Digimarc Corp Q1 FY2024 Earnings Call

Greetings, and welcome to the Digimarc's First Quarter 2024 Financial Results Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, George Karamanos, Chief Legal Officer. Thank you, sir. You may begin.

Welcome to our Q1 conference call. Riley McCormack, our CEO; and Charles Beck, our CFO, are with me on the call. On the call today, we will provide a business update and discuss Q1 2024 financial results. This will be followed by a question and answer forum. We have posted our prepared remarks in the investor relations section of our website and will archive this webcast there. Before we begin, let me remind everyone that today's discussion contains forward-looking statements that have risks and uncertainties. Please refer to our press release for more information on the specific risk factors that could cause actual results to differ materially. Riley will now provide a business update.

Thank you, George, and welcome aboard. Hello, everyone. Thank you for joining today's call. As our world becomes increasingly digital and companies progress in their digital transformation journeys, Digimarc maximizes the ways in which products and multimedia can digitally interact with the various systems that surround them. We excel at the identification and authentication of physical goods and digital assets, often at massive scale and often where other means of identification or authentication don't work well or don't work at all. Our focus is on converting this large total addressable market into substantial free cash flow by positioning ourselves to deliver high and long-lasting top-line growth at world-class operating margins. This starts with our being easy to do business with and excellently guiding customers along their digital transformation journey and is aided by four tailwinds we've been very intentional about creating. One, an incredibly deep and wide moat provides us the ability to offer differentiated products. Our differentiated products allow us the ability to create new markets as well as disrupt existing ones, all while delivering best-in-class gross margins that will continue to expand as we scale. Two, the need to identify or authenticate physical goods and digital assets is universal, making almost every entity in the world a potential Digimarc customer. Our technology allows us to identify and authenticate things where other solutions don't work well or don't work at all, meaning our ecosystem is comprised of companies incentivized to partner with us rather than pose a competitive risk. These two truths provide us the exciting opportunity to leverage our partners' customer lists, pipelines and go-to-market resources along with specific domain expertise to deliver quickly scalable and high gross profit margin revenue efficiently from an operating expenditure perspective. Three, there are many use cases requiring companies to identify or authenticate their physical items and digital assets, and many ways we can configure our technology to achieve these goals, meaning our ability to productize new functionality is open-ended. This means our already prodigious TAM will continue to grow as we either launch new products or add opportunity-unlocking functionality to existing products. Four, we engineer our products to be accretive, meaning the more Digimarc products a customer buys, the more value each product delivers. This positions us to harvest the low-hanging and highly profitable fruit of cross-sells and upsells for years to come. The combination of these four tailwinds is why we are confident in our ability to deliver high and long-lasting growth at world-class operating margins, converting our enormous TAM into massive free cash flow generation. Our first-quarter results provide multiple tangible examples I'd like to share. We signed a multi-year deal with a customer in the collectibles industry that delivered six-figure ARR growth in Q1. This deal should see ARR grow to $2 million in year two and into the mid-to-very-high seven figures in year three and beyond. Collectibles is a new industry for us and one we believe is ripe for digital transformation in how items are identified and authenticated. This customer chose to start their journey with two Digimarc products, Digimarc Automate and Digimarc Validate. As we work to ensure our valued customer's success, we believe there is even more we could do beyond what is scoped in this initial agreement. Additionally, we are in discussions with multiple partners, both new and old, regarding opportunities to jointly provide value to other companies in this multi-hundred billion dollar per year industry. Collectibles exemplify an industry held back by other means of identification and authentication that do not work well. We are excited to guide this industry along its product digitization journey, thereby accelerating its growth. We signed a high five-figure ARR Digimarc Automate deal with a division of our largest commercial customer that will grow to six figures in the near term. This deal proves that we are still just scratching the surface of all the transformational value we can provide to this highly valued and tech-forward customer. We remain laser-focused on doing just that. We also upsold a long-standing Digimarc Validate customer focused on B2B anti-counterfeit applications who is now interested in expanding the authentication capability of Digimarc Validate to end consumers. This upsell allows our customer to unlock new functionality we have recently productized, and we believe the opportunity for B2C validation with this customer is enormous. We are excited to prove our value and earn the right to capture the entirety of the opportunity this new functionality allows, with this specific customer as well as many others that will benefit from this newly productized functionality. We signed a deal with another customer interested in beginning their journey with two Digimarc products: an iconic European brand interested in the power of Digimarc Engage and Digimarc Validate. While this initial deal was mid-five figures, this relationship has the potential to grow to be much larger even if the customer doesn't expand beyond these two Digimarc products. This customer understands the accretive nature of our products and has already expressed interest in another Digimarc product beyond Digimarc Engage and Digimarc Validate. We signed a Digimarc Validate deal with an existing Digimarc Automate customer and have additional pipeline opportunities for both products with this extremely large CPG. Our focus is on proving the value of Digimarc Validate and Digimarc Automate, as well as Digimarc as a digital transformation partner, given the enormous upside presented by this single customer, which is not only large but a very viable candidate for our full product suite. We upsold Digimarc Engage to a long-standing Digimarc Validate customer and believe the upside from their planned rollout of Digimarc Engage will see this high-five figure initial deal grow well into the six figures in the near future. Our go-to-market strategies are not just increasing our win rates, but also our momentum, as evidenced by other Q1 deals including a six-figure upsell of Digimarc Engage to an existing customer just over a year after the initial agreement was signed. Additionally, we secured a Digimarc Validate agreement with a new customer within 38 days of our initial discussion and revived a previously inactive relationship by signing a Digimarc Validate deal with another new customer only 45 days after re-engagement. These achievements highlight the effectiveness of our refined approach and the strong demand for our solutions. The final first-quarter wins I want to highlight involve closing two separate Digimarc Validate deals with divisions of an existing Digimarc customer—one with a division new to our offering and one with a division that churned in 2023. This 2023 churn was the result of our holding firm on key terms during the renewal process, and the rebound signing is a testament to the incredible value Digimarc Validate provides. Important to note: even during the period in which this division was not a customer, they continued to act as a Digimarc champion in conversations with other divisions and were key in our closing the new division we signed this quarter, as well as progressing other divisions currently in our pipeline. We are thrilled to have this division back as a customer. While not normally a topic discussed voluntarily in prepared remarks, I want to spend a few minutes discussing customer churn, as this is yet another area in which we differentiate. First, while we are not immune to churn, I expect our churn will always remain much lower than other SaaS companies since the solutions we provide tend to be mission-critical and Digimarc is unique in being able to provide them. Our premium offerings mean we do more business with established companies, and the overall trends from which we benefit are unlikely to be de-funded by companies undergoing organizational change. It's also important to note that not all churn is regrettable—especially for a company that has undergone the transformation that we have executed. As we have productized functionality previously sold as bespoke offerings and acted intentionally not to deviate from our long-term vision, we have been guided by a decision made at the onset of our transformation shared on an earnings call in 2021. We choose to build a focused, profitable, and sustainable business versus pursuing ARR growth at all costs. Not every dollar of revenue is created equal, and when forced to choose, we will always prioritize the creation of long-term, not short-term, value. While acting as a headwind to our reported net ARR growth since we began our transformation, this headwind of non-regrettable churn is predominantly behind us. What's more, this discipline allows us to avoid distractions that can impede vision realization as well as maximize overall profitability by focusing on customer profitability. But this discipline can also lead to short-term benefits as well; in Q1, we recorded a six-figure ARR upsell as a result of a legacy customer choosing to accept our right-sized pricing despite this pricing being significantly higher than their legacy deal. Before I turn the call over to Charles, I want to touch on what we refer to as our Ecosystem Driven Opportunities: Digimarc Recycle, Digimarc Validate (Media), and Digimarc Retail Experience. While these opportunities provide game-changing upside that will be extremely fast, profitable, and sticky once they each begin to scale, the ultimate timing of when exactly that happens is tough to predict since it is ultimately outside of our direct control. These opportunities require the collaboration of multiple parties and, in some cases, may be accelerated by regulatory action. Yet once the spark is lit, they should be extremely sticky and grow exponentially due to well-understood network effects and natural incentives for rapid adoption. Do not read any signaling into what I just said; it is something we've said before. I want to be very clear in saying that we remain just as excited about these three giant opportunities and as optimistic about the impact they will have when they do indeed begin to scale. Instead, I wanted to focus today's prepared remarks on the other pieces of our business that don't receive the investor attention they should. While Digimarc Recycle, Digimarc Validate Media, and Digimarc Retail Experience tend to make up the vast majority of investor questions, they don't yet meaningfully contribute to the incredibly high and accelerating growth we've been delivering in both ARR and commercial subscription revenue. There are many unique aspects to Digimarc, and this is yet another example. We're delivering strong results in the parts of the business where we directly assert control while progressing and growing the untapped opportunities that will provide stair-step increases in growth and profitability when they occur. An investment in Digimarc is both an investment in a quickly growing and accelerating software business with best-in-class and expanding gross margins, and an investment in a company that is progressing towards becoming the de facto market standard in some really exciting and massive opportunities. The third leg of value is provided by our work with the world's central banks, delivering steadily growing revenue and high inflation-protected operating margins while acting as a profitable source of commercial intellectual property generation. We are the sum of these three pillars of shareholder value, and before I give an update on the Ecosystem Driven Opportunities that I fully agree are incredibly exciting components of our future, I wanted to spend the majority of this call on the incredibly exciting components generating ARR today. On Digimarc Recycle: As discussed in the last call, we recently launched a new go-to-market avenue for this revolutionary product. I am happy to share we are in conversations with multiple parties regarding this new avenue, including two parties in the same country. We are also in discussions on two continents about leveraging our Center of Expertise Program to bring our partners' considerable heft to bear in opening Digimarc Recycle markets. Success on either of these fronts would speed the opening of Digimarc Recycle markets while in parallel reducing associated costs. Success on the latter front would bring additional benefits of integrating these partners into our CoE Program, thus building a pipeline for our other products. Turning to other important developments for Digimarc Recycle, the European Packaging and Packaging Waste Regulation has been finalized, and we are all awaiting the final full text. Recall that all previous drafts mandated digital marking on all packaging to improve waste sortation, which would provide an incredibly strong tailwind for opening Digimarc Recycle markets in every country in the EU. It has already been made public that the PPWR will mandate Deposit Return Schemes in countries where collections are below a high threshold. This will also provide strong tailwinds for us, along with partners applying the power of Digimarc Illuminate to power these schemes across the European Union. Recall that Digimarc Illuminate provides a differentiated and lower-cost means to provide the product authentication required by a performant DRS, and this use case was key in the $32 million deal we signed a few quarters ago. In Europe, the Holy Grail trial is in its final phase. While the step-change improvement that digital watermarks will bring to plastic recycling is widely acknowledged, we are excited to support this wonderful group through the end of this trial so that Digimarc Recycle can claim the powerful validation that will come from receiving an industry-driven Tech Readiness Level 9 designation. We are also supporting this group in optimizing their launch planning; while we are unable to share updates on this front, we do flag to our investors to look for exciting updates on all Holy Grail activities soon. Regarding Digimarc Validate Media, as regulators worldwide endeavor to strike the right balance between protecting against the harm of Generative AI without stifling the incredible advancements it will bring, there is an increasing awareness that tools that can do both, like digital watermarks, must be seized. We are actively involved in these conversations, providing our 30 years of expertise in applying digital watermarks to build massive systems of trust and authenticity. In Q1, Digimarc was appointed as a founding member of the National Institute of Standards and Technology's U.S. Artificial Intelligence Safety Institute Consortium. We also announced that, along with Adobe, we are co-chairing the new digital watermark workgroup of the Coalition for Content Provenance and Authenticity, or C2PA. On the product front, we released the world's first browser extension to turn Chrome into a C2PA validator and, along with our valued partner DataTrails, finalized the industry's first fully integrated content protection solution to fortify digital content using advanced digital watermarks in tandem with cryptographic proofs, a solution we announced in early April. We strongly believe that one of the many benefits Generative AI will bring, perhaps the greatest, will be to act as a catalyst for delivering a safer, fairer, and more authentic internet. To help deliver this needed future, we announced in January that we have made our SAFE digital watermarking embedding and detection tools for digital assets free to large ecosystem partners so our Digimarc Validate customers will have easy access to them when ready to adopt at scale. There is much more going on that is not yet ready for broader discussion. However, before I close on Digimarc Validate Media, I want to point everyone to California and Assembly Bill 3211, which focuses on authenticity and watermarking standards. This might be the catalyst for creating even greater standards and build upon California's proud history of leading the world on important issues. The California Assembly has a wonderfully fast timeframe in mind, and I was honored to be asked to testify last week on the feasibility of the key provisions in this bill. We are excited to provide our support as this bill progresses through the California State Assembly and hopefully soon into law. Multiple global regulators are closely watching this legislation, and its impact will be felt not just domestically, but around the world. On Digimarc Retail Experience, while there is little we can say about this opportunity due to the immense pride we take in being a trusted supplier, I did mention earlier that we signed an Automate deal with our largest commercial customer who is key to the broad adoption of Retail Experience by global CPGs. The opportunities presented for digital transformation between the leading product digitization company and a company that touches countless products across multiple physical and digital touchpoints are incredibly exciting. The two most impactful ways to bring those opportunities to fruition are: a) winning their business daily through a maniacal focus on delivering excellence, and b) not speaking about their business on their behalf. I will now turn the call over to Charles to discuss our financial results.

Thank you, Riley, and good afternoon, everyone. Continuing on the positive trends we delivered in the third and fourth quarters last year, we again delivered improved year-over-year financial performance in the first quarter this year. Ending ARR grew to $23.9 million, representing an 85% increase. Commercial subscription revenue increased 52%. Subscription gross profit margin was 87%, a 7.5 percentage point improvement. Operating expenses decreased 10%, and non-GAAP net loss decreased $3.5 million or 39%. I highlight these areas again as they are all critical drivers toward reaching positive free cash flow. Before I begin a deeper review of the quarter, I want to highlight that we have posted a Quarterly Earnings Snapshot presentation to the Investor Relations section of our website, along with our usual quarterly materials. The Quarterly Earnings Snapshot is broken into two parts. The first part provides an overview of our business and contains a deeper dive into our three different commercial go-to-market motions as well as key details of the three pillars of shareholder value, which Riley highlighted earlier. The second part provides an overview of the quarter and presents our financial KPIs with relevant comparative and trended data. As you will see, we have delivered accelerating growth in both the year-one and three-year periods for ARR and commercial subscription revenue, as well as a material improvement in our subscription gross profit margins. We will continue to refine the material in the Quarterly Earnings Snapshot in the quarters ahead, and we welcome your feedback as we strive to provide our investors with continued clarity and transparency. ARR increased 85% from $13 million at the end of March last year to $23.9 million at the end of March this year. The increase in ARR largely reflects the impact of new customer contracts and several important customer upsells. As a reminder, we believe ARR is the best leading indicator for future commercial subscription revenue growth. Revenue growth will lag ARR growth as commercial subscription revenue is generally recognized ratably over a contract term versus ARR, which is calculated upfront upon entering a contract. You see this in our Q1 results, as ARR increased 85% year-over-year while commercial subscription revenue increased 52%. Total revenue for the quarter was $9.9 million, an increase of $2.1 million or 27% from $7.8 million in Q1 last year, reflecting strong growth in subscription revenue. Subscription revenue, which accounted for 58% of total revenue for the quarter, grew 48% from $3.9 million to $5.8 million. This increase reflects subscription revenue recognized on new customer contracts as well as upsells on existing customer contracts. Commercial subscription revenue grew at an even higher rate at 52%. Service revenue increased 6%, from $4 million to $4.2 million. This increase primarily reflects the timing of program work with the central banks. Subscription gross profit margin improved from 79.5% in Q1 last year to 87% in Q1 this year, representing a 7.5 percentage point improvement. The large increase year-over-year reflects strong growth in subscription revenue combined with a favorable mix of subscription revenue to our newer products, which have higher gross profit margins than our legacy products. Service gross profit margin was down slightly from 56.7% in Q1 last year to 56% in Q1 this year. It's not unusual to see some fluctuation in service margins depending on the labor mix for service work. We expect to generate mid-50% service gross profit margins on a normalized basis. Operating expenses for the quarter were $17.1 million compared to $19 million in Q1 last year, a decrease of 10%. Operating expenses in Q1 last year included $2.1 million in one-time severance costs for organizational changes made in February 2023. Excluding these severance costs, operating expenses were up only $200 thousand year-over-year or 1%, reflecting the impact of annual compensation adjustments for our employees, offset by lower headcount. Company-wide, we continue to focus on ways to maximize our productivity and efficiency as an organization to minimize the impact of rising labor and other costs. Non-GAAP operating expenses, which exclude non-cash and non-recurring items, were $13.8 million for the quarter, down 11% compared to $15.5 million in Q1 last year. Net loss per share for the quarter was $0.50 versus $0.70 in Q1 last year. Non-GAAP net loss per share was also considerably lower for the quarter at $0.27 versus $0.45 in Q1 last year. We ended the quarter with $48.9 million in cash and short-term investments after raising $32.5 million in gross proceeds through a registered direct offering that closed in February. Free cash flow usage was $8.6 million for the quarter, compared to $8.9 million in Q1 last year. As we foreshadowed on the last earnings call, free cash flow usage in Q1 included annual cash incentive payments to our employees. The company paid annual cash incentives of $2.9 million in Q1 to our employees for exceeding our 2023 financial targets and strategic goals. Excluding these cash incentive payments, free cash flow usage would have been $5.7 million. Cash flows can fluctuate quarter to quarter depending on timing of cash inflows and outflows. We continue to believe that a good proxy for a normalized level of free cash flow is using non-GAAP loss and adding the small amount of capital expenditures we invest. Our non-GAAP loss was $5.5 million during Q1 this year versus $9 million in Q1 last year, a decrease of 39%. We also used another $1.8 million of cash in Q1 for share repurchases. For further discussion of our financial results, and risks and prospects for our business, please see our Form 10-Q that will be filed with the SEC later this week. I will now turn the call back over to Riley for final remarks.

Thanks, Charles. Q1 was another strong quarter for Digimarc. Compared to the quarter a year ago, we grew our quarter-ending ARR by 85%, grew commercial subscription revenue by 52%, and expanded subscription gross profit margin by 7.5 percentage points to 87%. While investors remain understandably and rightfully excited about what our massive Ecosystem Driven Opportunities will contribute to our future, I am proud of what the team is delivering in the massive opportunities in front of us today. Our top-line growth has been accelerating from already high levels, our best-in-class gross profit margin continues to expand, and we are positioned to convert a high percentage of the resultant gross profit dollars to the bottom line by leveraging our partners to further boost our top line in an incredibly OpEx-efficient way. There are many things that make Digimarc a unique and generational investment opportunity. The fact we have three tangible and quantifiable pillars to our shareholder value story is one of the most powerful and perhaps least understood aspects. I encourage you to review the Quarterly Earnings Snapshot deck Charles referenced for more details. As always, we remain focused on converting our large total addressable market into substantial free cash flow by delivering high and long-lasting growth at world-class operating margins. Q1 provided multiple tangible examples of our progress against this focus and we remain excited for what's ahead. Operator, we will now open the call for questions.

One moment please while we poll for questions. Our first question comes from Joshua Reilly with Needham.

Nice job and congratulations on the 85% ARR growth there. I'm curious about the initial response you're hearing from customers on the next-gen digital watermark upgrade. How much of a factor was that in some of the deals highlighted here in the quarter? Or is that more something that's going to be coming in as a growth driver in the second half of the year?

Thanks, Josh. Great question. Off the top of my head, I don't think any of the deals that closed in Q1 utilized our next-gen digital watermark, but our pipeline is full of them. As we talked about in the last call, there are many key unlocks from the next-gen digital watermark. One of them is the apply-now, activate-later functionality that we can roll out. This has been key for our CoE program. Stay tuned for our Q2 call; we will provide more details on the initial up-ramp and success in our CoE program. Even with our current brands, having the understanding that they can apply the apply-now, activate-later next-gen digital watermark to all packaging during package refresh creates massive unlocking potential. We are really excited about the initial reception, especially on the CoE program driving conversations.

Got it. That's helpful. Regarding the Digimarc Engage product, with the upgrade now, are you making any changes to your go-to-market strategy? How should we think about the potential growth for that product with the upgrade?

You mean the upgrade by adding the digital functionality? Yes, it serves as another differentiator. A lot of things, as you know, Digimarc Engage is the product where we face the most competition. This is just one more differentiation. There is significant differentiation on the physical side with our thought leadership in digital link, our best-in-class redirection engine. The fact that we are a platform means consumer engagement offerings are one-stop shops. The abundant features with Illuminate allow us to provide functionality not just related to Engage. This is a rarefied offering; tying the digital and physical domains is increasingly becoming an IT purchase rather than just a marketing one. This additional ability creates incredible unlocking potential and is resonating well.

That's helpful. And last question from me: I don't think you've guided this specifically, but how are you thinking about the cash burn for the balance of the year relative to the recent capital raise and the cash on your balance sheet? What’s your outlook on capital allocation for the year?

Cash can fluctuate quarter-to-quarter; as highlighted in my remarks, Q1 is higher than a normalized level due to tax payments. I emphasize that the non-GAAP loss is a more normalized indicator. Our primary focus is to continue growing the top line while expanding margins and reducing costs to decrease our non-GAAP loss. We do not provide specific guidance on cash flow due to the inherent unpredictability of cash inflows and outflows. Our mission is to reduce non-GAAP loss, translating directly to improved free cash flow.

Our next question comes from Jeff Van Rhee with Craig-Hallum Capital Group.

Congrats. A couple for me tonight. If I could start on the ARR; it is $24 million up from $13 million a year ago. You've added $11 million to the incremental ARR. Where has this incremental $11 million come from with respect to use cases?

I would say the majority is from our platform itself. It's a combination of new contracts, primarily over the past year, with significant upsells from customers. Riley highlighted several of those in Q1 and prior periods. The majority stems from our platform, Validate, and Engage are the two other primary drivers of growth.

Okay. Shifting gears to the sales front, can you talk about your sales organization and particularly how the go-to-market is structured? How are the reps tasked?

We have direct sales positions who call our accounts with industry and geographic focus. We have a market development team focused on more significant opportunities. We specifically call it market development, not business development, because business development entails a long timeframe, while market development focuses on developing markets quickly. Some of our bigger opportunities, like ecosystem-driven opportunities, fall into that category along with larger one-off deals while engaging CoE partners. This is key to speed-to-market since they have existing relationships and pipelines.

That's helpful. Referring to your deck, can you quantify the late-stage pipeline expansion over the past 6, 12, or 18 months?

The pipeline expansion has occurred across all key product areas. As I mentioned, Automate is one of those products contributing to ARR. It spans our various opportunities, with significant focus on CoE, Validate, Engage, and security solutions.

We typically don’t talk about or quantify our pipeline. But to address your holistic inquiry, yes, it is much larger now than before. We need to have an expansive pipeline to support our ARR growth. While we hope to have substantial opportunities ahead, we avoid quantifying this as it adds complexity and fluctuating reliability.

Our next question comes from Jeffrey Bernstein with TD Cowen.

I wanted to get more details on the deposit return scheme opportunity. There's a lot written about European countries needing deposit return schemes to achieve plastic reuse and recycling goals. Can you elaborate on that and the timelines involved?

The influx of information surrounding DRS likely stems from the EU not releasing the final text for the PPWR. They clarify that for countries with collection rates below a very high threshold, they need to implement DRS. DRS is a straightforward concept: a deposit is placed on a bottle or can, and upon return, the deposit is refunded. However, ensuring that returned products were part of the scheme is crucial to avoid fraud. This creates an opportunity for authenticating products through Digimarc Validate, offering a lower-cost and more efficient means of implementing DRS. We plan to leverage our partners for this initiative and are excited about the opportunities. We await the final text of the PPWR for marching orders.

Okay. Any updates on your partner's ongoing win, and what are the learnings from that?

Yes, it is progressing well. I don't have learnings to share just yet, but after our largest commercial customer, I'm sure their national scheme will become public whenever they're ready to disclose details. We will amplify our involvement once permitted.

Right. I want to confirm what Automate entails. Does it imply factory automation in how it's being utilized?

That's correct. Automate utilizes digital watermarks in our Illuminate platform within automation processes at fulfillment and distribution centers. It can be applied where current automation either relies heavily on humans or where existing automation is inefficient or costly.

Terrific. Can you elaborate on the tracking consumer interactions in the e-commerce and physical world?

Currently, we have no signed deals related to this but it is a crucial area of interest. Our partners are interested, as they attempt to tackle complex tasks in the multimedia realm. This capability allows partners to strengthen their propositions. We expect our CoE model will help us connect with clients much more effectively through these partnerships. Well, thank you, everybody, for joining us today. That’s all we have. Have a wonderful rest of your day.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.