American Outdoor Brands, Inc. (NASDAQ:AOUT) Q3 2022 Earnings Conference Call March 10, 2022 5:00 PM ET
Liz Sharp – VP, IR
Brian Murphy – President and CEO
Andrew Fulmer – CFO
Conference Call Participants
Ryan Meyers – Lake Street Capital Markets
Scott Stember – CL King
Good day everyone, and welcome to American Outdoor Brands Inc. Third Quarter Fiscal 2022 Financial Results Conference Call. This call is being recorded.
At this time, I would like to turn the call over to Liz Sharp, Vice President of Investor Relations for some information about today’s call. Please go ahead.
Thank you, and good afternoon. Our comments today may contain predictions, estimates and other forward-looking statements. Our use of words like anticipate, project, estimate, expect, intend, should, indicate, suggest, believe and other similar expressions is intended to identify those forward-looking statements. Forward-looking statements also include statements regarding our product development, focus, objectives, strategies and vision; our strategic evolution; our market share and market demand for our products; market and inventory conditions related to our products and in our industry in general; and growth opportunities and trends.
Our forward-looking statements represent our current judgment about the future, and they are subject to various risks and uncertainties. Risk factors and other considerations that could cause our actual results to be materially different are described in our securities filings. You can find those documents as well as a replay of this call on our website at aob.com.
Today’s call contains time-sensitive information that is accurate only as of this time, and we assume no obligation to update any forward-looking statements. Our actual results could differ materially from our statements today.
I have a few important items to note about our comments on today’s call. First, we reference certain non-GAAP financial measures. Our non-GAAP results exclude amortization of acquired intangible assets, stock compensation, transition costs, COVID-19 expenses, technology implementation, related party interest income other costs and the tax effect related to all of those adjustments. The reconciliations of GAAP financial measures to non-GAAP financial measures whether or not they are discussed on today’s call can be found in our filings as well as today’s earnings press release, which are posted on our website. Also, when we reference EPS, we are always referencing fully diluted EPS.
Joining us on today’s call is Brian Murphy, President and CEO; and Andy Fulmer, CFO.
And with that, I will turn the call over to Brian.
Thanks, Liz and thanks everyone for joining us. Today, I’m excited to bring you up to date on our recent achievements, which include progress in a number of key areas that are the focus of our shareholder value creation strategy, organic growth, M&A and returning capital to shareholders.
First, we have grown our company organically by 62% on a two-year basis driven by our Dock & Unlock strategy. Second, we are announcing our entry into the $7 billion outdoor cooking market with our acquisition of Grilla Grills. And third, we returned capital to shareholders by completing the share buyback that our board approved in December.
Now let’s dig into the details; for the past two years, many consumers have discovered for the first time or rediscovered a passion for outdoor lifestyle activities, as well as for shooting sports and personal protection. This new larger base of consumer participation has helped drive significant growth in our business over the past two years and should fuel our future growth as well.
During the third quarter, net sales of products in our outdoor or lifestyle category, which consists of products primarily related to hunting, fishing, camping and rugged outdoor activities grew by more than 80% versus the pre-pandemic. Third quarter of fiscal 2020 and net sales of products in our shooting sports category, which includes shooting accessories and product related to personal protection grew by approximately 45% versus the third quarter of fiscal 2020.
We believe that some of the gains experienced by us and throughout the industry over the past two years were propelled by the pandemic resulting in outsized growth last year. As a result, total net sales in our third quarter declined approximately 15% as we left very strong growth of more than 90% in the comparable period last year. The decline was driven by lower net sales of products within our shooting sports category, particularly those products related to person protection, but were partially offset by growth of products in our outdoor lifestyle category.
We moved quickly to adjust to this change in the post pandemic environment and worked closely with our firearm related OEM customers and retailers as they address the shift in consumer firearm purchasing activity. That shift is reflected in recent NICS background checks, and it became visible in our incoming POS data, which reversed course in mid-December and took a sudden downward turn.
Despite year over year declines in NICS, this market has delivered tremendous growth over the past two years, creating opportunities for our business. Since the pandemic began, 14 million firearm owners have entered the market, creating we believe a new, large and long term consumer base for our products in our shooting sports category.
Before highlighting some of the progress we’ve made on our strategic growth initiatives this quarter, I want to provide a bit more background on how we talk about our business. We have added a discussion of our products in two categories; shooting sports and outdoor lifestyle. Let me explain why.
Shooting sports category includes our shooting sports accessories and products related to personal protect. We view these products to be most correlated with the actual purchase of a firearm. Even though it’s important to know, we do not make firearms.
The outdoor lifestyle category includes our products related to hunting, fishing, camping and diverse outdoor activities. It’s important to understand that this between shooting sports and outdoor lifestyle is by products, not by brand. While a brand typically will belong to one category or the other, that’s not always the case. Some brands represent products that fall into both categories, such as our licensed M&P products, which include both gun cases, shooting sports and knives, outdoor lifestyle.
In addition, some of our brands are expanding their product offering into new markets, such as our Wheeler brand, which includes precision tools used by armers, shooting sports, that we are now marketing to off rotors outdoor lifestyle.
So you might ask why we are so our products this way? The answer is that we believe these categories represent unique markets, which are two very different sizes. We believe the market for outdoor lifestyle products is significantly larger than the market for our shooting sports products. Second, we believe growth in each category is fueled by different drivers are shootings sports product sales tend to be driven by consumer firearm ownership, which can be more susceptible to macro events.
Our outdoor lifestyle product sales tend to be driven by longer term trends, such as increased participation in the outdoors, as well as a focus on active and healthy living growth in both categories remains our focus. Historically the bulk of our revenue has come from sales of our shooting sports products, but over time, our outdoor lifestyle product sales have been delivering impressive growth.
In fact, in the third quarter, our outdoor lifestyle products delivered record revenue and became more than 50% out of our net sales, a milestone we want to build upon as we continue to execute a number of exciting initiatives that support our long-term growth. Growth, both organic and through acquisitions is an important part of our long-term strategic plan.
Our docket unlock process continues to fuel innovation and support our plan to deliver compound annual growth of 8% to 10% over the next four to five years.
During the third quarter, we returned to in-person trade shows, giving us the opportunity to show customers a number of new and upcoming products, including the Claymore, a truly innovative clay target launcher that was a tremendous hit at shot [ph]. The Claymore is a direct result of our Dock & Unlock strategy, which identified that Caldwell our brand that eliminates the variables that may you miss, had permission to play in shotgun sports.
The Claymore is unlike any other product in the market. This foot operated device provides all of the benefits of an electric clay thrower without requiring a battery. The Claymore is our first meaningful product introduction into shotgun sports, representing a new and exciting opportunity for us.
Our popular Crimson trace products were also at shot show where we were honored to receive the American rifleman golden bullseye award for optic of the year for our Crimson trace brush line scope launched in 2021. In the third quarter, we also introduced new products from your maker. Our direct to consumer organically developed brand of meat processing equipment that has delivered trailing 12 month sales growth of over 215% new products for meat include two new grinders and a foot pedal accessory, all engineered to serve the year round processing needs of hunters, anglers, butchers, and chefs.
Many of our new products reflect our intent to continue growing our outdoor lifestyle category while sharpening our focus in shooting sports on areas that represent large, long term and more stable markets such as shotgun sports targets and scopes.
I’ve just highlighted our achievements on the organic component of our strategic growth plan. So let me update you on the plan to grow through acquisitions. We have long stated our desire to supplement organic growth with acquisitions that fit our strict criteria, which require a target to one, be docked unlocked, friendly two off a runway for future growth, three serve, large addressable markets, four have low complexity and five further diversify our supply chain after carefully searching for acquisitions that meet those criteria. I am pleased to share an exciting development and an important milestone for our company today.
We announced that we will acquire grill of grills, a Michigan based direct to consumer provider of high quality grills, smokers, and accessories for 27 million in cash, or approximately 24 million after factoring in the future tax benefit resulting from the asset purchase. Griller is a clear strategic fit for American outdoor brands that provides us immediate access to the 7 billion us barbecue grill market with an estimated 9 million grills sold in the us each year.
The grill market has benefited from recent trends towards out outdoor cooking and provides plenty of runway for future growth Founded in 2015. Gorilla has generated net sales growth of over 161% in the past two years with a compound annual growth rate of about 50% over the past five years and calendar 2021 net sales of over 15 million
Along the way, Grilla has developed an impressive, strong brand authenticity among a loyal consumer base and has done so with the concentrated portfolio of an innovative products by plugging gorilla into our, a venture her brand lane and employing our dock unlock strategy. We see great opportunities to broaden its product offering. We also believe gorilla is very complimentary with our other brands in our portfolio, such as meet your maker.
After all, once our meat consumers have processed their harvest. The next natural step is a gorilla grill that delivers that same high quality performance. We believe there’s a tremendous opportunity here to leverage our eCommerce platform and brand lane teams to cultivate those relationships. Importantly, gorilla significantly expands our direct to consumer revenue base. In fact, both gorilla and meet your maker are 100% direct to consumer brand that when combined would’ve generated about 8% of our trailing 12 month net sales on a pro forma basis.
Lastly, but importantly, the addition of gorilla will drive our revenue mix further toward our outdoor lifestyle category. A key initiative in our long-term growth strategy, we are excited to welcome gorilla grills into the American outdoor family of brands With a robust new product pipeline in place, a portfolio of authentic outdoor brands in hand and an energized outdoor consumer market. We remain excited about the future and we look forward sharing our progress as we take our brands from niche to known.
With that, I’ll turn it over to Andy to discuss our financial results.
Thanks, Brian. Net sales for Q3 were $70.1 million compared to $82.6 million in the prior year, a decrease of 15.2% percent following last year’s 90% record growth. As Brian explained, we are beginning to talk about our products in two distinct categories, shooting sports and outdoor lifestyle. Our decrease in total net sales for Q3 was driven entirely by a decline in sales of products in our shooting sports category, a decline that occurred primarily in our brick and mortar channel and was consistent with the decline in Nics dhecks for the same period.
Despite that decline, we believe the shooting sports market has grown over the long term. Adjusted Nics Checks are up 32% in the trailing 12 month period compared to two years ago and that has translated to growth in our business as well. Sales in our shooting sports category grew almost 45% over Q3 of fiscal ’20.
The outdoor lifestyle category partially offset the one year decline in shooting sports with product sales growing by 7%during the third quarter. We believe this market has also grown on a long term basis, evidenced by increased participation trends in outdoor activities and we certainly benefited from that.
Our third quarter product sales in the outdoor lifestyle category have grown 81% versus two years ago. As Brian indicated growth in our outdoor lifestyle brands is an important element in our long term strategy. We are pleased that in Q3, the outdoor lifestyle category accounted for over 52% of total net sales while our shooting sports category was just over 47%. In Q3 last year, that split was about 41% for outdoor lifestyle and 59% for shooting sports.
Turning now to eCommerce, as you know, our eCommerce platform is a key element in our strategy to place our brands, wherever consumers decide to shop for them, whether online or in a physical retail store. This approach is important in our current environment when consumers have the ability to alternate between in-store shopping and online options.
Our eCommerce sales have grown over 122% in the past two years, delivering a CAGR of over 49% and demonstrating the positive impact of this strategy. On a one year basis, Q3 net sales in eCommerce decreased by 2.9% as we faced a difficult comparison due to a significant get one time sale in the prior period. That sale was to clear out slower moving inventory to make room in the channel for our Crimson Trace scopes, including the new award-winning Brushline, Excluding that one time sale, eCommerce net sales grew by over 2% compared to prior year.
Gross margins in the third quarter, came in slightly above our expectations at 45.8%, an increase of 60 basis points from the last year. GAAP operating expenses for the quarter were $27.4 million compared to $27.2 million in Q3 of last year. We attended the Archery Trade Association Show and Shot Show for the first time since 2020. These shows were very successful and we showcased the number of exciting new products and have the opportunity to reconnect in person with customers.
As a result, show-related expenses have returned to our OpEx after their absence last year. Also embedded in OpEx are costs related to our strategic initiative to stand up our own it platform and a decrease in intangible amortization and variable costs resulting from lower sales volumes. Non-GAAP operating expenses in the quarter were $22.5 million compared to $22.2 million in Q3 of last year. Non-GAAP operating expenses exclude intangible amateur stock compensation and certain non-recurring expenses as they occur.
GAAP EPS for Q3 was $0.27 as compared with $0.56 last year and non-GAAP EPS for Q3 was $0.52 compared to $0.82 cents last year. Our fiscal ’22 figures are based on our fully diluted share count of approximately 14.2 million shares
Adjusted EBITDAS for the quarter was $10.5 million at a margin of 15% compared to $15.8 million or a margin of 19.1% for the prior year. Adjusted EBITDAS for the first nine months of fiscal 2022 was $31.8 million or 15.8% and was consistent with our expectations.
Now turning to the balance sheet and cash flow; we maintained a strong balance sheet at the end of Q3, which allowed us to follow through on all of our capital allocation priorities. We ended Q3 with $22.8 million of cash and no borrowings on our line of credit. Cash declined by roughly $10 million during the quarter, which included $7 million in share repurchases as well as the net impact of increased inventory offset by lower accounts receivable.
We’ve outlined on previous calls our strategy to accelerate purchases of high volume items in order to mitigate risks in our supply chain and to support our new products. This strategy has helped us capture demand for our shooting sports products in the past, a category that can experience sudden shift and POS in order patterns like those we saw develop in the middle of our third quarter.
Those shifts were the primary driver of our inventory increase in Q3, but despite that increase, we believe this is inventory that will move through the channel within a reasonable amount of time. And the higher inventory levels allow us to be prepared for changes in demand, which can happen very quickly in that part of the business.
We believe we are well positioned to support orders in both shooting sports and outdoor lifestyle in the coming quarters. Our spending for CapEx and patent costs of $1.9 million in the quarter included $1.1 million for our IT integration as expected. We are now planning total capital expenditures in fiscal ’22 of between $7 million and $7.5 million.
We continue to operate portions of our IT environment under a transition services agreement with our former parent company as we stand up our own independent platform by August of 2022, There are two components to our IT implementation; infrastructure and ERP. We successfully completed the infrastructure component in November and our ERP integration remains on track for go live this summer.
Our total cost estimate for the IT project remains at roughly $8 million over the course of fiscal ’22 and ’23. Before I give you the breakdown, it’s worth noting that we have shifted about $400,000 of the $8 million from fiscal ’22 over to fiscal ’23. $200,000 of this was in one time OpEx and the other $200,000 was in duplicative expenses. In fiscal ’22, we expect CapEx of about $3.5 million and one time operating expenses of about $1.4 million. We also expect to record $1 million of duplicative expenses in fiscal ’22.
These are the costs of operating both our existing and our new platform arms in parallel during the system changeover period. We will treat both the $1.4 million and the $1 million as technology implementation costs in G&A when calculating our non-GAAP operating expenses and adjusted EBITDAS.
We ended Q3 with no outstanding bank debt and the full capacity available on our $50 million line of credit. In addition, we are very happy to announce that TD Bank has recently approved an amendment to our credit agreement that increases our borrowing capacity to $75 million without changing the $15 million accordion feature. This expansion means that effectively, we were able to put together the Grilla transaction with zero impact to our dry powder. We expect to close on this amendment within the next two weeks.
Since our spinoff, we have outlined our capital allocation strategy, which is first, to invest in and organic growth, second, to seek complimentary acquisitions and third, to return capital to shareholders. This quarter, we clearly demonstrated progress on all three priorities. In organic growth, new products accounted for 28.8% of our total net sales in Q3 and 26% of our net sales year to date.
In acquisitions, we are very excited to bring Grilla into the AOB family of brands. While we plan to integrate that business, starting in Q4, we remain on the hunt for additional brands that fit our criteria. We continue to see a healthy amount of M&A activity, and we intend to remain disciplined in our approach. Our increased line of credit gives us additional flexibility as we seek out opportunities and in returning capital to shareholders.
In December, our board authorized a share repurchase program of up to $15 million. Leveraging the strength of our balance sheet, we bought $7 million of shares in our third quarter and have since then completed the remaining $8 million. As a result, we have purchased nearly 6% of our outstanding shares at an average price of $17.92 per share. Please note that based on timing of shares purchased, the buyback has little effect on our share count for Q3.
In Q4, we expect our diluted share count to be roughly 13.6 million shares. The full impact of the program will be reflected in our share count in fiscal 2023 beginning in May.
Now turning to our guidance. As we discuss today, we plan to continue expanding the outdoor lifestyle category. And as a result, we believe product sales from this category will remain above 50% of our total net sales in the long term. That said sales of shooting sports products comprise a significant portion of our business today and those sales are more impacted by consumer firearm purchasing trends, which have been declining recently, according to Nick’s background checks. As a result, we are lowering our guidance for the balance of fiscal 2022.
We estimate that net sales for fiscal ’22 will be in the range of $245 million to $250 million, which at the midpoint would represent a year over year decline of 10.6% and growth of nearly 48% over a fiscal 2020. With net sales in that range, we expect full year GAAP EPS in the range of $0.61 to $0.74, non-GAAP EPS in the range of $1.65 to $1.78 and adjusted EBITDAS margins of about 14%
For the fourth quarter, we expect gross margins to be roughly 44% slightly down sequentially from Q3, but consistent with last year, despite a year over year net sales decline, as we lap last, year’s extremely strong growth of nearly 50%. We are carefully managing our expenses and as such, we expect Q4 operating expenses, both variable and fixed to be lower in terms of dollars than Q4 last year. Lastly, we expect our effective tax rate will be approximately 25% in Q4 and our fully diluted share count for the year will be about 14.2 million shares.
With that operator, please open the call for questions from our analysts.
[Operator instructions] Now, first question coming from the line of John Kernan with Cowen. Your line is open.
Hi, this is on Cohn Curtis on for John Cernan [ph]. I was hoping we could dive into trends by outdoor activity. You mentioned that shooting sports and personal protection were seeing some softness, but can you give us some more granularity about the consumer trends you’re seeing across either other ads or activities or end markets?
Sure. John, this is Brian Murphy. So, as you pointed out shooting sports and personal protection, we are seeing some softening in demand actually POS is coming up just slightly here as of late, but still down relative to where they were at. And then on the outdoor lifestyle side, which is, what we’re referring to EBITDAS, we’re seeing continued strength across the board. So hunting, fishing, camping, rugged outdoor, which is largely our cutlery and tools products. So across each of those categories, we’re seeing tremendous strength right now.
Great. Thank you for that. Just one follow-up here. You mentioned some of the gains the last two years were attributable to outside pandemic driven consumption. Is Q4 is rebased or implied guide seeing any other material headwinds or drivers that we should be contemplating. I guess just really is Q4’s adjusted level, how we should be thinking about the business on the go forward basis given today’s ongoing macro and industry trends, really any color that would be appreciated. Thank you.
Yeah. This is Brian again. Look, I’d say for Q4 kind of what we guided for the rest of the year is based on the trends we’re seeing right now in the shooting sports side and the trends that we’re seeing in outdoor lifestyle which we would expect to continue to grow, but as it relates to next year, I think it’s just too soon for us to come out and say what that looks like.
Very understood. That would be it for me. Thanks for taking my question.
Our next question coming from the line of Ryan Meyers from Lake Street Capital. Your line is open.
Yep. Hi guys. Thanks for taking my questions. First one for me. So when you look at the decline in the shooting sports business, was this all the man related or was there any sort of inventory sourcing problems or supply chain issues with that?
Yeah. Hey Ryan, it’s Brian. It’s mostly due to the demand side. So we feel as you know, we have invested in our inventory, we made that decision a long time ago, just given some of the supply chain constraints. The inventory that we have, the inventory that’s in the channel, it’s all really good inventory.
I think right now what we’re seeing is, especially at the dealer and distributor level is perhaps a shifting of open to buy dollars towards ammo as those 14 million new fire motors had entered the market had just hadn’t had a chance to get their ammo yet because it wasn’t on shelves. So like I said, I think we’re seeing a POS has bounced back a little bit for the shooting sports side, but yeah, to answer your question, it’s what we’re seeing on the demand side and again, partially contributed to the open to buy at the dealer and distributor level.
Okay. That’s helpful. And then I was wondering if you could highlight the margin difference between shooting sports and the outdoor lifestyle category?
Yeah. Great question. This is Andy. We don’t really break out the margins between the two categories I would say, overall there’re not all that much different, but we don’t really have that detail broken out.
Okay. That’s helpful. And then last one for me, if I’m looking at this the right way, it looks like the guidance implies for the fourth quarter is kind of looking for a decline in profitability compared to the previous guidance. I wonder if you could just sort of walk us through what the puts and takes here of are of this.
Yeah, this is Andy again. So we’re expecting, as we talked about in the comments, we’re expecting a little bit of a sequential margin decline. Nothing out of the ordinary, if you look at last Q4, it’s kind of right in line with that and then kind of offset with some savings, both fixed and variable, especially if you compare that to Q4 last year.
Okay. That’s all I got. Thanks guys.
[Operator instructions] Our next question, coming from the line of Scott Stember with CL King Associates. Your is open
Good evening. And thanks for taking my questions.
I missed some of the breakout that you had about shooting sports versus out outdoor living. Can you just give that again on a two year stack for each one and maybe on a year over year? How each one performed?
Yeah. Scott, this is Andy. So shooting sports year over year in the quarter was down 31%. Outdoor lifestyle was up 7% on a two year stack. And again, that’s kind of what we look at as a long term trend shooting sports was up 81% outdoor lifestyle was up 62%,
I’m sorry, Scott. Scott, let me back up, sorry. That was in total. Shooting sports was 45%, outdoor lifestyle 81%. So 62% total.
Okay. Got it. All right. And just tying back into I guess your organic growth guidance, I guess five years is intact because 8% to 10%, I think is the number you put out there, but it also, I guess it includes this year, right, which would be close to I guess on the high end of sales down like 9% or 10%. So could you give us a bridge of how we get back to that range? Obviously things have picked back up in the out year, I know that you’re not guiding for 2023 yet, but maybe just walk us through that ladder of how we get there again.
Sure. Hey Scott, this is Brian. So what I’d tell you is, let’s talk about outdoor lifestyle first. Outdoor lifestyle is becoming a greater share of the business. And we are seeing continued growth in outdoor lifestyle. That’s going to continue to move up over time. It’s also in bigger markets and we’ve been talking about like most of our Dock & Unlock examples that we’ve given over the last 18 months or so have been brands like Bubba, brands like Hui Man, Meteor Maker.
So I would say they’re the farthest along when it comes to the unlock phase and so we’re seeing increased distribution, increased number of new products, getting into new, bigger, larger addressable markets, Meteor Maker from zero to, I think we said $6.4 million in this most recent and we’ve got out plans to do the same thing with Grilla.
And then on the shooting sports side, you may be asking, okay, what you’re seeing some softness right now, what does that look like over the long term? Well, there is, without a doubt, a higher level of participation that has entered the market. As those people begin to go to the ranges and they get their ammunition that still somewhat constrained, they’re going to need hearing and eye protection, they’re going to need shooting arrests, they’re going to need gun cleaning equipment.
So we have all of that to help them progress them down into that shooting sports enthusiast lifestyle as well. And we are seeing that. If you look at the products that performed the best in this last quarter, it was mostly the products that helped sustain that long term shooting sports lifestyle. The pieces that really were under a little bit more pressure were the personal protection side, which obviously after last year we didn’t see as much of that.
And then, and then we’re also planning to in shooting sports and we teased data at Shot Show. Now that we’re moving further along to that unlocked phase of Dock & Unlock is getting into categories like shotgun sports. So we just teased out a new product called the Claymore. It’s a fully mechanical clay thrower that we think is totally a game changer.
The people that saw it at the show, including our customers loved it, and we so see products like that continuing to get us into these more stable markets within shooting sports. And we’ve got other things planned there, but that’s how we get through over on. Once you stack those, we have a plan to get there.
Got it. And the last question on margins, the adjusted EBITDA margins, we’re looking, I guess on 14%, 14.5% for this year in the latest guidance. I know you’re not guiding for next year, but just trying to get a sense as we attach profitability to that 8% to 10%, what is a normalized range that we should be thinking about? And I’m not sure if you guys have given that in the past or not, but just if you did just remind us.
Yeah, Scott, this is Andy. So we’re still targeting the mid to high teens along with that 8% to 10% growth.
Okay. All right. That’s all I have. Thank you.
Thank you. And I’m not showing any further questions at this time. I would not like to turn a call back over to Mr. Brian Murphy for any closing remarks.
Thank you, operator. Before we close, I want to thank our employees for their contributions and their dedication to our growing family of brands. I also want to thank everyone on the AOB team and the Grilla team for bringing on — bringing our acquisition across the finish line. Great job. For our investors, please note that we’ll be attending the Roth Conference next week in California, and hope to see some of you there. Thank you everyone for joining us today. We look forward to speaking with you again next quarter.
Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.