Good afternoon, ladies and gentlemen, and welcome to the Kratos Defense & Security Solutions Third Quarter 2021 Earnings Conference Call. . I would now like to hand the conference over to your host, Marie Mendoza, Senior Vice President and General Counsel. Ma'am, please go ahead.

Thank you. Good afternoon, everyone. Thank you for joining us for the Kratos Defense & Security Solutions third quarter 2021 conference call. With me today is Eric DeMarco, Kratos' President and Chief Executive Officer; and Deanna Lund, Kratos' Executive Vice President and Chief Financial Officer. Before we begin the substance of today's call, I'd like everyone to please take note of the safe harbor paragraph that is included at the end of today's press release. This paragraph emphasizes the major uncertainties and risks inherent in the forward-looking statements we will make this afternoon. Please keep these uncertainties and risks in mind as we discuss future strategic initiatives, potential market opportunities, operational outlook and financial guidance during today's call. Today's call will also include a discussion of non-GAAP financial measures as that term is defined in Regulation G. non-GAAP financial measures should not be considered in isolation from or as a substitute for financial information presented in compliance with GAAP. Accordingly, at the end of today's press release, we have provided a reconciliation of these non-GAAP financial measures to the company's financial results prepared in accordance with GAAP. With that, I will now turn the call over to Eric DeMarco.

Thank you, Marie. Good afternoon. In the third quarter, Kratos' unmanned systems business generated revenues of $61.3 million, which represents organic growth of 14.6% over the third quarter of 2020. Kratos' space satellite and cyber business generated revenue of $72 million, organically increasing 17.5% over the third quarter of 2020. Our unmanned systems and space businesses are our company's largest, they're our fastest-growing and are both expected to continue to generate very strong year-over-year future revenue growth. This is representative of the successful execution of our internally funded investment, organic growth-focused strategy, which growth, we believe our C5ISR, our rocket system, microwave electronics and engine businesses, will each also see in the future based on recent program wins like GBSD, Iron Dome, next-generation small engine development contracts and opportunities. We currently have multiple under contract, large and new programs, where we are expecting significant future increases, including Sub-Sonic Aerial Target or SSAT with the United States Navy, Skyborg, Thanatos, AirWolf, Offboard Sensing Station, Ground-Based Strategic Deterrent, overhead persistent infrared, tactical intelligence targeting access node, the hypersonic ballistic tracking space sensor and several classified programs, among others, all of which are under contract, which also provides the confidence in our future year-over-year growth forecast and up into the right trajectory. As you know, the final revenues from our legacy International training business, which contributed approximately $35 million in 2020 revenue and over $14 million this year before completely winding down in Q2, have been masking Kratos' overall core business growth rate, which we will continue to highlight for you until financial performance is comparable in Q3 next year. Excluding the legacy training revenues, Kratos' '21 over 2020 forecasted overall organic growth rate is still forecast at greater than 8%, with this growth even after we saw approximately $31 million of Q3…

Thank you, Eric. Good afternoon. Kratos' third quarter '21 revenues of $200.6 million were at the midpoint of our estimated range of $195 million to $205 million. Unfortunately, delays in deliveries from our vendor and supply chain base and travel restrictions have resulted in the delay in our ability to execute and deliver on certain of our projects, primarily in our commercial ground satellite and antenna and C5ISR businesses, which resulted in expected third quarter revenues of $8.3 million to be deferred to future periods. As we mentioned on our last call when we provided the guidance range for the third quarter and full year, the revenue and EBITDA forecast assumed an increase in execution and delivery timing and our supply chain's ability to deliver on time and on budget and our ability to hire necessary resources. Unfortunately, similar to what we are seeing across the industry, our ability to execute and timely deliver has been impacted by supply chain challenges and COVID restrictions, including international travel restrictions. Our Q3 '21 consolidated operating income was $10.5 million, down from the third quarter of 2020, operating income of $12.7 million, which includes third quarter '21 increases in stock compensation expense of $1.4 million, increased R&D of $300,000, primarily in our unmanned systems business and increased SG&A costs of $5.1 million, including increased headcount in our unmanned systems business. Total headcount in our unmanned systems business has increased $130 million from $755 million in Q3 of last year to $885 million. Net loss was $2.4 million for the quarter and GAAP EPS loss of $0.02 per share compared to GAAP EPS of $0.02 in the third quarter of 2020. Included in the net loss for the third quarter was a tax provision of $5.7 million on income, before taxes of $4.6 million…

Great. Thank you, Deanna. We'll now turn it back over to the moderator for questions.

. Your first question comes from the line of Sheila Kahyaoglu from Jefferies.

Maybe if we could think about a lot of these awards you won like OBSS and Valkyrie moving forward. Lots of good things. But can you summarize it for us in terms of how we should be thinking about the growth outlook for next year? It seems like we have a pretty robust double-digit growth outlook. What programs are the biggest incremental drivers? And does anything go away as we think about 2022?

Right. Nothing -- so in the unmanned area, nothing goes away that comes to mind at all. There will be -- we are forecasting increases. And the biggest one is probably going to be in the tactical area, and this is going to be Valkyrie related, Thanatos related and we'll have to see if that additional phase for Gremlins gets awarded that I mentioned. We're going to get third year full rate production in the next few months on SSAT. This is going to be one of the top 2 target drone programs in the company. So that's going to be a significant adder for next year. And I'm not going to get into the percentages of growth because it's going to be -- a lot of it is going to be tied to the continuing resolution and the length of the continuing resolution because we got a number of programs in development that are going to be transitioning to production. I've got a number of production programs that are going to increase production, all of which are tied to the '22 budget and timing. But we are expecting significant organic growth in our unmanned systems business year-over-year, '23 over '22. Absolutely, we see it.

And then maybe on margins, if I could ask one more. Profitability was really good this quarter, above our expectations. How do we think about that mix heading into Q4? What drove some of that big improvement?

So driving the big improvement was primarily in the space area. And there are a few military programs or national security programs we're on and one in particular, and it has phases. And one of the phases was changed, which generated very positively for us, which generated significant profit margins in Q3. We expect our profit margins to remain strong. And potentially continuing to increase just depending on the mix. And that's not just for Q4, Sheila, but probably for next year, the mix of business is improvement -improving. Let me tell you what I mean by that. Development programs typically bring a lower margin than the production programs or the later programs. And so you're going -- if they are going okay, you just got OBSS, that's going to carry a lower margin. But in 2018, '19, '20, we won a number of programs in development that are now transitioning to production in the space and satellite area, in microwave and in unmanned. And so the weighting is moving more and more to the more mature programs, which is going to be a natural lift on our margins, which is also because our manufacturing facilities, including in Oklahoma, where we're building the tactical drones, we're filling them up with more products. So for example, we're building a lot of air wolves right now. And so that's spreading the fixed overhead over a greater number of units, which is also driving profitability. So we have a few things that are working in our favor from an increased margin expansion area.

Your next question comes from the line of Ken Herbert from RBC.

Eric, I wondered if you could just level set us on Valkyrie production of the -- I think -- believe, still 12 you're producing this year. How many are under contract? And when do you expect all of them perhaps to be under contract? And how do we -- how should we think about production levels on that particular platform into 2022?

So we were with the customer set, all of them on the under contract vehicles in the past few weeks. And we are still explicitly being told, Ken, we cannot talk about quantities yet. I think it might be for national security reasons. I'm not sure right now. So I can't get into the specifics on that right now for now to level set. In the -- under the Skyborg program, which, as we talked about today, the Air Force reiterated that they're looking for it to be a 23 program of record, which would begin obviously in October of '22. And in a number of other areas that are aligned and marked NDAA, including adverse air, expeditionary air. And one other one that I'm not sure is publicly out there. We have line of sight on significant additional Valkyrie orders. So the level set is, is once that '22 budget is approved and becomes law, and we see exactly where this comes out, then we're going to be making some decisions, as I indicated, where we may have to accelerate and pull to the left, some of the 12 that we're building to get them out there to the customer's hands quicker. And we're probably going to be making the decision to start ordering long leads, especially in this environment for the next block. And right now, Ken, we're thinking about another 12. It will be a spiral. I'm not going to get into anything at all on what that spiral is because it's very, very competitive information against our competitors. And so things are definitely firming up, and we're going to know a lot more when that final budget is present.

And if I could, maybe without getting into specifics, how is pricing trending for these aircraft? Obviously, you're the low-cost leader, they're attributable. But are you -- as you incorporate AI, as you incorporate other aspects into these aircraft, are you able to see a path to some better pricing? Or how should we think about that?

I would not look for better pricing above the ranges that we've put out there previously. This is going to be one of the primary reasons why we are going to win. And we're not just going to win with Valkyrie, we're going to win, if not across the board substantially across the board. Because your point is spot on, we deliver a Valkyrie depending on quantities for $3 million, $4 million or $5 million each. The customer may have integrated into it $1 million or $2 million or $3 million worth of sensors or payloads or something. So they still have a less than $10 million low-cost aircraft, which just as recently, it was this week or last Friday, the Air Force PEO said, that's the target, and that's one of the reasons Ken, why we are, where we are.

Your next question comes from the line of Mike Crawford from B. Riley Securities.

Regarding the OBSS, are there any different long-term implications for margin profile if OBSS airframes hit production, given I think the government is going to own some of the data rights for this airframe?

There are not margin implications relative to that aspect, Mike, based on the way we see the program working out. However, there will be significant positive margin implications for us. And this tied into, I'm not going to get into the specifics because of the competitiveness. But back to my comment, we're going to have more tactical aircraft in our robot factories. Which is going to spread the fixed costs over greater unit, which is going to drive the cost down for the government, which is a win for them, and it's going to probably enable us to increase our margins somewhat while still giving the government a better deal. And so this is part of our plan on consolidating the tactical production where we can into light facilities to drive those costs down. And as you also know, a significant greater than 50% of the bill of materials for the tactical drones is the same as the target drones. So as our tactical drone portfolio is ramping up, we're getting additional leverage on that supply chain across both target and tactical drones, which also should lift margins.

And then final question. Can you talk more about this runway independent Air Force cargo mission in the Pacific that you alluded to earlier, including how many times a reusable Valkyrie could actually be reused?

I didn't allude to it, but I understand what -- I know exactly what you're talking about, of course. A Valkyrie can be used multiple, multiple times. It's designed -- it's not designed for 1 or 5 or 10 or 20 missions. It's designed for more than that. And what you're referring to, what was disclosed, I couldn't have laid out or described certain of the Valkyrie's attributes better than the Air Force did. And again, Mike, this is why I think we're a winner and all the points are heading to this all happening soon, is they need capability like the Valkyrie. They need capability like the Gremlins. They need capability like AirWolf. And we're first to market, and we've got the aircraft, and we all know budgets are going to be constrained. We want OBSS. I don't see any other development programs on the horizon, none. We'll see what happens with MQ next. And so this all ties into us winning and increasing margins.

Your next question comes from the line of Austin Moeller from Canaccord.

My first question is for Deanna. Is the $369 million in cash that you guys have sitting on the balance sheet -- is that enough to support the production ramp and all of these new major program wins, be it Valkyrie, OBSS, AirWolf, et cetera or do you think you're going to have to look at a potential capital raise?

At this point in time, we believe that it is sufficient. Obviously, if there is multiple production runs going depending on the size, we may have to revisit that. But at this point in time, it is sufficient.

And then, Eric, as you talk about that second batch of Valkyries, you're planning the second set of 12. Is the plan to do what you did before and essentially pay for the initial production of those out of pocket? Or is -- are you planning to have that essentially be paid for via a production contract? And is that timing in '22? Or do you have to wait for Skyborg to be program for accord for that?

So right now, our plan is absolutely not to go and produce the spiral lot on 100% Kratos resources. That is not the plan right now. However, our line of sight with a number of customers is really clarifying. And as I've said a couple of times now, if the 2020 NDAA marked up went through as it was today, we would probably be making the decision to start ordering the long leads. It's that good for us, especially coming out of the center. It looks great. So we're going to wait and we're going to see, but our -- my plan today is to not to do anything unless we're closely coordinated with the customer set. We have clear line of sight on sales or use because there may be a service model, use of any additional aircraft we build. And that decision, I think we're going to be making by Q1, Q2, depending on '22 budget stuff next year.

And then just one quick follow-up. The Army's announcement about testing the AirWolf, have they put a dollar amount on that contract or not?

No, you saw that. No, no. Good job that is seeing what the Army was saying about that. No, they have not put a dollar amount on it. We are -- but it's a very low cost -- very low-cost system. So they have not to this point. But Austin, I want to go back to one other thing on your previous question. A key part of our strategy that we've been winning with is we make the investment to build the aircraft and have them as capital or in inventory. That has also been a huge win for AirWolf. This has been a huge win for Mako. Okay. Dynetics is an outstanding partner. I never want to get ahead of them, but we do things like that with Dynetics, and it's a winner for us. And so this ties into what I said at the end, instead of making large gigantic acquisitions or things like that, we're probably going to build airplanes, which gives us a competitive advantage, both in the tactical area and the target area where customers can come, and they don't have to wait a year or 2 or 5, we can deliver them immediately.

Your next question comes from the line of Seth Seifman from JP Morgan.

I was wondering, Eric, if you could give us an update on open space and kind of to what degree or the -- any of the delays that you were speaking about with regard to supply chain affecting open space rollout and sort of the plan to ramp up there from last quarter? How is that progressing?

Right. So open space is moving along. Right now, the number of military and national security programs we have, that we've won, including in the classified area. We've been focusing a lot in that area right now, Seth, which is one of the reasons why you're seeing the organic growth in the space business, and it's going to continue to go when I ripped off the programs we're on and they're ripping. So we have reallocated some of our resources from the commercial open space area over to the DoD side, okay? Now with that being said, what -- if you take a look at what's going on with the Standards Board, I see DISA just joined it. This is on the open architecture standards board for virtualized ground systems, where Kratos is the chair. So I think space commands there, Navy is there. DISA has now joined it. So this is happening on the virtualization of the ground system area. And we are rolling out. We are demonstrating the products right now with multiple customers. And I've mentioned the number of customers in the past. And this is definitely going to be one of our mid- and longer-term growth drivers as it rolls out. So that's what's going on in that area right now, both from a business mix standpoint and a resource allocation.

And then maybe just a real quick follow-up. When we think about the CR, I know in the past, sometimes it requires you guys to go out and start acquiring long lead items and built ahead. I know you talked about that with regard to the spiral on the Valkyries, but maybe even on some of the tactical programs where you're going to full-rate production. Is that something we should be prepared for as we head into '22?

Yes, sure. Yes, good point. And also on the target drone side, too. Because we're sole-sourced with Navy and the Air Force, we know what's coming, as you're indicating, there are budgetary things. And because the customer is our partner, we very well may make the decision like in the engine area for tactical and target drones to place them on order. So when the customer finally gets his budget and his funding, we haven't delayed their program.

And then relatedly, with -- it seems like the delays, most of it is in the areas you pointed out within KGS. When we just think about all the different kind of supply chain exposures that are out there. On the unmanned side, are things contained enough within Kratos? I know you guys do a lot of your own work there. Are things contained enough within Kratos that the kind of supply chain risks in unmanned are much lower?

We are, as you're indicating, substantially vertically integrated in the unmanned area. The only area where it might get us, and we bought a significant amount of engines last year, a significant amount across all platforms. And so the current supply chain issue would really have to extend for it to impact us in the unmanned area. But if we got the inclination that it was going to extend, we might make a decision to even lean forward and order additional engines 2 years in advance.

Your next question comes from the line of Peter Skibitski from Alembic Global.

Eric, I was wondering if you could give us some more color on the Air Force multiyear target award that you received back in August? And I think as Deanna mentioned, you got the initial award under the IDIQ. So it sounds like you could start work immediately. I wasn't sure if you could recognize revenue until they're delivered. I would surmise 2022. But maybe you can clarify all that? And then will there be additional payload related contracts to go along with that? Just wanted some more color on that.

Yes. So yes, we can start immediately because, as Deanna mentioned, we received the initial funding, what was like $30 million -- $30 million funding. So we can start immediately. Right now, we're finishing up previous production runs and lots. So what this will do, it will ensure that there are no breaks in production and no gaps in our financial performance. So that's the significance of the initial funding. That contract came in much larger than I thought than we thought it was going to. And for the obvious reasons, we know what's going on out there. And so lots and lots of target drones are being used to exercise systems. And to your other question, yes, there are additional contracts expected related to things like payloads and ancillary equipment and things like that, that go along with all of our target drone programs. So this is the core program vehicle though, this single award IDIQ.

And just -- I mean, between the Navy, and I think in the past, you've mentioned classified target opportunities in the international. So are there still a few more pretty chunky target contracts out there for you over the next, I don't know, six months?

Absolutely. So there are two. One is an international one. It is -- if the previous administration had one, I'm convinced we would have gotten it by now. I understand it's almost through the final review process. So hopefully, we'll be announcing this -- hopefully in the next couple or 3 months, we're going to announce this, but it's a biggie. And as you know, this is a brand new customer. And so what that means, this includes all the ground equipment that's going to go at the range to launch and recover the targets. And then now we're at the razor and the razor blade model, wherein in the future, we'll be selling significant additional targets to them. There is a confidential program we have. I'm not going to talk about it much, but it is expected -- it is in LRIP right now and LRIP quantities are increasing. It is expected right now to go into full rate production, either late next year or early '23. So we've got some good ones out there. And then, of course, there's a new biggie coming called NGAT, next-generation aerial target, a very large new program that's coming that we believe is right in our bailiwick that we're going to be going after.

And then just to add on to that, Pete, on the international target award that we're expecting, when that is awarded due to the terms and conditions of the international contract and the revenue recognition guidance, there would not be any percent complete on that. So that would be recorded solely as targets are delivered, which would not -- we would not anticipate until 2023 to commence.

So there's three additional contracts, plus you do the Navy full rate out there also, did I hear that wrong?

No, you heard it correctly, and it may be full-rate production. Absolutely, which is why the operating capability that I talked about for full rate operating capability is very important.

And just last one. Just Deanna, I think it was you that you kind of see the October bookings in USD. I think you said $50 million just in October, that seems pretty strong. Any color on what programs that involves?

Well, I can tell you the one because we announced it is OBSS. So that's one of them.

Yes. That was $16 million or so, something like that?

It's just under $18 million, $17 million and change.

Your next question comes from the line of Joe Gomes from Noble Capital.

So I just want to clarify a little something here in KGS. You mentioned how the revenues came down and overall, but how the satellite, cyber was so strong. What else -- if I'm looking at that in some of your other product lines, was it all related to push out? Or are there some of the product lines where a little bit -- were coming a little bit weaker than expected?

No, nothing came in weaker than expected. We -- as we said at the last call, virtually all of the revenue in our Q3 and Q4 was and is under contract literally. There are countries, and I'm not going to say them, but you know who they are primarily in the Pacific Rim, where we cannot go into because of COVID quarantines. So we can't go, get satellite systems signed off on, can't do it. In our -- on microwave electronics areas, where we have firm commitment dates where suppliers have said, we will have this stuff to you by this date. They call up and they say, sorry, we're out by 2, 3 months. And so it's -- those are the types of things that we're -- we've been seeing, we're continuing to see, which we've tried to incorporate in our forecast.

And then the other day that, I guess, the Air Force kind of talked about eliminating at least 3 of their fighter families. Is there any positive or negative impact on Kratos?

The Air Force, just the other day in Air Force Magazine. And I believe it was directly related to what you're referring to. Talked about high-performance jet drones are going to be a massive part of the force structure in the future. And they went into the attributables, they went into their low-cost nature, their high performance. They went into not having to have the pilot survivability systems in the drones. And then they talked about, we know why this is the sustainment tale and the logistics tale of maintaining them. The points are coming together, as I said. So I believe what I just mentioned to you that the Air Force published just the other day, I think it's probably directly related to the planned reduction in legacy aircraft that would not be applicable for a peer-on-peer fight.

And one more, if I may. So some of the news here recently has been -- with China in the hypersonics, have you seen any response from your customers that would be a positive for Kratos based on the Chinese launch of hypersonics?

I'm sorry. I cannot comment on that, and I apologize.

The next question comes from the line of Michael Ciarmoli from Truist Securities.

Eric, I know we mentioned supply chain a couple of times. Just thinking about some of these programs you have, maybe even Valkyrie, stuff that's very early development, maybe not iron cloud on contract. How are you thinking about the raw material pricing environment? I mean, is that going to apply any pressure to you? Or are there any contracts where you might be executing on an older IDIQ task award where you're now seeing a little bit of inflationary pressure, and you might have to wait for that next one to kind of readjust? But is that going to be a headwind at all?

We are absolutely seeing some of what you're talking about. In certain areas like in the composite area and the wire harness area, we have long-term agreements on the pricing. And in the engine area, which is #1 in the bill of materials, we have a long-term agreement. I think we just bolted in another 3 years or something like that. However, there are certain areas where we are absolutely seeing some price increases in the target and tactical drone area, where we've tried to incorporate them into our pricing. But as you know, most of these are firm fixed-price contracts with firm fixed price options, which we will have to figure out how to deal with.

I think it came up before about the bookings in the quarter. Just given this environment, the CR, should we kind of calibrate our expectations for bookings to be challenged maybe at least the next 2 quarters? And then maybe along with that, what percent of your backlog is kind of shippable that you do have line of sight into now over the next 12 months that if you're trying to ring-fence risk or areas that are sliding out, how are you looking at that backlog?

Yes. I would definitely, because of the CR -- and as I was talking about development programs going to production, production programs going to increase production. Those are either directly or indirectly tied to the '22 budget. And so my tummy tells me with no 2022 budget, there will be no contract award because they won't award it without the obligated funds. So definitely for -- potentially for Q4. And even if it's resolved by the end of the quarter, how the government is and getting back to Boeing again. So maybe it's like you said, it's Q1 or Q2. The important thing that I try to look at, and you know, Mike, I'm the most optimistic guy in the world, is most of these contracts, I'm talking to you about, they're on multiyear, multi-decade programs that we're sole source on. So I know they're going to come, but it's the timing that drives me nuts.

The last one I had, you called out space and cyber and how strong it was. And I think you said it's currently $280 million at mid-teen margins. I mean, if we look at that as part of KGS, that sort of implies it's maybe $40 million of EBITDA and the rest of KGS, $300 million, plus or minus, only running around 6%, 7% EBITDA margins. I would have thought the service is low, but I would have thought maybe microwave electronics, even some of the engine hardware would have been a little bit stronger on EBITDA. Am I thinking about that correctly, based on the numbers you threw out?

You are kind of, but here's the piece. It has to do with like our corporate G&A. And so that $40 million excludes corporate G&A. And because it's the biggest business, with the biggest revenue and the biggest number of employees, et cetera. It gets the biggest part of corporate G&A. Do you see what I'm saying?

Your next question comes from the line of Peter Arment from Bayer.

Eric, question -- I mean, you're just talking about the target drone business and tactical. Your target drone business has been growing substantially. And I think now you're either north of $200 million just on that business alone. But how should we think about or how do you view this skyline on the tactical? It seems like the opportunity is there eventually that it's going to beat out in terms of the size of your target business. What needs to happen in terms of -- do we need to get the IOC on Valkyrie, other things? How are you thinking about that longer term?

Yes. So first part of your question, I absolutely believe that our tactical drone business is going to be substantially larger than our target drone business in the future substantially. Orders of magnitude, maybe multiple times larger. The customer set has talked about acquiring reusable, disposable, attritable drones like cruise missiles. Buy them, put them on the shelf, get ready-to-use them when you need to use them. And that's how our tactical drones are. They have the target drone legacy where they can be stored, clip the wings on, tool it up and off it goes. So what needs to happen. We are absolutely, Pete, in the infamous DoD Valley of death with a number of our tactical drones. The government talks about it. DARPA talks about it. The Air Force talks about it. We are doing everything we can. I'm really glad to answer this question -- you asked this question. We are doing everything we can with the DoD customer set, the Pentagon customer set and congressionally to encourage them to -- because of the threat out there in order to help the defense industrial base, in order to -- for Stem science technology engineering map to move faster than the existing infrastructure military DoD bureaucracy and infrastructure allows them to do. And that's what we're doing. And this is why I continue to reference to you all that we have a handful of jet drones and different classes flying today. Nobody else does. With OBSS, I think we're undefeated. I don't think we've ever lost a tactical drone solicitation that we've participated in. I don't think we've ever lost. I don't see any more future ones on the horizon coming that are funded from budgetary. So that all tells me that with our existing family of aircraft, the ones that we've won, that we're developing, that this is going to happen and when it happens, where the guy is going to happen with. That's how I see it.

This concludes our question-and-answer session. I would now like to turn the conference back to Mr. Eric DeMarco for the closing remarks.

Thank you very much for joining us this afternoon. We really appreciate the opportunity to update you. And we truly look forward to updating you again when we report Q4, and we head into '22. Thank you.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and have a wonderful day. You may all disconnect.