Valaris Limited (RIG) Earnings Call Transcript & Summary

Good day, and welcome to the Valaris Fourth Quarter 2024 Results Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Nick Georgas, Vice President, Treasurer and Investor Relations. Please go ahead.

Welcome, everyone, to the Valaris Fourth Quarter 2024 Conference Call. With me today are President and CEO, Anton Dibowitz, Senior Vice President and CFO, Chris Weber; Senior Vice President and CCO, Matt Lyne; and other members of our executive management team. We issued our press release, which is available on our website at valaris.com. Any comments we make today about expectations are forward-looking statements and are subject to risks and uncertainties. Many factors could cause actual results to differ materially from our expectations. Please refer to our press release and SEC filings on our website that define forward-looking statements and list risk factors and other events that could impact future results. Also, please note that the company undertakes no duty to update forward-looking statements. During this call, we will refer to GAAP and non-GAAP financial measures. Please see the press release on our website for additional information and required reconciliations. Earlier this week, we issued our most recent Fleet Status Report which provides details on our rig fleet, including contract awards and fleet management actions. Now I'll turn the call over to Anton Dibowitz, President and CEO.

Thanks, Nick, and good morning and afternoon to everyone. During today's call, I will provide an overview of our performance during the quarter, deliver an update on the offshore drilling market and outline our contracting and fleet management strategy to drive long-term value creation for our shareholders. I will then hand the call over to Matt to discuss the floater and jackup markets in more detail and provide some additional color on our contracting outlook. After that, Chris will discuss our financial results and guidance before I finish with some closing comments. To begin, I want to highlight a few key points. First, we continue to execute operationally, and we finished 2024 with another solid quarter that benefited our financial results. Second, the contracting outlook for 2026 and beyond is strong for high-specification assets, and we are focused on securing attractive long-term contracts for our active fleet. Third, we are willing to be patient to find the right jobs for our rigs. We will actively lower costs and idle rigs until the right job is available, and we will not hesitate to remove rigs from our fleet when it makes economic sense to do so. Starting with operations. We delivered fleet-wide revenue efficiency of 96% during the fourth quarter and 97% for the full year. This marks an improvement over last year's results and 2024 was the fourth consecutive year we have delivered revenue efficiency of at least 96%. We also had outstanding safety performance in 2024 achieving improvements in key safety metrics and receiving safety awards from both the IADC and the Center for Offshore Safety. We were recently recognized by the IADC Brazil chapter with its 2024 Safety Award with 3 rigs, DS-4, DS-8 and DS-17, each completing the year with no recordable incidents, a great achievement attributable to all involved. In addition to our rigs offshore Brazil, VALARIS 115, which is working with Shell and Brunei, recently celebrated 4 years without a recordable incident, another fantastic accomplishment. These results demonstrate our focus on delivering outstanding safety and operating performance, which is essential to building long-standing customer relationships. As always, we are focused on the things that we can control and I thank every member of the Valaris team around the world for their dedication, hard work and continued focus on operating safely and efficiently for our customers. Moving to our financial performance. Adjusted EBITDA was $142 million in the fourth quarter, down slightly from $150 million in the third quarter. Revenues were towards the upper end of our guidance range due to solid operating performance and EBITDA was slightly below the midpoint of our guidance range due to higher contract drilling expense resulting from a noncash accrual for a legal matter. During the fourth quarter, we generated $13 million in free cash flow in addition to $111 million in the third quarter. And we returned all this free cash flow to shareholders through share repurchases during the second half of the year. Chris will provide more details on our financial results and 2025 guidance a little later. Turning now to the broader offshore drilling market. In terms of fundamentals, global demand for hydrocarbons continues to increase, and we expect offshore production, particularly deepwater, to play an increasingly important role in providing secure, reliable and affordable energy to meet the world's growing energy needs. Many of the largest E&P companies have recently announced their CapEx plans for the coming years, and a number of them are allocating a greater share of budgets towards traditional projects focused on oil and gas production versus new energy sources. This bodes well for offshore project sanctioning, especially deepwater programs as the size of fields, compelling economics, and lower carbon emissions intensity make these projects attractive relative to other sources of production. We see a robust pipeline of deepwater project approvals in 2026 and 2027 which are expected to be at their highest level in more than a decade and more than doubled the project approvals anticipated for 2024 and 2025. This increase in project sanctioning is expected to spur growth in deepwater rig demand through the end of the decade and support the longevity of the up cycle that began in 2021. In the nearer term, offshore CapEx continues to increase, although the pace of growth slowed in 2024, and this trend is expected to continue in 2025, which has slowed the pace of rig contracting and resulted in a modest decline in global floater utilization in 2024. We continue prudently managing our fleet in response to market conditions and we will retire or divest rigs when the expected economic benefit for an asset does not justify its costs. Consistent with this approach, we recently announced plans to retire 3 semisubmersibles from our fleet including one of our active rigs for VALARIS DPS-5, which last worked in the third quarter 2024. We have decided to retire DPS-5 since we do not have visibility into sufficient near-term work that would support keeping the rig warm stacked. And we are not preservation stacking the rig as we see limited contract opportunities with the duration that would justify the cost of a future reactivation. For the same reason, we have also decided to retire sister rigs DPS-3 and DPS-6 which have been stacked for several years. We expect these rigs will be retired from the global drilling supply and repurposed for alternative uses or scrapped. These actions reduce our costs, benefit our cash flow and further focus our fleet on high-specification assets. Over the past 5 years, we have significantly high-graded our fleet retiring a total of 12 floaters more than any other offshore driller. Our go-forward fleet of 15 floaters includes 12 seventh-generation drillships that position us for contracting success. Customers have shown a clear preference for these modern, technically capable assets, with utilization meaningfully higher for seventh-generation drillships than the rest of the global benign environment floater fleet and day rates for longer-term jobs have remained in the mid- to high 400,000s. We expect customers will continue to favor these assets for their longer-term developments as the combination of technical specifications such as dual derricks with high hook load capacity, high-capacity thrusters and 2 block preventers offer efficiencies that are amplified over multi-well programs. The contracting outlook for 2026 and beyond remains strong for these high-specification assets. And with such a constructive environment, we are focused on securing attractive long-term contracts for our active fleet. Particularly those opportunities with customers or in basins where we have visibility into several years of future work. We are currently tracking more than 20 floater opportunities with a duration of at least 1 year and we expect this number will grow to nearly 30 when Petrobras launches expected new tenders aimed at recontracting its near-term rollovers. In general, we expect long-term contracts will be awarded approximately 9 to 12 months ahead of their scheduled start dates. So we anticipate that the flow of contract awards will pick up pace around the middle of this year given expectations for when these programs will begin. Moving to shallow water. Average day rates for the key markets where we operate have remained relatively firm and we continue to secure solid contracts for our rigs working offshore Australia, Trinidad and in the North Sea that require high spec or harsh environment units. One recent example is our multiyear contract for Valaris Stavanger in the North Sea, which added $75 million of contract backlog and further enhances our contract coverage in the region. In addition, we signed a contract for the 249 offshore Trinidad, a strong market for us where we are achieving premium day rates. Trinidad is the largest oil and gas producer in the Caribbean and the country is focused on increasing its gas production, which has declined by more than 1/3 from its peak in 2010. The energy sector has played an integral role in the long-term economic growth of the country and we look forward to playing our part in its future development. I also want to note that we recently sold VALARIS 75, a 25-year-old jackup that had been stacked for 5 years, which was another step we took to high-grade our fleet. Our jackups remain an important contributor to our overall financial performance, and we have grown contract backlog for this segment by more than 75% over the past 2 years. We have good contract coverage across our jackup segment in 2025, and we expect to see year-over-year growth in both operating days and average day rates. In summary, we are steadfast in our belief that offshore oil and gas production will play an important role in providing secure, reliable and affordable energy to the world and that Valaris is well positioned to help meet the need and drive long-term value creation for our shareholders by virtue of our high-specification fleet and excellent safety and operational track record. Now I'll hand the call over to Matt.

Thanks, Anton, and good morning and afternoon, everyone. I'm going to provide commentary on the major floater and jackup regions where we operate and finish with an update on our outlook for rigs that have available days in 2025. Before I do this, I wanted to start by highlighting recent contract awards. Since our third quarter earnings call, we've secured new contracts and extensions with associated contract backlog of approximately $120 million for jackups across multiple locations, including the U.K., Trinidad and Australia. These awards included a multiyear contract for the Stavanger in the North Sea, which will keep the rig busy into 2027 and additional backlog for the 247 and 249 offshore Australia and Trinidad, respectively, at day rates in the mid- to high 100,000. In terms of the major floater and jackup regions in which we operate, consistent with prior quarters, we continue to see the greatest number of floater opportunities for programs offshore Africa where we are tracking more than 10 long-term opportunities with commencement dates starting from late 2025 to 2027, including work offshore Nigeria, Egypt, Ivory Coast and Mozambique. Nigeria is expected to increase its deepwater rig count from 1 at present to 3 by late 2026 or early 2027. There are 3 multiyear programs with IOCs currently being tendered, and we expect to see a contract award for one of these tenders soon with the other 2 following later this year. The outlook for activity offshore Egypt has also picked up as recent exploration success on projects drilled by Valaris drillships and an improved investment climate for exploration and production activities is expected to lead to future opportunities with major IOCs. As we look out a few years, we also expect to see increased activity in promising frontier plays, including longer-term developments offshore Mozambique, and Namibia. Valaris has a long and successful track record of operations offshore Africa, and we anticipate that growth in development activity around the continent will be the main driver of incremental floater demand over the next few years. Offshore Brazil, Petrobras has recently awarded 6 long-term contracts across its Sepia program and its call for tender. And these programs will keep many rigs occupied into 2028 and 2029, demonstrating the longevity of customer demand in Brazil. Based on recent commentary, we anticipate that Petrobras' rig count will remain stable for the foreseeable future, and we expect to see further tenders issued this year to recontract rig capacity due to complete their existing programs in 2025 and 2026. We expect Brazil to continue to be the largest market for benign environment floaters, with potential for incremental demand from IOC programs such as Shell's Gato do Mato project, which is expected to reach FID later this year. Moving to the U.S. Gulf. We expect this market to remain fairly balanced with demand largely met by existing supply in the region. As compared to other regions, contracting in the U.S. Gulf is predominantly done through direct negotiations as opposed to public tenders. So while there is less visibility to the outside world on customer demand here, we continue to see high levels of customer interest for high-specification drillships. Outside of the Golden Triangle, there are new programs offshore Malaysia and Indonesia that will require drillships to satisfy this demand. In terms of the jackup market, certain benign environment regions became increasingly competitive in 2024 as rigs left Saudi. Although most of these displaced units have now secured work in other regions. Key markets where we operate, such as Australia, Trinidad and the North Sea have been insulated from this. And we've continued to secure contracts solid day rates in these regions. In the North Sea, market conditions remain balanced, and we are still tracking around 10 opportunities for work with IOCs or independent operators that are expected to start before mid-2026. These are mostly new energy projects and plug and abandonment campaigns as well as a few oil and gas programs that are well suited for our rigs in the region. The expected firm duration of these opportunities is more than 1.5 years on average, which is a good sign for the continued health of this market. I'm now going to provide an update on our outlook for rigs with available days in 2025, starting with our floaters. We have 4 drillships with uncontracted time this year, VALARIS DS-10, which is currently warm stacked, DS-12, which is expected to complete its current program offshore Egypt in March, and DS-15 and DS-18, which are contracted into the third quarter in Brazil and the U.S. Gulf, respectively. Each of these drillships are high-specification, seventh-generation assets that we believe are well positioned for long-term development programs. We are in advanced discussions for 2 of these rigs, and we are discussing opportunities commencing in 2026 and 2027 with several customers for the other 2 units. That said, given the limited number of programs commencing in 2025 and the competitive nature of any work starting in the next 12 months, we anticipate that DS-10 will likely remain warm stacked through the end of the year. And the other 3 drillships are expected to have idle time after completing their current programs. We are focused on securing attractive long-term contracts for these high-spec assets and we are willing to be patient to find the right programs for the rigs. Moving to our 2 semisubmersibles offshore Australia, we see relatively muted demand in the country over the next 18 months. MS-1 is due to finish its current contract in the second quarter, and we are in continued discussions for work commencing in the second half of 2025 that would suit a moored rig like MS-1. Our other floater in Australia, DPS-1 could work into the third or fourth quarter of this year, depending on whether the customer exercises its option. After that, opportunities we see today for a dynamically positioned rig like DPS-1 are expected to start in the second half of 2026. And in the meantime, DPS-1 is expected to be warm stacked. As Anton mentioned, we have good contract coverage across our jack-ups in 2025. We have just 2 jackups operating in benign environments outside the Middle East with meaningful availability during the year, VALARIS-247 in Australia and the 106 in Indonesia. We have good visibility into additional work for these rigs either through new programs or the expected exercise of options. In the Middle East, we are in advanced discussions with Aramco regarding extensions for 5 rigs that are due to complete their existing lease terms this year. Lastly, we have limited availability across our active fleet of 9 rigs in the North Sea, most of which is in the fourth quarter and related to VALARIS-122, 123 and 248. And these rigs remain well positioned for additional work in the region. In short, we continue to see a positive contracting environment and are focused on building backlog by securing attractive long-term work for our active fleet and where available, filling gaps and schedules with shorter-term jobs that can provide a meaningful bridge to these longer-term programs. I will now hand the call over to Chris to take you through the financials.

Thanks, Matt, and good morning and afternoon, everyone. In my prepared remarks, I will begin with an overview of the fourth quarter results and then walk you through our outlook for the first quarter 2025 as well as full year guidance for 2025. Starting with our fourth quarter results. Total revenues were $584 million, down from $643 million in the prior quarter, and adjusted EBITDA was $142 million down from $150 million in the prior quarter. Adjusted EBITDA decreased in the fourth quarter, primarily due to lower utilization for the floater fleet related to out of service time for VALARIS DS-15 and DS-17 to meet regulatory requirements in Brazil and for DS-4 to complete an upgrade project prior to the start of its contract. As well as idle time for DS-10 and DPS-5, which came off contract in the third quarter. These items were partially offset by more operating days for the jackup fleet primarily due to VALARIS-249 returning to work after completing leg repairs, a full quarter of operations for 247 after mobilizing for part of the third quarter, and a full quarter of operations for the 122 following completion of its survey. Our fourth quarter EBITDA was slightly below the midpoint of our guidance range, primarily due to higher-than-expected contract drilling expense which was negatively impacted by a $16 million noncash accrual associated with the legal matter. Fourth quarter CapEx was $112 million, which was below the midpoint of our guidance range as roughly $15 million of CapEx shifted into 2025. We ended the quarter with cash and cash equivalents of $381 million and our revolving credit facility remains fully available which together provides us with total liquidity of approximately $750 million. During the quarter, we generated $125 million of cash flow from operations. This was partially offset by capital expenditures, providing $13 million of free cash flow. We repurchased $25 million of shares in the fourth quarter at an average price of $53 per share. In total, we repurchased $125 million of shares during 2024 following $200 million of share repurchases in 2023. Moving now to our first quarter 2025 outlook. We expect total revenues in the range of $580 million to $600 million compared to $584 million in the fourth quarter. Revenues for the first quarter are expected to be flat to slightly higher as more operating days for VALARIS DS-4 are largely offset by fewer operating days for DS-12. We anticipate contract drilling expense of $400 million to $415 million compared to $415 million in the fourth quarter. Contract drilling expense is expected to be slightly lower to flat on a sequential quarter basis as the fourth quarter accrual I mentioned earlier is largely offset by higher expenses on DS-4 as we were capitalizing cost during its shipyard upgrade project last quarter. Our revenue and contract drilling expense are both expected to include approximately $35 million of reimbursable items, which is in line with the fourth quarter. We anticipate G&A expense of approximately $27 million, which is flat with the fourth quarter. Adjusted EBITDA is expected to be $145 million to $165 million compared to $142 million in the fourth quarter. Total CapEx in the first quarter is expected to be $125 million to $135 million. This includes spend related to the VALARIS-144 upgrade project prior to its long-term contract offshore Angola, some carryover from the fourth quarter primarily related to the DS-4 upgrade project and CapEx for VALARIS-106 and 248 associated with the start of their 20-year surveys later this quarter. I'm now going to provide financial guidance for full year 2025. We currently forecast total revenues of $2.15 billion to $2.25 billion and contract drilling expense of $1.5 billion to $1.6 billion. Within these revenue and contract drilling expense ranges is approximately $100 million of expected reimbursable items. G&A expense is expected to be approximately $115 million. Taken together, our adjusted EBITDA for 2025 is expected to be $480 million to $580 million. Total revenues are expected to decline compared to 2024, primarily due to lower floater utilization as several rigs are expected to have idle time after completing contracts this year or last, as Matt discussed earlier. Lower floater utilization is expected to be partially offset by more operating days and higher average day rates for the jackup fleet, primarily driven by VALARIS-144, 107 and several rigs in our North Sea fleet. A higher average day rate and increased utilization for DS-4, which commenced a new contract in December and a full year of operations for DS-7. Moving to contract drilling expense. We anticipate that these expenses decline year-on-year as we actively lower cost for rigs that are expected to have idle time during the year. Contract drilling expense will also be lower as we have no planned reactivation expense this year as compared to $45 million last year. Turning to CapEx. Full year 2025 capital expenditures are expected to range from $350 million to $390 million. Approximately $225 million of this CapEx is for maintenance and upgrade work, including spend associated with 20-year special periodic surveys for VALARIS-106 and 248. The remaining CapEx relates to contract-specific upgrades primarily for the VALARIS-144, DS-17, DS-4 and potential CapEx for certain rigs leased to ARO. It also includes approximately $15 million of carryover from 2024. I would note that we expect these contract-specific upgrades will be partially offset by upfront payments from customers of approximately $75 million in 2025 and meaning that the net cash impact of capital expenditures are expected to be $275 million to $315 million during 2025. In addition, we anticipate cash interest of approximately $92 million, and we expect our cash taxes to be approximately 15% of EBITDA this year. This concludes my review of financial results and guidance. I'll now hand the call back to Anton for some closing remarks.

Thanks, Chris. I want to reiterate some of the key points we covered today before we open the line for questions. First, we continue to execute operationally, and we finished 2024 with another solid quarter that benefited our financial results. Second, the contracting outlook for 2026 and beyond is strong for high-specification assets, and we are focused on securing attractive long-term contracts for our active fleet. We are willing to be patient to find the right jobs for our rigs, actively lowering costs and idling rigs until the right job is available and removing rigs from our fleet when it makes economic sense to do so. In closing, we are steadfast in our belief that offshore oil and gas production will play an important role in providing secure, reliable and affordable energy to the world and that VALARIS is well positioned to help meet that need and drive long-term value creation for our shareholders by virtue of our high-specification fleet and excellent safety and operational track record. We thank our employees, customers and investors for their support. We've now reached the end of our prepared remarks. Operator, please open the line for questions.

[Operator Instructions] Our first question comes from Eddie Kim with Barclays.

Just a question on your full year 2025 EBITDA guidance. Maybe just taking the midpoint of that guidance range of $530 million. How much of that would you say is booked today versus an expectation of new awards you need to secure for work later this year to hit that number? Just trying to get a sense of how much of that guidance you have in hand at the moment versus the expectation of more contracting between now and year-end?

Yes, Eddie, this is Chris. When we look at the midpoint on the revenue, we're about 94% contracted for the year. So a majority of the remaining that 6% is later in the year, but yes, about 94% contracted.

Okay. Got it. And that was tied to that -- the midpoint of that range?

Midpoint, yes.

Okay. Understood. And then just my follow-up is on a recent retirement announcement we saw of the Seventh Gen cold-stacked drillship by one of your peers. You have 3, 7G cold-stacked drillships in the DS-11, 13 and 14. Just based on what you're seeing in the market today and the fact that you expect the DS-10 to remain warm stacked through year-end. Does this push out your expectation for those rigs being reactivated say, versus 6 to 9 months ago? Or maybe put another way, what would you say is the likelihood that one of those 3 cold stacked drillships is working by year-end 2027, let's say.

Eddie, this is Anton. Look, clearly, our focus is on putting our active fleet to work. We have a number of rigs rolling next year. But these are all high spec 7th gen assets and based on the pipeline of activity that we see coming, we see good long-term opportunities for all of those. The 11 to 13 and the 14 are the highest spec seventh-gen assets sitting on the sideline to BOPs, high thruster capacity, but we are absolutely going to be patient in putting those into the market. There will be a place for them, but this is not a question of putting a number on the calendar. When the market is ready for those assets to come back, the market will be ready for those assets to come back. There is a lot of drilling. Demand continues to increase, off-shore production is going to play a huge part in that going forward. But we are in no rush to put those assets back to work in the near term.

The next question comes from Fredrik Stene with Clarkson Securities.

I think I'd like to ask you kind of a similar question as I asked one of your peers earlier this week and it has to do with the demand pipeline going forward. I think clearly it seems to be consensus that for 2025, there's not really that much work left to be contracted and the markets, I think, as to a large degree, kind of acknowledge that through equity prices already. But there seems to be quite a lot of optimism around 2026 and what's happening beyond. But unfortunately, in this industry, there has always been kind of a tendency for things to slip to the right and slip to the right and slip to the right. So what are giving you confidence that the programs that you're seeing being tendered for or the discussions that you're having, will materialize in this perceived time line?

Absolutely. It's a really, really good question. Obviously, we look at the same macro models that everybody looks at. We look at what our customers are saying publicly, look at the CapEx spending plans and how those are developing and they are continuing to increase, especially as you go into '26 and '27. But what I will say is one of the things I do as a CEO is I spend time with our customers, I visit them in their offices. I go offshore with them, and I've visited with most of our major customers in the back half of last year. And what I can tell you is the programs that they have on the books, the way they're talking about them, the way they're planning for them, they are looking for partners who can deliver those programs for them. They have long-term development needs that need to be delivered. The status of their planning efforts for those, the posture with which we're engaged in commercial discussions on a number of our rigs leaves me very confident and comfortable about that demand coming to play. Yes, things move to the right, and they move to the left and there are a lot of macro and supply chain and other reasons why programs move around. But based on direct discussions that we're having with our customers about the programs that they have on the books right now, we feel really good about that pipeline of demand coming in '26 and '27.

That's very good to hear. And then I guess turning -- I'm not sure if you can even call it a follow-up, but let's turn quickly to jackups. You said that you had 5 jackups, I think, in advanced discussions for extensions with Aramco. Obviously, through your position with ARO, which is also jointly owned by Aramco, I would call it partially a bit of a special position given the development there last year. But do you have any good intel or insights as to what Aramco is planning to do going forward? Do you think they're in general done with suspensions? Do you think they will recontract most of the rigs that are rolling off right now? Or do you think they can even actually add to the rig count again as we walk through 2025? Any color on that front would be super helpful.

A couple of points. First, in general, I'm not aware of any discussion about additional rig suspensions in Saudi. And beyond that, I really can't talk about anybody else's fleet. What I can tell you is we've seen -- we did a couple of short-term extensions on rigs that were rolling kind of at the end of last year in order to continue to facilitate discussions on the rigs we are rolling, advanced discussions is a correct characterization of where we are in our discussions. They are constructive and advanced and if we need additional short-term extensions to conclude those discussions, I'd expect we'll get those as well, but feel good about the discussion and us being able to roll those rigs in Saudi and continue our relationship in providing ARO with rigs in order to fulfill their needs in the Kingdom.

And the next question comes from Kurt Hallead with Benchmark.

Based on what your peers have said so far and what you've said here today, it does look like there is some building momentum on some contract activity after a little bit of a low. So that's always good to hear. So I guess the question I would have then is there's been some pretty explicit commentary from your peers about where pricing sits for ultra-deepwater rigs in particular. As well as 6 gen rigs. It sounds like you guys are willing to be patient as you said, and stack rigs, if you can't get the price that, that you think is worthy. So just want to see if you can confirm the ranges. I think we've heard somewhere between mid- to high 4s for ultra-deepwater rigs and somewhere in the mid-3s for sixth gen. Is that how you're seeing the market?

Look, I'll say this. I mean we only have I'll say, fortunate to only have 1 ship in our fleet out of our 13 that is 6G. That's the DS-4 and that rigs contracted until what, fourth quarter of 2027. So for us, it's really the 7G market, the rigs that customers that we talk to prefer for their long-term development programs. I think if you've seen -- there haven't been a lot of fixtures recently, but the fixtures that you've seen have continued to be in the mid- to high 400s for high-spec assets, and that's where the market is. And you're absolutely right. I will -- we've tried to clearly articulate our strategy is that we focus on delivering operationally for our customers because that's what gets us more work. We have a super high spec fleet. We're going to minimize costs on those rigs while they're not working, and we're going to find the right long-term opportunities for that high-spec fleet to put it to work. And I think you have that exactly right.