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Operator: Good day, and thank you for standing by. Welcome to the Q2 2024 Harvard Bioscience, Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. Please be advised that today’s conference is being recorded. After the speaker’s presentation, there will be a question-and-answer session. [Operator Instructions]. I would now like to hand the conference over to your speaker today, Kathryn Flynn, Corporate Controller.

Kathryn Flynn: Thank you, Josh, and good morning, everyone. Thank you for joining the Harvard Bioscience second quarter 2024 earnings conference call. Leading the call today will be Jim Green, President and Chief Executive Officer; and Jennifer Cote, Chief Financial Officer. In conjunction with today’s recorded call, we have provided a presentation that will be referenced during our remarks that is posted to the Investors section of our website at investor.harvardbioscience.com. Please note that statements made in today’s discussion that are not historical facts, including statements or expectations or future events or future financial performance are forward-looking statements and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

Actual results may differ materially from those expressed or implied. Please refer to today’s press release for other disclosures on forward-looking statements. These factors and other risks and uncertainties are described in the company’s filings with the Securities and Exchange Commission. Harvard Bioscience assumes no obligation to update or revise any forward-looking statements publicly, and management’s statements are made as of today. During the call, management will also reference certain non-GAAP income measures, which can be useful in evaluating the company’s operations related to our financial condition and results. These non-GAAP measures are intended to supplement GAAP financial information and should not be considered as a substitute.

Reconciliations of GAAP to non-GAAP measures are provided in today’s earnings press release. I will now turn the call over to Jim. Jim, please go ahead.

James Green: Thank you, Kathryn. Hello, everybody. Let’s move to Slide 3 of the presentation and look at our quarterly results. We had a tough first half of the year, and Q2 was more challenging than expected. Revenue in the second quarter came in at $23.1 million. That’s down $5.7 million from last year. Taking a minute on the market environment, as expected, slower sales to China and Asia Pacific continued through our second quarter. Q2 also saw the effects of reduced capital spending by our CRO and biopharma customers in Europe and in the U.S., which primarily affected our preclinical product shipments. And I’ll mention, we’re still seeing the impact of some of the supply chain issues, which we do expect to be able to resolve over the course of the second half of this year.

Our gross margin came in at 57.2%, but remained strong with primary differences to our target of lower absorption of fixed expenses. On a GAAP basis, we reported an operating loss of $2.1 million. On an adjusted basis, our operating profit measured $800,000 or 3.5% of revenue and adjusted EBITDA came in at $1.3 million or 5.5% of revenue. All of that said, we continue to focus on our operating cost structure and our new product initiatives, which we — while we weather the challenging market environment. As we announced in April, we took advantage of operating synergies to reduce our operating cost structure and support our ongoing investments in new products. We’re seeing these investments come to fruition and expect them to add new revenue streams starting in the second half and help underpin our long-term double-digit revenue growth goal.

I’ll give some more color to our new product commercializations later in the presentation. But first, let me turn it over to Jennifer Cote, our CFO, to discuss our second quarter financial results in more detail. Jen?

Jennifer Cote: Thank you, Jim, and hello, everyone. Let’s dive further into our financial statements. As Jim mentioned, this was a challenging quarter. Please move to Slide 4, where we’ll look at revenue for the quarter by product family and region. Starting with the Americas, revenue was down 12% as reported from last Q2 and slightly down sequentially 3% from Q1 2024. Preclinical sales were down compared to prior year Q2 and also sequentially to Q1. Pharma and CROs are still delaying spending on capital equipment, and going forward, we are starting to see signs for market optimism with increases in biotech related capital raises and increased drug development activity. But as we learned from recent announcements, the CROs, while optimistic, are challenged over the course of the rest of the half of the year.

As this recovers, we expect to see improvements to cascade to our business as things get better. While Cellular and Molecular was down slightly 5% compared to Q2 of last year, CMT showed sequential growth of 9% compared to Q1 2024. And so we’re encouraged to start to see some return to growth in our academic markets. Moving on to Europe. Overall, revenue was down 29% as reported versus last year Q2 and was essentially flat sequentially to Q1. Both Preclinical and Cellular and Molecular saw large declines versus last year but are essentially flat sequentially to Q1. We attribute the year-over-year decline in Europe to the overall economic environment, including higher interest rates, energy costs and the Ukraine war, resulting in tighter spending by CROs, pharma companies and the government.

Moving to China and Asia Pacific. Overall APAC revenue was down 22% against prior year Q2 and 16% sequentially to Q1. Preclinical sales in Q2 saw further erosion compared to prior year and sequentially from Q1 due to continued lower spend by pharma and CRO companies. Cellular and Molecular products are down compared to the prior year Q2, but appear to be stabilizing with improvements sequentially from Q1. Specific to China, market information suggests that the impact of stimulus is shifting into 2025 as companies apply for these funds but are delaying orders until funding is received. We are seeing increasing levels of quoting activity consistent with what others in the industry have shared. If you can please refer to Slide 5, we will share additional financial metrics.

Please refer to the top middle of this slide. Gross margin during Q2 2024 was 57.2% compared to 58% in Q2 last year. As Jim mentioned earlier, the year-over-year decrease is mainly driven by lower absorption of our fixed manufacturing costs and also by a lower mix of higher-margin preclinical products sold to CROs. We are encouraged that our gross margin remains close to our target of 60% despite a challenging revenue quarter. This reflects the impact of the improvements we’ve made to our operating structure and provides room for increased margin drop-down with expected improvements in revenue. If you refer to the top right graph of the slide, our adjusted EBITDA during Q2 was down from $3.9 million last year to $1.3 million this year. The primary driver for reduced adjusted EBITDA was a drop-down of lower gross margin dollars.

As Jim spoke about earlier, we continue to stay focused on investing in new product development and commercialization of our growth areas while actively managing our costs. We implemented actions during early Q2 to reduce our operating expenses and take advantage of efficiencies in our operating structure and to fund our ongoing investments in growth. We realized savings from these actions of approximately $700,000 during Q2, and we expect these actions to support annual run rate savings of approximately $4 million. We will continue to manage through these market headwinds and drive operational improvements while investing in the critical areas of growth for our business. Moving to the bottom left, where we show both reported and then adjusted loss earnings per share.

First, I will describe the primary differences between our GAAP EPS and our adjusted EPS. The differences between our GAAP and adjusted are highlighted in the reconciliation tables on Slide 11, but primary drivers continue to be stock compensation and amortization and depreciation, both of which are noncash items. Together, these items impact both years by $0.06 per share. During Q2, the remaining difference of $0.01 is attributed to a loss on the sale of investments and the impact of restructuring costs incurred with the cost reduction actions earlier in the quarter. Adjusted EPS declined $0.04 compared to the last year, primarily on gross margin declines from lower revenue, which was partially offset by lower interest expense and an income tax benefit.

Switching gears to cash flow and liquidity. If you refer to the graph in the middle of the bottom row, cash flow from operations was $0.6 million for the first half of 2024 compared to $5.4 million in the same period last year. This decline is largely, again, driven by the drop-down of the impact of lower sales during the quarter. As we discussed last quarter, in February 2024, we received cash benefit net of commissions of $2.6 million for the employee retention credit provided by the CARES Act. Also during the first half of 2024, we were able to sell all of our investment in HRGN stock for $1.9 million, which is included in our cash flow from investing activities. These additional sources of cash helped support our cash position and net debt is down $0.7 million compared to the end of 2023.

As we return to stronger revenue quarters, we expect to continue on our path towards paying down our debt and improving our leverage. Further details on the above items can be found in the non-GAAP reconciliation tables included in our press release and in the appendix to this presentation and will be available in our 10-Q. I’m now happy to hand things back to Jim.

James Green: Thank you, Jen. Let’s move on to Slide 6. I’m not going to drain this whole slide, but I do want to take a minute to remind you how we think of our base business and investments for expanding into high-growth applications with significant consumable and recurring revenues. Our base business is designed to deliver long-term better-than-market growth. New base product revenue combined with new high-growth revenue streams from bioproduction and MEA Organoid applications begin in the second half and underpin our long-term double-digit growth target going forward. Now let’s move to Slide 7 to discuss our considerable progress on our key new product launches in more detail. The first row of the table highlights the commercial status of two new products we consider part of our base bread-and-butter business.

Early in Q3, we began production shipments of our new SoHo family of telemetry devices, which now enable real-time telemetry measurements in a shared animal housing environment. This, we believe, will lead to additional demand, especially in Europe, though likely starting really in 2025. Late last year, we announced the initial delivery of our groundbreaking VivaMARS neurobehavioral monitoring system to one of our largest CRO customers. This CRO has adopted the system as part of their preclinical testing offering. Later in the second half, we expect to ship additional VivaMARS products to this customer as they expand their use in these systems to more locations. As an aside, we expect to see posters describing the initial results of testing using the VivaMARS system at this September Safety Pharmacology Society show.

We’re also encouraged by the initial response to VivaMARS, which supports our optimism as we are seeing strong interest from other CRO and biopharma customers and expect expanding sales in 2025 and beyond. The second row of the table highlights the commercial status of our products targeted to electroporation and bioproduction. This year, we began in earnest the selling process in the bioproduction segment. Last year, we announced that a large pharma company adopted our BTX Electroporation system configured for bioproduction. We’re pleased to see the consumable revenue with this customer has now grown to approximately $1 million annual run rate, in line with our original expectations. This customer is now exploring the use of BTX for bioproduction for an additional drug application, which could be as big as the current application.

We’re also very encouraged by the number of new customers in consideration of our BTX as a bridge to GMP bioproduction applications. Also in Q3, we began shipping our new CGMP-compliant amino acid analysis system for bioprocessing applications. Our AAA is an adaptation of our leading Biochrom AAA system currently in operation in clinical labs around the world and is expected to do well in bioproduction applications. The third row of the table highlights the commercial status of our exciting new Mesh MEA Organoid platform. We have adapted our market-leading MEA electrophysiology systems to be the first in-vitro organoid data acquisition and analysis system capable of supporting long-life longitudinal analysis of organoids. We believe these new systems are well positioned to support fundamental research by our academic customers in addition to biopharma companies to streamline safety and toxicology testing as well as reduce costs, reduce test time and reduce expensive animal usage from — during the new — that’s used in the new development drug programs and developments today.

In the first half of this year, we installed and began beta usage at four customer sites focusing on neuro and cardiac and toxicology applications. For the second half of this year, we’re well on our way to 10 or more additional installations with early adopters, with well-known biotech and large pharma companies in addition to leading academic research institutions and the NIH. We’re planning full production launch in Q1 of 2025. I’d like to point out that each of these new revenue streams are based on leveraging our well-established technologies and adapting them to significantly larger biopharma applications with high pull-through recurring revenues. Now let’s move on to our outlook summary on Slide 9 and take a look at what we see for the full year.

In light of a weaker second quarter and the market recovery expected delay to later in the second half, we’re reducing our full year 2024 revenue outlook to approximately $97 million to $102 million. We expect sequential growth in the second half supported by new product shipments, which will be heavily back-end loaded. In spite of lower expected revenue, we expect 2024 full year gross margin of approximately 59% to 60%, reflecting our continued focus on expense management. We now expect adjusted EBITDA margin in the high single digits. Like many in the industry, we’ve seen — we’ve been challenged by a difficult market environment. Through it all, we’ve remained focused on fielding exciting new products designed to meet the needs of academic researchers, CROs and the drug development market and to support our goal of long-term double-digit revenue growth.

Thank you. Now I’ll turn the call back over to the operator to open the line for questions.

Operator: [Operator Instructions] Our first question comes from Paul Knight with KeyBanc Capital Markets. You may proceed.

Paul Knight: Hi Jim, regarding APAC, I guess you say in the release that China is most of it. What total APAC exposure as percent of revenue at this time?

James Green: Historically, Asia Pacific has been about 1/4 of our total revenue with again, predominantly, that’s predominantly China, but it does include a few others like Korea and Japan, but it is predominantly China.

Paul Knight: And your outlook there?

James Green: We feel like we’ve pretty much reached the bottom there. Our funnels are growing. Early indications look pretty good. I mean we got quote rates going up. So we’re — and we have seen the first recovery in Asia really seems to be — have come from the academics. We do expect things to have stabilized there, just be starting to move back to growth on the academic side. The part that has been a little more struggling was more the industrial side with biopharma and CRO type companies in China. The outlook there, again, what we’re seeing is the funnels are growing, but the problem we’ve seen has been the velocity through the funnel. So we measure things like funnel aging, and we look at math on things like the quote, the time from quote to order.

That’s been — that has remained slower. So that’s taken a little more time. And again, as Jen mentioned, we’re thinking it’s fairly stable at this point for that revenue stream but as far as going back to real growth, that’s probably later in the second half, maybe moving into 2025 as far as the growth vector on that stream.

Paul Knight: And then Slide 7, most of these products are going to be introduced here in the second half of ’24 and early ’25. Are you getting orders now, any of your sales force — I think the sales force years ago got that heat up.

James Green: Yes. Great question. We actually introduced to the market starting at SFN last — near the end of last year. So we’ve been — these are now products that we are selling. We’re already collecting — getting — working toward orders in each one of these segments. We’ve talked about what we expect in these areas. And as I look at the base business, this is targeted overall to be giving us — to be better than market growth. Now of course, the market has been an issue. But the two new areas in the base business, adding the new SoHo implantable devices, that’s going to support our growth in the base business. And then when you look at the VivaMARS system, we’re going to — you’ll see announcements at SPS for our first large CRO customer who bought the first article last year, they’re starting to buy more of these now.

So that’s going to be expanding revenue growth here in the second half of this year. So that’s — those are products in the acquisition process now. And we have other CROs and biopharma companies lining up, also looking at moving towards this technology for their neuro testing. In the bioproduction side, that we know has been a nice entry for us. It’s a little longer sale, but that’s been growing quite well. We expect to have another new drug announced with this — the same large pharma company that’s now spending right now about — consuming like $1 million of consumables just on that one drug today. We’re working with them now to move toward adoption in another drug. So this could be another very large book of business added to the bioproduction side.

And there we’re seeing — we’re working with a number of customers out of the biotechs using us as an initial bridge to production. So if they used us — used our BTX for initial compound creation, it’s a very effective, low barrier way for them to move toward cGMP bioproduction, at least to get through the levels of volume that they need for preclinical and late-stage clinical testing. And then, of course, as they move into large volume production, that’s when they have to make a decision, do we expand what we’re doing with them with more base systems? Or do we — or do they have to then go to another manufacturer in theory, depending on the size of the demand. But we’re working to try and — to be the real value proposition is that kind of low to medium level of demand and to get through the bioproduction phases.

And then again, the third space is, and I think the most important and most interesting is the organoid work. And as I said last time, we — I would be — I’ve got four systems now up and running in sites that are proving out the algorithms. We’ve already started the — with a number of large customers, early adopters who are going to be picking this system up. I expect to — I’m targeting to get 10 or more of these new systems shipped here in the second half. And these are — I mean these systems can sell for up to $100,000 a piece and the consumable is not inexpensive. So the kind of companies you’re going to see picking this up, the applications, are going to be — they’re starting with the neuro and they’re starting with cardiac, but we see this moving towards an opportunity for in-vitro testing for really optimizing safety pharmacology and tox testing.

So you’re going to see some real interesting names buying into this with installations and early adopters in this second half. We’re talking Q3 and really heavily in Q4, and then we’ll start full production starting next year. So this is the start of a whole new area for us. And it is a one of a kind where you can non-destructively measure the — how a proxy for an organ, whether it’s neuro or cardiac, how it’s performing over longitudinal studies, so you’re looking at months. You can see how they react with various compounds. Is it positive to a disease state? Is it of an organoid? And it is not negative to a healthy organ, like a healthy brain. So it really is a start of a potential new way to filter compounds before making the decision to go into the millions of dollars that are spent once you start the preclinical phases.

Paul Knight: Jim, last question is if the market goes to 5% growth, which is kind of what most companies in the sector are saying, this is maybe next year or normalized, if the market is at 5%, what do you think Harvard Bioscience’s growth would be?

James Green: Yes, that’s a great question. The way I model it is, I expect my new product development in these areas to give me roughly double-digit growth with new products. So if I can get to somewhere around 10% with incremental new business and if the market is growing at 5%, then I should be able to reasonably underpin low double digits for this business. If the market stays flat, then at least I’ve got my new products driving me arguably up towards double digits on its own. That is the long-term growth vector here. It’s not so much that I have to count on the market growth. I can count on the new products going in. These are exciting new things. And these are areas where very few, if any, competitors have a position in it.

And these are areas that leverage technologies that we’ve developed over 30-plus years. So I just — to me, this is a very exciting time for the company and how this develops. It’s going to be really interesting and fun to see how organoids start to take over. And again, what this system does is it makes the use of organoids efficient. Normally, if you’re looking at with today’s state-of-the-art, you take — you’re building various proxies for organs and then you’re pulling them out and with a PhD scientist you look at them under a microscope, that is not an efficient way to run — to do the kind of automation that you need to be able to do. Today, there’s such high volumes of small animals that are used to get through the large population testing, that’s the only thing that they can do today.

But this is an alternative that should make that a lot safer and a lot less costly and a lot more efficient for the pharma companies. So this is going to be the one to watch. I’m really excited about it.

Operator: Our next question comes from Bruce Jackson with The Benchmark Company. You may proceed.

Bruce Jackson: Hi. Good morning, and thanks for taking my questions? Jim, if you could just finish your thought on if the market is flat next year, what would your growth be? Would it be like high single digits, low single digits?

James Green: Well, when I look at these new products coming out, I would think — I would expect to get somewhere close to 10% growth out of the new products, independent of whatever the market is doing. And if you look at the growth rate inside of these — especially these new areas like bioproduction and the Mesh MEA Organoid products, I mean even in the first year, between them, they should put — they should arguably put 5% to 8% of new — of total growth on the business and that should be expanding. So a year out, I mean, I would expect this — I mean, I look at the revenue stream for the organoid side, that’s — it’s a low base, maybe it’s $5 million or $6 million today, but I’m targeting somewhere around 50% or better CAGR on that revenue stream.

So you look maybe in the first year it adds 3 or 4 points, in the next year you’re adding another 7 or 8 points. So this really moves the needle. And if the base business is growing at — even if it’s growing 0, like you say, this — and I don’t — I think our base business should do better than that anyway simply because we’ve now added the VivaMARS product, and that expands our served opportunity there pretty substantially. So that alone is going to cause our base business to well outperform the market itself as it just sits today. So that’s kind of how we see it. And to me, the main thing is these are sustainable growth drivers. These aren’t just things that, well, let’s get to a market growth of 5% and then ride that out. This is incremental, it’s new, it’s exciting, and we’re going to make a great success of this.

Bruce Jackson: Okay. Got it. And then if we could just go into a little bit more detail about the organoid marketing strategy here. Obviously, it’s a very important product for you and you’re going to be moving deliberately. It looks like the strategy here is like it’s some lead users and some publications going. Can you kind of just talk a little bit more how you intend to build this business and build the market?

James Green: Sure, sure. If you — we have great exposure to the academic researchers. That’s our bread-and-butter customer. And that’s where we were used initially for these first beta units to prove the technology because what comes out of there are the papers and the — whether they’re peer-reviewed papers and posters on the use of this technology. And even with the first 4 or 5 beta users, we’re also testing with a small CRO who is focusing on all of the primary compounds that are used in safety and tox testing. So this is not only going to be for researchers. We’ll get the neuro researchers, we’ll have the cardiac researchers. That’s going to be a big driver for us. But then the adapting of that toward safety pharmacology and tox is a real critical area for us to now potentially go into a multibillion-dollar market of going after what today has to happen through large volume — large populations of small animals.

And so if we can show that, and that’s why you’ll see in the second half of the year, it’s not just going to be academic researchers. We now are lining up the NIH to be one of the adopters here, but then biopharma companies. You’re going to see — I expect to be able — and part of this is I want to be able to publicly announce who they are because a lot of times the big pharma guys they don’t like their names mentioned unless — and if you have to get their agreement on a press release, it gets a little tough. But I can — the leverage I have is if they want to work with me on it, they’re going to have to let me talk about it. So you’re going to see some very interesting names and very interesting places, and you’ll see where these things are going.

So I think the revenue growth — the growth markets that we’re looking at here is, certainly it’s very big on the neuro side. You see what’s happening right now at University of Texas and a few other places with neuro or neuro organoids. Cardiac is going to be a big one. But then again, adapting it to safety, pharmacology and tox applications, that is a massive market, and it’s right in our wheelhouse with customers that we already sell to.

Bruce Jackson: Okay. Great. And then last follow-up question on that. Would you expect to see more of these studies coming out later this year or in 2025?

James Green: You’re going to see some of them. In fact, some have already started to come out. I’d say some of the bigger ones that you’ll see in at the Safety Pharmacology Society, that’s in September. There you’re going to see papers with the use of our neuro testing with our MEA MR system. And you should also see it with the well-known large CRO who we sold this first — who’s adopted this technology first. And there we’re now working with them to place a few more systems into a few more of their labs. So you’ll see it there. When you get to SFN, Society for Neuroscience, that’s when you really start to see the papers coming out and the posters on the use of Mesh MEA and organoids. So those — for neuroscience and then for safety.

The last big one would be The American College of Toxicology. That’s where you’ll see really the rollout of MeshMEA. And by then, we’re looking at — I think that’s going to be in March. By then we should be in full production with these systems. And keep in mind, these are not cheap systems. These are arguably up to $100,000 for the system, plus you have services, you have software licenses. And then the consumable on this, depending on the customer type, there could be a very large revenue — consumable revenue stream on this product. So again, the way I look at it is the initial work comes out with the beta testers that have already started, those papers are in progress now. You’ll see those coming out at the various shows, whether it’s the SFN, College of Toxicology, Safety Pharmacology.

You’ll see — and then you’ll also see more of our stuff starting to come out with The Bioprocessing Summit. So across the board, these are not just things that we’re talking about. These are things that we’re now selling. And again, the big drivers are going to be bioproduction and then the organoid work with MeshMEAs.

Operator: Our next question comes from Chris Sakai with Singular Research. You may proceed.

Christopher Sakai: Hi. Good morning. Can you talk about academic research in China? Is it coming back like you’ve expected?

James Green: Yes. Yes, it is. In fact, we did see even in the Q2, I think if we look on the one slide, I think that we’ll see that the CMT business actually did see some recovery there in Asia Pacific. Is that right, Jen?

Jennifer Cote: Yes. Yes, that’s right, Jim. And I think we’re starting to see more activity in terms of quoting. And the delays, I think, are more timed with those companies wanting to take — or those academic groups wanting to take advantage of the funding that’s available. So they’re going through the application process, but in parallel talking to us about their business.

James Green: Yes. So the academic side, we feel like it’s already bottomed out and it’s starting — we’re starting to see some recovery on the commercial side with CRO and pharma companies. That’s taken a little longer. We are seeing larger funnel, so more opportunities. But with the way the budgeting works there, that’s not expected to really hit us for revenue growth until we get later in the second half or maybe even into 2025.

Christopher Sakai: Okay. Sounds good. And then I guess regarding recurring revenue, do you have a target for that for the year?

James Green: Yes. We started the year, as we first started measuring it, we were at about — we were a little above 35%. Now given that we’ve all seen pressure on capital purchases, at this point right now we’re probably closer to 40% recurring. So as you would expect, when there’s pressure on capital purchases, then you’ll see less purchase of higher cost equipment, but you’ll still maintain much of your recurring revenue. And you’ll notice that each of these new products that we’ve talked about today, whether it’s in bioproduction or whether it’s with mesh organoid, these are all products that have heavy pull-through. I mean, especially the electroporation and bioproduction. I mean, that first customer we talked about, there were 4 systems, and you’re talking $1 million of consumable just for that one drug.

So the leverage there massively changes and the ratio changes quickly from — as far as the percentage of our revenue being recurring as those products become more and more adopted into the market.

Christopher Sakai: Okay. Great. And then for the $4 million cost savings you mentioned, where should we expect to see that on the line items?

James Green: Yes. It’s — well, it’s about $4 million annualized. I think we saw about $700,000 in Q2. It’s overall OpEx, but it is heavy on the operational side. So part of it would be in cost of goods, but much of it is going to be, I think, straight up on the OpEx line.

Jennifer Cote: Yes, it’s probably about half and half, Chris. There’s — the piece that’s operational, you’ll see it bleeding through margins over time, whereas the rest of it, you’ll start to see it coming through SG&A, R&D.

Operator: Thank you. I would now like to turn the call back over to Jim Green for any closing remarks.

James Green: Yes. Thank you for joining us. This ends today’s presentation. We hope you’ll join us in November for our third quarter results for fiscal 2024. Thank you very much. This ends the presentation.

Operator: Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.