Earnings Call Transcript - FTAI Q3 2022

Operator, Operator

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Fortress Transportation and Infrastructure Investors LLC Third Quarter 2022 Earnings Conference Call. At this time, I would like to turn the conference over to your host, Mr. Alan Andreini. Sir, please begin.

Alan Andreini, Host

Thank you, Howard. I would like to welcome you all to the Fortress Transportation Infrastructure third quarter 2022 earnings call. Joining me here today are Joe Adams, the CEO of FTAI, and Angela Nam, the CFO of FTAI. We have posted an investor presentation and our press release on our website which we encourage you to download if you have not already done so. Also, please note that this call is open to the public in listen-only mode and is being webcast. In addition, we will be discussing some non-GAAP financial measures during the call today, including EBITDA. The reconciliation of those measures to the most directly comparable GAAP measures can be found in the earnings supplement. Before I turn the call over to Joe, I would like to point out that certain statements made today will be forward-looking statements, including regarding future earnings. These statements by their nature are uncertain and may differ materially from actual results. We encourage you to review the disclaimers in our press release and investor presentation regarding non-GAAP financial measures and forward-looking statements and to review the risk factors contained in our quarterly report filed with the SEC. Now, I would like to turn the call over to Joe.

Joe Adams, CEO

Thanks, Alan. I'm pleased to announce our 30th dividend as a public company and our 45th consecutive dividend since inception. The dividend of $0.30 per share will be paid on November 28, based on a shareholder record date of November 14. Also, please note FTAI successfully completed the spinoff of its infrastructure business on the 1st of August of this year. Historical financial condition and the results of operations related to the infrastructure business prior to the spinoff date have been disclosed under Discontinued Operations within the consolidated financial statements. Now, let's turn to the numbers. The key metric for us is adjusted EBITDA. Adjusted EBITDA was $108.9 million, down 24% compared to $143.7 million in Q2 2022 and up 25% compared to $87.2 million in Q3 2021. The above numbers are for consolidated FTAI which includes both leasing and aerospace products. Starting this quarter, we will be presenting leasing and aerospace products as separate segments going forward. Let's start with leasing. Leasing had a good quarter, posting approximately $96 million of EBITDA. The pure leasing component of the $96 million of EBITDA came in at $75 million for Q3, down from $87 million in Q2 as expected. The principal reason for the decline was due to the sale of approximately $145 million of book value of assets in Q2 and Q3 attributed to our cargo campaign sales in which we sold 5 aircraft and 30 engines. With very strong demand for assets and the addition of some new acquisitions which we will talk about later, we expect Q4 will rebound. And next year, 2023, we're very confident in leasing EBITDA of $350 million to $400 million for the year, excluding gains on asset sales. Part of the $96 million in EBITDA for leasing came from gains on asset sales which also performed as expected. We sold $64.9 million book value of assets for a gain of $20.6 million. We have more asset sales coming in Q4 to recycle capital invested in some of 2021's larger acquisitions. In addition, we'll continue to make freighter sales to capitalize on the continuing robust freighter market. We're very comfortable assuming gains on asset sales continuing at approximately $25 million per quarter or $100 million for all of 2023. Aerospace products had another solid quarter with $19 million of EBITDA. We started these activities only a little over a year ago and in the last 4 quarters have booked approximately $70 million of EBITDA without any contribution from PMA. We see tremendous potential and feel good about generating $20 million to $30 million in quarterly EBITDA and think $100 million-plus in 2023 EBITDA to be very doable. We feel confident about this number because we're seeing a rapidly expanding backlog of aerospace product business with other leasing companies, MROs, or maintenance repair organizations and airlines. With respect to Q4, we have begun closing the sale of $200 million in assets and have signed letters of intent to purchase $300 million in new assets also in Q4. The net pickup in leasing EBITDA from the new investments minus the give-up from the sales we estimate to be $40 million per annum or $10 million per quarter. Importantly, 2 of these asset sales involved FTAI retaining the engine services contract on behalf of the buyer which should generate $1 million per annum per aircraft or $10 million total per annum of aerospace EBITDA over the remaining lease term of approximately 8 years. After 3 years of macro trade headwinds, we now have macro factors that are greatly helping us. First, OEMs have instituted mostly double-digit percentage price increases for parts effective this quarter. And parts price increases create more opportunity for our cost-saving products to increase market share for us. And since service shop visits costs are predominantly parts, the replacement value of our engines goes up correspondingly. Second, many airlines are trying to reduce expensive full engine restorations and instead increase module swaps and light shop visits that do not require disassembly which plays right to our strengths and into our products. Thirdly, delays in new aircraft deliveries are creating scarcity of 737NGs and A320 COs which will drive strong demand for 737NGs, A320 COs and, importantly, CFM56 engines for many years to come. And fourth, industry demand for travel has returned to almost pre-COVID levels. Regarding PMA, or parts manufacturing authorization, there's no change in our planning which includes a full complement of airfoil parts becoming available throughout next year. In summary, it feels like we are finally operating in an environment with strong tailwinds. We managed through the COVID disruptions, followed by the Russia-Ukraine situation, and will have our portfolio optimized by this year-end. And with demand for air travel surging globally, combined with proprietary cost-saving aerospace products, 2023 is shaping up to be an outstanding year. With that, let me turn the call back to Alan.

Alan Andreini, Host

Thank you, Joe. Howard, you may now open the call to Q&A.

Operator, Operator

Our first question or comment comes from the line of Giuliano Bologna from Compass Point.

Giuliano Bologna, Analyst

Congrats on another quarter, great quarter. I’d be curious, when I’m looking at some of the numbers that you just mapped out around asset sales and redeployment of capital into new assets that are happening during 4Q, you’re selling a fair amount more assets than you sold in the last two quarters and you’ve been able to recognize pretty impressive gains on sale that were even above the range during one of those quarters of the $20 million to $30 million range. Is it fair to assume that the combination of the large asset sales could move you towards the higher end of that $20 million to $30 million range in 4Q? And then kind of as an add-on to that, with the EBITDA take-up and probably some lease-up demand in the portfolio, is it also fair to assume that you can get back within the, call it, $90 million to $100 million run rate during Q2 for core leasing?

Joe Adams, CEO

Yes. So I would say on the gains, yes, it's fair to assume that some of the asset sales we were targeting for Q2 got delayed and have been pushed into Q4. So I do think there's upside over the sort of guided range we have in Q4 just because of that, the sequencing and the timing. So it's shaping up to be a pretty good quarter from an asset sales point of view. On the leasing side, as I indicated, we're very comfortable next year hitting the sort of $90 million to $100 million per quarter. The Q4 will really be a function of the timing of closings and when those occur. So I think it's possible that we can get there. But in today's world, it seems like there's more delays than accelerations and sort of every time you turn around, there's something about a part not available or a maintenance shop can't get something delivered. And so I'm a little hesitant to promise on that just because we're in a world that is unpredictable.

Giuliano Bologna, Analyst

Hopefully the call hasn’t been interrupted. If everyone else is still on and it’s working fine, I’m interested in discussing the upcoming vote on the merger that would eliminate the K-1. One topic that's been raised in discussions is index inclusion and its potential effects on your shareholder base. Have you conducted any analysis regarding the low and high end of what index buying might look like after converting to a PFIC?

Alan Andreini, Host

Joe, are you there? Did you hear Giuliano’s question?

Joe Adams, CEO

Yes, I provided a detailed answer that it seems you missed. Regarding asset sales, some deals we anticipated closing in the third quarter have been postponed and will instead close in the fourth quarter. This suggests that we could exceed our usual expectations for gains on sales. I agree with you; we should likely be at the higher end of that range or potentially even beyond it, as the timeline for closing deals is taking longer than expected. As for leasing EBITDA, I mentioned that we are quite confident in achieving a quarterly range of $90 million to $100 million next year. However, this depends on when we can finalize some of these new acquisitions. In the current environment, everything appears to take longer than anticipated, whether due to delays in parts or maintenance. Therefore, I'm somewhat cautious to predict Q4 outcomes at this stage. Nevertheless, these supply chain challenges actually work to our advantage since we have available equipment and engines that others may not. It's just a reality that processes seem to take longer these days. I’m optimistic about the overall run rate once all assets are deployed, though Q4 could be a bit unpredictable. It will definitely be higher, but the question is whether we will reach the $90 million mark for the quarter.

Alan Andreini, Host

Joe, did you happen to hear Giuliano's second question relating to the indexes? Giuliano, if Joe didn't hear that, can you repeat it, please?

Giuliano Bologna, Analyst

Yes. I think it was when we lost you, so I'll re-ask those questions quickly. One of the questions that I was curious about was with the vote approaching on November 9 for the reverse merger that will effectively change the corporate structure and remove the K-1 and convert you guys to PFIC. I realize it's imperfect science but one of the topics that's come up is index inclusion and what that could mean just from an index ownership perspective over time. And I'm curious if you've done any analysis or you have any sense of what kind of the low end or high end ranges for how the impact of special index buying from kind of a need to buy perspective as a percentage of the outcome to shares?

Joe Adams, CEO

We have conducted some analysis and identified potential funds that we might get included in. Historically, Aircastle has been successful in achieving this and has a corporate structure similar to what we are adopting, which suggests a positive outlook. However, there is a qualitative aspect to these applications, so we cannot be completely certain. I estimate that the range could be between 10% and 30% of our total stock market capitalization could be allocated to passive funds.

Operator, Operator

Our next question or comment comes from the line of Hillary Cacanando from Deutsche Bank.

Hillary Cacanando, Analyst

In terms of the insurance recovery, you previously mentioned expecting partial recovery from your insurance claims this year. I would like to clarify how much of that is still the case. Additionally, how much of the recovery is related to assets in Ukraine that may have been destroyed, compared to how much will be for planes that are still operational and functioning in Russia?

Joe Adams, CEO

Yes, I'm glad to discuss insurance. To summarize, we have approximately $290 million in insurance claims against our $125 million in book value assets. We've categorized these claims into three main areas. The first category is our contingent insurance coverage, which amounts to about $90 million and primarily covers engines. The second category relates to assets in Ukraine, valued at about $75 million. The third category involves Russian assets, mainly planes lost in Russia, totaling around $125 million. We've made progress on two of these categories, specifically the contingent coverage and the Ukrainian assets. Progress signifies that we've had productive discussions and outlined a plan, but it's not yet fully defined enough for me to provide a specific timeline. However, I'm hopeful that we could resolve these two areas in the next three to six months. Some Ukrainian assets we believed were destroyed might actually be in good condition as far as we can tell. We now have personnel on the ground and are exploring various strategies for these assets, with or without insurance, to generate value. Focusing on these assets is a priority for us. The situation with Russian assets is more challenging as the insurance companies are not engaging. There have been lawsuits filed by AerCap and DAE. The positive aspect is that there are no discussions about policy cancellations or lack of coverage; the focus is on sanctions and complications, which I believe will eventually resolve as litigation progresses. This category may take the longest to settle, as I have indicated from the start.

Hillary Cacanando, Analyst

Okay. Got it. And then my second question is, obviously we're seeing all these supply chain issues affecting the OEMs. And you've also mentioned the cost, the increase in I guess price and cost escalation. So I was wondering if you could talk a little bit about the cost escalation that you're seeing on the engine side and if we could actually see an impact, maybe like the benefit from the maintenance side of the business that you could actually point to in terms of quantifying the benefit.

Joe Adams, CEO

Yes. All of our engine maintenance reserve payments are tied to shop visit costs, which are comprised of 90% parts. Therefore, if parts prices increase by 10%, our maintenance reserve payments will also effectively rise by 10%. This increase for the CFM, GE, Safran fleet will take effect on November 1, which we anticipated. As a result, we have been seeking to acquire more engines this summer to maximize our capacity. I believe we are well positioned for this, and it should lead to additional EBITDA for us starting in November.

Operator, Operator

Our next question or comment comes from the line of Josh Sullivan from Benchmark Company.

Josh Sullivan, Analyst

Just kind of following up on that question. As far as the process where FTAI retains the maintenance streams in some of these aircraft sales which aircraft or customer types are most drawn to that arrangement? Or where should we see that process really gain some traction?

Joe Adams, CEO

It's all older CFM56 engines. And the way we're positioning ourselves in the market is our view is for CFM56 engines, the first 10 to 12 years is covered by the OEM under power by our maintenance agreements for the most part. And so we're not going after that business. It's not really available. But once the engine has passed maybe the second shop visit that are looking at the second shop is about year 12 or 14, a lot of those maintenance contracts are up for bid and us to acquire. And so what we want to do is use our products and our services to be effectively the OEM for the second half of the life of that engine. And so that's the way we position ourselves with airlines and MRO shops is that we can take over your maintenance activity, much like GE does on the front end. We can save you money and we can totally derisk it for you because you won't have any negative surprise events. You won't have any overruns or surprise expenses to deal with. And in the case of airlines that are looking to phase out the fleet, we can buy the fleet and then provide you a new engine whenever you want it. So we'll provide you liquidity, flexibility, and cost savings. So we're finding a very broad appeal for that pitch. It resonates with people, particularly accelerated by the fact that the prices just went up, are going up 10%. And airlines are experiencing a lot of cost inflation, and they are looking for every potential way to do it. So I think it is resonating. And I think all of that we're able to do before any incremental savings that might come from PMA which we expect next year.

Josh Sullivan, Analyst

Got it. No, that’s helpful. And then maybe, could you just give us some general thoughts on the current leasing environment maybe by geography? What are you seeing as far as duration or some of the other features on leases that might be changing in this environment?

Joe Adams, CEO

Many airlines are now reporting new orders as they plan to receive NEOs and MAX aircraft in the coming years, but they are experiencing delays. As a result, airlines are inquiring about available options in the NG and CO ranges to meaningfully increase their capacity. The market is very strong, and typically, these leases last five to six years, from one D check to another, making the terms attractive. The demand is widespread. While China remains a constrained market, it is an exception; other regions, including Latin America, Middle East, Southeast Asia, and Western Europe, are showing robust growth. Latin America, in particular, has performed well, and Western Europe's capacity is returning after the impact of Omicron. Overall, the market environment is very strong. Although Russia's exit represents about 5% of the market, it is not significantly material. The global dynamics remain very positive.

Operator, Operator

Our next question or comment comes from the line of Brandon Oglenski from Barclays.

Brandon Oglenski, Analyst

Joe, I appreciate the outlook. Could you walk us through the asset sales and net additions to the portfolio as we close out the year? Additionally, while the outlook appears positive, your cash balance seems a bit low. How do you plan to manage liquidity in the upcoming quarters?

Joe Adams, CEO

Yes, I think we had about $70 million in cash at the end of Q3. Considering the various asset sales and purchases, we expect to end the year potentially with around $50 million drawn on the revolver. We have a $225 million revolver that remains undrawn at the moment and is fully available. This is how we plan to manage liquidity, as we have done in the past. Overall, we are adding $300 million in assets, and the cash flows from operations and asset sales are roughly balanced. Therefore, we expect to end the year with very little, if not all, of the revolver available as we head into next year.

Brandon Oglenski, Analyst

And I guess, looking ahead, where do you want to see leverage in the portfolio, and has that changed at all with the increase in interest rates?

Joe Adams, CEO

We are not overly concerned about higher interest rates. We have informed the rating agencies that we aim to achieve a BB rating and manage our debt to EBITDA ratio to be under 5x. If we project an EBITDA of $550 million to $600 million next year, we expect our ratio to be under 4x. The agencies, including Moody's, S&P, and Fitch, have all suggested that achieving these figures would likely lead to an upgrade, bringing us into the BB range, which aligns with our goals. This situation is not primarily influenced by interest rates. We see opportunities ahead and plan to prioritize repaying some of our debt using excess cash flow next year, which will lower our net debt balance, improve our debt to EBITDA ratio, and enhance our ratings. Currently, we are focused on asset management, selling and acquiring assets to ensure we are not accumulating a lot of capital but rather recycling it to boost EBITDA.

Brandon Oglenski, Analyst

Okay. Appreciate that. And then on the greater than the $0.5 billion in EBITDA targets for next year which I think you’ve reiterated here, what type of portfolio utilization level do you think you need to achieve to get there?

Joe Adams, CEO

The aircraft utilization has generally been over 90%, and I believe it will remain so. We have some assets that were repositioned from the Russia-Ukraine situation that we are either planning to sell or lease. This summer, we added some 737-800s at a very attractive price, and these will start leasing this month—two in October and one in November. By the end of the year, we aim to optimize the portfolio by redeploying assets from the Russia-Ukraine situation and selling targeted cargo assets. I expect aircraft utilization to exceed 90% by year-end. For engines, our target has always been between 50% and 75%, and utilization is driven by the number of hours flown and the total size of the portfolio. Over the last two quarters, we have acquired a significant number of off-lease CFM56 engines, which has prevented utilization from increasing despite a strong market, as we have added to our available engines. We plan to continue adding to our fleet because we anticipate a price increase, and we find the economics of these engines very attractive. Our target for engine utilization remains between 50% and 75%. However, our management focus is on optimizing the overall EBITDA of the portfolio rather than strictly managing to those utilization percentages.

Operator, Operator

Our next question or comment comes from the line of Brian McKenna from JMP Securities.

Brian McKenna, Analyst

So the business has clearly navigated some unexpected headwinds over the past couple of years. I’m curious, though, the backdrop today seems like it couldn’t be better. But with the potential for a recession next year or maybe some pullback in related activity, would you think about accelerating asset sales in the near term or slowing the pace of new investments in order to delever the business even more, that way you have more liquidity and excess capital to be more offensive in any slowdown?

Joe Adams, CEO

We have been actively making decisions this year about our cargo sales. Early on, we recognized that the cargo market might be at its peak, and we opted to act quickly rather than wait, which I believe was a wise choice. We've managed to sell around $400 million worth of cargo assets to raise capital. However, holding onto cash didn't seem like the best strategy either, especially considering the favorable conditions in the CFM56 engine market and the significant competitive edge we possess. From our perspective, it feels as though we've already experienced two recessions, and any potential future economic downturn is likely to have a lesser impact on CFM56 demand compared to the effects of COVID. Therefore, we believe that even in the event of a global economic slowdown, the recovery in travel and demand for those assets will be stronger than the overall economy.

Brian McKenna, Analyst

Helpful. And then, I appreciate the color on the insurance claims. But if you were to see some windfall from these claims over the next couple of quarters, I guess what’s your number one priority for that capital? Is it paying down some incremental debt and if so which maturities would you look to pay down first? Would you even maybe dividend some of it back to shareholders, or would you put some of it into incremental asset purchases? Just curious how you’re thinking about that.

Joe Adams, CEO

I think our main priority would likely be to repay debt. We're considering various factors in this decision. We recently repaid the 2025 debt, which reduced our obligation to $650 million, and we could certainly do more of that. Another attractive option would be to address our more expensive debt, as paying down the highest cost debt can be more beneficial. So, those would be the two main choices, but our primary focus would be on repaying debt.

Operator, Operator

Our next question or comment comes from the line of Frank Galanti from Stifel.

Frank Galanti, Analyst

This is Frank. Can you hear me?

Joe Adams, CEO

Yes.

Frank Galanti, Analyst

I wanted to start by discussing the module factory and its competitive landscape. Can you explain what the business offers from a customer's viewpoint? Does it essentially extend the maintenance visit by about two years, and how does that stack up against a quick engine change? I'm trying to understand where the value lies in the module factory. Additionally, who do you consider your main competitors? Clearly, with PMA parts and the used service and materials, there is a cost advantage, but it seems minimal at this stage with the current progress on PMA approvals. I would like to explore this specific business further.

Joe Adams, CEO

Sure. The customers for the module factory can be categorized into two groups based on the benefits they perceive. The first group focuses on optimization. For instance, if an LTT requires a shop visit but the rest of the engine does not, performing a module swap can help optimize the hours and cycles, aligning them with the other components of the engine. This can lead to a significant reduction in maintenance costs, as there's no need to send the entire engine for a shop visit. A good example of this is the WestJet deal we secured with Lufthansa. The second group tries to avoid shop visits entirely by exchanging engine modules. Many airlines, especially those operating the CFM56 suite, are exploring ways to bypass full restorations, which involve completely taking the engine apart and often result in considerable cost increases. With a module swap, they can replace the fan or the LPT while keeping the existing ones and avoiding extensive maintenance. This approach targets a substantial market. Over the past few months, we've engaged with numerous airlines, and they've expressed a desire to decrease their full restorations. Modules are ideal for helping them achieve this goal. As for implementation, major airlines with their own MRO shops, like Delta, United, and American, manage module exchanges for their fleets internally. However, hundreds of other airlines lack this capability. We are currently the only option available for those seeking to purchase a fan or an LPT, making us the first to establish a platform for this service. This is particularly advantageous for many airlines just beginning to understand this opportunity. We are witnessing airlines starting with one or two modules, leasing companies looking to minimize returns, and maintenance shops eager to attract clients. The entire ecosystem is embracing this approach, and today, no one else is offering this product. We believe it is highly beneficial for airlines, maintenance shops, and the industry as a whole, providing everyone with this capability.

Frank Galanti, Analyst

Okay, great. Yes, that's super helpful. Appreciate that. And then for my second question, I wanted to dig in on the PMA parts. And I apologize; you may have gone through this in the beginning of the call. I've got sick kids, so I was a little bit late getting on. But can you sort of reiterate the timeline on the remaining parts approval? And then specifically around the second part, obviously that's been delayed. What's changed from when you first kind of contemplated getting approval on that part relative today? Sort of walk us through why that's been so delayed.

Joe Adams, CEO

Yes. As I mentioned earlier, there are two main factors contributing to the delays. First, there are ongoing design adjustments and test results, which are part of the normal process that occurs with each project. Second, the FAA's response times have been slower than usual. They have been taking longer to provide answers and have had personnel vacancies that have not yet been addressed. This situation is out of our control and is not typical. These are the two main reasons for the delays. However, I want to emphasize that all parts and processes are progressing well, and we expect that all remaining parts currently under development will be ready for approval next year in 2023.

Frank Galanti, Analyst

That's helpful. I have another question about Chromalloy. Veritas is planning to acquire that company, and I want to confirm that this will not impact FTAI's operations. Additionally, although this might be a bit early, can you discuss the duration of the competitive advantage related to the PMA business, especially considering that it appears to be limited to the CFM56-7B/5B engine? What steps can FTAI take to maintain a competitive edge in the future?

Joe Adams, CEO

Yes, I can confirm that the Chromalloy joint venture is unaffected. There are no changes in control or termination rights in the agreements, and we are eager to work with Veritas. This is a significant positive for Chromalloy, reflecting the management team's quality and future opportunities. We believe this transaction is a positive development, and we look forward to it. Our focus is currently on the CFM56 engine. We have collaborated with Chromalloy on the CF6-80 engine, which has been a successful partnership, but we are reducing our involvement in that as it matures. The CFM56 engine is expected to see a peak in shop visits from 2023 to at least 2030, possibly extending due to new delivery delays and the uncertain total maintenance costs of new technology. We are optimistic about having over 3,000 shop visits annually for the next 6 to 7 years, presenting a significant market opportunity. Beyond 2030, while it is uncertain, we believe we have ample time to generate new ideas, and we already have plans for next year in development.

Operator, Operator

Please stand by.

Frank Galanti, Analyst

Not sure if you had any additional information, but your mention of something on the drawing board seems to address my question. I appreciate you taking the questions.

Joe Adams, CEO

I'm back. Can you hear me?

Frank Galanti, Analyst

Yes, we can hear you. You had said something about we had things on the drawing board.

Joe Adams, CEO

Yes. We have some ideas about other maintenance-related products that we're developing for next year. So I think it's not going to be static. We're not going to sit and wait until 2030 and do nothing.

Operator, Operator

We have time for one more question. Our last question for today will come from the line of Mr. Greg Lewis from BTIG.

Greg Lewis, Analyst

Yes, Joe, I just had one question. Realizing that it’s still early days. We got to get the C Corp conversion. But I guess, as we think about this bigger picture, like right now, FTAI is clearly trading at a nice discount to its peers. I heard a lot about continuing to deploy cash for assets. You did touch on the dividend. I mean, at a certain point, do we need to start thinking about buying back the stock?

Joe Adams, CEO

Sure. I think when we have the decision with excess cash flow, I think we're going to look at all 3 alternatives which is pay down debt, increase the dividend, or buy back stock. So I don't have any preset answer to that. It'll be a function of what the outlook is, what the opportunities are, where the various securities are trading. So we'll take a look at all of that.

Operator, Operator

Thank you. At this time, I'd like to turn the conference back over to Mr. Andreini for any closing remarks.

Alan Andreini, Host

Thank you, Howard. Thank you all for participating in today's conference call. We look forward to updating you after Q4. Thank you.

Operator, Operator

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day. Speakers, stand by.