LuxUrban Hotels Inc.

Ladies and gentlemen, thank you for standing by. The event will begin momentarily. Once again, thank you for standing by. Ladies and gentlemen, thank you for standing by. Welcome everyone to the Lux Urban Hotels Inc. First Quarter 2024 Financial Results Conference Call. At this time, all lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press the star followed by the number one on your telephone keypad. If you'd like to withdraw your question, please press the star followed by the one once again. Thank you. I would now like to hand the call over to Devin Sullivan, Managing Director of the Equity Group. You may begin your conference.

Thank you, Bhavesh. Good morning, everyone, and thank you for joining us today for Lux Urban Hotels' 2020-2024 First Quarter Financial Results Conference Call. Our speakers for today will be Shanukh Katari, the company's Chief Executive Officer, and Robert Arrigo, Chief Operating Officer. Before we begin, I'd like to remind everyone that this call may contain certain forward-looking statements within the meeting of the Private Securities Litigation Reform Act of 1995, set forth in Section 27A of the Securities Act of 1933 as amended, and Section 21E of the Securities Exchange Act of 1934 as amended. Statements that are not purely historical are forward-looking statements. Forward-looking statements include, but are not limited to, statements regarding expectations, hopes, beliefs, intentions, or strategies regarding the future. In addition, any statements that refer to projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. Generally, the words anticipates, believes, continues, could, estimates, projects, intends, may, might, plans, possible, potential, predicts, projects, would, and should, and similar expressions may identify forward-looking statements. But the absence of those words does not mean that a statement is not forward-looking. Forward-looking statements may include, for example, statements with respect to the company's ability to successfully de-platform its properties from its former franchise partner and operate independently. its ability to improve its working capital and cash flow profiles, enhance its balance sheet, and deliver organic revenue growth, scheduled property openings, expected closings of noted lease transactions, and the company's ability to continue closing on additional leases for properties in their pipeline, as well as the company's anticipated ability to commercialize efficiently and profitably the properties it leases and will lease in the future. These statements are based on current expectations and beliefs concerning future developments and their potential effect on the company, and there can be no assurance that future developments will be those that have been anticipated. These forward-looking statements are subject to a number of risks, uncertainties, some of which are beyond our control, or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. Including those set forth under the caption risk factors in our public filings with the SEC, including item 1A of our annual report on Form 10-K for the year ended December 31, 2023, and our Form 10-Q for the three months ended March 31, 2024, filed with the SEC on May 13, 2024, and any updates to those factors as set forth in subsequent quarterly reports on Form 10-Q or other public filings with the SEC. The forward-looking information and forward-looking statements are made as of today's date, and the company does not undertake any update Undertake to update any forward-looking information and or forward-looking statements that are contained or referenced herein, except in accordance with applicable securities laws. Management will also be discussing non-GAAP financial metrics. The reconciliation of these non-GAAP financial measures to the most comparable GAAP measures can be found in the company's press release. With that said, I'll now like to turn the call over to Shanukh Katari. Shanukh, please go ahead.

Thank you, Devin. Thank you, everyone, for joining us today. We filed our 10-Q and issued our press release. yesterday afternoon. Both documents contain significant details on our operating results. With that in mind, I'll focus my remarks on selected highlights and key terms. After that, I'll turn the conversation over to our recently appointed Chief Operating Officer, Rob Arrigo. Rob joined us in March and hit the ground running. He's going to provide an update on his first 60 days in his new role, including insight on the current state of our properties and relationships, his plans for enhancing certain aspects of our operations, and progress to date in those areas. We remain laser-focused on rebuilding trust with our stakeholders and will hold ourselves accountable in every step of the way. In collaboration with our new board, our executive team has taken a hard look at every aspect of our business model to address weaknesses, enhance efficiencies, and construct a better path to deliver long-term value. We're early in that process. And while we are encouraged by what we've been able to accomplish to date, we fully acknowledge the challenges that lie ahead. The most significant of these initiatives is our mutual decision to unwind our franchise agreement with Wyndham. Management and the board concluded over long-term, LuxServum will be better served operationally and financially as an independent operator. Started this business as an independent operator and are fully prepared to go back to our origins. We're in the process of deplatforming our properties from Wyndham Systems and moving each of our hotel listings back under full company control. We expect that process to be completed by the end of May 2024 with minimal operational disruption. Let's discuss our results for the first quarter. Net rentable revenue rose 27.6% to $29.1 million from $22.8 million, driven by an increase in average units available to rent to $15.35 from $571, partially offset by lower total rev par, the impact of seasonality to our current portfolio, and other operational impacts mentioned above. Total rev par declined to $208 from $257 due to the surrender of properties and the greater impact of seasonality on the portfolio versus the prior year. As a reminder, we estimate property level break even to be at 160 to 180 per night, so we're still well above that threshold. As we look out to 2024, we expect that total rep par will rise quarter over quarter for the remainder of the year. We reported a gross profit loss of 4.6 million as compared to the gross profit of 5.4 million. The loss in Q1 2024 included lease surrender expense of $1.2 million related to property in Brooklyn and an increase of expenses that include, among other items, greater commission costs, relocation costs, and employee costs due to the surrender of certain properties. General administrative expense without non-cash items and charges was $3.3 million compared to $2.7 million, reflecting higher unit costs and higher unit counts and associated costs. As a percentage of net rental revenues, excluding non-cash charges, GNA was 11% compared to 12% last year's first quarter. GNA margin for the 2024 first quarter was within the range of our target for the full year 2024. Total GNA expenses with non-cash items rose to $7.6 million from $4.2 million, due primarily to $4.3 million in non-cash items, including the non-recurring partnership consideration costs associated with our exit from our franchise partnership. Total operating expenses including non-cash items comprised of $26.2 million of net rental revenue on Q1 2024 compared to $18.5 in last year's first quarter. Our operating loss for the quarter was $12.2 million. Net loss was $16.8 million compared to net loss of $2.7 million. Net loss for Q1 2024 included above-referenced items, plus cash interest and financing costs of $2.5 million and non-cash financing costs of $2.3 million, which taken together rose by approximately $950,000 from last year's first quarter. Adjusted EBITDA was $2.5 million compared to $4.0 million. Our EBITDA margin in the quarter has been impacted significantly by all the initiatives we've taken recently, and we expect margins to continue to rise during 2024 to our stated goal of 20% EBITDA margins. Moving to the balance sheet as compared to December 31st, 2023. Cash and cash equivalents rose to approximately 1.0 million compared to 0.8 million at December 31st, 2023. Total debt was approximately 6.8 million as compared to total debt of 4.3 million. Accounts payable and accrued expenses increased approximately 28.9 million from 23.2 million. The increase in accounts payable and accrued expense primarily related to the surrender of properties and the termination of the partnership agreement. With respect to our property portfolio, as of March 31st, 2024, the company leased 13 properties with 1341 units available for rent with an average weighted lease terms of 15.2 years and 19.5 years including extension options. We're down one property from December 31st, 2023 due to reevaluation of our Brooklyn operations. At this point, we do not expect to reduce our current portfolio any further. We welcomed approximately 120,000 guests in the first quarter. We continue to believe that there are opportunities for us to raise capital in a strategic and efficient manner, and we will be pursuing these opportunities with the best long-term interests of our shareholders in mind. Now I'll turn things over to Rob Arrigo, our Chief Operating Officer, who will provide an overview of our properties and operations. Rob?

Thank you, Shanoop, and good morning to all. On March 6th, I joined Luxor Urban Team to help transform a successful real estate organization into a new world-class hotel management company. I found the opportunity to deploy the master lease agreement in a new and a very different manner, intriguing me, to say the least. We are providing landlords, owners and landlords, many of whom are faced with harsh economic and financial realities in a post-COVID economy, with an alternative solution to selling their assets at depressed values. I was impressed with Lux Urban's approach and saw an opportunity to join an outstanding group of real estate professionals to build a company using the Master Lease Agreement, longer term, provide options of a more traditional third-party management solution as a complement to the MLA structure. In a career spanning 35 years, I spent the last 15 years developing, designing, and implementing flat, highly successful management teams in New York City. I'm looking forward to continuing that with Lex Urban. Many of today's hotel management companies operating in urban markets have become very large organizations with high-cost platforms. And I know that in today's economy, owners are looking for something different. They want a highly motivated business partner that is aligned with maximizing operational and financial results. Owners seek transparency, engagement, energy, and enthusiasm to deliver a success story. And in my past, we've been able to deliver flat relationships with owners and talking to them, not at them. And we're going to show that in the coming future. We are building a future profile of what a management company will look like by endeavoring to create a new organizational structure with industry experts working alongside with a team to help redefine hotel management. We intend to create a flat organization with the best systems and tools because we are developing from the ground up. And with input from our owners and landlords, both current and potential, our systems will be easy to use, easy to operate, but most importantly, our management approach allows our general managers and our leaders to be close to the guest, generating a memorable experience. We will be spending the next three to five months developing the Luxurban culture and platform with new ancillary income opportunities such as valet, in-room dining concepts, grab-and-go marketplaces, bringing life back to the assets that we have today, even more life. Once all in place, expected by Q3, we expect to give guidance on impact to revenues. We are early in this process, and it will take time. Our progress will depend on a number of factors, including our ability to strengthen our financial profile. But our goal and what we believe is the key to Luxurban's future is a revamped approach to revenue management that is designed to take advantage of the ever-changing market dynamics to realize our rare par potential. As a revert back to origins, as an independent operator, we are going to be looking at an independent branding style, something that we believe will allow us to be more competitive in the urban markets. To that end, we are in the process of developing our own unique style guide in SOPs, for sense of arrival, new amenity lines, new uniforms, new style, new SOPs that are going to set us apart and allow us to drive our growth and evolution as an organization. The future is bright, and I wouldn't be here if I felt otherwise. We are striving to be one of the only companies that offers both a master lease agreement option and a tailored next-generation third-party management solution. Our culture is very simple. We want to be blue-collar in action and white-collar in mind. We want to build a platform that allows us to be the best hoteliers within our markets and bring a refreshing sense of arrival to our engagements supported by a proud, energized, and excited group of employees that are dedicated to delivering exceptional service. And now I turn things back to Shanoop.

Thanks, Rob.

I'll now ask the operator to open the call to questions from our analysts.

Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you'd like to withdraw your question, simply press star 1 again. If you are called upon to ask your question and are listening via loudspeak on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. We will pause for just a moment to compile the Q&A roster.

Our first question comes from the line of Derek Greenberg of Maxin Group.

Please go ahead.

Hey, guys. Thanks for taking my question. I guess just starting with the unwinding of the Wyndham partnership, could you provide a little more color in terms of what led you to decide that you would be better off operating as an independent operator considering the benefits that were previously stated with the partnership of higher margin and funding? I believe it's 50% of new deposits.

Yeah, so got to be careful what's said just based on our agreements with them. A lot of it's disclosed in our filings. But look, financially, I don't think, you know, I think mutually both parties just looked at it and it didn't make sense. So financially, there were some metrics that were laid out as to how that impacts margins, and I don't think we got to that point. So with that, I'll, you know, let's move on to a follow-up question if there is one.

Okay, just the other expense line item in the income statement that rose over 12 million in the quarter. I was wondering if you could kind of just provide a little more detail in terms of what's included in that incremental increase and how you expect that to progress throughout the year.

Yeah, so significant amount of initiatives were taken in the first quarter, which you've mentioned the unwind as well as surrender of certain properties. There's a significant impact to the surrendering properties with regard to additional costs, labor costs, commission costs, relocation costs, OTA costs, et cetera. So the impact is in that line. And as we navigate through that, you'll see that return back to where it was, call it Q3 of last year, in terms of the overall metrics. Look, I've spent a significant amount of time sort of digging through the impacts. And look, from an overall profitability and EBITDA perspective, once we are done with some of this volatility, we're wholeheartedly feel like we'll get back to the EBITDA margins potentially even higher with some of the initiatives Rob laid out. There's a couple things we'd like to highlight. One is revenue management. Two is obviously ancillary revenue, both of which we've kicked off a little bit of that. The impacts of that are starting in Q2, not in Q1. And then overall, just being able to support a different revenue management strategy with the SOPC laid out in terms of guest experience.

Okay, thank you. And then also on the income statement, the new partnership considerations of $2.7 million Could you just explain a little more what this relates to, if that's expected to be ongoing? And I think it was stated it was non-cash. I was just wondering the nature of what this line item is.

Yeah, so it's the accruals associated to how we look at it. So it's accruals to non-cash, non-recurrent.

Okay, got it.

And then just for my last question, in your calculation of adjusted EBITDA, there's around a $2.7 million, $2.8 million add back for provision of income taxes and other taxes. Provided there is no income taxes in the quarter as well as none in the income taxes payable located on the balance sheet, I was just wondering what taxes this is relating to specifically.

Yeah, so typically these are property taxes that aren't due until well late in the year that we paid in advance. So it's expensed upon payment as opposed to the amortization over the period it covers.

Okay, I got it. Thank you. That makes sense.

Thank you. Our next question comes from Matthew Erdner of Jones Trading. Please go ahead.

Hey, good morning guys. Thanks for taking the question. Are there any insights that you can provide quarter to date on occupancy and what you guys are seeing there? And then in addition to that, the transition off of the Wyndham platform, do you expect that to affect revenues at all?

So the first part of the question, I'll take both parts and then I'll have Rob talk about occupancy as well. So 77% occupancy for Q1, That's, you know, that's a combination of a couple things, right? So January was pretty heavily seasonally impacted. It's typical, but I think based on our mix this year versus last year, it was a little bit more of an impact. But as we, you know, as we got to the February period, you know, things drastically changed. So overall, 77, which is, you know, taking consideration, surrender underperforming properties. Overall, mix-wise, extremely high in core areas and properties in New York based with softness in the more seasonal markets. With regard to impact and revenues, with regard to partnership, I would say no to that. There's no impact to room rates or revenues And then, Rob, if you don't mind just talking about what the, you know, what the current New York portfolio, what you're seeing in terms of occupancy and so forth.

Yeah, I'm actually very, you know, with the transition of Wyndham, you know, Wyndham was a strong partner of ours. But, you know, from a brand perspective, there's other opportunities. You know, May and June, traditionally, we all know, are very strong in New York. So some of the business that we may have lost, With the transition, you know, we all know that the most valuable key in New York is the last key, especially in these high demand markets. So we think the upside potential is much stronger than the loss. So I think overall transient demand we see, you know, to continue on through the summer, everything we're seeing right now, we do not see anyone pushing their foot off the pedal for New York. And early on, looking into September, October, things even look better than year over year, probably by plus 3% or 4%. So we feel very confident that this was the right decision at the right time.

Yeah, that's great. Thanks for the color there. And then can you talk about the current pipeline and any new agreements? Should we expect those to kind of be back-uploaded? Or just what are your thoughts around timing on signing new agreements? Thanks.

Yes. Yeah, so for one, you know, we've changed our approach to announcing, right? We're going to announce it opening not before that, right? So I think we were pretty clear about that, you know, sort of a couple months ago. Just overall, you know, pipeline's there. You know, obviously, you know, Rob mentioned the opportunity set's quite there. You know, we've got to get through some of the initiatives that we've laid out. We've communicated, you know, I think we're almost done with the full communication of sort of where we're looking at it. So, look, I would say back half loaded, but we're just not ready to give specific guidance on there. I think the view here is, you know, when it happens, everyone will be pleasantly surprised to the positive. I don't think there's incremental you know, benefit for us to lead with our chin at this point, you know, we'll lead with results.

Great. Thank you, guys.

Thank you. Our next question comes from the line of Nehal Chokshi of Northland Capital Markets. Please go ahead. Thank you.

Thank you for taking my questions. I'm curious, what's going to be your new property management system, given that you're going to be going away from the Oracle Opera?

Rob, you want to take that?

Yes, I will. We're actually, we're going to be going back to the platform that we had in place, which was CloudBeds. And we are also developing our entire IT platform right now. And so the transition was seamless to us. And so it didn't cause any concern whatsoever. The team was able to make the transition happen within about four days. And so that, great question, but the good news, it wasn't a major concern.

Okay, good to hear that. What percent of bookings was going through Wyndham as of December or March quarter from a, you know, OTA, effectively an OTA mix perspective?

Yeah, not, yeah, not allowed to disclose that. Just, you know, factor which is, you know, what financially not really working for us, but not going to give that specific number now.

Okay, all right.

You did say at the February 6th investor day, though, that you guys were at the rim of breakeven, and breakeven was about 33%. Is that correct, at least?

That was much more Q4 related. Q1 was a different story.

Understood. Okay.

Yeah, so you've got to think about it, right? But think about it, though. February, you know, January is not a great month, right? So not a lot of data there. um to really sort of extrapolate but you know obviously it's changed right so okay um thoughts on why that changed uh not not not not gonna go through that i've got limitations and what um you know we can we can sort of say uh with regard to our agreements so we're just you know trying to be sensitive to that understood understood uh what about the key cash that's been received does that need to be returned with returned with determination of the agreements Yeah, so booked is a liability. Obviously, you know, there's a discussion that goes on that. But, you know, the way it's accounted for, you know, is accurate on the balance sheet, right? So how we've got it accounted for in aggregate is, you know, embedded to it internally with our accountants is accurate. You know, how it ends up, you know, sort of the TBD.

Yeah, understood. But it's going to weigh on your cash, though. It's the bottom line, though, right? at the point in time when you return it, it's going to be a drain on cash.

Yeah, of course.

Yeah. Okay. All right. And I didn't hear actually any June Q guidance. Can you give us any sort of color here on how to think about that?

Look, I mean, overall, you know, we're still navigating through the portfolio, right? So there's, you know, there's still a little movement. The way we're seeing things is, both increase in significant increase in rev par for the reasons I mentioned. Part of it was the the initiatives were taken in Q1. So there's some some lack of comparability in numbers. You know, we're seeing, you know, well above 250 sort of sort of, you know, sort of daily bookings. And, you know, occupancy, you know, we just Rob and I were talking right before we got on this call. Occupancy in New York is, you know, we're we're max on near max capacity to the point where You know, I've got I've got I've got something booked and the team's asking if I'm going to show up or not so they can release the room. Right. So so momentum is there. Obviously, repars, you know, improving just based on getting out of seasonally tough period. You know, guidance wise, you know, we're not specific going to give specific guidance, but you've got, you know, some of the frameworks for, you know, thinking through that.

Okay. And Robert, you kind of hinted that the life in the assets has declined. Can you detail what you mean by that?

I'm sorry. Can you just repeat that one more time? I'm sorry, sir.

Yeah. You didn't explicitly say that, but, you know, at one point you said, you know, bring back life to the assets. And then later said, you know, bring more life back to the assets. So implicitly in that statement is that life in the assets has declined significantly. over, I don't know, some months, basically. And so I was wondering if you could just give a little bit more color to what that implicit statement is saying here.

The term you're saying is licensed assets? Is that what you're saying, sir?

Yeah.

That's what I believe I heard.

I think he's talking about, you know, invigorating sort of a different customer experience that, you know, we have traditionally run pretty lean and Rob's initiatives is to sort of change the approach, sort of welcome approach, guest experience, et cetera. So I don't think it was lack of life. I think it's more of the amenities to bring additional life, right? So food service valets,

um you know guest experience welcome experience etc so so to rob's history rob you can expand more i think that's what he's looking for yeah the the the programs that we were on we you know we want to look at the highest and best use of every square inch of the building worked hand in hand with ownership but you know the opportunities that we're looking at is a new sense of arrival program that will definitely set apart us from any other vendor any other hotel operator but looking at incremental revenue opportunities that include bringing valet parking to, we have some really great hotels and great locations, valet parking opportunities, there's in-room dining partnerships, there's local meeting space partnerships we're looking at. We're looking at utilizing our suites differently and coming into the market as catered hospitality venues. We're looking at revenue management platforms, different fee structures. And really, so I think there's just so many. And then there's another piece that we're just getting ready to implement now is adding a gourmet marketplace to each hotel. The grab and go market in New York is very rich and very profitable. So it's just adding more color, more profitability to a quality existing space, but taking it to a new level.

I see. Okay. And to implement these, you know, incremental revenue opportunities, I presume there's also incremental working capital necessary to implement.

No.

Great question. You know, in the gourmet marketplace, it's actually they provide, they do the build-outs, they do the complete supply material ordering, and they pay us net profit. The parking vendors, we've negotiated a pretty strong deal that, again, they're paying us net profit for the use of the garage. So a few years back, parking lot vendors were not as open to conversation, but now they're getting a little bit better. So we have strong relationships there. But everything that we're looking at right now, there'll be some investments, you know, when it comes to sense of arrival, but it's nothing substantial. So I think that we're going to, you know, prioritize in what comes first. But a lot of the things that we're going to be doing are going to be strategic partnerships within, you know, within New York that are going to help us take the hotel to the next level.

Thank you. Thank you.

Our next question comes from Daniel Kunos of Benchmark. Please go ahead.

Yeah, thanks. Good morning. Quick one, Rob, just to follow up on that. As we think about some of the integration, either from an automation or from the hotels advancing their own tech stack in partnership with you guys, I'm just curious how you're thinking about improving the guest experience and if there is actually any tech advancements that you would like to be making to help further your goals and initiatives out of the gate?

Actually, we're just getting ready to head into high tech at the end of June. And we're kind of focused a lot with Alexa and the Amazon platform. So we're going to be working closely with them. Something probably looking at Q3, Q4, but bringing some new, the most contemporary technology into the guest room. I'm a big fan of technology that is simple, that is easy for the customer to use. And I think sometimes people jump on technology a little bit too early. But I think using the Amazon platform is something we've already reviewed and it's something in the near future for us. But that's still in negotiations. The other part of it is, you know, designing and what I've been able to do in the past is designing a management company that the technology that the associate is using is easily and easily executed. So the customer is feeling a good experience and it's consistent. I think sometimes technology can be overdone and sometimes it's not executable. So we're very sensitive to making sure whatever we do works well and consistently.

No, that makes total sense. And we've seen issues in the past before. And just obviously, you know, to your point on sort of back half loaded in terms of the pipeline, how much do Rob's initiatives, the new SOPs, everything else and what we just talked about influence sort of how you think about expansion potential from here? Does it change potential mix? Does it change who you target? Just love to get a little bit more color. Thanks.

Yeah, so look, we're going to be much more guarded on sort of how we roll out, you know, expansion. But look, you know, and also actually, you know, just offhand, you know, Rob wanted to kind of throw out sort of revenue numbers potential. And, you know, we decided not to collectively. You know, we want to really sort of digest the opportunity set, you know, as Nahal mentioned too, you know, impact working capital. You know, certain things can be big impact, but impact working capital, which we're very focused on. So, look, I mean, all the lower-hanging fruit initiatives are underway. As it requires incremental capital, you know, we're being much more methodical about it. We're much more focused on second half, you know, sort of really focusing on the second half, the first half of the year is really sort of the initiatives we mentioned earlier. So the combination of what we've laid out as sort of, you know, called secondary revenue opportunities is going to be built with, you know, what our opportunities are with regard to potential growth.

Okay, fair enough. Thanks, guys. Appreciate it.

Thank you. Our next question comes from Tom Carr of Zacks Investment Research. Please go ahead.

Good morning, guys. Most of my questions have been answered. I wanted to know if you could provide more color on potential financing options for lease development or lease deposits. Besides the surety bonds, I saw that surety bonds was up to $10 million. Are there other sources now that the Wyndham development money is not available?

Yeah. So, Tom, thanks for the question. So, yeah, there's other sources, you know, surety bonds out there. You know, there's some other things that we're looking at. You know, obviously, they're in the works, so nothing to disclose at this point. But, you know, there's other ways of financing as well. So, look, you know, all options are on the table. You know, thinking through what's the right way to do it. what's the right timing. But look, I would say that there is other stuff. It's just not at the point where we can talk through it and announce it yet.

Great. That's all I had. Thank you.

Thank you. There are no further questions at this time. I will now turn the call back over to Shanubh Kothari, Chief Executive Officer, for closing remarks.

Thank you. So thank you all for joining the call. We're pleased at our progress today. We understand there's still much work to do, right? So as mentioned, we've got, you know, really focused on the work in the first half of the year. The actions we've taken have helped stabilize the business and define our new path forward. As we said a short time ago, we understand the proof will be in the consistency of our results and we remain committed to delivering on our objectives. Thanks again for your time and have a great rest of your day.

Thank you. This concludes today's conference call. We thank you for participating and you may now disconnect.