Chindata Group Holdings Ltd
NASDAQ:CD
Earnings Call Analysis
Q2-2023 Analysis
Chindata Group Holdings Ltd
As the company moves forward with its privatization process, it continues to focus on delivering solid operational results. The rigorous adherence to demanding schedules resulted in punctual deliveries, with the Southeast Asia market significantly contributing to demand during the quarter. A consistent level of capital expenditures (CapEx) was maintained, supporting ongoing projects and some initial investments in promising new ventures.
Financially, there was a notable year-over-year growth of 49.9% in Adjusted EBITDA to RMB 816.1 million. Margins remained robust with an Adjusted EBITDA margin of 52.5%. Quarter-over-quarter, utility costs stabilized, and operating cash flow showed improvement. Key ratios such as leverage and coverage remained within a healthy range. The return on invested capital (ROIC) saw an uptick to 19.3%, reflecting the efficient use of capital and increased asset utilization at 80%.
Technological advancements and innovative cooling solutions are expected to marginally improve the company's ROIC. The ongoing diversification of cooling solutions to accommodate various geographic conditions represents a strategic decision to meet the specialized needs of current and prospective clients. The management expressed confidence in their technology patents and their ability to support the demanding requirements of artificial intelligence and general computing (AIGC) applications.
Looking ahead, the company estimates an increase in CapEx for 2023, ranging from RMB 7 billion to RMB 9 billion, up from the previously projected RMB 5 billion to RMB 7 billion. This rise is attributed to the advancement of potential pipeline projects expected to enhance revenue and earnings before interest, taxes, depreciation, and amortization (EBITDA) in future years. A significant portion of this increase is driven by the company's overseas business initiatives, suggesting a strategic focus on global expansion.
AI-related demand constitutes approximately 5% of the company's current overall capacity. However, discussions with existing clients indicate that AI-related demand is expected to become a larger proportion of future orders. The company has also seen an increase in visits from newer AI clients, especially in overseas locations, and plans to stay the course with its colocation service strategy without venturing into computing power services at the moment.
For 2023, the company reiterated its revenue guidance, ranging between RMB 5.88 billion and RMB 6.08 billion, and adjusted EBITDA guidance between RMB 3.1 billion and RMB 3.22 billion. This forecast is consistent with the company's preliminary views and existing market and operational conditions, which are subject to change.
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Good morning and good evening, ladies and gentlemen. Thank you for joining, and welcome to Chindata Group Holdings Limited Second Quarter 2023 Earnings Conference Call. We will be hosting a question-and-answer session after management's prepared remarks. Please note that today's event is being recorded.
I'll now turn the call over to your first speaker today, Mr. Don Zhou from Investor Relations of Chindata Group. Please go ahead, Don.
Thank you, Amber. Hello, everyone, and welcome to Chindata Group's 2023 second quarter earnings conference call. This is Don from Investor Relations team of the company.
With us today are Mr. Nick Wang, our CFO; and Ms. Zoe Zhuang, our Senior Vice President, Finance. And during this call, Nick will take you through the quarterly review of our operational performance, and Zoe will present our financial results. Management team will be here to answer your questions afterwards.
Now, I will quickly go over the safe harbor. Some of the statements that we make today regarding our business, operations and financial performance may be considered forward-looking, and such statements involve a number of risks and uncertainties that could cause actual results to differ materially. For more information, please refer to the risk factors discussed in our filings with the SEC.
During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of non-GAAP to GAAP measures is included in our earnings press release which is distributed and available to the public through our Investor Relations website located at investor.chindatagroup.com.
We have also updated our quarterly presentation on the company's Investor Relations website, which you can refer to as supplementary material for today's call.
Without further ado, I'll now turn over the call to Nick. Nick, please go ahead.
Thank you, Don. Hello, everyone, and thanks for joining the call.
Concurrently with the ongoing progress of privatization of the company, the management and the entire team continued to work diligently on our business, delivering another strong quarterly performance in the second quarter of this year.
As a quick summary for our quarterly performance, we adhered to our demanding schedule and delivery was on time. Demand from our existing clients remained satisfied with demand in Southeast Asia market being a key driver during the second quarter. Ramp up was usual as always with overall and single project level utilization ratio in good shape. And we continued to build our partnership and invested in research and development to prepare ourselves for further AIGC era, and patiently waiting for any signals of recovery of the market.
To start with some key highlights for the second quarter, on Slide 4, two new projects were put under construction in the second quarter. Total capacity increased by 47 megawatts to 945 megawatts and total number of data centers was 35. Two hyperscale data centers were put into service in our Datong campuses in Shanxi and Johor campuses in Malaysia, bringing our total in-service capacity to 730 megawatts, an increase of 91 megawatts during the quarter.
Total client demand increased by 34 megawatts in the second quarter, bringing our total contracted and IOI capacity to 850 megawatts with total client commitment rate remaining at a healthy level of 90%. Ramp up was strong as we added 48 megawatts of utilized capacity in the quarter, bringing our total utilized capacity to 585 megawatts with a solid utilization rate of 80%.
Financials remain under healthy momentum and in high quality. Revenue in the second quarter was RMB1,553.8 million, representing 49.7% year-over-year growth. Adjusted EBITDA grew by 49.9% year-over-year to RMB816.1 million with adjusted EBITDA margin remained well above 50% and 52.5% in the second quarter. Net income grew by 9.8% year-over-year to RMB219.2 million, with a net margin of 14.1%. With the current business momentum, we reiterated our full year guidance range with revenue in the range of RMB5.88 billion to RMB6.08 billion, and adjusted EBITDA in the range of RMB3.1 billion to RMB3.22 billion.
Now, let's go into details and first take a closer look at project delivery and construction on Slides 7 to 9. We continue to work on the highly demanding schedules to ensure timely delivery, especially for our Malaysia business. In the second quarter, we put two projects into service with a total capacity of 91 megawatts. CN20, a 49 megawatts hyperscale project in our Datong campus, Shanxi Province was delivered as originally scheduled. The project supports the anchor clients and is currently 100% committed by the client. MY06 Phase 2 in Johor, Malaysia was also delivered as scheduled. The 42-megawatt project supports the anchor client as well and it was already running at 76% utilization ratio in the first quarter since operation.
Two new under-construction projects were added. Our flagship MY06 project saw further capacity expansion in the second quarter with the inclusion of MY06 Phase 4, a 12-megawatts new hyperscale project. It is scheduled for delivery starting from the first quarter of 2024 and it was 100% committed. CN23, the other new under-construction project is located in one of our Zhangjiakou campuses in Hebei. The 26-megawatts hyperscale project is intended for one of our key international clients and is scheduled for delivery starting from the first quarter of 2025. The project is currently 49% contracted. Furthermore, thanks to the healthy momentum of our clients in Southeast Asia market, our existing MY06 Phase 3 project was further expanded by 10 megawatts in the second quarter, now reaching 53 megawatts. The project is currently 100% committed.
With the above changes during the quarter, as you can see on Slide 9, we have brought our total capacity up by 47 megawatts, reaching 945 megawatts by the end of the second quarter, with 730 megawatts in service and 214 megawatts under construction. Of the under-construction capacity by quarter-end, we currently expect another 50 megawatts to be delivered in 2023, and our teams in China and overseas are working diligently to ensure our supply readiness.
Now, regarding demand on Slide 10. We continue to receive additional demand on existing and new projects with overseas business contributed meaningfully. We received a total amount of 34 megawatts new demand in the second quarter, among which 22 megawatts of additional demand were received from our anchor client following the expansion of the MY06 project, and another 12 megawatts new demand received from one of the key international clients on a business under-construction project in Zhangjiakou. Meanwhile, contracted capacity increased by 60 megawatts in the quarter, including 16 megawatts of IOI conversion from CE02, CN12 and CN23, supporting one of the key international clients, and 45 megawatt IOI conversion and newly contracted capacity on project MY06 Phase 3 for the anchor client.
In general, we are optimistic about opportunities in the Southeast Asia market. The additional demand that we received during the quarter, further strengthened our view and the company has been devoting dedicated internal resources to ensuring timely project delivery while securing necessary resource for future development in advance.
Regarding the market in China, we are patiently watching the evolvement of the market condition, waiting for further signals of recovery to emerge, while we continue to build our partner ecosystem to lay the foundation for future opportunities. We believe our healthy business and financial profile, as well as our continued effort in research and development will be the key fundamentals for the company to win more opportunities as the market gradually recover and to compete in AIGC era.
With the dynamics of demand in the quarter, the commitment status of our asset portfolio continues to look healthy. On Slide 12, for our existing 730 megawatts of in-service capacity, 95% was committed by clients in either contract or IOI by the end of the second quarter, the same proportion as in the previous quarter and in the same quarter of last year.
For our total capacity, on Slide 13, the commitment ratio was 90% at the end of the second quarter, compared with 91% in the previous quarter and 84% in the same quarter last year. The visibility of our business remains [better] (ph) as by the end of the second quarter, over 95% of our contracts were for 10 years term or longer, leading to a weighted average remaining term of the current contract capacity of 8.6 years, and we expect less than 4% of our existing contract capacity to expire by the end of 2027.
Now, coming to the customer move-in on Slide 14. Our ramp-up remains healthy and in line with our schedule with overseas project as the key driver. We added 48 megawatts of utilized capacity in the second quarter, bringing our total utilized capacity to 585 megawatts, compared with 401 megawatts in the same quarter last year. This represents 45.9% year-over-year growth. Quarterly move-in was contributed by projects in our Northern China campus, supporting the anchor client and the Chinese cloud client, as well by our overseas projects in India and Malaysia, supporting the anchor client and one of the key international clients.
MY06 Phase 2 is 76% utilized in the first quarter following its opening, indicating a strong overseas demand. These quarterly dynamics lead to a quarter-end utilization ratio of 80% compared with 78% in the same quarter last year. On a quarter-over-quarter basis, utilization ratio is 4% lower, mainly due to the inclusion of the 49 megawatts new in-service project that was just starting to ramp up.
Looking at the utilization ratio at a single project level, 16 out of the existing 27 in-service projects, or 59% of them, are over 90% utilized. Geographically, with the fast ramp-up of our Johor project, overseas business now contributed to 14% of total utilized capacity during and by the quarter-end.
On some other aspects of the business development on Slide 16, we released our 2022 ESG Report on July 24, 2023. We continue to run our business in energy efficient way with a total power consumption of 3.032 billion kilowatts hour in the year 2022. We managed to keep the annual PUE for our Chinese business at 1.21, remarkably lower than industry average. We reinforced our safe ESG strategy that was set forth in the year of 2021, while committing ourselves to the mission of efficiently converting electricity into high-quality computational power in the stable, eco-friendly and high-quality manner, thereby increasing operational stability and enhancing partner confidence and building a more sustainable brand. More information can be referred to in our ESG report.
On Slide 17. As a first mover in executing energy abundant lower-tier region layout strategy, our years of operation in Huailai County, Zhangjiakou City of Hebei Province is getting more recognition. Hebei Huailai -- Hebei Qinhuai, excuse me, a subsidiary of Chindata, has earned a place on a National List of Specialized and Innovative Little Giant enterprises. This accolade is bestowed upon companies that focus on niche markets, demonstrate strong innovation, maintain a significant market share, master core technologies, and attain remarkable levels of quality and efficiency. We are the first data center enterprise in Hebei to earn this esteemed recognition. Our four campuses layout in Huailai County is now well established, with our IT capacity surpassing 300 megawatts and a server deployment scale constituting 80% of the total in Huailai County. Furthermore, in this region, as we mentioned previously, we continue to build our partner ecosystem to lay the foundation for future opportunities.
On Slide 18, on July 28, we entered into a 10-year strategic cooperation agreement with Zhangjiakou Construction & Investment Group. This local SOE boosts a wealth of experience and capabilities in asset management, capital operation, resource development and industrial investments. Through the partnership, both parties would engage in deep cooperation in land and water resource development, energy development, data center collaboration and operation, and integrated products of source grid load storage, and further explore other collaborative opportunities in the big data industry chain. This partnership signifies the continued commitment of Chindata in Huailai, Zhangjiakou to further strengthen and optimize the local digital economy.
With that, I've concluded my part, and I'll turn to Zoe for the details of our financial performance. Zoe, please.
Thank you, Nick. Now, let me walk you through our quarterly financial performance.
Generally speaking, we have maintained a very healthy financial momentum in the second quarter of year 2023. Our revenue growth in the second quarter remained healthy, recording 49.7% year-over-year growth to reach RMB1,553.8 million, which is in line with the 45.9% year-over-year increase in utilized capacity. Overseas business contributed to 14% of the total utilized capacity in the second quarter, up from around 9% in the previous quarter.
Looking further down on Slide 25. Total cost of revenue in the second quarter increased by 51.3% to RMB911.2 million from RMB602.2 million in the same period of 2022, mainly driven by increase in its utility costs and depreciation and amortization expenses.
Total operating expenses in the second quarter of 2023 increased by 56.9% year-over-year to RMB197.6 million, primarily due to more marketing activities conducted by the company, higher professional service fee, increase in research and development personnel and the higher share-based compensation expenses.
Specifically, selling and marketing expenses in the second quarter of 2023 increased by 4.1% year-over-year to RMB16.1 million. General and administrative expenses in the second quarter of 2023 increased by 69.6% year-over-year to RMB154.5 million. Research and development expenses in the second quarter of 2023 increased by 39.3% year-over-year to RMB27 million. As a result of this, operating income in the second quarter of 2023 increased by 43.5% to RMB445 million, recorded an operating income margin of 28.6%.
Net income in the second quarter of 2023 increased by 9.8% year-over-year to RMB219.2 million with a net margin of 14.1%, compared with 19.2% in the same period of [2022] (ph) and 17.5% in the first quarter of this year. The year-over-year change in the net margin was mostly contributed by increase in interest expenses.
A breakdown of core costs and expense items on Slide 26. With the growth of our business, we continue to maintain our adjusted EBITDA margin at above 50% level. Maintenance and other costs were 7.5% of revenue in the second quarter compared with 6.6% in the previous quarter. Adjusted SG&A was 9.7% of revenue compared with 6.8% in the previous quarter. On a quarter-over-quarter basis, utility prices did not see material fluctuations across the regions in which we operate, leading to stable utility cost percentage point of revenue at 31.2% in the second quarter, similar to the previous quarter. On a year-over-year basis, utility cost of revenue rose by roughly 2 percentage points.
With this, on Slide 27. Adjusted EBITDA recorded a 49.9% year-over-year growth, or 0.3% quarter-over-quarter growth to reach RMB816.1 million and a margin of 52.5%. Adjusted net income increased by 6.7% year-over-year in the second quarter to RMB258.2 million at a margin of 16.6%. Details in the GAAP to non-GAAP reconciliation on EBITDA and net income would be available in our 6-K filing or the appendix in our IR PPT.
On Slide 28. Given the highly demanding delivery schedule, we continued to incur a similar level of CapEx during the quarter that recovered existing under-construction projects as well as some initial investments in potential pipeline projects with good certainty. CapEx in the second quarter was RMB1,254.6 million, compared with RMB1,653.9 million in the previous quarter.
On Slide 29. Our operating cash flow continued to recover and improve following the COVID-19 epidemic in 2022, and the completion of client system upgrade. Operating cash flow in the second quarter was RMB1,186.8 million, which is around 145% of our adjusted EBITDA compared with RMB693.3 million in the first quarter of 2023. Such improvement of operating cash flow is also in line with substantial lower value of our accounts receivables by quarter-end. Financing cash flow was RMB259.1 million in the second quarter with another RMB1,396.4 million investing cash flow.
We ended up with a higher total cash position of RMB5,915.3 million by quarter-end and a net debt position of RMB5,569.3 million. Our leverage and the coverage ratios remained reasonable and healthy range.
On Slide 30. Key leverage ratios do not see much fluctuation quarter-over-quarter, neither our key coverage ratios.
On Slide 31. Assets return continued to improve in the second quarter with the overall utilization ratio of our total in-service capacity at 80%. We are seeing the company's defined pre-tax ROIC further rise to 19.3%, compared with 18.7% in the previous quarter and 17% in the same quarter last year.
Finally, based on the company's current and preliminary views on the market and operational conditions, we reiterate 2023 revenue guidance in the range of RMB5,880 million to RMB6,080 million, and adjusted EBITDA guidance in the range of RMB3,100 million to RMB3,220 million. This reflects the company's preliminary views which are subject to change.
This concludes our prepared remarks for today. Operator, we're now ready to take questions.
Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from the line of Yang Liu from Morgan Stanley. Please go ahead, Yang.
[Foreign Language]
I will translate my question in English. My question is related with the patent on cooling technology supporting AIGC future demand. We notice that Chindata has a lot of patents in immersion liquid cooling and cold plate liquid cooling, et cetera. And I would like to ask what is your customers acceptance, especially, anchor customers and global cloud customers' acceptance of such kind of technology route in AIGC related computing cloud hosting? And a related question is, whether such kind of technology can increase the ROIC of the company? Thank you.
Hi. Thank you, Mr. Liu-Yang. I think the reason why we think that the -- from the -- our anchor client and the future customer are willing to accept our diversified cooling solution is simply because we are operating in such a diversified geography, especially if you compare our North China campus versus our Southeast Asia Johor campuses, the weather conditions, committed conditions and also temperature and temperature are completely different.
So you need to have a lot of tools -- toolboxes. So when the customer -- when different conditions or the demand from a technical perspective given the AIGC more requirements on the air flowing and also the cooling requirements, you need to be ready. So therefore, we are very confident with all this technology patents in-house. And most importantly, with our -- the talents pool in-house leading by our CTO, Mr. Zhang Binghua, we are very confident that all this on liquid cooling talents and technology and solutions and cold plate -- the cooling solutions will be well accepted by our customer, and actually, as a matter of fact, some of them already applied in the -- in our campuses in China as well as overseas.
In terms of our financial return, yes, there will be a marginal, I will say, ROIC improvement, especially if you look at full lifecycle of the -- of this solution application. There is going to require a little bit more investment, but there is going to a cost saving later, especially on energy saving part. So overall, I think our study shows that ROIC going to be improved marginally. Thank you.
All right. Thank you.
Thank you.
Thank you. Our next question comes from the line of Sara Wang from UBS. Please ask your question, Sara.
Thank you for the opportunity to ask a question.
[Foreign Language]
So according to the latest SEC filing, it seems that 2023 CapEx is estimated at $1.3 billion. So, just wondering what's the key driver of the CapEx for this year. Thank you.
Yeah. Thank you, Sara. I think you are referring to the documents or whatever filing we already filed with the SEC regarding the privatization issue, right? So that's where you see this $1.3 billion. I'd tell you that first of all, that's actually the -- part of the work prepared by Citigroup, who is the advisor to our special committee, who will review the whole process. So for any -- I'd recommend, for any evaluation and also the financial forecast as part of the valuation process methodology, you to better ask Citi. But from our side, we're only focusing on the business -- especially we're only focusing our business progress, delivery schedule and obviously, the future pipeline on a potential project, not only the project we disclosed to the marketplace.
So having said that we used -- in the previous conference call, we used to estimate our whole year CapEx number kind of be around the RMB5 billion to RMB7 billion. Now, I'd say that the number for the whole year of 2023 is going to be in the range of RMB7 billion to RMB9 billion from the latest internal estimate for the whole year 2023.
Now we already have -- the first year, you see the number, we already spend like RMB3 billion the cash outflow on CapEx-related stuff. So on the second half, there is going to be -- we're probably going to spend RMB4 billion or RMB6 billion further. I think -- we think that this potential upside or increased spending will be a good news for everybody. Why it's good news? Because this is driven by the progress of some incremental pipeline project, new project, which company is optimistic to obtain in the second half of this year. And these pipeline projects may bring better revenue and EBITDA for future years. Not necessarily this year 2023, but future year in 2024 and '25, beyond previous estimate.
In addition, and a large -- a significant portion of this incremental pipeline projects, again not the projects we have disclosed, these projects are actually driven by our overseas business. In other words, overseas projects will have a larger-than-expected shares and that basically means the increase of the unit CapEx accordingly. So obviously, the timing of the spending may vary around late 2023 or start of -- beginning of 2024. So part of the $1.3 billion you saw in those privatization documents and a very small part of it, may be a carryover 2024 to spend. But on an aggregated level, if you combine 2023 and 2024 CapEx together, it should stay the same. So -- yeah, that's -- I -- hopefully, I am answering questions. It's a good news, actually.
Yes, very clear. Thank you.
Thank you. Our next question comes from the line of Mingran Li from CICC. Please ask your question, Mingran.
[Foreign Language]
Let me translate myself. I want to ask about -- more color about AI-related demand like what percentage of new capacity using this year is AI-related. And besides our anchor customer, is there any new clients with new AI demand you are seeing recently? And also if there some domestic IC peers decided to buy their own GPUs to start computing infrastructure business? Do you have any plan or strategy about this? Or you just want to focus on our collocation service because demand is strong? Thank you.
Hi. Thank you, Mingran. Actually, the client doesn't tell us when they install the server into our IDC centers and how many of them is AI-related. So -- but we can guess, right? So based on the application and the utilization of the high-density cabinets and based on the server's type they put in our data center, we think that the AI portion -- the AI-related servers probably account for around 5% of our current overall capacity.
On an incremental basis, we are still under some serious discussion with them for incremental orders and projects, and I believe it's going to be a higher portion of the -- going to be AIGC-related, for sure. And also you probably heard the same as myself from the market street that -- from the street that simply, one of our anchor customers have their biggest reserve for inventory of the AIGC-related the GPU units or chips or servers in China, for both their China business and also their overseas business. So hopefully, that -- we can get a significant share out of it when they consider AI -- IDC partners for their future project. And also on top of the existing client, we do -- these days, we do accommodate a lot of visits from quite a number of other AI customers, small and medium sized these days, particularly to our overseas campus, and we believe the portion will be higher moving forward.
As regards to our future strategy, the computing power service, we will focus on collocation only -- collocation service only. That is our current plan. And I haven't heard anything further about the -- we're going to provide computing power business to our clients. Although we are doing -- as everybody knows, we're doing the best job of converting the electric power to computing power business, but we will not offer the computing powers for now and I believe in the near future as well.
Very clear. Thank you.
Thank you. [Operator Instructions] Next is a follow-up question from the line of Yang Liu from Morgan Stanley. Please ask your question, Yang.
[Foreign Language]
I will translate my question. We recently observed that the anchor customer [indiscernible] another data center player [indiscernible] is under approval in Singapore. Also that panel also initiated a new project in Johor as well. At the same time, Chindata also got sizable new booking or a new order from the anchor customer. So, we would like to ask about the competition dynamics in Southeast Asia market. Thank you.
Thank you, Liu. I think we've come back to the issue of whether we want us a smaller share of the bigger pie or bigger pie or the smaller -- bigger share of the smaller pie. The Southeast Asia market, hopefully, our goal is to get both, essentially. So, the Southeast Asia offers a better perspective market in terms of overall IDC demand than China over the course of next three years, that's our belief.
And we believe that the ways our confidence in the efficiency in terms of delivery and operation and the economy of scale, which we're kind of sooner or rather than later going to turn it into a huge cost advantage, as well as our -- the credit -- the track record we demonstrate to our clients in China and in our Johor project, we will get a bigger pie than everybody anticipated in the future.
But the other reality we have to face is actually from day one when we had a conversation about our chance in the Southeast Asia market, I've said and keep say -- I have been keep saying that it's open field competition. So you need to show all your hands, all what you have in your pocket in terms of our cooling solutions, your supply chain -- entire supply chain solution from China all the way to Southeast Asia market, your talent pool, and your capital power -- your power nodes, all of these. You've got to actually show much more than you have been doing in China through a client in order to win bigger shares out of this bigger pie.
[Foreign Language]
And there is a follow-up question is that do you have any sense on what is the wallet share for the Chindata in this anchor customer's demand in Southeast Asia market?
We're striving to get over 50% of the overall shares. And we believe with all the solutions we put on the table and all the good performance we put on the table, we have a fairly good chance to get it. And our overall objective of the overseas business as a share of our overall portfolio going to be around 30% probably by the end of 2025.
Thank you.
Thank you. [Operator Instructions] I'm showing no further questions. Thank you very much for all your questions. I'll now turn the conference back to the company for any closing comments.
Thank you. I think everybody has been focusing on Chindata, which we highly appreciate it. And also, we highly appreciate all the investors and analysts. Thanks for your support for the company in the past two or three years since we become -- since the IPO. Well, there is a privatization process of the company that's going on. We can assure you that the management and our entire team will continue to work very hard on delivering our business, sticking to our original mission of converting -- efficiently converting electric power to computing power, and again striving to become the best IDC leader in the pan Asia-Pacific regions. Thank you.
Ladies and gentlemen, we conclude our conference for today. Thank you for participating. You may now disconnect your lines.