Ladies and gentlemen, I would like to welcome everyone to the Resideo Technologies Third Quarter 2022 Earnings Conference Call. Today’s call is being recorded and all participants will be in a listen-only mode until we reach the formal question-and-answer portion. It is now my pleasure to turn the call over to Mr. Jason Willey, Vice President of Investor Relations. Mr. Willey, you may begin.

Good afternoon, everyone. And thank you for joining us for Resideo’s third quarter 2022 earnings call. On today’s call will be Jay Geldmacher, Resideo’s Chief Executive Officer; and Tony Trunzo, our Chief Financial Officer. A copy of our earnings release and related presentation materials are available on the Investor Relations page of our website at investors.resideo.com. We would like to remind you that this afternoon’s presentation contains forward-looking statements. Statements other than historical facts made during this call may constitute forward-looking statements and are not guarantees of future performance or results and involve a number of risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including those described from time to time in Resideo’s filings with the Securities and Exchange Commission. The company assumes no obligation to update any such forward-looking statements. We identify the principal risks and uncertainties that affect our performance in our annual report on Form 10-K and other SEC filings. With that, I will now turn the call over to Jay.

Thank you, Jason, and good afternoon, everyone. Q3 was a mixed quarter for Resideo in a dynamic environment. ADI again delivered solid revenue growth and profit expansion, driven by strong performance in security and fire categories, serving commercial markets. At P&S, we had 14% year-over-year growth in air products with experienced headwinds across other product areas, particularly in security and OEM components for water heaters. Order rates slowed during the quarter and customers have begun to normalize inventory as macro uncertainty grows. In the third quarter, Products & Solutions delivered 12% year-over-year growth and we made significant progress on a number of key strategic initiatives. This includes advancing software platforming work, growing content with builders and service providers across single and multifamily construction and enhancing our energy management offerings to improve user experience. These initiatives are central to our strategy of expanding the business into attractive growth areas. In the quarter, sales and orders remained healthy in air products, driven by connected thermostats' strength in both retail and distribution channels. We see positive demand trends in the HVAC market, supported by sell-through data and conversations with customers. However, these conversations also indicate uncertainty around the macro outlook and a heightened focus on managing channel inventory levels. Within energy products, the OEM channel is experiencing a normalization of order rates after a period of historically high demand. This was most evident in products serving the gas water heater market where the channel is actively reducing inventory levels. In the boiler and furnace markets, customer indications remain positive for activity in the upcoming heating season. We believe our competitive position across the OEM channel remains strong and our ability to support customers over the past 18 months is creating new opportunities. Our traditional security business has seen headwinds across several fronts, including product transition in Europe, the run-off of 3G radio conversions and slower overall activity levels in our North American business. We expect these trends to remain present through at least early 2023. The First Alert acquisition has been an important contributor to our year-over-year revenue growth and integration is progressing well. The feedback from key retail and home builder customers has been extremely positive. We are encouraged by the opportunities we are already seeing in expanding First Alert products into the HVAC channel and with new residential construction customer wins. These dynamics within Products & Solutions are against the backdrop of ongoing supply challenges with our core semiconductor components. While backlog has moved lower from historically elevated levels, we remain supply limited in certain areas. Supply constraints continue to create inefficiencies within manufacturing and necessitate sourcing components in the broker market, resulting in margin and inventory headwinds. Outside of certain semiconductors, we are seeing signs of improvement in other materials and freight markets. At ADI, revenue grew 5% in the third quarter driven by commercial sales in North America in fire and video surveillance. Demand indicators remain positive across most of ADI's categories. ADI is executing on key initiatives around e-commerce and private brands, both of which saw over 20% growth in the quarter. As we discussed on our last earnings call in early July, ADI completed the acquisition of electronic custom distributors, a leading regional distributor of residential, audio, video, automation and telecommunication products. We continue to look at opportunities to expand ADI’s presence in adjacent categories of audio visual and data communications. ADI’s execution remains best-in-class. Digital and system investments made over the past two years are significantly enhancing ADI’s omnichannel capabilities and ability to serve customers. The business is well positioned to continue to grow sales and expand margins. As we manage the day-to-day challenges of the current environment, we remain focused on positioning Resideo for long-term success. A key aspect of this is our ESG efforts. Many of our products are designed to help address the environmental challenges facing our planet. Resideo took an important step in our ESG journey with our inaugural ESG report published last week. This report is the culmination of a company-wide effort to identify our most pressing ESG priorities and opportunities. As we look forward, we are focused on providing greater transparency to our stakeholders regarding our ESG journey. The report is available on our Investor Relations page and you can learn more at resideo.com/sustainability. With that, I will turn the call over to Tony to discuss third quarter performance and outlook in more detail.

Thank you, Jay, and good afternoon, everyone. Third quarter revenue of $1.62 billion was up 8% compared to Q3 last year, excluding $135 million from acquisitions and approximately $50 million of negative foreign exchange impact, revenue increased by approximately 3%. Gross margin for the quarter was 26.6%, compared with 28.1% in last year’s third quarter. Consolidated operating expenses grew by $21 million or 8% due entirely to $26 million of First Alert operating expenses. Operating income of $155 million declined 7% compared to last Q3 and diluted earnings were $0.42 per share, compared with $0.46 in Q3 of 2021. Included in our third quarter results was an $8 million benefit associated with the tax indemnification accrual release and $17 million of costs related to a litigation matter that arose prior to our spin-off from Honeywell, as well as the impact of the sale of ADI’s India operations. Products & Solutions third quarter revenue of $707 million was up 12%, excluding $112 million from acquisitions and approximately $30 million of unfavorable foreign exchange impact. Products & Solutions revenue declined by approximately 1% compared to last year Q3. Price realization added approximately $60 million to revenue year-over-year, while aggregate volumes declined by approximately 10%. Order activity slowed across Products & Solutions as the quarter progressed, as some customers and channels worked to reduce inventory levels. We believe channel inventory normalization has further to go and this is reflected in our fourth quarter outlook. Products & Solutions gross margin in Q3 was 36.2%, down from 41.5% in the third quarter of 2021. Persistent inflationary pressures, need to source material from brokers and the effect of lower volumes and factory efficiency, all negatively impacted gross margin in the quarter. In addition, the inclusion of lower margin First Alert revenue reduced gross margin by approximately 200 basis points in Q3. Products & Solutions’ operating profit was $124 million or 17.5% of sales, compared with $157 million or 24.9% of sales last year. Operating expenses for Products & Solutions were up $27 million year-over-year due to the $26 million in First Alert costs, as well as planned increases in R&D investments, offset by lower other SG&A. We are actively managing operating costs while ensuring we continue to invest in key growth and innovation initiatives. First Alert contributed revenue of $112 million and operating income of $4 million in Q3. Like the rest of Products & Solutions, First Alert gross margin was negatively impacted by inflationary cost pressures. We remain on track to exit 2022 at an annual cost synergy run rate of $10 million and to achieve run rate annual cost synergies of $30 million by the end of 2023. ADI continued its strong performance in Q3 with revenue up 5% to $911 million. ADI again saw strong activity in categories serving commercial markets including fire, video surveillance and access control. $23 million of revenue from acquisitions and approximately $22 million of unfavorable foreign exchange impact effectively offset each other during the quarter. ADI gross margin in the third quarter was 19.3%, up from 18.6% last year, reflecting improved product line margin, increased private brand’s contribution and the strong pricing environment. ADI Q3 operating profit of $78 million was up by $5 million or 7% versus last year. In October, we completed the sale of ADI’s operations in India, which comprise all ADI’s APAC business. Proceeds from the sale were immaterial and the transaction generated a $4.5 million goodwill impairment that was recorded in other expense in Q3. Corporate costs were $47 million, down from $63 million in the prior year. In Q3 of 2021, impairment charges on our former headquarters added $9 million to corporate costs, while this year’s corporate costs benefited by $8 million due to a tax indemnification accrual release. Excluding these items, corporate costs were relatively flat year-over-year. Our 2022 corporate spending is tracking below prior year levels and below our forecast when we entered 2022. Turning to our outlook for the fourth quarter, we expect revenue to be in the range of $1.55 billion to $1.6 billion. Consolidated gross margin is expected to be in the range of 26.5% to 27.5% and GAAP operating profit is expected to be in the range of $130 million to $140 million. For the full year 2022, we now expect revenue to be in the range of $6.36 billion to $6.41 billion, implying year-over-year growth of 9% at the midpoint, consolidated gross margin is expected to be in the range of 27% to 28% and GAAP operating profit is expected to be in the range of $645 million to $655 million, implying 16% annual growth at the midpoint. Our full year outlook includes First Alert revenue of approximately $340 million and operating profit of approximately $15 million. For the fourth quarter, we expect First Alert to contribute revenue of approximately $115 million and operating profit of approximately $4 million. Included in First Alert’s full-year outlook is approximately $25 million of costs associated with integration, intangible amortization and inventory step up. We continue to actively review our cost structure, including initiating manufacturing optimization activity. These initiatives may result in a charge to our Q4 results that is not included in the outlook provided above. We believe there remains significant opportunity to drive operational and cost efficiencies with our manufacturing footprint. Additional outlook details can be found on page 11 of our earnings slides. I will now turn the call back to Jay for a few concluding remarks before we take questions.

Thanks, Tony. While we are satisfied with our Q3 financial results and outlook for the fourth quarter, we remain on track to deliver over 15% operating income growth and earnings per share expansion in excess of 20% for 2022. We believe both ADI and Products & Solutions are performing well relative to competition across almost all key product categories and markets. The work of the entire Resideo team over the past two years to build and reestablish relationships with key stakeholders is paying dividends and our relative performance in the market positions us well for 2023 and beyond. With an uncertain short-term market backdrop, we are taking actions to ensure we protect profitability and drive improved cash generation. This includes additional targeted pricing actions to offset input inflation, reductions of factory shifts, reduced third-party spend, launch of factory optimization initiatives and a further laser focus on headcount. As we tighten the focus on controllable cost, we remain committed to strategic investments across both businesses to ensure we are positioned to capitalize on the meaningful long-term opportunities we continue to see. I am excited by our growing momentum on a number of major innovation and technology initiatives. While not all are clearly visible externally, we have made substantial progress around software platforming work, intelligent sensor innovation, and positioning the business for long-term energy transition trends around electrification and hydrogen. Much of this work is being driven by our innovation and business development organizations. As we move into 2023, we will have more to share on each of these areas and other work that will enable products and services differentiation. I want to thank the entire Resideo employee base for their efforts in the quarter and for their continued focus on delivering for our customers. This concludes our prepared remarks. Operator, we are now ready for questions.

Thank you. Our first question will come from Ryan Merkel with William Blair. Please go ahead.

Hey. Good afternoon and thanks for taking the questions.

Hey, Ryan.

So I wanted to start on the 4Q guide. It looks like sales are going to miss the streak by about 5%, but operating profit is going to miss by about 23%. Can you just unpack why the fall-through is so big, the operating profit line?

Sure. So, Ryan, there are a couple of points to consider. We've discussed the impact of lower volumes on our deleveraging, and our operational expense run rate for Q4 is quite stable at this stage. Therefore, we don't expect a significant drop in operating expenses this quarter. I haven't reviewed the specific details you've outlined, but I would assume those factors are likely the main contributors.

Yeah. I mean, it looks like if I put a 27% gross margin in there, it looks like OpEx is up $15 million sequentially, is that the right way to think about it?

Roughly, something that’s about right.

Okay. Okay. And then can you talk about the software orders in P&S? I guess first-off how much inventory do you expect the channel to destock in 3Q and 4Q?

The timing we observed in Q3 evolved throughout the quarter. We have seen increasing momentum in our initiatives as we transitioned into Q4, and I believe this will persist through the quarter. However, we do not have a definitive outlook on when everything will fully materialize. It's important to note that we have not yet observed a significant decline in the point of sale data at our disposal, although it is not exhaustive. Based on our point of sale metrics and discussions with customers, sales at the end customer level remain robust and are growing in many areas. As a result, we believe that the overall demand dynamic may currently be underestimated due to the ongoing destocking efforts.

Yeah. I would just add that, when you do get changes in the market like this, which we all understand pretty good idea of what’s going on. The standpoint the macros and inflation and what have you is just very natural. You get into an inventory correction standpoint. And to your question, when that will be? We are not 100% sure. But I think it’s definitely going to continue through Q4.

Okay. May just sneak one more in, if I could, so it sounds like the POS is actually decent. So as the channel destocks more about taking out safety stock as lead times have improved and then is the destock mainly water heaters or is it impacting air and security too?

It's quite widespread, though not universal. The OEM channel in the water heaters market is certainly one area affected. People are clearly being cautious with their inventory and don’t want to overextend themselves. I also want to point out that this is not unexpected. We were receiving inquiries back in Q1 when interest rates began to rise, and discussions about a potential recession were emerging. We communicated to investors that if interest rates double or more, which has occurred, it’s likely to influence behaviors in some of our markets, and I believe that's largely what we're witnessing. While we can't pinpoint the exact timing, given how things have unfolded, I wouldn't categorize this as a surprise.

The other dynamic is that many companies in the electronics industry have been coping with supply chain constraints. They have been building up inventory to protect themselves, and when market demand changes, this is a typical outcome. As I mentioned earlier, supply chain issues remain a challenge. While there are improvements in some areas, we still face problems with some of our semiconductor suppliers, and we expect this to continue into 2023. Additionally, our various customers are now going through an inventory correction. Based on my past experiences, in situations like this, companies tend to be a bit more conservative at first and will monitor how the market evolves after making those adjustments.

Ryan, I want to add one more point. While this wasn't exactly your question, I feel it's important to mention that we are not surprised by the destocking activity. Although we couldn't predict the timing precisely, as Jay mentioned, we anticipated this and are taking the necessary steps. We are reducing our spending and are focused on re-initiating some cost initiatives related to factory optimization that we had postponed due to supply chain dynamics. We are also committed to investing for the future. Our perspective on the long-term and even intermediate-term prospects at Resideo remains unchanged. We believe we are gaining market share despite these challenges. What we are experiencing seems to be a temporary cyclical event caused by rising interest rates and some economic uncertainty among our customers.

Yeah. Makes sense to me. Thanks guys.

Yeah. Thank you, Ryan.

Our next question comes from Amit Daryanani with Evercore. Please go ahead.

Yeah. Thanks for taking my questions. I guess, maybe to start off with, can you just sort of help understand the divergence that you are seeing between security products which seems to be down a fair bit versus energy? And then maybe just talk about air in terms of how that’s stacking up as well on an organic basis, because I think the up 14 might include First Alert?

What we refer to as traditional security does not involve First Alert. The main reasons for this are that we had a significant level of sales of 3G radios due to the 3G radio conversion in the third quarter of last year, which decreased sharply in the third quarter of this year, as anticipated. Additionally, we are currently undergoing a product transition in Europe that has negatively impacted our traditional security business there. These are the two primary factors.

I would just add to that. If you remember the transition away from 3G, they weren't exactly sure when that would occur. It was scheduled for February of 2022, and there had been some discussion about a potential delay, but ultimately it did not get pushed back. So in Q3 of last year and even in Q4, everyone was pushing as many radios as they could to complete the convergence. The comparison to this Q3 is that this was a major factor in that change.

Understood. That’s useful information. The traditional security did decline significantly, but this clarification helps. Regarding the inventory correction you mentioned with channel optimization increasing, I’m curious about the duration of this process. You indicated it began in Q3 and is expected to continue into Q4. Historically, how long do these corrections typically take, and how much additional inventory is there in the channel? Any insights on the timeframe for this inventory correction would be appreciated.

Tony mentioned earlier that I have been consistent in my views. The inventory corrections started to pick up in Q3, and I expect this trend to continue into the rest of Q4. While I do not have a specific figure for you regarding traditional timelines, especially considering the market dynamics over the past couple of years, I believe it will be an ongoing process to achieve the necessary corrections, and we will assess further progress after that.

I also didn’t address your question regarding the air business. The main point I want to convey is that our connected thermostats business is performing exceptionally well. We are witnessing strong results in that area, which is one indicator supporting our belief that the efforts we have put in over the last few years are yielding positive outcomes, even in the current challenging environment.

Got it. And if I could just ask you one more, I guess. It sounds like maybe I am reading too much into this, but suddenly you are going to look at doing some sort of cost optimization, cost control initiatives towards the end of the year. I am wondering does that change your framework around some of the fiscal 2024 operating margin targets you have talked about at all? Thank you.

No, not at this time. We discussed this in our last earnings call. Our current focus is on responding to market dynamics without compromising our long-term outlook, and balancing these two priorities is our critical focus right now.

I agree with Tony, and I'd like to add that we have had some factory optimization plans on our drawing board for a while. By effectively managing supply chain issues, we ensured we weren't caught short on supply during the challenging times of the past 18 months, including factors related to COVID from a year and a half ago. We've been patient, but the good news is we now have plans in place to implement these initiatives, and we're ready to move forward. I believe we would have progressed on these matters regardless, but given the current situation, we are accelerating some of these efforts.

Perfect. Thank you.

Thank you, Amit.

Our next question will come from Erik Woodring with Morgan Stanley. Please go ahead.

Good evening, everyone. Thank you for taking my questions. I’d like to revisit the inventory issue. In the third quarter, you fell short of your guidance midpoint by approximately $77 million, all on the P&S side. Can you help us understand the factors that contributed to this shortfall? Specifically, can we break down the headwinds between any unexpected foreign exchange impacts, genuine slow demand, and inventory corrections? I'm looking to clarify whether these temporary factors, especially the inventory issue, played a significant role in that shortfall or if they were less impactful. I have a follow-up question as well.

As I mentioned, we don’t have, as you know, Erik, a comprehensive set of sell-through or point of sale data because we cover a wide range of markets. However, nearly every data point I've seen regarding sell-through indicates quite healthy activity at the point of sale, with increases in the mid-to-high single digits and some even reaching double digits year-over-year. Regarding the changes in inventory behavior, I believe it reflects the overall situation of those two factors. It’s difficult to isolate them, but I think that sums it up. Now, what was the other part of your question?

No. No.

Yeah. So we gave the numbers in terms of the year-over-year change and compared to our guide, it wasn’t a particularly significant driver though.

Okay. Okay. And then you had really nice performance on the ADI side, e-commerce growth, I think you called out was 22%, private brands sales grew 23%. Is there any way that you can help us kind of better understand how big those opportunities are in terms of what percentage of mix, either one of those are for ADI and maybe where those were one year or two years ago. Just to kind of understand how that each of those efforts have progressed over the last few years?

So, Jason, keep me honest, we do provide the e-commerce sales figure, which was 24, or 22 for the quarter.

Yes, you are correct. E-commerce grew 22%, now accounting for 18% of total sales through the e-commerce channel. This is an increase from approximately 15% to 16% at the same time last year, and two years ago it was in the low double digits. There has been significant acceleration, particularly since early 2020. We haven’t specifically broken out the contribution of private brands to the total business, but it remains a single-digit percentage of total sales. However, the growth of ADI has been quite strong, starting from a small base, as reflected in the growth rates we've seen over the last 18 months.

And we would approach that, sorry, go ahead.

No. Go ahead.

We have approached that the private brands business strategically and carefully while also trying to be aggressive in terms of the growth opportunity that’s there. We are going effectively product category by product category, focused in areas that are relatively low tax, relatively straightforward for us to bring a brand in without creating meaningful disruption across all of our third-party brands.

Yeah. I was going to add to that. And as part of their strategy, it is an important part of the future and they are making good progress as you pointed out. So but they are being very careful in their selections and I think that’s paying off too in terms of picking the right types of categories for private label.

Okay. That’s super helpful. And maybe I will sneak in a third one as well and just any incremental comments or color you can share on how to think about P&S growth versus ADI in 4Q, obviously, you have a tailwind in P&S from First Alert. But any incremental color you can share would be super helpful and that’s it from me. Thanks.

We are...

Yeah. I mean we haven’t guided to the individual segments historically and we won’t. But we will see good growth again at ADI and the growth at P&S is going to be driven by the acquisitions.

Okay. Fair enough. Thank you guys.

Thanks, Erik.

Thanks, Erik.

And our next question will come from Ian Zaffino with Oppenheimer. Please go ahead.

Hi. Thank you very much. Just wanted to ask you a question just on margins, as you think about like as revenue has come down, if they do, given the macro environment. What do you think like maybe a decremental margin might be? Then how long until you can maybe stabilize that margin, meaning, I know you talked about some of the optimization of the business, etc. How long does that tend to kick in, let’s just say, after maybe a sales decline of a certain amount? And if we do see some type of decline, what type of margins we are looking at, maybe as a trough and then maybe as sort of a midpoint? Thanks.

I wish I had all the details to provide a precise forecast and accurately predict how things will unfold. When considering our margins, it's important to remember the wide range of products and factories we have. It’s challenging to simply analyze the situation with one straightforward metric that reflects a detrimental margin. We haven't completed our budgeting process for 2023 yet, which makes it difficult to offer any insights regarding our margin outlook at this time. Therefore, there will be more information to share in the future. However, I can't provide a specific formula that indicates how our margins will change under certain conditions.

Yeah. Not just on the cost side either, may be like we are talking about factory optimization and variety of other things that Tony and I had talked about there. But also from a long-range plan standpoint that we have provided to all you guys ties a lot to also what we are doing on our NPI roadmap with our products. So it’s a combination there, and I agree with Tony, we will be able to share, of course, much more when we talk to you guys next about that.

Okay. Thank you very much.

And our next question will come from Brett Kearney with Gabelli Funds. Please go ahead.

Hi, guys. Good afternoon. Thanks for taking my question.

Hi. You bet, Brett.

Provided a lot of helpful commentary in the prepared remarks, but I was just curious if you could, I guess, elaborate a little more, probably, been about seven months with the team from First Alert at Resideo. How that’s progressing integration wise and then more recently on the other side the electronic custom distributors, how those teams are kind of integrating into the organization at this point?

On the First Alert side, the team integration has made significant progress. We have streamlined that organization and aligned it with our traditional security business regarding product development. The teams are now working seamlessly together. We initially believed there was a chance to reduce some senior-level costs at First Alert; however, we decided to retain more of those individuals because they have proven to be valuable. They not only provide insight into First Alert but are also an integrated and engaged part of the overall Resideo team. There is still work to be done in terms of operational and manufacturing integration, but I believe we are further along with the cultural and team integration.

I am very excited about what has come into the family. What they have accomplished in business development, innovation, and technology enhances our total product offering today and for the future. At a high level, I’m eager to share more insights as we move forward. Overall, the business plan we established as part of that deal is on track. As Tony mentioned, we are on target to achieve our goals for this year and what we anticipate by the end of next year.

And on ECD, it’s obviously much, much more recent. And that particular business, as most of the businesses that we have acquired in ADI, we have acquired them sort of their specific capability and ECD brings some specific capabilities that we are working to leverage across the totality of the ADI business. So from a team integration standpoint, I think we are more in a learning mode, in terms of what their capabilities are, so that we can leverage across the organization than it is really bringing them sort of directly into the functional organization in ADI.

Terrific. Thanks so much guys.

Thank you.

Our next question comes from Paul Chung with JPMorgan. Please go ahead.

Hi. Thanks for taking my questions. Most of them have been answered. But I just noticed a reduction in CapEx, where you are scaling back and is it kind of right level of CapEx to kind of models moving forward and how do we think about working cap dynamics during the year and overall free cash flow outlook and what are your…

Yeah.

… initial expectations for working cap investments for fiscal year 2023, sounds like the pace of inventory spend should come down here, any initial thoughts there? Thanks you.

So a few things, Paul. First of all, we are not reducing our capital expenditures. In fact, one of the things that we as a leadership team have tried to communicate is that we will fund capital expenditures that create high returns and logical value. This is not about cutting essential investments for future opportunities. While you are correct that capital expenditures are down, I believe that is more related to timing than any decision to reduce spending, as we do not intend to do so. Regarding working capital, there are a few factors at play. As I mentioned earlier, we do not have specifics to share today regarding 2023, but we did see a significant increase in inventory in the first half of the year. The inventory increase in Q3 was not as substantial. In some ways, what we ended up doing was covering some of the inventory purchased in Q2 and Q3, which negatively impacted our Q3 cash flow because our accounts payable went down. Additionally, there were some cleanup items related to other assets that we funded, which are unlikely to recur. So, while I wouldn’t call it noise, this quarter's cash flow does not truly reflect our expectations for cash flow conversion. We still anticipate that Q4 will be significantly stronger. I would say that we are particularly focused on carefully managing inventory as we proceed into a softer environment.

Okay. Great. Thank you so much.

And with no further questions, I’d like to turn the call back to Mr. Willey for closing remarks.

Hey. Thank you everyone for your participation and your questions today. And we look forward to speaking with you over the coming weeks and months. Have a good rest of your day. Thank you.

And that will conclude today’s conference. Thank you for your participation and you may now disconnect.