摩托羅拉 (MSI) 2019 Q1 法說會逐字稿

Good afternoon, and thank you for holding.

Welcome to the Motorola Solutions First Quarter 2019 Earnings Conference Call.

Today's call is being recorded.

If you have any objections, please disconnect at this time.

The presentation material and additional financial tables are currently posted on the Motorola Solutions' Investor Relations website.

In addition, a replay of this call would be available approximately 3 hours after the conclusion of this call over the Internet.

The website address is www.motorolasolutions.com/investor.

(Operator Instructions)

I would now like to introduce Mr. Chris Kutsor, Vice President of Investor Relations.

Mr. Kutsor, you may begin your conference.

Thank you, and good afternoon.

Welcome to the 2019 first quarter earnings call.

With me today are Greg Brown, Chairman and CEO; Gino Bonanotte, Executive Vice President and CFO; Jack Molloy, Executive Vice President, Products and Sales; and Kelly Mark, Executive Vice President, Services and Software.

Greg and Gino will review our results along with commentary, and Jack and Kelly will join for Q&A.

We've posted an earnings presentation and news release at motorolasolutions.com/investor.

These materials include GAAP to non-GAAP reconciliations for your reference.

And during the call, we reference non-GAAP financial results, including those in outlook, unless otherwise noted.

A number of forward-looking statements will be made during this presentation and during the Q&A portion of the call.

These statements are based on current expectations and assumptions that are subject to a variety of risks and uncertainties.

Actual results could differ materially from these forward-looking statements.

Information about factors that could cause such differences can be found in today's earnings news release, in the comments made during this conference call, in the Risk Factors section of our 2018 annual report on Form 10-K and in our other reports and filings with the SEC.

We do not undertake any duty to update any forward-looking statements.

And with that, I'll turn it over to Greg.

Thanks, Chris.

Good afternoon, and thanks for joining us today.

I'll share a few thoughts about the overall business before Gino takes us through the results and the outlook.

First, Q1 was an excellent start to what I believe will be another strong year with first quarter records for sales, operating earnings and ending backlog.

Revenue grew 13%.

Earnings per share grew 16%, and we generated operating cash flow of $251 million.

I'm pleased -- secondly, I'm pleased with our results in Product and Systems Integration and Services and Software.

We reported double-digit growth in both segments driven by the Americas and EMEA.

At the same time, we did grow backlog year-over-year by almost $800 million.

And finally, demand remained strong across our platforms in LMR communications, command center software and video security and analytics.

And we continue to invest in our unique mission-critical ecosystem that we're building for long-term growth.

I'll now turn the call over to Gino, who will provide additional details on Q1 results and outlook, before returning for some closing thoughts.

Thank you, Greg.

Q1 revenue of $1.7 billion, up 13% versus last year, including $137 million of revenue from acquisitions and $38 million of currency headwinds.

Organic revenue, which excludes acquisitions, was up 4%.

GAAP operating earnings were $229 million, up $58 million.

And operating margins were 13.8% of sales compared to 11.6% in the year-ago quarter.

Non-GAAP operating earnings were $315 million, up $55 million or 21%.

And operating margins were 19% of sales compared to 17.7% of sales in the year-ago quarter, driven by higher sales in gross margin partially offset by higher OpEx from acquisitions.

GAAP earnings per share was $0.86 compared to $0.69 in the year-ago quarter.

Non-GAAP EPS was $1.28, up 16% from $1.10 last year.

OpEx in Q1 was $466 million, up $50 million due to acquisitions.

Other income and expense was $36 million compared to $27 million in the year-ago quarter, driven primarily by an increase in net interest expense of $9 million.

The Q1 effective tax rate was 20% compared to 19% last year.

Turning to cash flow.

Q1 operating cash flow was $251 million, and free cash flow was $185 million.

Operating cash flow was higher by $751 million, and free cash flow was higher by $726 million compared to the prior year.

The year-ago quarter included a $500 million voluntary pension contribution.

Excluding the pension contribution, Q1 operating cash flow was up $251 million on timing of annual incentive payments, improved working capital and higher earnings.

Capital expenditures were $66 million, up $25 million compared to last year, primarily related to Airwave and ESN network investments as well as Avigilon.

Capital allocation for Q1 included acquisitions of $445 million of cash and equity for VaaS International Holdings and $136 million in cash for Avtec; $145 million of share repurchases at an average price of $118.98, largely offsetting the dilution associated with the VaaS acquisition; $93 million in cash dividends; and $66 million of CapEx.

Moving to segment results.

Q1 Products and Systems Integration sales were $1.1 billion, up 12% driven by the Americas and EMEA.

Revenue growth from acquisitions in the quarter was $75 million.

Q1 Products and SI segment operating earnings were $147 million or 14% of sales, up 70 basis points from last year on higher sales and gross margin partially offset by higher OpEx from acquisitions.

Notable Q1 wins in the Products and Systems Integration segment include a statewide P25 radio system for the state of North Dakota, a $25 million P25 win with the New South Wales telco authority and an $8 million TETRA order from a utility customer in Chile.

Moving to the Services and Software segment.

Q1 Services and Software revenue was $588 million, up $72 million or 14% from last year driven by growth in the Americas and EMEA.

Revenue growth from acquisitions in the quarter was $62 million and currency headwinds were $21 million.

Services and Software operating income was $168 million or 29% of sales, up 240 basis points from last year, driven by higher sales and gross margin expansion partially offset by higher OpEx from acquisitions.

Some notable Q1 highlights in the Services and Software segment include a $17 million managed services contract with a mining customer in Latin America, a $7 million computer-aided dispatch and records contract for a large government customer in California, a $5 million order for video services renewal with the City of Chicago Office of Emergency Management.

Looking at regional results.

Americas Q1 revenue was $1.2 billion, up 17% on growth in both segments.

EMEA Q1 revenue was $363 million, up 7% and also driven by growth in both segments.

And in Asia-Pac, Q1 revenue was $129 million, down 5% or $6 million due to currency headwinds and continued expected declines in China.

Moving to backlog.

Ending backlog was $10.4 billion, up $781 million or 8% compared to last year, inclusive of a $222 million unfavorable change in currency rates.

Services and Software backlog was up $885 million or 14% compared to last year, driven by EMEA and the Americas.

Sequentially, Services and Software backlog was down $25 million due to Airwave revenue recognition.

Products and Systems Integration backlog was down $104 million or 3% compared to last year due to several large system deployments during the past year in the Middle East and Africa.

The Americas backlog was up $31 million year-over-year.

Sequentially and similar to last year, Products and Systems Integration backlog was down $185 million, on typical North America seasonality.

Turning to our outlook.

We expect Q2 sales to be up 4% to 5% with non-GAAP EPS between $1.55 and $1.60.

This assumes $35 million of FX headwinds at current rates, a weighted average diluted share count of approximately 176 million shares and an effective tax rate of approximately 24%.

For the full year, we continue to expect revenue growth of 6% to 7% with non-GAAP EPS now to be between $7.60 and $7.72.

Full year operating cash flow is still expected to be approximately $1.7 billion.

The full year outlook assumes approximately $90 million of FX headwinds at current rates, up from approximately $65 million of headwinds in our prior outlook; approximately $250 million of revenue from acquisitions; an effective tax rate of between 24% and 25%; and a weighted average diluted share count of approximately 176 million shares.

I'd now like to turn the call back over to Greg.

Thanks, Gino, and let me just close briefly with a few thoughts.

First, our Q1 performance positions us for another year of growth, coming off a record 2018.

Second, we continue to invest in our unique mission-critical ecosystem by expanding our LMR, command center software and video security and analytics platforms.

And I expect Services and Software to comprise about 1/3 of our full year 2019 revenue, up from approximately 31% last year.

And finally, for the full year 2019, I continue to expect us to deliver higher gross margins, operating margins, EPS and cash flow.

And as these durable cash flows grow, you should expect continued discipline and rigor around capital allocation for long-term shareholder value.

And I'll now turn the call over to Chris.

Thank you, Greg.

(Operator Instructions)

(Operator Instructions) The first question comes from Walter Piecyk of BTIG.

Just want to focus on product systems integration.

The growth rate, 12%.

Correct me if I'm wrong because I may have misremembered this, but wasn't there -- was it the last quarter or the March quarter of '18 didn't have some larger than expected revenue?

I think it was Q1 and Q2, so it's a fairly difficult comp to put that growth rate on.

And if so, what does that mean as we kind of head into Q2 and Q3?

Is this something you're able to maintain?

Or is there also similarly some kind of onetime or just particularly large contracts that end up getting realized in the quarter?

Yes.

Walt, this is Gino.

You do remember correctly.

Q1 last year, it included a large order, a large revenue from a California customer.

If you look at Q1 for PS&I and look at it on an organic constancy currency basis, it's approximately 6% in the quarter.

Our expectation for the full year has not changed.

We talked about constant currency growth for the full year at approximately 4%.

And we talked about the year shaping up similarly to last year, and that's what we're seeing so far.

So for the first half, probably a little closer to 5%, full year at approximately 4%.

Really, what drove Q1 were a couple of orders in the Fed -- in our Fed division.

And that's really what drove the overperformance to about a 6% organic constant currency growth rate.

Right.

Sorry, I meant the 6%, and the 12% obviously has some of the acquisitions.

Okay.

And then on...

Walt, I'm sorry, just one more thing.

It's important to note that Q1 is our smallest quarter in the year when you look at a seasonality perspective.

Q1 is the smallest quarter.

Q2 and Q3 are comparable, and Q4 is the largest quarter.

So that 6% is coming off of a smaller number in Q1.

Got it.

I just thought it would have, because of the difficult comp, maybe started -- it would have been flip-flopped from what you said and maybe start a little tougher in the first half and then strengthen from there.

But I guess we'll see how the year progresses.

My follow-up is for Avigilon.

Obviously, continuing a lot of press in terms of the amount of the focus on Huawei and how their components are in competitors' cameras.

Just curious on -- has that resonated?

Has that started to resonate with customers in that segment?

Do you see any actual pickup in whether it's interest or actually order flow as a result of customers rejecting some of your competitors because of the componentry that they have in there from Huawei?

Yes.

Walt, I think it has resonated with some of our customers.

And as you know, the concern about Huawei and more specifically, Hikvision and Dahua in the video surveillance space, which is in the National Defense Authorization Act.

Obviously, it's a concern with the federal government because they're prohibited -- any federal agency is prohibited from procuring vendor equipment by that brand.

Specifically from a component standpoint, you're right.

Huawei has a silicon chip that is in also a number of our competitors.

But if you look at the federal government and then critical infrastructure, which has many of the same attributes, yes, I think it is a growing concern.

I think the NDAA takes effect in August of this year, but it's clearly favorable in terms of what we're doing with Avigilon.

Avigilon grew -- I think it grew well in Q1 ahead of the market.

We still expect it to grow at about 15% and with a little bit more traction in Fed government, state and local, in the second half.

What are these companies doing on the sales front?

Are they pushing back or saying that they're going to rip this componentry out of their products?

Or like what's their defense in why a public safety customer would buy their products versus yours?

Yes.

Walt, a lot of what you've seen with the Huawei, the computer and chips, aren't really in public safety.

A lot of those are enterprise type customers.

And there's concerns there, but it's not the same and there's not the same regulations and stipulations as to what they buy as you've seen in the National Defense Authorization Act.

So it's a little different approach in the enterprise versus government and critical infrastructure space.

The next question will come from Keith Housum of Northcoast Research.

Gino, just want to talk about gross profits here.

Obviously, a nice step up year-over-year.

And according to my back-of-the-envelope calculation, it looks like Services and Software were a big driver of that.

Just can you talk about the sustainability of that throughout the year?

As usually the first quarter of the year is your weakest gross margins, so can we expect that to continue ramping up throughout the year?

Yes.

Walt -- I'm sorry, Keith, the -- our view hasn't changed for the full year.

We talked about margins in the -- Services and Software segment gross margins approaching 50% and operating margins approaching 30% for the full year.

That continues to be our expectation.

No change to P&SI as well on margin expectations.

We expanded -- we expect to expand margins in both segments in 2019.

Great.

And just as a follow-up, Greg, perhaps you can give little bit of color on the strategy that you made, the Avtec acquisition in the quarter.

Avtec?

Avtec, yes.

So the Avtec, we're excited about Avtec.

It does 2 things fundamentally.

Number one, it expands the commercial markets we serve.

It's a dispatch solution, but it actually extends us into the airport, seaport and rail markets, which are new markets for us, so we're excited there.

The second thing is as we looked at our R&D portfolio, where we're planning on next generation dispatch for commercial, there were some economies in terms of bringing the company on, and we like what they're doing from a development standpoint.

So very well-run company in the South Carolina.

We're excited to have them as part of the family.

Keith, just to add while we're on the Avtec subject.

For the full year, revenue expectation is approximately $20 million.

And we expect it to be slightly dilutive for the full year.

Sorry, did you say $20 million or $28 million?

Approximately $20 million.

Your next question will come from Greg Notter (sic) [George Notter] of Jefferies.

This is George.

I just wanted to, I guess, dig in on the effort on the command center software business.

There's a big initiative I know going on in the company around platforming those products and pushing them onto more of a SaaS model.

Can you kind of talk about where you are in that transition and the integration of the different software pieces you have there?

And then what kind of milestones do you have in terms of getting into a subscription-type model next year?

George, it's Kelly.

So we're making great progress on it.

We've already launched a number of our products into the cloud or selling them as a service, specifically if you think about Kodiak or VaaS.

So we're making good traction on that.

We expect the materiality of our portfolio to be cloud-ready by the end of 2020.

I will note, though, even though as we move towards cloud, our software products will continue to be available either to our customers on-prem or in the cloud.

So that transition will be gated based on our customers' desire and how they want to execute on deployment.

But we view it as moving along quite well with the business and the milestones we look for, which you will see in announcements like you saw this past quarter on CommandCentral aware, which is another one of our products which we recently made available in the cloud.

You'll see more of those announcement come between now and the end of 2020 as we make them available in the cloud.

Got it.

And what's customer receptivity like on that?

Do you -- obviously, you're asking people to kind of buy product in a little bit different model there.

And again, it's a customer option, but talk about sort of the circumstances under which you see customers kind of consuming that way.

And how does that affect the model for you guys going forward?

It's early days on that as we make it available.

And based on the products we have right now, we've had high amount of customer receptivity to that.

There are going to certainly be certain issues.

We might get into -- for governments related to whether or not they actually can store their data in the cloud, which will be something that we'll look at and watch as we deploy it, but they've been relatively receptive to it.

It certainly helps in regards to security and keeping the systems up-to-date and managing uptime versus when you have it in what we call an on-prem deployment.

But it's early days in regards to launching that.

But initially for the customers who are receptive to that, it's been going quite well.

Next question will come from Vijay Bhagavath of Deutsche Bank.

I get asked this question quite a bit from clients, which would be around command center software portfolio.

You know you have kind of interesting building blocks call management, command control, records, evidence and on and on.

So the question that I get asked and like to get your view is, do you have companies who compete with you across the software command center portfolio architecturally?

Or is your competition more under the piecemeal, the individual building blocks?

And then I have a follow-up.

Sure.

We feel very good about the components that we have and the width and breadth of what we've acquired to include, as you referenced, 911 call handling, dispatch, records and evidence management.

And we do not believe that competitively, anyone else has the width and breadth of the suite that we are building.

It's a fragmented marketplace.

There's different competitors depending upon the element that's being evaluated.

But I think Kelly and Andrew Sinclair and team are doing a really good job on building out the suite, cloud-enabling the portfolio and its respective components, increasing SaaS subscriptions and moving away from perpetual license.

And I like our competitive position.

To the earlier question by George, I think we have high interest.

More customers remain interested in buying components of the suite.

But given the buying habits of state and local, I think it will be gradual but that's okay.

But very much like what Kelly and team are building there.

Yes, perfect.

A quick follow-on would be for Gino in terms of use of cash and also just the investment strategy in the company, both internal and inorganic.

Actually, Vijay, let me just jump by.

Gino and I work very closely, quite frankly, the whole team, on the deployment of capital.

I think it's the most important thing we do.

As you've seen, we've done a combination of increased organic investment, inorganic acquisitions surgically to build out the command center software suite and video assets that we think are strategic in video security and analytics and also return capital to shareholders.

Love the fact that we did -- we're able to do $145 million of share repurchase in Q1 at $118 a share.

Gino has been very consistent in our capital allocation framework 50, 30, 20, 50% to be used for share repurchase or acquisition, 30% dividend and 20% CapEx.

Given our performance to date, we have about $500 million approximately available to us between now and the remainder of the year, which is fungible between either share repurchase or acquisition.

We also expect to pay down the short-term loan associated -- for $400 million associated with the Avigilon acquisition we made last year.

We expect to complete that by the end of the year.

The next question will come from Adam Tindle of Raymond James.

I just wanted to start on the 2019 EPS guidance.

I know it comes up by a couple of pennies but just beat Q1 by $0.15.

You've got tax rate lower, share count higher, but I think the net of it is that your profit dollars assumptions are generally unchanged.

So correct me if I'm wrong there.

But if so, the business seems to have a lot of momentum.

You're talking about strong backlog.

I guess, why wouldn't forward quarters be raised a little bit more?

Just talk about the thoughts to the guidance buildup.

So we feel very good about the year, the full year and the remainder of the year.

As Gino talked about, we look at the year and our overall performance and focus on organic growth, more specifically organic growth constant currency.

So we did have a strong Q1 driven largely by a couple of orders in Fed.

But we're less concerned around the individual linearity within a quarter but stick to the full year.

And we believe with overall backlog up, aged backlog comparable to slightly up for the remainder of the year that our full year guidance on top line remains prudent.

I'll also remind you that we have $25 million of incremental FX headwinds from the last time we spoke that's incorporated and contemplated into our full year guidance.

When we look at the EPS, it is largely a flow-through associated with the lower tax rate.

But there is some, a couple of pennies associated with improved business performance overall.

We love the start.

We feel comfortable about our respective ability to achieve what we stated and it's performing as expected.

But we think the guidance is prudent at this point in time.

Got it.

That's helpful, Greg.

And just as a follow-up, I think to your point, it implies continued year-over-year operating margin expansion.

Just hoping that you can maybe just touch on the composition of this.

I think previously, you had thought 100 to 200 basis points from the Product and SI segment.

I know that was supposed to be more back-half weighted, but you had 40 basis points year-over-year improvement in Q1.

So I'm just trying to determine if maybe the Products and SI margin expansion is down a tick and Services and Software are up a tick.

Or are we still 100 to 200 on the Products and SI side?

I think the Software and Services operating margin is consistent with what we've told you before as is P&SI.

Just to put a finer point on it, I think that probably operating margin in the 22% to 23% range for the full year seems to make the most sense at this point in time.

Next question will come from Paul Silverstein of Cowen and Company.

First off, some of your compadres in the com equipment market, albeit focused on the commercial sectors as opposed to public safety, has cited weakness in Germany and the U.K. and cited Brexit and cited a big downturn in the automotive industrial sector in Germany.

Again, I recognize 80% of the revenue comes from public safety, but do you see any of that weakness?

Is there any impact or visibility?

And then I've got a follow-up question.

Paul, it's Jack.

So with regards to -- obviously, we've seen some slowdown on the commercial side in Europe.

But I would caveat and I think it's important to note that our European business is largely insulated due to the fact that we're largely a managed service company.

If you think about Airwave and the other nationwide networks that we manage, we've got -- the preponderance of our business is recurring revenue in Managed and Support Services in Europe.

So we -- as Greg alluded to and Gino in the opening, we had a solid Q1.

We expect comparable growth to 2018 in Europe, Middle East and Africa this year.

All right.

And then if I can ask, on the Avigilon piece, you had that early April announcement about the integrations with command and control software platform.

It sounds like it's on schedule relative to when you did the deal back in early '18.

So that takes you to the public safety market.

I assume that with the big firing gun in terms of entering the public safety, Avigilon, if I recall, at the time of the deal, was just the commercial sector, they had their hands full and didn't try to address the public safety market.

Greg and Gino, did that not translate to an acceleration of the revenue growth from video analytics and surveillance and the associated hardware?

If I recall at the time of the deal, I think they were doing mid-teens growth.

The first quarter out, you referenced acceleration.

I haven't heard that reference again since, and they had a full quarter since the deal.

But now that you're taking them to the public safety market, I would think there will be strong receptivity and that would actually accelerate the growth of that still relatively small base.

Yes.

I think the gating factor or -- in terms of going after public safety and state and local is more about channel and sales cycle.

Remember, Avigilon was a commercial enterprise video company, which was great and they've done a great job.

But Molloy has done a very good job of redirecting investment, mainly sales coverage and heads and the channel program to redirect it to be more public safety.

So I don't think it was a product interoperability issue with command center software.

I think it's channel investment that takes time.

And I think it's sales cycle on competitive RFPs that take time.

We still expect strong growth, to your overall point, which is why we stated upfront that we think Avigilon can grow 3x the market at about 15%.

So we do expect to get more traction.

But at this point, we think on a larger base, it's prudent to leave that guidance consistently at about that level.

But good progress.

(Operator Instructions) The next question will come from Jim Suva of Citi.

I have a question for Greg, kind of bigger picture and then kind of a financial question for -- probably for Gino.

But Greg, when you think about -- just looking at the overall economy with strong employment, housing prices going higher, should lead to more inflows to government municipalities.

Police forces and first responders should be using your products.

Is it fair to say that these are leading to more healthier discussions today for your new products?

Or is there a little bit of, I want to say, diversion of police forces trying to retrain their staff to make sure that they don't end up with a black sore eye from public social media responses.

And then for Gino, the question, it looks like your -- while you're raising EPS for the full year, it looks like it's fully accounted for from the lower tax rate of 24% to 25% versus 25% earlier.

So you mentioned you're also increasing your outlook due to organic, but I'm just trying to make sure that I'm not missing something.

Or are you investing a little bit more?

I'll just answer the second one real quickly just because I mentioned it a few minutes ago.

But the tax rate difference or the lower tax rate we think is worth about $0.05 and we raised the high end from $770 to $772.

So the EPS guidance raise, you're right, is because largely of lower tax rate but not solely.

There's also some business improvement that comes from that.

Just to add to that, Jim, keep in mind the share count change from 175 million to 176 million shares.

And as mentioned earlier, the acquisition -- the Avtec acquisition is slightly dilutive.

As you're going through your math and model, you have to incorporate those as well.

And as Greg mentioned earlier, the increase in FX, the $25 million increase in FX from -- FX headwinds from our prior view.

And Jim, as it relates to kind of overall macroeconomics, I think the very good thing about this business among other things is the consistent demand for what we sell in a real strong economy or in a more tepid economy.

We see consistent strength in North America and also strength because the markets -- the addressable markets that we're playing in have been expanded.

So if you rewind the tape, and you know this very well, we were more traditionally a mission-critical radio communications provider.

As we continue to invest organically and inorganically, we're doing -- we're playing in so many other areas beyond that.

We're playing in the command center, software space with the respective components and an addressable market there that's $5 billion to $6 billion.

We're in the video security and analytics market now with Avigilon, which we think is about $12 billion-plus, completely zeroing out China.

And of course, Kelly and team continue to build out the services around that.

So I think the strength and the continued performance of what we're doing is because of the width and the breadth of our product portfolio led by a healthy economy in North America but also reflecting at its fundamental base the criticality and consistent demand for land mobile radio.

We talked about wins in Iowa and Pennsylvania.

Historically, we had the award here in Florida.

It's not contracted for yet.

Airwave was extended through the end of 2022.

But in a variety of different theaters where Molloy and team compete, land mobile radio demand and the criticality of mission-critical communications is pretty consistent.

That's what I think is continuing to drive us, along with coverage and execution.

I don't know, Jack, if you want to add anything.

Just one other thing, Greg.

And I think I picked up Jim had talked about more training and with the state at play -- with respect to state municipal funding, how is that money being prioritized.

Greg made a key point.

And we made inorganic and organic investments around software and video because of this.

One of the trends that we're seeing, and we followed this closely with our law enforcement customers, is less people taking the test, which lends itself to increased demand for complementary technologies to give them investigative tools that they wouldn't have.

So ultimately, how do they do more with less?

And the simple answer is technology.

And yes, as Greg said, it's a continued demand for land mobile radio.

But it's also driving and it's going to continue to drive video and command center software opportunities for us.

And so that's why some of the kind of investments and bets that we've made over the last of the course (sic) [course of the last] 3 years will really start to come to pass because we have less and less law enforcement officers, they need greater technology to keep the public safe.

This concludes our question-and-answer session.

I will turn the floor back over to Mr. Chris Kutsor, Vice President of Investor Relations, for any additional or closing remarks.

I have no additional comments.

Thanks, everybody, for your time.

Ladies and gentlemen, this does conclude today's teleconference.

A replay of this call will be available over the Internet in approximately 3 hours.

The website address is www.motorolasolutions.com/investor.

We thank you for your participation and ask that you please disconnect your lines at this time.