Entegris, Inc.
Q4 2020 Earnings Call Transcript

Published: 2 Feb 2021

[Operator:]

Good day, everyone, and welcome to Entegris' Fourth Quarter 2020 Earnings Release.. Today's call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to Bill Seymour, VP of Investor Relations. Please go ahead sir.

[Bill Seymour:]

Good morning everyone. Earlier today, we announced the financial results for our fourth quarter and full year of 2020. Before we begin, I would like to remind listeners that our comments today will include some forward-looking statements. These statements involve a number of risks and uncertainties, and actual results could differ materially from those projected in the forward-looking statements.

[Bertrand Loy:]

Thank you, Bill, and good morning, everyone. Throughout the pandemic our priority has remained the same, ensuring the safety of our Entegris' colleagues and value partners. I'm proud of what we have achieved here during this challenging year all the while delivering for our customers. Turning first, to our fourth quarter performance, I would start by saying that I'm pleased with our results and the strong close to our record year. In the fourth quarter sales grow 21% year-on-year and 8% sequentially above our guidance. Year-on-year, growth was strong across all three divisions, as we benefited from several node transitions and strong overall demand for products and solutions. While gross margins decline in Q4, we leveraged lower OpEx into adjusted EBITDA growth of 4% sequentially and 19% year-over-year. Finally, fourth quarter non-GAAP EPS of $0.71 was above our guidance, up 29% year-on-year and up 6% sequentially. Looking at a full year 2020, we achieved record sales, up to 17%, while sales were up 14% on an organic basis, which means, we outperformed the market by several 100 basis points for the year. This significant outperformance was driven in large part by our strong position and wins with leading-edge solutions like liquid filtration, plants deposition materials, fluid handling solutions and other areas of increasing importance to our customers. In 2020, we once again showcase the leverage in our model with EBITDA flow through of close to 40%, translating into strong EBITDA growth of 24%, EPS growth of 32% and free cash flow, up almost 70% excluding the net Versum termination fee from 2019. Our focused on operational excellence paid dividends during the year. Even in the backdrop of the challenges of the pandemic, we achieved our best year on record in quality and safety. Our quality levels were 100 times better than just 10 years ago, at 5.25 Sigma, and the injury rate was the lowest level ever.

[Greg Graves:]

Thank you, Bertrand. The fourth quarter was another record for Entegris. Q4 sales were $518 million, above the high end of our guidance and up 21% year-over-year and 8% sequentially. Q4 GAAP diluted EPS was $0.63 per share. Non-GAAP EPS of $0.71 was above the top end of our guidance range and up 29% year-over-year, and 6% sequentially. Moving on to gross margin. GAAP and non-GAAP gross margin were both approximately 45% in Q4, versus our guidance of approximately 47%. The lower than expected gross margin was driven primarily by three factors. First was a discrete inventory valuation adjustment in SCEM. Second, was the impact of lower factory utilization as we made a deliberate effort to reduce inventory levels across the company, and we experienced weak demand in our non semi businesses. And third was manufacturing inefficiencies related to capacity additions for significant new product rounds. We expect gross margin to improve sequentially and be approximately 45.5% both on a GAAP and non-GAAP basis in Q1. We also expect gross margin will improve throughout the rest of the year, and be approximately 46.5% for all of 2021. GAAP operating expenses were approximately $118 million in Q4 and included approximately $14 million of non-GAAP items from amortization of intangible assets, integration and other costs. Non-GAAP operating expenses in Q4 were $104 million, which was in line with our guidance. We expect GAAP operating expenses to be approximately $118 to $120 million in Q1. We expect non-GAAP operating expenses to be approximately $104 million to $106 million in Q1.

[Operator:]

Thank you. And we'll take our first question from Mike Harrison with Seaport Global Securities.

[Mike Harrison:]

Hi, good morning. Congratulations on the nice finish to the year and the strong guidance here. I was wondering if you can talk a little bit about some of the key applications that are driving better sales outlook than I think some of us were modeling. Maybe talk a little bit about how much of the outperformance would be related to the share gains and to revenue synergies from some of your recent acquisitions. And also talk about how much additional tailwind you should be getting from node transitions as we get into 2021?

[Bertrand Loy:]

A lot of questions here, Mike. So, I would say that -- so first of all, thank you for the nice comment. And we are indeed very excited about the prospects going into 2021. The industry backdrop is strong, but as you pointed out, we expect to meaningfully outperform the industry once again by about 300 to 400 basis points in our core semiconductor applications. And then by about 100 basis points coming from a new initiative in life science.

[Mike Harrison:]

Right. And then, on the non-semiconductor business weakness, can you just talk a little bit about whether that was related to underlying market weakness or more timing? And maybe comment also on what you're seeing in automotive? We're hearing that there is some shortages going on in chips there? Thanks.

[Bertrand Loy:]

Yes. So I think you're probably referring to comment that Greg made around the significant absorption that we saw in some of our non-semi initiatives. And I think mostly it relates to the graphite product line. This particular material is used across a broad array of industrial applications. And as we mentioned, a few times during 2020 this particular business was under severe pressure, I think that this business is down, essentially 30% in 2020 as compared to 2019. And remember that we had actually added significant capacity about a year ago, hoping to capitalize on new opportunities, new industrial opportunities, which obviously didn't really pan out in 2020. We've seen some recovery in this business in Q4, but certainly not enough really to offset the very, very slow start to the year.

[Mike Harrison:]

Alright, thanks very much.

[Operator:]

Next, we'll go to Toshiya Hari with Goldman Sachs.

[Toshiya Hari:]

Hi, guys. Good morning. And thank you very much for taking the question. Bertrand, I had two questions for you guys if I may. First one, on the full year outlook. You spoke to a potential growth rate of 11% to 13% for Entegris in 2021, which is obviously very strong. That said, I guess if we take the midpoint of your Q1 guidance, revenue guidance. And if we sort of flat lined that throughout the remainder of the year, we sort of get to the midpoint of that 11% to 13% range, typically, knowing your business things sort of strengthen throughout the year. Am I missing anything? Or are there any concerns into the second half? How should we think about your full year guidance? And then I've got a quick follow up?

[Bertrand Loy:]

Sure. Well, I think the way you want to think about Q1, which I think is really at the heart of the question is how to think about the Q1 outperformance or how to think about the 2021 outperformance in the context of the Q1 guidance? And the way I would probably answer the question is to remind you that a lot of the node transitions happen later in 2020. And Q1 2019, or Q1 2020 was also where we experienced the strongest headwinds from COVID-19. So in other way, Q1 2020 was obviously somewhat of an easier comparison for us.

[Toshiya Hari:]

Understood. And then, as my follow up just on gross margin, maybe this one's for Greg. You mentioned a couple of items that drove gross margins a little lower relative to guidance for Q4. Curious if any of these were kind of more structural in nature? Were they all sort of transit at one time issues? And how should we think about gross margins, not just for 2021, but throughout the next couple of years? Thank you.

[Greg Graves:]

Yes. So hi, Toshiya. First of all, I'd say that the issues around the gross margin were really non systemic. And we had probably the best year that we've had in the last five in terms of ASP erosions and nothing there, no meaningful changes in the material or input dynamics. So primarily discrete in nature. So the piece related to the inventory adjustment, that simply won't recur. And then, we'll look for, Bertrand already commented on that specialty materials business, and we'll look for some increases in volumes to help us out there. But I mean, if you look at the margin by division, I mean, the gross margin issue is essentially all related to SCEM. So as we think about, we guided to 45.5 for Q1, which is upset up slightly from Q4 and pretty much in line with where we were for the full year in 2020. We think 46.5 for all of 2021. And then I would expect it to -- the gross margin to have slight upward bias over the next couple of years as volumes continue to improve.

[Toshiya Hari:]

Thank you very much.

[Operator:]

Next, we'll go to as Sidney Ho with Deutsche Bank.

[Sidney Ho:]

Thanks for taking my questions and congrats on the strong quarter and guide. Just going back to the 2021 outlook, up 11% to 13%, can you maybe talk about the growth expectations by segments? And if I look back in history, your revenue for the calendar years typically second half waited, maybe 48% in the first half. Do you think this year will be much different from that trend?

[Bertrand Loy:]

Sidney, the way I would first answer the question is saying that we expect the micro contamination and SCEM divisions to really lead the growth in 2021 expect those two divisions to grow in the mid teens. And I would expect AMH to be probably the high single digit on a full year basis for 2021. In terms of the shape of the year, I don't think we want to go too deep in details here. But I think directionally I think you're right. I would expect more new fab construction projects later in the year and that will benefit our CapEx business later in the year. And as you know, there are many customers that are also planning on a number of significant node transitions later in the year, which should also positively impact our business as we proceed deeper into 2021.

[Sidney Ho:]

Okay. That's helpful. Maybe my follow-up question is, last quarter Bertrand talked about, there was some pool in from Chinese customers ahead of export controls. Have you seen those activities become more normalized for the skill building, wafers and inventory and whatnot. And also related to that, do you guys have any issues shipping products to SMIC right now?

[Bertrand Loy:]

Okay. So first on in terms of the inventory bid, we saw more of that in Q4. And I would say that on a full year basis, we estimate that a little less than 1% of our top line probably was a function of some of our customers, mostly Chinese customers, building up some inventory. Right now, as a result of that we expect hopefully more clarity, more transparency from the new U.S. administration. And we would expect that trend to subside in 2021. As a matter of fact, we expect most of our Chinese customers to consumed inventory that they've been building up in 2020. And as a result, right now, in our forecast, we estimate our China business to be essentially flat versus 2020. When it comes to SMIC, I would say that, at a practical level we spend a lot of time -- there are two components to that. The products that we manufacture outside of the U.S. And after careful analysis of our bill of materials, we reached a conclusion that U.S. content for those products is de minimis. And therefore, we are currently shipping to SMIC from all of our Non U.S. locations. For the U.S. made products, we have put all of the shipments on hold right now, and we are applying for licenses. And we're waiting for approval. And we have no reason to believe based on our current understanding of the rule. We have no reason to believe that those licenses would be denied. But again, we won't know for sure until we get the approval.

[Sidney Ho:]

Thanks for the detailed explanation. And congrats again.

[Greg Graves:]

Thank you.

[Operator:]

Next we'll go to Patrick Ho with Stifel.

[Patrick Ho:]

Thank you very much and congrats on a great quarter and a nice 2020. Bertrand, first off, in terms of your outlook for 2021, the last few years you've talked about new products like the advanced deposition and the liquid filtration being key drivers for your outperformance. As we look ahead to 2021, do you have anything, I guess on the new products front that gives you excitement over the next few years, where you'll start seeing some of the ramp up in 2021?

[Bertrand Loy:]

So Patrick, I would probably be very boring and will probably tell you just much of the same. We believe that our advanced filtration and purification solutions will continue to be increasingly important for the industry. And that trend is not going to stop anytime soon as our customers continue to transition to more challenging architectures. And I think if you recall what we presented during the Analyst Day, Jim O'Neill, our CTO described to you in great detail, how our deposition materials and our selective etch chemistries will be essential for the higher layer accounts, architectures and memory, and the gate all around technology in advanced logic. So again, those will be the products -- while those were the products that drove the growth in 2020. And I would expect the same products to drive the growth in 2021 and beyond.

[Patrick Ho:]

Great. That's helpful. And maybe my follow-up for Greg. You had a great working capital quarter in December, which shows a strong cash flow generation. One, two detail what type of linearity you saw, just given how you are able to collect DSL very well. And two, do you expect to get to more, I guess, normalized levels in the March quarter?

[Greg Graves:]

So Patrick, first of all, thanks for noticing that. I mean, our team would be -- we talked a lot about working capital management, our team would be happy to notice that people are paying attention. So that's great. So first of all, on DSOs, so best quarter that I can -- that I remember. I mean, our DSOs coming out were 47 days. But we also benefited from the fact that we've talked about it before the calendar year ends right on the end of sort of a calendar quarter, whereas the other quarters this year ended a few days before the calendar quarter. And when you end a few days before, you don't end up collecting until the calendar quarter. A lot of Asian customers pay right on the day. So that was -- while DSOs were down, but a fair amount of the benefit related to ending right on the calendar day. So -- and then, I think about inventory, that's been something we've talked about all year long, but our turns were 3.5 times, which is the best levels we've had, and probably about eight quarters. So we felt good about what the team did there, as well, especially given through the business volumes we're facing.

[Patrick Ho:]

Great. Thank you very much.

[Operator:]

Next, we'll go to Weston Twigg with Keybanc Capital Markets.

[Weston Twigg:]

Hey. Thanks for taking my question. I just wanted to dig into a couple of revenue streams here. First on the Aramus bag, that sounds really interesting. You gave us a growth estimate for this year. But can you help us just kind of figure out roughly how large that business was in Q4?

[Bertrand Loy:]

I was no -- this is certainly a business that has experienced explosive growth. If you look back at 2019, revenue for this product line was about $1 million on a full year 2020. That number is just above $10 million. And we would expect that product line to reach and hopefully exceed $30 million in 2021.

[Weston Twigg:]

Okay. That's very helpful. And then similarly for the graphite. Sorry, go ahead.

[Bertrand Loy:]

Just maybe -- just maybe a little bit of context here. You, I think all know that we don't really have many product lines that would exceed $15 million in annual top line. So I -- we are really considering this Aramus product line growing in a very strategic product line, obviously.

[Weston Twigg:]

But I guess actually just following up on that. Do you see that as the new vaccine technology, by Moderna, and Pfizer, as it comes out, as rolls out and maybe other vaccines are made using the same technology. Is this going to become a standard packaging and transportation product across more vaccine lines, do you think?

[Bertrand Loy:]

So I think that would actually even expand the description of the market opportunity. What we're really targeting are the novel biologic therapy. So think about vaccine antibodies and cell therapies, not just around the fight against COVID-19, but really, in oncology and other type of therapeutic areas. So again, what our customers really like in these bags are the fact that they are uniquely resistant to very, very cold temperatures, they're not brittle. And then they can withstand gamma sterilization. So -- and this is a very, very unique attributes in the marketplace for these bags. And this is why they are getting so much attention right now.

[Weston Twigg:]

Okay. That's very helpful. And then I just wanted to ask about the graphite business. I think you mentioned that it's starting to recover. Can you remind us, you made product lines, I think, I know that there's exposure to films, for example. But -- and then what would drive a recovery in that graphite business this year to get some of that -- get the utilization rates up a little bit in the new factory capacity space?

[Bertrand Loy:]

So Wes, that businesses are a pretty diverse business. I mean, if we were selling graphite, it's used for cutting-- metal cutting applications into the electronic discharge machining business. We're selling into the glass forming market including glass forming for handset applications. We have an aerospace part of the business. There's a medical part of the business. So very diverse. The part of the business that was weakest last year was primarily that core industrial business, the machining related business, as well as the business that we sell into the handset market. And we have -- we saw improving trends in that business in Q4, and we expect to see better trends when we look at the full year 2021.

[Weston Twigg:]

Okay. That's helpful. Thank you.

[Operator:]

Next we'll go to Paretosh Misra with Berenberg.

[Paretosh Misra:]

Thank you. Good morning. What do you expect to be the bigger driver of this 3% to 4% or performance in this year? Would that be logic or memory? And any contrast you could provide between last year and this year with regard to the key technological transitions that are going to take place this year?

[Bertrand Loy:]

Paretosh, let's start maybe with 2020. I mean, we saw very significant increase in our memory market. We grew close to 30% in memory. The growth in logic was also very attractive. It was in the in the 20% in advanced logic. And I would expect the opportunities going into 2021, to be fair much of the same nature. Again, more wafers being produced at 96 layers and higher. And that's going to drive more consumption of the new materials in the cleaning chemistries I was describing. And of course, we expect a very strong environment for advanced logic with more advanced logic wafers being produced in 2021. So I would say that memory will probably still be the primary driver, but advanced logic will be a very close second.

[Paretosh Misra:]

Thanks for the color, Bertrand. And my second question was just about the competitive landscape. So given the strong industry demand that you're also forecasting 7%, 8% for next year? Are you seeing increased competition from suppliers? And if there are any specific products where you seeing more competition either from any Western producers or local Asian producers?

[Bertrand Loy:]

Well, we never take success for granted. And we continue to focus intensely on making sure that our differentiation is very real and very unique. And I would say that, as of right now, we feel very good about our competitive position. And this is one of the reasons why we have that degree of confidence in our ability to outpace the market in 2021 and beyond.

[Paretosh Misra:]

Great. Thanks, guys, and good luck in 2021.

[Bertrand Loy:]

Thank you.

[Operator:]

Next, we'll go to Chris Kapsch with Loop Capital Markets.

[Chris Kapsch:]

Yes. Good morning. Just following up on the outperformance relative to the industry that you mentioned. I think you've skipped me, you said that it's skewed towards SCEM and MC segments. And then in the last question, you mentioned that it's really probably going to be led by memory and then advanced logic. But I'm curious like to the extent that the outperformance is led by memory, it sounds like it deposition materials and therefore SCEM. I'm wondering within given the strong outlets for revenue growth within MC, does that also skew memory or is it balanced across memory and logic foundry? Any color on that? And then one follow up.

[Bertrand Loy:]

Yes. I think the need for higher purity levels exists both in advanced logic and advanced memory. To your point those requirements are more stringent in advanced logic, but present memories catching up really quickly. And I think we had the slide during the recent Analyst Day talking about that and then trying to frame that on per wafer basis. So, you are correct in your statement that advanced logic will be still the primary driver for micro contamination. But again, memory may be close second on this one. And then the opposite will be true for SCEM with memory being the primary driver and advanced logic being the close second. I think one of the uniqueness of the Entegris platform is that we have exposure to all segments, memory, logic, chemical manufacturers, OEMs. And we have tremendous opportunities across all of those segments. And I think that's what is behind the resilience of our business model. And, frankly, I think that's what gives us the strength and conviction that we have in our growth prospects.

[Chris Kapsch:]

Okay. Thanks for that. And then just the follow-up is that you mentioned that in terms of revenue growth in 2021, the mid teens in SCEM and MC and high single digit in AMH. And given that MC is your highest margin business. And then given that the driver probably in SCEM is these advanced products that come with higher margins. So the connecting the dots, it seems like the implication for your margins might be higher than what you've directionally talks about. So I guess the question is, is there some -- is this drag? Maybe this way you can quantify the drag in the graphite business on the SCEM segment in the fourth quarter? And are you expecting that to persist into and through 2021? Or any way to reconcile that strong growth in your highest margin segments vis-à-vis more muted margin improvement expectations? Thanks.

[Greg Graves:]

Okay. So a lot there, Chris. So let's first talk about the growth -- the operating margin, which I guess tangential to the gross margin in SCEM. So the vast majority of that are headwind that we experienced would be non recurring in nature. I referred to an adjustment related to inventory. That was about 1% of gross margins across the company, but it was all within SCEM. That's not going to persist the volumes that we talked about, as being a headwind, that was also in the SCEM business. We expect those volumes to improve throughout the year. We're not necessarily expecting a big snapback in Q1, but do expect those volumes to improve throughout the year. So when you think about the three divisions, I mean, we're already on the target with regard to AMH. We were already on our three-year target with regard to the MC business. So I mean, it can they do better than they're doing? Sure. But I mean, a 35%, they're sort of right in the middle of our long term target. And then, yes, kind of in a nutshell, I mean, you're right. I mean, the advanced products are the faster growing products. So mix should play an important role in the margin as well.

[Chris Kapsch:]

Okay. So I guess, just I'll parse it out in my modeling, but it just sounds like maybe there's -- is there some other mix dragged in 2021? Or maybe there's some upside to the overall margin profile relative to what you know?

[Greg Graves:]

So we said, 46.5% for the year, which is up from where we finished the full year 2020. I'm not -- if you're looking for me to say there's upside, I'm not -- I'm coming off a quarter that was 45%. So it's not -- I'm not in the mood to push the number for 2021, we say 46.5%.

[Chris Kapsch:]

All right. That's helpful. Thanks for the color, Greg.

[Operator:]

Next, we'll go to Krish Sankar with Cowen and Company.

[Krish Sankar:]

Hi. Thanks for taking my question. And congrats on the really strong results. Bertrand, I have two questions for you. The first one is on the memory. It looks like your memory sales is going to grow year-over-year this year. Are you seeing mostly no transition from customers? And if so, if and when they go to capacity how would that impact your memory sales? And then, I had a follow up?

[Bertrand Loy:]

So yes. I think we are certainly seeing and expecting a lot of node transitions in memory. I think we are early in the year. So we are seeing plans. We are having all of the right discussions in terms of getting ready for those conditions. But we've learned the hard way in this industry to not get ahead of yourself. I mean, some of our customers sometimes choose for a number of reasons to delay their node transitions. And at this point in the year I think we were just looking at a very attractive table. I'm looking at it as I'm speaking of planned node transitions. It's like looking at a menu and salivating in a nice restaurant. But I mean, we want to see those node transitions happening. The other big factor that I was mentioning is that we expect a lot of wafers to be run at 96 layers and the higher. I think in 2020, about 50% to 60% of the wafers were at 96 or higher. I expect the number to be 70% to 75% in 2021. So that's going to help us obviously, as well. And you had another question.

[Krish Sankar:]

Yes. And then, I had a follow up on Sinmat. Clearly looks like that business has tremendous potential. I'm just kind of curious, when do you think it's going to be meaningful to number? Do you have to wait for silicon carbide to be used in all electric vehicles in 2024 timeframe? Or do you think it can scale up before that?

[Bertrand Loy:]

I think it would be a steady progress. I mean, we are working with a number of customers that have aggressive capacity addition plans. And as those, gallium nitride and silicon carbide substrates or more broadly adopted in electric vehicles, I think we're going to see that business grow very nicely on a steady basis for the next few years. So I agree with you, I think it's very promising business for us.

[Krish Sankar:]

Thanks.

[Operator:]

Next, we'll go to David Silver with CLK.

[David Silver:]

Yes. Hi, thanks. So I have kind of a more quarter related question, and then maybe a more strategic one. But in the fourth quarter, I was hoping you might be able to add a little color to the inventory adjustment, or what came behind that. So in other words, was that a collection of items that are maybe part of a normal year-end true-up? Or what I'm kind of wondering is, Bertrand, you've talked about new deposition materials being a focus of the SCEM unit? And I’m wondering if the timing of the inventory valuation adjustment, you took signals, a transition to a new technology or a new material within your portfolio. So, are you phasing out kind of current generation product and transitioning to maybe a new ADM or other type of product? Thanks.

[Bertrand Loy:]

So, David, first of all, let me say, it did not relate to deposition materials. The vast majority of it related to one immaterial issue that sort of built up over a series of quarters. We noticed that something didn't quite look right on one of our inventory lines at one of our manufacturing plants. And as we analyze that we used to correct it, and it was as simple as that. And it was all, I mean, I said it was about 1% of gross margin. The vast majority of that in a 75 basis points that are related to one item, and then we had another small inventory adjustment as we move to one of our new businesses and SAP.

[David Silver:]

Okay. Thank you for that. And then just kind of a big picture question. And following up, I think on an earlier question about trends in the automotive side of things where a number of companies have expressed an inability to receive the required number of chips. I don't like to say, I guess, there was an announcement in the last day or two that I kind of thought was unusual. But Taiwan Economic Minister made a statement where he was kind of directing the domestic chip industry to maximize production for -- of chips for the global automotive industry. And I'm just wondering if you could maybe provide a little bit of background there. I mean, I am not aware of kind of this type of shortage, situation permeating such a large industry. And to the point where, I guess, government officials are at least publicly kind of directing the industry to maybe prioritize some shift production types over others. I'm just wondering if how you kind of interpret those items? And whether that will have an effect on the types or the rates at which your businesses are in demand over, let's say the next few months?

[Bertrand Loy:]

So I cannot comment on what is behind the announcement by the Taiwanese government. But what is behind those trends is that many, many of the automakers are migrating their chipsets away from 65 or 45-nanometer processes to 28 and below. And that's positive for us, because it means that more wafers will be produced at more advanced nodes, where we have higher Entegris content. So again, it's just part of the general trend that we've been flagging. I think it's true for high performance computing, but it's becoming increasingly true for automotive and other industrial applications as well. And that's very positive for the industry. And that's very positive for Entegris.

[David Silver:]

Okay, great. And then just one last one maybe for, Greg. But the -- up the other income, I guess the unusually somewhat higher than normal profit on that line. Is that the royalty income issue you cited? Or is that due to something else?

[Greg Graves:]

No. It's an issue that it really relates to technical. I mean, the way we value dollar denominated assets in legal entities where the functional currency is other than the dollar. It's strictly a balance sheet thing, not a cash flow thing, but it relates to the consolidation of our legal entities. When the dollar uses -- when the dollar -- I mean, the dollar has been relatively stable. So we haven't seen much of that in the recent past. It's really a function of the dollar weakening against other currencies, but it's non operating item, that's why it's below the line.

[David Silver:]

Got you. Thank you very much.

[Operator:]

And that does conclude today's question and answer session. And does conclude today's conference. We thank you for your participation. Everyone may now disconnect.

[Bertrand Loy:]

Thank you.