Box, Inc.
Q3 2021 Earnings Call Transcript

Published: 1 Dec 2020

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to the Box, Inc. Third Quarter Fiscal 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. . Please be advised, that today's conference is being recorded. . I would now like to hand the conference over to your speaker today, Alice Lopatto, Head of Investor Relations. Thank you. Please go ahead.

[Alice Lopatto:]

Good afternoon, and welcome to Box's third quarter fiscal 2021 earnings conference call. On the call today we have Aaron Levie, our CEO; and Dylan Smith, our CFO. Following our prepared remarks, we will take questions. Today's call is being webcast and will also be available for replay on our Investor Relations website at www.box.com/investors. Our webcast will be audio only. However, supplemental slides are now available for download from our website. We'll also post highlights of today's call on Twitter at the handle @boxincir.

[Aaron Levie:]

Thanks, Alice, and thanks everyone for joining the call today. We hope you and your families are all staying safe and healthy. I continue to be proud of our teams at Box globally who strive to provide tremendous support for our customers and for continuing to drive our product innovation during a challenging year. Our cloud content management product suite is gaining momentum with enterprises that are prioritizing digital transformation and building around best of breed applications. This growing demand was evident at our 10th Annual BoxWorks conference where thousands of customers joined us virtually to learn about our innovations in security compliance, collaboration and workflow and a growing network of partner integrations, including Microsoft Teams, Slack and many more.

[Dylan Smith:]

Thanks, Aaron. Good afternoon, everyone, and thank you for joining us today. In Q3, we delivered strong revenue growth, driven by momentum from our full cloud content management offering. We also achieved significant improvements in operating margin, EPS and cash flow, driven by workforce expense optimization improved gross margin and the overall cost discipline. We delivered revenue of $196.0 million in Q3, up 11% year-over-year. 28% of this revenue came from regions outside of the United States, up from 25% a year ago, fueled by continued strength in Japan. Our remaining performance obligations or RPO represents non-cancelable contracts that we expect to recognize as revenue in future periods. This metric consists of deferred revenue and backlog, offset by contract assets. We ended Q3 with RPO of $755.9million, up 19% year-over-year, driven by strong growth in our backlog from longer-term strategic deals. We expect to recognize approximately 64% of our RPO over the next 12 months. Third quarter billings came in at $185.5 million, representing 8% year-over-year growth. Our billings result was impacted by a greater pressure in our professional services bookings than we expected. This pressure was driven by a greater proportion of sales coming from customer expansion, which tend to require less consulting services versus new deals, as well as the economic challenges that many of our customers are facing due to the current pandemic. Note that, customer contract durations have been increasing slightly as even in the current environment our customers continue to view Box as a critical component of their long-term IT strategy. In Q3, we closed 62 deals worth more than $100,000 versus 64 a year ago, seven deals over $500,000, which is in line with the year ago and three deals over $1 million, also in line with a year ago. Importantly, and as Aaron mentioned, we were extremely pleased to achieve a robust 35% attach rate for suites across our six-figure deal. We ended Q3 with an annualized net retention rate of 103%, down from 104% a year ago and 106% in Q2. In Q3, our full churn rate was 5% on an annualized basis, in line with Q2 and an improvement from 6% in the year ago period. Turning to margins. Non-GAAP gross margin came in at 73.4%, up 270 basis points from 70.7% a year ago and roughly in line with 73.5% in Q2. Our focus on reducing infrastructure costs and gaining economies of scale is paying off. Q3 gross profit of $143.9 million was up 15% year-over-year outpacing our revenue growth by 400 basis point. In Q3, we once again drove significant leverage across the business by executing on several cost and productivity initiatives, primarily around optimizing our workforce and infrastructure expenses. Total Q3 operating expenses represented 55% of revenue, a 1600 basis point improvement and reduction from 71% a year ago. As a result, in Q3 we generated an 1800 basis point improvement in our non-GAAP operating margin year-over-year, coming in at 18% versus roughly 0% a year ago.

[Operator:]

And your first question comes from the line of Josh Baer from Morgan Stanley. Your line is open.

[Josh Baer:]

Great, thanks for taking the question. My question is on growth in demand that you're seeing. So obviously, there is some pro-serve impacts, current billings grew single digits, billings grew 8%, revenue, 11% with the pro-serve impacts, but then RPO grew 19%, bookings based RPO grew 31%. So I'm just wondering how you think about the growth in the underlying demand that you're seeing for Box in your business?

[Aaron Levie:]

Yes. I'll kick that off and then I'll let Dylan chime in as well. Overall, I think, as we've talked about this year, this has been a super unusual environment for us because you just have different kind of -- kind of puts and takes or headwinds and tailwinds in the model. Overall, I think the biggest tailwind we had is, we see a lot of, especially, larger -- midsize or larger enterprises that are continuing to adopt and expand with Box, they are obviously buying into our suites. When you look at the 35% attach rate on 100-k plus deals we did a number of big deals within the quarter. So we are seeing really healthy kind of expansion from, especially, customers in areas like life sciences, financial services, federal government. At the same time, obviously, as we've noted and as you can see from the Q4 guidance, professional services has created a bit of a headwind for us, simply because as customers are expanding with Box there is less of a need for some of the more advanced services that we have from a consulting standpoint. We have seen some different segment based challenges and a little bit from an international standpoint. So that's moderated the growth that, obviously, we would have wanted to put up this year. But, overall, I think when we look at the demand environment and especially the broad shift to cloud content management from legacy systems, we feel very, very confident that we're going to able to drive a lot more growth. So that's, I think, the macro view that we're seeing in the business right now. But I'll let Dylan kind of further build on that.

[Dylan Smith:]

Yes. So to drill that a bit. As Aaron mentioned, a lot of the trends that we're seeing in the underlying demand and the business are pretty similar to what we saw over the last couple of quarters with continued strength in enterprise customers, we are especially over kind of through the midpoint of this year, we mentioned that the tail end of Q2, which continued into this most recent quarter in Q3, we are seeing a recovery in demand from our smaller business customers, although that's still at pre-COVID levels. I've been really pleased with the momentum that we're seeing in Suites and new product sales. So particularly around Suites, above 34% of our six-figure deals were Suite sales, which is a new high watermark, up from about 30% last quarter and in the kind of low to mid '20s prior to that. And then, the only other note I'll make as you asked about the RPO dynamics, that is a very healthy 19% year-on-year and that's driven primarily by strength in our backlog -- long-term backlog in particular due to the volume of long-term strategic deals that we either signed or renewed in the third quarter. So if you kind of piece that apart, backlog was up about 30% year-on-year with deferred revenue up about 9% year-on-year.

[Josh Baer:]

That's great. And if I can just kind of follow-up connecting the dots between some of that strength in RPO and bookings. With, I think, relatively flat large deal number metrics, when you factor in the really strong attach rate of Suite, are those deals within those bands getting larger, like the deal size?

[Dylan Smith:]

Yes, that's exactly right. So while the overall Q3 big deal counts were quite as strong as we would have liked, we are seeing average contract values of those larger deals come in higher this year and that was again the case in Q3, which is what supports those solid RPO and billings outcomes.

[Josh Baer:]

Great. Thank you very much.

[Operator:]

Your next question comes from the line of Brian Peterson from Raymond James. Your line is open.

[Unidentified Analyst:]

Hey, thanks guys. Kevin here on for Brian. As I think about your longer-term margin framework. I think you've talked in the past about having some room to flex the expense structure, regardless of the revenue growth rate to meet those targets. So I guess, can you remind us how you think about the mix of more variable expenses in your cost structure? And what are the key areas that you could see flexing up or down as you work towards those targets?

[Aaron Levie:]

Sure. So that's exactly right. And we remain committed to and confident in our ability to achieve the targets that we laid out at our Analyst Day just a few months ago. And as it relates to the areas of flex and kind of dial that we have. The majority of those are going to be on the go-to-market side. And in particular, the growth rate and where we're investing from a sales head count point of view, which is going to be closely tied to what we're seeing in terms of the underlying demand, the performance and productivity trends; and so that's the biggest lever. I mean, there are a lot of other things that we're doing and certainly things like what we're spending on infrastructure is going to scale up or down depending on the size of the customer base and what they're buying. But the biggest lever that's going to be related directly to growth as we think about that balance between putting up healthy growth and that continue to improve our profitability is going to be around the rate and location of where we're growing our sales force.

[Unidentified Analyst:]

Okay, thanks for that. And just a quick follow-up. As we look to the fourth quarter, can you remind us of the typical mix for renewal activity between the enterprise and SMB segments? And would you expect to see any changes for that ratio here in the near term?

[Aaron Levie:]

So, if you think about the overall volume typically or if you think about the revenue composition, we have a little more than 70% of our business coming from enterprise customers. And then a little less than 30% coming from SMB and online. And that's a little bit more pronounced in terms of the real dynamics and the proportion in the enterprise, in Q4, just given the seasonality, but not dramatically different from the overall size of those businesses and we don't expect that to change or be very different in terms of the volume and mix of the types of customers that are up for renewal this Q4 versus historical periods.

[Unidentified Analyst:]

Great. Thanks, guys.

[Operator:]

Your next question comes from the line of Ittai Kidron from Oppenheimer & Company. Your line is open.

[Ittai Kidron:]

Thanks. Few from me. Aaron, you've talked about a little bit of a change in the use case from secure file sharing to migration to the cloud. Help me with the same from a go-to-market standpoint? Does this potentially extend sales cycles or the motion needs to be unchanged?

[Aaron Levie:]

Yes. I think the motion is largely unchanged. I think that's more of a point of what we saw in the first couple of months of the pandemic environment was sort of that initial burst of just secure remote work and obviously people have been able to settle into that way of working throughout this year with obviously more of the attention being on video and communication sort of infrastructure that they had to set up. So now, I think what we're doing is actually moving back to more of our traditional sales motion, which is, having a broader conversation with customers around the broader push toward digital transformation in their business. If I look at the deals that we did at a large financial services provider or the multiple large transactions we did in life sciences. These were not about sort of urgent standing up of remote work or users, this is really about being able to move off of the legacy content management systems to be able to move to the cloud. So a bit more of our actual classic sales motion. I think the particular unique headwind in this environment is really just around the budget environment, and the fact that we can't necessarily go serve all of the same industries in the same way. So, we are obviously much more concentrated in some of the higher growth industries that are spending on operating expenses right now, financial services, life sciences federal government, professional services. So those are really where we're getting more of the growth from and obviously seeing less demand on a relative basis in some consumer sectors, obviously, almost nothing in hospitality, travel, etcetera. So, I think similar sales cycle to probably what we had in the business, maybe nine or 12 months ago. Obviously, with a much stronger product portfolio than what we had then. And then really just dealing with those headwinds and tailwinds based on the kind of macro environment.

[Ittai Kidron:]

Got it. And then regarding the 35% attach rate of Suites to six-figure deals. I guess, it's a good number, but I mean, in reality, I don't know if it's a good number. You need to tell me like it sort of -- I need to think about what was your internal target relative to this or are you willing to put -- to the end of fiscal '22? What do you think the attach rate of Suites at the end of next year needs to be?

[Aaron Levie:]

Yes. It's a great question. I think -- sorry, go ahead Dylan.

[Dylan Smith:]

Go ahead, Aaron.

[Aaron Levie:]

I think, we -- I would say, in general, we want the majority of our 100-k plus deals coming in through Suites. So obviously, I hesitate to give the specific time frame, but you can imagine that -- that's the push that we have, especially, going into next year. In terms of the reason why that number is not large right now. I think it is just because in some cases, we do have customers that are expanding some of the existing use cases that they have, which means that they obviously are going to stay on the current kind of product line up, just purchasing more users within those plan. But overall, I think we've -- I would say that we've been incredibly encouraged and happy with the results of Suites that has changed the sales motion to a positive by really helping customers see the full value of our platform. And we are going to continue to incrementally drive up that percentage of large deals coming in through either Suites or that multi-product bundling motion. And I would certainly want to have the majority of those larger deals, having that multiproduct characteristic going into next year.

[Ittai Kidron:]

That's great.

[Dylan Smith:]

If I can just build on that a bit. We'd say that we are certainly pleased with the kind of traction that we're seeing with Suites and with our newer products. As mentioned, Shield has continued to perform as -- kind of seeing the strongest momentum and traction we've ever seen out of any of our add-on products. And another metric that we've talked about in the past that we really pay a lot of attention to is just how much of our business is coming from customers who are using these more sophisticated and stickier solution, how much is actually coming directly from the sale of these newer add-on products, which is clearly a pretty high percentage of the overall deal value when we're selling Suites. And just to give a sense of that trajectory and how it's kind of fueling the growth. If you look at the kind of total revenue generated by all of our kind of add-on products collectively, that's up about 33% year-on-year and now about 23% of our total revenue directly coming from those product versus 19% a year ago. So as Aaron mentioned, still early days and we certainly expect those numbers to continue increasing, but we are very pleased with the kind of trajectory that we've put up throughout the course of this year.

[Ittai Kidron:]

That's great. That's great. Maybe last one from me on the investment side. Help me understand -- I mean your push for higher margin is completely understandable and you've done a very good job on that front. The correlating concern would be that, you're potentially under investing somehow, somewhere, so help me understand what is it that you look at internally to figure out if you're under investing or not? What is that metric that you watch? How close are we have to fully exploit the medicine?

[Aaron Levie:]

I'd say the biggest thing that we focus on is around a lot of the trends that we're seeing in sales productivity and take a very granular view of kind of what the -- how successfully, how quickly our sales force is ramping looking at on a segment-by-segment, geography by geography basis, both how they're performing relative to other regions, our targets and all of those things is the biggest thing that we look at. And then certainly in some of the other supporting areas of spend such as marketing programs, we also take a pretty program by program and rigorous ROI approach in terms of how efficiently we're able to generate and then ultimately close demand. Those are a couple of the categories that we watch most closely as we're kind of deciding through with the right investment levels are in the key areas of our sales and marketing spend.

[Ittai Kidron:]

All right, cool. Thanks, guys. Good luck.

[Aaron Levie:]

Thanks, Ittai. And I'm surprised we didn't talk about sales for Slack, but I'll let somebody else bring that up.

[Operator:]

Your next question comes from the line of Rishi Jaluria from DA Davidson & Company. Your line is open.

[Unidentified Analyst:]

Hey, this is for Rishi. Thanks for taking the question. So let's see continued improvements and operating margin. I appreciate the color on further expansion initiatives. Can you help us think through, how much of the benefits you saw in Q3 are long lasting structural changes to the business versus maybe short term COVID driven benefits, like virtual selling or pro-serve mix?

[Aaron Levie:]

Yes. So I would say that most of the benefits that we're seeing as we kind of talk to our customers and all the dynamics in their environments do seem like they're more durable tailwind, especially, when you think about the enterprises and how they're increasingly accelerating their adoption of remote work solutions, given all of the kind of needs the Box serves from security to workflow automation to integration capabilities as I think more and more companies are increasingly both enabling distributed workforces, but also introducing best of breed kind of platforms. And so, as we look forward, I mean, we're very confident in the resiliency and the underlying demand in addition to the strength of our business model. And so, these trends that we saw kind of beginning to pick up from a tailwind point in enterprise, in particular, has continued throughout the course of the year and given just the overall deal cycles and kind of visibility that we have and kind of how close we are to various customers. We are increasingly confident that this is not going to be a one-time shift and then these sorts of tailwind subside when things get back a little bit more to normal.

[Unidentified Analyst:]

All right. Thank you.

[Operator:]

Your next question comes from the line of Matt Coss from JPMorgan. Your line is open.

[Matthew Coss:]

Hi, good afternoon guys. Can you provide an update on some of your partnerships like with IBM, Fujitsu or AT&T. Particularly, has their contributions have changed or increased or waned? And then, do you see additional opportunity for a similar type of reseller partnership either on Horizon or something that you hope to be working on to?

[Aaron Levie:]

Yes. We are continuing to see, I think, strong momentum from key partners like IBM and obviously in Japan, we have a number of very large channel and resellers. In the US, it's a little bit of a mixed environment. A lot of customers prefer to go direct with Box. But we have had success with other kind of key channels, especially those that can add value on top of the deployment of Box. So some of your classic system integrator type relationships. And IBM, obviously, is one of the strongest mix where we have both technology solutions that we have in market with them between cloud infrastructure, Q radar their advanced security capabilities and for data classifications that we're able to co-sell with IBM, very successfully. And then obviously on an international basis, we do that with them as well. So overall, I think, healthy volume on the channel front, but we expect that to remain relatively stable from a percentage standpoint. So no shift in the strategy in terms of doing more or less on the channel side.

[Matthew Coss:]

Great, that's helpful. Thank you. And then maybe can you help us sort of temper expectations for margin expansion next year. You've clearly laid out sort of the opportunities for improving it further, but I'm guessing, we won't see a step function next year like we saw this year. So maybe help us think about what our model should look like in terms of operating margin expansion going forward?

[Aaron Levie:]

Yes. So I would say, we'll certainly provide a lot more color and kind of granularity in the both kind of growth as well as margin details on our Q4 call. What I would say is that, we remain committed to delivering that combined outcome of revenue growth plus free cash flow margin of 30% for next year, so a 5% kind of solid improvement year-on-year. Although certainly not as much of a step function on the bottom line that we saw this year. And in terms of how -- where we're going to be driving that profitability very confident in the kind of trajectory that we're on, and the things we've been doing in order to support those kind of higher margin targets. First of which we talked about and which is kind of a new lever for us that we've not leverage as much in the past is around low cost locations for our full-time employees. Again, I mentioned that we expect that at least 100 people full-time employees on the ground in Poland by the end of next year. I do expect to continue improving gross margins as well throughout the course of next year as we scale into our more efficient data centers and increasing leverage of the public cloud partnerships that we have and move more and more services to cloud. And then, the final thing I'd note is that, while we won't be kind of seeing the same sort of step function increase from a bottom line point of view because of the dynamics of COVID I would say that, if you look at the improvements that we've driven in our OP margin this year bridging from the 9% to 10% expectations we laid out entering the year to the 14% plus expectations that we're giving now, under half of that was driven by things that are related to COVID. So less than 2% of the operating margin improvement this year is coming from areas like T&E facilities, marketing programs and such. And then even once the world's kind of returns a bit more to a normal state, we don't expect those areas to fully return to pre-COVID levels. So we do expect to continue driving leverage across all those areas of the business.

[Matthew Coss:]

Thanks very much.

[Operator:]

Your next question comes from the line of Chad Bennett from Craig-Hallum. Your line is open.

[Chad Bennett:]

Great, thanks for taking my questions. Dylan, maybe just a real quick one for you. It was great that you quantified the professional service impact in the fourth quarter guide. Can you give us the impact on the actual billings dollar amount this quarter if it was meaningful enough?

[Dylan Smith:]

Yes. I would say that it's roughly in the ballpark of the Q4 revenue impact that's kind of on the billings and the bookings in the third quarter. So a couple of million dollars.

[Chad Bennett:]

Got it, thank you. And then, maybe one follow-up just on the six figure deal count performance in the quarter. I know on last quarter the performance of six-figure deals wasn't up to your expectations. And I think you indicated in this quarter, it wasn’t either. And I think you mentioned in our last call that you expected six-figure deal count to improve pretty materially, year-over-year because of some slip deals or deals that weren't done in the second quarter. And actually, I think you indicated you made headway on some of those deals early in the third quarter. So just help me understand kind of what kind of happened from a close rate and kind of linearity of the quarter and any type of color there behind the six-figure deal count?

[Aaron Levie:]

Yes. It's a great question. Overall, we are seeing -- as I kind of mentioned, I think we're seeing healthy demand especially in sectors like financial services, life sciences, some of the larger enterprises that drive more existing expansion from Box. We have seen some softness in other categories and even in the kind of high-end of the SMB market, where we might normally see those 100-K deal come -- volume come in and in some cases, we didn't see that same level of volume. And then on an international basis there has been a little bit of mixed performance depending on the particular international region. So I would say that while we're overall happy about the general demand trends just in terms of the kind of customers that are expanding, that has the logos that we're able to expand with there has been some softness on that big deal count relative to our expectations. We are continuing to drive pipeline, especially, as we look at Q4, this is obviously a massive quarter for us and, obviously, shaped the kind of year going into next year. But overall, we still remain very committed to driving growth on that 100-K plus deal category in the next year. And obviously this year we haven't gotten the performance levels that we wanted, given some of the macro environment headwinds. And then, as Dylan mentioned, we did see the benefit of at least higher average contract value in those 100-K plus deals that was certainly a positive that we saw within the quarter.

[Dylan Smith:]

Yes. And then just one thing that, Chad -- that I'd add addressing a couple of things you asked about. We did in the third quarter see both stable close rates as we've not seen any sort of deterioration in terms of what we actually win when we're working through different opportunities, nor do we see any sort of unusual pacing in terms of when those deals actually fell in the third quarter.

[Chad Bennett:]

Okay. Then maybe one last one, quick, if I may for Dylan. Just from a seasonality standpoint in the fourth quarter Dylan, do you see any difference historically in the sequential increase that you typically see in terms of billings and deferreds in this fourth quarter? Thanks.

[Dylan Smith:]

No. So in terms of the overall seasonality of the business and kind of relative amount of the business that we closed in the fourth quarter I don't expect to see anything too different versus the kind of historical weighting of billings and bookings in the fourth quarter.

[Chad Bennett:]

Thank you much.

[Operator:]

Your next question comes from the line of Erik Suppiger from JMP Securities. Your line is open.

[Erik Suppiger:]

Yes, thanks for taking the question. Couple of questions. One, did you -- can you comment on just what you saw with your Fed business, does that have fiscal year end strength? And then secondly, in some of the areas where you saw some softness in your larger deals, is that driven more by demand? Was there a healthy pipeline? Or was that driven more by logistics and extended procurement cycles with any challenges with them with employees being at home or getting sign off or things like that?

[Aaron Levie:]

Yes. So on the Fed business we did have a, I think, healthy Q3, obviously, with the September year-end in the federal government. And I called out at least one of the large transactions that we did in the quarter with a very large government agency that is replacing a lot of on-premises solutions especially SharePoint and plugging into other software like SalesForce, etc. So we did some pretty meaningful transactions within that -- within Fed in the quarter that we are very happy about. In terms of the overall kind of number of large deals, I think the way I would characterize it is, we definitely had a healthy amount of demand. So it's a little bit less of a demand channels. Obviously, we always want more pipeline, so clearly more pipeline would have been even better, but we are seeing a greater degrees of scrutiny on budget which just means you have to have much more of that ROI proven out, yet to be able to work through more of the different stages that a customer goes through and some of the more accelerated purchases that maybe happened at the start of COVID. We're obviously not happening in the same way. And I would say that it's less about the remote work aspect of how business is getting done and much more of just the budget environment and the level of kind of steps and scrutiny that deals tend to have to pass through. And that's not something that is unusual for us, obviously, we did over 60 transactions above $100,000 in the quarter. So we have that rhythm down but there can always be different things that maybe were unexpected in that process or in one of our markets we saw because of the COVID wave in that region we saw a bit of a slowdown, just because companies were trying to evaluate how long was that going to last and how is that going to impact their businesses. So -- and that's an area where we expect to see a return in demand in Q4 based on how that region is doing from that macro standpoint. So I think it -- this has been a year where we've had obviously have a lot of rolling with the different punches that we're seeing with, obviously, just continue to drive strong performance in the process.

[Erik Suppiger:]

Very good. Thank you.

[Operator:]

Your next question comes from the line of Brett Knoblauch from Berenberg Capital Markets. Your line is open.

[Brett Knoblauch:]

Hi guys, thanks for taking my questions. I have two. First, I'm not sure if you had said this, but what was the paying user growth in the quarter? And then secondly, regarding the 35% revenue growth and free cash flow margin target. Has that mix changed at all as you kind of got closer to fiscal year 2022 or has that remained relatively constant?

[Aaron Levie:]

Yes. I would say that we are saying the total number of users are paying customers. The total , so it's now 15 million paid users, which is up sequentially from about 14.6 million in Q2 in terms of the overall number of paying businesses or business users. And then as it relates to the kind of shift, we have certainly seen a bit of a slowdown, largely for the COVID driven reasons that we've been talking about on the topline and sort of outperformance from a bottom line and some of the margin expansion we've been able to deliver. So I would say that the overall mix shifts has not changed materially in terms of how we're thinking about delivering against that target. Recently, although, we'd say versus where we were several quarters ago prior to the pandemic can expect to see a bit more of that to come from the bottom line from the free cash flow margin versus on the revenue growth side.

[Brett Knoblauch:]

Perfect. Thanks so much guys.

[Operator:]

Ladies and gentlemen, this concludes Box Inc.'s third quarter fiscal 2021 earnings conference call. Thank you for participating. You may now disconnect.