Applied Digital - Q1 2025

Transcript

David Rench (CFO)

Good afternoon, and welcome to the Applied Digital's fiscal first quarter 2025 conference call. My name is Julian, and I'll be your operator for today. Before this call, Applied Digital issued its financial results for the fiscal first quarter, ended August 31, 2024, in a press release. A copy of which will be furnished in a report on a Form 8-K filed with the SEC, and will be available in the investor relations section of the company's website. Joining us today, on today's call, are Applied Digital's Chairman and CEO, Wes Cummins, and CFO, David Rench. Following their remarks, we will open the call for questions. Before we begin, Matt Glover from Gateway Group will make a brief introductory statement. Matt, Mr. Glover, please proceed.

Matt Glover (Head of Investor Relations)

For 2025 conference call. Before management begins formal remarks, we'd like to remind everyone that some statements we're making today may be considered forward-looking statements under securities laws and involve a number of risks and uncertainties. As a result, we caution you that there are a number of factors, many of which are beyond our control, which could cause actual results and events to differ materially from those described in the forward-looking statements. For more detailed risks, uncertainties, and assumptions relating to our forward-looking statements, please see the disclosures in our earnings release and public filings made with the Securities and Exchange Commission. We disclaim any obligation or undertaking to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made, except as required by law.

We also discuss non-GAAP financial metrics and encourage you to read our disclosures, reconciliation tables, and the applicable GAAP measures in our earnings release carefully as you consider these metrics. We refer you to our filings with the SEC for detailed disclosures and descriptions of our business, as well as uncertainties and other variable circumstances, including but not limited to, risks and uncertainties identified under the captioned risk factors in our annual report on Form 10-K and our quarterly report on Form 10-Q. You may get Applied Digital's Securities and Exchange Commission filings for free by visiting the SEC website at www.sec.gov. Lastly, I'd like to remind everyone that this call is being recorded and will be made available for replay via a link in the Investor Relations section of Applied Digital's website.

Now I'd like to turn the call over to Applied Digital's Chairman and CEO, Wes Cummins. Wes?

Wes Cummins (Chairman and CEO)

Thanks, Matt, and good afternoon, everyone. Thank you for joining us for our fiscal first quarter 2025 conference call. I want to start by expressing gratitude to our employees for their ongoing hard work and service in supporting our mission of providing purpose-built infrastructure to the rapidly growing high-performance computing industry. Before turning the call over to our CFO, David Rench, for a detailed review of our financial results, I'd like to share some recent developments across our business. After the close of the quarter, our balance sheet significantly improved due to the strategic investments from a group of institutional and accredited investors, NVIDIA and related companies. We sincerely appreciate the vote of confidence from our investors and look forward to deploying this capital in high return projects in the digital infrastructure sector. Next, I'll give an update on our progress of our Ellendale HPC campus.

Building continues on schedule. We are finalizing the lease with a U.S.-based hyperscaler. Additionally, we're progressing with our site-level debt financing, which is expected to close shortly after the lease is executed. We see this initial 100-megawatt building as just the beginning for Applied Digital, as we have currently designed two additional buildings at this location and will expand our capacity to 400 megawatts. Simultaneously, we're exploring opportunities to accelerate the monetization of our over 1.4 GW pipeline. Now, I provide an update on each of our business units, starting with our data center hosting business. We currently have 286 MW of data center hosting capacity for our cryptocurrency clients across two fully contracted locations in North Dakota, which are operating at full capacity. Next, let's discuss our cloud services business, which provides high-performance computing power for AI applications.

This segment continues to experience growth as we fulfill our existing contracts and explore new opportunities in our pipeline. As of the end of the first quarter, we had six clusters online. We have made significant progress on amending the lease financing for our GPUs, which we expect to complete in the current quarter. The amendment, as contemplated, will allow us to amortize the value of the GPUs over the expected useful life versus the life of the lease, which will significantly improve our reported results and more accurately reflect the economics of this business. Our recent investment round has significantly increased visibility in the market for our cloud business, and we expect to deploy additional clusters starting in the second half of our fiscal year twe, which begins December first. In summary, we're encouraged by the positive trends across our business and remain confident in our growth trajectory.

With that, I'll now turn the call over to our CFO, David Wrench, to walk you through our financials and provide an update on guidance. David?

David Rench (CFO)

Thanks, Wes. Let me begin by highlighting our revenue growth, which increased by 67% to $60.7 million this quarter. This growth was primarily driven by contributions from cloud services contracts. Specifically, our data center hosting segment generated $34.8 million in revenue, while our cloud services segment contributed $25.9 million. While we did see an increase in cost, this was largely due to higher depreciation and amortization expenses. For the quarter, depreciation and amortization totaled $34.4 million, up from $8 million in the same period last year. It's also important to note that we're currently incurring significant expenses related to data center leases for our cloud business, as we have not yet deployed GPU clusters in those locations. As a result, the company incurred $4.1 million in expenses this quarter for facilities that are not yet generating revenue.

Our plan is to utilize these data centers in the future, which will help offset these costs. Our Adjusted EBITDA for the quarter increased significantly to $20 million. Our Adjusted Net Loss for the quarter was $21.6 million, or $0.15 per basic and diluted share, based on a weighted average share count of 149 million shares. Turning to the balance sheet, we ended the fiscal first quarter with $86.6 million in cash, cash equivalents, and restricted cash, alongside $143.6 million in debt. Lastly, shareholders' equity was $241.8 million, which has nearly doubled over the past three months, driven by a recent cash infusion from large investors. Now I'll turn the call over to Wes for closing remarks.

Wes Cummins (Chairman and CEO)

Thank you, David. As many of you know, we were among the first in the industry to recognize substantial power demands necessary to support the compute requirements for running advanced AI workloads at scale in large-scale, high-density data centers. In response, we began construction late last year on a state-of-the-art 369,000 sq ft facility, specifically designed for HPC applications. We believe our proprietary data center design and architecture redefines what's possible for advanced HPC by supporting advanced cooling, extreme power density, security, interconnectivity, compliance, and control requirements in a purpose-built facility. This significant early investment in the industry positioned us to now be in advanced contract and site-level financing discussions regarding a lease for our North Dakota campus with a U.S.-based hyperscaler. In addition, we believe we are witnessing rising demand for our proprietary and purpose-built HPC data centers among top-tier industry players.

We believe this trend, together with higher lease rates and attractive site-level debt financing for our facilities, positions us to be an early thought leader in this high-growth market segment. Recent announcements from leading hyperscalers underscores the need for thousands of these facilities and reaffirms the strategic direction we are pursuing. In the past five weeks, we have seen a substantial increase in interest and demand from other top-tier hyperscalers for 2025 and 2026 capacity, which is in extremely short supply. The fact that we are building and can deliver significant capacity for 2025 and have assembled a highly experienced team, is allowing us to break into this high-growth market segment as a full stack developer for hyperscalers. We believe this will allow us to monetize our other campuses that will have power available in 2026.

Furthermore, we believe the strategic investments from prominent investors strongly affirms that we're on the right path. We believe this growing recognition not only strengthens our market position, but also highlights the immense potential for our strategic plan. Our vision is to become a platform capable of building and operating multiple HPC data centers at scale. We're excited about the potential catalysts ahead, and we'll continue to allocate our capital strategically to achieve optimal risk-adjusted returns and maximize shareholder value. As we continue to navigate our expansion and growth, we are making some moves among our executive team that will, that are intended to better position us. David Rench will assume the role of Chief Administrative Officer, and Saibal Momen will assume the role of Chief Financial Officer, with these changes to be effective Monday, October fourteenth. At this time, we welcome your questions. Operator?

Operator (participant)

Thank you. We'll now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. Confirmation tone will indicate your line is in the question queue. You may press star two to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up a handset before pressing the star keys. One moment while we pull for questions. Thank you. And our first question comes from Lukas Pipes, B. Riley Securities. Please proceed with your question.

Lucas Pipes (Analyst)

Thank you very much, operator. Wes and team, congratulations on the recent investment round and the progress. Wes, my first question is about the lease negotiation, and it was my prior understanding that you had extended the exclusivity period under the LOI, and I wondered, has that exclusivity period expired, or has it been renewed, or are we still operating under that exclusivity? Thank you very much for any comment.

Wes Cummins (Chairman and CEO)

Sure. Hey, Lukas, how are you? So the exclusivity period has officially expired. We chose not to renew exclusivity. We're just pursuing the finalization of the actual lease document. Then I think neither party saw any reason to extend the exclusivity just to complete the document.

Operator (participant)

Thank you. Our next question comes from Darren Aftahi, Roth Capital Partners, LLC. Please proceed with your question.

Darren Aftahi (Analyst)

Hi, guys. Thanks for taking my questions, and congrats to Saibal and David on their appointments. Could you clarify something? First, in the PR, it talks about the finalization of the lease with the hyperscaler for 100 megawatts. So I just wanted to be clear, is the lease just for 100 megawatts, or do they... is that hyperscaler have options on additional capacity at the campus?

Wes Cummins (Chairman and CEO)

Yeah, Darren, thanks. So what you should expect, and I think we've always talked about this, is the initial lease will be 100, and then the other 300 will be in a different form. But the expectation is that the lease will include a reservation on the other 300 MW. I think we talked in the script, we're already designing those facilities or largely designed those facilities. We've started some earthwork on those, some early work to get moving. We've, you know, I feel like we've ran through this several times, you know, about the winters in North Dakota. So we've already started making progress on those, but the expectation is that single tenant will take the entire campus, but it will come in two leases.

Operator (participant)

Thank you. Our next question comes from Rob Brown, Lake Street Capital Markets. Please proceed with your question.

Rob Brown (Analyst)

Good afternoon. Maybe moving to the GPU business, you talked about additional clusters, and I guess you're running at pretty strong demand there, full capacity. What's your thoughts on additional clusters, and how do you see the timing on that?

Wes Cummins (Chairman and CEO)

Yeah. So Rob, as we talked about in the script, the, we expect to start deploying additional clusters. We have capacity that we're holding, data center capacity at very attractive prices, I would add, for the deployment of those additional clusters. We see the demand in the market there. You know, the thing that's going on in the market right now is, do customers want to deploy Hopper, or do you want to wait and move to Blackwell when you're really in the, you know, the later part of the first half of next calendar year? So we're having those discussions, and that's really what we're looking at. But we expect in the second half of our fiscal year, which, as you know, starts, you know, December first, to begin deploying additional clusters again.

We've done a lot of work to make sure that we're doing the right type of financing so that, again, the P&L, you know, that I talked about with the rework of the leases that we have, that we recognize the depreciation appropriately, that the payment schedule pushes out to three years versus two years, so that it matches better the business model. So we've done a lot of work over the past nine months to make sure that we have the appropriate financing to push that forward. We have a lot of interest. We got a really good boost, you know, from the investment back in September, and a lot more visibility on us. So you should expect that we start deploying additional clusters under a different financing structure in the second half.

Operator (participant)

Thank you. Our next question comes from Mike Grondahl, Northland Securities. Thank you. You may please proceed with your question.

Mike Grondahl (Analyst)

Yeah, guys. Hey, Wes, just talking about the demand environment and after the 400 MW are leased up, have you already started talking to potential customer number two or number three? And, you know, any ideas on where that data center might be located?

Wes Cummins (Chairman and CEO)

Yeah. So, thanks for the question. So as I alluded to a little bit in my prepared remarks, we since our last call, so in late August, last week of August, through the month of September, we saw a significant increase in activity. We're one data point, so I don't want to make a market call on that. But we saw a significant amount of inbound interest from three additional hyperscalers. We've talked about the hyperscalers we typically target in the past, but three of those additional to the one we're working with in North Dakota are pushing aggressively for 2025 and 2026 capacity. We're marketing the sites that we have to those customers, but from our perspective, we've seen a significant step up in the demand for especially 2025 and 2026 capacity.

You know, twenty-five is basically gone at this point. There's no additional twenty-five capacity out there that will have the 100 MW in Ellendale for twenty-five. That's a lot of people have started moving to the first half and even the second half of twenty-six. But we're seeing a significant amount of demand and, you know, working to get into another LOI at a different location, likely to be in the Dakotas. I wouldn't say North Dakota, but likely to be in the Dakotas for us for that second site. But we are seeing a significant amount of demand for what we have.

Mike Grondahl (Analyst)

Would you think you have an LOI in calendar 2024 or early 2025? Any rough guess as to when that LOI is possible?

Wes Cummins (Chairman and CEO)

Yeah, I think just from the activity that we're seeing, we could see something by the end of calendar 2024 for an additional site. This is such a dynamic market for us, Mike, as we're seeing, you know, a lot of things happen. We've had, you know, for this quarter at least, we've had a lot of good things happen for us, the quarter that we're currently in, you know, the investment. We've had some really big progress on supply chain. There's some things going on in the industry where we're seeing projects get pushed because power timelines are getting pushed.

We've seen, just as an example, a little over 400 megawatts of backup gen hit the market for projects that had their power timelines pushed, you know, several years, if not longer, so they're being resold into the market, so we've taken advantage of that recently, so there's a lot of, you know, things at play here in the industry, and it's very dynamic, and we're trying to be as nimble as we can to take advantage of those things. Because it'll help us, from a supply chain perspective, accelerate both the building two and three in Ellendale, but also additional sites, so just a lot of things happening.

Mike Grondahl (Analyst)

Okay. Thank you.

Operator (participant)

Please proceed with your question.

Did you call on me by chance, George Sutton?

Wes Cummins (Chairman and CEO)

I can hear you, George, so it must be you.

Okay, sorry. Nothing, it's George Sutton. So, I'm wondering if you could give us a little more specificity on the finalization of the lease. What remains? My assumption has been that you've been trying to determine a delivery date based in part on the connections into the facility and in part based on the backup. So is that still where we stand on the lease?

That's not really the issue left on the lease, but let me clarify that, George. I think there was some confusion around that on the last call. So, you know, I was talking about when lease revenue actually starts. So, and I've said that it's, you know, it's really gonna be, in some ways, up to the tenant. And so just to clarify what that is: so the facility will be ready earlier in the first half of 2025, single feed, and then in the middle of 2025, dual feed, and then in the second half of 2025, dual feed with backup gen. And so technically, the client could take power if they're willing to go single feed with just UPS redundancy, then do they want to wait for dual feed?

And so I think, you know, from a safe, safe perspective, you know, looking at the second half of full backup gen, dual feed, so the full redundancy on site. So I think there was a little confusion. Just trying to clear that up. There's very little left on the lease, George. It's really just, you know... I try to handicap this, and I've been wrong on handicapping it several times. We feel really confident that this lease will get finalized, and in reality, this could happen in a matter of days. It could be six weeks. There's some time in that window, maybe, you know, on the outside chance of eight weeks. But, you know, it's somewhere in that window, and there's not really anything specifically holding the lease up.

It's just the process. We don't control the process. You know, we push on it as hard as we can, but we're really confident in the lease getting done. And then we've done a lot of work around the site-level financing. We have the bank group lined up there. You know, they're ready to fund as early as the end of this month, as you know, whenever the lease gets signed. So we have all of the pieces lined up to go, and this will, you know, get finalized, and we'll announce when it's finalized and then work through the funding at that point, which will be shortly thereafter. But I wish, George, I could give you very specific things, but we just don't control the process.

The color I would add here is, you know, we're a first-time supplier. This is a really large contract for us, but I think even for the customer that we're working with here from just the size and the length of the contract. From third parties, I have heard that typically, as a first-time supplier to this customer, you know, it can take 12 to 18 months to get through, so we're at about the sixth month. So it's moved really fast, and we feel like we're at the very end of this. So I'm just trying to give as much color as I can, but obviously we've missed a few deadlines on our expectation here.

But the work that we're doing with them just keeps moving forward, you know, every day and pretty significantly every week. And so, from every, you know, piece of information that we have, we feel really confident that this will get signed. It's just hard to handicap when that actually happens.

I'm gonna assume not as soon as the next hurricane, but hopefully before the one after that. So, if we look at building two, you mentioned that you're starting to move dirt. I know you don't want to do this on your balance sheet. Can you give us a sense of how you're beginning to structure buildings two and three, kind of where all that sits?

Yeah. So, you know, dirt work relative to... or the earthwork relative to the, you know, the cost, relative to the total cost of the building is really minuscule. So it's one that's kind of easy to go ahead with. You know, we've been working through the design. There will be a few design modifications. If you're not improving, you should be improving every time, so we should expect some modifications. Plus, it's gonna be... You know, it's expected right now to be 150 megawatt IT load in that building versus 100. So there's some changes, but we're pushing you to have that building ready in the second half of calendar 2026, and then the third building in the second half of calendar 2027.

And so we need to. We've done a significant amount of work already. Not expensive dollar-wise work, but a significant amount of work to make sure that we can meet those timelines.

All right. Thanks for the clarity.

Yep.

Operator (participant)

Thank you. Our next question comes from John Todaro, Needham & Company. Please proceed with your question.

John Todaro (Analyst)

Hey, hey, Wes and team. I guess sort of two here, both related to the lease. You had mentioned that there's gonna be two leases, 100 megawatts, and then the additional 300. Do we think economics is gonna be kind of the same for each, or should we think kind of better economics maybe for the first 100, and then they negotiate a little bit harder on the other 300? Any kind of color there. And then just second point, at least as it relates to the first lease, are kind of all the key items we should think about negotiated, and now it really is almost just kind of a clerical part that could take up to 6 to 8 weeks here?

Wes Cummins (Chairman and CEO)

Yeah. So thanks, John. And again, I don't want to say that it could take up to, it's a little, again, a little bit of a guessing game. But yeah, you're characterizing the second part of that correctly. On the first part, two leases, they're two different structures, but economically, they'll look really similar, if that makes sense.

John Todaro (Analyst)

... Okay, so kind of that, that previous, economics on revenue and EBITDA, we should-

Wes Cummins (Chairman and CEO)

Yes.

John Todaro (Analyst)

Still be kind of thinking about as we model it. Okay.

Wes Cummins (Chairman and CEO)

Yes, but one of the leases, you know, is expected to be a kind of a colo-style lease, where you lease on a $1 per kilowatt per month, and the remainder a yield on cost model that's more traditional for hyperscalers, but economically, they'll look very similar.

John Todaro (Analyst)

Got it. Understood and just the second point, just to clarify, you would kind of characterize it as kind of mostly in a clerical phase at this point, I guess?

Wes Cummins (Chairman and CEO)

Yes.

John Todaro (Analyst)

Okay. Thank you, Wes.

Wes Cummins (Chairman and CEO)

Yep.

Operator (participant)

Thank you. Our next question comes from Kevin Dede, H.C. Wainwright. Kevin, please proceed.

Michael Donovan (Analyst)

Hi, Wes and David. This is Michael Donovan calling in on behalf of Kevin. For cloud services, can you discuss what you're seeing with customer turnover, and how has pricing changed with demand?

Wes Cummins (Chairman and CEO)

Yeah, so pricing, you know, surprisingly, is has been somewhat flatlined for, boy, almost the last year on the... Let's just call it on Hopper, from an hour for bare metal. So let's stick to bare metal on a GPU price per hour, has been pretty flatlined. I mean, we're still, you know, quoting out in the twenty, or the, sorry, two, two twenty-ish range on average per hour. And then, on customer turnover, you know, we keep expanding with our largest customer. We have a customer that has got, you know, a more of a question mark around it in Character.AI with the changes that have happened there and the payment. You know, I don't know the details of the payment.

I think everyone here knows the same details I do, which is what I read in The Wall Street Journal of roughly $2.7 billion, I believe, was the number. So there's some question marks around that, and there's a chance we swap customers out there, but we have demand for those clusters to continue to grow. I'll go back to what I've been talking about the last couple of calls, which is we're very focused on the enterprise market, which has been a developing market, and we're seeing more and more demand in the enterprise market. What I would say about the AI lab and the kind of the AI startup market is I feel like it's gotten much more prudent in that market.

You're seeing a lot better. You know, a lot more thought going into business models instead of, you know, if you went back fifteen or eighteen months, you were looking at how, you know, how many GPUs can I get online and how quickly? So I think people are looking more around, you know, business models, and I, you know, I actually feel a little more comfortable around those companies. And I think we have, you know, in our largest customer, in Together AI, just a company that thinks about that a lot and has some really great customers on their end and a wide range of customers as well.

But that market's still seeing, you know, significant demand growth. We're seeing new entrants, you know, from a customer side perspective in that market, both on the enterprise and you know, back to the AI labs and the AI startups. But the pricing has been largely stable there.

Michael Donovan (Analyst)

Okay, I appreciate that, Wes. Then for more of a conceptual question, are you guys trying to engineer any solutions for heat recirculation? And if so, are you think about obtaining customers to offset power costs there?

Wes Cummins (Chairman and CEO)

Yeah, you mean on heat capture for the data centers?

Michael Donovan (Analyst)

Exactly.

Wes Cummins (Chairman and CEO)

Yeah. So we've been spending a fair amount of time on, you know, methods for that. With our Bitcoin data centers, it's much harder, so you're doing air-cooled, it's much harder to capture the ambient heat you create for any use case. But with the HPC facility, the Ellendale Two facility, as we move to liquid cool, it creates a much easier opportunity to capture that waste heat that's created in the facility and look to, you know, for opportunities that we could co-locate. In the areas that we're in, we really need to look towards agricultural opportunities to offload that heat, and we're examining that, and we expect to start deploying some of that in the calendar 2025 as that facility comes online.

But you're really thinking about things like, you know, greenhouses or aqua farming or mushrooms, or things that are agriculturally based in the areas we are in North Dakota for that, to try to make use of that waste heat or the waste heat from the facility.

Michael Donovan (Analyst)

Okay, great. Thank you, Wes.

Wes Cummins (Chairman and CEO)

Absolutely.

Operator (participant)

Thank you. Our next question comes from John Gruber, from Gruber & McBaine. Please proceed with your question.

John Gruber (Analyst)

Yeah.

Yeah, very good, jazz on the, on the music on the call. Wes, my question is: your last call, we were at 90%. Are we at 91% or are we at 99.5% now? Where do we stand as sort of... You rated, you gave us a rating last call.

Wes Cummins (Chairman and CEO)

It's a great question, John, and I, you know, I think if I remember correctly on the last call, you know, 90% of the work complete, and I think I had trouble handicapping what the, you know, the timeline is on the last ten. But I would say that we're, you know, 98.5% or 99% there. We're, it's, you know, mostly just like John asked you, clerical at this point for us. So, like I said, I wish we had more control of the process, but, you know, we're, we push where we can, but I think we're at the very end of this process. The team's done a great job getting there.

John Gruber (Analyst)

Thank you.

Wes Cummins (Chairman and CEO)

Absolutely.

Operator (participant)

Thank you. Our next question comes from Darren Aftahi, Roth Capital Partners, LLC. Please proceed with your question.

Darren Aftahi (Analyst)

Hey, guys, just a follow-up, Wes, on the comments you made about the two leases. I'm just kind of curious. So when you talk on yield on cost on the second one, is there a target range that you guys are looking at in terms of that? And then I guess on the second lease, given the way you kind of, what about kind of building before maybe getting a client booked? Are you looking to get some sort of prepayment piece to help fund buildings two and three going forward? Thanks.

Wes Cummins (Chairman and CEO)

So Darren, on, I'm not going to talk about the actual yields for lease rates, for our pricing there. I think it's premature to talk about that. But it still fits in the model that we've really always talked about from an economic perspective. You know, as far as the expectation for buildings, you know, two and three, or B and C, as our vernacular is internally, you know, we'll do. We're, like I said, we're putting some money in, very, very low dollars, not big CapEx spend. The expectation is we'll have a lease signed and project financing in place to build there, and so we won't go through anything close to what we did on the first one, where we're, you know, we've...

Where I've repeated, I think, again and again, that I think the way for us to break into this market as a full stack developer was speed to market, and I think that's working out well for us. But on building two and three, expect that it will get signed before we're doing any big CapEx dollar spend. But I will say from a market perspective, just going back to the market and what we've seen, you know, the last, you know, really in the month of September, we are seeing those, you know, potential offers out there from hyperscalers of offering capital to build and upfront payments. We have a, we're, you know, down that, we'll be down that for some of our other campuses.

but we are seeing some of that in the market just as a, you know, it speaks to the demand for twenty-five and twenty-six and the scarcity of what's out there.

Darren Aftahi (Analyst)

Thanks.

Operator (participant)

Thank you. There are no further questions at this time. I would like to turn the floor back to Chairman and CEO, Wes Cummins, for closing remarks.

Wes Cummins (Chairman and CEO)

Thanks, everyone, for joining us on the call. Look forward to speaking with you in January.

Operator (participant)

Thank you. This does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.