Ladies and gentlemen, thank you for standing by, and welcome to the Q1 twenty twenty Tenaris S. A. Earnings Conference Call. At this time, all participant lines are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference is being recorded.
I would now like to hand the conference over to your speaker today, Mr. Giovanni Sardagna, Investor Relations Officer. Thank you. Please go ahead, sir.
Thank you, Gigi, and welcome to Tenaris twenty twenty first quarter conference call. Call. Joining Joining me on the call today are Paulo Rocca, our Chairman and CEO Alicia Mondolo, our Chief Financial Officer Guillermo Provin, Vice Chairman and Member of our Board of Directors German Curac, Vice Chairman and Member of our Board of Directors Gabriel Potcuska, President of our Eastern Hemisphere Operations and Luca Zanotti, President of our U. S. Operations.
Before passing over the call to Paolo for his opening remarks, I would like to briefly comment our quarterly results. Our sales in the 2020 reached $1,800,000,000 and remained in line with those of the previous quarter even after the integration of IPSCO. As a result of low sales backlog at the completion of the acquisition and lower sales in all our main markets as a consequence of the rapid decline of economic activity and the collapse in global oil demand as a result of the measures taken to contain the spread of the COVID-nineteen pandemic around the world. Average selling prices in our tube operating segment declined 7% compared to the corresponding quarter of 'nineteen and two percent sequentially. Our EBITDA for the quarter was down 4% sequentially to $280,000,000 and was affected by losses at IPSCO and severance charges amounting to $23,000,000 Our EBITDA margin decreased to around 16%.
Excluding severance charges, our EBITDA would have been $3.00 $3,000,000 and a margin of 17%. Our operating income for the quarter was negative for $510,000,000 but includes impairment charges for $622,000,000 on the current value of goodwill and other assets in The U. S. These impairment charges reflect the severe change in business condition we are experiencing with the collapse in oil demand and prices and their impact on drilling activity and OCTG demand. During the quarter, cash flow from operation was $516,000,000 as we reduced our working capital by $317,000,000 Even after the acquisition of IPSCO for $1,100,000,000 at the beginning of the year, we have been able to close the quarter with a net cash position of $271,000,000 Given the uncertainty around the effects of the recession originated by COVID-nineteen on our industry, the Board of Directors have proposed to limit the dividend in respect of the 2019 fiscal year to the 153,000,000 payment already made as an interim dividend in November.
Now I will ask Paolo to say a few words before we open the call to questions. Questions.
Thank you, Giovanni, and good morning to all of you. Since we published our 2019 annual results in February, the world has changed completely. The rapid spread of the COVID-nineteen virus and the measures adopted to contain it have precipitated the global crisis that is unprecedented in the speed and severity with which it has affected the economy and our everyday lives. The recovery from this crisis will take time and will have some changes in many fields. The impact on the energy sector is particularly severe and there will be a lasting impact on trade, travel and the way we interact with each other.
Never before we seen demand for energy collapse so much and so fast, driving prices in the companies are focused on maintaining financial sustainability through these unforeseen chain of events and investment in exploration and production will be reduced to a level comparable only to that of the nineteen ninety nine crisis. With the shales, this downturn is happening faster and it is the shales that will be most affected, while lower cost offshore and conventional drilling may be less so. It is difficult to foresee the timing of the recovery in the oil demand and the extent of the structural change that the sector will go through. Before turning to the measures we are taking in response to this crisis, I would first like to thank our employees and the medical staff in the communities where we work for the tremendous response that they have that they are making in these extraordinary circumstances. I will give you two examples.
At the height of the emergency in the Bergamo region in Italy, our employees in Dalmina continue to produce gas cylinder, which were needed to respond to the medical emergency in the region. While in Campana, in Argentina, our employees decided to design, retool equipment and fabricate face masks in our facilities to contribute to the safety of hospital staff and first responders in the region. A quick word on the first quarter. As we mentioned in our last call, we have moved rapidly to integrate IPSCO business and asset into Tenaris. The sales backlog we inherited was small, while the level of inventory was high due to the action taken by the distributor to shift purchases from IPSCO to other suppliers during the prolonged antitrust investigation.
Given the collapse in market condition, it will take time to recover the former market position, and we have had to close down for the time being most of the assets that we acquired. Our results were solid, and I'm pleased to say that in March we had our best ever monthly safety performance. This is very important for our people, for our company. I would also like to highlight the free cash flow we generated. This amounted to €448,000,000 or 25% of revenues as we maintain operating margins and reduce working capital.
This performance will help us in the coming months as our operation adjusted to a much lower level of sales and we implement our restructuring programs. First and foremost, however, we are taking comprehensive measures to protect the health and safety of our employees and ensure a safe working environment that will allow a gradual return to production when condition permits in the countries where we operate. We are checking the temperature of all the person who enter the facilities, providing appropriate protective gears, fully disinfecting our facilities, ensuring that social distancing rules are respected and using home working where possible. We are also taking special care to protect the most vulnerable. In China, our facilities are now fully back in operation, while in Italy and Argentina, where production has been stopped for a while, we are gradually starting up production again.
We are supporting our communities where the everyday lives of families and neighbors have been deeply affected. We are using our global capabilities including our regional office in China to strengthen local health provider with the supply of medical equipment protective gear and infrastructure as well as providing support for affected person. $6,000,000 fund has been established for this purpose. We are doing all we can with the resilience and ingenuity of our people to fulfill our commitment and strengthen our relationship with customer and supplier. They will be essential for our future, and they should feel that we are accompanying them during this period.
Looking forward, we expect a substantial reduction in our sales and operations for an extended period of time, and we need to adjust the company to this new reality. To ensure financial stability and maintain the continuity of our operation, we are rapidly reducing production levels and implementing a plan to downsize our fixed cost structure and contain costs around the world. In The United States, we had to close many of our facilities and reduce our workers. In other countries, we are using suspension and government programs in consultation with labor unions while respecting government recommendation, particularly in relation to the population deemed as most at risk. We plan to reduce our fixed cost structure cost by 25% or around $220,000,000 annualized by the end of the year.
We will preserve our capacity to react to the eventual market recovery and our unique global and local deployment capabilities in a world where local content and service is only going to be more to become more relevant. This plan involves salary adjustment at all levels, including reduction of 20% for top management. Yesterday, a member of our Board also volunteered to reduce their emoluments. We will prioritize cash flow, focusing on reducing our working capital through the crisis and reducing our investment to a minimum without compromising our long term transformational programs. We plan to reduce our CapEx and R and D investment this year by €150,000,000 or over 35%, while maintaining our long term investment plan focused on the environment and safety as well as digital integration initiatives aimed at reducing costs in our operation and those of our customers.
Digital integration has become a key feature of our unique Rig Direct value proposition as the opportunities for simplifying operation becomes even clearer. The oil and gas industry is being deeply affected by this crisis and the competitive environment in which we operate will be transformed in a way that today is difficult to anticipate. As we concentrate on securing our financial stability in a highly uncertain environment, we are proposing to limit our twenty nineteen fiscal year dividend to the amount already paid in November. Eventually, the world will resume a growth path and growth the need for a reliable supply of energy will be essential for recovery. While we need to be prepared for the future, we also need to act swiftly and resolutely in facing the challenges of today.
Thank you. We will again then receive your question.
Our first question comes from the line of Igor Levi from BTIG. Your line is now open.
Thank you. So you mentioned that your margins will be potentially in the high single digits in the second quarter. Now if you account for all the cost savings that you're expecting to achieve by the end of the year, what would you expect your EBITDA margin run rate to be when accounting for the cost savings?
Thank you, Igor, for your question. Well, I think that it's very difficult today to understand the condition of the market pricing demand by the end of the year. What we are doing? We are preparing for the reduction. We are taking the measure we need to take internally to adjust our structure and to reduce the perimeter of our production facilities.
But I think it would be difficult today to forecast level of margin by the end of the year because this will be influenced in the end by the volume and pricing and not only but our the measure we can take internally. So I wouldn't today make a forecast for our margin on, let's say, the medium term like the end of the year. This crisis has been driven by the pandemic and there are not so many clue to forecast how the recovery will occur and how fast the recovery in mobility in demand for oil for instance, may occur and the impact that this could have on our sector and ourselves.
Great. Thank you. And looking at your free cash flow of around $450,000,000 for the quarter came in a bit higher than we thought. And it looks like you got $300,000,000 of that from reducing working capital. How much more do you think working capital could come down over the next few quarters?
And do you think free cash flow could approach $1,000,000,000 again because of the working capital reduction seen this year?
Well, the structure of Tenaris and the way we are we manage our supply chain act in a way that allow us to reduce working capital in a crisis. It happened in the previous cycle and you have seen this with substantial cash generation and it will happen also in this crisis. Part of this is due to the fact that Rig Direct means that we our sales basically move according to the real consumption and demand by the client. And we are the owner of large part of the stock. So when the prices step in and consumption go down, we reduce production and we reduce our own stock.
So we are to some extent sheltered by the stock overhang in the market. The stock is in our hand. And when the crisis steps in, we reduce it. So our cash generation in this environment is structurally strong. You are not far in your view of what we expect could be a possible evolution of our cash flow during 2020.
Great. Thank you very much for that. I'll turn it back.
Thank you. Our next question comes from the line of Sean McKean from JPMorgan. Your line is now open.
Thank you. Maybe if we could just talk a little more about the 35 percent reduction in sales that you forecasted potentially for the second quarter. As you try to break apart what that could look like on a geographic basis, I was initially thinking maybe that's something like a 50% cut to North American onshore and then international offshore markets maybe down something like 15% would get you to that type of mix. But in the release, you also noted that most of the weakness is in the Western Hemisphere, that the East is doing okay so far. So perhaps that means it's more tilted internationally towards Latin America.
Maybe just could we get a little bit more granularity on how you're seeing the different geographic regions unfold in the second quarter? That'd be very helpful.
Thank you, Sean. I would say that the main reduction that we see coming for the next quarter is coming from The U. S. And Canada. Canada will be strongly affected.
U. S. Will be strongly affected. Your industry is reacting fast in reducing their investment in face of the collapse of the oil price. Then what's following this is Latin America for different reasons, not only related to the oil prices, but the level of operation drops in Argentina and also in Ecuador and in Colombia, I mean, in all of Latin America, we see a reduction in the level of operation.
As I said before, where we operate on a rig direct basis, we may see, let's say, this reflected to a lesser extent in our direct sales, but there are in other in part of this market also area in which we are really affected by postponement of project and reduction of domestic demand. This is also true for Brazil where Petrobras will to some extent react to this crisis and will curtail investment. The impact of this crisis and the drop is less significant, especially in The Middle East and in the long term project that are continuing on the normal basis. So this 35% reduction, I would say is mainly related today to what I'm saying Canada, U. S.
And Latin America in the first place.
Understood. Thank you for that. And then on the cost reduction, could you talk about how much you think you'll have to spend in terms of cash costs, severance, etcetera, in order to achieve those reductions?
Well, we will have relevant restructuring costs during this year because of the action we are taking all around the world. We expect this figure to be in the range of above $100,000,000 in the end over the entire course of the year. Because let's say, this is a program that will be executed all along the year, will not be concentrated only in the second in the third Q. This is something that will be affecting during the course of the year.
Got it. That's very helpful. Thank you very much.
Thank you. Our next question comes from the line of Ian MacPherson from Simmons. Your line is now open.
Thank you. Hello. This is an unprecedented time. How are you evaluating the duration of your shutdown of your U. S.
Production lines? I'm not asking you when you think you're going to restart because you don't know, but what signals are you looking at to determine when it's time to reopen Bay City or to reopen the new IPSCO assets that have been shuttered. Is there a rig count formulation that you have in mind that you need to see? And can you compare the costs and difficulties of restarting these facilities compared to the swing capacity on the welded side that you brought off and on over the past several years?
Thank you, Jan. Well, in fact, in The United States, Bay City will continue to operate during this year. In this moment, we have a temporary stoppage, maintenance stoppage. We may have temporary stoppage just to reduce overall production, but basically we'll be continuing to operate together with other facility. And what we know is that we are actually investing in this moment in the copper steel shop to prepare the steel shop to supply the full range of product needed in The United States probably by the beginning of next year.
So we have a plan for managing the facility during this period of time and to prepare for a recovery when it may come. I would ask Luca to add some comments on the level of operation that we have today. And then on the plan, as I mentioned, for Copel, the T shop to start back in some moment at the beginning of next year. Yes. Thank you, Paulo, and good
morning, Ian. Frankly, not much to add on top of what you just said. Bay City is currently down for the annual shutdown. But we maintain our capability of operating and to a certain extent, of course. And the only thing that I would add is that our redirect model provides us a possibility of being somewhat less affected by the overhang inventory.
So we're going to keep maintaining the possibility of supplying from fresh production our customers and any need that our customer may have in the future. And I will conclude with our capability to bounce back when needed. And here, we say that we have no problem because even if we are committed to a strong reduction in cost, are maintaining all the capabilities and all the potential to spring back when this will be needed. For the rest, I would like what you just said.
You. Our
next question comes from the line of Marc Bianchi from Cowen. Your line is now open.
Thank you. I wanted to ask about first on the restructuring that you mentioned about $100,000,000 over the year. Is that from second quarter through year end or are you counting the restructuring that occurred in the first quarter? And then with regard to the guidance here for second quarter on the margin rate, what is that reflecting restructuring? And it would be higher if we excluded the restructuring?
Restructuring?
Thank you, Mark. No, the restructuring charge I was mentioning was in the second, third and fourth quarter. If you add the first quarter, this will be slightly higher now, dollars 120,000,000. In this range, the restructuring charge for the entire year. As far as the margin, we are talking about the adjusted margin for the next quarter.
We are not including the restructuring charges. And also restructuring charges could wait on the second or the third in a different way depending on the program how we implement program of reduction on this. So when we talk about our forecast on margin, it's basically a forecast on the adjusted EBITDA without even considering the restructuring charge.
Great, great. Thanks for that, Paolo. In terms of the total cost cuts that you're planning, the decline in revenue here for the second quarter, what is the expectation for the remainder of the year in context of those cost cuts? And really what I'm asking is, what would you need to see in the market to maybe look at cost cuts greater than what you've outlined here today?
Well, as I was saying before, this is probably the most difficult to predict the crisis. I mean, we lived through many crisis and they did it in we did it in Tenaris over our the life of the company. But this is the most difficult one to have prediction, because basically it depends on something that is the reaction to the fear in the different countries of the virus, the ability to come out with a solution that allow return to mobility over time, this is extremely uncertain. So I wouldn't be now in a position to make a forecast beyond what we mentioned in the second Q. We will see.
I'm sure that over time the world will recover mobility and level of activity of economic activity and that the shale will have a role in the overall oil and gas energy metrics worldwide. I have no doubt about this. So we know that the shale will come back in some moment, but it's very difficult to have a forecast on how fast and how steep could be this recovery. Our adjustment in the structure of the company is designed considering a scenario of reduction in our level of operation that it will not be for a very short period of time. But we will be prepared anytime to recover if needed.
Great. Thanks very much. I'll turn it back.
Thank you. Our next question comes from the line of Alessandro Pozzi from Mediobanca. Your line is now open.
Hi, thank you for taking my questions. The first one is on the lockdown measures in Q1. I was wondering whether that had any extra cost led to extra cost in the quarter, which could be maybe reflected again in Q2? And also, I believe you mentioned that this crisis may lead to profound changes in the company as well. I was wondering, are you planning to keep some of the production idle maybe throughout 2020?
Well,
for sure, the lockdown in our operation in Italy, in Argentina and occasionally in some other part of the world for short period of time will be impacting our margin, our results, our costs in the second quarter. This is inevitable. But today, the level of operation is recovering. And what is limiting level evolution of the market and the need to reduce our inventory. So it started with some constraint on our production side.
Now it's basically constrained on the demand side or at least driven by the need to reduce our stock. Obviously, this is entailing cost for fixed cost of the facility, cost of our people that in some situation is working only on limited time. We are containing this, this is driving some additional cost to our into our balance sheet that is considering the forecast that we present. Now I do not envisage any specific additional cost to put back into operation the facility. We have no disruption.
We are not managing blast furnaces that has particularly complex comeback cost and timing. We are moving on electrical furnaces and rolling mill that basically could get back to operation pretty smoothly. Now when we look over 2020, we are preparing for keeping some of the facility idle for an extended period of time because we know that it's very difficult that demand will recover fast in some of the area. But we are not doing permanent shutdown in any of the facility of the system because we think that over time there will be a recovery and we will have to have production in some of these facilities. Some of these facilities are important for local market in different part of the world.
And so we know that in some moment when nativity start back again, the fact of being present with industrial activity locally will be one of our differentiator. We need to keep the resources to start back even in countries in which we have reduced to a bare minimum or idle.
Okay. Thank you. Just a follow on. Do you think that Q2, we're to see the bottom of the rig count in The U. S?
Or that's likely to be continuing in Q3 as well?
I think it's very difficult to have predicted the level of rig count beyond the next quarter. We know that the rig count will continue to go down for a while. But then there are factors like some of the company that maybe they may have a hedge their production, some other that needs to continue investment, have financial position to do it and some other that will continue to reduce level of activity. This will depend on how fast the world gets back to level of activity operation and mobility. I think it will be very difficult today to have a forecast of rig, level of rigs operating in the course of let's say the third and the fourth quarter of this year.
We know it will go down now, but we do not know where it will be six months from now.
All right, thank you. Thank you very much.
Thank you. Our next question comes from the line of John Letizia from Stifel. Your line is now open.
Yes, this is John on for Stephen. I was wondering if you can give us a little color on raw material pricing and maybe how you expect that to impart margins in the second half given the lag between the two?
Well, in this environment, I frankly expect some of our raw material to go down. The level of pricing of hot rolled coils should, to some extent, accompany the reduction in prices of our product. Demand is clearly reducing for scrap also. And so also scrap to some extent should go down. There will be some impact from devaluation in some of the country in which we operate that also may have an impact on reducing our cost.
We are keeping this into consideration. And but our visibility on this is pretty limited to the next quarter. After this level of pricing in raw material and the level of cost may be influenced by recovery in China. Recovery in China may drive up some of the iron ore prices. And it will be difficult today to forecast level of pricing raw material and metallics in the second part of the year.
But still what we see is that you have seen the decline in prices of pipes there, the reduction in cost will absorb only marginally and also also only gradually because in the end we have in our inventory large part of the past costs. So we will see reduction in cost very gradually in an environment in which we have inventory to reduce because of the IFRS.
All right. Thank you. And I was wondering if I could just squeeze one more in. Do you think the Rig Direct model is going to have a positive impact on market share during this downturn? What's your take on that?
I think, yes. I mean, because in the end, as I was saying, we are following in our sale the reduction in the consumption. If our clients are reducing rigs, we are reducing shipment. But we do we are kind of sheltered from the overhang of inventory because in the end we have no intermediary. We go straight to our client and our clients are loyal to us.
We have a good client base that continue to work with us. We renew some long term contract during this period. Obviously, we adjust prices to have prices of the market applied to this contract. But in terms of volume, I think that the Rig Direct give us stability and in some circumstances could give us increased market share. Now there is one very relevant relevant issue here.
That is the level of import. This is a key concern for us. We see material entering into a phase in condition of damping. And it looks to me unreasonable that in a moment in which everybody is struggling to support local industry in the defend employment and so we still continue to have import of material in damping condition. On this, I will ask German to add some comment because imports are very important, an important component for the future of the sector in the state.
Thank you, Paolo. And indeed, John, the view we have is given the market situation, which we have explained, we are convinced that a substantial part of the imports are coming under material dumping conditions, which together with the rest of the industry, we're evaluating and considering to initiate trade legal proceedings in the coming months.
Sorry, thank you. Italy, we expect to increase to defend well our market share or to increase slightly. But I think think we have an agenda that include action to contain input in this moment.
Thank you. I'll turn it back.
Thank you. Our next question comes from the line of Vlad Sergievskiy from Bank of America. Your line is now open.
Hello and thank you for taking my question.
The one on working capital, And specifically on potential room for you to release cash from inventories. I mean at the end of last quarter, you held $2,200,000,000 in inventories, which is about $700,000,000 higher than the trough inventory number in the past downturn in 2016. And I am wondering, is there any reason for you not to be able to reduce inventory to this trough $1,500,000,000 you saw in 2016?
Well, thank you, Blaz, for your question. Compared to the last crisis, our Rig Direct program progress. No doubt. So part and not only in The United States, but in also in other parts of the world. So we will, as I mentioned before, be able to reduce our level of inventories more or less in the range, as I was saying before in the range of $1,000,000,000 in the entire course of the year.
I don't know if we will be able to go much lower than this. Frankly, I hope that the recovery in the second part of the year or in the last part will maybe even reduce our cash generation for working capital. And we will need to protect some of the working capital for a market that may pay to capital gain in the first part of twenty twenty one. We do not know. If things continue as they are and we have a very limited recovery, my expectation that we can between inventories and receivable contribute to our cash generation in the range that I mentioned.
Thank you very much, Paolo, for that. And if I can quickly follow-up on a more strategic point. Obviously, looking at your competition across the globe, it is entering this downturn in, let's say, vulnerable financial position. Do you think it offers a market share opportunity for Tenaris? And then if yes, then are there any particular regions where you think you're well positioned to structurally gain market share?
Well, you are absolutely right that Tenaris is financially very strong company, stronger than any of its competitor worldwide. There is a clear difference when you enter into a crisis. This financial difference is very relevant. The clients are perceiving Tenaris as a solid, reliable, long term partner, good for developing relation, good for developing long term supply agreement, good for developing product innovation and have support. So no doubt, we think that in the face of a client when the market start to recover, our financial strength, the quality of our facility and the positioning that we achieved over this year will be a very important differential factor.
Now then the timing, the how the recovery will take place, the region in which it will happen will determine, I mean, the how this repositioning could be more or less favoring our overall global position. But the fundamentals for sure are strong and very different from that of all of our competitors. And I think our clients are aware and this could be a factor that may be relevant at the moment in which there is a turn of the tide into this into the industry.
Thank you very much and good luck.
Thank you, Vlad.
Thank you. Our next question comes from the line of James Evans from Exane Paribas. Your line is now open.
Hi, good afternoon. Thank you for taking my questions. And I hope everybody is safe and well. I've got two, please. Firstly, I want to ask about the $220,000,000 fixed cost reduction.
Basic question, could you just give me a sense of what the base is in terms of fixed cost today or what the reduction represents as a percentage of the fixed costs? That's my first question. My second question, I want to ask a little bit more about The Middle East and beyond the Q2. What are your Middle Eastern clients communicating to you about their intentions into the second half and beyond? And we've seen a very mixed picture with Aramco reducing its budget, ADNOC maybe delaying some projects.
We've obviously got the OPEC production cut. So what are they saying to you about their intentions into the second half of the year and beyond? Well,
thank you, James. On the first question, the reduction we are envisaging is a reduction in our structure. We are the $220,000,000 we mentioned for this is an estimate. That is an estimate that represents around 25% of our fixed cost. So it is a reduction that is not really affecting our capacity to bounce back when needed.
This is how it's been how we're thinking of our restructuring in this moment. It's also focused on the region in which we perceive that
Ladies and gentlemen, please stand by.
Hello, James. If you can hear me, this is Gabriel Potscooka. If you want, I can answer you the question about
the Gabriel, go on. Yes, we're connected now. Please, Gabriel, go on with your answer.
James, so the environment in The Middle East is challenging and evolving rapidly. But clearly, we perceive that this region is on the stronger side of the spectrum and that the few markets that evidence resilience remain here in The Middle East. Despite the OPEC announced cuts, we have not seen major adjustments, some adjustments, but not major in the drilling programs of our NOC customers. However, given the present circumstances, this is not something that can be ruled out in the future, but has not happened. To give you some color on Saudi, we continue there to face some muted shipments due to the destocking cycle.
But in the last quarter, we have even, on a positive note, experienced a recent recovery on the purchasing activity, especially in the premium segment. So this is strengthening our backlog and giving us an improved visibility towards the end of the year. In the case of ADNOC, also there has been just minor adjustment to the drilling program on some more expensive areas, but not the core of the drilling activity in The UAE. So we expect our shipments in The UAE to continue to grow and increase during the year, but still not reaching the running rate of the full potential of the contract, something that probably we will see into 2021. And in the rest of The Middle East, we also have a substantial backlog of long term contracts, which give a certain resilience to our revenue line.
So we expect to be pretty resilient and solid over the next few quarters, maybe with some adjustment downwards, but lower than average for sure.
Questions. I would like to turn the call back over to Giovanni Sardagna for closing remarks.
Okay. Thank you, again, and thank you all of you for joining us in the call. Sorry again for the inconvenience with one of our lines, but we hope we made the point. So we hope to see you soon. Thanks.
Ladies and gentlemen, this concludes today's conference call. Thanks for participating. You may now disconnect.