Earnings Call Transcript - REAL Q4 2022

Operator, Operator

Good day and thank you for standing by. Welcome to The RealReal's Q4 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would like to now hand it over to Caitlin Howe, Head of Investor Relations. Caitlin, you have the floor.

Caitlin Howe, Head of Investor Relations

Thank you, operator. Joining me today to discuss our results for the period ended December 31, 2022, are President and Chief Operating Officer, Rati Levesque; and Chief Financial Officer, Robert Julian. Also joining us on the call today is our new Chief Executive Officer of The RealReal, John Koryl. John joined the company earlier this month and we are very excited to have him on board. Before we begin, I would like to remind you that during today's call, we will make forward-looking statements which involve known and unknown risks and uncertainties. Our actual results may differ materially from those suggested in such statements. You can find more information about these risks, uncertainties and other factors that could affect our operating results in the company's most recent Form 10-K and subsequent quarterly reports on Form 10-Q. Today's presentation will also include certain non-GAAP financial measures, both historical and forward-looking, for which historical financial measures, we have provided reconciliations to the most comparable GAAP measures in our earnings press release. In addition to the earnings press release, we issued a stockholder letter earlier today, both of which are available on our Investor Relations website. I would now like to turn the call over to John Koryl, Chief Executive Officer of The RealReal, to introduce himself and provide a brief overview of his background. Then John will pass it over to Rati and Robert for an update on the business and finally, we will go into our Q&A session. John?

John Koryl, CEO

Thanks Caitlin and welcome everyone to the call. As Caitlin mentioned, I wanted to take a few moments to introduce myself and provide some further insight into my background. First, let me start by saying I'm thrilled to have joined The RealReal, the company's approach, customer breadth and brand recognition within luxury resale are second to none. I am excited about our digital-first company with growth tailwinds in terms of consumer trends and demographics, along with an authentic ESG story. Perhaps most importantly, the talent that I have encountered so far at The RealReal is inspiring. I see a bright future for the business. As we all know the company's valuation is under pressure at the moment, and achieving profitability is the company's focus. I have built a 30-year career finding efficiencies and driving profitable growth at e-commerce businesses. Let me give you a few examples. Most recently, I led Canadian Tire's online business through a period of substantial growth. We demonstrated operational excellence through the COVID-19 pandemic, amid a massive surge in demand and disruptions to our store operations. We accomplished significant cost reductions while improving service levels for our millions of e-commerce customers. We improved the unit economics of the business with a particular emphasis on fulfillment and digital marketing efficiency. Similarly, during my tenure at Neiman Marcus, we drove considerable growth of our digital platform through new marketing vehicles, site experience improvements and omnichannel efficiencies. We balanced growth with profitability during this period, focusing on marketing to the right customers, delivering them the right experience, and doing so in the most efficient way possible. This takes lots of testing and quickly scaling small wins to produce significant results. Now I have no illusions that The RealReal's path to profitability will be achieved overnight, or with only minimal effort. Rather, these types of accomplishments take both time and energy. I believe I have the knowledge and experience within a retail tech environment to effectively lead the company through this process. Based on what I've seen in my first month at The RealReal, I am confident we can achieve profitability in the near future. I am energized to work with the team to continue to elevate our consignor experience as we relentlessly pursue our mission of extending the life of luxury. I also look forward to getting to know the investors and equity research analysts who support us. Thank you, and I look forward to speaking again in May. I'll now pass it over to Rati to give you an update on our business trends and key initiatives.

Rati Levesque, President and COO

Thanks, John. Today, we reported solid financial results for the fourth quarter and full-year 2022. For the fourth quarter, both revenue and adjusted EBITDA came in better than the midpoint of our guidance. For full-year 2022, we improved our adjusted EBITDA loss and adjusted EBITDA margin compared to the prior year. Despite a more challenging business environment, I believe we have made the changes necessary to deliver better results. Over the past six months, Robert and I identified and started to push on different levers in the business to reach profitability. To this end, we have been and continue to be focused on four key initiatives which we laid out on the last earnings call. First, adjust our seller commission structure; second, continue to drive efficiencies and reduce costs; third, further optimize our product pricing to get the best price for our sellers in TRR; and finally, capitalize on potential new revenue streams. The first key initiative was to update our commission structure, which we implemented in November of 2022. The goals were to optimize take rate, limit the consignment of lower value items and increase the supply of higher-value items. We are closely monitoring the impacts of our recent changes, and we are encouraged by the early results. We have seen supply continue to come in and value is growing faster than units, which is aligned with the intended goal of the changes. Over the next few months, we will analyze the data and identify ways we can continue to improve our take rate profile. The updates to our consignor commissions also included two elements to enhance the consignor experience. First, we added a dynamic tool to our website to allow consignors to calculate their potential earnings, enhancing transparency in the consignment process. Additionally, we began rolling out our new consignor Concierge team, which pairs each consignor with a small dedicated team of consignment customer service experts. Early results indicate that the consignor Concierge team is helping us to resolve issues faster, improve our Net Promoter Score, and enhance the overall consignor experience. Going forward, we will continue to assess our approach to further optimize commission structure and enhance the customer experience. Regarding the second initiative around improving efficiencies and cutting costs, we recently announced a reduction in our workforce of approximately 7% of the total employee base and a rationalization of our real estate footprint. As part of this action, we announced the closure of two flagship stores, two neighborhood stores and two luxury consignment offices. We closed underperforming stores, and we will continue to thoughtfully assess our store fleet to optimize our retail footprint. We continue to be optimistic about brick-and-mortar retail as a channel to efficiently scale supply and offer an outstanding brand presentation. However, we will be disciplined in opening and closing stores to efficiently manage our cost base. Another area of efficiencies has been in our marketing spend. Our buyer acquisition cost was down 36% in Q4 2022 compared to Q4 of the prior year, while effectively managing our marketing costs, active buyers were up 25% in the fourth quarter. We will continue to identify and drive efficiencies in the business. The third initiative to further optimize our dynamic product pricing is showing good progress. We are using our pricing algorithm to drive higher initial prices. During Q4, approximately one quarter of all our inventory was covered by our new algorithm, and we anticipate that by year-end 2023, we'll have closer to 80% coverage. As you know, product pricing directly impacts our sellers as well as our profitability. We are moving fast and with urgency, but we believe these key initiatives will take time, and their impact will not be meaningfully reflected in our financial results until the second half of this year. In combination, we are confident these key initiatives will help move the business to profitability. Furthermore, we are excited to get John up to speed and move into the next chapter of The RealReal's evolution. I'll now pass it over to Robert to discuss our fourth quarter and full-year 2022 results.

Robert Julian, CFO

Thanks, Rati. We are pleased with the financial progress we made throughout 2022. We are especially encouraged that the changes we made during the year, in particular, shrinking the direct business and growing the profitable consignment business were evident in our fourth quarter results. During the fourth quarter, GMV grew 13%, and our total revenue grew 10% compared to the prior year. It's important to note that the revenue growth was a combination of profitable consignment revenue growing 27% and unprofitable direct revenue shrinking 27%. This resulted in a significant improvement in our gross margin in Q4 2022. During the fourth quarter, our gross margin was 60.5%, an increase of 490 basis points compared to the prior year. We expect that our gross margins will continue to improve in 2023. In Q4, gross profit increased by $16 million or 20% compared to the same quarter in the prior year. For the fourth quarter of 2022, adjusted EBITDA was a loss of $20 million or minus 13% of revenue compared to a loss of $27 million or minus 19% of revenue in the prior year. We ended the fourth quarter of 2022 with $294 million of cash and cash equivalents on hand. The use of cash in the fourth quarter of 2022 was $7 million. This is a significant change in trend compared to the $102 million use of cash through the first half of 2022. At the end of Q4, we had $43 million of net inventory on hand, a decrease of $20 million compared to the end of the prior quarter and a decrease of $28 million compared to the end of the prior year. We expect that our inventory balance will continue to decline in 2023. Today, we are providing first quarter 2023 guidance. Given that John is new in his role, we will not, at this time, be providing full-year 2023 guidance. However, we anticipate providing full-year financial targets during our next earnings call in May. For the first quarter of 2023, we project GMV to be in the range of $340 million to $360 million. We project Q1 revenue to be in the range of $135 million to $145 million, and we project Q1 adjusted EBITDA to be in the range of minus $35 million to minus $31 million. As a reminder, Q1 is seasonally a lower volume quarter for us. Additionally, our Q1 guidance includes a sequential increase in bonus accrual and a one-time accrual for the change in our loyalty program. Taken together, these create a flat year-over-year comparison in our adjusted EBITDA and a sequential decline compared to Q4 2022. Turning to longer-term targets, we continue to project that The RealReal will be profitable on an adjusted EBITDA basis in full-year 2024. We will give John more time to assess our business before committing to specific financial targets beyond 2024. We look forward to updating you on our progress operationally and financially as we move through 2023. Thanks very much for your attention, and we will now go into our Q&A session.

Operator, Operator

Thank you. At this time, we will conduct a question-and-answer session. Our first question comes from the line of Anna Andreeva. Anna, you have the floor.

Anna Andreeva, Analyst

Congrats and welcome, John. Can you hear me?

John Koryl, CEO

Yes, we can hear you, Anna.

Anna Andreeva, Analyst

Great, thank you so much. I would say congrats and welcome to John joining RealReal. We had two questions. I wanted to follow-up on the guidance. So first off, sales guide for flat to down. Is that primarily weighted by greater declines from direct? I'm assuming the take rate also is lower on all the mix changes in the business, but just wanted to reconcile that? And then secondly, you mentioned the EBITDA decline is bigger sequentially despite less profitable direct business being a smaller percentage of the mix. Can you just talk a bit more on what's driving that? Robert, I think you mentioned the changes to the loyalty program, I just was hoping to get more color? Thank you so much.

John Koryl, CEO

Sure, Anna. I'll begin with that and let the others add their thoughts. Regarding the guidance and the flat revenue year-over-year, I appreciate your question, Anna, as I want everyone to consider our business by separating the growth of our consignment business from the growth of our direct business. We discussed this in our Q4 results and its effect on gross margin. What we're observing is that the overall minus 1% revenue is primarily due to the continued growth of the consigned business in the 20% range, which is a healthy and profitable segment. Conversely, our direct business has seen a significant decline year-over-year from Q1 of '23 compared to Q1 of '22. You'll recall that our direct business reached its peak in both absolute dollars and as a percentage of total revenue in Q1 of 2022, comprising 34% of our total revenue at that time. Therefore, the overall growth rate really tells two different stories: the strong and profitable consigned business is growing robustly, while the unprofitable direct business is shrinking. This shift has a notable effect on our gross margin, which we anticipate will continue to improve. To address your second question regarding the decline in adjusted EBITDA despite the growth of our profitable business and the shrinking of our unprofitable business, the main factor is volume. There has been a substantial decline in our overall GMV at the midpoint of our guidance, estimated around $50 million in revenue, which alone results in a $10 million headwind sequentially for adjusted EBITDA. While we have taken actions on commissions that partially mitigate this volume decline, there remains a gap that needs clarification. Additionally, we noted in our opening remarks that there is an annual bonus accrual that did not pay out, resulting in a couple of million dollars in sequential decline. We also changed our loyalty program, which necessitates an accrual that is front-loaded at the beginning of 2023, contributing another couple of million dollars to the decline. Furthermore, there has been a slight increase in marketing expenses in Q1 of 2023 as we continue to attract more consignors and customers. There has also been a minor sequential increase in some customer service activities. This explains the sequential decline from Q4 to Q1.

Rati Levesque, President and COO

And just to add a little bit of color to that. Q1 is always a soft quarter for us. In retail, you just do see less volume in comparison to Q4. So in addition to everything Robert said, the one-time accrual and then a smaller investment, like he mentioned in the concierge pause with the good news is we are seeing a healthy result in Net Promoter Score because of that.

Anna Andreeva, Analyst

All right. Well, thank you so much. It is very helpful. Appreciate it.

John Koryl, CEO

Thanks, Anna.

Mark Altschwager, Analyst

Thanks for taking my question. I’d like to start by discussing the trend of aspirational consumers potentially pulling back. What are you observing on your platform regarding this trend, especially as consumer stress increases? Are they looking for value and turning to The RealReal, or are they withdrawing from these categories entirely? Additionally, in light of the restructuring, could you elaborate on your real estate strategy? How significant do you believe these physical locations are for customer and supply acquisition, or are you discovering more efficient methods to achieve that? Thank you.

Rati Levesque, President and COO

Yes, thanks, Mark. I'll address those points, and the team can add if needed. On the consumer side, everything begins at the top of the funnel, and like seller traffic, it's quite healthy and strong. Active buyers have increased by 25% year-over-year. Our repeat rate also looks good. I mentioned last quarter that we observed a slight trade-down effect, where instead of purchasing top-tier luxury brands, consumers were opting for slightly lower-tier options. However, this has stabilized since Q3, so we're not seeing any significant fluctuations. Overall, the consumer side is looking pretty healthy for both buyers and sellers, and we feel optimistic about this, especially as we focus on providing value, particularly regarding pricing in these uncertain times. Regarding your question on restructuring and real estate strategy, specifically about retail stores, I want to highlight a few things. We're continually optimizing our fleet with a dynamic strategy. We've evaluated locations that haven't performed as well and are concentrating on our flagship stores and luxury consignment offices, which are early concepts and not efficient for driving supply. Running flagship stores is quite costly, so while I don't want to rule anything out, we don't anticipate opening more flagship stores. We're finding that the most effective way to secure supply is through our neighborhood stores, which lie between luxury consignment offices and flagship stores, where we're seeing the greatest value and volume. We're also being strategic with our retail locations and improving our leasing and contracts in our targeted markets.

Mark Altschwager, Analyst

Great. Thank you for the detail and welcome to John.

John Koryl, CEO

Thank you very much.

Blake Anderson, Analyst

I appreciate the question. I wanted to ask on the profitability side. You mentioned your four key initiatives. I think you said some of those will take time to become meaningful. I was wondering how much we should expect them to contribute to profitability goals this year? And then how much should they kick in by next year?

Robert Julian, CFO

I'll start that one, Blake. I think that we had mentioned that many of these initiatives, you're really going to see the full impact in the second half of 2023. And I think that you should expect a pretty significant improvement in our adjusted EBITDA performance in the second half of the year. And as we mentioned before, we're not providing full-year guidance. But I'm not going to give too much of the details of that. So we'll provide full-year guidance on our next call. But I do think it's fair for you to expect sequential improvements in adjusted EBITDA every quarter of 2023 and a pretty significant change in trend in the second half of 2023, leading to our confidence that we will be positive adjusted EBITDA in the full-year of 2024. And it's really a combination of all the strategic initiatives that we've been talking about; they all have varying degrees of impact on the overall results. But the cumulative effect is what I just mentioned in terms of our expectation for adjusted EBITDA improvement.

Blake Anderson, Analyst

That's super helpful. I wanted to follow-up on the authentication process. I know that's a key focus for you. Can you talk about your investment in that part of your business and just how it's resonating with consumers in the market and your progress on scaling those costs? Thanks so much.

Rati Levesque, President and COO

Yes. So authentication really is core to what we're doing, and we're always looking to find efficiencies there. I think we talked about Investor Day all the technology that we've invested in. So more than now 40% of our handbags are authenticated via machine learning. We've invested pretty significantly in how we measure and authenticate jewelry, diamonds specifically, where now we can hire a technician versus a gemologist to authenticate those items. So we'll continue to optimize. We have a roadmap, a short, medium and long-term roadmap to really find even more efficiencies there to offset the rigor of authenticating.

Blake Anderson, Analyst

Very helpful. Thank you.

Kunal Madhukar, Analyst

Hi, great. Thank you. Thanks for taking the questions. A couple, if I could. So one is on AOV. AOV was down 2% year-over-year. And you said that, that was because of lower selling prices. Can you talk about how this kind of compensation that is happening between lower AOV versus your lower emphasis on low-value items? And how we should kind of look at like AOV trends going into the rest of 2023? That is one. And the second is regarding the marketing expenses. So the marketing expenses is definitely lower. Cache you reported was 36% lower. What exactly are you doing on the marketing side that is leading to greater efficiency? And then as you look at Q1 '23, why do you think marketing expenses will be higher in Q1 '23 when it's a seasonally weaker quarter?

Rati Levesque, President and COO

Thank you, Kunal. I'll address the first question concerning the 2% year-over-year decline in average order value, along with the reduced focus on low-value items. Units per transaction remain stable, and while the average selling price has decreased slightly, this change is largely due to a shift in product mix rather than any other factors. The adjustments in commission structures have not impacted these metrics yet. Overall, we believe that average order value, units per transaction, and average selling price will trend positively as we move away from low-value items priced under $100, which should help improve these figures. Units per transaction is expected to remain flat, but with increases in average selling price and average order value, we anticipate positive trends in the second half of the year. Regarding marketing expenses, we have achieved significant efficiencies with costs down 36% year-over-year. We are becoming more strategic with our marketing budget, focusing on our most valuable sellers and engaging them at optimal times. We're aware of when they purchase handbags and are learning to identify the right moments to encourage them to sell those items. There is also coordination between our retail and marketing efforts, with retail playing a crucial role. High volumes of selling and quality products also enhance the effectiveness of our marketing, particularly among repeat customers. Additionally, our re-consign strategy is contributing positively, as we are investing in understanding when customers are ready to buy from us again and encouraging them to re-consign at the right time.

Robert Julian, CFO

And Kunal, I want to add that I previously commented on the sequential change in adjusted EBITDA from Q4 2022 to Q1 2023, noting that there was an increase in marketing expenses between those quarters. However, I would not infer from that what our overall marketing expenses will be for 2023 compared to 2022, as we have not provided full-year guidance yet. Therefore, that sequential change may not reflect a full-year trend in our aggregate marketing spending.

Kunal Madhukar, Analyst

Thank you, Rati. Thank you, Robert.

Rati Levesque, President and COO

Thank you, Kunal.

Noah Zatzkin, Analyst

Hi, thanks for taking my question. Just real quick to circle back on the real estate rationalization. How should we think about kind of the short-term potential impact to GMV in the metros that are affected, anything material that you'd call out there? And then second, just kind of a housekeeping item from a modeling perspective, how should we be thinking about the 7% kind of reduction in workforce looking into next year? Thank you.

Rati Levesque, President and COO

Yes, I'll address the first question. Regarding real estate and stores, we were very selective in deciding which locations to close. These closures involved stores that were not performing well compared to the others in the past. We are not anticipating any changes in sales volume or consumer behavior due to these closures, and this is not a concern for us at the moment. Now, I will let Robert respond to your question about the 7% reduction in workforce.

Robert Julian, CFO

Sure, I'll address that. We've only disclosed the financial details related to the reduction in force, specifically the cost of severance, which is between $1.7 million and $2.5 million. We've also mentioned that approximately 230 individuals, representing 7% of our workforce, are affected. However, we haven't provided a figure for the expected full-year savings because we didn't issue full-year guidance and wanted to avoid presenting a partial impact on our full-year projections. For modeling purposes, you could estimate the impact on the profit and loss statement based on the cost of a fully loaded employee and apply that to the roughly 230 affected individuals, which would give you an idea of the incremental impact on our expected full-year results for 2023.

Noah Zatzkin, Analyst

Very helpful. Thank you.

Rati Levesque, President and COO

Thanks, Noah.

Marvin Fong, Analyst

Thank you for taking my questions. Good evening. Welcome aboard, John. I have just one question. Regarding the take rate, I apologize if this was addressed earlier, but it seems that the marketplace take rate has declined sequentially. Historically, I understand that the fourth quarter tends to have a lower take rate, but you also implemented changes that were expected to increase take rates. Could you walk us through those dynamics? Did everything behave as you anticipated, leading to the 35.7%, or was there something noteworthy that occurred in this past quarter? Thank you.

Robert Julian, CFO

One of the things, Marvin, I would mention is we always talk about take rate as effectively the result of our mix of what people are putting in their basket and whether it's high-priced items that have a relatively lower take rate or lower-priced items that have a relatively higher take rate. And I would say, while we made a change to our commission structure and take rates in Q4, not much of that was reflected in the Q4 results or the Q4 take rate. It was just too far into the quarter, and there's just too much of a lag to see that. So I would attribute any change sequentially in take rates, it's just a change in mix between low take rate items and high take rate items that folks put in their basket. I do think that it's fair to anticipate that there could be an improvement in take rate year-over-year based on the commission structure changes that we made, which was partially the intent of that exercise.

Marvin Fong, Analyst

And I guess if I could follow-up maybe on the topic of mix, because of the pandemic and the savings thereafter, there was a lot more consumption of jewelry and handbags, and then it seemed like that was reverting back to apparel. Any update you can give us on sort of how mix is trending among your different categories?

Rati Levesque, President and COO

Yes. Sure, Marvin. I can take that one. As far as categories are concerned, they're all doing actually quite healthy, really driven out of ready-to-wear, but a lot of that, like you mentioned, is just rightsizing to pre-pandemic numbers. And this has been pretty stable. So as people are getting back out there, we're seeing a lot more sales in ready-to-wear and then as well as fine jewelry, specifically driven out of unbranded. The other category that has been quite strong for us is men. So on both the supply and demand side.

Marvin Fong, Analyst

Okay. That's great. Very helpful. Thank you.

Rati Levesque, President and COO

Thank you.

Nathan Feather, Analyst

This is Nathan Feather on for Lauren Schenk. So I just like to dig a bit more on the supply trends you're seeing after raising take rates on the lower value items. Did you see a divergence in the supplier behavior between those only consigning lower-value items and those consigning across various price points? And a different note, just provide some color on what you're seeing in demand trends quarter-to-date? Thank you.

Rati Levesque, President and COO

Yes. So on the commission structure and the changes that we made on the supply side, good news is we're seeing value, like I mentioned, come in. What it is doing what we wanted to. One of our objectives was to minimize the lower-value items, so specifically items under $100 million. So we are seeing that that happen as a result for sure. And it's still pretty early in the read there, but the rest of the price points, mid-tier and especially high value is quite strong. You may see us tweak our commission structure accordingly. We're watching it. We're analyzing it every week. We're making sure all the price tranches are coming in the way we want it to and that we're really optimizing the mix the way we needed to. So, again, it's doing what we want to on low, low-value items under a $100 million is how we identify that internally and then mid and especially high doing quite well. So we'll continue to monitor that. And I'm sorry, you asked something about the buyer behavior. Is there a divergence? No changes in the buyer behavior, except for what I said around the categories, ready-to-wear being quite strong versus pre-COVID numbers. But no changes on the buyer side in relation to the supply coming in or the commission changes. And we wouldn't expect to see anything based on the commission change on the supplier side.

Nathan Feather, Analyst

Great. Thank you.

Edward Yruma, Analyst

Hey, John, just a bigger picture question. As you looked at this opportunity to join RealReal and you kind of peel apart the P&L, and I appreciate you're not giving financial guidance there yet. But do you think Real fundamentally has a top-line problem or does it have a cost problem as you think about that path of profitability?

John Koryl, CEO

Thank you for your question, Edward. The reason I joined The RealReal is that it has defined the space, and now our goal is to refine it. We need to ensure that the supply we receive can be processed profitably. This means improving our operations by focusing on getting the right supply, authenticating it accurately, and shipping it more efficiently. Additionally, we had to adjust commission rates to find the right balance. Demand has not been an issue for The RealReal; the challenge lies in sourcing the right supply to grow the business. I joined because of the mission and the model that allows us to work with consigners to sell their inventory rather than buying directly. I am optimistic about our approach, which focuses on three key areas: maximizing benefits for the buyer, optimizing benefits for the consigner to create a win-win situation, and ensuring we fulfill our role effectively. Our team is thoroughly examining every aspect of our finances to improve our value proposition for buyers while reassessing commission structures. There are no straightforward solutions or quick fixes; we need to test, learn, and implement many small improvements that can lead to significant outcomes. I appreciate the efforts of Rati and Robert and the team's commitment to experimenting with various strategies. We are now reviewing the results and preparing for the next steps toward profitability. This isn't a simple issue; it requires a multifaceted approach.

Edward Yruma, Analyst

Thank you.

Rati Levesque, President and COO

All right. Thank you for joining us today. Before we close the call, I want to take a moment to express our deepest gratitude to the RealReal team. We want to acknowledge that many changes the organization has undergone over the past several months. Each of you have demonstrated impressive flexibility and commitment throughout this process. We are excited about the direction of the business, and we appreciate your tireless effort, energy and passion. We look forward to partnering with you to keep making a difference in luxury resale and for the planet. To our people at The RealReal, thank you. Finally, I'd like to thank our more than 31 million members who are joining us on our mission to extend the life cycle of luxury goods and make fashion more sustainable. Thank you.

Operator, Operator

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.