UFP Industries, Inc. (UFPI) Q1 2024 Earnings Report, Transcript and Summary

Good day, and welcome to the Q1 2024 UFP Industries Inc. Earnings Conference Call and Webcast. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Dick Gauthier, Vice President of Investor Relations. Please go ahead, sir.

Welcome to the First Quarter 2024 Conference Call for UFP Industries. Hosting the call today are CEO, Matt Missad; and CFO, Mike Cole. Matt and Mike will offer prepared remarks, and then the call will be open for questions. This conference call is available simultaneously in its entirety to all interested investors and news media through our webcast at ufpi.com. A replay will also be available at that website. Before I turn the call over to Matt Missad, let me remind you that today's press release and presentation include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from the company's expectations and projections. These risks and uncertainties include, but are not limited to, those factors identified in the press release and in the filings with the Securities and Exchange Commission. I will now turn the call over to Matt Missad.

Thank you, Dick, and good morning, everyone. Thank you for joining our first quarter 2024 investor call. The first quarter was generally in line with expectations, and I'm proud of our team for dealing well with the uncertainty and still delivering strong results. That said, it remains difficult to have clear insight into the balance of the year. The conflicting economic indicators and forecast by various economists have blurred the ability to make confident forecasts. So rather than wait for [ Johnny Nash ] to bring some clarity, the UFP team will continue to execute our plan, and we will rely on our experience and our balanced business model to continue to improve. While Mike will review the financial details, the overall picture includes net sales for the quarter of $1.64 billion and net earnings per share of $1.96. Net sales were down due to lower demand and a lower level of lumber market, while EPS was above expectations, aided by a nonrecurring tax benefit for the quarter. Due to the slower demand, we are executing plans to improve operating costs and to consolidate excess capacity in the short term, while still investing with optimism and strength in future growth and efficiency to implement our long-term vision. We will discuss some of those improvements in a few moments. First, let's take a look at the segments. Retail Solutions. As a value-added manufacturer, seller and self-distributor, our products provide solutions for the DIY consumer as well as the professional contractor. Overall, Retail saw lower sales but better bottom line results. Our ProWood and Sunbelt units saw unit declines in the quarter from strong unit volumes a year ago, and we expect the balance of the year to be in line with adjusted forecast from both big box and large independents. The Deckorators product line continues to grow with modest unit increases this quarter. Once again, Deckorators will be investing heavily in marketing to drive brand awareness and promote the industry-leading and patented Surestone technology, which we believe is the best composite substrate. And in addition to marketing, we have increased our new product development spend, which will enable us to use planned capacity increases to drive additional products using the Surestone technology. The UFP-Edge Siding, Pattern and Trim products added an additional third-party distribution in the quarter, which we will -- which we expect will drive more growth later in the year. The revised forecast for repair and remodel for the balance of 2024 indicates a year-over-year unit demand reduction in the mid-single-digit range. The various indices also predict a rebound in 2025 and 2026. Business in the Construction segment was strong, led by increases in both the Site Built and the Factory Built business units. With mortgage rates steadily around the 7% to 7.35% range, growth expectations in Site Built have been tempered somewhat, particularly in the multifamily sector. While starts in 2024 are projected to be slightly up to slightly down from the 1.413 million actual housing starts in 2023, February starts were well above that target, while March starts were below the annual target. Some of the swings are attributable to different weather conditions in the markets year-over-year, but it does make predictions difficult. Factory Built showed strong signs of improvement as unit sales increased, and the team captured market share in the RV and cargo space. We have recognized the need to grow this area faster and drive more sales of both OEM products and aftermarket products. As part of our succession planning and to more quickly generate revenue from new products under the Recreate brand, Jonathan West, a highly talented and respected 30-year teammate and the current Executive Vice President of Factory Built, will transition to the important new role as Head of National Sales and Innovation for Factory Built beginning in the third quarter of 2024. Chad Eastin, a 25-year veteran with outstanding relationships throughout the markets we serve, will assume the Executive Vice President role of this business unit by September 30. These changes underscore our commitment to be the best partner for our customers and to continue to drive more value add in our products and services. In the Packaging segment, demand expectations have been muted. The expectations for the year have been tempered by higher for longer interest rates and the purchasing managers index dropped below 50 in March, which would suggest continued softness in end consumer demand for many of the runways. However, I am pleased with the team's ability to adjust to the market conditions and remain on offense to provide better results. They have consistently evaluated capacity, internal costs and ability to create manufacturing efficiencies. Recent investments in automated equipment and operating changes, coupled with demand forecasts, have enabled facilities to produce more in the same footprint. As a result, we plan to consolidate 7 facilities by the end of Q3, with expected annual cost savings in 2025 estimated at $8 million. In addition, we are analyzing an additional 4 facilities and other product areas for possible consolidation or alternative paths to market by year-end. Balancing transportation costs and service to the customers are key considerations in the financial analysis for these locations. With a clear path on the cost side, it is important to note that our sales teams are aggressively seeking new accounts, while also protecting market share and increasing value-added opportunities for our customers. While there may be short-term economic challenges, the long-term outlook for UFP Packaging remains very strong. We will continue to invest in automation, innovation and acquisition to advance our goal of becoming a global packaging solutions provider. Some items of interest in our focus areas and departments are new products. New product sales for the first quarter were $124 million. We enhanced the definition of new products to drive more value-added products and services and set a target of $510 million for 2024. [indiscernible] takes into account the expected lower level of the lumber market for lumber-related products. Through the first quarter, we are on track to meet the annual target. In the purchasing area, with more capacity online and still more on the way, no significant moves are expected in the level of the lumber market. We expect that the mills will manage the supply side by taking production offline at less efficient mills to match market demand, rather than to further erode their margins. On the transportation side, transportation costs have become more competitive, albeit at a higher level. Demand is lower for the transportation industry, while costs, including fuel and insurance have increased. So in spite of lower demand, finding qualified drivers still continues to be challenging. On the human capital side, we continue to see quality applicants to help us grow and to strengthen our team. While the headline U-3 unemployment data seems low, the more accurate U-6 unemployment rate for March was 7.4%, up from 7% at the end of December. An estimated 303,000 full and part-time jobs were added in March, with more than half of those in nonprofits and government. 39,000 were added in construction due in part to milder weather this year. Jobs in manufacturing remained unchanged. Compensation and benefits continue to climb, as rising minimum wage rates drive all other wage rates higher and fuel inflationary pressure as costs for goods and services rise. As counter to these increases, our incentive compensation plans automatically adjust to reflect pre-bonus operating profit. When profits are down, incentives are reduced, which in turn encourages our team of high achievers to drive improvements faster. On the capital allocation side, our capital plan centered on three areas: growth, investment in new product technology in our future and providing strong returns to our shareholders. Whether via M&A or organic growth, we will aggressively pursue our runways. Acquisitions have been more challenging. However, the target pipelines have begun to expand. And we maintain our philosophy that if we are unable to acquire reasonably priced acquisition targets, we will grow organically. We have increased capital spending on organic growth, including greenfield growth over the last few years. We expect to authorize $100 million in 2024 for these projects. We expect another $100 million to be spent on new product capacity increases, technology investments, research and development and innovation. And to ensure strong returns for our shareholders, the Board declared a dividend of $0.33 per share payable on June 17, 2024, to shareholders of record as of June 3, 2024. And in our share repurchase plan, as of last week, we have repurchased 671,291 shares of stock and still have $97 million remaining on our repurchase authorization. Even though we are pursuing growth strategies for the future, we are confident that our shares are a very good long-term investment. In other macro outlook items, we would summarize the future outlook to be a tale of two different consumer types. Those that are doing well in the current economy are making the bulk of the retail purchases. These purchasers can sustain the current levels of demand and have kept our businesses all floating. We could improve demand if we could provide lower cost to those whose limited resources have been decimated due to high energy costs and inflationary impacts on basic necessities such as housing, transportation and food. I would endorse reducing inflation and providing relief by allowing the markets to work, reducing costs such as energy, education and unnecessary regulations. I won't hold my breath waiting for the adoption of my suggestions, so we will continue to drive our business, execute our strategies and create value for our shareholders. Now I'd like to turn it over to Mike Cole to review the financial information.

Thank you, Matt. Our consolidated results this quarter included a 10% drop in sales to $1.64 billion, largely driven by a 9% reduction in selling prices, while unit sales declined by just 1%. The decline in selling prices resulted from a drop in lumber and more competitive pricing in certain business units. Our overall unit sales held up well this quarter in spite of a more challenging demand environment due to the strength of our balanced business model. While adjusted EBITDA dropped 10.5% to $181 million, we're pleased to report our adjusted EBITDA margin remained well above historical levels and improved sequentially from Q4 to 11%. I was also pleased to see our cash cycle improved to 62 days this year from 71 days last year, which reduced our investment in net working capital and contributed to a $20 million improvement in our cash used in operations in the quarter that has seasonal working capital demands. Our trailing 12-month return on invested capital also remains at historically high levels at nearly 20%, about 2x our weighted average cost of capital. We've significantly increased our dividends and share repurchases this year, and our balance sheet remains strong with a net cash surplus of $703 million this year compared to $145 million last year. Moving on to our segments. Sales in our Retail segment dropped 17% to $629 million, consisting of a 6% decline in selling prices, a 3% decline due to transfers of certain product sales to other segments and an 8% decline in unit sales. The unit decline was comprised of a 9% drop in volume with big box customers and a 7% decline in volume with independent retailers due to soft demand and more conservative inventory positioning. By business unit, we experienced a 9% unit decline in ProWood that was partially offset by a 4% unit gain and our sales of Deckorators decking and railing products, which continues to experience solid demand. In spite of lower overall demand and sales volumes in the retail segment, we're pleased to report a $6 million increase in our gross profits for the quarter, driven by a variety of factors, including better inventory management, SKU rationalization and operating improvements in each of our business units. Operating profits also improved by $6 million, as SG&A expenses were flat. Moving on to Packaging. Sales in this segment dropped 13% to $424 million, consisting of an 11% decline in selling prices and a 6% decrease in units, partially offset by a 4% increase as a result of the transfer from retail. As we mentioned over the last couple of quarters, customer demand continues to be soft, and that's contributed to more competitive pricing. As a result of these factors, gross profits dropped by $35 million year-over-year for the quarter, but we're encouraged by the sequential improvement in sales and gross profit since Q4. The year-over-year decline in gross profits was offset by an $11 million decrease in SG&A resulting from a drop in incentive compensation expenses. Consequently, operating profits in the Packaging segment declined by $24 million to $31 million. Turning to Construction. Sales in this segment were flat at $518 million, as the 10% decline in selling prices was offset by an 8% gain in units and a 2% increase as a result of the transfer from Retail. The improvement in volume was due to our Site Built unit, which increased 18%, and our Factory Built unit, which increased 16%. Comparatively, national year-over-year housing starts from December to February increased 7%, and year-to-date, Factory Built home shipments increased 17%. These volume increases were offset by declines in our commercial and concrete forming business units. The decline in selling prices was primarily experienced in our Site Built and concrete forming business units, which, along with the unit declines I mentioned, resulted in a $7 million reduction in our overall gross profits for the quarter. When combined with a $2 million increase in SG&A, our operating profits declined by $9 million to $45 million for the quarter. As we manage through this cycle, each segment continues to focus on executing our strategies to grow our portfolio with value-added products. Our year-to-date ratio of value-added sales to total sales improved slightly to 69% this year. And our ratio of new product sales to total sales also improved slightly to 7.6% this year. We're also mindful of our cost structure in this environment as we ensure the company is appropriately sized relative to demand, while still providing the resources needed to execute our long-term strategies. Our SG&A expenses came in on plan for the quarter and were $3 million lower than last year, primarily driven by lower bonus and sales incentives, offset by higher base wages and benefit costs. Moving on to our cash flow statement. Our cash flow used in operations was $17 million compared to $37 million last year. As a reminder, in Q1 and Q2, we experienced a seasonal increase in net working capital, which is converted into cash flow in Q3 and Q4. The $20 million improvement over last year was due to lower volumes in lumber prices and an improvement in our cash cycle, all of which reduced our investment in net working capital. Our cash cycle this year decreased to 62 days from 71 days last year due to a 2-day improvement in our receivable cycle, as our receivables remain a healthy 95% current and a 7-day improvement in our days' supply of inventory due to our construction segment. Our investing activities included $49 million in capital expenditures. Our target for the year is $250 million to $300 million, and we've already approved $100 million of projects with another $200 million of requests in our pipeline for evaluation as we continue to invest to support our long-term growth strategy. As a reminder, our expansionary capital investments are primarily focused on three key areas: expanding our capacity to manufacture new and value-added products, geographic expansion and core higher-margin businesses, and achieving efficiencies through automation. Finally, our financing activities included returning capital to shareholders through almost $20 million of dividends and $37 million of share repurchases. Turning to our capital structure and resources. We continue to have a strong balance sheet, with $703 million in surplus cash in excess of debt compared to $145 million last year. And our total liquidity was $2.2 billion, which consists of cash of nearly $1 billion and more than $1.2 billion in availability under long-term lending agreements. With respect to capital allocation, we plan to continue to pursue a balanced and return-driven approach between dividends, share buybacks, capital investments and M&A. As we've discussed in the past, our highest priority for capital allocation is to drive organic and inorganic growth that results in higher margins and returns. Our strategy also includes continuing to grow our dividends in line with our free cash flow growth and repurchase our stock to offset dilution from share-based compensation plans. We'll continue to opportunistically buy back more stock when it's trading at a discounted value. Most recently, our Board approved a quarterly dividend of $0.33 a share to be paid in June, representing a 32% increase from the rate paid a year ago. Through the end of last week, we repurchased 671,000 shares, have stock at an average price of $114.43, offsetting the issuance of 450,000 shares under our compensation plans. We currently have remaining authorization to repurchase $97 million worth of stock through the end of July 2024. As we mentioned last quarter, as a result of the growth and margin improvement opportunities we see, we plan to meaningfully increase our total capital expenditures to an estimated range of $250 million to $300 million in 2024 compared to approximately $180 million in 2023. Expansionary capital investments are expected to comprise $150 million to $200 million of this total. We plan to continue to invest at this elevated level to capitalize on the automation and higher-margin growth opportunities we see in each of our segments. Finally, we continue to pursue a pipeline of M&A opportunities that are a strong strategic fit, while providing higher-margin return and growth potential. Recently, we've seen more activity in our pipeline, which is encouraging. As a reminder, our first priority is to grow through M&A. But if the opportunities aren't present or valuations aren't appropriate, we'll pivot to greenfield growth. I'll finish up with comments about our outlook for the rest of the year. We believe the soft demand and more competitive pricing we're currently experiencing will continue for most of the year, but we're cautiously optimistic we'll see year-over-year improvements beginning in the back half of the year due to more favorable comparisons. Our outlook is heavily dependent on the health of the economy, including the trajectory of interest rates. By segment, we continue to plan for total housing starts that are essentially flat with last year, with a significant increase in single-family starts, offset by a decrease in multifamily. We're now planning for mid-single-digit declines in demand in Retail and Packaging, softer than we originally anticipated, but prudent, we think, based on current market conditions. So while we manage through mixed conditions in the short term, we remain confident in our long-term growth and margin potential, and continue to invest to properly position the company to capitalize on those opportunities. That's all I have in the financials, Matt.

Thank you, Mike. Now I'd like to open it up for any questions that you may have.

[Operator Instructions] Our first question will come from the line of Ketan Mamtora with BMO Capital Markets.

Matt, Mike and Dick, the first question, perhaps starting with Deckorators, I saw that you talked about volumes up 4%, yet sales were up 10%. So it's the balance price? Is it mix? Can you just give a little bit more color on that?

Yes, it's both. I think the Surestone product continues to have strong growth rates, and it's getting to the point where it's almost as large as the WPC product we sell. And obviously, that comes at a higher price, and that's caused the higher sales increase than the unit increase.

Got it. And how big is the complete piece, both the WPC plus Surestone, the Deckorators, the decking in total at this point or 2023?

I'm sorry, can you repeat that?

The decking total.

It's about $150 million, with the WPC being maybe $10 million higher than the mineral-based composite.

I see. So a little over $300 million, both put together. Is that fair?

No. It's $150 million both put together.

Oh, I see. Got it. Okay.

$150 million to $160 million. I don't have it in front of me, but that's about the number. That's just decking, by the way. Railing now is on top of that along with the other products we sell through Deckorators.

Understood. Thanks for that clarification. And then switching to Packaging. I know, Mike, in your outlook comments, you talked about sort of competitive price pressure. I'm curious, just specifically on the Packaging side, what are you seeing right now in terms of just that pricing pressure both on the structural packaging side and on the pallet side?

Yes. The market is still soft. We think we mentioned a couple of months ago when we released, we were hopeful that the first half of the year, we would reach a bottom. And I think more anecdotally, we think that's the case. It feels like -- it doesn't feel like things are getting any worse from a pricing and a volume standpoint. And so now we'll be waiting for things to turn.

Our next question will come from the line of Stephan Guillaume with Sidoti.

All right. Any thoughts on the pricing trend by affecting the construction industry? Like how far do you project prices within the segment to decline before reaching a state of stability?

Yes. I think if we kind of consider the overall construction market, and we look at kind of the pricing metrics, I think what you're seeing now is what I'd call a more normalized view today. I think in terms of pricing, we don't expect a lot of change relative to where we are in the current state. It came down versus a year ago given the market conditions. Lumber market was tended to be higher a year ago. So there were some built-in jobs that were repurchased. Now with the market being much more level, it probably has, in my opinion, anyway, has leveled off at the current pricing levels. It will be a situation where demand is going to drive the differences.

All right. Focusing on SG&A, could you outline your strategy for managing SG&A expenses relative to sales over the next year or so, especially in the context of incremental investment. How would you report to us in a challenging environment?

Sure. And I think one of the things that I think we're very, very good at, and I give tons of credit to all of our leaders who are running our operations. They focus on SG&A costs every day. And we have, as I mentioned, some built-in safeguards with respect to incentive compensation, which tends to be a large variable cost item for us. So that's automatically managed. So if profitability is lower, incentive compensation is lower. And as I indicated, none of us likes to lose. So we want to make sure we're winning. So we're highly motivated to keep driving more efficiencies to manage those SG&A costs downward when trends are in a downward direction. And to also keep a cap on them as we're growing. We are making several investments on the SG&A side, in innovation and new products and marketing, which we talked about because we believe that's going to drive much more value in the future. But in terms of looking at facility consolidations, which we discussed, looking at hiring personnel counts, all those things. We take a very close look at that all the time. And our goal is to not have event-driven items, but rather manage that consistently on a day-to-day basis. And I think our teams do a terrific job of that.

One moment for our next question. And that will come from the line of Reuben Garner with Benchmark.

So I guess, first, a clarification, Matt, on the construction pricing. Were your comments about, kind of I think you said something about locked in pricing. Was that multifamily side of your business that would have changed dramatically on a year-over-year basis?

Yes, I think so, Reuben. I think as you know, multifamily projects have a longer lead time. And so there's -- we're required to actually get inventory sooner on those types of projects. So in a market where it's high and then declining, obviously, that creates opportunity for the expansion of margin.

Got it. And then on the Retail side, a pretty meaningful change in your outlook in a couple of months, and I think you referenced more conservative inventory positioning from your customers. I don't know if that was specific to big box or the independent retailers in the press release. But just any color there -- more color there on what you're seeing or hearing? Is this an ongoing destocking? Or were you expecting some sort of rebound earlier in the year that doesn't look like it's going to come to fruition at this point?

Yes, that's a great question. And what I would point to is the, I'll call it, reasonable optimism that the second half of the year was going to be significantly better because we were expecting interest rate to come down a little bit from the Fed. That doesn't appear to be happening. So that's the largest single issue. I think we're just basically reflecting the difference and we're looking at what we're seeing. We're talking to our customers. They are indicating a change from what even we had a couple of months ago because of the interest rate expectations. So we haven't lost any confidence in the business. We still believe that our share is strong and we have opportunities to gain share, and we will certainly be doing our best to do that. But we think overall demand without the interest rate drop is going to be kind of in line with where we are today as opposed to improving in the second half.

And just one last quick follow-up there. Your first quarter kind of mix between ProWood and composites or Deckorators, would it look something like that as the year progresses, where we may still see growth in the Deckorators side and it's offset by unit declines in the treated lumber business?

Yes, we would expect that. I think it's also important, Reuben, to note that we're -- I'm certainly not talking on a sequential basis, I'm talking more relative to year-over-year because second and third quarter, we still expect we'll be more in line kind of with seasonality, typical seasonality. But we do expect that Deckorators has opportunities to continue to grow and take share.

[Operator Instructions] Our next question, that will come from the line of Kurt Yinger with D.A. Davidson.

I just wanted to go back to Site Built and hopefully put a bow on it, but you talked about pricing and the idea that from a competitive standpoint, it seems like things have kind of stabilized there. Is there a tail impact from the multifamily dynamics that may continue to weigh on margins even though pricing is generally stable at this point? Or do you think you've worked through those challenges as a whole?

That's a good question, Kurt. I'm not sure I have a great answer for you. I guess what I would look to is the consolidation in the industry over the last few years on the Site Built side, I think probably is a dynamic that needs to be considered as you think about what's going on in the marketplace. We have expected that multifamily at some point in time would take a brief pause or -- and appears that maybe that's where we are as they wait for rates to improve. So I think, my outlook right now is that if demand stays relatively in this range, that the pricing should stay relatively in this range.

Got it. Okay. And then on the Retail side, it was kind of striking to me, looking at the gross margin, very strong for that business, which is surprising, considering volumes seem to still be a little bit soft and not a whole heck of a lot going on in lumber. So maybe give us a little bit more color around what you saw there? And whether there's anything from a mix perspective worth calling out with the transfer of certain sales to other segments?

Yes. That's a good observation, Kurt, and I think there might be a little bit of a head fake in there. You know this well. But if we look at our -- if we look at how we price products there with a fixed adder, when the lumber market goes down, obviously, the percentage goes up even though the fixed adder is the same. So I think you're seeing that as a big contributor to this swing that you're observing there. It's primarily driven more by the lower lumber market than by anything else.

And the team has been working really hard on operating improvements. So I know the retail team has added inventory managers, inventories are much more -- much better positioned now than they've been in the past. We're using our vendor-managed inventory programs more now than we have in the past. Last year, we were still integrating the Sunbelt team into our ERP systems and operating practices. The Edge team kind of stub its toe out of the gate. So there's a lot of opportunities for operating improvements, and the team has just done a fantastic job on getting after those.

Got you. And about a year ago, you guys acquired Cedar Poly. Any noteworthy kind of updates in terms of integration and savings that the combination of that and Deckorators has provided thus far?

Yes. So if you look at Cedar Poly, we've essentially become -- they're not exclusive necessarily. We're pretty close to their exclusive customer for our wood plastic composite operations. We're exploring the other opportunities to open that up for other materials, which could be used with our Surestone technology. But that's served us very well and in line with what we expected in terms of cost savings, and we are continuing to explore additional opportunities, including being able to utilize more recycled material in our finished products. Our commitment to quality once requires us to make sure that quality comes first. And if we can add more recycled content without hurting quality at all, we'll continue to do that.

Got you. Okay. And then just last one. Can you remind us any notable organic growth plans -- or sorry, organic capital plans in the Site Built business this year? And I guess as we look at the $100 million of kind of growth-related CapEx, how much of that is related to decorators capacity specifically this year?

Yes, I'll answer the first question first, and Mike can probably give you the specific numbers, if we're allowed to give you the specific numbers. But what I would tell you is we have significant amounts built in for the Site Built group to expand both geographically and to improve certain locations including relocating existing locations to larger, more efficient facilities. So that's baked into those numbers as well as adding Deckorators capacity, which we've talked about on prior calls and talked about a couple of months ago as well. We're excited about growing that capacity, both in Selma and in the location in the Northeast. So those are all on the board for this year.

And we had -- I think we announced a project we approved to expand capacity for Surestone last summer, and that's going to be completed here shortly. And I think that, that capacity probably adds another $100 million of sales potential to that business unit. And then the Northeast site is new for us now. So that will be a CapEx then and in the last project it will result in some sales increases going forward.

I'm showing no further questions in the queue at the time. I would like to turn the call back over to Mr. Matt Missad for any closing remarks.

Well, thank you again for spending the time with us today. In 2024, we're not going to sit back and wait for the economy to improve. Instead, we are going to get in the Olympic spirit and do what we were trained to do. Work hard, take care of our customers, take care of our teammates, and win in the marketplace. I am confident our team will continue to drive success. And as Tom Petty suggested, do whatever it takes to make it better in 2024. Have a great day.

This concludes today's program. Thank you all for participating. You may now disconnect.