Gar Jackson - Investor Relations Contact, Global IR Group Edmond Thomas - President and Chief Executive Officer Michael Henry - Chief Financial Officer

David King - ROTH Capital Partners Mitch Kummetz - Pivotal Research Group Jeff Van Sinderen - B. Riley FBR, Inc. Sharon Zackfia - William Blair & Company, L.L.C. David Buckley - Bank of America Merrill Lynch

Greetings and welcome to the Tilly's Inc. third quarter fiscal 2018 earnings results conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Gar Jackson, Investor Relations. Please go ahead.

Thank you, operator. Good afternoon, everyone. And welcome to the Tilly's fiscal 2018 third quarter earnings call. Ed Thomas, President and CEO, and Michael Henry, CFO, will discuss the company's results and then host a Q&A session. For a copy of Tilly's earnings press release, which includes reconciliations of GAAP-based financial measures to certain non-GAAP financial measures that will be discussed during this call, please visit the Investor Relations section of the company's website at tillys.com. From the same section, shortly after the conclusion of the call, you will also be able to find a recorded replay of this call for the next 30 days. Certain forward-looking statements will be made during this call that reflect Tilly's judgment and analysis only as of today, November 28, 2018, and actual results may differ materially from current expectations based on a number of factors affecting Tilly's business. Accordingly, you should not place undue reliance on these forward-looking statements. For a more thorough discussion of the risks and uncertainties associated with any forward-looking statements, please see the disclaimer regarding forward-looking statements that is included in our fiscal 2018 third quarter earnings release, which was furnished to the SEC today on Form 8-K, as well as our other filings with the SEC referenced in that disclaimer. Today's call will be limited to one hour and will include a Q&A session after our prepared remarks. I now turn the call over to Ed.

Thanks, Gar. And good afternoon, everyone. Thank you for joining us today. Tilly's continued its positive momentum by posting its 10th consecutive quarter with comp sales no worse than flat and its strongest back-to-back quarterly comp sales performance since the first half of 2012. Our third quarter comp sales, including e-commerce, increased 4.3%, which was in the middle of our comp outlook range. Comp sales of stores increased 1.3% and included our 8th consecutive quarter of year-over-year store traffic growth. e-com sales increased 26.7%, representing our strongest e-com performance since the first quarter of fiscal 2012, and included the relaunch of our Pick-Up In Store program in mid-September. In terms of merchandising, footwear was the strongest department during the third quarter, followed by girls, accessories, men's and women's, all of which comped positively to last year. Boys was approximately flat. Thus far, in the early part of the fourth quarter, total company comps are up low single-digits with strong e-com growth, compensating for slightly negative store comps. Thankfully, the recent and ongoing California wildfires do not appear to have had a material impact on our total company results. We have had a few stores closed for limited periods of time due to evacuations and air quality issues, but not enough for us to call out any specific impact. Turning to real estate, we opened four new stores during the third quarter, including our second store in Houston, our first two stores in New Hampshire and we returned to Christiana Mall in Delaware. We also opened another RSQ-branded pop-up store in Del Amo Fashion Square here in Southern California. In November, we have opened three additional new stores in Bakersfield, California, Chicago and Houston. This brings the total number of new full-size store openings for fiscal 2018 to 12 and RSQ-branded pop-ups to four, which is our highest number of new stores added since fiscal 2014. As a reminder, RSQ is a private label denim brand for both men's and women's. We have opened RSQ-branded pop-ups this year as a branding and marketing vehicle for our RSQ-brand and Tilly's as a whole within key markets or properties where we like to have a full size Tilly's store. As we look ahead to fiscal 2019, we currently anticipate opening up to approximately 15 to 20 new full-size stores, assuming we can obtain appropriate lease economics. We do not have a set number of RSQ pop-ups planned, but we will remain opportunistic and may add a few more during the year. Consistent with our current strategy, we intend on being conservative and methodical in our store growth, only adding stores with what we believe to be appropriate lease economics, to drive further improvement in our operating margin over time. In addition to new stores, we will continue improving our customer-facing technologies during fiscal 2019. We are working on an enhanced mobile app, which will be linked with an expanded loyalty program, offering same-day delivery from selected stores and ship-to-store program. We're excited to implement these new programs next year and expect these efforts to meaningfully improve the convenience factor for our customers and further strengthen our business. In closing, we continued to deliver solid operating performance. The secondary offering we completed in early September put more shares in public hands without creating dilution to existing investors, which should benefit the company in terms of broadening available float in our stock and, thereby, attracting a broader base of potential investors. Based on our strong back-to-school season and positive results for Black Friday weekend and Cyber Monday, we expect the fourth quarter to be successful as well. Now, I will turn the call over to Mike to provide more details on our fiscal 2018 third-quarter operating performance and to introduce our fourth-quarter earnings outlook. Mike?

Thanks, Ed. Good afternoon, everyone. Total comparable store net sales for the third quarter, including e-commerce, increased 4.3%. Store comps increased 1.3% and represented approximately 86% of our total net sales. e-commerce sales increased 26.7% and represented approximately 14% of our total net sales. Third-quarter total net sales of $146.8 million decreased $6 million or 3.9% from $152.8 million last year. As we discussed during our two most recent earnings calls, the impact of last year's 53rd week in the retail calendar caused a shift of approximately $14 million in net sales during the back-to-school season from the third quarter last year into the second quarter this year. We ended the quarter with 227 stores, including four RSQ-branded pop-up stores, compared to 220 full-size stores at this time last year. Gross profit, including buying, distribution and occupancy expenses, was $45.8 million or 31.2% of net sales compared to last year's $50.1 million or 32.8% of net sales, again, due to the calendar shift impact on net sales from last year's 53rd week. As expected, buying, distribution and occupancy costs deleveraged 200 basis point due to the calendar shift impact on net sales. Product margins improved by 40 basis points primarily due to lower markdowns as a percentage of net sales. As we previously noted, during our Q2 reporting cycle, we were required to issue certain non-transferable discount coupons to approximately 612,000 existing Tilly's customers in early September as part of a legal settlement. These coupons allow for a one-time 50% discount on a single purchase transaction of up to $1,000. Any unused coupons expire on September 4, 2019. To date, less than 1% of these coupons have been redeemed and redemption transactions have represented less than one quarter of 1% of all sale transactions since the coupons were issued. Consequently, these coupons have had no material impact on our comp sales or operating results as a whole. Although redemptions have been very low in number thus far, we thought it would be helpful to share some details regarding the average transactional impact we have seen to date. So far, redemption transactions have produced an average sale per transaction that is roughly 3 times that of non-redemption transactions since the coupons were issued, but with a significantly lower margin rate. The net result has been an increase in net margin dollars produced per redemption transaction of not quite 20% compared to non-redemption transactions. We cannot reasonably determine the true incrementality of these transactions, but the aggregate impact on our total company sales comps or operating results has not been significant when considered in relation to the volume of non-redemption transactions. There can be no assurances that these early results or the level of redemptions will remain consistent through the remaining redemption period, particularly as we get closer to Christmas holiday, but so far these coupons have not been a significant issue for us. Turning now to SG&A expenses, third-quarter SG&A was $37.6 million or 25.6% of net sales compared to $36.0 million or 23.5% of net sales last year. As expected, SG&A deleveraged 210 basis points compared to last year, primarily due to the calendar shift impact on net sales described earlier. The $1.6 million increase in SG&A was primarily attributable to store payroll of $0.9 million due in part to minimum wage increases, secondary offering expenses of $0.7 million and online marketing expenses of $0.6 million associated with e-com sales growth. Last year's SG&A included a $0.7 million legal matter provision. Operating income was $8.2 million or 5.6% of net sales compared to $14.1 million or 9.2% of net sales last year, again, due to the known and expected calendar shift impact on net sales. Income tax expense was $2.4 million or 26.8% of pretax income compared to $5.7 million or 39.6% of pretax income last year. The reduction in tax rate was primarily due to the new corporate tax rate signed into law late last year. Net income was $6.4 million or $0.21 per diluted share compared to $8.8 million or $0.30 per diluted share last year. Our EPS of $0.21 was in the lower half of our original outlook range, which did not contemplate the secondary offering. The $0.09 decline in EPS was attributable to an estimated $0.11 per share impact of the retail calendar shift noted earlier. The secondary offering completed in early September also cost more than two full pennies of EPS. The remaining favorable variance to last year is attributable to improved operating results. On a non-GAAP basis, excluding secondary offering costs, net income was $7.1 million or $0.24 per diluted share, at the high-end of our original outlook range. Weighted average diluted shares for the quarter were $30.1 million versus $29.0 million last year. Turning to our balance sheet, we ended the quarter with cash and marketable securities totaling $120.5 million and no debt compared to $121.9 million and no debt as at the end of the third quarter last year. This year included approximately $29 million in cash dividends paid to stockholders in February compared to $20 million in February last year. We finished the quarter with inventory per square foot down slightly to the comparable week last year. Total capital expenditures for the first three quarters of fiscal 2018 were $10.4 million compared to $9.7 million last year and are expected to be approximately $15 million to $16 million for fiscal 2018 as a whole. Now, turning to our outlook for the fourth quarter. Based on current and historical trends, we expect total sales to range from approximately $163 million to $168 million based on a 2% to 5% increase in comparable store net sales. We expect operating income to range from approximately $8.5 million to $10 million and earnings per diluted share to range from $0.22 to $0.26. This compares to operating income of $11.4 million and earnings per share of $0.23 for last year's fourth quarter, which included an extra week worth approximately $7.1 million in additional sales versus this year's comparable 13-week period. We expect our tax rate to be approximately 26% and weighted average shares to be approximately 30.1 million. We expect inventories per square foot to remain at or below last year's levels. We expect to end the fiscal year with 229 total stores comprised of 225 full-size doors and four RSQ-branded pop-up stores. As we begin looking ahead to fiscal 2019, new store growth may include up to 15 to 20 new full-size stores and an as-yet undetermined number of RSQ-branded pop-up shops, all assuming appropriate lease economics are achieved. As of today, no new leases have been signed for 2019, so we cannot yet predict anticipated timing. No known store closures exist as of today. Yet, we may have a few in fiscal 2019 depending on the outcome of occupancy negotiations. Total capital expenditures for next year have not yet been finalized, but we preliminarily expect the upper limit for CapEx to be approximately $25 million for 2019, comprised primarily of new store costs, supplemented by continuing technology investments. While we are not prepared to provide any specific earnings guidance for fiscal 2019 at this time, we have estimated the impact of certain known additional costs that will impact our financial results next year regardless of sales results. We currently estimate the impact of certain known fixed cost increases, including legislated minimum wage increases, merit increases, new systems costs and the adoption of the new lease accounting standard to result in an aggregate increase in our full-year operating costs of approximately $6 million next year before consideration of any comp sales assumption. We currently estimate that our fiscal 2019 comp sales would have to increase by approximately 3% to absorb these and other cost increases without creating deleverage as a percentage of net sales. As we work to finalize our fiscal 2019 operating plan, we will continue to attempt to limit the impact of these required cost increases. Operator, we’ll now take questions.

Thank you. [Operator Instructions]. Our first question comes from the line of Dave King with ROTH Capital. Please proceed with your question.

Thanks. Afternoon, guys.

Hi.

First, on the Q4 income guidance, Mike, how much of an impact do you expect from the calendar shift versus the $7.1 million sales impact? And then, on the margin of 5.2% to 6%, call it, how should we think about the geography between product margins, ADL leverage or deleverage the calendar shift and then expenses?

Sure. So, in the fourth quarter, there's really not a meaningful amount of impact from the calendar shift. After we've seen the huge swings in Q2 and Q3 from that back-to-school week and having the extra week in last year, the net year-over-year shift impact after that is less than $1 million to top line. So, really, not altogether meaningful. As far as the location of some of the changes as I look at the models that are out there ahead of the call, it looks like in the gross margin line is where there is the biggest disconnect compared to how we see our model playing out for the fourth quarter. I'm not sure what might be causing that because I, obviously, don't know everybody’s model in detail, but there's a few things I’d point out to try and help calibrate it. So, we do have 10 additional stores. We’re going to end the year with 229 stores versus 219 stores last year. So, we need 10 additional stores of occupancy costs built into the model. Product margins should remain relatively consistent, as they typically do. So, not expecting any meaningful movement one way or the other from product margins. And then, with e-com, obviously, we had our transitionary issues last year upon changing platforms and implementing order management. We’re expecting e-com sales to be up very strong in the fourth quarter, but that's going to come with a chunk of expenses that goes with that, from e-com shipping and fulfillment costs that need to get layered into that gross margin line. And then, one other little piece that might not be in there is, within buying, distribution and occupancy, the buying piece, assuming we end the year where we’re protecting based on our guidance range, there would be some profit-based bonus within the buying group that needs to get layered in. And then, the only other thing I can think of as on the SG&A side, yes, there would also be some profit-based bonus within SG&A for the rest of the organization outside of buying. And then, you still have e-com fulfillment costs and online marketing costs that flow through the SG&A line that would increase a bit. But the SG&A is pretty close in looking at the models that are out there. We’re looking at about 25% – flat 25% of sales for SG&A. So, it's really through the margin line where the changes need to be made to align with how we’re seeing the business.

Okay, that helps. That’s good color. Switching gears, what else can you all share on the Black Friday weekend? Sounds like low-single-digits through the first part of the quarter overall, but anything you can share about Thursday through Cyber Monday? How was online growth versus traffic, average ticket, any geographic callouts, product callouts, anything you can share will be appreciated. Thanks.

Yeah. Well, Cyber Monday for us ended up being the single biggest day in terms of e-commerce sales in the history of the company. It was extremely strong. And it was pretty strong over the weekend too. So, certainly, e-com, we saw very strong results, going up against, obviously, what we were faced with last year in the system conversion. But, really, most of those problems occurred after –

Yeah, on a go-forward. We were actually positive.

We were following up against solid numbers. So, that was a really good side for e-com. And then, the stores was pretty consistent throughout the weekend. I didn't see anything unusual in terms of what happened with stores. Our sales were good across pretty much all categories. And we changed the way we were promoting this year, with really no impact on our merchandising – material impact on our merchandise margins. We just think we did a better job of promoting versus what we've done in the past.

Okay. Okay, that helps. I guess, then on more quick one. So, again, seems like the RSQ pop-ups had a pretty good weekend, I guess, locally at least. Anything you can share about the performance of those overall since opening? Any early learnings? And then, just how are you thinking about the concept longer-term? Sounds like it’s been positive so far given maybe your plans for 2019?

Well, I think the results of our Black Friday weekend for three out of the four stores, I thought, was really solid. It really exceeded my expectations in terms of performance. We’re still in a learning mode related to those. But, again, this is really intended to be –the whole idea was intended to be a marketing exercise to build the RSQ brand and also to build the Tilly's brand, primarily in markets where we are starting to expand heavier into, like Pennsylvania. Two of the stores are right now backyard here. One is Del Amo and one is Cerritos, and both of those stores have performed really well so far. So, in terms of long-term intent, we haven't really made any decisions. As Mike said in his commentary, it's something that we're going to continue to evaluate, but we haven't made any firm plans for going forward. I can tell you one thing. The landlords are very much – are excited about it and it’s very much in demand, but we’re going to walk before we run.

Okay. That makes sense. Thank for taking all my questions and good luck with a solid holiday.

Thank you.

Thank you.

Our next question comes from the line of Mitch Kummetz with Pivotal Research. Please proceed with your question.

Yeah. Thank you for taking my questions. I want to start on the coupons. You mentioned that less than 1% have been redeemed to date. I just want to confirm that, when you say to date, is that as of like yesterday or…?

Yeah. That’s as of this morning, getting the latest report.

About 20 minutes ago.

That’s real-time information.

Let us know what it is after the call. Are you guys surprised by that? Do you have any awareness as to whether or not – I'm not exactly sure how these are getting sent out to people or people were recognizing this. Is there a chance that some of this could fall through the cracks and people won’t even know that they're getting them and, therefore, they're not going to redeem them? I guess, the less than 1% is, I guess, a lower percent than I would've anticipated, especially since it encompasses Black Friday, Cyber Monday.

Yeah. I’d say the level of redemptions probably is lower than we probably thought it was going to be. Yet, the directional impacts on a transactional basis, I think, are exactly what we suggested they might be. A quarter ago, when we were talking about them, we had theorized that it probably would increase the average transaction size. We knew it was going to hurt the margin rate, but that it could potentially be beneficial on the net margin of a given transaction, and that has come to pass. The redemption activity, we had over 1,000 redemptions in the very first week of redemption. And then, generally speaking, the level has been decreasing over time. Other than during Black Friday weekend, we did see some increase in the level, but still very much below what the original first weekends – actually, second week of redemptions were. So, hard to tell what's going to happen. We are wondering if some people would save it up for Black Friday or maybe even Christmas, which still remains a possibility. All of these were delivered electronically into their email accounts. Not quite sure why the redemption level is as low as it is. But, in a way, it's a good thing because it’s not having a material impact on our business. And then, secondarily, even with the redemptions, the net impact on a per transaction basis has actually been to increase total margin dollars. So, that's not a bad thing either.

Got it. Okay, that's helpful. Thank you. In terms of category performance, any material changes in trends that you've been seeing from Q2 to Q3 or even into early Q4 that are worth calling out?

Not really. The brands that have been strong in early quarters ,it’s consistent. And what we’re pleased about is that the performance was good across almost all categories. And so, that was encouraging. But I'm not seeing any real big – we’re not seeing any big changes in trends from what we’ve seen prior to the start of this quarter.

Any impact from weather either on the quarter or early Q4? I know you guys have a big concentration of stores in California. And I think where some of the colder weather has been kind of in the Midwest and Northeast, Mid-Atlantic. So, I don't know how much impact that might even have anyways.

Nothing we could quantify really.

Yeah. No material impact in Ed’s prepared remarks. We want to make sure people understood from the fires, even though we did have a few stores closed here and there, it wasn't enough to dramatically impact our results. And we have relatively fewer stores out east. So, none of the storms out there have really hurt us that bad.

Got it. And then, the last thing, I know that in recent calls you've called out some events that have been sort of unique to you guys, that have been traffic driving, anything of note this quarter that kind of drove some business?

No. We’ve done a few events. We’ve been more focused on some of the grand openings that we've done with the newer stores, particularly in newer markets like Houston. We've got a lot of great events coming up for 2019, which I'm very excited about. All I can tell you at this point is more details to follow.

Okay, great. Thanks, guys. Good luck.

Thank you.

Our next question comes from the line of Jeff Van Sinderen with B. Riley FBR. Please proceed with your question.

Good afternoon. Any color you guys can add on mall versus off-mall trends? And then, just wondering how we should think about brick-and-mortar traffic so far in Q4. I think you said that was down slightly. Wondering if you would expect a positive store traffic for the quarter in aggregate brick-and-mortar. Maybe if we could start with that.

Sure. So, all store formats were positive during the third quarter. Outlets were a little stronger than mall and non-mall, but all were positive. So, nothing concerning in any of that. In terms of traffic, because of, I think, the timing of certain things, some days have been down, some days have been up. It's been really mixed so far. We had a week that was down double digits and then we had the following week that was up double digits in terms of traffic. So, I think that was a Veteran’s Day shift that happened that caused that. Other than that, our traffic has been up for eight quarters in a row. It’s been up modestly, admittedly, low single digits. I'd expect it to be probably in that range. Flattish to maybe slightly up, is what we’re thinking it will be.

Just to add to that, Jeff, we've outperformed most of the industry in terms of our traffic performance for several quarters, as Mike mentioned. But the other thing is, we have been able to drive positive traffic to the store without giving the store away, which is consistent with what we've done really for the past three years, is we haven't run this – give the store away, BOGO, whatever the whole store. And so, we’ll continue with that policy going forward because we’ve been successful in driving traffic and more regular price business by sticking with that.

Okay. And then, I think you mentioned handling the Black Friday weekend or Black Friday week promotions differently this year. How should we think about the promotional plan for the remainder of the quarter versus last year? Anything to speak to there? And, I guess, now that the omni-channel system is fully functional again, how are you thinking about the compare to Q4 last year when it wasn't fully functional?

Okay. So, as far as the promotional strategy for the fourth quarter, I wouldn't expect anything different from what we've historically done. What we did on Black Friday was just for Black Friday. So, that weekend. As far as omni-channel, we’re expecting – knowing that we’re going up against soft numbers from last year's system issues, we’re expecting it to continue strong throughout the quarter and into the first quarter of next year. So, so far, so good.

We just did plus 26.7% in Q3. Because we’re going against those weaker numbers for Q4, we'd expect fourth quarter to be at least that number, if not stronger, admittedly, because we’re about to go – we’re about to start going up against those problems for the last nine weeks of the quarter. So, e-com should be up very, very strong.

Okay, good to hear. Thanks for taking my questions and good luck for the rest of the quarter.

Thanks, Jeff.

Our next question comes from line of Sharon Zackfia with William Blair. Please proceed with your question.

Hi. Good afternoon. I wanted to get some color around the cost for next year, the $6 million. Just kind of what’s truly new. Obviously, minimum wage increases have been going on for a while. So, if you can help us think about what of that $6 million is really incremental versus what might be a continuation of pressure, whether it’s on wages or what have you.

Well, they're all incremental. So, yes, we’ve had minimum wage increases before, but there's another round of them coming. So, that is an incremental cost no matter how you look at it. So, California is going up another dollar, starting on January 1. So, that's going to roll through SG&A. The lease accounting adoption, it's really a year of adoption issue on the lease accounting. That’s going to hit about $1.5 million through the occupancy line because of some change in how the accounting treatment of certain, I’ll call them, non-rent elements of leases are treated going forward. There isn't really a change in cash cost or anything like that. It's the book entry that will hit us on that item. And then, because of known shipping rate increases and what we expect from e-com, part of it is probably about $700,000 estimated of added shipping cost because of rate differentials and other things that we’re expecting within e-com outside of just the variability that comes from sales movement. And then, you have – obviously, the biggest piece is store payroll, the minimum wage impact on that, taken together with the home office and merit increases. There's over $2 million there. So, it's roughly about $2.2 million will flow through the buying, distribution and occupancy line and the rest will come through SG&A and those are annualized numbers over the course of the year.

Okay. But on the California minimum wage, have I mistaken that there was a similar minimum wage increase in 2018? I'm just looking for trend.

Yeah. So, I think it went from $10 to $11 this past year. It's going from $11 to $12 on an hour basis this year.

Okay, perfect. But it's not new markets. It’s still California that’s the main pressure point there.

Well, California is the key one for us because we have over 90 stores here in California. So, roughly 40% of our store base is getting that. Then there's other jurisdictions where minimum wage increases are happening as well, but California is really the big piece because that impacts stores and all of our hourly distribution workers here in Irvine.

Okay. And then, on tariffs, I know that you haven't necessarily been impacted that much so far. But could you give us any kind of update on how of your product is manufactured in China and what actions you might be taking in preparation for any kind of increase in tariffs to expand with some other categories you’re in?

Yeah. We’re really not a direct importer of much. So, the great, great majority of business we do is through third parties, even when it's for our proprietary merchandise. The impacts we’re hearing most significantly so far have been in the accessories area of costs going up. Really, not a lot of clarity from the apparel side of all of our third-party brands there, still trying to evaluate what they're going to do to, evaluating other sources, different areas, different countries to source from, and haven't really provided us with any clarity yet on what might that mean not only on the cost side, but then on the retail side, right? We have to follow their map pricing, and so just don't have a lot of clarity on the apparel side of things yet. But it’s really been accessories that we’re starting to see indications of cost increases. And then, on the store fixture side as well, the tables and different things that we have in our stores, most of those are sourced from China and we've already started to see cost increases on those items.

Thank you.

Our next question comes from the line of David Buckley with Bank of America Merrill Lynch. Please proceed with your question.

Hi, guys. Thanks for taking my question. Most of mine have been answered, but looking out to 2019, do you highlight any opportunities you see to drive product margin improvement?

Our product margins have really been remarkably consistent for many years. So, we still need to see what's going to happen out of this tariff conversation we were just having with Sharon and what it also does on the pricing side to really have greater clarity on what's going to happen out of that realm to impact our product margins. But setting that aside for a moment, really our product margins have been remarkably consistent for many years. They do not move around within a 100 basis point range up or down. So, really not expecting much structurally outside of the tariff conversation, which is undefined as we sit here. Really not expecting a material movement one way or the other from product margins outside of that.

All right. Thank you.

Hello?

Ladies and gentlemen, we have ended the Q&A session and I would like to turn the call back to Ed Thomas for closing remarks.

Thanks again for joining us today. We look forward to discussing our fourth-quarter results with you in mid-March. Have a good evening, everyone.

Thanks.

This concludes today's conference. You may now disconnect your lines at this time. Thank you for your participation.