Curtiss-Wright Corporation (CW) Q3 2016 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. And welcome to the Curtiss-Wright Third Quarter 2016 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this call maybe recorded. I would now like to introduce your host for today's conference, Mr. Jim Ryan, Senior Director of Investor Relations. You may begin, sir.

Thank you, Rania, and good morning, everyone. Welcome to Curtiss-Wright's third quarter 2016 earnings conference call. Joining me on the call today are Dave Adams, our Chairman and Chief Executive Officer; and Glenn Tynan, our Vice President and Chief Financial Officer. Our call today is being webcast and the press release, as well as a copy of today's financial presentation are available for download through the Investor Relations Section of our company website at www.curtisswright.com. A replay of this call also can be found on the website. Please note, today's discussion will include certain projections and statements that are forward-looking as defined in the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and are not guarantees of future performance. We detail those risks and uncertainties associated with our forward looking statements in our public filings with the SEC. In addition, certain non-GAAP financial measures will be discussed on the call today. Reconciliation is available in the earnings release and at the end of this presentation. You also will find a chart showing sales by end market at the end of this presentation. Finally our discussion today of current and future results except for cash flow are in a continuing operations basis which excludes all previously announced divestures. For the sake of a proper comparison when reviewing growth rates for 2016 we're comparing 2016 guidance to pro forma 2015 results, which excludes the one time AP1000 fee from both sales and operating income within our Power segment and Curtiss-Wright overall. Now I'd like to turn the call over to Dave to get things started. Dave?

Thanks Jim. Good morning, everyone. Before we jump in our results, I want to reflect on some recent event. It was a pleasure seeing so many of you at our recent Investor Day event in Pittsburgh. We were please to provide an overview of our nuclear new build and aftermarket businesses along with the facility towards to showcase our AP1000 Reactor Coolant Pumps. As you would have witnessed on the tour, there was tremendous technological expertise involved in constructing our Reactor Coolant Pumps. And as luck would have it, we were able to watch the 12 China RCP leave the facility. This year are presented 16th overall pump shipped and we have 16 more pumps to be delivered between now and the third quarter of 2017. Adding further the validation of our RCP technology, a recent world nuclear news article affirmed that the first four pumps at [Hyang] unit one was operated simultaneously at full speed for the first time. Earlier this year, the first four pumps at [Samman] unit one also successfully accomplished this critical milestone. It certainly an exciting time for our employees involved with the facility and the rest of us watching from a far. Thanks again to those of you who attended the Investor Day as well as those on the webcast. We appreciate your continued support of Curtiss-Wright. For our agenda today, I'll begin with the key highlights of our third quarter 2016 financial performance, followed by Glenn who will provide a more thorough review along with updates to our 2016 guidance. Then I'll return to wrap our prepared remarks before we move on to Q&A. Third quarter EPS of $1.02 exceeded our expectations. Operating income improved 20% overall despite a 4% year-over-year decline sales while operating margin improved 300 basis points to 15.1%. Our results were led by strong profitability in the Defense segment, a solid performance on the AP1000 program and the benefits of our ongoing margin improvement initiatives. In addition, we generated $100 million in free cash flow. That performance represented nearly 220% free cash flow conversion in the third quarter. We remain on track for another strong free cash flow performance in 2016 led by efficient working capital management. For the full year 2016 despite slightly lower sales, we expect our Defense and Power segments to drive improved profitability. As a result, we now expect our operating margin to reflect 100 to 120 basis points improvement over pro forma 2015 and expect to conclude the year in the top quartile of our peer group. Finally, as we communicated at our recent Investor Day, we are maintaining our full year diluted EPS and free cash flow guidance with the potential for each to achieve double digit growth in 2016. Now I'd like to turn the call over to Glenn to provide a more thorough review of our third quarter performance and updates to our 2016 financial outlook. Glenn?

Thank you, Dave and good morning, everyone. I will begin with a review of our third quarter end market sales. Overall, we experienced the 2% increase in sales to our defense markets and a 7% decline in sales to our commercial markets. Starting with the defense markets, aerospace defense sales were down 5% due primarily to timing of orders for embedded computing products on several fighter jet and ISR program. In ground defense, our results reflect higher sales of ammunition handling systems to our international customers. In naval defense, we experienced solid growth 4% due to the ramp in the development on the Ohio-class replacement submarine program; partially offset by lower revenues on the CVN-79 aircraft carrier program as production is nears completion. Moving on to the commercial market, commercial aerospace were sales were flat compared to the prior year as higher sales of actuation systems were mainly offset by lower sales of surface treatment services. In power generation sales were up 3% where higher revenues on the AP1000 program were partially offset by reduced demand in the nuclear aftermarket business. And finally in general industrial, our performance primarily reflects lower sales for severe- service industrial principally to the oil and gas market. These sales did not recover in the third quarter as anticipated based on lower orders, a stronger US dollar and the continued impact of distribution channel destocking. We expect these headwinds to continue into the fourth quarter. Next, I'll discuss the key drivers of our strong third quarter operating income and margin performance. Overall, Curtiss-Wright operating income increased 20% which led to a strong 300 basis point operating margin improvement to 15.1%. And we achieve sequential improvement in operating margins for the third consecutive quarter. Shifting to our segments, I'll begin with the commercial industrial where operating margin improved 40 basis points compared with the prior year. Operating income was negatively impacted by lower sales in our industrial valves, surface treatment businesses. However, operating margin was favorably impacted by improved profitability on our industrial vehicle product despite lower sales. This was driven by our ongoing margin improvement initiatives including the initial benefits of our facility consolidations. Next to the Defense segment which produce stronger than expected operating income and margin for the quarter. The solid performance was driven by favorable mix as well as several one time events benefiting the current quarter results. These included the sales of a small product line and software IP contributing about $2 million to operating income in the current quarter. In addition, the $2 million in restructuring cost that we originally planned for the third quarter has shifted to the fourth quarter. Next in the Power segment, operating income and margin were up modestly compared with the prior year. Improved profitability on the AP1000 program was partially offset by reduced sales and profitability in our nuclear aftermarket business which continues to be impacted by the deferred spending in the industry. And finally non segment expenses decreased 65% as the prior year included a one time pension settlement charge for approximately $7 million. Moving on to our full year 2016 financial outlook beginning with our sales guidance by end market. I'll start with the defense market. Guidance for our aerospace and ground defense markets remain unchanged. However, we have increased our full year naval defense guidance to a new range of 6% to 8%. This increase is based on an improved outlook for Virginia Class submarine revenues and higher sales for our embedded computing products. As a result, we expect overall defense market sales to grow between 1% and 3%. Moving on to the commercial markets, our guidance in the commercial aerospace market remains unchanged. In the power generation market we have lowered our outlook based on reduced demand in the nuclear aftermarket business. As a result, we now expect this end market to be down 1% to 3% for the full year. Next to the general industrial market, as third quarter energy related sales weaken more than expected, and the oil and gas market remains challenged, we have lowered our general industrial guidance to be down 10% to 12%. As a result of the reduction to our power generation and general industrial market sales, we have lowered overall commercial market sales guidance to be down 4% to 6%. And lastly despite the end market adjustments, overall Curtiss-Wright 2016 sales guidance remains unchanged at down 1% to 3%. Continuing with our 2016 financial guidance by segment. In our Commercial Industrial segment, we have reduced our sales guidance by $10 million to reflect the changes within our end markets just discussed. This includes $20 million decrease in the general industrial market primarily within the industrial valves and surface treatment businesses, partially offset by $10 million improvement in naval defense. Despite the revisions, our segment sales guidance remains unchanged for a year-over-year decline of 3% to 5%. However, we reduced our segment operating income guidance by $7 million. This reduction is based on the lower sales outlook, unfavorable overhead absorption and mix as the sales reduction is primarily related to our higher margin products. As a result, we have reduced our operating margin guidance to this segment by 50 basis points to 14.1%, 14.3%. Turning to the Defense segment, we have increased our guidance for operating income by $4 million and operating margin to a range of 20.3% to 20.5% reflecting an 80 basis points improvement over our previous guidance. This improvement is principally driven by a better sales mix as well as the previously discussed one time events that benefited third quarter results. Further, the consolidation activity originally planned for the third quarter has shifted to the fourth quarter; therefore we will begin to realize the bulk of the related savings in 2017. In the Power segment, our sales growth guidance remains unchanged. As an improved outlook in the naval defense market is expected to be offset by continued order delays in the nuclear aftermarket business. However, based on improved performance on the AP1000 program and ongoing cost containment actions, we increased our operating income guidance by $2 million. As a result, operating margin is now expected to range from 13.6% to 13.8% reflecting a 40 basis points improvement over our previous guidance, an increase of 310 to 330 basis points compared to pro forma 2015 results. As a result of these revisions, overall Curtiss-Wright operating income guidance remains unchanged. But we are increasing our operating margin guidance to 14.3% to 14.5%, an expansion of 100 to 120 basis points year-over-year and a 10 basis points improvement compared to the prior guidance. In summary, despite all of the aforementioned changes to our guidance, we continue to expect full year diluted earning per share of $4 to $4.15 which represents growth of 7% to 11% over pro forma 2015 results. Next to our free cash flow, where I will cover our performance to the end of the third quarter and review our guidance for the year. Year-to-date, we've generated approximately $240 million in free cash flow, one of the strongest starts in our history and more than doubled the same period in 2015. Our third quarter and year-to-date performance were primarily driven by increased cash earnings, higher advanced payments related to the 2015 China Direct AP1000 order, and significant reductions in our working capital. As we discussed at our recent Investor Day, we expect our working capital as a percent of sales to decline 240 basis points in 2016, down to 23% by year end. We remain on track to meet this year's goal and we continue to march towards top quartile performance. Meanwhile, third quarter capital expenditures of $10 million were slightly higher than the prior year and we anticipate it ramp in the fourth quarter driven by our plan facility consolidation. Also we are lowering our full year depreciation and amortization guidance by $10 million to a new range of $90 million to $100 million. Based on our continued commitment to stringent capital expenditure management. Overall, we are reiterating our full year free cash flow guidance of $300 million to $320 million, up 10% to 18% compared with 2015 and expect the free cash flow conversion to range from 166% to 170%. Now I'd like to turn the call back over to Dave to conclude our prepared remarks. Dave?

Thanks Glenn. Overall, Curtiss-Wright remains on track to deliver another strong performance in 2016. We are pleased with the strength in our defense markets as well as the AP1000 program which will offset some of the challenges impacting our commercial markets. Additionally, we are positioned to deliver strong operating margin expansion in 2016 through solid execution and cost control; we continue to expect to reach the top quartile of our peer group this year ahead of our initial expectations issued back in 2013. And as we've discussed, we expected to achieve this margin improvement irrespective of sales growth. Though this would be a tremendous achievement for our team, we will continue to focus on long-term opportunities to further improve our margins. Also wanted to reiterate some key points presented at our Investor Day event. As our overall sales volume increases, it will now flow through a leaner and more profitable machine. Further, we are anticipating increased R&D investments throughout our organization in 2017 in an effort to boost product development and drive long-term organic sales growth. We are very excited to see what the fruits of our labor can produce in an improved commercial market environment. We are taking the necessary steps now to ensure long-term margin expansion and EPS growth for our business. In addition, our strong free cash flow performance remains a key enabler of our capital allocation strategy, as we continue to review strategic acquisition balanced with steady return to shareholders. At this time when we remain committed to $100 million of share repurchase activity in 2016 as a result of our balanced approach. Finally, we look forward to delivering on our long-term strategy and generating solid financial results to drive value for our stockholders. At this time, I'd like to open up today's conference call for questions.

[Operator Instructions] And our first question comes from the line of Kristine Liwag from Bank of America. Your line is now open.

Hi. Good morning, guys. Can you just provide a little bit more color on the incremental downtick in general industrial in the quarter? Are these book and ship type businesses that didn't material as you had expected? Or these long lead items?

They are mostly short lead time items book and bill, it's really based on the incoming order rate at this point which has been our nemesis all year but no it's not long lead time materials. It is short term order.

And we are now a third way to way through on 4Q right where we are pretty much in end of October. How our order rates comparing now versus 3Q? And do you think that there is downside address to your provided guidance?

No. I think we appropriately derisk in this last round Kristine.

And at this point I'd just say is 3Q, 4Q pretty much at bottom in industrial sales and how you are starting to think about this business in 2017? And what are your -- I mean I know 2017 is still little early to provide guidance there but any information you could provide would be really helpful.

I'll answer that Kristine. We continue to look at obviously from a bottom up perspective and across all our operations globally. And it's interesting that we are not calling the trough and so we are not going to standout in front of anybody else and do that just yet, but we continue to hope for some glimmer and science of things picking up. It's still run in pretty much true what it has been in that industrial sector for a while. And in terms of outlook for 2017, too soon to tell and obviously we don't really talk about that yet. But we are hopeful like everybody else and eventually so many things have to pick up and if --as soon as we see that then we will be the first to be talking about it.

Great. That's helpful. And maybe switching gear to defense. I mean you guys highlighted some weakness in embedded computing products for various fighter jet program and ISR platform. I was wondering for -- what is your program? Are these tied to specific fighter jet program of these F-15 and F-18 that are declining in rate? Or are there other maybe moving pieces? Are these aftermarket embedded computing product or is it a market share issue? Can you just give a little bit more guidance there?

Yes. Kristine, it is really timing -- first of all, it is across all the fighter jet programs right. But F-16 and 22 F-18 and 35, you name it we run it but it is really timing. Because it is going up in the fourth quarter. It is one of the increases we have in the fourth but it is really timing when those orders can manage defense orders can be lumpy. And so that we should be alarmed about, well with no market share it is strictly timing of order received.

And our next question comes from the line of Chase Jacobson from William Blair. Your line is now open.

Hi, good morning. So I guess just wanted to understand a little bit in the guidance the 3Q to 4Q ramp specifically as it relates to the margin in commercial and industrial and the revenue in defense. I know that totally separate issues but both have a pretty meaningful increase. So just hoping you get some color on that.

Well, let me start with the bigger increases as you noted was in defense which 86% of the fourth quarter sales were in backlog at the end of the September. And in the power segment 87% was the other big increase of the fourth quarter sales were in backlog. And as you mentioned, in power it's really about the AP1000 program and we actually have the little uptick in the nuclear aftermarket business built into the fourth quarter for orders they receive in the third quarter. So pretty -- that's the bulk of the power segment increase. And then in defense of course it is across, it is very competing so it is across a number of programs. But again 86% is in the guidance.

Okay what about --

Although it seem, so just as we look at this I mean when we start a year you are going to see favorable absorption on significantly higher sales in the fourth quarter. You are going to see some of the benefits of the consolidation actions we took in the first half, some through in the fourth quarter. The bulk of the new China AP1000 revenues are in the fourth quarter. And of course the normal ramp in defense which you will see in our defense segment. So lot of good things but we are -- with that backlog and some of these actions we took are in place. I think we are pretty good; we are on pretty good shape.

Okay. I think though in commercial and industrial if my math is correct obvious it implies a pretty big improvement in margin there as well. There is some sequential improvement in revenue but I mean you talked about unfavorable mix there. So is that accurate that there is a big margin improvement in fourth quarter?

There is besides what that the margin on the sales volume and favorable absorption. They have a couple million dollars of margin improvement initiative flowing through which is not surprising. And they are going to have $1 million in restructuring benefit. And they also are going to have some favorable mix with some of MRO and sensors versus some of their product type business. So there are couple things going on besides just the sales.

Okay. And you guys maybe on the navy side of the business. You guys have been talking about the Ohio class for a while. Any incremental color as to when you can get larger firm order for that and also if there is any improved visibility to some of these other opportunities with the navy such as a potential for an incremental Virginia in the out years, if they keep at it two or as it relates to the CVN-80 or 81.

Well, lease on the ORP I think the plan putting the both orders 2019, so what we are seeing now is the ramp up in the development and starting to get as we are getting closer to that. So we will probably be talking about development revenues up through at least 2019 if the fact that happens in that year. But it is around that 2019-2020 timeframe. As far as the extra ship I mean our ship building schedule that we have, it was out 30 years does not -- it has two ships a year whether it is two Virginia or one Virginia one ORP or two ORP whatever it is, still two for ship but we do have more time sensitive, we have more time than on the ORP so those years would be incrementally higher whenever you have an ORP versus two Virginia. I mean that's all because we heard some rumors about maybe doing rebalance in one year but we've not seen or heard anything more about that other than rumor I guess I would say.

And our next question comes from the line of Myles Walton from Deutsche Bank. Your line is now open.

Good morning, gentlemen. This is [Ashi Lour] fed on Myles. Glenn, I'll start with you real quick just you said the working capital as a percent of sales still on track for 23%. Do you know what it was in the third quarter?

In the third quarter I do, give me a second. It was 23, 23.1%

All right. So put it was there. So along those lines you guys tend to have a ramp in cash in the fourth quarter. Obviously within your guidance seems like probably not going to happen this year or is still potential but just sort of being conservative I guess as we go into the fourth quarter.

This year is a little different than perhaps as I said in my prepared remarks, we are so -- it's like a record for us in terms of at this time in the year twice as much free cash flow at this time last year. So normally fourth quarter is our biggest quarter but this year I think if you look at our guidance just see sequentially we will be down in the fourth quarter little bit but even that was really because we received an advance payment on the new China direct a quarter early. So it is -- [would be $15 million received to]-- if moves that one quarter the other would be the same third quarter and the fourth quarter, it would be about the same but yes. It is little bit different in the past for us, yes.

All right. And Dave just an update on -- you obviously talked about the still naïve on the M&A so just anything any additional color any insights for us.

Yes. We don't. Yes, I don't speculate when we might do something. I will say that we as indicated at the Investor Day we are still very active in our pursuit on various strategic partners and acquisitions. And I am really happy to see some of things that are come in. And I am excited about a few that I think holds some real potential for us. And so we are going to continue to build the raft that we set out to do and that was pause and then now like I indicated about a year ago open up the doors for the real opportunities that add that let say the ribs sticking sort of meat and muscle tissue that we want to have from a long-term perspective. So I view that as I did in the last Investor Day as something that I look for, as and more than share repo although that does have its place. It is a balance capital allocation strategy and that includes the strategic acquisitions. But like I said those are tend to be longer term for us and they tend to be more beneficial over decade and especially in our hands versus someone else's. So I just wrap it up, we are -- we are really excited about the things that we are looking at.

[Operator Instructions] And our next question comes from the line of Ryan Cassil from Seaport Global. Your line is now open.

Good morning. Wanted to just touch on commercial and industrial first. The 7% decremental in this environment are fairly good and I understand that there is some puts and takes there. But clearly the cost action benefits are starting to flow through. Could you help just quantify what's left there or if you can't, do you think some of these still continue to be recognized in 2017?

We I mean if you go back to -- we said right at the get go even it incur about $7 million cost generated $12 million annualized savings. We said we see half of that in the latter half of 2016 and the rest in the first half probably the 2017. So one of the bigger pieces of the segment in there is commercial industrial. So, yes, the answer is yes. They will see continue savings in the first half in 2017 for sure.

Okay. And there is still significant amount of that savings yet could be realized I guess.

About half, we said half and half to be little bit different in each segment but generally speaking overall about half, we are seeing some already in third quarter and in the fourth quarter and you will see some in 2017 as well.

Okay. And then, sorry if I missed this. I heard your comments on general industrial, the expectations are remain weak, you got vehicles in there and valves and some other stuff. But specifically on the severe service valves, if you look at order rates or where we are in October, is there anything that gives you confidence that we are bottoming in that area of the business or are there any signs of anything to be positive about at this point?

We adjusted our-- that business down to reflect the current order intake. It's so hard to speculate at this point because every quarter it seems to change. I know they were having some fairly steady orders until September. So I wouldn't say it give us a rosy feeling but certainly wasn't terrible including what October is right now. So it's hard to answer at this point.

Okay. Thanks. And then on the M&A front, maybe this is a crazy thought but multiples in the industrial space seemed to be fairly high and some of the markets you guys have talked about. And the nuclear market specifically the aftermarket is going through some challenges right now. And there could be a chance for some consolidation, some suppliers are in trouble. I mean is that an opportunity for you guys while you are committed to staying in the space and it's going to be some challenges that you could get some potentially distress assets? Is that something you are looking or possibility?

Generally I'd characterize as a target of opportunity when I am asked that question, I will bring up nuclear aftermarket as a target of interest to us. And from a perspective of distress target if it is fixed rubber, no, not interest but if it is distressed due to market condition then there is certainly interest there we do look at those. And the sort of I'd say there is a good and bad of that side of the business and the good is in one respect they are -- they tend to be smaller so they are not the $100 million, $50 million even they are usually sub $25 million. And so it is not like it is a huge bet on some of them. We have a great position in our aftermarket position right now. We have majority of nuclear in stamp and well known great reputation. And so we can capitalize upon that when those opportunities come along. So I guess short way of -- the shorter version of the answer is yes we do look at that. And if something does come up we looked at it few in the past, recent past then we tend to stick with those as indicated, they are not fixed rubbers but and maybe have a little bit of market probation, maybe the current owners are tired of this or they want to get out, they can't stand a long haul side of it which we do. We look at this is a long haul sort of element if we want to participate in.

And our next question comes from the line of George Godfrey from CLK. Your line is now open.

Thank you. Good morning, gentlemen. Very impressive margin performance in the quarter especially on the gross margin line. Well done. As I look at 2017 and I know you provided initial sales guidance at the Investor Day roughly flat and I am thinking about the goals for CapEx and working capital and the very nice margins. My question is around free cash flow for next year relative to this year. If you assume that the sales are flat and the margin and working capital keeps trending, would you expect that free cash flows as a baseline is flat next year with this year?

None of the base this year -- I think as showed at Investor Day, this is our biggest cash flow year from the new China AP1000 contract. So typically as you do you get your cash upfront and then start spending to its back end and it goes down. So I wouldn’t necessarily and plus we had this year we got $20 million benefit from the unwinding of our swaps that wouldn't recur so I wouldn't necessarily call this year a base year. I think we are comfortable with something lower than that as a base year. And what really usually swings the volatility period is the advanced payment in our deferred income. That's going to be our swing. But certainly we are controlling our CapEx. We are continue to reduce our working capital, all good things, our earnings will go up so but the big swing is going to be those advanced payments. So I can't -- we can only -- we have not -- we haven't through that yet all I can refer to what showed you at the Investor Day at this point.

But the goal on working capital is still to take another three percentage points right down to 20 out of [Multiple Speakers]

Yes. That is still the goal, yes.

And our next question comes from the line of Jim Foung from Gabelli & Company. Your line is now open.

Hi. Good morning. Good quarter, guys. So I just got just kind of two -- kind of somewhat clarification in your comments at the end David. Now that you say you are much leaner organization, what kind of incremental margins do you think you would have now as you go into 2017? And again you kind of raise that over time?

We talked about that a little bit Jimmy over at the investor conference. And the question was asked so my answer was that we want to achieve our position of top quartile performer against our peers. And as indicated just now in our prepared remarks, we obviously anticipate that we are going to hit that and by the way two years early. As I said we are going to do that by 2018. So we are extremely happy over that. And then as Glenn indicated we continue even though we are at that top quartile, we continue to exercise our business unit leadership and all the employees to be as efficient as possible. So we will see continued margin improvement. And, yes, we recognize slightly that our peer group will be changing as well. So that top quartile is going to be moving and likely upward. And we are going to move along with it. But I am not really intending to go to the top decile, lot of reasons behind that. R&D notwithstanding one of the biggest ones we want to take away and start our opportunities for strategic growth. And so we don't have new margin targets that are set in public. We do work to target internally. And we will continue to do so but that's on like I said on the basis of improved performance. That is the culture of this corporation and it will remain so. But we are not guiding any new targets like we did in 2013 by stating that we are going to hit the 2014 et cetera. As you can see we are doing extremely well in that regard like I said really happy with those results.

Okay. Fair enough. And then just lastly on the higher research and development spending in 2017. Could you just kind of indicate how much high or peak are relative to 2016?

Yes. It's about $5 million, Jimmy, mostly. $5 million incremental from 2016. It is across all three segments but the most being in the defense segment and then followed by the power and industrial commercial line.

And where do you think you end up 2016 in R&D spending?

In total?

Yes.

I couldn't tell you that right now. $5 million more than this year.

And I am not showing any further questions at this time. I'd now like to turn the call back to Dave Adams for any further remarks.

Thanks Rania. And thank you all for joining us today. We look forward to speaking with you again during our fourth quarter 2016 earnings call. Have a great day.

Bye, bye.

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone have a wonderful day.