Neptune Insurance Holdings Inc. (NP) Q3 2017 Earnings Report, Transcript and Summary

[Call Starts Abruptly] We released earnings yesterday afternoon and reported our best ever third quarter sales and operating income. This was led by record results in our Technical Product segment, but also benefited from net proceeds of just over $3 million from an insurance settlement. This settlement was for reps and warranties related to the loss of a customer back in 2015 when we acquired FiberMark. These items combined more than offset costs for start-up of our North American filtration business and higher costs this quarter in Fine Paper & Packaging. Earnings per share were $1.10, up 16% from $0.95 last year. The increase was due to the higher operating income and a lower tax rate following our decision last quarter not to repatriate overseas earnings. On an adjusted basis, earnings per share of $1.02 increased 3% from $0.99 last year. Adjusted earnings this year excluded $0.12 per share for the insurance settlement and $0.04 per share in both years for acquisition and restructuring costs. As a reminder, adjusted earnings are intended to improve comparability between periods and a detailed reconciliation of GAAP and non-GAAP measures is included in our press release. Also, I’ll note that our comments today may include forward-looking statements and that actual results could differ from these statements due to uncertainties and risks that we’ve outlined in our SEC filings and on our website. With that, I’ll turn things over to John O’Donnell. John O’Donnell: Thanks, Bill, and good morning, everyone. I said on our last call that it’s been a busy year at Neenah, but let me assure you that hasn’t changed. In addition to delivering good financial results in the quarter aided by strong growth in targeted product categories, our teams completed a number of important strategic initiatives. I’ll start with our financial results. Consolidated revenues grew 5%, all organic and mostly volume driven. This was led by Technical Products where segment sales increased 10% with double-digit growth in both businesses. In Performance Materials, total sales rose 10% with backings up 10%, specialties increasing 12% and labels delivering 22% growth. In addition to a stronger global economy; increased geographic penetration, market demand for key products and selling price realization helped deliver these good results. In filtration, sales increased by 11%. Transportation filtration, our largest product segment, grew 8% with sales of our synthetic content media overcoming capacity limitations in Germany for core saturated media. In addition to currency benefits, sales increased with strong volume growth outside of Europe and improved mix as our teams continued to do a nice job of prioritizing sales of our higher value products. Global market demand for these products remained strong reinforcing that our timing was good for an investment in added capacity. Our team has continued to make progress increasing efficiencies and improving the capabilities of our new assets on these very technical product solution. As a result, we’re moving out of the asset startup phase and into commercial production with the speed of commercialization reliant upon the timing of customer qualification processes. Customer enthusiasm remains high. In the third quarter, we doubled the number of customers with qualified products. To provide some context, these customers are expected to represent about 40% of our sales next year. While customers will transition volume to Neenah overtime, we are on track to achieve our market penetration plans and expect our top and bottom line to improve steadily as we grow sales and asset utilization reaching breakeven profitability as previously communicated by the end of 2018. While the startup for such a large complex investment is always a challenge, we believe these to be the best and lowest operating cost assets in the world capable of making advanced transportation filtration media. Consequently, going forward, we’re well positioned to deliver the same level of impressive growth in Transportation Filtration that we’ve demonstrated in the past. Finally, synthetic filtration products, which represent over 25% of our total filtration sales, grew 18%. These products are used in industrial applications like water filtration, catalytic conversion, gas turbine air filtration and beverage filtration. Our synthetic capabilities and technology combinations continue to provide opportunities for us to explore new products and markets that can drive future filtration growth. Turning next to our Fine Paper & Packaging segment. I was encouraged that we were able to maintain quarterly revenues given secular pressures and some unique bottom line challenges this quarter. Our assets have been running at high utilization rates this year and with our annual maintenance downs in the quarter, we really felt the challenges of having 1 less paper machine following the filtration conversion. With a diverse product portfolio and strong volume levels, we experienced schedule complexity that drove poor operating efficiency and challenged our service to customers. Our teams have worked feverishly to restore service levels and improve operational efficiencies by managing marginal capacity to ensure we provide our customers the premium quality and service levels that they’ve come to expect. Even with these temporary operational challenges, we significantly grew targeted categories. Our consumer team set a revenue record with a number of big wins with well-known retail customers like Amazon, Staples and Wal-Mart. Sales of our premium packaging; which encompasses high-end labels, folding board and box wrap for use in targeted verticals of beauty, alcohol and retail; increased almost 20% this quarter and included rapid growth in our paper gift cards. I mentioned last quarter that we expect these cards to be an important part of our future packaging growth. Demand for paper cards is growing as they replace plastic for customers who value an environmentally responsible positioning like Amazon, Facebook or Starbucks. In addition to this positioning, paper cards allow a wider range of printing and design features that aren’t always possible on plastic. To support our aggressive growth plans, in August we acquired a state-of-the-art laminator located in Massachusetts that had previously been converting our products. This machine is seen as the most capable U.S. asset that can meet our high quality needs and allow us to support our customers’ branding activities and accelerate our growth in this category. To summarize, I was pleased with our financial performance especially in Technical Products and targeted growth categories. In addition to organic means, we’ll continue to thoughtfully use M&A to drive long-term changes and add value. This was most recently demonstrated by our acquisition of Coldenhove and I’ll talk about that a little later in this call. But for now, I’d like to turn things over to Bonnie to go through quarterly financial results in more detail.

Thanks, John. Good morning, everyone. As usual, I’ll go through results in each of our segments and then cover a few corporate items. Let me start today with Technical Products. As you heard earlier, we had a great quarter with record results in this segment. Sales of $126 million increased 10% from a year ago. While aided by favorable currency translation from a stronger euro, the biggest driver was volume which increased 7%. We continue to see strong market demand for our performance materials with the growth of new abrasive backings in Asia, increases in tape and specialties and continued market success with our harsh environment labels. Filtration also performed very well growing topline by double digits. In addition to volume and currency, higher average prices added 100 basis points to our growth rate. This was due to increased sales of higher value transportation filters as well as improved selling prices in performance materials as price adjusters and actions taken earlier in the year took effect. Operating income of $16 million was a third quarter record and up 11% from last year. The increased income resulted from higher volumes and better manufacturing costs. While part of the manufacturing improvement was due to the German filtration down moving to the fourth quarter, the largest part of the increase resulted from better operations and improved productivity. These items more than offset the anticipated loss in our North American filtration business as well as $1 million of higher input costs. As we’ve discussed, cost for latex and resins were a significant headwind in the first half of this year. In the third quarter while costs were still elevated, we started to see some moderation as well as benefits from our pricing activity. Turning to Fine Paper & Packaging, revenues of $113 million were up from last year. While volumes were slightly lower, this was more than offset by a higher price mix and growth in key categories. John mentioned the outstanding growth in premium packaging and our strong retail channel performance where sales grew 7%. Our retail sales are now approaching $100 million as the team has done a great job gaining distribution and getting new items placed on the shelf. The large majority of these products are branded with our recognized brands of Neenah Bright White, ASTROBRIGHTS and SOUTHWORTH. While topline was maintained in the quarter, operating income of $15 million after excluding benefits from the insurance settlement was down by more than $2.5 million compared to last year. In addition to higher pulp cost of around $1 million, transportation costs were up $1.5 million due to changes in carrier rates and short-term service challenges and, as John mentioned, operating performance was also worse than last year. Some of these higher costs were exacerbated by the annual maintenance down and should further subside as we manage marginal capacity to reduce complexity and improve efficiencies. However, as we’ll talk about later, elevated trucking and transportation rates are likely to continue as a result of a change in regulations taking effect this year. Turning next to corporate items. Selling, general and administrative expense of $21.4 million was slightly above last year, but below our run rate due to timing of certain expenses. In general, we expect spending average around the $24 million per quarter we previously communicated. Unallocated corporate SG&A costs were $4.6 million, consistent with the prior year. Both years include the cost of $0.9 million for acquisition, integration and restructuring. Costs this year also were impacted by timing and are expected to average $4.5 million to $5 million per quarter, consistent with our past guidance. Net interest expense was $3.2 million, up from $2.7 million last year. Costs were lower in 2016 as we capitalized a portion of interest related to our investment in filtration and also due to higher interest rates and additional short-term borrowings this year. Debt at $223 million was up $10 million from a year ago and cash at $24 million was up $17 million versus last year. Our debt was comprised of $175 million of bonds at a fixed rate of 5.25% and short-term U.S. borrowings at variable rates slightly above 3%. The Coldenhove acquisition on November 1st was financed through just over $30 million of additional borrowings at an average rate of less than 2% and $15 million of cash on hand. Looking at taxes, our book tax rate of 27% was down from 32% a year ago primarily as a result of our assertion as of June 30th that we would no longer repatriate foreign earnings. Our expected sustainable rate is around 29% excluding any impacts from excess tax benefits. Our cash tax rate this year is less than 15% due to significant benefits as we consume prior years’ R&D credit as well as accelerated tax depreciation on the U.S. filtration investment. Cash from operations in the quarter was 36 million, up from 23 million last quarter but below 41 million last year. With higher sales, our investment in working capital increased in areas like receivables and we also build inventory in anticipation of our fourth quarter filtration down in Germany. Our receivables remain in very good shape in terms of collectability and present current and our teams are focused on minimizing working capital needs without compromising our customer service and ability to grow. Post employment benefit plans and pension funding levels remain in excellent condition. Cash outlays of 16 million are expected this year, down from 23 million last year and about 7 million higher than related expense. Capital spending in the third quarter was 8 million, down from 21 million last year. With the deferred German down, more capital spending will occur in the fourth quarter of this year. However, full-year spending is still projected to be approximately 45 million within our targeted range of 3% to 5% of sales and well below the 68 million we spent last year. Wrapping up, our strategy is to increase our company’s organic growth rate while maintaining an attractive double-digit return on capital and returning a meaningful part of our cash flow to shareholders. We’ll do this by prioritizing capital to the best returning investments, which typically are organic, like our recent investments in filtration and packaging. M&A will continue to be an important part of our growth strategy and the Coldenhove acquisition is the latest example of how we can find strategic opportunities that deliver good returns at a fair price. We’ll maintain a conservative balance sheet even after our acquisition debt to EBITDA remains well under 2 times and we continue to have significant borrowing capacity available to act on future opportunities. Finally, we will return a portion of our cash flows through an attractive dividend supplemented by occasional share buybacks. Our record of consistent double-digit dividend increases over the past five years has clearly demonstrated this commitment. As we grow on our targeted categories, make investments that provide us added capabilities and returns and maintain a strong financial position; we are in great shape as we head into next year. With that, I’d like to turn it back to you, John. John O’Donnell: Thank you, Bonnie. I’ll begin with some comments on the remainder of the year and then cover a few strategic items before opening up the call for questions. Global economy has been improving especially in developed markets where our sales are concentrated and this generally translates into robust market demand for our technical products. In addition, currency translation is now a modest benefit as the euro strengthened by more than $0.05 from $1.10 in the second half of last year. When compared to 2016, this quarterly currency differential adds a little over 3 million to the topline and 0.5 million to the bottom line. Even though these external economic factors have been positive, what has then aided our financial performance is rising input costs. Polymer based material costs increased sharply early in the year and while starting to abate, this was temporarily muted by the hurricane in Texas. At the same time, pulp costs have consistently increased throughout the year and this trend has continued into the fourth quarter. With that said, we expect the fourth quarter input costs could be around $1 million higher than the third quarter and $3 million higher than last year with the majority of this impact in Fine Paper & Packaging. To help offset this ongoing and significant increases in pulp costs, Fine Paper & Packaging increased prices early in the year and recently announced additional price increases, which should improve revenues by 1% to 2% and be fully implemented by year-end. As a reminder, each of our businesses have proven they can offset input cost increases over time through pricing and other improvement activities. A quick reminder about our seasonality. In Technical Products, fourth quarter sales are historically the lowest of the year as customers manage year-end inventory levels. This year results will be further impacted by filtration capacity constraints and $1 million to $2 million of costs for our annual German filtration down, which moved from third to the fourth quarter. This one-time delay allows us to bridge with increasing North American filtration output to better support customer needs. In Fine Paper & Packaging, revenues tend to be more consistent quarter-to-quarter. However, could potentially have some topline impact as we manage marginal business in order to improve scheduling efficiencies, service performance and our bottom line. As you’ve likely heard from other companies, U.S. transportation costs are increasing due to a regulation that trucking firms document their compliance with hours and mileage limits through electronic logging devices by year-end. Fine Paper & Packaging will be most affected as we currently pay freight on the majority of customers’ orders and this regulation is expected to disproportionately impact the viability of smaller carriers that we use to best meet our distribution and customer service needs. We’re reviewing our distribution system and carrier commitments to ensure we can minimize the impacts going forward, but in the near term expect transportation costs to remain elevated. Let me wrap up with a couple of strategic items. On November 1 we acquired Coldenhove, a performance materials company based in the Netherlands paying $45 million to acquire sales of $45 million and EBITDA of $6 million. Coldenhove makes dye sublimation media for digital transfer market where images are conveyed on to articles of clothing, carpet and other products. Because of the flexibility and the cost efficiency of digital transfer technology, this is a fast growing market and Coldenhove is a clear brand leader with a reputation for high quality. Combining dye sublimation with our smaller heat transfer business, we see an addressable digital transfer market of about $200 million and growing where Neenah will enjoy a leading market share of almost 30%. We’re excited about the opportunity to leverage and combine our complementary market access, product technologies and geographic advantages. Financially, the acquisition was attractive with expected mid-teen rate of return and immediate accretion. While purchase accounting to finalize U.S. GAAP depreciation and amortization expense is now being completed, we estimate year 1 accretion of approximately $0.10. This is largely a bolt-on acquisition so synergies are expected to be modest, but could reach $1 million to $2 million annual as we improve efficiencies and grow sales over time. Integration requirements are minimal with expected costs of around $0.5 million in the first half of next year. With a strong balance sheet and financial flexibility, our M&A efforts remain active and will continue to be an important part of our strategy to increase our organic growth rate through a larger presence in growing categories. Following the Coldenhove acquisition, our company is comprised of even more Technical Products growth and use of variety of substrates and materials to make our diverse product portfolio. Consequently, our last name of Paper is no longer an appropriate description of our company or our future. Therefore effective in January, we’ll drop Paper from our name. Customers already know us in our markets as Neenah where our name represents high performance, image, service and quality. We will keep the same NP ticker symbol on the New York Stock Exchange, however. Needless to say, I’m excited about the future of Neenah. Our capabilities and competitive positions remain strong and recent investments in filtration, premium packaging and digital transfer provide catalysts for future growth. Backed by our very talented employees, financial strength and the disciplined capital deployment philosophy; we look forward to sharing our future with you and delivering added value for our shareholders. Thank you for your interest today. And I’ll now open up the call for questions.

Thank you, Mr. O’Donnell. [Operator Instructions] Your first question will come from Jon Tanwanteng of CJS Securities.

It’s Pete Lucas for John. You touched on a lot at the end here on the Coldenhove acquisition with regards to sales and synergies and appreciate that. Just wanted to know from a strategic perspective, can this be a platform for future bolt-on acquisitions? John O’Donnell: Yes. I think as we broaden the number of potential products and materials that we have in Technical Products, they all can be extended. We view the dye sublimation market, which is predominantly what the acquisition for Coldenhove has, as a fairly defined market with significant growth. So, we’ll see with printing technologies if they help that category explode. From our standpoint, we had developed a dye sublimation product in our own system and with any time that we’re going to deploy capital, we look and see if there’s an alternative in the marketplace that we can more capital efficiently acquire and that’s what we did with Coldenhove. So I think what we see is that it’s a $200 million category, we’re sitting at about a 30% share and can drive good growth there in the future. It does give us another position in Europe for other products in Europe as well. So from that standpoint, I don’t know if the technology that they have would really be incredibly extendable, but it’s definitely a profitable niche that we’ve got a strong leading position in.

And then a follow-on there. You talk about the financial capacity to pursue more M&A and that is part of one of the goals. Just give us a general idea of what the pipeline looks like going forward if you could? John O’Donnell: This is always one and I went back and looked at what I say every time for this question. This is always one of the hardest things for me to answer in that sense. But we have dedicated resources, they continue to use M&A and the pipeline to drive and change the growth trajectory of the business. From our perspective, we still see it as a very viable. When I stop talking about M&A, the pipeline’s dried up, right. So if I’m still talking about it’s a viable part for changing the growth trajectory, it means I’m looking at companies that I think would be a meaningful and profit adding addition to Neenah.

Had a bunch of others, but you did a great job and answering them all already. So, I’ll jump back in the queue. Thank you.

The next question will come from Steve Chercover of DA Davidson.

So, my first question is on paper where I mean you still sound quite bullish and clearly there’s some neat opportunities with the cards and the packaging, but the margins were the weakest in several years and I guess pulp is part of it and transportation is part of it. Normally you pass this through. Are these -- the margins that you saw in Q3 the new normal or will that go back higher? John O’Donnell: They’re not the new normal. This is a business, I know you’ve seen the trends. But we’ve been -- 5 years ago we were in that 14% and we were as high as 16%. So, that 14% to 16% is really where these EBIT margins have a tendency to hover and where we’d expect that business. I think there was a trifecta of ugliness that happened in the quarter. I talked about the operating so we had the downs, we had some of the challenges with some of the issues. We also highlighted the distribution costs and this was really the first quarter where we really felt those and believed those are going to be an important piece overall. We do have pricing. So the input costs that we talked about would love to have captured pricing at or before actually the price increases, but pulp pricing has just been stubbornly increasing all year from that standpoint and I mean you have to go back a lot of years to find the last time we announced 2 price increases in the same year. So I think it was a challenging low margin for the quarter for that group, but by no means is it expectation that it steps out of that 14% to 16% EBIT margin.

I mean pulp has been extraordinary so you’re right there. I guess are you investigating the opportunities to maybe partner with some shippers in your localities so that you can be part on the backhaul or something? I mean there’s got to be… John O’Donnell: I think that no stone unturned is probably the best way to think about from our distribution. So, we are really challenging the ways we’ve thought. How much do we keep in spot market to get flexibility with customers? Do we need to change the way our customers think about the lead times associated with their adding significant cost? How much do our customers participate in that transport? Those are all things that we’re going to absolutely look at whether they -- it’s in their order quantities or so on. So, I think no rock’s unturned. We’ll definitely be talking about this I think in the quarters as to what changes we’re making and you’ll definitely be able to see if we’re able to fully offset it, which is our intention.

Okay. And can you please remind us how many years of growth will the new filtration machine provide? John O’Donnell: We’ve historically grown I think over the last 10, 13 years at that 8% CAGR from that. So, our perspective is that 5 years of that 8% CAGR that asset should continue to support.

Okay. So five years’ worth, got it. All right, that’s really all I had. I guess Bill owes me a beer on the name change. Thanks.

And the next question will come from Dan Jacome of Sidoti & Company.

I’m going to miss the old name as well, but makes a lot of sense in that I don’t think it’s going to be too much of a surprise given what’s been going on with the business the last couple years. First, Appleton and then back to Coldenhove. So just for Appleton, it looks like you doubled from 7 to 14 qualified customers, I think the goal was 28 going back a couple of quarters. So just incrementally, what did you learn this quarter versus 2Q? If you could just give us a high level view on that first. John O’Donnell: So, you’re referencing numbers that I mentioned last quarter and I appreciate that diligence and that follow up. That 40% is the one I wanted to kind of grant you and I was thinking how can I help communicate how we’re moving along this process if you will. So, the biggest learning is that I do not control my customers’ qualification timing. So up to here when we were in the start-up phase of the asset, how quickly we were able to staff it, how quickly we were able to get salable product, meet specifications of products that we knew we were going to transfer throughout our systems; all of that was more in our control. As we move forward, there’s been a number of consolidating acquisitions in the filtration space. I have a tendency to kind of consume people’s attention from that standpoint, but the enthusiasm of customers continues to be there. So if I’m guilty of anything, I’m guilty of optimism not on a poor investment in this. And that likely this customer phase might spread out our startup from what I was hoping, but we’re still saying and we still believe very firmly that we’ll be at that breakeven point by the end of next year with the rest of the quarters continuing to have improving topline and improving bottom line results.

Not to harp on that, but was that always the goal that late 2018 breakeven or I have a feeling it was second half communicated earlier? Just want to make sure nothing’s changed too much. John O’Donnell: No, late is still in the second half. That’s the good news from me in my consistency. But what I would tell you is that when you ask my learning, it really is as much as I want it to be earlier. My customers are going to drive that qualification process and that I can’t control. So, I’m trying to make sure that I’m establishing realistic objectives and realistic fence posts for you all to keep focusing on how we’re coming up on this project.

Well, you double the customers qualified, I mean so big picture that’s what I’m looking at. That looks encouraging. I wanted to talk about Coldenhove. So, really interesting acquisition I think here. Just a couple of questions. How are you going to use what you acquired? I mean I think you -- if my math is right, you already had 7% of the digital transfer addressable market; now you’re going to 30% so going up for the -- on the market share. How are you going to use what you acquired to complement what you’re already doing? And then I was wondering if your current digital transfer business before the acquisition, was that also mostly based out of Europe? And then on the last question on Coldenhove, just underlying growth rates for some of these markets? I’m not too familiar with printing images on apparel, but is that kind of like 3% to 4%? How should we think about that? John O’Donnell: Now think of this as growth rates in the high single digits so that’s 5% and above. That certainly in the higher single digits. And then we were predominantly in more of a technology of heat transfer in the United States and have a leading position in it. They are predominantly in dye sublimation. So heat transfer enables the image to transfer on to more of a cotton base where dye sublimation on to a synthetic base, both have the goal of that transfer. So we have strong U.S. distribution, they would have strong European distribution. We actually were creating a dye sublimation in one of our assets. With their capabilities and the capacity that we have, and one of the opportunities is to continue to utilize their capacity, we see that as a big opportunity for us in balancing the global capacity. And they were a two paper machine mill, we have 18 other paper machines across our system so that for us to look and say how can we optimize that. So we see 30% sitting today, growth mid-teens or mid-single digits going forward, complementary distribution basis. Those are the big priorities.

All right. So, now you’re going to be in the U.S. and Europe. Is there a cross selling opportunity there or should we just think about the heat transfer and dye sublimation as kind of like two separate animals here? John O’Donnell: There are two product solutions, but they’re not regionally constrained. So, we’ve not had the infrastructure to really support increased distribution in Europe, which Coldenhove will bring us. They’ve been challenged in driving their U.S. distribution, which we’ll be able to deliver for them. They typically sold two different product solutions through similar customer basis.

Okay. That brings me to my last question. You’re not going to like the question. But you acquired a company with 23% share, I think you paid one-time revenue. Any color on that? I mean how should we think about it? You’re engaged with this company for quite some time and it just made the most sense for them to go with you, is it a competitive bidding process, anything there? It feels like you got a great price. It feels like you got too good of a price, I’m just curious. John O’Donnell: Yes. And I’m trying to figure out in that question what’s the part I’m not going to like. So, here’s what I would tell you. The market size itself is 200 million for the digital transfer. To some people, that’s not enthusiastic. I’d look for meaningful, profitable, growing categories and building those. We with our ROIC focus for us, whenever we have capital in our plans, we look for a market solution where we can acquire something more capital efficient that we could build it and that happens to be the case here. So for us, we were uniquely pointed towards them where we are at and it made obvious. We were exclusive with them in this whole process so I think that’s really a key thing. And if you look back quite candidly in most of our acquisitions, especially ones of this size, it’s because we focus on the market back from a solution not getting a book for sale to that end. So, that’s why. They found a good home because we believe in the strategy and can deliver some real meaningful value with them. We’re able to provide value to our shareholders immediately with the acquisition price. As you know, I always say friends don’t let friends overpay for companies. So, that’s what our disciplined acquisition process is about.

Okay. Pretty addressable market, the digital transfer -- I think the answer is no. But the digital transfer of 200 million, that’s not included in the 650 million graphic imaging addressable market that you have outlined, right? John O’Donnell: Yes, that’s exactly right. The 650 million we have outlined is the graphic imaging from the Fine Paper & Packaging business, it’s typically on the fine paper side of the business, retail and commercial combined.

Okay. That’s good. I mean so your addressable market if my math is right, you have 200 million for the digital transfer, 650 million for the fine paper and then 450 million for the premium packaging so 1.3 billion. That sounds about right? John O’Donnell: Yes. I never add them up like that together. But what I would tell you is you highlighted the growth markets and that’s exactly our strategy is finding markets that are continuing to grow, we can get increased share.

Okay. Just wanted to make sure I wasn’t double counting. All right.

And at this time, we will conclude the question-and-answer session. I would like to turn the conference back over to Bill McCarthy for his closing remarks.

Once again, thank you all for your time and your interest today. Please feel free to reach out to me if you have any further questions or if you’re Steve Chercover to collect your bet. Thanks again.

Thank you. Ladies and gentlemen, this concludes today’s conference call. We thank you for joining. At this time, you may disconnect your lines.