Pason Systems Inc. (PSYTF) CEO Marcel Kessler Q1 2020 Results - Earnings Call Transcript

Pason Systems Inc. (OTCPK:PSYTF) Q1 2020 Earnings Conference Call May 1, 2020 11:00 AM ET

Company Participants

Marcel Kessler - President & Chief Executive Officer

Jon Faber - Chief Financial Officer

Conference Call Participants

Greg Colman - National Bank Financial

Daine Biluk - CIBC Capital Markets

Matthew Weekes - Industrial Alliance Securities

Ian Gillies - Stifel

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Pason Systems Inc. First Quarter 2020 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] The contents of today's call are protected by copyright and may not be reproduced without the prior written consent of Pason Systems Inc.

Please note that the advisory is located at the end of the press release issued by Pason Systems yesterday, which describe forward-looking information. Certain information about the company that is discussed on today's call may constitute forward-looking information. Additional information about Pason Systems including the risk factors relevant to the company can be found in its annual information form.

I would now like to hand the conference over to your speaker today, Marcel Kessler, President and CEO. Thank you. Please go ahead, Sir.

Marcel Kessler

Good morning and welcome to Pason's first quarter 2020 conference call. With me here in Calgary today is Jon Faber, our Chief Financial Officer. I will start with the highlights of the first quarter. Jon will dive into the details of our financial performance. I will close with a brief perspective on the outlook for the industry and for Pason and we will then take any questions.

The first quarter of 2020 started relatively strong when the unprecedented impact of COVID-19 on global oil demand was not yet clear. As most of you will know, as the global economy was shutting down, the disagreement between Russia and Saudi Arabia over proposed production cuts led to an increase in supply at the worst possible time. This resulted in a collapse of oil prices and the end of the first quarter 2020 became anemic for the industry.

Accordingly, Pason's operating environment deteriorated in the period with drilling industry activity decreasing by 25% in the United States, our most important operating area. This headwind was partially offset by a 7% higher industry activity in Canada, market share gains in the United States and continued growth in product penetration in all geographies.

Revenue per EDR day, a very important metric for Pason increased in both the United States and in Canada. Pason generated revenue of $74 million in the period, a decrease of 10% compared to the same quarter last year. Adjusted EBITDA was $33.3 million for the quarter, a decrease of 18%.

Adjusted EBITDA as a percentage of revenue was 45% compared to 50% one year ago, highlighting our largely fixed cost structure. Net income attributable to Pason for the quarter was $16.9 million or $0.20 per share, down from $19 million or $0.22 per share in the first quarter of 2019.

Capital expenditures for the quarter were $3.1 million and free cash flow was $22.9 million. At March 31, our working capital position stood at $208 million, including cash and short-term investments of $170 million. We are actively assessing an optimal cost structure and capital allocation strategy including the levels of future dividends, in order to balance Pason's commitment to shareholder returns while preserving our financial strength.

Pason will maintain the quarterly dividend to be paid on June 29 at $0.19 per share. However, in light of the uncertainties related to COVID-19 and the significant negative impact that a weakened commodity price environment have on the outlook for the industry. We currently intend to reduce the following quarterly dividend, expected to be declared after the second quarter to $0.05 per share.

I will now turn the call over to Jon for a more detailed look at the financials.

Jon Faber

Thank you, Marcel. Pason's first quarter financial results represented strong performance in the face of lower industry activity in our largest market the United States. Consolidated revenue of $74 million was down 10% from the first quarter of 2019. Sequentially, revenue increased 8% owing to the seasonality of Canadian drilling activity. Adjusted EBITDA of $33.3 million, representing an adjusted EBITDA margin of 45% was down 18% from the prior year period and up 25% sequentially.

During the quarter, Pason generated $22.9 million of free cash flow. This represented a $22.5 million increase from the first quarter of 2019. Recall that first quarter 2019 results included the payment of a $15.3 million withholding tax amount as a result of a bilateral pricing arrangement with the IRS and CRA, for which the company continues to carry an offsetting receivable amount on its balance sheet.

Net income attributable to Pason for the quarter of $16.9 million or $0.20 per share was down 11% from 2019 levels. I will turn to a review of the financial results of each of our business units.

Drilling industry activity in the United States was down 25% from the first quarter of 2019. Pason's revenue for the U.S. business unit of $45 million was down 17% from the prior year, as a 300 basis point increase in market share and a 3% increase in revenue per EDR day served to offset the lower industry activity.

U.S. results were also positively impacted by a weaker Canadian dollar in the quarter. Sequentially U.S. revenue increased 2% despite a 6% decrease in industry activity, driven by sequential increases in both market share and revenue per EDR day. U.S. segment gross profit decreased by 27% year-over-year to $22.4 million as a result of the revenue decrease and the company's largely fixed cost structure. Segment gross profit increased by 9% sequentially from the fourth quarter of 2019.

Our Canadian business unit started 2020 with better than expected industry activity in the first part of the quarter, and industry activity for the full quarter was 7% higher than in 2019. Our Canadian revenue of $19.7 million mirrored the increase in industry activity and was also up 7% from 2019 as a 7% increase in revenue per EDR day, offset a 550 basis point reduction in reported market share in the quarter.

Reported market share continues to be more volatile and heavily influenced by customer mix in light of lower drilling activity levels in Canada and we expect that volatility will continue through the short and medium-term. Despite the year-over-year revenue increase, cash operating costs were relatively unchanged. And as a result, segment gross profit increased 10% from the prior year to $9.1 million.

Sequentially, Canadian results reflected the seasonality of the drilling industry in Canada. Revenue increased 39% and segment gross profit increased 104% on a sequential basis. International revenue of $9.2 million was relatively unchanged from the first quarter of 2019 and was down 7% sequentially from the fourth quarter of 2019 as activity in most international markets including Argentina and Australia slowed in the quarter. Segment gross profit of $2.9 million was also relatively unchanged from the first quarter of 2019 while increasing 7% sequentially from the fourth quarter.

In summary, our financial results for the first quarter represented continued competitive strength in each of our operating segments. We continue to carefully manage both our operating and capital cost outlays. Capital expenditures in the first quarter totaled $3.1 million, down 70% from the same quarter in 2019 and down $2.5 million sequentially from the fourth quarter.

In light of the unprecedented pace of decrease in industry activity owing to the effects of the COVID-19 pandemic and global commodity prices, we are now expecting to spend approximately $10 million on capital expenditures in 2020, down $15 million from our prior expectation of a $25 million capital program this year. This represents both lower maintenance capital spending reflective of a lower drilling activity, as well as a deferral of certain capital programs, which we had anticipated beginning in 2020.

During the first quarter we also satisfied the first of three put options held by Intelligent Wellhead Systems at a cost of $5 million. We allocated $3.8 million toward our normal course issuer bid program and repurchased 422,000 shares in the quarter. We do not anticipate activity under the program in the near-term as we prioritize balance sheet preservation through the current economic crisis facing our industry.

Concurrent with the release of our first quarter financials, we announced that we are maintaining our quarterly dividend at $0.19 per share for the dividend to be paid on June 29th. The aggregate dividend payment of approximately $16 million for the quarter is comparable to our first quarter net income and represents 70% of first quarter free cash flow.

Consistent with our prioritization of the balance sheet in the upcoming quarters, we currently intend to reduce our quarterly dividend to $0.05 per share beginning with the dividend expected to be declared after the second quarter.

As at March 31st, we had positive working capital of $208 million including $170 million of cash and cash equivalents. As we enter a period of tremendous challenge and uncertainty and with significant dislocation likely to occur in our industry, we do so from a position of excellent competitive and financial strength.

And I will now turn the call back to Marcel for his comments on our outlook.

Marcel Kessler

Thank you, Jon. Pason is considered an essential service in the United States, in Canada and in most of our international operating areas. As such, we continue to support drilling operations and technology solutions, providing valuable services to our customers in support of the global energy industry.

The health and safety of all Pason stakeholders, our employees, customers and vendors remain a top priority for us. Accordingly, we have implemented additional policies and procedures to protect the well-being of our stakeholders.

To minimize the impact of COVID-19 on our ongoing operations, we began working remotely where possible since March 16th. We are very proud of how our people have responded in these challenging times.

Going forward Pason will continue to make operationally sound and fiscally conservative decisions to support our long-term success. In light of the uncertainties related to the outlook for industry activity Pason has reassessed its cost structure as well as its capital expenditures for the remainder of 2020.

As Jon explained, we now intend to spend approximately $10 million in capital expenditures this year down from previously $25 million. We intend to make reductions to operating and other expenses during the second quarter, while retaining key capabilities key people and relationships to strengthen our competitive position in the future.

We will allocate capital to safeguard the long-term prospects of Pason's core drilling-related business, and of Energy Toolbase, our foothold in the solar and energy storage market. The energy world has been upended by two 2020 oil black swans, a demand collapse and a supply surge.

Survival has become the primary focus of many E&P and oilfield service companies, significantly reduced cash flows for every company in the industry, including Pason are unavoidable in the short term. However, this environment also provides an opportunity for the strongest companies such as Pason to become even stronger by leapfrogging competition in terms of technology and service and opportunities may emerge over time to acquire high-quality assets and business lines.

As the macro environment for oil corrects over the next two years, the focus will again shift to the long-term future. Pason will survive and we are confident that we will make it through this much better and stronger than many of our competitors and peers. We will now be happy to take any questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Your first question comes from the line of Greg Colman from National Bank Financial. Your line is open.

Jon Faber

Good morning, Greg. Sorry Greg. You're really breaking up.

Greg Colman

Can you hear me now, Jon?

Jon Faber

Yes we can.

Greg Colman

Great. So I just wanted to start by talking about the dividend reduction. And where I wanted to focus my questions on were the comparisons between now and 2016, because in 2015, 2016 in that downturn we didn't see any dividend reduction. Now, we are seeing a dividend reduction. And I'm curious, what are the puts and takes that you are seeing that caused you to make that decision? I'm of course looking at things like the rig count your cash balance, and then also your thoughts on the best use of capital as we go forward through this downturn.

Jon Faber

Sure. Thanks Greg. This is Jon. Maybe just to sort of give a little bit of context around the dividend side. So, we've often talked about the notion of a dividend we always think about in the context of sort of free cash flow generation measured over a period of time. And so on the one hand, we look to the medium term and we start to think about an expectation of what industry activity might look like on the – once we get past the worst part of the crisis and we think what about could be an appropriate level of free cash flow to generate in that environment and then look to what's an appropriate amount of that free cash flow to allocate towards the dividend versus having some flexibility on capital allocation as it relates to other accretive uses of cash right relative to share repurchases or potential attractive M&A.

The other thing we look at is the level of cash consumption we are likely to incur in the short term as we move towards that medium term. And I think what's very different this time versus 2016 is the industry activity has been – the decrease has been much sharper is expected to trough much deeper may last longer than we would have seen in that prior downturn. And so while in the 2015 and 2016 environment, we were able to maintain positive free cash flow before the dividend through that part of the cycle, it's very likely that we won't be able to maintain similar free cash flow generation through the depths of the current crisis.

Greg Colman

Very concise. Thank you. When you say unable to or possibly unable to maintain positive cash flow through the depths of the crisis can I interpret depths to be possibly months or quarters rather than interpreting that to be a situation where you anticipate negative cash flow before any dividend payment for sort of say a full year? I suppose, it depends on how long we stay down here.

Jon Faber

Right. Yeah. We clearly think that – when I talked about the depths of the trough that that may be a quarter or two. But it will take some time to work our way back from that of course.

Greg Colman

Got it. Shifting over again use of capital, I suppose. On the CapEx side you talked to the $10 million level. Is that a level, which is at or below sort of a good run rate amount for maintenance cash flow for Pason? I'm just trying to get a feel for how long you can maintain it at that level if necessary.

Jon Faber

Again, when I talked about that, we think about the medium term and scaling towards that kind of environment. I think at that medium-term environment $10 million would be low. It would be closer to maybe $15 million. And between now and then you may see a bit of a ramp towards that. So $10 million may be a 2020-only type of event on CapEx and we may be a little higher than that next year, moving towards a $15 million type of run rate, if that's the way the world ultimately plays out.

Greg Colman

Got it. And then, shifting over a minute to the revenue side. As we often see with Pason as the rig count falls the active rigs tend to be larger and more complex ones and your day rates rise. And that's an impact that we've seen in previous downturns. Is there any reason to believe that that impact won't also be felt in the current downturn, when you look at the active rigs that are still running that you still have equipment on, that we shouldn't see sort of a little bit of an offset as your average day rate per active rig increases because of the average size of the rigs that you're operating on?

Marcel Kessler

Greg, its Marcel. Yes we agree with your statement that the biggest most modern and best-equipped rigs will continue to drill here. However, we also think that we will face unprecedented pricing pressures, right, as several drilling contractors and several E&Ps will fight for survival. So I wouldn't necessarily count on significant increases to revenue per EDR day as we go through this.

Greg Colman

That's a very good point. And then, the last one for me is on the cost side. In your prepared remarks you referenced a largely fixed cost structure. We have other downturns, other incrementals and decrementals that we can use to kind of help map based on our own assumptions as to what the macro looks like.

Can you please talk to us a little bit about how your cost structure has changed in the current -- comparing the current downturn, so sort of 2020 versus 2019 to the prior ones, 2016 and 2015, would be what I would focus on mainly, just so we can try to understand, if you would be a more or less variable cost structure versus the prior downturns.

Marcel Kessler

Yes. Let me take a step back and talk a bit about how we think about the operating cost reductions and then how our cost base now would compare to where it was in -- prior to 2015. So the guiding principle for our upcoming cost reductions is to size the organization to be free cash flow positive in the medium term, as Jon laid out in his remarks for the dividend.

We are not sizing the organization for the expected trough, which is probably several quarters here and we intend to fund operating cash consumption for several quarters from the balance sheet, based on our current forecasts. We believe this will allow us to react more quickly when the industry turns around and should give us a leg up on our competition in terms of technology and service.

Now, to your question, the magnitude of cost savings Pason can realize without impeding our long-term prospects, are likely smaller than for some other oilfield service companies for two reasons. As you know, our cost base is fixed to a significant degree, given the technology intensity of our business.

And secondly, we have in fact been running a fairly lean and tight ship since the last downturn in 2015-2016. And I know you may follow up with the question or somebody else might on, can you give us a specific number as to what that operating cost reduction looks like? And I'm not able to do that today. It would not be appropriate, because we have not yet communicated that internally.

Jon Faber

So, Greg, maybe, I'll just give a few more comments on your question around how the cost structure compares. And when I think about the cost structure, I probably don't immediately distinguish between CapEx and OpEx, because I tend to think about cash. And so, if anybody sort of broadened beyond just the OpEx question, clearly when we talk about CapEx, even in that normal medium-term environment that we talk about, in somewhat maybe theoretical terms, but that $15 million CapEx, that compares to kind of run rate CapEx prior to 2014 of $50 million to $70 million, right? So there isn't as much available on the CapEx lever.

If you look at the OpEx side, we've always talked about our biggest costs -- operating costs being people-related costs and communications bandwidth. Now, relative to the last downturn, on the communications bandwidth costs, they are both significantly lower and more variable than they were in the last downturn.

And to Marcel's comments on the people-related costs, we didn't really grow that very much from the reductions we've made in 2015 and 2016, so there isn't quite as much available there as well. So if you look at all of the cash levers, that also then comes back to the dividend question around balance sheet preservation and the retention of cash, when you have less available on CapEx and OpEx as well. So it's sort of a holistic question you're asking.

Greg Colman

I appreciate for those insights. That helps out as we're trying to map the downturn. Marcel, I don't want to put you into a place where we're looking to get your internal forecast of what happened this year. However, we all have our ideas as to -- and our forecast as to when we could see a trough of activity.

Can you give us a rough idea based on your current planning and how long you plan to fund operating CapEx through the balance sheet, you think, we could start to see an inflection point whether it's in the sense of a month or a quarter or a year, just rough ideas so that we can watch what we think our macro is versus kind of how your behavior is shaking out.

Marcel Kessler

Yes. We expect the worst quarter based on what we see today to be Q4, 2020. And we expect to see a slower recovery starting in early 2021.

Greg Colman

Got it. And is that in conjunction with CapEx budgets from your customers and in the discussions with them? Or is that more based on your view of the macro and your understanding as to how that will shake out?

Marcel Kessler

I think it's more the latter at this point.

Greg Colman

Excellent. That’s it for me. Thanks for the help.

Marcel Kessler

Thank you, Greg.

Operator

Your next question comes from the line of Daine Biluk from CIBC Capital Markets. Your line is open.

Daine Biluk

Good morning everyone.

Marcel Kessler

Good morning, Daine.

Daine Biluk

So without getting into specifics, can you share any more color on what you're seeing out there for acquisition opportunities? And would that have a lean towards oil and gas or elsewhere?

Marcel Kessler

There's no specifics at this point. My comments were purely in principle right in an environment such as this as the crisis extends in time as time goes on. There's nothing specific for us to talk about today.

Daine Biluk

Okay. Have you seen an elevation in inbounds of guys looking to maybe shop their businesses towards you?

Jon Faber

We haven't seen it yet Daine. I think people at this point are still very focused on sort of the self-help mechanisms in trying to get their positions in the best -- their businesses in the best position possible whether that's for running it for the long term or trying to sell it, but I think people are very, very near-term focused currently.

And that will shift and we'll see opportunities show up. But that's another reason why Marcel has commented there's nothing specific to look at because I think people are still very internally focused at this point.

Daine Biluk

Right. Okay. Fair enough. Thank you. How should we be thinking about R&D spending for the balance of the year? And then kind of on the same topic, is the current environment in the energy patch causing you to shift your R&D focus away from the drilling rig at all?

Marcel Kessler

So the R&D spend that you see in our financials actually includes all IT which is to a significant extent purchase costs including AWS infrastructure costs etcetera, as well as R&D. And then the R&D side is -- the R&D organization focused on supporting our customers with sustaining and evolving the current product suite and then of course the new products team.

So we intend to a significant degree protect our investment in R&D and IT. And many of the comments I made earlier related to our significantly fixed cost structures actually relate to our IT and R&D spend. I think we will continue to invest in and support our core business in the drilling -- on the drilling side going forward.

And we will obviously continue to fund and look to grow our step-out in the solar and energy and the battery storage business through Energy Toolbase. So we intend to allocate capital to both.

Daine Biluk

Okay. Understood. No that's good color. Thank you. And then I guess maybe last one for me and you kind of already touched on it, but just broadly speaking how are your customers approaching you, one on pricing and then two kind of the offset product uptake? I mean are you getting hit by two fronts where guys are maybe looking to take certain products off the rig as well as get pricing discounts?

Marcel Kessler

To some degree. But as you know right, Pason is actually a very small percentage of the cost to drill a well of the order of 1% or 2%. So we are usually not the first service that people go after at all. And most operators and drilling contractors have just been so busy stacking rigs and ceasing drilling operations. So to give you an example on average in the U.S., the industry is probably stacking 100 rigs per week or more. So in that environment detailed negotiations on price or less product utilization has not really become a priority.

Daine Biluk

Right. Okay. That's a good point. Fair enough. That's all for me. Appreciate the color guys. I will turn the call back.

Operator

[Operator Instructions] Your next question comes from the line of Matthew Weekes from Industrial Alliance. Your line is open.

Matthew Weekes

Good morning.

Marcel Kessler

Good morning, Matthew.

Matthew Weekes

I think most of my questions have been answered at this point, but maybe just a little bit of clarification. I just wanted to touch on something that was said earlier and just clarify. Did I hear it right, when you guys said that at this point based on your forecast looking at the near term you're expecting Q4 to kind of be like the bottom the worst quarter?

Jon Faber

That is currently what we would be projecting yes.

Matthew Weekes

Is that just based on conversations with your customers? Kind of we look at Canada we can expect things to be better out of the spring breakup. But focusing on maybe the U.S. and internationally are your conversations there just kind of indicating that there's not really going to be a recovery sort of through the second half of the year as COVID-19 restrictions ease up a little bit?

Jon Faber

Well, I think the challenge Matthew is, we never have the long-dated conversations with customers quite as much as some of the people you might talk to on the drilling side, like we tend to be a little bit nearer term in the discussion. Our basis of talking about the fourth quarter likely being the worst is really a view that the absolute worst part of the demand impact, Marcel talks about these two black swans the demand side driven by COVID-19 is likely to start to resolve nearer term than the supply side. And even the supply side will take some time to begin to resolve.

So, the view that things start to get better through 2021 is really the demand being a little bit clearer and supply is starting to resolve itself. It's a macro view more so than a lot of very specific customer conversations.

Matthew Weekes

Okay. Focusing on costs a little bit more and I won't stay here too long because I know we've touched on it but looking historically at the way the fixed cost structure works you can typically expect kind of somewhere in like a 70% to 80% range in terms of every incremental dollar of revenue gain or loss essentially translates into about $0.70 to $0.80 of EBITDA.

In 2016 that was improved a little bit and it was only about $0.50 of EBITDA for lost revenue. Kind of going into this year and going forward in the short term what do you guys expect that to look like sort of that incremental hit to the bottom-line from a loss in revenue?

Jon Faber

Yes. So I think what I would suggest is coming out of the 2016 environment the incrementals were much better than the 70%, right? You'll recall we had incremental sort of north of 90% and that's because we didn't reintroduce a lot of costs.

So, I would suggest that the decrementals will now similarly be probably worse than the 70% that you would suggest for the same reason. We don't have the same kind of costs to extract that we would have back then based on not having to reintroduce them and that led to better incrementals.

Matthew Weekes

Okay. That makes sense. I think that's it for me. Thanks. I'll turn it back.

Jon Faber

Hey thanks Matthew.

Marcel Kessler

Thank you.

Operator

Your next question comes from the line of Ian Gillies from Stifel. Your line is open.

Ian Gillies

Good morning everyone.

Jon Faber

Good morning Ian.

Marcel Kessler

Good morning Ian.

Ian Gillies

I apologize if I missed this but the share buyback has been used to offset dilution I guess over the last couple of quarters maybe a bit more. With cash position where it is are you still comfortable trying to offset any shares that may go out the door moving forward? Or is that something that stops now too?

Jon Faber

Yes. So, I mentioned in the prepared remarks that we don't anticipate in the near term activity under the program. Obviously, we're at a stage now where it's really preserving capital. And as things start to come back that's a question that will be revisited by the Board.

Clearly, we have a little bit more flexibility around capital allocation with less obligation on the dividend side. But in the near term you shouldn't expect activity on the normal course issuer bid.

Marcel Kessler

And maybe to add to that also at the current share price level, right? We are so far away from any option exercise price. I don't think any dilution needs to be offset here in the short-term.

Ian Gillies

With respect to your international markets what's transpired there with customer conversations over the last month? I mean we seem to be getting some different views depending on which conference calls you're on.

Marcel Kessler

Yes, that's a great question. That's actually a very interesting area. So historically international activity has essentially mirrored North America maybe with somewhat less volatility usually the six to nine-month delay. So, if things go South and North America, the International business usually follows about half a year later or maybe a bit more.

Now, we expect that to be the case here also, but in our various operating areas I think a very varied picture emerges. Certain countries certain areas including Australia and maybe the Andean region are as volatile if not more, and declining as quickly if not more than the U.S. and Canada.

On the other hand areas where national oil companies are quite dominant and where in some cases even there's government support for oil prices like Argentina we expect drilling activity to hold up much, much better.

So, currently, if you look at based on the International business, we expect steep declines in the Andean, Mexico, and Australia. And we expect a reasonably steady activity in the Middle East and in Argentina.

Ian Gillies

Thanks Marcel. That's very helpful. Last one for me Jon, are you able to provide any updated commentary based on your current outlook around how you're thinking about taxes cash tax guidance and maybe if there's any large cash installments that need to be paid this year that result from profitability last year? Just an area that's always we can always use a bit of help.

Jon Faber

Yes. And so I guess coming into this year we would have talked in previous conference calls about having sort of largely absorbed the shields we had in terms of operating losses and CapEx and those sorts of things.

We've largely exhausted those and so we're in a position where we we're largely cash tax payable. So, at this point, cash taxes will not significantly differ from what you'd expect based on kind of the earnings before tax.

Ian Gillies

Okay, that's helpful. Thanks very much. I'll turn the call back over.

Jon Faber

Thank you, Ian.

Marcel Kessler

Thanks Ian.

Operator

There are no further questions at this time. Mr. Marcel Kessler, I turn the call back over to you.

Marcel Kessler

Thank you and thank you everyone. I wish everybody a nice weekend.

Operator

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.