Earnings Call Transcript - REZI Q3 2021

Operator, Operator

Ladies and gentlemen, I'd like to welcome everyone to the Resideo Technologies Third Quarter 2021 Earnings Conference Call. It is now my pleasure to introduce Mr. Jason Willey, Senior Director of Investor Relations. Mr. Willey, you may now begin.

Jason Willey, Senior Director of Investor Relations

Good afternoon, everyone, and thank you for joining us for Resideo's Third Quarter 2021 Earnings Call. On today's call will be Jay Geldmacher, Resideo's Chief Executive Officer; and Tony Trunzo, our Chief Financial Officer. A copy of our earnings release and related presentation materials are available on the Investor Relations page of our website at investors.resideo.com. We would like to remind you that this afternoon's presentation contains forward-looking statements. Statements other than historical facts made during this call may constitute forward-looking statements and are not guarantees of future performance or results and involve a number of risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including those described from time to time in Resideo's filings with the Securities and Exchange Commission. The company assumes no obligation to update any such forward-looking statements. We identify the principal risks and uncertainties that affect our performance in our annual report on Form 10-K and other SEC filings. With that, I will now turn the call over to Jay.

Jay Geldmacher, CEO

Thank you, Jason, and good afternoon, everyone. Our Q3 performance demonstrates strong operational execution and progress on our business transformation. This performance is against the backdrop of healthy end market demand, but continued global supply chain challenges. We grew revenue 10% year-over-year in the quarter. This growth was tempered by expansion in Products & Solutions backlog, which remains well above historical levels. We also experienced supply chain constraints within certain categories at ADI. Our supply chain team and executive leadership continue to spend significant time engaging with key supply partners. We believe this proactive and direct engagement has enabled us to better deliver for customers and is benefiting our financial performance. Against this dynamic macro backdrop, we continued to make significant progress on our transformation work. We are driving margin benefit at ADI from investments in pricing tools and digital initiatives. Within Products & Solutions, value cost engineering efforts are delivering to plan. Additionally, we are seeing benefits within the sales organization from consolidating systems, Miller Heiman training, and sales operations build-out. Each of these initiatives have helped enhance our relationship with and visibility into key customers. The results of this work and targeted investments are visible in our operating income and 160 basis point expansion in operating margin. Within ADI, investments in digital and pricing initiatives helped drive a 200 basis point year-over-year gross margin improvement. As more transactions flow through digital channels, ADI can free up sales associates for more value-added selling. This allows for better leverage of these high-value individuals as ADI executes on its long-term growth strategy. At the same time, day-to-day execution at ADI remained strong with average daily sales up 9% year-over-year. The business has done an excellent job managing through an increasingly tight supply environment. This execution positions ADI to remain the go-to source for customers across its product categories. Early results from the recent Shoreview and Norfolk acquisitions are encouraging, and integration is progressing according to schedule. We are actively looking at further inorganic opportunities to expand ADI's offerings, particularly in the datacom and AV markets. Within Products & Solutions, demand remained healthy across key channels. As the quarter evolved, it became clear that supply chain and global logistics challenges were not easy, and in some cases, worsened. The team has done an excellent job navigating these challenges. We remain aggressive in engaging with key suppliers and partners to ensure we are doing everything possible to deliver for customers. Semiconductor components remain the largest bottleneck. While we navigate through these supply chain challenges, we remain focused on driving our innovation engine. During the quarter, our partner, Amazon, announced an exciting collaboration to bring a differentiated entry-level connected thermostat to the DIY market. This is an example of our strategic focus on partnering with leaders in the market, specifically opportunities where we can leverage our strengths with those of other players to create enhanced value. We are also making investments in areas offering exciting long-term opportunities. This is true from a revenue growth perspective, and as we work to support a more sustainable future. An example of this is hydrogen. Today, we have a strong presence and portfolio in the traditional boiler components and subsystem market. This positions us particularly well to be a partner to OEMs as they begin the process of transitioning their products to support hydrogen. This includes supporting partners as they move toward qualifying and launching boilers that address hydrogen blends up to 30% and 100% hydrogen. Earlier this year, we completed a facility investment in Lotte, Germany to support our hydrogen technology efforts. We are excited to be working with several leading manufacturers on their projects to serve the long-term hydrogen opportunity in Europe. While it is early stages of this market opportunity, we are actively engaged in technology development internally and with key partners. As we focus on ensuring we are doing all we can to drive a sustainable future for our business and end customers, we are pleased that Megan Murphy has joined the Resideo team to lead our ESG activities. She'll be responsible for Resideo's ESG strategy, communications, and reporting. This means working closely across the organization on alignment of stakeholders and on execution of key milestones along Resideo's ESG journey. With that, I'll turn the call over to Tony to discuss our third quarter performance and 2021 outlook in more detail.

Tony Trunzo, CFO

Thanks, Jay, and good afternoon, everyone. Q3 was another strong quarter for Resideo with revenue of $1.5 billion, up 10% compared to Q3 last year. Gross margin for the quarter was 27.8%, up 60 basis points compared to Q3 2020. Consolidated operating expenses increased by 4% from last year, but declined 90 basis points relative to sales, demonstrating continued operating leverage. Operating income increased 27%, and operating margin improved by 160 basis points. Products & Solutions third quarter revenue of $631 million was up 10% due to continued healthy demand and the impact of recent price increases. Third quarter results also benefited from a customer rebate reserve credit of approximately $12 million, which positively impacted both revenue and gross margin. Revenue and gross margin were negatively impacted in the quarter by higher costs for materials and freight, as well as shortages for many semiconductor components. Supply challenges are having the largest impact on revenue and margin in our trade and security channels. Products & Solutions gross profit margin in Q3 was 40.9%, down from 42.3% in the third quarter of 2020. The decline in gross margin was primarily due to materials price inflation of approximately $3 million, as well as $14 million of higher freight costs year-over-year. These impacts were partially offset by price realization of approximately $17 million and the previously mentioned rebate credit. We instituted an additional round of price increases in September, which had limited impact on Q3 results, but are expected to benefit Q4 and beyond. P&S segment operating profit was $157 million, or 24.9% of sales, compared with $141 million, or 24.7% of sales last year. Operating expense for Products & Solutions was flat year-over-year, reflecting solid cost management and a reduction in restructuring costs. ADI Q3 revenue of $865 million increased 9% year-over-year, reflecting a combination of volume and pricing expansion. ADI saw better commercial activity in the quarter with strength in fire, access control, and wire categories, while AV and intrusion categories were constrained by product availability. ADI again drove strong growth in digital channels with e-commerce sales up over 40% and accounting for 16% of total ADI revenue in the quarter. ADI also continues to make progress in expanding its private brand offerings to complement its extensive third-party vendor offerings. ADI gross profit margin in the second quarter was 18.5%, up two percentage points from 16.5% last year. This increase in gross margin was a result of improved product line margin, as ADI benefits from pricing initiatives and increased private brands contribution. Margins also benefited from positive industry pricing dynamics. ADI is seeing improvements in product line margin from the investment and rollout of pricing optimization tools that enable its sales teams to make more data-driven pricing decisions in real-time. We intend to deploy these tools beyond the United States and expect them to be a key driver in achieving the 2024 growth and margin targets we outlined at our Investor Day in March. ADI Q3 operating margin increased 130 basis points from last year. We continue to direct investment toward ADI, especially in the area of digital channel improvements and sales tools, which is reflected in higher operating expenses. ADI's two recent acquisitions contributed $16 million to Q3 revenue with no impact on operating profit. Integration is progressing to plan with both acquisitions on track to be fully integrated by year-end. Corporate costs for the quarter were $63 million, or 4% of sales, compared with $66 million, or 5% of sales in the third quarter of 2020. This reflects a reduction in spin and restructuring-related costs of approximately $19 million, as well as $9 million of impairment costs this year related to our Austin office space. We do not expect any further charges this year related to Austin. In August, we refinanced our senior unsecured notes, further strengthening our balance sheet. The new $300 million of notes mature in 2029 and carry a 4% coupon as well as an investment-grade covenant package. Proceeds from the offering were used to redeem our six 1/8% notes that were due in 2026. Included in Q3 other expense was $18 million of debt refinancing costs related to this transaction. The new bonds, together with the refinancing of our senior secured credit facilities in the first quarter, will result in approximately $8 million in annualized interest expense savings. Over the past 12 months, we've made significant improvements in our capital structure. We ended Q3 with cash and cash equivalents of $686 million and total outstanding debt of $1.2 billion. Net debt stood at $546 million compared to $1.1 billion at the end of Q3 2020. During the quarter, we generated $104 million of cash from operations. And for the first nine months of the year, operating cash flow exceeded $200 million. In terms of our outlook, fourth quarter revenue is expected to be in the range of $1.44 billion to $1.49 billion. Consolidated gross margin is expected to be in the range of 27% to 28%, and GAAP operating profit is expected to be in the range of $140 million to $150 million. For the full year 2021, we now expect revenue to be in the range of $5.83 billion to $5.88 billion, implying year-over-year growth in the range of 15% to 16%. Consolidated gross margin is expected to be in the range of 26.5% to 27%, and GAAP operating profit is expected to be in the range of $558 million to $568 million. Our revised outlook anticipates a further increase in Products & Solutions backlog in the fourth quarter due to shortages of certain components, additional component inflation of approximately $35 million, and approximately $10 million of additional year-over-year freight costs. Offsetting these higher costs are expected pricing benefits above our typical baseline of approximately $45 million. Corporate expenses for the year are expected to be approximately $260 million compared with $290 million in 2020. This includes the $16 million litigation settlement in Q2 and the $9 million Austin impairment costs this quarter. Additional outlook details can be found on Page nine of our earnings slides. As a reminder, ADI has five fewer selling days in the fourth quarter compared to Q4 of 2020. I'll now turn the call back to Jay for a few concluding remarks before we take questions.

Jay Geldmacher, CEO

Thanks, Tony. The proactive response of the Resideo team to ongoing supply chain challenges and the execution across the organization reflects the culture being developed at Resideo. The results delivered in Q3 also demonstrate the significant progress made over the past 18 months. While supply chain dynamics are impacting our ability to fully meet customer demand, we believe our strong relationships with our suppliers position us to remain a go-to source for customers. At the same time, we have demonstrated the agility to execute on our profitability expansion goals. While supply and logistic headwinds are not expected to abate in the near term, the team is focused on ensuring that we deliver for our customers. At the same time, we are continuing to make the right investments to position Resideo for long-term growth. I'd like to thank the entire Resideo team for their efforts during the quarter and their focus on closing the year strong. This concludes our prepared remarks. Operator, we are now ready for questions.

Operator, Operator

Your first question comes from Erik Woodring with Morgan Stanley. Your line is open.

Unidentified Analyst, Analyst

Hi, this is Sabrina Hao on for Erik Woodring. As you look forward, what is your outlook for the supply chain? We'd love to know how long you believe costs will remain elevated? And when do you think the supply of components can open up?

Jay Geldmacher, CEO

I'll comment and then Tony may have a few words too. So we indicated in my remarks that the supply chain situation, as we see it today, is going to extend into 2022. In terms of the exact crystal ball, that's a hard one, I wish we all would know that. But we're planning on that through into 2022. And I think when you look at all the different companies that are involved with the supply chain market, the semiconductor industry, I think that's a fairly consistent answer out there before the additional capacity comes online in the semiconductor world.

Tony Trunzo, CFO

And Sabrina, I guess the only additional comment I'd make is, at this point, as I think we said last quarter too, supply chain constraints are affecting our ability to recognize revenue, to get product out the door. Our revenue in Q3 would have been meaningfully higher were it not for these constraints. And we continue to have elevated backlog relative to what is typical in the business. I think the team has done, frankly, an unbelievable job figuring out how to navigate all of that. But in terms of predicting exactly when, there's a lot of long lead time stuff that has to happen both in the supply chain world and in the freight world for things to go back to 'normal,' and I wish we were in a position to be able to tell you when that is, but we don't have that crystal ball.

Jay Geldmacher, CEO

Yes. I want to emphasize how our entire supply chain organization, along with senior leadership, remains actively engaged with all our key supply partners, which is critical. I am personally dedicating significant time to work with our supply chain partners to support this effort. We must continue this collaboration, and we will. As we move into 2022, we hope that things will become clearer. Regarding freight, I believe that it will likely become more understandable globally before we fully grasp the major supply chain challenges, such as those related to semiconductors.

Unidentified Analyst, Analyst

Got it. That's super helpful. And just a follow-up, you talked about demand being strong. Can you talk about how the demand environment has changed relative to three months ago? And are there any differences that you're seeing between residential versus commercial demand that you would call out?

Tony Trunzo, CFO

I would say that demand is consistent with what we saw three months ago. I don't see any indicators suggesting a shift in underlying demand. And I apologize, what was the second part of your question?

Unidentified Analyst, Analyst

Yes. Just if there's any trends between residential and commercial demand that you would point out?

Tony Trunzo, CFO

Our ADI business is a good indicator of what's happening in the commercial markets, and this past quarter has been quite strong commercially. The P&S business is largely focused on residential, although not completely. Overall, I think things have been fairly stable there as well.

Operator, Operator

Your next question comes from the line of Amit Daryanani with Evercore ISI. Please go ahead.

Unidentified Analyst, Analyst

This is Michael Fisher on for Amit. So just to start with, if we kind of look a little bit into 2022, and I know there are a lot of moving pieces with supply probably the limiting factor, but some tough comps to start the year. But should we think about the growth rate kind of working toward that 6% year-over-year model as we go through 2022?

Tony Trunzo, CFO

Michael, it's Tony. Thanks for the question. We are still in the midst of our budgeting process for '22. I don't really have anything to offer at this point with respect to the outlook that we see. We're focused on delivering for the remainder of the year. We'll have obviously a fulsome conversation about 2022 when we report in February. But at this point, we're just not clear in terms of our own expectations yet.

Unidentified Analyst, Analyst

Makes sense. I had to give it a try. I'm curious about the Amazon smart thermostat relationship. Could you provide any insight on how that came about and whether you see potential for it to expand into other products in the long term?

Jay Geldmacher, CEO

Well, as I mentioned, it is an exciting new program. I think we indicated even going back to our Investor Day back in March that we would partner with key players out in the industry that could leverage our strengths along with theirs. And that's exactly how that played out here with Amazon and leveraging our technology, our history and along with their capabilities in the channel to the DIY market that is not something that we have been focused on. As you know, we're very focused on the pro and the channels through the pro. And Amazon, of course, has a different channel model where we can leverage their capability. So it's a really nice partnership. And as I said, it's consistent with what we're looking at out there in the market globally, and we're excited about it.

Tony Trunzo, CFO

Yes, Michael, I agree with everything Jay mentioned. Additionally, we've been discussing this since the new leadership team joined 1.5 years ago. The market we operate in is complex, large, and fragmented. No one has the complete solution. Our focus has been on executing where we can provide genuine value, whether directly, through an OEM, or via our major professional channels. We're dedicated to delivering value in the areas we can best contribute and partnering with others to create added value for both sides. This is exactly what we demonstrated with the Amazon announcement this quarter. It's important to note that these initiatives take time; there has been engineering work on this project for years. They don’t materialize quickly. We are continually engaging with potential OEM partners, and this is a prime example of the types of deals we aim to pursue.

Jay Geldmacher, CEO

I think I'd add to that also. I mean we touch a lot of different channels. And as we said, DIY was not a traditional market channel for us. And so this helps in that regard. But the pro, of course, that we've talked a lot about. We talked a lot about it back in the Investment Day. The OEMs globally are very important to us, our traditional OEMs, as well as new ones, as well as new channels like in the areas of energy and utilities that we do work with. So those are all key to a very, very large set of markets and adjacencies that we participate in now, as well as new ones for the future.

Unidentified Analyst, Analyst

That's great, thanks for taking my question. I appreciate it.

Operator, Operator

Your next question comes from the line of Brian Ruttenbur with Imperial Capital. Your line is open.

Brian Ruttenbur, Analyst

Yes, thank you. I have a question so far this year. Can you go through that, how much you've raised prices? I believe you had a price raise in May. You may have had another price raise? And how much have you raised prices in total? And what are your plans kind of the remainder of the year?

Tony Trunzo, CFO

So Brian, it's Tony. The first part of your commentary was unclear to me. What I understood was your question about how much we have raised prices and what our plans are moving forward. I don't have a specific percentage to share, as it differs by channel, product, and geography. As you know, we have a wide range of products, so I can’t provide an exact figure. However, we were quite slow in implementing price increases at the start of this year. We made some significant price adjustments during the summer and another one in September. The September increase did not have much impact in Q3, but we expect to see a considerable rise in Q4 and anticipate this trend to continue into 2022. This year’s price hikes have been a response to a rapidly changing marketplace; we haven’t experienced inflation like this in a long time. We have faced increases in commodity, supply chain, and freight costs that we needed to pass on. Looking ahead, we see a true opportunity in pricing related to the value we're providing. Our strategic execution on truly value-added products can lead to customers being willing to pay a price that generates additional margin for us. We are still early in adopting a more targeted approach to pricing, where we are emphasizing the value we bring and, as a result, justifying higher margins. We are just beginning this journey, but it will be our next phase.

Brian Ruttenbur, Analyst

Okay. So just to summarize, hopefully, I'm coming in and trying to get better reception, so I apologize. So you've had a total of three price increases this year. Is that correct?

Tony Trunzo, CFO

Generally. I mean, it wasn't like there were three specific days where we changed all the prices. But generally, I'd say three waves more than three increases.

Brian Ruttenbur, Analyst

Okay. And then just as a '22 kind of guide, I know you're not guiding yet, do you anticipate the seasonality of the price increases being typically spring, summer, fall? Or do you anticipate maybe something earlier on in '22 in terms of price increases?

Tony Trunzo, CFO

No. I mean there's no seasonal cadence necessarily to how we adjust price. And as I said, with all of the different channels and all of the different products and all of the different geographies, there's no specific spot. And I would not say that the cadence this year when we did it is something you should expect moving forward at all. I mean this is...

Jay Geldmacher, CEO

Yes. The timing of this year was pretty unique to a very challenging, to say the least, and unpredictable supply chain market as well as freight market. I think a lot of us who've been around this electronics industry for a long time will say that this was one of the ones that was extended, for one; and two, a little bit unpredictable. And so I agree with Tony.

Brian Ruttenbur, Analyst

Great, thank you very much.

Jay Geldmacher, CEO

Thank you, Brian.

Operator, Operator

Your next question comes from the line of Ian Zaffino with Oppenheimer. Your line is open.

Ian Zaffino, Analyst

Hi. This might be a little bit of a follow-up to the last question. But can we look at this differently and maybe walk us through volumes that you saw maybe on different product lines? Were there any of that you actually saw negative volumes on because you weren't able to get the components? And were there any areas where you saw a really super amount of strength on the positive side?

Tony Trunzo, CFO

Thank you for the question, Ian. It's Tony. While you can examine the smaller details in our portfolio and notice some significant year-over-year fluctuations in volume, if you take a broader view of the main markets we operate in, you’ll see that volume increased in the third quarter. It would have been even higher if we had managed to deliver more and reduce our backlog. Overall, we experienced unit volume growth in Q3, and there aren't any notable categories that stand out as being different; most of them are showing positive trends to some extent.

Ian Zaffino, Analyst

Okay. Perfect. And I know as far as your productivity and cost-savings plans, there was, I guess, talk about maybe some footprint rationalization. Where are we sort of in that process? And does the total supply chain sort of disaster that's going on globally change how you think about their footprint?

Jay Geldmacher, CEO

I'll share a few thoughts, Ian, and I know Tony is eager to add his perspective as well. We've established a transformation team within the organization that will focus on optimization, as you mentioned. Additionally, as you pointed out, the global supply chain challenges have influenced our decision-making on which opportunities to pursue more aggressively and which to hold back on due to some limitations. Looking ahead to 2022, as progress continues with COVID and people can move around more freely, we hope to gain better insights into the supply chain situation and identify more opportunities. As a large multinational company with facilities worldwide, we have those possibilities. However, throughout the year, we have been cautious about some initiatives because we don't want to exacerbate the challenges posed by external dynamics.

Tony Trunzo, CFO

Yes, Ian, I would say there are significant strategic options we have chosen to postpone because it doesn't make sense to implement them amid the current challenges in freight and supply chain. I apologize for reiterating this, but it's the truth. I believe this opportunity is still open to us, though we haven't advanced as quickly as we initially expected. Additionally, I want to touch on a point that hasn't been directly asked, but is crucial to understand: the supply chain impacts our manufacturing operations and, consequently, our financial results. It affects every aspect of the organization. Everyone is adapting in ways that hinder our ability to gain optimal traction in many areas. For instance, in engineering, while we are making solid progress with initiatives like our Amazon collaboration and hydrogen projects, we've had to redirect substantial engineering resources to qualify new components due to the unavailability of others. This context sets the stage for our performance, which I believe was outstanding this quarter. The team performed exceptionally well, and every part of our organization is somehow affected by the marketplace challenges we are facing.

Jay Geldmacher, CEO

I agree. The teams have done an incredible job in those areas, and our results reflect that. The team has been able to pivot quickly and react as we experienced various dynamics that changed frequently throughout the year.

Ian Zaffino, Analyst

All right, thank you very much for the color.

Operator, Operator

Thank you. And your next question comes from Paul Dircks with William Blair. Please go ahead.

Paul Dircks, Analyst

Hi, good afternoon, everyone. So just a couple for me. First of all, on supply chain, which I realize you've covered a lot of ground, but I just want to take one more stab at it. In the prepared remarks, you guys mentioned that some of the supply chain challenges were still worsening coming out of the third quarter and presumably here into the fourth quarter. Was that a specific comment on the semiconductor chips? Or were there other items, one or two that you could put your finger on where the conditions worsened here?

Jay Geldmacher, CEO

Yes, there are various aspects within the supply chain, with semiconductors being the main concern. We encountered a few unexpected challenges in that area during the third quarter. It reminds me of the game Whac-A-Mole; as we address one issue, others seem to arise. This highlights the need for agility and speed to manage these challenges effectively. Our engineering and supply chain teams need to work closely together to navigate through these situations. Looking back to May, we anticipated that some of these constraints would improve by the end of summer, but current dynamics, which are widely reported in the news, suggest that these challenges will likely persist into 2022.

Paul Dircks, Analyst

Understood. No, that's helpful. With some of the supply chain challenges, you mentioned product availability at ADI being a bit of an issue. Is there any commentary from the pro contractors about underlying end market demand being affected by this? In other words, are we starting to see some tempering in the market because of these stock-outs? Or is this simply just a deferral and the underlying demand trends are unchanged?

Jay Geldmacher, CEO

No. The demand is there; if anything, they just want product because they have demand from the customers they are servicing. It's disappointing that we can't meet all that demand. However, what we're seeing right now is that the demand remains quite strong.

Tony Trunzo, CFO

You can see our revenue growth at ADI, and I believe this is likely the first quarter where it was noticeably impacted by stock-outs and similar challenges. Despite that, the business still performed well. There doesn't seem to be any indication that end demand is being affected; it appears there is simply a backlog of projects.

Paul Dircks, Analyst

Understood. That likely reflects some of the efforts you’re making in e-commerce and other initiatives. My final question is about the recent Amazon announcement, which is certainly exciting. Are there additional opportunities you can identify, either in general or specifically, related to new key partners you might collaborate with? Alternatively, what is Resideo doing to enhance its branding in the marketplace? It seems there might be limited impact from the supply chain challenges, and Resideo could have greater control over branding efforts in the near term. Could you elaborate on what the company is doing in this area?

Jay Geldmacher, CEO

I want to highlight that, as mentioned during our Investor Day, we are focused on forming partnerships with more companies across various sectors. Amazon is an example of this strategy. While I can't disclose specific names at this moment, we are actively engaging with several potential partners. This is a key focus area for our business development, and we anticipate sharing more details in the future, whether it's with an existing OEM partner or a new one like Amazon. We're also exploring different channels as part of our overall offering in hardware and software as we progress in the coming months and years.

Tony Trunzo, CFO

Yes, Paul, I would like to echo Jay's comments and add that these developments do not occur in just a month, a quarter, or even a year. Building these partnerships is a long process. You are correct that collaborating with other top brands is a valuable market strategy, especially when we leverage our expertise in core product technology. As Jay mentioned, we are continually exploring the market for these opportunities and are consistently working on initiatives to advance our efforts. As we have established, we will inform you when we have something significant to announce.

Paul Dircks, Analyst

Understood. I appreciate the color. Thank you.

Operator, Operator

There are no further questions at this time. I'll turn the call back to Jason Willey for any closing remarks.

Jason Willey, Senior Director of Investor Relations

I'd like to say thank you to everyone for your participation today. And if you have any questions, please feel free to reach out. We look forward to talking with you over the coming weeks and months. Take care.

Operator, Operator

This concludes today’s conference call. Thank you for joining. You may now disconnect.