Activision Blizzard, Inc.
Q1 2007 Earnings Call Transcript

Published: 4 Aug 2006

[Operator:]

Good day everyone, and welcome to Activision’s first quarter fiscal 2007 earnings conference. (Operator Instructions) At this time for opening remarks and introductions, I would like it turn the call offer to the Vice President of Investor Relations, Kristen Southey. Please, go ahead, Kristen.

[Kristen Southey:]

Good afternoon, and thank you for join us today for Activision's Q1 fiscal '07 conference call. As always, I will start today's call with a review of Safe Harbor disclosure, followed by comments by Bobby Kotick, Chairman and CEO; Thomas Tippl, Chief Financial Officer; and Mike Griffith, President and CEO of Activision Publishing. With regard to our Safe Harbor disclosure, I would like to remind everyone that the statements made during this call that are not historical facts are forward-looking statements. These forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties. The Company cautions that a number of important factors could cause Activision's actual future results to differ materially from those expressed in any such forward-looking statements. Such factors include, without limitation

[Bobby Kotick:]

Thank you, Kristen. For the first quarter, Activision delivered better than expected results, and our balance sheet and financial position remains strong. The quarter highlights include shipment of over 2 million units of DreamWorks products, driven by the strong launch of Over the Hedge. Our partnership with DreamWorks has now yielded four successful titles that have shipped in excess of 15 million units. DreamWorks is unique as a licensor in its understanding of the importance a video game can have in creating value in movie-based intellectual properties. Quarter highlights also include the sales of X-men

[Thomas Tippl:]

Thank you, Bobby, and good afternoon. For the June quarter, net revenues were $188 million. This was higher than anticipated, driven by our market platform launches Over the Hedge and X-men, and the strong performance of our catalog, including Call of Duty 2. For the quarter excluding equity-based compensation, we had a loss per share of $0.05. This is $0.05 better than our prior outlook due to product performance and disciplined execution of our cost optimization programs. As expected, quarterly revenues and earnings were down over their prior year, as we had fewer product launches and lower launch pricing, which we highlighted on our last call. Before I continue with our financial review, I would like to note that all financial commentary will be made excluding the impact of equity-based compensation. Please refer to our earnings press release for a full reconciliation. In the June quarter, manufacturing and distribution expense were 68% of revenues, up versus 57% in the prior year due to mix shift and continued current-gen software price erosion. Product creation cost for the quarter were 28% of revenues versus 22% in the prior year. We define product creation cost as the sum of cost of sales, software royalties, and amortization, cost of sales intellectual property licenses and product development expense. The increase year-over-year was due mainly to higher next-gen development costs. Sales and marketing expense for the quarter was 19% of revenues, in line with the prior year. G&A spending in dollars was flat verse the prior year, excluding the cost associated with RedOctane and was down sequentially versus the Q4 run rate, reflecting the benefits of our cost reduction program. We generated higher investment income for the quarter due to rising interest rates. Our effective tax rate for the quarter was 27.3% than our prior outlook. Now turning to the balance sheet. On June 30, we had $793 million in cash and short-term investments, an increase of $7 million versus last year and a decrease of $152 million versus the prior quarter due to seasonal increases in working capital, intellectual property acquisition, and the closing the RedOctane transaction. The accounts receivable balance was $65 million, up $37 million versus the prior quarter as a result of launch timing of new releases, and the consolidation of RedOctane in our results. The accounts receivable reserve as a percentage of trailing nine months revenues was 7%, which is in line with the prior year. Days sales outstanding were 32 days, which is an improvement of four days versus year ago. Activision inventories were $64 million, up $3 million versus last quarter due to the consolation of RedOctane in our results. On June 30, inventory for the publishing business was $42 million, and $22 million for the distribution business. Capitalized software development cost were $77 million, up $16 million versus last quarter. The sequential increase reflects more titles going into development for future slates. Capitalized intellectual property costs were $97 million, up $10 million versus March 31. The increase was primarily due to the Bond licensing arrangement with MGM. In summary, we ended quarter ahead of plan, with a strong cash position and financial base which gives us the flexibility to invest and leverage the many opportunities that the next few years will yield. Before turning to our financial outlook, I would like to begin by saying that our outlook represents our views as of today, and there are a number of internal and external factors that could cause our actual results to differ materially, including, but not limited to

[Mike Griffith:]

Thanks, Tom. Today my comments will focus on two areas

[Operator:]

(Operator Instructions) Our first question comes from Tony Gikas - Piper Jaffray.

[Tony Gikas:]

A couple of questions. Micro transactions during the quarter sounded like Call of Duty did $1 million. That's an impressive number. How did the pay downloads compare to the free downloads that were available for that game? Second question, any update from Sony or at least your expectations on the PS 3 online network and how that's progressing? Third question would be my understanding is the Transformers movie has about a $250 million budget for production and marketing. Is this a title that could hit your multi-platinum ranking?

[Bobby Kotick:]

Well, I think going to your first question on the micro transactions, yes, we were very pleased with the performance of Call of Duty, which is the primary vehicle right now that we're getting experience with this model. We downloaded about 0.5 million maps on Call of Duty. As we said, we got slightly more than $1 million in revenue. It was a combination of free giveaway trial maps and full purchases. About half of them were given away, and the others were purchased for a combination of a couple of different price points depending on how many maps were downloaded. In terms of the update from Sony, that's an area we're staying close to obviously on PlayStation 3. We expect to take full advantage of the capability as it becomes clearer. So I don't have anything more specific to share with you today on that, except that it's our intention to take full advantage of that capability. Finally, to your question on Transformers, I think we'd agree. We think has a tremendous potential on the franchise. I like how they're thinking about the movie. I think it's going to have a very broad and mass market appeal and we think the game is going to respond accordingly.

[Tony Gikas:]

On the PS 3 network, do you think that at least over the first two or three years does it evolve to be as rich of an opportunity as the 360 Xbox Live network?

[Bobby Kotick:]

I don't see any reason why it shouldn't, Tony.

[Tony Gikas:]

Okay. Thanks, guys.

[Bobby Kotick:]

You are welcome.

[Operator:]

Our next question comes from Jeetil Patel - Deutsche Bank.

[Jeetil Patel:]

Thank you. A couple of questions, guys. As you look forward into fiscal '08, you've kind of talked about over $1.6 billion in revenue, not much on the margin side, but just curious, what do you think are the one or two single biggest points of levers in terms of margins or variability out there in the landscape that you think about? Second, it looks like overall retail environment was a little healthier in the quarter. I guess, can you give us a sense of are you seeing the retailer buzz around the category remain strong for the holiday season, or does it really a hinge upon marketing dollars from the hardware vendors to drive the excitement in the category? Can you give us a sense of what you think the overall landscape looks like from a distribution and retail standpoint going into the holiday season? Thanks.

[Thomas Tippl:]

First on the margin expansion, I think as we've said consistently, it remains a focus area for the Company, so nothing has change in that regard. Near term, I think the margins will remain under pressure as we navigate our way through the console transition and have a smaller '07 slate. We are balancing short-term cost control at this stage with the investments that are necessary to drive growth in '08 when the market conditions should be more receptive. The drivers of margin improvement in '08 are obviously are going to be more scale, more revenue coming out of our titles behind our stronger market growth and our stronger slate. We will attempt to continue to keep our cost control tight, but we also need to recognize that fiscal '08 is still early in the cycle. So we'll see some improvement at this stage.

[Bobby Kotick:]

We're looking, obviously at improvement on the gross margin line, on variable selling and marketing, on G&A, and in all of our programs that we've put in place this year should yield benefits over the next few years.

[Mike Griffith:]

To answer your second question on the retailer environment, there is certainly a lot of optimism out there that the launch of this second round of new hardware from Sony and Nintendo really kick off the new cycle in earnest. Retailers are ready to step up to this. There continues to be heavy near term pressure on inventories and we're working closely with retailers on that, but we're seeing full support on our titles and full support for the category. The real driver in the end is really not going to be so much the marketing dollars that are available out there, but the launch quantities that the new hardware hits with. And as long as those are in line with what the first parties are indicating, I think that retailers are really going to step up and support it very well.

[Bobby Kotick:]

But to your question, Jeetil, in terms of retail environment, I think we see a lot of enthusiasm. The retailers themselves are committing a lot of capital to the launch of the new hardware, and I think you'll see that continue next year when Vista is launched. So you'll have the new consoles coming out this year with a lot of first party marketing dollars, and then Microsoft will follow on with Vista marketing next year. So the whole video games category is going to get the benefit of a lot of marketing dollars to the consumer.

[Jeetil Patel:]

Thanks.

[Operator:]

Our next question comes from Lowell Singer - Cowen and Co..

[Doug Kriss:]

Hi. This is actually Doug Kriss in for Lowell. Could you talk about how easy or not easy your developers are finding it to port code between the 360 and PS 3? Thanks.

[Mike Griffith:]

Well, I think this was obviously an area of concern going into the new transition, the new hardware, because the different devices from Microsoft, Sony, and Nintendo are in fact, quite different from each other. But this has always been a core focus and strategy of ours and I would say while we're early in the process, we're encouraged. We are starting to port elements from the 360 to the PlayStation 3, and also from current-gen platforms into Nintendo Wii. We are finding tools like the 3D laser scan, the shading technologies, motion capture, some online capabilities. This is where we're investing our resources now to find the ability to leverage our resources and assets across platforms. So this is something that we're going to continue to learn and advance on over some period of time, but I’d say for being where we are in the cycle, we're encouraged.

[Bobby Kotick:]

So one thing, Doug, what we are seeing is that there are much more similarities between 360 and the PS 3 and we are getting the benefit across all three of the platforms in our art and animation investments.

[Doug Kriss:]

Great. Thanks.

[Operator:]

Our next question comes from Elizabeth Osur - Citigroup.

[Elizabeth Osur:]

Thanks. I know you guys don't want to give too much guidance for fiscal '08, but any chance we could get a number of titles that are in that $1.6 billion revenue target?

[Mike Griffith:]

Yes. In terms of SKUs and titles, we're about 50% higher than what we'll launch in fiscal '07.

[Elizabeth Osur:]

Okay. Thanks. That's really helpful. You also spoke about expanding sales in Europe, but no comments on Asia. Can you talk a little bit about whether or not you're thinking of any opportunities there now?

[Mike Griffith:]

Well, we continue to be interested in the Asian market. I think as we've said before, we think that there is substantially more near-term return from continuing to put our focus on building our presence in Europe. But as evidenced by our recent opening of the publishing office in Seoul, Korea, we're committed to a worldwide presence, continuing to learn and built appropriately, but cautiously in the Asian market.

[Elizabeth Osur:]

Just one final question on next year. Any way you could talk about the size of the operating leverage that we'll get from things like G&A next year? Could we just expect a modest increase in G&A growth, or do we need to think about a significant increase?

[Mike Griffith:]

It's too early right now, Liz, to talk about specifics.

[Elizabeth Osur:]

Thank you.

[Operator:]

Our next question comes from Heath Terry - Credit Suisse.

[Heath Terry:]

Great. Thank you. I was hoping you could talk a little bit about what you're expecting in terms of the attach rate for your online downloads like the ones that you've done with Call of Duty going forward? Do you think the kind of strong attach rate that you've seen here in this early stage is going to hold up? Can you also talk a little bit about the margins around that business?

[Mike Griffith:]

Well, I think, Keith, in terms of attach rate, the experience we've had so far on Call of Duty, the attach rate's been quite robust. It's been well-ahead of the typical download attach rates we've seen on the PC category. It's been closer to the 40% range. We're going to continue to learn about it, there's tremendous consumer enthusiasm for it, so I think for the right product there's every reason to believe that we can continue to achieve a healthy, robust attach rate. In terms of the margins, I think what we can say to date is that it looks like it's accretive, and so as the revenue opportunity presents itself, this'll be a key focus area.

[Bobby Kotick:]

And just to give you some of the details. For starters, the Bonus Pack, which is the free downloads, that's the two free maps, that was 334,000 units. The Skirmish Pack, which is essentially 400 points, was 105,000 units generated $368,000 in net revenue. And the Invasion Pack, which was 800 points, was 66,000 units and generated close to $0.5 million in revenue. So when you look at it, it's a very, very profitable endeavor for us. Now, it's early days, but I think it's one of those things where you're starting to see continued enthusiasm for the franchise. I think one of the reasons why the 360 version of Call of Duty has done to so well and continues to do so well and continues to demand a premium price is that we have infused the audience with new opportunities for game play that they're definitely responding to. So with 40% attach rate and these kinds of economics, we're excited, but again, you're talking about the No. 1 product on the platform. So before it's going to move the dial, you're going to need to see a much, much bigger installed base of hardware and a lot more people taking advantage of these capabilities.

[Heath Terry:]

Based on what you've seen and what you have planned in the product portfolio, should we just assume that nearly every game that you do over the next few years is going to have some kind of downloadable content associated with it?

[Bobby Kotick:]

Yes, that is our intention.

[Mike Griffith:]

For the new generation, yes.

[Heath Terry:]

Great. Thank you.

[Operator:]

Our next question comes from Edward Williams - BMO Capital Markets.

[Edward Williams:]

Good afternoon. Just to follow-up quickly on Heath's question for a moment. If you look at the downloads in June quarter, how did they vary between North America and the European markets?

[Bobby Kotick:]

The bulk of them were North America. It was 400,000 of the 500,000 were North America.

[Edward Williams:]

Okay. And then looking at the development headcount for a moment, you suggested or alluded to that a lot of your developers are working on releases for FY '08 and FY '09. Can you give us an idea as to, first of all, where your headcount is today in development? And then roughly how it breaks down as far as the percentage of assets that being applied to the FY '07 releases, '08 and beyond releases?

[Mike Griffith:]

Well, in total we've got about 1,300 people employed across our 10 studios. In terms of the split in terms of what title are they are working on, we're really not prepared to get into that.

[Bobby Kotick:]

I think as Mike pointed out, we have a 50% bigger SKU count for next year than this year, and you can do the math.

[Edward Williams:]

Okay. And then as far as -- these new revenue streams, at this stage, when are you thinking the digital downloads, in-game ads, micro transactions are really become meaningful to Activision? Is this something that's going to be in the heart of the next-generation of the cycle or is something that could happen earlier based on how this early stage with Call of Duty 2 looked?

[Bobby Kotick:]

I think you won't see a real impact, Edward, until you have a big installed base of next-generation hardware.

[Edward Williams:]

Going to Korea for a moment, what are your plans with publishing in the Korean market? It's obviously a very big MMO market. Can we assume that you're looking to tap into the MMO landscape, or are you looking for more bringing traditional Activision titles into that market?

[Mike Griffith:]

Well, Edward, we've sold our titles in Korea for a while now through a distributor, and this is a step taking that model and going direct. So this is a natural next step for us to take in the Asian geography, given the importance of the Korean market. In terms of the MMO space itself, it's not a near-term strategic focus for us, but we're continuing to stay close and monitoring the space and with our office in Korea -- as you point out, Korea is one of the largest online markets in the world, so we're well-positioned to stay close and learn and watch and see if an opportunity to enter the space in a way that makes sense, we'll obviously entertain it. But for now, our near-term focus on direct publishing of our titles in Korea and more broadly worldwide, focusing on the execution and increasing our international presence overall is really the right near-term focus and priority for our resources.

[Bobby Kotick:]

One thing you have to think about is we've always said that we're going to map to the market with respect to the way that we plan our platform publishing strategy. So to the extent that you start to see new categories and new platforms, or let's say multiplayer products represent more than just the small single-digit percentage of the market, we recognize that in order to maintain balance on our platform strategy that we'll have to support new categories of business. So I think as you see those businesses get bigger, you'll start to see us take them more seriously.

[Edward Williams:]

Okay. Good. Thank you very much.

[Operator:]

Our next question comes from Ralph Schackart - William Blair.

[Ralph Schackart:]

Good afternoon. I was wondering if we could look over the horizon a little bit into '07 perhaps beyond, and maybe you could give us a sense what you're seeing for industry growth rates on the software side? I believe there's some other people in this space calling for what they believe is going to be easily double-digit growth in calendar '07. Just update us on your thoughts on that?

[Mike Griffith:]

Well, in fiscal '07, which is largely calendar '08, as we've said, near term the category would be kind of flat to down 5. But in calendar '07 we do expect a return to double-digit growth.

[Ralph Schackart:]

Okay. Great. Not to beat the in-game advertising and micro transaction too hard, but is there a way you could quantify it for us at a high level, perhaps Bobby or Mike, is this an opportunity that could be single-digit as a percentage of your revenue? Is it an opportunity that could perhaps be double-digits? Just sort of give us a sense of the order of magnitude here.

[Bobby Kotick:]

Here's how we start at very highest levels, Ralph, we look at the amount of hours that are consumed by consumers and let's take 18 to 35-year-old males in the U.S. in front of a video game screen. So last year that was roughly 30 billion hours. Then you compare that to television watching which was to the same demographic roughly 30 billion hours. There was $8.5 billion spent on television advertising to 18 to 34-year-old males and there was less than $50 million spent in-game advertising last year. So it's somewhere between $50 million and $8.5 billion. You have to remember that in our medium, there are a number of products that are entirely inappropriate for any kind of advertising and when you look at way that you incorporate advertising into these products, you need to be unusually sensitive to the audience because the audience is, after all, paying for the retail product. We've now had four separate studies that we've conducted with Nielsen towards the creation of a rate card and what we've said all along is the biggest limiter right now in establishing a rate card and generating any kind of reasonable revenues is that you don't have a big enough installed base of next-generation hardware that you can use for measurement purposes. That will not change until you have 20 or 30 million units of always-on Internet capable next-generation consoles in the installed base. So you won't start to see it have an impact on our business until, let's say, two or three years from now. Then you look at what is that opportunity and how big could it potentially be for a company like ours? Well, we start with the notion that because it is a more targeted, more measurable media, it probably could command over time a higher CPM than you see in typical broadcast advertising. But it's going to take a lot of behavior change and a lot of effort on the part of evangelizing consumer product companies of the value of this advertising before you're going to see it really make a difference in our operating results.

[Ralph Schackart:]

Great. That's helpful, Bobby. Thank you.

[Operator:]

Our next question comes from John McPeake - Prudential.

[John McPeake:]

Thank you. Could you talk a little bit about what the percentage of your development budget is in '06 and '07 and maybe '08? I guess by then it's all next-gen games. As a percentage of your revenues for the same years, '06, '07, and '08, roughly what percentage of revenues in those years will come from next-generation consoles?

[Bobby Kotick:]

I don't think we can do that right now, but if you wanted to call Kristen offline, I'm sure she'd be happy to provide that to you.

[John McPeake:]

I just have a quick follow-up. What's your confidence level that the online capabilities of PS 3 are going to be competitive with the Xbox 360?

[Bobby Kotick:]

We're confident.

[John McPeake:]

What was that?

[Mike Griffith:]

We're confident about that.

[John McPeake:]

Okay. Got it. Thanks.

[Bobby Kotick:]

So confident, we all talk at the same time.

[Operator:]

Our next question comes from John Taylor - Arcadia.

[John Taylor:]

Hi, I have a couple of housekeeping questions and then a bigger question.

[Bobby Kotick:]

It wouldn't be a conference call without you.

[John Taylor:]

Yes. Thanks. Appreciate that. Thomas, I don't think you gave us accounts receivable reserve dollar number. Could you give us that? That's housekeeping. I think I may have heard a veiled allusion to premium price points for premium product on Wii. Should we assume that you're going for a $59 market retail on that? Those are the two housekeepers. The bigger one is I wonder if you could talk a little bit more about some of the issues around Guitar Hero? I'm particularly interested in the supply side of the guitars and kind of what kind of capacity issues you might have there? As you're thinking about Guitar Hero this year for fiscal '07, kind of give us a sense of what you think the mix might be of version 1 versus version 2 and whatever your expectations are? Thank you.

[Mike Griffith:]

Well, Guitar Hero obviously, we're very excited about that title and it does bring a new dimension with a plastic guitar controller added to the software as a bundle. We source those guitars out of China. That's been a primary focus of ours since making the acquisition and we put considerable amount of time and energy against this and increased available capacity of guitars quite substantially. So we think we've got a good handle on the supply side on Guitar Hero. We don't expect to be in any near-term supply-constrained situation. So we're expecting a very strong launch of Guitar Hero II. We think just because of the variety of songs and people's desire to play a wide variety of songs, we think that the original Guitar Hero, Guitar Hero 1, will continue to have legs, but our focus will predominantly be on selling Guitar Hero 2, and we think the mix will shift to that pretty rapidly toward the back end of the year.

[John Taylor:]

Can we assume maybe a one-third, two-thirds mix in terms of units of the two versions?

[Mike Griffith:]

I think probably even more aggressively towards version 2.

[John Taylor:]

Okay. Great. Can you give a sense of what the mix might be U.S. or North America versus European demand for Guitar Hero?

[Mike Griffith:]

Well, this is a title that launched first in North America last November, and only launched into Europe later on and Asia even more recently, but we fully expected that with the universal appeal of music and the genre that this competes in, that we ought to at least be able to achieve our historical business splits between geographies.

[Bobby Kotick:]

We've been making good progress on the manufacturing front in getting the local guys and trying to improve the output. As you know, we're just at the point where we're getting to the point where we can satisfy demand. There's a lot of enthusiasm, but we're going to keep focusing selling it on the highest margin territories.

[John Taylor:]

Great. And then anything on those housekeeping things?

[Thomas Tippl:]

Yes, sure. The AR reserve was about $87 million which is down where we were at the end of March, reflecting good sell-through performance over the course of our first quarter.

[Mike Griffith:]

On the Wii pricing, we think it's premium content is going to generate premium pricing. We think Wii launch pricing will be at least $49.

[John Taylor:]

Okay. All right. Thank you.

[Operator:]

Our next question comes from Colin Sebastian - Lazard Capital.

[Colin Sebastian:]

Thanks for taking my questions. Just a couple. First, on the cost optimization program, good to hear you're already seeing some efficiencies on the next-gen development. I guess I'm wondering if you're running a little ahead of schedule as to what you thought a couple of months ago on that, and if you could quantify a little more specifically the areas you outlined which is providing the bigger boost?

[Thomas Tippl:]

Well, I think on the product development progress, I would characterize the status of the progress as being on track. I think there's still many uncertainties and we're climbing the learning curve rapidly. So we're encouraged by that, but there's more work to be done and that's why we expect that we're going to generate some efficiencies over the next couple of years that's going to get us back to our historical percentage of 20% to 21%, which is where we have been in the last cycle. Now, where we've made that, probably as we anticipated the fastest progress was on the marketing and in the G&A area. I think the whole organization, including the studios, have embraced the need of a heightened level of cost consciousness. It's important because it allows us to reinvest in making better games and to gain technology content as well as the intellectual property. I think from the marketing side, variable sales and marketing, we said that we would get back to historical levels, which we define as a range of 14% to 16%, and I think you will see this year already a significant step in that direction.

[Mike Griffith:]

On the PD side, Colin, the one thing we've had some good early experience with is we did some offshore quality assurance. We actually, for X-men, did some testing in India. And it turned out to be lower cost, very high quality, so I think that that's an area that will pay dividends even this year.

[Colin Sebastian:]

Okay, we also heard from a couple of your competitors that they're increasing the number of titles in development for the Wii platform, and I'm just curious if there've been any shifts in your own SKU plan for this year or next year?

[Mike Griffith:]

It sounds like they may be trying to catch up with the plans we've already put into place. So we're encouraged by the Wii platform. As we said, we've got three launch titles planned for it this year. We'll see how the market responds to it, but it's got tremendous potential to broaden the market, and we've got a full, solid plan against the Wii into the future.

[Colin Sebastian:]

Okay. Just lastly, can you break out the contribution in the quarter from RedOctane? Thank you.

[Thomas Tippl:]

Well, as we said, we closed transaction on June 6th, so we basically had only three weeks of RedOctane business in our numbers. So it was a small amount on the revenue side, it was less than $10 million.

[Colin Sebastian:]

Thank you.

[Operator:]

Our final question comes from Robert Haley - Gabelli & Co.

[Robert Haley:]

Hi. Thanks for the question. Just wondering in fiscal year '08, what are your thoughts for growth of the distribution business with the PS 3 launch? I might have missed it, but thoughts on the launch of the Bond game?

[Mike Griffith:]

Yes. First of all, on the Bond game, MGM have announced the release date for the next Bond movie following this holiday for May of 2008. That's where we would focus to have our first game. On the distribution business, we think the distribution will grow, not only behind the hardware launches, but also behind our increased slate robustness in that year.

[Bobby Kotick:]

And everybody else's as well. Obviously, we participate in the overall increases in the marketplace with all publishers' releases.

[Kristen Southey:]

Okay. Well, thank you, everyone, for joining us today. We look forward to speaking with you in the future.

[Operator:]

That does conclude today's conference call. Thank you for your participation.