15% Increase in Net Cash Provided by Operating Activities for First Half of Fiscal 2020

HEICO CORPORATION (NYSE: HEI.A) (NYSE: HEI) today reported that net income increased 22% to a record $197.3 million, or $1.44 per diluted share, in the first six months of fiscal 2020, up from $161.1 million, or $1.18 per diluted share, in the first six months of fiscal 2019. In the second quarter of fiscal 2020, net income decreased 8% to $75.5 million, or 55 cents per diluted share, as compared to $81.8 million, or 60 cents per diluted share, in the second quarter of fiscal 2019.

Operating income increased 1% to a record $219.2 million in the first six months of fiscal 2020, up from $217.1 million in the first six months of fiscal 2019. In the second quarter of fiscal 2020, operating income decreased 9% to $108.2 million, as compared to $119.2 million in the second quarter of fiscal 2019.

The Company's consolidated operating margin improved to 22.5% in the first six months of fiscal 2020, up from 22.1% in the first six months of fiscal 2019. The Company's consolidated operating margin was 23.1% in both the second quarter of fiscal 2020 and 2019.

Net sales decreased 1% to $974.4 million in the first six months of fiscal 2020, as compared to $981.8 million in the first six months of fiscal 2019. In the second quarter of fiscal 2020, net sales decreased 9% to $468.1 million, as compared to $515.6 million in the second quarter of fiscal 2019.

EBITDA increased 1% to $262.7 million in the first six months of fiscal 2020, up from $259.8 million in the first six months of fiscal 2019. In the second quarter of fiscal 2020, EBITDA decreased 9% to $130.0 million, as compared to $142.2 million in the second quarter of fiscal 2019. See our reconciliation of net income attributable to HEICO to EBITDA at the end of this press release.

Consolidated Results

Laurans A. Mendelson, HEICO’s Chairman and CEO, commented on the Company's second quarter results stating, "The COVID-19 outbreak, classified by the World Health Organization as a global pandemic (the "Outbreak") has caused significant volatility and a substantial decline in value across global economic markets. Most notably, the commercial aerospace industry has experienced an ongoing substantial decline in demand. As such, our businesses that operate within the commercial aerospace industry have been materially impacted by the significant decline in global commercial air travel that began in March 2020. Once commercial air travel resumes, cost savings will most likely be a priority for our commercial aviation customers and we anticipate recovery in demand for our commercial aviation products, which frequently provide aircraft operators with significant savings.

Our total debt to shareholders' equity ratio was 39.2% and 33.2% as of April 30, 2020 and October 31, 2019, respectively. Our net debt (total debt less cash and cash equivalents) of $393.4 million as of April 30, 2020 to shareholders’ equity ratio decreased to 20.8% as of April 30, 2020, down from 29.8% as of October 31, 2019. Our net debt to EBITDA ratio decreased to .72x as of April 30, 2020, down from .93x as of October 31, 2019. During fiscal 2020, we successfully completed two acquisitions and we completed five acquisitions over the past year. We have no significant debt maturities until fiscal 2023 and plan to utilize our financial strength and flexibility to aggressively pursue high quality acquisitions of various sizes to accelerate growth and maximize shareholder returns.

Cash flow provided by operating activities was strong, increasing 15% to $205.9 million in the first six months of fiscal 2020, up from $178.3 million in the first six months of fiscal 2019. Cash flow provided by operating activities was consistently strong at $124.7 million and $128.7 million in the second quarter of fiscal 2020 and 2019, respectively.

In our Quarterly Report on Form 10-Q for the three months ended January 31, 2020, we provided net sales and net income estimates for fiscal 2020, but noted that it excluded any impact from the coronavirus outbreak as it was at such an early stage. As noted within our Form 8-K, filed on April 15, 2020, we withdrew our fiscal 2020 financial guidance due to recent developments pertaining to the impact from the Outbreak.

We entered the Outbreak with a healthy balance sheet that included a strong cash position and nominal debt. We cannot estimate the duration and magnitude of the Outbreak and cannot confidently predict when demand for our commercial aerospace products will return to pre-Outbreak levels. However, we believe HEICO is favorably positioned for long-term success despite the short-term challenges created by the Outbreak in the global economy. Our time-tested strategy of maintaining low debt and acquiring and operating high cash generating businesses across a diverse base of industries beyond commercial aerospace, such as defense, space and other industrial markets including electronics and medical, puts us in a good financial position to weather this period of economic uncertainty. Accordingly, we continue to forecast positive cash flow from operations for the remainder of fiscal 2020."

Flight Support Group

Eric A. Mendelson, HEICO's Co-President and President of HEICO's Flight Support Group, commented on the Flight Support Group's second quarter results stating, "The Outbreak had an adverse effect on the Flight Support Group’s operating results in the first six months and second quarter of fiscal 2020. Beginning in late March 2020, a significant global decline in commercial air travel resulted in lower demand for our aftermarket replacement parts and repair and overhaul parts and services. As previously mentioned, once commercial air travel resumes, cost savings will most likely be a priority for our commercial aviation customers. We believe demand for our favorably priced commercial aviation products and services will return in advance of the overall market recovery. Furthermore, we believe our cost-saving solutions and robust product development programs will enable us to potentially increase market share and emerge with a stronger presence within this market.

The Flight Support Group's net sales decreased 7% to $553.0 million in the first six months of fiscal 2020, as compared to $595.5 million in the first six months of fiscal 2019. The Flight Support Group's net sales decreased 18% to $252.0 million in the second quarter of fiscal 2020, as compared to $308.3 million in the second quarter of fiscal 2019. The net sales decrease in the first six months and second quarter of fiscal 2020 is principally organic and reflects lower demand across all of our product lines resulting from the significant decline in global commercial air travel beginning in March 2020 due to the Outbreak.

The Flight Support Group's operating income decreased 5% to $109.6 million in the first six months of fiscal 2020, as compared to $115.0 million in the first six months of fiscal 2019. The Flight Support Group's operating income decreased 24% to $47.5 million in the second quarter of fiscal 2020, as compared to $62.2 million in the second quarter of fiscal 2019. The operating income decrease in the first six months and second quarter of fiscal 2020 principally reflects the previously mentioned decrease in net sales and a lower gross profit margin mainly within our aftermarket replacement parts and repair and overhaul parts and services product lines, partially offset by a decrease in performance-based compensation expense.

The Flight Support Group's operating margin increased to 19.8% in the first six months of fiscal 2020, up from 19.3% in the first six months of fiscal 2019. The increase principally reflects a decrease in SG&A expenses as a percentage of net sales mainly from lower performance-based compensation expense, partially offset by the previously mentioned lower gross profit margin.

The Flight Support Group's operating margin decreased to 18.9% in the second quarter of fiscal 2020, as compared to 20.2% in the second quarter of fiscal 2019. The decrease principally reflects the previously mentioned lower gross profit margin partially offset by a decrease in SG&A expenses as a percentage of net sales mainly from the previously mentioned lower performance-based compensation expense."

Electronic Technologies Group

Victor H. Mendelson, HEICO's Co-President and President of HEICO’s Electronic Technologies Group, commented on the Electronic Technologies Group's second quarter results stating, "Demand for our Electronic Technologies Group's products has not been fundamentally impacted by the Outbreak. However, we have experienced, and expect to continue experiencing, periodic operational disruptions resulting from supply chain disturbances, staffing challenges, temporary facility closures, transportation interruptions and other conditions which slow production or increase costs. While these issues have not yet been material, it is impossible to predict their future impact and our current experience indicates the likely effect will be to delay some orders and shipments measured in weeks and months, and to temporarily increase some costs, as opposed to profoundly changing our business overall.

The Electronic Technologies Group's net sales increased 7% to a record $427.4 million in the first six months of fiscal 2020, up from $398.9 million in the first six months of fiscal 2019. The increase is attributable to the favorable impact from our fiscal 2019 and 2020 acquisitions as well as 2% organic growth mainly due to increased demand for our defense products partially offset by lower demand for our space products.

The Electronic Technologies Group's net sales increased 2% to $219.0 million in the second quarter of fiscal 2020, up from $214.5 million in the second quarter of fiscal 2019. The increase is attributable to the favorable impact from our fiscal 2019 and 2020 acquisitions partially offset by an organic net sales decrease of 2%. The organic net sales decrease is mainly attributable to lower shipments of our space products partially offset by increased demand for our defense products.

The Electronic Technologies Group's operating income increased 3% to a record $123.0 million in the first six months of fiscal 2020, up from $119.0 million in the first six months of fiscal 2019. The increase principally reflects the previously mentioned net sales growth and lower performance-based compensation expense, partially offset by a lower gross profit margin mainly due to a decrease in net sales of our space and commercial aerospace products, partially offset by increased net sales of our defense products.

The Electronic Technologies Group's operating income decreased 3% to $65.5 million in the second quarter of fiscal 2020, as compared to $67.4 million in the second quarter of fiscal 2019. The decrease principally reflects a lower gross profit margin mainly due to a decrease in net sales of our space and commercial aerospace products partially offset by increased net sales of our defense products, as well as the previously mentioned net sales growth and lower performance-based compensation expense.

The Electronic Technologies Group's operating margin was 28.8% in the first six months of fiscal 2020, as compared to 29.8% in the first six months of fiscal 2019. The Electronic Technologies Group's operating margin was 29.9% in the second quarter of fiscal 2020, as compared to 31.4% in the second quarter of fiscal 2019. The decrease in the first six months and second quarter of fiscal 2020 principally reflects the previously mentioned lower gross profit margin partially offset by a decrease in SG&A expenses as a percentage of net sales mainly from lower performance-based compensation expense."

Non-GAAP Financial Measures

To provide additional information about the Company's results, HEICO has discussed in this press release its EBITDA (calculated as net income attributable to HEICO adjusted for depreciation and amortization expense, net income attributable to noncontrolling interests, interest expense and income tax expense), its net debt (calculated as total debt less cash and cash equivalents), its net debt to shareholders' equity ratio (calculated as net debt divided by shareholders' equity) and its net debt to EBITDA ratio (calculated as net debt divided by EBITDA) which are not prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). These non-GAAP measures are included to supplement the Company’s financial information presented in accordance with GAAP and because the Company uses such measures to monitor and evaluate the performance of its business and believes the presentation of these measures enhance an investors’ ability to analyze trends in the Company’s business and to evaluate the Company’s performance relative to other companies in its industry. However, these non-GAAP measures have limitations and should not be considered in isolation or as a substitute for analysis of the Company's financial results as reported under GAAP.

These non-GAAP measures are not in accordance with, or an alternative to, measures prepared in accordance with GAAP and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. These measures should only be used to evaluate the Company's results of operations in conjunction with their corresponding GAAP measures. Pursuant to the requirements of Regulation G of the Securities and Exchange Act of 1934, the Company has provided a reconciliation of these non-GAAP measures in the last table included in this press release.

(NOTE: HEICO has two classes of common stock traded on the NYSE. Both classes, the Class A Common Stock (HEI.A) and the Common Stock (HEI), are virtually identical in all economic respects. The only difference between the share classes is the voting rights. The Class A Common Stock (HEI.A) carries 1/10 vote per share and the Common Stock (HEI) carries one vote per share.)

There are currently approximately 80.6 million shares of HEICO's Class A Common Stock (HEI.A) outstanding and 54.2 million shares of HEICO's Common Stock (HEI) outstanding. The stock symbols for HEICO’s two classes of common stock on most websites are HEI.A and HEI. However, some websites change HEICO's Class A Common Stock trading symbol (HEI.A) to HEI/A or HEIa.

As previously announced, HEICO will hold a conference call on Wednesday, May 27, 2020 at 9:00 a.m. Eastern Daylight Time to discuss its second quarter results. Individuals wishing to participate in the conference call should dial: U.S. and Canada (877) 586-4323, International (706) 679-0934, wait for the conference operator and provide the operator with the Conference ID 5381666. A digital replay will be available two hours after the completion of the conference for 14 days. To access, dial: (855) 859-2056 or (404) 537-3406, and enter the Conference ID 5381666.

HEICO Corporation is engaged primarily in the design, production, servicing and distribution of products and services to certain niche segments of the aviation, defense, space, medical, telecommunications and electronics industries through its Hollywood, Florida-based Flight Support Group and its Miami, Florida-based Electronic Technologies Group. HEICO’s customers include a majority of the world’s airlines and overhaul shops, as well as numerous defense and space contractors and military agencies worldwide, in addition to medical, telecommunications and electronics equipment manufacturers. For more information about HEICO, please visit our website at www.heico.com.

Certain statements in this press release constitute forward-looking statements, which are subject to risks, uncertainties and contingencies. HEICO's actual results may differ materially from those expressed in or implied by those forward-looking statements as a result of factors including: the severity, magnitude and duration of the Outbreak; HEICO’s liquidity and the amount and timing of cash generation; the continued decline in commercial air travel caused by the Outbreak, airline fleet changes or airline purchasing decisions, which could cause lower demand for our goods and services; product specification costs and requirements, which could cause an increase to our costs to complete contracts; governmental and regulatory demands, export policies and restrictions, reductions in defense, space or homeland security spending by U.S. and/or foreign customers or competition from existing and new competitors, which could reduce our sales; our ability to introduce new products and services at profitable pricing levels, which could reduce our sales or sales growth; product development or manufacturing difficulties, which could increase our product development and manufacturing costs and delay sales; our ability to make acquisitions and achieve operating synergies from acquired businesses; customer credit risk; interest, foreign currency exchange and income tax rates; economic conditions within and outside of the aviation, defense, space, medical, telecommunications and electronics industries, which could negatively impact our costs and revenues; and defense spending or budget cuts, which could reduce our defense-related revenue. Parties receiving this material are encouraged to review all of HEICO's filings with the Securities and Exchange Commission, including, but not limited to filings on Form 10-K, Form 10-Q and Form 8-K. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except to the extent required by applicable law.

 

HEICO CORPORATION

Condensed Consolidated Statements of Operations (Unaudited)

(in thousands, except per share data)

 

Six Months Ended April 30,

 

 

2020

 

 

2019

 

Net sales

$974,421

 

 

$981,794

 

 

Cost of sales

597,484

 

 

590,170

 

 

Selling, general and administrative expenses

157,786

 

 

174,494

 

 

Operating income

219,151

 

 

217,130

 

 

Interest expense

(8,042

)

 

(10,973

)

 

Other income

302

 

 

2,152

 

 

Income before income taxes and noncontrolling interests

211,411

 

 

208,309

 

 

Income tax expense

700

 

(a)

30,200

 

(b)

Net income from consolidated operations

210,711

 

 

178,109

 

 

Less: Net income attributable to noncontrolling interests

13,370

 

 

16,995

 

 

Net income attributable to HEICO

$197,341

 

(a)

$161,114

 

(b)

 

 

 

 

 

Net income per share attributable to HEICO shareholders:

 

 

 

Basic

$1.47

 

(a)

$1.21

 

(b)

Diluted

$1.44

 

(a)

$1.18

 

(b)

 

 

 

 

 

Weighted average number of common shares outstanding:

 

 

 

Basic

134,596

 

 

133,123

 

 

Diluted

137,269

 

 

137,092

 

 

 

 

 

 

 

 

Six Months Ended April 30,

 

 

2020

 

 

2019

 

Operating segment information:

 

 

 

 

Net sales:

 

 

 

 

Flight Support Group

$553,031

 

 

$595,464

 

 

Electronic Technologies Group

427,366

 

 

398,880

 

 

Intersegment sales

(5,976

)

 

(12,550

)

 

 

$974,421

 

 

$981,794

 

 

 

 

 

 

 

Operating income:

 

 

 

 

Flight Support Group

$109,576

 

 

$115,046

 

 

Electronic Technologies Group

123,017

 

 

118,954

 

 

Other, primarily corporate

(13,442

)

 

(16,870

)

 

 

$219,151

 

 

$217,130

 

 

HEICO CORPORATION

Condensed Consolidated Statements of Operations (Unaudited)

(in thousands, except per share data)

 

Three Months Ended April 30,

 

 

2020

 

2019

 

Net sales

$468,146

 

 

$515,648

 

 

Cost of sales

289,256

 

 

306,261

 

 

Selling, general and administrative expenses

70,729

 

 

90,204

 

 

Operating income

108,161

 

 

119,183

 

 

Interest expense

(3,759

)

 

(5,484

)

 

Other income

107

 

 

2,484

 

 

Income before income taxes and noncontrolling interests

104,509

 

 

116,183

 

 

Income tax expense

23,600

 

 

26,100

 

 

Net income from consolidated operations

80,909

 

 

90,083

 

 

Less: Net income attributable to noncontrolling interests

5,456

 

 

8,301

 

 

Net income attributable to HEICO

$75,453

 

 

$81,782

 

 

 

 

 

 

 

Net income per share attributable to HEICO shareholders:

 

 

 

Basic

$.56

 

 

$.61

 

 

Diluted

$.55

 

 

$.60

 

 

 

 

 

 

 

Weighted average number of common shares outstanding:

 

 

 

Basic

134,669

 

 

133,313

 

 

Diluted

137,117

 

 

137,206

 

 

 

 

 

 

 

 

Three Months Ended April 30,

 

 

2020

 

2019

 

Operating segment information:

 

 

 

 

Net sales:

 

 

 

 

Flight Support Group

$251,964

 

 

$308,251

 

 

Electronic Technologies Group

218,955

 

 

214,451

 

 

Intersegment sales

(2,773

)

 

(7,054

)

 

 

$468,146

 

 

$515,648

 

 

 

 

 

 

 

Operating income:

 

 

 

 

Flight Support Group

$47,531

 

 

$62,166

 

 

Electronic Technologies Group

65,526

 

 

67,352

 

 

Other, primarily corporate

(4,896

)

 

(10,335

)

 

 

$108,161

 

 

$119,183

 

 

HEICO CORPORATION Footnotes to Condensed Consolidated Statements of Operations (Unaudited)

_________________ 

 

(a)

During the first quarter of fiscal 2020, the Company recognized a $47.6 million discrete tax benefit from stock option exercises, which, net of noncontrolling interests, increased net income attributable to HEICO by $46.3 million, or $.34 per basic and diluted share.

 

(b)

During the first quarter of fiscal 2019, the Company recognized a $16.6 million discrete tax benefit from stock option exercises, which, net of noncontrolling interests, increased net income attributable to HEICO by $15.1 million, or $.11 per basic and diluted share.

 

HEICO CORPORATION

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands)

 

April 30, 2020

 

October 31, 2019

Cash and cash equivalents

$346,786

 

$57,001

Accounts receivable, net

230,884

 

274,326

Contract assets

56,033

 

43,132

Inventories, net

457,819

 

420,319

Prepaid expenses and other current assets

33,991

 

18,953

Total current assets

1,125,513

 

813,731

Property, plant and equipment, net

171,399

 

173,345

Goodwill

1,300,187

 

1,268,703

Intangible assets, net

540,623

 

550,693

Other assets

227,113

 

162,739

Total assets

$3,364,835

 

$2,969,211

 

 

 

 

Current maturities of long-term debt

$1,025

 

$906

Other current liabilities

255,328

 

288,232

Total current liabilities

256,353

 

289,138

Long-term debt, net of current maturities

739,188

 

561,049

Deferred income taxes

49,749

 

51,496

Other long-term liabilities

233,518

 

184,604

Total liabilities

1,278,808

 

1,086,287

Redeemable noncontrolling interests

196,507

 

188,264

Shareholders’ equity

1,889,520

 

1,694,660

Total liabilities and equity

$3,364,835

 

$2,969,211

HEICO CORPORATION

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

 

Six Months Ended April 30,

 

2020

 

2019

Operating Activities:

 

 

 

Net income from consolidated operations

$210,711

 

 

$178,109

 

Depreciation and amortization

43,276

 

 

40,548

 

Share-based compensation expense

5,275

 

 

4,987

 

Employer contributions to HEICO Savings and Investment Plan

4,811

 

 

4,601

 

Increase in accrued contingent consideration

1,167

 

 

3,104

 

Deferred income tax (benefit) provision

(5,137

)

 

648

 

Payment of contingent consideration

(175

)

 

(67

)

Decrease (increase) in accounts receivable

44,419

 

 

(15,784

)

(Increase) decrease in contract assets

(12,985

)

 

5,699

 

Increase in inventories

(37,790

)

 

(26,724

)

Decrease in current liabilities, net

(47,064

)

 

(25,435

)

Other

(626

)

 

8,567

 

Net cash provided by operating activities

205,882

 

 

178,253

 

 

 

 

 

Investing Activities:

 

 

 

Acquisitions, net of cash acquired

(45,343

)

 

(134,940

)

Investments related to HEICO Leadership Compensation Plan

(13,600

)

 

(10,800

)

Capital expenditures

(12,435

)

 

(12,596

)

Other

473

 

 

636

 

Net cash used in investing activities

(70,905

)

 

(157,700

)

 

 

 

 

Financing Activities:

 

 

 

Borrowings on revolving credit facility, net

177,000

 

 

24,000

 

Proceeds from stock option exercises

2,392

 

 

5,528

 

Cash dividends paid

(10,762

)

 

(9,305

)

Distributions to noncontrolling interests

(9,742

)

 

(8,190

)

Redemptions of common stock related to stock option exercises

(2,567

)

 

(27,744

)

Payment of contingent consideration

(325

)

 

(283

)

Other

(444

)

 

(176

)

Net cash provided by (used in) financing activities

155,552

 

 

(16,170

)

 

 

 

 

Effect of exchange rate changes on cash

(744

)

 

109

 

 

 

 

 

Net increase in cash and cash equivalents

289,785

 

 

4,492

 

Cash and cash equivalents at beginning of year

57,001

 

 

59,599

 

Cash and cash equivalents at end of period

$346,786

$64,091

 

HEICO CORPORATION

Non-GAAP Financial Measures (Unaudited)

(in thousands, except ratios)

 

Six Months Ended April 30,

EBITDA Calculation

2020

 

2019

Net income attributable to HEICO

$197,341

 

 

$161,114

 

Plus: Depreciation and amortization

43,276

 

 

40,548

 

Plus: Net income attributable to noncontrolling interests

13,370

 

 

16,995

 

Plus: Interest expense

8,042

 

 

10,973

 

Plus: Income tax expense

700

 

 

30,200

 

EBITDA (a)

$262,729

 

 

$259,830

 

 

 

 

 

 

Three Months Ended April 30,

EBITDA Calculation

2020

 

2019

Net income attributable to HEICO

$75,453

 

 

$81,782

 

Plus: Depreciation and amortization

21,693

 

 

20,511

 

Plus: Net income attributable to noncontrolling interests

5,456

 

 

8,301

 

Plus: Interest expense

3,759

 

 

5,484

 

Plus: Income tax expense

23,600

 

 

26,100

 

EBITDA (a)

$129,961

 

 

$142,178

 

 

 

 

 

 

Trailing Twelve Months Ended

EBITDA Calculation

April 30, 2020

 

October 31, 2019

Net income attributable to HEICO

$364,123

 

 

$327,896

 

Plus: Depreciation and amortization

86,225

 

 

83,497

 

Plus: Net income attributable to noncontrolling interests

28,220

 

 

31,845

 

Plus: Interest expense

18,764

 

 

21,695

 

Plus: Income tax expense

48,600

 

 

78,100

 

EBITDA (a)

$545,932

 

 

$543,033

 

 

 

 

 

Net Debt Calculation

April 30, 2020

 

October 31, 2019

Total debt

$740,213

 

 

$561,955

 

Less: Cash and cash equivalents

(346,786

)

 

(57,001

)

Net debt (a)

$393,427

 

 

$504,954

 

 

 

 

 

Net debt

$393,427

 

 

$504,954

 

Shareholders' equity

$1,889,520

 

 

$1,694,660

 

Net debt to shareholders' equity ratio (a)

20.8

%

 

29.8

%

 

 

 

 

Net debt

$393,427

 

 

$504,954

 

EBITDA (trailing twelve months)

$545,932

 

 

$543,033

 

Net debt to EBITDA ratio (a)

.72

 

 

.93

 

 

 

 

 

(a) See the "Non-GAAP Financial Measures" section of this press release.

 

Victor H. Mendelson (305) 374-1745 ext. 7590 Carlos L. Macau, Jr. (954) 987-4000 ext. 7570

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