Core Scientific, Inc./tx Q1 FY2024 Earnings Call

Good afternoon, everyone. Thank you for being part of Core Scientific's First Quarter Fiscal Year 2024 Earnings Conference Call. My name is Tia, and I will be moderating today's call. I would now like to hand it over to your host, Steve Gitlin. Please go ahead.

Good afternoon, ladies and gentlemen, and welcome to Core Scientific's First Quarter Fiscal Year 2024 Earnings Call. This is Steven Gitlin, Senior Vice President of Investor Relations for Core Scientific. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session after management's remarks. As a reminder, this conference is being recorded for replay purposes. Before we begin, please note that on this call certain information presented contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, without limitation, any statements other than historical or current facts that predict or indicate future events or trends, forecasts, performance, or achievements and may contain words such as believe, anticipate, expect, estimate, intend, project, plan, or words or phrases of similar meaning. Forward-looking statements are based on current expectations, forecasts and assumptions that involve risks and uncertainties that may cause actual results to differ materially. For further information on these risks and uncertainties, we encourage you to review the risk factors discussed in the company's annual report on Form 10-K filed with the Securities and Exchange Commission and the special note regarding forward-looking statements contained in the company's current report on Form 8-K filed today and the earnings release and slide presentation contained therein. Today's presentation is available on our website at corescientific.com in the Events and Presentations section. The content of this conference call contains information that is accurate only as of today, May 8, 2024. The company undertakes no obligation to update statements made today to reflect events or circumstances occurring after today. Joining me today from Core Scientific are Chief Executive Officer, Mr. Adam Sullivan; and Chief Financial Officer, Mrs. Denise Sterling. We will now begin with remarks from Adam Sullivan. Adam?

Thanks, Steve. I'll start today's call with a summary of our positioning as we enter 2024 and some highlights of our strong performance in the first quarter. I will then pass the call to Denise Sterling for a review of our first quarter financials. After Denise speaks, I'll discuss the current industry environment and our strategy for ongoing growth and value creation in 2024 and beyond, followed by a Q&A session. Core Scientific is well-positioned for growth in the market. We operate the largest owned bitcoin mining infrastructure in the industry, with about 745 megawatts of operational power and contracts for up to 1.2 gigawatts of power. We own and control all the necessary structures, transformers, and concrete pads in our seven mining data centers. Additionally, we have the experience and the team to maximize the value of our infrastructure while seeking new opportunities. Our business was built by identifying high-power sites with favorable power rates for lucrative computing applications. We focus on creating low-cost proprietary infrastructure for bitcoin mining operations, which also offers hosting opportunities for third parties. As bitcoin prices rose, we leveraged our expertise to mine for ourselves, investing in equipment and expanding our infrastructure's geographic reach, which enhanced our revenue and return on investment. Our leading infrastructure has allowed us to produce more bitcoin than any other public company over the past three years. We believe our infrastructure is strategically positioned to meet the growing demand for power and infrastructure necessary for high-performance computing, which we see as a major growth opportunity. With the rising demand for high-power sites, we can adapt our infrastructure to provide access to HPC, taking advantage of favorable timelines for development and permitting. According to Bank of America Research, power demand from data centers is expected to double in the next three to five years. Given this context, our central theme for today is that owning and controlling our high-power data center infrastructure gives us a significant advantage in an environment where demand outstrips supply. Our infrastructure allows us to balance our portfolio between bitcoin mining and alternative computing hosts to maximize cash flow, reduce risk, and maintain substantial exposure to bitcoin's potential gains. We can provide clients with quicker access to power than they would experience waiting for new data center capacity to become available. This blend offers the potential for long-term, predictable cash flows, which can help offset the inherent volatility of bitcoin pricing. Since we own and control our infrastructure, we can optimize our assets. Bitcoin mining remains our core business, and we will continue to seek low-cost power as we identify further opportunities for higher-value applications. Our infrastructure serves as the foundation for our growth and optimization strategies. We've created a unique opportunity to monetize our infrastructure for both bitcoin mining and HPC hosting. I will elaborate on this after Denise's remarks. Now, let's review our strong first quarter results. We entered 2024 with solid momentum from 2023, setting the pace for our industry by earning 2,825 bitcoin in the first quarter, more than any other miner. Our leading bitcoin production generated $150 million in revenue, along with $29 million from our hosting business, bringing total revenue to $179 million, a 49% increase year-over-year. Nearly all key financial metrics showed strong performance: our gross margin was 43%, operating margin was 31%, net income reached $211 million, and adjusted EBITDA was $88 million, up 118% year-over-year. We ended the quarter with solid liquidity, including $98 million in cash and cash equivalents and $16 million in restricted cash. Shortly after the quarter closed, we invested capital to pay down $19 million in debt related to outstanding Mechanic's Liens and fund a $1 million project at our Denton data center to add 72 megawatts of infrastructure. During the first quarter, we maintained strong hashrate utilization, outperforming our peers and scaled miners. We also upgraded our self-mining fleet by deploying new S21 miners, improving our average miner efficiency to 25.78 joules per terahash. We are preparing to make strategic miner purchases to take advantage of improved pricing following the recent halving. We have already noticed a post-halving pricing trend that is lower than pre-halving levels. In March, we secured a contract for high-performance compute hosting at our new Austin data center. Notably, we delivered a 16-megawatt data center for our client, CoreWeave, over a month ahead of schedule, which helped expedite their operations. Upgrading this data center was a significant undertaking that required extensive teamwork. As we look ahead to the rest of 2024, we are optimistic. Our excellent first quarter has set the stage for continued momentum and significant growth opportunities ahead. Now, I'll turn the call over to our CFO, Denise Sterling.

Thank you, Adam. Our performance in the first quarter was strong across all financial metrics, driven by favorable fundamentals and excellent execution. Total revenue for the first quarter of 2024 was $179.3 million, which included $150 million from digital asset mining and $29.3 million from hosting. Digital asset mining revenue of $150 million exceeded mining costs of $81.6 million by $68.4 million, achieving a gross margin of 46%. In comparison, the previous year’s digital asset mining revenue of $98 million exceeded costs of $72.7 million by $25.4 million, resulting in a gross margin of 26%. Gross profit increased by $43 million, showing significant improvement from the previous quarter. The rise in digital asset mining revenue of $51.9 million was largely due to a 134% increase in bitcoin prices and a 20% increase in our self-mining hashrate from deploying an additional 18,000 new generation mining units. The increase in digital asset mining costs of $8.9 million for this quarter was mainly due to higher depreciation expenses from the new self-mining units and increased payroll and benefits costs from adjustments made during the quarter. Power costs remained steady as the rise in consumption from new units was offset by a 3.8% decrease in our power cost per kilowatt hour. The costs of producing digital assets primarily consist of electricity and data center operating costs, including salaries and depreciation. Hosting revenue of $29.3 million surpassed hosting costs of $20.1 million for this quarter by $9.3 million, reflecting a gross margin of 32%. Last year's hosting revenue of $22.6 million exceeded costs of $16.2 million by $6.4 million, with a gross margin of 28%. Hosting profit increased by $2.8 million, or 44% from the previous quarter, driven by new profit-sharing clients onboarded in the second quarter of 2023. Operating expenses for this quarter were $16.9 million, down from $24.2 million for the same period last year, mainly due to lower stock-based compensation and some increases in personnel and advisory fees. Net income for the quarter was $210.7 million, a substantial increase from a net loss of $388,000 last year, largely because of a $143 million decrease in reorganization items and lower bankruptcy financing costs. Non-GAAP adjusted EBITDA for the first quarter was $88 million, significantly up from $40.3 million last year. This growth was mainly due to increased total revenue and a decrease in digital asset impairment costs, partially offset by increased operational expenses. Our average power cost was $0.043 per kilowatt hour this quarter, and we anticipate it will range between $0.045 and $0.047 per kilowatt hour for the year. Our self-mining versus hosted mining mix at the end of the quarter was 77% to 23%. We aim to improve the efficiency of our self-mining operations and anticipate a decrease in hosting over time. As of March 31, 2024, we operated approximately 173,000 miners, and our energy efficiency improved as a result of completing our S21 deployment in April. By the end of the first quarter, our cash and equivalents stood at $98 million, up from $50 million at the end of 2023, and our total debt decreased to $608 million, reflecting a significant reduction driven by debt equitization and settlements. We plan to continue expanding our miner fleet and operational capacity, including a new expansion project in Denton, Texas, and additional investments in our Austin data center. Our direct cash cost to mine a bitcoin was $18,915, which includes power and operational costs. We are confident that our operating cash flow will support expenses, debt service, and capital expenditures for our growth plans in 2024. Lastly, we expect a statutory tax rate of around 23% for 2024 and have over $300 million in net operating loss carryforwards to reduce future cash taxes. Our share count is around 182 million shares. Now I’ll turn the call back to Adam to discuss our expectations for 2024.

Thanks, Denise. Before we turn to Q&A, I'll spend some time walking through our strategic priorities for the rest of the year and the macro environment factors driving these priorities. Now that we are 3 weeks from the latest halving, we have seen a normalization of the record high transaction fees immediately after the halving. Cash price has declined to around $0.05, and we are seeing a small decline in global network hashrate. Barring any dramatic and sustained increase in hash price over the next 3 to 6 months, we expect to see inefficient hashrate drop off the network as some machines are turned off and as operators seek new homes for their miners. We expect some difficulty decreases throughout this process, and we expect year-end hashrate to be higher than current levels. Speaking more broadly, in 2024 and over the next few years, we anticipate increased competition for blocks as scale miners continue to invest CapEx to increase their hashrates. We also expect to see increases in U.S. power prices over the coming years. The question for Core Scientific now is how can we best grow our business and continue to create economic value for our shareholders at a time when the value of our owned infrastructure is increasing? For Core Scientific, the answer comes in 3 parts. First, by continuing to build out our owned infrastructure, particularly through the completion of our Texas projects; second, by expanding our hashrate through fleet refresh and emerging miner options. And finally, as I discussed, we are focused on leveraging our owned infrastructure to capture the significant opportunity in HPC hosting. I'll describe each of these in more detail, starting with our partially built infrastructure at our 2 Texas sites. At these sites, we had 372 megawatts that require an investment of about $200,000 per megawatt on average to complete. These 372 megawatts can support more than 20 exahash of mining capacity over the next 3 years when complete. And as mining technology yields higher efficiencies and hashrate per megawatt, that total hashrate will increase. We can also dedicate a portion of this new infrastructure to HPC hosting depending on customer needs and opportunities. We are currently on track to energize the 72 megawatts in Denton by the end of our second quarter. We expect to purchase the remaining miners to achieve our refresh and hashrate expansion goals later this year. Second, we are taking advantage of mining market economics and new miner suppliers to expand our hashrate cost-effectively, both through refreshing our fleet and expanding our rack space. For perspective, based on our current 745 megawatts of infrastructure, if we were to refresh all of our prior generation S19, S19 Pro and S19j Pro miners with S21, we would be able to increase our existing hashrate by more than 10 exahash without adding any new infrastructure. We are already seeing improved mining equipment economics in the post-halving environment. We are also working with multiple technology companies to develop and deploy new lower-cost miner technology with higher energy efficiency that will offer greater procurement options. And third is our emerging alternative compute business launched with our successful deployment of 16 megawatts of data center capacity for CoreWeave. As discussed earlier, buyers of advanced GPUs for workloads such as AI cloud and high-performance computing having limited supply of infrastructure options and often face significant and costly delays in the availability of new data center capacity. Core Scientific has more than 500 megawatts out of our total 1.2 gigawatts of contracted power that can be utilized for alternative compute workloads based on geographic proximity to major cities and fiber lines. Further, we have a successful track record of efficiently managing large-scale data centers, and we have a team from the data center industry leading our operations. We are in regular discussions with customers in the space and expect to build out this part of our business further over the course of the year. We think it's important to help frame the economics of this potentially significant business opportunity as follows: Based on industry data, the cost to build a new Tier 1 HPC data center ranges between $7 million and $12 million per megawatt. Based on our current assumptions, we project the cost to convert one of our high-power bitcoin mining data centers into a Tier 1 HPC data center at between $5 million and $8 million per megawatt. Even saving $1 million per megawatt represents a $100 million in construction savings for a 100-megawatt data center. We are pursuing clients that are able to prepay for construction CapEx as an offset against a portion of their monthly hosting payments. We aim to become a market leader in providing digital infrastructure for high-performance computing. The cash generating power of that business will enable us to keep some of our bitcoin production on our balance sheet in anticipation of future increases to the extent that we have cleared certain debts that prevent us from holding bitcoin today. Based on industry data, we target Tier 1 HPC hosting revenue on the order of $1.4 million to $1.6 million per megawatt per year with gross margins of 75% to 80%. Power costs and utilities are direct pass-through to clients. The complete conversion of 500 megawatts of bitcoin mining infrastructure to HPC hosting would likely take 3 to 4 years, but we expect to begin generating revenue earlier as capacity comes online incrementally during that process. HPC hosting provides stable revenue and gross profit. This is important for Core Scientific because it will provide stability and a greater degree of revenue predictability, which can also help moderate the variability in our bitcoin mining results against the more dynamic mining backdrop. As we consider these 3 points, we see a transformational opportunity to balance our portfolio in business between highly efficient bitcoin mining at scale and alternative compute hosting. Our bitcoin mining business generates profitable cash flow and preserves our exposure to the upside potential in bitcoin price. It also built the platform for an alternative compute business that could provide significant multiyear steady cash flows with strong financial returns. The potential to optimize our asset portfolio across these 2 attractive and high-value compute areas is only available to us because we own and control all our infrastructure. We cannot be better positioned to capture the opportunity in these 2 growing markets. We will provide more details about our emerging alternative compute hosting business when we reach any definitive agreements. Our Board, our leadership team and I are more excited than ever about Core Scientific and our growth plans. We truly believe that by executing on our balanced strategy of bitcoin mining scale and alternative compute hosting, we can enhance value for all our stakeholders, both in the near and long term and deliver compelling financial results that will unlock tremendous value in our company. Thank you all for your engagement and attention, and thank you to our customers, industry partners, and all our teammates for your ongoing efforts and support. We will now take your questions.

On the HPC front, with the 500 megawatts of potential infrastructure capacity, I was curious what kind of customers are you currently having conversations with, whether they be hyperscalers, data center operators, start-ups? Just any color you could provide there would be helpful.

Our current target base primarily aims to incorporate prepaid revenue into our contracts, enabling clients to cover the capital expenditures. While this approach limits the pool of potential clients, it aligns well with large tech companies focused on AI development. Right now, our main emphasis is on these large tech firms that require application-specific infrastructure.

And just drilling down to the economics you guys mentioned, it looks like the existing CoreWeave contracts were roughly $100 per megawatt hour. And the numbers you just gave are closer to $150 to $170. Just kind of curious, is that the $150 per megawatt hour level, is that with these existing agreements where the CapEx will be prepaid? And really just any other color you could provide on the margin profile, that would be great.

Yes, of course. Our target is focused on converting sites. When we mention deals like the existing CoreWeave agreement or any conversion of leased space for subleasing to potential clients, the total revenue and margin profile would be slightly different and lower. Our emphasis moving forward is on site conversions, and what we have presented is based on discussions with potential clients and industry data that is guiding us. For margins, we are currently targeting between 75% and 80%, supported by approx $1.4 million to $1.6 million in revenue per megawatt.

Adam, I also wanted to ask about the HPC opportunity. And you mentioned kind of 3 to 5 years for greenfield. And if I understood you right, you mentioned 3 to 4 years for your conversions. Is that correct? And maybe more importantly, kind of what is the process for developing greenfield? I'd like to understand kind of the competition. So if someone comes in looking at a greenfield, how long does it take power? How long does it take to construction? And how do you compete against that?

Of course, and thanks, Lucas. I want to start with the second part of the question. What we're seeing from traditional operators today, traditional data center operators they have long-dated contracts, 10 years or greater. And so for the existing infrastructure side, they have a very hard time competing with the part of the industry that we're focused on today. And then going forward, they've sold forward at least 3 to 5 years of capacity at which they've locked up. And so converting any of that in the short term is very difficult for them. Now if you look forward right now, you're seeing some of the large tech companies securing power of 2028, 2029, 2030, that's just to secure the power aspect. You tack on top of that, a lot of supply chain constraints for equipment luckily that we already own. So in the traditional data center industry, it's at minimum 3 to 5 years for them to really start attacking this industry. From our perspective, what we're looking at, we said 3 to 4 years to fully develop the 500 megawatts. We mentioned we're going to have incremental capacity come online throughout that time period, and that's mainly driven by the fact that we have a lot of the long lead items already owned inside of our business today. And a lot of those constraints are around the electrical infrastructure that you could see.

To follow-up on this. In your presentation, you show that valuation arbitrage between some of the leading bitcoin miners and data center companies. In light of everything discussed, why haven't we seen M&A yet? What's your take on that?

Yes, Luca, if I might just follow-up your question, you're referring to M&A in our industry itself?

Yes. Well, specifically what I'm referring to on Slide 8 is a forward EV-to-EBITDA multiple for data center companies 20 times, you cite 9 to 14 times multiple for the highest multiple bitcoin miners, certainly consistent with some of the data I've looked at. Why haven't we seen M&A from the data center side to the bitcoin mining side to date? I would appreciate your thoughts on that.

Yes. No, it's a great question. I think Morgan Stanley put out a very good report related to the opportunity that bitcoin miners actually have today given the fact that just on electrical equipment alone, it's at least 36 months lead time for traditional data center. So just having access to the power is a significant advantage and it's actually a much higher value to traditional data centers than really the valuations that we're seeing bitcoin mining infrastructure traded today. I wouldn't rule that out; traditional data centers are definitely trying to find ways to bring power online more quickly. What we're seeing across a number of reports is that data center capacity is going to double over the course of the next 6 years. So I think that's something that we're still in the early stages. I would imagine that companies throughout the industry are having those types of conversations. From our perspective, we're focused on executing this because we believe we can drive a significant amount of short-term and long-term value for our shareholders.

So Adam, maybe you could offer a little operational insight. I know the hash price has trended down, right, maybe a little bit lower than you expected or had modeled. I'm wondering, and I know you said that you expect miners to come off and you look for the next difficulty adjustment this week and 2 weeks beyond. Is there anything that you're doing sort of in-house to maximize the performance of the fleet?

Thanks, Kevin. I think it comes down to really 2 items. And the first is comes down to operations. Prior to halving, we actually moved our machines based on their efficiency amongst our sites based on their power contracts, really to prepare for a time period that could be much worse than what we're seeing today in terms of the $0.05 hash price level. The second part is our in-house software development team has developed a significant amount of firmware around the ability to adjust machines on a minute-by-minute basis amongst different types of firmware settings. And really, what that does is it allows us to change our efficiency of our machine fleet and it allows us to do that based on power prices at each of our sites as well as prevailing hash price metrics. And so for us, that provides a significant advantage over our peers who have outsourced much of that capability set, whereas we've been able to integrate really all 3 parts of the software stack, the energy management, the fleet management, and the firmware, all into a single software stack that allows us to provide a significant amount of control greater than our peer set today.

At what point would you consider developing fresh megawatts to address the HPC market versus conversion? And how would you balance that infrastructure spend vis-a-vis 10 or so exahash that you could gain in improving your fleet?

We are in a unique position with infrastructure that supports both bitcoin mining and HPC hosting. Bitcoin mining allows us to expand into new markets and explore new sites. In our HPC business, we are currently focusing on customers willing to prepay for capital expenditures. As we explore new opportunities, our capital allocation will be evaluated on a monthly and quarterly basis, but we are positioned to grow our bitcoin mining exahash over the next few years. We see a potential for a 10 exahash increase with upgrades to our existing machines. Overall, we are looking at exciting opportunities in both bitcoin mining and HPC.

Adam, I was kind of curious on your thoughts to Kevin's question where you kind of addressed your firmware and your stack. You mentioned other miners using third-party solutions. As I think about your firmware solution that you're using internally, is there an opportunity potentially to bring that out into the market and have other smaller miners be potential customers, i.e., is this a potential other revenue stream for Core?

Yes. Thanks for the question. This is something that we've evaluated in the past, potentially rolling out to a broader market. We view this as a significant competitive advantage over our peers. And what we've seen over the past few years in terms of the development of software is that we've continued to lead the path in terms of our development. And so from our perspective, we're going to continue to keep this as our proprietary in-house software so that we can maintain that competitive advantage over our peers as we continue to grow. I think one important note on that as well is that our peers when they're running third-party software, they're paying a pretty significant development fee to the ultimate owners of that firmware. That's a fee that we're able to not pay and actually generate greater gross profit than our peers on the same machine type at holding all the variables constant.

And then I also wanted to follow-up on the HPC opportunity. I mean, you mentioned the ability for prepaying; I guess, prepaying is one thing, and that's obviously, it sounds like the ideal solution. But what about approaching it using your existing infrastructure with a joint venture? Is that something that could make sense? Or at this stage in the game, it's something that we're not really interested in bringing on a partner?

Yes, I would say the way we look at it right now, and really what it says this most is utilizing the prepaid revenue structure allows us to own that infrastructure free and clear after that prepaid revenue drop. Owning this infrastructure, whether it's at the end of the contract or whether it's after that prepaid revenue is paid off, will give us a significant advantage in terms of being able to refinance that infrastructure and potentially pull some capital out to fund future growth. And so we view this as we have the technical capabilities in-house. We have the infrastructure base. And so from our perspective, really, the capital is the only other part of that that's necessary to execute. And if we can get that from our client base, that will provide us a significant advantage going forward.

I just wanted to follow-up really quickly on the prepayment from the HPC customers. I mean, do you have a threshold level in mind? And I guess like what's the lead time you're thinking about for that payment and then maybe rolling it down?

Yes, of course. I think what we're looking at right now is really on the 100% payment terms. So for the total CapEx bill receiving 100% of that from our potential clients. I think some high-level guidelines here to think about in terms of how we're thinking about it is really not utilizing more than 50% in any given year towards the revenue that we could be generating. And I think that really brings us to a point where we're still able to experience significant free cash flow generation off of these megawatts even with the prepaid structure rolling off over the course of the contract.

The $1.4 million to $1.6 million that you mentioned, Adam, is that including the pass-through on power? And I think you mentioned another pass-through, if you could remind me of that. And so for the EBITDA margin, I think you mentioned 75% to 80%, that would be still kind of straight on top of that revenue line. Just wanted to make sure I didn't miss anything there.

Thank you, Lucas. Yes. So the $1.4 million to $1.6 million is not inclusive of the pass-through power and utilities. And so when you think about that number, that's really the lease rate on a per megawatt basis for the entirety of the year. All of the other expenses that are incurred are pass-through to the client. And so when you think about the 75% to 80%, we like to think about that as the gross margin on that per megawatt number that's given to that $1.4 million to $1.6 million.

Denise, you mentioned two stock price thresholds for warrant conversion and the flood of cash that would offer you and perhaps clearing the balance sheet at that point. Could we take a step back and think about that process without the stock moving? I mean at what point would you consider retiring debt given cash generation and favorable mining economics?

Kevin, I appreciate your question. To clarify, the $19 million we paid off early in the second quarter was specifically for Mechanic's Liens related to our 72 megawatt development at the Denton facility. We do have some additional debt service obligations this year that will involve paying down more principal. As we assess the current market conditions, our analysis indicates that it is more advantageous to allocate capital towards growth rather than debt repayment at this time. Therefore, we intend to continue funding our growth initiatives, which may be reassessed in the coming months or quarters. For now, our priority remains on supporting the expansion of our business, as we believe this approach is more beneficial for our bottom line.

On the HPC, curious to know if the potential clients reached out to you directly or did you reach out to them? And how much of the 500 megawatts would be potentially taken by these clients you're in talks with?

Yes. Thank you for your question. I would have to say it's a bit of a mix of both. People recognize the platform that we've built. They know the locations of our sites, and they know the capabilities that we have on our internal team. You look at our operations team up and down, coming almost directly from the data center industry with decades of experience across each member. And so that is experienced at the traditional data center industry as well as the tech industry know and they know many of our team members very well. And so it was a bit of a combination of both inbound as well as some outbound calls to certain partners that we knew may be interested. Our goal right now is to repurpose about 500 megawatts to HPC. And really, what we're focused on is trying to accomplish this potentially depending on how negotiations and discussions go with potential clients over the course of the next 3 to 4 years. And so that's really what we're focused on today, executing on our growth plan not only in the bitcoin mining side but also on the HPC side.

Thank you, Tia. With no further questions, we thank you for your attention and your interest in Core Scientific. An archived version of this call, all SEC filings, and relevant company and industry news can be found on our website, corescientific.com. We wish you a good day, and we look forward to speaking with you again following next quarter's results.

That concludes today's conference call. Thank you. You may now disconnect your lines.