Good day, ladies and gentlemen. Welcome to TomTom's fourth quarter and full year 2018 earnings conference call. At this time, all participants are in listen only mode. We will be facilitating a question and answer session towards the end of today's prepared remarks, at which time, if you would like to ask a question, you may do so by pressing star one on your telephone. If at any time during the call you require audio assistance, feel free to press star zero and a conference coordinator will be happy to assist you. Please note that this conference is being recorded. I would now turn the conference over to your host for today, Bruno Priuli, Investor Relations Officer. You may begin.
Thank you, operator. Good afternoon. Welcome to our conference call during which we will discuss our operational highlights and financial results for the fourth quarter and full year 2018. With me today are Harold Goddijn, our CEO, and Taco Titulaer, TomTom's CFO. We will start today's call with Harold, who will discuss the key operational developments, followed by a more detailed look at the financial results from Taco. We will take your questions. As usual, I would like to point out that Safe Harbor applies. With that, Harold, I would like to hand it over to you.
Thank you, Bruno. Thank you. Welcome, ladies and gentlemen. 2018 was an important year for TomTom as we decided to divest Telematics to become a more focused location technology company with clearer priorities and a simplified operating model. This resulted in the sale of Telematics to Bridgestone for a purchase price of EUR 910 million. We are delighted to have found in Bridgestone a buyer that recognizes and respects the talent and skills in the team and intends to foster and grow the Telematics business further. At the same time, we can focus on remaining business and develop our location technology business to its full potential. The transaction with Bridgestone is subject to customary closing conditions, including the relevant regulatory approvals, consultation with employee representative bodies, and the approval of TomTom's shareholders. We expect to close the transaction in the second quarter of 2019.
The majority of the proceeds, EUR 750 million in total, will be distributed to shareholders by means of a capital repayment combined with the share consolidation. We expect the capital repayments to be executed in the third quarter of 2019. We continue to strike important partnerships and collaborations with other technology leaders. The recent extension of the partnership with Microsoft is another proof point of the competitiveness of our product portfolio. Our location technologies and map data were chosen to power all of Microsoft's consumer-facing services. This is an extension on the 2016 agreement that covers the partnership for developer-facing products and services. At CES, we announced a new collaboration with Denso. Our HD Map will work in combination with Denso's in-vehicle sensors, such as cameras and radars, to power the localization, perception, and path planning functions for a complete autonomous driving system.
On adaptation, we will have a system in place that allows us to start collecting crowdsourced camera data for map maintenance and map creation purposes. Automotive operational revenue continues to show strong growth, totaling EUR 317 million in 2018, a year-on-year increase of 31%. The increase is mainly due to new contracts that started during 2018 and higher volumes from existing contracts. We expect Automotive revenue to continue to grow. The order intake exceeded EUR 250 million in 2018. It was a good year. We converted most of the opportunities that were available to us, but as previously indicated, there were fewer RFQs in the market compared to 2017. The level of bookings across previous years is a good indication that we're on the right path. In the next slide, I'll give you a short update on our strategic priorities.
To keep the positive momentum, we will accelerate our investments in strategic areas while generating cash. The investment areas are a further improvement in the efficiency and sophistication of our map-making system, class-leading products and services for the automotive market, and that includes maps for automated driving, and finally, maps APIs, for developer products. Following the developments of 2018 in the automotive market, we are in active discussions with car makers to develop in-vehicle, continuous releasable software that we think end users will prefer to use over mobile phone-derived systems. We are excited with the progress we've made and excited with the opportunities that are ahead of us. This concludes my part of the presentation, and I'm now handing over to Taco.
Thank you, Harold. Let me make a couple of comments on the financials, then we go to the Q&A. As you are in the process of divesting Telematics, we have provided full disclosure on continuing, discontinued, and total operations, including the reconsolidation between continued and discontinued operations in the appendix.
The consolidated statements of income and balance sheet is provided for continuing operations only. The net assets and liabilities of Telematics are presented in a separate line, named assets and liabilities held for sale. In 2018, we reported revenue of EUR 687 million, which is 7% lower compared with last year. The decline is due to our consumer business. Location Technology revenue increased 12% year-on-year to EUR 372 million. Let me go through the business one by one. Automotive revenue totaled EUR 245 million, a 25% growth year-on-year, mainly due to new contracts that started during 2018 and higher volumes from existing customers. As already explained by Harold, Automotive operational revenue increased by 31% year-on-year to EUR 317 million, is now our largest operational revenue stream. Enterprise revenue was EUR 127 million, which is 7% lower compared to last year.
The decline is mainly caused by a revenue recognition one-off in 2017. Consumer revenue decreased by 23% year-on-year to EUR 315 million. Gross margin in 2018 was strong at 69%, increasing by 9 percentage points year-on-year. Total OpEx for the year were EUR 472 million, a EUR 45 million increase year-on-year. Both years were impacted by one-off items. In 2018, we recorded a one-time gain of EUR 22 million from litigation settlements. In 2017, operating expenses included a EUR 41 million restructuring cost and asset disposals. Excluding these one-off items, the underlying operating expenditures show a modest year-on-year increase following a higher spend in our map activities. 2018 EBITDA increased by 63% year-on-year to EUR 142 million, with an EBITDA margin of 21%.
At the end of 2018, the group has no outstanding bank borrowings and reported a cash position of EUR 252 million. Our deferred revenue position is now EUR 281 million. Automotive and Consumer maintained their trends, meaning with Automotive up with EUR 74 million to now EUR 172 million. Consumer down EUR 25 million to now EUR 91 million. I would now like to comment on the 2018 guidance in the next slide. We beat our guidance for 2018. Revenue for total operations, which includes Telematics, totaled EUR 861 million in 2018. More than 7% higher than the initial guidance of EUR 800 million for the year. Both our Automotive business as well as our Consumer business outperformed our initial expectations.
As our operations improved and our revenue derived from data software and services increased, we were also able to have a better growth margin for the total operations, reaching 71%, just above the 70% outlook initially forecasted. The adjusted net result for the full year from total operation was a profit of EUR 83 million, which translates into an adjusted earnings per share of EUR 0.36. This is EUR 0.11 above the initial outlook of around EUR 0.25. Let's now move on to our guidance for 2019 on the next slide. In 2019, Location Technology revenue is expected to grow by around 15% year-on-year. The increase is explained by higher take rates and a ramp up of existing contracts in Automotive business, and the recently announced extension of partnership with Microsoft, which has a positive impact for the Enterprise business.
Consumer is expected to continue to decline with more than 20% year-on-year. We expect growth margin to be at least 70% in 2019. In terms of OpEx and CapEx, we have decided to accelerate spend by around 10% year-on-year to further improve the efficiency of our map making system and advance our competitive position in a constantly changing market. Adjusted earnings per share will now also be adjusted for acquisition-related amortization on a post-tax basis. We expect the adjusted earnings per share of around EUR 0.15 in 2019. For comparison purposes, the 2018 adjusted earnings per share from continuing operations in the new definition total EUR 0.32. Part of the year-on-year decline is explained by the continued decline of the Consumer business, which has approximately EUR 0.10 impact year-on-year.
We are also introducing free cash flow as a percentage of revenue as a new KPI in our outlook this year. We expect to generate free cash flow before financing activities of around 10% of revenue. Operator, we would now like to start with the Q&A session.
Thank you. We will now begin the question and answer session. If you have a question, please press star then one on your touch- tone phone. If you wish to be removed from the queue, please press the hash or the pound sign. If you're using a speakerphone, you may need to pick up your headset. First, before pressing the numbers. Once again, if you have questions, please press star and one on your touch-tone phone. We have a couple of question that came through, sir. Your first question comes from the line of François Bouvignies. Your line is now open. Please go ahead.
Thank you very much. My first question is on your automotive bookings, and especially for 2019. Could you give us some color on how do you think 2019 as a market overall, I'm not talking about TomTom specifically, but how is it trending versus 2018 and 2017 to get a sense of the dynamic that you see there?
Yeah, we can see, it's always difficult, of course, to make an exact prediction of the total value of RFQs that will come to the market. We do believe that the total opportunities to which we can participate and pitch will be higher than in 2018.
Versus 2017, which was a very good year, do you think it's going to be the same kind of magnitude or?
That's hard to say. 2017 was extraordinary good year, of course, with an order intake of EUR 400 million. Good conversion rate, good success rate. It's hard to say. I think the total opportunities will increase compared to 2018, and there's potential for higher order intake than in 2018.
Okay. If we look back a bit in 2018, I guess one of the big highlights is the Google Android Auto is coming, and getting some deals. Do you expect them to get further deal in 2019 or they are still relatively quiet, or, you don't see that as pushing hard into 2019?
It's difficult to make general comments on that. What we do see is that car makers are actively engaging with us to see what the future of in-car navigation and infotainment should look like. There is a willingness to explore new routes, there's a willingness to explore new business models, and there's a willingness to explore new UX concepts that pay tribute to what's happening in the vehicle. There is also a desire to stay in control over the user interface. We've noticed that. That has led to a number of interactions with car makers, exploratory sessions to look at what's possible. I think we will come up with some interesting ideas, in 2019.
If you look at, I guess when you said, in Q2 that it was a wake-up call for the industry, do you see as well a change of behavior since Google got some new contracts, meaning that you feel your customers are also exploring more Android also than in the past because it is something that shakes up in the industry?
I think that what I said, it is a wake-up call. I think we see that translated now in interactions with the auto industry. The question then is, what is the alternative? What can we do? What are the options? Obviously, we can keep going in the way we are going, but are there other operating models for the auto industry together with the suppliers to come to a different way of delivering software into the dashboard? I think that is very exciting, and I think that is happening, because of what I described last year as a wake-up call.
Okay. Thank you. Maybe one word on your HD Map. How should we think about your contracts in HD Maps? Can you give us more clarity of, should we expect big contracts in the auto bookings in HD Map this year? What kind of business model and ASP should we look at for this HD Map?
I think it will be very disappointing if we do not do deals in the HD Map space this year. We have a number of opportunities lined up. I think it will happen this year, for delivery towards the end of 2021, 2022. I think we will see TomTom HD Map showing up in some systems for automated driving.
Do you think it's going to be meaningful contract sizes for your auto bookings, like visible or it's too early?
Well, no, that will be visible. It will be relative to the traditional business. It will be a small number, but it's certainly meaningful. It's the beginning of a new line of products, if you like. What we would like to see, of course, that that take up will kind of develop along the lines of what we've seen for traffic, where you have a relatively slow start, but once it's accepted and it works, then the adaptation rate will go up quickly. I think that will happen. I think we're in a good position to land some of those deals, and to start translating our product position also in a real market position.
How should we think about the business model then? If you get closer to signing some contracts, is it like subscription per kilometer per use? How should we think about that?
You should think about it as an annual fee for having access to that feed per vehicle.
Per vehicle. In terms of the ASP per car, previously you said it was significantly higher. Can you give more color now? What does it mean, significantly higher?
Yeah, I think it will be higher. What you also will see is that initially it will end up in level two systems. Then, depending on the technical advance, more and more of that feed will be used, and you get a higher level of fidelity in the map data and in the reliability of the map data. I think it's difficult to say exactly where it will end, but I think it will be a significant fee per car, per year, that will grow quite quickly over the next years.
Do you see Google as well in this market with HD Maps or not really?
Well, they seem to be taking a different route, and that is more the robo taxi approach, which is fundamentally different from what the car industry is trying to achieve. In the robo taxi context, you're talking about reduced limited geographical area, and also per car, very high investment into hardware technology. That's okay because those cars are then used with a much higher intensity than a normal car. For the car industry, you need to follow a different model because there's no way to charge to end users for a lot of hardware. It needs to follow a different path. I think for the immediate future, we don't see any signs that Google is entering that market space. I think we have a clear runway here for years to come.
We're not the only ones in HD Maps, obviously, it is still a competitive market. I think that we are designing our products along a different path than what you see in the robo taxi sphere. Those markets will stay separate for quite some time.
Okay. That's very clear. Thank you very much.
Thank you. We will now take our next question, this comes from the line of Peter Olofsen. Your line is now open. Please go ahead.
Yes, good afternoon. It's Peter Olofsen with Kepler Cheuvreux. My first question is around the combined OpEx and CapEx, where we have seen the total investment trending up in recent years. Based on your guidance, there will be a further step up in 2019. Are you comfortable with the level foreseen for 2019, and will it stay at that level? May we see even a further increase beyond 2019? Then on Enterprise, where the extension of the Microsoft contract will drive the growth in 2019. How should we look at the revenue dynamics there? Will it gradually ramp during the year, or will there already be a meaningful impact in the first quarter?
I'd like to take those if it's okay, Harold. Let's start with the latter, Enterprise. Enterprise contracts are normally value-based, and then, most of the time, spread out over the lifetime of the contract on a linear basis. To come back on that question, you will see the benefits of the discussed tailwind already happening in Q1 in its full extent. Then it will find a new normal, if you like. On OpEx and CapEx, there are three things happening here. One is that it's our decision to invest more than we have done in the past in our mapmaking capabilities, in our capacity to continuously release software, in our quality of our services, like traffic. With signing up important automotive, but also increasingly Enterprise customers, it is our role and our job and our willingness to spend more in these areas.
The second, the mix between OpEx and CapEx is a reaction of the fact that we have more and more platform approach w here our content and our software is continuously releasable. Before, you had a more staggered approach where you say, "Well, I'm working on a new software release, and as long as I'm working on that software release, I capitalize it, and after that, I will start to amortize that." These worlds will become one, that will mean that I expect that in It already happened in 2018, but it will continue in 2019 and for reals in 2020, that the mix between what is classified as OpEx and CapEx will continue to change, where more and more will be seen as OpEx. Another element that we need to take on board is that also the IFRS 15 and IFRS 16 accounting led to reclassifying some of the work and the costs that are normally seen as CapEx as now as contract assets.
These are released via the cost of sales line, that's a bit of a technical element in this. The second part of your question was is, if we foresee this trend to continue. Always, I would say, well, it's a bit early in the year to already start to talk about 2020. On the other hand, we hope that if we can continue to sign up more customers, that we also have the room to continue to invest more in our platform. For a proper update, I'm afraid you have to wait 12 months.
Okay, will do so. Thank you.
Thank you. We will now take our next question. This comes from the line of Wim Gille. Your line is now open. Please go ahead.
Yes. Good afternoon, Wim Gille, ABN. I have got a couple of questions. First, on the Automotive business. In order to have a bit of a feeling on how to compare the EUR 250 million order intake versus the EUR 400 million that we reported in 2017. Can you give us a bit of a feeling what the level of RFQs was in 2018 versus 2017, i.e., you reported a decline of roughly a third in your own order intake. Is that in line with the decline that we have seen in the general market? Can you give us a bit of a feeling on how you feel your market share has developed in 2018 with respect to the order intake, compared to 2017? That would be my first question. The second question is also on the orders in the automotive space.
HERE International already announced that they won two contracts, traffic contracts for Daimler and Audi, somewhere in January. Both companies were previously traffic clients of TomTom. Can you give us a bit of a feeling what happened in these two specific cases? That is my second question. My third question will be on the OpEx versus CapEx discussion. If I look at your accounts for the fourth quarter, I see only EUR 9 million in CapEx in the fourth quarter versus a previous run rate of high EUR 20 million. Is it correct to assume that the fourth quarter results already fully reflect the shift from CapEx to OpEx?
Can I start with the last question?
Yeah.
Q4, yes and no. Yeah, indeed, that is a reflection of our continuous assessment on how to classify our spend. It is also driven by industry standards, but also what we see what's happening with peers is that there's a trend if you move towards software as a service, a product as a service business, then, at a certain moment, then the mix between OpEx and CapEx is changing, and we think we're getting there. In Q4, we have done a specific assessment, that led to reclassification of some of the spend that affected especially Q4. I would not use the Q4 run rate as a run rate for the full year because then four times nine, it doesn't bring you to 55 as we have guided for the full year. It is indeed a clear indication of the new trend.
On the order intake.
Sorry.
Yeah, sorry Wim.
Just to fully clarify this. I do understand that 55 divided by four is whatever, 13 and a bit. If I look at how you position it in your press release, you compare the 55 to a number of 77, that's not entirely correct because if I want to compare apples with apples, the 77 number, in the old accounting or the old way of looking at your spend, would not have been 77, but would be closer to 97, excluding Telematics, i.e., if I look at the underlying change in OpEx versus CapEx, the shift is probably more that you are shifting somewhere between EUR 14 million and EUR 15 million from CapEx to OpEx in the new guidance. Is that a correct way of looking at it?
That's the correct way to see it.
Okay, thank you.
On the order intake, your question was about the opportunity that was there in the market in 2017, 2018. I think that the market opportunity was a lot bigger in 2017. We have comparable win rates, both in 2017 and 2018. I want to point out that we have gained market share in Enterprise. I think that is the call-out. In Automotive 2018, our market share stayed relatively flat.
Very good. Daimler and Audi?
I've read the news as well. We are still supplying Daimler and Audi. We are expecting indeed that in the future that the opportunity to sell our traffic products to those two customers will be limited. I don't think they will go away completely. Our traffic product is better and has a different geographical coverage, as there are certain countries where we offer traffic, and there is no competing offer from HERE. I think we'll continue to supply those customers, but not 100% anymore.
That's well reflected in your outlook?
That is reflected in our outlook.
All right. Thank you.
Thank you. We will now take our next question. This comes from the line of Martijn den Drijver . Your line is now open. Please go ahead.
Yes, good afternoon. Martijn den Drijver , NIBC. The first question is on Automotive and the outlook. I know it's a combination of Automotive and Enterprise, but assuming significant growth for Enterprise, it seems like your outlook for growth in 2019 for Automotive is subdued, I would say. Let's say 10%-12%. Is that just due to a lumpiness of contracts? Is that due to a loss of contract? A loss of share of wallet? It can't all be due to the accounting of such a contract. That would be my first question. The second question is about the map making process. You indicated you're going to invest in further efficiency. The current platform has reached maturity.
What exactly are you going to invest in? What's going to be the effect in terms of the speed and freshness? When will it take effect? What will that do to OpEx? A more difficult question related to that is how do you think you stack up versus HERE at the moment, and in relation to what you're going to do, how do you stack up? Third question, has there been some sort of impairment in the fourth quarter because D&A was high? I know it's usually very high in the fourth quarter, but it was really high in this particular quarter. Maybe you can give some guidance as what to expect for D&A in 2019, just to get that clear. My fourth question and final question is, there have been a few new entrants, and they've been much talked about, Mapbox, DeepMap.
I know they're not in automotive, although they're making some noises about automotive. Where do you see these competitors? Do you see them as a real threat? What are you doing to deal with that? Can you comment on that? Thank you.
Okay. Let me take the financial ones, if I still remember them. The amortization or D&A in 2018 was EUR 141. D&A, especially in Q4, was indeed a bit higher than the run rate that we saw throughout the year. It was EUR 41. That's quite normal because in Q4 you do a deep assessment of everything on your balance sheet, and that sometimes tends to lead to a bit more D&A. I don't think it is out of the order. At the end of Q2, we had EUR 35, and now we're at the end of Q4, we're at EUR 41. It's not significantly different. In 2019, we expect our D&A to be lower, trending with also decline in investments. We expect that to be roughly EUR 130.
Okay.
The D&A in 2017 was EUR 160. You had EUR 160 in 2017, EUR 141 in 2018, and then EUR 130 in 2019. Going back on your question on the difference between IFRS revenue, automotive, and operational revenue. What you need to bear in mind is indeed what's happening on the balance sheet. Deferred revenue was, at the end of 2017, EUR 50 million for Automotive that grew to EUR 72 million. That's an increase of EUR 22 million. We expect that the increase will be bigger in absolute in 2019, it will be at least EUR 30 million. That also has an effect.
Okay. There's no contract loss already taken into account in the guidance for 2019?
No.
Okay. All right. The other question was with regards to the mapmaking process?
Yeah. What you see in the mapmaking process is that mapmaking used to be a very labor-intense activity. Where you had to go out and collect data, process the data. The nature of mapmaking is changing fundamentally. More and more data is available in open source format. It is our ability to process and harmonize that data quickly, and cost effectively that is driving the efficiency of that mapmaking process. There are new technologies becoming available, image recognition, artificial intelligence, that are used both for traditional mapmaking, but also for high-definition mapmaking, where you can achieve fantastic improvements in efficiency. Of course, you need to invest in engineering and in software capability. The trend you see in mapmaking is that more and more is automated, and we are reducing manual labor, and we are shifting to software engineering to automate more tasks of mapmaking.
What you see as a net result is that our maps are getting richer, cover more geographical area, and productivity is going up significantly. At the same time, the demand for accuracy and attribution maps is also going up. You need to achieve that higher levels of automation and efficiency in order to keep up with customer expectations as well.
Is this a one-year program? Is this a three-year program?
This will never stop. There will always be ways to improve, to go faster, to be more efficient. I think we have a big chunk of work behind of this in laying the foundation of a transactional mapmaking system, which is very unique in the industry. That's there, but the real efficiency gains can still be achieved by further automation of the process of mapmaking itself.
Last question on this subject, how do you think you stack up versus HERE? Are you trailing? Are you in front in this particular process?
I think in terms of efficiency and speed, I think we are leading. You see that also in the recent contract win of the Bing Maps. You see that with other deals as well. The speed at which we can do things and the transactional nature of our mapmaking platform, the quality of the data, we are in a very good shape, and we don't lose anything because of map quality. It's the contrary. When we win, it's often because the way how we deliver maps and how fast we can react, flexibility of introducing new sources that customers often care about. It's a very flexible, cost-effective and fast system, and I think that's what our customers like.
Okay. The last question on competitive pressure or what you see with Mapbox, DeepMap and other new entrants?
You see those happening, you see the open source activities as well. Of course, we follow that closely. We see if there are lessons to be learned and how we need to react and move. We definitely keep an eye on it. We're not always competing. We're also collaborating. I think in terms of the core SD map and HD map, we are in very good shape, and we don't need to be worried about anybody. We also can't sit still and pretend that the world's not happening. It is a dynamic place. It's a competitive world. I think our team and our products and our technologies are all in good health and very competitive.
Okay. Thank you. That's it for me.
Thank you. We will now take our next question, and this comes from the line of Marc Hesselink. Your line is now open. Please go ahead.
Yes. Thank you. My first question is on Automotive. I think in the last couple of years, throughout the years, the result of Automotive has been much stronger than thought at the beginning of the year. Can you explain what has been driving that? Have take rates been increasing faster? Have the volumes been higher? Also taking that into account for the guidance that you gave on Automotive for full year 2019, what kind of assumptions do you imply there? Especially now that we see maybe a bit of a slowdown in Automotive sales numbers. The second question is, again, coming back on extra investments. Just to understand it correctly, the opportunities that you see, why you do that extra investment, is that something that you need to do to traverse your competition? Or is it something that opens up new possibilities to generate extra revenue?
Is it will be a driver of extra growth going forward, or is it something you simply have to do to keep up your products? The third question is to square the free cash flow guidance that you're giving with the profitability, especially now that you say that the D&A will be lower in 2019. On my calculation, that implies that you, again, need a very large number of deferred revenues to make up for the difference. Is that correct? Will the inflow from deferred revenues be higher than it was in 2018? Thank you.
Okay. First, Automotive. Automotive, indeed, you're right. When we started 2018, we had a more modest outlook for Automotive than the 25% which we delivered. I think the biggest driver for this acceleration comes from take rates. Not so much car volumes or market share gains of our customers, but especially the take rates tend to be higher. We have used the updated take rates also when we constructed the 2019 guidance. We're not using the take rates that we initially thought realistic when we designed the order intake. On the free cash flow, indeed, you're right. There is a mismatch between IFRS net results and what's happening in deferred and unbilled revenues. As already indicated, is that there is a big increase in deferred revenue expected in automotive of EUR 100 million+ , if you like.
On the other hand, consumer will see a decline of roughly EUR 25 million. That, together with the difference between amortization and CapEx, creates the bridge to IFRS net result towards free cash flow. On the opportunities that we see ahead, there are both quality improvements and new opportunities. On the quality improvement level, you could think of the fact that we're the dominant supplier of traffic throughout Europe. That comes with high responsibilities on availability 24/7, but also on quality. The two times nine, three times nine quality levels that you need to uphold. That means that we need to make investments to create that. Other areas where we're investing is to have continuously releasable software as a product for the Automotive market available. And that also requires new specific investments.
Okay, thanks. Then I have one follow-up. I think when I was at CES, it was really much the story that all the level two functionality, that was going very quickly now. That level three was far more difficult, also from a regulatory perspective, and was maybe being pushed out a bit. What would that do for your business? Is the level two already enough for you to sell your HD Map, or would it also mean that your opportunity is being pushed out?
I think the maps are used also at level two, level two and a half. Everything that sits between two and three starts using a map, that opportunity is still there.
Okay, that's clear. Thanks.
Thank you. This concludes today's presentation. Thank you for participating. You may now disconnect.