Waste Management Inc (WM) — Q3 2016 Earnings Call Transcript

Thank you, Jinisha. Good morning, everyone, and thank you for joining us for our third quarter 2016 earnings conference call. With me this morning are David Steiner, Chief Executive Officer; Jim Fish, Executive Vice President and Chief Financial Officer; and Jim Trevathan, Executive Vice President and Chief Operating Officer. Before we get started, please note that we have filed a Form 8-K this morning that includes the earnings press release and is available on our website at www.wm.com. The Form 8-K, the press release, and the schedule for the press release include important information. During the call, you will hear forward-looking statements which are based on current expectations, projections, or opinions about future periods. Such statements are subject to risks and uncertainties that could cause actual results to differ materially. Some of these risks and uncertainties are discussed in today’s press release and our filings with the SEC, including our most recent Form 10-K. David and Jim will discuss our results in the areas of yield and volume, which unless otherwise stated, are more specifically references to internal revenue growth or IRG from yield or volume. During the call, David and Jim will also discuss our earnings per diluted share, which they may refer to as EPS or earnings per share, and David and Jim will address operating EBITDA and operating EBITDA margin as defined in the earnings press release. Any comparisons, unless otherwise stated, will be with the third quarter of 2015. The third quarter of 2016 results have been adjusted to enhance comparability by excluding certain items that management believes do not reflect our fundamental business performance or results of operations. These adjusted measures, in addition to free cash flow, are non-GAAP measures. Please refer to the earnings press release footnote and schedules, which can be found on the Company's website at www.wm.com for reconciliations to the most comparable GAAP measures and additional information about our use of non-GAAP measures. This call is being recorded and will be available 24 hours a day beginning approximately 1:00 PM Eastern Time today until 5:00 PM Eastern Time on November 19. To hear a replay of the call over the Internet, access the Waste Management website at www.wm.com. To hear a telephonic replay of the call, dial 855-859-2056 and enter reservation code 90149575. Time-sensitive information provided during today's call, which is occurring on October 26, 2016, may no longer be accurate at the time of a replay. Any redistribution, retransmission or rebroadcast of this call in any form without the express written consent of Waste Management is prohibited. Now, I'll turn the call over to Waste Management's President and CEO, David Steiner.

Thanks, Ed, and good morning from Houston. Our third quarter results exceeded our internal expectations. As we have all year, we saw improving volumes, strong attitudes in our pricing programs, and continued traction in our cost programs. Each of our net income, operating income and margin, operating EBITDA and margin, and earnings per diluted share improved when compared to the third quarter of 2015. And during the third quarter, we achieved the significant milestone as our operating EBITDA exceeded $1 billion for the first time. We earned $0.84 per share in the third quarter, an increase of 13.5% from our third quarter 2015 results. Our continued growth and earnings translated into strong generation of cash flow from operations, which grew $96 million in the third quarter and drove year-to-date cash from operations to over $2.2 billion, that’s almost a 12% increase over last year. So, we’re very pleased with the momentum that we built in the first three quarters of the year, which we expect to continue into the fourth quarter and extend into 2017. Our pricing programs are a significant reason for our earnings growth and margin expansion. For the third quarter, our collection and disposal core price was 4.7%, and collection and disposal yield was 2.1% with total company yield at 2.6%. Core price improved 70 basis points from the third quarter of 2015. Core price in the industrial line was 8.6%; in the commercial line it was 7%; and in both our landfill and residential lines, it was 2.6%. Importantly, we demonstrated our continued ability to increase prices while retaining customers through improved customer service. As our churn rate dropped to 8.7%, that’s 170 basis points better than last year and 40 basis points better than the second quarter of 2016. This is the lowest churn that we've seen since before 2015. It is attributed to our customer service and operations teams who work together to create a better customer experience. With respect to volumes, we continue to see positive volume growth in the third quarter just as we have all year. In the quarter, we saw volumes in our high-margin commercial, industrial, and our landfill lines of business continue to grow, and we saw an improvement in the rate of decline of residential volumes. Traditional solid waste volumes were positive 1.6% in the third quarter of 2016, a 170 basis point improvement from the third quarter of 2015 and an 80 basis point improvement sequentially from the second quarter of 2016. And our overall volume was also a positive of 1.6%, as our national accounts and recycling segments contributed positively to volume growth in the quarter. Our entire team continues to execute on our strategy of maintaining price, adding high-margin business, and improving customer service, and the results continue to impress. Our landfill line of business continues to show strong results too, which Jim will discuss in more detail; however, as we previously mentioned, we are facing a significant increase in the cost of managing the liquid that occurred in our landfill. In the third quarter of 2016, the increase in leachate cost was about $23 million or a drag of $0.03 per share. We continue to rollout our Waste Water management charge to our landfill customers through our long-term contracts. However, the charge has been fully implemented on our spot customers. So, in the third quarter, we added approximately 0.2% to landfill yield from implementing the charge, with almost no pushback. However, we still have a long way to go before we can recover the full cost. It’s important that we pass the cost increases onto our customers, so that we can achieve an appropriate return on investment on our landfill assets. But just like when we implemented the fuel surcharge, it will take time to fully implement this charge. Turning to recycling, we saw a 13.6% increase in average commodity prices at our recycling facilities for the quarter and a 0.9% increase in volumes. Year-over-year, the recycling line of business contributed almost $0.03 per share to earnings, which helped to offset the $0.03 of increased leachate cost. The improvement in earnings was driven by about $0.01 from pricing and about $0.02 from operational improvements at our recycling plants and our continued efforts to improve our contracts. On the operational side, our recycling employees have done a nice job of improving operational efficiencies, such as reducing downtime events through preventative maintenance practices, educating customers about contamination, and charging for contamination in all regions. This led to gross operating expenses improving 4.5% in the third quarter; and on the contract side, we continue to work with customers on fair contract terms to allow Waste Management to remain their recycling partner and provide us with a sustainable business model. So, we’re very pleased with our third quarter results as well as our results through the first nine months of 2016. We are proud of the hard work all of our employees have done to date to exceed our expectations for yield, volume, earnings, and cash flow generation. Consequently, we are again raising our adjusted diluted earnings per share guidance for 2016. We are confident that we can achieve consensus for the fourth quarter, which would put us at $2.91 of EPS for the full year. Cash flow continues to be strong, and we remain confident that we can achieve our free cash flow guidance for 2016 of between $1.6 billion and $1.7 billion. As we move towards the end of the year, we will do what we have done in the past few years where we estimate full-year cash flow and determine if we want to prepay up to $100 million of our 2017 capital spend or taxes. I want to thank all of our team members for demonstrating once again why they are the best in the business. I will now turn the call over to Jim to discuss our third quarter results in more detail.

Thanks, David. The third quarter was indeed another strong quarter for us. Revenues for the quarter were $3.55 billion, an increase of $188 million or 5.6% when compared to the third quarter of 2015. We saw a $110 million increase in our collection and disposal business from a combined price impacts of pricing and volume, a $60 million increase in revenues from acquisitions net of divestitures, and recycling revenues increased $27 million. These increases were partially offset by an $11 million decline related to lower fuel surcharge revenues. Foreign currency fluctuations had no material impact on revenues compared to the third quarter of 2015. Looking at internal revenue growth for the company, in the third quarter, our collection and disposal core price was 4.7% and yield was 2.1% with total volumes improving 1.6%. Volumes were positive for the third consecutive quarter. The combined positive price and positive volume led to total company income from operations growing $65 million, operating income margin expanding 90 basis points to 18.8%, operating EBITDA growing $71 million and operating EBITDA margin growing 50 basis points to 28.2%. Our collection lines of business continue to see the benefits of improving volume. Industrial volume was up 1.9% in the third quarter, a 150 basis point improvement from the third quarter of 2015, and a 40 basis point improvement sequentially. The commercial line of business showed strong momentum with volumes up 1.2% in the third quarter, a 250 basis point improvement from the third quarter of 2015 and a 90 basis point improvement from the second quarter of 2016. While our residential business volumes were down 2.9% in the third quarter, this reflected a 70 basis point improvement from the third quarter of 2015 and a 60 basis point improvement sequentially from the second quarter. Overall, our collection income from operations grew $26 million and EBITDA grew $38 million in the third quarter. In the landfill line of business, we again saw the benefits of both positive volume and positive yield in the third quarter, just as we saw in the first and second quarters of this year. Total landfill volumes increased 6.9%. MSW volumes grew 6.1%, C&D volume grew 22%, and combined special waste and revenue-generating cover volumes grew 6.7%. More than half of the growth in C&D was due to storm cleanup in Louisiana, but underlying trends remain strong. We achieved core price of 2.6%, an increase of 30 basis points from the third quarter of 2015. The combined positive price and volume in the landfill line of business led to income from operations and EBITDA each growing $12 million in the third quarter. Moving now to operating expenses. As a percent of revenue, these expenses increased 10 basis points to 62.5%. For the third quarter, operating expenses increased $121 million when compared to the third quarter of 2015. Landfill operating costs represented the largest increase, up $29 million. $23 million of the $29 million increase were due to increased leachate cost, which equated to 60 basis points of revenue. The remainder of the operating cost dollar increase related primarily to our increased volumes and costs from acquired operations, with labor costs increasing $28 million, cost of goods sold increasing $25 million, and subcontractor costs increasing $22 million. These increases were partially offset by savings from lower fuel costs. Over the next 12 to 18 months, we expect to see operating expense margin improvements as we add wastewater treatment capacity, and as our increased fuel fleet purchases and MSPO initiative begin to positively impact maintenance costs. For the third quarter, as a percent of revenue, SG&A costs were 9.3%, an improvement of 50 basis points when compared to the third quarter of 2015. On a dollar basis, SG&A costs were $330 million, a slight improvement compared to 2015. We've done a nice job controlling SG&A costs as increases in wages and compensation have been offset by other improvements. Turning to cash flow for the third quarter. Cash provided by operating activities was $753 million, compared to $657 million in the third quarter of 2015. Our operations continue to perform very well as cash flow was driven largely by an operating EBITDA increase of $71 million. During the third quarter, we spent $333 million on capital expenditures, a decrease of $2 million when compared to the third quarter of 2015. Through the first nine months of 2016, we have spent $962 million on capital expenditures, an increase of $98 million when compared to the first nine months of 2015. We still expect the capital expenditures to be between $1.4 billion and $1.45 billion for the full year 2016. In the third quarter, we had $8 million in proceeds from divested assets, a decrease of $28 million from the prior year quarter. Combined, we generated $428 million of free cash flow, a $70 million increase compared to the third quarter of 2015. Year-to-date, we have achieved free cash flow of $1.28 billion. We remain confident in achieving our full year 2016 free cash flow guidance of between $1.6 billion and $1.7 billion. In the third quarter, we paid $182 million in dividends to our shareholders. While we didn't repurchase any shares during the third quarter, we currently plan to start buying back our stock again in the fourth quarter when the window opens. We expect that these late 2016 and early 2017 repurchases will allow us to completely offset the 2017 dilution impacts of our equity compensation plans. Finally, looking at our other financial metrics, at the end of the third quarter, our debt-to-EBITDA ratio measured based on our bank covenants was 2.56 and our weighted average cost of debt was 4.17%. The floating rate portion of our debt portfolio was 13% at the end of the quarter. The effective tax rate was 33.7% in the third quarter. Adjusting for the impairments, the tax rate was 33.5%. We still expect that our full year as adjusted tax rate will be approximately 35%. In summary, year-to-date 2016 has been a very successful year, driven by the exceptional performance from our employees. I want to thank them for their efforts through the first nine months. I know they are working hard to improve our operational and financial performance for the remainder of 2016 and into 2017, and we are confident that they will be successful. And with that, Jinisha, let’s open the line for questions.

I would just like to start with maybe your thoughts on the general environment. We’ve seen commentary around maybe a moderating macro longer-term on the other hand that continues to be some optimism around housing growth, but maybe, Dave, if you could sort of tell us how you’re seeing the picture these days and maybe the sustainability of some of this very impressive growth that you’re seeing?

Yes, we obviously can’t look out a number of years, but we said very often that the best indicator for our business is new housing starts. And as you know, we’ve been running a deficit on new housing starts in the United States since 2009. So, we still haven’t gotten to the point where we’re meeting annual demand for new housing starts. Everything I’ve seen says that’s going to continue to be strong through 2020. Now, obviously, you saw there are some labor challenges in the housing markets, but once those get balanced, I think you’re going to start to see those new housing starts move up from that 1.1 to 1.2 to sort of a 1.4 million to 1.5 million. And you can run at that rate for a good three to four years before you actually catch up with demand. Following those new housing starts, you’ll see commercial businesses come in. So, we see the commercial business remaining strong. And then I think our other lines of business like our industrial and our oil field services, I think oil field services has bottomed out. We should see a recovery; I don’t think that will be a huge, robust recovery in 2017. But I think we’ll see a steady recovery over the next couple of years. So, absent any big political event or big regulatory event, I would expect that we’ll continue to see good volume growth over the next few years.

Now, I might add one thing and that is, while it's sometimes hard to see what the microeconomic climate holds. Demographics are kind of set in stone, and when you look at housing starts as David talked about, you’ve got a big generation, the Millennial Generation, that’s coming into its own in terms of moving out of parent's homes and buying their own houses. So, we feel pretty good about that housing start, which is a direct correlate for us going forward for the next 5 years to 10 years. Yes, our pricing programs, quite frankly, have always been premised on providing better customer service. I always use the cable model. We all get an offer to get lower cable or lower TV service once a week. We will get something that promises us a lower price, but we don’t switch because the pain in switching is high, and the cost differential is not dramatic. So, you have to keep that good customer service because you don’t change TV provider until you start having service issues, and that’s when you take those lower price offers seriously. Customer service is pivotal to the long-term sustainability of our pricing programs. I would say it’s two things that are really driving. One is technology; the use of technology and data, and I would tell you that we’re probably in sort of the second to third inning. But the more important part of customer service is making sure that our customer service folks, our sales folks, and our operations teams are all working hand-in-hand to ensure that we give a great customer experience. Frankly, that’s where we've made a lot of progress over the last two years. Jim Trevathan and his team have done a phenomenal job of creating better connections between our sales folks, our customer service folks, and our operations folks to make sure that we’re all driving to that same goal. Yes, it can go lower; probably about 4% to 5% of that churn is systemic, people going out of business, moving, different things like that. But we think we can continue to get it lower and we expect to do so.

With a couple of specific examples of that, Jim Fish and I listened with our national account team last week. We rolled out in the last year, very specific tools that help us provide for our largest customers some online and real-time information that helps them manage their business more aggressively. It has led us, as Dave and Jim mentioned earlier, to grow national account revenue in total this year, where that’s been a negative drag on our volume in previous years. We’re trying to differentiate that service offering very specifically. The other thing, without getting into any specific metrics; this ties to exactly what Dave said, we’ve added some operating metrics that tie directly to service to our customers, rather than just looking at internal efficiency. That’s really helped us focus on the right things, we think, to add specific value. And I guess, the last thing I would mention is that we've gotten much more aggressive in the process of how we handle service challenges with our customers. Occasionally, we fail, and when we do, we want to correct it quickly and adequately. But we also want to make sure that we renew contracts at every opportunity we get, so we’ve added several process changes that have led us to renew those agreements once an issue, whether positive or negative, occurs. I think it has contributed to the decreasing churn number.

Can you elaborate on the volume side? It was definitely stronger than we anticipated. I expected that as we moved into the second half of the year, your numbers would be flatter or slightly up. Can you explain what surprised you? C&D performed well, but what specifically occurred, and how surprised were you by these results?

Well, look, I think the trend has been there now for about five quarters. So, I would tell you the move up in the volume number was not surprising at all. What I would tell you is, where we've made the most progress, I would say is on the commercial line. We finally flipped the commercial line to positive volume last quarter, and those are the customers that stay with you on average somewhere between 7 and 9 years. They are long-term customers, and we can create that route density. Adding that 1.2% volume on the commercial line, I think is tremendous. I wouldn't say surprised, but I would say that we are happy to see the landfill continue to be so robust. It really doesn't look like that's going to slow down dramatically. Now, we may not continue to see that 22% on the C&D line, but we fully expect to continue to see sort of that 4% to 7% increase in the landfill. We don't see that slowing down, so we've created some good volume momentum, and we'd expect that to continue in '17.

And I don't think you can overstate also the importance of that churn number that Jim just talked about. I mean, when our churn is at 8.7% and it wasn't too long ago that we were in the 11s, that is a big contributor, and it comes as Jim said largely from our focus on customer service which doesn't cause you to lose yield. You keep a good solid customer through improved customer service.

Yes, Jim, the addition rate itself, we talked more about the defection side, but on the addition side, we were up 50 basis points there, providing another quarter that was net positive in the number of customers, not just dollars.

So, performance, David, I want to drill down on two topics. First, on the volume side, you called out the special waste piece, and if I'm not mistaken that's really more fly ash directed. So, could you talk about maybe the duration of that and what it means more for your broader outlook as it moves to volume? I know you’ve said a few things earlier, but is this more a comment that there is reacceleration in the economy from your perspective, and therefore, this landfill and transfer volumes revenue should continue to remain strong for a couple of quarters?

Yes, the ash is actually a very small part, around 10%.

Less than that.

It's special waste, so it’s really a pretty small part. But, we continue to see good growth in that area, and we expect to continue to see good growth in that area. As far as special waste goes, my view of it, Al, is that we never really saw the industrial slowdown. People talk about an industrial slowdown and they focus on a particular sector like the automobile or housing sector. They might focus on a particular sector and say, 'Gee, that shows that there’s an industrial slowdown.' We cover all sectors and we service all sectors, and we really just haven’t seen when you look at it on that basis with all of the industrial business, we really haven’t seen the slowdown. We may see a slowdown in the oil field sector, but we’ll see a pickup in the chemical corridor. Overall, we really haven’t seen the industrial slowdown, and we don’t see it on the near horizon.

And I'd say, but there is no.

I was going to say, Al, part of that answer is because we're well distributed with our asset base across so many geographic areas. Also, as Dave said, specific industries, we are so well positioned along the Gulf Coast with all of the capital being spent to improve the petrochemical industry that we've picked up quite a bit of volume in those hazardous sites along the Gulf Coast while other places show maybe a little bit of weakness and that’s the strength of our company.

I would have thought with the government spending, the election, housing sort of shaking around a little bit, mixed data here, that the volume would not have been as strong. Although, look, I’m not taking anything away; I’m just trying to tease out the duration of the tenure of what you see it looks like to be 2% volume growth for the next several quarters. So, that’s sort of that one the setting out.

Yes, we just don’t see at this point in time that we certainly don’t see momentum stopping.

Well, actually, Al, a piece that's been weak for us has been energy services, and we’re starting to hear a little bit from drillers that they may be looking to add capital expenditures in drilling in 2017. We’re not banking on that, but that would be a benefit to us in the landfill.

If we’re in a 1.5% to 2% volume growth next year, what can we reasonably expect for margin expansion? Is it just still work to do? I know we have leachate cost, but still, other areas that we could look at for the cost item that we can ensure can get margin expansion?

Yes, when you look at the margin expansion, I think that we still have that 50 to 100 basis point. So, when we look at 2017, we probably expect to not get a big benefit from recycling even though we think commodity prices are up. We’ve been bitten by that before, so when we put together our plan we probably won’t expect to get a large benefit from recycling. So, that won’t contribute to the margin. Obviously, we’ve got this leachate expense which will restrain the margin. But what we need to do is get efficiency gains by adding route density, we need to get more dollars of price as we see the construction season beginning next year. We need to do a better job of planning for the construction season and meeting the increased demand that we would expect to see. To meet that, what’s going to drive the margin, obviously the Jims and our other operations folks keep a great eye on SG&A. As you see revenue go up, we pick up basis points there because we’ll hold SG&A relatively flat. I think that 50 to 100 basis points of margin expansion next year will come, probably 40% from SG&A and about 60% from operating side.

That’s perfect guys. And my follow up, if we do see volumes come out a little bit late next year. Is there any way to move in towards maybe stepping up the acquisition side or situations you guys talk about the pipeline there and what you’re seeing on M&A front?

Yes, the last three years, we've sort of done that $50 million to $70 million EBITDA acquisition starting with RCI in Canada and then Deffenbaugh in Kansas City and then SWS in South Florida. We really don’t see, one of those types of acquisitions in the pipeline for 2017. So, we’re going to have to do it one acquisition at a time, doing those $5 million to $25 million types of acquisitions and get our business developers to really go out and start getting some folks to build up those types of acquisitions, so that we can reach. We like to add somewhere between $25 million and $40 million of EBITDA next year, but we’ve got some work to do in order to get that done.

So, just looking at yield being a little bit softer in Q3 relative to Q2, just wondering what do you attribute this to and what do you see as the sustainable rate going into 2017?

Yes. As you know we’ve always said we think that yield should be somewhere around 2%. The overall company was 2.6%; we actually got some positive from recycling and some other areas where we've sort of been negative lately. It’s pretty much right where we expected to be now; we moved that in the back half of the year. We said on the first two quarter conference call that it would probably abate in the second half of the year between CPI and mix that we would see it come down closely to about 2. But you know when I look at pricing increasingly, we’re looking at core price, not yield, because yield has those mix issues in it. Yield has some of the CPI issues in it. But core price is the actual dollar that we’re putting on the street and holding onto in pricing. As you saw, that was up 70 basis points this quarter. We think core price should be sort of at that 4% number year in and year out. We would expect that to continue. We continue to get that 4% plus core price; yield should continue around 2%. But we’re not going to get too worked up over a few basis points of movement here or there based on CPI or on mix. No, we cannot fall into the trap of believing that because prices are rising, we should revert to our old methods of doing business in recycling. As long as I’m here, we will never do that. It will not impact our contracts; we will keep pursuing all possible operating cost reductions in recycling. We do not anticipate any benefits in 2017, but if we do see any, that could help to alleviate some of the increased leachate costs.

Now, when you think about it from a historical perspective, we finished the quarter about $98 in our average commodity price for us. The ten-year historical average is kind of 103ish. So, it’s still slightly below that, and as David has said, we've fallen into the trap before of saying we think this trend continues and we'll build it into the guidance for 2017. At this point, we, while we haven’t put the guidance, we’re probably not going to set high expectations for commodity prices for 2017.

And by the way, to the volume issue, because I think you did ask about the volume too. Most of the increase that we saw and we did see a positive volume in the quarter, but most of that volume was brokerage volume, which is obviously very low margin volume. When you look at the core processing business, as you know we've shed a lot of unprofitable contracts over the last three years. The core business is still seeing some negative volume on the recycling side, but we had really strong brokerage volume.

David, if I heard you right, I think you said you're looking for about 50 to 100 basis points of margin expansion next year. I think you called out 40% of that being SG&A and 60% being operating. Maybe if you can drill into the SG&A, which it was basically at the lowest level that I could find in my model going back to at least 2003. When you look at that going forward, are there any big items that you expect to cut out of SG&A? Or is this more a function of just watching your costs and getting good leverage on that revenue growth?

I do think it is watching the costs. The Jims and the operating folks have done a spectacular job of keeping SG&A flat despite the fact we gave a 2.5% to 3% merit increase every year. They’ve done a nice job of keeping the dollars flat. If revenue goes up, that's where you get the expansion. We've always said, if we can start putting volume onto this sort of high fixed cost structure that we have, that's how we generate margin expansion. We feel like we've got the right level of SG&A in order to meet the needs of the business whether it's in today's environment or in next year's environment where we see volumes continuing to go up. We don't think that we're going to have to add a lot of dollars of SG&A. We've done a nice job on SG&A over the last five years of taking out costs. I would tell you there's not any big dramatic decrease in SG&A. It's just a matter of making sure that you're not adding people that you don't have to add, that you're not adding expenses that you don't have to add. The Jim and the operating guys do a spectacular job of looking at every dollar of SG&A we spend and making sure that it's justified.

I think for Q4, it'll probably look a little bit more like the first half for the year, but the goal is always as it is when we talked about 2017 planning right now to try and hold flat in dollars and then get the benefit as revenue increases. I think Q4 will probably look like the first half of the year than the Q3 itself.

If we’re in a 1.5% to 2% volume growth next year, what can we reasonably expect for margin expansion? Is it just still work to do? I know we have leachate cost, but still other areas that we could look at for the cost item that we can make sure that we can get margin expansion?

When you look at the margin expansion, I think we still have that 50 to 100 basis points. We probably expect to not get a big benefit from recycling even though we think commodity prices are up. We've been bitten by that before, so when we put together our plan, we probably won't expect to get a large benefit from recycling. So, that won’t contribute to the margin. Obviously, we’ve got this leachate expense which will restrain the margin. What we need to do is get efficiency gains by adding route density, and to meet that.....

Well, thank you for joining us as we move into the holiday season. We wish all the best as we move towards the end of the year. Hopefully, everyone on the phone will have a good time with their families and enjoy what the holidays are about. We’ll see you when we release next quarter. Thank you.