Archrock, Inc. (NYSE:AROC) Q4 2022 Earnings Call Transcript

Archrock, Inc. (NYSE:AROC) Q4 2022 Earnings Call Transcript February 22, 2023

Operator: Good morning, and welcome to the Archrock Fourth Quarter 2022 Conference Call. Your host for today’s call is Megan Repine, Vice President of Investor Relations at Archrock. I will now turn the call over to Ms. Repine. You may begin.

Megan Repine: Thank you, Regina. Hello, everyone, and thanks for joining us on today’s call. With me today are Brad Childers, President and Chief Executive Officer of Archrock; and Doug Aron, Chief Financial Officer of Archrock. Yesterday, Archrock released its financial and operating results for the fourth quarter and full year 2022 as well as annual guidance for 2023. If you have not had a chance to receive a copy, you can find the information on the company’s website at www.archrock.com. During this call, we will make forward-looking statements within the meaning of Section 21E of the Securities and Exchange Act of 1934 based on our current beliefs and expectations as well as assumptions made by and information currently available to Archrock’s management team.

Although management believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. Please refer to our latest filings with the SEC for a list of factors that may cause actual results to differ materially from those in the forward-looking statements made during this call. In addition, our discussion today will reference certain non-GAAP financial measures, including adjusted EBITDA, gross margin, gross margin percentage, free cash flow, free cash flow after dividend, and cash available for dividend. For reconciliations of these non-GAAP financial measures to our GAAP financial results, please see yesterday’s press release and our Form 8-K furnished to the SEC.

I’ll now turn the call over to Brad to discuss Archrock’s fourth quarter and full year results and to provide an update of our business.

Brad Childers: Thank you, Megan, and good morning, everyone. I’m happy to be with you today to discuss our strong fourth quarter and 2022 results and our extremely promising outlook for 2023 and beyond. We closed out 2022 with solid operating momentum and financial performance. I’m proud of what our team achieved from a financial, operational and most significantly strategic perspective. Among the accomplishments for the year, we grew our revenue by 8% and delivered meaningful net income growth compared to 2021. Our teams worked tirelessly to meet our customers’ sharp increase in demand. We grew our contract compression operating fleet by approximately 375,000 horsepower excluding non-strategic active asset sales. And we increased our exit fleet utilization by 900 basis points to an all-time high for Archrock of 93%.

In this exceptionally busy environment, we maintained excellent safety performance. In 2022, we exceeded our annual safety targets and achieved zero lost time incidents. We advanced our fleet high-grading efforts, selling non-strategic assets, totaling 341,000 horsepower during 2022, including 176,000 active horsepower. Large horsepower, the more stable segment of the compression market now represents 84% of our total fleet compared to 74% at the end of 2019. I want to take a moment to thank our employees for their hard work, leadership and dedicated customer service, which helped to deliver a great result in 2022 and to set us up for what we believe will be an even better 2023. Looking at the year ahead, we’re at an exciting inflection point for Archrock.

Our outlook reflects the intersection of robust compression market fundamentals with Archrock’s radically transformed and differentiated platform. Fundamentals for the industry are as exciting as I’ve ever seen, and demand for our large midstream horsepower exceeds available equipment. We expect 2023 performance to benefit from a full year of record-high utilization and pricing. In the near-term, WTI prices, continue to support healthy economics for oil-directed drilling. The resulting associated gas volumes need to be transported and therefore compressed, driving strong demand for our midstream horsepower even, in the lower gas price environment. While this dynamic has been most notable in the Permian Basin, we’ve been pleased with customer activity and growth across several liquids-rich shale plays.

Some analysts forecast, do predict, a supply response in dry gas plays during 2023, to balance the market. However, we’ve yet to see and experience and do not expect a material impact to our business, given the current tight and undersupplied compression market and the LNG demand growth expected in 2024 and beyond. In the long-term, we believe, the growing demand for energy generally and natural gas in particular, constraints in the supply of compression equipment as well as disciplined capital spending by the oil and gas sector support the strong and growing demand for the compression services of Archrock. Furthermore, we believe two factors that have impacted profitability in the most recent two years are improving in 2023. First, inflation appears to be slowing which will better enable us to stabilize and continue to work to improve our operating costs.

Second, we expect the level of spending required to make ready existing units for redeployment will reduce, given the current high utilization of our fleet. Against the supportive economic backdrop, we will also continue to reap the benefits of the fleet high-grading efforts and technology investments that have been central to our strategy for the last few years, including during a severe market downturn. Through these efforts, our goal has been to improve utilization and profitability through market cycles. We’ve repositioned our fleet, focusing on unit standardization, the large horsepower segment of the midstream market, high-grading customer relationships and enhancing leverage to growth place. And on the technology front, we’ve integrated fleet telematics and equipped our field service technicians with mobile-enabled communication and service tools.

We expect this to drive increased asset uptime, improve the efficiency of our field service technicians, improve the supply chain and inventory management at Archrock, reduce the miles driven by our field service technicians and lower emissions, our emissions and carbon footprint. Although the heavy lifting is never truly done, 2023, should offer a more normalized environment where we can begin to demonstrate our improved earnings power and focus on excellent operating execution. This means, efficiently and profitably capturing robust demand for compression, continuing to deliver a first-rate customer experience, harnessing our upgraded technology platform and high-graded asset base and prioritizing opportunities to help our customers with emissions management.

Moving to our segments. We built significant momentum in our contract operations business throughout 2022. Utilization, committed backlog total and idle fleet bookings all reached record highs during the year, exit fleet utilization increased to an all-time high of 93% and our operating horsepower grew by approximately 375,000 horsepower, excluding the 176 active horsepower we chose to sell as part of our fleet high-grading strategy. And our sales team did a fantastic job of getting our idle equipment back to work quickly to more than replace these strategic — non-strategic active horsepower sales with higher quality EBITDA. During 2022, we took swift action to proactively align pricing with the market and combat inflation. Pricing across several key asset categories set record highs for spot prices, and we also continue to move pricing higher on our installed base as contracts were renewed throughout the year.

We will benefit from a full year’s impact of these rate increases and also expect to maintain the pricing prerogative and capture additional meaningful increments during 2023. I’m proud to say that we delivered gross margin dollars for the year of $399 million, essentially flat year-over-year despite the reduction in gross margin dollars for non-strategic asset sales as well as record inflation and elevated reactivation costs to put our idle fleet back to work, which are customary in the early stages of an upcycle. And as Doug will cover later in his review of guidance, we expect to resume margin expansion for our contract operations segment during 2023. Moving to our aftermarket services segment. Fourth quarter and full year 2022 activity and performance improved meaningfully compared to 2021 with parts and service revenue are running at levels not experienced since 2019 as customers catch up on deferred maintenance work.

We expect healthy levels of activity to continue into 2023. Shifting to our capital allocation framework for 2023. We remain committed to maximizing the returns for Archrock shareholders with a balanced approach. First, capital returns to shareholders are front and center. As recently announced, our conviction in a multi-year upcycle for compression and Archrock’s strategy drove the decision to resume dividend growth, beginning with the February 2023 payment. We recently announced 3% increase in dividends per share is a meaningful step in our goal to deliver a leading return of capital strategy for shareholders and is supported by our expectation for dividend coverage of approximately two times for 2023. Future increases to shareholder return will be evaluated and determined by management and the Board based on our investment opportunities, balance sheet and cash flows as well as dividend coverage.

We’re confident in the future cash generation profile of our business and anticipate significant and growing returns of capital to our shareholders over time. Second, we have the opportunity in 2023 to redeploy asset sell proceeds into an undersupplied market at returns well in excess of our cost of capital. Furthermore, customers have already begun planning for compression needs to support 2024 programs given the limited supply and long lead times for equipment. Our assets will be needed to meet growing production at energy needs and as we indicated on our third quarter call, incrementally higher growth capital will be deployed in 2023 compared to 2022 to meet these demands. As such, yesterday, we announced a growth capital budget of between $180 million and $200 million.

We’re focused on growing responsibly with our strategic growth-oriented customers in key basins. Our commitment to strong returns and helping our customers reduce their emissions footprint are driving our investment strategy. As such, we expect approximately $30 million of our growth CapEx budget to fund expansion of our electric motor drive horsepower. Finally, maintaining a strong balance sheet and liquidity underpins our ability to execute on our plans. We’ve completed $285 million in strategic divestments of older, nonstrategic assets over the last three years. This allowed us to effectively manage our leverage through the downturn. And now with a much improved investment environment, we’ve essentially prefunded our growth investments in higher profit, large midstream compression units.

In addition, proactive debt reduction and a visible expected increase in future earnings give us line of sight to achieving a leverage ratio of below 4 times this year with our current near-term target debt-to-EBITDA ratio of 3.5 to 4 times. In summary, the positive momentum built in 2022 is carrying over into 2023. We have an exciting year ahead of us. And as we profitably capture market opportunities and execute our strategy, we are set up for a banner year, which will serve as a foundation for what I believe to be a lucrative and multiyear run for our compression business and our shareholders. With that, I’d like to turn the call over to Doug for a review of our fourth quarter and full year performance and to provide additional color on our 2023 guidance.

Doug Aron: Thanks, Brad. Let’s look at a summary of our fourth quarter and full year results and then cover our financial outlook. Net income for the fourth quarter of 2022 was $10.5 million. This included a noncash $5 million long-lived asset impairment as well as a noncash $2 million reduction in the fair value of our investment in Ecotec. We reported adjusted EBITDA of $89 million for the fourth quarter of 2022. Underlying business performance was strong in the fourth quarter as we delivered higher total gross margin dollars. We also would have reported a sequential increase in adjusted EBITDA, both for the $13 million in third quarter asset sale gains. Turning to our business segments. Contract operations revenue came in at $177 million in the fourth quarter, up 4% compared to the third quarter.

Operating horsepower and pricing both increased sequentially. Compared to the third quarter, we grew our gross third quarter we grew our gross margin dollar 4% resulting in gross margin percentage of 58%. This was consistent with third quarter and in line with our annual guidance. In our aftermarket services segment, we reported fourth quarter 2022 revenue of $42 million, down slightly compared to the third quarter due to seasonal softness, but up 16% on a year-over-year basis. Fourth quarter AMS gross margin of 17% was consistent with guidance and third quarter performance. Growth capital expenditures in the fourth quarter totaled $40 million and reflected elevated customer demand. Our full year growth CapEx of $146 million came in slightly below our full year guidance of $150 million, mainly due to timing.

Maintenance and other CapEx for the fourth quarter of 2022 was $29 million, bringing the full year total to $94 million. Utilization increased faster than we forecasted in the year. And although great for earnings, this resulted in reactivation costs coming in higher than planned for the year. We exited the year with total debt of $1.5 billion and available liquidity of $488 million. In addition, variable rate debt continue to represent approximately 15% of our total long-term debt. Our leverage ratio at year-end was 4.4 times, just a small uptick compared to 4.3 times in the fourth quarter of 2021. As Brad mentioned earlier, as we execute our plan and our earnings inflect sharply higher this year, we expect to achieve a leverage ratio below 4 times by year-end 2023.

We recently declared an increased fourth quarter dividend of $0.15 per share or $0.60 on an annualized basis. Our latest dividend represents a compelling yield of 6% based on yesterday’s closing price, especially given the protection provided by our industry-leading dividend coverage. Cash available for dividend for the fourth quarter of 2022 totaled $35 million and for the full year totaled $171 million, leading to an impressive 2022 dividend coverage of 1.9 times. Archrock introduced 2023 annual guidance with our earnings release yesterday. All of the customary detail can be found in the materials published last night and for the purposes of this call, I will keep my comments high level. We announced a 2023 adjusted EBITDA guidance range of $400 million to $430 million.

At the midpoint, this represents an increase of more than $50 million compared to the $363 million in 2022. And after normalizing for 2022 net gains on asset sales totaling $41 million, 2023 adjusted EBITDA is projected to increase over $90 million at the midpoint of our guidance, or nearly 30% year-over-year. As we realized meaningful increases in horsepower and pricing in the coming quarters, we expect the momentum in our adjusted EBITDA to build throughout the year. In contract operations, we expect full year revenue to be in the range of $775 million to $800 million, a year-over-year increase of 14% to 20%, driven by significantly higher horsepower utilization and pricing. We expect margin expansion to a range between 60% and 62% for the year.

This reflects not only top line growth, but also continued efforts to maximize our profitability by leveraging technology and focusing on controlling expenses, even during an up cycle. In comparing 2023 contract operations gross margin and SG&A expectations with 2022 performance, please note that guidance reflects the change in tax compliance for approximately $10 million of sales tax associated with contract operations cost of sales. Going forward, these costs will now be accounted for in contract operations cost of sales rather than in SG&A. In our AMS business, we forecast full year revenue of $170 million to $180 million, up from $168 million during 2022. Higher revenue should translate into better cost absorption and we will continue to prioritize higher margin activity.

This results in our expectation of annual increase in gross margin percentage of between 100 and 150 basis points. Turning to capital. On a full year basis, we expect total 2023 capital expenditures to be approximately $270 million to $295 million. Of that, we expect growth CapEx to total between $180 million and $200 million to support investment in new build horsepower and repackage CapEx to meet continued customer demand. Maintenance CapEx is forecasted to be approximately $75 million to $80 million, down slightly compared to 2022. With a more fully utilized fleet, we anticipate lower levels of make-ready CapEx, which we expect to be partially offset by higher spending per unit overhauls. We also anticipate approximately $15 million in other CapEx, primarily for new vehicles as well as building and shop repairs and upgrades.

Before we open up the lines for questions, I’d like to take just a moment to reflect on the bigger picture. The company’s transformation since I joined it in 2018 puts us in an enviable position during an exciting time for the compression industry. We’ve made fantastic progress on our strategic objectives, including significant optimization of our fleet and our 2023 plan highlights Archrock’s compelling and increasing value proposition through enhanced earnings power, deleveraging capacity and growing return of capital to shareholders. With that, Regina, I’d now like to open up the line to questions.

Q&A Session

Operator: Our first question comes from the line of T.J. Schultz with RBC Capital Markets. Please go ahead.

T.J. Schultz: Hi, everyone. Good morning.

Brad Childers: Good morning.

T.J. Schultz: Appreciate it. The EBITDA guide makes sense given where utilization and pricing have trended. And it sounds like you are insulated from the recent gas price weakness within that EBITDA guide. But for growth capital this year, can you just provide a little more color on where you pointing those assets to by basin what contracted already, what may be could be turned on or off if lower gas prices impact customer activity levels, or are you just comfortable with that level of capital spend and customer commitment even at these gas prices? Thanks.

Brad Childers: Thanks, T.J. It’s Brad. To start with, the market for compression equipment is just we’ve never seen it as tight as it is today, which is translating into both high utilization and long lead times. And the overall demand picture for natural gas really on a medium and long-term basis has not changed. So this short air pocket that we’re seeing in nat gas prices, has not as of yet shown up or impacted our customers’ decision-making candidly at all. If it does show up, we expect it to be very incremental and short-lived. That said, to answer your question very directly, the bulk of our new equipment that we’re putting to work is going to the Permian, which as you know, is an associated gas play. So it’s an oil play with associated gas, very insulated from natural gas pricing impacts.

And for our 2023 capital, greater than 80% of our capital and equipments we delivered in 2023 is already contracted and booked. The remaining 20% is booked based upon strong leads and indications of commitments that will be forthcoming with customers. We expect all of that capital to be contracted in the year. We don’t expect to see a reduction in that.

T.J. Schultz: Okay, perfect. And what are you seeing on contract terms right now? Typically, what are you contracting for? What do you keep on contract versus on month-to-month?

Brad Childers: Sure. So in entering into new contracts right now for large horsepower equipment, the tenders that we’re executing are in the three to five-year range. We haven’t seen a radical change in the length and tender of those contracts. We do, however, see a continuing change in the length of time equipment will remain on location well-beyond those initial contract terms. For the active fleet or for the current installed base, we have about 30% to 40% of our units that are on contracts for greater than a year and about 60% that are available for renewal within the next 12 months.

T.J. Schultz: Okay, great. Just last thing for me on the distribution increase, this came before we had expected and with debt leverage still a bit above four times. I know it was not — that four times is not any type of bright line for turning on things such as distribution growth, but clearly starting now the signal for your view on the compression cycle. So just going forward, should we expect you to look at future growth on the distribution on an annual basis? Is there a target on the level of distribution growth? And does that pace potentially increase as debt leverage moves even lower? Thanks.

Brad Childers: Sure. First off, look, we have tremendous confidence in the cash generation ability of our asset base and our operation. And that confidence and what we are experiencing in the combination of utilization, increase in pricing and also our optimism around how long-term we expect this current up cycle to run gave us confidence in both our ability to increase our returns to shareholders on a near-term basis and achieve the leverage target that we’ve laid out for quite some time. We do expect that with the Board to revisit our mechanism and our use of capital with a focus on keeping capital returns to our investors a high priority, but balanced against our other cash flow objectives, including investing in the business and supporting our customers’ growth with great high-return investments.

The potential to look at anything else that can enhance returns, including share buybacks, as well as our desire to balance to achieve our balance sheet objectives. So all of those are on the table. We expect to revisit all of that with our Board periodically. And looking at it annually is probably a fair way to think of it; though that’s something we were here every quarter.

T.J. Schultz: Got it. Make sense. Thank you.

Operator: Your next question will come from the line of Jim Rollyson with Raymond James. Please go ahead.

Jim Rollyson: Hey, good morning, guys. Great results.

Brad Childers: Good morning.

Jim Rollyson: And outlook. Brad, question for you. Just when you are allocating capital, obviously, it seems like from — based on the growth CapEx number, your horsepower additions are probably a little bit light relative to last year. But just curious how you balance growth CapEx, desires versus balance sheet leverage targets versus dividend growth as we think about this. We’ve obviously have your target for 2023. But as I think about this going forward, how do you kind of balance those things? Seems like you’re — you’ll have more opportunity once your leverage hit your targets to either allocate to growth or possibly dividend growth?

Brad Childers: Yeah. So fair question. You identified all the factors that we do balance in looking at this. I’m not sure I can share a lot of insight other than we look at the returns we get from our capital deployment in every category is the best way to think of it. Right now, our focus has been — on a short-term basis, our focus has clearly been on getting our leverage to below 4x. And we believe we can achieve that and see that through the cash flow generation we’re going to have in 2023, even after accounting for the dividend increase and the capital investment we’re going to make in the year. And looking at when and how we make capital investments into the business, there are two drivers to that. The first are the rates that we can achieve with that capital, which right now are excellent.

And the second is a longer-term focus on whether or not we are building the franchise and supporting the critical growth needs of our franchise-level customers, which if we did not meet would compromise the long-term value of the cash flow that we get to generate as a business. So that’s the way we balance it is looking at returns at the top level from all categories with a focus also on preserving and building the value of the franchise over time.

Doug Aron: Yeah. And Jim, this is Doug. I just would, I guess, emphasize, be rest assured this management team and board is aware of the seeming social contract with investors now to generate free cash flow in the energy business. And we very much did that certainly through the down cycle, we — as Brad said, prefunded a large chunk of the — what I would call maybe excess — I don’t know, the excess CapEx is the right word this year, but redeploying those asset sales into large horsepower, highly demanded by investment-grade customers is the right business decision for 2023. And as we look to 2024 and beyond, it is not lost on us that folks don’t want to see this industry repeat sense of the past and free cash flow was very much a priority. I think right now, we kind of have the luxury of the best of all, sort of investing in both guns and butter. And I think you should expect Archrock to take that path going forward.

Jim Rollyson: It makes perfect sense. A reminder of — I think you’re kind of running out of stuff that you’d like to sell off and redeploy the capital, but just a reminder of kind of what you might have targeted for possible asset sales for the rest of this year?

Brad Childers: Your statement is correct. We’ve really turned over our fleet at 93% utilization and strong commitment to what we are going to deliver in 2023 through pricing. It’s evidence of the fact that our fleet is and our operation is in a radically different position than it was just a few years ago. And that does mean that we’re running lower on non-strategic assets that we want to sell. Still, there are pockets that are available for us to consider, but they will definitely be smaller in comparison to what we’ve accomplished over the last two years of $285 million of asset sales is a huge target for us. So, we think there’ll be incremental tuck-in nip opportunities, but there’ll be smaller scale than we’ve achieved in the past.

Jim Rollyson: Got it. And then last question for me, just on the fleet utilization now, the highest level, I ever recall you guys generating and fleet mix is obviously part of that. Where can that sustainably get to? I mean, have we peaked out on that, or can that move closer to the mid-90s, or what do you all think on that?

Brad Childers: First, we totally intend to test that hypothesis very hard. We do see the opportunity for this business to get up into the mid-90% range based on how tight the market is today, and the quality of the assets that we are operating. But we’re going to test that midpoint. And so we’re not going to say, there’s a cap on it yet. Let us prove out 2023, and see how we can drive it.

Jim Rollyson: Look forward to it. Thanks, guys.

Brad Childers: Thank you.

Operator: Your next question will come from the line of Selman Akyol with Stifel. Please go ahead.

Selman Akyol: Thank you. Congratulations on a nice quarter and a very good outlook. When I think about your growth capital budget of $180 million to $200 million, can you €“ since you’ve talked about pricing being so strong, can you kind of talk about what returns are embedded in that capital budget?

Doug Aron: Yeah. Selman, I’d tell you that, we target certainly a mid-teens unlevered return when we model these things. We try to look at it through the cycles. As Brad enumerated, we’ve mentioned on this call, rates at the moment are really strong, strongest we’ve ever seen them. And so while I would argue that maybe those returns are even a little on the higher end of mid-teens at the moment. Again, I think through cycles, we feel confident in that longer term, mid-teens return, unlevered.

Selman Akyol: Got it. Appreciate that. And then just sort of given the environment you’re seeing, I mean, clearly, we’re early in 2023. Should we expect your capital budget to go higher as you continue to have additional conversations with your customers?

Brad Childers: For 2023, the answer is, no. We really have committed to a capital budget that we think is prudent for the market. Second, we think equipment lead times are just going to make it not really feasible to pull more capital into the year. And finally, we’re very confident with the ability to meet the demand of our growth range of customers in 2023, with the capital budget that we’ve laid out. And then, I just put a cap on that by pointing out, we’re super excited about the returns that we’re making, both at the level of utilization we’re at and at pricing in this tight corporate market. This really is an exciting time to be in this business.

Selman Akyol: Understood. And then just €“ and you’ve mentioned it, and we’ve heard it from others as well these long lead times. Can you just talk about what that exactly is for high horsepower compression now?

Brad Childers: Yeah. It’s in the 52 weeks plus category. And the drivers on those lead times are really engines and shop space. It’s not really feasible for large horsepower to get delivery inside of 52 weeks at this point.

Selman Akyol: Got it. And just looking at your guidance, on your contract operations revenue and you guys alluded to it, I mean, on the low end, it’s sort of a 14% increase. And then I take a look at your aftermarket services revenue. And at the midpoint, it’s up 5%. And I’m sure or at least I would think that you’ve adjusted some of your prices to reflect the higher inflationary environment. And so is there just something in terms of — can you talk about maybe in units, something you expect to do, or is there — is it going slower out there? I just would have thought that would have been a little bit larger to given the inflationary pressure. So can you help me think about that a little bit?

Brad Childers: So just to be clear, the focus is really on the aftermarket side of it and why the revenue is not higher, I just want to make sure I answer the right question, Selman.

Selman Akyol: Yes. No, you’re spot on there.

Brad Childers: Okay. Thank you. We are ambitious around what we can do in that aftermarket service business, but inflation is continuing a bit and that moderates a bit of our expectations. And second, we’ve definitely sought to improve the profitability in that business, which also means potentially trimming the revenue to improve that profitability. And those two dynamics are probably what you’re seeing in the moderation of the revenue growth compared to what you might otherwise have as expectations. But again, this is guidance. We have an opportunity to outperform on both the revenue side and on the profitability side. I know it seems driven to do that. But that’s really, I think, what you’re seeing in that more moderate revenue picture.

Doug Aron: Yes. The only thing I’d maybe add is just believe it or not, supply chain is still pretty constrained in that area, which limits, I think, the growth a bit. If we’ve got to choose where available parts are going to go, it’s certainly going to go to the higher-margin contract compression business first. And I think that’s a little bit constraining to the upside on revenue for AMS as well, that in a very tight labor market. So as Brad said, not for a lack of trying, by any means, but trying to focus on higher-margin work and allocating our resources best place as we can.

Selman Akyol: Got it. Thank you, guys very much.

Operator: There are no further questions. Now I’d like to turn the call back over to Mr. Childers for final remarks.

Brad Childers: Thank you, everyone, for participating in our Q4 review call today. We’re entering what I believe to be a multi-year upturn in compression. And I’m excited about the value our franchise can deliver today and well into the future. I look forward to updating you on our progress next quarter. Thank you.

Operator: Ladies and gentlemen, that does conclude today’s meeting. Thank you all for joining. You may now disconnect.