MICT, Inc.
Q2 2018 Earnings Call Transcript

Published: 15 Aug 2018

[Operator:]

Ladies and gentlemen, thank you for standing by. Welcome to the Micronet Enertech Second Quarter 2018 Results conference call. All participants are at present in a listen-only mode. Following management’s formal presentation, instructions will be given for the question and answer session. As a reminder, this conference is being recorded. I would now like to hand over the call to Dilek Mir of Corporate Profile. Dilek, please go ahead.

[Dilek Mir:]

Thank you. Good morning and thank you for calling in to review MICT Inc. second quarter 2018 results. Management will provide an overview of the results followed by a question and answer session. Importantly, there is a slide presentation which management will use during the overview. This presentation can be found on the Investor Relations section of the company website under Events and Presentations. You may also access a PDF copy of the presentation by clicking the link in the company’s press release regarding these financial results issued this morning and the clicking the second link, labeled Q2 2018 Results. Callers accessing the PDF copy of the presentation will need to manually scroll through the slides as management goes through the presentation. I will now take a brief moment to read the Safe Harbor statement. During the course of this call, management will make express and implied forward-looking statements within the Private Securities Litigation Reform Act of 1995 and other U.S. federal securities laws. These forward-looking statements include but are not limited to those statements regarding the proposed series of transactions and timing of certain events associated therewith, with BNN Technologies PLC, or BNN, and an unnamed third party, the timing of the certification of our next generation LTE certification, our belief that the marketplace is materializing for our products, the timing of the launch of our back office and commercial website, our belief that the signed memorandum of understanding with a leading advanced driver assistance systems service provider will produce recurring revenue from software licensing, joint lead generation and marketing efforts, and our building of a foundation to address VARS and distribution channels by launching marketing efforts in Europe. Such forward-looking statements and/or implications involve known and unknown risks, uncertainties and other factors that may cause actual results or performance to differ materially from those projected. The forward-looking statements contained in this presentation are subject to other risks and uncertainties, including those discussed in the Risk Factors section and elsewhere in the company’s annual report on Form 10-K for the year ended December 31, 2017, and in subsequent filings with the Securities and Exchange Commission. Please note that the date of this conference call is August 15, 2018 and any forward-looking statements that management makes today are based on assumptions that are reasonable as of this date. Except as otherwise required by law, the company is under no obligation to and expressly disclaims any obligation to update or alter its forward-looking statements, whether as a result of new information, future events or otherwise. Additional information and where to find it - in connection with the proposed transaction with BNN, if an agreement is consummated, MICT and BNN will prepare a proxy statement prospectus for MICT’s stockholders and a registration statement on Form S-4 to be filed with the Securities and Exchange Commission, or SEC. MICT’s proxy statement prospectus will be mailed to MICT stockholders that do not opt to receive the document electronically. MICT and BNN urge investors, stockholders and other interested persons to read when available the proxy statement prospectus as well as other documents filed with the SEC. because these documents will contain important information. Such persons can also read MICT’s annual report on Form 10-K for the fiscal year ended December 31, 2017 for a description of the security holdings of its officers and directors and their respective interests as security holders in the consummation of the transaction described herein. MICT’s definitive proxy statement prospectus will also be included in the registration statement if a definitive agreement is reached, will be mailed to stockholders of MICT as of a record date to be established for voting on the transaction described in this report. MICT stockholders will also be able to obtain a copy of such documents without charge by directing a request to MICT Inc., 28 West Grand Avenue, Suite 3, Montvale, New Jersey 07645. These documents once available also can be obtained without charge at the SEC’s website, www.sec.gov. Participants and solicitation - MICT and its directors, executive officers may be deemed to be participants in the solicitation of proxies for the special meeting of MICT stockholders to be held to approve the transactions if a definitive agreement is reached. Information regarding the persons who may under the rules of the SEC be deemed participants in the solicitation of MICT stockholders in connection with the proposed transactions will be set forth in the proxy statement prospectus when it is filed with the SEC. You can find information about MICT’s executive officers and directors in its annual report on Form 10-K for the year ended December 31, 2017 which was filed with the SEC on April 13, 2018. After such filing, you can obtain free copies of these documents from MICT using the contact information above. Non-solicitation - this call is not a proxy statement or solicitation of a proxy consent or authorization with respect to any securities or in respect of the proposed transaction, and shall not constitute an offer to sell or a solicitation of an offer to buy the securities of MICT or BNN, nor shall there be any sale of any such securities in any state or jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such state or jurisdiction. No offer of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended. Important information about the tender offer - the tender offer referred to in this script has not yet commenced. This call is for information purposes only and does not constitute an offer to sell or purchase, or the solicitation of tenders with respect to the shares of MICT. No offer, solicitation, purchase or sale will be made in any jurisdiction in which such an offer, solicitation, purchase or sale would be unlawful. The offer will be made solely pursuant to the offering documents. These documents will contain important information about the tender offer, and shareholders are strongly encouraged to evaluate carefully all information in the offering documents and to consult their investment and tax advisors before making any decision regarding the tender of their shares. If the tender offer is commenced, a tender offer statement on Schedule TO will be filed with the SEC. In addition, following definitive documentation, MICT intends to file with the SEC a solicitation recommendation statement on Schedule 14D9 with respect to the tender offer. The tender offer statement, including the offer to purchase, the letter of transmittal, and other related materials and the solicitation recommendation statement of MICT on Schedule 14D9 will also be available to MICT stockholders at no charge on the SEC’s website at www.sec.gov. During this call, in addition to the GAAP financial measures, management will discuss non-GAAP financial measures as defined by SEC Regulation G, including non-GAAP net income or loss. These non-GAAP measures exclude share-based compensation expenses and the amortization of intangible assets. These non-GAAP measures are not intended to be considered in isolation from, a substitute for, or superior to GAAP results, and we encourage you to consider all measures when analyzing MICT’s performance. A reconciliation of these non-GAAP measures to the most comparable GAAP measures is included in today’s press release regarding our quarterly results, and can also be found in the Investor Relations section of our website at www.mict-inc.com/ir-company. The slides containing the first quarter results reconciliation can also be found in the Investor Relations section of our website at www.mict-inc.com/ir-company. On the call this morning, we have David Lucatz, Chairman, President and Chief Executive Officer of MICT; Tali Dinar, Chief Financial Officer of MICT, and David Markus, Chief Executive Officer of Micronet Ltd. Again as a reminder, management will be referring to a slide presentation that can be accessed via the Investor Relations section of the company’s site or the link in the press release. We will start with an opening message from David, who will give an overview of the business developments for the quarter ended June 30, 2018, then we will move to review the numbers with Tali and we will wrap up with Q&A. I will now turn the call over to David, who will begin the presentation on Slide 3. Please go ahead, David.

[David Lucatz:]

Thank you. Good morning everyone. The second quarter 2018 brought significant [indiscernible] events, including the sale of our aerospace business, Enertec Systems, and the announcement of a potential strategic transaction for MICT with BNN. We are pleased to report that we completed the sale of Enertec Systems to Coolisys Technologies for a total effective transaction price of $8.7 million on May 22, 2018. This sale added $4.7 million in cash and removed $4 million in Enertec debt from our balance sheet. On July 2, 2018, we announced the execution of a letter of intent with respect to a potential strategic transaction with BNN Technologies. As set forth in the press release and current report on Form 8-K and the letter of intent from July 2, 2018, we contemplate a series of transactions with BNN and an unnamed third party in the transaction technology platform business, including a tender offer a spinoff of the shares of Micronet Ltd owned by us, the acquisition by us of the two parties, and the financing. We are continuing to negotiate as to the transaction and it is our policy not to comment on transactions that are being negotiated, so unfortunately I will not be able to respond to any question concerning this matter. MICT’s revenue continued to grow for the three and six months ended June 30, 2018 as compared to the year ago period. We reported net income of $3.4 million and $2.6 million for the three and six months ended June 30, 2018 respectively, which includes the capital gain from the sale of Enertec. Now turning to Slide 4, we are very pleased to report that the second quarter 2018 was an excellent quarter for MICT as marked by improvement in the key indicators, including substantial year-over-year increase in revenue and gross margin. Growth over the prior year period primarily came from shipments against our backlog. Our second quarter 2018 revenue increased by 25% to $4.7 million as compared to second quarter of 2018 revenue of $3.76 million. Gross profit increased by 98% to $1.53 million in the second quarter of 2018 as compared to $773,000 in the second quarter of 2017. Gross margin increased to 32% in the second quarter of 2018 from 21% in the second quarter of 2017. Backlog for Micronet Ltd was $2 million at June 30, 2018. On Slide 5 and 6, we present the market status and business development update for Micronet Ltd. On Slide 5, you will see our revenue grew by 65% in the first half of 2018 as compared to the first half of 2017. Our second quarter 2018 revenue was driven by fulfillment of prior orders which resulted in improvements in revenue and gross margin. Current demand is a mix of general mobile resource management, or MRM customers and some [indiscernible] driven demand. Demand based on the [indiscernible] has been less than we had previously expected. Gross margin continued to improve to 32% for the second quarter 2018 as compared to 21% in the second quarter of 2017. Currently, our pipeline is at $2 million with orders from current and new customers. Our new generation LTE certification is in its last mile, and we expect general availability in the fourth quarter of 2018. We see a marketplace materializing for our products. We have ongoing integration with multiple MRM application services. Our back office and commercial website us under construction and we expect its formal release towards year end. On Slide 6, we present recent business developments. We have begun to monetize Guardian System Design - GSD, a cloud-based software-as-a-service product. We signed our first agreement with a leading customer, generating for GSD $100,000 per year, and we have additional agreements in the pipeline. We also signed a memorandum of understanding with a leading advanced driver assistance system, or ADAS service provider. We believe this agreement will produce recurring revenue from software licensing, joint lead generation marketing efforts including immediate offering to existing install base, as well as long term collaboration to development next generation hardware and software video-based telematics solutions. We are building the foundation to address value-added resellers and distribution channels by launching marketing efforts in Europe with significant [indiscernible] service providers in the marketplace. We are active in the ongoing integration, recruitment and partner meetings. We have [indiscernible] strategic initiatives including exploring video integration and application integrations. I will now turn the call to Tali for a financial review.

[Tali Dinar:]

Thank you, David, and good morning everyone. Slide 7 shows our revenues for the second quarter of 2018 as compared to the first quarter of 2018 and the second quarter of 2017. Revenues were $4.7 million in the second quarter of 2018, a 25% increase from $3.76 million in the second quarter of 2017. Revenues declined by 21% on a quarter-over-quarter basis. Slide 8 shows our revenues for the six months ended June 30, 2018 as compared to the six months ended June 30, 2017. Revenues were $10.68 million for the first six months of 2018, a 65% increase from $6.46 million in the first six months of 2017. Slide 9 gives a detailed breakdown of the numbers. Gross profit margin increased to 32% in the second quarter of 2018 as compared to 21% in the second quarter of 2017. The increase in gross margin was related to Micronet’s increasing sales volume as compared to prior year period. R&D expenses for the second quarter of 2018 were $505,000 or 11% of sales, compared to $507,000 or 13% of sales in the second quarter of 2017. Selling and G&A expenses were $1.7 million or 36% of sales, as compared to $1.4 million or 37% of sales in the second quarter of 2017. Net loss from continued operations for the second quarter of 2018 was $1.3 million, or net loss of $0.14 per basic and diluted share, a 7% decrease compared to net loss of $1.4 million or net loss of $0.12 per basic and diluted share for the second quarter of 2017. On Slide 10 and 11, we present our non-GAAP numbers. On Slide 10, our total non-GAAP net loss attributed to MICT for the second quarter of 2018 was $1.1 million, an increase of 74% over $662,000 non-GAAP loss in the second quarter of 2017. On Slide 11, non-GAAP net loss attributed to MICT for the six months ended June 30, 2018 was $1.9 million or 26% increase as compared to non-GAAP loss of $1.5 million for the first half of 2017. Turning to Slide 12, on our balance sheet we have $4.5 million in cash and cash equivalents, $7.2 million in working capital, and $8.3 million in equity as of June 30, 2018. I will now turn the call back over to the operator.

[Operator:]

[Operator instructions] The first question is from John Williamson. Please go ahead.

[John Williamson:]

Yes, hi. I’ve got a couple of questions. First of all, this company, BNN out of London, they’re Chinese based, and it appears from the earlier press release that the transaction has occurred, that management sold X-amount of shares and then the company sold X-amount of shares, so in this potential acquisition, the company will control 51% of the company. Is there an intent to tender all of the shares of the public company, MICT, or just the 51%?

[David Lucatz:]

John, unfortunately as I mentioned, we will not be able to respond to any question concerning the BNN transaction, as I mentioned previously. The reason, again, is we’re still negotiating the transaction and it’s our policy not to comment on transactions that are being negotiated.

[John Williamson:]

Right, but you have mentioned it in a--I’m just asking you material that’s already been mentioned publicly, it’s already in a press release, so none of this--so what you’re saying, none of this stock has been transferred? Your stock has not been transferred to this company yet? This is all potential--this is all a letter of intent?

[David Lucatz:]

No, I repeat myself - I did not mention anything like what you said, I just said that I cannot comment on this transaction at this moment.

[John Williamson:]

Okay. The other thing I want to mention is China--this is a China-based company, and you know China is notorious, they steal everything they get a hold of. Your company has a proprietary software for use actually in this logistics that you’re offering, and they’ll end up either--if they end up only 51% owned, they’ll still steal all the technology - that’s what they do. I’m sure you’re aware of what they do - look at some of the larger American companies. They just steal and steal and steal, and then you’re left with nothing. Are you aware of that?

[David Lucatz:]

I’m not aware of anything you just said. If you ask me, I’m not aware of anything you just said, and again, I wouldn’t jump to any conclusions other than that this transaction, again, is under negotiation and I cannot comment.

[John Williamson:]

Okay, well how about this question. Is the intent--forget about the company, is the intent to take the whole--is it intentional for the company to acquire the whole company, or just part of the company? Can you answer that question?

[David Lucatz:]

John, you continue to ask a question regarding the transaction. I’m telling you for the third time that unfortunately I will not be able to respond to any questions. Everything else--

[John Williamson:]

Okay, I got it.

[David Lucatz:]

Everything else you can find in public and read it yourself.

[John Williamson:]

Okay, so if we move along to the revenue of the second quarter, $4 million, you talk about the increase in revenue which, yes, there is an increase in revenue; but in reality, there’s a huge increase in losses. You did revenue of $4 million and you still lost a million dollars. I mean, that’s not really something to pound the drum about. The G&A is extremely large, salaries are huge. Why isn’t the company--you know, you just did a transaction to sell DPW, a division. I know you got a large bonus and you got a consulting contract from this. What do shareholders get out of this? I see the salaries, the bonuses, the potential sale of your stock. I just wonder, what does the common shareholder, when do they get rewarded? They surely haven’t.

[David Lucatz:]

John, could you please be specific in question, because aside from all these things that you tell, I’m trying to understand what exactly is the question here.

[John Williamson:]

The real question is when do shareholders finally get a benefit from this management team toward common shareholders? I mean, I’m not saying anything that isn’t written in SEC documents, but when you did the transaction with DPW, you got a bonus, you got a consulting contract, potentially you’re going to sell a lot of stock to this BNN. You get a salary, but the stockholders have not received really anything. The stock has been depressed since you did a deal with YA for years already, so when is the company going to start caring about the common shareholders? That’s my only question. Are we going to suddenly have a change in attitude of management toward the common shareholders, just yes or no?

[David Lucatz:]

Well, it’s yes and no, okay?

[John Williamson:]

Okay. That’s good, I’ll take it.

[David Lucatz:]

I’m not sure I understand the question, but you cannot put me in a position to say yes or no to something which I don’t understand. But I suggest we move forward, because my sense is that you want more to say rather than to ask questions. I believe there are some other people who want to ask questions, so let’s let them--

[John Williamson:]

Okay, great. Thank you.

[Operator:]

If there are any additional questions, please press star, one. If you wish to cancel your request, please press star, two. Please stand by while we poll for more questions. The next question is from Craig Butz [ph]. Please go ahead.

[Craig Butz:]

Yes, I guess I would like to somewhat elaborate on something the previous caller asked. He was wondering why our losses for this quarter have not really decreased from the previous quarter, at least that’s what I gathered, and I had that same question myself. It seemed to me that this was supposed to be more of a transitional quarter where we started moving towards profitability, and yet I haven’t seen any move in that direction. We don’t seem to have turned a corner yet where we’re starting to move towards profitability, and I’m just wondering f you could elaborate on why our losses for this quarter were basically the same as last quarter - if anything, I think it went up by $0.20 a share. I think we lost $0.12 a share last quarter and now we lost $0.14 a share.

[David Lucatz:]

I think one thing which characterized this quarter as compared to other quarters is the high G&A as a result of the DP transaction. This probably affected heavily the loss within the G&A.

[Craig Butz:]

So if I understood that properly, what you’re saying is that most of our loss for this quarter, or at least a good portion of it, had to do with the sale of our subsidiary, and therefore that will not be recurring next quarter; in other words, maybe next quarter we will start moving toward profitability? I guess if I understood it right, you’re saying that a good chunk of our loss had to do with our sale of Enertec?

[David Lucatz:]

Absolutely.

[Craig Butz:]

Okay. Are you able to break down between those two? I mean, if we were not having the chunk of money that went towards the sale of Enertec, what would our loss per share have been this quarter if it was not for that sale of Enertec? I’m just trying to get an idea if we really are moving towards profitability. Where would we have been at a loss per share if it was not for the sale of Enertec?

[David Lucatz:]

I can give you what additions as a result of this transaction. I didn’t do the calculation and math - I can do it if you want, but not right now. In general, we had probably around $500,000 to $600,000 addition expenses because of the transaction.

[Craig Butz:]

So it was probably roughly half of our loss? Would that be a rough estimate, that half of our loss had to do with what you just mentioned and therefore if it was not for that, our loss per share probably would only have been about half as much as it was?

[David Lucatz:]

Again, I am not sure about the half. I’m sure about how much was it, and I can do the math but not right now.

[Craig Butz:]

Right. Yes, I know we had a loss of $1.3 million, and you were saying that the amount attributable to the sale was between $500,000 and $600,000, so I guess I can just kind of do it in my head that it’s nearly half, close to half. I guess what I’m getting at is we probably would have only lost $0.07 or $0.08 a share if it was not for that. Do we expect--I guess to just finish off what I’m wondering, is since this is now done with, do you expect in the third quarter that we will at least be close to profitable, or at least be somewhere around a breakeven point? I know you were indicating that by fourth quarter, we probably will be profitable, but what do you see for third quarter? AT least will we be getting close to that point where at least maybe we’ll breakeven?

[David Lucatz:]

No, I cannot focus this moment as a result of a couple of things. First of all, there are expenses which probably will be related to the BNN transaction as well. Secondly, we had--on the Micronet side, we had less number of orders than we expected because of less demand in the market and the fact that the [indiscernible] product had a little delay, so I wouldn’t focus moving to profitability in the next quarter, if that was your question.

[Craig Butz:]

Right. If I understood you right, then, our backlog seems to have decreased, or you were saying that there was a decrease in--I don’t know how you worded that, but you were saying something as far as our orders had decreased?

[David Lucatz:]

Our orders decreased, yes. Our orders decreased, and as I mentioned, it’s a result of two reasons. One is we see less demand in the market than we expected, especially on the [indiscernible], and secondly we had some delays in the [indiscernible] product which will be introduced later than we expected, and this affected the number of orders we’re getting right now.

[Craig Butz:]

Okay. What about going back to the backlog stuff that we’ve already signed an agreement, stuff that we’re supposed to be producing here in coming quarters? Have we lost any of that backlog? Were any of these people that we’ve signed deals with, have any of them backed out at all? Have we lost backlog, I guess is what I’m wondering?

[David Lucatz:]

No, we didn’t lose any on the backlog. We didn’t get additional orders as we expected at the beginning of the year from the customers, and especially--again, the way we interpret it and we analyze the market, there is a [indiscernible] on the [indiscernible] requirements, and the second explanation is that a few of our customers were expecting to get the new product and technology, which takes time, it took longer than we expected.

[Craig Butz:]

Okay. I guess my last question, then, it’s also related to the backlog, how are doing in fulfilling our backlog? Are we moving along as we were expecting to, or are we getting behind in that?

[David Lucatz:]

No, I believe I just answered this question. We’re getting less backlog than we expected, and again I don’t want to repeat myself - it’s the third time, for the reason of the market and technology. So we expected to have better backlog at this moment or this time, and we have less than we expected.

[Craig Butz:]

So we’re moving towards completion of our backlog? I guess I’m asking in regards to that, is all that moving along as we’re expecting? It’s like we have such a large backlog, or at least we did have such a large backlog. Are we in a good process with completing that backlog?

[David Lucatz:]

Okay yes, now I understand. We fulfill the backlog quite okay, no complaints at this time, okay?

[Craig Butz:]

Okay. How much is there still left on backlog that we have to get caught up with?

[David Lucatz:]

The backlog for June 30 was $2 million on the MRM side.

[Craig Butz:]

You said $2 million?

[John Williamson:]

Yes, $2 million. Yes.

[Craig Butz:]

So that’s what left to complete on our backlog?

[David Lucatz:]

Yes, but don’t forget it’s dynamic. You complete and you get more, so it really depends what certain point of certain time you look at it.

[Craig Butz:]

Yes, okay. All right. Are you able to give a more complete number then as to what our backlog is, other than you said our past backlog was right around $2 million, but obviously there’s a larger amount there that would constitute our total backlog. Are you able to elaborate on what our total backlog is?

[David Lucatz:]

No, the backlog, as I said, at the end of second quarter was $2 million. No addition in backlog.

[Craig Butz:]

Okay, so that’s where we’re at right now, is $2 million?

[David Lucatz:]

Yes.

[Craig Butz:]

Okay, thank you.

[Operator:]

The next question is from Joe Tracy of Lakeview Capital Partners. Please go ahead.

[Joe Tracy:]

I know you’re unable to comment on ongoing negotiations, but I am assuming that the tender offer is going to be a formula based of some sort of premium above the average closing price over a certain period of time. I’m just asking, is management aware of the manipulation that happens if the term is marking the close? It seems like every day for the past month, at 3

[David Lucatz:]

I honestly don’t understand what you are talking about, and definitely I’m not aware of anything.

[Joe Tracy:]

Well at the end of each day, no matter what has traded in the stock, right at the last minute of the day, 100 shares, which is tiny in a $1.40 stock, prints to mark the close - it’s called marking the close, and it’s really an illegal action to do, to get the lowest--to have the stock close at the actual low of the day, every day. It’s been a common occurrence, everybody notices it, and I’m just hoping that management is aware that if you all are basing this negotiation on some sort of formula that is based on a premium above average closing price, I want management to be aware that that’s what’s happening.

[David Lucatz:]

First of all, thank you for telling me that. I’ve never heard or saw anything, and we’ll look into it as you suggested.

[Joe Tracy:]

Okay, then one other question. I don’t know if you can answer this or not, but are insiders going to be allowed to participate up to 100% on this tender, or are they restricted?

[David Lucatz:]

Again, I cannot comment on that, but I believe there’s an answer in the public materials that were published already.

[Joe Tracy:]

All right. Then finally, the press release that came out July 2 about the tender offer claimed that you all hope to close the transaction within three months. Was that three months as of the July 2 press release, or was that as of your transaction in April?

[David Lucatz:]

I’m not sure which transaction in April?

[Joe Tracy:]

Not in April - your transaction of the initial sale to BNN to get the ball rolling, I guess.

[David Lucatz:]

First of all, it’s a general estimation of [indiscernible] and there’s not much difference between the two dates, so I believe it doesn’t really matter.

[Joe Tracy:]

Okay, thank you.

[Operator:]

There are no further questions at this time. Before I ask David to make his concluding statement, I would like to remind participants that a replay of this call will be available within two hours. In the U.S., please dial 1-888-326-9310, in Israel please dial 03-925-5936, internationally please dial 972-3-925-5936. David, would you like to make your closing remarks?

[David Lucatz:]

Thank you. We are very pleased to see such a significant increase in revenue for Micronet during the first half of the year, as well as improvement in the gross margin. Micronet is working on new products in a continuing effort to increase its customer base through new channels and territories. We believe that our market based concept is being received positively by our customers and potential partners. The completion of the Enertec sale has improved our cash position, enabling us to move forward into a potential M&A transaction that may potentially create greater value for our shareholders. We believe that the BNN transaction, if completed, may create an increased valuation for our shareholders. I would like to thank our dedicated employees and management. Thank you. I look forward to speaking to you next quarter.

[Operator:]

Thank you. This concludes Micronet Enertec Technologies second quarter 2018 results conference call. Thank you for your participation. You may go ahead and disconnect.