Skyline Champion Corp
NYSE:SKY
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Skyline Champion Corp
Earnings Call Analysis
Q2-2024 Analysis
Skyline Champion Corp
Skyline Champion Corporation has reported a notable decline in its operating cash flows, generating $54 million in the recent quarter compared to $231 million for the same period last year. This fall is largely attributed to decreased net income and the capital impacts from producing FEMA units a year prior.
Despite the decline in cash flow, the company strategically invested $143 million in ECN Capital shares and acquired Regional Homes for $318 million in cash, alongside assuming $93 million of debt. These decisive actions underscore Skyline Champion's commitment to long-term strategic growth. They also anticipate capturing synergies ranging from $10 to $15 million over the next two years from their latest acquisition, aiming to enhance manufacturing procurement and operational efficiency. However, investors should note these growth efforts may initially dampen the company's consolidated gross margin due to fair value adjustments of inventory and will also increase SG&A expenses because of the amortization of intangible assets.
A notable development is the collaboration with Triad Financial Services for a 'Champion Financing' program. Slated for a January 2024 launch, this joint venture aims to provide floor plan and tailored retail loan programs without bearing the loan risk on Skyline Champion's balance sheet. The profitability of this partnership could notably affect quarterly results moving forward.
Skyline Champion is witnessing a surge in orders, growing year-over-year by 250%, a testament to the strong demand for affordable housing solutions they offer. However, gross margins are projected to face a 200 basis point compression over the next few quarters. The acquisition accounting from Regional Homes will further influence margins, predicted to impact an additional 40 to 60 basis points. Laurie Hough, the CFO, remains optimistic, suggesting a rebound to mid-20% gross margin targets is plausible in the long-term despite near-term fluctuations.
CEO Mark Yost projects mid to high single-digit sequential revenue growth for the coming quarter, inclusive of the impacts from Regional Homes. Yost also outlines the anticipated impact on gross margin resulting from mix shifts driven by the market's adaptation to higher interest rates and the integration of Regional Homes.
Skyline Champion is strengthening its relationship with the construction industry by delivering quicker, cost-efficient building solutions. With small to midtier builders facing approximately 14% cost of capital, the company's offerings are appealing due to significant time and cost savings.
As the Federal Reserve extends rate hikes, builders are re-evaluating rate buydown strategies and contemplating more sustainable alternatives, positioning Skyline Champion as a viable contender given their infrastructure and pipeline. Furthermore, the company is operating at 53% capacity utilization to maintain readiness for market demand shifts.
In a tightening credit environment, the ECN partnership provides Skyline Champion's customers with enhanced access to liquidity. While not changing rates directly, benefits may emerge from volume discounts and a suite of services that the Champion Financing program is expected to offer, bringing additional value to partners and consumers alike.
Despite temporary 'noise' in the market due to the integration of Regional Homes, Yost expects sequential revenue growth leading into the spring, with the anticipation of an increase in consumer demand. The company foresees slight volatility in average selling prices (ASPs) due to the ongoing mix shifts between retail and manufacturing sectors.
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Good morning, and welcome to Skyline Champion Corporation's Second Quarter Fiscal 2024 Earnings Call. The company issued an earnings press release yesterday after the close. I would like to remind everyone that today's press release and statements made during this call include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from the company's expectations and projections.
Such risks and uncertainties include the factors set forth in the earnings release and in the company's filings with the Securities and Exchange Commission.
Additionally, during today's call, the company will discuss non-GAAP measures, which it believes can be useful in evaluating its performance. A reconciliation of these measures can be found in the earnings release.
I would now like to turn the call over to Mark Yost, Skyline Champion's President and Chief Executive Officer. Please go ahead.
Thank you for joining our earnings call, and good morning, everyone. I am pleased to be joined on this call by Laurie Hough, EVP and CFO.
Today, I will briefly talk about our second quarter highlights and then provide an update on activities so far in our third quarter, include with though on the balance of the year.
We saw healthy demand from end consumers through our captive and independent retail channels. Community rechannel softness continued as expected through the September quarter as our REIT partners worked through their backlog of existing new home inventory before placing new orders. This pause in the community ordering, combined with the absence of FEMA-related sales that were in the second quarter of last year drove our year-over-year declines in both production and revenue.
Backlog as of September 30 was $258 million compared to $260 million at the end of the June quarter as sequential quarterly unit increases were offset by decreases in price.
Average lead times of 8 weeks have normalized within our historical range of 4 to 12 weeks and are consistent with lead times at the end of the first quarter.
Order volume during the quarter increased again sequentially, and we are seeing the expected decrease in home prices as consumers shift to smaller homes or homes with fewer features and options given the current interest rate environment.
Shifting to some of our strategic actions we have taken recently. On September 26, we closed our investment in ECN Capital and the establishment of our new captive finance company, Champion Financing. We believe that the formation of the captive finance companies will unlock home volume growth and bring value for our key stakeholders by providing broader and more attractive financing options and services to our customers. It will enable us to provide a comprehensive home-buying solution while becoming more deeply connected with our channel partner customers and the end consumers who purchase our homes.
The investment aligns with our longer-term strategic view on offering digital configuration and selling to home buyers. As we continue to ramp up Champion Financing, we believe the benefits will create a deeper connection with our dealers and end consumers.
As we drive more volume to ECN, which will help to increase the diversity of capital sources that will accelerate the growth of the industry overall.
Additionally, in October, we closed on the acquisition of Regional Homes, the fourth-largest hub manufacturer in the United States, the largest independent retailer and the company we have long admired. We are confident that the addition of Regional Homes to the Skyline Champion platform will allow us to accelerate profitable growth through the expansion of our retail and manufacturing distribution across the Southeastern United States.
Regional Homes has a customer-centric selling approach and is dedicated to providing an exceptional homebuying experience to its customers, which directly aligns with Skyline Champion's core value and our strategic initiatives to enhance the customer buying experience. In coordination with the closing of the acquisition, I'm excited to welcome Heath Jenkins for the Skyline Champion leadership team as he will serve as President of our captive retail operations. Heath brings years of industry retail experience and strong leadership capabilities, but most importantly, exhibits an unwavering commitment with the customer first.
Altogether, these investments represent an exciting opportunity as we strengthen our efforts to support the long-term growth and solidify Skyline Champion's market positioning as a leading provider of attainable housing solutions, for which the market is in tremendous need of today.
Moving to the third quarter outlook. We continue to see stronger order rates from our retail and builder developer channels. And while some REIT customers have returned to the market as others are continuing to destock as we move into our normal seasonally slower period, we expect the third quarter revenue to be up mid- to high single digits as a result. We have seen orders strengthen 5 quarters in a row by the growing needs from consumers for affordable housing. We anticipate this need for housing to be longer in duration than we initially anticipated due to recent indications from the Federal Reserve.
Additionally, this REIT is driving more regulatory tailwinds for our products that can give us increasing confidence in the long-term growth potential of our housing solution. With our long-term strategic investments into retail, financing, digital and automation, we are adding value and enhancing the buying experience for the end consumer and our channel partners.
I will now turn the call over to Laurie to discuss our quarterly financials in more detail.
Thanks, Mark, and good morning, everyone. I'll begin by reviewing our financial results for the second quarter, followed by a discussion of our balance sheet and cash flow. I will also briefly discuss our near-term expectations.
During the second quarter, net sales decreased 42% to $464 million compared to the same quarter last year, in which we recognized $118 million in semi-unit sales. The decrease in net sales reflects a 15% year-over-year decline in average selling price per U.S. home due to semi-unit sales last year, which carry a higher ASP than our core product due to the complexity of build.
In addition, our core product ASP declined due to product mix and the decrease in material surcharges. During the quarter, we sold 4,842 homes in the U.S. compared to 7,274 homes in the prior year period. U.S. home volume was down year-over-year due to the absence of FEMA-related sales and reduced production schedules to align with order rate. On a sequential basis, U.S. factory-built housing revenue was in line with the first quarter, consistent with expectations that demand would remain relatively flat.
An increase in the number of homes sold was partially offset by a decrease in the average selling price per home as core customers opt for smaller and less optioned homes in an effort to maintain affordable monthly payments in the current interest rate environment.
Capacity utilization decreased to 53% compared to 56% in the sequential first quarter of fiscal 2024. Capacity utilization is being adversely impacted by newly opened plant and a rightsizing of production rates at certain plants that serve end markets in which current order trends remain faster.
Canadian revenue decreased 25% to $29 million compared to the second quarter last year, primarily due to a 23% decline in the number of homes sold driven by slowing demand. The average home selling price in Canada decreased to $126,100 compared to $129,400 in the prior year period, primarily due to the fluctuation in the translation of the Canadian dollar to the U.S. dollar for the year-over-year period.
Consolidated gross profit decreased 58% to $116 million in the second quarter and gross margins contracted by 890 basis points versus the prior year quarter. On a sequential basis, we saw gross margin declined 280 basis points. Our U.S. housing segment gross margins were 24.5% of segment net sales down 950 basis points from the same quarter last year, primarily due to higher margin semi-unit sales in the prior year quarter. As well as lower core product sales volumes and a mix shift to homes with less features and options, allowing the homeowner to hit their monthly payment price point given higher interest rates.
Gross margins were also negatively impacted by lower production rates as we are choosing to operate plants at lower run rate in order to be prepared to quickly ramp upon the return to normal order volume. SG&A in the second quarter decreased $19 million to $64 million, primarily due to lower incentive compensation expense on reduced sales activity.
Net income for the second quarter decreased 68% to $46 million or $0.79 per diluted share compared to net income of $144 million or earnings of $2.51 per diluted share during the same period last year. The decrease in EPS was driven by the decline in sales and reduced operating leverage on lower volume.
Diluted EPS for this quarter includes approximately $0.03 of transaction-related costs incurred for the acquisition of Regional Homes. The company's effective tax rate for the quarter was 24.5% versus an effective tax rate of 25.0% for the year ago period. Adjusted EBITDA for the quarter was $59 million compared to $197 million in the prior year period. Adjusted EBITDA margin of 12.7% compared to 24.4% in the prior year period reflects the return to more normal profitability levels.
In the near term, we remain focused on maintaining efficient production lines as channel conditions improve and order activity return to a more regular cadence. The structural improvements and investments made in our business have strengthened our operational capabilities, protecting profitability in periods of lower output.
That said, we reiterate our expectation that the mix shift by customers looking to maintain affordable monthly payments in the current interest rate environment will continue for the remainder of fiscal 2024. We expect margins to compress further in the sequential third and fourth quarters due to product mix shifts, newly added production capacity continuing to ramp and the purchase accounting implications of the Regional Homes acquisition.
As of September 30, 2023, we had $701 million of cash and cash equivalents and long-term borrowings of $12 million with no maturities until 2029. We generated $54 million of operating cash flows for the quarter compared to $231 million for the prior year period. The decrease in operating cash flows is primarily due to lower net income and the working capital impact of producing semi-units in the prior year.
During the quarter, we allocated $143 million of our capital for the strategic purchase of common and preferred shares of ECN Capital. Subsequent to quarter end, we used $318 million of cash to purchase regional homes. In addition, we assumed $93 million of debt, primarily related to inventory floor plan liabilities.
We remain focused on executing on our operational initiatives, and given our favorable liquidity position plan to utilize our cash to reinvest in the business and for opportunities that support strategic long-term growth.
Since closing on the ECN investment, we've been working to develop the business plan for the strategic partnership with Triad Financial Services, including the rollout of Champion Financing branded floor plan programs for our retail and community channel partners as well as tailored retail loan programs for our retail network.
We are targeting launching these programs in January 2024. As a reminder, the partnership is an asset-light structure, leveraging Triad's existing origination and servicing infrastructure and ECN's funding capabilities, which include relationships with Unity banks and leading institutional investors with no loan risk on the Skyline Champion balance sheet.
We will be reporting the impact of the ECN common stock investment and the results of the captive financing partnership on a quarterly lag.
We began the integration of regional homes upon closing of the transaction in mid-October. The teams have been meeting to share best practices and to begin to capture synergies. As a reminder, we anticipate synergy capture of $10 million to $15 million over the next 2 years including manufacturing procurement synergies, leveraging our national footprint and operational improvements from sharing of best practices across productions and sales.
The regional balance sheet, including retail finished goods inventory will be revalued to its fair value and will negatively impact the company's consolidated gross margin in the next several quarters as those homes are retail sold. In addition, SG&A will increase for the amortization of intangible assets generated from the acquisition.
I'll now turn the call back to Mark for some closing remarks.
Thanks, Laurie. As we manage through the rebalancing of our channels, we believe Skyline Champion is well positioned due to our affordable price points, strategic positioning and our core initiatives. The long-term outlook for demand is supported by the channel opportunities with community REIT, manufacturer rent and builder developer growth as well as helping our retail partners adapt changes in consumer demographics.
In addition, the need for affordable housing continues to grow each and every day, and we believe that the elevated cost of housing will drive more traditional state-built buyers to our homes.
Before we open the line for Q&A, I want to take a moment to thank our people. The entire Skyline Champion team has our consistently strong performance as a result of the amazing things that may happen each and every day.
So with that, operator, you may now open the lines for Q&A.
[Operator Instructions] Our first question is coming from Greg Palm with Craig-Hallum Capital Group.
I wanted to start with gross margin, it sounds like in the quarter, maybe the weaker-than-expected result was more of a function of some of these plant operating costs versus maybe increased competition or discounting. So I just wanted to make sure that was right. And then just sort of going forward, is the thought process that you're maybe keeping more employees on or keeping more shifts in preparation for that return of demand? Is that why one of the reasons why gross margin is going to maybe stay a little bit subdued to you in the near term?
Yes, Greg, I think that you summed it up pretty well. We are definitely seeing, in addition to the things that you mentioned a product -- that product mix shift that we were anticipating, but to a greater degree as well. So yes.
And just in terms of maybe quantify a little bit more relative to this previous quarter, what kind of compression should we expect over the next quarter or two?
Yes. For the next few quarters, we're definitely -- it's going to be -- there's a lot of moving parts. So we're going to continue to see that product mix shift with the consumer trying to reach a more affordable monthly payment with interest rates where they are today. And as well as the ramping plants and then the impact of the regional purchase accounting on gross margin. So we're expecting it probably around 200 basis points.
And the purchase accounting was kind of 40 to 60 basis points, correct?
Yes, I did mention that last quarter. We're still working through all the numbers based on the closing balance sheet.
Yes. Okay. And then I don't know if you can maybe talk a little bit more about Champion Financing and what that looks like over the next 1 to 2 years? I know ECN, the partner here, they've publicly stated the expectation of that JV contributing $40 million of pretax income per partner in calendar '25.
I think maybe they said at least $40 million, if I remember right. Is that something you want to bless as well? And if that's the case, just kind of curious what that ramp might look like over the next couple of years?
Yes, Greg, I think the ramp is out there. I think ECN mentioned 12 to 24 for their 50%. So I think that's where you're looking at that. That piece for that. The JV is obviously in a great position. We're very excited about that, especially given the banking conditions that we're seeing today. I think the fact that ECN has capital flow partners from Blackstone and Carlyle is tremendous in today's market. We've already seen 2 or 3 banks start to -- regional and community banks start to exit out of the lending space our customers.
And as there's further pressure and we anticipate some further pressure on regional and community banks, making sure our customers have access to liquidity is very important for our dealers and obviously, our community partners and builder developers as a matter of fact.
So I think having that partnership with ECN is vital, especially with the strong relationships they have with Blackstone and Carlyle, who committed an additional $1.3 billion worth of capital. So infusing liquidity into the market with community and regional banks.
So that really is a strong -- like forward to us. So as Laurie mentioned, we're getting things set up right now. We anticipate we'll have the systems and other things ready to go by January time period. And so we'll really start to ramp it in the calendar year of '24. And so I think evening's on track to that. And -- the teams are working very well together.
And just to be clear, I was talking calendar '25. I think they mentioned 12 to 24 in calendar '24. Is that right?
Yes, that's correct.
Our next question is coming from Daniel Moore with CJS Securities.
First off, just want to clarify comments, Mark. I think you said you have some Q3 revenue up mid- to high single digits sequentially. Is that correct? And if so, is that organically or inclusive of regional?
That's inclusive of regional, Dan, in that number. Yes, we expect somewhere at least in that range, mid- to high single digits, at least for the quarter sequentially.
Got it. And it sounds like some communities returning, some still destocking. Are there any discernible differences, be it regional or other that you can sort of identify? Or is it more community versus community by community?
It's really more community by community. We've seen actually a handful of communities returns. They've been starting to order and get back on a normal cadence. Others are still in that destocking process. So it's, I don't want to say it's 50-50, Dan, but it's definitely -- there's a split between communities that are starting to move and others are still kind of in that pause mode.
Got it. And what can you say just in terms of kind of longer-term progress that the Genesis solution is making? We focus on those top 100 builders, but even beyond that in terms of sort of converting to your solution. I recognize it takes years, not quarters, but what's the sort of momentum or cadence of those dialogues?
The momentum is phenomenal, actually. I think now that interest rates have stayed up a little bit and they're forecasted to stay up a little longer according to the Fed. It's really causing builders to take a look at what that outlook is.
Right now, a majority of builders are buying down loans to really drive their volumes. I look at our -- and I look at our quarter, we had order growth of 20% sequentially and orders year-over-year grew by 250%. And that's with no buydowns, no real incentives to drive volumes. So I think the affordable price points there and with their cost of capital, for small to mid-tier builders kind of ranging in that 14% range for development. That really can drive a huge incentive for them to switch to our solutions to where we can save them 9 to 12 months of cost capital time. So it's tremendous.
So I'd say the momentum is definitely picking up, especially now that people are looking at the fact that buy-downs can't last forever, and the Fed is extending longer. I think that really is a motivation for builders to look at an alternative because they can't do it otherwise.
Got it. And last for me, just circling back to the gross margin. I appreciate the color and commentary. 200 bps kind of back down to the 23% range, maybe a little conservative, we'll see.
Just talk, Laurie, about when we get through the purchase accounting and get to maybe back to 60%, 65% utilization, where you see margins leveling off, even at this new, let's say, if it's a new norm for a longer period of time in terms of lower price points, mix, et cetera, where you sort of see us leveling off over the next 4 to 8 quarters?
Yes, Dan, thanks for the question. We still think that our long-term structural margin targets are in that mid-20% range. So I do believe that we're going to get back to the targets that we talked about historically. It's going to be bumpy for the next few quarters.
Our next question is coming from the line of Phil Ng with Jefferies.
Mark, you sound pretty excited about this direct-to-builder channel. Certainly, you have some excess capacity right now with a softer demand backdrop. What's your ability to kind of pivot to serve that channel a little more fuller? Is there anything you got to do on the labor front or the facilities?
No. Thanks for the question, Phil. No, part of the reason we're running this quarter we ran at 53% capacity utilization. Part of the reason we're choosing to run at kind of less than optimal capacity utilization is really to make sure we have that available capacity to enter that channel. Right now is that pressure point. And I think a lot of builders have been buying down rates, doing that in view that it would be a short term. They just need to do it for a few quarters. to get through to keep their sales up. I think now that it's more of a marathon, less than a sprint of rate buy-downs, I think they're starting to reconsider.
So I think we've got this infrastructure in place to move in to that channel very quickly, which is why I think the pipeline is shaping up the way it is for us.
Okay. That's helpful. And then how do you see this ECN integration rolling out and progressing, call it, in the next 6 to 12 months? Any big mile marks you want to achieved ahead of the spring selling season.
And you called out how having this partnership now gives you better access to liquidity, especially in an environment where credit is a little tougher. Does it help on the rate side of things as well? Do you have consumers get more competitive right now versus when you didn't have this partnership previously?
Yes. So we haven't done anything to drive rates in a different way. There are some benefits, I think, to our partners in terms of rate that we can look at, especially with our turnkey solutions that we're offering, Phil. I think if they're using -- if they're buying from us, if they're using our construction services, they're using our floor plan and other things, I think overall, we can look at it from a DVD or a volume discount basis that will definitely help them in some ways.
I really think the benefit for them is going to be a fewfold. One, it's access to liquidity. Two, it is the speed that we're going to deliver. So we're working hand-in-hand with ECN in the Champion Financing program really to deliver great customer experience, faster turnaround times, better offerings, in terms of what we can deliver to them. And then I think the third piece is really just, like I said, a suite of services to where they have one partner they can deal with for multiple needs. And obviously, competitive rates to the end consumer is only what it's all about.
Super. And just one last one for me. How do you kind of see your sales cadence kind of wrapping up the fourth quarter? You talked about 3Q. It's just kind of a noisy year, so it would be helpful to kind of get your perspective on how the shape of the year wraps up. And do you expect pricing and mix to kind of stabilize here? Or there could be some further degradation in the back half?
Yes. I think there's going to be a little bit of noise, right? I mean we're going to have some choppiness as we integrate regional. They have a different price point and other things that we'll have to bring in here. But I would see revenue up sequentially and then continue to grow in the spring as the market ramps and some of the community customers continue to come back.
I really think it's positioned very well. ASPs are going to be a little bit noisy, to be honest, just because with the mix of retail versus manufacturing, you're going to see kind of volatility in rates just in terms of all of it noise, which is not really price deterioration or increases, it will be more mix oriented, as Laurie mentioned earlier.
And then regional mix is down or up? Or I just want to make sure you made some comment about integrating regional. I just want to make sure I flesh that out.
Yes. So regional has seen the mix shift that we're seeing more broadly across all of the plants. So where last year, they had higher prices, their prices are coming down as well. Just due to the mix shift in the monthly payment price points that the customer is writing. So we do expect ASPs to come down just generally sequentially from the second quarter to the third quarter and probably stay in that range for the next few quarters as we work through that leveling of mix.
Our next question is coming from Mike Dahl with RBC Capital.
It's actually Chris Kalata on for Mike. Just a follow-up on the regional discussion now that the deal is closed, is there any more specifics you could provide in terms of expected unit contribution in next quarter and into 4Q, just given the additional color you have now?
Yes. We don't -- Chris, thank you for the question. We don't break out regional separately in terms of the guidance. I think they're wrapped up in our overall safe if how we see the third quarter shaping up.
Got it. Understood. And then just shifting on -- shifting towards the many changes in the core customer dynamics following the move up higher rates. I mean have you seen a change in order trends in the last month or two, how has the financing environment shifted in response to the move higher like our spreads have spreads expanded? And any color you could provide on the health of the core MH consumer today relative to a few weeks back and the financing changes?
Yes. Thank you, Chris. I think I'm actually fairly confident in the consumer right now. We've seen -- like I said, one thing I look at very directly is the fact that we're -- our unit volumes and our order rates have picked up 20% sequentially. And like I said earlier, I think, 250 year-over-year percent, and that's without incentives. So I think that we're seeing that drive to affordability. We're seeing customers look for a better alternative. And we don't really have to drive huge financial incentives to capture that customer base. So I think that outlook is shaping up very well for us in terms of that.
Our customers right now are seeing, probably -- we're seeing rates, probably the best rates we're seeing right now for channel are about 8.5%. I would say the average is probably closer to 8%, 9%, if they're poor credit, they're in 10%, 11%, 11.5%. So -- but it's a great spread right now, in some cases, 50, 100 basis points we're seeing for channels, which is very competitive in the marketplace today. So it's a great value for our consumers.
We do have a follow-up question coming from the line of Greg Palm with Craig-Hallum Capital Group.
Can -- apart from the -- excluding this purchase accounting, will Regional's gross margins be accretive? Or are they kind of in line with kind of that mid-20's gross margin? I forget whether you've talked about that before, but maybe you can remind us.
Yes, Greg, they're a little bit lower. So we've got to work on bringing in the synergy capture over the next couple of years to bring that up.
Okay. Got it. So maybe that's part of the mix shift as well. And then just thinking longer term, I know, Laura, you mentioned kind of getting back to mid-20s, but why wouldn't it be higher, whether it's in that kind of 26% to 27% range that you were talking about previously or even somewhere in the higher 20s. Just under more normal capacity utilization levels, you mentioned the synergy capture. It just feels like, but I just wanted to maybe flesh that out a little bit more, if I could.
Yes, Greg, the 26%, 27% is still certainly doable at normal capacity levels. And obviously, as volumes increase, there's some upside potential there, too. So we see it in that range, 25% to 27%, whatever.
Yes. Okay. So it doesn't sound like anything sort of changed in terms of getting back to that level or long term versus what we were thinking last quarter?
Not from a long-term perspective. No.
It appears we have no further questions at this time. So I'd like to pass the floor back over to Mr. Yost for any additional closing remarks.
I'd like to thank everyone for participating in today's call. We appreciate the time and your continued interest. We look forward to updating you on our progress on our third quarter call. Thank you, and have a great day. .
Thank you. Ladies and gentlemen, this does conclude today's teleconference. Once again, we thank you for your participation, and you may disconnect your lines at this time.