Seadrill Ltd

NYSE:SDRL

Earnings Call Analysis

Seadrill Q3 2023 Earnings: Strong Revenue and EBITDA Growth

Seadrill's Q3 2023 showcased solid performance with $414 million in revenues and $151 million in adjusted EBITDA, leading to a robust guidance hike to $485-$505 million. The firm's strategic maneuvers include a $500 million share repurchase authorization—a significant return to shareholders—and a planned consolidation of headquarters in Houston by Q1 2024 for heightened efficiency. The earnings call highlighted a contract backlog at $2.2 billion, and promising project extensions like the West Neptune into Q2 2025. Despite anticipating idle time for West Polaris in 2024, Seadrill projects a positive cash flow outlook for the coming year. They also predict a vibrant market future, supported by energy demand projections into 2050, which underpins confidence in Seadrill's long-term prospects.

Robust Q3 Financial Performance and Increased Share Buyback Program

Seadrill's Q3 2023 financial results reflect a strong position, boasting an adjusted EBITDA of $151 million on revenues of $414 million, yielding a healthy margin of 36.5%. Capitalizing on their financial strength, Seadrill is ramping up its shareholder returns, executing 85% of a $250 million share buyback program and extending it by another $250 million, setting a bold new authorization at $500 million.

Operational Streamlining and Geographical Consolidation

The company is streamlining its operations by closing its London office and centralizing its headquarters in Houston, Texas. This strategic consolidation is anticipated to enhance collaboration, improve cost efficiencies, and bring Seadrill closer to essential stakeholders such as customers, suppliers, and target markets.

Optimistic Outlook with Revenue Uplift and Strategic Contract Extensions

There's an expected reduction in the impact of Shipyard Preservations Services (SPSs) on Seadrill's revenue, with a likely earnings boost from contracted rigs in South America. Notably, the West Neptune rig has secured a lucrative $76 million contract extension, ensuring active operations into Q2 2025, and strengthening Seadrill's contract rollover profile and earnings forecast.

Strong Order Backlog and Positive Market Indicators

With an order backlog of $2.2 billion and positive industry forecasts for hydrocarbon demand extending to 2050, Seadrill is poised to leverage the robust market dynamics. The demand for offshore drilling remains high, with day rates reaching notable milestones, reinforcing Seadrill's bright future perspective.

Consistent Revenue Generation and Upward Adjusted Guidance

Seadrill's operations maintained a stable revenue stream of $414 million in Q3, with projected full-year 2023 revenue between $1.495 billion and $1.515 billion. Despite a dip in contract drilling by $5 million, adjusted EBITDA guidance has increased to $485 million to $505 million. The company expects to manage a quarter-on-quarter uptick for Q4, although this will be countered by planned maintenance and labor costs.

Cautious on Maintenance Impact but Cash Flow Positive Outlook

Upcoming SPS and rig maintenance will lead to a temporary negative impact on revenue and earnings due to planned out-of-service periods. Seadrill prepares for 45 days of out-of-service for both the Sevan Louisiana and West Neptune rigs next year, with additional maintenance on other rigs. Nevertheless, the company remains optimistic about maintaining positive cash flow in the coming year.

Capital Expenditures and Share Repurchase Strategies

Capital expenditures for 2023 are recalibrated to $185 million to $205 million. While this depicts a reduction from previous forecasts, this adjustment is not permanent but rather a deferral of expenses into the following year. This careful capital management aligns with Seadrill's ongoing share repurchase strategy and commitment to deliberate capital allocation.

Earnings Call Transcript 2023-Q3

[Operator]

Good morning, and welcome to Seadrill's Third Quarter 2023 Earnings Call. [Operator Instructions] I would now like to turn the call over to Benjamin Wiseman, Corporate Finance Manager and Investor Relations. Thank you. Please go ahead.

[Benjamin Wiseman, executive]

Thank you, operator. Welcome to Seadrill's Third Quarter 2023 Earnings Call. With me today are Simon Johnson, our President and Chief Executive Officer; Grant Creed, Executive Vice President and Chief Financial Officer; Samir Ali, Executive Vice President, and Chief Commercial Officer; and Leif Nelson, Executive Vice President and Chief Operating and Technology Officer. Before we begin, I would like to remind you that some of today's comments are forward-looking statements within the meaning of securities laws. They involve risks and uncertainties, and actual results may differ materially. No one should assume these forward-looking statements remain valid later in the quarter or year. For a more detailed discussion of the major risk factors affecting our business, please refer to our latest Forms 20-F and 6-K filed with the U.S. Securities and Exchange Commission. Our comments also include non-GAAP measures. Reconciliations to the nearest corresponding GAAP measures are in the earnings release available on our website. Later in the call, following our prepared remarks, we will host a question-and-answer session. Please limit yourself to one question and one follow-up to commit more participation. Now, let me turn the call over to Simon.

[Simon Johnson, executive]

Hello, everyone, and thank you for joining us today. I'll begin with some opening comments about the third quarter results, followed by a few corporate updates before Samir covers our recent commercial activity and the market outlook. Grant will then provide a financial overview before opening up for Q&A.For the third quarter of 2023, Seadrill reported adjusted EBITDA of $151 million on $414 million of revenues, resulting in a margin of 36.5%, which screams favorably across our peer group. Adjusted EBITDA was robust, and therefore, we have increased our full year 2023 guidance with the range now $485 million to $505 million. Moving to shareholder returns. We initiated a $250 million buyback program in mid-September. And as of last week's close, it executed 85% of the total facility at an average of $42.76 per share. By our estimation, this is highly accretive to shareholders, and we are pleased with the progress to date. Given the success of the existing program, the company's robust financial position and our constructive view on the market outlook, we're delighted to announce today that Seadrill's Board of Directors has increased our share repurchase authorization by a further $250 million, taking the aggregate authorization to an industry-leading $500 million. Now I'd like to touch on the potential sale of our Qatar Jack-up fleet and related joint venture interest. There has been a strong level of interest in these assets, but we have not concluded a sale at this time. Put simply, we intend to transact at a level that reflects our beliefs as to Jack-up asset values and the underlying dayrate environment, both of which continue to develop positively. We firmly believe that these are attractive drilling rigs and arguably the most prospective Jack-up market on the planet right now. Although we remain focused on our strategy of exciting noncore asset categories and simplifying our company's value proposition, we're in no rush to sell these non-operated rigs, and we will do so only if a buyer meets our pricing expectations. On the topic of our ongoing initiatives to simplify unrealized cost efficiencies, we can announce now that we've decided to close our London office and consolidate our corporate headquarters in Houston, Texas. We anticipate this will occur before the end of the first quarter in 2024. First and foremost, I would love to take this opportunity to personally thank the dedicated and talented team in London. The London office has been a hub of entrepreneurship and excellence, and everyone has been a part of that can be justifiably proud of what has been achieved, especially in the past 2 years. In addition to the executive team, only a modest number of staff will transition to Houston. Nevertheless, looking ahead, the management team and I are excited about the opportunities for improved collaboration and for cost efficiencies that we anticipate will result from centralizing our executive, operational and functional leadership under one roof in much closer proximity to key customers, suppliers and target markets. Now the fundamentals remain robust, we believe the length and durability of this cycle and also crucially, Seadrill's advantageous positioning relative to most of our trade rivals. Looking forward to 2025 and 2026, we expect a reduction in the impact of SPSs first in our revenues and cash flow profile, and we anticipate a significant uptick in earnings, particularly as the West Carina, West Jupiter and West Tellus, all of which are under existing legacy contracts. With very positive of an outlook for South America. And last week's 5-year plan from Petrobras only confirmed this view with total E&P spending up 14% and notably, exploration up 25% compared to the prior plan. Now I hand the line over to Samir to take us through the commercials in more detail. Over to you, Samir.

[Samir Ali, executive]

Thank you, Simon. I'll begin with two recent pictures, both in the Gulf of Mexico. First, the West Neptune secured an extension with LLOG, representing a total contract value of approximately $76 million. The extension will be in direct continuation of the current term, keeping the rig busy into the second quarter of 2025. We are proud to continue this long-standing partnership with LLOG that started 9 years ago when the West Neptune was delivered to federal. Next, the West Vela secured a short-term campaign with QuarterNorth Energy, representing a total contract value of approximately $45 million. This is a well-based contract and the estimated term of approximately 3 months. As a reminder, the West Vela was acquired by our Aquadrill transaction, which closed earlier this year and is currently managed by a third-party drilling contractor. Once the current program is completed, the rig will undergo a short reintegration into the Seadrill platform and then commence with the rig quarter or campaign. Moving to some comments on the upcoming rollover. We currently anticipate that Sevan Louisiana will finish its work with Tellus next month, subject to well in progress; then undertake its 10-year SPS. Despite the contract churn that we serve here in the Gulf of Mexico, we remain cautiously optimistic about securing further work. Shifting East, the West Polaris is scheduled to conclude early next year in India. The rig is currently managed by a third-party drilling contractor, but she will transition to Seadrill once the campaign finishes. As stated previously, we may choose to opportunistically relocate rigs to more attractive markets where we see more demand and where we can achieve economies of scale. With this in mind, we do expect several months of idle time on the West Polaris in 2024. Currently, our active fleet contracted utilization for 2024 through 2026 stands at 77%, 47% and 21%, respectively, providing a smooth contract rollover profile. We're increasingly excited as we look to the future, anticipating a considerable repricing from rigs rolling on to prevailing market rates. Our order backlog currently stands at $2.2 billion as of November 27, 2023. Turning to an overview of the market. The IEA recently published its World Energy Outlook forecasting a meaningful need for hydrocarbons through 2050, while OPEC has projected that oil demand will continue to expand until 2045, primarily driven by population growth in the developing world. Taken together with the low breakeven points of deepwater projects and the supportive commodity prices, we believe in the long-term outlook of our industry. Taking a closer look at offshore, drillship marketed utilization continues to track in the 90s, while the leading end day rates recently breached the much anticipated $500,000 per day mark, albeit for a 1-well job. Even so, this is just the beginning. Demand is expected to increase over the coming years, particularly in the golden triangle, and in our view, there are major barriers to addition of new supply. The lead times and cost of delivery are meaningful and should not be underestimated. As the market continues to develop, we average lead times to secure drillships increased to 319 days, an almost 60% improvement compared to 2020. Operators are focused on synchronizing start-ups with the delivery of well equipment, which continues to slip to the right. Admittedly, we haven't picked at the average lead time seen in the last peak when operators often have a year between fixing and commencement, but the fact that we're even making a comparison is a testament of the current strength of the market and the prospects of this up cycle. Our view on duration remains consistent at a high level of increasing on average, mainly driven by fixtures in Brazil. We anticipate average duration continuing its upward trend, especially as operators trade term for favorable day rates in the near term. We are also expecting operators to borrow with other aspects of total contract value to mitigate day rate progression, a positive signal, we believe. The market naturally focuses on headline day rates, but this is just the tip of the iceberg. We are just as focusses of other terms and conditions below the water surface, such as escalation mechanisms to help improve margins. As the offshore market further tightens, we will target to such terms and conditions given they can have a meaningful impact on stakeholder value. With that, I'll hand it over to Grant.

[Grant Creed, executive]

Thanks, Samir. I'll discuss our third quarter results before giving some other financial updates. In the third quarter, Seadrill generated $414 million in total operating revenues, consistent with the prior quarter. This includes $324 million of contract drilling revenues, which decreased sequentially by $5 million, primarily due to planned other service days on the West Phoenix and Sevan Louisiana. We reported economic utilization of 93% for the third quarter, which was negatively impacted by the above-mentioned other service time. Beyond contract drilling revenues, we generated additional revenues from management contracts, largely relating to Sonadrill joint venture totaling $68 million. We also earned an additional $22 million in reimbursable and other revenues, the majority of which relates to Bareboat charter income from the 3 Gulfdrill rigs. Operating expenses for the quarter reduced by $4 million sequentially to $304 million, primarily due to onetime expenses in the prior quarter relating to Aquadrill acquisition and subsequent integration. This translated into adjusted EBITDA of $151 million, resulting in a margin of 36.5%. Net income for the third quarter was $90 million or $1.10 per diluted share.Now on to the balance sheet and cash flow statement. As of September 30, 2023, Seadrill gross principal debt of $625 million, comprising $575 million in secured second lien notes and $50 million in unsecured convertible notes. The second lien notes were issued at our refinancing in July, raising net proceeds of approximately $230 million after redeeming the existing secured debt. At the same time, we established a new first lien revolving facility of $225 million, which remains undrawn.At the end of the quarter, we had approximately $837 million of unrestricted cash. This includes $82 million of cash previously pledged as collateral for a tax case in Brazil. This case remains ongoing, but we are able to agree a new arrangement, thereby unrestricting this cash. Total CapEx for the third quarter was $61 million. Approximately half of this was long-term maintenance and the other half related to rig equipment additions. In line with U.S. GAAP, long-term maintenance costs are included in operating activities on the cash flow statement. The $61 million of total CapEx represents a sequential increase of $24 million compared to the prior quarter, driven by long lead items led oncoming SPSs. Looking ahead to the fourth quarter, we do expect a quarter-on-quarter uptick once again. Cash flow from operations was $112 million for the third quarter. This represents a sequential increase in operational cash flow of $92 million compared to the prior quarter as we were no longer impacted by adverse one-off working capital movements. Moving to our updated full year guidance for 2023. Our total revenues are now expected to be between $1.495 billion and $1.515 billion, while our adjusted EBITDA range has also increased, now $485 million to $505 million. The increase primarily relates to strong operational performance across the fleet, planned maintenance moving to 2024, and a higher number of operating days on the West Polaris. With our year-to-date results and the updated guidance range, you'll note that we anticipate a sequential decrease in adjusted EBITDA in the fourth quarter. This is mainly driven by planned out-of-service time for maintenance, higher operating costs related to special projects, fewer operating days on the Sevan Louisiana, and higher personnel costs due to our initiatives to retain talent in an increasingly tight labor market. Lastly on the CapEx guidance, our CapEx range now stands at $185 million to $205 million for 2023, a reduction compared to prior guidance. However, this is largely a timing issue as opposed to a permanent reduction in CapEx altogether. And as such, we do expect these items will push into next year. Next, I'd like to take a moment to provide more color on our upcoming SPS and rig maintenance schedule. These projects can affect our financials on two fronts. First, out-of-service plans, to undertake the work negatively affects revenue and in turn, earnings. And second, CapEx of an impact on cash flows. Looking forward to next year, the Sevan Louisiana and West Neptune will each have an estimated 45 days out-of-service. We expect to undertake regulatory work in the West Phoenix at some point following the conclusion of the Vela Energy contract. And also, across the fleet, we anticipate SPS-related work to be completed on our four drillships in Brazil, but with no associated out-of-service time. Despite this, we do expect to be cash flow positive next year. Now, I'd like to briefly comment on synergies for our Aquadrill acquisition. As Samir outlined, we recently secured work for the West Vela with QuarterNorth. This campaign start-up will signify the return of a second of Aquadrill's four drillships to Seadrill after the transition of the West Polaris in the first quarter of 2024. What's more, we expect West Auriga and West Capella to return after their respective contracts next year, while the West Aquarius semi-submersible transitioned back to us earlier this year, which remains cold-stacked. Overall, we continue to be on track to realize the previously guided synergies. Furthermore, as part of our continued efforts to simplify the organization, following the sale of Paratus Energy Services earlier this year, we have now terminated the associated management agreements, subject to limited transition services that we expect to finish in the fourth quarter. Turning to our share repurchases. As Simon touched on earlier, we initiated a $250 million program in mid-September. As of last Friday, we had repurchased 6.2% of our share capital of 5 million shares at an average of $42.76 per share. This translates to a total value of turn of $213 million. We're delighted with both the speed and realized price level to date, and we anticipate concluding the program in the next few weeks, subject to market conditions. Next, we've announced today that Seadrill's Board of Directors has increased our share repurchase authorization by a further $250 million, taking the aggregate authorization to $500 million. Any purchases we make in connection with its additional authorization will be at the discretion of our Board and in accordance with our capital allocation principles. We cannot predict when, or if, we'll make any purchases under this facility. We are proud to be a shareholder-friendly company. As we have said before, returning capital to shareholders is central to our capital allocation strategy. And with that, we'll open up for Q&A. Operator, over to you.

[Operator]

[Operator Instructions] Our first question comes from Greg Lewis from BTIG.

[Gregory Lewis, analyst]

[Technical Difficulty]

[Simon Johnson, executive]

Hey, Greg, come here. Can you speak up?

[Gregory Lewis, analyst]

Is this better? I was hoping to get some comments on the broader market clearly, white space has been something that's been talked about, and congrats on getting that QuarterNorth contract in the Gulf of Mexico. It looks like maybe there's going to be 30, 40 days a downtime in between. As you look at the market in '24, realizing there is activity coming, but there's always looks like to be a little bit of a timing issue. Any kind of broad strokes of how we should be thinking about idle time between contracts as rigs roll off?

[Simon Johnson, executive]

Yes. Thanks for the question, Greg. Perhaps let me kick off and then I'll pass to Samir. So, look, I think the thing to realize is that markets evolve through time. They really take a straight path. We're not concerned by what we see as a near-term supply congestion of the fundamentals are just so strong. So what's most important for us is to see consistent measured improvement in demand. That's what we're focused on, and that's what the market is delivering through time. I think it's important to reflect on the fact that day rates are now almost back to pre-downturn levels, the sort of levels that we've seen in Q1 '14, Q4 '13. So, there's been tremendous improvement since early '21. But most of the momentum has obviously been delivered over the last 2 years. So I think that's not always a straight walk, and what we're seeing is just a short-term fluctuation.

[Samir Ali, executive]

Yes, Greg, the only thing I'd add is we've been pretty consistent that there was some churn and some headwinds kind of coming early, probably first half of next year. As we go into the second half of next year in '25, demand starting to stack up and looks pretty good. So, I think it is transitory. And I think I'd reiterate, we've been pretty consistent that we saw it coming, and it's not a surprise to us.

[Gregory Lewis, analyst]

And then I was hoping to get a little bit more color on the Louisiana. That's kind of the semi in the Gulf of Mexico. As you kind of look at the opportunities, one of the things we've been hearing is, just given the configuration or structure of the rig, it might be better suited in an area like West Africa. Any kind of thoughts around that? And really, what I'm kind of wondering is if it were to leave, since it's not a drillship, is if it were to leave the Gulf of Mexico and relocate, any kind of color around the time of the late to reposition that rig and maybe some expenses if that is indeed what could happen for that rig as you market it globally.

[Samir Ali, executive]

Yes, sure. So I'd say she is a unique design, but she's well-loved around here. I'd say we are marketing here globally, obviously. She will roll off contract next month. As I said in my prepared remarks, we're looking at opportunities going SPS too. And then after that, we're looking at opportunities both in the Gulf and abroad. I'd say for us, if we're going to move it, we're going to try to get the customer to pay for it. So, for us, it is value maximization and we're not going to limit ourselves to one market with that asset.

[Operator]

Our next question comes from Eddie Kim from Barclays.

[Eddie Kim, analyst]

Just wanted to get your preliminary thoughts on 2024, if I could. The current consensus has you pegged at around $510 million in EBITDA. Just based on where things stand today, do you believe that's a fairly reasonable estimate? Or would a lot of things sort of need to break your way in order to take that target?

[Grant Creed, executive]

"Ed, thanks for the question. And look, I'll say that we're not in a position to provide guidance for next year, that's really just because certain revenue and cost items are still in slot and really need to firm up before we can provide precise reliable guidance. I think doing anything now would be premature. So I'd rather just stay away from that, if you don't mind, on the call today.

[Eddie Kim, analyst]

Ok, understood. My follow-up is just a clarification on the day rate on the Vela. Samir, you highlighted $45 million of backlog over three months, which works out to a day rate of exactly $500,000 a day on my math. First of all, is that math correct? And if so, is that a fairly clean day rate? Or does that $45 million of backlog include maybe some move fees or other services that would maybe take that clean day rate a bit lower?

[Samir Ali, executive]

So we're not going to get into the contract specifics, but we did say approximately around a lot of things. So, it is a well-based contract. The things can ebb, and flow is what I tell you.

[Operator]

Our next question comes from Fredrik Stene from Clarkson Securities.

[Fredrik Stene, analyst]

Guys, I hope you are well, solid quarter and good to see that you continue to return cash or at least you're paying your shareholders to share repurchases. I have a couple of questions. Starting actually with the jack-ups that you announced earlier this year that you were in the process of selling at least having advanced discussions with customers. As I said, now they're no longer held for sale and you obviously, you're in no rush to sell them. Are you able to give some color on whether or not that's because your price expectations have changed or because the potential counterparts expectations or willingness to pay have changed?

[Simon Johnson, executive]

Frederik, it's Simon. Look, it's a little bit of both. As we've said in the prepared remarks, we've had a lot of interest. Frankly, we had strong expectations about how the jack-up market will continue to develop through time. And the opposite in front of us is simply a match to those expectations. So, it takes time to get deals done. We know that the market for jack-up assets has lots of upside, we believe. And as we said, we're not hurrying, we're not going to sell for a sale price. So, we're not hurrying and we believe that, that market will continue to develop through time. So, it's an informal process we're running, and we'll continue to review offers as we receive them.

[Fredrik Stene, analyst]

Great. Thanks. Turning to some of your comments here about T&C's in the contracts that day rates are one thing, but clearly, total economics and whatever gets you the most cash is what should matter the most, even though the stock market might look more on headline rates than anything else. You also said that Q4 would be impacted by higher personnel costs. So, I was wondering, first, are you able to give any indications on how you see costs for people and equipment developing over the next year and maybe even 2 years? And as you're working on these other PMPs that relates to pass-through mechanisms for escalation mechanisms for costs. How much do you think you're able to pass on to your customers of that?

[Leif Nelson, executive]

Fredrik, this is Leif. I'll take one of your questions regarding the people and cost of services. I'll pass over to Samir on the T&C's. I mean, generally speaking, globally, we're seeing inflationary pressures on the labor side in the high single digits, driven predominantly across Brazil, Angola, U.S. Gulf of Mexico. Some of the pressure is coming from the ramp-up in activity in our own industry, but also heavy industry elsewhere is attracting people to their services, not putting inflationary pressures to retain and maintain our workforce. I think with that, I'll pass over to Samir on the other T&C's.

[Samir Ali, executive]

Yes. So, on inflationary pressures, our goal is always to give you 100% pass-through. I'm going to go with that's a goal, and that's the most desirable outcome. But where we landed varies clients to clients and kind of their understanding, but it also varies market to market. right? So for us, it's also looking at the contract duration and our ability to reprice and have some of the costs do something for us. We want to make sure we're maintaining that margin that we signed up for when we originally signed that contract.

[Fredrik Stene, analyst]

Perfect. Thanks. Final one for me, just a clarification on the Neptune contract. I think you said in the fleet status report that there's been some variations to the well schedule on the existing term. And I'm sorry if I missed this initially, but are you able to give any indication how long are the extensions? Or if the rate on the extension is comparable to what you're earning on the current contracts because initially it seemed to be a bit lower on what I had to work on there.

[Samir Ali, executive]

The extension was approximately 6 months.

[Operator]

[Operator Instructions] Our next question comes from Hamed Khorsand from BWS Financial.

[Unknown Analyst]

This is actually Vahid calling in for Hamed. A question on the contract extension and if that's going to have any impact on the SPS time?

[Samir Ali, executive]

That's a good question, and I don't have an answer to that. [Break] No, I don't think it will have an effect on the SPS.

[Simon Johnson, executive]

We had some discretion as to when we conduct these SPSs. So typically, there's a window within which we must perform it. We do have the opportunity to get a dispensation from our classification society, and certain cases extend that. The same applies to the regulatory work that we have to do to some extent. So, we try to do it to minimize the inconvenience, and our operators work programs and also obviously to opportunistically schedule it in relation to what else we have going on within the organization. So they shouldn't be seen as like a firm anniversary dates, there's some flexibility there is in the list.

[Samir Ali, executive]

Yes, I agree. We have windows that work with and flexibility to work within the wealth schedules and contract in needs.

[Unknown Analyst]

That was the question. And thanks for the flexibility and not making me look stupid that I don't know which rig to ask for.

[Operator]

Next question comes from Truls Olsen from Fearnley Securities

[Truls Olsen, analyst]

You've added comments on a couple of rigs. Let me just throw one additional rig in there, and that's the West Phoenix coming off contract, I think in August next year, SPS and some project-related costs. So, we bid that into the net in deep, I think it's called. It's been a bit back and forth around that project and probably other things going around there. Any update relating to that rig and what's the plan?

[Simon Johnson, executive]

Sure. So we're not going to speak to any specific tenders. But what I will say is, she does roll off contract later next year. We do have some SPSs and some upgrades to do to that rig. And we're actively marketing her for opportunities in Norway and other markets as well, and we remain cautiously optimistic.

[Operator]

We have no further questions. This will conclude today's conference call. Thank you for your participation. You may now disconnect.