Good morning, and welcome to PROCEPT BioRobotics Second Quarter 2023 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Matt Bacso, Vice President, Investor Relations, for a few introductory comments.

Good morning, and thank you for joining PROCEPT BioRobotics second quarter 2023 earnings conference call. Presenting on today’s call are Reza Zadno, Chief Executive Officer; and Kevin Waters, Chief Financial Officer. Before we begin, I’d like to remind listeners that statements made on this conference call that relate to future plans, events or performance are forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. While these forward-looking statements are based on management’s current expectations and beliefs, these statements are subject to several risks, uncertainties, assumptions and other factors that could cause results to differ materially from the expectations expressed on this conference call. The risks and uncertainties are disclosed in more detail in PROCEPT BioRobotics’ filings with the Securities and Exchange Commission, all of which are available online at www.sec.gov. Listeners are cautioned not to place undue reliance on these forward-looking statements which speak only as of today’s date, July 27, 2023. Except as required by law, PROCEPT BioRobotics undertakes no obligation to update or revise any forward-looking statements to reflect new information, circumstances or unanticipated events that may arise. During the call, we will also reference certain financial measures that are not prepared in accordance with GAAP. More information about how we use these non-GAAP financial measures as well as reconciliations of these measures to their nearest GAAP equivalent are included in our earnings release. With that, I’d like to turn the call over to Reza.

Good morning, and thank you for joining us. For today’s call, I will provide opening comments and a business update, followed by Kevin, who will provide additional detail regarding our financial performance and updated 2023 guidance before opening the call to Q&A. Starting with our quarterly revenue results. We are pleased to report a record quarter where our customers and patients continue to realize the significant clinical benefits Aquablation therapy. Total revenue for the second quarter of 2023 was $33.1 million, representing growth of 98% compared to the second quarter of 2022. Growth in the quarter was driven by strong U.S. system sales and increased utilization from our expanded installed base. We believe the combination of positive long-term clinical data, increased private payer coverage, outstanding real-world patient outcomes and an expanded field-based commercial team continued to drive surgeon interest and adoption of our robotic system. We are also starting to generate stronger international sales momentum led by the United Kingdom following the publication of the NICE Medtech innovation briefing. In the second quarter, we sold a record 40 robots in the U.S., generating total U.S. system revenue of $14.8 million, representing growth of 74% compared to the prior year. The sequential increase in robotic sales was driven by two key factors. First is the growing and expanded capital sales pipeline. Given the timing of how deals progress once we partner with a surgeon champion and how deals are unlikely to fall out of the sales funnel, we have good visibility into our pipeline and confidence to meet our second quarter system sales expectations. Second, as we communicated, a handful of deals we plan to complete in Q1 ultimately closed in the second quarter. It is an important reminder that the first quarter is typically a seasonally slow period for capital…

Thanks, Reza. Total revenue for the second quarter of 2023 was $33.1 million, representing growth of 98% compared to the second quarter of 2022. U.S. revenue for the quarter was $29.9 million, representing growth of 102% compared to the prior year period. In the second quarter, we sold a record 40 robotic systems, generating total U.S. system revenue of $14.8 million, an increase of 74% compared to the second quarter of 2022. Our U.S. installed base at the end of the second quarter is now at 233 systems, which is an increase of 104% compared to the second quarter of 2022. Second quarter system average selling prices were $370,000, which was up 5% compared to the first quarter of 2023 and in line with our expectations. While system average selling prices met our expectations and were increased from the first quarter, we still expect variability around system pricing on a quarterly basis. U.S. handpiece and consumable revenue for the second quarter was $13.6 million, representing growth of 138% compared to the second quarter of 2022. U.S. handpiece revenue growth was driven by an increase in the installed base of robotic systems. Monthly utilization per account increased approximately 9% compared to the second quarter of 2022. U.S. handpiece revenue growth in the second quarter was a reflection of our existing accounts and surgeons taking the next step to adopt Aquablation therapy as their treatment of choice for all resective procedures. We view utilization as a true leading indicator of overall market adoption long term. We shipped 3,904 handpieces in the U.S. in the second quarter, representing unit growth of 124% compared to the second quarter of 2022 with average selling prices of approximately $3,110. International revenue for the second quarter was $3.2 million, representing growth of 68%. As Reza mentioned, international…

Thanks, Kevin. In closing, I want to thank our employees, customers and shareholders for all their support to help us along our journey to becoming the standard of care for BPH. We will continue to leverage our commercial and clinical investments to execute on our long-term strategy. Have a great day, and I look forward to seeing many of you at our upcoming investor conferences. At this point, we will take questions. Operator?

Thank you. Our first question comes from the line of Craig Bijou from Bank of America Securities.

Good morning, guys. Thanks for taking the questions and congrats on a strong quarter. So I wanted to start by asking a few on utilization. And you guys talked about a utilization tick down sequentially, but handpiece growth was very strong on a tougher comp compared to Q1. And you did highlight that the large number of system placements probably impacted that utilization number. So I know you guys track this closely. So can you talk about what you’re seeing from cohort utilization? Are you seeing any leveling off of the earlier cohorts? And maybe if you can help us understand how – quantify or just help us understand how we think about the dilutive effect of a big system placement quarter like what you did.

Thanks, Craig. So we are very happy with the Q2 results of the utilization and the positive underlying trends that we see. So when we analyze every cohort, definitely we see sequential growth. On the surgeon level, we see active surgeon growth. We see increased new surgeon training, and more importantly, high surgeon retention, as I mentioned in the prepared remarks. All of this results in increased utilization. And that is because of the real-world clinical data standardization of the procedure at the hospital and more importantly, from the CEO and CFO point of view of the hospital, increase efficiency because they can predict the time. So we see sequential growth accounts that we have stayed with us, but as we said, we did about 21%. This was a record robot placement. It was an increase of 21%. That was the headwind. But when we analyze cohorts, they are sequentially increased. I don’t know, Kevin, you want to add something to this?

Yes. Good morning, Bijou. Reza’s spot on. We do continue to see the earlier cohorts continue to generate sequential increases in utilization. And when you look at those cohorts and think about how that ties into our guide for 2023, you could assume that the accounts that have been with us prior to 2023 are doing well north of the 6.5 per month average that our guide implies. And it allows our guidance for the new accounts in 2023 to be below the average. And that’s how it’s shaking out. You’re correct in observing that having that 21% increase in our installed base is just a natural drag on utilization sequentially, which we’ve been talking about for a few quarters, but this is really the first quarter where we’ve seen that occur. But the underlying trends with our accounts hasn’t changed. We have a very predictable pathway once an account is installed to increased utilization.

Got it. Very helpful, guys. So coming in – or after Q1, there were some investor concerns, I would say, on the system pricing given the dip. And Kevin, I appreciate your comments on the variability. You’ll have variability on pricing. But it was good to see it back up to 370 level this quarter. So maybe if you can expand on your confidence that you can maintain that pricing. And are you seeing any pricing sensitivity, whether it’s in certain accounts or certain regions? I mean, is there anything that you would call out where there could be some increasing price sensitivity?

Yes. Look, in my prepared remarks, I did talk about quarter-to-quarter variability around system pricing. While 370 is the average we’re guiding to, I do expect that variability quarter-to-quarter and account-to-account. And we have talked a lot about our number one goal as a company is really to partner with hospitals to drive procedure growth and to grow market share. And you can’t do that if you don’t have a system. So we do have internal limits to pricing, call them floors and parameters. But we’re definitely willing to negotiate, especially if we have a surgeon waiting in the wings to do a lot of procedures. And happy with ASPs rebounding, but again, I would still expect quarter-to-quarter variability. And I don’t view that variability as anything other than that.

Got it. Thanks for taking the questions, guys.

Thanks, Craig.

Thank you. One moment for our next question. Our next question comes from the line of Joshua Jennings from TD Cowen.

Hi, good morning. Congrats on the strong quarter. And appreciate you taking the questions. Was hoping to just ask about patient demand. I mean our checks with urologists, although anecdotal, suggest that patient demand is escalating. When I reference patients, I mean patients that are seeking out Aquablation treatment, kind of being savvy and doing their own diligence. But would love to get a kind of broader view from your team, Reza and Kevin, just about what your field is reporting back just in terms of patient demand and how that’s driving an uptick in utilization at your core base.

Yes. Thanks, Josh. Yes, definitely, we do see the patient demand by the online activities. And the full coverage, or about 95% patient access is also very helpful for patients. Now they have access. The preservation of sexual function is one of the drivers of that. And the predictability and more awareness among patients, and we see this again online activity.

Just a follow-up to Reza’s other I know it wasn’t specific to your question, Josh, but just regarding demand, I think the other side of the coin I would say is urologists demand and awareness has definitely increased. And we see that on social media, whether that’s LinkedIn or Twitter with new accounts launching on a daily basis. We see that with our peer-to-peer training, which has been very successful. So it’s both patient and surgeon awareness and demand that we’ve definitely seen an increase over the last 12 months.

Understood. Thanks for that. And just I believe you hired a new executive to lead the marketing effort for Medtronic earlier this year. Any plans or anything you can share just in terms of marketing to both your urologists and patients and how that could pick up as we move through 2023 and 2024? And then just one – sorry, sneak one more in, just on the commercial team. But I’m sorry if I missed this in the prepared remarks, but just can you give us an update on, I guess, plans for capital rep sales force expansion in 2023, where we should think about that number sitting at the end of this year? And any color you can give on clinical specialists and Aquablation rep hires would be great as well. Thanks a lot.

Yes. Thanks, Josh. You’re correct. Now we have recently hired a marketing executive in our commercial team. He’s responsible for both upstream and downstream. And he’s focused on the whole gamut. I think he’s going to be very complementary to our commercial team. And we’re not prepared to go into specific initiatives, but it’s definitely a bolster to our team to increase awareness and look at broader strategic items that surround the marketing and commercial team. So we’re happy to have him on board. It’s been a nice addition. Specific to capital reps and the capital team, as I said in the prepared remarks, we did increase that capital team from 20 to 30 just recently, 6 months ago. And historically, we have hired 1 or 2 capital rep classes per year. We do that to make sure they’re properly trained and give them the proper support. And regarding the remainder of this year, our guidance, our OpEx guidance does allow for us to continue to add more reps to ensure continuity and to make sure we really hit the ground running in 2024.

Understood. Thanks, again.

Thanks, Josh.

Thank you. One moment for our next question. Our next question comes from the line of Matthew Mishan from KeyBanc.

Hi, good morning. And thanks for taking for the questions. I don’t believe you actually gave a 3Q placement number. I think you said you expect it to be down versus 2Q and then the highest level in 4Q. Could you help us like level set for next quarter kind of how much you think it may be down?

Yes. I’d say down modestly, to be fair with that. We really look at our forecast as kind of first half, second half as we’ve been consistent. But modest sequential decrease for Q3 to Q2.

Okay. Excellent. And then just on the profitability. I know it’s not really central at this point, but the gross margin’s moving higher, the sales number’s moving higher. Just curious why the EBITDA loss was moving down a little bit and not a little up.

Yes. So we have increased our OpEx guide from $167 million up to $174 million given where we ended Q2, which this would allow for slight sequential increases in OpEx in Q3 and Q4, which is the reason even with increased margins, the EBITDA guide went down slightly. With that said, we do believe these OpEx investments we’re making in the second half are primarily in R&D and sales and marketing. We view these as – these are high-return investments that we believe will allow this business to continue to experience the outsized revenue growth in 2024 as well. And at the same time, even with the increase in OpEx, you pointed out the margin expansion, which we’re really happy with. We really weren’t anticipating mid-50s until exiting 2023. So the fact that we’re already there in the second quarter, and by raising our guidance to 55% now implies that we’re going to be exiting the year closer to 57% as opposed to 55%. So really nice progress there on margins. And then overall on OpEx, when I look at our revenue growth of 75%, our revised OpEx guidance is now growing at 48%. So while still early in our commercialization of this product, excuse me, we’re starting to see some leverage already in the business.

Okay. Thank you very much.

Thank you. One moment for our next question. Our next question comes from the line of Richard Newitter from Truist Securities.

Hi. Thanks for taking the questions. A couple of questions. Maybe just first on the way you guys sized up your capital funnel. You’ve provided some color on kind of what’s coming into the funnel relative to what’s going out. Can you comment a little bit on the extent to which that’s expanding the lead generation? And also within the context of a bolus of rep hires that you had at the end of last year, I know you said that you expect NIM to really be hitting their stride as we move into 3Q and 4Q. So if you could talk about whether they started to contribute faster than expected in the first half, or is that still out in front and how that kind of fits in with the capital funnel changes?

Thanks, Rich. Definitely, we were very happy with the Q2 capital is strong. And 2 factors, as I mentioned in the prepared remarks, led to that outcome. We have great visibility on the pipeline, and we have seen growing sales in the pipeline. And the second in the Q2 was some of the capital went from Q1 to Q2, but we continue seeing that, as we have mentioned previously, there are different phases. Once that enters in the Phase I, there is a very high likelihood of that deal to come to fruition. We see that and we see that expand. I don’t know, Kevin, you want to add.

Yes, it’s just – thanks, Reza. So specifically on the pipeline, I mean, our pipeline, when we looked at it, we gave this number a few quarters ago. But when we looked at our pipeline, which we consider Phase 1, which we have identified a surgeon champion and has a high degree of certainty to close, that pipeline as of June 30 is up about 19% from the end of Q1. So we feel good about the increasing funnel, to answer that question specifically. And around our rep productivity, if you look at our second half guide, it essentially assumes a very comparable level of productivity, giving 30 capital reps as we had in the back half of 2022 with 20 capital reps. So we’re definitely starting to see those folks start to produce in Q3 and Q4. But Q4 for us, given normal seasonality and just the capital environment, it’s definitely going to be our strongest quarter. And I think will really be the quarter where we have a proof point of these new reps really producing at a meaningful level.

That’s helpful. Maybe just turning to the profitability, the OpEx guidance increase. With gross margin increasing, even in a quarter where you have a higher capital overage relative to the consumables, I’m just trying to get a sense for whether – when do you think we would see the profitability start to inflect? It feels like as you increase these investments on the OpEx side, 2024 could be a year where we really start to see consumables as a bigger mix relative to capital. Should we be expecting kind of a steady kind of profit losses, and then all of a sudden, it’s going to flip hard to profitability? I’m just trying to think of how we think about when you turn profitable and how fast that can happen when it does.

Yes. I think you’re thinking about it the right way. And while we’re definitely focused on revenue growth, we do, as a management team, make sure we’re responsible and cognizant of where we’re spending OpEx dollars, particularly in today’s environment. And we do believe when you look at our longer-term model, without talking about specific numbers, Rich, that when you do turn the profitability with this recurring revenue model, with margins we’ve talked about, we think longer term can get to 70%. It does flip hard, to use your terminology, in terms of profitability. And we’re formulating and going through 2024 objectives and plans now, but the management team here is definitely focused on a pathway to profitability and making sure that we can show investors that this business can get there. And I think it’s the nature of this business is definitely attractive from a profit standpoint.

Okay, thank you.

Thank you. One moment for our next questions. Our next question comes from the line of Chris Pasquale from Nephron Research.

Thanks and congrats on the quarter, guys. Reza, I wanted to circle back to the United coverage expansion. Curious why you don’t expect the impact there to show up until the fourth quarter. Could you just remind us what was happening with those patients previously? Was the lack of coverage there a real obstacle, or were they able to get treated, they just had to jump through a bunch of hoops?

Thanks, Chris. So prior to United coverage, if accounts were willing to treat the patient, they had to receive preapproval. And the cases that we’re doing, United still would pay about 20% of those cases. The reason – and as you know, this only became effective June 1. It takes some time for that to become fully functional. That’s why Q3, we are not mentioning that a big impact in Q2.

And if you look at our guide, one of the factors in Q4, along with normal seasonality for the expansion and utilization, is we do start to see a very modest, I suggest, benefit in Q4 from United. But at the same time, we do have many different levers to achieve our utilization guidance. And therefore, I wouldn’t take these comments as we’re relying on a large United bump to achieve guidance, but we are expecting some benefit, and that’s why you see expanded utilization in the fourth quarter in particular to get to the full year 6.5% on utilization.

Makes sense. Thanks. And then international has been a nice surprise relative to how we were thinking about at the start of the year. You talked about Japan not really being a 2023 story. Which countries have driven the upside so far this year? And outside of Japan, are there any other new territories that you guys think could be important in 2024?

Yes. So one of the drivers for the international was U.K., as we have mentioned previously, with the report that came with NICE and the coverage. And those are – U.K. was one of the biggest drivers. The reason Japan, we don’t assume the contribution is because we received approval, regulatory approval in Q1 of 2022. We have to do a 100-patient post-market study, and that enrollment started in July. We are happy with that. And that’s why we don’t anticipate near-term contribution. So internationally, as we have previously said, we are very selective. And we go region by region on large markets and start with market development. And similar to U.S. once we enter, U.K. was the same. We obtained the reimbursement and received support from the NICE in Japan, the same, but we are going to do again with clinical. So we will go very – we’ll have a very targeted approach by various regions. So our initially started with Western Europe and then Japan, and we have the approval in South Korea.

Thank you.

Thank you. One moment for our next question. Our next question comes from the line of Ryan Zimmerman from BTIG.

This is Sam on for Ryan. And thank you for taking our questions. The first one is on system placements. How many systems placed were leased versus sold outright in the quarter? And how should we think about leasing going forward?

Yes. So we don’t have an internal leasing program that represents a significant portion of our business. All 40 systems that we sold in the quarter were sales to our customers. So no leasing arrangements there. I will point out, though, in the second quarter, we did place a system that we expect to recognize revenue for in the fourth quarter. This system was installed at the customer in the second quarter, and hence, is doing the procedure. So if you look at our installed base exiting Q3, that – excuse me, exiting Q1 of 192, if you add 40 systems, that would suggest our installed base should be 232. But as noted in my prepared remarks, our installed base is actually 233, and that’s just due to the timing of when we’ll recognize revenue on the system. But we don’t do leasing.

Thank you. That’s helpful. Then you indicated there are 17 IDNs you’re targeting. What percentage of systems are placed at IDNs? And how should we think about that going forward for the remainder of the year? Thank you, again.

Yes. So we haven’t disclosed the exact number of IDNs. What we have said is to date, we have many, I suggest, orders, single orders from IDNs. But what we don’t have are these multisystem orders from corporate IDNs as these purchases are really the most difficult to predict. And we haven’t had those to date, but we do have numerous single orders with these IDN partners, and we continue to view that as a nice opportunity moving forward in 2023.

Thank you.

Thank you. One moment for our next question. Our next question comes from the line of Neil Chatterji from B. Riley.

Yeah, good morning. And thanks for taking our questions. Just curious on the – I think last quarter, you talked about the low volume centers make up about kind of 30% of the mix for the install. I’m just curious what you saw this quarter in the installs for low volume centers and then how that might be impacting utilization.

Yes. Thanks, Neil. So the mix hasn’t changed. It’s in the 20% to 30%. As we had mentioned in the last earnings call, what we are seeing, the utilization and the ramp, low volume and high volume are similar. Again, low volume, as we have said, are not small hospitals. Just historically, they have not been doing many BPH. So the utilization and the ramp were similar, and the mix is the same at this point.

Yes. I want to be clear on the sequential utilization was no – the dynamic of low volume versus high volume hospitals had no bearing on our Q2 utilization amount. It was really the 40 systems that were placed as opposed to any dynamic between low and high volume hospitals.

Great. Thanks for that color. Maybe just turning to R&D. Continue to spend there. Just kind of curious if you can update us there in terms of efforts on the R&D pipeline, any planned enhancements on kind of the delivery or speed or imaging, perhaps? Anything that you could share there?

Yes. So we are highly focused, obviously, on innovation, being a robotic company. And the investments in Q1 and Q2, they’re across the board. It’s people, it’s product, it’s processes. And not talking specific about future R&D, but you can be assured we’re always working to maintain our clinical advantage. It’s kind of the bedrock of this company from a technology standpoint. And we’re not getting in too much detail in the near term. You can think of things like making our robotic system simpler to use. This is improving workflow, improving overall design. And it’s things like that that we’re talking about today, but we’re definitely thinking longer term. But I’m not going to provide any details at this time.

Thanks.

Thank you. One moment for our next question. Our next question comes from the line of Nathan Treybeck from Wells Fargo.

Hi, congrats on a great quarter. Just can we go back just to the capital environment. You obviously caught up the placement shortfall from Q1. But at that time, you mentioned IDNs were taking a cautious approach on spending. How has this kind of played out in Q2? And what are you seeing so far in Q3 in terms of the capital environment? Thanks.

Yes. So thanks for the question. Definitely, as we have mentioned in Q1 also, yes, hospital P&L pressure. But we are seeing improvement in staffing. And hospitals definitely are prioritizing spend and invest in innovative treatments and those treatments that allow to treat many patients. But in this case, this fits in their strategy of good ROI and allowing to bring more patients because BPH is number one reason patients go see a urologist. And so from that point of view, we believe this fits in the model, and it allows them to treat more patients and also attract surgeons to – in their hospital. So that hasn’t changed.

Okay. And then to my second question, so AUA, your urologist panel noted they’ve seen trend of surgeons bypassing drugs and offering Aquablation earlier. Are you seeing significant penetration into the watchful waiters, considering that 20% to 25% of them are under the care of a urologist? Thanks.

So the data – I’m sorry, you mentioned 25% of the patients are under the care of a urologist?

Yes.

Patients are half and half roughly between the – when they are under medication under the care of urologist and a generalist. So in long term, that may be a driver. But at this point, though, there is a large demand. Patients are already coming to the hospital to get treatment.

It’s difficult to tell on the numbers, to be honest. I mean, the reality is we’re having a lot of traction, a lot of success. But the numbers compared to the overall market are still fairly low in terms of who we’re penetrating. We still believe the majority of our patients are converted TURP and GreenLight cases. But you can definitely talk to some of our customers who are treating patients that otherwise would have foregone treatment if Aquablation wasn’t an option. So we are seeing that, but it’s difficult to parse out at our volumes exactly how – what percent of those patients are foregoing drugs or are drug dropouts versus – or candidates for other respective [ph] technologies.

Okay, thanks.

Thank you. One moment for our next questions. Our next question comes from the line of Brandon Vazquez from William Blair.

Morning, everyone. Thanks for taking the questions. First, I just wanted to go back to kind of the utilization. I want to ask kind of the same question, but slightly different. Is there any color you can give us on how dilutive a new system placement can technically be? Maybe what can help there is how – what does a ramp typically look like in an account? Do they – like what does the procedure ramp look like so maybe we can tease out what is – what kind of trends we’re seeing in the, quote-unquote, legacy installed base versus new systems?

Yes. So again, without getting into specific numbers, I’ll try to help you and provide some color, right? And if you look at the accounts that have been with us pre-2023, they are north of our full year guide of 6.5% and continue to trend up every quarter, modestly. And we are seeing sequential increases in that group. But the dilutive effect of new accounts, in any given quarter, there’s significant – in the first quarter, excuse me, they’re significantly less than that corporate average. One of the primary reasons being just in capital equipment, it tends to be more heavily weighted towards the second and third month of any quarter. And therefore, we have some accounts where we install a robot, for example, in the second quarter that don’t do any procedures, and they don’t even launch their account until the subsequent quarter. So that dilutive effect is fairly pronounced. And to model it forward, I would just suggest that you take an average of maybe half of what our normal utilization is for a new account to account for the fact that they’re placed mid-quarter.

Got it. And then in terms of the system pipeline, you guys gave some nice incremental numbers there. I think it was a 19% sequential increase in the pipeline, which is great. Can you remind us again, what’s the typical time frame to close on one of these? I imagine that there’s kind of a large window, but even kind of knowing that window might be helpful. And the follow-up to that would be, has that time frame changed at all maybe compared to the start of this year, whether it be macro or macro concerns lengthening that or just going deeper into the adoption curve? Thanks.

Yes. So I’ll answer your last question first. We haven’t seen any lengthening of the pipeline with any type of macro concerns. With that said, the reason why we think about the capital business first half, second half, it is because timing is somewhat unpredictable with these deals. But on average, it could be anywhere – it’s anywhere from 3 to 9 months. But I think we’ve had an account shorter than 3 months, but that’s definitely not the norm. The norm falls in that 3- to 9-month range. That gives us an opportunity to identify the surgeon champion, work with administration and go through all the benefits of the system. And that’s been consistent in that range, but inconsistent in terms of giving any further specificity within that range.

Thank you. I would now like to turn the conference back over to Reza Zadno for closing remarks.

Thank you for attending this earnings call. We are very pleased with our results in Q2, and we hope to see many of you in the upcoming conferences. Have a nice day.

This concludes today’s conference call. Thank you for participating. You may now disconnect.