nVent Electric plc (NVT) Q3 2019 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to the nVent Q3 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. [Operator Instructions]. Please be advised that today’s conference is being recorded. [Operator Instructions]. I would now like to hand the conference over to your speaker today, J.C. Weigelt. Thank you. Please go ahead, sir.

Thanks, Shelby, and welcome everyone to nVent’s third quarter 2019 earnings call. We’re glad you could join us. I’m J.C. Weigelt, Vice President of Investor Relations, and with me today are Beth Wozniak, our Chief Executive Officer; and Sara Zawoyski, incoming CFO and current Senior Vice President Finance and Treasurer. On today’s call, we’ll provide details on our third quarter performance as well as our fourth quarter and full year 2019 outlook. Before we begin, let me remind you that any statements made about the company’s anticipated financial results are forward-looking statements subject to future risks and uncertainties, such as the risks outlined in today’s press release and nVent’s filings with the Securities and Exchange Commission. Forward-looking statements are made as of today and the company undertakes no obligation to update publicly such statements to reflect subsequent events or circumstances. Actual results could differ materially from anticipated results. Today’s webcast is accompanied by a presentation, which can be found in the Investors section of nVent’s Web site. References to non-GAAP financials are reconciled in the appendix of the presentation. We’ll have time for questions after our prepared remarks. And now, I will turn the call over to Beth.

Thank you, J.C. Good morning and thank you for joining us. I’d like to begin with the recent leadership changes we announced earlier. I want to congratulate Sara on her new role as CFO for nVent, which will become effective this Friday, November 1st. Sara has held numerous segment CFO roles and led Investor Relations during her time at Pentair, with her most current role at nVent being the Senior Vice President Finance and Treasurer. I’m excited to welcome Sara into this role. She has a deep understanding of our business, is a proven leader and I’m confident in her ability to lead and execute on our strategy. I also want to thank Stacy McMahan for her dedication and contributions as CFO during the spin in our first year and a half. Stacy played a key part in helping stand up nVent as an independent public company and building out the strong and capable global finance organization we have today. We wish her the best of luck in her new ventures. Turning to our third quarter results and beginning on Slide 3 of the deck. I’m very pleased with how we performed during the quarter, given the weak macroeconomic environment. EFS had a very good quarter with 3% organic sales growth and strong return on sales expansion. Enclosures had strong operational performance and was able to hold return on sales relatively flat in a quarter where sales declined. And although thermal management sales declined, we had strong order and backlog growth; again, overall, a good quarter. Here are the numbers. For nVent, third quarter sales were $560 million, declining 1% organically and within our guidance range. We continue to execute well on our growth initiatives and the team did a great job managing costs, driving modest return on sales expansion of 10 basis points to 20.5%, adjusted EPS was at the midpoint of our guidance range at $0.49 per share representing 7% growth versus last year. EFS led with 3% organic sales growth, driven by both volume and price. The segment expanded return on sales by 110 basis points during the quarter resulting from price, volume leverage and the expected productivity gains we discussed earlier in the year. Enclosures sales contracted by 1% organically, and while return on sales was down 20 basis points, the base business modestly expanded return on sales with the offset being Eldon. Recall, we announced the closure of the Eldon acquisition in early September. The integration is going smoothly and we are even more excited about the growth prospects of our combined portfolio. As we speak with customers and channel partners, they are very interested in our expanded portfolio, modular and digital platforms and our ability to meet their needs globally. Turning to thermal management. Revenue declined in the quarter. However, it was encouraging to see high-teens year-over-year order growth and strong double-digit backlog growth. During the quarter, we won a large LNG project providing a complete heat management solution for our liquid natural gas development. Sales from this project are expected to be realized in 2020 and 2021. Overall, we are pleased with our third quarter results and execution. I now want to take a moment to speak about the broader verticals where we compete. We continued to see a declining industrial vertical and a slowdown in commercial. There remains uncertainty around the global macro environment, including ongoing trade tensions that we believe are impacting CapEx spend and pushing out projects. Turning to Slide 4. Our strategy continues to produce positive results. We are aligned and focused on growth, profits and cash. Here are some of our third quarter highlights. Our key vertical initiatives grew mid-single digits. We had continued growth with our top strategic channel partners. Our new product vitality continued to increase as we launch new products. We realized strong productivity gains across all segments. And we closed the Eldon acquisition during the third quarter. Overall, another successful quarter driving the One nVent strategy. I will now turn the call over to Sara to provide detail on our third quarter performance and provide fourth quarter and full year updated guidance. Sara, please go ahead.

Thank you, Beth. I’m pleased to be here today. In the coming months, I look forward to reconnecting and meeting with many of you. And I’m excited about accelerating our One nVent strategy, delivering growth and productivity with a focus on returns. So let’s turn to Slide 5, titled Third Quarter 2019 nVent Performance. Results, overall, met our expectations as we delivered on both sales and profit commitment. Organic sales declined 1% on the low end of our guidance, driven mainly by thermal management while EFS grew 3%. Adjusted earnings per share of $0.49 was up 7% year-over-year and at the midpoint of our guidance range. Segment income for the quarter was $115 million, flat versus last year on lower sales. Notably, return on sales expanded 10 basis points with positive net productivity in the quarter. We realized about half of the $25 million in productivity and cost actions planned in the second half, often in part by investments in R&D. Free cash flow was a solid $88 million in the quarter, up 7% versus prior year and over 100% conversion of net income. Now please turn to Slide 6 for a discussion of our third quarter segment performance. Starting with enclosures. Sales declined 1% organically and grew 1% on a reported basis with the addition of our Eldon acquisition. While we saw industrial demand soften with sales down low-single digits, we continue to see good execution and positive offset with our One nVent initiative; specifically, growth in data and networking solutions, commercial, rail and transit as well as in our top channel partners. In addition, our recent acquisition of Eldon added approximately $8 million in sales during the quarter. Enclosures segment income was flat year-over-year and return on sales declined 20 basis points to 18.1%. This includes the impact from Eldon, while our base enclosures business saw a modest return on sales expansion during the quarter. The team executed well operationally in the midst of a challenging quarter with positive net productivity and almost 2 points of price realization. Year-to-date, enclosures was up 2% in organic sales and expanded return on sales, 50 basis points. Looking at the fourth quarter, we expect similar trends to the third quarter with the declining industrial vertical, somewhat offset by growth in our One nVent focused verticals. We are expecting return on sales expansion as a result of productivity gains and cost structure actions. Moving now to thermal management. Sales of $148 million declined approximately 5% organically. The commercial business returned to growth while longer cycle energy projects continued to push out to the right. Sales in industrial MRO slowed ending the quarter flattish relative to last year. However, we believe that this was timing-related and we expect to see better growth in future quarters. While projects continued to be delayed, our optimism towards returning to growth improved throughout the quarter as the team won a number of larger projects that we expect to translate into revenue growth in 2020 and beyond. Importantly, orders grew high-teens and backlog grew high-double digits year-over-year in the quarter. This marks the second quarter in a row with order and backlog growth. We made progress in thermal management to improve return on sales on a sequential basis by aligning our cost structure with current trends. Return on sales declined 50 basis points to 26.1%, driven by the impact of lower volumes. Year-to-date, thermal management organic sales were down 2% and return on sales contracted by 50 basis points. As we close out the year, we continue to expect longer-cycle projects to be delayed. While uncertainties remain with the macro environment and timing, we are optimistic in the long-term growth prospects of this segment as bidding activity remains healthy and backlog grows. Now onto EFS. Sales of $150 million grew 3% organically, driven by price realization of approximately 2 points and volume growth of 1 point as volume contributed positively during the quarter. Return on sales of 27.6% expanded 110 basis points with price, volume and productivity gains realized in the quarter. If you recall, we expected return on sales expansion in the back half of this year as the changes we made over the past few quarters in leadership, capacity and systems began to read out. Year-to-date, EFS organic sales were up 3% and return on sales expanded 30 basis points. Looking at the fourth quarter for EFS, we expect the commercial verticals to grow, although slower than recent quarters, as macroeconomic indicators adjust downward. We continue to expect strong return on sales expansion versus prior year. Turning now to Slide 7, titled Balance Sheet and Cash Flow. In the third quarter, we drew down on our revolver to fund the purchase of Eldon, and also paid down approximately $5 million in short-term debt. At the end of the third quarter, our net debt was approximately 2.4x EBITDA, and we also returned $30 million to shareholders via dividends in the quarter. Year-to-date, we have paid over $90 million in dividends and repurchased over $230 million in shares, which represents roughly 5% of shares outstanding. We continue to expect full year free cash flow conversion of approximately 100% of net income, and our capital allocation strategy continues to be; maintain investment-grade metrics, invest in our core businesses, look for attractive bolt-on acquisitions and return cash to shareholders. Moving now to Slide 8, titled Fourth Quarter 2019 nVent Outlook. We expect fourth quarter organic sales for nVent to be down 2% to flat relative to last year. This outlook reflects continued softness in thermal management and we expect a currency headwind of approximately 1 point in fourth quarter. Our adjusted EPS guidance in the fourth quarter is $0.42 to $0.46. From a segment standpoint, this reflects positive performance in both EFS and enclosures, offset by declines in thermal management. Corporate and other costs are expected to be similar to third quarter, and the effective tax rate in the quarter is expected to be between 23% and 24% as we anticipate the finalization of the proposed U.S. tax regulations. Recall, this expected increase in our effective tax rate is a one-time impact as we expect the tax rate in 2020 to move back towards 18% as we execute our mitigation strategies. Turning to Slide 9, titled Full Year 2019 nVent Outlook. We are tightening our full year organic sales growth guidance to be flat to up 1%. At the segment level, we are now guiding each segment to be at the low end of the previously issued guidance range. With this revised outlook, full year return on sales is expected to be flat to up 30 basis points, mainly driven by lower outlook in thermal management and the impact of the Eldon acquisition. We are also updating adjusted EPS expectations for the full year to be $1.74 to $1.78. We continue to expect Eldon to have no material impact to 2019 adjusted EPS due to the late third quarter close and higher financing costs. For sales, we expect over $20 million during the fourth quarter. We continue to expect Eldon to be accretive within 12 months and to generate returns exceeding our weighted average cost of capital within two to three years. Although preliminary, we expect Eldon to add approximately $0.03 to adjusted EPS next year. This concludes my comments on guidance, and I will turn the call back over to Beth.

Thank you, Sara. Turning to Slide 10. Our 2019 priorities remain the same. We are driving growth in our focused areas, expanding return on sales and effectively allocating our capital amidst a more challenging macroeconomic environment. For context, we have seen slowdowns before and looking at 2015 and 2016, sales in the nVent portfolio were down low-single digits both years. However, we only saw a modest decline in return on sales due to our ability to align our cost structure with softer demand. We appreciate that each slowdown has its own dynamics, but today, our strategy offers more diversification and has a deeper focus in specific verticals. Our One nVent growth initiative such as commercial and data and networking solutions are outpacing the broader industrial vertical. We believe third quarter is a good indicator of our ability to execute our playbook on both cost and growth initiatives. Turning to our summary on Slide 11. Our priorities remain consistent as we continue to focus on growth and execution to drive long-term value. Our EFS results were a good example as they reflect actions the team put in place over the past nine months to improve operational performance, which we expect to continue to read out in the fourth quarter. Our intent during these more challenging times is to protect return on sales and continue to invest in our growth initiatives, while also looking at structural actions to optimize our cost structure. We believe third quarter results reflect positively on our ability to execute and protect return on sales. With that, I will now turn the call over to the operator to start Q&A.

[Operator Instructions]. Your first question comes from Jeff Hammond of KeyBanc.

Hi. Good morning.

Good morning.

Good morning.

Sara, good to hear from you again.

Good to hear you too, Jeff. Thanks.

Just I guess on enclosures. Just Beth, if you can give us me a sense of how well you think you can hold the line on margins if we go into this kind of low-single digit decline? What should the decrementals look like? And then more broadly, can you talk about what your restructuring you’ve initiated or you have planned and what that reads out in terms of incremental cost savings in 2020?

Sure. So with our enclosures business, we think we’re in a much better position than we have been just with the diversification of our focus on different verticals other than industrial. And as we look at our factories, we have a good playbook and we have a variable cost structure that we think we’re able to respond to that. And so from the decrementals, 20% to 30%, but I think we want to manage that and also there is sometimes timing, which just flows in of the movement of inventory in and out of the quarter. But I think we’re going to have modest declines if we see significant slowdown. And that is our goal. And I’ll let Sara answer you on the restructuring.

Yes. So overall, we came into the back half really targeting $25 million productivity and cost-out actions. And as we said on the call, we’re pleased with realizing roughly half of that in the quarter. And Jeff, it’s really a combination of the operational efficiencies and some of the material productivity, but really getting ahead of the cost alignment work doing that across really all of the segments. And it’s looking at things like regional structures, something that maybe we’ve managed by country before and getting it more at a regional level as well as looking at enterprise versus segment, really looking at putting our integrated supply chain closer and back into the segment, providing some end-to-end velocity and customer focus along with some efficiencies from a restructure standpoint. So as we think about that in the context of 2020, we’d really expect that carryover, if you will, to be in that $10 million to $15 million range from an overall cost structure carryover standpoint.

Okay, great. And then just on thermal. It sounds like you got this LNG order in-hand and certainly the orders were better. And I know it’s been frustrating to wait for inflection. But as you look at some of these other projects that are getting delayed, are they giving you any indication that those start to ship in 2020 that would give you more confidence in that out-year outlook?

Well, what we have seen is projects have definitely shifted into 2020. We know this large LNG project starts to – we start to execute and recognize revenue in 2020. So our view is we will see thermal management return to growth as we get into 2020.

Okay. Thanks so much.

Thank you.

Your next question comes from Julian Mitchell of Barclays.

Hi. Good morning.

Good morning.

And welcome to Sara. So I guess maybe a first question on the – I think the industrial picture is pretty clear. You did also talk about a softening in some commercial markets. So maybe talk about when you started to see that happening? What you’re thinking about the outlook for that vertical in 2020? And in general, I guess taking a step back from just commercial, was there any noticeable demand changes in recent months?

So first of all, our EFS business is the segment that’s most aligned with commercial. And we’re very pleased that we’ve seen 3% growth every quarter this year. But as we started to see the Architectural Billings Index, the Dodge reports, we’re just looking at the general macro environment, what we hear from our channel partners. There is a view that that is going to slow, albeit growth that we’re still going to see, but slowing – some slowing from where we’ve realized perhaps that 3% growth. And I think as we look at what’s going on over the last quarter, I would say we just – even with our channel partners, we just see different pockets, right, where there’s some strength and where there’s some weakness. But I’d have to say, it’s more or less than consistent and overall during the quarter on how we’ve just seen things weaken or soften, particularly in industrial.

Thank you very much. And then my second question just around that net productivity. You touched on I guess the gross productivity just now. But the figure you gave, say, on Slide 5 in that useful margin bridge is a net productivity number with investments and so forth, so very good turnaround in that figure in Q3 versus the Q2 number. When you’re looking at everything together in that net productivity bucket, inclusive of investments and inflation, when you look at that Q3 number, is that a good run rate you think looking ahead, that sort of 30 bps positive tailwind to year-on-year margins?

Yes. So that net productivity really included a couple of things. One, it included a ramp on productivity, largely driven by the cost-out actions that we talked about earlier. We also did see a bit of inflation easing, if you will. So inflation was $11 million versus compared to $15 million in Q2. So we saw a bit of that inflation easing. And we also saw some investments that we continued along our digital initiatives and R&D. So net-net, we would expect that positivity, if you will, to read out as we look into Q4.

Great. Thank you.

Your next question comes from Jeff Sprague of Vertical Research Partners.

Good morning, everyone.

Good morning.

Good morning.

Good morning. Just a couple from me. I’m sorry, I missed the first 10 or 15 minutes if you’ve covered any of this. But first on EFS, I wonder if you could give us a little bit of color on kind of the price versus volume dynamics. I think all your growth year-to-date has probably been price. And just wonder how you see that kind of evolving into the fourth quarter and moving forward?

Yes. One of the – as we you look to Q3, we saw price and volumes. So if you recall, we had been struggling and had spoken about that earlier in the year with our product availability. So there was a lot of focus in terms of just leadership changes, capacity expansion, putting some new capital in our plan. And so this quarter, we realized volume and price and we expect that to continue as we go into fourth quarter.

So is that, what, a point or so of volume and a couple on price? Is that right?

That’s correct. 2 points on price, 1 point on volume.

Okay. And then just back to thermal, and actually the prior question on commercial you answered primarily around EFS, I understand why. But a little bit of color on what you’re seeing on commercial thermal? It sounds like it was okay in the quarter. But obviously that’s a pretty high margin business and there is definitely some mix signals out there. Do you have project visibility into Q4 and the early part of next year in that business?

Well, I can say as we look into Q4, we expect our thermal commercial business to be positive. And we’ve been building our pipeline and funnel management, we’ve been improving on that and we do expect thermal commercial to be positive in Q4.

Okay. And Eldon, basically no impact on 2019, but what’s your early thought on kind of accretion integration program, et cetera, looking into 2020?

Yes. We’ve provided in our prepared remarks that we would expect preliminarily a $0.03 benefit from the Eldon acquisition. That really includes some of the early sourcing synergies, but also includes some of the technology investments that we would expect as part of the integration as well as some carryover higher financing cost as well.

Great. Thanks. I’ll leave it there.

Thank you.

Your next question comes from Deane Dray of RBC Capital Markets.

Thank you. Good morning, everyone. I want to add my welcome and welcome back to Sara, and best of luck.

Thanks, Deane.

I don’t know if you addressed this explicitly in Julian’s question, but is there anything unique in terms of the cadence of the months in the quarter or was that organic revenue weak evenly throughout?

Well, when we look at the quarter, I would say that we modestly saw it improve in September, but it’s hard – there’s just different dynamics and it can vary from one channel partner to another. So I want to say generally consistent, a little improvement in September but hard to call it that there’s a trend, if that’s really the root of the question.

It is. And then any insight or color on what you’re seeing in October so far?

I’d say, what we see in October is consistent with what we saw in Q3.

Okay, good. And then on enclosures, just a specific data center vertical, give us an update there. There was an interesting article in the journal today talking about how the hyperscale buyers are back and back into growth mode. Wondering if you’re seeing any of that within your data center business, both power and cooling?

Well, all year and year-to-date, we are up almost high-teens 20% in our data center initiatives. And we expect that to continue. So with that news, I think that just is a positive for us as we go into 2020.

Got it. And last one for me and when you think about how nVent would respond in a slowdown, and I appreciate hearing the commentary about the decrementals. Are there levers that you can pull in terms of pulling back on some of these growth investments, let’s say, in digital? Is there anything discretionary in terms of spending other than just obvious corporate cost and so forth? But anything on the growth investments that you would be able to throttle back?

Deane, I think we always have that ability, right, to look at – our focus is on what investments are going to give us the best returns, right? That’s how we start. And so I look at all of that and it’s always discretionary. You can always pull back on that if we had a severe recession. And so that’s one of the things that we manage. Now, our goal is to look at how do we optimize the organization, how do we manage that variable cost because it’s – we think it’s important for our long-term value creation that we make some of those investments, but we do have discretion in terms of timing and in terms of how we layer those in.

Thank you.

Thank you.

Your next question comes from Robert Barry of Buckingham Research.

This is [indiscernible] for Rob. Good morning.

Good morning.

Good morning.

When do commodity costs start to be a net tailwind for the company?

Your question is when do commodity costs stop being a headwind for the company?

A tailwind, sorry.

A tailwind?

Yes.

Yes. I would say so overall, we’re starting to see that material inflation ease in the back half and we would expect that continue to be the case into 2020. I think there are some things to keep in mind is that we continue to see some general inflation out there, whether it’d be on logistics side, a little bit of tariffs. But overall, we would expect that to really taper from what we’re seeing for the full year in 2019.

Thank you. And what is the margin profile of the 3Q orders in thermal? And how are the backlog margins in thermal versus quarter second [ph]?

So I want to be – your line’s a little hard to hear, but I think the first part of your question and maybe I’ll ask you the second part was, what do we see as the margins for thermal with those projects? And let me answer it this way. And I think we’ve clarified this is that projects tend to be at a lower margin than just our commercial business and our MRO business. But that blended margin rate, we expect our thermal business to always operate in that mid-20% range.

Thank you.

Your next question comes from Joe Ritchie of Goldman Sachs.

Thanks. Good morning. Welcome, Sara.

Thanks, Joe.

So maybe just kind of touching on this price productivity discussion. So I guess, Beth, when I kind of think through the next few quarters, base metals are definitely right now seemingly coming down. And I’m thinking about whether across your portfolio, you’re going to be able to maintain price in a deflationary environment. So any thoughts around how that spread changes over the next few quarters?

Well, as we look at our price realization this year, we have been around 2%. And I think as we go into next year, our goal is always to maintain about a point of price. And as we – as some of our businesses, our EFS business has always been very successful there because of that value proposition that we have of coming up with new products and labor savings. And I think for enclosures, that’s a business where we think that we can maintain that, not to the same extent as EFS but we look for all businesses to get about a point of price.

Okay. All right, that’s good to hear. And then I guess maybe switching gears a little bit into thermal and the announcement of that LNG project. Is there a way you can quantify how much revenue from that project is going to ship or you guys will earn next year?

I can’t. We have some confidentiality obligations at this point that I can’t make any specific comments, but it will be a positive contributor in 2020.

Okay, all right. And maybe my last question just on EFS. It’s nice to see the volume growth come back, and we’ve talked about some of the capacity constraints in that business over the last several quarters. And so I’d love to just get an update on where you stand in terms of – from a capacity standpoint and automation standpoint? And then also just the commercial team getting back out there to be a little bit more aggressive in terms of driving volume growth?

Yes. We started to see – from earlier – well, beginning of the year that our – we look at our product availability and our ability to service our customers within stated lead times, and that has improved all year. And over the course of Q2 and Q3, we’ve maintained the levels that we wanted to be at. There were still some systems that we put in place, a warehouse management system, that has allowed us to be more productive for Europe. And then we have some new stamping equipment that we received in the summer, and that’s getting online through Q4 that’s going to make us more operationally efficient. And so there’s just a lot of actions and it doesn’t stop, right? We’re going to continue to ensure that we can drive velocity and get faster responsiveness to our customers. And as a result of that, we believe that’s why we’ve been able to achieve 3% growth every quarter this year. It’s why we saw that we were able to take – have 1 point of volume, and we would expect to be – continue to be able to do that.

Got it. Thank you.

Thank you.

Your final question comes from Justin Bergner of G. Research.

Good morning, Beth. Good morning, Stacy. Good morning, Sara.

Good morning.

Had a couple of quick clarifying questions. I also hopped on the call a little bit late, so the $0.03 tax headwind is being absorbed in the fourth quarter on an adjusted basis, not just on a GAAP basis in your guidance?

That’s correct.

Okay. And then secondly on the EFS volumes, how much of the improvement in the volume might have been due to an easier comp? You’re going from negative 1% in the first half to plus 1% in the third quarter. Is that all sort of sequential improvement or is some of that coming off of an easier comp?

Well, I would say this. We look at it as – when we look at all our internal measures, we’ve had sequential improvements, whether that’s just our ability to get volume, whether that’s our productivity, whether it’s our product availability. So from an operational standpoint, our view is that business is continuing quarter-over-quarter to improve.

Okay, that’s helpful. And then lastly, given sort of the macro deceleration that you and others have observed in the last quarter, how does that inform future bolt-on M&A after Eldon? Are you going to likely to wait a few quarters or could you do something sooner rather than later?

Well, I think our view is when we look at acquisitions, just like Eldon, we’re looking for targets that extend our strategy. And for us, it’s really looking at how can we – what’s the value creation there? Does it accelerate our growth, which we believe Eldon does that the product portfolio and the position that it has to allow us to serve customers globally really accelerates our strategy? So in our view, I think that there are opportunities out there that it’s – again, if it’s the right value equation for us, the potential to do a deal in 2020 exist.

Okay. Thank you.

Thank you.

There are no other questions in queue. I’d like to turn the call back to Beth for any closing remarks.

Well, thank you for joining us this morning and your interest in nVent. As we look to close out the year, we are proud of the actions our team has taken to protect return on sales and drive our One nVent initiatives in a more challenging environment. We see a lot of good momentum with our strategy. When I met with customers, channel partners and our sales team, I’m hearing positive feedback that our One nVent initiatives are having an impact. I’m even more excited about the growth opportunity with Eldon and the team is making good strides with our integration plan. I believe we are focused in the right areas to drive growth and expand return on sales, which can ultimately drive shareholder value. I thank you again for your support. And operator, you may now conclude the call.

This concludes today’s conference call. Thank you for your participation. You may now disconnect.