7/24/2020

speaker
Lauren
Operator

Ladies and gentlemen, and welcome to Honeywell's second quarter earnings conference call. At this time, all participants have been placed in a listen-only mode, and the floor will be opened for your questions following the presentation. If you would like to ask a question at that time, please press star 1 on your touchstone phone. If at any point your question has been answered, you may remove yourself from the queue by pressing star 2. Lastly, if you should require operator assistance, please press star 0. As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Mark Benza, Vice President of Investor Relations.

speaker
Mark Benza
Vice President of Investor Relations

Thank you, Lauren. Good morning, and welcome to Honeywell's second quarter 2020 earnings conference call. On the call with me today are Chairman and CEO Darius Adamczyk and Senior Vice President and Chief Financial Officer Greg Lewis. This call in webcast including any non-GAAP reconciliations, are available on our website at www.honeywell.com forward slash investor. Note that elements of this presentation contain forward-looking statements that are based on our best view of the world and of our businesses as we see them today. Those elements can change based on many factors, including changing economic and business conditions, and we ask that you interpret them in that light. Unless otherwise noted, The cost action plans described herein are not final and may be modified or even abandoned at any time. No final decision will be taken with respect to such plans without prior satisfaction of any applicable requirements with respect to informing, consulting, or negotiating with employees or their representatives. We identify the principal risks and uncertainties that may affect our performance in our annual report on Form 10-K and other SEC filings. This morning, we will review our financial results for the second quarter of 2020 and share our views on the third quarter of 2020. As always, we'll leave time for your questions at the end. With that, I'll turn the call over to Chairman and CEO, Dariusz Adamczyk.

speaker
Darius Adamczyk
Chairman and CEO

Thank you, Mark, and good morning, everyone. Let's begin on slide two. The second quarter was one of the most challenging quarters Honeywell has ever faced. The widespread repercussions of the COVID-19 pandemic and oil price volatility impacted many of our businesses and in markets. There are a number of factors beyond our control in the current environment. We are laser-focused on the drivers of value that we can control. In the second quarter, we made numerous investments in newly emerging growth opportunities. We aggressively managed costs to protect margins, and we generated very strong cash flows. We delivered adjusted EPS of $1.26 in the quarter on sales that were down 18% organically, consistent with the greater than 15% organic sales decline we signaled in May. Our Phase I cost plans delivered approximately $500 million of year-on-year benefit in the second quarter, and we completed planning for a Phase II plan. These actions helped us protect margins, limiting our decremental margins in the quarter to only 33%. In fact, we were actually able to expand segment margin in two of our four segments. Despite the challenging macroeconomic conditions, we generated $1.3 billion of free cash flow driven by cost actions and customer collections, resulting in adjusted free cash flow conversion of 140%. We prudently deployed approximately $900 million of cash, primarily to dividends and CapEx investments. We committed approximately $250 million of incremental growth capital expenditures compared to our previous allocated budget for new projects to accelerate investments in safety products, integrated and other growth opportunities. These are high return investments expected to generate triple-digit IRRs. Let's turn to slide three to discuss the work we've done to pivot our business given the current environment and emerging customer needs. I am proud of the quick mobilization by employees throughout the company to rapidly innovate and provide solutions for both urgent and long-term customer needs. To address the urgent need for PPE, we are significantly growing our personal protective equipment business. We've expanded face mask productions, and specifically our N95 and equivalent mask production in Arizona, Rhode Island, the United Kingdom, India, the UAE, and China. In the UK, we created a new manufacturing line capable of producing a significant amount of masks at our new house site in Scotland, which will assist the UK government's response to the COVID-19 pandemic and as well as serve the European region. In addition to our expansion of United States, India, and China capacity, we have added capacity in the UAE. We're a partner of Strata Manufacturing, a subsidiary of Abu Dhabi State Fund Mubabala Investment Company, to produce N95 masks. Beyond masks and other PP&E, we are innovating to provide creative solutions for new areas of customer demand. We recently announced our partnership with SAP to create a joint cloud-based solution to improve building performance based on Honeywell Forge and the SAP Cloud Platform. Building owners often need to pull data from disparate sources that are not normalized, making it extremely difficult to determine the true efficiency and utilization of their portfolios. The Honeywell Forge and SAP Cloud for Real Estate solution will streamline and combine operational and business data, enabling customers to benefit from building performance optimization, including reduced carbon footprint and lower energy costs, as well as improved tenant experience. This will be especially useful as buildings come back online in the midst of the COVID-19 pandemic and economic crisis. as building owners are expected to focus on key performance indicators tied to enhanced occupant safety and reduced operating costs. We have also launched an integrated set of healthy building solutions to help building owners improve the health of their building environments, operate more cleanly and safely, comply with social distancing policies, and help reassure occupants that it is safe to return to the workplace. We are partnering with pharmaceutical and biotech customers in our Aclar Healthcare Packaging business to develop innovative packaging solutions for future COVID-19 therapies and vaccines. We have launched new bottles and vials called Aclar Edge that enable ultra-high moisture barrier without the limitations of glass. We have also launched a Honeywell Thermal Rebellion temperature monitoring solution which can be rapidly deployed at the entry of a factory, airport, distribution center, stadium, or other commercial buildings to quickly and efficiently identify whether personnel exhibit an elevated temperature using advanced infrared imaging technology and artificial intelligence algorithms. In aerospace, we are helping to provide a safer and healthier travel experience with an ultraviolet cabin cleaning system. The Honeywell UV cabin system can treat an aircraft cabin in less than 10 minutes for just a few dollars per flight for midsize to large airline fleets, significantly reducing certain viruses and bacteria on cabin surfaces. I am very proud of the part we are playing to keep people safe and healthy by providing new solutions for urgent customer needs. We remain committed to continuing Honeywell's long legacy of innovation. We will continue to invest in our future in good times and bad. We also recently formed new business units dedicated to advancing our position in growing industries for sustainable energy and unmanned aerial systems. Our new sustainable technology solutions business in PMT will develop and commercialize new technologies that will help meet the growing demand for solutions that accelerate the path to a low-carbon economy. This includes growth opportunities in the plastic circular economy, energy storage, gas decarbonization, and renewable fuels. In aerospace, our new unmanned aerial systems business has continued to introduce new, innovative products for this exciting market and recently conducted in-flight testing of sensors that will guide urban air mobility vehicles to land without pilot intervention. These are challenging times for all, and we are rapidly addressing our end market and customer needs through innovation and mobilization of resources across the organization. Finally, I'd like to make a few comments about our commitment to diversity, inclusion, and equality. Let me be clear. We will never tolerate racism at Honeywell. Fully embracing the principles of diversity, inclusion, and equality in treating all employees with the utmost respect are requirements for working here. In addition, we are committed to the following actions. We'll continue to evolve our community relations programs and partnerships with key external organizations to promote diversity, equality, and opportunity for all. We will intensify our focus on the recruiting, retention, and development of women veterans, and minority groups. And we will continue to rigorously enforce our code of business conduct, which makes it explicit that there is zero tolerance specifically for racial discrimination. We recognize that these steps are a starting point, not an end, and we are committed to continuing to make progress. Now let me turn it over to Greg on slide four to discuss our second quarter results in more detail as well as to provide our views on the third quarter.

speaker
Greg Lewis
Senior Vice President and Chief Financial Officer

Thank you, Darius, and good morning, everyone. As we highlighted in our May call, the second quarter presented significant challenges. However, we effectively managed with the strong operational execution that our stakeholders have come to expect of us. For the second quarter, sales declined by 18% organically as the effects of the pandemic spread across the globe. Substantially lower sales volumes in our most challenged end markets in aerospace and PMT, drove 280 basis points of segment margin contraction, while we delivered strong sales and orders growth in both our warehouse automation and PPE businesses. Our phase one cost actions delivered approximately $500 million of year-on-year benefit in the quarter, which brought us to approximately $700 million of savings in the first half. We will discuss that later on in the presentation. We delivered adjusted earnings per share of $1.26, down 40% year over year, as we funded over $250 million of repositioning in the quarter to drive cost savings in 2020 and into 2021. As we previewed in May, repositioning was significantly higher than the second quarter of last year, driving a 19-cent headwind below the line. A higher adjusted effective tax rate resulted in a 6-cent EPS headwind compared to last year, partially offset by 4 cents of EPS benefit due to lower share count. This quarter, EPS is adjusted to exclude the favorable resolution of a foreign tax matter related to our spinoff transactions in 2018. So on a gap basis, our second quarter earnings per share is $1.53. You will find a bridge of our EPS in the appendix of this presentation. We generated $1.3 billion of free cash flow driven by strong customer collections, despite a difficult operating environment, and our adjusted free cash flow conversion was 140%, up 40 points year over year. In terms of capital deployment, we paid out $650 million in dividends. We also invested over $225 million in capital expenditures in the quarter, up $56 million from the prior year. Our CapEx in the second quarter included the first tranches of investments that we are making to produce N95 masks to support the coronavirus relief efforts. Overall, this was a very challenging quarter, but we continued to execute, managing costs and our cash flow with the discipline and rigor you can expect from Honeywell. Now let's turn to slide five, and we can discuss our segment results. Starting with aerospace, sales were down 27% on an organic basis as the steep reduction in flight hours lowered commercial aftermarket demand and a slowdown in original equipment build rates in addition to the 737 max impact in air transport impacted commercial OE more broadly. Our air transport aftermarket business was down 56% organically, and our business aviation aftermarket business was down 50% organically in the quarter. The declines in commercial aerospace were partially offset by continued demand for U.S. government programs, including the F-35, F-15, and the Orion space program, driving 7% organic growth in the defense and space business. For the quarter, the defense and space backlog finished up double digits, giving us confidence we'll continue to deliver growth in that business throughout the second half of the year. Aerospace segment margins contracted 510 basis points driven by lower commercial sales volume and business mix, partially offset by cost actions to improve productivity. In Honeywell building technology, sales were down 17% organically, primarily driven by deferrals of product purchases and security, building management systems and fire, and softness in building solutions, due to delays in the projects and energy businesses, some of which is a result of site access constraints due to shutdowns, particularly in India and the Middle East. Organic sales improved sequentially as the quarter progressed for the short cycle of products businesses. HPT's segment margin expanded 50 basis points in the second quarter, driven by commercial excellence and cost actions to improve productivity, which offset the impact of lower sales volumes. In performance materials and technologies, sales were down 17% on an organic basis. Process solutions sales were down 13% organically, driven by volume declines in products, including thermal solutions, smart energy, and field instruments. In UOP, sales were down 25% organically, driven by declines in gas processing, lower licensing, and lower catalyst shipments due to weakness in the oil and gas end markets. As expected, we saw new orders decline significantly in the second quarter as COVID-19 and the oil price volatility led to lower bookings in HPS and UOP. However, we have not seen a significant project cancellation to date. Organic sales and advanced materials were down 18% driven by lower automotive refrigerant volumes due to automotive plant closures, offsetting double-digit growth in packaging composites and electronic materials. Florian product sales into the automotive end market improved sequentially by month throughout the quarter as automotive plants began to reopen. PMT segment margins contracted 460 basis points in the second quarter, driven by the impact of lower sales volumes, partially offset by cost actions to improve productivity. Finally, in safety and productivity solutions, sales were up 1% organically, driven by more than 20% growth in Intelligrated, and over 100% growth in the respiratory personal protective equipment space, partially offset by weakness in sensing and IoT, portable gas sensing, and productivity products. Orders in SPS were up approximately 90% in the second quarter, led by record high bookings of $1.2 billion in IntelliGrated, up 300% year over year, and over $650 million of bookings in personal protective equipment. positioning SPS well for the second half of the year and into 2021. SPS segment margin expanded 150 basis points in the quarter, driven by productivity, including cost actions, net of inflation, and commercial excellence. So overall, we finished a challenging quarter with significant top-line impact from the COVID-19 pandemic. However, we grew in several businesses, including Defense, Intelligrated, and PP&E, and due to prudent cost management and commercial excellence, we were able to limit decremental margins to 33% overall and expand margins in HPT and SPS. Now let's turn to slide six to discuss our cost management actions in more detail. We previously announced our phase one cost reduction efforts, which we rapidly started implementing in the first quarter. This included curtailment of discretionary expenses, cancellation of 2020 merit increases across the enterprise, reduced executive and board pay, reduced work schedules, and a first phase of targeted permanent census reductions. During the quarter, we completed preparation of a second phase of cost actions to expand permanent census reductions, which we also began executing in June. The result is that we reduced fixed costs by approximately $700 million year over year in the first half, which is pushing us toward the high end of our original phase one target range of $1.1 to $1.3 billion. The Phase 2 actions should deliver approximately $200 million of 2020 benefit. So the combination of Phase 1 and Phase 2 is expected to reduce costs by $1.4 to $1.6 billion in 2020. Our aggressive deployment of repositioning funds, $250 million in the quarter and $325 million in the first half, is serving us well. I do expect our fixed costs to be pressured sequentially in the third quarter as the permanent reductions begin to replace the benefits of the more temporary actions. Now let's turn to slide seven and discuss our balance sheet and liquidity. We exited the first quarter in an incredibly strong position on the balance sheet, and we took additional actions during the quarter to further bolster our financial flexibility. In the second quarter, we issued $3 billion in long-term debt instruments with maturities in 2025, 2030, and 2050, replacing a portion of the term loan financing, which we reduced commensurately from $6 billion to $3 billion. So as to access, we fully drew down on the remaining term loans so as to access the liquidity of $6 billion that we had highlighted previously. As a result, we ended the quarter with $15.1 billion of cash and short-term investments on the balance sheet and a net debt to EBITDA ratio below one. The $15 billion of cash in short-term investments compares to only $3.5 billion of commercial paper and $800 million of long-term debt coming due within the next year. As you'll recall, we substantially completed our 2020 share repurchase commitment in the first quarter, and we were focused on liquidity preservation in the second quarter. We deployed $650 million to dividends and approximately $225 million to CapEx in the quarter. While being prudent on CapEx overall, We will continue to fund growth investments in the second half, and we expect full-year CapEx to be approximately $900 million, including the additional growth capital Darius mentioned earlier. We are committed to holding share count approximately flat to the second quarter for the remainder of the year at a minimum. We are open to deploying capital to share repurchases and M&A investments in the second half of the year if attractive opportunities become available. On the topic of M&A, we are pleased to welcome Emily McNeil to Honeywell this quarter as our new Senior Vice President, Corporate Development, and Global Head of M&A, who will be responsible for maintaining and building our robust pipeline of acquisition opportunities that are strategically well-positioned to accelerate Honeywell's growth. We are very excited to have Emily on board. Now let's turn to slide eight to discuss our segment outlook for the quarter. The next few quarters will continue to be unpredictable, and our visibility has limits under the current circumstances. Accordingly, we are continuing the suspension of full-year guidance until the economic environment stabilizes and we can once again give reliable and comprehensive forecasts. We believe it's important that we provide a level of precision that is commensurate with our ability to forecast in the current environment, and therefore we will provide the same set of inputs that we provided in May. We are closely watching several key drivers of uncertainty in the third quarter. First and foremost, the severity of increasing COVID infections and the potential for additional lockdowns is still very fluid and could have significant impacts on the macroeconomic environment. The support provided by the fiscal stimulus programs deployed in the second quarter by governments globally will diminish in the third quarter and additional stimulus is uncertain, particularly in the U.S. which complicates the visibility to true economic stability. The geopolitical environment and trade stability also continues to be a wild card. From an end market perspective, the dynamics in the air travel industry, including flight hours, retirements, and used serviceable materials, as well as oil price volatility and CAPEX and OPEX budgets, which affect our PMT business, are not stable yet at this point. With that said, the impact on customer solvency and aging receivables remains a question mark as well, and a potential future risk that we're monitoring. Together, these drivers are difficult to predict and set the stage for challenging quarters ahead. So, as best we see it, starting with aerospace, we expect global flight hours to remain far below pre-COVID-19 levels, which will significantly impact our commercial aftermarket business. We do expect air transport flight hours to begin recovering from second quarter lows, Those sequential improvements in commercial aftermarket sales due to flight hour improvements may be offset by the impact of used serviceable materials and rotation of fleets. Our commercial original equipment business will continue to be impacted by lower air transport OEM build rates and lower business jet demand due to the economic slowdown. We are anticipating that government defense budgets will remain intact and we expect continued growth in defense and space. In combination, We expect aerospace sales, once again, to be down more than 25% compared to the third quarter of 2019. Moving on to PMT, a combination of volatility in oil prices coupled with the uncertainty stemming from the global pandemic has continued to put pressure on our businesses linked to oil and gas. We have seen a continued reduction in customer CapEx and OpEx budgets, as well as project delays and site access constraints, which are impacting the engineering and licensing business in UOP and orders in projects and automation solutions in HPS. We also expect ongoing headwinds for our products, businesses, and process solutions, causing decline in field devices and thermal solutions. As we've previously discussed, we entered 2020 with a healthy backlog of global megaprojects in HPS, which was still up over 80% year over year for the second quarter. And we expect these projects to continue to convert for the next few quarters. Access to customer sites will likely remain inconsistent, especially in high-growth regions, including India and Middle East. In UOP, we expect continued weakness in gas processing and lower catalyst shipments due to lower production and refining volumes. Additionally, we anticipate new projects will continue to push to the right and progress on current contracts may be delayed, resulting in continued pressure on UOP licensing and engineering. Within advanced materials, we expect that automotive refrigerant volumes will continue to recover as auto OEM plants increase production and capacity levels. In specialty products, we expect strong demand for healthcare packaging and electronic materials. Altogether, we expect PMT sales to be down more than 10% compared to the third quarter of 2019, driven principally by the volatility in the oil and gas markets. In HPT, while we do expect access to customer sites to improve in some regions in the third quarter, the current environment of non-residential projects in multiple verticals have paused, and customers are deferring non-essential spending, impacting the timing of long cycle building solutions projects, and delaying purchases of security, building management, and fire products. We expect these dynamics to continue in the third quarter, but to improve sequentially. In addition, Darius mentioned our new healthy building solution and our partnership with SAP for Buildings, which we see as emerging growth opportunities. We expect HPT sales to be down more than 10% compared to the third quarter of 2019. And finally, in SPS, the surge in e-commerce as governments enact social distancing requirements has strengthened demand for our warehouse automation business and supports continued conversion of our robust and telegraded backlogs. Our Intelligrated orders were up over 300% in the quarter to $1.2 billion, driven by major systems bookings. And Intelligrated's backlog remains very strong, up 140% year-over-year to $2.1 billion. So we expect this business to perform well the remainder of the year. We are also continuing to see record-level demand for respiratory masks and other personal protective equipment. PPE orders were up triple digits for the second consecutive quarter, with strength in the respiratory, head, eye, face, gloves, and clothing categories. Our personal protective equipment backlog is now also up triple digits, and our total SPS backlog is at an all-time high. The macro conditions continue to put pressure on other SPS businesses, including sensing and IoT, gas sensing, and productivity products, where we expect to see declines in the third quarter. We expect sales in SPS to grow single digits compared to the third quarter of 2019, less than 7% overall, a very good result. So while there are signs of stabilization in the macro economy, key end markets remain challenged and economic conditions fluid. We have both opportunities and challenges in the portfolio, but on balance, we expect sales for the company to be down, again, more than 15% versus the prior year. We expect between $125 and $175 million of additional repositioning charges in the third quarter to fund our cost programs. This increase in repositioning in the second and third quarters will drive higher repositioning cash outflows in the second half of the year, putting pressure on our free cash flow. Additional details for our tax rate, share count, and below the line expenses are included in the appendix. With that, I'd like to turn the call back to Darius.

speaker
Darius Adamczyk
Chairman and CEO

Thank you, Greg. Let's wrap up on slide nine. As we expected, this quarter proved to be very difficult, but we effectively managed through the challenges of strong operational execution and cash generation. We remain cautious heading into the second half of the year as there are still many unknowns. However, our diversified portfolio and significant balance sheet strength will continue to provide resilience in these uncertain times. We acted quickly and responsibly to make structural changes to our cost base during the quarter. We funded over $250 million in repositioning, and we identified significant additional actions to align our cost base with the current environment in 2020 and 2021. Despite the challenging times, we are delivering growth in several parts of the portfolio. particularly in defense, integrated, and personal protective equipment. We're also investing in growth opportunities and working hard to provide innovative solutions for emerging customer needs. I am proud of everyone at Honeywell who is working hard to adapt and deliver this challenging environment. I'm confident we will emerge from this crisis even stronger than ever. With that, Mark, let's move to Q&A.

speaker
Mark Benza
Vice President of Investor Relations

Thank you, Darius. Darius and Greg are now available to answer your questions. Lauren, please open the line for Q&A.

speaker
Lauren
Operator

Thank you. The floor is now open for questions. At this time, if you have a question or comment, please press star 1 on your touchtone phone. If at any point your question has been answered, you may remove yourself from the queue by pressing star 2. We ask that when you pose your question, please pick up your handset. Thank you. And our first question is coming from Jeff Sprague with Vertical Research.

speaker
Jeff Sprague
Vertical Research

Thank you. Good morning, everyone. Morning, Jeff. Morning. Two from me, if I could. Very clear on the cost out, what you expect to deliver in 2020. Darius or Greg, though, given that some of this stuff is kind of in flight over the course of the year here, I just wonder if you could give us a little bit of feel of kind of what the carryover positive effects are. of this phase one and phase two would be as we look into next year?

speaker
Darius Adamczyk
Chairman and CEO

Yeah, well, I think, you know, we sort of provide some guidance on that in the, you know, 60% to 70%, because I think you have really three buckets of costs that we think about, right, which is purely temporarily and think about those as, you know, furloughs, which obviously are going to come back. The second bucket is what I call semi-permanent. You know, those are some of our indirect cost base, which obviously are impacted, which they're not permanent in nature, but we think some of those are going to carry over into 2021. And then obviously permanent reductions. You know, so the 60 to 70 is a pretty good guide around that includes primarily the permanent reductions and then some portion of the semi-permanent because, you know, obviously on the indirect costs, We're not going to be as low as we were in 2020, but we're also not going to get back to 2019 levels. So we kind of have, you know, think about a 50-50 or something in that kind of a split that we approximate. That's sort of the rough guide how to think about that. I don't know, Greg, if you want.

speaker
Greg Lewis
Senior Vice President and Chief Financial Officer

No, that's right. And again, at the midpoint of our 1.4 to 1.6, you can kind of use the 1.5 number, you know, extrapolate that 60 to 70 percent from there.

speaker
Darius Adamczyk
Chairman and CEO

I mean, I think the only, Jeff, the only unknown is, you know, sort of timing, because the permanent ones, the timing isn't perfectly predictable. And, you know, some of it may move sooner, some of it may move later. So I think timing element is, you know, I would say somewhat unpredictable, but not sliding more than, you know, let's say a quarter.

speaker
Greg Lewis
Senior Vice President and Chief Financial Officer

And that'll become much, much clearer, you know, 90 days from now as we get through the third quarter.

speaker
Jeff Sprague
Vertical Research

And second question, just, again, trying to get a sense of what the future holds, and I totally respect you don't want to kind of give really explicit guidance yet, but the framework here certainly helps. You gave us SPS orders. Could you give us orders for the other three segments in the quarter so we have kind of a feel for what you're working with here as you look forward?

speaker
Darius Adamczyk
Chairman and CEO

Yeah. I mean, you know, if you think about HBT and PMT, they were down in the teens, is the way to think about it. You know, obviously in Arrow, they were down, you know, mid-double digits. I mean, they were significantly down. But I think there's, so that's sort of a, hopefully it gives you some color, but I think there's a couple of really important things to remember. Our total Honeywell backlog actually is up 3%, and even the PMT backlog is up 2%. So, You know, obviously, you know, orders actually kind of came in more or less where we expected them to do. But overall, the backlog position improved, which I think was a pretty good sign. So all in all, not as bad as we anticipated. Great. Thanks. I'll pass it. Thanks, Jeff.

speaker
Lauren
Operator

Our next question comes from Steve Tusa with J.P. Morgan.

speaker
Steve Tusa
J.P. Morgan

Hey, guys. Good morning.

speaker
Greg Lewis
Senior Vice President and Chief Financial Officer

Good morning, Steve.

speaker
Steve Tusa
J.P. Morgan

Good morning. Just on aerospace, when you look out to the kind of third quarter, just profile-wise, what do you expect between, you know, OE and aftermarket? You know, will one be picking up a little bit, the other decelerating? I mean, what is the, just on a year-over-year basis, how do we think about kind of moving parts for those two guys on the commercial side?

speaker
Darius Adamczyk
Chairman and CEO

Yeah. Yeah, maybe I'll start. I mean, just to give you a little bit of a, so let's kind of divide it up into the three segments. So it starts with defense and space. You know, we expect that to grow again. So that's, you know, that's been the strength for our business in aerospace in Q2. We expect that to continue in Q3. You know, when you think about OE, we actually expect it to be flat to down versus Q2 for a couple of reasons. Number one, Obviously, we had some carryover impact from Q1 in terms of shipments. Number two is in some segments and some of our OEs that we don't see the robust production rates exhibited in Q3, so we don't see that improving. In terms of business aviation aftermarket, we expect that to be slightly better than it was in Q2. And then finally, in ATR, that one is the toughest to call. And I'll tell you why, because you can't just look at flight hours. So all the flight hours will be better. And, you know, if you think about a low to mid-70s reduction year over year in Q2, you know, we kind of estimated Q3 to be something in the, call it 50s or something of that nature, which actually may be a little bit aggressive. But the thing to think about here is that because there's a lead and a lag impact. And the second component, which is somewhat unknown, although we haven't seen it, is there are going to be cannibalizations from the parked aircraft. So that one for us is really tough to call, and we're going to have to just kind of see how the quarter evolves. And that's why it's hard for us to give precise guidance, because these things are unknowns. We had airlines adding more flights in July and August. Now we're They're pulled back their schedules a bit in August. So there's a lot of moving pieces here. And I think the ATR aftermarket component is the toughest one to call.

speaker
Steve Tusa
J.P. Morgan

And sorry, when you talk about kind of that USM, the used parts dynamic component, You know, your business is electronics. There's some software. Obviously, you have some mechanical components. But, I mean, outside of putting business jets aside and just looking at the large commercial stuff, I mean, how much of your business is even kind of exposed to that? It wouldn't seem to me to be a material mover necessarily. you know, maybe by a few hundred basis points, but not something that, you know, can really swing things around in a major way, correct?

speaker
Darius Adamczyk
Chairman and CEO

No, it's not. No, I don't think it's going to be dramatic, but I think it would be wrong to just say, well, you know, to tie the aftermarket performance purely to the quarter-over-quarter, you know, flight hours, because we do think, obviously, flight hours are going to be better in Q3 versus Q2. But I don't think it's necessarily just a pure correlation. We think it's going to be a modest, very modest impact. And keep in mind that we also had some orders back all the way from Q1 that we still filled in Q2, so we had a little bit of a lead-lag impact. So, you know, I don't make something dramatic because, you know, the natural assumption would be, okay, well, it's going to be a lot better in Q3. The fact is we're really not sure because we need to kind of see how things evolve and some of the factors I talked about.

speaker
Greg Lewis
Senior Vice President and Chief Financial Officer

Yeah, I don't think airlines' behaviors are necessarily solidified yet.

speaker
Steve Tusa
J.P. Morgan

Yeah. One last one, just getting at the cost discussion in a bit of a different way. You know, probably in the worst quarter, hopefully, that you ever see as CEO, you know, you guys are putting up a headline, decremental, of 33%. would the goal be to kind of on the way up leverage at, you know, when things normalize, kind of leverage at, you know, a number that's, you know, comfortably above that? Would that kind of be the high-level goal?

speaker
Darius Adamczyk
Chairman and CEO

Yeah, I mean, I think, look, I mean, 33% given the sudden kind of stop in our business, I actually view is pretty good given that we have, you know, aerospace exposure and oil and gas exposure. So I think that that's going to be respectable performance.

speaker
Greg Lewis
Senior Vice President and Chief Financial Officer

Which, by the way, was substantially different than 08 and 09. The aftermarket drop here is multiples of what it was in the 08-09 recession, which really puts a lot of pressure on those mechanisms.

speaker
Darius Adamczyk
Chairman and CEO

But our plan here, though, is to show improvement from this number going forward. I don't think it's going to be dramatically better in Q3. But we do expect modest improvement in that 33. So that's sort of how we're thinking about it.

speaker
Steve Tusa
J.P. Morgan

Right. Okay, thanks a lot.

speaker
Darius Adamczyk
Chairman and CEO

Thank you.

speaker
Lauren
Operator

Our next question comes from Scott Davis with Milius Research.

speaker
Scott Davis
Milius Research

Hey, good morning, guys.

speaker
Darius Adamczyk
Chairman and CEO

Hey, Scott. Good morning, Scott.

speaker
Scott Davis
Milius Research

You guys, there was a lot of fanfare around this SAP Cloud Forge thing. And if you can... back up a little bit. I mean, can you, can you help us size it a little bit or think about what, you know, how do you get paid for it? What's the opportunity is, is, uh, you know, maybe some early signs around take rate, just, just some color about really what the upside is in that, in that, uh, yeah.

speaker
Darius Adamczyk
Chairman and CEO

Yeah. I think, I think it's, you know, really, really exciting because, you know, I think, um, Honeywell and SAP have what I call complimentary growth strategies. Um, So this alliance, we started out in buildings, but I think we have much broader opportunities. And just to give you a perspective, clearly the connected buildings part was really a highlight of our Q2 in terms of our connected enterprise. And just to give you the level of growth, we saw 26% growth in that segment in Q2. So in this environment and given I think that's tremendous. Obviously, we're on to something. In terms of some of the growth drivers, I mean, obviously, it's energy savings. It's security. It's a coherent interface so that building owners or maintainers can understand what's going on. It's building occupancy optimization. You know, now with the launch of healthy buildings, it's also, you know, social distancing. It's wearing PPE, temperature monitoring. clean air quality, all these elements are part of that connected buildings offering, which we're now augmenting even more with a broader focus on kind of creating a healthy environment for the office worker. And maybe one last thing I'd want to add on to Scott is that we're also, in our HBT business, we're also reorganizing you know, to be much more end market vertical oriented. So for example, we're gonna go to the market as set of solutions for healthcare or hospitals, for stadiums, for airports, for office buildings, for data centers. So that's an evolution in our HBT strategy. And I think it's gonna be that much more effective because we're gonna be that much closer and much more intimate with those customers and their needs.

speaker
Scott Davis
Milius Research

Makes sense. I'll follow up with you on the sizing. It doesn't sound like you want to answer that part of the question.

speaker
Darius Adamczyk
Chairman and CEO

Yeah, well, I think I'm not ducking the question, you know, because, frankly, we're creating the market. Whenever you create a market, you know, it's hard to guess at the sizing. But, you know, just our own – you know, our own installed base is vast. You know, we think that over time, this could be a billion dollar business. Just think that's sort of our scope. And we don't think that that's like decades away. So, you know, we have big hopes and double digits growth rates are in expectations. And, you know, the good news about that is, you know, even in an environment like we had in Q2, which was an all-time worst for Honeywell, I mean, literally it was probably the worst quarter hopefully I'll ever see. You know, 26% growth gives you the kind of traction we're gaining in this segment.

speaker
Scott Davis
Milius Research

Now you answered the question. So just a quick follow-up that the order growth in Intelligrated is pretty dramatic and not a total surprise, but they're big numbers. Can you actually satisfy that demand without incurring some extraordinarily kind of costs around maybe over time or?

speaker
Darius Adamczyk
Chairman and CEO

Well, I mean, that's, you know, I mean, you, you heard, you know, Greg discussed this. I mean, we're, aggressively investing in our capex and people and people, you know, so we're, we're cutting in some areas, because we have to, but we're actually adding a lot of people and others. So, you know, $250 million of incremental topics that we never had in our budgets. And Scott, I think this is an important data point, I just want to give you, and I think it's one to remember, you know, when we bought Intelligrate, it was, you know, roughly eight to $900 million business per year. We booked $1.2 billion this past quarter. It gives you the kind of growth profile we're seeing in that business.

speaker
Scott Davis
Milius Research

What a terrible acquisition. Congrats, Darius, and good luck, guys. I wish you the best for the rest of the year.

speaker
Lauren
Operator

Our next question comes from Julian Mitchell with Barclays.

speaker
Julian Mitchell
Barclays

Hi, good morning. Maybe... Hey, maybe just the first question around the free cash flow. So you had good conversion in Q2, but I think the first half was running in the 80s percent-wise on conversion. You talked about some restructuring going perhaps in the second half, Greg. So maybe just help us understand where you're seeing free cash flow conversion perhaps for the year as a whole. and any other major swing factors in the second half that we should think about.

speaker
Greg Lewis
Senior Vice President and Chief Financial Officer

Yeah, so I'm not going to give you a conversion rate because, you know, again, that also is dependent on where things come out on the bottom line, which, as we discussed, we're not going to guide here today. But as it relates to some of the pressure points, I mean, obviously we harvested the receivables with, you know, with our – in Q2, which was good. And we also were able to bring down some of our pass-through receivables. We worked very closely with a lot of our customers, particularly in the airline space, to make sure that we were managing some risks around that. So pleased about the results there. But going forward, again, as I mentioned, the solvency risks, I think, are in front of us, not behind us. And so that may create some challenges in the back half of the year if we start seeing you know, additional bankruptcies. And again, a lot of that depends on, you know, behavior, travel, you know, any stimulus that may come out in the back half of the year and so forth. The other thing is I did mention repositioning. I mean, we booked over $300 million of repositioning. A lot of those are very fast payback, less than a year kind of payback. And a lot of those are very heavy from a severance perspective. So, you know, we spent about $170 million of cash repositioning in the first half of the year, I expect that to be, you know, probably double that number in the back half of the year roundabout. So that's going to be a pressure point for us as well. And then again, we are investing in capital. So, you know, this year, if you think back to when we originally did our outlook call early in the year for 2020, we had about a $900 million capital budget. And even with this decline, we're still at about a $900 million capital budget for the year. That's because we did do some smart things to reduce CapEx in places where things were slowing. But with all the growth programs that we're adding, and as Darius mentioned, these things have triple-digit IRRs, so we're going to do them. So our total CapEx for the year is going to be $900 million, even this year. And we only spent about $370 million in the first half, so that's going to ramp up in half, too. And then if you remember, we also did talk about at the very first guidance call early in the year that we were going to have an extra payroll cycle in 2020, and that's going to happen in 4Q. So that was like $150 million, $170 million. So I think this would be our best cash quarter of the year. And again, we're happy with the work that we've done, particularly around receivables management. We have work to do on inventory now. And so those would be the main things that I would highlight. CapEx, repositioning cash, that pay cycle, you know, dynamic is going to play out in 4Q, and we've got to go to work on our inventory.

speaker
Darius Adamczyk
Chairman and CEO

Yeah, and I think, you know, from an investment perspective, I would just add that, you know, we're nearly doubling our growth CapEx from our original plans because, to be honest, I haven't seen IRRs ever that were triple digit, and it's by far the best way we could put our capital to work. Some of these high return CapEx projects, and they're terrific. And we're not afraid to, I mean, if need be, we may even be targeting more investments for growth in the second half.

speaker
Julian Mitchell
Barclays

Thanks, Darius. So yes, I think your point just now underscores that you're thinking clearly about the recovery and how to position Honeywell for that in terms of organic investment. I guess following up on that, how should we think about capital deployment from here? You're making that push on the organic side. Are you looking out at the M&A landscape and your balance sheet and thinking this is the right time to go ahead and start to upscale the portfolio through acquisitions as you try and position yourself for the next upturn? Or is it we probably should expect a balance of M&A and buyback for the next six or 12 months?

speaker
Darius Adamczyk
Chairman and CEO

Yeah, I mean, I think, you know, we're always going to see some level, you know, we hope to see some balance, right? I mean, I think that's kind of going to be the formula going forward. I certainly will tell you that, you know, the M&A function is open for business. I mean, I think it was prudent for us to take a little bit of a pause in Q2 just to see how the world evolves, how things are going to change, and so on. But, A, you kind of saw the kind of working capital performance we had. You know, we've further secured the balance sheet and protected it even more. And I think you would agree that the balance sheet is very strong and well-protected, well-funded. So in short, we're very much open for business, both from an M&A perspective as well as potential buyback perspective. And we already made a commitment that we're going to at least keep share count flat from here, which is new news. and we're going to kind of take a look at what opportunities are out there in the second half. I mean, the M&A environment is just a little bit slower just because everybody's focused on battling the crisis, but we think that that may open up a little bit more here in the second half, and we hope to be active.

speaker
John Inch
Analyst, Gordon Haskett

Great. Thank you.

speaker
Darius Adamczyk
Chairman and CEO

Thank you.

speaker
Lauren
Operator

Our next question comes from Andrew Obin with Bank of America.

speaker
Andrew Obin
Bank of America

Yes. Good morning.

speaker
Greg Lewis
Senior Vice President and Chief Financial Officer

Good morning, Andrew. Good morning.

speaker
Andrew Obin
Bank of America

Just a question on defense and space, which was a highlight in Arrow. You know, how much visibility do you have on DoD being able to accelerate payments on programs, basically? What happens in 2021? is defense and space. I'm not asking about the end market outlook, but it's just there is a very sort of basic cash outplay dynamics by the Department of Defense to you guys on existing programs. So does that mean that 2021 has to be down or is there a chance that 2021 can be flat?

speaker
Greg Lewis
Senior Vice President and Chief Financial Officer

At this stage, we're not expecting a decline in 21 at this point. We feel like the You know, the defense budget, as you highlighted, is still fairly robust. So, you know, not expecting a material downshift from 20 to 21.

speaker
Andrew Obin
Bank of America

And just a follow-up question. You highlighted masks and just, I guess, two-pronged questions, I think. Right, I mean, it was a great strategic move on your part on respiratory protections. So, A, do you have plans to continue to increase capacity in on masks and part two of the question, does it open sort of strategic opportunities for you down the line in safety to build on this new strength?

speaker
Darius Adamczyk
Chairman and CEO

Yeah, Andrew, I'd say, well, first of all, it's more than masks, right? So this isn't just masks. Masks are part of it, but it's other PP&E. It's It's also we're expanding capacity in our sensing business for pressure sensors, which go into a lot of the medical equipment that our hospitals desperately need. So I would say the capacity expansion is much more broad-based, and it's not just mask-oriented. But certainly, as we look longer term, this sort of opens up new opportunities for us I'd say maybe it's less about masks, but a little bit more about steering the business towards serving the medical segment. That's kind of how I would think about it.

speaker
Andrew Obin
Bank of America

And any plans to add additional capacity specifically on M95 and the second half on top of what you've done?

speaker
Darius Adamczyk
Chairman and CEO

I think, you know, we've been doing that gradually. And as we see the demand, we're certainly not going to be afraid to add even more capacity. So as we, you know, the demand is still very robust, and I think it's very possible that we could be adding even more capacity here in the second half of the year.

speaker
Scott Davis
Milius Research

Thank you very much.

speaker
Darius Adamczyk
Chairman and CEO

Thank you.

speaker
Lauren
Operator

Our next question comes from Joe Ritchie with Goldman Sachs.

speaker
John Inch
Analyst, Gordon Haskett

Thanks. Good morning, everyone. Morning, Joe. Hey, Darius, maybe let's just start on UOP and HPS. I know when we kind of talked inter-quarter, it seemed like you were a little bit more sanguine about UOP kind of recovering quicker just given miles driven should be fairly more resilient this cycle versus prior cycles. I'm just curious whether that's changed at all and what you're seeing along those lines.

speaker
Darius Adamczyk
Chairman and CEO

Yeah, I mean, I think, you know, the segment for UOP that was the most challenged is our gas processing segment, which obviously is closely tied to the unconventional gas production in, you know, primarily in the U.S. And as you know, that's very challenged. So we saw some pretty big drop off. You know, but even before this crisis hit, I mean, you know, The mix in UOP can vary substantially from quarter to quarter or even year to year. And we always knew we had a very heavy equipment mix in the business in the Q2 and Q3 of this year. And even if this recession hadn't hit, we always had a challenging mix going into it. Now you combine that with kind of a push out of a lot of the catalyst refills, push out of projects, You know, obviously, their refining capacity wasn't as, or demand wasn't as robust as any of us would hope here in Q2. You combine all these factors, and UOP obviously was a bit more challenged than some of our other businesses. You know, HPS performed, I think, admirably in the quarter. I mean, some of the products businesses were a little bit more challenged than the systems businesses. So we're all pretty much aligned with our expectations here. And in terms of advanced materials, that one was heavily impacted by the shutdowns in auto manufacturing and our supply of solstice, which we expect to see some level of recovery here in the second half of the year.

speaker
John Inch
Analyst, Gordon Haskett

Okay, fair enough. And then maybe just my one follow-on question, just going back to the cost-out commentary, and, Greg, maybe this question for you. You made a comment about this kind of fixed cost pressure in 3Q versus 2Q. And so how should we be thinking about, like, how much of the benefits are actually coming through in 3Q versus what came through in 2Q? And potentially maybe talk a little bit about how the temporary reversals, if there are temporary reversals that occur in 3Q, is impacting that number. Yes.

speaker
Greg Lewis
Senior Vice President and Chief Financial Officer

Yeah, so that's exactly why I chose the words I did, because some of those temporary actions, furloughs, some of the other reductions in discretionary spend, that may start ticking up during the course of 3Q. And then, as I mentioned, we're backfilling that with some of our more permanent actions, but those are going to play out over the course of June, July, August, September. So You know the the the steepness of that backfill, you know is probably going to be more weighted towards the fourth quarter than the third so You know, we're doing our level best to try to hold our fixed costs flat. They may not be in q3 but You know, I would expect the the one, you know, we talked about one four to one six as a range with 700 already achieved in the first half of the year and I would think the balance of that's going to be a little bit more weighted towards the fourth quarter than the third.

speaker
John Inch
Analyst, Gordon Haskett

Got it. So maybe, like, I don't know, like sequentially, like, I don't know, call 50 million in pressure and 3Q versus... I'm not going to quote you a specific number, Joe.

speaker
Darius Adamczyk
Chairman and CEO

It's just because we simply can't call the timing of that perfectly. I mean, it's not... Obviously, when, you know, temporary reactions are pretty easy to call because you can sort of unilaterally... implement that. When you shift basically what we're doing in Q3 and Q4s, we're shifting and substituting some of the temporary actions we've taken in Q2 for permanent. The timing of that can't be exactly perfectly called, and as Greg pointed out, I think it's going to be a little bit more weight towards Q4 than Q3.

speaker
Steve Tusa
J.P. Morgan

Okay, fair enough. Thanks, guys.

speaker
Darius Adamczyk
Chairman and CEO

Thank you.

speaker
Lauren
Operator

We'll take our next question from Nigel Coe with Wolf Research.

speaker
Nigel Coe
Wolf Research

Thanks. Good morning, and I really appreciate you making this a No Drama Friday. So I want to go back to your comments around decrementals, and I appreciate the comments that you think you can generate better decremental margins into the back half of the year, and I'm wondering if that confidence extends to the aerospace margins. I think they were 39%, 40% or thereabouts in 2Q. And recognizing mix is an important factor there. But do you think that you can maintain or even improve on that performance in Arrow?

speaker
Darius Adamczyk
Chairman and CEO

Well, yeah, I think the comment was more in total. You know, I think Arrow is the toughest to call because of the uncertainty around the mix that I talked about, particularly in air transport aftermarket, which is, you can imagine, a very interesting and higher margin revenue stream.

speaker
Greg Lewis
Senior Vice President and Chief Financial Officer

And you could very easily see it being sequentially down.

speaker
Darius Adamczyk
Chairman and CEO

Yeah. So I'm not, you know, I can't tell you that Aero is necessarily going to have better decrementals. You know, at least in Q3, but we are cautiously optimistic that Honeywell in total, you know, will continue to drive better decremental margins as we move from Q3 and even more so into Q4, you know, provided, you know, of course, all of this provided we don't have sort of a much broader and much more aggressive phase two of COVID-19, which, you know, I guess is Depending who you listen to, I guess it's always possible in the fall. So that's kind of how we're thinking about our math for the rest of the year.

speaker
Nigel Coe
Wolf Research

Okay, very, very clear. And then, again, just peeking into 2021 within aerospace and things about business jets, at a very high level, how do you think the post-COVID world looks for the categories you play in, which is obviously the upper end of the markets, How does that look from your perspective, your perch in the post-COVID world? It seems to me like there could be some benefits, but I'd be curious how you think about that.

speaker
Darius Adamczyk
Chairman and CEO

Yeah, I mean, a couple of points. Number one is I think that you saw the bottom in Q2. See a gradual, slow improvement as we move into Q3, Q4, Q5. And then into 2021, you know, we're going to continue to see improvement. I think the real discontinuity here where we could see a much more dramatic improvement, which is really going to be tied to a medical solution, which is probably a vaccine when it gets distributed. Because the level of the leisure traveler is actually a little bit better than expected. People are traveling. But we need really that second leg to come in, which is the business traveler. And that part of it we think is going to happen after we get a much broader distribution of a vaccine, which right now it's anybody's guess when it will happen. But I think the news overall is actually pretty good. And I don't think it's crazy to think that we may even have a certified vaccine before the end of year this year now, then we also have to think about the distribution timing and so on. So, you know, we're optimistic that certainly there's going to be a medical solution the first half of next year, which obviously will stimulate a greater level of air travel.

speaker
Nigel Coe
Wolf Research

Thank you very much.

speaker
Darius Adamczyk
Chairman and CEO

Lauren, let's take one more question, please.

speaker
Lauren
Operator

Thank you. We'll take our next question from John Inch with Gordon Haskett.

speaker
John Inch
Analyst, Gordon Haskett

Thank you. Good morning, everyone. Thanks for squeezing me in here. Hey, Garrison, Greg, so if you look at your restructuring programs in the 60 to 70 of structural, how would you anticipate, say, your pro forma headcount ending 2020? I just glanced at the K. It looks like you started the year with 113,000 employees. Where would we expect that kind of to end up based on? And I don't mean on a furlough basis. I'm trying to sort of think about the significance in terms of headcount based on your structural actions that you're taking and what you've called out.

speaker
Darius Adamczyk
Chairman and CEO

Yeah, I think it's tough to call at this point. I'll tell you why. Because although, you know, we obviously know roughly what we have in our restructuring plan. So, you know, we know what we're going to do there. What we don't know is the capacity additions because all the work, you know, some of the reductions are taking place in places like aerospace to a lesser extent, PMT and so on. But now we're adding, you know, hundreds if not thousands of people in SPS and we don't think we're done. I think that we're going to be making further investments in people, further investments in capacity. So I think it's a little bit too early to call exactly what, you know, that our staffing may look like at year end, and I'd hate to give you a number which may prove to be inaccurate.

speaker
John Inch
Analyst, Gordon Haskett

No, that's fine. The magnitude of the actions area seemed pretty substantial, so I'm just trying to sort of triangulate that. Could that mean if you weren't out of capacity, you're taking out 5% of your headcount, or what else would you say about that, I suppose, kind of question?

speaker
Darius Adamczyk
Chairman and CEO

Yeah, I mean, you know, I think it's, you know, an arrow, it's, you know... substantial. It's closer to double-digit. And some of the other businesses, we're adding headcount, so a little bit all over the place. I think we've tried to protect as many jobs as we can because we frankly don't want to be doing a lot of job reductions. But I also have to be realistic, and we have to be realistic that we don't think that this is a quarter or two phenomenon in aerospace and Unfortunately, the business is going to shrink for a little while. We do think, I'm not, by the way, I'm not so pessimistic that I think Arrow is going to be down until 2024, as I've heard some estimate. I actually think it's going to come back a bit faster than that, and it's aligned to a medical solution. But realistically, it's probably not going to get back to the 2019 levels until at least 2022 or maybe even a bit later. So we're sizing the business for that kind of a reduction.

speaker
Jeff Sprague
Vertical Research

Yeah, that makes sense.

speaker
John Inch
Analyst, Gordon Haskett

Just as a follow-up, guys, you know, this ultraviolet airplane cabin cleaning technology, is it applicable to or could you even sort of develop product for commercial building application or even residential? I mean, that would seem to be like a pretty big deal if you could actually extrapolate that.

speaker
Darius Adamczyk
Chairman and CEO

Yeah, we're working on exactly that type of a solution which treats the air and ultraviolet light and, you know, obviously results in a much higher air quality than anything out there. So that is very much part of our thinking and part of our solution. So we're doing some studies around, you know, timing required, exposure to UV light required, and that's very much part of our thinking.

speaker
John Inch
Analyst, Gordon Haskett

Yeah, no, you get that on the New York City subway, the economy might actually come back. Great. Thanks very much. Appreciate it.

speaker
Darius Adamczyk
Chairman and CEO

Thank you.

speaker
Lauren
Operator

And that concludes today's question and answer session. At this time, I'd like to turn the conference back to Mr. Darius Adamczyk for any additional or closing remarks.

speaker
Darius Adamczyk
Chairman and CEO

I want to thank our share owners for their continued support of Honeywell. We are focused on continuing to perform for our share owners, our customers, and our employees in any environment. We are well positioned to manage through challenging times of a balanced portfolio, track record of execution, and a strong balance sheet. I'm excited about the future of Honeywell, despite the current challenges facing the global economy. We are capturing new growth opportunities by providing innovative solutions for new customer needs, and our operational rigor will continue to serve us well. Thank you for listening, and please stay safe and healthy.

speaker
Lauren
Operator

That does conclude today's conference. We thank you for your participation. You may now disconnect.

Disclaimer

This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.

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