Keurig Dr Pepper Inc (KDP) 2009 Q1 法說會逐字稿

Good morning and welcome to Dr Pepper Snapple Group's first quarter 2009 earnings conference call. (Operator Instructions) Today's call is being recorded and includes a slide presentation which can be accessed at www.drpeppersnapple.com. The call and slides will be available for replay and download after the call has ended. (Operator Instructions)

It is now my pleasure to introduce Mr. Aly Noormohamed, Senior Vice President, Finance and Investor Relations. Sir, you may begin.

Thank you Brandy, and good morning everyone.

Before we begin I would like to direct your attention to the safe harbor statement and remind you that this conference call contains forward-looking statements including statements concerning our future financial and operational performance. These forward-looking statements should also be considered in connection with cautionary statements and disclaimers contained in the safe harbor statement in this morning's earnings press release and our SEC filings. Our actual performance could differ materially from these statements, and we undertake no duty to update these forward-looking statements.

During this call we may reference certain non-GAAP financial measures which we believe provide useful information for investors. Reconciliations of those non-GAAP measures to GAAP can be found in our earnings press release and on the investor relations page at www.drpeppersnapple.com.

This morning's prepared remarks will be made by Larry Young, Dr. Pepper Snapple Group's President and CEO, and John Stewart, our CFO. Following our prepared remarks we will open the call for your questions. With that let me turn the call over to Larry.

Thanks, Aly, and good morning, everyone.

As I'm sure you saw in our earnings press release this morning, the positive momentum we witnessed in the first two months of the year continued and in fact accelerated in March. CSDs and value juices performed extremely well in a pricing environment that remains rational. At the same time we've seen sequential improvements in North American LRBs and a positive shift in consumer and market sentiment. With ever increasing consumer demands, a strong aligned and flexible route to market is paramount. Regardless of the structure it requires relentless focus to ensure all participants contribute to and share equally in a growing profit pool. We believe the model we have built at DPS, combined with winning bottler, customer, and supplier relationships provides us necessary strength and flexibility. DPS remains committed to executing its focused strategy and making sure we're the best we can be.

Before I walk you through the results for the quarter, let me take a moment to tell you how pleased I am with our new segment reporting. I think it provides clarity and transparency, and over time will allow us to share and then report on the segment-specific metrics that drive our business.

For the quarter, and on a comparable currency neutral basis that excludes the impact of Monster and 2008 restructuring items, our business grew volumes 5%, net sales 4%, and delivered $0.37 per share in earnings. In addition to solid performance in our Dr Pepper and Core 4 business which was up low single digits, expanded distribution of Crush across the U.S. contributed three points of growth. This business has more than tripled in size, and we're thrilled to report that Crush has become the number two orange CSD behind Sunkist. We're also pleased to see continued improvement in 7UP trends which were up 3% in the quarter.

In fountain, our business was up 2% with regular and diet Dr Pepper both growing. Our non carbs were fueled by strong growth in Hawaiian Punch which benefited from strong consumer demand for value. Ongoing promotional activities and a favorable comparison to prior year which was down 15%. Premium beverages declines, they were accelerated in the quarter as consumers continue their migration to value.

In Mexico, new flavors, 2.3-liter PT and value pricing more than doubled Crush volume. Squirt grew 2%, solid CSD growth was offset by a double-digit decline in Aqua Fiel, which despite continued pricing pressures, posted sequential improvements in its trends.

Better than expected 2-liter CSD and Hawaiian Punch activity in March helped offset the impact of Easter shift. In fact, DPS LRBs in the eight-week nielsen period ending April 18th grew six points faster than the overall category. Sales volume growth exceeded our BCS growth by about a point as third-party bottlers built an estimated 6 million cases of Crush inventory.

Moving on to net sales, we once again demonstrated our ability to take pricing despite a challenging macro economic backdrop. CSD concentrates, 12-pack cans, Snapple premium and Motts all experienced low to high single-digit price increases. However with a significant shift in product mix towards lower revenue per case items, net sales grew at a slower pace to volumes.

Segment operating profit benefited from higher net sales as well as lower packaging, ingredient, and fuel cost. Strong volume growth led to significant fixed cost leverage with operating equipment effectiveness up five points in the quarter. Strong cost control discipline offset higher marketing investments and the cost of new routes added in Mexico. Foreign currency head winds reduced net sales by almost 3% and segment profit by 5%.

Strong innovation and marketing programs are putting our products in front of more consumers, and this is driving trial and repeat purchases. Products like Cherry 7UP with Ox, Dr Pepper Cherry are bringing new users into the franchise and are big hits with our retailers. We are benefiting from more displays and more inventory on display. A&W with real aged vanilla offers consumers the perfect reward after a long hectic day. Diet Canada Dry Green Tea Ginger Ale, which launches nationally in two days, offers consumers who had left CSDs all the functional benefits they crave in a fun, flavor rich and value priced offering.

Across our system, we're continuing to test different price pack architecture both directly as well as through our third-party bottlers. What we're finding is different markets react to different offerings, and it may take us some time to get a broad consumer acceptance.

Innovation doesn't end with product and pack. Innovation around distribution has expanded availability of brands like Crush and Dr Pepper. Outstanding execution by our bottling partners drilled a 43 point increase in Crush ACV to 94%.

Further building on our 40-year relationships with McDonald's, Dr Pepper will be rolled out to all 14,000 restaurants in the United States with diet Dr Pepper as an option. Now getting our 60% availability of regular Dr Pepper to 100%, and doubling our diet Dr Pepper availability to 50%. This will not happen overnight. It will take some time. However, the benefits are very clear. With strong brand equity scores and equally strong taste scores right across the U.S., we know the key to getting Dr Pepper to our long-term goal of 100 servings per person per year. This is through distribution and availability, and winning with McDonald's is a key enabler.

In terms of media buys, we're getting more spots as well as better quality spots for less dollars per spot. This is delivering greater GRPs and providing the pull our route to market demands. We're also reaching our target customers via highly visible and relevant sponsorships. Dr Pepper has extended its deal with major league gaming and our Venom Energy brand joins the Indy racing league as the primary sponsor of Marco Andretti's number 26 car. While our innovation and communication strategy is delivering great results we're continuously looking at opportunities to invest additional dollars in the marketplace to support the long-term health of our brands.

Transformational changes in North America beverage market reinforced the attractiveness and importance of this market. We believe these changes are positive and have the potential to return this category to healthy growth for many years to come. CSDs will always be a favorite with consumers. Flavor, fun, and functionality will ensure flavor CSDs continue their positive growth trends. Against this backdrop, DPS strategic imperatives remain unchanged. In fact, they are more relevant than ever. We will continue to build and enhance our leading brands. Cola Hispanic programs and fountain penetration in critical national accounts will fuel Dr Pepper. Products with added functional benefits like 7UP Cherry Ox and Canada Dry Green Tea Ginger Ale will bring consumers back to CSDs and brands like Crush and Venom Energy will create new opportunities for growth.

Single serve development, price pack architecture and light weighting our 2-liter and one-gallon bottles will ensure we explode channel and package opportunities and drive profitable growth. We're ahead of our cold drink asset placement goals and are looking at opportunities to accelerate placements to take greater advantage of the warm selling months. With a model balance between franchise & Company owned, we can exploit our flexible routes to market, share best practices to ensure our brands have the absolute best chance for long term sustainable growth.

We're well on track with our Victorville facility, which will be lead certified and our handheld rollout is going smoothly. The 210 routes we added in Mexico toward the end of last year are performing well despite an extremely challenging environment. These initiatives, as well as others, demonstrate our commitment to a strong and effective route to market.

Central to our strategic imperatives is a relentless focus on cost containment and drive inefficiencies. Our supply chain teams have tremendous success driving alignment with our key suppliers, and this is delivering great results. Our SAP 6.0 upgrade is progressing to plan and without disruption. Our productivity office and lean six sigma initiatives are providing the funding and process to implement ongoing efficiency programs, and new package technology is allowing us to get more out of the same assets.

Our strategy is clearly working. We're delivering solid financial results and driving strong share gains. In the U.S., CSDs our value share is up 0.8 points. And in Mexico, where we measure our share in terms of the categories we participate in, our value share is up 0.6. We're ahead of our fountain install plans, and ahead of our cold drink placement plans. Both key availability plays. It's this success that gives me confidence in our outlook and our raised earning guidance.

With that, let me turn the call over to John to walk you through some of our financial highlights and our 2009 outlook in more detail.

Thanks, Larry, and good morning, everyone.

Let me start with a thank you to our controllers organization and the commercial finance teams for implementing our new segment reporting structures and processes. I hope you'll all agree that these changes should make for more productive discussions as we share with you our progress against our key business imperatives.

Since our March call, we have benefited from falling packaging, ingredients and conversion costs as well as FX. This improvement provided a higher than expected benefit in March. As Larry mentioned, our supply chain teams have driven better alignment with our key suppliers and together with operating efficiencies from higher volumes, we're seeing strong operating profit flow-through.

Foreign currency was a significant drag in the quarter with gross margins 60 basis points lower as a result. The absence of Monster had a 150 basis point favorable impact in gross margins as we sold this product with 20 plus percent distributor margins. In SG&A, strong cost controls across the entire business offset $13 million increase in the corporate cost line. FX benefited SG&A by approximately $11 million. Favorable timing and better tax planning resulted in a 38.3% tax rate for the quarter, and we expect this planning benefit to continue for the rest of 2009.

Moving on to guidance, the combination of favorable CSD and value juice trends, a modest improvement in visibility, and reduced consumer uncertainty all combine to give me confidence in our outlook for the rest of the year. We now expect earnings per share, excluding net gains from distribution agreement changes, in the $1.70 to $1.78 range. This represents an $0.11 increase from our previous guidance and is driven by the following four factors.

First, we expect positive CSD and value juice trends to continue and be partially offset by additional premium beverage softness in the first half. The Snapple restage and media programs are on track and we expect to see a return to growth in this business towards the end of the year.

Second, we've continued to add more cover as favorable prices and now expect packaging and ingredient cost to be a net benefit to COGS in the year. We have substantial cover in place for aluminum, apple juice concentrates and high fructose corn syrup. We're also benefiting from improvements in foreign currency.

Third, higher volumes are providing incremental fixed cost leverage on the Company on site.

And fourth, we expect improved tax planning benefits to reduce our full-year tax rate to between 38% and 39%. This includes approximately $21 million of indemnified tax items.

Since 2009 is truly our base year, let me provide some thoughts around the timing of certain investments. We expect our annual marking dollars to skew more heavily towards the second quarter 2009 to support our strong lineup of innovation. Our productivity office is now up and running, and so we expect to see a steady flow of investments for the balance of the year, particularly in the third quarter. In terms of cash, our priorities are unchanged. We expect strong cash from operations, a relentless focus on working capital improvements, CapEx at 5% of net sales, and at least $400 million of debt repayment.

With that, let me turn the call back to Larry.

Thanks, John.

Before we open the lines for questions, let me leave you with a few thoughts. Market and consumer sentiment appear to be on the mend. We believe the changing landscape is a positive for the industry and presents even more opportunities for growth, where it makes sense we will invest in our brands to support their long-term health. We're executing against our focused strategy, and it is working. This gives us increased confidence in our plans and as a result, we expect to deliver $1.70 to $1.78 in earnings per share in 2009, our base year.

Operator, we are ready to take the first question.

Thank you. (Operator Instructions) Our first question is coming from Bill Heckloriello with Consumer Edge Research.

Hi, Larry, how are you?

Good, Bill, how are you doing?

Great. First question, just on the outlook for Memorial day pricing with the Coke system which strong 10% pricing in the first quarter, and in the Pepsi system locking in some promotions with key retailers for Memorial day so how do you see this holiday playing out?

I think the holiday is going to play out well for us, Bill. We've still got rational pricing out there. We're seeing more promotion instead of just price-off. As everybody knows those holidays are where we get out there and do the battle. But we're seeing very rational pricing and pleased with how the holiday is going.

Great, and the second question, if could you comment on the potential change of ownership on the Pepsi bottlers and what impact that would have for you, do you see that as giving you increased leverage or any risk around that?

Well, we hate to speculate on that with the deal not done or anything, but when we -- we look at it, we're happy with what we have right now. I mean, our brands are in good position. We have a lot of different options out there, but as far as what happens with the Pepsi system, I'd hate to speculate right now.

Okay, thanks a lot.

Our next question is coming from Judy Hong from Goldman Sachs.

Larry, just following up on the Pepsi question, can you comment on whether if there is a change in control that does trigger some provision that does allow to you change the structure of the franchise agreements with the bottlers?

Well, there's many, many contracts out there. I mean, it's not really any kind of a cookie cutter answer. We literally have thousands of agreements, and each one kind of needs its own negotiation, but, the number one priority for DPS is that we'll always do what's right for our brand and what's rights for our customer and consumer.

Okay. And then just in terms of the improved CSD dynamics, Larry, if you can maybe talk about whether there is a possibility of CSD as a category volume growing again, as consumers remain somewhat challenged, and they're looking for value in the total LRB category, secondly, how do you envision pricing playing out, not in the summertime, but really more post Labor Day when commodity costs come down more and whether that could lead to more moderate pricing, in your view? Then finally, whether you think that the private label gains that we've seen in the CSD category is likely to continue?

Okay, I hope I can remember all these.

I think, one, on the pricing, I think pricing and growth are kind of going to go together. I think we're going to see getting back to more -- what we're used in to the past, kind of see with our volume, I think we're seeing an up tick in volumes, especially with flavored CSDs in the latest Nielsen flavored CSDs become 50% of the CSD category, and we've got a 40 share in flavored CSDs. So we're very positive on that. Pricing, I think we're going to see it get more rational. I know commodities have come down, but I think everybody is watching the same as we are. It's kind of like the market in our industry. I think it's kind of bottomed out, and we're starting to see commodities come back up. So I think we've got to really watch that. I think we'll see more of the 2% to 3% pricing going forward with 0% to 1% growth.

And on the private label, it's not surprising to see private label go up. It always does in tough times when consumers start looking for value. But I think as they start to take some pricing, I think we'll see private label take some pricing in Q2. I think it will kind of-- the volume growths will subside a little bit. I also think that whenever you look at retailers leveraging private label to bring people into the CSD aisle, DPS really kind of benefits from that, because when you look at the flavors and what's happening in share right now, DPS flavor share year to date is up 0.9, and private label is up 0 .7. So we benefit when we get more traffic in that CSD aisle.

Great. Okay. And then lastly, can you maybe give us a little bit more color on the McDonald's fountain expansion announcement? I know you said it could take some time to fully expand, but is there any way to quantify what sort of impact we could be looking at in terms of volume and profit, and maybe if you could expand on other fountain opportunities that we could see over the next six or 12 months.

Yeah, I think what you are going to see, Judy, is it's going to take us probably a good 18 months to get them all converted. I mean there's so many different franchises out there and everything. As far as -- we don't really -- we're not giving any numbers on volume for long term. We've got to get them installed and get an idea of those markets that were out there so we're really not speculating on that right now.

We know it the's going -- just reinforces with McDonald's putting us in, that the consumers desire flavors, and we expect it to the really provide a halo to other QSRs, plus our bottle and can business in those marks where we have lower per caps. Because whenever we-- when we drive Dr Pepper brand awareness, we can really capitalize over the long term.

Okay. Thanks.

You're welcome.

Our next question is coming from Bill Leach, from TIAA-CREF.

I was wondering if could you tell us what the CSD volume growth would have been if you took out Crush, since that is sort of a special situation?

Yeah, the Crush was three points, so we'd have been up around two points, 2%.

Okay, and John, I was wondering if you could give us guidance on some of the non operating items like corporate expense, interest expense, and the tax rate for the balance of the year.

Well, on interest rate for the balance of the year we're sticking with our 6.6%. On tax rate we're looking at 38% to 39% for the balance of the year. And on corporate expenses, I'd just remind you that we expect an incremental $25 million of stand-alone, and we're tracking in line with that. Our productivity office as well is an expense of circa mid-20s in millions, and the expenses for that will hit more in the third quarter than other quarters.

So the corporate expense was $63 million in the first quarter, so is that just a good run rate?

If you take into account the other factors I just mentioned, yes.

That's a yes? Okay, thanks.

Our next question is coming from Damian Witkowski with Gabelli & Company.

Hi, Larry. I have a -- just want to step back and ask a general question. Can you -- three cents that tax proposal that's out there now, obviously it's early days, but is there anything from a historical perspective we can look at that, if implemented what the effect -- possible effect on volume would be?

I don't think we have anything we could go back and look at. I mean, I think we all know it would. I think the biggest thing we do is just make sure that -- we've had these come up before and I think we've always been successful in fighting them with the American Beverage Association and everybody in the industry going together.

The one thing that we look at is you look at the tax they've talked about what they're saying is as for as health and obesity. Singling out a particular product, that isn't the answer. When you look at obesity, we need to teach children how to consume calories in moderation, and they need to be active enough to burn off excess calories. And our industry is doing a lot in this to get this plan across. I mean, we've done a lot of things in the school guidelines that we've done as an industry. We've reduced calories in schools almost 60%. I mean, it's things like this where as an industry we go in, I think we can fight these things. We've been able to beat them in the past, and we've got to do it.

We were able to win in Maine and got the reversal in New York, because the consumers really respond to negatively on taxation on food, especially in tough economic times like this. It's one we've got to monitor all the time. It's something very high on my list, Damian. I'm the chairman of the ABA. We spend a lot of time on items like this how we protect our industry.

Okay. Let me switch gears now. I know we've talked about this. I know you don't want to speculate on PepsiCo, but drawing up a scenario where if the actual acquisitions were consummated, and PepsiCo decided they didn't want to carry a brand that they did not own, what would be your options?

Like I said a moment ago, Damian, we have many options. If you just look at our Company owned DSD, our footprint covers almost 80% of that territory. We've got great relationships with good strong other third party bottlers out there in the Coke end, in the independent system. I think we have many options. We're very happy with how the system is today, but, those things can always change, and we'll have to look at that as it happens.

Thanks, Larry.

Our next question is coming from Andrew Kieley from Deutsche Bank.

Hi, good morning everyone.

Good morning.

John, I just wanted to ask you, I notice you made a little bit of a change to the cost of goods guidance. Is there a number that you're putting down, a percentage number for the benefit you expect in 2009 now?

Yes, Andrew, our previous guidance in the Q4 call was that packaging and ingredients, which, just as a reminder, make up about 60% of COGS, they, as a basket, would be about flat. If I look at it today, given the cover we have locked, I'd now update that to an expectation that the basket will be down in the 0% to 1% of COGS range.

Okay, thanks. And then just looking at the packaged beverage segment with the underlying growth around 20% in the profits, maybe how much of that came from input cost improvement and what else did you see there that helped the numbers? Are you seeing any benefit from the single serve rollout help yet?

Clearly single serve is in the numbers, but it's early days. We're slightly ahead of our current plans on rollout, and as I look at the results, we're certainly very pleased with the throughputs we're getting and with the returns that those are generating. I wouldn't breakout the specifics of it from the packaged beverage segment. And, I'm sorry, the other part of your question, Andrew?

Just how much of the profit growth that in segment might have come from better input costs and savings there.

I'd say I'd look at it as a 50/50 split between the input supply chain benefits and SG&A.

Okay. And then as you're paying down debt faster is there any change to your thinking about what you do with cash flow later in the year?

No, there isn't. We've said from the beginning here that we want to get our rating changed and move to a solid BBB before we contemplate alternatives, and when we've got a change to that plan, we'll certainly update you.

Okay. And then maybe one last for Larry. You talked about the Pepsi relationship, but just more broadly, wonder if you could comment if you have one or two of the major competitors have more integrated models, how do you think that affects the competitive playing field for you?

I think if you look at it, like I said a moment ago, we're happy with our current mix, but I think the key to success on any of these is you talk about an integrated market is really recognizing the value drivers, plus the need to share equally and drive incremental profit pool.

One of the things we've talked about since the fourth quarter, we've been very, very pleased with all the systems having a recommitment to U.S. beverages, and especially CSDs. As we go forward, you have to expect that the landscape is going to change, and as that happens, we'll be looking at it, make the appropriate decisions for our business.

Okay. Thanks very much.

Uh-huh.

Your final question comes from the line of Mark Swartzberg from Stifel Nicolaus.

Thank you, everyone. Larry, Snapple mainstream, can you give us an update there? Then I had a question for you, John, regarding the marketing dollars.

Yes, Snapple mainstream, we're happy with the mainstream. We're watching it. Right now we've got our ACV is gaining in there, we're up to a 37% on ACV. As I've mentioned earlier, the value tea, the mainstream piece of Snapple is very strategic where we're taking that. We want to make sure that we've got it in the right markets, we're using it as a defensive play. We expect to accelerate where we're at on it right now, and through year pick up another four points with the value tea.

I think most important is keeping -- what I spend a lot of my time focused on is the Snapple premium. With the restage, we're very pleased with the restage. It's sad that it came out at a time when premiums are getting hit, but what we're seeing is great response, and we've seen a lot of media we have on TV right now, but what we're hearing from our consumers, our customers and our distributors are very positive about our Snapple premium. And that's where I spend most of my focus.

Great. And then, John, on the marketing dollars shifting more into the first half, can you give us a sense how much, in terms of dollars, tens of millions, 15 million? Roughly what is the shift occurring between the third quarter and into the second quarter?

I'd look at it, Mark, as tens of millions. I'm sorry, in the $10 million range.

In the $10 million neighborhood. Great. Thank you, guys.

You're welcome.

Your next question is coming from Damian Witkowski with Gabelli & Company.

When you talk about pricing, you talk about it being rational in general, I was just wondering if there's a difference in categories that are actually declining for everyone, such as teas, ready to drink teas.

Yes, I think we're seeing -- the pricing is rational across all of them. I mean, you've got the decline in the premiums, but we're picking them up in the CSDs. And I think the best news, Damian, as people are coming in, even with the price increases the industry has taken, they see real value in the carbonated soft drinks, and so even though we lose a little on the premium side, we're being able to capture it, and I think as we see these trends continue, I think we're going to see the premiums start to pick back up. Like with our Snapple relaunch we thought we'd originally get back -- notice some growth in the third quarter, but now it's looking like it could be delayed to the fourth quarter, maybe even start of 2010.

Just out of curiosity, geographically, obviously you're much stronger in certain states with certain brands, but the top five states, let's say for Dr Pepper, Texas being one of them, are things -- and I don't think it's generalized, but are they generally getting better or worse, or does it vary by state?

It varies a lot. I guess if you look -- if we take the Dr Pepper heartland, maybe hit less by the economies. We're still seeing very strong sales here. You see a little more on the premium, a little more weakness coastal, but we're making that up in our Hispanic markets. We're doing a lot of reinvestment in Hispanic. So we're seeing growth there, which is helping to us grow our per caps in those marks and get kind of a more balanced growth model across the system.

Okay, and is Mexico, would you say, getting worse as -- I think you said it was getting worse as the quarter progressed. Is there any sign of recovery?

I think it's just flattened out, and we're starting -- I'm not going to say we're bullish, but we're starting to get more optimistic. We've got the new routes down there. We're seeing some volume growth. We saw our Squirt was up a couple percent. Package innovation is working. Just real thrilled the team in Mexico, the job they're doing in a tough economic environment.

Thanks again.

Our next question is coming from John Faucher with JPMorgan.

Thank you. Going back to the Snapple premium product, question in terms of whether you think the weakness we're seeing on the higher end in beverages is something that -- do you have any viewpoint in terms of the impact on the overall brand imagery, or is it simply just a short-term price hit? So any long-term damage you think to the higher end of this category? And then secondly, not asking for a direct response in terms of the Pepsi deal per se, but a lot of what it focuses on right now is sort of the ability to move between warehouse and DSD, which is an advantage you guys have. And does that cause to you continue to think about how to optimize distribution in terms of moving products back and forth between warehouse and DSD? Thanks.

Sure. On the Snapple, John, I truly believe it's short-term. We're constantly looking at our brand held scores, and Snapple is one of the strongest brands out there. We're very pleased with it. And I think the relaunch of our premium, plus having the amount of media we've got out there now, especially with national media, is making the brand even stronger, and when this economy straightens up we're going to be in right position for growth there.

On the route to market, we consistently look at what is the best route to market, how do we deliver what our customer is looking for and getting our product in the consumer's hand. We've been doing that even before there were any other announcements out there. I mean, we're constantly figuring out how can we get greater velocity at a lower cost to deliver more value. So it's something we've been looking at for two years and will continue to do so. I think you notice whenever we re-did our business, restructured, not only with the segments, but how we put the business together with a total packaged beverage, it makes to the where one president is constantly looking at what is the best way to get our products to market.

Got it. Thanks.

All right, thanks. Since we have no more questions, I'd like to thank you for joining us today and for your continued interest in Dr Pepper Snapple Group. Thank you very much.

This concludes today's Dr Pepper Snapple Group's first quarter 2009 earnings conference call. You may now disconnect.