LiveOne, Inc. Q4 FY2022 Earnings Call

Thank you for joining us for the LiveOne, Inc. Fourth Quarter and Full Year Fiscal 2022 Webcast. My name is Sam, and I will be your moderator today. I will now hand the call over to our host, Aaron Sullivan, Interim CEO. Aaron?

Thank you. Good morning, and welcome to LiveOne's business update and financial results conference call for the company's fourth quarter and full fiscal year ended March 31, 2022. Presenting on today's call are Rob Ellin, CEO and Chairman; and myself, Aaron Sullivan, Interim CFO. I would like to remind you that some of the statements made on today's call are forward-looking and are based on current expectations, forecasts, and assumptions that involve various risks and uncertainties. These statements include, but are not limited to, statements regarding the future performance of the company, including expected future financial results and expected future growth in the business. Actual results may differ materially from those discussed on the call for a variety of reasons. Please refer to the company's filings with the SEC for information about factors that could cause the company's actual results to differ materially from these forward-looking statements, including those described in its annual report on Form 10-K for the year ended March 31, 2022, and subsequent SEC filings. You will find reconciliations of non-GAAP financial measures to the most comparable GAAP financial measures discussed today in the company's earnings release, which is posted on its Investor Relations website at ir.liveone.com. And the company encourages you to periodically visit its IR website for important content. The following discussion, including its responses to your questions, contains time-sensitive information and reflects management's views as of the date of this call, June 29, 2022. And except as required by law, the company does not undertake any obligation to update or revise this information after the date of this call. I'd like to highlight to investors that this call is being recorded. The company is making it available to investors and the media via webcast, and a replay will be available on its website in the Investor Relations section shortly following the conclusion of the call. Additionally, it is the property of the company and any redistribution, retransmission, or rebroadcast of the call or the webcast in any form without the company's expressed written consent is strictly prohibited. Now I would like to turn the call over to LiveOne's CEO, Rob Ellin.

Thank you, Aaron, and good morning, everyone. I would like to thank you for joining for our fourth quarter and fiscal year 2022 business update and financial results. Despite this challenging environment, we posted a record $117 million in revenues in fiscal year 2022 ended March 30, 2022, a year-over-year increase of over $51 million or 79%, and revenue for the quarter at $23.4 million, an 11% increase compared to last year. I'm happy to report that we are maintaining our previous guidance of $125 million to $140 million and adjusted EBITDA of $5 million to $10 million. For the current first quarter of fiscal '22, we expect to report revenues of approximately $23 million, adjusted EBITDA of $500,000 to $1 million positive. This will be the first time in the company's history that we will achieve positive EBITDA. As the environment and the backdrop in the capital market has changed over the past 2 quarters, we have strategically pivoted to accelerate our path and timeline to achieve positive EBITDA. As part of LiveOne's plan to focus on generating cash from operations on a consolidated basis, our team has implemented cost and expense reductions from both operations and corporate overhead, which is anticipated to result in over $23 million in current savings. I believe we still have an opportunity to further increase efficiencies and reduce costs as we focus on streamlining our operations and generating positive EBITDA. In addition to cost savings, we improved our balance sheet again with over $5.5 million in payables and short-term liabilities extinguished. As many of you may know, through our 9-year exclusive partnership with Tesla, a LiveOne Slacker Radio membership is preinstalled as a default radio service in every new Tesla car sold in America. LiveOne is paid directly from Tesla for all these memberships. We recently completed our user interface refresh of all new and top stations within Tesla cars and proudly announced we have added our Podcast into the cars as well. In December, we launched LiveOne's music streaming service, including PodcastOne content on Google's Android Automotive platform. This launch brings LiveOne into the car with a seamlessly integrated in-car user experience without the need for your mobile device and allows us to reach all current and upcoming vehicles. We have now passed over 86 cars, up from 45 last year, allowing consumers to enjoy our library of over 30 million songs, and original exclusive content of 500 curated radio stations, 250 podcasts and vodcasts, and all the original live events. Android Automotive continues to see wide adoption from virtually all the major automotive OEMs, including Ford, Chevrolet, Nissan, Dodge, Volvo, Lincoln, and others. The LiveOne Slacker app is pre-installed in 85 automobiles as well as across major cell carriers, Verizon, Sprint, and T-Mobile, which allows Slacker members to listen in their cars and their mobile devices. We have compelling growth opportunities for Slack by partnering with other automotive OEMs, just as we do with Tesla for the default radio service, as well as white-label B2B partnerships through this Android Automotive partnerships. As of June 26, 2022, we have now passed 1.6 million paying members and close to 2.4 million total members. We see a path for paid members to reach 2 million as we look over the next few years and ultimately reach 10 million paid subscribers by 2027. The addressable market is $1.7 billion, with less than 1% of the current market and would put us in line to over $1 billion in revenues. Our wholly-owned subsidiary, PodcastOne, which we acquired in July 2020, is a leading advertiser-supported on-demand digital audio network and was ranked #7 on Podtrac. With its unique monthly audience exceeding 6.9 million and global downloads and streams exceeding 44 million, that is ranking us above CNN, Fox, Barstool Sports, as one of the top independent podcast platforms in a list of 10 podcast publishers. The market is growing fast. We're looking at over $5 billion in revenues by 2027 as we look out over the next 4 years as a top 10 provider of podcasts around the globe. There's a unique opportunity to expand those revenues. We did over $8 million last quarter, and this quarter will be our largest quarter in the history of the company. PodcastOne continues to experience robust growth as more than 50 new podcast series have been launched since 2020 upon acquisition. We've expanded our distribution by making PodcastOne available in all Tesla cars, Android Automotive devices, Spotify, Apple, and Samsung devices. Simply put, the Podcast team has done an outstanding job in both recurring new podcasts as well as securing meaningful advertising sponsors as we have now passed over 300 sponsors. It's important to understand that PodcastOne has the exclusive advertising sponsored rights for all of our podcasts. But people can access some listener podcast shows on both PodcastOne exclusive platform as well as a number of outlets, including Spotify, Apple, and Samsung. PodcastOne is a franchise of exclusive shows that has grown to more than 250 podcasts and produces 300 podcast episodes per week. I would like to add that as a result of successful integration of our advertising and sales division, LiveOne has added over 100 blue-chip sponsors, over 300 total, and has over 175 in our pipeline alone for the first quarter of this year. In fact, PodcastOne has had more 1 million-plus sales weeks in calendar 2022 than any time in the history of the company. On the pay-per-view front, since launching our pay-per-view platform in May 2020, we generated $26.7 million of pay-per-view related sales in Live and pay-per-view events. Imagine Live now opening up. The opportunity is massive. As many of you know, we previously announced our intention to spin out an existing pay-per-view business as a separately traded public company and plan to distribute a portion of the new company's equity to our existing LiveOne shareholders. We anticipate the pay-per-view spin out to occur in fiscal 2023. I would now like to hand it back over to Aaron Sullivan, who will review the full fourth quarter numbers. Aaron?

Thanks, Rob. I'll spend just a few minutes to provide an overview of the results for our year-end and fourth fiscal quarter ended March 31, 2022. Full year fiscal 2022 revenue was a record $117 million, a 79% increase compared to $65.2 million in fiscal 2021. Contribution margin increased 48% to a record $24 million versus $16.2 million in fiscal 2021, and our adjusted EBITDA was a loss of $13.4 million with record KPIs, including a 47% net increase in paid members year-over-year. For the full fiscal year 2022, our revenue was comprised of 34% subscription and 66% advertising sponsorship merchandising and ticketing events compared to 51% subscription and 49% advertising sponsorship and ticketing events in the prior year period. For the fourth quarter of fiscal 2022, revenue increased 11% year-over-year to $23.4 million, while the contribution margin increased 12% to $5.1 million, and our adjusted EBITDA was a loss of $4.8 million. We ended Q4 with 1.48 million paid members, a net increase of 400,000 compared to 1.07 million paid members reported at March 30, 2021. Total members, including free memberships, were over 2.35 million as of June 26, 2022. Included in the total numbers are certain members who are the subject of a contractual dispute for which we are currently not recognizing revenue. Briefly turning to the balance sheet, we ended Q4 with cash of $13.2 million, including restricted cash of $300,000. And now let me hand it back over to Rob.

Great, Aaron, and thank you for the great job you've done. I've previously spoken about our unique flywheel business model associated with a complementary business where the component pieces create a synergistic offering to consumers, listen, watch, attend, engage, and transact. We are expanding revenue opportunities with B2C customers for further monetization through subscriptions and memberships, premium content, pay-per-view, and live events, selling membership packages, including merchandise, NFTs, and integrating consumer products that will have ownership positioning. Our B2B activities and opportunities continue to gain traction, especially with the significant advertising sponsored deals that we are securing from blue-chip companies, as well as other NFTs and gamification opportunities. I fully expect this year we will be able to expand our partnership with sponsors, our 7-figure deals are growing almost on a monthly basis, and we fully expect our first 8-figure deal this year. We see significant opportunity to grow our Slacker streaming radio membership service, both through new partnerships with major automotive Google Android platforms and with white-label partnerships in the IoT from smartwatches, market connected fitness device manufacturers to outdoor video. We also expect this year we will be able to expand our relationship with carriers around the globe. As we see the cycle starting to change, carriers are fighting back with Apple and Android to own their own content and own their own partnerships with their consumers. We're excited about the return of our live music events throughout calendar 2022 and look to really press the gas pedal on live events in calendar '23. Lastly, we have strategically implemented significant cost and expense reductions from both operations and corporate overhead, and we are now positioned to achieve positive EBITDA for the first time in our history in the current June 2022 quarter with at least $500,000 to $1 million of EBITDA for the quarter. I want to thank everyone for their support, especially our shareholders for their continued support. Thank you very much, and I'll open it up to any questions.

Our first question comes from the line of Brian Kinstlinger with Alliance Global Partners.

Great to really see the cost-cutting and the changes that are coming in the business. If I could start with the costs. Can you break down the cost-cutting effort at a high level? How much is people, how much is maybe office space or supplier agreements? I just want to get a handle on what's being cut.

Yes. So to start with Brian, the beginning part of this is one of the big costs that we had last year is our content costs, right? And because the world was shut down for 2 years, in order to program all of our original programming or wood shows on music events and so on, the cost was close to $20 million. That cost is going to drop in half because now most of that programming has been built. Those franchises have built. We now have well over 300 franchises across our platform. So that's a big cost savings. And then in terms of people, we've been able to consolidate as the doors have opened from COVID. We've been able to consolidate the 6 acquisitions, and the cream is rising to the top of the stars of this company, and you're going to see more and more of those. As you see the spin-offs of these divisions, you're going to see those operators of those divisions really shine and be able to pick their teams across the board. So our Head of Sales, our Head of Marketing across the company, and we've been able to put those synergies together. And then we've worked hard to clean up our balance sheet. As you know, when we acquired Slacker Radio, a big part of that acquisition was we took on close to $50 million of payables. We've done an exceptional job this year, and Aaron has proven to be just a superstar CFO in doing this, and has really cleaned the balance sheet up tremendously. As you see that $5.5 million of additional extinguishment on payables, you're going to see more of those coming. Aaron, do you want to add anything to that?

I think you covered it, Rob. Thanks.

With the $20 million in content costs from last year decreasing significantly, will we start to see the gross margin improve towards some of the targets mentioned previously, perhaps reaching the mid- to upper twenties? Is this primarily where the cost reductions are coming from, and will we see the positive impact on EBITDA as a result?

Aaron, do you want to take that?

Yes, I believe there is a significant portion there. That's absolutely correct. In the past, our Live Events business did not have positive contribution margins, but we anticipate seeing a contribution margin in that area. However, there is a considerable amount of operating expense that will be reduced. Therefore, I would say to expect to see improvements in those two lines.

Great. And then can you remind us of the seasonality in the revenue guidance based on live events? I know you have some major events waiting. You've got some seasonal businesses. How do we think about that based on basically COVID not being an impact to live events as much as it was in a while?

Yes. I mean there's going to be seasonality in this business in multiple ways, right? Our tentpole events are going to kick in in the third and fourth quarter, as well as that fourth quarter advertising and all advertising businesses is going to grow substantially. And then our merchandise business, a large portion is going to come in that fourth quarter as well. So this was a terrific quarter, and I think you'll see growth every quarter going forward. As you look at that $125 million to $140 million guidance number, you'll continue to see growth in each quarter going forward.

Is the fourth quarter in December for advertising or is it the fourth fiscal quarter?

Just to clarify, our Q3 is where we see the advertising and the merchandising.

December is always uncertain.

Fiscal Q3 will lead into Q4.

Yes. Two more questions. Firstly, how do you think about a recession impacting paid subscribers? You've done really well in the last two quarters adding paid subscribers. So how could that, a, impact that or churn and/or ticket sales? How is that contemplated at the low end of revenue guidance?

I think we're pretty fortunate, and we've been very cautious in our numbers in this. And that's just starting with Tesla, right? You have $100 oil prices plus, right, you're going to see a tremendous amount of automated cars hitting the road. And every car that hits the road, we pick up another subscriber, right? So I think we're being pretty conservative in those numbers. But then our expansion into these B2B partnerships that we've talked about, and I think you're going to see more and more of those across all platforms that have 10 million to 2.5 billion eyeballs. We're going to win this right on B2B partnerships. We're not going to win on one customer at a time. So a lot of those partnerships already have a tremendous amount of subscribers, both free and paid, that we'll get a partner up with. And I think you're going to see in the second and third quarter, you're going to see a tremendous amount of those B2B partnerships. And it's one area that we're growing the business, right? And I've gotten a lot of calls on that in the last couple of days, and even though we've made substantial cuts, you're seeing us higher on the B2B side. And we're only hiring as we land those B2B partnerships.

Great. Lastly, on Tesla. On the connectivity side, customers staying connected, how could changes to their policies improve your churn or impact churn at all?

Yes, it's been quite interesting and exciting for us. We are now integrated into the connectivity package. With an average car cost of $70,000, it's hard to believe that anyone will ever have a car without connectivity again, especially at that price point. We're seeing significant benefits included in that $10 package. For the first time, Tesla has always paid us directly and will continue to do so, but they're now shifting some costs to consumers, who are currently covering about 10% of those costs. By the end of the year, that will increase to 30%, with customers paying directly to Tesla and then to us, allowing us to receive our share of the $10. I believe this is an excellent development that puts us in a strong position to continue growing. Hopefully, we can also expand overseas and into other markets, which has been challenging due to outstanding payables with record labels and publishers, but we're nearing a point where we can really grow internationally.

The next question is from Jon Hickman with Ladenburg.

Rob, Aaron, I was wondering if you could elaborate a little bit on your kind of the key event, live events for the September and December quarters? I know there's spring awakening, but could you talk about the others that you're expecting?

Yes. Yes, I want to be a little bit careful on this in that we've announced that we're going to spin out our pay-per-view business, like just this weekend, last 2 weekends alone we did T-Pain, we did B.I. So you're going to see a lot of those digital live events and that full flywheel kicking in where it's a live event, but it also is a pay-per-view event, right? And so as many of you know, our social boxing will be a tentpole event this year again. And stay tuned, there'll be an announcement on that quickly. We've just announced a partnership with Ben Silverman, who liked to produce The Office and some of the biggest reality TV shows in the world, not only to do that next event, but to actually launch a league and react and announce a reality TV show around it. And I think you're going to see the spin-off of that division very shortly. And as that happens, there'll be multiple announcements where, like UFC or like wrestling, you're going to see many events happening around that. And that was a big part of revenues for live last year. Then we've announced over 100 live music events, and those continue to grow. So you're going to see it from all fronts. I don't think you're going to see just one event. I think you're going to see many events. And we're really excited to talk about that in this upcoming quarter.

One more question. If I examine your guidance for Q1, with $23 million to $23.5 million and your EBITDA ranging from $0.5 million to $1 million, it seems like your cash operating expenses would need to be around $8.5 million. Am I calculating that right?

Aaron, do you want to take that?

Yes, I think that's pretty close to what we have.

And then there was a fairly big drop in stock-based comp for Q4. What do you expect going forward?

I believe there was a one-time impact. You can expect it to increase, but not quite to the levels it was at before.

More like $1 million a quarter, something like that?

I think that's probably a good benchmark there.

That's it from me. Nice quarter by the way.

Yes. And Jon, just to highlight that, as we said, we expect $5 million to $10 million of EBITDA right this year. So each quarter...

For the year.

It's going to grow significantly from here. A lot of these cost savings and changes we're making are just starting to take effect. It's really exciting to see this company progress. You have been with me for a long time, and when the cycles change, we need to adapt quickly. We're working hard and aiming for $10 million this year.

The next question comes from the line of Kevin Dede with H.C. Wainwright.

So Rob, when does your superstar CFO become permanent?

It's a great query. I couldn't ask for anyone who has done a better job, and he's just completed the K and moved from there. So stay tuned, it's coming imminently. And I mean this seriously; he's done as good a job as anybody I've worked with over the years in really proving in a difficult situation, right, stepping up. And Mike Q was excellent. Mike took a very, very big job. Aaron had to step in last second, really replace most of his team. He's just done an outstanding job. And I keep hearing the credits across the board from our banks to investors across the board what a great job he's doing. So we're proud of Aaron, and stay tuned.

You mentioned 2 million subs, right? So that's paid subscribers. And is that this calendar year as your target?

We haven't provided a specific date on that yet. However, regarding Tesla, if they produce 1 million cars this year, it's reasonable to expect they could sell all the cars they can manufacture right now. This will lead to significant growth, especially as we connect with 86 other cars and establish a partnership with Android Automotive. Additionally, we will see more B2B deals similar to what we did with Facebook for pay-per-view, TikTok, and Music Lives. We aim to leverage and collaborate with already established large audiences that require music. I've been discussing this for a while, which was part of the reason we engaged JPMorgan. Expect to see an increase in these B2B partnerships. As we experience changes in digital distribution every 7 to 8 years, carriers and distributors are beginning to push back as they wish to control their own content and customer relationships. We are noticing signs that opportunities for significant B2B partnerships are emerging, similar to our collaborations with Tesla, Verizon, T-Mobile, and Sprint in the past. As these doors begin to open, we find ourselves in a favorable position. Our content library is extensive, we offer competitive pricing—half the price of our competitors—and we feature original programming, internet radio stations, 2,000 artists on our platform, and 300 original podcasts. I foresee numerous low-risk B2B deals ahead that promise high margins and substantial benefits for us, all without the need to spend extensively on acquiring new subscribers. We plan to partner with those who already have established subscribers and audience engagement.

So it just seems to me and apologies for my ignorant perspective on this, but it seems to me that in order to expand that as rapidly as you hope, you're going to need a little more international expansion. Can you give us an update on where that stands and the acquisition of licenses you'll need?

Yes. So twofold. We fully expect to start announcing licenses in the very near future, a lot expanding those. As you know, about 1/3 of our audience is overseas already. That traffic and audience coming in is already seeing advertising dollars and sponsored dollars come that way, and next will be subscription. And what I would say to you is that 2 million number does not include any overseas targets. As you know, Spotify is 50% U.S., 50% overseas. Same thing with Netflix. So if we land those overseas licenses, we're going to be talking about a much bigger number in the very near future.

And then last question for me, Rob, please. Just give us some insight on your conversion from members to paid subscribers. Can you give us any indication on the trends you're seeing and churn?

Yes. I mean we have the lowest churn in the industry. The membership program is starting to really kick in a high year. What we've always talked about is superfans, right? We're a creative-first platform focused on superfans. Those superfans spend money on everything from subscription, right, and having that audio, music and so on to watching live events to our pay-per-view events to buying a hat, buying a T-shirt, and buying an NFT. As you know, we did our first dollars in NFTs last year, and it was millions of dollars. We expect that to grow substantially. So what we're looking for is to create a first platform focused on those superfans. The more superfans we get, the stickier they are, and more relevant they are in terms of spending across our entire platform. And we're seeing more and more of that every day, and we're seeing the same customers. It's so exciting to put our podcast and Tesla and now be able to see not only a subscription but also be able to have our creators talking to that audience on a regular basis. And the same thing across our website, it's taking across our app. We're seeing more and more of that traffic translate into superfans and want to stay with us and not just listen to the audio, not just listen to a podcast, not just watch pay-per-view, but be able to touch all the tentacles we built here in all those TAMs across all those subsidiaries, right, all have massive upside. But together, the sum of the parts gives you the most significant membership I think ever created in music that is built on original programming. And if we keep beating and keep building on original programming, have that unique value proposition to us, we're really positioning ourselves uniquely to build this company.

We have a follow-up from the line of Brian Kinstlinger with Alliance.

I have a few. First of all, you've added more than 100,000 paid subscribers for 2 consecutive quarters, which obviously is great. And it makes sense, given Tesla sales have been so strong. I want to look at it from a different perspective. What is the conversion cycle for nonpaid members? And what is the conversion rate? I know Tesla is doing so strong, but how well are you doing converting on the other side of the business, and how long is it taking?

It's a great question. We're converting about 6% to 8% into long-term memberships. As we mentioned, live events are just starting to pick up. The process of converting ticket buyers and pay-per-view consumers is easier because we understand their preferences, including their favorite music and sports. This allows us to tailor our offerings effectively. Our tech team is exceptional, and much of our infrastructure is designed for these super fans. I believe we will maintain that 6% to 8% conversion rate, and if we do, we will quickly exceed our goal of 2 million subscribers. Crucially, for long-term investors, we aim to reach 10 million subscribers by 2027, which would represent less than 1% of our addressable market. Achieving this would generate $0.5 billion in revenue, which is just 1% of the overall market. In podcasting, we see growth potential as that industry expands to $10 billion, starting from a $600 million base. We're now talking about a sector that will rise from over $1 billion to $5 billion by 2027, in which we rank #8 globally. The same goes for our pay-per-view business. The more we engage with these superfans, the better our conversion rates. It's not only about conversion but also about retaining them and encouraging higher spending. We're not focused on competing with Spotify for hundreds of millions of subscribers; instead, we're concentrating on those dedicated fans by providing them with excellent content at half the price of our competitors.

Great. Two more on the numbers. What would the impact of spinning off pay-per-view be on your EBITDA guidance? Is it meaningful?

Remember, we're still maintaining it as a wholly owned subsidiary. We're only spinning out a portion of it. We need to be cautious about these valuations, especially considering our current low trading valuation. We just announced the repurchase of 1.2 million shares and will expand that buyback to the 2 million shares we promised. Both myself and Board members have been actively buying back stock due to our low trading valuation. If we separate the divisions, we'll sell only a percentage of any one division. When that happens, we could potentially unlock significant value for our shareholders, who will benefit from having a stake in the subsidiary. Additionally, these subsidiaries should hold greater value in the private market. Currently, we're trading at 50% of this year's revenues, which presents a unique opportunity to spin out the division. However, the revenues and bottom line will still be attributed to LiveOne, which will maintain the controlling interest in the subsidiary, and we may end up spinning out multiple subsidiaries in this market.

And then lastly, I didn't see the 10-K; maybe it's out since the call. But given the buybacks as well as using stock to take out some of the payables, what is the current outstanding share count?

So it's about right about 80 million fully diluted, maybe a little bit lower now with the shares that we bought back. And we've just got our approval to...

The outstanding share count today is approximately 80 million on a fully diluted basis, potentially a bit lower now considering the shares we've repurchased. We've also just received our approval to...

No, no, 80 million.

No. Sorry, sorry, Sorry. Yes. Yes, I was thinking of something else, sorry.

Yes, about 80 million. So again, we're trading at a $60 million market cap on $125 million to $140 million in revenue. So we're going to continue to buy back. And we just got the approvals to continue that buyback. And as I've stated on the street every time the window is open, I continue to buy in the open market, as well as many of my Board members, and so we'll continue to do that. As we do the spinout, it's going to give us a bunch of cash as well. It's giving you an opportunity. Maybe that expands the buyback at that point if it continues to trade the way it's trading today.

We have no further questions waiting at this time. So I'd like to hand the call back over to Robert for closing remarks.

I just want to thank everyone for their support. It's a difficult market. This is an exciting time for LiveOne, really hitting just about every metric across the board. Billions of downloads of our podcasts. We've now broken through 50 billion listens across our audio since inception. We've had 5 billion engagements across our live streaming. Not only did the consumer listen but they watched, they actually repurposed that and sent that back out to socials. So we're starting to build the brand, and we're starting to build a moat here that I see a tremendous amount of upside. And I look forward to our Q coming out, which is only a couple of weeks away, and showcasing that EBITDA positive, the changes that Aaron and I have implemented, the disciplines that we've implemented, and I expect that EBITDA to continue to grow. And as I said earlier, $5 million to $10 million this year, but my entire team is focused on hitting that $10 million EBITDA number. So thank you, everyone, and I appreciate your time and I appreciate all of you as shareholders in this difficult market.

That concludes the LiveOne, Inc. Fourth Quarter and Full Year 2022 Webcast. Thank you all for your participation. You may now disconnect your lines.