KraneShares Dynamic Emerging Markets Strategy ETF
Q1 2016 Earnings Call Transcript

Published: 28 Jul 2015

[Executives:]

William Lowe – Executive Vice President and Chief Financial Officer Per Loof – Chief Executive Officer

[Analysts:]

Alan Park – Stifel Marco Rodriguez – Stonegate Capital Ana Goshko – Bank of America

[Operator:]

Good morning, thank you for standing by, and welcome to the KEMET Report Preliminary First Quarter Fiscal Year 2016 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Mr. William Lowe, you may begin your conference.

[William Lowe:]

Thank you, Cony and good morning everyone. This is Bill Lowe, the Executive Vice President and CFO of KEMET. Welcome to our conference call this morning to discuss our financial results for the first quarter of fiscal year 2016, ending on June 30. Joining me today on the call is Per Loof, our Chief Executive Officer. And as a reminder to you, a presentation is available on our website that should help you follow along with the financial portion of our presentation. And before we begin, I would like to advise you that all statements addressing expectations or projections about the future are forward-looking statements. Some of these statements include words such as expects, anticipates, plans, intends, projects and indicates. Although they reflect our current expectations, these statements are not guarantees of future performance and involve a number of risks, uncertainties and assumptions. Please refer to our 10-Ks, 10-Qs and registration statement filings for additional information on risks and uncertainties. Now, I will turn the call over to Per.

[Per Loof:]

Well, thank you Bill and good morning everyone. Adjusted gross margins improved 260 basis points quarter-over-quarter, were revenues down slightly $6 million, at $188 million. We had forecasted between $190 million and $195 million, and our non-GAAP EPS came in at $0.01. If you were to include our share of our joint venture, NEC TOKIN, non-GAAP EPS was $0.05 and $0.04 per basic and diluted shares respectively. As expected, the quarter reflected somewhat softer revenues, but adjusted gross margins expanded at 21.5% versus 18.9%, increasing the bottom-line regardless of the change in revenues. Our first quarter was on target and we are on plan for the year. The margin expansion will continue in both F&E and Solid Caps throughout the year, as our re-fitting programs take hold. There are two things again this quarter. The first, we continue to drive margin expansion and improve bottom-line performance in both businesses, even in a flat to down market. Both segments reached the benefits of our efforts as well as ongoing programs to increase gross margins and reduce expenses. Our vertical integration program in both businesses is really contributing. We have, of course, a very significant activity in our tantalum product line including our conflict free program in the Democratic Republic of Congo. I was just a few weeks ago in the village of Kasongo in Congo to review the progress as well as having the great pleasure of attending the grand opening of our school, now with 1,493 students and our hospital. Since we started we have seen more than 13,000 patients in our hospital. It is great to see the progress we are marking in the mighty village on the sustainability front. We’re also seeing benefits and phlegmatics from our vertical integration programs and we’ve registered great progress in both yields and manufacturing efficiencies. And remember, we still have three more F&E plants to close this quarter and next. The second theme is that our distribution channel is not get down correcting this inventory levels. Based on what we see in the POS data, these adjustments may continue for another quarter or two. If we analyze the POS data and we assume a corrected inventory level, our revenues would have been $9 million higher this quarter. Having said that we think that next quarter we expect to see revenues in a similar range of the June quarter, $185 million to $190 million. However, I expect our margins to improve over this quarter again by another 100 basis points or so. KEMET is really well-positioned to take advantage of any rebound in the industry, as our cost base is in great shape and continues to improve. I’ll speak more to the individual units in a few moments. First, some comments about our market segments. On a percentage of revenue basis, telecom and medical segments show 21% and 7%, a slight increase; the consumer, industrial, automotive segments remain stable at 8.23% and 22%, respectively and the computer segment at 14%, defense at 5% and they were slightly down compared to last quarter. From a channel perspective, distribution revenue was down about 6.1% or $5.2 million, however, POS was less impacted than down 2%, compared to last quarter. And this was mainly driven by softness in the Americas region. Europe and Asia POS was up quarter-on-quarter and the inventories in the distribution channel still remain under scrutiny, particularly in the Americas, following a softer than expected resale performance. The task remains for us in conjunction with our partners to manage channel inventory such that it fully supports POS demand and we continue to work towards a more balanced channel revenue pattern that will benefit both us the Kemet and of course our partners. OEM was slightly down $1.2 million, compared to the previous quarter and in general we see this channel as being flat and stable over the near term, including our automotive and industrial customers. And I’m now going it over to Bill again to go through the numbers and come back to you later with some additional color on the business units. Bill?

[William Lowe:]

Thanks Per. I will begin my review on Slide 3, if you are flowing along on the website. Net sales of $186.6 million were down 3.1%, compared to the prior quarter of $193.7 million. The strengthening of the U.S dollar to the Euro from $1

[Per Loof:]

Thanks Bill. In the Solid Capacitor Group, revenue versus the prior quarter was down $6 million, or 4.1%, at $139.7 million. The decline in revenue for Q1 was driven primarily by an inventory correction in the distribution channel and softness in end demand for tantalum MnO2 products. Our channel and polymer product line, however, continues to produce positive growth results and was up 11.7% in revenue versus the same quarter last year. Adjusted gross margin for Q1 was 26%. This result is up slightly quarter-over-quarter and up three percentage points year-over-year of our revenue and this is because our cost initiatives continue to produce favorable results. Moving into Q2, book-to-bill is positive and starting back target is higher than in the previous two quarters. Our Film and Electrolytic business group revenue was flat, $47.9 million, versus $48 million last quarter. Revenues were moderately impacted by a weakening euro of 4.4% versus previous quarter and revenue was actually up by 3% on the neutral exchange rate basis. Adjusted gross margin was up versus the previous quarter about $5.1 million, driven by previously implemented cost reductions, which are flowed through inventory and benefited the income statement as expected. Adjusted gross margin improved to 8.4% this quarter representing a 10.6 points improvement over last quarter. And we were expecting the year for F&E to be much improved over the past. Now to our regions. We finished our last Q in EMEA with $61.6 million, which was down 7.9% versus last quarter. While our OEM and EMS business was basically flat. We have seen inventory adjustments within our disti channels. We expect these inventory adjustments to continue next quarter. Our resell activities within the channel finished this quarter with a positive book-to-bill as well as our overall book-to-bill ratio ended positive at the end of last quarter. Going forward, we expect the European business next quarter to be slightly up. In the Asia Pacific region, revenue was up 2% quarter-over-quarter to $70 million and flat if compared year-over-year. Overall, it was a positive quarter for the region with solid improvements in the product mix and bottom line as a result of our focus on specialty product sales. POS sales were up 4.5% as compared with previous quarter and the current book-to-bill is also positive. China manufacturing PMI index remains however soft having contract to below 50 points five times in the last seven months, reaching at highest level of only 50.2 in the month of June. The China business confidence indicator also slumped to its lowest level in more than six years, despite better than expected economic growth, reflecting a general view of the slowdown in the economy in Asia. Q1 revenue in the Americas finished down over the prior quarter of $56 million versus $58.2 million. Our POS was down quarter-over-quarter by 11%, however, we are expecting that POS in Americas to be flat to slightly up for the second quarter. The OEM and EMS channels did pick up some of the slack from our defense [ph] business and book-to-bill is positive. If I look at the entire business, the book-to-bill to-date in more than 1.2, our bookings are up $10 million compared to last quarter and sales is up by $7 million to-date. Our joint venture as Bill mentioned, with NEC continues to show progress. We are in deep and very constructive discussions with NEC on how to move forward. The fact that our call option has expired has had zero impact on our discussions with NEC. I have said previously that we need to more fully understand the potential ramification as a result of the ongoing investigations regarding comparative behavior. As you may remember, NEC TOKIN has accrued approximately $30 million and they have revised the accrual at this time. And we do see a move towards the resolution in several jurisdictions potentially in the near term. We continue to see increased cooperation with KEMET and NEC TOKIN which benefits both of our companies. To sum up, the quarter was pretty much as we expected and forecasted, and with improving margins. Our F&E business is making great strides in contributing to the bottom-line and it will see further improved bottom-line performance from our Solid Caps business as well. Until the disti inventories are where they should be, revenue will remain relatively flat. Sales we except in the range of $185 million to $190 million, but continued margin improvement in the range of a 100 basis point even with flat revenues. As always, thanks to our hardworking employees those continue to make the extra effort to improve our performance and enhance our customers’ experience. And this concludes our prepared comments and we will be happy to respond to any of your queries.

[William Lowe:]

Cony now we will take questions. Thank you, sir.

[Operator:]

[Operator Instructions] And your first question comes from the line of Matt Sheerin from Stifel.

[Alan Park:]

Hi, this is Alan Park speaking. Hi how are you?

[Per Loof:]

Good, good. How are you doing?

[Alan Park:]

Very well, very well, thank you. This is Alan Park speaking on behalf of Matt Sheerin. I just want to ask, you’ve mentioned that you’ve accrued $30 million – NEC TOKIN of $30 million for the anti-competition investigation, do you have any color as to where you might see that accretion going forward?

[William Lowe:]

Well, I mean, the accrual happened because it was of view that this was an appropriate amount and my comments this time around is that, it continues to be the appropriate amount of accrue at this time. And I shouldn’t really comment any further than that but I think you can get enough color based on what I’ve just said.

[Alan Park:]

I see, thank you. And a follow-up, just for the September quarter, could you be able to provide more color on end demand from [indiscernible]?

[William Lowe:]

As I said, we’re expecting demand to be pretty flat. We are, however, saying higher backlog now than in the last couple of quarters. We’re also seeing increases in all of the channels, as well as segments. So you can read that into various – into something that may be, if there is a movement on the activities this quarter is slightly positive. However, there’s many views on, where the thing would go and of course there’s this summer month coming up, so that may have an effect as well. But we’re seeing slight uptick maybe in our business but our main focus is to stay competitive and ensure that the cost actions we are taking will be implemented. As I said we have three more plans to shut down over the next four to five months.

[Alan Park:]

Thank you.

[Operator:]

[Operator Instructions] And your next question comes from the line of Marco Rodriguez from Stonegate Capital.

[Marco Rodriguez:]

Good morning guys thank you for taking my questions. I was wondering if you guys can talk a little bit more here about some of the charges in the quarter. We saw some more plant start-up cost, restructuring charges and fairly large charge for the ERP system, when should we start to see these items go away?

[William Lowe:]

Well, I think, this year as impairment was in a couple more plans to close, we’ll start to see the accrual stayed on the accruals related to the restructuring side. And on the ERP, which is a little heavier this quarter within standpoint that we have kind of combination of both, our current efforts to upgrade our Oracle system to our 12, in addition to our transition over to IBM, we have some duplicate expenses as a result of transitioning some of our services outside, which will, from a long-term perspective, help us maintain our IT cost at a current level, while getting better services. So that was what the intent of that was, but it’s a little bit of a, little duplication at the beginning, but I think you’ll see that flat now and start the decline towards the end of the fiscal year, as well.

[Per Loof:]

As Bill said I mean the heavy lifting this year is in the beginning of the year and then as we get into the third quarter, cash will start to build again.

[Marco Rodriguez:]

Yes.

[Per Loof:]

And we’re being rightly – we’re right where we thought it was going to be.

[Marco Rodriguez:]

Got you. And so by the end of fiscal 2016, assuming we don’t have any other major changes to the competitive environment or macro environment, kind of stay steady state if you will, would it be fair statement for me to say that the plant started cost restructuring charges in the Europe will disappear at that point? We’ll have a cleaner look at the P&L?

[William Lowe:]

That will be correct.

[Marco Rodriguez:]

Got you. And then in terms of the operating margin improvements I’m not sure if I wrote down correctly, I thought I heard you guys say you’d have another 100 basis point improvement, is that sequential, or for the fiscal year 2016, versus 2015?

[William Lowe:]

That’s Q2 over Q1. We did 260 basis points, this quarter, we’re going to do another 100 next quarter.

[Marco Rodriguez:]

Got you, perfect. And is there – can you kind of update us Per in terms of your expectations as whereas margins might improve to for the fiscal 2016?

[Per Loof:]

I think we will continue to see margin improvements in this range quarter-over-quarter. So you can – so we’re getting, our timeless model is 25% as you may remember. And our directive is to be entering fiscal 2017 at that level.

[Marco Rodriguez:]

Got you, okay. And on the NEC TOKIN litigation, I mean, is there any kind of additional color as far as perhaps the timeline that you kind of help us understand when this might resolve itself?

[Per Loof:]

Well I said a couple of things, I said, we were in deep and constructive conversations with NEC. The second point I made was that we see progress in several jurisdictions that will find itself into a resolved situation in the near-term. It’s a little difficult to give you an exact week that this will happen, but we’re talking months, not years.

[Marco Rodriguez:]

Got you. That’s helpful. And last quick question just kind of from the high level strategic standpoint, can you talk a little bit about where you’re focusing most of your time right now and how you kind of expect that to change or trend as the fiscal year moves on?

[Per Loof:]

Well, I think we have spent a lot of time getting our cost based competiveness. As I show you. That part of our task is now almost completed at least we over the next several months, it will be completed to a logic stand. So that will continue to be smaller shifts, and moves, and rearrangements and so forth of course, like in any business. But the main tasks have been completed and the margins have come to a respectable level once we’re done with all this. So clearly now we turn on focus on our revenue side of the business, and our specialty side of the business and of course a completion of the NEC TOKIN activity, as well. So that’s where really my focus and teams’ focus will continue as we finish the fix of the back end if I may it call then.

[Marco Rodriguez:]

Got you. Thanks a lot guys, I appreciate it.

[Per Loof:]

Thank you.

[William Lowe:]

Thank you.

[Operator:]

Your next question comes from the line of Ana Goshko of Bank of America.

[Per Loof:]

Hello, Ana.

[William Lowe:]

Good morning Ana. How are you? Hello, we’re not able to hear you.

[Operator:]

Ana, your line is open.

[Ana Goshko:]

Hi, can you hear me now.

[William Lowe:]

Yes.

[Per Loof:]

Yes, yes, yes.

[Ana Goshko:]

Okay, great, so a few follow-ups. So first of all just on the gross margin outlook for, I believe I heard you say you expect that the 100 basis point improvement in this quarter and then continued momentum. Can you give us color on how you expect that to breakout by segment? And in particular how well the target gross margin is for the two different segments?

[Per Loof:]

The joint target is 25% right, for the company. The Film & Electrolytics business very material in tax of July as you know. So we’d like that to be at a 15% level. And if you do the math on the rest that will be only 27% level around.

[Ana Goshko:]

Okay.

[PerLoof:]

So that’s really what we’re shooting for. And we took a big step this quarter and we’ll continue to move forward every quarter in the F&E space and by fiscal 2017 three quarters from now we should be at our expected margin performance level, assuming that the revenue doesn’t fall out of the hands [ph] so we don’t have a major macro-economic situation, of course.

[Ana Goshko:]

Okay, thank you and then Bill, I just wanted to make sure, I understood that the cash outlook. So for the current quarter, I thought you said probably about flat because of additional inventory corrections or restructuring costs. And then you always have negative free cash flow usually in the quarter, where you had the bond interest payment. Was that an improvement in the final fiscal quarter of the year? Is that the trend we should expect?

[William Lowe:]

That’s the trend you should expect. We’ll see in this new quarter that we’re now quarter two, will build cash towards the end of the quarter, slightly and build into the month of October, before we make our bond payment. And at the same time, in the same period, we still have some severance cost that are going out the door, [indiscernible] keeps the cash, relatively where we are today, with it building, because now our heavy lifting is done the interest payments paid November 1. So that’s the last four months of the fiscal year is where we will actually will start to see it, build back up to higher levels of potentially, as I said, exceed where we started the year. And that’s the expectation based upon where we expect EBITDA and revenue to go. So you’ve got it down pretty well there.

[Ana Goshko:]

Okay and then, so it sounds like you may need an additional revolver draw in particularly the fiscal third quarter. I’m wondering if you expect to have a revolver balance at the end of the year?

[William Lowe:]

I will probably have a revolver balance at the end of the fiscal year. I don’t think I will necessarily take anything significant in the next quarter with the bond payment, I think, our projection and we do projections all the way out through that period. Our projections would say that we don’t need to do that. So I would say that that’s not an issue, I think, we will end the fiscal year with the balance, but I don’t think I will take an additional balance as I’m in the month of November.

[Per Loof:]

I think those are just fair Ana, a lot of the severance will be done by the end of October pretty much. And then also we have since we are moving at clamps, we have buffer stocks, sitting everywhere. So we probably have another $15million or so of buffer stock sitting there. That will work itselves out, as we get the production starting and then it’s so easy.

[William Lowe:]

The work if you look at the balance sheet, you’ll see we probably from the end of last fiscal year, we’ve got almost 12 million kind of tied up and inventory as a result of these moves, which will unwind itself, primarily in that last four to five months. And we’ll come back into the bank towards the end of the fiscal year that will – and we’ll keep the inventories then down at that level. So in addition to just cash from earnings, we’ve got some working capital that will move – that has tied up some cash-to-date, which is part of the plan and then we will unwind itself in the last four months or so.

[Ana Goshko:]

Okay. And then on the cash balance can you remind us if is there any cash that sort of tied up, trapped in any particular geography and what you meant was cash balance.

[William Lowe:]

Well, the answer is no to your first question from the standpoint that the way in which we go-to-market puts a lot of the cash in the hands of the parent company either in a bank account that resides in the United States or resides in a foreign jurisdiction, but it’s in the parent company’s bank account. So generally we’ve always said in the past that 85% or more of our cash at any given time is generally already held by the U.S. parent. So we don’t have cash that’s trapped that we can’t get out. And whatever cash we do have in those foreign jurisdictions for those foreign entities it’s kind of needed anyway for general operational purposes within that country. So it’s well-balanced from that perspective. From a minimum standpoint, we are fine where we are today, we don’t have any issues with the cash balance that we’re carrying today. We knew it would dip down and I think I’ve said that as we entered the fiscal year in our last call, that we would see cash decline in the first half of the fiscal year. So we’re right on plan where we expected to be and it’s not an issue from a management perspective.

[Ana Goshko:]

Okay. And then I wanted to ask you there is an announcement, I think, just the last month that the company had hired a new head of Sales and Marketing, globally, and then there was another announcement that that person wasn’t coming and then said the company made an internal promotion. So I’m not asking for fully inside baseball, we just wanted an understanding of where you are with your key executive appointment? Any color on why that hire didn’t end up taking – joining the company?

[Per Loof:]

Yes the individual that we had hired, and had signed all the appropriate papers and we had agreed a start date. And three days before he was suppose to show up, he decided not to show up. And what happened was, his previous employer was HP and we had in good faith negotiated with or he had negotiated with us and with them to end that employment in a good then the good stead. And I believe I haven’t seen the documentation, but I was told they had agreed on the retirement situation for him with his former employer, so he would leave that in good stead. But the only caveat to that was of course, that he was joining KEMET and I joining a competitor. He decided to – and he got a very nice huge offer from our competitor of HP and he decided to join that company. The fact that we haven’t seen an announcement on that at this point probably indicates that there are some conversations ongoing between the parties in this matter. So having said that about Lollini [ph] we had a guy that was sort of the next sales person to be the Head of Sales, a smart young man, who ran the Asia business and I just decided to fast forward a couple of years and give him the job. And he is now on full swing, getting his team put together to move forward. And as things turned out I’m sort of happy what actually took place took place.

[Ana Goshko:]

Okay, good to hear. Thank you for that.

[Per Loof:]

Okay thank you.

[Ana Goshko:]

I didn’t want to fry too much, but I just wanted to ask.

[Per Loof:]

Okay.

[Ana Goshko:]

And then finally, just, you say you’re in deep negotiations with NEC TOKIN, but should we still be thinking – still think about the same valuation metrics that within the prior agreement, which was basically about six times of [indiscernible] EBITDA is how the companies must be valued on.

[Per Loof:]

That’s the – yes that still the way you should think about it.

[Ana Goshko:]

Got it, okay. Thank you.

[Per Loof:]

None really the fact that the call option has expired has not altered while we are aiming to do and what they would like to do.

[Ana Goshko:]

Okay, thank you.

[Per Loof:]

It was just decided, it was just simple or not to extend it, basically, that was just tough, how we all took it.

[Ana Goshko:]

Okay, thanks very much.

[William Lowe:]

Thanks Ana.

[Operator:]

[Operator Instructions] Your next question comes from the line of [indiscernible].

[Unidentified Analyst:]

Hi, guys, I was just wondering…

[William Lowe:]

Hello.

[Unidentified Analyst:]

Hello.

[William Lowe:]

Yes, you’re still there?

[Per Loof:]

You’re still there? Hello.

[Operator:]

Thomas, your line is open.

[Unidentified Analyst:]

Yes, I’m sorry. Hello, guys.

[Per Loof:]

Hi.

[Unidentified Analyst:]

How much [indiscernible] sourcing internally now from your own mind?

[Per Loof:]

We source about 69% of our activity from the mine and about 55% of the requirements for NEC TOKIN. So we actually, we are in the process of being the anode supplier to NEC TOKIN.

[Unidentified Analyst:]

Right, and does that add capacity now.

[Per Loof:]

No, we are not we are also in good stead with an outside partner we never said we wanted to be a 100% self-sufficient for obvious reasons. Our objective was to get to 80% of our ore needs from our own sources. And we are sort of 10% to 11% of that at this point. So we got another that amount to go. We are working from an engineering perspective how to do that. So it’s not really an ore issue or it’s not an ore issue actually at all, it is really a capability issue in our own facility in Nevada. That we need some additional engineering work to be able to produce the powders that will get us to the 80% level, but we are in full swing try to do that.

[Unidentified Analyst:]

Okay, great. And then you acquired a distributor Teledata during the quarter.

[Per Loof:]

It’s not a distributor it’s really a company that helps us with our digital marketing in our distribution business and we had worked with this company for many years and we were basically 90% of their revenues. So we thought we might as well acquire them into our company and bring those 11 folks into organization instead of having the risk of somebody else buying them and we losing that that great resource. So there’s been sort of a KEMET affiliate if you like for many, many years and we now brought them inside the fold and we think that brings a lot of great people, lot of smart people in the digital marketing space that we can use. So that’s – we believe that was a really a good small acquisition.

[Unidentified Analyst:]

And that was the $3.9 million on the cash flow statement.

[William Lowe:]

That was, yes, that’s the first portion of the payment, yes.

[Unidentified Analyst:]

So it’s fair the payments to come on that?

[William Lowe:]

We have a little more to come on that.

[Unidentified Analyst:]

How much?

[William Lowe:]

Not till the end of – not till the end of the fiscal year though.

[Unidentified Analyst:]

How much would that be totally?

[William Lowe:]

We actually haven’t disclosed the purchase price, I don’t think so.

[Per Loof:]

If we told you what we have to pay at the end then you would have the purchase price, right?

[Unidentified Analyst:]

Okay.

[Per Loof:]

And it’s a small investment.

[Unidentified Analyst:]

And now you’ve acquired the company is this going to add to a line item in SG&A or something?

[Per Loof:]

No, not really because, it’s actually going to be less because…

[Unidentified Analyst:]

Oh yes it will.

[Per Loof:]

We were paying them more before than we will – than our SG&A expenses will be.

[Unidentified Analyst:]

So can you quantify what that saving is it for [ph]?

[Per Loof:]

It’s very, very small.

[Unidentified Analyst:]

Okay.

[Per Loof:]

So it’s not really – it’s not really going to be significant in either way, but at that point away that they will cost us less to run the business as a KEMET entity than adds service. But these are small numbers.

[Unidentified Analyst:]

Yes. Okay. I know you’ve answered a lot of questions about this so far. But the inventory, do you expect that to build to a higher total number or remain kind of flat?

[William Lowe:]

We currently have as Bill was saying some buffer inventories that we need while we are transitioning from plan A that we are closing to the new facility. So we need to build an inventory and it really deals with the plant we have closed – will close by the end of this month. In China, it’s about tenth we’re closing in Germany and so some stuff in the Americas, as well. So these inventories are ballooned a bit because of the need for us to have the buffer while we are making the transition. So because that’s going to happen, you will the inventory balances come down.

[Unidentified Analyst:]

Okay.

[William Lowe:]

As we work through this over the next couple of, three months, four months, or so.

[Unidentified Analyst:]

Okay, great. Thank you, guys.

[William Lowe:]

Thank you.

[Per Loof:]

Thank you.

[Operator:]

[Operator Instructions]

[Per Loof:]

Hello? Well, operator if we don’t have anymore questions in the queue, we could conclude the call.

[Operator:]

Okay. It appears…

[William Lowe:]

Hello?

[Per Loof:]

Is there anymore questions in the queue?

[Operator:]

There are no further questions, sir.

[Per Loof:]

Okay. So thank you very much all for joining us on the call this morning, and we thank you for your interest in the company. And we look forward to talking to you in another couple of months, and hopefully giving you some more good news. So thank you all and have a great day.

[Operator:]

This concludes today’s conference call. You may now disconnect your lines.