In the Second Quarter Fiscal Year 2024 earnings call, Tennessee Valley Authority (TVA) CEO Jeff Lyash outlined the company's solid financial performance and strategic investments in clean energy. TVA reported a net income of $434 million for the first half of the year, $285 million higher than the previous year, with a total debt and financing obligation of $20.4 billion.
The company is investing heavily in its power system, with plans to retire the Kingston Fossil Plant by 2027 and replace it with a modern energy complex. TVA is also exploring advanced nuclear technologies, including the potential deployment of a BWRX-300 Small Modular Reactor (SMR) at the Clinch River site.
Key Takeaways
- TVA's net income for the first half of the year was $434 million, driven by increased base revenues and lower fuel costs.
- The company's total debt stands at $20.4 billion.
- TVA plans $15 billion in capital expenditures over the next three years for system improvements.
- The Kingston Fossil Plant is set to retire by 2027, with a new energy complex planned on the site.
- TVA is investing in advanced nuclear technology and exploring the deployment of a BWRX-300 SMR.
- Industrial sales have grown, while local power company sales have remained flat.
- TVA is working on a new integrated resource plan, considering EPA regulations.
Company Outlook
- TVA is prioritizing operational excellence and reliability in its power system.
- The company is on track with its capital plans and expects to maintain financial health.
- Natural gas prices are anticipated to stay low, benefiting the company's cost structure.
Bearish Highlights
- Average local power company sales have not grown, remaining flat over the past two years.
- The decrease in fuel cost recovery by $437 million has offset the increase in base revenue.
- New EPA regulations on coal ash and coal plant emissions could impact future operations.
Bullish Highlights
- TVA's diverse generating fleet has contributed to lower rates for customers.
- The renewables and hydro sectors are recovering after a drought period, enhancing energy mix.
- The company is benefiting from strong industrial sales.
Misses
- Despite increased base revenues, the overall effective rate is 4% lower due to a decrease in fuel cost recovery.
Q&A Highlights
- TVA is not ruling out the construction of large-scale nuclear reactors in the future.
- The integrated resource plan's release has been delayed for further input and consideration of EPA regulations.
- TVA is committed to complying with EPA rules, which may accelerate coal plant retirements.
TVA's CEO Jeff Lyash emphasized the company's commitment to a clean and resilient energy future. With significant investments in system hardening and clean energy, TVA is retiring coal units and focusing on nuclear power as a key component of its strategy. The company's financial performance remains strong, supporting its ambitious capital expenditure plans and the transition to a more sustainable energy portfolio.
InvestingPro Insights
Tennessee Valley Authority's (TVA) recent financial performance reflects a mix of challenges and strategic progress. The latest data from InvestingPro underscores some key financial metrics that are particularly relevant for investors following the company's transition to clean energy and system improvements.
InvestingPro Data indicates that TVA's revenue in the last twelve months as of Q1 2024 stands at $11.8 billion, with a noticeable decline in revenue growth, reporting a -9.0% change. This contraction is mirrored in the quarterly revenue growth figure, which shows an -8.29% dip for Q1 2024. Despite these headwinds, the company has maintained a solid gross profit of $4.475 billion and a gross profit margin of 37.91% in the same period, which speaks to the efficiency of TVA's operations amidst its strategic shifts.
The company's operating income, adjusted EBIT, and EBITDA are also significant, with the latter at $4.245 billion, although it has experienced a decline in growth of -12.42%. These figures highlight TVA's ability to generate earnings before interest, taxes, depreciation, and amortization, which is a critical factor for investors assessing the company's financial health and operational performance.
An InvestingPro Tip for those interested in dividend income is that TVA's ex-date of the last dividend was April 29, 2024, which is an essential date for shareholders to be entitled to the most recent dividend payment.
Investors should note that the stock's price at the previous close was $21.58, reflecting the market's current valuation of TVA amidst its operational and financial developments.
For those looking to dive deeper into TVA's financials and strategic outlook, InvestingPro offers additional insights and tips. There are currently several more InvestingPro Tips available that can provide a more comprehensive analysis of TVA's performance and future prospects. Interested readers can use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking access to these valuable investment resources.
Full transcript - Tennessee Valley Authority (TVE) Q2 2029:
Operator: Good morning, everyone and welcome to the Tennessee Valley Authority's Second Quarter Fiscal Year 2024 Conference Call. For your information, today's conference call is being recorded. All participants will be in a listen-only mode. [Operator Instructions] At this time for opening remarks, I would like to turn the call over to Mr. Tom Rice, TVA, Vice President, Treasurer and Chief Risk Officer. Mr. Ric, please go ahead.
Tom Rice: Thank you, Gary, and good morning, everyone. Welcome to TVA's second quarter 2024 financial review. Today, I have with me TVA's Chief Executive Officer, Jeff Lyash; and TVA's, Chief Financial and Strategy Officer, John Thomas. Jeff will begin with the business update, and then John will follow with a review of TVA's financial performance. And after their prepared remarks, the call will be opened up to give participants the opportunity to ask questions. Now a few quick housekeeping items before we begin. Today's press release and our quarterly report on Form 10-Q are available on TVA's website, tva.com as will be a replay of this webcast for a period of one year. And today's discussion may include forward-looking statements that are subject to various risks and uncertainties. Please refer to our quarterly report on Form 10-Q for the quarter ended March 31, 2024, and our annual report on Form 10-K for the year ended September 30, 2023, for a discussion of these factors. With that, I will turn the call over to TVA's President and Chief Executive Officer, Jeff Lyash. Jeff?
Jeff Lyash: Okay. Thank you, Tom. Good morning, everyone, and thank you for your time today. At TVA, we remain focused every day on carrying out TVA's mission of service. That's providing affordable, reliable, resilient and clean power for the Tennessee Valley region. As you know, our work is guided by strategic priorities that will help TVA continue its mission for decades to come. Today, I want to focus on developments in a few of these areas, then John is going to give an update on our financial performance. Operational excellence is a top priority for TVA and TVA has one of the most reliable systems in the nation. But this priority is about ensuring we need power demand when it matters the most, like this past January when TVA set several new power records and in the hot summer months that are ahead of us. As I've outlined in recent updates, TVA has been making investments to ensure the reliability and resiliency of our system. These enhancements are helping to ensure, we deliver reliable energy through periods of extreme demand. TVAs invested nearly $123 million and completed 3,400 Winner ReadyMix activities to harden our system. And this year, TVA is investing even more to further enhance reliability. TVA also continues to modernize and expand its existing fleet even as we pursue new technologies. We invested $20 billion in capacity expansion and base capital in our system over the past decade, and our plan expects $15 billion in additional capital expenditures over just the next three years alone. This includes TVA's investments at the Colbert and Paradise site, which added almost 1,400 megawatts of new natural gas-fired power capacity and enhanced our reliability. These assets will play an important role in helping us meet high demand during the upcoming summer season. We're executing our clean energy strategy focused on several areas. One of these is preserving and extending our existing nuclear fleet and achieving best in industry performance. TVA's provided 43% of TVA's power supply in the first half of fiscal year 2024. And each of TVA's nuclear plants, Browns Ferry, Sequoyah and Watts Bar has been recognized for industry-leading performance. The importance of our nuclear operations is only growing as TVA looks to further reduce carbon emissions. We will be seeking to renew the licenses for all of TVA's nuclear units for extended 20-year additional terms. And our first renewal application has already been submitted to the Nuclear Regulatory Commission for the three units at Browns Ferry. TVA is building the energy system of the future. We're doing this to ensure low cost, high reliability and increasingly cleaner generation, which enables ongoing and future economic growth for the 10 million people who live in the Valley region. In April, we announced that the Kingston Fossil Plant will be retired by the end of 2027, and that TVA will be building a state-of-the-art energy complex on the Kingston site. Plans for this new energy complex call for at least 1,500 megawatts of combined cycle and dual fuel capable aeroderivative combustion turbines, along with 100 megawatts of battery storage and solar energy. This will be a first-of-a-kind facility at TVA and the natural gas generation will be in operation prior to Kingston fossil plants retirement to ensure uninterrupted power for our customers. This combination of natural gas, battery storage and solar is the best overall solution based on technology that's available today to provide low-cost, reliable and clean energy to the TVA power system. The diversity of our generation portfolio enables TVA to better meet changing market conditions and supports energy security for our customers at the lowest system cost. And natural gas capacity provides critically important flexibility to reliably integrate renewables like solar into our system. I also want to point out that we are mindful of the impact on employees and communities when we make these difficult decisions. We always want to ensure a just transition. Just like with other coal retirements, we have a detailed workforce plan in place for Kingston to maintain plant expertise and provide opportunities for employees to evaluate career options. The Kingston decision was made under TVA's current Integrated Resource Plan, which recommended TVA complete a study of its coal and gas units to better understand their condition and potential end of life. The coal study identified that the Kingston units need to be replaced by the end of 2027. TVA will continue to evaluate the remaining coal fleet for retirement by the mid-2030s, as we make these critical decisions, TVA must balance keeping power prices as low as feasible, maintaining reliability and a sustainable power supply for tomorrow as we seek to further reduce carbon emissions. Along with the rest of the utility industry, TVA is undergoing a historic transformation as it works to reduce carbon emissions while meeting the load growth driven by economic development and electrification. We're aware that there are questions about the EPA's new rule regulating emissions from coal and gas plants and how that impacts TVA's asset strategy. TVA is studying the role to understand its requirements. However, I want to point out that TVA's direction in adding newer and cleaner capacity considers affordability, reliability and sustainability. We must balance all three of these in making asset decisions. Also, one of TVA's priorities is igniting innovation, particularly around reducing carbon emissions, which is consistent with the intent of the EPA's role. TVA's charting a course to carbon reduction aligned with its mission and mandate to deliver affordable, reliable, resilient and importantly, clean energy. We made great progress in reducing carbon emissions by 58% from the 2005 baseline and its carbon intensity by 53% through calendar year 2023. TVA has one of the nation's largest, most diverse and cleanest energy systems with nearly 60% of our generation already coming from carbon-free sources. We operate the nation's third largest nuclear fleet, a hydro fleet, and we're deploying additional renewable energy and retiring the remaining coal fleet, while also ensuring high reliability and low power rates. Meeting increasing electricity demand while decarbonizing affordably and sustainably will require more carbon-free dependable capacity. That's why supporting innovation is another top priority for TVA. Advanced nuclear in particular, holds a great deal of promise as a dispatchable carbon-free technology that it can enhance the integration of other clean energy sources. As TVA works towards net zero carbon emissions, it's embracing a national leadership role in the development of new nuclear technology. Work continues under our agreement with GE-Hitachi to support TVA's planning and preliminary licensing for a potential deployment of a BWRX-300 SMR at the Clinch River site. And TVA is working with partners to support the development of other emerging technologies. We look forward to releasing our updated sustainability reports. This will highlight more details on TVA's carbon journey and work to develop these new technologies. So let me conclude with a recap and a few additional highlights during this midpoint in our fiscal year. In terms of powerful partnerships, most of the 153 local power companies we serve are on a 20-year long-term contract with TVA now and received a base rate credit of 3.1%. These credits totaled $101 million through just the first half of this fiscal year and $865 million in total now since the long-term option was introduced in 2019. These credits are real savings. Staying in local communities that recognize the benefits both TVA and our customers receive from longer-term partnerships and working closely on planning for future growth and the energy transition. In terms of people advantage, TVA was honored to be named recently to Forbes list of America's Best Large Employers again in 2024. We appreciate this recognition of TVA's strong record in attracting and retaining talent in a competitive market. I look forward to updating you on our progress on these and other developments as the year progresses. Let me now turn the call over to John Thomas to discuss our financial performance. John?
John Thomas: Thanks, Jeff. So, I'll begin with the highlights. One of the three elements in TVA's mission is to provide rates as low as feasible for our customers. And in spite of the fact that we had a base rate increase last for 2024 as well as the pandemic credit expiring, the effective rate our customers have paid for the first six months of this year is lower than the previous year. In large part due to the diverse generating fleet that we have that helped us take advantage of lower commodity prices in the first half of the year. Overall, our net income is higher, driven somewhat by the higher base revenues that we've seen, and I'll talk more about that in a moment. I'll start with weather because it's a big factor for us. So this chart shows you the degree days versus normal, and you can see that 2024 is another very mild year. We did have a couple of cold snaps come through, but overall, it was a very mild year. 2023 was also a very mild year. So when you look at weather year-over-year, we actually have an increase in load, but still a very mild year, and if you look, the last five years have been below normal in terms of degree days. So moving on to look at our sales, overall sales were higher by 3.1%. This was driven somewhat by the weather that I just mentioned. Again, a mild year, but not as mild as the previous year, and a little bit by load growth. I would say that we saw strong -- we've seen strong industrial sales during the first six months of this year, however, other average local power company sales have been generally flat over the last two years. If you look at our base revenue, our base revenue because of the expiration of the pandemic credit and the base rate increases up $377 million, but that's more than offset by the lower fuel cost recovery of $437 million. And so, if you look, our overall effective rate is almost 4% lower year-over-year for our customers. To talk a bit more about the diverse generating fleet, this chart shows you where the power supply came from. Again, strong nuclear performance. Our renewables and hydro are beginning to recover. We've been in a bit of a drought over the last several years, but we're starting to see some recovery there. And overall, natural gas prices have returned to where they were roughly in the 2020-2021 time period, so very low natural gas prices. In terms of the income statement, I've covered the revenue items with the fuel cost. Fuel revenue actually more than offsetting the base rate increase. Then as you would expect, our fuel and purchase power expense lower by $331 million. Our operating and maintenance expense is higher by $106 million. This is predominantly our investment and our generating assets, and Jeff talked about the hardening activities as well as our support for our new innovation technologies like the SMR project. Depreciation and amortization is lower by $32 million. This is in large part due to accelerated depreciation on one of our coal plants in 2023. It's not recurring in 2024. Overall tax equivalents generally follows revenue and interest expense is essentially on plan. So overall, $434 million of net income, $285 million higher than the prior year, again, driven predominantly by that base revenue. And then with the higher net income, which was driven by base revenues. As you would expect, we see overall cash flow from operations, $277 million higher. Our investing activities, it's not a typo actually is exactly the same amount higher, $277 million, and this is because our investments that we're making in our generating fleet to be able to meet the load growth that we're expecting and then overall financing activities essentially in line with the prior year. Our overall total debt and financing obligation sitting right at $20.4 billion. So in summary, we're happy that this diverse fleet has allowed us to provide a lower rate to our customers, a little bit of weather, but strong industrial growth. And then overall, our financial health is very strong, and we're on track with our capital plans. And so with that, I'll turn it back over to Gary to queue up the questions.
Operator: Thank you. Ladies and gentlemen, at this time, we will begin today's question-and-answer session. [Operator Instructions] Our first question is from Dave Flessner with Chattanooga Times Free Press. Please go ahead.
Dave Flessner: Good morning, and thanks for taking the call. Two quick questions. One, you mentioned fuel costs have been down so far this year. Do you anticipate pricing for fuel to continue to be lower than the year ago levels for some time? Or what's the outlook for fuel pricing?
John Thomas: Yeah. Thanks, Dave. This is John. So it's always tricky to forecast interest rates, commodity prices. But from a fundamental perspective, there is a lot of natural gas out there, the run-up that we saw was really driven by things that were happening in Europe. So there's no real other factors right now that would lead us to believe that natural gas prices will be higher. You could have some type of political, geopolitical type activities that could impact this. But generally speaking, from a fundamental perspective, we expect natural gas to be low in the coming years.
Dave Flessner: So effective rates may stay lower than a year ago for some time?
John Thomas: They may -- they may. The biggest factor is going to be weather in the summer.
Dave Flessner: Okay. Secondly, the integrated resource plan, I think there was talk about drafts coming out this month that's been pushed back. Can you give us, sort of, an update on the next integrated resource plan rollout? And -- why that's been pushed back at this point?
Jeff Lyash: Yes. Sure, Dave. This is Jeff. Thanks. Yes, we -- about a year ago, we decided it was time to develop a new integrated resource plan. Now keep in mind, until we issue that our prior IRP in 2019 continues to guide our decisions, and we think that's still valid. So -- but we recognize that we wanted to look out farther out to 2050. We wanted to begin to consider more systematically higher-growth scenarios because of things like electrification, and we wanted to consider what carbon-constrained futures might look like. And so we undertook that effort. A broad group of stakeholders engaged in that from a government, local power companies, environmental NGOs and the like have worked with us for a year to develop that. And we are headed toward issuing the draft environmental -- the draft IRP rather for comment. But we just thought it was the circumstance warranted a bit of a pause. We wanted to make sure our Board of Directors had the time to digest it and comment on it. We had some input late in the process. We wanted to make sure we properly considered. Frankly, we had a suite of EPA regulations that were on the eve of being proposed that are now out there. And we just started best to pause and consider. And now we're working through a process of considering that, and I expect we'll move forward with issuing that IRP sometime in the coming months. I haven't really set a schedule for it yet, doing it right is important.
Dave Flessner: Thanks.
Operator: [Operator Instructions] The next question is from Alexander Kaufman with the Huffington Post. Please go ahead.
Alexander Kaufman: Hi. Thanks for doing this and thanks for taking my question. I had a couple of things to ask the…
Operator: Pardon me, Mr. Kaufman. We're having some difficulty hearing. Your volume is very low.
Alexander Kaufman: Sorry. Are you able to give me better now?
Operator: That's better. Thank you.
Alexander Kaufman: Okay. Great. Thank you so much for doing this and for taking my question. I had a couple of things I just wanted to ask quickly. One to start was I know that there's a $30 billion debt limit that was set by Congress in the '70s. And I was wondering, I believe it's like down to $20 billion now as you paid down debt, and I wanted to see if you could talk about what avenues there are through legislation for this to change and what effect this could have on TVA's plans for the nuclear build-out?
John Thomas: Yes. Thanks. So this is John. The -- yes, so we do have a $30 billion statutory debt limit. As you indicated, TVA is below $20 billion in terms of our statutory debt right now. So we have $10 billion worth of headroom. In addition, our operating revenues have a debt paydown component. So there's a principal and interest included in them. And so we have more capacity even than the $10 billion. So our current financial plans and projections show that we can operate within the $30 billion debt limit.
Alexander Kaufman: But are you concerned that that hasn't been pegged to inflation given especially the cost of new projects that we've seen in other places?
John Thomas: I am not because it doesn't inhibit our ability to execute our business plans at this point.
Alexander Kaufman: Got it. Okay. Thank you. And then separately, I was wondering if you could talk a little bit about what your plans are for using different tax credits under the IRA in particular? I was wondering what value some of the coal -- the coal conversion tax credits that were included in that legislation, what that could mean for some of the new nuclear build plans that you're considering?
Jeff Lyash: Yes. Let me start, and then I'll ask John to provide some details. So, certainly very important, the direct pay options so that an entity like us that doesn't have a tax appetite can take those tax credits in cash. So, that's very important. And we've established a program office to make sure we're looking at how this is going to be implemented as the implementing rules are written and we see it having a potential positive impact for us on new nuclear construction, really expansion of our existing nuclear capacity. We've already found opportunities in our hydro fleet for hydro plant life extension. And then, of course, our renewables build out, this could have a positive impact on. So, we're -- not all those rules are written yet, but we're staying very closely engaged in that, and we'll leverage this for our customers' benefit to the maximum extent.
John Thomas: Yes. The only thing I would add is that we're working very closely with our local power companies because there are significant benefits for them at the local level. And so we're supporting them to take advantage of the opportunities in the IRA as well.
Alexander Kaufman: Thank you.
Operator: The next question is from Daniel [indiscernible]. Please go ahead.
Unidentified Analyst: Yes. Hi, hello. Thank you for taking the call. I had a couple of questions related to the new EPA rules that were handed down last week. The first question would be about coal ash and impoundment. I'm wondering how many legacy and historic impoundments that will affect in the TVA system and what options TVA has to become compliant with that rule?
Jeff Lyash: Yes. As you could expect, we're just still digesting these rules, which were just issued a week ago and they're pretty extensive. They're complicated. And so really not in the position to make specific comments about their impact at this point. Broadly on coal ash, TVA has what we consider one of the most comprehensive CCR monitoring programs. We have a systematic way we evaluate alternatives for closure of those facilities. And I think in the last decade, a pretty good track record of executing successfully on that. And it -- and so we'll take a look at these new EPA regulations and incorporate them into that program to make sure that we're compliant. And of course, we'll be evaluating the cost impact of that over the coming months.
Unidentified Analyst: My quick follow-up question, which is about one of the other rules concerning coal plant emissions is whether or not just from your initial survey of those rules, whether or not they could impact the time line for retiring coal plants. I know 2035 has been a year TVA has used as the benchmark for retiring the rest of the coal plants, could these new rules speed up that time line?
Jeff Lyash: Yes. And again, it's not something I really want to lean too far forward on. I want to make sure we take the time to fully understand this. But Dan, we -- TVA has already retired over 60%, almost 70% of our coal units. And we -- out of that coal study that was conducted as part of the follow-up to the last integrated resource plan, we've laid out a coal retirement plan that runs through 2020, 2035, Kingston, Cumberland, before 2030 and then Shani [ph], Gallatin in the first half of 2030. So in general, I think our plan already puts us on a path toward compliance with this EPA regulation. It may accelerate it may not. We'll sort that out as we get -- as we pour through this and do the analysis.
Unidentified Analyst: Okay. Thank you.
Operator: The next question is a follow-up from Alexander Kaufman with Huff Post. Please go ahead.
Alexander Kaufman: Thanks for taking another question. Sorry, I didn't squeeze this in the first round. I wanted to ask about whether you guys are completely excluding the possibility of doing large nuclear again. I know that some of the newbuild stuff is focused on the GE-Hitachi, SMRs and the general premise of SMRs, but are you ruling out building an AP1000 or another large-scale light-water reactor like that at this time?
Jeff Lyash: Yes. The short answer is no. We wouldn't roll that out. Just more broadly, our nuclear objectives really have a set of parallel work streams. The first and most important is to leverage, optimize and extend the existing nuclear fleet. And so that's what -- why we've driven the fleet to top performance in the industry. We're now extending licenses 20 years and implementing capital improvements that, over time, will increase the outputs of those stations because that, as we said, in the first half of the year, 43% of our energy came from that fleet, carbon-free and low cost. We also have advanced nuclear, which you see principally in the BWRX-300 in Clinch River, but we also maintain relationships with Generation 4 designers. Kairos as an example, the Hermes 1 reactor is going to be built at Oak Ridge, and there are plans being made for Hermes 2, and we're involved with Kairos on those efforts. And we will -- are constantly doing technology evaluations. I think an important milestone that was just reached was the commercial operation of Unit 4 at Vogtle. And so they are in the US, first-of-a-kind AP1000s. There are a lot of lessons learned from what I think in retrospect, will be viewed as an incredibly valuable asset for Southern Company (NYSE:SO), and we'll look at that and use that as input to make decisions as to whether at some point in the future, those gigawatt scale reactors are necessary. No decision there, but we maintain that optionality.
Alexander Kaufman: And just -- I don't know if this is too specific that you could answer, but is it in the TVA's assessment from a financial perspective that looking at some of the estimates from people like [indiscernible] at MIT and some of these economists who have looked at the cost of new reactors that building a new AP1000 given the establishment of those supply chains in that workforce via Southern Company would in fact be probably cheaper than frits kind SMR?
Jeff Lyash: Well, we all -- I think you have to recognize, first of a kind is always more expensive and more difficult than any of the kind. You see that in the history of Vogtle 3 and 4. But that investment carried over time is often well worth the investment. And I think that's what you'll see with the AP1000 and TVA will remain open to that. But in the future, a portfolio of assets, nuclear and nonnuclear that fit the system, the customers, the load profile, the growth are important. So, I don't think there's ever one choice. I think it's the development of a portfolio of assets that you can construct to meet the objectives that you set out. So yes, I think in the long run, AP1000 gigawatt scale reactors are certainly a part of the global nuclear construction program now. I think at some point, they'll be a part of the US program. I believe the same is true of SMRs, Gen 3s like Clint River and frankly, Gen 4 reactors as they develop and mature. And it's in all of our best interest, I think, to develop this portfolio and the eyes wide open and realistic about when it's time to implement it.
Alexander Kaufman: Thank you.
Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Jeff Lyash for any closing remarks.
Jeff Lyash: Well, thanks again for your time today. Through 2024, we're going to remain focused on supporting our communities each day with what we do, low-cost power that's reliable when it matters, when it matters the most and making critical investments in our system to power the Tennessee Valley's energy transition and the tremendous economic growth we're seeing. And we look forward to briefing you on our performance and our continued progress in these important areas throughout the coming year. So thank you all.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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