Mettler-Toledo International Inc (MTD) 2009 Q3 法說會逐字稿

Good day, ladies and gentlemen and welcome to our third quarter 2009 Mettler-Toledo international earnings conference call. My name is Christian and I will be your audio coordinator for today. I would now like to turn our presentation over to your hostess for today's call, Ms. Mary Finnegan.

Good evening, I'm Mary Finnegan, Treasurer and responsible for Investor Relations at Mettler-Toledo and I'm happy to welcome you to the call. I am joined by Olivier Filliol, our CEO and Bill Donnelly, our Chief Financial Officer. Now to cover some administrative matters. This call is being webcast and is available for replay on our website at www.mt.com. A copy of the press release and the presentation that we will refer to on today's call is also available on our website.

Let me summarize the Safe Harbor language which is outlined on page one of the presentation. Statements in this presentation which are not historical facts constitute forward-looking statements within the meaning of the US Securities Act of 1933 and the US Securities Exchange Act of 1934. These statements involve risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from those expressed or implied by any forward-looking statements. For a discussion of these risks and uncertainties please see the discussion in our recent form 8-K. All of the forward-looking statements are qualified in their entirety by reference to the factors discussed under the captions factors affecting our future operating results and in the business and management discussion and analysis of financial condition and results of operations sections of our form 10-K. One other item on today's call, we may use non-GAAP financial measures, more detailed information with respect to the use of and differences between non-GAAP financial measures and the most directly comparable GAAP measures is provided in the press release. I will now turn the call to Olivier.

Thank you, Mary. Good evening and welcome to the call. I will start with a summary of the quarter and then, Bill, as usual, will provide details on our financial results and our guidance for the fourth quarter. I will then continue with additional comments on the business and an update on the defensive and offensive measures we are undertaking to position us for the future. As always, we will have time for Q&A at the end.

On page two of the presentation the highlights of the quarter are summarized. While market conditions remain challenging, we do not see signs that they are further weakening. Given that our business tends to be late cycle, we are not surprised that we have yet to see an uptick in our activity. We expect market conditions to slowly recover during the course of 2010, but the timing and strength of this recovery is still uncertain. Local currency sales declined 12% in the quarter which was slightly better than we expected the last time we spoke. As a reminder, the third quarter 2008 had very strong local currency sales growth of 10% so we were still facing a very tough comparison in addition to the challenging market conditions. However, in spite of the continued sales decline, gross margins increased strongly due to the mix as well as our initiative in pricing and procurement. I'm also very pleased with the benefit of our cost reduction program. As a result of our strong execution, we had only a modest decline in operating profit and EPS, specifically operating profit reached $73.2 million while adjusted EPS amounting to $1.36. Finally, our cash flow generation continues to be excellent. With a strong Q3 earnings we have again increased our full-year guidance. Bill will provide some more details from this as well as on our results for the third quarter. Bill?

Thanks Olivier and hello, everybody. Let me start with additional details on sales which are outlined on slide number three of the presentation. Sales were $435.7 million in the quarter, a decrease of 12% in local currency. On a US dollar basis, sales declined 14% in the quarter as a result of negative currency of 2%. Breaking down local currency sales by geographic destination, in the quarter we had a 16% local currency decline in Europe while sales declined 12% in the Americas and 6% in Asia rest of world. Year-to-date we have had local currency sales declines of 15% in Europe, 13% in the Americas and 4% in Asia rest of world. By product area in the quarter, laboratory sales declined by 8%, industrial sales decreased by 16% and food retailing declined by 14%. Year to date lab was down 9%, industrial was down 14% and food retailing declined 16%. In total, our service and consumable businesses increased by 1% and were particularly in strong in lab with the 6.5% growth. Year to date service and consumables are flat and up 4% for lab.

Turning to slide number four, let me cover the remaining lines of the P&L. Gross margins were 51.7% in the quarter, a 290 basis point increase over the prior year. Let me provide some insight into this improvement. First, we continue to have the negative impact due to our drop in volume and our inability to fully cover our overheads. However, we were able to more than offset this with the benefit of mix, our pricing initiatives and cost reduction program as well as very favorable raw material costs. While we are very pleased with this improvement, we would not expect this rate of improvement over the prior year to continue. In Q4, we expect margins to be at or below the prior year levels due to the impact of much weaker dollar compared to one year ago. R&D amounted to $22.3 million or 5.1% of sales. This represents a 15% decline in local currency which reflects the timing of projects as well as a reduction in external spend. We saw the benefits of our cost control measures in SG&A as well which was $129.7 million, a decrease of 9% in local currency. The reduction reflects our significant cost reduction efforts as well as lower variable compensation. Adjusted operating income amounted to $73.2 million which represents a 4% decline versus the prior year amount of $76.5 million, operating margins increased 180 basis points in the quarter.

Let me make some comments on the remaining line items in the P&L. Amortization was $3.2 million in the quarter, interest expense was $7 million, fully diluted shares for the quarter were 34.4 million and our effective tax rate remained at 27% as compared to 26% in the prior year. You will also notice during the quarter that we incurred a restructuring charge of $6.1 million or $0.13 per share related to our cost reduction program. The program is substantially behind us now and we are on target to achieve our goal of $100 million in annualized cost savings. As mentioned previously, we expect to spend $40 million on the program of which we have incurred $34.8 million to date. We have excluded restructuring expenses from adjusted EPS. Finally, adjusted EPS was $1.36 per share, a 6% decline from the prior year amount of $1.44 per share.

Let me turn to cash flow now. Free cash flow in the quarter was excellent and came in at $71.7 million as compared to $60.2 million in the previous year. Our DSO improved by four days to 41 days while ITO remained steady at 5.1 times. We have been implementing a number of programs to improve working capital efficiency. We are very pleased with our progress to date on a year-to-date basis our free cash flow is $173 million versus $137 million in the prior year period.

Now let's turn to guidance for the fourth quarter. I want to remind you that our business tends to be late cycle. In fact, we continue to have growth in the fourth quarter of last year while others had already begun to see sales declines. We also benefited from year-end budget flush spend in certain customers last year. This year we are assuming much less of this type of spend. Given these dynamics, we expect local currency sales growth in the fourth quarter to decline 6% to 7% and adjusted EPS to be in the range of $1.90 to $2. This will result in full year guidance of local currency sales decline of approximately 10% and adjusted earnings per share of $5.39 to $5.50. This compares to our previous guidance of adjusted EPS in the range of $4.92 to $5.42. As a reminder, adjusted EPS excludes purchase intangible amortization, restructuring charges, discrete tax items and other one-time items.

With respect to guidance on cash flow, as just mentioned year to date our cash flow is well ahead of last year. However, for the fourth quarter we expect cash flow to be below last year's level. This is being driven principally by reduced cash receipts because we have much lower accounts receivable balances at the end of the third quarter as we enter the fourth quarter if we compare to a year ago. One final comment on guidance in the past few years we have provided next year's guidance on this call. Given the continued uncertainty in global markets, we believe it's prudent to provide 2010 guidance on our Q4 call in February. However, I think it's helpful to understand our working assumptions for 2010. We are assuming a slow, modest recovery in our end markets as the year progresses. We would expect the second half of 2010 to be better than the first half. Accordingly, we have built our operating expense budgets to grow moderately only in 2010.

That's it for my side and then I'll turn the call over to Olivier.

Thank you, Bill. I will start with some comments on the third quarter business results beginning with lab. As expected, lab was down in the quarter against strong sales growth one year ago. Pipettes had good growth in the quarter due to their much higher consumable stream. Balances continue to be weak due to soft end market demands. Analytical instruments were down but the trend was better. Finally, automated chemistry was down.

Turning now to industrial. The third quarter last year was one of our strongest quarters ever in industrial with local currency sales up 12%. As expected this year, core industrial was down in all geographic markets due to the weak global economy and reduced manufacturing output. Product inspection was down but continued to have very good growth in Asia. Food retailing was down in the quarter as we continued to phase the late project investments. We don't expect this trend to change in the near future. As Bill mentioned our service and consumable businesses held up well with lab in particular enjoying strong growth.

Finally, let me also comment on sales by region. Starting with Europe, which was down in the quarter, slightly better than what we saw in the second quarter. In the Americas, while we have declined in most product lines the two-year growth trend has improved modestly. In Asia, specifically China, our lab business was up in the quarter while core industrial products declined due to the ongoing weakness and discrete manufacturing as well as very strong results from one year ago. Product inspection showed very strong growth as a result of the drive to better food safety. Looking forward, we expect an improvement in industrial business from improved market condition as well as the benefit of the stimulus programs. For the first time this year we project growth in total for China in the fourth quarter.

Gross margins increased very strongly in the quarter reflecting the benefit of mix and the impact of our pricing and procurement initiatives. We also benefited from the results of our cost reduction program. This program is a target to reduce operating costs on a sustainable basis by approximately $100 million. As mentioned before, the program is pretty much behind us with the reminder to be completed by year end. Bill and I recently completed our annual budget tours in which we met with almost every operating unit around the world. In general, I feel our local teams performed well during this downturn. They acted smart and approached the challenging environment with an entrepreneurial focus. They implemented the necessary cost reduction actions quickly and decisively, thereby causing minimal disruption to the organization. I found the spirit and enthusiasm of the organization very good which is partly due to the facts that the cost reduction actions are behind us and the teams can focus on growth opportunities for the future. This energy of the management team throughout the world positioned us well for the next year. We continue to believe that we will emerge from this economic downturn in a stronger competitive position than before. We continue to invest in sales and marketing programs and then have our pricing strategy. Furthermore, our product pipeline is strong.

Let me update you on some of the initiatives in sales and marketing to help position us for growth. Over the last year we have increasingly used webinars as a very cost-effective tool to target customers. Our Autochem unit has been using this technique for some time as a platform to discuss key topics of our customer base, showcase or solutions and answer customer questions. In the current economic downturn, we have expanded this very cost-effective marketing technique throughout the Company as customers travel budgets for training, product demonstrations and seminars have been cut back. Likewise, it is cost prohibitive for our sales teams to be in front of customers on a regular basis as we want to devote the time and travel budget to the highest potential contacts. Therefore, webinars have proven to be an effective solution for ourselves and our customers. For illustrative purposes, let me provide one example of the many webinars we have conducted. This webinar focused on food safety and included a representative from an international food agency who discussed all the standards surrounding food safety. Our industrial and product inspection teams were then able to demonstrate how our solution can help customers with compliance surrounding food safety. More than 100 well known consumer product companies parts paid in this webinar. This is just one example of how we continue to target customers in the current environment.

Our product pipeline also positions us for growth as we look to 2010. So additionally we have been the market leader in technology. Also one general of our nearest competitor. An example from our industrial business reinforces this. We have long been the leader in the sell of load cells used for the weighing of raw materials of trucks or trains. This is an especially important market in emerging markets. We have just launched a new system consisting of a load cell, an intelligent network and the control terminal. The system called power cell PDX has incorporated substantial improvements compared to any product on the markets today. Power cell PDX will set the standard for consistent accuracy in the industry as it incorporates a microcontroller to ensure weighing precision is maintained throughout the life of the load cell. Competitors can only ensure accuracy when the load cell is initially installed. Over time this type of load cells are known to drift causing costly inaccurate readings. In addition, PDX has a unique network design that provides a sealed enclosure to protect against moisture and all the weather elements such as thunderstorms and lightning, which are common sources of failure in this type of application. Finally, we have incorporated advanced diagnostics capability so customers can remotely monitor scales to prevent unexpected down time which can be very costly. Initial customer reception has been outstanding and I wanted to highlight this example to show that even in the product they are in which we already have a strong market position, we continue to innovate to further distance ourselves from competition.

In summary, market conditions remain challenging, but we do not expect conditions to weaken further. We have taken the necessary cost reduction measures so our cost structure is aligned for the remainder of this year as we enter 2010. We expect our markets to slowly recover next year and are focused now on capturing growth through investments and sales and marketing programs and through our strong product pipeline. Versus our direct competition, we believe we are strongly positioned to accelerate market share gains as market conditions improve.

That concludes our prepared remarks and I would now like to ask the operator to open the line for questions.

(Operator instructions) . Our first question comes from the line of Jonathan Groberg with

All right. Hi. Are you there?

Yes.

Yes, John, we hear you.

I hear a bunch of things in the background. So just, one quick question for you as you look out to the fourth quarter here, obviously a very strong third quarter, revenues may be a little berber, obviously still weak but relative to where we were in the second and earnings obviously very strong, fourth quarter your comps get a lot easier and I'm just curious kind of what you're currently seeing in the market and, given some strong GDP numbers that came out for the third quarter, just maybe you can talk through your expectations here for the fourth quarter?

Comps are getting easier but let's also remind ourselves, Q4 last year for us wasn't so bad. We had some (inaudible) that we saw particularly in December and we are actually much more cautious about anticipating a similar pattern this year. There are many reasons for that and that's also one of the reasons why we -- (inaudible). In terms of market momentum, we see some momentum coming in selected markets, emerging markets in particular, a little bit on lab, but otherwise we -- any early indicators that we have for our business clearly confirms that this is not going to be a fast uptick and even if we have better GDP forecast we are late cycle. We are clearly late cycle and we will also see that in our business.

Just to build on that, so are you still kind of -- for a while you've been doing this, kind of take the two-year average of kind of where you're at and if you take where you were in the fourth quarter of last year organically and what you're guiding to for the fourth quarter of this year, it looks like you're kind of just saying you're going to be somewhere still kind of in that range. Is that right?

Yes, I think that's correct. Maybe a little bit below. We did a little bit better this quarter, maybe we will do a little bit worse next quarter, the thought being that this may be budget flush effect, we are still plus one a year ago. But certainly in that range, John.

But I'm trying to understand if that's what you just said, why would things deteriorate in the fourth quarter relative to things getting -- I'm trying to understand, are you seeing something out there specifically or is this just being a --

Nothing specific. I think a couple of comments. One is the fourth quarter is always our biggest quarter and it's certainly our biggest quarter in terms of product sales which has been the area which has been most sensitive within the business, as you heard today earlier, our service in consumable business has held up well and just if we look last year, there were still customers that were spending money in the fourth quarter at the end of the year, and we just think that will be down, if we are surprised, great but that's what our expectations are. In terms of maybe what we are seeing in the market, I think Olivier mentioned that we see, some pockets of positive and frankly we didn't see those pockets of positive three months ago.

And just as we then take this this quarter and if you assume we get some recovery in GDP, some global recovery as you move out into 2010, what are those areas, and I may have missed this, there's, four calls going on, but what are those areas that you -- those pockets that you think are going to recover first or that you're getting some signs that maybe things are a little better?

We certainly expect lab to do better. On that order we would expect that industrial and retail, however, will continue and face a difficult market condition. When I look at geographically, I expect emerging markets and in particular China to be on on the positive side, recover faster and hopefully have higher growth rates. As when I look at North America, if I look at western Europe, I do not expect that the early part of next year will already see recovery. I think it will take longer for us, particularly because we all made cycle, so that's certainly the reason why we remain very, very cautious until next year, particular for the early part of the year.

Okay. Just two more quick kind of questions. Olivier, one on replacement cells. You have the kind of instruments that historically people have needed to replace at some point. Do you expect kind of a stronger, kind of replacement cycle here as people, they kind of run their instruments -- run their instruments down? And then second question, with respect to -- well, maybe you can answer that one first really quick.

Okay. I think we need to differentiate here between lab and industrial applications in the lab, applications of the replacement cycle is much more driven by us coming up with innovations new features that have good paybacks for the customers. I think we are continuously working on that. We have good product pipeline that helps us, but it's a little bit more difficult to convince customers in this current economic environment and in that sense, as soon as things will recover in the market, I think our value propositions will clearly help us and play to us. When it comes to industrial, the replacement cycle is very much driven by the wear down of our equipment and the wear down of our equipment has been, again, driven by how many hours our equipment is used and that, again, is driven by the capacity utilization in plan. It's driven by the number of work dates plants are operating and in that sense if the economy recovers how we all hope for, that will then automatically drive the sales for our products, industrial products, but also the service part and industrial will benefit from that which has this year particularly suffered.

Okay. And then last question as you look out to 2010 on the cost side, your comments about doing things like webinars and cutting down on travel, is there any reason that you can't, kind of having figured out how to do this, that that can't become more of a norm, so do you expect your operating costs to stay pretty low as you move into 2010 or are there any -- is there anything else going on on in terms of needing to grow those costs?

No. Our plan for next year is really to keep our cost growth very, very modest. We have all our restructuring plans that we have been executing in the last few months that continue to help us next year, and we will have selective cost increases but they should be modest in the west, in emerging markets we will do selective investments. We have one offsetting factor that is we are planning to put in our bonus programs and compensation programs back to target next year. This year we had a significant saving. So that was an offsetting factor but all in all we are planning for a very, very modest cost growth for next year. The programs like webinars and all the productivity gain programs that we are pursuing to help our effectiveness, should help our top line, but it's not particular target to further reduce the cost. I think it's -- I'd rather look at it to be a productivity gain that helps us overall.

Great. Thanks, guys.

Our next question comes from the line of Derik De Bruin with UBS.

Hi, good afternoon.

Hi Derik.

Hi Derik.

So a couple of questions. So I'm really impressed by the gross margin improvement in the quarter and, specifically since typically that's the Q4 gross margin is always historically been the strongest one, I just can you walk me through just how you look at that going forward? I mean, is that 51% plus level sustainable when you look at the full-year number? You're going to do about 51.1% if you're flat year over year with where you were. I mean, is that the way to kind of think about the margin progression in the next year and beyond?

On a full-year basis we expect margins to improve next year. The one thing that's kind of impacting us in the fourth quarter is that, we have talked about in the past this idea that foreign currency has no real OP impact on us as long as the Swiss frank is not doing too bad compared to the Euro. We have quite the benefit coming from the dollar, probably 5.5% to 6% on a top line and because it's neutral on the OP level, that means it dilutes your gross profit margin and it's purely kind of cosmetic driven. Then the second thing I would say is that, we continue to expect good price increases again realization in Q4 like we have had through the first three quarters of the year, maybe a little bit on the raw materials side we kind of annualize the savings gains. We started really seeing raw material costs come down in the fourth quarter of last year through just naturally commodity prices but as well, our efforts about low cost country sourcing so I think some of the big benefits there will be mitigated in the fourth quarter. We will still be in better shape than -- we will still maintain similar, though, in the fourth quarter to what we have had year to date, and so I think margin expansion remains the story. It's just that I wanted -- since the number, the increase over last year was so big this quarter, we just wanted to make people aware that, hey, the fourth quarter, that's not going to repeat itself.

Right. Okay. That's great. That's kind of exactly what I was looking for. And so I guess, you talked last quarter about, you're looking at a couple of small acquisitions and I guess could you update that and put that in relationship with where you think the share buyback program will kick back in?

On the acquisition front, I think what I said on the last call is still very applicable. We continue to look at opportunities. I still look at the opportunities in a very favorable way. I think the market environment is a good one for us to pursue this opportunity, valuations are reasonable and we will have to see what materializes and what we can close on this. I just want to make sure to remind everybody since our bolt on acquisitions, we are looking for strategic fit and synergies and typically are very close to the current business that we have and are more kind of adjacencies or in our core business. We will continue to focus on lab, probe and product protection opportunities, where we normally have the highest margins. In terms of share buyback, we continue to think that this is a very good way to create shareholder value and give it back to shareholders. We look at this in a favorable way. We always said we want to wait until economic environment and our financial results have fully stabilized. I would say that we are getting closer to that situation, but we have not yet made a decision when we exactly come back, but I would say it will be in the near future.

Okay. Thank you very much.

Our next question comes from the line of Peter Lawson are Thomas Weisel Partners.

This is actually Patrick Donnelly filling in for Peter. I always wonder how things trended throughout the quarter. Do you gain momentum throughout the quarter or how do things work there?

Hey, Patrick, in September we saw slight by letter numbers but in reality it was related to working days that we had higher working days and also how vacation in Europe play a role here but if I exclude that fact we wouldn't see a pattern that would tell us that things get better.

Olivier, and then when you said you're projecting growth for China in 4Q, I believe is that the comp coming down to 20% to mid single digits last year or is it something you're seeing there?

No. That of course plays a role but there are other effects that we see including also on the industrial part, we see that in Q4 we should have to first benefit the local stimulus package in China and that should clearly help us and so that's -- I see a recovery on the industrial part. For the lab business and the product inspection business, food safety-related business should -- we should continue to have good growth as we have seen so far. So it's a little bit of both.

Great. Thanks and, Bill, I heard you mention 5.5% to 6%. Is that the overall FX benefit on the quarter? On the top line, correct. All right. Thanks, guys.

Thank you.

Of course based on rates as they are around today. Right. Thank you.

Our next question comes from the line of Richard Eastman with Robert W. Baird.

Yeah. Just a couple of things. On Europe, Bill or Olivier, how comfortable are you that we have kind of bounced off the bottom here? It seems like I just look at the rate of decline against the comps year over year, it looks like things may be are a little bit better or were a little bit better in Q3 than Q2 or do you think that's still shaky?

It's very modest and I -- I wouldn't say we see here a pattern. Actually, for except in Germany and France, still very challenging environment, in eastern Europe, very challenging environment. So not yet the pattern here.

Olivier when you talk about emerging markets, kind of seeing, some improvement, are you being more selective than you've been in the past, in other words, is it primarily China or, is there another market or two in there? Because we -- in the past we have kind of lumped the emerging markets into everything from eastern Europe and Latin America.

That would still be our definition. We have many of also the smaller markets we include in this definition but when I talk about momentum that we see coming back, it is particularly China.

China and like China centered companies like southeast Asia.

Okay. Do you do much business, in Brazil or, South America? Is that much of a market for you?

Yes, we have -- or in Latin America, definitely we have -- if I started this off, we have Mexico, then for most of the other markets we are selling in particular through the indirect channels and this is by the way in markets or markets that have not been performing well so far and then we have Brazil and Brazil is an important market for us. We actually want more investment markets and we see good opportunities for us in the near future and certainly in the long term. However, in Brazil it's particularly for the laboratory business and very less so for industrial and retail. Actually for that part of the business, we have a different set of going through a distribution partner.

I see. Okay. And then what was -- what was the price capture in the quarter? I mean, did --

Just north of 150 bips.

It was. Okay. And then, Bill, could you just provide, once again, just as a percentage of reported sales, what did lab do and industrial or just what percentage was it of reported?

Lab is 45, industrial 43 and retail 12.

Got it. Okay. And then you also mentioned, you talked about SG&A being lower in local currency. How much lower?

I think it's 9%.

Did you say nine? That's what I wrote down. I just wanted to be sure. And did FX, you typically talk about being naturally hedged, but did FX have any impact at the EBIT line?

It was negative in the quarter and that was due to the Swiss frank versus the Euro just to give you a feeling, Swiss frank Euro was about 160, 161 in Q3 last year and it was down more in the 151 range this year so we had a headwind there, that neutralizes in the fourth quarter.

Okay. Great. Thank you.

Thank you.

(Operator Instructions). Our next question comes from the line of Vivek Khanna of Civic Global.

In terms of the budget flush, how much was that last year if you can estimate and any reason why you think we are not going to see that this year, what have you picked up from the field? Thanks.

I think a lot of it Vivek has to do with how fast companies can --

I didn't get one and I got through on the last call so --

Okay. I think somebody is accidentally on the line there. How fast people reacted to the economy, I would say in particular we saw in Europe that there was still some budget flushing because I think Europe, parts of it didn't see it until the early parts of 2009. Now, it's difficult for me to put a precise number on it, but, we clearly saw a handful of markets including Germany, some of the Nordic countries that still performed pretty good in the fourth quarter of last year. So, one way to look at it would be that you could say it's the delta between, our two-year growth rate kind of staying at, this minus three level versus, minus six or whatever, but, frankly that's a little bit of us estimating.

One reason why we also think this year is different than last year is you see that many companies have introduced new capital improvement procedures and this is not going to change just because of the year-end people might have purchase. They will still have to go through different hurdles before they can get it approved. That's a different situation than we had last year.

Okay. So once you end this year, we should expect you to go back assuming the business doesn't get better, back to that minus two, minus three two years growth rate?

I guess it will start next year. I'm not sure if that will be the appropriate measure but I think that what you'll see is that we will still -- we still had some pockets that were okay in, in particular in the early part of 2009, so we kind of see a modest improvement throughout the year and we think that, by the third -- by the second half of the year that we are starting to creep up to, closer to mid single digits than low single digits in terms of the growth rate.

Okay. Great. Thanks, Bill. Thank you.

Thank you.

There appear to be no further questions at this time. Are there any closing remarks?

Thank you. We thank you for joining us this evening. We know how busy you are and appreciate taking time with us. We will speak to you again at the end of the fourth quarter. Thanks again and goodbye.

Ladies and gentlemen, this does conclude today's conference call. You may now disconnect.