Transcontinental Inc

TSX:TCL.A

Earnings Call Transcript 2021-Q1

[Operator]

[Foreign Language] Welcome to the TC Transcontinental First Quarter of Fiscal 2021 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded today, February 25, 2021.I would like to turn the conference over to Yan Lapointe, Director, Investor Relations. [Foreign Language] Mr. Lapointe, please go ahead.

[Yan Lapointe, Director of Investor Relations]

Thank you, Gabriel, and good afternoon, everyone. I hope you and your family are healthy and staying safe. Welcome to TC Transcontinental's First Quarter 2021 Results Conference Call. Before we begin, I'd like to highlight that we have provided a slide presentation to help guide our discussion today. The presentation, along with the press release and the MD&A with complete financial statements and related notes that were issued earlier today are all available on our website at tc.tc under Investor Relations section. A replay of this conference call will also be available on our website after the call. We have with us today are President and Chief Executive Officer, Francois Olivier; and our Chief Financial Officer, Donald LeCavalier. Before I turn the call over to management, I would like to specify that this conference call is intended for the financial community. Media are in listen-only mode and should contact Nathalie St-Jean, Senior Adviser, Corporate Communications, for more information or interview requests. Please be reminded that some of the financial measures discussed over the course of this conference call are non-IFRS. You can refer to the MD&A for a complete definition and reconciliation of such measures to IFRS. In addition, this conference call might also contain forward-looking statements. These statements are based on the current expectations of management and information available as of today, and they involve numerous risks and uncertainties, known and unknown. The risks, uncertainties and other factors that could influence actual results are described in the fiscal 2020 annual MD&A and in the latest annual information form. With that, I would now like to turn the call over to our President and CEO, Francois Olivier.

[Francois Olivier, President, CEO & Director]

Thank you, Yan, and good afternoon, everyone. We get a strong start of our 2021 fiscal year as we delivered a very good first quarter with a strong performance across all of our businesses. I'm very proud of the resilience and agility that our team demonstrated again this quarter as we navigate through the second wave of the pandemic. On Slide 4, you could see a recap of our performance for the quarter. In Packaging, we generated solid organic growth, both in revenues and EBITDA, despite the impact of higher resin price on profitability. At the same time, we continued to progress on our commitment towards delivering more sustainable packaging. And we'll come back to this key topic in a minute. In Print, we continue to control our costs and protect our profitability despite the continued pandemic restrictions impacting some of our clients. Our ability to reduce fixed costs provides good operating leverage when volume will start picking up again. In parallel, we continue to look at new business and verticals with growth potential that now represent more than 25% of our Print portfolio. On a consolidated level, we continue to generate strong free cash flow that we use to deleverage our balance sheet. This solid financial position provides us with the flexibility to invest in our growth, either organically or through acquisitions. Our Media Sector also had an excellent start for the year with a strong revenue and EBITDA growth. Moving now to Slide #5. Our integrated approach to sustainability is a key competitive advantage that helps to differentiate us from our competitors. We are in a good position today and we will continue to invest to ensure we remain ahead and agile in terms of innovation and product development. In terms of recent achievements, our BPI-certified 100% industrial compostable lid in bag for Maxwell House Canada coffee pods recently won best-in-class sustainable package innovation in the 2021 PAC Global Leadership Awards. This is another example of our leadership and know-how in creating sustainable compostable films. At the corporate level, we were recently recognized as a global leader in 2 prestigious rankings. First, we ranked at among Corporate Knights’ Global 100 Most Sustainable Corporations. Over the last decade, we have ranked in Corporate Knights’ top Canadian companies. However, this is the first time we appear in the worldwide Global 100. In addition, for a second year in a row, we are highlighted in the Sustainalytics Global 50 Top Rated companies showcasing our commitment towards sustainability and our low ESG risk. Let me now come back to the performance of each sector for the first quarter. We were very pleased with our Packaging results, especially in terms of our organic revenues growth which was at around 5%, excluding the resin price increase. In addition to sustained demand from existing customers, we saw growth derived from investments in product R&D and from the ramp-up of new business won over the last 2 years. Our balanced portfolio of products has enabled us to perform well during the pandemic, and we expect to continue growing as the economy recovers. In terms of profitability, as I mentioned last quarter, resin price increases had a significant impact on the quarter, about 150 basis point negative. Donald will go into more details on the resin price impact in his remarks. In addition, we achieved these very solid results despite the sale of our paper packaging business in January last year. Taking into consideration these 2 major impacts, which totaled close to $10 million on profitability, we still recorded higher EBITDA on a year-over-year basis, thanks to operational efficiencies and a favorable mix, and the 5% organic growth. This is a significant achievement. Organically, EBITDA grew more than 12% for a second quarter in a row despite the temporary negative impact of resin price increases. Our Print sector also had a solid quarter, continuing to demonstrate its resilience. Despite the second wave of the pandemic, volumes were between 80% to 85% of pre-pandemic levels, in line with what we said 3 months ago. We also further optimized our platform by reducing overall cost to position us well for an eventual recovery. Our discipline allowed our Print sector to continue generating good margins and free cash flow. We continue to expect a solid second half of the year with an anticipated gradual lifting of government restrictions on retail. Finally, our Media Sector also had an excellent quarter building from the momentum gain in 2020. In conclusion, I want to leave you with a few messages. First, in the context of the second wave of the pandemic, all of our 3 sectors performed well. Second, in our Packaging sector, we gained new business and introduced new products, and that will continue to fuel organic growth for the balance of this fiscal year. Third, our Print sector is well positioned for a reopening of the economy and should benefit from easier comps in the second half of the fiscal year. Our Media Sector is again heading from another -- for another very strong year. Finally, regardless of the context, we expect to continue to generate strong and predictable cash flows, providing us the flexibility to invest, to grow organically and through acquisitions in all 3 sectors. With that, I will turn it over to Donald.

[Donald LeCavalier, Chief Financial Officer]

Thank you, Francois, and good afternoon. I will start by looking at consolidated numbers on Slide 6. A key highlight for the quarter was the $21.1 million of organic revenue growth in Packaging, representing a significant increase versus last year. While the resin prices contributed, this growth was mostly due to higher volumes. In fact, excluding the impact of resin price and the disposal of paper packaging business, organic growth was at around 5% in the quarter. As expected, on the flip side, consolidated revenue in the quarter continued to be impacted by COVID-19 in our printing operations and by the sale of the paper packaging business in January 2020. Consolidated adjusted EBITDA for the quarter was down 3% versus last year. On a relative basis, this is a solid performance in a context where our Printing revenues were down 16% over the same period due to the pandemic. Moreover, our Packaging and Media sectors both grew adjusted EBITDA by more than 10% for the quarter. I'll provide more details on profitability improvement in the sector review. Interest expenses declined as we had reimbursed about $450 million of debt in the last 4 quarters. We also benefited from lower interest rates. Tax rate was at 24%, slightly lower than last year, in line with our guidance. This led to adjusted net earnings of $0.50 per share for the quarter compared to $0.49 last year. Now moving to Slide 7. Our Packaging sector posted another excellent quarter. While revenues were lower than last year, due to the sale of the paper packaging operations and to a lesser extent, a stronger Canadian dollar, we generated very strong organic growth across most of our segments.Most of the growth came from higher volume with a small lift from higher resin prices. As Francois mentioned, this organic growth includes strong continued demand from existing business but also from new products and new business wins. Excluding the resin price increase, organic growth was around 5%. Moving to profitability, adjusted EBITDA grew organically by 12.8% in the quarter. This is an exceptional performance considering the temporary lag effect of passing through resin price increases to our customers. Adjusted EBITDA margin was at 14.8% for the quarter or above 16%, excluding the lag impact of the resin pass-through. Profitability improvement was mainly driven by efficiency gains and improved mix. Growing adjusted EBITDA by $2.4 million was a strong performance, especially considering the sale of the paper packaging operation and the negative impact of resin price. On Slide 8, you can see that our Printing sector also had a very solid quarter given the pending context. Revenues were down 17.8% organically, in line with what we said in December. Despite the additional restrictions during the second wave of the pandemic, volumes stabilized between 80% to 80% -- 85% of the pre-pandemic levels. We were also successful in reducing our fixed cost and aligning our cost structures with volumes. And while we remain prudent regarding the timing of the recovery, we believe we are well positioned for a gradual pickup in Printing volume. Looking at profitability, the significant reduction in our cost structure and the amounts received from the Canadian Emergency Wage Subsidy Program helped to offset the Printing revenue decline from the pandemic. Accordingly, the Printing sector recorded an adjusted EBITDA of $61.1 million compared to $65.9 million last year. Excluding the subsidy, we delivered an adjusted EBITDA margin of 19.1%, in line with our objectives. Our Media business also had an excellent start of the year with strong revenue and EBITDA growth. Corporate expenses were lower than last year. However, stock-based compensation increased by $3.5 million due in part to the recent increase in our share price. Turning to cash flow from operating activities. We had a good quarter with an improvement of $21 million versus last year. We used our liquidity at the beginning of the quarter to repay $83 million of debt. As most of our debt is in U.S. dollars, the stronger Canadian dollar contributed to decreasing the debt by an additional $25 million. In line with our growth aspirations, we continue to invest in CapEx with $31.7 million in the quarter. We also distributed $19.6 million in dividends. In light of the uncertainty regarding the evolution of the pandemic, the Board decided to maintain the dividend at $0.09 per share. On Slide 9, the reduction in our long-term debt contributed to lowering our net debt ratio to 1.8x compared to 2.3x 1 year ago. Excluding the impact of IFRS 16, the ratio will be close to 1.5x. Our efforts to deleverage the balance sheet were recently recognized by Standard & Poor's as they removed the negative outlook and affirm our investment-grade rating. Furthermore, at the end of the quarter, we had a total of $610 million of available liquidity. The strong financial position and our ability to generate stable, solid cash flow provide us with flexibility to capture future growth opportunities. As for our outlook, in Packaging, with recent resin price increases, we will continue to be diligent in managing the pass-through to our customers. However, because of the lag between the increase from our supplier to the pass-through to our customers, we expect a negative impact in the next 2 quarters. Once the lag effect is over, higher resin price will increase revenues, but with no significant impact on EBITDA dollar amount. Therefore, only negatively impacting margin percentages. The stronger Canadian dollar will also be a headwind, especially for the next 2 quarters. You may recall that the U.S. dollar was around CAD 1.40 in spring last year compared to about CAD 1.25 today. The negative impact is mainly on the conversion of our U.S. results back into Canadian dollars. In terms of revenues, we expect solid organic growth for the year, raising our outlook to between 2% and 3%, excluding the impact of the resin price. In Print, we continue to expect volumes to recover in the second half of 2021 as we begin comparing to last year when we faced the pandemic headwinds starting in April. In terms of profitability, excluding the impact of the Canadian Wage Subsidy Program, we also expect adjusted EBITDA to grow for the second half of fiscal 2021. Corporate costs at the EBITDA level should be slightly above $30 million for the year. In terms of use of cash for the year, in addition to continue looking for potential acquisitions, we're also looking at accelerating our organic growth through CapEx. To that end, depending on the timing of potential key investments, we may exceed our $100 million of planned CapEx for 2021. As for cash tax, you can continue to assume around $50 million for the year. On that note, we will now proceed with the question period.

[Operator]

[Foreign Language] [Operator Instructions] Your first question will come from the line of Adam Shine of National Bank Financial. [Foreign Language]

[Adam Shine, MD, Head of Montreal Research & Research Analyst]

Maybe a couple for you, Francois, and then one for you, Donald. Francois, maybe you can talk to some of the early Q2 trends as we slowly come out of some of the recent additional government restrictions? Additionally, in the context of new product and, I guess, new product introductions and some new contract wins on Packaging, you might not necessarily want to get too specific but if you can be a little more specific, I'll take whatever I can get on both fronts, but also maybe in a more general way, where some of these new things are coming in from a vertical consideration within Packaging. And then just for you, Donald, just in the context of the lift in stock-based comp. I thought we were all under the impression that this was largely being hedged out. So maybe just elaborate on that front a little bit.

[Francois Olivier, President, CEO & Director]

In terms of the Q2 trends, I think I start in Packaging. I think we see much of the same. Obviously, Q1 was our easiest comp of the year. But what I have sustained, the organic growth in Q1 are going to be present in Q2. and then even might accelerate a little bit in Q3 and Q4 if some of the business we won transition at the speed it's supposed to transition. So from that standpoint, I think we're in line to meet our objective of 2% to 3% organic growth, maybe a little bit closer to the 3% than the 2% at this stage. Having said that, you guys are going to have to work with Yan because there will be a lot of moving parts. Because the exchange rate, like when we look at that in U.S. dollar, the story is going to be pretty easy. But when we got to translate that back to Canadian dollar with where the exchange is going, it's going to be a significant decrease of the revenue in Canadian dollar. And then you have the increase of the resin that is -- continue to be frequent and significant. So that would increase revenue and have a momentary negative impact on profitability, like mentioned -- Donald mentioned. So this is what I see for Packaging. In a sense, much, much are the same but with tougher comps. For Print, I think Q2, we think that we have a slight chance of doing a little bit better than last year if April is not -- if there's no more reconfinement here in Canada. If things stays open on where they are, we believe that we can do slightly better in April. Obviously, in February and March we'll do worse because we're in a pandemic world compared to a regular world last year. But April being a very big month for us, it's the second biggest footprint. We believe that we could be in the zone of last year or even a little bit better. And then obviously, Q3 and Q4, we're looking to do better, both from a sales standpoint and a profitability standpoint, not considering the subsidies from the government. So these are the trends. In terms of new products, they are around -- they're -- all of our innovations for the most part is around sustainability. I think we shared with you, Adam, the new product we introduced in Latin America for banana. It's been very successful, very well received. So certainly having a lot of growth because this product is used by a lot of customers, former customers and new customer. And a lot of our other new product is all around sustainability about compostable, PCR content or fully recyclable package that help us with our existing customer. But once we prove that with existing customer, with our new customer want to try these things. And these are the 3 main sector or area we're gaining. But our customers are busy, and we're gaining new customers. Obviously, I mentioned LatAm and I would say consumer and pet and meat and cheese are areas where we're also having some success with organic growth at the moment.

[Donald LeCavalier, Chief Financial Officer]

And for your question, Adam, on the stock-based impact, over $3.5 million is about half of it that is linked to the price increase of the share between October 31 and January 31. And you're right, we're hedged, but we hedged about 70% out of it. And so about 1.7% is the part that was not hedged. There's also a little bit of it coming from volume. We issued more recently. And also that last year, we had some accounting sell that maybe come for another $500,000. But you're right, we're hedged, but the stock has moved above close to $5 in the last quarter. So still had an impact around part hedge.

[Operator]

[Foreign Language][Operator Instructions] Your next question will come from the line of David McFadgen with Cormark Securities.

[David John McFadgen, Director of Institutional Equity Research]

A couple of questions. I want to start on a clarification. So when you talked about 150 basis point impact from the resin pricing, is that solely on the Packaging EBITDA margin or is that the total company EBITDA margin?

[Francois Olivier, President, CEO & Director]

That's packaging.

[David John McFadgen, Director of Institutional Equity Research]

Okay. So just on the packaging EBITDA margin. Okay. And then in Q1 I think it's usually when you raise the dividend, anyway, you're going to raise it. And so I guess there's no dividend increase this year, is that the correct way to interpret it?

[Francois Olivier, President, CEO & Director]

Yes, that's right. We do that in Q1, and we look at that once a year and with the Board with what's going on with COVID and the insecurity that it brings into the economy in a sense. We decided to be prudent and not to move and also considering that we're already distributing above 25% to 30% of our cash and our yield is about 4%. We decided that this year would be prudent based on the economic environment that we live in not to push the dividend considering that where it is.

[David John McFadgen, Director of Institutional Equity Research]

Okay. And then just on the Packaging business. So when we -- including the negative variation on the resin price, do you still expect Packaging EBITDA to grow in 2021? It just wasn't clear to me.

[Francois Olivier, President, CEO & Director]

You mean growing at the EBITDA level, that's what you're talking...

[David John McFadgen, Director of Institutional Equity Research]

Yes, the EBITDA -- at the EBITDA level, yes.

[Francois Olivier, President, CEO & Director]

Yes. Well, if you -- like if you factor out the impact of the exchange, when you look at it in U.S. dollar, we think that we could grow. But it remains to be seen because there's been other increase that have been announced that are also substantial. So we keep every month having some negative impact from that lag. And so far, we have no indication that, that is going to go down and that we could recuperate some money throughout this fiscal year. We will eventually will, but is it going to be in this year? So I would say, David, if resin price would not increase from where it is right now, the answer with be yes. But if we keep having 1 or 2 or 3 more increases, then it's big. Like in this quarter is close to $7 million that we took a hit. So if we take a hit like that every quarter, then it might not be the case but if -- so that's my word of caution. And I cannot predict the resin price movement. Obviously, when this thing is going to start to go the other way, then you'll see all that money coming back, but this is what I can tell you.

[David John McFadgen, Director of Institutional Equity Research]

Okay. And on the last call, you signaled that you thought you'd be active on the acquisition front this year. Is that still your belief?

[Francois Olivier, President, CEO & Director]

Yes. We are active in the 3 areas. I think we have opportunities in Media and Print and then Packaging. And we're always looking. And for the last 45 years, I don't think there's any years that TC didn't do an acquisition or a disposition. So we're always looking to grow. Acquisition is actually the biggest part of our growth ambition in Packaging. So for sure, we are in the market looking. But at this point, we have nothing concrete to announce. But we -- it's very much part of our strategy, and we'll be -- if the occasion is there, and it's the right fit for us, we will be active.

[Donald LeCavalier, Chief Financial Officer]

And David, maybe to complete on Francois' answer for resin, I think it's important to add that we're already in the second quarter. And if you look at the market last year, we had an average of about [ 1 36 ] on FX and now [ 1 25 ]. So that will have an impact, for sure. And the second, the resin has a positive impact on the top line because it's a pass-through. So it's been increasing for the last 6 months, and this is why when we talk about organic growth, we exclude the impact of the resin prices. But as we see the market right now, it will have definitely an impact on the second quarter because it does -- we see increases as we speak, important increases coming in the market. So it will have an impact growing the top line but impacting negatively the EBITDA because of the pass-through mechanisms.

[David John McFadgen, Director of Institutional Equity Research]

Okay. And then do you still expect to receive a Canada Emergency Wage Subsidy in Q2? Or is it pretty much done?

[Francois Olivier, President, CEO & Director]

The rules -- sorry, go ahead. While the rules, if you look on the website, the rules are not clear post-March 14. So what we know about the rules for the second quarter up to mid-March is that we expect to receive maybe an average of a little bit less per month than what we had in the first quarter. But then it's unclear what will happen post-March. Because obviously, without going in detail, this program was to compensate loss of business, but then the comparable starting March 14 is what started last year. So we're not sure what's going to happen out there. So as we speak right now, we don't know. But in Q2, from what we know, we have about 1/3 of what we had in the first quarter that will come in.

[Operator]

And your next question will come from [indiscernible] of Deutsche Bank.

[Unknown Analyst]

Maybe just a follow-up on the revenue. Just -- I guess I'm just curious sort of what percentage of the business is contractually linked to resin price or a pass-through? And sort of how much are in place?

[Francois Olivier, President, CEO & Director]

I think we're around 70% to 75% that is under contractual pass-through, but it doesn't mean that we're not passing it through to the other people who don't have a contract, I mean we are. So we are very diligent in passing this to everybody who would already have a pass-through contract or they don't because those increase are -- have been very -- has been a lot of them and they are important. So it's important that everybody -- we're passing it to everybody. But it's done automatically for 70% to 75%. The other folks we have to call them, and we are calling them.

[Unknown Analyst]

The 25%, 30% non indexed, I -- how receptive are they to be? I appreciate the prices are going up and they've gone up quite a bit. I'm just curious how receptive they've been to pricing increases.

[Francois Olivier, President, CEO & Director]

For sure, they are more appreciative when the resin is going down. But it is a fact of business. I mean we cannot run product at a loss. So obviously, these are tough conversations, but I think it's widely known that the resin price is going up. And then with what happened in the South with the weather, the snow and the freezing and some of our supplier have had some interruption of their operation, created even some additional pressure in the markets. And I think our customers are well aware of that. I wouldn't say that they're happy. But it is the market we're in right now.

[Unknown Analyst]

Okay. And what's the typical lag on [indiscernible] index?

[Francois Olivier, President, CEO & Director]

I think the typical is a 1 month to 3 months. I think our average is probably 2.

[Donald LeCavalier, Chief Financial Officer]

Yes. I would say -- yes, 2 to 3 months, it depends. But the average of the [indiscernible] is about close to 3 months. But as a management, we try to be proactive and sometimes it might be shorter than that you see, but the typical is 3 months.

[Unknown Analyst]

Okay. It is more polyethylene or propylene?

[Francois Olivier, President, CEO & Director]

Yes.

[Unknown Analyst]

Is it more polyethylene or propylene?

[Francois Olivier, President, CEO & Director]

It is more polyethylene, it's more PE. They are both -- well, let me rephrase that. They're both going up at about the same rate, maybe a little bit even a little bit more polypropylene. But TC, biggest resin that we're purchasing is polyethylene. So what we have to deal with is polyethylene at TC.

[Unknown Analyst]

Okay. Maybe just on the sustainability front. I guess I'm just curious for these sustainable innovations, your sustainable products. Is this something that is sort in the stack? Or is it something you're sort of bringing to the table and it's really a differentiator and that's helping you win business? Or is it -- again, is it something that your customers are asking for?

[Francois Olivier, President, CEO & Director]

I think we -- the customer are asking for the plastic packaging to be more sustainable, and that's their ask. And then we have to come up with the ideas for them. For them, is it compostable? Is it fully recyclable-ready? Recyclable for in-store pickup? Or is it introducing 30%, 50%, 60% of PCR post-consumer resin done with waste?So we have to come up with the idea. I think what I could tell you is that once you have a success with part of their portfolio, could be only 5% or 10% or even 2% of their portfolio. But what it does for us or anybody else who could do that, it position you very well with this customer that you're the partner of choice to help them convert their whole portfolio to sustainable plastic packaging. And then when that happens, you start to win business where you start to move business our way, but are not necessarily at this point already recyclable or PCR content. But you have a plan to move them there. So then they're starting to move the business that is traditional with the view that you're going to convert them to whatever innovation or vision you share with them. That's not unique to TC, I think it's for everybody. And I think it's good for the industry that we're all doing this. But this is what -- when I say we're winning business because of our sustainable offering, it's not necessarily 100% because of the revenue of the sustainable product, is for partnership that customers are doing with us because of where we're heading.

[Unknown Analyst]

And was it last quarter that you referenced, I think, the contract with Coca-Cola for the water product? I'm just curious how that was going.

[Francois Olivier, President, CEO & Director]

It's going well. We have won a contract with a sparkling water brand of Coca-Cola, and we were the first to introduce a PCR shrink for these -- for those beverages. It's been introduced in the market very successfully running into their passability very successfully. And we are continuing to see if we could expand this type of product, other larger brand of Coca-Cola. And as a supplier we're actually looking to push the PCR content to 50%, and it looks like we're probably going to be successful doing this. So it is an area that evolved very, very fast. Our job is to make the product evolve. Obviously, it's for the customer to decide when it's time for them to use those products. But our job is to make them available to them, and that's what we're doing.

[Unknown Analyst]

Okay. And just within Print, the 80%, 85% of business that's come back. So in the absence of any further reopening, would you sort of just expect a sort of [ slot line ] here until we come back?

[Francois Olivier, President, CEO & Director]

Yes. If what I said in my prepared remarks, is if the level of restriction on the economy stays where they are right now. And we don't get to more lockdown and more -- it's mainly around retail. If retail stays the way it is, we believe that we could do about the same as last year in Q2. And we believe that we could do better in Q3 and Q4, both in terms of revenue and EBITDA for Print. Now if the economy is starting to reopen and we have impact of the vaccine and then more people can go into the stores, and they -- like the pandemic is up and there's no third wave, then it's going to be better in revenue and EBITDA no matter what, unless we go back to complete lockdown or hold up the economy.So at this point, we believe that we won't go back there as we look for us. But if it stays like it is, we're going to be better. And if it's starting to open up and the economy is starting to recover a little bit, then we'll do a lot better in terms of sales and EBITDA compared to last year. So no matter what, we'll do more, factoring out the subsidies from the government. We believe that we will do more revenue in Q2, Q3 and Q4 combined for Print and more EBITDA. The question is just how much more.

[Operator]

[Foreign Language] Mr. Lapointe, there are no further questions at this time.

[Yan Lapointe, Director of Investor Relations]

Thank you, everyone, for joining us on the call today, and we look forward to speaking to you soon.

[Operator]

[Foreign Language] Ladies and gentlemen, this concludes the conference call for today. Thank you for participating. Please disconnect your lines.