Cabot Corp

NYSE:CBT

Earnings Call Analysis

Cabot Corp's Strong Q3 Performance and Raised EPS Guidance

Cabot Corporation reported a robust third quarter for fiscal year 2024, with adjusted earnings per share (EPS) rising 35% to $1.92. The Reinforcement Materials segment's earnings before interest and taxes (EBIT) grew 3% year-over-year to $136 million, despite adverse weather in Mexico and Brazil. Performance Chemicals saw a 72% EBIT increase, driven by strong volume growth and normalization of product mix. Operating cash flow was $207 million, allowing $73 million to be returned to shareholders through buybacks and dividends. The company raised its full-year adjusted EPS outlook to $7.00-$7.10, reflecting strategic execution and strong commercial performance.

A Robust Quarter Amid Challenges

The third quarter of fiscal 2024 was a period of solid performance for Cabot Corporation, despite challenging environments. Adjusted earnings per share (EPS) surged by 35% to $1.92 compared to the same quarter last year . This growth was primarily driven by the strong showing in the Reinforcement Materials and Performance Chemicals segments.

Strength in Reinforcement Materials

Reinforcement Materials (RM) segment showcased resilience, reporting an EBIT of $136 million, which marks a $4 million increase from the previous year . Despite weather-related disruptions in Mexico and Brazil, which impacted volumes, the segment achieved higher pricing and an improved product mix. Globally, volumes in this segment grew by 4%, supported by a significant rebound in Asia Pacific and Europe .

Recovery in Performance Chemicals

The Performance Chemicals (PC) segment experienced a remarkable recovery. EBIT increased by 72% year-over-year, driven by 9% higher volumes and a shift towards a more favorable product mix . This rebound was largely due to the normalization of volumes in strategic high-value applications, particularly automotive and semiconductors, as demand reconnected following last year’s destocking cycle .

Cash Flow and Capital Management

Cabot’s cash flow generation remained robust with $207 million from operations. Discretionary free cash flow was $128 million for the quarter. The company maintained a strong liquidity position of approximately $1.4 billion and returned $73 million to shareholders through share repurchases and dividends . Capital expenditures are projected to be between $220 million to $240 million for the full fiscal year.

Fiscal Year Outlook and Guidance

Sean Keohane, CEO, expressed optimism for the company's future, raising the full-year adjusted EPS guidance to a range of $7.00 to $7.10, a notable increase from the prior guidance of $6.65 to $6.85 . This upward revision reflects strong commercial and operational execution. The company aims to continue leveraging its strategic choices to sustain growth.

Sustainability Initiatives and Strategic Progress

Cabot is heavily focused on sustainability, achieving a platinum rating from EcoVadis for the fourth consecutive year . Their 2024 sustainability report revealed advancements toward 2025 goals, including the launch of ISCC PLUS certified REPLASBLAK universal circular black masterbatches for automotive applications. These efforts align with their strategic objective to meet growing demand for sustainable and circular solutions.

Weather-Related Impacts and Market Dynamics

The third quarter was also marked by adverse weather events, including drought in Mexico and flooding in Brazil, impacting RM volumes by approximately $5 million. The company's Performance Chemicals segment is expected to face normal seasonal variations in the future, but overall strong year-over-year growth is anticipated .

China Market and Global Trade

China remains a significant market for Cabot, but the economic environment has stabilized at a lower growth rate. Robust demand in tires, auto OE, and electronics contrasts with the sluggish housing market and low foreign direct investment (FDI). Cabot continues to manage its operations dynamically in this complex economic landscape .

Future Plans and Investor Engagement

Looking ahead, Cabot is poised for continued strategic growth. They plan to host an Investor Day in Boston on December 4 to discuss their strategy, key growth initiatives, and long-term financial targets in detail. This event aims to build on the momentum achieved and engage with shareholders more intimately .

Earnings Call Transcript 2024-Q3

[Operator]

Good day. Thank you for standing by. Welcome to Cabot's Third Quarter 2024 Earnings Conference Call. [Operator Instructions] Please note that today's conference is being recorded. I will now hand the conference over to your speaker host, Steve Delahunt, Vice President, Treasurer and Investor Relations. Please go ahead.

[Steven Delahunt, executive]

Thanks, Libya, and good morning. I'd like to welcome you to the Cabot Corporation earnings teleconference. With me today are Sean Keohane, CEO and President, and Erica McLaughlin, Executive Vice President and CFO.

Last night we released results for our third quarter fiscal year 2024, copies of which are posted in the Investor Relations section of our website. The slide deck that accompanies this call is also available in the Investor Relations portion of our website and will be available in conjunction with the replay of the call.

During this conference call, we will make forward-looking statements about our expected future operational and financial performance. Each forward-looking statement is subject to risks, uncertainties that could cause actual results to differ materially from those projected in such statements. Additional information regarding these factors appears in the press release we issued last night and in our 10-K of the fiscal year ended September 30, 2023, any subsequent filings we make with the SEC, all of which are available on the company's website.

In order to provide greater transparency regarding our operating performance, we refer to certain non-GAAP financial measures that involve adjustments to GAAP results. Any non-GAAP financial measures referenced on this call are reconciled to the most directly comparable GAAP financial measure in a table at the end of our earnings release issued last night and available in the investors section of our website.

I'll now turn the call over to Sean, who will discuss the third quarter highlights followed by our progress in the area of sustainability in the company's recent cash flow performance. Erica will review the third quarter financial highlights and the business segment results. Following this, Sean will provide a strategic summary and closing comments and open the floor questions. Sean?

[Sean Keohane, executive]

Thank you, Steve, and good morning, ladies and gentlemen, and welcome to our call today.

I'm very pleased with our performance in the third quarter as adjusted earnings per share was up 35% to $1.92 compared to the same period in fiscal 2023. This level of performance reflects the continued strength of the Reinforcement Material segment and a recovery to more normalized volume levels in the Performance Chemical segment after the destocking that took place last year.

EBIT in Reinforcement Materials grew 3% year-over-year to $136 million, marking the second best quarter in history. This result was achieved despite some weather-related events in Mexico and Brazil that impacted volumes in the quarter and a less favorable regional mix.

In the Performance Chemicals segment, EBIT increased 72% year-over-year, driven by strong volume growth and a return to a more normalized product mix. It is encouraging to see that demand in strategic high-value applications such as automotive and semiconductors rebounded to more normalized levels and reconnected to underlying demand after a very prolonged destocking cycle.

Furthermore, our products targeted to strategic infrastructure applications continue to build momentum. Cash flow generation remains strong in Q3 with operating cash flow of $207 million. We returned $73 million of cash to shareholders in the third quarter of 2024 through a combination of share repurchases and dividends, consistent with our balanced approach to capital allocation. And finally, we are proud to have earned the top rating of platinum from EcoVadis for the fourth consecutive year, reflecting our continued leadership in sustainability.

At Cabot, sustainability is embedded in all that we do, beginning with our purpose of creating materials that improve daily life and enable a more sustainable future. Our customers continue to seek more sustainable and circular solutions, and they want to align with suppliers that report goals and progress in a transparent way. To this end, in June, we published our 2024 sustainability report highlighting our recent performance and advancements toward our 2025 sustainability goals, as well as our vision for enabling a more sustainable world.

We continue to make significant progress in advancing our sustainability agenda and have achieved 9 of our 2025 sustainability goals ahead of schedule. Among these achievements is our target to export 200% of the energy that we import. This accomplishment exemplifies our commitment to circularity by utilizing waste energy in our manufacturing process to produce co-generation power, which is CO2-free.

Cabot has long been a leader in sustainability and has been recognized by numerous external parties for our performance. Fiscal year 2024 marks another significant year of progress in our sustainability journey as evidenced by our platinum rating from EcoVadis. EcoVadis is one of the world's leading sustainability ratings platforms and one that many of our customers rely upon to evaluate their supply chains. Their platinum rating acknowledges Cabot's environmental, social and governance efforts and places us among the top 1% of companies assessed by EcoVadis.

In the third quarter, we also announced that we attained Operation Clean Sweep certification in Europe at our 2 masterbatch and compounding facilities in Belgium. We are one of the first black masterbatch manufacturers in Europe to earn this third party certification. Since 2019, Cabot has pledged its support for Operation Clean Sweep having launched comprehensive plans to implement these protocols at our operations. Achieving certification at these facilities is a continuation of these efforts and further testament to our commitment to responsible management practices that reduced plastic waste in the environment. Finally, we also continue to progress our EVOLVE Sustainable Solutions portfolio with the launch of our new REPLASBLAK universal circular black masterbatches powered by EVOLVE Sustainable Solutions. This launch introduced 2 new products which are the industry's first ever universal circular black masterbatches with International Sustainability and Carbon Certification or ISCC PLUS certified content. These solutions offer customers an ISCC PLUS certified single masterbatch for use in a wide range of automotive applications for coloring polyolefins and many engineering plastics.

Generating strong levels of discretionary free cash flow has been a strategic objective for this management team dating back to 2016. The Cabot portfolio exhibits strong cash flow characteristics and we bring a disciplined approach to execution to ensure robust cash flow levels. Over time, through disciplined execution of our strategy, we have increased our level of discretionary free cash flow from an average of $244 million per year from 2016 through 2019 to a level of approximately $370 million per year from 2021 through 2023.

In fiscal year 2024, we are on track to deliver a new higher level of discretionary free cash flow and to achieve our 2021 investor day target to generate cumulative discretionary free cash flow of greater than $1 billion between fiscal year 2022 and 2024. This level of cash generation supports our balanced capital allocation framework, which has remained consistent. We will prioritize high-confidence, high-return growth investments where we feel we have a right to win and that we believe will grow the long-term earnings of the company.

These investments would include organic growth projects as well as potential bolt-on acquisitions that support our strategy. We expect to maintain an industry competitive and growing dividend and we continue to expect to opportunistically repurchase shares. We believe we can do all of this while maintaining our investment-grade credit rating. The strength of our cash flow generation and disciplined capital allocation are fundamental to the strong Cabot investment thesis and a priority for this management team.

I'll now turn the call over to Erica to discuss the financial and performance results for the quarter in more detail. Erica?

[Erica McLaughlin, executive]

Thanks, Sean. I will start with discussing results for the company and then review the segment results. We reported adjusted EPS of $1.92 cents in the third quarter of fiscal 2024, up 35% compared to the third quarter of fiscal 2023 with growth coming from both the Reinforcement Materials and Performance Chemicals segments. Cash flow from operations was strong at $207 million in the quarter, which included a working capital decrease of $43 million. Discretionary free cash flow was $128 million in the third quarter.

We ended the quarter with a cash balance of $197 million and our liquidity position remains strong at approximately $1.4 billion. Capital expenditures for the third quarter of fiscal 2024 were $52 million and we expect $220 million to $240 million of capital spending for the fiscal year. Additional uses of cash during the second quarter were $24 million for dividends and $49 million for share repurchases. Our debt balance was $1.1 billion and our net debt to EBITDA was 1.2x. The year-to-date operating tax rate was 28%, and we expect the fiscal year rate to be in between the range of 27% to 28%.

Now, moving to Reinforcement Materials. During the third quarter, EBIT for Reinforcement Materials was $136 million, which was an increase of $4 million as compared to the same period in the prior year. The increase was driven by higher pricing and improved product mix in our 2024 calendar year customer agreements and higher volumes, partially offset by a less favorable geographic mix and higher costs. Globally, volumes were up 4% in the third quarter as compared to the same period of the prior year due to 9% growth in Asia Pacific and Europe partially offset by a 4% decline in volumes in the Americas. Volumes in the Americas were negatively impacted by weather-related events from a drought in Mexico impacting the area where our plant operates and flooding in Brazil, which impacted many of our customers.

While these events are behind us, we expect there will be some lingering impacts into our fourth quarter as customers take a bit of time to return to their normal purchasing patterns. Looking to the fourth quarter of fiscal 2024, we expect a modest sequential improvement in Reinforcement Materials EBIT due to less of an impact from the weather events in the Americas partially offset by seasonally lower volumes in Europe.

Now turning to Performance Chemicals, EBIT increased by $23 million in the third fiscal quarter of 2024 as compared to the same period in fiscal 2023. The increase was driven by 9% higher volumes and a more favorable product mix. During the quarter, we saw volumes reconnect to underlying demand drivers as compared to the destocking impact we experienced last year, and we had a more favorable product mix due to improved sales in automotive infrastructure and semiconductor applications. As we look ahead to the fourth quarter, we expect strong year-over-year EBIT growth driven by higher volumes and a more favorable product mix compared to the prior year destocking effect. Sequentially, we expect EBIT in the segment will be lower due to normal seasonality impacts.

I'll now turn the call back over to Sean to discuss the fiscal year outlook.

[Sean Keohane, executive]

Thanks, Erica. I'm extremely pleased with another quarter of strong operating results in what was a challenging environment. Based on the third quarter performance and our outlook for the fourth quarter, we are raising our expected full-year outlook of adjusted earnings per share to be in the range of $7 to $7.10. This is an increase from our previous guidance of $6.65 to $6.85 and is up $0.30 at the midpoint. This reflects our strong commercial and operational execution and the value of the strategic choices we have made in recent years.

The strong results in the Reinforcement Materials segment are expected to continue with EBIT growing year-over-year from higher pricing and better product mix in our 2024 customer agreements and higher anticipated volumes. In Performance Chemicals, we expect the year-over-year growth to continue from higher volumes and a more favorable product mix. The outlook for cash flow remains strong, which is sufficient to fund our growth investments and return a robust level of cash to shareholders. I believe we are executing well against our Creating for Tomorrow strategy and the long-term targets that we communicated at Investor Day in 2021. The increase in our outlook for adjusted earnings per share in fiscal 2024 would place us at or above the high end of the targeted range of 8% to 12% adjusted EPS compound annual growth rate from fiscal year 2021.

Also, we remain on track to deliver our target of more than $1 billion of cumulative discretionary free cash flow over the last 3 years. I am proud of the Cabot team and the way they have navigated a turbulent period to support our customers and deliver strong results for our shareholders.

We are excited about the momentum we have built, and we plan to share more with you at our Investor Day, which we will host in Boston on December 4. At that Investor Day, we plan to discuss our strategy, key growth initiatives, sustainability leadership and the next set of long-term financial targets. Hopefully, we can see you all there in person.

Thank you very much for joining us today. And I will now turn the call back over for our Q&A session.

[Operator]

[Operator Instructions] And our first question coming from the line of John Roberts with Mizuho.

[John Ezekiel Roberts, analyst]

Congrats on a nice quarter. How far along are you on your rubber black contract discussions for next year?

[Sean Keohane, executive]

Well, as you know, John, we don't talk about contract negotiations while they're ongoing. But I would say the time line would play out pretty consistent with the historical pattern, which is to begin in sort of late summer for most customers and progress through the fall period. So I think the normal timing cycle is what we'd expect this year.

[John Ezekiel Roberts, analyst]

And then, there are a lot of cross-currents in China that's there. You have a material size business there. But what's your read on what's going on with the Chinese economy?

[Sean Keohane, executive]

Yes. So I would say, as you said, lots of cross-currents and lots of global interplay here between China and rest of the world. But if I look at China, I would say the economy appears to have stabilized, albeit at a lower level of growth than historical. And we are seeing some pretty robust demand in some of our key end markets, including tires, driven by replacement tire exports. But also auto OE and electronics are pretty strong right now. But again, the growth rate, I think, has pulled back a bit. Certainly we've seen the recent GDP numbers there down a bit and down from where their target. So I think it's sort of a slower economic environment overall. And I think one that remains a little bit choppy. PMI bumps over 50, then it dips below, and so there's a bit of this back and forth, I would say. So overall, we remain cautious on the outlook for the China economy because I think the housing market, which is a big part of the GDP there remains sluggish and FDI is very, very low. And so I think this sort of reflects weak investment confidence. Now counterbalancing that, I would say the government is trying to stimulate consumer confidence. But other than in services and travel and leisure, things like that, there doesn't seem to be much sustained momentum across durable goods. So that's a bit of what we see. Now our position there remains strong. We've been an operator there in China since the 1980s with great local management teams and strong customer partnerships. So we'll continue to actively manage this really dynamic situation. But that's a bit, John, of what we're seeing on the ground there in China right now.

[Operator]

Now our next question coming from the line David Begleiter with Deutsche Bank.

[David Begleiter, analyst]

Sean, what did the Altamira force majeure cost you guys in Q3?

[Sean Keohane, executive]

So the Altamira, we had 2 weather events, John, that -- I mean, David, that impacted us in the quarter, one, Altamira and then flooding in the southern part of Brazil that impacted not so much our production but our customers and therefore our demand. And the impacts of these events were in the order of about $5 million in the quarter.

[David Begleiter, analyst]

Very good. And July 1, there was -- the ban began on Russian imports of Carbon Black into Europe. Have you seen any material change in buying behavior or other activities post July 1?

[Sean Keohane, executive]

Yes. So maybe just a quick recap on the overall sanction. So certainly prior to the Russia invasion of Ukraine, carbon black volumes into the EU27 were pretty significant, somewhere around 550,000 tons per year. And then after the invasion commenced, those volumes started to decline as many customers for reputational reasons moved away. And by the time sanctions were announced, actually, that run rate was sort of cut in half. Now Russian sanctions, as you just point out, went into full effect on July 1, and so carbon black can no longer be imported into the EU27. I would add that additionally, sanctions have been imposed on Belarus to take effect on August 2. There is a Russian producer that has a plant in Belarus. And so those will now be covered under sanctions. And again, Carbon Black no longer be imported into the EU27 from there either. So this impact has created a shortage of carbon black in the region, and I think it's driving a strong demand from customers to secure local supply and long-term supply, which we'd expect this to continue. So I don't see any change in behavior there because this has been a well-telegraphed dynamic. And so customers have been preparing for this. I think I may have misspoke on the Belarus timing, David. I meant to say October 2 is the effective date of when that goes in. But anyway, that's sort of the big picture of what's happening. And again, because it's been something that's been underway for quite some time, we see a continuation of the desire to secure materials locally. I would say it's probably enhanced even further by continued uncertainties, geopolitical uncertainties and how those can impact transportation and imports and the like. So continuation, I would say.

[Operator]

Now our next question coming from the line of Josh Spector with UBS.

[Joshua Spector, analyst]

I guess first congrats on a really solid quarter here. I wanted to ask on performance, just pretty surprising inflection, at least the strength of it. So I'm curious if you could give more color on some of the moving pieces there. And just considering how the last year has been relative to 2, 3 years ago, I guess what's the level of earnings that you're willing to underwrite there at this point? Is $50 million plus like the base level past destocking? Or is there anything temporary or anything else you'd call out near term?

[Sean Keohane, executive]

Yes. Thank you. Thanks, Josh. Well, we certainly were very pleased to see the strength in Performance Chemicals. And I would say the drivers are really 2 main factors. One, of course, volume growth was strong, and so the operating leverage that comes from that is material. But I think most importantly, the -- what I would say, the normalization of our product mix, which has been a significant drag for this business over the last 4 to 6 quarters, that has now normalized and we would view that as sort of volumes having reconnected to underlying demand there. And so I'll give a couple of examples. Certainly the automotive sector is a very important one for this segment where products typically in this sector are specified in and end up carrying good strong margins. And while you've seen some growth and relative strength in auto production, a lot of our products because the value chains are longer really suffered from prolonged destocking. And even though the auto build's numbers were looking pretty good, we weren't seeing it yet in our demand as the lengthy value chain sort of worked out its inventory. That has now reconnected. And so seeing that strong mix was certainly a big driver. And again, we think it's reconnected. So that's positive. I would say another key factor in the mix was semiconductors. So the CMP application where we sell fumed silica last year was a very, very weak quarter across that whole chain. And again, I think now inventories have worked their way out, and we're seeing a reconnection there. And so good, strong margins in that application. And then finally, we have been underwriting a lot of new product growth in areas around infrastructure, so wire and cable. Think about this as connecting offshore wind farms, things like this. Our products are used in applications like that, and those continue to do well and carry good strong margins. So it's really a mix. Return to normal, I would say, is -- was a really big driver along with the headline volume numbers.

Now in terms of how do we think about moving forward, I think if we remain in or around these volume levels, we would expect the quarterly EBIT would be in the range of $45 million to $55 million per quarter depending on the quarter. And specific quarters can be impacted by seasonal demand, product mix and then the timing of when we do maintenance on our assets. That can have a significant impact here because the asset base is a little more concentrated than in Reinforcement Materials where we have a lot more plants. And so 1 or 2 plants down for maintenance, it kind of gets diluted in Reinforcement a little bit more so and Performance Chemicals can be a little more pronounced. So these things can drive some quarterly variation. But I think as we sit here now, our best view would be sort of in and around that range of $45 million to $55 million per quarter depending on some of those specific factors.

[Joshua Spector, analyst]

That's really comprehensive. I guess one quick follow-up there is just -- so when you think about the fumed silicas and maybe the build and construction market, I assume that hasn't improved much. I guess if you can comment there, if anything's changed and kind of how much is that still an overhang versus some of the numbers you just gave in the segment.

[Sean Keohane, executive]

Yes. Yes. So certainly the building and construction market is an important end market for silicones and therefore for a sizable portion of our fumed silica business. And I would say we have not yet seen signs of any bounce there. I would say it is stable, is probably the best way to characterize it, but whether that's in China or outside of China and in the West, not really seeing any significant bounce there. I think likely, if we're beginning to head into a rate cut cycle, then that could be a catalyst for some improvement in the housing and construction sector. But I think it would be some trickle from that that would probably be needed to see it move out of its sort of what I would call kind of stable position right now. So more runway there, I would say, as that end market gradually recovers.

[Joshua Spector, analyst]

And our next question coming from the line of Jeff Zekauskas from JPMorgan.

[Jeffrey Zekauskas, analyst]

When you look at Russian and Belarusian carbon black production, has it changed very much? That is, are they making the same amounts that they used to make. They're just not shipping it to Europe? Or has their production actually fallen --

[Sean Keohane, executive]

Yes. Hi, Jeff, yes. So I mean, difficult to see with a great level of precision, I don't believe that there have been any material expansions there. So I think what you're dealing with is the structural capacity that existed pre-invasion of Ukraine remaining, and it's just moving around differently because of the impact. So that's our best view of that, Jeff.

[Jeffrey Zekauskas, analyst]

Okay. One of the other carbon black companies spoke of consumers trading down to -- or buying lower quality tires, more exports coming in from the offshore areas as something that was leading to lower and different tire production in the United States. Is that something that you believe or you don't?

[Sean Keohane, executive]

Well, I do think there is some evidence in the tire industry of trade-down effect. And we have seen historically 2 dynamics that can emerge when you have economic, sort of macroeconomic stress. One is when the economic environment is very weak, then you have seen periods where consumers will stretch the replacement cycle a little bit longer than they probably should. I think in the case we're in right now, while GDP in the U.S., for example, remains fairly robust, the high level of inflation that we're working our way out of and higher interest rates, I think probably are. I think there's some evidence of that, that it's stressing the consumer, particularly in the sort of lower end of the income scales and causing some trade-down effect. So I think that there is definitely some evidence of that. And the combination of sort of stretching this replacement cycle and seeing some trade-down effect is something that has happened before. Historically, it's worked itself out and I think we'd expect the same here, especially as inflation is subsiding, and we appear to be entering a rate cut cycle, which should begin to ease some of those pressures.

[Jeffrey Zekauskas, analyst]

I guess lastly, are there any possible tariffs that might be put on tires that come from China or other offshore areas that might affect you that you're aware of?

[Sean Keohane, executive]

Well, there -- around the world today in the West, there are tariffs that are in place. For example, there are fairly significant tariffs today in the U.S. on Chinese tires. So the result of that is that most of the imports into the U.S. are coming from the ASEAN countries. And then most of the Chinese exports of tires are flowing into Europe, for example. So tariffs do create movement and sometimes some supply chain distortions as you'd expect. But there are tariffs in place today in U.S. and Europe and in South America that impact tire flows. Now the elevated level of imports that we have seen is something that will likely create some back pressure in the form of more antidumping duties and pursuit of tariffs. We certainly could expect that to happen and to be implemented in some way. So I think the combination of the inflation coming down and rates reducing, easing things for the consumer a bit. And I think some tendencies around protectionism, the combination of those, I think it's reasonable to think would kind of move the tire imports back to kind of a more normalized level?

[Operator]

And I'm showing no further questions in the Q&A queue. At this time I will now turn the call back over to Mr. Sean Keohane for any closing remarks.

[Sean Keohane, executive]

Great. Well, thank you. Thank you all for joining today and for your continued support of Cabot. And I would just remind you again that we intend to host an Investor Day on December 4 of this year and look forward at that point to providing a fulsome wrap-up of our last set of Investor Day goals and targets from 2021 and setting out our path forward in terms of strategy and our next set of long-term goals. So hopefully you can all join us there in person here in Boston. Thank you very much.

[Operator]

This concludes today's conference call. Thank you for your participation, and you may now disconnect.