Boston Beer Company, Inc.

Greetings, and welcome to the Boston Beer Company First Quarter 2024 earnings call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce to you Mike Andrews, Associate General Counsel and Corporate Secretary. Thank you, Mike. You may begin.

Thank you. Good afternoon and welcome. This is Mike Andrews, Associate General Counsel and Corporate Secretary of the Boston Beer Company. I'm pleased to kick off our 2024 First Quarter earnings call. Joining the call from Boston Beer are Jim Cook, founder and chairman, Michael Spillane, our CEO, and Diego Reynoso, our CFO. Before we discuss our business, I'll start with our disclaimer. As we state in our earnings release, some of the information we discuss and that may the company's expectations or predictions of the future. Such predictions are forward-looking statements. It's important to note that the company's actual results could differ materially from those projected in these forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained in the company's most recent 10Q and 10K. The company does not undertake to publicly update forward-looking statements, whether it was a result of new information, future events, or otherwise. I will now pass it over to Jim for some introductory comments.

Thanks, Mike. I'll begin my remarks this afternoon with a few introductory comments and then hand over to Michael, who will provide an overview of our business. Michael will then turn the call over to Diego, who will focus on the financial details of our first quarter results, as well as our outlook for the remainder of 2024. Immediately following Diego's comments, we will open the line for questions. We were pleased to see flat depletions in the first quarter and to deliver revenue growth. Twisted Tea continues its strong momentum and we continue to make steady progress on our margin enhancement initiatives. Our strategy to return to long-term sustainable growth through investing in our powerful brands and continuing to innovate in Beyond Beer remains unchanged. The cash-generated nature of our business and our strong balance sheet supported our repurchase of $65 million in stock thus far in 2024. I'd like to thank our Boston Beer Company team, distributors, and retailers for their support in a solid start to the year. And I'm delighted to have on the call today Michael Spillane, formerly joined as our CEO earlier this month. Michael's strong operational experience in consumer products and his long history with our company make him the ideal choice to continue the implementation of our strategy to return to long-term growth. I'd also like to take this opportunity to thank Dave Berwick for his 19 years of excellent contributions to Boston Beer and his assistance to Michael in the transition. I will now pass the call over to Michael.

Thanks, Jim, and good afternoon, everyone. I'm excited to join Boston Beer's president and CEO after serving as a board member for eight years. I spent my first few weeks meeting with our team, our distributors, and visiting the breweries, which has reinforced my conviction and the opportunities that lie ahead for the company. Boston Beer has powerful brand equities, the best sales force in beer, and a strong team with a unique entrepreneurial culture. The cash generation of this business is powerful and allows us the optionality to invest in our brands and long-term innovation. We remain focused on implementing our strategy to deliver long-term sustainable growth and improve our operational efficiency while being disciplined stewards of capital. Our highest priority as a company is to return to delivering sustainable volume growth. This involves protecting and nurturing our core brands so that they meet their full potential while continuing to drive innovation in Beyond Beer, which we expect to drive category growth. And our core brands were highly focused on providing the appropriate levels of marketing spend on both working media to drive awareness and attract new customers, as well as in-store at the point of sale to drive conversion. Working with our distributors and retailers, we'll continue to focus on maintaining strong service levels and ensuring we recapture and recapture the share of shelf that our core brands deserve. Finally, we'll continue to innovate on our core brands and we'll be fine-tuning our product roadmap to manage innovation and line extensions in a disciplined area. Within our core brands, Twisted Teeth's momentum continues with dollar sales up 21% in the first quarter while growing share by 1.4 points in measured channels. We continue to increase distribution while maintaining strong sales per point and achieved additional space in the spring shelf resets. Twisted Tea is the original hard tea brand with strong brand awareness and loyalty and we intend to invest appropriately to maintain the number one share position with strong growth. Twisted Tea Lite continues to be highly incremental and we're encouraged by the early results in test markets of our higher ABV Twisted Tea Extreme. We remain focused on stabilizing truly and have seen sequential improvement in our lighter flavor variety backs and single serve packages. However, the hard seltzer category remains under pressure in 2024 and we continue to expect category volume declines in the low teens. Truly is now a smaller part of our business mix given Twisted's strong growth but remains a 20% share of hard seltzer in measured channels and we're working diligently to improve its trajectory. Across our other core brands, Sam Adams, Angry Orchard and Dogfish Head, we see areas of opportunity and remain focused on nurturing these brands which remain an important part of our portfolio and the company's craft legacy. We introduced the new Sam Adams packaging late in the first quarter and will continue to invest in Boston Lager, seasonals and new innovation as well as our non-alcoholic offerings. Sam Adams non-alcoholic grew 52% in dollars in the first quarter in measured channels. In addition to supporting our core brands, we'll continue to focus on long-term product innovation to plant seeds for future growth. Our goal is to generate a steady cadence of brand innovations which will test in smaller markets to determine the winners and move forward to national launches. Our 2024 innovations in the early stages of rollout will have more significant impact in the second half of the year. SunCruiser Vodka-based tea is in its early stages of on-shelf availability and thus far has been well received by distributors and retailers. Hard Mountain Dew has begun to transition to our network and positions us well to expand the reach and consumption of hard dew as we eventually will achieve national distribution. Today we are reiterating our 2024 volume guidance of down low single digits or up low single digits. While the first quarter is a solid start to the year, it's a smaller quarter and our key selling season remains ahead of us. In my first few months at the company, I will continue to focus on further refining our product roadmap and innovation process. I believe we have the right teams, infrastructure and strategies in place to return to long-term volume growth. I'm excited to work with the team, our distributors and retailers to deliver on our objectives and look forward to meeting investors and analysts in the month ahead. I'll now pass the call over to Diego to review our first quarter results and 2024 guidance.

Thank you Michael. Good afternoon everyone. The pletions in the first quarter were flat and shipments increased .9% from the prior primarily due to the growth in Twisted Pea offset by declines in Truly Hot Seltzer and our other brands. Shipments were higher than depletions as distributors built inventories to support our peak selling season and we shipped some additional product to support the implementation of our new automated customer ordering and inventory management system. We believe this system along with other improvements in our supply and share process will help us further reduce waste and optimize our network. We believe distributor inventories as of March 30, 2024 was at an appropriate level for each of our brands and average approximately four and a half weeks on hand compared to four weeks on hand at the end of the fourth quarter of 2023 and nearing the four and a half weeks at the end of the first quarter of 2023. Revenue for the quarter increased .9% due to volume increases, pricing and lower returns. Our underlying pricing for the first quarter was consistent with our full year guidance range with additional benefits from the lower returns. Please note that we do not expect the benefits from the returns in the first quarter to continue in the balance of the year. Our first quarter gross margin of .7% increased 570 basis points year over year on a reported basis. Gross margin was up 360 basis points year over year excluding one time in the prior year quarter related to a truly black Caselza rebrand and the non-recurrent payment to a third party contract broker. The underlying gross margin expansion in the quarter was primarily related to pricing including a benefit from lower returns, procurement savings and improved brewery performance on higher volumes which were somewhat offset by inflationary costs. Excluding share fall fees and third party production prepayments which we've discussed in prior calls our gross margin was 44.9%. Advertising promotional and selling expenses for the first quarter of 2024 decreased $5.2 million or .1% from the first quarter of 2023 due to lower freight costs as a result of both lower rates and efficiencies. Within brand investment we increased our media spend which was more than offset by declines in other promotional spending. General administrative expenses increased $6.7 million or .3% year over year primarily due to higher salaries and benefits costs which includes chief executive officer transition costs that were fully expense in the first quarter partially offset by decreased consulting costs. We reported EPS of $1.04 per diluted share compared to a net loss of $0.73 per diluted share in the first quarter of 2023. The year over year improvement was driven by higher revenue and higher gross margins. Our tax rate of .0% in the first quarter was higher than our plan rate which was driven by non-deductible compensation expense related to the CEO transition costs. Now I'll discuss our 2024 guidance. Our fiscal week depletion trends for the first 16 weeks of 2024 have decreased 2% from 2023. We are reiterating our 2024 volume and EPS guidance from our February top and updating our full year tax guidance to .5% due to an increase in estimated non-deductible compensation expenses related to our CEO transition costs. We continue to expect 2024 depletions and shipments to range between a decrease of low single digits to an increase of low single digits. We expect price increases between 1 and 2%. Full year 2024 reported gross margins are expected to be between 43 and 45%. We expect commodity inflation in 2024 but at a lower rate than 2023 primarily driven by sweet nurse inflaborates. We continue to expect to cover commodity inflation dollars with pricing but do expect some digital margin headwinds from higher labor costs and obreau risk. Where we land within the range of our guidance will be somewhat dependent on the mix of products sold. The contractual shortfall fees and production prepayments and mortizations that we've discussed in our last call are expected to have a lower negative impact on full year 2024 reducing from 175 to 225 basis points to 135 to 185 due to changes in the timing of our production prepayment armament station. As these contractual terms expire we will reassess our capacity needs and commitments with our third party production partners. Our investments in advertising, promotional and selling expenses are expected to range from a decrease of $5 million to an increase of $15 million. This does not include any changes in freight costs for the shipments of our products to our distributors. We are currently targeting full year 2024 earnings per diluted share of between $7 and $11. This projection is highly sensitive to changes in volume projections, mix of own versus partner brands, supply chain performance and inflationary impacts on consumer spending. As you model out the year please keep in mind that our revenue performance is impacted by seasonal volume changes and timing of shipments. During the first quarter, shipment trends were above depletion trends and we're currently estimated that they will rebalance resulting in shipment trends being lower than depletion trends in the second quarter. Also please note that the fourth quarter is typically our lowest absolute growth margin of the year. Turning to capital allocation, we ended the quarter with a cash balance of $205.4 million and an unused credit line of $150 million which provides us with the flexibility to continue to invest in our base business, fund future growth initiatives and return cash to our shareholders through our share buyback program. For the full year 2024, we expect capital expenditures of between $90 million and $110 million. These investments will be primarily related to our own breweries to build capabilities and improve efficiencies. During the 13 week period ending March 30, 2024 and the period from April 1, 2024 through April 19, 2024, we repurchased shares in the amount of $50 million and $15 million. As of April 19, 2024, we had approximately $200 million remaining on the $1.2 billion share repurchase authorization. This concludes our prepared remarks and now we will open the line for questions.

We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the queue. You may press star 2 to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment while we poll for questions. And our first question comes from the line of Rob Ottenstein with Evercore ISI. Please proceed with your question.

Great, thank you very much and congratulations Mike. A few questions. One, can you give us any sense of what was going on in April? Is this just kind of timing with Easter and you know, kind of best to look at all 16 weeks together in terms of giving a fair picture of current trends? So that would be number one. Number two, can you talk about truly shelf space gains in the spring shelf sets for the core products? I know a lot of the flavor and the innovations lost some shelf space I believe, but did you actually gain any shelf space for the core business? And why not leave it there? Thank you.

Perfect. I'll take the first one. So if you want to take the truly one first and then we'll go through. I'll take the first one then. I'll take the first one which is we look at at least kind of 16 weeks, 13 weeks period because to your point there's year on year comparisons. Easter moved. There's specific ordering patterns from distributors that move from year on year. So if you take one week or four weeks, you can always have the comparisons. So for our point of view, we always take 13 week comparisons and not to look at the trends of our brands.

Right. And then in terms of the truly shelf space, it continues to be a very fluid situation where we're moving to some of the lighter flavors. We also have this year truly unruly rolling out as a new addition to the line. So again, I think we'll look for continued adjustments where we will be losing some shelf space with the flavors that are tracking and adding in some of the lighter flavors.

Thank you.

And the next question comes from the line of Steve Powers with Deutsche Bank. Please proceed with your question.

Great. Thank you. And congratulations, Michael, as well for me. Two questions I could, one for you and then one for Diego. Firstly, for Michael, just I guess if you could, I'd love for you to expand a bit on any new priorities that you see for the organization, any points of emphasis that you have either strategically or operationally as you approach the role. I'd love that. And then Diego, the start of the year, at least from I think from an outside perspective, was a lot stronger than expected on gross margin. I'm curious how it compares to your own expectations coming into the quarter and if it now makes you more comfortable with the upper end of the gross margin range for the year or if it's too premature to make that call. Thank you.

So I appreciate the congratulations. I'm really excited to be here. I'll start off by saying I've been on the board for eight years, so I was very familiar with the team and the strategy. And I'm really impressed by both. Where I think I'm leaning in is just making sure that we're truly executing to that strategy and making sure that we have end to end alignment. We're truly, we're really focused on growth and getting back to that long-term sustainable growth and probably trying to get a little bit sharper on our innovation, making sure that it's distinctive, it's profitable and it's scalable. So again, I want to emphasize we have a fantastic team in place and walked into a really good plan that we're just going to drill down to and make sure that we execute at a really high level.

All right. Steve, in your gross margin question, what I would say is we're still very confident with our gross margin plan and that's why we're maintaining our guidance. Similar to the question around -on-year comparisons, the gross margin has -on-year ups and downs when you compare, but overall we think we have a strong plan. And we are maintaining our guidance to arrive at high 40s to 50s in the next three years. So I think this is just one more positive step down the line in that plan.

And the next question comes from the line of Bonnie Herzog from Goldman Sachs. Please proceed with your question.

All right. Thank you and congratulations for me too, Michael. I have a question on your advertising, which was down in the quarter. What do you believe is the right level of advertising spend, I guess, as a percentage of sales moving forward? I'm trying to understand, you know, what is the right level of advertising spend for your advertising? And I guess on some level why you maybe don't see a need to increase spending as competition intensifies, you know, in hard C, and then in an attempt to return truly and maybe quite frankly some of your other brands to growth. Your thoughts there would be helpful.

Great. And thanks, Bonnie. You know, we're always looking at opportunities to invest where we see good returns. And again, a lot of this could be timing. To the extent where we have upside in our performance this year, we may choose to invest back in. We're continuing again to look where we can drive sustainable growth. Look for twisted T. We continue to invest in the strong investment there. And we assess the rest of the portfolio as we'll see fit. But we're aligned that where we see upside in the performance, we will probably choose to reinvest in marketing.

Okay. Bonnie, as a general rule of thumb for us, you know, we are a growth company. That's a very important objective. And so we will tend to, as a rule of thumb, have a higher share of voice via our advertising than our share market. Because in the long haul that generates, you know, share gain and we're in growing categories.

Okay. So you guys feel good about the spending levels trying to kind of maintain the momentum behind twisted and then reaccelerate some growth or stabilize, I should say, truly. Okay.

Yes, I think that's a fair statement.

Okay, that's helpful. And then if I could just ask another question on Card Mount and Zoo. I'd love to hear a little bit more color on the performance for the brand in the quarter. And, you know, again, maybe whether it's lived up to your expectations. And ultimately, you know, what are your ambitions for the brand this year, especially in light of, you know, the comments you made earlier about your expectations for the hard sell through category to decline in the low T. And then could you guys confirm whether, you know, how do you do is in your guidance or not? Thank you.

So perfect. So I'll take that. I think the first one is a lot of the performance is in areas that we have not rolled over the brand. So as we've mentioned before, it's going to be a longer transition of the different states and the different pieces to move over from Blue Cloud to our distribution network. So we do expect to have some ups and downs along the way. But in the long term, we feel it's a strong brand that has really good equity. And I think bringing it into our distribution networks will be really strong. It is within our guidance as given our current role plan, but there could be some upside or some adjustments if we are able to move some of the territories faster than we currently have planned.

All right. Thank you again.

And the next question comes from the line of Eric Serrata with Morgan Stanley. Please proceed with your question.

Great. Thanks so much. I'm hoping you could give us your perspective in terms of the recent slowdown in Twisted Tea and track channels. Obviously, mid-high teens growth is still very impressive, but a big slowdown from where you were not long ago. How do you sort of unpack that slowdown between your kind of interaction with other brands, just sort of tougher comps, larger base? And then how, Mike, do you look at the opportunity or runway from Twisted from here? I know your predecessor used to use the analogy of physical and mental availability. What lens do you look at it through and where do you see the runway? Thank you.

In terms of the sort of recent trends, it's a very short period of time and we'll continue to assess it. We wouldn't say that it's anything we're going to – we're paying attention, but we don't see it right now as a longer-term trend for the business. As noted, we will be investing at the appropriate levels for Twisted Tea in terms of marketing. We have a Twisted Tea light that is coming in that is – we're capturing an additional customer. It's not in any way cannibalizing our existing customer. We also have the Xtreme product, which is a higher content that we feel very optimistic about. So I just believe that we're going to be able to maintain that. It's a high priority for the company and the consumer is very much committed to the product. We also have an opportunity to bring new consumers into the brand, both Hispanic and African American consumers, which we are reaching out to.

Great. Thanks so much, Alpreson.

And the next question comes from the line of Nadine Sarwa with Bernstein. Please proceed with your question.

Hi. Thank you, evening, everybody. Two questions from me. First, a question for Michael. Boston Beer has obviously had, as you know, many successful waves of innovation in the past year across multiple categories over the last couple of years. So as you come into this role, I would love to hear how you view the future of Boston Beer's portfolio, taking a long-term view, perhaps over the next three, five years, and how do you see the mix between that being -to-world innovation versus line extensions? And then a second question, obviously some very nice gross margin performance this quarter. Could you give us an update on the level of your capacity utilization, both for your internal production and your third-party contract and capacity? Thank you.

Great. So I'll take the first part of that. And I see us doing, you know, driving, as we have in the past, a balanced portfolio. And so we have our great brands, which, you know, the way I like to put it is we need them all to reach their potential. I see a lot of opportunity in both beer, dogfish, angry orchard. We look to stabilize truly and get back to growth there and then continue to drive twisted tea. The exciting thing for me and one of the key reasons why I signed down for this role is because we're a great innovation company. And so we have some great products coming through the pipeline, including SunCruiser, which is a vodka-based hard tea, which has been well received in the marketplace. But our ability to repeat that formula for success. So innovation will always be part of who we are. And, you know, the Beyond Beer category is growing at a better rate than beer. We like to think we're the best people in that space. So we'll continue to feed that and drive that part of our business. It's really important for us. So a balance between doing core and innovation. To be honest, sometimes we maybe chose to do one or the other. And we're going to find the balance to make sure that we have both pillars reaching their potential.

On the second part of your question, I'll confirm to you the exact numbers. But we've been moving from an 85-15 mix to a 90-10, where we really want to be 90% of the production in-house and especially leverage external for high complexity products. So but we'll come back and confirm the Q1 number per se.

Thank

you.

And the next question comes from the line of Filippo Falorni with Citi. Please proceed with your question.

Hey, good afternoon, everyone. And Michael, congrats on the new role. So I have two questions. One on Twisted Tea. Clearly, you've done very well over the last couple of years, including last year with significant distribution and shelf space gains. Maybe you can give us some level of context on these current spring shelf space resets and how much you're expecting to gain incrementally for Twisted Tea. And then my second question is a follow-up on gross margins. Diego, I think you mentioned Q4 is the lowest gross margin of the year, but typically your gross margin is higher sequentially in Q2 and Q3. Should we expect a similar sequential improvement in gross margin in the next two quarters? Or is there something in particular that we should think about from a gross margin cadence? Thank you.

Okay, so I'll jump on the first part of that and then I'll pass to Diego. So again, just reiterating on Twisted Tea, we're the market leader. We're continuing to expand our space. We're continuing to add brand support and making sure we're spending both on sponsorships and marketing to drive demand. We're bringing in new drinkers, which is really how this is going to continue to grow. And then we're bringing in energy. So for instance, the Rocket Pop party pack will be dropping now, which was a big driver of business last year. And again, I mentioned Twisted Tea Extreme, which is the higher out, which we think is going to energize a new consumer for us. So we'll consistently feed that business with new energy and we see opportunities to expand our shelf space.

On your gross margin question, yes, we will see higher gross margins in Q2 and Q3. We also did mention that we had a really strong production and shipment quarter in Q1. So a little bit of that will come out of Q2. So the jump between Q1 and Q2 might not be as high as we've seen in other years. But we're maintaining a four-year guidance because we still believe that we have a really strong gross margin roadmap.

Great. Thank you.

And the next question comes from the line of Michael Lavery with Piper Sandler. Please proceed with your question.

Thank you. Good evening and congrats, Michael, as well. Just two, if I can, a follow-up on Hard Mountain Dew and the distributor transition. I know you said it takes some time. Are there likely to be gaps in existing distribution markets because of the transition as it gets handed off from one to the other? Or is that more seamless? Maybe just help us understand the mechanics a little bit, if you can. And then on some of the new innovation, was pipeline fill a big factor in the quarter? Or is it just more some ordinary trade loading and deloading that you're calling out as the one and two Q dynamics there?

I'll start with the second part of the question. Yes, exactly. It's just the normal flow of the business and sort of

timing. And I will also add, as we talked to before, we've implemented a new material sourcing and inventory management system with our distributor. So we loaded up a little bit before we put it in place, just to make sure that we were able to correctly source and supply all our customers. So it's not a huge piece, but it's a little bit of what I discussed.

And then in terms of Mountain Dew, we feel like the transition is tracking. But again, I would say it's a little bit fluid. And we're hoping within a reasonable time that we'll have national distribution.

OK, great. Thanks so much.

As a reminder, if you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment while we pull for additional questions. And the next question comes from the line of Bill Kirk with Ross Capital Partners. Please proceed with your question.

Thank you guys for taking the question. I have a follow up on one of Nadine's from earlier. I think it looks like in the 10 queue that in-house production number was 79 percent. And I guess the question is, one, that's the highest it's been in years. So I guess the question is seasonally when we get to those bigger production numbers, the bigger production months in the summer, what can that number look like? You know, 79 in one queue. What can it look like in the heavier summer months?

So again, as I mentioned, when we talk about where we would want to be, we want to be at 90-10. We know right now we're between 80 and 85, 2.79 physically in the quarter. But we'd like to get to 90-10. And that's our plan. But it also depends on the mix of products that's flowing through our facilities. There are some specific products that we only have externally. So that is one of the key drivers of where we end up. But that's our target to get to those levels as we go forward.

Okay. And then on the shortfall fees, it looks like you got a payment from the third party, like a prepayment back from the third party in one queue. Is that related to the loan you get to kind of start the year? Are there any other mechanisms like that to reduce shortfall fees by extending them some money up front, like in the form of another loan?

So can you just repeat that question for a second, please?

Yeah. So on the cash flows, it looks like there's almost $3 million inbound from third party production prepayments, like a positive cash flow from that relationship. And I was just wondering if it had anything to do with the money you lent them, where I think the payback is a reduction in prepayment. So I guess it's two questions. What is that positive number on the cash flow? And are there mechanisms to lower your prepayment obligations by extending them credit?

So there's two things at work here. There's the timing of the amortization of the payment that has nothing to do with the loan. So that's one. And because we expanded part of our terms, we've changed the amortization of our payments. The second one is we've made a loan to Citi. That loan will be repaid. And the amount it will be repaid at will have some similarities to the fees that we would have been paying, but they're independent. They just happen to be similar amounts as the repayment fee has agreed. Does that make sense?

It does. And are there any other ways like that loan to do something similar to reduce prepayment in the future?

Well, it's not technically reducing the shortfall fees because the reality is we've loaned and we're getting the money back. That's an independent piece of the shortfall fees that just happen to be the mechanism while we get it back. But in the future, what we're doing is as our contracts come to an end, we are reviewing what footprint we want going forward based on our strategies. And based on that, we will negotiate with our third parties to see what the right level should be.

Okay. Thank you.

I might add the 90-10 balance of internal-external is a longer-term goal. We're happy to get there this year. And for the foreseeable future, City Brewing is our pretty much exclusive contract partner. And they are a key piece going forward. So it's going to be a while before we get to 90-10. It's not this year, probably not next year, but longer term. We could certainly see that.

Ladies and gentlemen, there are no further questions at this time. I would like to turn the floor back over to Jim for any closing comments.

Well, thanks to everybody for joining us and for giving Michael a warm welcome. And I'll recognize Dave Burwick's contribution this quarter because most of it was under his guidance and direction. So I've been very fortunate to have two amazing people help lead this company. Thank you.

And this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.