Executive Network Partnering Corp

NYSE:GRNT

Earnings Call Transcript 2023-Q3

[Operator]

Good morning. My name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to the Granite Ridge Resources' Third Quarter 2023 Earnings Conference Call.

[Operator Instructions]

Thank you. Wes Harris, Investor Relations representative for Granite Ridge. You may begin your conference.

[Wes Harris, executive]

Thank you, operator. And good morning, everyone. We appreciate your interest in Granite Ridge Resources. We will begin our call with comments from Luke Brandenberg, our President and Chief Executive Officer, who will provide an overview of key matters for the third quarter and our outlook for the remainder of 2023. We will then turn the call over to Tyler Farquharson, our Chief Financial Officer, who will review our financial results. Luke will then return to provide some closing comments before we open up the call for questions.

Today's conference call contains certain projections and other forward looking statements within the meaning of federal securities laws. These statements are subject to risk and uncertainties that may cause actual results to differ from those expressed or implied in these statements. We would ask that you also review the cautionary statement in our earnings release.

Granite Ridge disclaims any intention or obligation to update or revise any forward looking statements, whether as a result of new information, future events or otherwise. Accordingly, you should not place undue reliance on forward looking statements. These and other risks are described in yesterday's press release and our filings with the Securities and Exchange Commission.

This conference call also includes references to certain non-GAAP financial measures. Information reconciling non-GAAP financial measures discussed to the most directly comparable GAAP financial measures is available in our earnings release that is posted on our website.

Finally, as a reminder, this conference call is being recorded. A replay and transcript will be made available on our website following today's call.

So with that, I'll turn the call over to Luke. Luke?

[Luke Brandenberg, executive]

Thank you, Wes. And thanks to everyone for joining our third quarter call. A lot of excitement over here as we crossed the 1-year mark as a public company a couple of weeks ago. By dialing into this call, you are all part of the celebration and I hope that you'll join me in, one, thanking our team for all their hard work to continue to grow the business and to complete the transition from private to public; our legal, accounting and banking partners are keeping the wheels of capitalism turning. The folks on the research and IR side are helping us to spread the Granite Ridge story; our operating partners for fighting the good fight in the field every day and finally, for our investors for trusting us to be good stewards of your capital.

Now this is one of those fun quarters to talk about. On the asset side, we outperformed our internal expectations. On the business side, we're firing on all cylinders. And on the corporate side, the company is more investable than ever. My plan for this morning is to walk through each of those in a little more detail then to discuss how this impacts the remainder of 2023.

And while we plan to issue 2024 guidance when we report year-end earnings in March, I would also like to share a bit about where we see 2024 heading.

Starting with the assets, we want to give credit where credit is due to our operating partners for a great quarter of execution. These folks turned 77 gross or just over 8.5 net wells to sales this quarter, which drove over 20% quarter-over-quarter production growth. A lot of moving pieces in 77 gross wells, but ultimately, 2 development units led to the beat.

We had 3.5 net wells in the core Delaware unit that turned to sales a month earlier than expected and came in under budget. Additionally, we have 1 net well in a Haynesville unit that hit the trifecta by coming in about a month early, exceeding internal production expectations and coming in significantly under AFE.

Now, before I shift to the business, I should mention something about cost. While we have seen green shoots of costs coming in below expectations, we are not modeling and cost declines going forward. On the business side, the opportunity set continues to be robust, both on the traditional non-op or burgers and beers front, as well as the controlled CapEx or strategic partnership front. We have closed on 23 transactions year-to-date and have another handful that we expect to close by the end of the year.

These deals represent a nice blend of flowing production, near-term development and longer dated inventory. 7 of these are in the controlled CapEx or strategic partnership leg of our business development stool. As a reminder, these are opportunities where we take a controlling interest in well-defined areas through direct partnership with proven operators. These are higher concentration investments when we mitigate that concentration risk with higher expected returns and full control over development timing.

Finally, I'll turn to the corporate side. Our big event for the quarter was a secondary sale of about 8 million shares from our largest shareholders. As this was all secondary, Granite Ridge did not make the determination to sell, nor did we receive any proceeds, but the offering did a lot to make GRNT more investable. We have seen a material increase in trading volume. We added over 40 new investors and we significantly increased research coverage with Bank of America, Water Tower and Stephens picking up coverage post-offering. Phillips at Capital One was a bit lonely as a consensus of one, and we sure appreciate all of you sharing your time and mind share with us.

Now, all these benefits did not come without a cost. While we've recovered a bit, the secondary pricing was painful. But in addition to the trading volume increase, broader investor base and increase in research coverage, the offering demonstrated that our largest shareholder continues to be willing to make the hard decisions in order to make Granite Ridge more investable.

Turning our attention to our updated outlook for full year 2023, we're making some adjustments to the full year to account for the third quarter outperformance. The first one is production, where we are increasing both the low and the high end of our 2023 production guidance by a 1,000 barrels of oil equivalent per day. This takes the midpoint up to 23,250 barrels of oil equivalent per day or about an 18% increase over the full year 2022 and a 4% higher than the midpoint of our previous full year 2023 guidance.

A couple of things to keep in mind here. First, while some of the third quarter production beat was due to outperformance, some of it was due to acceleration, meaning less volumes from those wells in the fourth quarter. We mentioned in a previous call that the third quarter will be the high point for the year. Internally, we're looking at about a 7% production decline from the third to the fourth quarter.

The second thing I would point out is while our oil production outperformed expectations a bit year-to-date, the outperformance has primarily been on the gas side. With that, we are taking our oil waiting for the year down to 47%.

On the 2023 CapEx side, we are increasing our inventory acquisition and producing property acquisition bucket up from $50 million to $90 million. As a reminder, we only guide the transactions that are either closed or in definitive dots, not the future deals. The incremental $40 million is new deals since the last call that we have closed or expect to close by year end. About half of the $40 million increase is one acquisition in the Haynesville, and roughly a quarter of the increase is a couple of opportunistic diversified PDP buys.

Now, while we are not typically buyers of PDP, part of the thesis for going public was that there may be some long in the tooth funds that may need to divest assets. We were able to offer ease and certainty of close in exchange for an attractive valuation. On the drilling side, we are taking the midpoint up $15 million. This is due primarily to beginning operations with a strategic partner during the fourth quarter, as well as some acceleration of wells that we thought would come online in 2024, but that we now expect in 2023. That acceleration has the impact of increasing 2023 net turn to sales, but we do not expect much in the way of production from this increase in well activity as they will be turned on so late in the year.

Before I pass the ball to Tyler, I'll wrap up with a few thoughts on 2024. From a capital allocation standpoint, we have previously mentioned that our normal course of business debt target is half a turn to leverage. We are sitting at about a quarter turn now. So long as the opportunity set justifies it, our Board has been supportive of reinvesting all of our post-dividend cash flow and borrowing to fund compelling new opportunities. Once we get closer to that half a turn of leverage, I expect that you'll see us live within cash flow. The other thing I would note is where drilling dollars are going.

As our strategic partnership program continues to gain traction, we will begin to have full control over the timing of some of our drilling capital. If we want to pause, we can pause. If we believe that conditions are right to accelerate, we can accelerate. Based on what we're seeing for 2024, we expect that roughly a quarter of our drilling dollars will be controlled. And with success, we hope to increase that in future years.

So with that, I'll turn it over to Tyler to discuss our financial results in more detail. Tyler?

[Tyler Farquharson, executive]

Thanks, Luke. And good morning, everyone. During the third quarter, our Q3 average daily production was above the high end of our internal estimates at 26,433 Boe per day, a 20% increase compared to Q3 of 2022 and 23% higher than this year's second quarter. Both oil and natural gas volumes were higher versus Q2, as we experienced favorable timing adjustments on key wells in the Permian and Haynesville and production outperformance on gas wells recently turned to sales in the Haynesville.

As Luke mentioned, we increased our full year 2023 production midpoint of guidance to 23,250 Boe per day, which represents 18% growth, compared to last year. Our adjusted EBITDA was $83.2 million in Q3, up 19% from this year's second quarter. Adjusted EPS was $0.21 per diluted share for the quarter. Non-cash depletion and accretion expense for the third quarter totaled $44.3 million, impacting adjusted EPS by $0.33 per share.

Third quarter oil differential of negative $3.89 per barrel was higher than our historical trend due to less favorable local market pricing in the Bakken. Natural gas price realizations during the quarter were 99% of benchmark prices, lower than our historical trend and a result of weaker shoulder month pricing and lower NGL value net of processing costs.

Per unit lease operating costs were $6.96 per Boe, a 5% decrease compared to the second quarter and within our guided range of $6.50 to $7.50 per Boe. Production and ad valorem taxes were 7% of sales, with our view for the remainder of 2023 unchanged at 7% to 8% of sales.

G&A expense for the third quarter was $2.16 per Boe. Included in our third quarter G&A expense was $379,000 of non-cash stock-based compensation. Adjusting for this, our recurring cash G&A expense was $4.9 million or $2 per Boe. We continue to expect full year 2023 recurring cash G&A to be in the range of $20 million to $22 million, excluding the $2.5 million in warrant exchange transaction costs incurred in the second quarter.

Our operating partners completed and placed on production a total of 77 gross or 8.6 net wells with nearly 2/3 of the activity occurring in the Permian Basin. An additional 196 gross or 10.6 net wells were in progress at quarter end. We are increasing our full year expectation by 2 net wells on the low and high end to now target 21 to 23 net wells placed on production during full year 2023.

Capital spending during the quarter was $95.1 million, including $20.1 million of acquisitions. Year-to-date, our spending totals $284.6 million, including $62.4 million of acquisitions. Primarily to reflect an increased level of company acquisitions, as well as the expanded development efforts by our operating partners on their respective acreage, we are increasing the midpoint of our annual capital guidance by $55 million.

Our total capital spending guidance is now $345 million to $355 million for 2023. We also continued our ongoing quarterly cash dividend. During the quarter, the Board declared an $0.11 per share dividend that on an annualized basis represents a 7.2% dividend yield measured against Wednesday's closing price. In addition, we also repurchased 869,000 shares at an aggregate cost of $6.3 million during the quarter. As of September 30, we have repurchased a total of $1.8 million shares at a cost of approximately $12.3 million. Subsequent to quarter end, we completed our semi-annual bank redetermination, increasing our elected commitment amount from $150 million to $240 million.

Pro forma for this redetermination, our liquidity at the end of Q3 was $161 million, with $85 million drawn on our revolving credit facility. Our leverage ratio at quarter end was approximately a quarter of a turn and below our half turn target.

Finally, over the past months, we have added a number of defensive hedges to where we now have approximately 75% of our current PDP hedged for 2024 oil and gas.

I'll now hand it back to Luke for his closing comments. Luke?

[Luke Brandenberg, executive]

Thank you, Tyler. To sum it up, we are pleased with our third quarter results and believe we are strongly positioned as we enter 2024. And while it may sound like a broken record, I do think it is worth repeating that we believe Granite Ridge's investment thesis for non-op oil and gas companies differentiated is practically we're a hybrid oil and gas company and investment firm.

Our objective is to tighten the band of outcomes in oil and gas investing with high diversification, low leverage, and disciplined investment decision-making. While many of our small cap peers trade more like an asset than a business, we look forward to demonstrating in the public space, as we have in the private space for a decade, that there is real value in the Granite Ridge business above and beyond our asset value.

I'd also like to make the distinction that while we had a decline in stock price from the secondary, we did not have a decline in stock value. This decline in stock price does not increase risk, it decreases it. We have something special here, particularly at this price point.

I'll wrap up by thanking all of our shareholders once again for your continued support. We appreciate. And with that, we're happy to answer any questions folks may have on today's call. Operator?

[Operator]

[Operator Instructions]

And your first question comes from a line of Michael Scialla from Stephens.

[Michael Scialla, analyst]

Luke, you mentioned talking -- you mentioned you've got control of 25% of expenditures, or you think you're going to for next year. I guess, based on where strip prices are now, when do you think you would hit that leverage target of 0.5x? And what does that imply for growth next year relative to, call it the high-teens you'll do this year?

[Luke Brandenberg, executive]

Yeah. Mike. Good question. So, from a leverage perspective, at the pace that we're going, I'd anticipate that we would hit that half-turn target somewhere, call it middle of the year. That would be the best guess at this time. Again, prices will play a pretty big impact on that. As will acceleration on that control capital or strategic partnership side, as I mentioned, we'll be picking up a rig, and actually 2 rigs for a short period of time this year. But we're practically looking at about a rig full-time next year and so that will certainly play a role in it.

[Michael Scialla, analyst]

Okay. And can you characterize kind of the percentage of working interests you take in those strategic partnerships versus your typical burgers and beer? And what's the pipeline of opportunities look like for more of the strategic partnerships?

[Luke Brandenberg, executive]

Yeah, great question. So, on the burgers and beer side, that varies quite a bit from the DJ basin where we brought on 32 wells, but only 0.07 net. So very small working interests generally across the DJ. And some areas of the Permian, we may be closer to 10%, but on the strategic partnership side, so that gets a lot higher. That's much more concentrated investments. And so, generally speaking, when we partner with a group, we may -- we being Granite Ridge, maybe 95% of the capital in that partnership. Now we generally have 100% control of the drilling unit, so maybe we're 60%, 70% of that. But net to Granite Ridge, so if you look at the drilling unit, we're probably somewhere between 50% and 60% typically. So much more concentration there.

And as we talked about, we really like the balance there. You have higher concentration, but we expect higher rates of return there. And then also just that control piece, I think it's really differentiated for what we're doing. It just gives us the ability to pause if it makes sense, accelerate if it makes sense, and just look a lot more like an operator from that perspective.

[Michael Scialla, analyst]

Great. And then, just one more if I could. You mentioned you're seeing some green shoots on pricing. You're not ready to change your official, I guess, well costs for next year. But anything you can say in general on where you think well costs are heading based on what you've seen with AFE so far relative to 2023?

[Luke Brandenberg, executive]

Yeah, I think basin by basin changes a lot. Where we've seen the best beats, if you will, is in the Haynesville. And I think a big factor of that was you probably just had a pretty big swing on the pendulum when prices for drilling really ramped in late ‘22. And like a lot of folks just got bit by that, I think you saw companies probably had AFEs a little bit more to make up for that. And we've seen them come in under. I mean, in one case we were -- gosh, we were almost 20% under, which was tremendous and certainly happy to be partnered with that operator there. But that said, it's -- I could tell you a handful of data points where we beat, but the majority of them were really coming in line pretty darn close to AFE.

So again, there are some green shoots, but, rigs are getting a bit tighter in the Permian than they were 6 months ago. And so you're seeing some rig rates that are approaching low $30,000s a day. And so, I don't know that we're seeing any relief there. So I'd say steady as she goes is our expectation as we look towards ‘24.

[Operator]

Your next question comes from a line of Jeff Robertson from Water Tower Research. Your line is open.

[Jeffrey Robertson, analyst]

Luke, with what you all have going on closing out the year with some of the incremental acquisitions, will that give you some production momentum as you start up in or as you head into the first quarter of 2024?

[Luke Brandenberg, executive]

Yes. Jeff. So I'd say maybe a little bit, but most of the acquisitions, I referenced the one in the Haynesville that was, plus or minus $20 million. That was a little bit of production, but the vast majority of that is inventory weighted. That said, the group that we partnered with there, they'll actually be completing some wells late this year. And so I'd say we could see a little bit of acceleration, if you will, or increase going into '24 from the $40 million increase. But I don't think it's going to be a ton. Most of that is really inventory weighted, where we may start drilling that next year at some point, but not necessarily immediately.

We did have a little bit of a production buy that I also mentioned, I guess it was through 2 transactions that we were just fortunate to really get to capitalize on, hey, there's some, late life funds and they may need to get out of assets. The good funds, the fund made money, they just need to exit. And we were just a natural buyer and we could make it real easy for them. And so we did buy a little bit of production there, valuations that we're very happy with. But it's really de minimis in the big scheme of things.

[Jeffrey Robertson, analyst]

Is the Haynesville acquisition in nearby the well that was brought in recently under budget and overperforming in terms of production?

[Luke Brandenberg, executive]

No, not particularly. This one is going to be on the Texas side.

[Jeffrey Robertson, analyst]

And lastly, a question on the partnerships. I think you said you'd like to have 1 rig here in 2024. Is that 1 partnership, Luke? Or would that be spread over a couple of different projects?

[Luke Brandenberg, executive]

Yes, good question. Glad you asked that. So the goal is for each partnership to have effectively a rig full time. Now, that may not be a whole rig again, if we're, call it 70% of the unit. You're not multiplying the full rig rate x365 days, but it is 1 per group.

And so really the objective is these guys are putting together deals or get creative, getting scrappy and putting together drilling units and stacking one on top of the other, such that they can run a rig full time and just really try to get some of the benefits of keeping a rig running, supposed to pick it up and putting it down.

[Operator]

[Operator Instructions]

Your next question comes from a line of John Abbott from Bank of America.

[John Abbott, analyst]

Just thinking stick with the strategic partnerships. So, if I understand it's going to be about 1 rig next year, related to basically one partnership 25% of CapEx. These partnerships, it requires a little bit since you have a higher working interest requires a bit more capital.

I guess, just starting off here, and I know you want to grow that over time. But as you sort of think about -- I mean, how quickly do you want to grow that strategic partnership capital, since it is a bit more chunky and you do - you would be looking at a dedicated rig per partnership. Do you want to grow that gradually at 25%, then like 50% then 75%? Do you want to grow that over a multiyear basis? How do you think about comfortably as you grow the business? How much strategic capital do you want out there?

[Luke Brandenberg, executive]

Yeah, it's a great question. The way that we look at it, I'd say truth be told, it's less of a plan, okay, let's try to get 1 a year and increase from 25% to 50% to 75%. It's really more opportunity-driven. And so, our partners here, these are really unique opportunities in the sense that, we're not here trying to replace your large private equity firms.

That's not the role that we play. It's really for folks who are more focused on putting together kind of drilling in about drilling in and not the large format acquisitions. And there are several criteria that really make a good partner for us and allow us to be a good partner for them. A lot of these folks that they need to be proven money makers and that's for 2 reasons. One, from a risk management for us, we know that they know how to build a business. They know how to execute.

But the other point is, we're not necessarily covering all the overhead of these groups. So these are folks that are willing to put their own money in a deal, real substantial dollars. If they're, 5-plus percent, we were running rig full time, and that’s over $5 million a year that they're reinvesting. So it's real dollars. So that's the criteria.

The other piece is, again, we're not really competing with private equity in the sense of backing teams. And so a lot of this is really opportunity-driven. They're not finding opportunities to keep the rig running full time. Those are multi-hundred million dollar deals that are generally in the world of the mid-cap guys or the larger private equity firms.

These are kind of unit by unit. So when I look at next year -- well, maybe let's rewind. We anticipate running a rig basically full time next year, but we've been working with this team for over a year to get that drill schedule built out. So if today, we found a team, it was a great partnership. Both sides are really excited about it and we hit the ground running. They might have identified an initial opportunity, but you're probably a year plus away from really running a rig full time. So that's bounced around with you there. But ultimately, I'd say it's more opportunity-driven than it is a specific formula for layering and 1 every year.

And, we're talking to groups and in the Bakken in the Midland Basin, in particular those are areas where I think there could be opportunities to put together units from folks that have had experience there and have deep relationships there. But I wouldn't anticipate next year's capital doubling, even if we shook hands with the team today. That would probably be later next year to early ‘25 that you really put dollars to work with that second team.

[John Abbott, analyst]

Appreciate that color. And then the next question, I think, goes here to Tyler. And it's really on liquidity and strategic partnerships as well. So -- now the opportunity of the strategic partners is more control, more visibility on cash flow. But cash flow could be lumpier. I mean, you have to spend money for these calls, you have to wait for them to come online. And so when you sit and looking at -- it looks like you increased your credit facility up to about $240 million.

So I guess when you sort of think about the strategic partnership sort of model and you -- how you think about liquidity that you want to maintain? And how do you think about the possibility of further expansion to your revolver over time?

[Tyler Farquharson, executive]

Yeah, so you're right. We did increase our revolver by $90 million added liquidity post quarter. And you nailed it. That's exactly why we did that. We wanted to get ahead of the big ramp up in strategic partnership capital that we expect next year. So I think we're comfortable there in that kind of $250 million range that allows us to start to fund those strategic partnerships and gives us the opportunity to get to our half turn leverage target while still giving us enough capacity to where if we do end up maybe getting a second team or deploying a team in the Bakken or somewhere else. We have the capacity to start that process as well. And then I think if we did -- were successful on getting a second strategic partnership, we'd have to go back to market to increase our RBL at that point.

[John Abbott, analyst]

Understood. Maybe just a quick follow-up on that. So if you got a second -- so the goal, not the goal, but one of the thresholds you talked about is getting up to 0.5x leverage. If you got another strategic partner, would that be a situation where you could possibly take leverage up to 1x? Or would that not qualify that?

[Tyler Farquharson, executive]

It could. I think we really view though, going up to 1x being more of a consolidation opportunity. So maybe a larger format transaction where we take it up to 1x if it had a clear pathway back down to our half turn target.

[Luke Brandenberg, executive]

Yes, the only thing that I would add on is that if you think about adding a rig, just picking up a rig, right, you get a negative cash flow for a period of time and you get to be cash flow neutral. And so just depending on timing of those 2 partnerships or 3, I think you could paint a picture where you certainly would go over half a turn, but you'd want to have real clear line of sight frankly as you’d hear us talk about it on calls or in some sort of press release. So, hey, we talked about half a turn, we are going above that. Here is the line of sight to getting back to that comfortable level.

And the other piece of the 2, a neat thing about the non-op space is because we have control over these, but we're still non-op. And then if we get to a point where we've got more concentration and more capital than we're comfortable with, you can always sell down a piece of that. That's one of my favorite things about non-op is it's infinitely divisible. If I want to go set on 20% in a well that we're about to spud, there's a great market for that and we know those folks well. We compete with them day in and day out. It's a great way to lay off some capital to make sure that we're right-sizing our exposure in a quick way.

[Operator]

Your next question comes from a line of Jeff Robertson from Water Tower Research.

[Jeffrey Robertson, analyst]

Just to follow-up on the discussion around partnerships, Luke, why do you think Granite Ridge's capital is a better source of capital for some of the people you all are discussing opportunities with and some of the alternatives they have?

[Luke Brandenberg, executive]

Yeah, it's a great question because look, I talked about the characteristics of a good strategic partner and most private equity firms would probably chomp into this to get to partner with these folks as well. So it's really good question that the few things that Granite Ridge really offers when we think about how we can be a better partner to these folks are. One, if you think about a partnership with a private equity firm, a lot of times the private equity firms, they not only control the assets, but they also control the company. And most importantly, that means they control when to sell.

With our partnerships, everything's at the asset level. And so while we control the asset, we can never make the group sell. They can sell when they want to or they can hold on to the asset forever, which for a lot of these folks that, again, are proven moneymakers that really created some value, they want to build a long-term oil and gas company. We're a differentiated group for them.

The other thing that we do that we really think is important and different to teams really stands out is when we talk about a deal with a group, it's really almost a drilling unit by drilling unit basis. And each of those drilling units are their own project. And so the management teams have the opportunity to create value to get into the incentive piece of it on a unit-by-unit basis versus having to wait for an exit for an entire vehicle. That's a real differentiator. And I think something that separates us and management teams really like is that they can effectively get funding on a project-by-project basis.

We get comfortable with that because, one, we're focused on proven areas. And two, we're doing a lot of these in addition to strategic partnerships. We're in many wells over the course of the year. So we're able to diversify our risk across our portfolio. So, again, 2 main reasons, more control over the company, also getting the opportunity for project-by-project payouts. I think those are 2 reasons that we can really be a better partner for the right folks.

[Jeffrey Robertson, analyst]

And then just a follow-up for Tyler. I think you said, Tyler, you're about 75% of 2024 PDP production is hedged today. Will Granite Ridge's hedging strategy change as you approach the half a turn of leverage or will it pretty much be to stay consistent with what it is today?

[Tyler Farquharson, executive]

No, I think we like is even at half a turn of leverage, that's pretty low leverage. So I think that we'd have to go quite a bit higher on the leverage side before we'd consider really adding a lot more hedges and thinking about moving into hedging some of the development opportunities, as well. So I think what you'll see from us is just consistency in that 50% to 75% range of current PDP.

[Operator]

There are no further questions at this time. Mr. Luke Brandenberg, I turn the call back over to you for some final closing remarks.

[Luke Brandenberg, executive]

Excellent. Thanks, Rob. And I just want to say thank you to everyone on the call. This is a neat quarter for us. It's fun to talk about. I'm sure I appreciate everyone's interest. Tyler and I, we're perpetually on the road and we're always around. And so, please don't ever had...

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.