Secure Energy Services Inc

TSX:SES

Earnings Call Transcript 2022-Q1

[Operator]

Good afternoon, ladies and gentlemen, and welcome to the Secure Energy Q1 2022 Results Conference Call. [Operator Instructions] This call is being recorded on Thursday, April 29, 2022.

I would like to turn the conference over to Anil Aggarwala, VP of Treasury and Investor Relations. Please go ahead.

[Anil Aggarwala, executive]

Thank you, Brad. Welcome to Secure Energy's Conference Call for the First Quarter of 2022. Joining me on the call today is Rene Amirault, our President and Chief Executive Officer; Allen Gransch, our Chief Operating Officer; and Chad Magus, our Chief Financial Officer.

During the call today, we will make forward-looking statements related to future performance, and we will refer to certain financial measures that do not have any standardized meaning prescribed by GAAP and may not be comparable to similar financial measures disclosed by other companies. The forward-looking statements reflect the current views of Secure with respect to future events and are based on certain key expectations and assumptions considered reasonable by Secure. Since forward-looking information address future events and conditions, by their very nature, they involve inherent assumptions, risks and uncertainties, and actual results could differ materially from those anticipated due to numerous factors and risks. Please refer to our continuous disclosure documents available on SEDAR as they identify risk factors applicable to Secure, factors which may cause actual results to differ materially from any forward-looking statements and identify and define our non-GAAP measures.

I will now turn the call over to Rene for his opening remarks.

[Rene Amirault, executive]

Thank you, Anil, and good afternoon, everyone. Today, we will review our financial and operational results for Q1, followed by our outlook for the remainder of the year. The first quarter was another record for Secure and our results continue to demonstrate the strength and scale of our expanded network and business model. Higher industry activity levels drove increased demand for our customer solutions. Synergies realized and combined with our ongoing focus on managing costs, resulted in strong performance across our operations and a 250% year-on-year increase in Q1 adjusted EBITDA to $126 million. We also made significant progress with our deleveraging plan, paying down $90 million in debt, helping to reduce our total debt to EBITDA to 2.9x from 3.4x at the end of Q4 2021.

We are extremely pleased with the successful progress of the integration with Tervita, which is proceeding ahead of our plan in creating a stronger company. We have achieved $53 million of annualized cost savings, reaching 71% of our $75 million target after just 9 months since the closing of the merger. Including savings on our bond refinancing, we have achieved $62 million of run rate free cash flow savings.

I'm also pleased to report that we are releasing our 2021 report on sustainability next week, demonstrating our commitment to ESG, including putting safety first, minimizing the environmental impacts of our operations and creating positive relationships with stakeholders and the communities where we live and work. In addition, the report solidifies our targets for water and emissions reductions and lays out our road map to achieving net-zero greenhouse gas emissions by 2050, including reducing GHG emissions intensity by 15% by the end of 2024.

We're encouraged by continued strong momentum through our operations. With our increased free cash flow generation capabilities and a strengthened balance sheet, we remain well positioned to meet our debt reduction targets and at the same time, able to capitalize on growth at existing facilities and the continued positive trends of our industry.

Chad will now walk us through the key highlights of our Q1 results, and then Allen will review our innovation plan update and operational highlights, and I will conclude with our outlook for the year.

[Chad Magus, executive]

Thanks, Rene, and good afternoon to everyone on the call. Our first quarter results continue to demonstrate the strength of our combined business, our ongoing focus on managing costs and an overall improvement in the underlying markets.

For the first time since the fourth quarter of 2019, we recorded positive net income of $38 million or $0.12 per share in the first quarter. Funds flow from operations increased 257% to $107 million. We also divested $22 million of noncore assets in the first quarter, which we used towards repaying $90 million of debt, as already mentioned.

Our adjusted EBITDA of $126 million increased 215% and on a per basic share basis was $0.41, equating to a 64% increase from the prior year as realized synergies and increased activity levels in our operating areas led to higher processing and disposal volumes at our midstream infrastructure facilities and landfills and increased demand for services related to drilling and completion activity within the Environmental and Fluid Management segment. Adjusted EBITDA margin of 35%, increased from 30% in the first quarter of 2021 due to the positive impact from the cost savings and synergies and increased industry activity levels as well as our G&A improved to 7% of revenue, excluding oil purchase and resale.

In midstream infrastructure, Q1 segment profit margin of 63% increased from 59% in the prior year, largely due to our expanded facility footprint and synergies realized from the merger transaction as well as higher crude oil pricing and more stable market dynamics, which led to increased drilling completion and production volumes.

Higher crude oil pricing in the first quarter also positively impacted recovered oil revenue and increased oil purchase and resale revenue by 163% to $1.4 billion.

In Environmental and Fluid Management, Q1 segment profit margin of 27% was consistent with the prior year. The strong margin performance was largely due to the positive impact of the combined businesses, offset by inflationary pressures, most notably in our Fluids Management business.

Metals prices remained strong in Q1 as did demand for our environmental work. Our positive operating results and sustaining capital spending that was in line with our expectations, allowed Secure to generate $100 million of discretionary free cash flow in the first quarter, an increase of 245% compared to the prior year or 78% on a per share basis.

In 2022, our key capital allocation priority will continue to be on debt repayment. Our capital structure consists of no near-term maturities with the first sixth notes in 2025. In addition, we retained a strong liquidity position with approximately $370 million of availability on our credit facilities maturing in 2024.

We are pleased with our balance sheet management since the merger and remain on-track to achieve our debt reduction targets, and we'll continue to look for ways to optimize our capital structure as we move forward.

I'll now pass it to Allen to provide an update on the integration with Tervita and some operational highlights.

[Allen Gransch, executive]

Thanks, Chad, and good afternoon, everyone. Looking at our operational highlights in Q1. Our midstream infrastructure segment saw continued improved oil prices and higher drilling and completion activity and an overall average rig count of 192 for the quarter. The increased activity that we saw in Q4 continued on in Q1.

Water disposal volumes increased 109% from Q1 of 2021 with total volume of water handled of 2.1 million cubic meters. In addition, we saw processing volumes increased 147% from Q1 of 2021, mainly as a result of the merger, improving production levels and higher waste and processing volumes.

Our oil terminalling and pipeline volumes remain steady from Q4 2021 at about 1.2 million cubic meters and up 48% from Q1 of 2021. Overall, a very strong quarter from midstream processing facilities as they are experiencing increased utilization of higher drilling, completion and production volumes from increased activity levels require more treating, processing and disposal.

Our facility utilization continues to trend in the right direction, and it's now up to 60% in that business. We continue to have lots of capacity to handle additional increases in volume without the need to invest any additional capital.

And our Environmental and Fluid Management business also continues to benefit from higher commodity prices and increased activity levels. External landfill volumes were up another 13% sequentially from Q4 and over 40% year-over-year from Q1 2021 pro forma volumes as a result of drilling and reclamation activity tailwinds.

We're continuing to see increased demand for drilling and completion services with the Fluid Management business. Metal recycling continues to benefit from strong commodity pricing as spares prices remain high, which has helped drive higher volumes.

With regards to our projects business, we're pleased with the progress made on increased abandonment, remediation and reclamation work from the government stimulus package to help the closure and reclamation of orphan and inactive wells. We have seen revenue in our fluid management business rise almost 20% in Q1 of 2022 compared to Q4 of '21. Specifically, our market share is just over 25% in the quarter, slightly higher than our position in Q1 of last year, and our blend plant continues to run at full capacity.

We continue to expect increased abandonment, remediation and reclamation activities positively impacting our Canadian operations over the term of the program. In terms of the federal program so far, $627 million out of the $1 billion allocated to Alberta has been granted. The Alberta program has also been extended by 6 weeks to February of 2023, similar to the $400 million Saskatchewan program.

Saskatchewan has also introduced a program nearing what the Alberta energy regulator has done with targeted spending levels that the companies with retirement obligations must spend. Secure is well positioned in the environmental business segment that the project team are positioned to bid on additional work and landfills will likely see more volumes as a result of these regulatory changes.

We're also extremely pleased with the progress made to date on integration of the 2 businesses. And after 9 months, we've already realized $53 million or 71% on an annual basis of our $75 million synergies target. Of the $53 million, approximately $37 million related to corporate overhead and G&A and the remainder were operational efficiencies and facility rationalization. To date, we have closed or partially suspended a total of 20 facilities, and we are targeting an additional 6 to 8 suspensions during the remainder of 2022. We are confident on being able to reach the minimum of $75 million of synergies or more by the end of 2022.

The focus for cost savings in 2022 will be further on the facility rationalization and operational optimization, including increased facility utilization, transportation savings and operating cost efficiencies. The operational synergies include optimization and facility rationalizations with the expectation that the synergies will contribute a partial benefit in 2022 with the full run rate of $75 million in cost savings in 2023.

Additional savings through initiatives such as improving our capital structure as well as minimizing sustaining capital of managing underutilized assets are also expected to provide incremental discretionary cash flow beyond our $75 million cost savings target.

In Q1, we spent a total of $13 million of capital, which included $10 million of sustaining capital, primarily spent on well and facility maintenance, landfill cell expansion and asset integrity and inspection programs. Our growth capital of $3 million related largely to an expansion of one of our water disposal facility, which is backed off by a commercial agreement with an existing customer at that facility.

During the quarter, we generated $22 million of proceeds from the disposal of assets. Included in the disposals were some vacant land and some excess equipment that came as a result of the Tervita transaction. Additionally, we sold a noncore environmental consulting business, which represented a very small part of our overall projects business.

In terms of overall 2022 capital spending, our $45 million growth budget -- we'll continue to focus on opportunities to connect producers to existing midstream infrastructure and to further increase volumes and utilization on a long-term basis.

With respect to sustaining capital, we continue to expect to spend $55 million in 2022, including 3 landfill expansions. Our focus remains on customer-backed, longer life opportunities as we continue to prioritize de-levering.

I will now turn it back to Rene to address our outlook for 2022.

[Rene Amirault, executive]

Thanks, Chad and Allen. We are extremely pleased with the results to start the year and the ongoing progress made with the Tervita merger, and we continue to see the benefits we expected from combining the companies.

We have a strong deleveraging plan in place as demonstrated in Q1, and we expect to continue to reduce our debt position this year. Our enhanced scale better positions us to optimize existing assets in operations so that we can add more value to our customers and provide greater optionality in allocating capital through all market environments.

Turning to our outlook. The near-term focus will be on continuing to strengthen our business, deleveraging our balance sheet. We anticipate looking to increase returns to shareholders after this is completed. We expect to see continued industry improvement, which will support our strong momentum and drive higher year-over-year discretionary free cash flow in 2022.

Current crude oil and natural gas prices should continue to provide significant improvement in overall industry activity in 2022. As we have seen so far this year, macroeconomic factors, including significant inflationary pressures, geopolitical risk, premium due to the current war in Ukraine as well as lessening COVID-19 demand impacts are driving the increases in current prices.

The current prices and broader economic factors have led to an increased rig count that is expected to continue throughout the year. We also expect to benefit from the following. We expect to see contribution to our adjusted EBITDA from the realization of $75 million of annualized synergies by the end of 2022. We also anticipate increased utilization at midstream processing facilities and landfills as higher drilling, completion and production volumes from increased activity levels require treating, processing and disposal. And finally, higher abandonment, remediation and reclamation activity from the government stimulus package to help fund the closure and reclamation of orphan and inactive wells.

In closing, we have significantly strengthened our business and demonstrated the resiliency and efficiencies achieved with our strategy to consolidate capacity in our markets while managing our costs. We remain well positioned to generate strong discretionary free cash flow from our expanded network.

Our key priorities remain on operational excellence and efficiencies, progressing our ESG initiatives and paying down debt and optimizing the capital structure of our business while leveraging opportunities to grow, provide value for shareholders and customers.

With our efforts to date and the continued hard work of our employees, we believe we are well positioned to achieve our priorities during the remainder of 2022. I want to thank all Secure employees that have continued to contribute to our successes. I also want to thank our customers and stakeholders for their continued support and partnership.

That concludes our prepared remarks.

We would now be happy to take your questions.

[Operator]

[Operator Instructions] Our first question comes from Cole Pereira from Stifel.

[Cole Pereira, analyst]

So a pretty meaningful step change in midstream EBITDA quarter-over-quarter. Just wondering if you're able to sort of rank order of magnitude, what drove that between, call it, synergies, higher activity, any oil trading margins, stuff like that?

[Allen Gransch, executive]

Cole, it's Allen here. Yes. No, well, great question. I think the answer is all of the above. I mean the activity levels we saw in Q1 definitely strengthened from Q4. So robust volumes and activity coming into the facility. We did shut down 4 facilities. So we moved some volumes, which ultimately resulted in higher utilization at the facilities that we move the volume to. So the guys did a great job of lowering some of the off cost and getting better efficiency on some of our fixed costs.

And with the price of oil moving around, there's obviously arms that we can take advantage of in our crude oil marketing business. So that also played a role in helping to contribute to a solid performance here in Q1.

[Cole Pereira, analyst]

Okay. Great. That's helpful. And just coming back to cost inflation. Obviously, there's materials exposure in production chemicals, in your drilling fluids business. But can you just sort of refresh what the extent of that exposure would be in the midstream segment?

[Allen Gransch, executive]

On production chemicals?

[Cole Pereira, analyst]

No, sorry, just cost inflation in general.

[Allen Gransch, executive]

Yes, in general, we're seeing roughly 10% to 15% increase in cost in our midstream segment. Primarily, that would be related to our electricity, our fuel costs, our chemical costs and R&M at the plant would be the top 4, and partly offset that because you will note that the margins did improve by 4% throughout the quarter. And part of that is the synergies that we've now realized with the closure of 20 facilities and increasing and improving our utilization. And obviously, we look at how much volume we can flow through the facility will help manage some of your overall cost when you get into chemical and [ flocculents ].

And then as we look to inflation for the remainder of the year, we're going to look at how much of our pricing will offset some of the increased inflation that we've seen in the 10% to 15%. But so far, the guys in the field have done a great job managing that.

[Cole Pereira, analyst]

Okay. Perfect. And then just going back to shareholder returns quickly. So I mean the thoughts from your guys' perspective is, I mean, obviously, the debt targets are well within range before the end of the year. And so if you do get there, I mean, then you start to think about that and maybe some sort of combination of dividend increases and share buybacks.

[Rene Amirault, executive]

Yes. I mean the trend line is going in the right direction. And certainly, we want to continue to pay down debt. And as we get closer to the end of the year, we'll have a better sense of what the go-forward plan is around providing that shareholder value and what that looks like. But I think the way we're looking at it is debt is #1 and everything else is secondary. So as we get closer to the end of the year, we can start to formulate a plan that probably it's not one lever or another. There's probably 4 or 5 different levers that we have here. But really, this team -- and you saw it in Q1, this team is laser focused on debt reduction, and we're taking nothing for granted. We don't know what the price of oil or gas is going to do tomorrow. We don't know what's going to happen around the world with things happening in Ukraine.

So just laser-focused on getting the debt down. And obviously, over the next 16 months or so, we have opportunities to refinance some of that debt. And just -- there's a lot of things we're going to look at to formulate that plan as we go into the end of the year.

[Operator]

The next question comes from Keith MacKey from RBC.

[Keith MacKey, analyst]

I guess maybe if we could just start off, I know you've mentioned you plan to release your sustainability report in May 2, talking a little bit more about sustainability and road map to net-zero. But just curious if you can give us a bit more of a preview of what to expect in that report as you look to release it in the next a little bit?

[Rene Amirault, executive]

Well, the good news is that we've tried to put it in a format that you can identify all the great things we're doing. I think everybody gets a little too focused on the -- our carbon intensity and everything revolving around that. But there's a lot of other things that are happening in this world around the S and the G. And so it's outlined in that report in terms of -- you saw it in our circular that we want to increase our females on the Board. We're now over 25 different aboriginal partners, giving back to the community. All those things are important to us. And then setting the ESG goals is great around carbon density, but it's much, much more. And the great thing, Keith, is we're really trying to work hand-in-hand with our customers to help them achieve some of those ESG goals as well. So -- and that's why I'd like to thank our employees who work tireless day after day in terms of all of the safety side of it, that are helping out with the communities and the aboriginal side and are coming to us every day with carbon reduction or emission reduction plan too.

So you're going to see all of it in there. And the nice part is it's very open and transparent. And we were one of the first service companies to put that out. I think it was down 3 or 4 years ago, and we're committed to that. And you'll be able to see that on Monday. But the entire team has done a great job of not only showing you what we're doing, but we're also showing you where we're going.

[Keith MacKey, analyst]

Sounds good. And maybe just on the CapEx. So it looks like most of the growth CapEx allocation is yet to come. Can you just talk a little bit more about the spread of that CapEx throughout the year? And perhaps how I guess, locked in the supply chain is as far as completing those projects, having the labor and materials and so forth that you need to be able to complete those projects on time, on budget?

[Allen Gransch, executive]

Yes. Great question. In Q1, we spent $3 million, and that primarily was adding that additional infrastructure into a water disposal facility, where a customer of ours needed additional capacity. We don't do a lot of capital work in Q2. We've got road bands on. We've got spring light conditions where it's just hard and more expensive to put in rate math to construct. But what we're looking at in terms of the back half spend, all the projects in the hopper that we have come with negotiated contracts with our customers, and those take time to get through. But at the same time, they're all very similar in nature where we're either tying in oil volumes into our existing oil pipeline or we're tying in water pipelines into our existing infrastructure. And so you'll see some spend in Q3, and then you'll see a lot more in Q4 because a lot of the pipeline work that we do, we want to do it when it's cold outside. We can get into some of these locations that are very challenging to get into, to be able to connect the customer.

And so we'll provide more clarity as we get into Q3 on where we're spending this capital. But the $45 million that we have allocated to grow capital is still a number that's very solid and more geared toward a kind of a later half of this year's spend.

[Rene Amirault, executive]

And Keith, I think it also helps that these are a lot of small projects. We don't have the one big $45 million cost. So that the risk around inflation and cost increase is just isn't there because it's a lot of small projects.

[Operator]

Your next question comes from John Gibson from BMO Capital Markets.

[John Gibson, analyst]

Just on the facility closures, thanks for the color on your go-forward plans. Obviously, market dynamics has changed quite significantly since you announced the Tervita acquisition. I'm just wondering if any plans have changed with regard to facility closures or any other synergy plans since you announced the deal?

[Allen Gransch, executive]

Yes. I mean there are wins on things that we didn't anticipate, and there are areas where as we look at the back half of this year and some facility closures, we are very cognizant that we don't want to close a facility where we're going to impact customer service. And even the 4 facilities we closed, we had consultation with our customers prior to doing that because we want to make sure we're supporting their needs on the disposal and treating and processing side.

So you're exactly right. In Q3 and Q4, we do have some planned facility rationalizations and that might not be the full facility. It might just be a service line or a partial shutdown of that location. But we do want to do it in conjunction because some of the discussions we're having with producers, they're very methodical on how they want to allocate the remaining capital budget for this year. And some of them have suggested they might add a rig or add a well that they would like to drill. And so we want to make sure from flowback water to completion waters to treating some of the drill waste, that we can handle it and they're not transporting it farther away.

But I think as we get through Q2 and as our facilities look at some more of these operational efficiencies, we are finding every month, different ways we can look at doing and processing some of this waste, and we're actually finding some more savings. So there will be a bit of give and take, but I think we'll understand more in Q3 once we've had some more further discussions with our customers on their plans and activity levels.

[John Gibson, analyst]

Got it. So I guess to follow on, the $75 million target you originally announced, it looks like you could come above that. And I mean, kind of following on to your prior comments, what could potentially drive this gain over and above the $75 million? Is it just you've gotten into the weeds with Tervita and sort of experienced what it's like to run the company or are there things driving that?

[Allen Gransch, executive]

Yes. No, there are different operational elements. I always use the example of our metal recycling business. We handle metal, not only in our midstream group, but even in our projects group, as we are reclamating and cleaning up a lot of these old methods. We're seeing a lot of steel that gets migrated now into red gear because we actually have the metal recycling topic, which we can then process and ship out. We handle a lot of metal out in Fort Mac, same scenario. And I think as we look at the number of tons that we process and recycle, we see wins there.

So I agree we're going to be over the $75 million just based on what we're seeing. And we're well on our way with $53 million already achieved. So I think we'll provide more clarity on which areas we're seeing it, but these wins are coming up all the time.

[John Gibson, analyst]

Great. Last one for me, just kind of touching on Cole's question on cost inflation. And I'm more looking at your drilling fluids business, calling from your peers that there were some significant costs in Q1. Were you able to catch up on the cost increases this quarter? Or could we see maybe some incremental margins moving forward as pricing takes hold?

[Rene Amirault, executive]

Yes. And there's 2 parts to that really. But I mean, it all feeds from whether you're getting chemical out of the U.S., you're getting chemical overseas. And if you think back to Q4, team did a fabulous job of prebuying some of that chemicals so that you saw the little bump in the working capital that really helped us out in Q1, but also we had some competitors that ran out of chemicals. So team did a fabulous job of being proactive and both from a cost point of view, but actually having the actual inventory on hand.

And so going into Q2, that's not going away the cost impact or future inflation on the chemical side. What I can tell you is the team has been extremely proactive with the customers and really sitting down with customers and sharing that information, so they can see exactly what has gone up from a cost point of view. Some of those increases came in March. Some of them are going to come in April. So it's kind of a little bit of a mix, John. But I think all in all, the team is doing a fabulous job of staying ahead of it and being very proactive both with our suppliers but also with our customers.

[John Gibson, analyst]

Great. Appreciate the color, and congrats on the solid quarter.

[Operator]

Your next question comes from Patrick Kenny from National Bank Financial.

[Patrick Kenny, analyst]

Just curious, given the momentum in the Clearwater, any update on potentially tapping that market over the near term? And if not today, would you consider building a new gathering pipe into that region, some point down the road, just to bring in some third-party competition while also optimizing some of your existing assets nearby?

[Allen Gransch, executive]

Yes. I think the Clearwater has got a lot of attention and Secure has 3 locations in that general area. Given our experience and our operating knowledge of not only East Kaybob but also our operating gathering system. I think looking at Clearwater, that play as it continues to grow, it needs more infrastructure, and it can tie into some of the network up there to help these producers out that they're not trucking these volumes to Edmonton, that they've got a way out that reduces the GHG and putting all this oil on the truck.

So a lot of the customers up there, they are in other areas that deliver us volume today. So we're in constant discussion with them on how do we help you guys manage some of your cost on moving the oil. And so definitely, it's an area where we're paying close attention to just because of the nature of that area and how much volume we're seeing out of it.

[Patrick Kenny, analyst]

That's great, Allen. And then on the carbon capture front, any update on potential opportunities across the portfolio, especially on the back of this 37.5% ITC on transportation and storage investments. I'm just curious if this might bring any of your potential projects more to the front burner over the coming months?

[Rene Amirault, executive]

Yes. The good news is that on the surface, having something like an ITC instrument makes a lot of sense. There's going to be used capital required for some of these projects. I don't think you'll see us get into the big trunk line space, the TransCanada and the Enbridge's of the world and some of the bigger players will play around that. So what's the opportunity for us? It's really around helping the, call it, the mid-caps in terms of maybe some aggregation, some consolidation and maybe tapping into some of our old reservoirs that we have or whether there's a fit with our -- both our skill set, but also with our network.

And time will tell how that will all play out in terms of those tax credits as we were talking to one of the major producers and the devil is in the details. And so it's going to take a while for the rules of engagement and how that might work and how it's all going to be credited and actually show up in terms of your economics.

So it's a great first start, but I think we're probably just getting into the first inning of what that might look like. And -- but it's on our radar. It's in our business development offer, and we're trying to find -- just trying to find that projects that fit our wheelhouse and where truly we can add value.

[Patrick Kenny, analyst]

Yes. Early days for sure, but I appreciate the color, Rene. One last housekeeping item, if I could. Just looking outside of the base $75 million of synergies, it looks like your lease liabilities on the balance sheet continues to grind lower here post-merger. And even the payments came in a little bit lower here in Q1. So maybe just a refresh on where you expect run rate these payments to land once you fully completed the integration?

[Chad Magus, executive]

Pat, this is Chad. Yes, good attention to detail there. We have had leases for the combined entity coming off. However, we've been using this last time since the merger to kind of evaluate the fleet of equipment and there's lots of equipment in those leases. There's lots of office leases in there and some storage leases as well. But we are going to replace some of the heavy equipment, yellow wiring leases that have been falling off. So it's not going to, I guess, keep grinding down at that rate. I think we're going to level out to an annualized number that's in the low just about $20 million on an annual basis.

[Operator]

[Operator Instructions] There are no further questions at this time. Please proceed.

[Anil Aggarwala, executive]

Thank you for being on the conference call today. A tape broadcast of the call will be available on Secure's website. We look forward to providing you with updates on Secure's performance in July after the completion of the second quarter of 2022. Thank you.

[Operator]

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.