Earnings Call Transcript - D Q2 2020

Operator, Operator

Good morning, and welcome to the Dominion Energy Second Quarter Earnings Conference Call. I would now like to turn the call over to Steven Ridge, Vice President, Investor Relations.

Steven Ridge, Vice President, Investor Relations

Good morning, and thank you for joining our call. Earnings materials, including today’s prepared remarks may contain forward-looking statements and estimates that are subject to various risks and uncertainties. Please refer to our SEC filings, including our most recent annual reports on Form 10-K and our quarterly reports on Form 10-Q for a discussion of factors that may cause results to differ from management’s estimates and expectations. This morning, we will discuss some measures of our company’s performance that differ from those recognized by GAAP. Reconciliation of our non-GAAP measures to the most directly comparable GAAP financial measures, which we can calculate, are contained in the earnings release kit. I encourage you to visit our Investor Relations website to review the webcast slides as well as the earnings release kit. Joining today’s call are Tom Farrell, Chairman, President and Chief Executive Officer; Jim Chapman, Executive Vice President, Chief Financial Officer and Treasurer; as well as other members of the executive management team. I will now turn the call over to Jim.

Jim Chapman, CFO

Thank you, Steven, and good morning. Our second quarter 2020 operating earnings were $0.82 per share, which included a $0.03 hit from worse than normal weather in our utility service territories. Weather normalized results of $0.85 per share were at the top of our guidance range, and for the 18th consecutive quarter, we were at or above the quarterly guidance midpoint. We expect the full year financial impact of weather to be more balanced than during the first two quarters of the year. Preliminary data indicate that July was around $0.04 better than normal, and early predictions for August suggest potential for additional weather benefits. Note that our second quarter GAAP and operating earnings are not adjusted to account for discontinued operations, given the timing of our recent announcement, but will be reflected beginning with our third quarter disclosures. GAAP earnings for the quarter were negative $1.41 per share. This result was driven primarily by impairment-related charges associated with the Atlantic Coast Pipeline and Supply Header project. We also had a positive impact attributable to the net gains on our nuclear decommissioning trust. As a reminder, we report such gains and losses on these funds as non-operating. A summary of adjustments between operating and reporting results is included in Schedule 2 of the earnings release kit. On Slide 4, we’re initiating third quarter 2020 operating earnings guidance with a range of $0.85 to $1.05 per share. As mentioned, this range reflects the impact of recasting operating earnings to exclude discontinued operations. We’re also affirming the 2020 annual guidance range provided on our July 6 investor call. As usual, these ranges assume normal weather variations, which could cause results to be toward the top or the bottom of these ranges. Typically, we provide year-ago actual results alongside our guidelines. Given the need to adjust historic results for discontinued operations to provide a useful point of comparison, we plan to provide these figures when we report third quarter and full year results, respectively. I would also note that our 2020 10-K will include three full years of historic results that have been adjusted to reflect the impact of discontinued operations. Finally, we’re also affirming the long-term annual growth guidance we gave earlier this month for earnings and dividends per share. I’ll now turn to discuss our observations on the financial impact of COVID-19. The graph on Slide 5 represents daily and seven-day average weather-normalized load in the PJM Dom Zone as compared to the two-year historic weather-normal average. Strong residential and data center demand continues to support overall load levels that modestly exceed the historic average. This is a continuation of the theme we’ve seen since the pandemic began. Looking forward, we expect this trend to continue. We provide corresponding data for Dominion Energy South Carolina on the next slide. Recall the story here diverged from DEV, and we did experience weather-normal load degradation earlier this year. On the first quarter call, we suggested that April could represent a bottoming out with gradual improvements into the summer. Fortunately, at least so far, that has been the case with July demand only 1% off weather-normal historic averages. I would also point out that the higher volumes sold in summer months like July tend to have a larger impact on our annual sales revenues than the lower volume shoulder months. We currently expect this general recovery trend to continue in South Carolina through the remainder of the year. We estimate that through the end of June, lower than budgeted sales associated with the impacts of COVID-19 across our electric utility operations have impacted operating income by approximately $0.04 per share, which thus far has been largely offset with corporate initiatives. The future remains difficult to predict, so we’re reiterating the demand-related earnings sensitivity that we’ve provided on the first quarter call and which can be found in the appendix of today’s presentation. Consistent with our expectations, customer arrears have increased modestly to date. We continue to work carefully with our customers to provide options and tools to assist them in returning their accounts to current. Our GAAP results for the quarter reflect the recognition of a COVID-related reserve around $20 million representing our current expectation for incremental expense associated with future uncollectible accounts. Turning now to the financing update as shown on Slide 7. We provide detailed guidance on our equity capital raising plans. First, we’re ceasing the issuance of new shares under the DRIP program with immediate effect, resulting in a total of about $160 million of new shares issued under the program in 2020, roughly half of our prior estimate. In 2021 and beyond, we’ll return to our historic norm of around $300 million of new share issuance for the year. Second, starting in 2022, we expect to see our at-the-market program begin to ramp up, such that by 2024, our first big year of offshore wind investment, we’re back to the $300 million to $500 million per year range that we’ve previously articulated at Investor Day. And third, we continue to target year-end completion. This year we announced earlier this month. Recall that the Board’s authorization for the announced $3 billion buyback was with immediate effect. We currently expect that there may be some modest upward bias to this figure based on additional refinement of our overall tax analysis. We’ll provide additional details around share purchases next quarter, but would note that we have not yet repurchased any shares. We have exciting opportunities to deploy significant amounts of capital directed at sustainable energy and related projects. These projected modest equity financing activities will support EPS accretive capital investment. Turning to fixed income, we’ve included a slide in the appendix detailing our very modest remaining issuance for the year. Overall, we view the debt capital market as healthy and liquid across the spectrum of churn. And we currently have nearly $7 billion in available liquidity. Our credit rating agencies responded positively to the announcements we’ve made earlier this month. S&P revised their outlook to positive, while Moody’s and Fitch affirmed their ratings. In all cases, the agencies remarked on the credit-positive aspects of our strategic repositioning. We expect that successful execution of our financial plan will further demonstrate the clear and positive reduction of our overall business risk profile. Finally, to summarize my remarks, let me give some insight into our investor relations strategy over the next several months, as shown on Slide 8. We are increasing our proactive outreach using virtual tools to interact with both existing and prospective shareholders throughout the world, including geographies where ESG-related factors are playing an increasingly prominent role in investment decisions. We are wrapping up our investor targeting efforts to identify prospective shareholders for which our compelling clean energy, operating and financial profile will resonate. We plan to use our fourth quarter earnings call to provide something of an Investor Day-style refresh with supplementary appendix disclosures aimed at providing projected CapEx, rate base and other inputs, which we hope will assist investors in their financial evaluation of our company. It’s our responsibility to get our repositioned story into the market. We therefore look forward to connecting with many of you for discussions on these topics during the next several months. To summarize my remarks, we remain focused on extending our track record of delivering financial results that meet or exceed our public commitments. We feel that our businesses are well positioned with regard to COVID-related demand impacts, but we’re monitoring that situation carefully. We are affirming our updated 2020 operating range guidance as well as the long-term operating earnings and dividend growth outlooks provided earlier this month. And finally, we look forward to increasing engagement with existing and prospective investors in the months to come. I’ll now turn the call over to Tom.

Tom Farrell, CEO

Thank you, Jim, and good morning, everyone. I would like to start by again expressing our gratitude for the medical and other frontline healthcare professionals who are engaged in a courageous effort to assist those who have been impacted by the COVID-19 pandemic. We salute their efforts. Just as we salute the efforts of our employees who continue to perform a vital public service by literally keeping the lights on and critical energy flowing. We continue to evolve our COVID response to incorporate the most up-to-date guidance from the medical and public health community. Social distancing, proper PPE and, where practical, remote work have become the expectation for all employees. We’re also mindful of our customers and the difficult time this has been for them. We have worked closely with regulators to take steps, including the voluntary suspension of nonpayment service disconnections and the offering of flexible payment plans to assist our customers in addressing the financial challenges they may be facing. Turning to safety, which is our first core value on Slide 9. Our year-to-date results put us on track to make 2020 the safest year of operation in the company’s more than 100-year history. As an organization with nearly 20,000 employees and 7 million customers, our safety performance matters to thousands of families and communities, which is why it matters so much to us. The ability to impact lives on a broader scale is also why, when we see an issue that deeply impacts our employees, customers, and communities, we get involved. Recent social unrest, partly caused by the murder in Minneapolis, has led us to question what more we can do to assist them in the cause of social justice and racial equality. Early last month, we publicly committed $5 million to social justice and community rebuilding efforts. These funds will support non-profit organizations advocating for social justice and equality. Grants will also be designated to help minority-owned small businesses recover from recent disruptions to their businesses. Words can convey sympathy, empathy, compassion, and understanding, but it’s actions that matter most. We believe that actions speak loudly. So we’re investing in recovery and reconciliation and in the vital work of overcoming years of debilitating actions, attitudes, and abuses of authority that have traumatized our country. This month, we followed up on that announcement with an additional pledge of $35 million that will support 11 historically black colleges and universities representing 35,000 students across Virginia, Ohio, North and South Carolina, as well as a scholarship fund focused on African American and underrepresented minority students across all of our service territories. These institutions have been foundational in the struggle to improve the lives of African Americans and in the fight for social justice. We’re pleased and humbled to build on our company’s nearly 40-year history of supporting historically black colleges and universities. These initiatives are recognition of the importance of education as an equalizer in society. Across our company, we are engaging with these issues like never before, listening and being heard. We are committed to taking major steps to increase the diversity of our workforce. In recent years, we have meaningfully improved our supplier diversity. Embracing diversity and inclusion is not only the right thing to do, it is imperative to our long-term success as a company. And we’re changing the way that long-term success looks operationally and financially. Slide 11 summarizes the highlights of our strategic repositioning, which includes a narrow focus on our premier state-regulated utility operations, which will account for approximately 85% to 90% of our operating earnings, an industry-leading clean energy profile, best-in-class long-term earnings and dividend per share growth, a low-risk business profile, and a healthy balance sheet. We have a vision for the future, and we are preparing our company to be at the vanguard of the energy transition that is accelerating across our country. We’re investing billions of dollars in a transition that will make zero and low-emitting resources accountable for around 95% of our company-wide electric generation by the end of 2035. As shown on Slide 12, we have a plan described in our integrated resource plan to grow our renewable energy capacity by an average of over 15% per year for the next 15 years. We have successfully achieved our 3,000-megawatt targets for renewable generation in service or under development in the state of Virginia a year and a half ahead of schedule. We are now the third largest owner of solar capacity among utility companies in the country. Our pilot offshore wind project depicted on the cover of these materials is the only project to have successfully completed the permitting process. It will begin to generate electricity this quarter. Our $8 billion, 2.6-gigawatt full-scale offshore wind deployment continues on schedule. Recent permitting recommendations for Northeast wind projects are not expected to alter materially our project plans and will be accounted for when we submit our construction and operation plan later this year. Finally, earlier this month, the Virginia State Corporation Commission approved our renewable energy tariff, which enables us to offer an exciting 100% renewable energy product to our customers. We’re equally focused on emission reductions in our gas distribution utilities. Pipeline and other aging infrastructure replacement, extensive leak detection and repair efforts, and modified operational procedures designed to capture gas that used to be vented during maintenance will reduce the methane emissions of our natural gas utility operations by 65% by the end of this decade and 80% by the end of the next. We’re also finding innovative ways to help our customers improve their sustainability. As one of the country’s largest investors in renewable natural gas, we are at the forefront of the intersection of agricultural emissions reductions and offering natural gas customers green options that are actually carbon negative, meaning they take more greenhouse gases out of the atmosphere than they create when used by the customer. In the coming months, we will share additional insights into our expanding vision for a sustainable energy future for our company and the country. Next, let me address the upcoming Dominion Energy South Carolina rate case. Earlier this month, we made a preliminary filing that formally signaled our intent to file a general rate case proceedings next month, the first for the base electric business in South Carolina since 2012. We expect new rates, based on a typical procedural schedule, to be effective in March of 2021. Since the last rate case eight years ago, Dominion Energy South Carolina has connected over 80,000 new electric customers, representing a 12% increase, and invested over $2 billion in the retirement of electric generation, transmission, and distribution systems that serve customers every day. Despite prudent cost management, the resulting earned return does not measure up to the cost of capital we must employ to maintain excellent reliability and service that our customers rely on. We estimate that our filing will imply a single-digit percentage rate increase, which will be significantly lower than the compounded rate of inflation of nearly 14% since the end of the last test year of 2011. Customers count on us to keep the lights on and to deliver affordable and increasingly sustainable electricity. We are as committed to that goal in South Carolina today as we were when we closed the merger. With that, I’ll summarize today’s call as follows. Our safety performance is on track to set a new company record. We’re making important financial commitments to address social justice and support African American and other underrepresented minority students. We achieved weather-normalized operating earnings that exceeded the midpoint of our guidance range for the 18th consecutive quarter. We affirmed our enhanced long-term earnings and dividends per share growth guidance. Our transaction with Berkshire Hathaway is on schedule for our fourth quarter closing. We are aggressively pursuing our vision to be the most sustainable energy company in the country. Before we turn to your questions, I want to discuss our announcement this morning about my change of role from President and CEO to Executive Chairman at Dominion effective at the end of this quarter. I’m in my 25th year at the company and my 15th year as CEO, in term of 65 last December. Three years ago, the Board began to consider various alternatives to my eventual retirement. We undertook a series of steps over these years. Last September, we took an important step in that process by creating the Co-Chief Operating Officer role. Today’s announcement is another step in a long-designed succession process. I’m pleased to say that Bob Blue will become President and CEO on October 1, reporting to me as Executive Chair. Diane Leopold is being promoted to Chief Operating Officer reporting to Blue and will be responsible for all of the company’s operations across our multi-state footprint. Jim Chapman, our CFO, will report to Blue as will Carter Reid, President of our Services company, Carlos Brown, our General Counsel, Bill Murray, our Head of Corporate Affairs and Public Policy, Corynne Arnett, our Head of Regulation and Customer Experience, and Tanya Ross, our Chief Auditor. Carter Reid will also report to me in her role as Chief of Staff of Dominion. I provide you with this detail to underscore that the team we have assembled at Dominion over the past 15 years will be the same team that carries us into the future. This group has taken Dominion to the top ranks among American utilities in safety, operational excellence, and compliance. It is also this team that has supported and expanded our steadfast commitment to sustainability, diversity, and community engagement. These individuals, of course, did not achieve these results on their own. They were supported by thousands of others at our company who share and live our company’s values. As you know, over the years, we have made significant and, in some cases, transformative changes to Dominion, like our succession process. We have taken a deliberate strategic approach to repositioning Dominion for the future. We are now largely a state-regulated multi-utility company with a growth profile for both earnings per share and dividends among the highest in our industry. We also have one of the strongest ESG stories in the sector. From exiting oil and gas production and merchant fossil generation to merging with Questar and SCANA to embracing solar power, advanced storage and grid modernization, to relicensing our nuclear fleet, as well as the development of the largest offshore wind farm in the Americas, it has been this team of individuals leading the way. With our most recent strategic alignment and selling our gas storage and pipeline segment, embracing a clear path to net zero by 2050, the Board and I thought it would be an appropriate time to take the next step in our management transition at the end of this quarter. There is no established timeframe for my role as Executive Chair, and I look forward to continuing to serve the company on behalf of our shareholders, customers, and communities. The primary goal of our succession planning process has been to ensure continuity of our strategy, public policy, corporate values, and operational excellence. This change is a step in carrying out that goal, and I will also continue to serve as Chairman of the Board of Directors of the company. As Executive Chair, I will continue to represent the company, engaging with key stakeholders, industry groups, and others that will be particularly focused on continuing to develop our strategic plan and Dominion’s leadership in the new clean energy economy. And with that, we will be happy to answer your questions.

Operator, Operator

Thank you. Now our first question will come from James Thalacker with BMO Capital Markets.

James Thalacker, Analyst

Good morning. Can everybody hear me?

Tom Farrell, CEO

Yes, we can. Good morning.

James Thalacker, Analyst

Well, thanks for taking my questions. And before we start, congratulations to both you, Tom, Bob, and Diane for the announcements today.

Tom Farrell, CEO

Thank you.

James Thalacker, Analyst

Just two real quick questions. On Slide 8, you discussed an investor day style financial update that will include a rolling forward of the capital plan and rate base estimates. Would this include year-by-year and or a segment-by-segment program breakdown of the capital spend as well as the associated rate base by year in segment?

Jim Chapman, CFO

Yes, James. Good morning, it’s Jim. Yes, so we are in planning stages for that for the fourth quarter rollout of that analyst day, investor day style refresh. We hope to do at least the kinds of things we did last time around last March, where we did provide, by segment and mostly by year rate base and other growth data. So if we can improve on that a little bit, we’re thinking through how to do that. We welcome feedback. We do expect to provide everything you just mentioned on the fourth quarter call.

James Thalacker, Analyst

Okay. And I mean, just staying in that vein, since you’ve already given sort of some of the financing through 2024. Will we probably roll this out like 2021 through 2025? How are you thinking about that?

Jim Chapman, CFO

Yes. I think so, yes, that’s a possibility for sure. I don’t want to say. Let me add to our existing disclosure. I mean, it’s not so updated. Last March, we still have $26 billion of growth capital spending from 2019 to 2023. We updated some of that on the first quarter call this year for three programs under the BCA in Virginia. Obviously, longer term, our gas transmission storage capital spend, which is about $3.5 billion comes out of that. But our existing guidance is still largely intact and relevant, but we will be providing that roll forward with some more granular updates on the fourth quarter call.

James Thalacker, Analyst

And just last question on this part of it is, and really just sticking to the 2025 sort of timeframe. You’ve given a lot of line of sight on the financing through 2024, but your CapEx really, as you start to do the offshore wind, starts to really build up in 2023, 2024. Just wondering if you are looking to sort of move your CapEx forecast out a little bit farther to kind of talk about the financing plan as we move into 2024 to 2026 and the offshore wind starts coming online.

Jim Chapman, CFO

Yes. Fair enough. I mean, those numbers do get big, and there’s a lot of visibility around that offshore wind spend. But I would say that on an overall basis, the cadence of that $26 billion, the whole bill number, and just know it’s pretty much a run rate. So yes, there’s a slight increase there. So as we provide additional detail or additional year of capital spend, we will also support that with information on our financing plan. But I wouldn’t expect a drastic departure from our kind of run rate numbers that we’ve talked about today.

James Thalacker, Analyst

There is a lot of visibility around the offshore wind spending, and I would say that overall, the $26 billion represents a consistent run rate. There is a slight increase, and as we share more details about the capital spending for the coming year, we will also provide information on our financing plan. However, I do not anticipate a significant change from the run rate numbers we have discussed today.

Tom Farrell, CEO

James, you’re cutting out there a little bit, but that kind of run rate, again, we’ll provide an update on the fourth quarter call. But it’s not going to be a drastic departure from that, if that was your question.

James Thalacker, Analyst

Yes. No, that’s perfect. And then the last question, I apologize. But clearly, there’s been a lot of press in the last week surrounding political spending practices and vehicles. On Slide 20, you briefly address your rankings in the CPA-Zicklin Index, which highlights the user trends that are under their methodology. But I was wondering if you could speak a little bit more about past and current use of social welfare organizations like the 501(c)(4). And do you plan to modify your political strategies at all in light of the recent investigation?

Tom Farrell, CEO

Sure. Thanks for asking. First, we have fully disclosed 501(c)(4) contributions for many years. The Zicklin center you referenced is an independent organization that works with the Wharton School of the University of Pennsylvania to look it up. They track a very wide variety of factors, and they rank all these companies on their disclosure practices. Our disclosure is ranked among the highest in the country, certainly among the highest in utilities for its transparency. Now, like I said, we’ve disclosed all of them. Over the last five years, I think our contributions have been under $500,000, 70% of which went to an organization that is associated with the American Petroleum Institute supporting pipeline projects. So we’ve fully disclosed everything. It’s not a very small part of what we do under $500,000 over five years, and we have no intention of changing our practices because they are perfectly appropriate and completely compliant with every state and federal law by wide margins. We have nothing to be concerned about with respect to any of our political giving or giving to these so-called 501(c)(4)s.

James Thalacker, Analyst

Great. Thanks for all the time. And sorry about the phone breaking up there in the middle. Have a better weekend.

Tom Farrell, CEO

That’s okay. We heard you.

Operator, Operator

Thank you. Our next question comes from Shahriar Pourreza with Guggenheim Partners.

Shahriar Pourreza, Analyst

Hey, good morning, guys. Just on the equity guide, some people may be struggling with it. Buying back this year and starting to issue next year. Can you touch on this thought and why not decide to deleverage and further improve the credit metrics versus buying back, which could be sort of multiple accretive in and of itself? So, and then just have a quick follow-up.

Jim Chapman, CFO

Yes, Shah. Let me start there. Look, our balance sheet is already in the right place, and I’m not going to take time to go through all of the history, but I think as you know, we’ve made a ton of progress in that area over the last several years, and even better pro forma for the sale of the T&S business. So that sale, almost $6 billion of the $10 billion transaction value is really, from our perspective, debt retirement. I think the agencies have recognized that also in their commentary, as I just talked about the positive outlook from S&P, etc. Given that the status of our balance sheet and the related improvements from this transaction, we feel pretty good about our plan to provide the net proceeds back to our shareholders in this buyback, which we’re, as I mentioned, targeting for completion by the end of the year. But that said, we do have a sizable clean energy and related capital spend program. Just talked about that with James. And it’s only increasing as we go through the years slowly. Therefore, we do, even though we’re doing the buyback, it would give the net proceeds back to our shareholders. We think it’s prudent, given that strong balance sheet position we’re in. We do plan to recommence some equity issuance, even if it’s just in the form of DRIP in 2021 and beyond. But I think the perspective is important. I mean, for spending programs that we decide we’re starting out with DRIP less than 0.5 percentage point of our market cap a year and a pretty efficient program like DRIP. And later, just with other efficient programs, all in our ATM, we think it’s overall pretty modest and we made it the best way to go.

Shahriar Pourreza, Analyst

Got it. And then just honing in on the buyback, what specifically, again, is driving upsizing? Can I sort of quantify? And then on the timing, it seems that 4Q purchases could be a little bit conservative on your viewpoint. Can you buyback sooner even if you don’t have the proceeds in the door and can you potentially close this transaction sooner than Q4? So what’s driving the upsizing, and can you start to buyback sooner than Q4 even if the proceeds aren’t there?

Jim Chapman, CFO

Yes. So we have a couple of things there. We have a board authority to commit our buybacks with immediate effect. We do not need to wait until the transaction closes. But we haven’t bought it yet. We retain full flexibility. We do that with open market purchases. We could do it with accelerated share repurchases, tender, Dutch auction, so more guidance to come on that through the fall as we go. We do expect still to complete that by the end of the year, even if we start sooner. We’re not guiding to any different closing timeline than the kind of early fourth quarter, although that all remains on track. But as it relates to the amount, the quantum, yes, we mentioned there’s upward bias. Where is that coming from? We’ll provide more detail on that too as we go. But that comes from, first of all, just a conservative first cut on what cash taxes would be on this sale. We indicated about $700 million. So there’s interplay there between the tax aspect of the sale and the tax aspect of the pipeline abandonment, an impairment of supply header and the interplay of our sizable tax credit position. So as we continue to do more work on that, we see probably, if anything, downward bias in the taxes table from $700 million, and therefore upward bias in the size of the buyback. It’s not huge, again, we’ll come to that guidance. It’s somewhere between $200 million out of that magnitude, and we’ll provide more guidance. But again, conservative first cut, probably improving from there modestly, and we’ll provide more detail on all that as we go through the fall.

Shahriar Pourreza, Analyst

Got it. Thanks, Jim. And Tom, congrats on phase two of your career.

Operator, Operator

Thank you. Our next question will come from Durgesh Chopra with Evercore ISI.

Durgesh Chopra, Analyst

Hey, good morning. Thanks for taking my question and congratulations to you, Tom. So maybe just starting off, I actually have one question only – the other questions have been answered. Jim, so the credit rating agencies for the transaction obviously came out with a positive view. I didn’t see it, but is there a chance that your FFO to debt metrics get adjusted here going forward now that the business mix is very different?

Jim Chapman, CFO

Thanks, Durgesh. By that, do you mean kind of the downgrade or upgrade thresholds from the agencies?

Durgesh Chopra, Analyst

Exactly. Yes.

Jim Chapman, CFO

I can’t speak for the agencies there. On the downgrade side, there hasn’t been action yet. I would think that as we continue to execute on this plan and improve our business risk profile, de-risking our profile, that would be a logical thing to discuss. But we’re not guiding folks to expect that in the near term. But I understand the question, and we’ll see what happens.

Durgesh Chopra, Analyst

Understood. Thanks, guys. And great quarter, again. Thank you.

Jim Chapman, CFO

Thank you, Durgesh.

Operator, Operator

Thank you. Our next question will come from Michael Weinstein with Credit Suisse.