庫力索法 (KLIC) 2014 Q2 法說會逐字稿

Greetings, and welcome to the Kulicke & Soffa second fiscal quarter 2014 results call.

(Operator Instructions)

As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Joseph Elgindy, Director of Investor Relations and Strategic Planning for Kulicke & Soffa. Thank you, you may now begin.

Thanks, Jessie. Welcome, everyone, to Kulicke & Soffa's FY14 second-quarter conference call. Joining us on the call today are Bruno Guilmart, President and CEO, and Jonathan Chou, Senior Vice President and CFO. Both are available for Q&A after the prepared comments.

For those of you who have not received a copy of today's results, the release as well as our latest investor presentation are both available in the investor relations section of our website at www.KNS.com. In addition to historical statements, today's remarks will contain statements relating to future events and our future results. These statements are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Our actual results and financial condition may differ materially from what is indicated in those forward-looking statements. For a complete discussion of the risks associated with Kulicke & Soffa that could affect our future results and financial condition, please refer to our SEC filings, particularly the 10K for the year ended September 28, 2013, and our other recent SEC filings.

I would now like to turn the call over to Mr. Bruno Guilmart. Please go ahead, Bruno.

Thank you, Joe, and thank you all for joining our call today. Revenue in our second fiscal quarter 2014 was just over $114 million, which was in the midrange of our previously reported guidance. While we should expect to see improvements from the December to March quarter, this quarter's top line sequential improvement of 44% provides some reassurance that broader cyclical trends are moving in our favor, especially as it was a shorter quarter due to the Chinese New Year holidays.

As an additional reference point, comparing the 2013 March quarter over the 2013 December quarter, we experienced a 7% decline in revenue. Again the 44% sequential increase in the March 2014 is much more meaningful change than we experienced last year, which helps to support an improving cyclical environment.

Turning back to the March 2014 quarter. We were able again to achieve very strong gross margin performance of 50.5% and $57.7 million of gross profit.

Similar to last quarter, the strong margin performance was enabled by our flexible manufacturing model, further improved by the deployment of our value-streamed financing process and to increase demand for hire March offerings such as wafer-level stud bonding, wedge coating, and also tools and services solution. Jonathan will provide some additional insight into our gross margin performance shortly.

Our corporate capital [bonus] sales in the March quarter represented 69.7% of our total model unit sales, down from 81.5% in the previous December quarter. Although it represents a slight increase from the 67.7% reported in the March 2013 quarter.

The ability to efficiently package semiconductors with copper wire versus gold wire continues to be a growing requirement across our entire customer base for most applications. Again, this is not a small wave of demand related to a few unique customers.

Copper capability will eventually become the industry standard, and we expect to maintain our dominant and leadership position for all wire bonding positions. We continue to anticipate this copper conversion to be ongoing and a very long-term process.

Over 5% of our ball bonders sold were configured for the LED market. LED-related equipment sales continue to present moderate growth opportunities.

However, we have recently seen an increased demand for high-brightness LED as customer price points for general lighting applications continue to be reduced. We expect this LED market to be an additional business opportunity for the mid to long term.

In addition to LED and copper, there are several trends anticipated to drive wire bonding demand. First, the emergence of the fast-growing Internet of Things is expected to drive a wave of price-sensitive consumer electronic demand. Our expectation is that the level of application processing power and chip complexity of these IoT devices will be less than today's smartphone and tablet requirements, and we expect wire bonding to be the dominant manufacturing process.

Also within wire bonding, there are fast-growing applications such as the emergence of small form factor multirole quad-flat no-lead or QFN applications, as well as growing demand for silver alloy wire. These specific technology trends, combined with increased unit count forecasts, represent tangible opportunities that support our core wire bonding market.

Turning more specifically to ball wedge bonding equipment, revenue in the March quarter has declined from the December quarter, although we do see demand strengthening with the power semiconductor segments and expect further improvement into the June quarter. We are actively developing new wedge bonding equipment solutions. We expect to broaden our market reach and further diversify our wedge bonding market.

During the March quarter, we also enjoyed stronger demand for our wafer levels stud bumper business. The solution has unique process requirements for the MEMS and CMOS markets.

While demand for this specialized application continues to be ebb and flow, we expect another wave of demand in the June quarter. The stud bonding platform was originally derived from our market-leading wire bonding platform which helps to explain its competitive advantages.

Aside from its stronger performance and competitive positioning, the solution leverages currency stands and software sharing with our high-volume equipment. This commonality helps to lower material and production cost and drive a healthy contribution margin.

Finally, as an update on our advanced packaging programs, the efforts of our development teams continue to jet generate outstanding results. Our first bonding machine, delivered to an IDM customer last quarter, is demonstrating superior performance beyond ours and our customer's expectation. We plan to ship a higher throughput machine to the same customer in the June quarter and are aiming to ship better machines to another customer in July.

At the same time, our [often] development process and our platform development approach enable reductions in development time, which drives down development cost and time to market. These improvements allow us to quickly react and adapt to new technology developments and shift in advanced packaging in the advanced packaging landscape.

This effort has enabled us to confidently work on the new advanced packaging flip chip bonding machine, which we plan to launch at about the same time as our thermal bonder in September 2014 at the SEMICON Taiwan show. This advanced packaging flip chip bonder will address advanced applications that do not require the highest performance of a thermal flip chip bonder.

We continue to remain very excited as this means in time expanding advanced packaging opportunities, and we continue to keep you updated on our progress as we move forward. I will now turn the call over to Jonathan Chou for more detailed financial review of the March quarter. Jonathan?

Thank you, Bruno. My remarks today will only refer to GAAP results and will compare the March quarter to the December quarter. Net revenue for the quarter was $114.2 million, up $35.1 million and 44.4% from the December quarter.

Gross margins came in at 50.5% and $57.7 million of gross profit. This strong gross margin is largely due to our competitive positioning, flexible manufacturing model, and product mix. We also released a COGS -- cost of goods sold-related provision in the amount of approximately $800,000.

We generated $10.1 million of operating income, $9.1 million of net income and $0.12 of EPS. During the March quarter, we continued to carefully manage operating expenses while we remained committed to supporting our long-term development efforts.

March quarter operating expenses closed at $47.6 million, up $7 million from the December quarter. This $47.6 million includes additional R&D expense related to our advanced packaging prototypes.

Due to these prototypes expenses, we are anticipating quarterly R&D spending to increase to approximately $24 million in the June quarter, then decrease to $21 million in the September quarter. After the September quarter, we anticipate a longer-term quarterly R&D expense of about $18.5 million per quarter.

After September 2014, we anticipate our overall operating expenses to have fallen into the range of our previously disclosed methodology. This methodology includes a fixed component of approximately $38.5 million, plus a variable component equivalent to approximately 7% to 9% of revenue. This includes all operating expense, such as SG&A, R&D as well as depreciation and amortization.

We ended the quarter with a total cash and investment position of $596.3 million, up $39.1 million from December. From a diluted shares standpoint, this cash position is equivalent to $7.74, which increases our book value equivalent to $9.48.

While we ended the March quarter with a very strong cash balance based on the additional demand into the June quarter, we expect a portion of our incremental cash flow generated in the March quarter to be transitioned into short-term working capital needs. We continue to actively evaluate use of cash that will drive long-term shareholders value creation.

Working capital, defined as account receivable plus inventory less accounts payable, decreased by $24.7 million to $102.7 million. From a DSO perspective, our day sales outstanding decreased from 129 days in the prior quarter to 77 days. Our day sales of inventory decreased from 80 days to 69 days, and days of accounts payable increased from 49 days to 61 days.

This concludes the financial review portion of our call. I would now turn the discussion back over to Bruno for the March quarter's business outlook.

Thanks, Jonathan. In terms of our guidance for the June quarter, we expect our business to continue improving and be in the $165 million to $175 million revenue range. As mentioned last quarter, we remain optimistic for several reasons.

First, our dominant competitive positions within our core served market remain extremely entrenched, and the market outlook is showing signs of improvement. Our 44% sequential top line improvements combined with market expectations of 8% to 10% annual semiconductor growth in terms of units for the next three years adds optimism to our core business.

Second, our development efforts in advanced packaging continue to produce outstanding results in producing the deliverables against our aggressive development plan. Feedback from our first FM machine continues to exceed our expectations, and we look forward to the adoption of this new technology.

Finally, we continue to examine many different strategy options to increase our turn and become one of the most competitive solution providers from wire bonding to advance packaging, hence diverging the cash balance in a very meaningful way. This concludes our prepared remarks. Operator, we will now be happy to take any questions.

Thank you. At this time, we will be begin our Question and Answer session.

(Operator Instructions)

Our first question is coming from the line of Krish Sankar with Bank of America Merrill Lynch. Please proceed with your question.

Yes, hello. Thanks for taking my question. I have a couple of them.

Number one, Bruno, I think towards the end of your prepared comments, you touched on it.

Just still trying to find out is the plan of action into cash mainly focused on organic and inorganic development activities? What about your thoughts on buybacks?

The second part to that question for Jonathan is, what you think is the right amount of cash you need to run the Business today?

Okay, so to answer your first question, we review every quarter with the Board what is the best use of cash. Remember that the CEO doesn't make the decision as far as use of cash is concerned. The Board does.

We make recommendations, we participate, we have active discussions. And for the time being, our position has not changed.

We think that the best use of our cash is to stay on our balance sheet. I'd want to move further, I would say more aggressively, into the advanced packaging space to increase our plan that we will be able to access with the products that we have in our pipeline.

Let me just talk about the use of cash to run our business.

We actually have a calculation which is part of our ROIC. We generally require $75 million. However, given the strategy that we have basically to grow the Company through organic and inorganic, we are keeping those resources on our balance sheets for those flexibilities.

Got it. That's very helpful.

And then the second thing is in the June quarter, you're seeing a pretty nice pickup.

Is that mainly -- obviously a big chunk of it is coming from the core wire bonding business. Are you seeing any pickup on the wedge bonders side too, or is it all pretty much your core business?

Well, wedge bonders is part of the core business.

Yes, we do see an improvement, as I stated, in this creep on the wedge bonding business as well as on the AT Premier, which is the stud bumping. They tend to be ordered in batches.

So you can see three or four quarters without any orders and then a quarter with actually quite a number of orders. So I would say we are quite confident about the guidance that we provided.

Got it, and then just a final question from my end.

The flip chip bonding you spoke about that you plan to introduce in September, kind of curious what exactly end market are you targeting with that?

We are targeting -- okay, basically we have taken a platform development approach for advanced packaging. So for instance, for the thermal compression flip chip bonder, you will have two variations: a single head and a dual head. The difference that we have isn't accuracy; the difference would be the speed. And of course, they would cost more.

Some applications will not need if you want the best of the best in terms of performance. They might need machine that is less accurate -- maybe deliver a little bit more UPH, but at a lower price.

And that's what this high-accuracy flip chip machine will do, because actually there is nobody on the market currently addressing the customers' requirements in the way actually they wish to have these machines.

Which basically as I said, we review almost monthly our advanced packaging roadmap to make sure we -- because this is a very fast-moving rocket.

And we are able to make -- with our flexible business model and (inaudible) management -- we're able to actually make very quick adjustments to the demand of our customers and therefore change and reprioritize what we had in the pipeline.

And as you can see, now we have actually proven the launch of the products -- the official launch of the product, of both products, to September 2014. While at the beginning, probably when we started in the program maybe about nine months -- I would say we started about 14 months ago - but nine months ago, I was talking more about 2015.

Got it. That's very helpful. Thanks a lot.

Thank you.

The next question is coming from the line of Brett Piira with B. Riley & Company. Please proceed with your question.

Thanks for taking my question and congratulations.

Maybe just from a high level, can you talk about any update that you're seeing? Normally you give a TAM outlook.

And then maybe to that point, without guiding September, but normally it's a seasonally strong quarter. That and June look like they normally make up about 60% of the full fiscal year revenues. So if you could give us any color on what you're thinking out that far.

As you know, we guide the current quarter.

I will just give you, I would say, a little bit of help. Business is not the problem this quarter. So you can basically make your own assumption for Q4.

Okay, that's fair.

Just looking at gross margins in the June quarter, you've given a couple gives and takes there. Looks like there is a one-time $800,000 provision that will roll off. But it sounds like you're going to keep kind of a mix of a high-margin wafer level stud bumping. So can you just give us any guidance on the gross margin in the quarter?

Sure, I will.

Similar to the full year, we don't really guide to gross margin. But as you can see historically, we've done pretty well from the gross margin perspective. 45% is the average gross margin for the last two or three years.

So the pickup really is partially the fact that we have sold some higher-margin equipment in terms of the products there, and the volume also has certainly contributed to that. As part of the 800, that's actually part of our wedge size; so therefore that actually helped to margin that particular business unit.

Brett, I'm not sure if that answers your question. But if it doesn't, please feel free to ask more.

Will do. Thanks.

Thank you.

The next question comes from the line of Scott Matthews with Bay Ridge Capital Management. Please proceed with your question.

Yes, hello.

I've noticed that in item 3 of the latest proxy, management bonuses are based on a ROIC calculation that strips out the cash balance. And that management acknowledges that only $75 million is required as operating cash.

My question is twofold. Number one, since the Board sees no value in the cash on the balance sheet, as evidenced in backing it out of the calculation of which your earnings calculations are based, would you consider a one-time dividend of, say, $7 a share, number one?

Number two, if management sees value in that cash and is still evaluating M&A possibilities, would you consider aligning yourselves with shareholders and including the cash component back into the calculation of ROIC?

You just mentioned that cash is a very valuable thing to the Company. And since it represents half the value of the entire Company, it makes sense that you would align yourselves as management in your bonuses based on a ROIC calculation that includes the cash.

Or if it's just going to lie there sallow on the balance sheet and earn nothing for us as shareholders, it could be viewed that you see it as just a cookie jar that has no relevance whatsoever.

Okay. So let me try to give you some view -- I mean, you asked a lot of things.

Number one, the formula of ROIC is not a true formula of ROIC. The formula of ROIC is solely done for compensation and measures the operational performance of the Company.

Return on capital --

Let me finish. So that's a decision of the Board. Okay?

Secondly, the equity for everything basically in our compensation, 35% of our compensation in the existing is basically viable. We perform, we get paid; we don't perform, we don't get paid. It goes the same with equity because we get mostly paid in PSUs, government shares.

The Company performs, they vest; the Company doesn't perform, they don't vest. So that's the point about the management's view, how to measure the Company's operating performance by the management.

The cash on the balance sheet is earning us nothing, and yet you sit there and back it out of your calculations.

That is your view. The point is that we have different view. We have not been --

(multiple voices) align yourselves with the shareholders?

If you don't let me talk, there is no way I am going to be able to make my point. It is not like we have been holding cash for 20 years. We still had debt three years ago.

We are basically, if you understand semiconductors and semiconductor equipment and the business we are in a little bit, you should understand where the technology is moving. And we have made a strategic move to go full steam ahead in advanced packaging. That requires a lot of resources, organic and nonorganic.

Every quarter, we do review with the Board what is the best use of cash. And at this point in time, the best use of cash is to stay on our balance sheet.

Then I would simply say align yourselves with shareholders and put it back into the calculation of which your bonuses are tied.

We do not make -- we do not even have a say in how the Board compensates the executive team.

Then are you suggesting a new Board that knows how to allocate cash should be in place? Or do they not know how to allocate cash? Or what you suggesting?

I'm not suggesting anything. I just made my point, that's all.

This is Jonathan.

I think the way this is -- the ROIC is our annual compensation structure in terms of objective. And the formula actually was pretty well thought through given the history of this Company. And that's one of the reasons why we have quarterly bonuses from the incentive perspective.

As Bruno had mentioned, our long-term compensation is well aligned with the shareholders in terms of a portion of it under a time-based RSU. And for Bruno and myself, are actually 75% based on performance shares. And that is tied to an index, the Philadelphia stock index semiconductor index, SOXX.

So from that perspective, we are well aligned. And your point about the formula, we certainly will take that note. We can take a look at that.

But given the historical performance of this Company, perhaps outside of the last year or two because of the copper, I would say it does fit this current business model.

But we would --

Thank you. It's half the value of your Company. Thank you for considering it.

No problem.

Thank you.

Our next question is from the line of David Duley with Steelhead. Please proceed with your question.

My question involves the new product initiatives.

Bruno, could you talk a little bit about what throughput goals you think you need to achieve with your thermal compression bonder to penetrate the market?

I understand the throughput of the systems really aren't very high right now. But you will have to make some efficiency metric to capture business from others. I was wondering if you might be able to share what your goals are there.

And then along the same lines, I do believe one of your competitors, ASM Pacific, is already shipping a bunch of thermal compression bonders into the market or talks a lot about it. I don't know exactly the revenue levels there. Do you feel like you're behind the gun here a little bit late?

I cannot disclose you those throughputs, obviously for competitive reasons. What I can tell you is the machines we're going to launch in September are going to be the best-performing machines on the market.

ASMP, I have no idea what they are talking about. It's like the wedge bonders; they make a lot of noise about it. We haven't seen really any competition on the wedge bonders side from ASMP. So you can make a lot of noise about something.

We are demonstrating things with customers. We will have product launchers in September of production machines that we are targeting to be the best in terms of accuracy and throughput on the market.

That's all I can say, David.

And maybe -- so the machines that are out there now, what kind of throughput do they have? And who is the leader in the thermal compression bonders now?

There is not really a leader because nobody has really designed a thermal compression bonder from scratch. They've used a flip chip bonder and tried to transform it into a thermal compressing bonder, pushing the machine to its limits.

And by pushing the machine to its limits, you end up with tons of problems, such as processed ability, machine breaking down, and so on and so on.

So there are competitors who have an install base, such as Toray in Japan. I don't think ASMP has anything there.

There is also a few maybe claimed by Decacon of AC, but there is no leader in terms of what the customers are wanting. And our specification will be far superior to the competition.

Okay.

And then when you are looking at expanding your product offerings in the advanced packaging business using your cash, what sort of opportunities do you see out there? Are there a lot of things available right now? Or maybe give us an idea of what you are looking to try to put the cash to work in.

I'm sorry, I can't comment on that, on any potential acquisition we are looking at, David.

Okay.

And the final thing for me is, Jonathan, you mentioned the $800,000 cost of goods sold. Could you explain what that was, and if that's going to be a recurring thing or just give me a little bit of color there?

What we are looking at is adjacent markets to have the rights of offering as wide as possible in that space.

David, maybe I can add a little bit more color.

And if we go back to the investor data we have, we actually talked about this [minaz] space, which actually is really where our IMS packaging is playing.

We actually did name a number of areas within that space that we like. We look at our core competencies as well. So we have defined the ball, wedge and our current existing portfolio as our core.

So we basically look at anything that runs where we consider as adjacency space around that. And using our core competencies to actually develop solutions or look at technologies that may actually help us build that out.

So that's a broad-based description of how we look at it. We've been looking at opportunities for quite some time, and we're very diligent and conservative in terms of what we look at. But the process is working very well.

David, what I would tell you is basically we look at about 20 opportunities per year. So we are very active and very aggressive on the markets.

Unfortunately, there are -- I would say -- very few common accomodates that suit what we looking for. In terms of size of the acquisition, we have no predefined size. It could be a small acquisition; it could be a large acquisition. It doesn't matter so long as it's aligned to our strategy.

A dumb question along those lines, is when you move to these more advanced thermal compression bonders or whatever process that bonder is used in, do you still need a die bonder?

No. You don't need to die bonder anymore because the thermal compression is actually the die bonder. It's a flip chip machine that's going to basically bond the die. It's basically taking a bumped wafer, which is going to be flipped over, and basically directly put on a substrate.

So you don't need die attach, per se. Die attach is a process immediately before wire bonding. So this is a totally different -- we're not talking about the same thing here. This is a totally new space.

And basically, this is one aspect of it. I just talked about high accuracy flip chip. There is chip to chip, there is wafer to wafer, there is 3D, there is 2.5D, there is [subsilicon vials], there is silicon interposers.

If you look at the advanced packaging market, it is a lot of things happening in there. And that's -- if you read the [diamees], like I am sure you do, this will be the only growing market for the future which will represent basically a TAM.

I'm not saying that we will be able to address the entire TAM, but the TAM will be about $4.5 billion by 2017. If you look at the TAM for all the other markets, front end, back end and test is declining.

Okay, thank you.

Thanks, David.

(Operator Instructions)

Our next question is coming from the line of [Andy Schopick], a private investor. Please proceed with your questions.

Thank you and good morning.

It's been several conference calls since participated in the Q&A, although I continue to listen and follow the Company closely as a shareholder. Certainly there's been a great deal of frustration in the inability to realize better value in terms of your stock price.

Jonathan, you mentioned the SOXX. And the sad reality is that Kulicke & Soffa has significantly underperformed the SOXX unfortunately during the period where there has some renaissance in technology and semiconductor capital equipment.

But in any event, I think Bruno, you really touched upon the heart of the issue, the fact that many important aspects of your market are declining, and the need for the Company to move more proactively, more quickly in developing and finding new growth opportunities.

The key question I want to ask you right now is to what extent is your business a replacement business in the bonding area? And to what extent does it address really new market opportunities? How is that dynamic changing?

Okay.

First, let me correct your statement about the stocks. We have, I think for the last three years, consistently performed above the SOXX. So your statement is not right.

Secondly, the ball bonder markets, as we know, will basically reach a plateau because actually there is a technologic endpoint, which is a 20 nanometer node. Before that, we didn't know until which node from a silicon perspective you could use wire bonding.

You can still use wire bonding at 28 to 30 nanometer. But today, if you look in that space, most of what is being used is advanced packaging, if you call flip chip some sort of advanced packaging. So hence, we are going to reach a plateau in the coming years. And about two-thirds of the demand will become a replacement market. One-third will be incremental semiconductor demand.

We have to remember that there is a very large part of IDMs where vacant factories, who have not invested for years and years and years, who can, with one new machine, replace five to seven of what they have.

These are opportunities. I talk about opportunities in smaller form package like QFMs. I talk about Internet of Things, which would basically be a driver for new opportunities.

But there is no doubt that this alone would not be sufficient to drive the Company where we want to take it. We have to participate in big ways into advanced packaging because this is where the future of semiconductor is going.

Okay. I thank you very much for your answer. And I think all we can do is wait to see in what direction the Company is going to proceed.

Thank you, Andy.

Thank you.

Our next question is coming from the line of [Muhib Khana] with Value Investment [Professionals]. Please proceed with your question.

Hello and congratulations for good second results and a positive outlook out there.

I just had a few questions regarding the competition fields in the Chinese market. And could you please talk about a little bit of the opportunities that you are facing right now? Thank you.

Yes, as you know, it's no secret as our two largest customers in Taiwan have been quite slow this fiscal year. And we anticipate them to remain this way for the simple reason that basically they have converted mostly their demand to copper.

That gave us the opportunity because we are relying very much on these two customers, and they were also very demanding customers who actually were asking a lot of resources from us.

So actually it's a two-edged sword. On one hand, it's a challenge because you don't have large customers ordering thousands of bonders. But on the other hand, that gave us the opportunity to redeploy our resources and look for other opportunities.

We are making great progress in China with local Chinese companies in the wire bonding space, in the wedge bonding space, in the LED space. And we anticipate that actually that growth is going to continue as there is, I would say, about four local OSATs out there with actually very aggressive plans in terms of cost.

Right. So one more thing.

Can you please give us a sense of the total market opportunity that you have in front of yourself?

We obviously know that longer term, the industry is moving towards advanced packaging. But right now, the meat or the heart of the industry is to reduce cost; and China is doing that.

So can you just give us the size of the market that you have in front of you to address currently in China?

No. I can't disclose you by market.

But what I can tell you is in total -- I think the latest report of the TAM for all wire bonders was in the neighborhood of $1 billion or so for this year. But basically, the long-term forecast is seeing a decline.

Obviously in there, there is all types of wire bonders. So we don't address all the markets, and we don't have a representative market share.

But there is no doubt that long term, as for the front end, the backend, and the tests, as I mentioned before, we are going to see a decline in terms of TAM because there is less and less customers; and therefore they will be less and less suppliers. The opportunity for growth resides in advanced packaging and moving there quickly to basically get entrenched and have the (inaudible) so that customers can have one supplier to go to, to find the solution they need.

That's helpful. Thank you.

Thank you.

We have reached the end of our Question and Answer session. I would now like to pass the floor back over to Mr. Elgindy for any additional concluding comments.

Thank your for the time today.

I'd like to mention that the Company will be presenting at the sixth annual D.A. Davidson Technology Forum in New York City on May 28.

Please feel free to follow up after today's call with any additional questions. Again, thank you all for the time today.

Jessie, this concludes our call. Thanks.

Thank you, ladies and gentlemen, this does conclude the teleconference. Thank you for your participation, and you may disconnect your lines at this time.