Date: May 6, 2020
Source: Waste Management, Inc.
Amid all the disruption from COVID-19, Waste Management (Houston, TX) was able to post gains in first quarter 2020 earnings and revenues. Earnings for the quarter increased to $361 million ($0.85 per share) from $347 million ($0.81 per share) last year. Revenues increased slightly to $3.73 billion from $3.7 billion last year. Whereas, performance would have been much stronger were it not for the significant disruption to its business from the pandemic. The company said its EBITDA margins took a 40-basis point hit from lower collected volumes from its higher-margin commercial business while enduring greater costs collecting higher volumes of residential waste. Much of the residential business is service based, meaning they cannot charge more but rather must pay more to dispose of that volume.
Like its peers in the industry, the company was able to save money by reducing worker overtime, save on worker travel, decreased capital expenditures, route optimization, and eliminated routes, and other measures. On the other hand, technology costs to implement work-from-home capabilities added to SG&A. Also similar to its industry peers, the company is suspending making any estimates of its financial performance (guidance) until such time as an economic recovery is in sight, "when we have greater clarity," said Jim Fish, President and CEO. The company did note that it is on track to complete its pending acquisition of Advanced Disposal Services, which was originally announced in April of last year.
PRESS RELEASE
2020 Guidance Suspended Due to COVID-19 Uncertainty
Resilient Business Model and Strong Balance Sheet Position the Company Well in Challenging Environment
The Company's adjusted first quarter 2020 results exclude a
COVID-19 UPDATE
As COVID-19 disruptions escalated in
"I am extremely proud of how our team has worked together to proactively address
the challenges we've faced as a result of the coronavirus pandemic," said
"As a leader in the industry, we also have a responsibility to work with our customers as they defend the health of their businesses," Fish continued. "This is particularly true for small businesses, the lifeblood of our economy."
COVID-19 Response and Impacts
Waste Management has responded to the COVID-19 pandemic by:
The Company had the following COVID-19-related business impacts in the first quarter, beginning in
Balance Sheet and Cash Flow Considerations
UPDATE ON 2020 OUTLOOK
The Company is suspending its 2020 financial guidance due to the unprecedented impact of, and uncertainty created by, the COVID-19 pandemic.
"Our business model generates strong cash flow and is resilient in any economic cycle. In past downturns, we have demonstrated the ability to flex spending and manage capital expenditures to generate strong free cash flow and return excess cash to our shareholders. We expect to deliver on these priorities as we continue to provide essential services to our customers during this unprecedented pandemic," Fish said. "At this time, we cannot forecast with reasonable accuracy the duration of the coronavirus disruptions, particularly for small businesses, or the pace of an eventual recovery. We expect to resume providing financial guidance when we have greater clarity."
We anticipate a significant decrease in 2020 revenue from planned levels as a result of COVID-19, driven by volume declines in our landfill and industrial and commercial collection businesses. To partially offset the impact of this significant revenue decline, the Company is taking the following steps to manage costs and capital spending without compromising long-term strategic priorities or growth opportunities:
KEY HIGHLIGHTS FOR THE FIRST QUARTER OF 2020
Financial results for the first quarter were in line with the Company's expectations.
Fish concluded, "Through this unprecedented pandemic, we have managed the impact of the shutdown on our own people, our customers, and our business extremely well. We are now turning our focus to managing equally well through the coming re-start and to using this as an opportunity to further differentiate ourselves through permanent enhancements in our business processes and our service offering to our customers. The strength and resiliency of both our people and our business model give us confidence that we can continue to deliver on our commitments to our customers and our shareholders."
|
(a) |
|
For purposes of this press release, all references to "Net income" refer to the financial statement line item "Net income attributable to Waste Management, Inc." |
|
(b) |
|
Adjusted earnings per diluted share, adjusted net income, adjusted operating EBITDA and free cash flow are non-GAAP measures. Please see "Non-GAAP Financial Measures" below and the reconciliations in the accompanying schedules for more information. |
|
(c) |
|
Management defines operating EBITDA as GAAP income from operations before depreciation and amortization; this measure may not be comparable to similarly-titled measures reported by other companies. |
|
(d) |
|
Core price is a performance metric used by management to evaluate the effectiveness of our pricing strategies; it is not derived from our financial statements and may not be comparable to measures presented by other companies. Core price is based on certain historical assumptions, which may differ from actual results, to allow for comparability between reporting periods and to reveal trends in results over time. Beginning with the fourth quarter 2019, the Company has updated its core price calculation. With advancements in technology, the Company began collecting additional transactional customer level data, which provides improved clarity of the impact of the Company's pricing activities. While this does not change the year-over-year core price performance result, the new measure reflects a more precise calculation in the evaluation of revenue changes. |
The Company will host a conference call at
The conference call will be webcast live from the Investors section of Waste Management's website www.wm.com. To access the conference call by telephone, please dial (877) 710-6139 approximately 10 minutes prior to the scheduled start of the call. If you are calling from outside of
A replay of the conference call will be available on the Company's website www.wm.com and by telephone from approximately
ABOUT WASTE MANAGEMENT
Waste Management, based in
FORWARD-LOOKING STATEMENTS
The Company, from time to time, provides estimates of financial and other data, comments on expectations relating to future periods and makes statements of opinion, view or belief about current and future events. This press release contains a number of such forward-looking statements, including but not limited to, all statements regarding future performance or financial results of our business; responses and impacts of COVID-19; future liquidity, dividends and balance sheet strength; future free cash flow; share repurchases; and discussion of the 2020 outlook. You should view these statements with caution. They are based on the facts and circumstances known to the Company as of the date the statements are made. These forward-looking statements are subject to risks and uncertainties that could cause actual results to be materially different from those set forth in such forward-looking statements, including but not limited to, increased competition; pricing actions; failure to implement our
optimization, growth, and cost savings initiatives and overall business strategy; failure to identify acquisition targets and negotiate attractive terms; failure to consummate or integrate the acquisition of Advanced Disposal Services, Inc. or other acquisitions; failure to obtain the results anticipated from the acquisition of Advanced Disposal Services, Inc. or other acquisitions; environmental and other regulations, including developments related to emerging contaminants and renewable fuel; commodity price fluctuations; international trade restrictions; weakness in general economic conditions and capital markets; public health risk and other impacts of COVID-19 or similar pandemic conditions, including increased costs, social and commercial disruption, service reductions and other adverse effects on our business, financial condition, results of operations and cash flows; failure to obtain and maintain necessary permits; disposal alternatives and waste diversion; declining waste volumes; failure to develop
and protect new technology; failure of technology to perform as expected, including implementation of a new enterprise resource planning system; failure to prevent, detect and address cybersecurity incidents or comply with privacy regulations; significant environmental or other incidents resulting in liabilities and brand damage; significant storms and destructive events influenced by climate change; labor disruptions; impairment charges; and negative outcomes of litigation or governmental proceedings. Please also see the Company's filings with the
NON-GAAP FINANCIAL MEASURES
To supplement its financial information, the Company has presented, and/or may discuss on the conference call, adjusted earnings per diluted share, adjusted net income, adjusted operating EBITDA, adjusted SG&A expenses and free cash flow. These are non-GAAP financial measures, as defined in Regulation G of the Securities Exchange Act of 1934, as amended. The Company reports its financial results in compliance with GAAP but believes that also discussing non-GAAP measures provides investors with (i) financial measures the Company uses in the management of its business and (ii) additional, meaningful comparisons of current results to prior periods' results by excluding items that the Company does not believe reflect its fundamental business performance and are not representative or indicative of its results of operations. The Company's non-GAAP results exclude the impact of costs incurred in connection with the pending acquisition of Advanced Disposal Services, Inc.
The Company discusses free cash flow because the Company believes that it is indicative of its ability to pay its quarterly dividends, repurchase common stock, fund acquisitions and other investments and, in the absence of refinancings, to repay its debt obligations. Free cash flow is not intended to replace "Net cash provided by operating activities," which is the most comparable GAAP measure. The Company believes free cash flow gives investors useful insight into how the Company views its liquidity, but the use of free cash flow as a liquidity measure has material limitations because it excludes certain expenditures that are required or that the Company has committed to, such as declared dividend payments and debt service requirements. The Company defines free cash flow as net cash provided by operating activities, less capital expenditures, plus proceeds from divestitures of businesses and other assets (net of cash divested); this definition may not be comparable to similarly-titled measures reported by other companies.
The quantitative reconciliations of non-GAAP measures to the most comparable GAAP measures are included in the accompanying schedules. Non-GAAP measures should not be considered a substitute for financial measures presented in accordance with GAAP.
|
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In Millions, Except per Share Amounts) (Unaudited) |
||||||||
|
|
|
Three Months Ended |
||||||
|
|
|
|
||||||
|
|
|
2020 |
|
2019 |
||||
|
Operating revenues |
|
$ |
|
3,729 |
|
$ |
|
3,696 |
|
Costs and expenses: |
|
|
|
|
|
|
||
|
Operating |
|
|
2,329 |
|
|
2,298 |
||
|
Selling, general and administrative |
|
|
425 |
|
|
409 |
||
|
Depreciation and amortization |
|
|
402 |
|
|
366 |
||
|
Restructuring |
|
|
— |
|
|
2 |
||
|
|
|
|
3,156 |
|
|
3,075 |
||
|
Income from operations |
|
|
573 |
|
|
621 |
||
|
Other income (expense): |
|
|
|
|
|
|
||
|
Interest expense, net |
|
|
(112) |
|
|
(96) |
||
|
Equity in net losses of unconsolidated entities |
|
|
(26) |
|
|
(9) |
||
|
Other, net |
|
|
— |
|
|
(54) |
||
|
|
|
|
(138) |
|
|
(159) |
||
|
Income before income taxes |
|
|
435 |
|
|
462 |
||
|
Income tax expense |
|
|
74 |
|
|
115 |
||
|
Consolidated net income |
|
|
361 |
|
|
347 |
||
|
Less: Net loss attributable to noncontrolling interests |
|
|
— |
|
|
— |
||
|
Net income attributable to |
|
$ |
|
361 |
|
$ |
|
347 |
|
Basic earnings per common share |
|
$ |
|
0.85 |
|
$ |
|
0.82 |
|
Diluted earnings per common share |
|
$ |
|
0.85 |
|
$ |
|
0.81 |
|
Weighted average basic common shares outstanding |
|
|
424.2 |
|
|
424.5 |
||
|
Weighted average diluted common shares outstanding |
|
|
426.4 |
|
|
426.9 |
||
|
CONDENSED CONSOLIDATED BALANCE SHEETS (In Millions) (Unaudited) |
||||||||
|
|
|
|
|
|
||||
|
|
|
2020 |
|
2019 |
||||
|
ASSETS |
|
|
|
|
|
|
||
|
Current assets: |
|
|
|
|
|
|
||
|
Cash and cash equivalents |
|
$ |
|
3,125 |
|
$ |
|
3,561 |
|
Receivables, net |
|
|
2,168 |
|
|
2,319 |
||
|
Other |
|
|
342 |
|
|
329 |
||
|
Total current assets |
|
|
5,635 |
|
|
6,209 |
||
|
Property and equipment, net |
|
|
12,900 |
|
|
12,893 |
||
|
|
|
|
6,498 |
|
|
6,532 |
||
|
Other intangible assets, net |
|
|
494 |
|
|
521 |
||
|
Other |
|
|
1,651 |
|
|
1,588 |
||
|
Total assets |
|
$ |
|
27,178 |
|
$ |
|
27,743 |
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
||
|
Current liabilities: |
|
|
|
|
|
|
||
|
Accounts payable, accrued liabilities and deferred revenues |
|
$ |
|
2,683 |
|
$ |
|
2,926 |
|
Current portion of long-term debt |
|
|
387 |
|
|
218 |
||
|
Total current liabilities |
|
|
3,070 |
|
|
3,144 |
||
|
Long-term debt, less current portion |
|
|
13,065 |
|
|
13,280 |
||
|
Other |
|
|
4,298 |
|
|
4,249 |
||
|
Total liabilities |
|
|
20,433 |
|
|
20,673 |
||
|
Equity: |
|
|
|
|
|
|
||
|
|
|
|
6,743 |
|
|
7,068 |
||
|
Noncontrolling interests |
|
|
2 |
|
|
2 |
||
|
Total equity |
|
|
6,745 |
|
|
7,070 |
||
|
Total liabilities and equity |
|
$ |
|
27,178 |
|
$ |
|
27,743 |
|
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In Millions) (Unaudited) |
||||||
|
|
|
Three Months Ended |
||||
|
|
|
|
||||
|
|
|
2020 |
|
2019 |
||
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
Consolidated net income |
|
$ |
361 |
|
$ |
347 |
|
Adjustments to reconcile consolidated net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
402 |
|
|
366 |
|
Other |
|
|
70 |
|
|
123 |
|
Change in operating assets and liabilities, net of effects of acquisitions and divestitures |
|
|
(68) |
|
|
54 |
|
Net cash provided by operating activities |
|
|
765 |
|
|
890 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
Acquisitions of businesses, net of cash acquired |
|
|
(1) |
|
|
(394) |
|
Capital expenditures |
|
|
(459) |
|
|
(471) |
|
Proceeds from divestitures of businesses and other assets (net of cash divested) |
|
|
12 |
|
|
12 |
|
Other, net |
|
|
(55) |
|
|
53 |
|
Net cash used in investing activities |
|
|
(503) |
|
|
(800) |
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
New borrowings |
|
|
— |
|
|
— |
|
Debt repayments |
|
|
(25) |
|
|
(56) |
|
Net commercial paper borrowings |
|
|
— |
|
|
357 |
|
Common stock repurchase program |
|
|
(402) |
|
|
(68) |
|
Cash dividends |
|
|
(236) |
|
|
(223) |
|
Exercise of common stock options |
|
|
31 |
|
|
25 |
|
Tax payments associated with equity-based compensation transactions |
|
|
(33) |
|
|
(30) |
|
Other, net |
|
|
(3) |
|
|
37 |
|
Net cash provided by (used in) financing activities |
|
|
(668) |
|
|
42 |
|
Effect of exchange rate changes on cash, cash equivalents and restricted cash and cash equivalents |
|
|
(4) |
|
|
— |
|
Increase (decrease) in cash, cash equivalents and restricted cash and cash equivalents |
|
|
(410) |
|
|
132 |
|
Cash, cash equivalents and restricted cash and cash equivalents at beginning of period |
|
|
3,647 |
|
|
183 |
|
Cash, cash equivalents and restricted cash and cash equivalents at end of period |
|
$ |
3,237 |
|
$ |
315 |
SUMMARY DATA SHEET (In Millions) (Unaudited) |
||||||||
|
Operating Revenues by Line of Business |
||||||||
|
|
|
Three Months Ended |
||||||
|
|
|
|
||||||
|
|
|
2020 |
|
2019 |
||||
|
Commercial |
|
$ |
|
1,063 |
|
$ |
|
1,026 |
|
Residential |
|
|
650 |
|
|
640 |
||
|
Industrial |
|
|
693 |
|
|
680 |
||
|
Other collection |
|
|
112 |
|
|
109 |
||
|
Total collection |
|
|
2,518 |
|
|
2,455 |
||
|
Landfill |
|
|
887 |
|
|
864 |
||
|
Transfer |
|
|
441 |
|
|
412 |
||
|
Recycling |
|
|
254 |
|
|
291 |
||
|
Other |
|
|
430 |
|
|
431 |
||
|
Intercompany (a) |
|
|
(801) |
|
|
(757) |
||
|
Total |
|
$ |
|
3,729 |
|
$ |
|
3,696 |
|
Internal Revenue Growth |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period-to-Period Change for the |
|
|||||||||
|
|
|
|
|
|
|
As a % of |
|
|
|
|
|
As a % of |
|
|
|
|
|
|
|
|
Related |
|
|
|
|
|
Total |
|
|
|
|
|
Amount |
|
Business(b) |
|
|
Amount |
|
Company(c) |
|
||
|
Collection and disposal |
|
|
$ |
72 |
|
2.2% |
|
|
|
|
|
|
|
|
Recycling commodities (d) |
|
|
|
(59) |
|
(21.0) |
|
|
|
|
|
|
|
|
Fuel surcharges and mandated fees |
|
|
|
(16) |
|
(10.8) |
|
|
|
|
|
|
|
|
Total average yield (e) |
|
|
|
|
|
|
|
|
$ |
(3) |
|
(0.1) |
% |
|
Volume |
|
|
|
|
|
|
|
|
|
10 |
|
0.3 |
|
|
Internal revenue growth |
|
|
|
|
|
|
|
|
|
7 |
|
0.2 |
|
|
Acquisitions |
|
|
|
|
|
|
|
|
|
29 |
|
0.8 |
|
|
Divestitures |
|
|
|
|
|
|
|
|
|
(1) |
|
— |
|
|
Foreign currency translation |
|
|
|
|
|
|
|
|
|
(2) |
|
(0.1) |
|
|
Total |
|
|
|
|
|
|
|
|
$ |
33 |
|
0.9 |
% |
|
|
|
|
|
|
|
|
|
|
Period-to-Period Change for the |
|
||
|
|
|
Three Months Ended |
|
||
|
|
|
|
|
||
|
|
|
As a % of Related Business(b) |
|
||
|
|
|
Yield |
|
Volume(f) |
|
|
Commercial |
|
2.3 |
% |
2.0 |
% |
|
Industrial |
|
3.6 |
|
(2.3) |
|
|
Residential |
|
2.0 |
|
(1.2) |
|
|
Total collection |
|
2.5 |
|
0.1 |
|
|
MSW |
|
3.0 |
|
0.7 |
|
|
Transfer |
|
2.9 |
|
4.7 |
|
|
Total collection and disposal |
|
2.2 |
% |
(0.5) |
% |
| ______________________________ | ||
|
(a) |
Intercompany revenues between lines of business are eliminated in the Condensed Consolidated Financial Statements included herein. |
|
|
(b) |
Calculated by dividing the increase or decrease for the current year period by the prior year period's related business revenue adjusted to exclude the impacts of divestitures for the current year period. |
|
|
(c) |
Calculated by dividing the increase or decrease for the current year period by the prior year period's total Company revenue adjusted to exclude the impacts of divestitures for the current year period. |
|
|
(d) |
Includes net impact of commodity price variability and changes in fees. |
|
|
(e) |
The amounts reported herein represent the changes in our revenue attributable to average yield for the total Company. |
|
|
(f) |
Workday adjusted volume impact. |
|
| SUMMARY DATA SHEET | ||||||
| (In Millions) | ||||||
| (Unaudited) | ||||||
| Free Cash Flow Analysis (a) | ||||||
| Three Months Ended | ||||||
|
2020 |
2019 |
|||||
| Net cash provided by operating activities |
$ |
765 |
$ |
890 |
||
| Capital expenditures |
|
(459) |
|
(471) |
||
| Proceeds from divestitures of businesses | ||||||
| and other assets (net of cash divested) |
|
12 |
|
12 |
||
| Free cash flow |
$ |
318 |
$ |
431 |
||
| Three Months Ended | ||||||
|
2020 |
2019 |
|||||
| Supplemental Data | ||||||
| Internalization of waste, based on disposal costs |
|
68.3% |
|
66.2% |
||
| Landfill amortizable tons (in millions) |
|
27.2 |
|
27.9 |
||
| Acquisition Summary (b) | ||||||
| Gross annualized revenue acquired |
|
2 |
|
105 |
||
| Total consideration, net of cash acquired |
|
1 |
|
395 |
||
| Cash paid for acquisitions consummated during the period, | ||||||
| net of cash acquired |
|
1 |
|
389 |
||
| Cash paid for acquisitions including contingent consideration | ||||||
| and other items from prior periods, net of cash acquired |
|
2 |
|
394 |
||
| Amortization, Accretion and Other Expenses for Landfills: | Three Months Ended | |||||
|
2020 |
2019 |
|||||
| Landfill amortization expense | ||||||
| Cost basis of landfill assets |
$ |
114 |
$ |
110 |
||
| Asset retirement costs |
|
24 |
|
17 |
||
| Total landfill amortization expense |
$ |
138 |
$ |
127 |
||
| Accretion and other related expense |
|
25 |
|
24 |
||
| Landfill amortization, accretion and other related expense |
$ |
163 |
$ |
151 |
||
| (a) | The summary of free cash flow has been prepared to highlight and facilitate understanding of the principal cash flow elements. Free cash flow is not a measure of financial performance under generally accepted accounting principles and is not intended to replace the consolidated statement of cash flows that was prepared in accordance with generally accepted accounting principles. | |||||||||
| (b) | Represents amounts associated with business acquisitions consummated during the applicable period except where noted. | |||||||||
| RECONCILIATION OF CERTAIN NON-GAAP MEASURES | |||||||||||||||||||
| (In Millions, Except Per Share Amounts) | |||||||||||||||||||
| (Unaudited) | |||||||||||||||||||
| Three Months Ended |
|||||||||||||||||||
| Income from Operations | Pre-tax Income | Tax Expense | Net Income (a) |
Diluted Per Share Amount | |||||||||||||||
| As reported amounts |
$ |
573 |
|
$ |
435 |
|
$ |
74 |
$ |
361 |
|
$ |
0.85 |
||||||
| Adjustments: | |||||||||||||||||||
| Advanced Disposal acquisition-related costs |
|
28 |
|
|
28 |
|
|
7 |
|
21 |
|
|
0.05 |
||||||
| Enterprise resource planning system related costs |
|
7 |
|
|
7 |
|
|
2 |
|
5 |
|
|
0.01 |
||||||
| Impairment of an investment and other |
|
3 |
|
|
10 |
|
|
2 |
|
8 |
|
|
0.02 |
||||||
|
|
38 |
|
|
45 |
|
|
11 |
|
34 |
|
|
0.08 |
|||||||
| As adjusted amounts |
$ |
611 |
|
$ |
480 |
|
$ |
85 |
(b) |
$ |
395 |
|
$ |
0.93 |
|||||
| Depreciation and amortization |
|
402 |
|
||||||||||||||||
| As adjusted operating EBITDA |
$ |
1,013 |
|
||||||||||||||||
| Three Months Ended |
|||||||||||||||||||
| Income from Operations | Pre-tax Income | Tax Expense | Net Income (a) |
Diluted Per Share Amount | |||||||||||||||
| As reported amounts |
$ |
621 |
|
$ |
462 |
|
$ |
115 |
$ |
347 |
|
$ |
0.81 |
||||||
| Adjustments: | |||||||||||||||||||
| Impairment of an investment and other |
|
- |
|
|
55 |
|
|
- |
|
55 |
|
|
0.13 |
||||||
| As adjusted amounts |
$ |
621 |
|
|
$ |
517 |
|
|
$ |
115 |
(b) |
$ |
402 |
|
|
$ |
0.94 |
||
| Depreciation and amortization |
|
366 |
|
||||||||||||||||
| As adjusted operating EBITDA |
$ |
987 |
|
||||||||||||||||
| Three Months Ended | |||||||||||||||||||
| Adjusted SG&A Expenses and Adjusted SG&A Expenses Margin | Amount | As a % of Revenues | Amount | As a % of Revenues | |||||||||||||||
| Operating revenues, as reported |
$ |
3,729 |
|
$ |
3,696 |
||||||||||||||
| SG&A expenses, as reported |
$ |
425 |
|
|
11.4 |
% |
$ |
409 |
|
11.1 |
% |
||||||||
| Adjustments: | |||||||||||||||||||
| Advanced Disposal acquisition-related costs |
|
(28 |
) |
|
- |
||||||||||||||
| Enterprise resource planning system related costs |
|
(7 |
) |
|
- |
||||||||||||||
| Adjusted SG&A expenses |
$ |
390 |
|
|
10.5 |
% |
$ |
409 |
|
11.1 |
% |
||||||||
| (a) | For purposes of this press release table, all references to "Net income" refer to the financial statement line item "Net income attributable to |
||||||||
| (b) | While the Company calculates its effective tax rate based on actual dollars, an approximate effective tax rate can be calculated by dividing the Tax Expense amount in the table above by the Pre-tax Income amount. The adjusted effective tax rate was 17.6% and 22.2% for the quarter ended |
||||||||
Waste Management
Web site
www.wm.com
Analysts
713.265.1656
eegl@wm.com
Media
832.710.5287
aizquierdo@wm.com
Source:
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