, we are taking aggressive steps to expand our production capacity. We began execution of our growth efforts with the recently announced agreement to acquire the Paramount plant, which is expected to bring an extra 1.5 million to 1.8 million in annual pieces of capacity at a cost of just $1 million. We believe we will begin accessing this capacity in April of this year, and this is important as we already have the 600,000-piece order mentioned previously, along with another 800,000 pieces in additional orders from multiple customers to launch the facility, plus the orders from new customers, which we are now seeing. This transaction also illustrates the benefit of our patient and diligent approach to this process as we secure an excellent facility at a very favorable price.

We have spent a number of weeks coordinating closely with multiple government offices in Jordan and expect to successfully assume the critical licenses and certifications in the near term. In addition, we secured the worker approvals for the labor terms coming to Jordan to work in the factory. This will ensure a rapid start to production in this facility as well as uninterrupted contracts for workers who are employed to come to Jordan. As a socially responsible employer, these considerations are very important to us and provide good investment in our success.

We expect the final closing of the facility on March 31 and to commence production 1 day later on April 1.

We also continue to progress on our 2 satellite facilities. One of the satellite facilities is being constructed in collaboration with the Jordanian Board of Tourism and Trade and is expected to launch this year upon receiving government approval. The second facility, with a target production start date of August 2019, is under major construction and has been funded by the Jordanian government, with a focus on female workers manufacturing products initially for domestic sales.

To further close the capacity gap, we are continuing to pursue 3 additional methods of capacity expansion. These include, number one, subcontracting capacity to familiar nearby factories as we have done successfully before; number two, pursuing joint ventures with factories, also nearby and familiar; and number three, pursuing large acquisition opportunities that can quickly add capacity and new customers as well as potential geographic expansion.

We have multiple targets at various stages of diligence and discussions and are focused on one or more of these targets emerging in the near future.

As Rich mentioned, we believe that our strong balance sheet will support these acquisition opportunities, and we look forward to executing on these efforts as soon as one of our targets pass our rigorous diligence process and agree to appropriate terms.

In closing our prepared remarks, I want to reiterate what Sam Choi, our Chairman, said last quarter. Our focus is on growth and rapid expansion. We have produced another record quarter and are on track for a record year. However, we believe this is just the beginning, and we look forward to driving even more growth both on the top line and the bottom line. We are excited about the significant opportunity in our pipeline, and we look forward to reporting our continued success.

With that, we welcome the call to questions.

(Operator Instructions) Our first question comes from Martin Argento (sic) [Mark Argento] with Lake Street Capital.

A couple of questions around the margins, as you onboard some of the new capacity. Looks like you guys -- the additional capacity of 1.5 million units, you had 800,000 units signed up already. I think you got additional 600,000. So it looked like that additional capacity got almost filled up. Can we think about -- or at least walk us through the onboarding of new business? And is there a ramp-up period? Do the margin -- kind of the gross margins start lower and then ramp over time? Or can you onboard and kind of hit that 23%, 24% gross margin bogey right out of the gate?

Go ahead, Rich, sorry.

Mark, as I say -- this is Rich. That's a great question. Our -- historically, we've been able to hit the margins out of the gate. With that said, as we onboard new customers and they see our quality with good returns and our on-time delivery, we've been able to move margins up. But this is not about bringing somebody in that -- at a low-ball margin and then migrating them up. We typically bring our new customers on at the margins that we expect to keep them at go forward.

Yes. And I'll add that we are buying an existing facility, which has all the equipment for the production lines that we want to implement. The -- and we also have all the labor lined up to come in for an immediate April 1 start date. We may add a couple of hundred thousand of equipment we like to be state-of-the-art. So we may upgrade some of the equipment, but most of it's in very good shape. So we feel that we can start production on a timely basis and achieve the historic gross margins that we've achieved for our other -- at our other 3 factories. So we feel good about it. The phase-in, there is a -- we phase in the ramp up for this -- of the facility over the course of the year. So we'll ramp it up. Basically, we'll add 1,000 employees, 400 initially, another 400 in a couple of months and then another 200 to 400 a couple of months after that. So there will be a slight ramp-up period. But we -- again, we see gross margins being maintained.

In terms of the mix, the impact on margins relative to the product mix, obviously, in Q2, when you're ramping up a lot of the winter gear production, typically higher price points, probably better margin profile for you guys. How do you think about the seasonality of the business and the product mix? So for instance, the types of product that you're going to be manufacturing in the new facility, but also just kind of season-to-season, I guess, that seems like Q2 decent price point product, lot of outerwear. Maybe you could walk us through how we need to be thinking about gross margins or margins based on mix and kind of the seasonality of that.

No, Mark, Rich -- it's a great question. It's something that we're focused on. One of the things that we're trying to do second half of the year, I'll call it the warm-weather mix, it's introduced more diversification. So while we do have the low margin -- the lower-margin pants, we've also -- we also have complemented that with some jackets in the third and fourth quarter. So I know that we can smooth it out completely, Mark. Clearly, first half of the year revenue, the jackets, there's more value there, there's more tailored savings. It's clearly a better product. But our thought is we don't necessarily want second half of the year revenue to be all low-margin warm weather. So as we bring -- yes, to answer your question, as we bring on the new factory and we fill that up, and clearly top of mind for us, our initial cut at -- that's -- at 2020 brings us back to more historical revenues on an annual basis. But clearly, there'll be some -- I don't expect another 17% gross margin quarter, but I expect, you're right, slightly lower second half margin versus first half on a blended basis, going back to ultimately our historic revenues -- our historic margin targets sort of (inaudible), if you will.

Obviously, the product mix is more favorable in the first 2 quarters of the fiscal year where we produce jackets. But a part of the reason we really try to become a real player in the pants sector was we want -- we don't see -- we really do think -- we really do believe this was an anomaly this quarter. And we think that the second half of the year next year, we'll return to 20-plus-percent gross profit margin, even though we're producing less jackets and more pants, crew necks, et cetera. So it's certainly something we've looked at closely, and we're confident that we'll be returning to more normalized margins throughout next year.

And last question from me in terms of M&A. Obviously, you'll do some of the tuck-in acquisitions like you did here recently and capacity expansion in Jordan. But I do think you alluded to in the press release and in the prepared remarks about other expansion opportunities. Is that a 2019 opportunity in terms of other geographies and kind of really scaling things? Or what kind of expectation should we have about kind of material or chunky acquisition transactions?

Yes. So we are absolutely very aggressively looking at -- I mean, we look at acquisitions kind of in 3 buckets. One are the -- are sort of the add-ons like the Paramount deal that we just did. I mean, the economics are just too good to pass on those deals, I mean, we paid $1 million. And when that facility is up and running at a 1.5 million to 1.8 million pieces, it'll be generating $2.5 million of net income per year. So the return is like -- it's less than 6 months. So we'll continue to look at those. But we are looking at, I would say, 2 other types of acquisitions. One would be kind of your $20 million to $30 million acquisition that will provide -- I mean, when you get to that size, you'll typically get both new customers and some capacity that you can utilize. And then we're looking at another set of acquisitions that are comparable or bigger than Jerash, and those acquisitions are -- we think will be great for shareholders, transformative, and obviously, you get a substantial critical mass. Having said all that, we are very -- we do really, really have a rigorous diligence process. So we're not going to do a deal that jeopardizes what we have. So in terms of timing, that's what makes it difficult to predict exactly what timing. We'd like to do a deal in 2019 and we're certainly focused on it. If we're not able to find a deal that meets our diligence and price points, then we're not going to force it. So that's really our view on M&A.

Our next question comes from [Josh Peter] with (inaudible).

I've got a couple of questions here. I'd like to ask the easy one first. What do you see as your consolidated tax rate on a normalized basis starting for fiscal 2019 or I guess 2020 and beyond?

Sure. Our -- this will come in the focus in the most recent quarter as some of the impacts of U.S. tax reform have been settled. So we're projecting a low teens -- the 14% to 15% effective tax rate go forward is what we'd expect.

Okay. And that includes the savings that you noted in the press release announcing that you're establishing your headquarters in Rochester?

Correct.

Okay. Is that a program that enables you to bypass or reduce your New York State income tax, corporate income tax? Is that how that works?

No. We're still -- again, state -- the driving factor, there was some tax savings early from the move. It really was stemmed from leaving New York City, not New York State, because we moved from (inaudible). But the real driver in reducing our tax rate, which had been running mid-20s to low teens has to do with, again, U.S. tax reform and how the low-income countries are being taxed. So that's the driver.

Okay. I'm very new to the story and haven't investigated the textile industry to any great degree in the past. But I was hoping maybe I could just get you to comment a little bit on what the appeal is of Jordan as a source for larger brand owners to attain manufacturing services. Doesn't appear to be a leading producer relative to China or Bangladesh or some of these other countries. What's the appeal to Jordan? And obviously, we're seeing that appeal show up in the growth of the company here. But where does Jordan sit on that global cost curve that makes it appealing for your partners?

Yes. I'll take a chance to answer that, and Rich, you can add as you feel appropriate.

Sure.

Good question. Jordan has -- Jordan is actually becoming -- increasingly becoming a hub for apparel manufacturing on a global basis and there's a few reasons for that. The biggest reason is that they have extremely favorable tariff arrangements with United States and the EU and other parts of the world, mainly because everyone -- every Western power wants to see Jordan succeed. They are the only safe haven or oasis that you'll find in the Middle East. The U.S. has its CIA base there. We have substantial military presence there. And it's strategically critical to just about any -- every other country you look at in the Middle East has some level of instability other than Jordan as it relates to alliances with countries that we don't feel good about. So they have tremendous agreements with the U.S. and the EU. They've been around for 15 years. I think both countries have re-upped for another substantial period of time. And so you have a company like Jerash who is a extremely good producer. I mean, they are top quality. Just to give you a sense, North Face, their biggest customer, has put them on their highest level of suppliers as a strategic partner. And so they put -- they are very good at what they do, and you combine that with the tariff -- the favorable tariff arrangements and it becomes sort of a no-brainer to start to manufacture there. Now you're right, China and some of these other countries have historically been real leaders. But with the trade war going on and the uncertainty around China -- Bangladesh, I'll mention in a minute, but there's been a meaningful push, the -- we've seen a lot of flow of companies going to Jordan and looking at building factories or looking to align with factories that exist there. So it's not such a -- it not a -- it used to be this sort of hidden gem, but it's becoming better known as a real hub for manufacturing. And I think a lot of the big apparel manufacturers are trying to get out of China or do less in China and look at other locations to do their manufacturing, and Jordan's one of them. So I think that's in a nutshell what's happening in terms of Jordan. It's still -- obviously, it's still small in comparison to some of these other countries. But -- and in terms of Bangladesh, I wanted to just add that a lot of Bangladesh workers actually come to Jordan. Jerash hires externally about 75% of their workers. They have an arrangement with Jordan, with 25% of Jordanians, 75% are brought in. And Bangladesh is one of the primary groups of people that they bring in to work their factories, because they are very good at apparel and they're very inexpensive. So it works out well.

I'll just -- I'll piggyback on that. Just so -- Jordan's GDP is $14 billion. Their largest sector is the garment sector, which is $1.4 billion. So while Karl said it's not a well-kept secret, its garment manufacturing is critical to Jordan. So just FYI.

Okay. Yes, it actually helps provide some context for the size of Jerash in that market. Do you have any number that you can put on in terms of just where Jordan ranks globally in terms of cost? Who is the lowest-cost producer for the type of garments you're competing in? And is it Jordan? Or are you in the mix, I mean, with a few other countries and...

There's no stats for that. I would say that it's pretty damn hard to be a country where your labor costs are extremely low and your -- and you have no tariffs. I mean, tariffs can run up in the 30% range. I mean, it's a huge saving. Now there are other select countries that have the similar arrangements. There aren't a lot of them, but there may be other countries that are comparable in the expense. But generally speaking, I mean, I pretty definitively say that manufacturing in China is more -- a heck a lot more expensive.

Yes, their labor cost is more expensive than ours.

Their labor and they don't have the tariff arrangements.

Our next question comes from Richard Dearnley with Longport Partners.

The capacity -- the $1 million you talk about as an initial investment, is that to essentially buy the equipment since you're leasing the factory?

Yes. So there's 3 phases to how the $1 million are being spent. The first phase is they're acquiring all of the equipment and the -- it's an equity transaction, so they're buying out the equity of the -- the ownership equity of that facility, which includes -- I mean, it's like any other company that's leasing a building as part of its operations. So they are taking on the leases, but they are buying the facility for cash and they're buying the equity. They have 2 other phases that they are in the process of completing. The facility is expected to finish in -- to be fully acquired by the end of March, and it's literally supposed to -- expected to start production in the 1st of April. So the -- so there are 2 other payments that will be made between now and then. One is for the dormitory, where the workers will live. And then there's the satellite sewing facility that will also be acquired. So there's 3 parts to it. And it's -- it does involve equipment, but also involves just the outright ownership of these facilities.

So the $1 million acquires the lease and the equipment in Phase 1?

The $1 million acquires the equity in the equipment. They are assuming the leases. So they are paying for -- and it also involves as part of the -- as part of buying the equity, yes, sure, it involves that the leases will now be shifted into the name of Jerash versus the previous owner. So that will be part of the deal.

Yes, there's an 8-K out there that describes the transaction. And Karl -- just to build on what Karl's saying, the $1 million is the $980,000. Again, this is previously disclosed. $380,000 pays for the stock at Paramount, and we receive the possession of the primary factory facility at that point. After those shares have transferred to Jerash, we pay $300,000, as Karl said, when we begin operating the satellite sewing facility. And then when we obtain possession of the housing accommodation, the dormitory, there's another $300,000. So there's your $980,000. Again, that was previously disclosed in an 8-K recently or a while ago.

So by the time you're finished, what will the cost of that capacity be?

About $1 million. I mean, it'll be $1 million.

Then what would the yearly rental be, with the lease cost on everything leased? I'm trying to get an idea of what this capacity cost.

Well, here's -- I mean, maybe this will help. When they're -- Rich, I don't know if you have the combination of the 3 lease value. So I know one is about $200,000 a year. I know there is -- I remember, some -- they're leasing a couple of their existing factories, I mean, their buildings. Companies aren't -- a lot of companies, and this isn't specific to companies in Jordan, it's specific to any company, U.S. companies or any part of the world, they don't want to be in the real estate business. They much rather lease facilities and own buildings. And that's what they're doing here. One way to describe it -- this deal is about as good a deal as you could possibly expect. What they've done is they've acquired -- for $1 million, they've acquired what's expected to be something close to 1.8 million in pieces of capacity. That takes them from 6.5 million to 8.3 million. They have -- they're going to add roughly 1,000 workers. That will take their employee base up from 3,000 to 4,000. And their production they expect -- the facility should generate a minimum of $2.5 million of net after-tax profit. So when you look at the $1 million they spend, I mean, they're going to get that money back in less than 6 months. And then they're going to have a facility that they own for the next -- that would be a key part of their production capacity for next 20 or more years. So...

So in terms of the cost of capacity, can I say that $1 million gets you, in this case, 1.8 million pieces, so it's $0.55 a piece?

Yes, I guess.

So additional capacity should be more than that?

Additional capacity from other acquisitions or other deals?

If this is the best deal in the world, presumptively, the next year will be more expensive.

Well, look, the company is clearly going to continue to look for these types of deals. I mean, the economics are just too compelling. But as we've said, they're going to look at midsized deals, companies doing $20 million, $30 million in revenue. And they're going to look at -- we have some deals we're looking at that are of comparable size to Jerash. And in those deals, you're gaining potentially substantial synergies, you're gaining geographic presence...

Yes, diversification.

Yes.

The inventories were $12 million. Last year, they were $20 million at this time. Are they -- what would normal be?

Yes. So at this quarter last year, they were $12 million. So our first half of the year is -- we build inventory, so you're right. Our inventories were $13 million. This quarter last year, they were $6.7 million. We are ramping -- at year-end, they were $20 million. So we ramp up our -- about 60% of our revenue shifts in the first half of the year, so our 6/30 and our 9/30 quarters. So if you dive in, in the inventory, you'll see our finished goods have started to increase as we begin to ramp up for our first half of the year production.

Right, I see. And do you have a guesstimate on what the cost in your fourth quarter will be to ramp -- get organized to start April 1?

On the new factory?

Yes.

I don't think anything that we're willing to disclose at this point. We're just not prepared or willing to talk to the public a lot on at this point. So we -- yes, we'll wait until the analysis, but just nothing that we'll talk about today.

Okay. And then the normal...

Okay. It looks like his line disconnected. I'll go ahead and wrap it up for Q&A and turn the call back over to Karl.

Okay. We're all set with the Q&A?

Yes.

Okay, great. Well, yes, thank you very much, everyone, for participating in this call. Rich and I are available and Matt as well for any questions that you might have, any follow-up questions, please call us. We're more than happy to talk anytime about the company and give you any information that we can that's not considered confidential and more than happy to do that and make sure that you fully understand the -- what we think is a tremendous opportunity here going forward.

So with that, I'll sign off and I think we'll sign off. And again, thank you, everyone, for participating.

Thank you. This concludes today's conference call. We thank you for your participation. You may disconnect your lines at this time.