Archrock Inc

NYSE:AROC

Earnings Call Transcript 2020-Q3

[Operator]

Good morning. Welcome to the Archrock Third Quarter 2020 Conference Call. Your host for today's call is Megan Repine, Vice President of Investor Relations at Archrock.

I will now turn the call over to Mrs. Repine. You may begin.

[Megan Repine, Manager, IR]

Thank you, Doug. Hello, everyone, and thanks for joining us on today's call. With me today are Brad Childers, President and Chief Executive Officer of Archrock; and Doug Aron, Chief Financial Officer of Archrock. Yesterday, Archrock released its financial and operating results for the third quarter of 2020. If you have not received a copy, you can find the information on the company's website at www.archrock.com.

During this call, we will make forward-looking statements within the meaning of Section 21E of the Securities and Exchange Act of 1934 based on our current beliefs and expectations as well as the assumptions made by and the information currently available to Archrock's management team. Although management believes that these expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. Please refer to our latest filings with the SEC for a list of factors that may cause actual results to differ materially from those in the forward-looking statements made during this call.

In addition, our discussion today will reference certain non-GAAP financial measures, including adjusted EBITDA, gross margin, gross margin percentage and cash available for dividend. For reconciliations of these non-GAAP financial measures to our GAAP financial statements, please see yesterday's press release and our Form 8-K furnished to the SEC.

I'll now turn the call over to Brad to discuss Archrock's third quarter results and to provide an update of our business.

[Brad Childers, President, CEO & Director]

Thank you, Megan, and good morning. I appreciate everyone joining our conference call today. Last night, we posted solid third quarter results despite significant demand headwinds brought on by COVID-19. I could not be prouder of how well the Archrock team has responded to the challenges we faced this year. Our standout third quarter results were driven by excellent execution in the field and an unrelenting effort to attack our cost structure wherever possible.

Among the accomplishments in the quarter, we generated adjusted EBITDA of $113 million, up slightly compared to the prior year period. We defended our strong contract operations gross margin percentage driving more than a 100 basis point increase versus the prior year period after adjusting for a non-recurring tax benefit in this current quarter.

We further reduced SG&A expenses by 12% in Q3 on a sequential basis and also adjusting for that non-recurring tax benefit. We continue to pay an attractive dividend complemented by peer-leading dividend coverage. And finally, we continued to generate robust free cash flow, both before and after dividends in the quarter. Year-to-date, our free cash flow after dividends totals $117 million. This is the combined results of operating cash flow resilience, lower CapEx spending, and approximately $50 million in non-core asset sale proceeds.

In total, this has enabled us to repay borrowings on our credit facility and reduce our leverage to 4.0 times. These positive quarterly outcomes demonstrate the impact of the aggressive cost reduction and operational improvement measures we've implemented over the last several months. The disruptions to our industry required sacrifices from everyone at Archrock. And I'm very grateful for the continued efforts of our employees everywhere.

We've taken significant action to squeeze costs out of our business, and our efforts are cut across all segments and all geographies.

We maintained disciplined capital spending across the board in growth, maintenance, and other capital expenditures. Year-to-date, our total capital expenditures were $130 million, compared to more than $300 million at this point in 2019. We expect to reduce our full year 2020 total CapEx budget by $250 million or approximately 65% compared to 2019.

We reduced SG&A substantially on a run rate basis in both Q2 and Q3. We continue to tightly manage overtime hours and discretionary spending. And the previously announced salary reductions for certain employees in the executive leadership team as well as reductions to Board retainer fees, all remain in effect.

While we're focused on retaining our great talent as much as possible, we've also had to make difficult decisions to right size the organization for the opportunity set. This has resulted in a headcount reduction of more than 20% since the end of 2019.

We continue to invest in technology even. As we manage costs tightly in this downturn, we've been investing both SG&A and capital dollars to lay the foundation for continued improvement in both our customer service delivery and our operating cost structure. These investments will also help us reduce our emissions and carbon footprint in the future.

Finally, we continue to high grade our business. Year-to-date, we sold 133,000 horsepower, with an average age of 22 years. And in July, we sold a portion of our AMS business at an attractive multiple. These efforts to upgrade our fleet, invest in technology and enhance our operations and our profitability will continue to support our commitment to deliver on our capital allocation objectives, including delivering significant full cycle free cash flow.

Now I’d like to turn to the market and outlook for our business. Overall energy market conditions have improved over the last few months compared to the second quarter. U.S. natural gas and oil prices have stabilized at higher levels. The rig count grew modestly during the third quarter, and customers are beginning to draw down inventories of drilled but uncompleted wells.

At the same time, we're cautious about assuming an immediate and full recovery which is ultimately dependent on highly uncertain external developments, including the path of the COVID-19 pandemic, and the timing and magnitude of the future economic recovery.

Looking into 2021 most natural gas forecasts show a modest annual decline in U.S. natural gas production as producers limit drilling and completion activity to achieve maintenance levels of production and cash flows.

Accordingly, we're planning for softness in the compression market to persist into 2021 with the potential for improved conditions later in the year. Beyond 2021 and long-term, we remain confident in the positive fundamentals for the critical infrastructure we provide to our customers, particularly as natural gas provides an affordable, reliable and cleaner burning solution to meet growing energy needs worldwide. We believe natural gas to play a prominent role in cleaner energy mix even as energy generation from renewables increases.

According to the U.S. EIA natural gas has been the largest contributor to lower energy-related greenhouse gas emissions in the U.S. electric generation sector, as it continues to displace higher emission fuels such as coal. In fact, between 2005 and 2019, U.S. natural gas production increased by 88%, while energy CO2 emissions in the U.S. declined by 14%. We look forward to continuing to play an important role in keeping our customers’ natural gas streams flowing, partnering with them to meet their safety and environmental objectives and powering America well into the future.

Turning to our operations in contract operation. We're focused on what we can control including how we manage our cost structure, how we execute and how we service our customers. Our third quarter results are evidence that our focus is paying off. Revenues fell by 7% sequentially, primarily due to the full impact of quarterly horsepower declines. Pricing decreased modestly and is overall holding up well. The 148,000 horsepower decline in the third quarter was a significant improvement compared to the losses we sustained during the second quarter.

Our third quarter exit utilization declined to 83% from 86% at the end of the second quarter. We expect to see modest horsepower declines for the next few quarters. But believe our multiyear fleet high grading efforts will keep us on track to outperform our utilization performance in the last downturn. Even with the top-line pressures, Archrock's operations teams drove excellent gross margin performance. We posted a 66% gross margin in the quarter or 63% adjusting for the tax benefit. This is up nicely from 62% in the year ago period and consistent with our annual guidance range.

In our aftermarket services business, we're focused on maximizing profitability and performance through this challenging period. We believe that we have rightsized the business for our opportunity set, and we'll continue to focus on maintaining gross margin levels through this period. And early in the third quarter, we made the strategic decision to sell a portion of our AMS business, bringing in additional cash, which we redeployed to debt repayment.

From a capital policy standpoint, we remain committed to our well-defined capital allocation strategy, which focuses on two key priorities: shareholder return and reducing debt. While others have been forced to cut dividends, Archrock has been able to maintain an attractive dividend and prudent dividend coverage through this sharp downturn. Our dividend yield continues to compare well to other energy companies and other income-oriented sectors.

Of equal importance, we will continue to execute all available measures to reduce our debt and protect our financial position. We strongly believe reducing debt and paying a dividend are key value drivers for Archrock, and we're confident in our ability to do both in the current environment.

Before turning the call over to Doug, I'll share with you that in September, our company celebrated the 66th anniversary of our founding as South Coast Gas Company in 1954. While other companies in this industry have come and gone, our company has endured and grown to become the industry leader in U.S. natural gas compression.

With that, I'd like to turn the call over to Doug for a review of our third quarter performance and outlook.

[Doug Aron, SVP & CFO]

Thank you, Brad, and good morning. Let's look at a summary of our third quarter results and then cover our financial outlook. Our third quarter performance strongly supports our financial goals of protecting liquidity, generating free cash flow and reducing debt. We reported adjusted EBITDA of $113 million, slightly higher than the third quarter of 2019. Our third quarter adjusted EBITDA included $9 million in net gains related to the sale of assets and an $11 million net cash benefit from tax audit settlements covering a 3-year period. 60% of this tax benefit was recorded in SG&A, with the remaining 40% reflected in our contract operations' gross margin.

We recorded net income for the third quarter of 2020 of $18 million, which included a few one-time items, the majority of which were non-cash. We recorded an $11 million long-lived asset impairment during the quarter and took a $3 million restructuring charge related to severance benefits and property closures.

Turning to the business segments. Contract operations revenue came in at $175 million in the third quarter compared to $188 million in the second quarter due primarily to lower operating horsepower. Looking at our gross margin percentage, we continue to benefit from a highly variable cost structure, a key advantage as we continue to make adjustments to align our business with market conditions. We remain on track to deliver a meaningful increase in our gross margin percentage compared to 2019 despite revenue headwinds.

In our AMS segment, we reported third quarter 2020 revenue of $30 million, down from $32 million in the second quarter. Our AMS revenue reflected lower customer activity, given cost constraints and market uncertainty as well as lost sales from the divestment of our turbocharger business. We drove our AMS gross margin percentage back up to our 2020 target, delivering a third quarter gross margin percentage of 15%. We continue to focus on higher-margin business and optimizing our labor utilization during this slower period.

SG&A totaled $19 million for the third quarter compared to $29 million in the second quarter and $30 million for the prior year period. Excluding the $7 million tax benefit, our third quarter SG&A was still down over $3 million on a sequential basis. For the third quarter, we limited our growth capital expenditures to $6 million, down more than 70% from $23 million during the second quarter. Our last bit of newbuild spend for the year was completed in July with repackage and new unit start-up costs comprising the remainder of the growth CapEx during the quarter. We also reduced maintenance and other CapEx during the third quarter of 2020 to $11 million from $18 million in the prior quarter.

For the first three quarters of 2020, we completed nearly $50 million of asset sales as we continue to prune our fleet and divest non-core businesses where it makes strategic sense. With the planned decline in capital expenditures and proceeds from asset sales, debt repayment accelerated in the third quarter. This continues to mitigate the expansion of our go-forward leverage ratio until the market recovers, and we can deliver on our goal of 3.5 times to 4.0 times. Our total debt of $1.7 billion reflected $77 million in net debt repayments in the third quarter and over $100 million since the beginning of 2020.

Our leverage ratio of 4.0 times was down compared to 4.1 times in the prior quarter and 4.3 times in the third quarter of 2019. We exited the third quarter with ample available liquidity of $492 million.

We recently declared a third quarter dividend of $0.145 per share or $0.58 on an annualized basis, unchanged on a quarterly and annual basis. Our dividend payout continues to be supported by our internal cash generation, strong balance sheet and robust dividend coverage. Cash available for dividend for the third quarter totaled $77 million. Our EBITDA is holding up well, and we further reduced our interest and maintenance capital, leading to strong third quarter dividend coverage of 3.5 times. We are proud of our ability to continue delivering value to shareholders through an attractive dividend yield even during this downturn.

Based on solid third quarter execution and our current view of the market, we are tightening our full year 2020 adjusted EBITDA guidance range to $405 million on the low end and $420 million on the high end from $380 million to $420 million as previously guided. At the midpoint, this implies a sequential decline in fourth quarter EBITDA as expected. This reflects modestly lower operating horsepower on a go-forward basis, normal seasonal Q4 softness and $20 million in third quarter items that will not recur.

Turning to CapEx. Last quarter, we lowered our total capital expenditure range of $130 million to $155 million, and today, we are tightening the range to between $128 million and $140 million. With our cost and capital reductions, we've further enhanced our outlook for free cash flow and cash available for dividend for the year.

To sum it up, with our strong base of cash flows, cost and capital reductions and asset sales, we continue to maximize our free cash flow and cash available for dividend for the year. We now expect to deliver $150 million or more in free cash flow this year after dividends, which will support our goal of substantial debt repayment.

It's simply too early to lay out detailed guidance for next year on today's call, but I think it's worth ending my remarks with how we are thinking about 2021. Booking activity remains low, which will drive capital reinvestment even lower next year compared to 2020, particularly as we work to satisfy customer demand with unutilized equipment where possible. While we expect our EBITDA to be down compared to 2020, this will be more than offset by a moderation in spending, positioning us to achieve substantial free cash flow after dividends once again in 2021.

And with that, now we'd like to open up the line for questions. Doug?

[Operator]

[Operator Instructions]. Our first question comes from the line of Kyle May with Capital One Securities.

[Kyle May, Capital One Securities]

Appreciate the preliminary look at 2021, and I realize that you don't have formalized guidance yet. But Brad, I wanted to follow-up on one of your comments. And when you think about the next couple of quarters, how do you think about the trajectory or the rate of change in compression utilization compared to the 3Q rate?

[Brad Childers, President, CEO & Director]

Yes. So look, utilization is the output from the factors that are the dried up, which are bookings and stop activity and let me talk about those without giving you a quantification just because it is too early to preliminary. And candidly, the view right now into 2021, even through our customers' eyes remains opaque. So what we do expect, however, is to see bookings continue to steadily pick up as we have seen in Q2 -- I mean, in Q3 compared to Q2. And we expect stop activity to continue to moderate as we saw also from Q2 to Q3. But for the lines to cross and have us see net horsepower growth, we're expecting still softness into the first part of 2021, with the opportunity to maybe see some regrowth, both in natural gas production and of course then the horsepower in the back half of 2021. So that's my best shape of the curve that I can give you without trying to quantify it, which would just be guess work, Kyle.

[Kyle May, Capital One Securities]

Totally understand, and that's helpful. Also, maybe switching over to cost control. It's nice to see the ongoing attention to detail there. Can you give us any color if there's more cost that you can take out? And also how sustainable are these cost reductions?

[Brad Childers, President, CEO & Director]

Sure. So on the good news front, one of the things we really like about the compression business is that a majority, a lot of our costs of our OpEx are highly variable. By the way, our CapEx also can be highly variable. And it gives us a chance to really respond quickly to right size the business to both maintain profitability. And as you've seen in 2020, not just maintain positive free cash flow, but improve it. So it's just a real strength to the business model that we can pull cost out. The improvements you've seen in our profitability we believe will be sustainable, and we're going to continue to focus on expanding our gross margin over time. The teams in the field, both in contract operations and AMS, have been just tremendously well focused on improving profitability in a way that is sustainable. Now of course, if we hit too much pricing headwinds based on utilization, we may see some giveback and some erosion. But overall, the profitability improvements we've put into the business we think are sustainable. And candidly, we expect to see them expand over time as we leverage our investment in our technology.

[Operator]

Our next question comes from the line of Daniel Burke with Johnson Rice & Company.

[Daniel Burke, Johnson Rice & Company]

Brad, I guess you alluded to this earlier, but when we compare this downturn to, I guess, it was '15 and '16, can you talk about the horsepower you've had sidelined. Is it -- can you compare and contrast maybe the horsepower you had sidelined in '15 and 16 to what's occurred this year? I would imagine the horsepower that's been pushed to the sideline or at least a portion of it this year is pretty high-quality, maybe more modern equipment than was the case 5 years ago?

[Brad Childers, President, CEO & Director]

Yes, I can. And I think your inclination is completely correct. The improvements into the fleet that we've put in over the last, certainly, 3 or 5, but even 10 years is really paying off in that the idle fleet today is younger, larger and higher quality than we experienced in past downturns. That's going to put -- give us the opportunity to put more of it back to work more quickly and at less cost and a reduced cost. So we like that aspect of what we have in the fleet today compared to what we experienced in prior downturns. So your inclination is right.

The other thing I want to point out is that even as we hit this downturn, the equipment that we've been investing in, which is equipment that is large horsepower and newer and younger in our fleet overall, remains well utilized and pricing remains very solid. So we just see that, that aspect of our fleet performing really well. And it's just one of the strong points and the results of the investments we've made over the last several years.

[Daniel Burke, Johnson Rice & Company]

Got it. Okay. And then maybe one of the smaller points in the guidance update this morning. There's a reduction in maintenance CapEx expectations for this year. And was just wondering, is that sort of sustainable on a per active horsepower basis? Or what's going on to drive that reduced expectation as this year has advanced? Is it -- does it reflect more of the fact that utilization has fallen off more than you expected? Or is it that you're managing that program more assertively?

[Brad Childers, President, CEO & Director]

Well, it's a combination. Number one, the team is absolutely doing a great job managing our maintenance CapEx. One thing I'd point out is that we do not manage the maintenance CapEx to the detriment of either customer service or to the equipment and standards that we have in place to maintain our equipment really well. So that's one. Second, however, you're seeing the benefit of both. We have more new horsepower in the fleet. The average age of our fleet has decreased as well as the fact that we had some stop activity. And all of that is decreasing our maintenance CapEx, but a combination of those factors. It's not really any single factor.

[Daniel Burke, Johnson Rice & Company]

Got it. And certainly, given -- last one for me maybe, but given what's going on with sort of natural gas pricing, I wouldn't imagine there's still a meaningful component of standby horsepower, but I figured out, I look to mop that up as we look at where your utilization is now compared -- or I guess that would be included in utilization to be fair. But maybe an update on where you stand with standby horsepower?

[Brad Childers, President, CEO & Director]

Sure. The vast bulk of the standby horsepower has gone back to work and been turned back on. We always maintain a small amount of -- our customers maintain a small amount of standby horsepower just for operational reasons. And the delta between what we see as a traditional annual run rate of normal standby horsepower compared to that peak that we had back in the middle of the second quarter is down like 75%. So it's the significant improvement in the amount of standby horsepower that was used during that time.

[Operator]

Our next question comes from the line of Selman Akyol with Stifel.

[Selman Akyol, Stifel]

Appreciate the difficulty looking out into 2021, but I was just going to ask you, can you talk about maybe what you see out there by basin? And I guess I'm a little surprised, at least when speaking with other companies, some sense of optimism with the strip over $3 and things potentially turning the corner, but I'm not sure I really heard that from you guys. So I was just kind of curious if you could just talk about it by basin, maybe what you're hearing from your customers?

[Brad Childers, President, CEO & Director]

Sure. So in our dry gas plays that are -- where we have customers, they're more driven by that commodity price. That would include the Marcellus, the Utica. We certainly share that optimism. But for the balance of customers, including an associated gas plays, or oil plays with associated gas production, we take a -- we have a much more moderate view. And the expectation is that we've seen both from analysts looking at natural gas production levels, as well as in dialogue with our customers is that we still expect to see aggregate softness moving into 2021 with optimism, and we're optimistic we're going to be able to pick up in the back half of 2021. But I think that maybe some of the discord you're hearing in the commentary is looking at businesses that are driven by dry gas as opposed to businesses that include oil and associated gas production.

[Selman Akyol, Stifel]

Appreciate that. Just one other one for me. We've seen a lot of E&P consolidation, really starting to see it. Is there any thoughts on that in terms of relating to just sort of customer and customer concentrations, those kind of issues?

[Brad Childers, President, CEO & Director]

It doesn't throw up any concerns for us. We have a stable base of just top grade customers that we get to do business with. And as they're looking at consolidating and bringing in more capital discipline and financial discipline into their operations and take costs out, candidly, longer term, we expect to be a beneficiary of that as one of the key outsourced service providers that can help them do that. So we don't see any flags or any reasons to not be supportive and optimistic that further discipline and consolidation overall in the sector is good for the strong participants. We plan to be one of them.

[Selman Akyol, Stifel]

Understood. And if I could just ask 1 more, I'm sorry. Any more thoughts in terms of asset sales as 2021? Is that just always continuously under review? Should we expect more? Or is there anything you can say there?

[Brad Childers, President, CEO & Director]

Yes. It's been continuous. 2020 has certainly a higher level of asset sales than we've had in prior years. But in all prior years, we've had it. We're going to continue to be very disciplined in looking at our fleet hard and moving out assets that we think are not strategic for our operations and our business. And so a level of asset sales will be ongoing.

[Doug Aron, SVP & CFO]

Yes, this is Doug. I'd like to maybe top-up Brad's answer too on 2021 demand and outlook. And I think it's one of -- our caution is well heated. And we're simply saying that the market is opaque, but I think longer term, and I don't want this to be lost in today's message, is really the longer-term impacts of natural gas on greenhouse gases, on what's transpired, as Brad mentioned in his prepared remarks, on a major reduction in that area. And we do very much see natural gas as a fuel of the future, and we see demand being great. Our question just at this point, is that back half of '21? Is it later in the year? Is it earlier in the year? And I think that's where we feel a little more rather than to get over our skis on trying to predict that.

[Operator]

Our next question comes from the line of Thomas Curran with B. Riley Securities.

[Thomas Curran, B. Riley Securities]

Trying to understand how demand is tracking the trending completions relative to the typical lag we've seen in past recoveries. Did your operating horsepower sequentially decline each month through 3Q? Which month was the lowest? And then did operating horsepower decline from September to October?

[Brad Childers, President, CEO & Director]

So what we're seeing right now is a fairly steady, and that includes month-over-month, and it includes quarter-over-quarter decline in horsepower as stop activity is higher than start activity. And it's pretty ratable to the quarter and to the midpoint of the second quarter to give us the exit utilization rate -- exit horsepower rate that we had, that we announced today.

[Thomas Curran, B. Riley Securities]

Okay. So not quite at a clear bottom yet then?

[Brad Childers, President, CEO & Director]

Well, I think what we've said so far would indicate that we think the bottom is ahead of us as we still see softness for a couple of quarters. And then we do expect to see candidly, some outpaced opportunity for growth in the back half of 2021.

[Doug Aron, SVP & CFO]

Yes. Just, again, further clarification. The rate of decline has slowed significantly, but still, in our view, decline in horsepower ahead.

[Thomas Curran, B. Riley Securities]

That all makes sense. Doug, two guidance follow-ups for you. For aftermarket's 2020 revenue guidance range when it comes to the 5% reduction at the midpoint, does that cut solely reflect the disposal of the turbocharger business? And then could you give me the split between parts and services for 3Q?

[Doug Aron, SVP & CFO]

On the guidance, yes, it's almost all the turbocharger. Q4 also tends to be seasonally one of the weaker quarters. So that's a piece. And then what was the question, I guess, historical on parts versus service?

[Thomas Curran, B. Riley Securities]

Just what it was for 3Q, and ….

[Doug Aron, SVP & CFO]

Q3 percent of revenue, services was 59%, parts 41%, and that was like 17.9% on service and 12.4% on parts.

[Thomas Curran, B. Riley Securities]

Great. And then on SG&A, a nice reduction there in the guidance range from $113 million to $116 million to $105 million to $108 million what are the factors behind this latest step down? And do you think of this current quarterly run rate is sustainable into 2021?

[Brad Childers, President, CEO & Director]

I think, look, yes, on part of that, I think we do see the gross margin improvements as being sustainable longer term, I'll be candid and tell you that salary reductions -- while some of the headcount reductions are permanent and we have cut SG&A at all levels in the organization, I would see less permanency at those overall lower levels into perpetuity. Because we do want to get our salary levels back at some point to be able to attract and retain high-quality talent.

[Operator]

The next question comes from the line of TJ Schultz with RBC Capital Markets.

[TJ Schultz, RBC Capital Markets]

So what are the major things you need to spend money on to bring some of that idle capacity back to market if it's younger and larger horsepower. Is it just cost in moving around the units or mobilization costs? And would you think maybe moving those units to more gas tracted or different basins, whereas maybe the mix wasn't as large there before? Or are there other meaningful modifications that need to be made to redeploy the idle units?

[Brad Childers, President, CEO & Director]

Sure. The primary expense in putting units back to work is just make-ready. That is if they sat idle or if they've been on location, then we do take the time to go through the units and make sure that the maintenance is up-to-date. And since it's been idle for a period of time, it gives us that opportunity to do so without interrupting our customers' gas production. So that make-ready expense is a part of it, just making the unit ready. Second is, yet, shipping and startup. And so those are the main costs associated with that. If we have units that need some additional changes to their configuration, whether it's to the size or to the controls, to move to that next application, then we would potentially engage in some repackage activity. Some of that shows up in growth CapEx. Some of that shows up in OpEx. But those are the primary expenses that are required to reactivate. And I'll point out that, that's in our guidance, and that's a level of investment or spend that is always in our business, either on gross margin or in our CapEx.

[TJ Schultz, RBC Capital Markets]

Okay. But make-ready costs are OpEx?

[Brad Childers, President, CEO & Director]

Yes.

[Operator]

There are no further questions in the queue. I'd like to hand the call back to Mr. Childers for closing remarks.

[Brad Childers, President, CEO & Director]

Great. Thank you. Thank you, everyone, for participating in our call today. As our results demonstrate, we continue to take the right steps to differentiate Archrock and deliver value for our shareholders. I look forward to updating you on our fourth quarter call early next year. Thanks, everyone.

[Operator]

Ladies and gentlemen, this does conclude today’s teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.