Celestica Inc.
Q4 2012 Earnings Call Transcript

Published: 23 Jan 2013

[Operator:]

Good afternoon, my name is Candice, and I will be your conference operator today. At this time, I would like to welcome everyone to Celestica's 2012 Fourth Quarter Results Conference Call. [Operator Instructions] Thank you. Mr. Manny Panesar, Director of Investor Relations, you may begin your conference.

[Manny Panesar:]

Thank you, Candice. Good afternoon, everyone, and thank you for joining us on Celestica's Fourth Quarter 2012 Earnings Conference Call. On the call today are Craig Muhlhauser, President and Chief Executive Officer; and Darren Myers, Chief Financial Officer. This conference call will last approximately 45 minutes. Darren and Craig will provide some brief comments on the quarter, and then we will open the call for Q&A. [Operator Instructions] Copies of supporting slides accompanying this webcast can be viewed at celestica.com. As a reminder, during this call, we make forward-looking statements related to our future growth, trends in our industry, our financial and operational results and performance, and financial targets that are based on current expectations, forecasts and assumptions that involve risks and uncertainties that could cause actual outcomes and results to differ materially. We also refer you to our cautionary statements regarding forward-looking information in the company's various public filings including the Safe Harbor statement in today's press release. We refer you to the assumptions, risk factors and uncertainties discussed in the company's various public filings which contain identified factors that could cause actual results to differ materially from those contained in our projections or forward-looking statements. These filings include our Form 20-F, and subsequent reports on Form 6-K, filed with the Securities and Exchange Commission, which can be accessed at sedar.com and sec.gov. During this call, we'll refer to certain non-IFRS financial measures, which include adjusted gross margin, adjusted SG&A, adjusted operating margin or EBIAT, adjusted EPS, ROIC and free cash flow. These non-IFRS measures do not have any standardized meaning under IFRS and are not necessarily comparable with other non-GAAP or non-IFRS financial measures presented by other companies including our major North American competitors. We refer you to our press release, which is available at celestica.com. For more information about these non-IFRS measures, including the reconciliation of the non-IFRS measures to the corresponding IFRS measures as appropriate. Unless otherwise specified, all dollar amounts referred to in this call are U.S. dollars. I will now turn the call over to Darren Myers

[Darren Myers:]

Thank you, Manny, and good afternoon, everyone. It's a pleasure to be here today co-hosting my first quarterly results conference call with you. Celestica delivered revenue and operating profit within our guidance range, generating strong free cash flow in the fourth quarter despite the negative revenue impact from the wind down of RIM in a challenging demand environment. Fourth quarter revenue of $1.5 billion came in higher than the midpoint of our guidance range. Total revenue in the fourth quarter declined 5% sequentially and was down 15% on a year-over-year basis, predominantly as a result of the wind down of RIM. Excluding RIM, fourth quarter revenue was up 4% sequentially and grew 6% compared to the same period of 2011. Some additional highlights for the quarter include

[Craig H. Muhlhauser:]

Good afternoon to everyone on the call, and Darren, thank you for providing the financial overview as our new Chief Financial Officer. Overall, Celestica's 2012 results can be characterized as mixed. While we're disappointed that we missed our revenue growth and operating profit expectations for 2012, we're very pleased to have delivered on our ROIC above 20% and free cash flow above our targeted range of $100 million to $200 million, while continuing to invest in the business and returning over $280 million to our shareholders through share repurchases. After the disengagement of a customer who historically represented up to 20% of our total revenue, our priorities are to achieve profitable growth, further increase the mix of diversified business and to accelerate the penetration of higher value-added services with our current and new customers. We remain confident in our strategy, which includes diversifying our revenue and customer base. We made considerable progress in 2012 toward this objective as evidenced by the strong annual revenue growth of 27% in our diversified end markets, where we have proved our share position. We're also very encouraged by the business wins from 2012 with new and existing customers that will ramp in the second half of this year and into 2014. As well, we're excited by the pipeline of new business opportunities that we have across all of our targeted business segments and expect to close in 2013. Every day, our team of talented and highly motivated employees are providing value to our customers using industry-leading tools, process technology and equipment, Information Technology and innovative business processes. In 2012, we were ranked #1 or #2 on over 90% of our top customer scorecards. We were recognized by a number of customers and industry groups with awards for operational excellence, for fostering innovative solutions and for our commitment to corporate social responsibility. These are just some examples and proof points that give us tremendous confidence that we have the right strategy and a proven track record to take the company forward and achieve our transformation. We continue to make difficult decisions and are implementing the required cost actions to address the short-term weak demand with our base business. Despite this challenging economic environment, we continue to invest to build capabilities and support new program ramps which we expect to materialize over the second half of 2013 and into 2014 and beyond. In the near term, with the backdrop of a slow-growth environment, and consistent with our comments on our earnings call in October of last year, we're expecting a challenging first half of 2013 with the projected operating margin ranging from 2% to 2.5% based on our current customer forecasts for the base business and the timing of our new program ramps. We are focused on driving revenue growth and long-term value as we continue to invest in our business. As an example of this is our semiconductor capital equipment business, where we are making investments despite expectations of soft demand in the near term. As a result, our current margins in this business are below our long-term objectives. Overall, the integration of our recent acquisitions in the semiconductor equipment business are progressing as planned and we've continued to win new programs since the acquisitions were completed. We anticipate overall profitability improvements in our semiconductor equipment business in the second half of 2013 based on the current outlook for our base revenue, as well as the new program launches for the programs we've won. Now let me provide some additional remarks on our near-term expectations for our end markets. Within our diversified end markets, we're building on the momentum created in 2012 and expect to continue progress throughout the year, in particular, in the industrial business which includes semiconductor capital equipment and green tech. While we made progress in our healthcare business, ramping the target revenue has been slower than we originally anticipated, resulting, unfortunately, in the impairment of the goodwill associated with our Allied Panels acquisition. Despite these challenges, healthcare continues to be an important part of our business strategy. We continue to focus on securing and expanding revenue opportunities in our healthcare business, supported by strong operational performance. Overall, we expect to see seasonality in the first quarter in our communications, storage and server end markets. Our communications end market is expected to remain relatively stable and to improve in the second half, in part, due to a new win with one of our top customers who's made the decision to consolidate their supply base. While our industry has always been extremely competitive, pricing pressure, particularly in our communications end market, persists. To offset the pricing impacts, we remain committed to productivity improvements, effective cost management, and providing higher value-added solutions and services to our customers. We had strong momentum in our storage end market in 2012. We anticipate this end market to remain stable and we're very excited by the opportunities ahead of us. Within our server business, we have recently been informed by one of our customers that they will be insourcing part of their business with Celestica, relating to a lower margin system assembly program commencing in the second quarter. While we cannot disclose the details of the program, we expect our server revenue to sequentially decline by approximately $50 million in the second quarter. We believe that this decision to in-source was customer specific, and is not indicative of any broader trend in insourcing. Our financial position continues to be strong and we expect to continue to generate cash to fund our investments, support continued growth and generate returns for our shareholders. We remain committed to making the appropriate investments required to support our long-term objectives, including strategic acquisitions that are necessary for our value creation. Our focus continues to be on delivering transformational solutions to ensure our customers' success, driving revenue growth, and expanding our margins and returns despite the challenges of the macroeconomic environment. We are entering 2013 with a very strong foundation and we're very well-positioned to execute our strategy, to capitalize on the tremendous opportunities in front of us to deliver improved financial results and shareholder value. That concludes our prepared remarks. Now, Candice, I'd like to open the call for questions.

[Operator:]

[Operator Instructions] And your first question comes from Wamsi Mohan from Bank of America Merrill Lynch.

[Ruplu Bhattacharya:]

Dan, Craig, this is actually Ruplu sitting in for Wamsi today. Just first, Craig, maybe I missed this, but did you give an outlook for the consumer segment, and now that without RIM, you still see that as approximately 5% of your revenues? And did you -- or could you give us some color on that end market?

[Craig H. Muhlhauser:]

Sure. We -- I did not, and I apologize for that. It's going to be roughly 5% to 10% of our total revenue mix.

[Ruplu Bhattacharya:]

And is that for the full year? Can we take that to be the case?

[Craig H. Muhlhauser:]

Yes.

[Ruplu Bhattacharya:]

Okay. And then, Dan, it seems that restructuring-wise, there's an incremental $15 million that you announced today. I was just wondering which end markets are you targeting for that restructuring and in total, what annual cost savings would you expect to see from the restructuring activities?

[Darren Myers:]

It's Darren here. In terms of the restructuring, they'll be across our -- across the overhead, no specific end markets that we would call out but really across the market or across our network. As we look at the impacts of that, previously, we've talked about revenue getting back to the 3% to 3.5% at $1.750 billion, this should drop the level, obviously, depending on a number of factors there. So we will start seeing additional savings as a result of this, it would probably be more the 1,700 number in order to get to the 3.5%, but that's going to obviously depend on another number of factors, but this will give us some extra momentum on the savings side.

[Ruplu Bhattacharya:]

. Great. That was quite helpful. And the last one for me, if I could, what was the ending share count as of December 31?

[Darren Myers:]

The ending share count is 182.7 million.

[Operator:]

Your next question comes from Sherri Scribner with Deutsche Bank.

[Sherri Scribner:]

I just wanted to clarify on the different end markets. I don't know, it seemed that the commentary from Darren and Craig was slightly different. But I think Darren had said the diversified and the storage segments would be up sequentially, and the server and communications would be down sequentially, is that the right way to think about it, is that correct?

[Darren Myers:]

Sherri, it's Darren. No, my comment was around year-over-year. I mean, generally it's diversified. Most are going to have a seasonal decline as we go into the first quarter with the exception of diversified, more or less.

[Sherri Scribner:]

Okay. And then, thinking about the first quarter and that guidance you are guiding to, down about 8% at the midpoint for revenue, is most of that decline coming in communications or in server? Which segments are going to see the most, the biggest decline? And how will consumer impact that?

[Darren Myers:]

We're -- I wouldn't call out one specifically, I mean, consumer will most likely come down probably disproportionately more than the others, and then communications and the storage and server will be mixed across those, is what we would see. And we had a strong quarter, certainly, within storage and servers, so you start seeing that impact as we go into the first quarter.

[Operator:]

Our next question comes from Jim Suva with Citi.

[Nicholas Jones:]

This is Nick Jones calling in for Jim Suva here. Now that the buyback is done, I guess, regarding [ph] your capital allocation, will there be another buyback program or will the focus be on M&A? And if so, what kind of segments would you be focusing in?

[Craig H. Muhlhauser:]

I think the focus, at least for the near term, is going to be on the M&A opportunity. So it's going to be building capabilities to support the continued growth and diversification into the diversified segment. And then, I think as we look later in the year, I mean, obviously, we're going to have another year of strong cash flow. If the opportunities are not there, we'll reevaluate that in the second half. But we've got a strong year of growth, capital spending should be in line with our historical levels. And as we see opportunities, obviously, or we consolidate market share with some of these emerging customers, they're looking for us to acquire more capabilities to increase our value added. So let's say, for the first half and the bulk of 2013 will be largely building capabilities through mergers and acquisitions.

[Operator:]

And your next question comes from Brian Alexander with Raymond James.

[Brian G. Alexander:]

I just wanted to touch on the server comment that you mentioned with the customer insourcing starting in the second quarter, is that $50 million per quarter? Is that the full impact that you're likely to see or will there be an incremental impact in the third quarter? And then, just a couple of related questions for that same issue. Are you the sole source for that customer? And then on the margin side, is this already reflected in the 2% to 2.5% operating margin target that you're providing, which I think is the same as what you provided last quarter. So basically, no effect from this lost revenue.

[Darren Myers:]

Brian, it's Darren here, I'd say first of all, the $50 million drop is what we currently see. We're only giving guidance out to the second quarter, but subject to -- this continues to be an important customer, so subject to how their programs do, we'll see how Q3, Q4 roll from there. In terms of the sole source, we won't give specifics, as I'm sure you can appreciate, on the actual customer and the programs. And then, the third point in terms of the margins, yes, this has been contemplated within the 2% to 2.5% margin. As Craig mentioned, this is really light-touch, low-margin business that is going away.

[Craig H. Muhlhauser:]

Yes, I mean, Brian, the customer in particular, has an existing system assembly operation and they've got underabsorption and excess capacity. So it is a low value-added, light touch, lower margin system assembly business and we're retaining a significant amount of the demand with that customer. So that's why the impact to the business is well within the guidance we've given in the prior call.

[Brian G. Alexander:]

Got it. And then, Craig, maybe more strategic for you. You sounded a bit more excited about your pipeline than maybe you had in prior quarters. So I know you don't really quantify new program wins or the pipeline, but any way to put into more context relative to your existing revenue base, or relative to how you were tracking in prior quarters for new wins? Are things getting better on that front? Or maybe did you just sound more excited about it?

[Craig H. Muhlhauser:]

Well, I'm smiling here, Brian. I think, I guess, I come back from the holidays and I see the pipeline and I actually see the first quarter. We had a strong year, I'm very excited about the progress we made, 27% growth in a tough market, making a transition, but I am very excited about the front end of 2013 in terms of the number of opportunities that will close this year. And as a result of that, when I look at the book and bill, we need to make the revenue forecast, and I look at the momentum we've got on the front end, I am feeling very positive right now.

[Brian G. Alexander:]

Can you just say how they're skewed relative to your existing mix, or are they disproportionately coming from the diversified segment?

[Craig H. Muhlhauser:]

I would say there are large scale opportunities in the diversified segment, but the skew is very encouraging as well in some of the higher-margin opportunities we've got in the communications and enterprise space. So it's pretty broad with some large scale opportunities, which typically are unusual in the diversified space, and they're right in front of us. And then we've had the fortunate -- been in a fortunate position to close a large-scale competitive takeaway with one of our major current customers in the fourth quarter, so that was key.

[Operator:]

Your next question comes from Amit Daryanani with RBC Capital Markets.

[Amit Daryanani:]

Maybe just follow-up on that question. Given the optimism you have about your new programs that will ramp up in the back half, from the sound of it, could you maybe help us understand why are you increasing your researching initiative, because I would imagine you probably need that extra capacity if all these revenues are to ramp up? So are there some offsets that are leading you to actually include the restructuring plan?

[Craig H. Muhlhauser:]

Well, I think, in terms of -- I mean, this is the balance we're walking right now. I mean, I think we -- our quote in our pricing groups, our contracts groups, I mean, they're virtually at capacity or working very near capacity. So we're balancing the capacity. As you know, some of those facilities that we've got are dedicated to Centers of Excellence for diversified, some of which, we share with communications and Enterprise. So we are taking selective, I'll say, restructuring of various sites as we consolidate the business. And therein lies the skew in our margin profile over the course of the year. So predominately, the restructuring that we spend was around the RIM cost structure and reducing capacity associated with RIM. But I would say, it's more of a refinement, focusing the operating facilities, more aligned with the strategy and reducing the overhead in those facilities as opposed to the direct labor and the direct production costs.

[Amit Daryanani:]

Got it. And I just want to clarify that the one server customer that's going in-house, is that $30 million or $50 million from that IP [ph] ? I've got 2 different numbers? And then, is that just one specific product line that they're bringing in-house or are they kind of taking all the manufacturing back in-house?

[Darren Myers:]

No, no, no. They're not bringing all the manufacturing back in-house, they're bringing back in-house a system assembly capability to put into an existing facility they have that does system assembly that's underloaded. So it -- and the number that we are estimating in the second quarter based on their current forecast would be about a $50 million impact in revenue to our prior, I would say, the prior modeling, if you will, based on our base business. But we're retaining a large portion of that business and providing the higher value-added components to support those system assemblers.

[Operator:]

Your next question comes from Matt Sheerin with Stifel, Nicolaus.

[Matthew Sheerin:]

Question regarding your commentary about getting back to the 3.5% operating margin number at $1.7 billion revenue run rate. Craig, you certainly do sound optimistic about pipeline. Do you have any visibility as to whether you think that pipeline will roll on fast enough to get to that number either in Q3 or Q4, because I know you've talked about the 2% to 2.5% margin target for the first half? How fast can you accelerate above that in the second half?

[Darren Myers:]

Matt, it's Darren here. Yes, as Craig's mentioned, we've got lot of exciting opportunities in front of us. We're ramping business and there are some positive signs as we look forward, but it's early in the year and what happens with the economy, what happens with demand, end market demand is certainly unclear to us as, I believe, it's unclear to most people. So it's hard for us to predict. We don't want to predict today when we will get there. There's just too many variables at play.

[Craig H. Muhlhauser:]

Yes, I mean, I think the biggest assumption, Matt, is the economic environment and the base erosion or deterioration of our base business. So if our base business holds in line with our current outlook, it's tough to say, we have to book the business before the first half to have an opportunity to execute it in the second half, but the big assumption here is the overall macroeconomic market and the impact that might have on our base demand. We have strong new pipeline, new opportunities, they will grow. But the question is, meeting that threshold will determine a lot by the overall economic environment right now, and it's too tough to predict, as Darren mentioned.

[Matthew Sheerin:]

Okay, fair enough. And then, just another question regarding your consumer market, which appears to be holding up better than expected given that RIM has gone away. Could you be more specific and give color on customer end markets there? And then, also the margin profile of that business, as your managing that?

[Darren Myers:]

Yes, it's Darren here. That business, is, I'd say, it's predominately aftermarket services customers. There's some other customers, this tends to -- targeted margins would be higher in this end market as it relates to the aftermarket.

[Craig H. Muhlhauser:]

Yes, the mix will be -- we've got some automated manufacturing services that we provide in this space. So that particular business is at a higher margin than some of our more traditional business and then, the bulk of the balance would be either aftermarket service-related or an the area of set-top box.

[Matthew Sheerin:]

Okay, so really deemphasizing the high volume -- the high velocity and really focusing on the value add? Got you.

[Craig H. Muhlhauser:]

Yes. For sure, we're really taking this opportunity to transform the company into the true niche -- the true opportunity that we have here, which is the value-added.

[Operator:]

Your next question comes from Todd Coupland with CIBC.

[Todd Coupland:]

Are you able to tell us who the 10% customers were in the fourth quarter?

[Darren Myers:]

Not in the fourth quarter. For the year, it's Cisco and RIM, Todd.

[Todd Coupland:]

Okay. And then, when I think about the server line, roughly $250 million, so $50 million is actually quite a large impact to that business. What does that do to your footprint in terms of supporting that? Do you need to do a reset in the server area beyond what you've done for RIM, maybe just talk a little bit about that?

[Craig H. Muhlhauser:]

Well, the short answer is, a large part and the bulk of that will be backfilled with the communications customer, which is a similar type of capability. So the short answer is, no, we don't have to do a reset on the infrastructure. I think the message is, we have done a reset on the strategy. We're moving into a higher value-added play in the server space and the storage space, with joint design in manufacturing and we're starting to build more momentum in that. And then, some of the newer programs that we've won over the course of the last 18 -- 12 to 18 months, are beginning to move into production volume. So it will be an important segment. The bulk of what we're losing was little to no calories and in an area of the business that seems to be on the decline, frankly.

[Todd Coupland:]

When we look at your guidance for Q1 and you take out the server business for Q2, should we anticipate a roughly flat revenue quarter? Or should there be some seasonality and some new programs even in this lackluster demand environment?

[Darren Myers:]

Todd, it's Darren here again. We'll leave the modeling to you, and flattish is probably a reasonable assumption. But we'll leave the modeling to you on that.

[Operator:]

Your next question comes from Naser Iqbal with Salman Partners.

[Naser Iqbal:]

I guess, just following up on Todd's question. In terms of offsetting the $50 million in the second quarter, do you see any other positive headwinds, either just from some program ramps or just your positive pipeline that you're seeing right now?

[Craig H. Muhlhauser:]

Yes, I mean, I think offsetting the $50 million in the second quarter will be difficult based on this timing of ramp. So obviously, the good news is, the customers that we're winning, or the consolidation that this one customer is doing with their supply base on the communications side that we've won, they want to accelerate the timing of that, but it's all going to be gated by the ability to do it and do it well. So the short answer is, that's a headwind we're going to have to overcome as we go through the balance of the year. We will overcome it. Speed of the ramps, and the largest ramp we'll have going on will be probably in the communications space with this competitive takeaway. So overall, on a net-net basis, tough to overcome it by the end of the second quarter. Certainly, you'll see the opportunities, or you'll see the revenue impact, positive impact over the course of the second half.

[Naser Iqbal:]

Okay. And again, and just following on that, I guess my follow on would be, given how -- Craig, how positive you are in the pipeline on the back half, do you think that if the economic macro is where it is now that the program ramps could provide a good source of growth?

[Craig H. Muhlhauser:]

Sure. I mean, it's -- you're going to see growth rates in the diversified space. You see 27% this year. You're going to see continued growth. I mean, one of the important markets where we need to see a rebound in base demand, where we've had a very material impact negatively, is in the semiconductor capital equipment market. So if that starts to bounce back, and on top of the new program wins, which will be a little bit longer cycle program wins, that would underpin a very, very, very strong second half, frankly.

[Operator:]

Your next question comes from Joe Wittine with Longbow Research.

[Joseph Wittine:]

With regards to the additional restructuring charges, I'm wondering if you could talk us through where you expect the operating expenses to trend beyond the first quarter. Do you expect them to go lower given the additional actions you're taking, and if so, how much?

[Darren Myers:]

Joe, it's Darren. I mean, in terms of beyond the first quarter, as Craig mentioned, I mean, we see a range of 2% to 2.5% for the first half and not giving guidance from there. As we also mentioned, we're investing in the business. So when you put on some growth on top of that investment and you start to get leverage on the fixed cost and the network, we see margins will start to accelerate. It's going to be a function of the growth, it's going to be a function of the semiconductor demand turning around. And then, putting on top of that, some restructuring, you'll start to see the margin really, really improve from where we are today.

[Joseph Wittine:]

Okay, got you. And then Craig, when you're talking about how you had a smile on your face after New Year, I just want to make sure I'm drawing the right conclusions. You had mentioned -- let me just ask, is it more a function of the bullishness in semi cap or is it more a function of the large comms program that you want, just so I'm not jumping to any conclusions here?

[Craig H. Muhlhauser:]

No, I think it's the breadth of opportunities that we're seeing across the pad [ph] . So the comms win was a great proof point but then, around that are opportunities in the communications enterprise, and then, we have major opportunities in the semicon space, but also we have opportunities in essentially every major market that we've got right now. So it's that breadth and that balance across the patch, it's the timing of those opportunities, they all look like they're going to be closing in the first half. And then, it's the fact that we seem to be winning with the winners in the markets, which is very encouraging.

[Joseph Wittine:]

Maybe just a final follow up on that comms business, is it your understanding that you won the entire piece that was up for bid or was it split between you and the other providers?

[Craig H. Muhlhauser:]

Yes, we don't comment on that. So I'll just leave that to other comps -- other people to explain.

[Operator:]

Your next question comes from Gus Papageorgiou with Scotiabank.

[Gus Papageorgiou:]

I guess, kind of a longer term question. I mean, Craig, since you took over, you've done a great job at delivering a profitable organization with great cash flow and high ROIC, but in terms of the top line, it has been a challenge both macroeconomically and the loss of the RIM business. I'm just kind of wondering, with the strong balance sheet, how important is top line growth to you guys? Do you think it's something you really want to achieve or are you just happier to kind of use the balance sheet to grow the business slowly and improve the bottom line? So can you just kind of give us a sense of what your perspective is on growing the overall business?

[Craig H. Muhlhauser:]

Well, the first phase, I mean, if you're breaking it into 3 phases. First phase, Gus, will be to -- I'll say, to backfill the impact of RIM and get back to 3.5% to 4%. I'm very bullish on the strategy of the company and the ability to transform and grow and make money. So Phase 1 is to backfill RIM, get to the $1.7 billion and the 3.5% to 4% threshold as quickly as possible. Step 2 is to leverage the investments we're making to grow the company and increase the share of diversified from what will be 20-plus percent today, we'll be moving to 30, and hopefully one day be half of the business. And then, finally, it's to maintain the financial discipline so you have the trust and confidence that we're going to generate strong cash flow. We're not going to go for like double-digit, we're going to go for 6% to 8% growth rates, back to the original model, and we want to improve the, I'll say, the operational performance to drive even more cash flow and make this a very solid investment for the long-term. So I'm in it to transform it, I'm in it, but without compromising any aspect of our financial discipline and the credibility we've built. It's going to take a little bit longer than we thought, but we've got some really early indicators that make us feel very positive about the market wants a company like Celestica doing the things we're planning to do.

[Operator:]

[Operator Instructions] And actually, we have no further questions at this time, so I'll turn the call back to our presenters.

[Craig H. Muhlhauser:]

Okay, Candice, thank you very much. And thanks everybody for your interest in calling in today and we look forward to continuing our conversation. Thank you very much for your support.

[Darren Myers:]

Thank you everyone.

[Operator:]

And this concludes today's conference call. You may now disconnect.