Secure Energy Services Inc

TSX:SES

Earnings Call Analysis

Strong Q3 Performance with Focus on Growth

Secure's strong third quarter was marked by an 8% increase in adjusted EBITDA year-over-year to $158 million, converting 66% of that EBITDA into $104 million of discretionary free cash flow. Shareholder returns were robust with repurchases of 7% of outstanding shares and a $0.40 per share annualized dividend. New infrastructure, like the Clearwater oil terminal, and the Montney water disposal expansion, underpinned by long-term contracts, are set to contribute to future results. The company maintains a 1.9x total debt-to-EBITDA covenant ratio with a substantial liquidity position. Looking ahead to 2024, Secure aims to allocate significant discretionary free cash flow to repay high-interest debt, pay dividends, grow base infrastructure, and repurchase shares opportunistically.

Earnings Overview and Outlook for Secure's Third Quarter of 2023

In their Q3 earnings call, Secure proudly announced the commissioning of their Clearwater oil terminal and Montney water disposal infrastructure, financed on time and within budget. These projects are expected to support Secure's customers in managing production volumes efficiently, contributing to the company's strategic goal of expanding their service network while controlling costs and environmental impact. Secure's executives shared insights into future events and highlighted their optimism towards the remainder of 2023 and into 2024, guided by key expectations and assumptions considered reasonable for the company's continued growth.

Financial Highlights

Secure presented an impressive financial stride, with an 8% year-over-year increase in adjusted EBITDA to $158 million, translating to $0.54 per share. A key result of this robust performance was the generation of $104 million of discretionary free cash flow, accounting for 66% of the converted EBITDA. Shareholder returns were notable, with an annualized 12% return delivered through dividends and share repurchase programs. Secure repurchased 7% of their outstanding shares, showcasing a proactive approach to capital reallocation and ensuring shareholder value enhancement.

Operational Efficiency and Market Positioning

The company's revenue hit a record high, with net revenue increasing by 2% to $427 million due to steady demand for their services. An industry-leading adjusted EBITDA margin of 37% was maintained despite inflationary pressures, indicating the company's efficiency in cost management. The company's marginally lower net income of $47 million, at $0.16 per share, was attributed to a one-time gain on asset sales in the previous year.

Capital Allocation and Debt Management

Discretionary free cash flow supported Secure's capital priorities while upholding a healthy debt-to-EBITDA covenant ratio of 1.9x. The debt profile comprised various notes and credit facility draws, but with a substantial liquidity cushion indicating a considered approach to capital management. Management elaborated on capital spending priorities, signaling an inclination towards high-interest debt repayment, dividend payments, and share repurchases as ways of deploying their discretionary free cash flow in the coming year.

Business Segments Performance and Prospects

The environmental waste management infrastructure segment emerged as the star performer with a 12% increase in adjusted EBITDA over the same quarter last year, reaching $114 million. The encouraging performance was fueled by strong water processing volumes, price increases across waste facilities, and substantial contributions from metal recycling due to improved operational efficiencies. The energy infrastructure segment also enjoyed adjusted EBITDA gains, primarily from increased pipeline and terminalling volumes, which are anticipated to grow further with the Clearwater terminal addition.

Strategic Response to Regulatory Challenges

Confronting a directive from the Competition Tribunal of Canada to divest 29 facilities, Secure has embarked on an appeal to the Supreme Court of Canada while engaging an adviser for a potential sale. This demonstrates the company's adaptability and pragmatic approach towards regulatory compliance and asset optimization, prioritizing the interest of customers and stakeholders amidst ongoing litigation.

Outlook and Forward-Looking Statements

With a constructive outlook embraced by Secure's management, the company foresees continued volume growth, activity levels, and solid infrastructure demand throughout the rest of 2023 and into 2024. Secure's forward-looking playbook includes dividend payments backed by a strong cash flow, strategic infrastructure investments aligned with customer contracts, and opportunistic share repurchases, all pointing to a proactive and balanced capital allocation strategy aimed at long-term value creation.

Earnings Call Transcript 2023-Q3

[Operator]

Good morning, ladies and gentlemen, and welcome to the Secure Energy Q3 2023 Results Conference Call. [Operator Instructions] This call is being recorded on Wednesday, November 1, 2023.

I will now turn the conference over to Alison. Please go ahead.

[Alison Prokop, executive]

Thank you. Welcome to the Secure's conference call for the third quarter of 2023. Joining me on the call today is Rene Amirault, our Chief Executive Officer; Allen Gransch, our President; 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 and ratios that do not have any standardized meaning prescribed by GAAP and may not be comparable to similar financial measures or ratios 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 addresses 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.

Today, we will review our financial and operational results for the third quarter of 2023 and our outlook for the remainder of the year and 2024.

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

[Rene Amirault, executive]

Thank you, Alison, and good morning, everyone. Q3 was another strong quarter for our business, showcasing Secure's ability to generate significant free cash flow across our infrastructure network.

We recorded adjusted EBITDA of $158 million or $0.54 per share, up 8% from the prior year. This robust performance enabled us to convert 66% of that EBITDA into $104 million of discretionary free cash flow, which we use to execute on our capital allocation priorities. Year-to-date, we have delivered an annualized 12% return to shareholders achieved through our $0.40 per share annualized dividend payment and the repurchase of 7% of our outstanding shares other than normal course issuer bid. These actions underscore our commitment to enhance returns to our shareholders, complemented by our growth capital program this year.

We were pleased to bring into service our Clearwater oil terminal and gathering infrastructure and our Montney water disposal infrastructure expansion at the end of the third quarter, both of which are backstopped by commercial agreements. These growth projects were completed and safely commissioned on time and on budget and provide critical infrastructure for the handling of production volumes for our customers.

Our infrastructure network maintained significant capacities for our customers, accommodating increased volumes for processing, disposal, recycling, recovery, and terminalling with minimal incremental fixed costs or additional capital. We also continue to see strong opportunities with customers seeking further expansions based on reducing their costs and environmental footprint.

Turning now to an update on the Competition Tribunal of Canada's decision earlier this year ordering the divestiture of 29 facilities acquired from Tervita in 2021. The strategic combination of Secure and Tervita enable the combined company to better serve our customers, provide significant synergies and enhanced value to our shareholders and elevated our position to deliver on environmental and social sustainability initiatives.

Despite the significant benefits brought to our customers, shareholders and the communities where we operate, we received the decision of the Federal Court of Appeal in August that our appeal of the Competition Tribunal decision has been dismissed. Following the decision, we have proceeded with an appeal to the Supreme Court of Canada and are pleased that we've been granted a stay while the Supreme Court determines whether to appeal -- to hear the appeal.

As a prudent course of action, Secure has also engaged an adviser with respect to a sales process of the 29 facilities in the event that hearing is not granted or the corporation is not successful in its appeal. Due to the uncertainty with respect to the timing of a hearing being granted or resolution of the matter, our Board of Directors and management continue to consider all options with respect to the Tribunal's order to best serve our customers and other stakeholders.

I'll now pass it over to Chad to go through financial highlights from the third quarter.

[Chad Magus, executive]

Thanks, Rene, and good morning to everyone on the call.

We are pleased with the strong performance of the business during the third quarter, driving record financial results. Net revenue of $427 million in the quarter, the highest in Secure's history, increased 2% in the third quarter of 2022 due to continued demand for our critical services and strong utilization across our infrastructure network.

Our 8% increase in adjusted EBITDA per share as Rene mentioned was driven by higher revenue and a lower share count. We have repurchased 7% of our outstanding shares this year, maxing out the normal course issuer bid implemented in December 2022. Our Board of Directors has also approved us to move forward with renewing our NCIB in December 2023.

We maintained our industry-leading adjusted EBITDA margin of 37%, and we continue to diligently manage inflationary costs through price increases and operational efficiencies.

Net income for the quarter was $47 million or $0.16 per basic share, down $0.03 per share from the third quarter of 2022, primarily due to a gain on asset sales recorded in the prior year period.

We generated $130 million of funds flow from operations or $0.45 per share, a 5% increase from the prior year. This drove our discretionary free cash flow of $104 million or $0.36 per share, an increase of 3% from prior year.

With respect to returns of capital, during the third quarter, we repurchased 4.6 million common shares for $33 million and paid our quarterly dividend of $0.10 per common share, amounting to $29 million.

We also incurred $33 million of growth capital primarily related to Clearwater oil terminal and gathering infrastructure and our Montney water disposal infrastructure expansion. These assets came into service at the end of the third quarter and will begin contributing to the corporation's results in the fourth quarter.

Adjusted EBITDA and cash generation supported our capital priorities in the third quarter while maintaining our total debt-to-EBITDA covenant ratio of 1.9x.

At September 30, 2023, our debt consists of USD 153 million of 2025 senior secured notes, $340 million of 2026 unsecured notes and a draw on our revolving credit facility, net of cash held of $362 million. We maintain a considerable liquidity position of $394 million on our $850 million of facilities maturing in 2025.

Overall, Secure maintains a constructive outlook for volumes, activity levels and infrastructure demand throughout the remainder of 2023 and 2024. Looking ahead, we expect to continue to direct our significant discretionary free cash flow to our four capital allocation priorities. For 2024, this includes capital structure improvements through the repayment of high-interest debt, paying our $0.40 per share dividend, growing our base infrastructure with customer-backed contracts and opportunistically repurchasing shares.

I'll now pass the call over to Allen to provide financial and operational highlights by segment.

[Allen Gransch, executive]

Thanks, Chad. Good morning, everyone.

Throughout the third quarter, our core business operations continued to demonstrate strength and consistency underscoring our strong results. The most significant contributor to results in the quarter was our environmental waste management infrastructure segment generating adjusted EBITDA of $114 million, a 12% increase over Q3 last year. The increase was driven by strong produced water volumes and higher prices across waste processing facilities and landfills, along with higher contributions from metal recycling due to improved efficiency and operating capabilities, driving higher volumes and higher ferrous prices compared to the prior period.

Delving into the key drivers of these segment results, our produced water processing and disposal volumes averaged 156,000 barrels per day, a 7% increase over the prior year quarter, driven by solid industry fundamentals with strong commodity pricing and field activity supporting steady production levels. Meanwhile, oil recovery volumes were down marginally due to lower waste processing volumes, partially offset by higher produced water processing and disposal.

Waste processing volumes remained consistent with the prior year at 65,000 barrels per day. Our industrial landfill saw project delays resulting from weather and the ongoing impact of wildfires experienced in the second and third quarter impacting reclamation and remediation volumes. Consequently, landfill volumes were down by 10% to 1.2 million tonnes.

At our metal recycling facilities, Ferrous volumes increased by 14% due to operating efficiencies and enhanced rail capabilities, improving our recycling operations. Ferrous prices were also up 4%.

Our strategic investments included the purchase of new railcars in the third quarter, having increased our handling capacity, supporting further optimization at these facilities. Throughout our entire infrastructure network, we hold significant capacity to accommodate any increased volumes resulting in the growing demand for our services. Our utilization rate stood at 62% in Q3, slightly up on the year-to-date average of 61%.

The Energy Infrastructure segment generated adjusted EBITDA of $37 million, a decrease of $9 million over the same period in 2022, which saw higher benchmark oil prices and wide differentials, which created favorable conditions for blending and resulted in higher-than-normal blending profit.

Pipeline and terminalling volumes for Q3 increased by 3% to 105,000 barrels per day compared to 2022, driven by commercial agreement and reoccurring crude oil volumes from our oil-gathering pipeline. Overall, the contracted nature of the volumes from these oil gathering pipelines, along with the location of Secure's crude oil terminals close to the customers' production continues to drive strong and consistent volumes for terminalling and optimization. The addition of Clearwater oil terminal will further drive volumes in this segment.

Finally, our Oilfield Services segment contributed $20 million of EBITDA, $1 million higher than the third quarter of 2022 as the lower rig count and reduced field activity was more than offset by revenue mix and inflationary price increases over the past year.

Turning now to our capital program. We are extremely pleased to bring on our two major growth projects for the year. Both the Clearwater terminal and Montney water disposal expansion projects provided reliable volumes and reoccurring cash flows through customer partnerships with long-term take-or-pay contracts. Our planned $100 million in growth capital for 2023 has been committed with the significant growth projects now operational.

Sustaining capital of $23 million for the quarter related to landfill expansions, well maintenance and asset integrity programs for processing facilities and asset purchases for our metal recycling and waste management operations. We continue to expect to incur approximately $60 million of sustaining capital and $25 million of capital related to landfill expansions in 2023 with similar spending expected for next year as well.

The additional landfill expansions are anticipated in anticipation of increased abandonment, spending obligations driven from government regulations as the liability management programs in British Columbia, Alberta and Saskatchewan seek to speed up the rate in which inactive wells and facilities are abandoned then reclaimed.

For our longer-term outlook, the continued need for energy security has placed a renewed focus on the enduring role we play in Canadian oil and gas and will play in responsibly meeting the growing demand for energy. We are encouraged by the long-term investments undertaken by energy producers from exploration and appraisal to production, development and capacity expansion, highlighting the extension and robust nature of the energy industry in Canada.

Our organic growth strategy remains focused on increasing volumes across our infrastructure network through long-term contracts backed by partnerships. We currently expect to spend $50 million in 2024 that corresponds to equipment purchases and higher probability opportunities that build upon or leverage our existing infrastructure. We intend to update our growth plans and provide further details upon signing agreements with our customers.

Secure is well-positioned for the long term due to the critical services provided to the energy and industrial customers through our infrastructure network located in key areas across Western Canada and North Dakota. Diverse waste streams and ongoing demand from our industrial customers may further enhance the stability and resilience of our operations.

I will now turn it back to Rene for closing remarks.

[Rene Amirault, executive]

Thanks, Allen. In closing, we remain committed to our vision of being the leader in environmental and energy infrastructure, prioritizing value creation for our customers through reliable, safe, and environmentally responsible infrastructure. This approach allows our customers to allocate their capital where it can yield the highest return, while emphasizing operational excellence and leading ESG standards.

So far in '23, we have made significant progress in our ESG initiatives. Some of the highlights include: Improving our corporate CO2 emission intensity with a decrease of 2.7%, reflecting our ongoing efforts in energy management, efficient equipment investments and landfill operation improvements. We continue to be on pace to meet our near-term target of a 3-year 15% reduction in CO2 emissions by the end of 2024.

Establishing an indigenous employee resource network accessible to all employees, providing valuable resources for our indigenous staff, conducting our employee engagement survey, which results in a 75% engagement rate and will guide our action plans for improvement. Furthermore, our commitment to workplace safety has resulted in 4 quarters without a lost time injury with improvements in our total recordable injury frequency in the second half of '23 to date.

At the heart of this company lies a collective spirit of responsibility towards our shareholders, customers and our communities. Our ESG initiatives demonstrate our commitments to do the right thing and making a positive difference. We've made significant progress on this journey, and we're committed to continue these efforts. As we move forward, we remain focused on our shared goals embracing the challenges and opportunities that lie ahead.

That concludes our prepared remarks. We would now be happy to take your questions.

[Operator]

[Operator Instructions] Your first question comes from John Gibson from BMO.

[John Gibson, analyst]

Congrats on the strong quarter here. First, for me, I'm just -- I'm hoping you can answer, although I understand if you don't want to disclose much around the process. But on a recent conference call, a large U.S. waste player was asked pretty directly about potential interest in the Tervita assets. I guess what I'm wondering is what types of parties have expressed interest so far. There's obviously a big multiple disconnect with where you are trading at relative to more traditional waste companies and do you feel that potential proceeds could surprise the upside relative to what The Street is expecting?

[Rene Amirault, executive]

Yes. At this point, John, all we can tell you is that we've had strong interest from North American parties and as we go down this dual path, we'll have a little better idea late Q4, early Q1, as to what path we take and -- but all we can tell you is that extremely strong interest right across North America.

[John Gibson, analyst]

Okay. Fair enough. Second for me, with the addition of the Montney and Clearwater facilities, what percentage of your EWM segment would be backstopped by take-or-pay contracts heading into Q4 versus prior?

[Chad Magus, executive]

The Montney asset, that's all in our EWM segment. So that obviously increases. It's probably the contract amount there is probably still in the 25% to 30% range. The Nipisi terminal right now, that's in our Energy Infrastructure segment. And I'll say that's all contracted.

[Allen Gransch, executive]

I think, John -- it's Allen here. I think to over and above the contracts, and this is something that we've been discussing at length over the past few years is that a lot of the revenue that comes into our facilities is production-related, over 80% is production. And when you look at the production profile over the last few years, very stable, which is why we continue to see stability in our numbers is because a lot of our volume is derived for production.

Now when we think about capital investment, we are tying a lot of our capital investment decisions to contracts because when we outlay the capital, we want to make sure there's that guaranteed rate of return for ourselves and our shareholders. And so there is a bit of a different look in terms of the capital decisions we place. But when you think across the broad business, a lot of it is production-related, which is that stability.

[Operator]

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

[Patrick Kenny, analyst]

I appreciate the update on your 4 capital allocation priorities for next year. Looks like dividend growth isn't one of them. Is that just because you see better organic growth opportunities in front of you right now? Or are you just waiting until you can fully retire the 11% notes before considering a ratable increase in the dividend?

[Rene Amirault, executive]

Yes. I mean, you look at our yield today, it's a pretty healthy 5.2%. The way we're looking for it here is we think our shares are extremely undervalued. So our #1 priority really has to, obviously, be buying back more shares, and we put that in the press release that we'll kick off our NCIB again when we're allowed to on December 15. So that's our #1 priority.

You're absolutely right. We've got some inherited high-interest U.S. notes that would want to get retired at some point. They're callable here December 1. So those are all priorities before the dividend. It's not saying that we won't increase the dividend down the road, but really want to take advantage and use our discretionary free cash flow towards those type of priorities right now.

[Patrick Kenny, analyst]

Got it. And I guess on top of the base case priorities, Rene, just with the balance sheet where it is today, sitting below 2x, assuming you are successful in divesting the 29 facilities for, call it, a decent price tag, how should we be thinking about the pecking order for allocating those net proceeds between further debt repayment, accelerating growth, maybe an SIB, all those options?

[Rene Amirault, executive]

Yes. The tough part of trying to give you even a pecking order and remind what percentage of that is, what is our share price at the time we want to allocate some of this capital. So think of it this way as there's 4 levers. And part of that is we can -- we have the lever of debt reduction. We obviously can buy back shares. We can obviously grow our organic business as you've seen Allen describing 2 great projects that we executed on time and on budget. And then you have acquisitions. And those 4 levers are going to be pretty fluid going into '24 and '25 just based on where do we get our best bang for buck as a shareholder. So hard to prioritize, never mind, even give you a percentage allocation because there's so many moving parts.

[Patrick Kenny, analyst]

Got it. Fair enough. And maybe just last one for me. Just looking at the rig count being down relative to last year, but looks like you're still expecting modest production growth around your facilities. Just wondering if you could help square up some of the key factors supporting your outlook there.

[Allen Gransch, executive]

Yes. No, good question, Patrick. I think when we look at the environmental waste management business, very positive quarter. Our same-store sales up 7%, and that's purely based off of the production water that we see and process at our facilities. And so even when you think about production being flat to slightly up, and we're still having conversations with our customers that they set their priorities for 2024, but we believe that, that segment will have growth, again, in that same-store sales in that 6% to 7%. When we think about production water, that's been very consistent. The trend on that, if you go back 5 years, remains very, very consistent.

I think we're going to get some higher contribution from our metals recycling. We bought some railcars, which improves our efficiencies on transporting our rail in a more cost-effective manner and helps us process quicker and get the inventory turns faster. So we're continuing to see improved efficiencies.

When I look at our waste processing, it remains relatively consistent. And I said that in the opening remarks that kind of flat -- I would expect it's going to be flat. I do think our landfill volumes will continue to pick up here. I think they did have some challenging weather conditions with the wildfires and some of these delays on some of the reclamation projects where they were maybe focused more on the downhole and not so much on the cleanup of the dirty dirt and some of the facilities that need to be cleaned up.

When I think about our Energy Infrastructure, you're going to see in 2024, obviously, the Nipisi volumes come online and we'll be handling more than 160,000 barrels of oil on a daily basis. So we're going to see that throughput increase. And given now we're starting to see some apportionment that always creates arbitrage opportunities as well and helps the bottom line profit when you can take a look at your infrastructure and take advantage of it. So when I think -- when we think into 2024 and the increases we've seen here in Q3 in consistent quarters, I think that trend will continue into 2024.

[Operator]

Your next question comes from Keith MacKey from RBC.

[Keith MacKey, analyst]

Just first wanted to start off on the growth capital expectation for 2024 at that $50 million. It sounds like that doesn't include any larger projects similar to the ones you brought on stream most recently. Can you just speak to what you're seeing in the market for larger terminal or water-handling projects? What's the relative opportunity out there these days? And if you could even potentially put some bookings around then what 2024 capital on the growth side could ultimately be given what you see in the market and any projects you're contemplating, whether they do meet your return profiles as you see them?

[Allen Gransch, executive]

Yes. So when we think about the $50 million that we've allocated for 2024, it's a bit of a balance between some of the projects that we know are getting closer to having a contract signed and some of these projects actually may start to kick off here in late Q4 and start some more capital spend into Q1, which we'll announce these projects once we release our quarters and give you more color around it, but we've got some equipment purchases and we've got some water disposal and kind of pipeline infrastructure that we're going to start working on here through Q4 and Q1, but we've left it at $50 million. That's our target right now. Obviously, we did $100 million in 2023.

And when you think about the hopper of opportunities I would call it greater than $200 million plus in opportunities that we see as great expansion, brownfield opportunities, both on the oil, energy infrastructure side and on the production water in tying in because, obviously, the transportation costs and taking it off a truck and putting it on a pipe have great returns for not only our customers, but ourselves. But as we think about our 2024 spend, these contracts take a long time to negotiate. They can be upwards of a year to get a contract signed. We also need to protect against rising costs on equipment for these projects and making sure that you're managing the inflation cost and making sure your numbers are tied through.

So we spent a lot of time making sure we have our nails -- our numbers nailed down such that we can protect our returns as we sanction these projects. And so we're more likely to announce these projects once the contract has been signed. And so I don't want to speculate what that looks like in 2024. At this point, we're comfortable with the $50 million. But yes, it could be higher. And when you look at our discretionary free cash flow with our dividend, with our buybacks, we've got flexibility there to spend on some of these great organic projects, which we feel very, very comfortable with.

[Keith MacKey, analyst]

Okay. And just a follow-up. On Q4, it looks like the Street numbers have EBITDA going down maybe $8 million or $9 million sequentially. I know there's some seasonality quarter-to-quarter, but you have brought on a couple of larger projects that may start to contribute. Can you just talk through how we should be thinking about the sequential EBITDA, either growth or decline from Q3 to Q4?

[Chad Magus, executive]

Keith. So typically, when we look back over the years, you see the last several years, at least, we have seen that slow down. Q3 has usually been kind of a high watermark for us in the year and then Q4 usually slightly lower. And it is usually due to just less activity with Christmas seasonal slowdown. We see rigs starting to fall off before Christmas and some volumes did not move as much as they otherwise would. So I think that's the main reason.

[Operator]

[Operator Instructions] Your next question comes from Cole Pereira from Stifel.

[Cole Pereira, analyst]

Just a quick point of clarity on the divestitures. Is the plan to wait until you hear back from the Supreme Court about whether you can get a hearing? Or could you theoretically sell the assets prior to that if you got a really attractive bid?

[Rene Amirault, executive]

Yes. The way the process works is that we have the ability -- anything that we do is subject to the Competition Bureau approval. So as we go down this dual path, obviously, whatever path we take, we'll be engaged with the Competition Bureau because obviously, they're fulfilling the Tribunal order. So hard to say at this point in time how that all plays out, but do keep in mind that this is not just a Secure decision. This is a Secure decision along with approvals from the Competition Bureau.

[Operator]

And there are no further questions at this time. I will turn the call back over to Rene for closing remarks.

[Rene Amirault, executive]

Thank you, and thank all of you for being on the conference call today. We do have a tape broadcast of the call, which will be available on Secure's website. So thanks again, and look forward to Q4.

[Operator]

Ladies and gentlemen, this concludes your conference call for today. We thank you for joining, and you may now disconnect your lines. Thank you.