Cerner Corporation
Q3 2007 Earnings Call Transcript

Published: 21 Oct 2007

[Operator:]

Welcome to the Cerner Corporation's Third Quarter 2007 Conference Call. Today's date is October 18, 2007 and this call is being recorded. The Company has asked me to remind you that various remarks made here, today, by Cerner's management about future expectations, plans, perspectives and prospects constitute forward-looking statements for the purpose of the Safe Harbor provision of the Securities and Litigations Reform Act of 1995. Actual results may differ materially from those indicated by the forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements may be found under the heading Risk Factors under Item IA in Cerner's Form 10-K together with other reports that are filed with the SEC. At this time, I would like to turn the call over to Marc Naughton, Chief Financial Officer of Cerner Corporation.

[Marc G. Naughton:]

Thank you Katrina. Good afternoon everyone and welcome to the call. I will lead off today with a review of the numbers followed by sales and operational highlights from Mike Valentine, Executive Vice President and General Manager of the U.S. Trace Devanny our President will then discuss our global efforts, our physician practice business and our healthy employer and healthy government initiatives. Trace will be followed by Jeff Townsend, Executive Vice President and Chief of Staff will discuss innovation. Neal Patterson, our Chairman and CEO will join for Q&A. Now I'll turn to our Q3 results. In summary, our results included bookings and revenue that were below our projections, primarily due to a large sequential and year-over-year decline in hardware. However, the lower hardware only impacted the revenue and bookings, but we still delivered strong gross margins and operating margins with both at record levels as a percent of revenue. We view this ability to drive strong earnings despite some lumpiness in bookings revenue as reflected by the increasing maturity and diversity of the business models. Moving to bookings, our total bookings revenue was $356.7 million, which is basically flat, compared to last year and is about $8 million below our guidance. As I mentioned, we had much lower contribution of hardware in Q3, which led to the slightly lower level of bookings. The flow through of the lower hardware is reflected in record gross margins, which I'll discuss in a minute. Further recall that we had significant bookings over attainment in the first two quarters, so year-to-date bookings growth is still strong at 19%. Bookings lodged in the quarter was $313.2 million or 88% of bookings revenue, again a higher percent... a higher percent than historical levels because of lower hardware. Moving to backlog, our total backlog increased 31% year-over-year and ended the quarter at $3.12 billion. Contract revenue backlog ended the quarter at $2.59 billion, which is 34% higher than a year ago and is another indication of our strong year-to-date bookings performance. Support revenue backlog was $528.9 million. From a top line perspective, our revenue increased 8% over Q3 of '06 to $372.9 million. The revenue composition was $115.3 million in system sales, $102.1 million in support and maintenance, $147 million in services and $8.5 million in reimbursed travel. System sales revenue was down 8%, compared to Q3 '06, driven by the significant decline in hardware sales to multi-year low during the quarter. For perspective, note that hardware revenue was more than $20 million lower than our record Q2 hardware levels, accounting for essentially all of the difference between our results and guidance. As we discussed last quarter, these sales could be lumpy, but they generally don't significantly impact our targeted gross margin dollars. Services revenues grew 19%, compared to the year ago quarter, driven by continued strong managed services and professional services growth. Support and maintenance revenue grew 17%. Our gross margin for Q3 was 84.5%, it was up 470 basis points from a year ago and 540 basis points from Q2 due to lower level of hardware sales. This impact is more pronounced when you look specifically to the system sales margin, which increased from 57.3% in Q2 of '07 to 70.6% this quarter. Both gross margin and system sales margin are at all time highs. This strength in margin is also reflected in the growth of gross margin dollars, which increased 14%, well above the 8% growth in revenue. Our operating expenses before option expense in Q3 were $254.4 million, which is up 12% over year ago, with professional services and managed services growth being the primary drivers. Moving to earnings, our GAAP net earnings in Q3 was $35.8 million or $0.43 per diluted share. GAAP net earnings includes stock options expense, which had a net impact on earnings of $2.6 million or $0.03 per share. Adjusted net earnings were $38.4 million, which is 30% higher than Q3 of last year. Our adjusted EPS was $0.46, which is $0.01 higher than the consensus estimate and our guidance range. Please refer to our press release in Form 8-K for reconciliation of GAAP earnings to adjusted earnings. Our operating margin before on options expensing Q3 was 16.3%. This quarter our operating margin was impacted by about a 110 basis points due to approximately $25 million as zero margin revenue from our projects in Southern England and London with Fujitsu and BT. Our Q3 operating margin without this revenue was 17.4%, which is up 260 basis points, compared to Q3 of last year. Now I'll move to our balance sheet. We ended Q3 with $308 million of cash and short term investments. Total debt was $205 million. Total accounts receivable ended Q3 at $366 million, which is flat, compared to last quarter. Contracts receivable or the unbilled portion of the receivables were $141 million or 38% of total receivables, which is up from 33% last quarter. Our DSO was 89 days in Q3, which is down 4 days, compared to a year ago and up 3 days from Q2. Third party financings were $21 million or 5% of the $402 million of total cash collections. Operating cash flow for the quarter was $80 million, which is up from $63 million in Q2 and $53 million a year ago and brings our year-to-date operating cash flow growth to 14%. Q3 capital expenditures were $49 million including the $15 million of property expenditures related primarily to our new data center and new builds. Capitalized software in Q3 was $17 million. Free cash flow defined as operating cash flow, less capital expenditures and capitalized software was $14 million. Free cash flow before property expenditures was $29 million. This improvement in free cash flow is consistent with what we communicated last quarter. And we expect continued improvement in Q4 and 2008 as capital expenditure is moderate. Moving to capitalized software, the $16.9 million of capitalized software in Q3 represents 24% of the $69.1 million of total spending on development activities. Software amortization for the quarter was $13.4 million, resulting in net capitalization of $3.5 million or 5% of the total. Going forward, we expect the net capitalization rate to remain in low single digits. Now regarding software capitalization, as Jeff will discuss, we are going to do some additional development using the Millennium 2007 code set as a base. This approach will likely push the next major release out beyond 2008. However, there will be some amortization... amortization triggered. As a functionality, we had the Millennium 2007 becomes generally available. Because these will be short release cycles, the amount of amortization increases will come in small increments and should not have a major impact on any one period. I will continue to update on this you as we move forward. Now, I will go through the guidance. Looking at Q4 revenue, we expect revenue in the $405 million to $415 million range which is approximately 9% higher that Q4 '06. This brings full year 2007 revenue to between $1.53 billion and $1.54 billion which reflects growth of 11% to 12%. The full year guidance is about $20 million lower than our previous guidance due to lower hardware revenue in this quarter. We expect Q4 EPS before options expense to be $0.50 to $0.51 per share, which reflects growth in the mid-20% range. The Q4 guidance is based on total spending before options expense around $255 million to $260 million. This guidance brings EPS before options expense for the full year 2007 to $1.73 to $1.74 at the high-end of the range reflecting a $0.01 increase from where our consensus was the last time we provide a guidance. Our estimate for options expense for Q4 '07 and 2007 is approximately $0.04 and $0.13 per share, respectively. This brings Q4 '07 GAAP EPS to a range of $0.46 to $0.47 and full year 2007 GAAP EPS to a range of $1.62 to a $1.61. For bookings, we expect bookings revenue in Q4 of $380 million to $400 million, which is in the range of the all-time high level of $389 million of adjusted bookings in Q4 '06. Note that our adjusted bookings in Q4 '06 were $543 million as it included a $154 million booking related to the London region of the National Program for IT. Obtaining this guidance range would put us at full year bookings growth of 12% to 14%. Finally, we're in early planning stages for 2008, and as in the past, I want to provide you an initial view of our outlook. Currently we're still looking at top-line growth in the low double-digit range and earnings growth in the 20% to 25% range. This is consistent with what we have laid out in our long-term revenue and margin expansion goals and is also in line with current consensus estimates. With that I'll turn the call over to Mike.

[Michael G. Valentine:]

Okay. Thank you, Marc. Good afternoon, all. Today, I am going to cover sales and operational highlights, marketplace trends, and our recent health conference event. From a sales perspective, we had a solid quarter with a lower level of hardware sales being the exception. Our contract volume was very high in Q3 with a record 391 contracts, 14 of these contracts were over $5 million, 8 of which were over $10 million. 24% of contract bookings were for new Millennium footprints. This is up from 15% last quarter due to solid performance from our client development organization. From a leading indicator standpoint we continue to see strong levels of vision center visits, site visits and RFP activity. And our pipeline remain strong with a continued strong level of new footprint opportunities over the next several quarters. We also had excellent attendance at our health conference and received great feedback from our clients, which I'll discuss in just... discuss in just a minute. Operationally, we had a strong quarter of execution in our professional services organization. We turned on a record 458 Cerner Millennium applications bringing our cumulative conversations of applications to more than 7,200 at over 1,200 facilities. The go-lives included another 12 acute care CPOE sides bringing our industry-leading total to a 147. This was a record for us in terms of CPOE go-lives in a given quarter. As I have mentioned not only do we have the largest number of clients live on CPOE, but we believe our clients are deriving more value than clients of other suppliers because as measured by the HIMS analytics EMR adoption model our clients are more advanced in their use of IT. We continue to extent this differentiation by raising our standards while also lowering our clients total cost of ownership by leveraging our CernerWorks hosting capabilities, our implementation tools and methodologies, and initiatives like our lifetime network, which Jeff Townsend will discuss further in just a movement. On a competitive front, our progress at driving quality up and cost of ownership down coupled with the industrial strength of our architecture and solutions puts us in a good competitive position. While there have been no major changes recently in the competitiveness of other HIT players, it remains a very competitive market, and we have to compete hard everyday to earn business. Looking at the overall marketplace, the macro environment remains favorable for healthcare IT. Most hospitals remain in solid financial condition and IT continues to be high on there priority list. Last quarter I mentioned the increased presence of paid for performance plans as one of the drivers of IT spending because these plans require reporting on safety and quality outcomes as part of the reimbursement process. Another measure that will link quality and safety directly to the economics of our clients is what we call the never pay list. On August 1st CMS published its final rule for changes in the 2008 in-patient perspective payment system, and beginning in October of 2008 hospitals will not receive additional payment for treatment of conditions acquired while in the hospital if the condition is deemed reasonably preventable through the application of evidence-based guidelines. This change emphasizes the importance of using a system to ensure compliance with evidence-based guidelines, and this is good news for Cerner as this is an area where we are leading the way. Another part of the changes include increasing the number of DRGs by almost 40%, which also increases pressure on the need for systems to document care and submit for reimbursement. These real changes underscore the need for the integration of clinical and financial information, which again matches Cerner's approach to the revenue cycle. I would like to close by spending a minute discussing the just concluded Cerner Health Conference event. More than 6,700 total attendees from hospital clients, to physician practices, industry partners to associates participated last week in an annual conference. As we returned to Kansas City, it was impossible not to be struck by how this event has evolved with client growth of 82% since the last event held in Kansas City in 2003. This year's conference centered dramatically on our Role-Venue-Condition design methodology. It also represented another strong amplification of our altogether brand positioning where clients, literally, shared their industry-leading experiences first hand with other attendees. In fact, over the course of the week our clients led a total of over 400 educational sessions across 27 different tracts. This total not only greatly eclipses other comparable HIT supplier events it also exceeds the educational session counts of the largest industry events including RSNA, HIMSS and TPA. We believe that the concrete learning that comes out of these sessions is one key reason that over 70% of 2,000 attendees call Cerner Health Conference the most important industry event that they attend. We also believe that it represents a highly beneficial cycle for the company, elevating our strategic alignment with our current clients while solidifying a key Cerner differentiator with prospective clients as they continue to experience with a similar hospital as the most important supplier selection criteria. With that summary I will turn the call over to Trace.

[Earl H. Devanny, III:]

Thanks, Mike. Good afternoon, everyone. Today I would like to discuss progress in several of our business units including our International business, our Physician Practice business, and our Healthy Employer and Healthy Government initiatives. On the global front we had another solid quarter with continued strength from multiple regions. Our momentum continues to build and thus we remain broadly optimistic around our global business. In England, we continue to make progress of bringing solutions live in the national program for IT, as a software provider in two regions representing 40% of the country of England. Since last quarter, we have brought many more solutions live at several more sites. We now have a total of 39 sites and 228 solutions live, which is up from 30 sites and 149 solutions last quarter. This is perhaps the largest IT projects in the world though it has had its share of challenges. But, we are confident we will continue to make steady progress going forward. Looking ahead, our pipeline of global opportunities remains very strong and as I mentioned we continue... expect continued strength from this business. Moving to our PowerWorks Physician Practice business; our third quarter included a solid booking performance driven by continuing traction within our acute care client base as they extend their Millennium PowerWorks solution at the strategic link to community-based physicians. This activity reinforces our belief that a common architecture and platform supporting both the in-patient and out-patient environments delivers strategic advantage for our clients. On the PowerWorks implementation front, we continue to make excellent progress, in fact last quarter we installed an EMR solution at one of our physician practices in less than a week's time. We're able to accomplish due to our ability to leverage increasingly more effective implementation tools and our web-based training approach. We expect these improvements to become the norm, yet we still envision a point at which we can do a week-end install, which will further differentiate our offering from the competition and help accelerate the growth of our physician office client base. We also continue to gain momentum across several of our employer focused initiatives that we've branded Healthy Employer services. As we mentioned in previous calls, we're working closely with a Fortune 500 technology company to provide a fully automatic clinic based on our own successful on-campus clinic. In addition, we've been selected by three employers to provide our Healthy Exchange third-party administrative services or TPA. And our first client went live with our TPA services on October 1st and has gone very well so far, with about 1,200 individuals now carrying the Healthy Card. These people are benefiting from the same enhance experienced our associates have enjoyed since 2006, when Cerner terminated our own TPA and became the first employer to utilize the Healthy Exchange platform. We're excited about extending this important initiative to other employers as we reduce the administrative friction in their own healthcare environments. Finally, there has been noteworthy progress with the Kansas City care and trust initiative, an employer-driven health record bank formally known as Healthe Mid-America. Care and trust is using our proven Millennium software to create secure, web-based community health records for more than 100,000 employees independents of 24 Kansas City area employers. Currently there are five companies representing 15,000 lives live on the network and we expect that this number will continue to grow in coming months. The potential of care and trust is impressive, but participating employers are expecting to stay at $16 million to 2010. They will do so while increasing healthcare quality, reducing adverse drug reactions, medical errors and duplicative tests. We are also continuing to make progress on our state and local government initiatives, which we operate through our Healthy Government's group. Over the past several quarters, we have generated significant momentum in this area including an agreement with an emerging care collaborative to create a shared record for the uninsured in Austin, Texas and surrounding communities. A contract to create a health record for all foster children enrolled in Medicaid in the state of Texas. An agreement to create personal health records for members of the Leukemia and Lymphoma society diagnosed with multiple Myeloma. A contract with University of Utah to create a health record to better manage the state. State of Utah's Medicaid hemophilic population. A contract with Missouri's Primary Care Association, where we are building a health record for member served by safety net... by safety net providers in Kansas City, St. Joseph in Colombia Missouri. Continued progress on rolling out a CHR initiatives in Frederick County, Wichita, Kansas which now covers 200,000 Kansas Medicaid recipients. And finally, we have made great strides with our juvenile diabetes initiatives which now includes nearly 12,000 children and over 700 clinicians in a network. We have recently stepped our... stepped up our adoption efforts by aligning with three NFL teams through our innovated tackle diabetes program. Working with Kansas City Chiefs, the Indianapolis Colts and the Washington Redskins. We expect to increase awareness, boost enrollment and improve the health status of this defined population coping with this terrible disease. In summary, we are pleased with our progress on these employer, government and regional initiatives. Innovation is an important element in the Cerner success story and these initiatives represent a big part of our role in the transformation of the health economy. The health economy has many players. With the consumer at the core as the end user. Providers, employers and governments as drivers and insurers, employers, think tanks, policy makers and others acting as influencers. Our vision and strong commitment to innovation, uniquely positions us at the nexus of this rapidly emerging health economy. This position enables us to create enormous value through, connecting consumers and providers across care venues to advance interoperability, reducing costs and improving productivity via person-centric model, with models such as our Healthy Exchange, TPA services and Healthy clinic as well as Healthy Government programs. Integrating clinical and financial transactions to drive out ways and provide real time payment with the elimination of the clipboard in physician offices, real time eligibility checking, claims generation and payment processing driving a fundamental shift in the healthcare industry. Clearly, we have a lot going on, it is all very important and it is all very hard and we believe there is no one better positioned to deliver strategic value to this industry than Cerner. With that I'll turn the call over to Jeff.

[Jeffrey A. Townsend:]

Thank Trace. I am going to make some brief comments on the progress we have made at creating new innovative solutions. As Mike referenced, we recently had the opportunity to showcase these capabilities to a broad cross section of our clients during joint presentations and experiences through our solutions gallery. The core of our innovation is the Cerner Millennium architecture, the depth and breadth of which provides clear differentiation for Cerner in the marketplace. Last November, we delivered Cerner Millennium 2007, our largest code release on the Millennium platform today. It included an improved user interface and new clinician workflow experience, which is contributed to an increased competitiveness. The demand in our install base for this release has exceeded our expectations with more than half of the install base running on this platform by year-end. Putting us on trajectory to have most of our install base running on a single release, a very good thing. As a result, we've decided to use the Millennium 2007 code as a baseline for series of smaller releases that we will target in 90-day cycles. The feedback from clients regarding this approach was very positive with our healthcare conference as they liked the ability to gain access to new innovations more quickly in smaller amounts rather than waiting for another major release. Unlike our competition, we are building of the decade of experience with Millennium, which has been successfully deployed in complex healthcare organizations around the world. The breadth and depth of automation of clinical and financial processes is remarkable. We are at the centre of the most complex processes in medicine eliminating the errors, variance, ways, delay and friction. It is an exciting time in this approach to release management keeps both our clients and Cerner focused on constantly moving the bar. Our clients are demanding things that aren't even on the drawing board from many of our competitors, and we are positioned to deliver. Now I'd like to discuss some specific progress on the innovation front. I'll start with an update on our Lite-On Network. This grew out of our commitment to our clients to achieve 39 system [ph] availability and response time is less than two seconds. This network is a surveillance system to identify system performance issues in real time and in the future being able to predict the issues, which will create system vulnerability. The Lite-On Network uses hundreds of built in Millennium timers, measurements and audits to constantly measure system performance and end-user experience for our clients 24 hours a day, providing for a quick identification of and reaction to issues affecting end-user experience. It also allows for each client to benchmark their system performance with peer groups. After announcing Lite-On only a year ago, we already have 270 of our largest Cerner Millennium clients connected to the network representing an estimated 15% of acute care in the U.S. The feedback from Lite-On users has been great and this level of transparency is unmatched in the industry. We will continue to expand the power of the Lite-On Network to include real time clinical and revenue cycle dashboards though it will critical to our clients as quality and reimbursement continue to becoming more closely linked element in the coming years. This will leverage already impressive work, we have done in our Lighthouse organization, where we have demonstrated that we have the skills and methodologies to identify whether our clients are practicing medicine appropriately, committing medical errors and inappropriately wasting resources from unnecessary redundant tests or causing patients needless delays in getting the correct diagnosis for the medical conditions. These capabilities combined together will create the potential for real time evidence based network. In addition, the potential reach of these capabilities goes well beyond the care delivery study. We believe we are entering an error where the FDA will be pressure to have a system of active Pharmacovigilance. This error will be completely dependent on a digitized healthcare delivery system and Cerner is a core enabler of such system. Another area in which we have made significant progress in a short amount of time is our CareAware platform. Our CareAware medical device bus solution allows medical devices to be connected to the EMR through a USB like plug-and-play connection. Year-to-date, we have signed 14 clients for this solution with two already live and the rest expected to be live in the coming months. The live clients have expressed almost a 100% up time and are very happy with their early results. We are continuing to move at a fast pace in this area, and we already have the ability to connect more than a hundred common medical devices found in both the hospital and physician office, and expect to more than double this level by the end of next year. We're also making good progress towards rolling out our line of medication dispensing devices called CareAware RxStation. We are still targeting shipment of production units this quarter. At our Healthcare Conference, we unveiled an extension in the CareAware platform called the CareAware patient storyboard which we expect to release next year. Patient storyboard allows clinicians to build customizable views with real-time information from medical devices and information from the EMR such as medications, vitals, lab results and x-rays. The views can be tailored for specific type of venue such as Pediatric, intensive care, specific complex patients such as a triple transplant or specific medical specialty or individual doctor or nurse preference. On this platform, we're also designing new experience capability such as instant-on and always-on. We believe this opens a new era of critical thinking applications for healthcare. In summary, the level of client interest in our CareAware solutions and devices is very strong as this was evidenced by the fact that this area of our solutions gallery was consistently three to four people deep at our Healthcare Conference. Another unveiling at our conference was our new PACS ProVision Workstation that has recently received FDA 510k clearance. This new Workstation complements our unified RIS/PACS offering, creating a truly cohesive suite of radiology solutions operating on the Cerner Millennium architecture. This significantly reduces our reliance on third parties and brings our offerings to a whole new level. Medical images are pervasive across healthcare and the step solidifies Cerner's ability to capture, store and present this data in a manner that is completely integrated into a complex diagnostic and therapeutic workflow. In summary, I believe Cerner has his very strong worldwide strategic position in the healthcare IT space, with an unmatched depth and breadth of solutions in services and a strategic footprint across acute care, ambulatory care, retail pharmacy, laboratory, pharmaceutical companies and employers. Cerner is uniquely positioned to have a meaningful impact on the worldwide health economy. We have a lot of hard work to do and it's not easy, but there are very few boundaries to what we can accomplish. With that I will turn it over to the operator to take questions. Question And Answer

[Operator:]

Thank you. [Operator Instructions]. Your first question comes from the line of Ross Muken, representing Deutsche Bank. Please proceed.

[Ross Muken:]

Hi, guys.

[Earl H. Devanny, III:]

Hi, there.

[Marc G. Naughton:]

Hi, Ross.

[Ross Muken:]

So, in terms of the sort of shortfall on the revenue line, on the bookings line, could you just go into little more depth, sort of how you are thinking about hardware going forward, I mean, obviously, it's not really, as you said, impacting your gross margin dollars or the profitability given how low margin it is of an item. How should we think about this is sort of building out our model for next year as well, and just sort of your thoughts on whether or not this just a seasonability issue or sort of a variability issue or something that strategic and that you are going to, want to include less hardware in the overall mix going forward?

[Marc G. Naughton:]

Yes, Ross, this is Marc. I will just start-off a little bit from numbers, and let Mike comment on the... from the client community and the marketplace, but I think clearly 84.5% gross margins is higher than we would expect to have. This was a multiyear low in hardware, so if I... the Q2 number was 79% which I think is lower because of the record level we have there. So, I think gross margins that are in 80%, 81% range are probably realistic. We are not giving up hardware as a marketplace for us to go sell into and I think that there is still that opportunity outside. So, that's kind of from a... at least from a guidance standpoint, what I'd put out, Michael, you're your comments and view.

[Michael G. Valentine:]

Yes, what I would add is, as Marc mentioned, we had a big Q2 in terms of technology, resell in the hardware space. We actually see, going forward, the combination of the 2007 release and the demand for that and the growth of utilization. We expect the hardware business to continue to be a good business for us. Because of the combination the 2000 release... 2007 release and the fact that one of one of our major suppliers, HP, is migrating from OpenVMS platform to an HP-UX platform, it does cause our clients to pause a bit and do an analysis. The good news in that analysis is the business will come our way, but it does pause as may make the technology resale business a little bit lumpier than it has been traditionally, but in any outcome whether it's an HP platform, IBM platform or a hosted decision. All three of those are good answers for us.

[Ross Muken:]

Okay. And one other thing on RFP activity, could you sort of break that down in between sort of what you are seeing in the small, medium, and large size hospitals. And then also if, Trace, you can contrast that to what you are seeing internationally. I mean is it still sort of broad across the globe or there are certain regions where we are seeing a lot more activity than we had over say the last six months?

[Michael G. Valentine:]

I will take the first part of your question, Ross. The breakdown and the composition of the RFPs hasn't changed quarter-over-quarter, so as it was last quarter, we see equal demand across all of our segments that we focus on. So, pediatrics, academic, community hospital, IDN, the core mix of those hasn't changed in the US. Trace?

[Earl H. Devanny, III:]

Yes, I think, Ross, globally we see single pair of systems in most countries around the world. Most countries are very active in the healthcare space at this point, but relatively speaking it's mostly governments that are making a hard... taking a hard look at the... at their cost of care. To Mike's point, it's broadly spread across all segments, though what we see and given our ability to scale, we are spending more time with the large providers, the government branches, if you will, the large medical centers. The better, in a way to mean the activity across all segments.

[Ross Muken:]

Great. Thanks guys.

[Operator:]

Your next question comes from the line of George Hill representing Leerink Swann. Please proceed.

[George Hill:]

Hey guys, good afternoon. I guess one thing I... Marc I'll ask you first, are we still targeting $60 million to $70 million of free cash flow for 2007?

[Marc G. Naughton:]

I don't think we've been targeting that for quite sometime for 2007.

[George Hill:]

Yes, well okay.

[Marc G. Naughton:]

But in the last call we kind of indicated that we would... if you stretch to get kind of within $10 million of last year's, which was $40 million, so that kind of put us around a $30 million. We had strong cash flow performance this quarter relative to getting back on track. Our expectation is to go into Q4 with kind of run rate that you would expect to see, the ability to deliver somewhere in the $80 million to $100 million range in 2008.

[George Hill:]

Right, I see, I was looking in the wrong column. I am sorry about that.

[Marc G. Naughton:]

That's all right. I think I do think if you look forward to '08, then if you take just the increase in net earnings, given this CapEx does turn into deprecation expense which benefits on the cash flow line. So you've taken net earnings, somewhere in the neighborhood of $25 million for D&A, benefit over what we got this year, maybe use up a little bit, working capital, incremental, if it's not much and then you take CapEx down $40 million. I think the math would tell you that, that's in $80 million to $100 million free cash flow number in '08 and we probably would expect to kind of hit Q4, then it would be in a range that that would illustrate our ability to drive toward that number.

[George Hill:]

Okay, and I see Marc or Trace, are we still expecting UK to be a profitable business in National Program for IT in 2008.

[Marc G. Naughton:]

The current expectation is that the undelivered elements that currently mean that we don't or are unable to take margin on that contract. We expect it to be resolved in 2008 and therefore we would expect to start getting margins from that contract sometime in '08 and we've indicated that's probably in the last part of the year that is still our expectation. No change there.

[George Hill:]

Okay. And then the last question I ask is, let's say that we are now looking for 12% bookings growth. In my model, we call it a low double digit bookings for through the back half for the share income in total. You guys are still guiding to double digit top line growth in 2008 versus what were low single digit quarters in the back half of the year. Does this mean that we should expect a reacceleration of the bookings growth in the first half of '08.

[Marc G. Naughton:]

I think you kind of have seen in '07 and '06 some of the lumpiness of the bookings. In '06 we've big bookings quarters at the last half of the year in '07, we've seen the big bookings quarter in the first half of the year. I think that overall George, I think its kind of low single... low double digits. So your 12% on bookings and 12% revenue probably is in bad way to start out on the modeling. I think that's pretty consistent with where our guidance is on those areas today.

[George Hill:]

Okay, I'll hold back in the queue. Thanks.

[Operator:]

Your next question comes from the line of James Kumpel representing Friedman, Billings, Ramsey. Please proceed.

[James Kumpel:]

Hi, good afternoon.

[Marc G. Naughton:]

Hello.

[James Kumpel:]

Hey Marc, can you just remind us about how much of it makes the total bookings hardware tends to be ?

[Marc G. Naughton:]

From the revenue standpoint there is pretty significantly. So, it can... it could be anywhere from somewhere in the 5% range to where it's going to be 15%. So the interesting thing in this quarter is the kind of contribution from all the other elements of the business state relatively constant. So software, mail services, services, those all stay at pretty consistent, they all went up a little bit as the percentage because hardware was in much lower percentage but anywhere between kind of that rate.

[James Kumpel:]

It appears that the in the market seems to be reacting pretty heavily to the revenue side of the equation this quarter, released after hours and I think a lot of it has to do with not necessarily getting the visibility on kind of that mix because it looks like software and services were pretty much in line. Does it make sense, do you think at some point in the future to really focus bookings guidance on the non-hardware element, does that stuff that you are a little bit more in control of.

[Marc G. Naughton:]

Jim, we are the only company that provides booking guidance, in the level that we provide and I think we try to do it in later where allow people to see what the business is going to deliver. I think it's pretty clear from the numbers that the shortfall that occurred in Q3 was related to hardware. Yes, we've said many times on this call, we manage to the margin level, that's how we manage the business. That's one of the reasons that we are able to retain earnings by paying. We are managing the business at that level, the mix is always going to change and we are going to give you our best shot at the bookings guidance when we come into a quarter. Put that number out there and in Q3 we blew it out by $30 million and this quarter we were short by a little bit. So there is going to be some variability but we think long-term investors understand that we are going to focus on fundamentals.

[James Kumpel:]

Okay. And then also just wanted to check on your... on your current ambulatory offerings. Can you talk a little bit about how effectively, your products are penetrating current marketplace and I think its... a lot of people are of the view that the ambulatory side is really where a lot of the... and the near term growth is in. And I just wondered to see where you fit in. And its... if you are developing any new products that might kick start, and that much more opportunity?

[Earl H. Devanny, III:]

Yes James we obviously agree. We are very-very focused on the physician opportunity. About 85% of the physicians in the U.S. do not have an electronic medical record. So we like that opportunity and we have a long history of success, our multi generation success around building that type of a technology in providing it for our clients, who I think Cerner separates itself from the rest of the players of which there is a great number, is that we can bring on a common platform across both the ambulatory and the in-patient set-ins, we can bring that critical information if not available by other players who don't have access to lab information for radiology information, to that critical pharmacy or those med information. I bet you can get access to it but they can't run on a platform though as we have delivered on Millennium. So we think we have a very good story, the subscription model has had great... has that great acceptance in the marketplace and I think you will see us focus more and more as we spread our wings across other opportunities in the ambulatory space.

[James Kumpel:]

Do you have any kind of metrics that you can point to in this past quarter that may be gives us a sense of how well its being adopted and kind of maybe pipeline that you see going forward.

[Marc G. Naughton:]

Yes Jim, this is Marc. We kind of indicated in this business that we are little ways off from providing metrics. It's as we went to a subscription model the revenue growth is not significant because of the method... method we use going subscription based. I think probably the next milestone you will see from us is talking a little bit about some of our provider clients looking to promote and restart and provide this across a broad range of physicians or in the case of certain other providers may be not assisting in the payment, but indicating that that's what we are running inside our four walls and that's what we want you to connect with if you are going to be an affiliated physician, a specialist is available at such a reasonable cost in the marketplace.

[James Kumpel:]

Okay, thank you very much guys.

[Operator:]

Your next question comes from the line of Steve Halper representing Thomas Weisel partners. Please proceed.

[Steve Halper:]

Hi just a follow up on the hardware component and the impact of margins as best as you can forecast. You are given a lumpiness in the hardware. You... are you still on track to get to that 20% margin goal in 2009 or could that be sooner now?

[Marc G. Naughton:]

Steve, that is an interesting question. I was doing some of the math earlier this afternoon and basically the results that we have right now and based on the guidance kind of that we put out for Q4 would indicate that we are within 30 basis points retaining our interim level of operating margins on the path to get to that. So, we actually are right on track with delivering those operating margin results.

[Steve Halper:]

So Q4 assumes that you have another soft quarter of hardware, correct?

[Marc G. Naughton:]

It assumes... it certainly is someplace between the all time high and the multi year low. But we would... it is... we don't assume it will be at the same level as Q3. The interest... after Q2, we actually bumped up our revenue side of our guidance part, which now, we are... it's lower than that, so, people were getting some comments on that. The reality is we think putting in a conservative number for hardware in Q4 is good, if some of the platform changes, that Mike said, indicated, are actually come to fruition, people make a decision and order we could exceed that. But I think we've taken a conservative approach to our hardware bookings relative to our Q4 numbers.

[Steve Halper:]

And you mentioned, my last question is you mentioned in 2008, $80 million to $100 million in free cash flow. Is that, could you just confirm that?

[Marc G. Naughton:]

Yes, I think just doing the basic math, we will put you in that range, Steve.

[Steve Halper:]

So, you like to have free cash flow in the Q4 that annualizes to 8,200, is that what you are saying?

[Marc G. Naughton:]

Yes, I think we would be pleased if we were somewhere in the $20 million to $25 million free cash flow range in Q4 or something that certainly would annualize given the volatility you get on quarter, sometimes on cash flow to get us in that range.

[Steve Halper:]

Right.

[Marc G. Naughton:]

We think, it still be... it should be relatively indicative.

[Steve Halper:]

Right, but you are not expecting any huge building projects again in 2000... new building projects in 2000 --?

[Marc G. Naughton:]

It answers the same question you asked last quarter, our expectation... we have not added anything to the list and we certainly are... our budget process, as we speak, and the capital budget is certainly as focus as everyone in this room.

[Steve Halper:]

Okay, just asking. Thank you.

[Marc G. Naughton:]

No problem.

[Operator:]

Your next question comes from the line of Atif Rahim representing JP Morgan. Please proceed.

[Atif Rahim:]

All right. Thanks guys. Marc could you talk about the software amortization that you talked about, that kind of marks the reversal from what you did a couple of years ago, actually last year, when you went to one release schedule. So, how are numbers going to be affected? You said there will be a small increase in amortization, but does everything you have capitalized so far for Millennium '08 start getting amortized prior to the launch and when would we expect that '08 launch at this point which you said will be delayed?

[Marc G. Naughton:]

Yes, it's a good question... relative to the '08 we still... we will continue to have a next release of Millennium, most likely it's going to be on the Java platform, and it will be a significant different release from Millennium 2007. So, we are continuing... the work we are doing on '08 is going to continue to roll forward on '08. It still remains capitalized. It will trigger when we release, whatever that release is called which... it may not be obviously 2008 at this point. Our marketing department will come up with a great name, I guarantee you. But what it means in the near term, relative to the adoption of Millennium '07, obviously we would love to be able to go on 12 to 18 month releases. We just think the opportunity to go to the marketplace with some enhancements to '07 that build on the adoption that we are getting is too great an opportunity for us to pass up. So, we are going to be putting out some interim releases, what will be different from what we would have done in the past where we had interim releases or continuing releases is rather than aggregating them all during the year and beginning the amortization in January, those will begin amortizing when they go GA. So, we will keep you apprised of when something has gone to GA. The net impact in any one quarter is going to probably be less than $1 million. So, it will be something that's not going to be a major impact to the models but you will be able to kind of see it and follow through your models going forward.

[Atif Rahim:]

Okay, a word, I'd just like to clarify is it, are we expecting amortization expense to go down just because the capitalization associated with '08 won't become, won't be amortized next year.

[Marc G. Naughton:]

Well the anticipation has always been that relative to '08 continue to be capitalized and not amortized until '08 went GA, is that you wouldn't have any additional amortization hit that line until '08 and in January you would have had a whatever fully amortized and its five-year life in December were it rolled off in January. At this time what you are going to find is a little bit of reduction for the stuff that roles off where you will start seeing incremental additions to that amortization throughout the year in 2008 as we go roll out two or three of these releases during the year.

[Atif Rahim:]

Right, okay. And then just quickly the revenue guidance that you provided, I think, you definitely indicated you are being conservative about the hardware sales but what percentage of your current quarter's hardware bookings actually flow into revenues. My assumption was that it doesn't necessarily mean 100% of the current hardware book that's flowing to the current quarter's revenues, is that different --?

[Marc G. Naughton:]

It's actually pretty close, Atif, the hardware is the one thing. They order it, we put in the order to our supplier who are really excited to get the things shipped for their revenue. And so a lot of those orders happen and get revenued in the same quarter they book. So, if the bookings and the revenue are... for that as one element where they are very much in sync.

[Atif Rahim:]

Okay. All right. Thank you.

[Operator:]

The next question comes from the line of Anthony Vendetti representing Maxim Group. Please proceed.

[Earl H. Devanny, III:]

Anthony. Why don't we go to the next caller?

[Operator:]

Your next question comes from the line of Sean Wieland representing Piper Jaffray. Please proceed.

[Sean Wieland:]

Hi, thanks. I just want to go back to this hardware issue and see if I can get my arms wrapped around the story behind both the underperformance in Q3 and the over-performance in Q2. And we can talk about and the kind of things going on in the market that's causing that. Was it related to, as you mentioned in your comments, HP/Sun setting the alpha server. And halfway through the second quarter was there a rush to go out and buy these things and then no demand in the third quarter. Does it have anything to do with the movement over to managed services? Can you just help me kind of explain the trend in hardware?

[Marc G. Naughton:]

Andrew, this is Marc, I'd like to comment.

[Sean Wieland:]

It's actually, Sean.

[Marc G. Naughton:]

Sean, I am sorry.

[Sean Wieland:]

That's all right.

[Marc G. Naughton:]

Sean. The hardware tends to be lumpy, and there is no systemic issues that we've seen. I think the issues that Mike talked about relative to platform that will occur over time as people look to migrate from that platform. So, that's not something that's kind of got a drop dead date; at least currently built in for most of our client. It depends on large clients who are going to host themselves, that make large hardware purchases. In Q2, some of that, we have a little bit of... some global participation from some clients there that were buying hardware to populate data centers. So, it really just depends on what clients are in the pipeline and when they are pulling the trigger. For the most part new clients that are coming into our... from our pipeline and that we're signing, the majority of those are hosting, so they are not impacting our hardware at all, it's really our install base. The hard part is we don't... the visibility to that is pretty short-term. As I said, they buy it, they order it, get it and install that all within kind of a 90-day period. It's hard for us to get really good visibility on all those orders.

[Earl H. Devanny, III:]

Yes Shawn, the only thing I would add to that, and just extending Mark's point. The move towards managed services or hosted environment for our new clients and even our install base, that's been going on for a while now. And so we've been actively backfilling that revenue and that volume by taking more of the IT spend of our clients, broadening out into the handheld devices, mobility, architecture, infrastructure decisions. So, we've been very, very active over the last two or three years in recognizing that there is a certain percentage of the spend that will go away given a hosted current environment. So, we are actively pushing the boundaries on how we go back to build that. And I would just reiterate again, I don't think there is anything going on in our marketplace and/or our solutions that leads me to believe that there is a... this one quarter represents a trend in a different direction.

[Sean Wieland:]

Okay.

[Marc G. Naughton:]

Keep in mind that hardware is a nice thing for us to sell, because our clients buy it. We can make some money off of it, but it is not a huge driver of our gross margin or of our earnings. So, it's... we can sell no hardware and still make our numbers. The impact is going to be on the revenue line and that's once again, why internally we manage the margin line much more rounds out to the items that have high cost and there are margins, items that have no cost directly such as software.

[Sean Wieland:]

I understand that, it's just that the market, I think, is a little bit wrapped up right now. Do you know how many of your customers are still on the old alpha servers?

[Michael G. Valentine:]

This is Mike. There is a... I wouldn't give you a specific number but you have to realize that our classic clients, so the pre-Millennium clients are almost entirely on a HP platform. So it's a combination of the millennium platform plus the classic platform. And I would say that it probably represents between probably in the 40% to 50%... 30% to 40% range of our installed base out there.

[Sean Wieland:]

Okay. And just one last question. Partners Healthcare and Boston just recently announced... I know they are your customer... but just announced that they are going to be mandating EHR adoption by community physicians. I'm wondering if you see that as a trend for hospitals to put away the carrot, break out the stick to get docs to adopting the HR.

[Michael G. Valentine:]

This is Mike again, I'll take a... I'll give you my opinion. I think it's actually... we see more the opposite. We see more of our clients leveraging the Stark venue to allow themselves to go reach out to that physician community, so. And I know that, I saw probably a similar press release. It wasn't clear to me whether or not there would be any level of funding for the actual system other than just training, but I think we... our marketplace, we see it, the Stark laws being received and acted on through our client base. And we actually view that as very good news.

[Earl H. Devanny, III:]

Yes, I think if there is a trend, you are going to see more and more providers reaching out to the physician community to create that sticky network. So, in that regard I believe it is a trend.

[Sean Wieland:]

Okay. Okay. Thank you very much.

[Earl H. Devanny, III:]

Thanks Sean.

[Operator:]

Your next question will come from the line of Richard Close representing Jefferies & Company. Please proceed.

[Richard Close:]

Great, thank you. I'm going to stay unfortunately on this hardware thing. I mean the variance versus your guidance on bookings and revenue, in the grand scheme of things is relatively small, but with that being said. I think coming out of last quarter you guys did talk a little bit about ratcheting up some new footprints in the back half of this year which, it appears that you did, and now saying that most of your new footprints are hosting. Wouldn't you have had better visibility with respect to the lower hardware sales in the quarter as you entered the quarter?

[Earl H. Devanny, III:]

The visibility comes from the fact that a lot of those come from our install base... lot of the hardware purchases are not coming from new deals. If they were assigned to a new deal, so it's a new client that's going to host it themselves, we would have great visibility there, because we track those sales, we know there's going to be a hardware component, we are not seeing a lot of that. We are seeing most of those come in as a hosted agreement, so there isn't hardware. So what we get is the phone call that says we now made our technology decision, put in my order for hardware and I want it shifted at my location within 30 days. So, a lot of those are very tactical by the client, very quick. We have been working with them on roadmaps, but the triggering of your technical infrastructure is something that you can't land on a 12-month sales cycle like we do in most of our other deals. So, it's going to be volatile. And like you said, apparently it's getting a fair amount on focus here. It isn't a major part of our business. It's nice to have, and we will deliver earnings regardless of what our hardware bookings are. So, it's good stuff. We are not walk away from the business because it's easy for us to get it, but it isn't a material part of our business.

[Richard Close:]

Okay. And then just to be clear, the guidance in the remainder part of this year assumes similar, existing client percentage hardware purchases as the third quarter?

[Earl H. Devanny, III:]

It will be as I said between the multi-year low that represents in the record high of Q2. But it's closer to low, so it's a conservative number.

[Richard Close:]

And then when we think about the hosting. Obviously, the data center is impressive and new footprints seem to be going to the hosting or managed services side of things in great numbers. Can you talk a little bit or provide us sort of picture on existing customers and their transition to your hosted services?

[Earl H. Devanny, III:]

In terms of what their... the rate at which they are coming into our data centers?

[Richard Close:]

Yes, I mean, your conference several weeks I think you had... I mean, at least in the short time we were there, we talked with several people there our move... plan on moving to you guys having or hosting the software. Can you talk about the overall trends you see with existing customers on that front and then wouldn't that imply maybe lower hardware sales on a go forward basis?

[Earl H. Devanny, III:]

The... I think to your first question. We are and you probably saw the Lite-On network as... if you were at the CHC event that Jeff spoke about earlier. We are fully transparent in terms of what our capabilities are in our data center. And that includes not only the results in terms of availability, performance, things of that nature. But it also includes how we manage the system, the rigor in which we manage the system and the timeliness in which we can move and advance the platform. And I think that that transparency has a very direct affect on our installed base which they realize that in addition to it being a very nice facility, the engine that drives the performance, our people performance is very, very impressive and then we have a very unfair advantage at delivering computing results in that environment. And I think they... as they learn more about our hosting capability absolutely look to be a part of that because economically and from a performance perspective it's a winning situation for them. So the answer to your first question is, we expect over time more and more of our installed base that our client hosted to become part of our data center operation, and we see that on every quarter about anywhere from two to five of our installed base come into our data center. So, and we are going to... we plan for that going forward. The second part of your question I tried to address in my earlier response which is we know this has been a trend for quite some time and we've been working to backfill that revenue and backfill that margin in our tech resale business by expanding the breadth of the technologies that we offer. So, everywhere from mobile computing more in the care delivery process, expanding a high availability into our client's environment, there are just... there are lot of areas that we're pushing the boundaries from a tech resale perspective. And we fully expect that that... that we have to offset to continue to grow that business.

[Marc G. Naughton:]

Yes, Rich, it is Marc. One... just one comment on, if you look at Q1, we had huge over-obtainment in hosting bookings and we still drove out a decent hardware sale. So --

[Richard Close:]

Okay. I just... you know if we were looking for or expecting in the future for a great number of existing customers to transfer over then there obviously, there wouldn't be the need for all the hardware possibly and I just wanted to make sure that I was understanding that and understanding that you guys understood.

[Earl H. Devanny, III:]

If we see a trend that's consistent, we will certainly let everyone know.

[Richard Close:]

Thank you.

[Earl H. Devanny, III:]

At this point it's an anomaly.

[Richard Close:]

Thanks appreciate it.

[Earl H. Devanny, III:]

Why don't we take one more call, based on the time we have?

[Operator:]

Your final question will come from the line of Dushan Batrovic representing Canaccord Adams. Please proceed.

[Dushan Batrovic:]

Hi, thank you. I was hoping you could help me develop a better sense of what impact some of the new initiatives could have to the financials later on in '08 and even '09 and by new initiatives I am talking about the PowerWorks, the CareAware, the Employer Services... if you want to call it... the non-core business. Could that be material enough to even cause a reacceleration in '09 or is it just too early to tell at this stage.

[Marc G. Naughton:]

Yes, this is Marc. I think going into '08, the things that are basically in our outside the US box graphic that we present, are a lot of the device area is going to be something that we look for contribution in '08. So some of the CareAware architecture, some of the things Mike talked about that were going on the technology side, the connectivity side, we think that business is already a good start and will contribute... will be a contributor in '08 to those results. Our cabinet business... we are on track, I think, to getting that off to ground. So, I think you should start seeing that contributing to both the top-line and the bottom-line as we go forward. Think on the Healthe and the Employer initiatives, we still are in the initial stages of lot of that work. And so I think '08 will be a little early to see a material impact from that, but I think from the other two certainly we would expect to start seeing '08 opportunities come up.

[Dushan Batrovic:]

Would you ever split that revenue that contribution?

[Earl H. Devanny, III:]

We will probably... at some point we may talk to it separately as we do our annual slide relative to business model. At some point when it gets to be large enough. We certainly will look to break it out in that model.

[Dushan Batrovic:]

Okay. Thank you.

[Neal Patterson:]

Okay, this is Neal. I am going to wrap up here just give comments. First, let me actually comment on hardware. It always been the lowest margin part of our business model. We've had a number of discussion whether we should stay in that business or not could be fairly easy to get a check from hardware manufacturers because we generate the demand form and not be the direct sales. Our ads has always been the more we actually can spec and can control the overall environment the better we are. So we've stayed in that business, it is might... we never managed to a top line, we managed to a gross margin that is... margin on the hardware side is... it's because there always been the margin in the hardware side. So, we've always... still on debate. So, we are going to pop... we will stay in the hardware business, but the systemic... there has been systemic impact of the managed services. So we have taken what was a one-time revenue and contribution to the margin and we have basically improved our business model by converting that to our fee that we charge on a monthly basis to our client. And that has decreased where hardware shows up in our basic sales cycle, and also hardware is very lumpy and there is more of variability in that. So, we don't notice it quite as much as you all do, because we actually managed to the other line. But, so if we have one part of our business model whether working as well, this would be the one I want. And then I just want to comment third quarter is always the hardest because there is no, it's not the start of the year, it's not the finish of the year, which is usually motivates the clients and as the summer months too which everybody has more vacation. We never look forward to a third quarter. And we come out just pretty pleased internally. And if you were at the Health Conference or if you've actually been here, one thing you will see it Cerner is... we are getting a lot better amongst everything we do and I might say except management hardware revenue. But the Cerner is really heading quite well here and it's hitting at a very, very good time. Let me add some extra, one of the comments just at the business model level and the physician marketplace which is undoubtedly the most exciting kind of big growth opportunity on a year-to-year basis out there. We made another business model decision and that was to go out there with true ASP type model where we're charging on a monthly basis. Something that we historically have used licenses to hardware. So, which was very lumpy revenues, but they are kind of one-time revenues and margins. So, we have committed to you all to improve the business model, and you are seeing us make big decision, strategic decisions, long-term decisions that do that. It is adding some more very... it is slowing the growth... the top line growth down at the same time, it's improving the quality of the overall business platform and it's improving our ability to drive increased... manage to increasing operating margins. Marc was very clear, we are on path to 20% operating margins, one of the first things I look out when everything gets pulled together is that trend. And you are also seeing the acceleration of really our... back to the free cash flow and accelerating that. So, we are... things are... things at Cerner are good and getting better and the marketplace, I mean, we looked at really close here. Marketplace still has a lot of life in the U.S. and then we really do love the global marketplace for this business. And then, Dushan I really liked your last question. Thank you for asking something other than hardware, but the impacts were very transparent. So, you all know that we have to... we are strategically. I wouldn't say that they are outside the core Dushan I would say we are expanding the core. So, that we have a lot of strategic initiatives that have a lot of upside and we are cautious saying to you, what date and time to put that in your models. And... but most everything we are doing on a strategic basis, it feels really good to me and our nexus becoming one of the seniors in this industry. So, I mean there is a long time. These are really exciting times and we are going to continue... we are going to always be inducing throughout the next decade. Next decade is only a couple of years away, I really like the way 2010 in that decade is lining up. So, the core is... core we think is, we think is going to be very strategic to us and we think we will expand the core. So, thank you very much for your time. And have a great evening, we will see you later.

[Operator:]

Ladies and gentlemen, thank you for your participation in today's conference. This concludes your presentation. You may now disconnect. Good day.