Natus Medical Incorporated
Q3 2017 Earnings Call Transcript

Published: 25 Oct 2017

[Operator:]

Ladies and gentlemen, thank you for standing by. Welcome to the Natus Medical Third Quarter 2017 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded today, October 25, 2017 and contains time-sensitive information that is accurate only as of today. Earlier today, Natus Medical released financial results for the third 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 of the call 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 be presenting 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?

[Jim Hawkins:]

Thank you, operator. Our third quarter results that we released earlier this morning reported revenue of $122.6 million compared to $90.9 million last year. We also reported non-GAAP earnings of $0.40 compared to $0.39 in our third quarter last year. In the quarter, the hurricanes in Texas and Florida reduced our U.S. revenues by approximately 1%. I am very pleased with our record third quarter revenues and our non-GAAP earnings per share, which exceeded our high-end 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 pleased we achieved year-over-year revenue growth in our neurodiagnostic business. Both our international and U.S. segments posted solid growth. We are very excited with the future of Otometrics. 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 continues to expand. We also believe we have an opportunity for further growth in the U.S. market as Otometrics has underpenetrated this market in the past. They also have an exciting new product pipeline. All of these factors give us the confidence to believe Otometrics will achieve revenue growth of over 10% in 2017. We have also set an operating profit goal for Otometrics of 10% in 2017 and 20% in 2018. Prior to Natus acquiring Otometrics, they had been a breakeven business. At our Analyst Day that we had in June in New York City, 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 with the customer. We anticipate the introduction of Otoscan in the first quarter of 2018. 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 attained through a combination of Otoscan hardware sales and an upload-download data and cloud charge. We believe Otoscan has the same opportunity as the intraoral scanner to revolutionize the dental digital impressions 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. We have been showing and testing Otoscan with certain key customers, and their response has been extremely positive. We look forward to the product launch next year. In the third quarter, we announced the acquisition of neurosurgery business assets from Integra LifeSciences, which closed on October 6 in an all-cash transaction for $47.5 million. With historic annual revenue of approximately $50 million, the acquisition marks Natus’ entry into the $2 billion global neurosurgery market. In the transaction, Natus acquired the market-leading intracranial pressure monitoring system, ICP, including a San Diego manufacturing facility. The sales also include the U.S. rights relating to Integra’s fixed-pressure shunts as well as U.S. rights to DURAFORM dural graft implants, standard EVD catheters and CSF collection systems. We expect this acquisition to be immediately accretive to earnings with gross and operating margins similar to our consolidated margins. On Monday, Natus announced that it would be the exclusive sales agent for the Embrace MRI monitoring system in the United States. The Embrace is designed for imaging a neonate. The Embrace MRI System includes a temperature-control incubator that can be placed directly into the Embrace MRI. Along with being able to get diagnostic quality images, the Embrace does not require an expensive, dedicated shielded room as all other MRIs as the Embrace magnet is fully enclosed and self-contained system. Based on this patented technology, the Embrace MRI system can be located in the neonatal intensive care unit, NICU. This, we believe, will now allow neonates to have images performed that historically have not been able to happen due to the complexity and risk of transporting these high-risk babies to an MRI, which is typically located a great distance from the NICU. It is also very disruptive for the NICU as both doctors and nurses would need to escort an infant in this process as well as for radiology, a special setups and attention would be needed to scan a critical premature baby. Because of these factors, images are most often not performed as the risk reward has seen – was seen as not beneficial. The Embrace will now allow for MR images to be taken on a routine basis that will make for better medicine for neonates. The price of the Embrace will be $1 million to $1.5 million, depending on configuration. Natus, being the sales agent, will receive a commission of 20% to 25% of the sales price. While a high price point, the Embrace does not require a special shielded room and other expensive renovations that can often cause two or three times the cost of the MRI. Our hope shared by many – is that MR imaging on babies, while they remain safely in the NICU, will become a standard care for certain neonate conditions. We will introduce the Embrace to the U.S. market at the Radiology Society of North America, the RSNA show in Chicago on November 26 through the 30. As part of the partnership with Aspect Imaging, the owner of the Embrace, Natus will receive an equities participation of 10% of Aspect Imaging after the original investment is recovered. We believe the Embrace is a breakthrough technology and product and can have a meaningful change on how neonate medicine is practiced today. We will be building a sales, marketing and support team to help the Embrace – make the Embrace a success. In summary, we are pleased with the growth of our business as we drive over $500 million of revenue in 2017, as well as the progress and performance of Otometrics in our first nine 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 and partner with 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, along with the added neurosurgery products. I will now turn the call over to Jonathan Kennedy, our Chief Financial Officer for a review of 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 excluded amortization expense, restructuring, 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 verus non-GAAP basis in today’s press release. As Jim stated, we reported third quarter 2017 revenue of $122.6 million, a 34.9% increase from the same period last year, owing to the addition of Otometrics. Revenue from our neurology business increased 4.6% to $59.4 million or 48% of total revenue during the third quarter compared to $56.8 million and 62% of total revenue during the same quarter last year. Revenue from Newborn Care business decreased 1.4% to $33.7 million or 27% of total revenue during the third quarter compared to $34.2 million or 38% of total revenue during the same quarter last year. And revenue from Otometrics was $29.6 million or 24% of total revenue during the third quarter of 2017. In total, revenue from devices and systems contributed approximately 63% of total revenue in the third quarter compared to 61% in the 2016 period, while revenue from supplies and services was approximately 37% of total revenue in the third quarter of 2017 compared to 39% in the 2016 period. The increase in device mix was driven partially by the addition of Otometrics, where device revenue was about 63%. Revenue from domestic sales was approximately 56% in the third quarter compared to 69% in the same period in 2016. Revenue from international sales was approximately 44% for the third quarter compared to 31% for the same period in 2016. Again, the change in mix was driven by Otometrics, where approximately 76% of revenue is generated outside of the United States. On a non-GAAP basis, our gross margin decreased by 352 basis points in the third quarter to 61.1% compared to 64.6% in the third quarter of 2016. The decrease is driven by lower gross margins in our Otometrics and Newborn Care business units partially offset by higher gross margins in our Neurology business unit. Non-GAAP operating expenses increased by $15 million compared to the same quarter last year, and our non-GAAP operating margin decreased to 13.5% compared to 16.7% for the same quarter last year. The increase in OpEx and decline in operating margin was driven primarily by the addition of Otometrics. During the quarter, we recorded a valuation allowance on our U.S. tax assets. This onetime non-GAAP – noncash allowance increased our GAAP tax expense by $10.8 million. Our U.S. tax assets have a life of about 20 years, and although the accounting practices require us to reserve against them. We believe that we will have ample opportunity use them over the next two decades. Our third quarter non-GAAP effective tax rate was about 20.5% and looking ahead to Q4 and the full year, we expect our overall non-GAAP 2017 tax rate to be about 23%. Other income was $1.1 million, and that’s net interest and FX fluctuations, but primarily the gain was from fluctuations in the euro and Danish kroner to the dollar exchange rate. Interest expense was $1 million during the quarter and we expect interest expense to be approximately $1 million in the fourth quarter. On a GAAP basis, net loss was $10 million or $0.31 again, owing to the increase in valuation allowance, a $23.3 million decrease from the same quarter last year. Non-GAAP net income increased $0.3 million compared to the same quarter last year and non-GAAP earnings per diluted share was $0.40. In third quarter, we recorded approximately $7 million of depreciation and amortization expense. Share based compensation was about $2.2 million during the third quarter. Now, let’s look at the balance sheet and cash flow. Net cash increased $52.1 million during the quarter as we increased borrowings by $45 million to fund the Integra asset acquisition, and we ended the quarter with a net debt of $21.8 million. Cash flow from operations was about $4 million during the quarter. Our days of sales outstanding increased one day versus the second quarter to 87 days. And non-GAAP diluted share count remained flat at $33 million shares since the same period last year. With that I’ll turn the call back to Jim.

[Jim Hawkins:]

Thanks Jonathan. Before opening up the call to questions, I would like to review our financial guidance for our fourth quarter and the full year 2017, all on a non-GAAP basis. For the fourth quarter of 2017, we expect revenues of $145 million to $147 million and non-GAAP earnings per share of $0.68 to $0.72. For the full year 2017, we now expect revenue of $514.5 million to $516.5 million and non-GAAP earnings per share guidance of a $1.72 to a $1.76. We will now turn the call over to questions. Operator?

[Operator:]

[Operator Instructions] Our first question comes from Brian Weinstein from William Blair. Your line is now open.

[Brian Weinstein:]

Hey guys, thanks for taking the question. First let’s start with Otometrics. You guys said that you’re ahead of your plan for 10% growth. Can you kind of describe what’s been pulled forward here and kind of where you think that profitability will end for this year?

[Jim Hawkins:]

Yes, I don’t know about the term pull-forward, I mean, business is just steadily been very good at Otometrics. And it’s just been beyond our expectations Brian, really across all fronts. The U.S. business has been up, but all around the world it’s been very good. As far as, we don’t give guidance by each SBU. It will just get to be too much of a cluster. So we just give annual guidance for the company.

[Brian Weinstein:]

Yes, understand, I was just trying to dig into little bit about what has gone better than planned in terms of the profitability. Is it just that the revenues are better? Or are there things within the integration itself that has gone better and has sort of maybe moved up from something you expected in 2018 and it’s actually taking place in 2017?

[Jim Hawkins:]

Yes. No, I think you know the revenues have certainly kicked in. Our margins operating – gross profit margins are a little better as well from our original plan. And just overall spend through the integration has been really at budget or under budget. So it’s all coming in where we look to certainly do better than the 10% operating profit goal.

[Jonathan Kennedy:]

And I’d point – this is Jonathan, I’d point out too, on the Otometrics, so that we – as we get through that. Later in call we did go live with the Oracle implementation for the bulk of Otometrics last week and so that’s on track from where we were originally, but as Jim pointed out really the strength and revenue gross margins is on track and on the integration aspects, I think we’re on plan.

[Brian Weinstein:]

Got it. And then I didn’t hear you guys kind of talk about anything related to kind of digging into the Newborn Care side and what’s going on there. That was down again this quarter. Can you give us an update on kind of what’s going on in those end markets and, specifically, an update on where you guys are with Peloton at this time?

[Jim Hawkins:]

Sure. Jonathan, why don’t you address those questions?

[Jonathan Kennedy:]

Yes, so in the Newborn Care, we were down a little bit mostly in the U.S. Actually, international business was up a couple points in percentage in revenue. The U.S. was down, as we talked about before, Peloton coming down from a revenue perspective due to lower revenue per baby. In terms of getting Peloton on track, earlier in the year, Peloton was not profitable, and I’m happy to report that today, we’ve restructured that, and that business is doing quite well from a margin It’s actually up above at least the current operating margins. I think, from a growth perspective, Peloton will continue to grow, although priced lower than past expectations, but will continue to grow. We have added several net hospitals during the quarter, and it continues to be a service that our customers want and enjoy having from a performance perspective. The rest of the business would be the facility issues and the warning letter. We’re on track for resolving the open items for FDA. We had positive progress with getting our foreign certificates that we’re able to restart shipping late in the third quarter. Our product’s out to some of the countries that needed the certificates, so that’s a positive development. And overall, we’re on track. It’s just the revenue was down in the U.S., mostly year-over-year from the difference in Peloton revenue.

[Brian Weinstein:]

Okay. Then last question for me is on the guidance. It sounds like Otometrics is doing quite well, and I know they typically have a strong fourth quarter. You just added these neurology assets, which I’m not sure of the seasonality, but I would think would add about $12.5 million or so just based off of what you said to revenue. You only increased your revenue guidance by $8 million. And with the $0.02 dip this quarter and expectation that the neuro assets are going to be accretive, you only raised your guidance by the amount to beat this quarter. So is there something you’re trying to signal on the base business being weaker in the fourth quarter? Or can you just reconcile those things for me? Thanks.

[Jim Hawkins:]

Yes. I think, Brian, what may be – where there’s a little misunderstanding is, certainly, the historic revenues at Integra was running at $50 million. That was a peak year, trailing 12 months for Integra. We’re only – the first week of the quarter, we didn’t own Integra. So that’s certainly those assets. So obviously, we lost a week of revenues from a full quarter. On top of that, I think, we had communicated, when we’ve talked to people, I’d say, casually, when asked, that the Integra business in this transition, besides being – buying it at peak revenues, which was a big year for them, in the transition, we do expect to have some business fall off. We have to set up our own sales force and combining that with the loss of a – loss of a first week of the quarter, we’re just being conservative. On top of that, there’s some supply chain issues that some of the products that we’re receiving are manufactured in Puerto Rico. And we are off certainly to a slow start in getting some product out of Puerto Rico. So the combination of all those things, I think, is reflected in our guidance.

[Brian Weinstein:]

Okay, thank you.

[Operator:]

Thank you. And our next question comes from Raymond Myers from Benchmark. Your line is now open.

[Raymond Myers:]

Yes, thank you. Jim, can you talk a little more about the Embrace opportunity? Can you discuss what the market size, you think, might be for the MRI machine and also maybe either in units or dollars or in any way?

[Jim Hawkins:]

Sure. No, we’re very excited about the Embrace. One, for the business opportunities, but also just for the better medicine it’s going to be able to provide. Historically, having a neonate get an MRI was near impossible. You would have a scrum of doctors and nurses that would have to transport this critically old baby at these major hospitals. It could be hundreds and hundreds and even thousands of yards away to the MRI suite. And the risk in doing that was just huge, and the disruption of both the NICU and the radiology MR suite was just so much so that the vast majority of the time these images weren’t taken. By being able to have this self-contained MRI, which is just amazing technology, and Aspect has all the patents tied up around this MR in the application, being able to place this unit right in the NICU, right next to the babies where you can take the baby in, I would say, a matter of minutes, be able to get an MR scan and have that baby right back where he was. Being able to get these quality diagnostic images of newborn babies, that is the big opportunity, not only being able to get a baseline and understand where that baby is at, but as that baby’s in the NICU, to be able to follow the progress or degradation. And even after later on in life, to be able to have that baseline for the doctors to be able to follow is big. So we’re very excited. The market that we believe right now in the first number of years is probably the 300 major NICUs in the United States. So I guess, you could say, the market is somewhere in the $300 million to $500 million range based upon the configuration, the total market. Of course, this will be slow. It won’t happen overnight, but it’s something that we think can take hold. And then, I guess, if things go extremely well, and this becomes a standard of care, we can see then, other Level 3 NICUs, which, I think, there’s almost 900 now in the United States as being potential customers of this product. So it’s something that is very exciting.

[Raymond Myers:]

Okay, very good. Thank you. Can we talk a little bit about what’s going well at Otometrics? What specifically is allowing you to achieve and possibly exceed your 10% operating goal this year? And what gives you confidence that you can double that to 20% next year?

[Jim Hawkins:]

Let’s see. On the business side, it’s a combination of many things. The market for hearing aid, fitting and hearing diagnostics is solid around the world. The demographics, I think, are really working in our favor. The quality of the equipment that Otometrics have, I think, most believe it is number one in hearing aid fitting and in many other diagnostic modalities. And with having the focus, I would say, of being a stand-alone company or part of Natus that it’s a very important part of Natus, I think, has driven the intensity to put plans together where we can drive to achieve those plans, both outside the United States and in the United States. And we believe this kind of growth can continue for the years to come.

[Raymond Myers:]

Okay, very good.

[Jim Hawkins:]

Yes, on the profitability side, I would say the big factor there is that with having – being part of Natus and Otometrics being roughly 25% of our revenues, it’s a very important part. With their prior owner, it was a very small part of the business, maybe 5% or something like that, and it just didn’t really matter. And they looked at it as almost a support for their hearing aids to be able to help in the R&D and to help fine- tune their hearing aid, where we look at it as a complete stand-alone business. And so with that in mind, we have focused on profitability. We’ve gotten efficiencies in the organization. We were fortunate enough that a management team had, for the most part, been recently put together that is very high quality, that we look to grow the business in the years to come.

[Raymond Myers:]

Okay, very good. And I wanted to ask about progress with the warning letter at neoBLUE. Has there been any progress? And do you still feel comfortable that you hope to get that warning letter lifted next spring?

[Jim Hawkins:]

Jonathan you want to address that?

[Jonathan Kennedy:]

Yes, I mean obviously, our plan is to meet the requirements so that when we get our next audit, we pass, the warning letter comes away. I will point out this is the only thing that’s left on ship hold today is a neoBLUE blanket in terms of from the original ship hold product and the other, the neoBlue light, the CFG products, all those are now pretty much out of shipping that was part of that original warning letter and inspection. But we feel confident that we’ll make the grade next year when the FDA comes.

[Raymond Myers:]

Okay, great. Thank you. That’s all my questions.

[Operator:]

Thank you. [Operator Instructions] And our next question comes form Jayson Bedford from Raymond James. Your line is now open.

[Jayson Bedford:]

Hi, good morning and thanks for taking the questions guys. A few questions, and I’ve kind of jumped around a little bit here. But maybe to an earlier question, what is implied in the fourth quarter guidance for the Integra assets from a revenue and earnings perspective?

[Jim Hawkins:]

Jayson, we’re just not going to break down each SBU quarter-by-quarter as far as guidance goes. We give a quarter guidance and that’s how, I think, we’ve historically done it and how we plan on doing it in the future.

[Jayson Bedford:]

Okay. Jim, you talked, I think, on the last call about a large neurodiagnostic order. Is that still on track for – to be recognized in the fourth quarter? Is that more of an early 2018 event?

[Jim Hawkins:]

Yes, Jayson, that order is certainly on track. We did ship some of it. I would guess, in the neighborhood of almost half was shipped in Q3 as the customer was ready for acceptance. And so we were able to do that. So we, I would say, certainly plan on having that all shipped by the end of the year.

[Jayson Bedford:]

Okay. And I apologize if I missed this, but did you guys gave an impact from foreign exchange on a year-over-year basis in the quarter?

[Jonathan Kennedy:]

No, we didn’t. On revenue, you mean?

[Jayson Bedford:]

Yes.

[Jonathan Kennedy:]

We did not. No, we did not. The euro has gone a little bit in favor of revenue recently, not tremendously from last year this time. And then keep in mind, Jayson, on the expense side, we have pretty much a natural hedge. So for us, yes, it does affect the revenue cost in the bottom line. It’s pretty much washed out by any changes in FX.

[Jayson Bedford:]

Okay. And Jonathan, just…

[Jonathan Kennedy:]

Bottom line impact. It almost doesn’t matter.

[Jayson Bedford:]

Sure, okay. Just on the CFGs, is there – how did those play out just in terms of, is there kind of a bolus of revenue upfront? And is there any way to kind of quantify the benefit of having the CFGs lifted or accepted?

[Jonathan Kennedy:]

Yes. I mean, we’ve got them, like, I think the last week of the third quarter. So we were able to ship a little bit, I wouldn’t call it a bolus, the backlog, if you will, that was associated with those will mostly go out in Q4. And it was in the neighborhood of $2.5 million, $3 million per year of revenue, mostly product shipping to China that were on hold because of that.

[Jayson Bedford:]

Okay, okay. And then with respect to the agreement with Aspect Medical, you mentioned that you’ll – I forgot the words you used, but basically, it’s going to be displayed at RSNA. But in the release, you talked about recognizing revenue in the second half of 2018. What’s the disconnect there? Or is it revenue recognition? Or will you start marketing the product in earnest kind of mid next year?

[Jim Hawkins:]

Yes. So, Jayson, just to walk everyone through the whole model there. We are a sales – a commissioned agent on that. So we’re going to get a 20% to 25% of the sales price when we receive orders and forward them to Aspect. This product has, I would say, probably safe to say, it’s not budgeted in any hospital certainly for this year and, I would guess, even next year at this point. So we have, I would say, low expectations for next year. When we give our guidance for 2018, we might communicate what we’re looking for the Embrace. But it’s, I would call it, in the mid-single-digit kind of units being placed in the first year. And so we don’t expect anything until the second half of next year. I’ll also add, just since many of our shareholders are on the call, too, it’s really an exciting opportunity for Natus. As part of our partnership with Aspect, we are getting this equity participation. And Aspect has well over $100 million invested in the business. And after they – if the business were to get monetized down the road and our partnership develops as planned, we would get a 10% appreciation rights on the value of the business. So we are certainly – it’s a real partnership. We’re looking to drive this. We see a big opportunity of not only revenues but also valuation. They have – I encourage everyone to go to Aspect Imaging’s website. They have, really, a full line of exciting developments and products that they’ll be coming out with as a company. This one in, certainly, the neonate MR is really the flagship breakthrough technology. So much so even when they received FDA approval in the last, I think it was about six weeks, the FDA put out a press release, really commenting about what a breakthrough this would be for the practice of medicine for neonates. So even though it will probably get a slow start next year, we’re really hopeful that it can be a standard of care over time.

[Jayson Bedford:]

Okay. That’s helpful, Jim. Just on that – I think, in your prepared comments, you mentioned building a sales team. Is this product not going to be marketed by your existing team right now? And how big is the build?

[Jim Hawkins:]

Yes, so it will be marketed by our existing team. But certainly, we need to hire some radiology experienced clinicians, either radiologists or high-level technical staff that are familiar with the radiology image reading, being able to communicate how this MRI is working, how the whole workflow will be with pack systems and displaying images and being able to mark on images and all those kinds of things that our newborn sales force does not have the technical capabilities or experience to understand or to be able to communicate to world-class radiologists. So that’s what we’ll be putting together, is that group of support.

[Jayson Bedford:]

Okay, thanks. I will get back in queue.

[Jim Hawkins:]

Okay. Thanks Jayson.

[Operator:]

Thank you. At this time, I am showing no further questions. I would like to turn the call back over to Jim Hawkins, President and Chief Executive Officer of Natus Medical for closing remarks.

[Jim Hawkins:]

Thanks, operator. Well, in closing, we look forward to an exciting remainder of 2017 and reaching the $500 million revenue milestone at Natus. Thanks, everyone, for participating in today’s call and for your continued interest and support.

[Operator:]

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the program. You may now disconnect.