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Comfort Systems USA Inc
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Good day, and welcome everyone to the Quarter Three 2020 Comfort Systems USA Earnings Conference Call hosted by Comfort Systems USA. My name is Sheila, I'm the operator for today. During the presentation, your lines will remain on listen-only. [Operator Instructions] I'd like to advise all parties, this conference is being recorded for replay purposes.
And now, I'd like to hand over to Julie Shaeff, Chief Accounting Officer. Please proceed.
Thanks, Sheila. Good morning. Welcome to Comfort Systems USA's third quarter earnings call.
Our comments this morning, as well as our press releases contain forward-looking statements, within the meaning of the Private Securities Litigation Act of 1995. What we will say today is based on the current plans and expectations of Comfort Systems USA. Those plans and expectations include risks and uncertainties that might cause actual future activities and results of our operations to be materially different from those set forth in our comments. You can read a more detailed listing and commentary concerning our specific risk factors in our most recent Form 10-K and Form 10-Q, as well as in our press release, covering these earnings. A slide presentation has been provided as a companion to our remarks. This presentation is posted on the Investor Relations section of the company's website found at comfortsystemsusa.com.
Joining me on the call today are Brian Lane, President and Chief Executive Officer; and Bill George, Chief Financial Officer. Brian will open our remarks.
Okay, thanks, Julie. Good morning, everyone. Thank you for joining us on the call today. We are all facing unique challenges now from the global pandemic and in the midst of that, we appreciate our good performance and solid prospects. More than anything, I am grateful for our employees and I want to thank all of them for their commitment and resilience during this difficult time.
Our employees continue to rise to the occasion, I feel gratitude and admiration for them every day. We are working hard to keep our workforce and our community safe and healthy during COVID-19. Despite adversity, Comfort Systems USA achieved record earnings and impressive cash flow.
We earned $1.36 per share this quarter compared to $0.98 per share in the same quarter of last year. This quarter included a $0.17 benefit from a discrete tax item. This marks the highest quarterly EPS in the history of our company with all [ph] it out the tax benefit. Revenues was $714 million for the quarter and our year-to-date revenues exceed $2.1 billion. Through nine months, we had $199 million of free cash flow more than double the good results we achieved in the same time frame last year. Our backlog has trended downwards on this quarter, but we feel good about our prospects. And as you can see, we continue to increase our dividend. In a few minutes, I will spend some time on how that might affect us next year.
Before I review our operational results and prospects. I want to ask Bill to review the details of our financial performance.
Bill?
Thanks, Brian. As Brian said, we once again achieved record positive results. Revenue in the third quarter was $714 million, an increase of $7 million compared to the same quarter last year. This increase is due to the current year acquisitions of TAS and Starr, both of which contributed to our expanding modular construction offering. This increase was offset by a decrease in same-store revenue of 6%. Our mechanical segment was up slightly on a same-store basis. So the decrease resulted from lower volume in our electrical services segment due to a combination of very high revenue comparisons in the prior year combined with deferred starts and other delays this year.
Last year we experienced very high revenues in electrical as we were mobilized on certain exceptionally large jobs from the second half of 2019 until the middle of this year. As a result of these factors, we will continue to face tough revenue comparisons in electrical through the first half of next year. And combined with the air pockets and delays that we are currently experiencing, we expect continuing same-store revenue headwinds during the second quarter of next year, especially in our two largest Texas markets.
Gross profit was $147 million for the third quarter of 2020, a 3% increase compared to last year. Gross profit as a percentage of revenue rose to 20.6% in the third quarter of 2020 compared to 20.2% for the third quarter of 2019. SG&A expense was $91 million for the third quarter of 2020 compared to $90 million for the third quarter of 2019. SG&A as a percentage of revenue remained steady at 12.7% for both quarters. On a same-store basis, SG&A declined $4 million. This decrease is primarily due to cost control measures such as reduction in travel-related expenses. During the third quarter of 2020, we had an increase in tax planning and consulting fees of approximately $2 million which partially offset other declines.
Our quarter-to-date effective rate was 14.2% for tax and benefited from R&D credits and energy-efficient commercial building deductions that were previously reserved. During the third quarter, we finalized settlements with the IRS from their examination of our amended federal tax returns for 2014 and 2015. We currently estimate our effective tax rate for the full year 2020 will be between 22% and 25%, which reflects these settlements. Starting in 2021, we expect our effective tax rate will be between 25% and 30% and if you eliminate the benefits of the settlement, our quarterly tax rate this quarter would have been slightly over 28%. Although 2014 and 2015 are now settled, we have open processes ongoing for the 2016, 2017, and 2018 tax years. And while future benefits are possible, we believe any benefits that arise from those years will most likely be recognizable in 2022 or beyond.
Net income for the third quarter of 2020 was $50 million or $1.36 per share as compared to $36 million or $0.98 per share in 2019. Earnings per share for the current quarter included $0.17 related to the tax benefit that I previously discussed and that benefited net of related tax consulting fees of $2.8 million that were incurred during the quarter. Even if you completely exclude the tax benefit, we had a 21% increase in earnings per share. For the third quarter, EBITDA was $72 million, an increase of 8% compared to the $66 million of EBITDA that we reported in the third quarter of last year.
Our trailing 12-month EBITDA is a record $246 million. Coming up an extraordinary cash flow in the last quarter, our free cash flow continues to be strong and was $48 million in the current quarter. On a year-to-date basis, our free cash flow was $199 million compared to $79 million in 2019. Our nine months' cash flow includes roughly $20 million of benefit that is a direct result of the federal stimulus bill, which allowed us to defer certain payroll tax payments in the second and third quarter.
Our best estimate is that the discrete tax provisions will benefit fourth quarter cash flow by approximately $10 million. This estimated $30 million of full-year 2020 cash flow benefit from these tax provisions will be repaid to the federal government in two equal installments in the fourth quarters of 2021 and 2022.
The phenomenal cash flow this year has resulted in two important balance sheet accomplishments; first, we were able to reduce our leverage to less than 1 turn of trailing 12-month EBITDA about a year sooner than we had anticipated. Second, during the second quarter of 2020, we funded our second largest acquisition ever. However, we were able to fund that acquisition entirely from free cash flow during the quarter, and we still managed to reduce our debt levels. Our trailing 12-month free cash flow is $233 million.
Since the beginning of this year, we have purchased 448,000 of our shares at an average price of $41.90. Since we began our repurchase program in 2007, we have bought back over nine million shares at an average price of $18.89.
Now to Brian [ph] for financial.
Okay. Thanks, Bill. I am going to spend a few minutes discussing our backlog and markets. I will also comment on our outlook for full year 2020 and 2021. Our backlog level at the end of the third quarter of 2020 was $1.43 billion. Sequentially, our backlog decreased by $103 million. Same-store backlog compared to one year ago has decreased by $271 million of which $145 million related to our electrical segment. Changes in backlog include the effects of the third quarter seasonality and an expected decline in our electrical segment, but we are also experiencing delays in bookings and in project starts at certain of our large project companies.
Most of our sectors continued to have strong quotation activity even in the sectors where bookings have been delayed. That is particularly true in our industrial business, which includes technology, manufacturing, pharmaceuticals, and food processing. Our industrial revenue has grown to 39% of total revenue in the first nine months of 2020 compared to 31% a year ago. Institutional markets, which include education, health care and the government were 36% of our revenue and that is roughly consistent with what we saw in 2019. The commercial sector was 25% of our revenue.
For 2020, construction is 79% of our total revenue with 48% from construction projects for new buildings and 31% from construction projects in existing buildings. Both of our construction and service businesses achieved record operating income margin. Service is 21% of our revenue year-to-date with service projects providing 8% of revenue and pure service including hourly work providing 13% of revenue. Beginning in late March, our service business experienced the first and most pronounced negative impacts associated with COVID-19 largely as a result of building closures or decisions by customers to limit building access. However, during this quarter, we saw our service operations at or very near pre-pandemic levels with improved profitability.
Fortunately, our construction activities continue to be classified as essential services in most markets. Despite pandemic related challenges, our mechanical segment performed incredibly well during the quarter. We are grateful for our performance this year and our prospects are much better than we would have expected this past spring. Finally, I'm going to take a few minutes and comment on our outlook. I have never experienced a more uncertain environment and frankly, a broad range of outcomes are possible in the intermediate one to two-year timeframe. It is not currently possible to predict with any confidence how the pandemic and related government decisions will unfold. No other pandemic may impact the decisions of our customers.
With that in mind, we are currently seeing both delays and high levels of pipeline activity at the same time, which is unusual. We expect our full-year 2020 results will significantly surpass our record results in 2019. Although, as Bill mentioned, we also currently expect that same-store revenue headwinds, especially in our electrical segment will lead to same-store revenue declines in the fourth quarter and through the first half of next year. Nevertheless, given the range of conditions that we foresee we feel confident of solid profitability and cash flow in 2021. Although we expect that 2021 earnings will not match our extraordinary 2020 earnings. Given uncertainties related to the ongoing pandemic and the evidence of delays in bookings and project starts, we expect incremental challenges during the first half of 2021 including air pockets in some markets and we are preparing for a broad range of possible economic and capital investment environment in 2021 and in 2022.
Our growth in the industrial segments of technology, medical and pharmaceutical, give us a good opportunity to cope with any challenges successfully. We believe that whatever the puts and takes are over the next several quarters, we have an unmatched workforce and a great and necessary business and that we are very well positioned in geographic markets and industry verticals with solvent ongoing prospects. We plan to continue to invest to make the most of these advantages and opportunities.
Thank you once again to our employees for your hard work and dedication. I'll now turn it back over to Sheila for questions. Thank you.
Thank you, sir. [Operator Instructions] And the first question comes from the line of Brent Thielman of DA Davidson. Please proceed.
Hey, thank you. Good morning.
Hey, good morning, Brent, how are you?
I'm doing well. Thanks. Hey, Brian, or Will, I guess on that the mechanical margins, I mean they are really extraordinarily strong this year, chalk it up to really good execution. I know you've had that kind of a service headwind, which is usually pretty good for margins. I guess how do you feel about sustaining these sorts of levels? I guess I'm thinking [indiscernible] but sort of sustaining these levels with potentially some topline pullback.
Yes, I mean I'll go first. If you look at service made a tremendous recovery in the second - third quarter, which produced the highest margins we've ever, we see at other of our service business since Comfort started and on the construction front, is what you said that we just had really exceptional execution. I think we will continue to execute at a high level, the service business is still there. We did over 20% gross margins in it. I still see us in the 19% to 20% range, Brent, as we go forward even with a revenue decline.
I couldn't agree more.
Okay. I mean and is that structurally higher than what you've been in the past. So I mean that's, yes, that's what I was trying to get to. It's kind of what normal [indiscernible].
It's higher than where we then, except for the recent past; yes.
Right.
You'll - for five years, we've been pretty consistently in that 19 to 20, 21 range, Brent, pretty consistent.
We do have a lot more industrial right now. So some of that is just in that and with service coming back and we're talking about mechanical margins. We felt good about those gross profit margins for mechanical opening up.
Okay. And then on the electrical side, it sounds like part of that, the backlog creep lower is maybe one-part market, one part, deliver it. I know you guys are kind of out looking to pursue maybe higher-value work. How quickly do you think you can push these margins back up within that segment, you made a little bit of progress here this quarter, I'm just wondering if you think you can continue that?
One thing, although it's unfortunate in a sense that our revenue is, so our revenue is going down, some of that was certainly planned and expected in summer we simply expected because we had a big bulge on some of our, some of the biggest work we ever had performed from the third quarter of last year until about middle of the second quarter of this year. They had just some giant jobs. Having said that, the other side of that the margin side of that even though it will have a lower revenue is that was very that was fee-based work and we had very low gross margins sort of as far as an averaging effect goes. So actually we will get help on the electrical margins just by the change in mix, so we'll get a lot up on volume, but we'll get them back on rate and electrical.
And also the service part of electrical was basically zero in March, but it has made particularly in the low voltage side a terrific come back in the third quarter and continues to gain momentum, Brett. So that's clearly, I mean the margins are a lot higher and the electrical service side as well.
Okay. Maybe one last one, a bigger picture question, you guys are all across the country, where are you seeing some of the particular air pockets that you talk about and where are the areas where the pipeline still looks pretty robust. And you're still seeing pretty good award activity, curious what you're seeing across the, across the country.
Yes. So, Brent, it's Brian. I'll give you some pretty broad strokes. I think you see in most of it up in the north, in general. I think in the south, we're still seeing probably a little bit more activity than we're seeing up there. Have some delays but I'm getting a little bit more positive feedback down here where we are, that some of this works going to go, maybe a little sooner. That is up north whatever the reasons are, I think there is a little bit different view between the Northeast and the south, for sure. Bill, do you have anything on that?
No doubt that there is simply more stuff just shut down in the Northeast, right. And to get work started it doesn't just take somebody willing to do it, there's things that have to happen. You have to have drainage plans, you have to permits and you have to have all sorts of engineering done and soil and so with things have been shut down delayed government offices. It doesn't take much to create these delays because there is a critical path and a lot of things are on the critical path. If you're going to build something as complex as a big, big building. So in the Northeast there's is a lot more of that, the south it's more business as usual from the point of view of at least support.
Got it, okay. Thanks. I'll pass it on.
All right. Thank you, Brett.
Thank you. And the next question comes from the line of Sean Eastman of KeyBank Capital Markets.
Hi, gentlemen. Thanks for taking my questions. Good morning, guys. Just going back to sort of this delayed bookings and Starr's dynamic, we kind of covered the geographic perspective, but just curious from an end market perspective and project size, just how broad-based is this dynamic, I guess across end markets.
So there is at least one example of a big data center that's delayed, but in general, I'd say it's broad-based, Brian.
I think it's pretty broad-based. Projects over 10 for sure we're seeing delays to smaller projects.
Still pretty much going, Sean.
And the geography, you got to go back to the geographies.
Yes, got you. Okay. I hate to belabor the point on margins. We went through that in detail already, but I just wonder about this sort of unusual dynamic to use your words, where you've got this really healthy prospect pipeline but not totally sure on when the work is going again. How do you manage through that dynamic and do we expect sort of an immediate term margin drag as you do sort of stay positioned around what seems to be still a really healthy amount of work coming out imminently?
Yes, Sean. That's a really good question and I've checked on that in the last few days, and in the general statement, most of the stuff we're looking at, we are holding margins and we haven't had conversations about a big decrease in that at all. How we're going to manage it going forward, it is the same way you manage any construction activity when the work slows down, you have to reduce your costs, hopefully, it's temporary. But you don't have to manage the labor according to what the workload is. I know these guys have done it before, we don't have any work is out there to evolve. For the first time I've seen this much bidding activity with delays like this, but in terms of the fluctuations of the cyclicality of it, we've all been through this before,
So with the bidding activity, there is no sense that we shouldn't - we don't have a sense that we should be congratulating on right now get where something else is going to have to happen for that to start.
Okay. Alright, that's helpful. And last, one from me is the cash flow clearly a bright spot in 2020. The balance sheet, it looks like it's ready for another acquisition. How should we - how should we be thinking about our capital deployment in the coming quarters?
So I would say absolutely we have paid off a year's worth of EBITDA a year sooner than we thought we would. So yes, it has to make you more open-minded to acquisitions. Having said that anything we do will be done with a ton of conviction because of all the uncertainty. What Brian Lane says this is the most uncertainty we've ever seen, as you might imagine that also plays into the timing for acquisitions. But there are, as you know, we talked to companies for years and sometimes a decade and if the company we have conviction about is ready to sell, we are ready to buy it. I think. So we just, we don't really do a quote at Comfort Systems, right, we buy companies we think will make us better for decades forever.
But if we do find good companies. We will do them, Sean.
Okay, got you. All right, guys, I appreciate the insight. Thanks very much and I compliment the team on this year to date execution, very impressive.
Thanks, Sean. Appreciate it.
Thank you. And the next question is from the line of Adam Thalhimer of Thompson Davis. Please go ahead
Good morning, guys. Congrats on a record quarter.
Hey, Adam. Thanks a lot. I appreciate it.
Brian, I'm trying to parse through your comments on the bidding, because you said that - I think you said the bidding is still strong, I guess at industrial, what are you seeing within the institutional and commercial markets.
So yes, I mean, if so, run dormant specifics, obviously hotels are pretty quiet at the moment. Commercial buildings, for the most part, right, people are gone back to use them, they are pretty slow. Our backlog in education is still, we're pretty good, actually still looking at some work and of course air quality, it doesn't go into backlog, but we are doing some work in schools on that front. So we're not expecting to see hotels or office buildings in here in the near future. Bill, do you want to.
Yes, you know. Meanwhile, the intermediate-term prospects for pharma are very good, like in the Mid-Atlantic and then food processing is always - it's always good. Manufacturing, there is really good indications, but they're just not finding a piece of paper and starting. If you think about it, we're facing a lot of uncertainty over the next several weeks and months, right. So why would anybody you kind of have to understand like why somebody would they keep doing work on it, but whether the delay in signing a contract can't be too surprising to anybody right now. If you're a hospital, for example, you'll find out who is going to run health and human services in the next few weeks that matters, if you're a pharma, you're going to find out who is running the FDA, one way or another, in the next couple of months and they're just why would I don't know, I think it's understandable.
Okay. And I'm not sure if it's a fair question. I mean I think it's more the virus or the election, right now?
I'll let Bill answer that one.
I think it's a general level of uncertainty, but I would say, it's an equal part, I think it's definitely both.
Okay. And not looking for specific guidance, but I mean, what are the range of expectations for how the backlog might trend?
So as far as how the backlog might trend that is really lumpy like, I think it's going to be hard to be signing. We have a very high standard before we will put something in the backlog and it's going to be hard for us to get firm signatures by now at the end of the year. I think the real tell will be it by the time the winners over by the time we report the first quarter. Well, we, where we see our backlog stabilize and start to pick up by year-end, not so much and as far as revenue growth. So we think big job we had is on electrical, the biggest revenue quarter for the jobs we had in electrical was the fourth quarter of last year. So electrical you may, if you look at, was up like $30 million, I think from the third quarter to the fourth quarter of last year. So we have a really big electrical backlog comparison exacerbated by these delays for the fourth quarter, so that's going to make same-store revenue overall down for sure in the fourth quarter.
And then with a bias towards down in the first and second quarter just because that big work isn't there some of that was planned and some of it has come to pass. So I don't know if that's helpful. But that's what I know.
No, that's very helpful. And then the last one from me. Bill, I wanted to ask on D and A because it came in almost $3 million sequentially. Just curious on what the puts and takes are for the next few quarters.
So there are several different kinds of [indiscernible]; I think we're talking about amortization, right? There are several different kinds of amortization, that is the stuff that goes through SG&A and that is coming down. And then there is the backlog, the backlog amortization for our TIS acquisition is the fastest we've ever had it. So you've got, you may help. So with Walker, you had amortization coming down over about an 18 to 24-month period for their backlog. TAS is because, the stuff is built in a plant, their backlog whatever they have on a given day, it all burns in the next three, four, five months. So that's why you're seeing a big drop.
The good news is you don't have to wonder about this. If you go to page, I think around page 18, we put a table there, that shows amortization for the coming years. So we show you the amortization for the last quarter of this year and then we show you the amortization for the next four years and with that something you're required by the rules to put in once a year. We put - we put it in each quarter when we're doing when there's craziness going on. So you can just go look that up and put it right in your model, not wanted to change we do another acquisition, there'll be amortization for that acquisition. But if we didn't do another acquisition absent an unlikely impairment as these kind of assets are very hard to impair even if you want to do, that math, you can just. You got it Page 18.
Okay. Perfect. I'll turn it over. Thanks guys.
All right. Take care, Adam.
Thank you. And the next question is from the line of [indiscernible]. Please go ahead.
Good morning, Brian. Bill and Julie, can you guys hear me?
Yes, we can hear you absolutely.
Fantastic. Glad you take the calls. Just following up, it seems like your core operations on the mechanical side you've done really well, and kudos to you for doing it. Looking at the acquisitions, I think you walked us through a little bit Walker, kind of the air pocket and inability to maybe fill in the pipeline, but the way they expected it, but if I look at TAS it seems like sequentially we are down 50% and here and Starr Electric I think around 20. So, maybe first question, you can kind of talk a little bit about not the nature of the business, because I thought you talked about it, but maybe specifically on that modular business, is there something specific about the type of the business they're doing or is there something about the end markets that really created the pockets - air pockets for those two.
So for TAS, that's the one that's not likely, but we already really told you everything we have about Walker. For TAS, they had a very, very big second quarter revenue wise, it was like 50 plus million and they've had more like 29 or 30 million in the third quarter, so 50 plus million. So they manufacture things in the plant and in the plant, they had a gigantic order going out and they had big equipment deliveries in the second quarter. Here's the thing about and then in the third quarter, they didn't have those equipment deliveries and I think that they'll probably have another similar quarter in the fourth quarter and it will pick up next year just based on the order book, it will pick up back let's say, there's a good chance that it will pick up a lot next year, but at the end of the day, none of that is really impacting our numbers very much, because we have what's called a WIP adjustment and we have where things that are ongoing on the day we buy them, we do a make [indiscernible]. So it's one of the reasons we don't talk about it a lot in the script as it's not, it's not huge in the quarter.
You may have seen for example that we picked up money through the earn outline, a significant $3 or $4 million, I think through the earn outline this quarter, we gave back a similar amount in the last little while through what's called the WIP adjustment line. So that's why we don't mention it because it kind of washes out. But as far as the prospects, we think we like the prospects for next year and so compared to Walker where we definitely have an air pocket, we don't really - we don't really foresee that with TAS and we'll start to get more benefit from TAS, next year because as I said their amortization was very, very heavy, early on, for this backlog amortization because of how fast their backlog burns.
All right. So, then going - keeping that in mind, and I'm assuming similar commentary about Starr Electric would play in, if I look at your kind of the broad guidance you gave us on the same-store sales in December 2020 and the first half of 2021. I think it's a fair question to ask, what is the core mechanical look like? So if I was to take the TAS and you were looking forward for that core mechanical business kind of what are your expectations there?
In the fourth quarter, we are looking at low to mid-single-digit improvement, with COVID, they were flat this quarter mechanical was flat. I actually was, I thought it might be down slightly and I think there is a bias towards mechanical being a little bit down for the next two or three quarters for to say, Starr, I'm sorry, electrical will be down a lot because it's comparing to gigantic quarters a year ago. So, and year-over-year but as far as mechanical, I'd say it will round to zero. They won't get the growth we were hoping for, but I don't see signs of that shrinking or anything, electrical is down there. The reason we put in our script that we have same-store revenue declines as electrical.
And I'm really glad to hear that because it sounds like the core business with the HVAC heating and plumbing, it's doing well and it should give you some confidence in going forward. So my thought was here and going maybe to the Board as well if the core business is doing well and acquisitions are really in adjacencies, we should say, if maybe these recent acquisitions, there are somewhat adjacent to your core business, maybe there is a different way to look at them going forward. And then really compare them to the cost of your own shares and maybe being more aggressive in stock buybacks because it seems to me that your bar should be a little bit higher for the businesses that are in adjacencies than making acquisitions in your core business. And if that's the case maybe there is a better use of capital. Looking at your business, best your own business in your own shares.
So we're pretty aggressive at buying back shares. But we also, when we do these acquisitions, we have a lot of conviction about them. So for example, when we bought EAS five or six years ago, we had the exact same people, the exact same argument why you should have been buying shares you are only getting 5 or 10 million a year from them, but for the last - we've got $10 million a quarter from them. So we believe these acquisitions are going that we're going to be very happy to have thousand licensed electricians, we might be wrong about that but the other thing is when we buy our shares when we think the share price is good, we tend to only buy our shares until we start to affect the price. We're not a company that wants to build up our stock. So we that's just a conviction we have, we buy our shares. I don't know. We bought back nine million shares and we will continue to buy shares.
I understand. Will, I think I agree with you, I think, the acquisitions in your core business, they've done better. And you've done better, but I just question if the bar shouldn't be higher for these adjacent businesses. And if that is the case, I think your perspective changes a little bit. Obviously, barring seeing more acquisitions in your HVAC business I should put that way. Assuming like you said - like you said your leverage has been lowered substantially and it's going to come to the question of what do you do with that capital and if there is a lot of acquisitions in the core business, I think it's obviously easier decision to make.
All right.
All right. But thank you. Thank you for the results, and I know there are difficult times out there, and I agree with you, I think in the next few weeks, we may know more and actually business may look quite interesting.
Fingers crossed. All right, thank you.
Thank you so much. We have no more questions. And I would like to turn the call over to Brian Lane for closing remarks.
All right, in closing, I want once again to thank all of our wonderful employees. The results our team has accomplished this quarter were truly amazing. I have never felt better about this company and its future. We are looking forward to seeing many of you again in person, but in the meanwhile, please be safe. Thanks, and take care.
Thank you so much. And everyone that now concludes the call. You may now disconnect. Thank you for joining.