Tidewater Inc. (TDW) Q1 2022 Earnings Report, Transcript and Summary

Good morning. My name is Audra, and I will be your conference operator today. At this time, I would like to welcome everyone to the Tidewater Q1 2022 Earnings Call. Today's conference is being recorded. [Operator Instructions] And at this time, I would like to turn the conference over to West Gotcher, Vice President of Finance and Investor Relations. Please go ahead.

Thank you, Audra. Good morning, everyone, and welcome to Tidewater's earnings conference call for the 3 months ended March 31, 2022. I'm joined on the call this morning by our President and CEO, Quintin Kneen; our Chief Financial Officer, Sam Rubio; our General Counsel and Corporate Secretary, Daniel Hudson; and our Vice President of Sales and Marketing, Piers Middleton. During today's call, we'll make certain statements that are forward-looking and referring to our plans and expectations. There are risks and uncertainties and other factors that may cause the company's actual performance to be materially different from that stated or implied by any comment that we make during today's conference call. Please refer to our most recent Form 10-K and Form 10-Q for additional details on these factors. These documents are available on our website at tdw.com or through the at sec.gov. Information presented on this call speaks only as of today, May 10, 2022. Therefore, you're advised that any time-sensitive information may no longer be accurate at the time of any replay. Also during the call, we'll present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in yesterday's press release. And now with that, I'll turn the call over to Quintin.

Thank you, West. Good morning, Everyone, and welcome to the First Quarter 2022 Tidewater Earnings Conference Call. I'm pleased to say that the first quarter was another solid quarter in a series of solid quarters. Momentum in the business continues to build, and we are starting to see the benefits of a tightening supply and demand balance we've been talking about over the last few quarters. In addition to a solid quarter, we closed on the acquisition of the 50-vessel fleet of Swire Pacific Offshore. Now that the transaction is completed, we are beginning to optimize the G&A and operating costs of that business so that we realize the synergy objectives we laid out, and we are beginning to leverage our larger footprint to improve the earnings performance of the combined business. Revenue was up slightly in the first quarter compared to the fourth quarter, which is a nice outcome as the first quarter is typically the softest quarter in the year due to weather in the North Sea. Revenue was just over $105 million for the quarter, up about 1% from the fourth quarter. Gross margin also improved during the quarter, up 3 percentage points to 35% and Vessel level cash margin expanded nearly 5 percentage points to 34%, nicely in excess of the 30% target we've talked about in recent quarters. Geographically, there are supply and demand dynamics in 2 of our regions that I would like to cover in a bit more detail, although the trend is positive everywhere. The West Africa region was the region most impacted by the COVID pandemic, but it continues to rebound quickly. Revenue grew at a sizable pace, up nearly 14% sequentially with vessel margins up to 41% from 32% in the prior quarter. Revenue in the West Africa is up 69% year-over-year. Vessel margin in West Africa in the first quarter of 2021 was 12%, so vessel margin is up 29 percentage points year-over-year. This market is recovering nicely. Active vessels increased to 42 from 39 in the prior quarter. We're adding approximately 25 vessels to this region through the acquisition of the Swire fleet essentially doubling our fleet count in the region. The addition of these vessels gives us the opportunity to leverage the momentum of this rapidly improving market with the considerably larger fleet. Utilization in the Americas dropped from 80% in the fourth quarter to 76% as a result of the dry docks and vessels down for repair in Mexico and Brazil. Although utilization dropped revenue still increased about 2% sequentially as day rates improved by about $900 per day. The Americas and especially the Caribbean is one of the strongest markets we see today. Our day rates in this part of the Americas was up over $1,700 per day during the quarter. We believe the continued success in offshore development in the Trinidad, Suriname, Guyana region will continue to drive vessel demand in the region. And given the tightness in vessel supply, we'll continue to drive update rates. Piers and his team have been doing a great job moving rates up, and he has some anecdotal day rate movements in that geography that will help illustrate that market's tightness. During the first quarter in the North Sea, weather inhibits some offshore activities. The North Sea is comprised of 4 discrete sectors, and we're active in the 2 larger sectors, the Norwegian sector and the U.K. sector. Although utilization was down for the entire region, utilization was up in the U.K. sector during the first quarter. This counter seasonal movement speaks to the strength and demand we are seeing in this region. Day rates increased nearly 2% across the region. It's worth noting the continued growth in the Egypt subsector as well during the quarter, where revenue was up about 45% during the quarter, along with a day rate increase of about $740 per day. We believe the Europe and Mediterranean region will continue to exhibit meaningful growth as we go through the remainder of 2022. Our G&A costs during the first quarter included $2.2 million in professional fees and integration costs related to the Swire acquisition. Excluding these costs, G&A came in right at $16 million for the quarter. Sam will cover this in more detail, but with the addition of the Swire fleet, we do anticipate G&A expense increasing for a couple of quarters until the synergies begin to take hold. After everything settles, we anticipate about $2.5 million of additional quarterly G&A due to the additional personnel and various other G&A costs that come along with 50 additional vessels and a new regional office in Singapore. Free cash flow for the quarter was negative $10.4 million. As we mentioned on the last call, we anticipated free cash flow in the first half of 2020 be weighed down by a significant drydock expense and vessel reactivations during the quarter, of which we spent $13.6 million during the first quarter. We also had a working capital build during the first quarter. Sam will also cover this in more detail as well, but the growth in DSO should normalize by the end of the third quarter. We remain confident that market conditions will result in our entire fleet working by the end of 2022, a combination of reactivations and disposing of non-core vessels. We made additional progress during the first quarter in disposing vessels available for sale, selling 5 vessels for total proceeds of $4.6 million. We ended the quarter with only 12 vessels remaining in the held-for-sale category. Vessels and lab costs of $1.4 million in the first quarter, down 23% quarter-over-quarter and down 75% year-over-year. Costs associated with COVID-19 also continued to fall down 21% quarter-over-quarter and down 44% year-over-year. As a reminder, we announced an at-the-money stock issuance plan back in the fall, the ATM plan. No shares have been issued under that plan since it was put in place. Our intention to use for the plan is simply the repurchase of Jones Act warrants, which requires -- well, it includes the legacy warrants as well as the 8.1 million warrants we issued to Swire as consideration for the acquisition. Our intention with the ATM plan is to create a market for those warrants by issuing new equity shares under the ATM plan in exchange for those warrants, no new net shares are intended to be issued. Before I turn the call over to Piers, I'd like to briefly touch on the progression of the market during the first quarter, and what that implies for the remainder of 2022. In short, the market is tight. We've reached near equilibrium in supply and demand balance for the larger PSVs. There still remains some slack in the smaller PSV market, but that sector of the market is also tightening. During the first quarter, we fixed charges for 16 vessels commencing work beginning after the first quarter. These 16 vessels are of various sizes and the charter terms were for various durations, but the average day rate improvements for these 16 vessels as compared to their prior contracts is just over 20%. With our largest PSVs, achieving an average day rate improvement of nearly 30%. We remain confident that the second half of 2022 will represent a meaningful uplift in vessel demand with 2023, representing yet another leg up. Consistent with price level increases throughout the economy, we are experiencing cost inflation, and we will continue to keep this in mind as we set day rates around the world. With that, let me turn it over to Piers for an overview of the market and the company's performance within it.

Thank you, Quintin, and good morning, everyone. Before I talk about the market and put some of Quintin's comments about our improving regional performance into a wider global context. I wanted to mention that we'll be releasing our second sustainability report later this month and reiterate that at our core, ESG is something that has always been and always will be an extremely important part of Tidewater's DNA. And it's great that with our second sustainability report, we have an opportunity to continue to showcase to our stakeholders a historical as well as our future commitment to ESG. Please look out to the report when it is released later this month. On previous calls, during 2021, we've been very vocal about certain key tenets for the business as we saw the market slowly rebalancing. Two of those tenants revolved around discipline on how and what we bid for and the flight to quality of our [indiscernible]. In our view, we are now slowly seeing the benefits of remaining focused on these 2 themes during 2021 and into 2022. With the acquisition of Swire, over 63% of our OSV fleet are now PSVs, with 79% of those in the larger 700 square meter plus or 7,500 square foot plus deck size. To put that into a global context, this class of vessel where we believe the supply-demand balance is almost in parity with a current active fleet of circa 770 vessels, and with only an additional 108 vessels still stacked of which 68% have already been stacked for over 5 years and/or are over 20 years old. And in our view, we'll find it difficult, if not impossible, to come back into the market. Especially as we're seeing limited drydocking space globally and significant long lead times for major equipment items, which we believe will further exacerbate the already tight supply-demand balance in this class of vessel. As we saw this early, it has allowed us to be disciplined on how we reactivate our vessels, and how we chose to bid and build optionality to allow us to lead the market in driving rates up in 2022. And already this year, we've had some success in the spot market at rates in excess of $40,000 per day and similarly in the high $30,000 per term work in this larger class of PSVs. Similarly, on the large AHTS side, where we now have a significant foothold in the global market with a fleet of 11 large AHTS over 180 tonnes volatile, we also see the global fleet for this class of vessels close to parity with only 8% of the fleet still in layup that we feel possibly could still be reactivated based on the same matrices as mentioned earlier. However, the large AHTS sector is a more lumpy market as contracts tend to be shorter. So we still need to see a little more demand pickup in drilling activity before we really start seeing the rate increases, we have been able to push through on our larger PSVs Conversely, we've seen that in the smaller PSV and AHTS segments, where we only have about 36% of the OSV fleet operating we are still leading the push in day rates and recent 8% to 18% day rate increases in regions like Mexico and the Middle East for those sizes of vessels. But we are also still competing in a much more fragmented owners market. And with the added sort of chemicals concerned that there's still potential significant supply overhang that could still be reactivated back into the market. Perhaps the sort of deletes references a little dramatic, but there's still over 20% of the smaller fleet and layout today, of which 13% are under 20 years old and/or have been laid out for less than 3 years. Now as I mentioned earlier, I think supply will take longer to come back into the market than in previous years due to dry dock and equipment lead time constraints and competitive cash flow constraints, but it is still a potential headwind we need to be aware of. Along with the fact that we're starting to see some of our customers changing their stance around vessel age limit requirements and moving the goalpost from 15 years old and out to 20 years old as they're starting to worry about the potential upcoming supply squeeze. So as we set out our store for the remainder of the year and into 2023, we feel confident and optimistic that our focus over the past few years of being commercially disciplined and committing to a flight to quality philosophy for the fleet is really starting to bear fruit. Lastly, before I hand over to Sam to talk in more detail on the numbers, I wanted to just leave you with a couple of final positive thoughts regarding OSV supply. We don't see or expect to see any new building orders happening now or any time soon. And according to Clarksons Research, the total OSV fleet has actually shrunk by 4% compared to the high water mark set in 2017. Marginal numbers may be, but still positive to see as demand creeps up. With that, I'll hand over to Sam. Thank you.

Thank you, Piers, and good morning, everyone. I would like you to take you through our financial results and discuss some key points that make up these results. My discussion will focus primarily on quarter-to-quarter results of the first quarter of 2022 compared to the fourth quarter of 2021. As noted on our press release filed yesterday, we reported a net loss of $12.2 million or $0.29 per share. From an operational perspective, we showed modest revenue improvement quarter-over-quarter. Our revenue for the first quarter of 2022 was $105.7 million. This is $554,000 or approximately 1% increase from the fourth quarter of 2021. Utilization and day rates were up slightly in the first quarter with active utilization of 82.5% compared to 82.4% in the previous quarter. We also saw average day rates increased about 1% to 10,687 per day in the first quarter from 10,583 per day in the fourth quarter. Overall, gross margin for Q1 increased nicely to 35%, up from 32% in Q4. Vessel operating costs for the quarter was $68.5 million, a decrease of $2.7 million from Q4. The decline in operating costs consisted of reduction in COVID-related costs, down about $400,000, stacking costs down about $400,000 and vessel reactivation expenses down about $300,000. The remaining reduction is primarily the result of lower repair and maintenance spend. We sold 5 vessels during the first quarter for net proceeds of $4.6 million and recorded a net gain of $300,000 on the sale of these vessels. Our operating loss of $7.3 million for the quarter decreased by $19.7 million from Q4 due to the absence of the $13.5 million asset impairment and $1.4 million affiliate credit loss incurred in the fourth quarter, along with modestly higher revenue and lower vessel operating expenses. We did not record any credit losses during the first quarter. However, we did book a $500,000 impairment credit as we returned 1 vessel -- 1 of our vessels held for sale back to the active fleet. G&A costs for the quarter was $18.2 million, up about $600,000 from Q4. G&A for the first quarter included $2.2 million of transaction expenses associated with the Swire acquisition. Our legacy Tidewater projection for G&A costs, excluding transaction and synergy type costs was previously $68 million per year, and we feel that number is still a good number. However, with the addition of Swire, that number will increase initially by $2.8 million per month, but decrease in synergies begin to materialize. Next, I would like to provide a brief update as it relates to Swire combination and what expectations are now that we have closed the transaction. If you recall, we previously announced we expect to achieve $20 million in G&A synergies related to the transaction. We have already commenced efforts to integrate the Swire business into the broader Tidewater platform. We anticipate having the G&A functions principally integrated by the end of 2022 and begin to realize the full run rate of these synergies in early 2023. We also noted to expect to achieve $25 million of OpEx-related synergies. As previously discussed, we anticipate this effort will take a bit longer to realize the synergies, probably closer to 18 months. We expect to spend another $5 million to $6 million this year in professional fees related to the completion of the acquisition and $14 million in costs achieved in noted synergies, which includes items such as severance costs, lease termination costs, stay bonuses, integration performance bonuses and IT costs. In the quarter, we incurred $12.6 million of deferred drydock costs compared to $9.9 million in Q4. As expected, Q1 was a heavy drydock quarter with a combination of drydocks that crossed over from Q4 and previously scheduled dry docks for the first quarter. In the quarter, 12 drydocks were in process, and we incurred 547 drydock days, which negatively impacted our overall utilization by 5 percentage points. We expect the second quarter to be another heavy drydock quarter with spend of around $21 million, including about $2 million of drydocks associated with the recently acquired Swire vessels. We anticipate full year 2022 drydock costs to be approximately $54 million, up modestly from our prior estimate of $51 million, principally related to the addition of the Swire vessels. In the quarter, we also incurred about $1.2 million in capital expenditures. We expect CapEx for 2022 to be about $9 million, including $2 million on Swire vessels. Free cash flow was negative $10.4 million this quarter due primarily to the heavy drydock spend and the build in working capital. Q2 will be another challenging quarter as drydock will be substantial, and AR will continue to build due to the increase in revenue. However, as dry docks, COVID and stacking costs decreased and working capital timing begins to improve, we do see significant improvement to free cash flow occurring in the second half of the year. On previous calls, we talked about collections challenges related to Pemex. While outstanding AR with Pemex dropped nicely in the fourth quarter, we have seen that balance build up approximately $5 million from Q4. We continue to engage with Pemex to keep the DSO within a reasonable range. We also had some buildup in other locations to customers falling behind on their payables of approximately $6 million. Along with a natural build in AR due to meaningful revenue increases in Trinidad, Egypt and West Africa to an extent. We fully expect DSO to get back to the normal range. But I do want to remind everyone we would expect AR to naturally increase over the coming quarters as revenue increases, but will similarly work to keep DSO in a reasonable range. In Q4 of 2019, we began reclassifying vessels on our balance sheet from property equipment to assets held for sale. And at the end of 2021, we had 18 vessels held for sale at a value of $14.4 million. During the first quarter, we sold 5 vessels for proceeds of $4.6 million and transferred wood vessel back to the active fleet, leaving our vessels held for sale at 12 with a value of $8.6 million. During the quarter, we entered into an at-the-market sales agreement pursuant to which we may offer and sell shares from time to time of our common stock, having an aggregate offering price of up to $30 million. We did not issue any shares under the ATM program during the first quarter of 2022. We intend to utilize the ATM program to create a market for outstanding Jones Act warrants, including the 8.1 million Jones Act warrants issued to Swire upon closing the transaction. I would now like to focus on the performance of the regions. Our Americas region reported a small operating loss of $82,000 for the quarter compared to an operating loss of $2.9 million in Q4 '21. The region reported revenue of $28.4 million in Q1 compared to $27.9 million in Q4. The region operated vessels in the quarter, which was an increase of 1% from Q4. Active utilization for the quarter was 76%, which was down from 80% in the prior quarter due in part to 56 more drydock days in the quarter. However, day rates did increase to 5,501 from 14,603 per day in Q4. The decrease in operating income was due primarily to an increase in revenue. In addition, in Q4, we accrued for legal court claim in Brazil did not occur in Q1, which reduced operating costs for the quarter as well. Our Middle East, Asia Pacific region reported operating income of $290,000 compared to operating income of $1.1 million in Q4. The region reported revenue of $25.1 million in the first quarter as compared to $26.9 million in prior quarter. The region operated at 38 vessels, which was up 1 vessel compared to Q4. Active utilization decreased by approximately 6 percentage points to 86% in the quarter compared to 92% in Q4 as the region incurred 230 dry dock days. However, day rates remain constant at 8,589 per day in Q1 compared to 8,580 per day in Q4. The decrease in operating income was due primarily to the decrease in revenue caused by the lower utilization. Our Europe and Mediterranean region reported an operating loss of $2.4 million in Q1 compared to a nonoperating loss of $4 million in Q4. We saw revenue increase by 6% to $23.9 million compared to $22.5 million in Q4. The region operated at 24 vessels in the quarter, which was an increase of 1 vessel from Q4 and active utilization increased to 91.3% compared to 88.5% in Q4. We did see a slight uptick in day rates to 12,124 per day compared to 11,917 per day in Q4. The improvement in operating income for the quarter was mainly driven by the increase in revenue and decrease in operating costs due mainly to lower reactive aging costs. Our West Africa region reported operating income of $3.2 million in Q1 compared to an operating loss of $1.1 million in Q4. The market in this area has continued to improve as we have seen revenue increases steadily for 5 straight quarters and was the region with the highest increase in revenue for the quarter with 14% from Q4. In addition, revenue also increased 69% from Q1 2021. Revenue for Q1 was $26.4 million compared to $23.2 million in Q4. The region operated 3 more vessels in Q1 and active utilization increased meaningfully to 79.1% in Q1 compared to 71.4% in Q4. Day rates did drop modestly to 8,834 per day in Q1 from 9,052 per day in Q4. The increase in operating income from Q4 resulted mainly from an increase in revenue on essentially flat operating expenses. In January, we required 51% of the Sonatide joint venture, which included 2 vessels. Those vessels contributed approximately $1 million to the increase in revenue. In summary, we are encouraged to see the increase in revenue, day rates and utilization, and we are encouraged to see the continued positive signs in market activity. We reactivated 20 vessels in 2021 and 5 in the current quarter with a few remaining to be reactivated later this year. The original 20 vessels have begun to contribute nicely to the operating results. Revenues have increased operating cost is beginning to stabilize. As noted, we still have a few remaining reactivations, so operating costs will still be a little bumpy, but we are starting to see a significant decrease in COVID and stacking costs, which will also have a positive impact in our results. We completed the Swire acquisition in late April and very excited to begin integrating both employees and the vessels into Tidewater operations. As I mentioned last quarter, we have a great team of people high-quality fleet with strong commercial positions, this made them successful and will be essential to Tidewater's continued success in creating a world-leading OSV company. We remain very encouraged with all the positive signs and look forward for this to continue in 2022 and beyond. With that, I will now turn the call over -- back over to Quintin.

Thanks, Sam. In closing, allow me to highlight a few things. First, while the first half of this year will be a net investment of cash our free cash flow will improve substantially in the second half of '22, and the year 2022 will be a marked improvement over 2021. This will be driven by a variety of factors, especially as dry dock and reactivation expense drops considerably in the second half of as working capital timing has worked through and has the impact of increasing utilization and day rates begin to materialize and work through to the cash flow statement. Second, we will be diligently working to realize the synergies associated with the Swire acquisition that we laid out; and third, leveraging our fleet in such a way as to drive day rates for the combined fleet as the market continues to tighten. We have substantial operating leverage in a rising environment, and we will harness this to the benefit of our shareholders. And with that, Audra, we will open it up for questions.

[Operator Instructions] And we do have a question from Patrick Fitzgerald at Baird.

Sorry if I missed this. Did you give a number, you gave updated drydocking CapEx? What did you expect full year for proceeds from asset sales? And then on working capital, you said it'd be used as revenue increases. Any sense of how big of a use that will be.

So the proceeds from vessel sales will be about $13 million. As far as the -- yes. So the DSO right now is at 83 days. So we normally -- typically, we see the DSO at about 75 days.

Okay. So you guys are seeing a lot of improvement in the market. I mean, could you just kind of give us an update? Because in the past, you said that production represented production support represented like over half of your revenue and then drilling support represented over half of your army, the other half, obviously, we're seeing a some uptick in drilling activity, it's all going to be going to be next quarter. Seems like to me, but it's certainly more constructive than it has been in the past. Could you just kind of update us on how you see this impacting your utilization as -- because I wouldn't expect from a production standpoint that you're -- that any more vessels are needed, but the market kind of tightens on the drilling side. So if you could talk about that, that would be helpful.

Sure. Patrick, it's Quintin. So let me illustrate a couple of things that are happening out there. Certainly, what you're seeing in the drilling market we are seeing as well. And with the Swire acquisition and they're more weighted toward anchor handlers, I anticipate that you're going to see us more leverage to drilling activity as we go through '23 and into '24. So before, I think we've said something like 60-40, I can see that moving up to 70% of -- there's a class of the anchor handlers that we're getting from Swire that are dual use that will work as anchor handlers, but also supply vessels in those regions where it's just not economical to have 2 types of vessels. So hard to know exactly how that's going to shake out. But it's definitely leaning more towards drilling as the drilling market improves and as we've acquired the anchor handlers from Swire. But on the PSVs, let me explain to you another phenomenon that's going on, which is around the world today, especially outside of the Soviet Union, everyone is trying to figure out how to pump more from existing production. And that means more vessels because there's going to be well stimulation activity. There's going to be other enhancements to production, offshore production platforms and things like that, and that is all vessel intensive. And so what we're seeing right now in the bidding stage is certainly on the drilling side, we're definitely seeing that. We're participating in that, but we're seeing a lot more infill development. So I expect that to go on throughout '22 and into early '23, '24 that time frame. And then I'll layer on top of that, one thing that we should keep in mind is that the world is getting that much more oriented towards offshore wind. And so they take a combination of fossil, both PSVs and anchor handlers, and we're starting to see that level of activity increase. It's relatively small today, but I anticipate it's going to be increasing nicely in really in the U.S. market over the next couple of years.

In the past, there was each floater needed, it was like in the boom years, like 5 OSVs, I believe, depending where they were. And then that kind of tightened down as people are trying to cut costs to like 2 or 3, I believe, could you talk about kind of the sentiment out there in that regard?

Yes. So as you think about the demand equation, for companies like Tidewater. Obviously, there's the production piece, which not related and not really count related. But on the drilling side, it has a lot to do with where the drilling occurs, right? So to the extent that the North Sea gets real active and starts moving westward in its drilling activities in North and West. Then you're definitely going to see that rig count per -- I'm sorry, the vessel count per rig increase. Okay. So the farther they are offshore, the more remote locations that are in the world, the higher the rig count is going to be. So as you see developments continue in Senegal as you see the things develop in Mozambique. Those are going to be a lot more vessel per rig intensive because there's not an existing infrastructure there. Now the other phenomenon that occurs. And we saw this reverse in 2015 and '16, and I think you're going to -- and we're already starting to see signs of it pick up as we go through the remainder of '22 and I think in through '25, is that people start to get worried about not having a vessel. So vessel scarcity kicks in. And so instead of releasing a vessel because well, there's 3 at the dock and you could pick one up any day you want it, people start holding on to boats. And in that process, the boat count just naturally inflates a little bit. So the option value of holding on to a boat is so low relative to the spread of an offshore field that people will begin to do that. We're already starting to see indications of that in West Africa.

Great. All right. And then I just wanted to get kind of an update on, obviously, you're going to integrate this transaction, which is -- which you've done a great job in your past acquisitions and getting a lot of cost out of the entity. But looking across the space, you're still kind of the most capable of doing M&A. So how do you see that kind of process unfolding?

Well, certainly, the integration effort with Swire is going to take some time, but that's not slowing us down from anything that we would do strategically. I feel confident by the beginning of the fourth quarter that, that will all be well in hand. And it will play out, as Sam indicated over 18 months because that's how long it takes it to roll out. But nothing is going to stop us from further consolidation except for the opportunities presenting themselves and of course, the appropriate valuation.

And that does conclude the question-and-answer session. I'll turn the conference back over to management for any closing remarks.

Thank you, everyone, and we look forward to updating you again in August. Goodbye.

That does conclude today's conference. Thank you for your participation. You may now disconnect.