Arch Resources, Inc. (NYSE:ARCH) Q4 2023 Earnings Call Transcript

Arch Resources, Inc. (NYSE:ARCH) Q4 2023 Earnings Call Transcript February 15, 2024

Arch Resources, Inc. misses on earnings expectations. Reported EPS is $6.07 EPS, expectations were $6.9. Arch Resources, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day, and welcome to the Arch Resources Inc. Fourth Quarter 2023 Earnings Call. All participants will be in a listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would like now to turn the conference over to Deck Slone, Vice President of Strategy. Please go ahead, sir.

Deck Slone: Good morning from St. Louis, and thanks for joining us today. Before we begin, let me remind you that certain statements made during this call, including statements relating to our expected future business and financial performance may be considered forward-looking statements according to the Private Securities Litigation Reform Act. Forward-looking statements, by their nature, address matters that are to different degrees uncertain. These uncertainties, which are described in more detail in the annual and quarterly reports that we file with the SEC may cause our actual future results to be materially different than those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by law.

I’d also like to remind you that you can find a reconciliation of the non-GAAP financial measures, we plan to discuss this morning at the end of our press release, a copy of which we have posted in the Investors section of our website at archrsc.com. Also participating on this morning’s call will be Paul Lang, our CEO; John Drexler, our COO; and Matt Giljum, our CFO. After our formal remarks, we’ll be happy to take questions. With that, I’ll now turn the call over to Paul. Paul?

Paul Lang: Thanks, Deck. And good morning, everyone. We appreciate your interest in Arch, and are glad you could call from start us on the call this morning. I’m pleased to report that during the fourth quarter, Arch continue to drive forward with our simple, consistent and proven plan for long term value creation and growth. Turning the quarter just ended. The team achieved adjusted EBITDA of $180 million. Generated $127 million in discretionary accounts. Bolstered of our cash position by $107 million, consistent with our stated objective of building additional optionality for potential future stock repurchases, initiated plans to unwind the capped calls instruments associated with now-retiring convertible senior notes. Prior to quarterly cash dividend of $32 million, or $1.65 per share, increasing the total capital employed in our shareholder return program, since its re-launched two years ago, for well over $1.2 billion and achieve independent Level A verification at the Leer mine under the globally recognized for sustainable mining framework, becoming the first U.S. mine of any types to do so.

In short, we demonstrated strong progress in this many of our strategic priorities, expanding numerous critical areas of performance, including financial positioning, shareholder value creation, and sustainability. Critically, the team maintained its sharp focus on driving productivity improvements across the operating platform as well. They are truly made significant positive headwinds, as we achieved a 10% quarter-over-quarter reduction in the average cost per ton in our metallurgical segment. Secured nearly 25% improvement, in our average coking coal realization, and delivered an increase of more than 50% of our operating margins. Overall, the team delivered improved product sales, capitalizing on a strong market environment and continue to lay the foundation for still stronger execution in future periods.

Before moving on, let me make a few additional comments about our highly successful capital return program. As we’ve stated many times in the past, the capital return program is the centerpiece of our value proposition. And the central tenant of that program is the return to shareholders of effectively 100% of a company’s discretionary cash flow over time. In any given quarter of course, the amount of capital that is deployed in the programs can and will vary based on several factors, including upcoming cash requirements of our minimum liquidity target rely. But those are just timing issues and do not change the fact that over time, effectively all discretionary cash will be return to shareholders. On the Q3 call, as most you will know that we signaled our intention of increasing our cash balance by $100 million, which we believe serves to enhance the potential for opportunistic share repurchases in the event of a market pullback.

During Q4 we accomplish that objective and enhanced $7 [ph] million to our cash position. With that completed, we believe we’ve now effectively position the company to continue the evolution of our capital allocation model towards a heavier share repurchases in the future. Matt, will comment on this subject further in his remarks. But a major step in this regard is to plan settlement the capped call instrument that we expect to complete in the near future. A settlement of the capped call in and of itself should result in the retirement of nearly 2% of our outstanding chips. Turning our attention to the market dynamics. Despite somewhat lackluster steel market fundamental, coking coal markets appear reasonably well-supported at presents. Arch’s primary products, High-Vol A coking coal is currently being assessed at $262 per metric ton on the U.S. East Coast, which while stepped down from the average price that prevailed last quarter is still highly advantageous, particularly in light of Arch’s first quartile costs performance.

Meanwhile over the Australian Premium Low-Vol index is currently trading at $53 per metric ton, higher than U.S. East Coast price, which is creating an attractive arbitrage opportunity for select U.S. volumes moving into the Asian market. Needless to say, we’re sharply focused on trying to capitalize on that opportunity to the fullest extent possible. Of course, that focus on these opportunities aligns perfectly well with our earnings well advanced objective of increasing our penetration in Asian markets. We expect future steel demand to be centered. Primary reason that coking coal markets remain well supported in our estimation. As a constrained supply stemming from ongoing reserve degradation and depletion, mounting regulatory pressures, limited capital availability, and persistent under investment.

In 2023, according to trade data, Australian coking coal exports declined nearly 6% and compared to 2022, and brings the total declined in Australian exports to around 40 million metric tons, or more than 20% decrease since 2016. The peak year for the coking coal exports. For the U.S. and Canadian coking coal exports and aggregate bounce back moderately in 2023, offsetting the Australian declined to some degree, production for those two countries remains well below their respective peak levels. As a result of these factors, we remain constructive on the seaborne coking coal market, expect to continue to be in an excellent position to capitalize on this environment going forward. Looking ahead, we remain sharply focused on pursuing operational excellence relentless and hitting our volume and cost targets.

Extending the reach of our high quality coking coal products into the fastest growing global markets. Continuing to reward shareholders to our capital return program, as we evolve towards a heavier share repurchase model, maintaining our strong financial position, our capitalize on the optionality it affords during periods of market pullbacks and advances in our industry leading sustainability projects. We believe we’re well positioned to drive forward with all these objectives in 2024 and beyond. And in doing so, continue to generate significant value for our shareholders. With that, I’ll now turn the call over to John Drexler for further discussion of our operational performance in Q4. John?

John Drexler: Thanks, Paul. And good morning, everyone. As Paul just discussed, the Arch’s team executed at a high level during Q4, delivering significant improvements against numerous operating metrics, while turning in another outstanding performance in a critically important area of sustainability. In our core metallurgical segment, the team’s strong execution contributed to significantly higher realizations, significantly lower unit costs, and much improved operating margins. In our thermal segment, the team achieved a return to form at left off, as well as a solid contribution from the Powder River Basin assets, despite a softening thermal market environment. The upshot was a greater than 50% sequential increase in discretionary cash flow, which, as Paul noted is the engine for our robust capital return program.

Let’s take a closer look at the performance of the metallurgical segment. During Q4, the metallurgical team delivered on one of its highest priorities, reducing its average cash cost by more than $10 per ton, or more than 10% when compared to Q3. That’s a significant achievement, and one that serves to further solidify the metallurgical portfolios position in the first quartile of the U.S. cost curve. Importantly, the improved performance at Leer South contribute markedly to these stronger results. As anticipated Leer South experienced slower than normal advanced rates and lower than normal yields in the first two months of the quarter as the operation completed mining and panel five, where as you will recall, the coal seam was appreciably thinner due to its position at the outer edge of the reserve block.

However, the mine made up for lost time once it transitioned to panel six in early December, resulting in nearly 20% increase in output in Q4 versus Q3. Looking ahead to 2024. We expect continued productivity increases for the portfolio as a whole, as well as continuing improvements at Leer South over the course of the year. As you will have noted, we are guiding to coking coal volumes of 8.8 million tons at the midpoint for full year 2024. In addition, we are guiding to an average cost for the metallurgical segment of $89.50 per ton, which is essentially flat versus 2023, despite inflationary pressures. Were noteworthy in my view is the expectation of still further improvements in the metallurgical segments performance as Leer South transitions to the second-long wall district in late 2024.

As previously discussed, we expect better mining conditions in a materially thicker coal seam as the leader South long wall, advances in the district two based on our significantly expanded drilling program. At a time when many of our competitors are wrestling with a migration to less advantageous in higher cost reserves, we are fortunate to be moving in the opposite direction. Looking ahead, we currently expect a less than ratable shipping schedule for our metallurgical segment here at the outset of 2024. The constraint in sales volume relates to weather related disruptions as well as unplanned and accelerated maintenance requirements at Curtis Bay, including a force majeure event that will affect vessel loadings in Q1. As you know, the Curtis Bay terminal is an important link in the seaborne logistics chain for our Leer and Leer South operations.

So this outage will have a volume impact. We currently expect Q1 volumes to be modestly less than random. However, we expect the impact to be principally on timing, which is to say, we expect to make up for the mid shipments as the year progresses. I might add that we have factored those events into our full year sales volume guidance. Let’s turn out to our thermal platform, which includes our West Elk long wall mining Colorado, with its high quality coal and competitive access to seaborne markets, as well as our legacy Powder River Basin operations. During Q4, West Elk capitalize on the transition to a more advantageous area of the reserve base, by delivering its highest quarterly production level of the year at around 1.1 million tons. As most of you are aware, this is consistent with the normal run rates we have achieved at West Elk in recent years.

While the lions overall financial contribution will continue to be muted to some degree by the need to make up for legacy price shipments that were missed in the second and third quarters of 2023. We expect a solid contribution in 2024 before a step up in cash generation in 2025, when we will be transitioning into the V seam mid-year. More encouraging still in my view, as with our metallurgical platform, West Elk expects to transition to even more attractive reserves in mid-2025, when longwall mining shifts to the V seam. As we have shared in the past the coal seam thickness is significantly greater and the coal quality appreciably better than the V seam, which should translate into both higher volumes and stronger relative prices. This positive trajectory coupled with the mines access to seaborne markets and its durable domestic industrial customer base underscores West Elk significant ongoing potential and further supports our belief that the mine will remain a value generating component of our operating portfolio for the next decade if not longer.

In the Powder River Basin, the team made a solid financial contribution despite weakening market dynamics that resulted in a number of negotiated shipment deferrals based on customer requests. As always, we took steps to ensure that we preserve the value of our contract book with these negotiated agreements and parlayed the deferrals into additional sales and outer years. But those deferrals still resulted in lighter volumes in Q4. Looking ahead to full year 2024, we have commitments in place for approximately 50 million tonnes of PRB coal at a price generally in line with our average realized price in 2023. As we have demonstrated repeatedly in recent years, we believe we can maintain our cost structure and preserve our ability to generate cash, even it stepped down production levels should that prove necessary.

Finally, let me emphasize once again that our harvest strategy which is to say our focus on optimizing cash generation from our thermal assets, remains very much intact. Since the fourth quarter of 2016, the thermal segment has generated a total of nearly $1.4 billion in adjusted EBITDA while expending just $172 million in capital. Before passing the call to Matt, let me now spend a few minutes discussing our efforts and sustainability which remains the very foundation of our corporate culture. During 2023, the company achieved an aggregate total loss time incident rate of 0.55 incidents for 200,000 hours’ work, which is nearly four times better than the industry average. Perhaps even more impressively, the Leer and Leer South mines completed 519 and 329 consecutive days respectively, without a single loss time incident.

Those strings are nearly unprecedented for underground mines of their size and complexity, and further underscore our progress towards our ultimate goal of zero incidents, at every one of our mines every single year. On the environmental front, the company received zero environmental violations under SMCRA, versus an average of 11 by 10 of our large coal peers. And recorded zero water quality exceedances for the third year in a row, again an impressive achievement by the team. Finally, and as Paul noted, our Leer operation became the first U.S mine of any kind to achieve Level A verification, under the globally recognized towards sustainable mining framework. That accomplishment is further evidence of our deeply ingrained culture of continuous improvement, and of our intense focus on raising the bar in all areas of our operating execution.

With that, I will now turn the call over to Matt for some additional color on our financial results, Matt?

Matthew Giljum: Thanks, John. And good morning, everyone. As usual, I’ll begin with the discussion of cash flows and our liquidity position. For the fourth quarter, operating cash flow totaled $182 million sequential increase of nearly 40% from Q3 levels. As expected, we had a small working capital benefit in the quarter contributing $7 million. Capital spending for the quarter total $55 million and discretionary cash flow was $127 million. As planned, we grew our cash balance over the course of the quarter, an increase of $107 million. We ended the quarter with cash and short term investments of $321 million and total liquidity of $444 million, including availability under our credit facilities. Debt at year end was $142 million, resulting in a net cash position of $178 billion.

We have achieved our objective of enhancing our financial flexibility and do not anticipate needing to materially add to the cash balance in 2024. Before moving on, I wanted to note a recent development in our outstanding debt that we completed shortly after year end. As you will recall, we paid down the vast majority of Arch’s term loan in early 2022. Leaving a small stuff outstanding because of the interaction between the loan and other parts of our debt structure. Earlier this month, we refinance that stuff with the new $20 million term loan. While small transaction the refinancing allows us to maintain the financial flexibility that we have grown and accustomed to over the past seven years without any material change in our ongoing debt service obligations.

Next, I want to highlight a couple of notable financial accomplishments from 2023. Starting with the capital return program. For the year we deployed $355 million under the program, representing nearly 80% of the year’s discretionary cash flow. That total includes dividends declared of $171 million, or $9.20 per share, and repurchases of common stock and dilutive securities of $184 million. As for the remainder of the discretionary cash flow, we expect to deploy that opportunistically in future quarters. The second accomplishment is the ongoing reduction of our diluted share count and a simplification of our capital structure. Going back to the beginning of 2023, our diluted share count total approximately 20 million shares, with more than 11% of that comprise the diluted securities, primarily the remaining convertible bonds and warrants.

By the end of the year, the diluted share count was below 19 million shares, with diluted securities representing just 3% of the total. We reduced the total share count by 5%, while greatly simplifying the capital structure. As a final step in that simplification process, and another significant step in reducing the share count, which is plan to unwind the capped calls. By unwinding in the near term, we will receive shares representing the current fair value of the instrument and estimate that can be as much as 2% of the fully diluted shares outstanding. While we are accepting a discount on the dollar value of the capped call, we believe that retiring these shares now in advance of expected future capital returns, will prove more value creating and delaying the retirement until the maturity date in late 2025.

Before turning the call on for questions, I would like to cover a few cash flow guidance and modeling items for 2024. First, we expect capital expenditures to be in the range of $160 million to $170 million, representing maintenance level spending. We currently expect that to be spread fairly ratably over the course of the year. Second, we expect Arch’s share of additional maintenance and improvements at DTA, over and above the normal operating costs to be approximately $10 million. This is not included in our CapEx guidance, but is accounted for as an equity investment. I would also note that we expect this to be offset by additional income that we will generate from selling our excess capacity in the terminal to third parties. Third, with respect to cash taxes at current metallurgical prices we would expect our cash tax taxes for the year to be near the bottom end of our guidance range, as we continue to utilize our net operating loss carryforwards.

Lastly, as we look at working capital trends, we typically see a cash outflow in the first quarter and would expect that to be the case in this quarter as well, as an outflow of as much as $40 million. As we look at the full year we currently expect to see a modest working capital benefit, which represents a tailwind of more than $80 million, as compared to the working capital build we experienced in 2023. To wrap up, Arch in 2024 are in a great position to continue to deliver robust capital returns, only maintenance capital spending, minimal debt service obligations. The ability to utilize NOL carry forwards to minimize cash taxes, and a more favorable working capital trend. As we look at how we execute the capital return program, the combination of a streamlined capital structure, that we weighting of the program toward share repurchases and the additional cash we currently have on hand positions us nicely for substantially reduced the share count this year.

With that, we are ready to take questions. Operator, I’ll turn the call back over to you.

See also Top 16 Aircraft Manufacturers In The World and 10 Exclusive Dating Sites and Apps for Professionals.

Q&A Session

Operator: [Operator Instructions] And the first question will come from Lucas Pipes with B. Riley, please go ahead.

Lucas Pipes : Thank you very much. Good morning. I first wanted to ask about the met coal guide for 2024. And when I think about the midpoint 8.8 million tonnes and I compare that to 2023 sales of 8.6 million tonnes kind of called a delta there of 200,000 comes at the midpoint. Little surprise given the transition at Leer South, and so I just wondered if you could maybe walk us through maybe some puts and takes across the met portfolio would appreciate your perspective on that? Thank you.

John Drexler: Hey, Lucas, John Drexler. You know, as we look at the volume guidance for ’24, we’re comfortable, with what we have out there. We — as we’ve discussed expect the continued opportunity to ramp at Leer South over the course of ’24 district two for us, which we’ve been talking about and sharing with you guys as well is something that we’ll be getting to towards the end of ’24. So, that transition is continuing, the expectation for Leer South is around 3 million tons this year. And so that, for us is kind of comfortable. As you look at the rest of the portfolio, there’s a lots of things that happen operationally between longwall moves, at each of our longwall operations over the course of the year, except for timing.

But we’re comfortable with that 8.8. I’ll share with you the team is very focused on being higher than that numbers as we work over the course of the year. But as we kick the year off here, wanted to make sure we’re all in a range that we were comfortable with. We’re very focused on improving that numbers as we work over the course of the year.

Lucas Pipes: That’s helpful. I’ll appreciate the color. I’ll turn over to the thermal side for a moment. And first, I wondered if you could maybe provide a mix expectation between West Elk to PRB and then also where we kind of see PRB pricing contracted for 2024? Thank you.

John Drexler: Yeah, Lucas. As we look at the thermal portfolio, we’re excited about what we’ve seen in the progress we’ve made at West Elk. As we reported, we’ve gotten back, essentially to expected run rates for that operation. As we got through the fourth quarter, we were at a 1 million tonnes, that’s kind of where we expect to be as we work through 2024. So a million tonnes a quarter, 4 million tonnes for the year, the balance then comes over to the PRB. At West Elk, I’ll note, you know, the real excitement is, we’re back to normal levels. But we’re also going to be in a position where we’re transitioning to the V seam, so development is occurring there. By the time we get to mid-2025, we’re going to be, in an even thicker coal seam, better quality.

So we’re excited about that. In the PRB, the rest then spills back to the PRB. We’ve indicated that we’re — kind of that 50-million-ton level, if you look at our guidance, the midpoint of that guidance, our commitments are actually slightly higher. Where we sit today, you see where natural gas prices is that. As we reported, we took advantage of the opportunity of some of our customers in ’23 that needed to look at their commitments and their inventories. And we were able to parlay that into additional volumes, with some rollovers, in ’24 about 5 million tonnes. So as we sit here today, we don’t think it’d be unreasonable to think of something else in that magnitude 5 million tonnes ish that could be impacted as we work through ’24.

Deck Slone: Lucas, this is Deck. I think, I would just I would add this that. For the West Elk, we expect volumes to be higher, that’s for sure volumes, really around 3 million tons in 2023. So we expect a meaningful step up to between 4 and 4.5 million tonnes in 2024. But prices are likely to be lower. So, obviously, the seaborne pricing has come down, we have some legacy contracts that we still need to service. So, there’s sort of sideways contribution, despite the better results at West Elk from a production perspective, the better operations. Than the Powder River Basin, that pricing is now around $15 is kind of where we’re committed to right now, we still think that creates the opportunity for us to generate $1 to $1.50 margin.

So overall, for the thermal contribution, perhaps a small step down, given the volumes are likely to be lower, but still a substantial contribution from the thermal segment. I know that doesn’t necessarily come across from the guidance table because things like export tonnes are missing, et cetera. But we still think the thermal segments going to contribute a significant amount of cash in 2024.

Paul Lang: Lucas, one thing I think I’d like to just kind of touch on again, and as Deck and John well fitted. But, I know it’s a little odd, we’re guiding below sold by about a 1 million or 1.5 million ton. I think it’s just plain and simple the recognition of natural gas has fallen so much in the last couple of weeks that we’re expecting pretty hard pushback, we’ll get that value. I think it’s the reality and I think we want to show in our guidance.

Lucas Pipes: Yes, thank you. That’s exactly what I wanted to get out. If you look at the guidance table, you’ve committed at, call it $17 bucks and cash cost guidance is $16 to $17. So maybe to help us understand this better in today’s new cap of price environment and what you have left to sell at West Elk, maybe domestically as well. Where would you expect that $17.09 to trend in today’s market environment? Thank you.

John Drexler: So, Lucas, John here. I think right now you can look at it as the netbacks could be sort of in the 40, sort of, $40 plus range. But look, there are a lot of moving parts at West Elk. And again, we grant you that there’s a little, you know, that guidance table might cause a little confusion. But, the reality is there are so many moving parts at West Elk, given, in the wake of the some of the quality issues we had in 2023. That, we do think there is a meaningful margin still to be gained. And even with what I just described in that sort of mid-$40 range of netbacks. You know, we still believe that when you sort of factor in some of the volumes that are priced again, you’re going to see a widening out and a solid margin from the thermal segments all.

Deck Slone: Lucas, I mean, — Deck on. With that additional export volume, even if these capital prices that are down from where they have been, that will move that number of it’s in the guidance table over the course of the year. I think that’s kind of been the historical practice you would have seen from us as well if you go back to previous quarters, beginning of the year, et cetera.

Lucas Pipes: Thank you. And sorry if I missed it, how many West Elk comes are uncommitted on price today? And would they all go into the export market with that 40 something dollar netback?

John Drexler: So it was the — it’s close to a 1 million tonnes, that wouldn’t be that would not the price as yet.

Lucas Pipes: Got it. All right. This is very helpful, gentlemen. I really appreciate all the color and I’ll turn it over. Best of luck.

Paul Lang: Thank you, Lucas.

Operator: The next question will come from Katja Jancic with BMO Capital Markets. Please go ahead.

Katja Jancic : Hi, thank you for taking my question. Same, West Elk, how much did West Elk contribute in ’23?

John Drexler: So, Katja. Once again, we’re — as we’ve indicated this past year, in ’23 West Elk, while it was constrained and had issues and produced 3 million tonnes, we expect that to grow to 4 million tonnes. So, we do see an enhancement there, given where the international markets were and with some of the challenges we had, we still had nice margin at West Elk. Now you got as we just talked about some pressures in the markets themselves as we step into ’24 West Elk, but you see a very meaningful increase in volume. So, the contribution is we see it is probably flattish between ’23 and ’24. And still resulted in a nice cash flow for that complex contributing to the thermal segment.

Deck Slone: And may be just a little bit more granularity, Deck again. Probably $10 to $15 margin is how you would think about that for the 3 million tons. If you think about that $10 to $15 margin, kind of what we’re saying is like you can see that volume that John just described the 3 million times step up to 4 plus the made up margin gets compressed a little bit in the current environment. So maybe that’s helpful.

Katja Jancic: No, that’s super helpful. Thank you. And then on the met side, you’re guiding 8.6 to 9, do you still overtime expect you can get to 10 million tons?

John Drexler: Well, Katja, I think if we’ve continued to have discussions around the met portfolio, you know, we are comfortable, especially as where South transitions into district two, that we’re going to see volumes at that 9 plus million funding level. We’ll continue to do everything to focus on getting that to the highest amount of production that we can out of that portfolio. And you know, we do expect it to be well north of 9. And that will be a great met portfolio. And if we can push it up to 10, we’ll be working to do that as well. But it’s too early for that product to really solidify some of that guidance.

Paul Lang: Katja, its Paul. The one thing I’d add in. I’ll give John and team a lot of credit. As he noted in his remarks, we came through October, November, as expected, through some bad conditions. We hit December in the new panel, the mine volume as well as we’ve seen it run. And we know we can run the volume. So, I gained a lot of confidence in what I saw and what I saw the team produce. So, I still remain fairly optimistic on that.

Katja Jancic: Okay, thank you. I’ll hop back into the queue.

Operator: Your next the next question will come from Nathan Martin with The Benchmark Company. Please go ahead.

Nathan Martin : Yes, thanks. Very good morning, everyone. Thanks for taking my questions. Maybe just a follow up on that most recent question, as we think about the met operations, in general, again, I think you guys in the past eventually get to that 10 million ton run rate. But just to be clear, does that include the thermal byproduct tonnes, because I know some people I think have likely assumed that was just coking coal. So, if that does include the byproduct tons, then in theory, or coking coal tons, you know, more likely in the low 9 million kind of range, just would be great to get your thoughts on the right way to think about that?

John Drexler: Well Nathan, we’re talking about met, and these numbers, we’re using and as the goal of ultimately maximizing the net sales, that’s just the met, it excludes the thermal byproduct. As we mined across our portfolio as part of the production and processing, you are left with that product. So, that’s incremental to the volume, the best volume that you have there. So, you know, if you add in the midst product, then yes, you’re we will be over 10 million tons, when you add back the impact of the mid, as we look on return, absolutely.