Edited Transcript of AFG.AX earnings conference call or presentation 21-Feb-20 12:00am GMT

The Connective merger is in progress, and we continue to work with the ACCC to resolve their concerns. And we continue to explore organic and inorganic opportunities to further diversify our earnings profile.

From a strategic and market outlook perspective, we remain a capital-light, strong balance sheet with no debt, which generates strong cash flow. We continue our ongoing investment in technology to grow scale efficiently, which helps deliver on AFG’s earnings diversification strategy. We talked a little bit about it just before around the Connective transaction. It’s progressing with the court case and the ACCC. You remember though the 2 preconditions of the transaction, the statement of issues seeks industry views and further information on certain competition issues that have arisen from the ACCC’s market inquiries to date, and we will engage with them over the next month or so.

The market outlook. There’s some changing market dynamics driving positive outlook for the broker proposition. The RBA’s recently implemented 3 interest rate decreases in 2019, and after changing the serviceability floor, has helped drive lodgement activity, in particular in the areas of refinances and bringing first home buyers back into the marketplace. Overall, that product complexity remains, which then drives a greater proposition for brokers to help the customers sort through the most appropriate choice.

Residential settlements are 2% lower than FY ’19 first half, although as mentioned before, it’s the Q2 lodgements and settlements, which have increased 19% and 6%, respectively, which have really been driven from those interest rate reductions and importantly, the change in the APRA floors. We’re seeing continued shift in our mix towards AFG Securities as part of our AFG Home Loans stable. And that’s really been driven by considered product improvement and consistent credit turnaround times. Settlements in that area are up 46%.

Commercial loan book has risen 6% to $8.3 billion, and we’ve — we note some strong growth in AFG Business settlements to $192 million. The Thinktank settlements in our white label is up 124% to $87 million.

We touched on AFG Home Loans now. The book sits at $9.8 billion, with a slender bias moving towards the Retro and Link products. This will change the impact of our earnings profile. So the white label income is recognized at settlement and the RMBS funded loans generate income over the life of the loan by the net interest margin. This will drive a stronger earnings profile in the future years.

So just to remind you, our 2 funded products, which we fund ourselves, is the Retro and Link. Predominant amount of funding in that area is the Retro product, which is a prime product. And the Link product is a, what I would call a near-prime product. So it’s not the pointy end of credit, but it’s not prime.

AFG Securities is playing a role in delivering choices to customers in a complex market. The quality of the book has been maintained. And I think you’ll remember last time we spoke to you about the low arrears performance, that’s been maintained. And it’s well below industry averages. The net interest margin has been generated for the first half, really off the back of some favorable moves in the BBS (sic) [BBSW] to cash spread.

If I talk about the AFG Securities business, 50% of the book has an LVR of less than 70%. And only 14 loans in arrears out of a total of 6,698 loans in the book. And so those 14 loans are those that are 30 days out, and no losses have been incurred on the non-LMI insured loans. So this is really a function — our ability to do this is really a function of our position in the marketplace and the knowledge that we have of our brokers, but also the data we have — we’re able to collect. We’re very — in a unique position in terms of most other originators in the marketplace given our breadth and footprint on the Australian mortgage market.

AFG Business is, I’ll call, a start-up. It’s been going — it’s come out of pilot mode. We’ve now got those 4 major lenders, which we think is going to be a significant driver for continued choice on the platform. The number of brokers using the platform has increased from 138 to 225. We’ve also introduced asset finance has now grown to 7 lenders. Settlements, albeit from a low base, have gone from $56 million to $192 million in the first half.

I’ll touch briefly on the contribution of Thinktank to our business, and that was a strategic investment we made a few years ago. The white label component of that business has increased to $87 million for the half, which is up from $39 million in the first half last year. Importantly, the number of brokers using that AFG Commercial product has increased again in this year. And we’re now enjoying a strong return on our equity investment as a global — as a shareholder in that business with a $1.1 million contribution in the first half of FY ’20. And that business continues to be positioned for growth. They now have white label arrangements with a number of other aggregators in the marketplace.

I thought I might just pass across to Ben now, who will touch briefly on our investment in technology together with some of the key financial information.

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Ben Jenkins, Australian Finance Group Limited – CFO [3]

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Thank you, Dave, and good morning, everyone. As you all have seen in our results, there’s been an increased investment in technology this half that we flagged in the year-end investor presentation. This is supporting the execution of our strategy to attract and retain brokers. We’re upgrading AFG’s core broker platform with the latest technology for growth, efficiency and customer management. The upgrade will allow brokers the option of online interaction with their customers. It will also improve process efficiency, submission quality and compliance capability for our brokers.

Moving across to the summary cash flow. Our net cash flows from operating activities were strong this half at $16.9 million in half 1 FY ’20. We’re starting to see the benefit of historical trail book growth flowing through as increased cash flow. We’re also seeing a benefit from the increased AFG Securities book with net interest cash flow up 102%, which has benefited both from the growth in the loan book by 51% and the lower cost of funds during the half. So AFG continues to generate strong cash flows and maintains a capital-light business model.

Moving over to our summary balance sheet. AFG maintains a strong, debt-free balance sheet, which provides the platform for future investment growth in both an organic and an inorganic capacity. The trail book net asset continues to grow and is now at $94 million across the Residential, AFG Home Loans and Commercial trail books. Restricted cash in the half was reasonably high, which drove most of the increase in cash. It’s now at $66.2 million. This is merely timing of cash flows within the AFG Securities business. And you can also see the investment in technology within the intangible assets line on the balance sheet this half.

Moving over to the impact of trail book accounting. As we’ve touched on briefly, the underlying profit was up 20% in the half, excluding the change in value of trailing commissions. The gap between reported and underlying profit has reduced as the AFG Home Loans, in particular, white label book has begun to mature. With the increase in activity that we’re seeing across the market, recently in lodgement activity and flowing through to settlements, we expect run off to probably increase a little bit over time compared to the recent lows.

Just touching now on other income. Service fees have increased 2% in the first half, and has been driven again by an increase in broker services, including compliance and marketing services. Sponsorship income decreased slightly in the half. And as we’ve touched on before, that’s really timing related and is dollar in, dollar out related to the timing of conferencing and the educational and training activities.

And last point really is the point we touched on at year-end as well, but it’s an important point around the quality of the earnings within other income. In FY ’16 and ’17, volume bonus income of $4 million and $3 million, respectively, was received. Volume bonuses have now been removed from the industry. So the underlying sponsorship income aside, the underlying other income there is a more annuity-based income stream.

I’ll now pass back to Dave to conclude.

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David Bailey, Australian Finance Group Limited – CEO [4]

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Thanks, Ben. I’m just going to turn to January’s trading and provide an update on that. Total residential lodgements are up 25% in January 2019. I do express some level of caution around that prior period comparison, primarily due to regulatory issues, which are — a lot of brokers were focused on it in January last year. And so — yes, the numbers — we’re very, very happy with the number. But if you look at the number 2 years prior into 2018, it represents around about a 10% growth. So still very, very happy with the number. But I do highlight the fact that last year was a particularly slow year for the industry and for mortgage broking at that particular time. So the other important piece is that AFG Securities continues to grow with lodgements up 37%, and we see residential security — residential lodgement activity growing across all states, which is probably one of the first times we’ve seen in quite some time.

So in conclusion, we’re hoping that the FY ’20 first half results really does demonstrate the robust nature of our business, driven by the earnings diversification strategy we put in place a number of years ago now. The continued growth in AFG Securities loan book achieved, while maintaining quality, expanding a strong platform for future earnings capability. While the market begins to increase volumes, complexity remains. Greater competition and choice evidenced by the growth in non-major lenders. I was looking at the lender statistics and flow over the last — for the month of — for the first part of — this half of the year. And I don’t think I’ve ever seen a more flat or even distribution of product across a number of lenders on our panel. There’s so many lenders doing between 2% to 3%, which historically hasn’t necessarily been the case. So it’s extremely competitive out there at the moment. Customers looking for the right deal and the best way for them getting the right deal is to see a broker.

Investment in Thinktank continues to provide a strong contribution. We’re very happy with that investment and very happy with the performance of that company and the management team in that business. The AFG Business platform has experienced growth. The lender panels expanded and will drive further competition and choice in the SME market. The merger with Connective is progressing through the court process and the ACCC. So we’ll still continue to work through those. And the strong cash flow generation capability of the business predominantly through the cash flow of driving from the historical trail book remains in place and remains for a business which is capital-light and debt-free. So we feel we’re in a strong position for future growth initiatives as they present themselves.

So on that note, I will pause, and thank you for your time. And we’re happy to take some questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Tim Lawson from Macquarie.

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Tim Lawson, Macquarie Research – Division Director of Australian Insurance and Diversified Financial Market Research [2]

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Just in terms of the outlook for trail. I mean we can see there’s obviously quite a lot of movement between your home loan securitization versus more traditional sort of externally funded product, just — but improving into the second quarter. Just thinking a bit about the trail book going forward and how that impacts that underlying versus reported number and that receivable that sits in the balance sheet.

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Ben Jenkins, Australian Finance Group Limited – CFO [3]

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Yes. So as the trail book continues to mature, that gap between the underlying and the reported number should continue to close. So it really is a result of the recognition of the lifetime trail income upfront as the book is growing. And as the cash flow from that book and the book size matches more closely to the income that you receive over the life of the loan, then that gap between reported and underlying closes up.

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Tim Lawson, Macquarie Research – Division Director of Australian Insurance and Diversified Financial Market Research [4]

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And just the trail book on the balance sheet, what’s — what are your thoughts around that as that securitization book continues to grow? Does that look that it level off and ultimately start to come down? Is that — your own funded book starts to — or continues to increase?

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Ben Jenkins, Australian Finance Group Limited – CFO [5]

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Not necessarily. It depends on settlement activity. And as long as you’re tipping enough in the top to offset what’s going out in runoff each year, then we should be able to maintain it at a consistent level and if not grow, if we’re continuing to grow settlements enough.

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David Bailey, Australian Finance Group Limited – CEO [6]

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Tim, I think it’s probably just important to note that the white label, we don’t envisage a period where we drop the white label out of the business since the white label part of the business solves problems for consumers and for our brokers, which we can’t either fund or have no desire or credit appetite at this point in time to fund. So we would expect the white label to still be an important part of our business.

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Tim Lawson, Macquarie Research – Division Director of Australian Insurance and Diversified Financial Market Research [7]

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Yes. Okay. And just the margin was — I think the exit margin from last half was sort of closer to 120 basis points. You obviously reported 150-odd. Just the exit rate at the moment and your thoughts on the outlook for that margin?

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Ben Jenkins, Australian Finance Group Limited – CFO [8]

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Yes. I think if you look to BBSW and its spread to the cash rate, that will give you a fairly good indication of its movement across the half. The RBA cuts were earlier in the half, which probably drove a stronger NIM earlier in the half than later in the half.

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Tim Lawson, Macquarie Research – Division Director of Australian Insurance and Diversified Financial Market Research [9]

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So you’re going to call out an exit rate or not?

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Ben Jenkins, Australian Finance Group Limited – CFO [10]

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No, it’s not something that we’d publicly disclose.

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Tim Lawson, Macquarie Research – Division Director of Australian Insurance and Diversified Financial Market Research [11]

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Okay. And you called out investment in the technology, but I can’t see you’ve disclosed broker numbers, but you’re still seeing growth in broker numbers from, I think, 2,950, last time I remember the number being called out?

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Ben Jenkins, Australian Finance Group Limited – CFO [12]

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2,975. That’s been the number the last couple of reports and been fairly steady. I think with all the, I guess, challenges in the industry over the last 12 months, there probably hasn’t been a lot of growth in broker numbers across the industry. Now things are starting to settle down, we might see that change a little bit. But we may also see an increase in efficiency of the brokers that are in the market.

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Tim Lawson, Macquarie Research – Division Director of Australian Insurance and Diversified Financial Market Research [13]

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And the investment you called out, I mean, are we seeing that just trailing off into the second half, that technology investment? Or do you see that sustained at the sort of current levels?

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Ben Jenkins, Australian Finance Group Limited – CFO [14]

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Sustained at the current levels for the next probably 6 to 12 months.

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Operator [15]

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Your next question comes from Azib Khan from Morgans Financial.

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Azib Khan, Morgans Financial Limited, Research Division – Senior Banks Analyst [16]

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Congrats on the strong results. I might just ask my questions one at a time to keep it simple. Just following on from the very last question that was asked. So you’re saying the investment in your broker platform will be sustained over the next 6 to 12 months. Can you tell us what the magnitude of that investment is? And to what extent that’s been capitalized?

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Ben Jenkins, Australian Finance Group Limited – CFO [17]

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Yes. So you can see the portion that’s being capitalized in the cash flow statement and the increase in intangibles. So the majority of the project has been capitalized, and we’ll continue to do so in accordance with accounting standards. So the spend rate will be fairly consistent with this half over the next 12 months.

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Azib Khan, Morgans Financial Limited, Research Division – Senior Banks Analyst [18]

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And so what useful life are you assuming there in terms of the amortization?

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Ben Jenkins, Australian Finance Group Limited – CFO [19]

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We haven’t begun to amortize any of that yet, but it will be in accordance with our policy, software is typically in that sort of 3 to 5 year.

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Azib Khan, Morgans Financial Limited, Research Division – Senior Banks Analyst [20]

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Right. So we can expect it to come through over the next — it be expensed over the next 3 to 5 years?

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Ben Jenkins, Australian Finance Group Limited – CFO [21]

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Yes.

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Azib Khan, Morgans Financial Limited, Research Division – Senior Banks Analyst [22]

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All right. Okay. And with the broker numbers there, I mean, just another question about broker numbers. So you’re saying at the industry level, there’s been pretty — there hasn’t been a lot of growth. Does that mean your broker numbers have been flat at around that 2,000 or around that 3,000 level? Or have you actually experienced a bit of a decline in your broker numbers? And is that what’s prompting the refresh or upgrade of your core platform?

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Ben Jenkins, Australian Finance Group Limited – CFO [23]

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No. It’s fair to say broker numbers have been flat, not declining. And the refresh of the technology is probably driven by the need to refresh and come to market with a new offering there.

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David Bailey, Australian Finance Group Limited – CEO [24]

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I think the investment in the technology is really driven around recognizing that — the profile of customers and how they want to interact with broker is going to change over time. So we’re giving those brokers the functionality and capability to interact with customers at a digital level as well as a face-to-face level. And that’s really what’s driven the investment. It’s just time for a refresh.

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Azib Khan, Morgans Financial Limited, Research Division – Senior Banks Analyst [25]

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As you provide your brokers with that opportunity to interact more digitally and through better interfaces with customers, does that give you an opportunity to potentially reduce your broker payout ratios?

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David Bailey, Australian Finance Group Limited – CEO [26]

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I wouldn’t have thought so, Azib. I would have thought it gives us an opportunity to recruit more brokers. It’s an extremely competitive marketplace and brokers are constantly focused on payout ratio. So I would say that’s not going to be an outcome.

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Azib Khan, Morgans Financial Limited, Research Division – Senior Banks Analyst [27]

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Right. You’ve been asked about the margin, but I do have another question on that. So the NIM expansion was very strong at 30 basis points half on half. Is it correct that around half of that expansion of about 15 basis points would have been due to the cash bill spread compression, the remainder was partly due to repricing out of cycle and also due to strong growth in the high-margin Link product? Is that pretty much what explains — would that be the waterfall chart for the NIM movement?

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Ben Jenkins, Australian Finance Group Limited – CFO [28]

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Yes, I’d say the BBSW compression would probably be closer to 2/3 than to half. But yes, there is a combination of those 2 things.

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Azib Khan, Morgans Financial Limited, Research Division – Senior Banks Analyst [29]

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Can you — Ben, can you please tell us what the margin difference is between the Retro product and the Link product?

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Ben Jenkins, Australian Finance Group Limited – CFO [30]

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That’s not something we’d publicly disclose, Azib, sorry.

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Azib Khan, Morgans Financial Limited, Research Division – Senior Banks Analyst [31]

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What about the headline interest rate levels that are out there publicly? I mean what’s the sort of headline interest rate difference between the Retro product and the Link product?

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Ben Jenkins, Australian Finance Group Limited – CFO [32]

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It depends on the product because there’s a lot of different variabilities in there. But if you’re talking just a standard — if you’re talking just a standard prime product versus the sharpest Link product in this table, we’re probably talking 40 to 50 basis points.

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Azib Khan, Morgans Financial Limited, Research Division – Senior Banks Analyst [33]

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Right. Are you considering the launch of any new securitization-funded products?

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David Bailey, Australian Finance Group Limited – CEO [34]

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Not at the moment, Azib. I think what we’re doing is looking at areas that we might be more comfortable expanding into and exposing ourselves to that credit matrix rather than a new product. So an example might be — I’m not saying we’re going to do this, but we are limited in the number of loans above $1 million. So to expand in the Sydney market right now, we have there a [stronger] capacity, which we’ve imposed on ourself, which has been successful in terms of the credit portfolio and performance. But there are areas that we look to — without having to launch a new product, there’s areas where we could just sort of step out our credit appetite.

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Azib Khan, Morgans Financial Limited, Research Division – Senior Banks Analyst [35]

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All right. Now you’ve talked about how, obviously, the gap between underlying and headline impact will reduce as the trail book matures, particularly the AFG Home Loans book. And that obviously all makes sense. But I just wanted to also ask about that gap between underlying and headline impact from the perspective of changes in the average life of home loans. So if I take a look at your lodgement data, that’s been showing that there has been increased refinance activity. At the same time, and I think Ben alluded to this as well in one of the slides, but at the same time, I’m seeing higher loan amortization rates across the industry as a result of the lower interest rates. So do you expect the average life of home loans to decrease from here? And can that result in some softness in headline impact due to a lower contribution from the change NPV of trails?

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Ben Jenkins, Australian Finance Group Limited – CFO [36]

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Yes. So if runoff increases then loan — average loan life will decrease is the simple answer. And that flows through then to the projected cash flows in the actuarial model and the value of the trail book. So you can have a scenario where the reported number, you might actually have an underlying number running ahead of reported, depending on how significant that change in loan life was.

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Operator [37]

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Your next question comes from Oliver Stevens from Hartleys.

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Oliver Stevens, Hartleys Research – Industrial Analyst [38]

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Apologies for banging away on the NIM question. Obviously, there’s been a lot of movement, as you’ve said, in BBSW over the last period. When this does flatten out or normalize, if it does occur, do you have a sense for where your NIM would settle in a normal market, if there’s such a thing?

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Ben Jenkins, Australian Finance Group Limited – CFO [39]

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Yes. Look, I think — I mean that’s again something that we don’t publicly disclose. But I think if you look to the cash-to-bill spread, historically, it’s normally been in that 10 to 15 basis points range, and we’ve been anywhere from 3 to 8 basis points wider for most of this half.

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David Bailey, Australian Finance Group Limited – CEO [40]

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The other factor, Oliver, is that we’ve had 3 interest rate changes in the half or — and there is a timing lag on that between the reduction in the cost of funding and also the — and the delay before it’s passed on to the customer, which takes time to wash through. So there is a step change in that which does have an impact on a NIM in a reported period, which is a ton of impact.

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Oliver Stevens, Hartleys Research – Industrial Analyst [41]

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Yes, sure. I was just looking at the 3 prior halves when rates were reasonably stable, you’ve sort of been in that 110 to 120 basis point range.

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Ben Jenkins, Australian Finance Group Limited – CFO [42]

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Yes. I think in those periods, we had a much wider spread in the BBSW to cash rate. There were even months there where we were 45, 50 basis points wider. So I think it was typically 25 to 35 basis points wider for a lot of that period. So it was quite an unusual period in the market.

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Oliver Stevens, Hartleys Research – Industrial Analyst [43]

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Yes. And so, Dave, you also mentioned the cash for your future growth initiatives. Can you just sort of expand on what they may be or what areas in particular you’re looking at?

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David Bailey, Australian Finance Group Limited – CEO [44]

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So look, I’m quick to reinforce that there is nothing on the table at the moment. We’ve got enough on our plate with Connective and other initiatives that — internal initiatives. But if you look at the slide in terms of our strategy, it’s really around what we’ve done well is build a distribution, generate a white label and then push up into manufacturing. And obviously, with Thinktank, we’ll jump straight into manufacturing on the commercial mortgage side. So the asset finance area is an area of interest. We’re building volumes through both our white label — sorry, our AFG Business platform, but also our traditional asset finance business. So that’s an area which has an interest to us. We just need to do a bit more work on it on how we would step out into that — leveraging the distribution we have.

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Operator [45]

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(Operator Instructions) Your next question is a follow-up from Azib Khan from Morgans Financial.

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Azib Khan, Morgans Financial Limited, Research Division – Senior Banks Analyst [46]

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So David and Ben, Thinktank’s contribution has been pretty impressive in the first half ’20. I found the contribution to be soft in the second half of ’19, and it looked like there was some margin pressure that was emerging in that space and in smaller commercial lending in general just because of increased competition and some new entrants in that space. It looks like the strong performance in the first half of this year has been driven by volume growth. Is that correct? And is the margin pressure still there?

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Ben Jenkins, Australian Finance Group Limited – CFO [47]

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Yes. A large portion of it has been volume growth. They’ve been growing their book quite strongly. There is margin pressure in the industry, but it’s probably not manifesting itself as much as we originally thought it would. So it is becoming more competitive, but they’re performing well and growing well at the moment.

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Azib Khan, Morgans Financial Limited, Research Division – Senior Banks Analyst [48]

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Sure. And in terms of the AFG Business platform, so you’re now starting to get some decent momentum there as well. Is that business now breaking even?

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Ben Jenkins, Australian Finance Group Limited – CFO [49]

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Not quite. It’s getting closer. But it’s still a negative cash flow business at the moment.

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Azib Khan, Morgans Financial Limited, Research Division – Senior Banks Analyst [50]

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Do you expect it to be breakeven by the end of this financial year?

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Ben Jenkins, Australian Finance Group Limited – CFO [51]

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Not quite, but expect it to be breakeven into next year, though.

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Azib Khan, Morgans Financial Limited, Research Division – Senior Banks Analyst [52]

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Sure. On your resi lodgements, so obviously, we’re seeing some strong growth come through there. Can you talk to the quality of the lodgements and whether you expect the conversion rates to settlement to hold up?

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David Bailey, Australian Finance Group Limited – CEO [53]

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We’re not seeing anything at this point in time which makes us feel as if it’s different to what it was — what it’s been historically, Azib. So at this stage, we’re not getting any — normally — however, we spent 2 days with some of our largest broking groups, you’re not hearing chatter around conversion rates being full. So my expectation is that the standard conversion rate washing through will be maintained.

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Azib Khan, Morgans Financial Limited, Research Division – Senior Banks Analyst [54]

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Right. Just back on your cost line, are there any one-off costs in this period that you would call out, anything related to the proposed merger or responding to the ACCC or any one-off marketing campaigns?

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Ben Jenkins, Australian Finance Group Limited – CFO [55]

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The only one-off costs that would be in there would be some of the costs around the merger, which you would expect in a process such as this with ACCC reviews and main label documents and those sorts of things.

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Azib Khan, Morgans Financial Limited, Research Division – Senior Banks Analyst [56]

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Can you call out the magnitude of that, Ben?

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Ben Jenkins, Australian Finance Group Limited – CFO [57]

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No, that’s not something that we’ll disclose, sorry, Azib.

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Azib Khan, Morgans Financial Limited, Research Division – Senior Banks Analyst [58]

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Sure. One last question for me. This relates to the ACCC’s statement of issues that they released. So AFG obviously prides itself on its independence as a nonbank-owned aggregator. And presumably, your brokers are proud of this point as well. So from this perspective, is there justification to the ACCC’s prelim view that specialist nonbank-owned aggregators don’t really compete with bank-owned aggregators because they’re targeting a different cohort of brokers. I’d love to hear your thoughts on that. And would a counterargument to the ACCC’s point be that Connective isn’t exactly a nonbank-owned aggregator given partial ownership from Macquarie?

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David Bailey, Australian Finance Group Limited – CEO [59]

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Look, I think our position on that is that the market is extremely competitive. Someone just asked — I think you asked the question around payout ratio. The market is competitive, and brokers will move irrespective whether it’s bank-owned or not bank-owned, to be honest. We see that in our data. It’s just a fact of life. So bank-owned versus nonbank-owned probably isn’t that much of an issue. It’s actually what the proposition looks like and what it’s going to cost the broker.

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Azib Khan, Morgans Financial Limited, Research Division – Senior Banks Analyst [60]

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So are you saying, David, the fact that you’re independent doesn’t provide you with an edge in terms of attracting brokers?

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David Bailey, Australian Finance Group Limited – CEO [61]

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That’s correct.

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Operator [62]

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There are no further questions at this time. I would now like to hand the conference back to Dave. Please continue.

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David Bailey, Australian Finance Group Limited – CEO [63]

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Look, I’ll just try to wrap up now and say thank you very much for your time. Those — we’ll probably look to see you all in early March that we commence our shareholder discussion. So thank you very much for your time today.

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Operator [64]

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Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may all disconnect.