TSS, Inc. (TSSI) Earnings Call Transcript & Summary

Good afternoon. My name is Brianna, and I will be your conference operator today. At this time, I'd like to welcome everyone to the TSS Second Quarter 2024 Earnings Call. Please note that today's call is being recorded. [Operator Instructions] I will now turn the call over to Danny Chism, CFO. Please go ahead, sir.

Thanks, Brianna, and good afternoon, everyone. Thanks for joining us for TSS' Conference Call to discuss our second quarter 2021 financial results. Joining me today on this call is Darryll Dewan, the President and CEO of TSS. As we begin the call, I'd like to remind everyone to take note of the cautionary language regarding forward-looking statements contained in the press release we issued today. That same language applies to comments and statements made on today's conference call. This call will contain time-sensitive information as well as forward-looking statements, which are accurate only as of today, August 14, 2024. TSS expressly disclaims any obligation to update, amend, supplement or otherwise review any information or forward-looking statements made on this conference call or replay to reflect events or circumstances that may change or arise after the date indicated except as otherwise required by applicable law. For a list of the risks and uncertainties that may affect our future performance, please refer to our periodic filings with the SEC. In addition, we will be referring to non-GAAP financial measures. A reconciliation of the differences between these measures with the most directly comparable financial measures calculated in accordance with U.S. GAAP is included in today's press release. Darryll will kick off the call with an overview and commentary about the quarter and year-to-date performance, then I'll provide more details about our financial quarter results and then turn the call back over to Darryll to recap our strategy and direction. Darryll?

Thank you, Danny, and welcome to our team. Danny joined us in early June, and he's already making a significant impact, bringing energy and innovative ideas to help drive our growth strategy. With over 3 decades of experience, Danny has a proven track record of delivering sound financial strategies and improving operational efficiencies during periods of rapid growth. His expertise spans crucial areas that will be increasingly important to TSS, including transactional experience, capital raising and Investor Relations. His addition to our leadership team is a key part of our ongoing commitment to building and strengthening our organization. Speaking of growth and opportunities, let me share some insights on our current position and future trajectory. 2024 marks a pivotal transition for TSS, building momentum for accelerated growth and expansion for 2025 and beyond. Our current trajectory demonstrates significant progress setting the stage for even greater achievements ahead. On today's call, I will provide additional context to illuminate our position to share why we're optimistic and poised for acceleration. Our turnaround strategy has progressed through key milestones as we previously communicated in the earnings call and announcement. To review, we began with a comprehensive operational cleanup completed in the first half of this year and culminating in our ISO certification. Next, through our investment in people, systems and physical layout of our main facility, we successfully demonstrated our ability to scale within our current capacity, addressing a crucial concern for our customers. Now we're entering the third phase, ramping up revenue, earnings and cash flow. We are already seeing the beginning of this growth as our Q2 results reflect. Our execution has been established by a solid operational foundation and proven scalability, positioning us for accelerated expansion ahead. Our performance in the first half of this year underscores our significant progress. We delivered $28 million revenue -- total revenue, a 33% year-over-year revenue growth, while simultaneously investing in the business and expanding profitability. The growth was driven by our more profitable businesses, our systems integration and facilities management. This growth translates into even more impressive bottom line results. Operating income surged 530%. Adjusted EBITDA increased [ 331%, ] and we achieved $1.4 million in net income, a remarkable turnaround from last year's $500,000 loss. Our financial performance stems from our unwavering focus on operational excellence, our commitment to strengthening and expanding our team and our enhanced go-to-market efforts. This strategic approach has not only driven our financial success, but also solidified our position as a trusted partner in delivering infrastructure crucial for AI and high-performance computing occurring in our increasingly digital world. As we move forward, these results validate our strategy and set the stage for continued growth and innovation. We're not just improving our numbers but hoping to shape the future of digital infrastructure. Operationally, our success is driven by our ability to execute and meet the demands of rapidly evolving AI landscape and a need for high-performance computing infrastructure while remaining responsive to our customers' needs. The demand for AI continues to catalyze our expansion, creating significant opportunities for TSS as we support our primary OEM partner, expand capacity and enhance services to meet their needs as well as those of other prospective partners and end customers. Allow me to share some insights on the AI market, current state cutting through the speculation of dominate headlines. AI presents significant challenges in infrastructure procurement and planning, primarily due to the rapid evolution of compute power. At the data center level, we're seeing an unprecedented surge in power density. Just recently, a single rack would typically consume 10 to 15 kilowatts of power. Today's AI racks push 80 kilowatts and we anticipate soon reaching 120 to 150 kilowatts in the next couple of generations. Industry road maps project over 200 kilowatts within a couple of years. This is an incredible growth in power density in a remarkable short period of time. This swift advancement is causing uncertainty for data center equipment buyers and may cause some lumpiness in our growth trajectory. However, there's no doubt that AI is dramatically accelerating the overall data center capacity pipeline. Moreover, this compute density increases -- increase brings a formidable challenge, heat. Cooling methodologies are evolving rapidly to keep pace with the increasing power density. This evolution presents both challenges and opportunities. TSS is positioned not just to adapt, but to lead in this rapidly changing landscape. Our nimble operational model enables us to adjust quickly as customers seek to make on-the-fly architecture changes and our rapid testing capability provides more immediate feedback to customers by narrowing configuration options, including cooling. During Q2, we made a significant investment in our production capacity, which came online at the beginning of June. This expansion significantly increased our volume capacity and decreased the cycle time to complete track within our existing facility. The expansion was driven by the surge in demand for server rack builds in the pipelines of our customer -- OEM customers. Our committed OEM customers are seeing the benefits of our actions and are very supportive. We have in recent times received customer funding for capacity and capability expansion to meet future needs, a compelling reflection of our customers' view of us as a partner. We continue to actively engage in discussions with them to further expand our capacity as we fulfill their needs and execute our goal to become a primary production partner for their future AI-related endeavor. We value our relationships. This is truly a partnership for success. Demand increased in Q2, and we began delivering complex AI integration solutions on time, and I want to stress, on time, including the first stage of a highly publicized program. That initial program began in June and is being carried out into Q3. As a result, we finished the quarter with a record run rate of rack integration revenue. Rack integration revenues from the first half of this year are just a bit under what we achieved for all of 2023. Our procurement business, where we source third-party hardware, software and services, delivered another solid performance in Q2, although it was down slightly year-over-year. Following a modest slower Q2, Q3 projections for our procurement business indicate very robust growth, potentially surpassing $50 million in revenue for the quarter. For those familiar with our history, recall that our procurement segment often experiences quarter-to-quarter fluctuations due to size, timing and revenue recognition methods of the deal. However, its overall trajectory remains upward, consistently contributing to our profitability. While we're encouraged by this growth trend, we maintain a prudent outlook on this business line to remain cautiously optimistic. Our modular data center business or MDC business continues to show year-over-year growth and remains a promising long-term opportunity for TSS. While the overall MDC market hasn't expanded at the rate analysts initially predicted, largely because rapid industry growth favored greenfield site development over capacity augmentation using MDCs, modular data centers. We're now seeing signs of a potential shift. The challenges I've highlighted earlier, rapidly increasing compute density, evolving cooling requirements may finally usher any area for modular solutions. Whether this materializes as predicted, remains to be seen. However, TSS, we are strategically positioned to capitalize on this trend, particularly if AI clusters start being delivered as freestanding rack for modules. To be clear, the overall volume ramp that we've been anticipating is now underway. Our OEM customers have very robust pipelines, and we're seeing deals begin to close. We believe our Q2 performance is a harbinger of the good things to come. Our strategic inclusion in key customer programs signals a bright future as OEM pipelines materialize. This growth trajectory may not be a smooth upward linear line. The pipeline deals of our OEM partners are large, and we anticipate some variability as the market adapts to rapid technological changes. But make no mistake, we are witnessing a dawn of a transformative era in our industry and TSS is at the forefront. This is not just exciting, it's validating. It confirms our strategy, our investments and more importantly, the tireless efforts of our exceptional team. I'm proud of this team. And as we navigate this dynamic landscape, we're just not riding the wave of AI revolution, we're helping to propel it forward. So now let me turn it back to Danny to discuss our numbers. Danny?

Thanks, Darryll. I'm excited to be here and excited to share the detailed financial results of another strong quarter for TSS. Before I jump into the earnings for the quarter, I'd like to make a couple of observations about our financial position. We again ended the period debt free with an untapped available line of credit and just over $8 million of cash on hand. As Darryll mentioned earlier, an OEM partner with whom we worked closely agreed to fund a significant portion of the capital investments we made during the quarter to enhance our capacity to rapidly build AI-enabled server and network racks for them. You can see this $1.7 million capital investment in our statement of cash flows. The portion of the reimbursement not yet amortized into revenue is included in our balance sheet as part of the deferred revenue balance. You'll also notice a $2.6 million increase in inventory compared to December 2023. That relates to configuration and systems integration work that was ongoing at the end of June. Our contract and other receivables also increased by just under $3.5 million as the majority of our annual facilities management contracts were renewed July 1 and the invoices for those were sent out shortly before quarter end. The revenues for those, as in past years, will be recognized primarily over the next 12 months. Now I'd like to turn to the operating results for the second quarter. Ordinarily, I wouldn't be very enthusiastic about sharing with you a [ 16% ] decrease in our total revenue. However, if you look at the gross profit for the quarter, it's up 41%, driven by a revenue shift mix to higher-yielding services. The revenue decrease was driven by a $5.7 million or 54% decrease in our procurement revenue. It's a great business that adds to the bottom line, and we'll take as much of it as we can get, plus it provides some cross-selling opportunities for systems integration work. The movements in revenues from the procurement business itself have a much smaller impact on our overall gross profit and bottom line than the movements in our facilities management and systems integration businesses. We had a 46% growth rate in revenues from facilities management activities, largely tied to a couple of discrete projects during the quarter and an impressive 108% increase in systems integration revenue. The last item is particularly exciting as it was driven largely by our starting to integrate AI-enabled rack, which began late in Q2. At least in the near term, we expect the demand from this business to be a bit lumpy, as Darryll mentioned, with some spikes and valleys in demand from our OEM partners and customers and somewhat dependent on the timing of the next generation of AI chipsets from the big chip manufacturers. That being said, in the first 6 months of the year, our systems integration team processed more than 80% of the system rack we integrated in all of 2023. As of the date of this call, we've already eclipsed the number of racks we integrated in the full fiscal 2023. Our SG&A expenses increased a bit in dollar terms and improved 8 percentage points to 59% of gross revenues from 67% this quarter last year. Through effectively leveraging our expense structure, the 41% growth in gross profit translated into a 74% improvement in operating income, ending the current period at $1.7 million. Our net interest expense represents almost exclusively the cost of factoring our accounts receivable from our largest customer. This factoring arrangement ends up having an effective interest rate of only around 6%, a far lower rate than we could get if we were to utilize a bank loan or revolving line of credit to finance those receivables ourselves. The net result of the above factors is that net income swelled to $1.4 million, up 345% from this quarter last year, and EPS moved from $0.01 in the prior period -- prior year period to $0.06 per share in the current period. Adjusted EBITDA, which excludes interest, taxes, depreciation, amortization and stock-based compensation, was just under $2 million, up from $1.2 million this quarter last year. Now let's take a look at the 6-month period ended June 30 compared to the comparable period of 2023. Total revenues were up 33%. With a good portion of the overall growth in total revenues coming from higher-yielding services, our gross profit increased 48% to $7.3 million. Similar to what we saw in the quarter, our SG&A costs improved to 70% of gross profit from 90% in the prior year-to-date period. Adjusted EBITDA was a bit more than threefold what we produced year-to-date last year, ending the period at $2.5 million. The gross value of procurement transactions processed in the second quarter of 2024 was $21 million compared to $42.9 million in the second quarter of last year. In the current year-to-date period, we processed $40.9 million of gross value procurement deals compared to $49.6 million this period last year. Procurement revenues are highly dependent on the timing of customer needs and can fluctuate widely from quarter-to-quarter. All in all, it was a great quarter for us financially and we look forward to achieving similar results as we continue to scale the business. With that, I'll turn the call back over to Darryll to share some insights into our expectations for the future and provide some closing comment. Darryll?

Thanks, Danny. It's great to have you on board, but -- thank you. We, TSS, remain strategically positioned to drive growth in both the burgeoning generative AI market and traditional cloud computing. AI's transformative impact spans every sector and TSS alongside our partners, stands ready to meet the surging demand. Looking ahead, we anticipate continued growth in our rack integration business. Expansion of our capacity completed in Q2 will yield significant benefits throughout the second half of 2024 and into 2025. Our ability to also provide on rack site -- I'm sorry, on-site rack integration on a customer site with cabling services opens up new high-margin opportunities for TSS, expanding our total addressable market and customer base. Our expertise in handling complex integrations and our maintenance capabilities uniquely position us to capitalize on these trends and growing market demand. We believe we have the physical capacity to handle near-term growth that we anticipate. We also believe there is a potential demand looking into 2025 that might and may outstrip our capacity. We have begun initial exploration into further capacity expansion. Our procurement business remains strong despite quarterly fluctuations and our modular data center business, while we've seen year-over-year improvement, we're now engaged in promising discussions with prospective customers. Our focus is on building a solid backlog to fuel revenue growth in 2025 and beyond. We're observing increased refresh activities in existing installations, though new builds are taking longer, particularly for AI solutions due to high GPU demand and anticipated technology releases. In the long term, we see potential synergy between AI and modular form factors, especially for use cases like autonomous vehicles and other time-sensitive applications and underserved variants. So in conclusion, TSS now has the capacity, expertise and track record to deliver for our partners and customers. We are very well positioned for the next wave of growth, and we continue to explore avenues to enhance our growth potential. I'm very optimistic of our future, I'm proud of our team. And with that, I'll open the line up for any questions. Operator?

[Operator Instructions] Our first question comes from Maj Soueidan with Geoinvesting.

Darryll, I have a couple of questions really, and then I'll just go in the queue then. So obviously, it looks like you got some growth in your rack integration, which was what we've waiting for to see how that looks. We're kind of getting an idea of what that looks like in terms of the bottom line based on your new kind of -- what you've done in terms of efficiencies. So I guess my question is -- a couple of things here. Number one, can you start giving us an idea in terms of how much of your integration business is rack, maybe sort of modeling a little bit in terms of your 10x kind of capacity expansion kind of goals moving forward? And number two -- I'm sorry, go ahead, like to answer that.

That's okay. Don't make this too complicated. I'm trying. [indiscernible]

No, because I'm in an airport here. I want to -- it's a little noisy here. And so you see more -- we're getting a glimpse of what you can do when you scale here in the rack integration. Are there more efficiencies down the line as you keep on growing that business? I'm just trying to get an idea what the margin picture might look like. And maybe the same with -- the same question really with -- as modular gets going, trying to understand the margin picture there as we move forward. That's really right now.

Okay. See if I can take this apart. So first of all, to your question on 10x, yes, I think we're on track to go do that. That is measured in terms of the quantity of rack. The mix of racks is changing and that we're getting more -- we're getting -- I think we're planning for the future where the mix -- there's going to be an increase in direct liquid cooled solutions as compared to what we have today. When I mentioned about heat and cooling. The future is looking like it's going to move to a larger percentage of direct liquids. So we've got to accommodate that in our capabilities in our factory and what we -- what we're going to run out of is power. And we're not sounding like anybody else, right? I mean customers are clamoring for power, and they're trying to [ planning ] for more power, and it may be at a different facility being blunt. And we're going to do that real carefully, and we're not going to go just run away and just do it for the sake of doing it, but we're going to have to lean in and make some decisions on that pretty soon. Now on your -- I think on the modular -- and by the way, I think we've got the capacity to grow here depending on the mix of business, but if it rapidly shifts to direct liquid, then we're going to have to more rapidly move to another facility. We have some sites in mind. We're planning for it, but we're just not ready to fully make a decision on that.

And if I can jump in for just a second. One point I would make there also is we do have the ability to do some direct liquid cool today. We have that infrastructure. It's just not the volume that we expect that to be in the future.

Okay. And on your modular question, part of the issue, Maj, is the lead time for componentry. When I first joined the company, I was told lead time is anywhere from 8 to 12 months [indiscernible] container to get the power units, et cetera. And I said that's nonsense. We can fix that. Well, we can. But we can build tighter relationships with the folks who are doing that work like the VIRTUS, the Schneider's, the Eaton's, et cetera, and we're doing that. We're taking steps to go get closer to those partners. What's that translate to? We do have -- we have an internal goal on the backlog and the pipeline that we want to build that will turn into revenue in 2025 and beyond given the lead times. We're not where we need to be yet, but we're making progress. We've got a couple of deals that have closed and we've got a couple of others in site, and we're working as aggressively as we can. I don't know if I answered your question, but if I didn't, let me know.

Yes. That was good, yes. I mean, maybe, I guess, one of my questions, if we can get more specific on just maybe yes or no on it. Do you think that there's a lot -- there's more efficiencies to come down the line here as you scale? We've got a glimpse up here in Q2. Do you think the margin profile continue -- improves as you scale the business, especially the rack integration [indiscernible] they get and maybe even modular?

Absolutely. The answer is absolutely, yes.

Okay. That was important there. Cool, cool. Yes, that's all I have for now.

Our next question comes from Jonathan Alvarado, Private Investor.

Congratulations. I've heard reports that you guys added around 200 employees during the second quarter. Is that true?

No. But we did add more people.

Okay. And were they largely all put to work right away?

As soon as they hit the front door.

All right. And we've heard reports that you're working on Elon Musk xAI data center. Is that true?

Jonathan, what we can't do is talk about the end-user customer because it's very confidential to our relationship with our partner. So I wish I could answer that, but I can't.

Okay. But you are a Dell premier partner. And would you get more work at Dell [indiscernible] larger deal?

We are a Dell services partner, and we work very hard to get as much business as we can with our relationship. So it is our hope and our desire that as the market expands and Dell succeeds and potentially other customer partners succeed, we will succeed as well. We're also embarking on a game plan to go direct to the end user on certain services that would not be in conflict with any relationship that we do have with Dell or anybody else. And we're in the early stages of that. But right now, it's not material to report.

And the current performance on your existing contracts that you just completed, does that set you up for more work on those same projects?

Jonathan, we hope so. We want as much business as we can get. So the better we do, the more we want.

Great...

Yes, the level of expertise to which we executed, I think, demonstrates the skills that we've built internally in the expertise. And I do anticipate that, that will be recognized and probably should result in us winning more business.

Great. Well, continued success.

Our next question comes from Paul Simon, shareholder.

Congratulations on a great result. I just have a couple of questions, but I think you may not be able to answer it based on your last answer, but what -- I was going to ask what percentage of your total revenue comes from relationship with Dell?

That's not -- well, I think we can... We don't talk about that publicly.

No problem. No problem. Like I said, you can't answer it maybe because you just said you can't talk about relationship. That's fine. It's just something I had in my mind. But the second thing is you mentioned power, and I'm concerned -- I'm curious about -- I haven't read anything about it or anything. I'm impressed with your results. Congratulations for everyone. I saw the stock jump up to $2.75 right before this thing, [ it's nice. ] Now when you said power, are you considering solar or nuclear power or anything else to power these things? Because I understand that there's huge power demands. And like you said, you don't have enough power. Are you -- any other methods you're trying to use to make power -- generate power?

What we need is power to the facility, electric power, and it's measured in megawatts. We've got a good amount of megawatts of power in our current facility and the lead time to go get additional megawatts is longer than we want unlike to what do you do. You go to another facility and you do the pricing and the cost and you make a decision on time frame and money, and we're looking at that. Solar, nuclear, if you think about what is consistent that you can count on with probably -- nuclear probably becomes the closest, but what I've seen so far is not many people want to put a nuclear portable unit next to their facility. Not yet anyway. But...

I just [ purchased ] a company today that does something like that. It's called NNE. But anyway, that's not what I call it, of course. I was just curious...

Okay. Go ahead.

This company is making portable nuclear or not so much portable, but more portable than what normal huge thing would be like 3-mile [ long ] or whatever they call it. No, on a truck, it's portable. So anyway...

We were introduced to a company that's based up in Silicon Valley that is doing something on affordable nuclear level, and we were engaged. I don't know if it's the same company. But what we're looking for is simply is just that we need more power to the facility. And we'll consider anything. Anything that could help us get there, we consider. But realistically, in the short term, we haven't seen anything that really we could talk about today besides regular power.

Solar can be bad depending on the weather. And also, you have to have a lot of land for that or actually roof space -- actually, roof space usually works, but for some times. But thanks for the great results. Like I said, I just noticed the thing jumped up to $2.75, but I don't know it just happened right at the end of the day, I guess. Thank you for the great results.

Yes. And Paul, for you and all other investors, I think on behalf of [ Darryll, ] myself and the management team, we appreciate your trust in the business. And if you're going to put money into our company, we've got an obligation to do everything we can to give you kind of a very good return on your investment. So we're focused on that and customer values. So thanks for your investment.

And I have a feeling we're going to see a rise tomorrow because I think these over-the-counter markets obviously don't do much extended hours. I think tomorrow, you're going to see a huge rise. That's just a prediction. I can't guarantee anything.

Paul, we are just focused. We are focused on execution and everything else happens with execution, ethically.

Well, that's [indiscernible] I don't buy any stock that I don't see is executing. I guarantee you that. And every single one I have is executing. And so you are definitely one of them. A guy [indiscernible] trade told me, hey, hey, that thing doesn't have much volume. Hey, this is that and the other. I said, dude, look, I'm going to buy it for $1.75, and let's see what you say. Now it's $2.75. Let's see what he says tomorrow. Anyway. He was just saying, the small cap things or there's no volume, there's this and that. I said, first [indiscernible], I know how to analyze, I went to college and I have a finance degree. Listen, this company has dominated this entire year. So don't tell me about small cap, large cap. If you dominate, you dominate. So thank you very much, and have a great next quarter.

Thanks, Paul. Appreciate it.

Our next question comes from Mitch Swergold, a private investor.

Congratulations on a really great quarter. It looks like you're managing the growth of the company very, very effectively. And I was impressed that you are receiving financing from your partner. Can you talk a little about the size and scale of that as well as how far in advance do you have to put the CapEx in before you can then generate revenue off of it? And then I have a follow-up question.

So like earlier, I wish I could give you the answer to your question, but that's proprietary, not I disrespect to you, it's just private. And it's -- I'll underscore by it doesn't come easy, and we are very respectful of our relationship with our partner and the fact that they put some money into what we're doing, it's a beautiful thing. As far as the other part of your question, I'm not quite sure I don't have the answer to that.

Okay. The other question I have for you is I also have heard that you've done some significant hiring. So I just wonder if you can tell us, I think you are gaining employees at the end of last year. Can you tell us how many employees you have at the end of the quarter?

We've gone public before. We had 83, which is the last time we quoted any volume. And I think for the sake of confidentiality, we're not going to get into a whole lot more, but we've doubled at least our headcount. And we need to do that to accommodate... Go ahead.

I didn't mean to interrupt you. So in 6 months, you've more than doubled your headcount? And also we tripled your head count...

Nice try.

Would it be safe to say that it is closer to triple than double?

No. I respect where you're going with it, but I don't want to go any further with it.

Okay. Have you had a lot of turnover?

Not unexpected based on the hiring trajectory we had. No, it's within -- I got to do a shout out to our Chief People Officer and the management team. We were prepared and we were planning for growth at some point, and we did a lot of it through automation and heavy-duty interviewing and we were working weekends and nights making this team what it is today. So I just need to do a shout out to the team, the management leadership team for making that happen. It would not have happened if we hadn't planned for it. We implemented some of the processes and the systems and we had the people we've got a leadership position. So we did some really unique things in a very short period of time.

Great. Last question -- can you talk about the duration of what kind of duration and revenue visibility do you have -- duration on the contract and revenue visibility for the coming quarters?

We have -- let me answer it this way. We have much better signals today and information exchange between our factory leadership and also our partner than we've ever had. And while there's no guarantees in life, we have a working relationship. We've got trusted relationships that we know how it works. I'm also at Dell. So not that, that means a whole lot other than when -- if you have any relationships with Dell people, you know a lot of it is based on trust and integrity and relationship. And we really work hard on that, especially as it relates to future demand and investment decisions we make because it affects people that impacts our business, and our partner knows that. So it's a good, I call it bidirectional relationship, but I can't get into some of the details. I think you [indiscernible] please understand I'd like to, but I can't.

We have no further questions at this time. I will now turn the call back to Darryll Dewan for any closing remarks.

Yes. Thanks, Brianna. To everybody here on behalf of the leadership team, we really do appreciate everybody's support to the company and what we're doing. Your info and involvement is respected. We appreciate it. We're optimistic about the future. We know what we have to do. We're focused on ROI for everybody, return on investment and profitable growth. So thanks for participating in the call. Wish everybody good evening and afternoon, wherever you're at, and wish you luck.

This concludes today's conference call. Thank you all for your participation. You may now disconnect.