Natus Medical Incorporated
Q2 2017 Earnings Call Transcript

Published: 26 Jul 2017

[Operator:]

Ladies and gentlemen, thank you for standing by. Welcome to the Natus Medical Second Quarter 2017 Financial Results Conference Call. [Operator Instructions]. As a reminder, this conference call is being recorded today, July 26, 2017 and contains time-sensitive information that is accurate only as of today. Earlier today, Natus Medical released financial results for the second quarter 2017. If you have not received the news release or if you would like to be added to the company's distribution list, please e-mail your request to [e-mail]. This call is being broadcast live over the Internet on the company's website at natus.com and a replay will be available on the website for the next 90 days. The agenda for today's call will be as follows, Jim Hawkins, President and Chief Executive Officer of Natus, will present opening comments. Then Jonathan Kennedy, Executive Vice President and Chief Financial Officer of Natus, will summarize the company's financial results. And then, Jim Hawkins will conclude the prepared remarks with comments about the company's financial guidance for 2017 before opening the call up for questions. Some of the information to be furnished in today's session will constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are those focused on future performance, results, plans and events and include the company's expected results for 2017. Natus reminds you that the future results may differ materially from these forward-looking statements due to a number of risk factors. For a description of the relevant risks and uncertainties that may affect the company's business, see its periodic reports on Forms 10-K and 10-Q filed with the Securities and Exchange Commission. I would now like to turn the call over to Mr. Jim Hawkins, President and Chief Executive Officer of Natus Medical. Mr. Hawkins?

[James Hawkins:]

Thank you, operator. Our second quarter results that we released earlier this morning reported revenue of $122.2 million compared to $96 million last year. We also reported non-GAAP earnings of $0.34 compared to $0.39 in our second quarter last year. We reduced our bank debt by $40 million in the quarter. I'm very pleased with our record second quarter revenues and our non-GAAP earnings per share that exceeded the high end of our guidance. Recently acquired Otometrics had another strong quarter and is ahead of our plan to achieve 10% non-GAAP operating profit margins in 2017. The integration of Otometrics continues to go well. I am also pleased that we achieved year-over-year revenue growth in our international neurodiagnostic business. This business has been under pressure in recent years due to a combination of soft international markets and the strong U.S. dollar. We're hopeful these headwinds are now behind us. We believe Otometrics has an exciting future. The growth of hearing diagnostic and hearing aid fitting will be a solid grower for the foreseeable future as the worldwide market for these products continued to expand. We also believe we have an opportunity for further growth in the U.S, as Otometrics has underpenetrated this market in the past. Otometrics also has an exciting new product pipeline. All of these factors give us confidence to believe Otometrics will achieve revenue growth of over 10% in 2017 and 2018. We have also set an operating profit goal for Otometrics of 10% in 2017 and 20% in 2018. Prior to Natus' acquisition, Otometrics had been a breakeven business. At our Analyst Day in June, we unveiled Otoscan, Otometrics' revolutionary new hearing aid fitting product. The Otoscan product digitizes the hearing aid fitting process from the initial hearing aid fitting, providing specifications to the manufacturer and back to the customer. Otoscan represents a large opportunity for Natus in the growing worldwide hearing aid fitting market. Today there are approximately 8 million high-end hearing aids sold that would be eligible for an Otoscan digital image. This translates to an annual market opportunity of approximately $200 million. This would be obtained through a combination of Otoscan hardware sales and a cloud-based upload-download data charge. We believe Otoscan has the same opportunity as the intraoral scanner that revolutionized the dental digital impression market in the dental office. We believe a digital impression of the ear is compelling to hearing aid manufacturers and dispensers as it is safer and more comfortable than a silicone impression and it saves many days in the process as well as greatly reduces the risk of human error. We also believe it can reduce the number of revisits by customers that are unsatisfied with their hearing aid fitting as well as for patients to continue to use hearing aids as many stop due to fitting factors. In the second quarter, Jonathan Kennedy, our CFO, was appointed to also head up our Newborn Care business unit. I would like to report that significant progress has been made to improve our processes in our Seattle facility, where we're operating under a warning letter. We look to complete this remediation work in the first half of 2018. At the end of the second quarter, we restructured Peloton, our hearing screening service business, to improve profitability, along with updating our business model. In summary, we're pleased with the growth of our business as we drive to achieve our long-time goal of $500 million of revenue as well as the progress and performance of Otometrics in our first 6 months of ownership. I remain excited about the future of Natus. We have market-leading positions in the majority of our products and markets. We plan to continue to acquire companies and products to strengthen and expand our markets. As always, we will look for our acquisitions to be immediately accretive. We also look to improve our profitability in 2018 as we integrate Otometrics with Natus and complete the remediation work being performed in Newborn Care. As discussed at our Analyst Day, we believe Natus has the opportunity to have organic revenue growth of 5% to 7% in future years. Combining this growth with increased profitability and accretive acquisitions make for an exciting future for our company. I will now turn the call over to Jonathan Kennedy, our Chief Financial Officer, for a review of the financial results. Jonathan?

[Jonathan Kennedy:]

Thank you, Jim. Today, I'll be discussing our financial results on a GAAP basis as well as a non-GAAP basis. Our non-GAAP results exclude amortization expense, restructurings, certain other charges and their related tax effects. We believe that the presentation of these non-GAAP measures, along with our GAAP financial statements, provide a more thorough analysis of our ongoing financial performance. And you can find a reconciliation of our financial results on a GAAP versus non-GAAP basis in today's press release. As Jim stated, we reported second quarter revenue of $122.2 million, a 27.3% increase from the same period last year, owing to the addition of Otometrics. Revenue from our Neurology business decreased 3.2% to $59.3 million or 49% of total revenue during the second quarter of 2017 compared to $61.2 million and 64% of total revenue during the same quarter last year. Revenue from our Newborn Care business decreased 1.7% to $34.1 million or 28% of total revenue during the second quarter of 2017 compared to $34.7 million or 36% of total revenue during the same quarter last year. And revenue from Otometrics was $28.8 million or 24% of total revenue during the second quarter. In total, revenue from devices and systems contributed approximately 65% of total revenue in the second quarter of 2017 compared to 58% in the 2016 period, while revenue from supplies and services was approximately 35% of total revenue in the second quarter of 2017 compared to 42% in the 2016 period. The increase in device mix was driven by the addition of Otometrics, where device revenue was approximately 70%. Revenue from domestic sales was approximately 55% for the second quarter of 2017 compared to 70% in the same period in 2016. Revenue from international sales was approximately 45% for the second quarter of 2017 compared to 30% for the same period last year. Again, the change in mix was driven by Otometrics, where approximately 70% of revenue is generated outside the U.S. On a non-GAAP basis, our gross margin increased by 10 basis points in the second quarter to 60.6% compared to 60.5% in the second quarter of last year. Gross margin improvements in Otometrics and neurodiagnostics drove the increase and were a result of more favorable geographic sales mix and cost controls. We expect our average gross margin to continue a gradual trend upward over the next several quarters as we complete the integration of Otometrics. Non-GAAP operating expenses increased by $18.9 million compared to the same quarter last year. Our non-GAAP operating margin decreased to 11.8% compared to 18% for the same quarter last year. The increase in OpEx and decline in margin was driven by the additional -- addition of Otometrics as well as reduced profitability in our Newborn Care business. Our second quarter non-GAAP effective tax rate was approximately 20.2%, 3 percentage points lower than guidance and the rate decrease was just due to higher-than-expected profitability outside the U.S. Looking ahead to the full year, we expect our overall non-GAAP 2017 tax rate to be about 23%. Other income was $0.9 million during the quarter, primarily as a result of fluctuations in the euro to dollar exchange rate. Interest expense was $1.2 million during the quarter and higher than guidance as we were unable to position our cash as efficiently as expected. We expect interest expense to be about $1 million in each of the third and fourth quarters. On a GAAP basis, net loss was $5 million or $0.15 per diluted share, a $15.5 million decrease from the same quarter last year. Non-GAAP net income decreased $1.6 million compared to the same quarter last year and non-GAAP earnings per share was 34% -- $0.34. In the second quarter, we recorded about $7.1 million of depreciation and amortization and share-based compensation was about $2.2 million during the second quarter. Now let's look at the balance sheet and some cash flow items. We repurchased $1.0 million of company stock and net cash and investments decreased $32.6 million during the quarter. We paid down our credit line by $40 million during the second quarter and ended the quarter with a net cash debt of $29.2 million. Cash flow from operations was $8.5 million during the quarter. Our days of sales outstanding increased 3 days versus the first quarter to 86 days and we expect continued improvements in DSO as we complete the integration of Otometrics. Our diluted shares outstanding remained flat at 33 million shares since the same period last year. And with that, I'll turn the call back to Jim.

[James Hawkins:]

Thanks, Jonathan. Before opening up the call to questions, I would like to review our financial guidance for our third quarter and the full year 2017, all on a non-GAAP basis. For the third quarter of 2017, we expect revenue of $121 million to $123 million and non-GAAP earnings per share of $0.37 to $0.38. For the full year 2017, we expect revenue of $505 million to $510 million and non-GAAP earnings per share of $1.70 to $1.75. We will now turn the call over to questions. Operator?

[Operator:]

[Operator Instructions]. Our first question comes from the line of Chris Lewis from Roth Capital Partners.

[Christopher Lewis:]

I may have missed it, but did you give the Otometrics revenue number for the quarter?

[Jonathan Kennedy:]

I did. $28.8 million.

[Christopher Lewis:]

Okay, great. So that was a sequential increase and probably a little bit above, I think, where most people had expected. Can you just elaborate on kind of what's driving the better-than-anticipated growth in that segment? And then as a follow-on to that, the faster-than-expected profitability, it sounds like that's going well. So maybe just talk about what you're seeing in the business that's better than your original expectations.

[James Hawkins:]

Yes, Chris. It's really, I would say, all facets of the Otometrics business and their core business in Europe and Asia are growing very nicely. The United States business, that's a real turnaround situation for them. It is turning around. If you remember, they had been a big money loser as they had tried to build up their international -- or their U.S. business. And now it is getting to where we looked to have it at breakeven here by the end of the year. And their growth is continuing nicely. The hearing aid fitting business is getting traction as we had anticipated, being able to break away from GN Store Nord, one of the largest hearing aid manufacturers. And being an independent now supplier of hearing diagnostic product has opened the doors at all the hearing aid companies. And that business is starting to happen. So plus just the hearing aid market in general around the world is growing very nicely. It's a great business.

[Jonathan Kennedy:]

And if you missed my comments, the gross margin at Otometrics is over 60% this quarter, so the profitability has worked out a little faster than we expected. Always, we had that expectation, but it's come a little quicker than we thought.

[Christopher Lewis:]

Right. And just a question around the guidance over the remainder of this year. If you kind of strip out Otometrics, I know there's some variability there. But if you strip that out, it looks like there's a -- it implies a pretty healthy acceleration in the underlying kind of legacy core growth in 2017. I guess just kind of given the core business trends as of late, if you look at it kind of flattish, kind of what are the key drivers that kind of provide you confidence in that legacy base business growth acceleration over the next two quarters?

[James Hawkins:]

Yes, Chris. Well, one is, if you remember back to Q3 last year, we did have a little bit of a soft neurodiagnostic quarter. And so I don't want to say it's an easy comp, but it's an easier comp that we're looking to expand upon there. We look to take that momentum into Q4 which is always by far our largest revenue quarter of the year. And then with Otometrics, even more so as far as their year-end ramp, we really look for a huge Q4. And we're continuing to take cost out of the business and so we look for big profits in Q4 as well.

[Christopher Lewis:]

Okay. And just one more for me. As we think about the full year revenue guidance number, how should we think about the full year Otometrics number as a part of that?

[James Hawkins:]

Yes. So what we've said is our goal is to get to 10% pretax with Otometrics. We feel confident that will happen, but we're not really giving any guidance above that. We're saying we expect to at least hit that and beat it, but we're not quantifying that.

[Operator:]

And our next question comes from the line of Brian Weinstein from William Blair.

[Brian Weinstein:]

Just to piggyback on the last question a little bit. You guys have done -- or you're annualizing, if you look at the first half from Otometrics, to about $113 million. And you guys are talking about having that be a nicer ramp in terms of the top line contribution in the back half of the year as well. So that's trending above kind of that 10% that you've talked about in terms of the growth rate on the top line. Is there anything that we should be taking into consideration that is going on in the back half that would dissuade us from kind of -- just doing the math, I'm thinking that this could be well above $115 million for the year in terms of the revenue contribution from Otometrics?

[James Hawkins:]

Well, the term well above leaves a lot of gap there. Certainly, being at $115 million or above is a real possibility but -- which is just huge growth for them if they're able to do that. But I would leave it at that.

[Brian Weinstein:]

Okay. And then you talked about the o U.S. improvement there and you said that hopefully, things have stabilized there. Is that -- are you just getting to the point where you're going up against easier comps and the business has sort of flattened out? Or are you seeing actually improvement in the end markets that you're serving there?

[James Hawkins:]

Yes, a little bit of both, Brian. And then I would add on to that. The dollar situation is a big help for us, not that we were trying to give excuses. But boy, when the euro went from $1.45 to $1.50 all the way down to $1.04, it makes it tough. And now here we're sitting around $1.16. That's really a tailwind now, where we've had 2 years of headwinds. It makes us more not only competitive, but hospitals really buy more, I think. And it just makes it easier for them to plan and purchase. Plus Europe and the rest of the world is, I think, doing better as well just in general. So we're -- I hate to use the word confident, but boy, our pipeline looks quite solid on the international front.

[Brian Weinstein:]

Okay. And last one for me. You guys really had a $4.1 million collection reserve with respect to Peloton. You talked about restructuring that business. Can you give us more detail where that business stands today, what the profitability looks like and just give us some idea about this collection reserve and how you came up with the amount and why you did it?

[James Hawkins:]

Sure Brian, I'll go ahead and let Jonathan answer that one.

[Jonathan Kennedy:]

Yes. So like Jim said in his prepared remarks, we've restructured Peloton a bit. We're really kind of focusing on the profitability of that business. And so that was an event that happened in the quarter. Now the reserve we took for the collections. So we've -- we have about 3 years of experience now with Peloton and over time, we've seen a degradation of the receivables that get old. It's not unusual to have collections extend out for 1 year or 2 in the medical services business. But as those got older and older, we felt it was appropriate to reserve for them because they're just thousands of small receivables that are very difficult to go after and collect. And so that -- we talked about last call -- has affected what we're recognizing in revenue per baby. So we've lowered that, we feel like that represents the past of the -- the full issue and we feel like going forward prospectively, we're being as conservative as we need to be in terms of recognizing revenue. You're trying to match the cash received versus the services performed over a pretty long period of time and that reflects a correction that accumulated over the '14, '15 and '16 time period.

[James Hawkins:]

Yes, I think also, just to add to that, that we did see some of these states just changed their whole payment process as far as what they wanted to pay. And Natus being a small player in that and you have 50 states out there, it's not any big number in any one state. And when they say they don't want to -- they've changed their Medicaid philosophy on payment for this, we really had to take it. The other side of it is that we have changed our business model and so far, so good, as looking for the hospitals now to partner with us. I don't want to get into too much detail for competitive reasons. But we're getting payments from hospitals. And as these contracts come up for renewal, we're able to renegotiate them in a positive way. So we see Peloton going forward being profitable again and growing profitability as these contracts get renegotiated over the next year.

[Operator:]

And our next question comes from the line of Jayson Bedford from Raymond James.

[Jayson Bedford:]

Just maybe to follow up on Otometrics. You mentioned the margin strength here. What was the earnings contribution from Otometrics in the second quarter?

[James Hawkins:]

Yes, I don't believe we give those numbers. We've said that we're confident that it will get to our goal of 10% pretax, but we don't give it by division profitability.

[Jayson Bedford:]

Okay. It's fair to say, though, that it was -- Otometrics was accretive in the quarter?

[James Hawkins:]

Yes. It certainly was profitable.

[Jayson Bedford:]

Okay. You mentioned the growth in international neurodiagnostics. How big is that business?

[James Hawkins:]

Well, it's a tough -- but Jonathan is looking that up here, see if we have it at our fingertips.

[Jonathan Kennedy:]

Yes.

[Jayson Bedford:]

Okay. Or an approximate number, I'm just...

[James Hawkins:]

Yes, around $20 million. Or let's see. Is that the quarter?

[Jonathan Kennedy:]

I'm sorry --

[James Hawkins:]

No. No, that international...

[Jayson Bedford:]

Is the split similar just to your U.S., o U.S. breakout as a company?

[James Hawkins:]

Yes, it's a -- the Neuro business is, ballpark, averaging around $60 million a quarter and I believe it's around 40% of that. So maybe it'd be around $25 million, something like that. Maybe $25 million, in that range.

[Jayson Bedford:]

Okay, that's helpful.

[James Hawkins:]

Yes, around $20 million.

[Jayson Bedford:]

Okay. And just on that, I think at the Analyst Day, you talked about potentially receiving the CFGs. Is there any update on when you may be able to receive those and kind of open up the broader international market?

[James Hawkins:]

I'll pass that on to Jonathan.

[Jonathan Kennedy:]

Yes, Jayson. So...

[James Hawkins:]

Because it's mainly around our newborn care for people that don't -- who aren't familiar with that.

[Jonathan Kennedy:]

Yes. So this affects just the products that are produced or managed by our Seattle facility. So as we talked about at Analyst Day, we've had constant communication with the FDA. We had the FDA in a couple of weeks ago doing just a checkup on the status. I wouldn't classify it as a full audit. And during that conversation, we brought up the ability for us to request that CFG. So the FDA is considering that request. We don't have an answer back from them. So the timing of getting those back is still unknown. By normal standards, you would get that when you clear your warning letter which we think will happen sometime early next year when the FDA comes back and inspects, provided we're good on the inspection. Getting that earlier, it's tough to tell. We do have a request in. It's difficult to say, Jayson, but I'd say anywhere in the next 3 months to 12 months is probably a wide but logical time frame.

[Jayson Bedford:]

Fair enough, fair enough. In terms of the contribution from -- I think this is the last quarter for RetCam. What was the revenue level on RetCam in the quarter?

[James Hawkins:]

I think it was in the $3.5 million to $4 million range.

[Operator:]

[Operator Instructions]. Our next question comes from the line of Raymond Myers from Benchmark.

[Raymond Myers:]

Let me first ask about your guidance for the second half. In Q3, it suggests that revenue should be about the same as the revenue level here in Q2. Is that what the trend is so far in July? Or are you simply being conservative on guidance for Q3 revenue?

[James Hawkins:]

Yes. If you look historically, Ray, I mean, our quarters are pretty flat Q2 to Q3. And with Otometrics, they're similar to that as well when you look back at their history that we happen to have, I guess you guys probably don't, quarterly. So we expect that to be a trend to continue, the Q2 and Q3 about the same. As you know, internationally, especially in Europe, a lot of holidays and things do slow down there. And so I would say that's a good data point.

[Raymond Myers:]

Okay, good. And could you describe the seasonality that you see driving the earnings in Q4? Because the way the guidance is set for this year, it implies a very strong Q4 tilt in earnings which is a stronger tilt than in prior years.

[James Hawkins:]

Sure. There's a few factors there. As you said, seasonally, it's always our biggest earnings quarter of the year in revenue. This time, I would say even more so. With Otometrics, not only their business gets very profitable in Q4 as their revenue ramps, but we -- there's also, with the integration of Otometrics, we look to have them on Oracle in that quarter and that will also help take some cost out of the business and some duplications that we have. So really a combination of all those things. And of course, with more revenues, higher gross profit margins, we just -- a lot just flows in that quarter. Where -- it's always a surprise, I think every quarter -- every fourth quarter how nice our profitability pops.

[Raymond Myers:]

Okay. We look forward to that. Last, did you give the Neurology and Newborn revenue breakout? And when will the 10-Q be released so that we can get the full detail?

[Jonathan Kennedy:]

Yes. So in my prepared remarks, I did give the revenue breakout for Q2 actual. Do you want me to go back to that? I can do that for you.

[Raymond Myers:]

Yes. Do you mind?

[Jonathan Kennedy:]

Sure. Yes. So revenue from Neurology was $59.3 million, revenue from Newborn was $34.1 million and Otometrics was $28.8 million for the quarter. And [indiscernible] 10-Q to come out on Monday, August 7.

[Raymond Myers:]

Okay. Very good. And maybe could you touch on the FDA remediation meetings? What progress has happened recently? And what was the outcome of the FDA meetings that you had recently in Seattle?

[Jonathan Kennedy:]

Yes, let me see if I can boil it down to a few sentences because there's a lot that we're doing up there. So for those who are less familiar, the FDA warning letter centers around our design controls primarily. We've gone through and for all the products that are manufactured in Seattle, we've done a review of the design files and the documentation that goes around designing products. We've looked at our quality management system. We've had a number of consultants in the facility for the last 1.5 years. We've added to the staff by a couple of dozen engineers in terms of quality and engineering. And all of that has been laid out as a quality management system improvement plan that we have communicated to the FDA. And the FDA has sort of stay right with you lock-step to verify that you're doing what that plan requires. So they don't explicitly approve a plan. But by taking no further action, the FDA is knowledgeable of our plan and therefore monitors that we're succeeding with it. We had a follow-up meeting with the FDA in person. Now we typically send letters and tell them what the update is. We had a follow-up meeting 2 to 3 weeks ago with the FDA to review the status of some of the items on the plan. That review went well. We presented what was happening and no other observations were presented. And so I would classify it as a favorable outcome but certainly not a full-blown audit. That did not relieve us of the warning letter and any other obligations. But it does give indication that we're following our plan and the FDA is knowledgeable of that plan and takes no further issues from what they've already told us in the warning letter from a couple of years ago.

[Operator:]

And our next question comes from the line of Brian Weinstein from William Blair.

[Brian Weinstein:]

Hey, just a follow-up question, real quick. Jonathan, you talked about a 23% tax rate, I think, for the full year. You just put up 20% this year and you cited the fact that you had greater profitability outside the U.S. With Otometrics going to be seeing improved profitability and a lot of that coming o U.S. and your base business stabilizing o U.S., why would the tax rate be 23% for the full year? Why would we not expect something lower than that?

[Jonathan Kennedy:]

Sure. When you look account for taxes, you're always trying to triangulate for that year-end rate. So every amount we book for each quarter progressing through the year is trying to hit that full year rate. That's just how you do the accounting for taxes. And so we had a lower than that -- lower than 23% rate this quarter but that was really the true-up where we've been cumulative year-to-date. And then if you think about Otometrics, that is a driver of outside U.S., but the Denmark tax rate is 22%. So it's not really that dilutive to the full company rate. It'd be one thing if that were coming out of Ireland or some other jurisdiction that was much lower. But right now, the structure is Denmark and it helps a little bit, but it isn't terribly dilutive to the 23% versus the 22%.

[Operator:]

And I am seeing no further questions. And I would like to turn the call back to you, Jim Hawkins, for any further remarks.

[James Hawkins:]

Sure. Thanks, operator. Yes, just before we close, yes, I'd just like to talk a little bit more about Otoscan, just to get everyone to focus on that product because it really is, in our mind, a real game changer. And maybe just to walk through what that product is. We did have it at our Analyst Day and those who were there -- that were there, I think, got a feel for it. But if you can imagine right now the way a hearing aid is fitted, there is a silicone wax that is put into a patient's ear and that's formed in there. And then they pull that wax out and basically mail it to the manufacturer of the hearing aid to try to make a mold that duplicates that wax specimen. And then back it goes to the hearing aid dispenser, where they try to place it in the customer. And many times, it's good; many times it has to go back for rework. With the Otoscan, this is a digital impression, where there's a little camera, fiber optic-type camera that is put into the ear. We're able to get a full digital impression. Much like when you go to the dentist -- well, even many times now when you have your teeth done, they have these trays. They put this goop in there and you clamp down on -- in that goop. It's very uncomfortable. They pull it away from the teeth and they mail it off to the dental lab. Now many of the high-end dentals have this type of device where you can now take an image. They put this wand in your mouth and they're able to get a full dental image. It's really just changed dentistry. And that is what we're doing with Otoscan. And it's -- we believe and we're convinced we have a huge jump over anyone. We don't even really know of anyone that's anywhere near where we're with this product. And it is something that the hearing aid manufacturers are -- I don't want to say dying for, but they really are excited about. And certainly, we think it will be a differentiation -- differentiator for the hearing aid dispensers, being able to differentiate their business, making it high-end, selling more high-end hearing aids that are better hearing aids by making the process easier and then having this digital image that you can then use for future hearing aids and to make adjustments. So with all that, we're just very excited about this opportunity. And as we go forward into next year after we introduce it, I think we'll be talking about its progress more. With that said, it's not going to leap out of the -- out of the starting gate with big revenue numbers because it is a coordinated effort between the hearing aid manufacturers and getting the dispensers in. We're going to be releasing this product probably location by location. We're going to pick some target markets, get those situated and then expand accordingly and then branch out with the different hearing aid manufacturers. So it'll be a many-year growth opportunity for us. But I wanted to just give that explanation so everybody can get a feel for it. Please go out and do your research but we're very excited. But I want to thank everyone for participating on the call and for your support and interest as we look forward to a very exciting remainder of 2017. Thank you very much.

[Operator:]

Ladies and gentlemen thank you for participating in today's conference. This concludes today's program and you may all disconnect. Everyone, have a great day.