Good afternoon, and welcome to the Beauty Health First Quarter 2022 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Eduardo Rodriguez, Senior Director of M&A and Investor Relations. Please go ahead.

Good afternoon, everyone. Thank you for joining the Beauty Health Company's conference call to discuss the Company's first quarter 2022 financial results, which we released this afternoon and can be found on our website at beautyhealth.com. Also available on our website is an investor presentation that will be referenced during this call. With me on the call today is Andrew Stanleick, President and Chief Executive Officer; and Liyuan Woo, Chief Financial Officer of the Beauty Health Company. Before we get started, I would like to remind you of the Company's safe harbor language. Management may make forward-looking statements, including guidance and underlying assumptions. Forward-looking statements are based on expectations that involve risks and uncertainties that could cause actual results to differ materially. For a further discussion of risks related to our business, see our filings with the SEC. This call will contain non-GAAP financial measures, such as adjusted gross margin, adjusted EBITDA and adjusted EBITDA margin. Reconciliation of these non-GAAP measures to the most comparable GAAP measures are included in the earnings release furnished to the SEC and available on our website. I will now turn the call over to Andrew Stanleick, President and CEO of The Beauty Health Company.

Thank you, Eduardo. Good afternoon, everyone, and thank you for joining our first quarter earnings call. I'm excited to walk you through our outstanding performance in the first quarter and update you on the progress we are making on the strategic masterplan that I presented last quarter. Before turning to those topics, I want to begin by thanking the global Beauty Health team and community for their hard work, passion, and commitment. As I enter my fourth month as CEO, I've had the privilege of meeting many of our talented employees and providers throughout the world. You have extended such a warm welcome to me, and you all make Beauty Health, the incredible company and community it is. With your dedication and support, we saw strong growth in the first quarter and continued to deliver against our strategic initiatives. Having partnered closely with Brent these past few months, we are very proud of the team's achievements and remain as confident as ever about the future as we carry this momentum forward. I'll now turn to Slide 5 to discuss the quarter's highlights. I am pleased to report net sales for the quarter grew nearly 59% year-over-year. Growth was driven by increasing our new door count in the U.S. and overseas during January and February combined with the deliberate and planned strategic promotions we unveiled in connection with the U.S. launch of SYNDEO in mid-March. SYNDEO is the digitally connected next-generation delivery system we cocreated with our community. This revolutionary system offers significant improvements and a personal experience for providers and consumers. I'm thrilled by the strong early feedback we are receiving from the field, which validates our experience-led approach to innovation and product development. Our SYNDEO launch plan consists of three phases, which I will detail for you shortly. Our…

Thank you, Andrew, and thank you everyone for joining us. Today I'll walk you through our first quarter results, touch on our balance sheet, and discuss our full year guidance. Before jumping into the results, I want to take a few minutes to revisit our business model on Page 15. You'll recall the razor-razorblade model I explained last quarter. We view the delivery system as our razor and associate consumables as our razorblades. Looking at the revenue model, we first sell our HydraFacial Delivery Systems to providers. As providers perform HydraFacial treatments, including various booster serum options, they exhaust and reorder their supply of consumables, driving growth in our consumables revenue segment. A provider will typically purchase a delivery system for one of three reasons. It is either their first purchase of a HydraFacial system or they are adding a system to increase the volume of HydraFacial treatments they can perform in their practice, or they are looking to trade-up a previous generation delivery system to the current model. Trade-ups historically represent a low-single-digit percentage of delivery system sales for the year. However, the successful SYNDEO launch is already driving higher-than-expected demand for trade-ups as providers look to upgrade their delivery systems to this revolutionary new model. I will touch more on trade-up dynamics in a few moments. I will now turn to our Q1 performance summary on Page 16. We're very proud of what we have accomplished in the first quarter, despite lockdowns in China, the deeply troubling crisis in Ukraine, persistent inflation, and global supply chain disruption. Looking at the top left of the slide, you can see we delivered first quarter net sales of USD 75.4 million, up by nearly 59% year-over-year. This was driven by strong global demand for both delivery systems and consumables despite the…

[Operator Instructions] Our first question comes from Steph Wissink with Jefferies.

Andrew, I wanted to ask you a question about your marketing strategy. So you've given us a sneak peek into your super users and their updates on SYNDEO, but also the JLo partnership. If you could just talk a little bit about the range of marketing techniques you're thinking about using or already implementing and then are there any other strategies that you're developing that might be complementary to both the super users and a celebrity partnership?

Steph, I think as we spoke last quarter, I think one of my first observations when I joined The Beauty Health Company is that the marketing was very much focused on the on-ground activations in terms of number LOWvolution tour, which whilst very successful with a very high ROI, they had limited reach. So I think what we've developed over the last three months together is a more balanced approach to marketing where we still invest part of our budget in the on-ground tours around the world complemented by the Experience Centers, which we've been opening up around the world, and I think you visited our New York one a few months ago. And another part of that is what I recall mentioning last time was the need to build the digital marketing. And, of course, that's something which we've been investing in across social -- paid social, and to complement that, I do feel there is a role in addition to the influencers we've been working, with celebrity, and that's why I'm really proud and excited to announce the partnership with JLo. I think she's an icon, and I think she'll be a great help in amplifying our brand awareness.

That's great. Liyuan, if I could just throw in one more question. It's a technical one, but we're getting this question. Could you walk through the timing of revenue recognition on the trade-ups? It sounds like you had some essentially trade-up requests that you hadn't filled at the end of the quarter. So just walk us through how the trade-up revenue recognition works and then how the costs flow through as well from a P&L timing perspective?

Absolutely. Steph, great question. So, as you know, we launched SYNDEO towards the second half of the month of March, and as you also know, we previously have shared for new machine from demo to close in about 14 days. And now we've surprised and delighted our sales people. Now we have to allow us the timing to send the demo unit to them as they sell new units. So all of which, as you heard us speaking, we had over a thousand trade-up units that essentially we were shipping after -- part of that after the month end. So, from accounting treatment point of view, once we take the trade-up back and then we ship the new unit there upon the point we ship all these new units that's when we recognize the revenue based on the price and based on the value associated with the trade-up units And then when we -- so that's really how the accounting treatment works and usually we take the cash up front as they put in the order as well.

Next question is from Oliver Chen with Cowen.

The progress on SYNDEO is very encouraging. How do you expect the trade-up mix to evolve in the next few quarters? And also on the gross margin line, you mentioned pricing initiatives, just would love your take on what we should incorporate in our models and your thoughts there? A follow-up on international, what's included in your guidance in terms of the international new markets?

I'll start and then pass on to Liyuan. To address the first part of your question. So, as I stated earlier, we intentionally and planned the launch in mid-March to encourage as many of our providers to get on the SYNDEO system, especially those and we've talked before about who've recently purchased the elite system, but, of course, our ultimate goal is to get everyone on SYNDEO because it's data and consumer knowledge will ultimately drive further growth. We had the promotion which we planned which finished at the end of March that drove very short-term demand, which will also go into Q2 and then that promotion stops over the rest of the year certainly and if we talk about the U.S. market where we've launched today, you'll see a more gradual roll out of the SYNDEO system. So I'll pause there and hand over to Liyuan who can comment on the margin and we can return to your international question later.

Oliver, yes, so to add on what Andrew has filled down already, essentially when you look at the trend, as we said, the team is bifurcated. So, really the --kind of the hunter side of the team [indiscernible] are focusing on new machines and based on the trend we're observing, it's exactly as we anticipated. You're starting to see the slowdown right because the best deal for the newly purchased is essentially done by the end of March and we're starting to see more gradual slowdown on the trade-up side and see the build on the new system side. So from a margin's point of view, as we alluded to at the prepare remarks, Oliver, essentially we anticipate ASP and gross margin impact in the second quarter because that's really when you capture the big trade-up volume and then we anticipate to see that margin start to come back up in the second half and that actually goes hand-in-hand with all of these network, kind of optimization work we've been doing, and we haven't even started when it comes to value engineering since this is a brand new machine and we actually bought quite a bit up front for the components. So as you can appreciate the effort that being putting in, we anticipate to start to really see that friction towards the end of 2022.

And in terms of the international markets, I think what we've seen, Oliver, with the exception of specifically Shanghai where we've had the lockdown, we've seen a very encouraging uplift and EMEA had a very, very strong quarter. Demand remains very strong. Likewise when we saw markets which have been locked down like in Australia, we've seen the business really accelerate. Indeed even in China, outside of Shanghai in Q1, we've seen really encouraging sales of both systems and consumables, which gives us a lot of encouragement when the market is due and particularly Shanghai and other cities open up that will be upside for the rest of the year. For the moment though, as Liyuan spoke to, we have built in the lockdown in our guidance, which we've given and confirmed for the rest of the year.

Yes, the only thing to add there, Oliver, you guys can see the trend right. When the lockdown wasn't such a big deal, the APAC business was growing 200%, 300%, the fact that we actually grow at 40% is true testament to the team, but at the same time give you a clear indication of that growth is slowing down precisely because of the lockdowns.

The next question is from Allen Gong with JPMorgan.

Congratulations on the good quarter. I guess I just had a quick follow-up to some of the questions that were already asked. You obviously had a very strong start to the year and you felt confident enough despite the fact that it seems like there is still some uncertainty out there with BA.2 with omicron hopefully tailing off, but still driving some impacts that you were able to guide above the beat you saw in the quarter. So when we really think about beyond just the stronger SYNDEO launch, when we look at the stronger consumables, what's really driving that? And what gave you confidence to come out with such a strong guidance raise this early in the year?

I think the important caveat to your question is actually we didn't launch SYNDEO until mid-March. We actually had a tremendous start to January and February by existing system sales, new doors and consumables globally before we even launched SYNDEO in the U.S. And I think it's just a testament to the strong demand for the HydraFacial and the fact that consumers are still choosing to invest in their health care and skin care and ultimately confident. And I think as our brand awareness increases and you heard me earlier speak to we've got record levels of search on google trends. You've seen the increasing NPS score of 44 versus our previous measure to 40, extremely high which shows the growing affinity to this brand. And that's why so much of what I'm doing is why, and we're doing as a team is to really increase the brand awareness because we felt that we're really set on the best kept secret in beauty. So with JLo we'll unlock more brand awareness to get more people to trial this brand. Because when you have to really get it to get it, and we trialed, we lock them in and they keep on coming back and that really talks to the success we've experienced in Q1.

Yes and Allen, the only thing I'll add to that is actually 2-folds, one as we talked about we're very happy in terms of that sequential improvement we see on the consumable side for the market. The only one that you see downtrend, APAC, especially with China make a lot of sense. What's the other thing that's really exciting to us is the power of marketing. As we observe increasing marketing in EMEA, we see significant growth for EMEA, especially on the consumable side. That's a clear indication of, if we are increasing brand awareness when engaging, we can see that return. And then the last thing I'll remind you as we mentioned earlier, when we sell a new machine, it usually comes with two to three months worth of consumables, so with all of these trade-ups that coming up that we sold in Q1 and Q2 that would actually impact consumables because the fact that we rolled out more systems. So we're going to continue to monitor this very closely and kind of share with you guys the trend we observe.

And then a really quick follow-up. It sounds like there's a little bit of flex on when the international launch of SYNDEO might really start, so when we think about the guidance range that you have today and the fact that we saw that in only one partial quarter, you were able to generate so much interest and trade-up volumes of SYNDEO. What are you assuming for that in your guidance? Are you leaving that all as upside given that you might see some of those launches slip into 2023? Or is there some contribution in there?

Allen, on that point, I think Andrew's preparing remark had mentioned we wanted to be very thoughtful, we wanted to launch internationally, globally, making sure the data, the connection. So from our guidance point of view, we took that into consideration, so it depends on the launching period and depends on the conditions that we're going to be experiencing. There could be potential upside if we actually pull this forward.

The next question is from Margaret Kaczor with William Blair.

I'm going to leave it to one -- put a multi-faceted one perhaps and it's a little bit more detail around the Jennifer Lopez partnership. So, of course, what made her and her JLo Beauty brand the right partner for you guys? And then as you look at what her role or JLo Beauty's role is going to be over the course of the year in relation to awareness and engagement? What are they going to do? How are they going to partner to push and drive that engagement? Because you do a quick follower search and it looks like JLo herself has got 200 million followers, obviously, a lot of potential interaction there depending on how you guys set up that partnership.

In fact with your question, you gave me part of the answer. I mean, obviously, we're -- I'm so excited to partner with somebody as iconic as JLo with her booster serum. The fact that she is one of the most followed people on the planet with 200 million plus followers on Instagram alone. We felt -- and also with a skincare line built on the premise of Glow with HydraFacial that's something which our product readily delivers when you know you glow. And we feel that's a really strong and very logical partnership to help us really drive our brand awareness. We're very excited to launch it in the fall. There's a significant amount of consumer activation, which we're building with Jennifer and her team behind that launch in the fall. So, you'll see that play out across the marketing during that period.

Okay and just to be clear that ends up meaning that JLo herself will actually be actively involved in this as you guys kind of continue this partnership.

Yes, I won't go into the details, but yes, of course, it will be support around launching this exclusive booster serum with HydraFacial from JLo.

The next question is from Amit Hazan with Goldman Sachs.

This is [Phil] on for Amit. On the supply chain front, we had an adjacent aesthetics equipment provider earlier today commenting on a challenging supply chain environment for acquiring input componentry. Just wondering if you can comment. I saw obviously from a gross margin standpoint, pressure from an inflationary kind of cost standpoint. Are you seeing any disruption in terms of being able to satisfy what's incredibly strong demand thus far for the equipment side of the equation?

I'll kick it off and hand it over to Liyuan. I mean, first of all as I spoke to on last call, I think Liyuan and the team here did a fantastic job in buying forward components for the launch of SYNDEO, we bought significantly. So we've been able to satisfy quite adequately the demand in componentry. We were overwhelmed during the quarter -- during the last quarter call because of the extreme demand and we've been working through in the last week or so to just completely -- and get them out the door on time, but that does not relate to components, it was just more catching up the demand, and we'll be back by next week in fully up to date on those orders and deliveries. Liyuan?

Yes so to reiterate the point there that's why we bought forward on the components, and we also really extended our production line. We were anticipating high demand when it comes to trade-ups and we're always very proud right, as the same order coming in the same day by 2:30, we ship it out. This is probably the first time, the fact that we actually have "back orders" from March that the team has been working hard to fulfill. So, very happy by the fact that we were able to satisfy that initial big chunk of demand and we're just kind of crimping that out as we speak. From a merger's point of view, we wanted to be very clear in terms of the ASP and growth margin impact because a lot of these trade-up volumes that flow through Q2 will emphasize that. But again the team is working really hard on value engineering to combat the shipping cost increase.

And so in summary very good job of pre-buying ahead of this significant demand and still feel good about the position that you're in to be able to satisfy demand moving forward?

Absolutely.

Just to add we haven't even started to value engineer this product yet. So that's all work to be done and future upside ultimately.

The next question is from Kyle Rose with Canaccord Genuity.

This is Gibran on for Kyle. To start, I appreciate all the detail around trade-ups here on the call. With the promotional dynamics understood in the early stages here, I was hoping maybe we could dig in a bit into the types of accounts doing those trade-ups. Maybe how long if they had the legacy system? Are they power users with multiple systems or single system users? Maybe just any color there on the customer profile participating in trade-ins outside of the aforementioned promotional targets?

That's a great question. Indeed it's all of the above. We've had -- typically our systems they can last from anything from 5 to 10 years. I would say the average though is circa five years old. And we've had our small independents and value customers trading up. I think what really struck us though was the chains where we expected them to buy one or two new SYNDEO, but I think this really interesting facts when they decide they want to do the entire fleet all at the same time, so they have an identical fleet and I think that's what drove enormous upside during March as they took advantage of that trade-up, which was really fantastic to see because we're very keen to get everyone on SYNDEO as fast as possible, so we can really unlock the power of that data and really having that direct access to the consumer.

Understood that's helpful, Andrew. And then maybe just an update on Glow & Go and how that limited soft launch has been tracking? Is that still actively underway and maybe what are you looking to understand? Or what data are you looking to gather coming out of that launch? When can we maybe expect something a little bit more formalized around that?

Yes. Great question. So, we remain confident there is a market for some form of take-home device, but we will take the time for our new technology team and I just brought in some new people during this quarter to ensure what we're launching in terms of innovation is new, better and different. So Glow & Go is still in the testing phase. We started it -- this process in the fourth quarter of last year, as you know, and we haven't included any of that product in any of our guidance though, especially for this year. And I'll give you a more detailed update during the second quarter. Frankly, we've all been so focused on ensuring the flawless launch of SYNDEO in Q1. That I want another quarter to review Glow & Go.

The next question comes from Jon Block with Stifel.

Juggling a couple things, so hopefully these weren't asked earlier. Maybe the first one, just at a high level, the extra 10 million to 2022 revs and EBITDA unchanged, maybe just talk to us what's -- where's the investment going, is it driving an awareness, does the leverage show up next year? Is it just heightened supply chain and inflation costs, which I think you've alluded to. Maybe just walk us through where those dollars are going? I mean, it sounds like you're still committed to call the accelerating margin expansions at '23, but maybe you can just comment there?

Great question. So, I think, first of all in terms of the enhanced guidance, we've just been so encouraged by the robust and continued demand what we've been seeing for the consumer and their willingness to continue to turn to HydraFacial. And as I said earlier, we were winning new doors, opening new doors and driving consumers even before we launched SYNDEO. I think what gave us the confidence to raise the guidance was just the exceptional response from the market from SYNDEO and just still anecdotal feedback continuing from providers that demand remains very strong as consumers really continue to prioritize self-care. In terms of the marketing goals, the majority of it is as we talked last quarter, we want to take that upside for now and reinvest it in driving our brand awareness to keep that virtuous file of growth turning to keep on driving that revenue and ultimately our profit. That's why we've reaffirmed our commitment to $50 million EBITDA. So, we have reserved the right to invest any over delivery into really fueling that growth of the brand.

So, John, the only thing I'll add to that is from an investment allocation point of view, as we shared with you before that golden triangle between sales and training and marketing where we're constantly trying to optimize right. So, essentially for some of the newer market, it's matter of just hiring sales people and training folks and marketing folks. So, that's really number one, just make sure we have the people and then in addition to that to Andrew's point, there's a lot of tasks to learn in this business, and we're going to be very, very disciplined and obviously we're pretty maniacal when it comes to managing both the top line and bottom line at the top of mind for us.

Got it. Very helpful and maybe this is a follow-up to go down the road of SYNDEO, where are you guys at the process of revs reaching their accounts. We did check -- the uptick was through the roof, but actually surprisingly, we didn't have every account reached by their rep laying out the SYNDEO economics if you would and so is it a complete full throttle go ahead? Are you pulling back a little bit to make sure that you can get these systems out the door in a decent time period? And maybe the last attack on question, talk to us about a SYNDEO adopter and does it help sort of re-engage them for consumables utilization? I know Liyuan, you talked earlier about maybe some free consumables going out with the new machine, but does it help revitalize the practice the LED set up, get up and forget it that type of thing? Does it help driving or re-engage these practices from a consumable standpoint?

Yes, I spent a lot of time in the field with providers and aestheticians during the last few weeks since the launch. And absolutely, it's really re-engaging a new machine that's really -- once also with the machines, the new training, it's really driving the consumables and the whole interest in back into HydraFacial. So, it's a really exciting moment for us and again giving us confidence as we look forward to the rest of the year.

Yes, John just to reiterate, I would say two-folds, one utilization is absolutely key area of focus and to your point, we're actually doing a lot of training element to really speaking with our -- with the customer, but obviously we're just launching and the fact that we had a lot of trade-ups happening, suffice to say, there's a lot of effort on our end the field is going to continue to really feel that and educating along the way with our customers.

[Operator Instructions] The next question is from Olivia Tong with Raymond James.

I'll try and stick to one question. So, just on EBITDA, you guys maintained the guide on EBITDA despite better sales. So could you just talk a little bit about the key drivers of that? Was it more a desire to do some more promotion? Obviously, we're all grappling with higher external costs, so is that a factor there and just would love a little bit more detail about your view on promotional levels and selling and marketing as we progress through the year?

Well, first of all, the vast majority will be reinvested into training and marketing and education. That's where the most of it's going. Really, we see just with the robust trends we've seen in Q1 and into Q2, we want to keep that virtuous spiral going and just seeing, as with the deployment in the global until with the paid social, with the upcoming JLo event, we're very keen to ensure we have the right investment to really maximize those opportunities and keep that virtuous spiral of growth turning. So, that's predominantly where the investment is.

Yes and Olivia, I just want to emphasize that's been planned all along because we are a hybrid growth company, so we've always wanted to make sure there's ample dollar to fuel the growth and there's no -- in the sense that we just want to reiterate the point, we're always going to be very thoughtful, but if that's going to drive further top line and speeding up our process to go forward, we will always allocate a dollar back to marketing and training in other areas to fuel future growth.

Got it and just one quick follow-up. With respect to the JLo partnership, is she allowed to partner with others or is there any kind of exclusivities for you guys? And then obviously, there's no shortage of celebrities with skincare lines right now. So could you potential -- is this an angle that you're thinking has some legs? Could you potentially partner with others, either celebrity, social media influencers, et cetera? Just kind of curious on your view on ability to leverage that platform further?

Sure and first of all if we look at the pyramid of influence and how we drive the brand awareness, I see a role for. And I think we spoke about this before for the role of physicians, influencers, beauty influences, wellness, but also celebrity. But someone as iconic as JLo, who has a proven skin care brand built around the premise of Glow with a following of over 200 million consumers just on Instagram was the absolute ideal partner for us. That's what we're so excited to partner with us. And, of course, the partnership she has -- in skin brand already, of course, the partnership with JLo Booster Serum and HydraFacial is exclusive, and we really look forward to activating that in the fall.

Yes, but Olivia, I just want to make sure we're end company, so essentially we don't do like pure exclusivity in a sense that it truly allow us to partner with multiple players to the pyramid that Andrew is talking about.

Next question is from Bruce Jackson with The Benchmark Company.

With regard to the revenue guidance and the quarterly pacing, usually you get a pretty big step up in Q2. Can you just help us in how to model the revenue trajectory for the rest of the year?

Bruce, yes, so as we mentioned, we're kind of a sequentially growth business, right? Like you always have a low Q1 and then start to build quarter after quarter. The fact that we have these backlogs for this -- the trade-ups that's going to come through for Q2 sort of give you a slight boost for the quarter. Is that helpful?

The next question is from KorinneWolfmeyer.

So I'll just ask one quick one here since we're getting up on time. But is there at any point where you'll stop supporting maybe older HydraFacial systems in order to kind of expand your role of SYNDEO and get everyone converted over to SYNDEO? I know you're not selling the older systems here in the U.S. anymore, but like at what point will you stop making maybe consumables that fit that older system or providing maintenance for those older systems?

Just to reiterate, as you know, our intention is to get everyone on SYNDEO starting the U.S. then ultimately globally. Clearly those valued customers who have the older elite system, which we have warranties will continue to honor those warranties, of course, and keep on manufacturing those when needed in our [indiscernible] facility, which you visited, but of course, the ultimate goal is to get everyone on SYNDEO to get that data and unlock that direct relationship with the consumer.

The next question is from Linda Bolton-Weiser with DA Davidson.

I was just curious I know that the marketing expenditure was pretty high to launch the new system in the first quarter, but I'm just kind of wondering on a long term basis what is a normal selling and marketing ratio for this type of business? It probably is higher than 43% because it was a little bit lower in 2021 as the world was ramping back up, but is it somewhere between 43% and 48%? Or like can you just give us some sense of what this business looks like kind of on a normalized run rate business -- basis?

And as you rightly noted, we, of course, leaned in this quarter for the obviously the exceptional launch of SYNDEO, which, of course, will pay dividends, which will leverage later in the year, but we lean forward in the investment there. I would give a guide of somewhere in the 30% to 40% range based on my experience. It's probably a good benchmark on what we'd be aiming to keep that virtuous spiral of growth of investment in marketing growing the brand of profitability. That's what we have in mind.

Yes, Linda, the only thing I'll emphasize is the power of leverage. Obviously, we're still in the pandemic time for the APAC market. So, you might not see that range come quickly this year. This is what Andrew has mentioned, it's really to your point longer term as we grow. That should be a kind of range we're thinking about.

This concludes our question and answer session. I would like to turn the conference back over to Andrews Stanleick for any closing remarks.

Thank you operator. I mean, to summarize, we're extremely pleased with our first quarter results and the trends we're seeing across the business. We're excited to build on this momentum throughout the rest of the year. As we continue to deliver that confidence boosting glow that's the best kept secret in beauty. But thank you all again for joining us today. I look forward to connecting again with you soon.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.