Varian Medical Systems Inc
Q1 2020 Earnings Call Transcript

Published: 30 Jan 2020

[Operator:]

Good day, ladies and gentlemen. And welcome to Varian's Fiscal First Quarter 2020 Earnings Call. As a reminder, this conference call is being recorded and a replay can be accessed on the Varian investor website at www.varian.com/investors.Now, I would like to turn the call over to Anshul Maheshwari, Vice President of Investor Relations. Please go ahead.

[Anshul Maheshwari:]

Thank you, operator. Good afternoon, everyone, and welcome to Varian’s fiscal first quarter 2020 earnings call. Joining me today on the call are Varian's President and Chief Executive Officer, Dow Wilson, and Chief Financial Officer, Mike Bruff. Dow will share his thoughts on our results and our long-term strategy and Mike will cover our operating and financial results in more detail. After our prepared remarks, we will be happy to take your questions.On the Varian Investor Relations website, you can find our fiscal first quarter and 2020 press release and earnings presentation, which are intended to provide additional perspective and details.A webcast of this call and any accompanying non-GAAP reconciliations are available on our website at www.varian.com/investorrs.Unless otherwise stated, all financial results discussed are non-GAAP. All references to EPS are to net earnings per diluted share. All growth rates are year-over-year, and any reference to orders are gross orders. All reference to organic growth exclude the impact of FX and growth from acquisitions of Cancer Treatment Services International, or CTSI, and Interventional Solutions business. All periods referred to are fiscal periods unless otherwise stated.During this call, we will be making forward-looking statements, which are predictions, projections or other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially because of the factors discussed in today's earnings release, this conference call and our SEC filings. We do not undertake any obligation to update any forward-looking statement.And with that, I'm pleased to turn the call over to Dow for his comments.

[Dow Wilson:]

Thanks, Anshul. As you all know, Mike Bruff formally assumed the role of CFO for the company on December 1 and this will be his first earnings call in that capacity. And as announced in the first quarter, Anshul is now leading our Investor Relations function.With that, thank you, everyone, for joining us today. I'll share the key milestones we achieved this past quarter and how they contributed to our long-term growth and value creation strategy.Our first quarter results reflect continued momentum, driven by our expanding and industry-leading product portfolio and innovation cycle.Now, let me touch on our first quarter performance. Total company revenues of $829 million increased 12%. Oncology revenues grew 11% to $782 million. Proton revenues were $28 million, down 28%, and other revenues were $19 million.Operating earnings of $135 million, or 16.2% of revenues, grew 13%. This includes planned investments to drive growth, as well as project mix and updated project costs in our Proton Solutions business.GAAP earnings per share of $0.96 declined 14% and non-GAAP earnings per share of $1.16 grew 10%.Cash flows from operations were $113 million, down $28 million due to investment in working capital to support our growth.Now, let me provide some additional color on the quarter. Our progress toward becoming the global leader in multidisciplinary cancer care solutions is powered by executing on our four strategic enablers for customers and their patients.First, innovating in radiation therapy. Second, leveraging artificial intelligence, machine learning and cloud-based solutions. Third, growing emerging businesses, geographies and technologies. And fourth, improving operational, financial and capital efficiency.First, let's review our progress on innovating in radiation therapy. We continue to extend our global market share leadership and expand our addressable market with our product innovation, comprehensive portfolio and services offerings.In the Oncology business, orders grew 8% in the quarter and the trailing 12 months. Based on public filings, we continue to be the market share leader for both orders and revenues.We signed an agreement with Massachusetts General Hospital for seven Varian radiotherapy systems, five will replace non-Varian systems, one will replace an existing Varian system and one will be placed in a new vault. Installation is expected to begin in 2020.In December 2019, we received an order for seven TrueBeam machines with six IDENTIFY systems at the National Cancer Center in Singapore. Subsequent to quarter close, we were ordered an order for one Edge system and two VitalBeam systems at the National University Hospital, Singapore.In Brazil, we received eight orders for Halcyon in the quarter. And in China, we continue to see issuance of category B licenses as well as market share leadership in the country.Hardware revenues grew 2% for the quarter. Our worldwide net installed base of 8,561 units grew 363 units or 4%. This continued growth in our installed base drives future recurring revenue from upgrades, software and services.In Africa, we continued to expand access to quality cancer care with the installation of three Halcyon systems at the Centre National d'Oncologie in Mauritania, Centre Hospitalier Nganda in Congo and the Lagos Teaching University Hospital in Nigeria.On the software front, revenues grew 13%, driven by continued adoption of our software solutions. We remain focused on investing in innovation around efficient clinical workflow, systems integration and treatment planning quality to help close the current resource and skills gap around the globe.Orders for HyperArc, our high-definition radiotherapy solution for stereotactic radiosurgery brain metastases, grew double-digits in the quarter. With less than 14% penetration, this continues to be a sizable opportunity across our TrueBeam installed base.Our services revenues grew 22% in the quarter, including the benefit from CTSI in a 14-week quarter. Excluding these benefits, services revenue grew 8%.CTSI, which is integrated into our Oncology Systems business, continues to perform in line with our expectations. We're investing in infrastructure for new technology-enabled services to drive mature market productivity and accelerate emerging market adoption.In our Proton Solutions business, we took one new order in the quarter. Our pipeline in the Proton business remains strong and we continue to gain global market share with customer interest, driven by our smaller footprint ProBeam 360° and the preclinical research we are doing with the FlashForward Consortium.As highlighted in our fourth quarter earnings call in October, we were selected by Penn Medicine to install an additional ProBeam 360° system in a single-room configuration at the Lancaster General Health Ann B. Barshinger Cancer Institute. The center is expected to treat its first patient in 2021.Subsequent to the end of the quarter, we were selected by China Medical University Hospital in Taiwan to install a ProBeam 360° system in a single-room configuration with the ability to add a second gantry. The center will also use our ARIA information management system and Eclipse treatment planning system and is scheduled for completion in 2024.We have 78 Proton rooms under contract across 26 sites globally. 38 rooms are operational, including one room that was handed over to clinical operations this quarter.In November, the South Florida Proton Therapy Institute, or SFPTI, on the campus of Delray Medical Center treated its first patient on our ProBeam compact single room system. SFPTI is now treating more than 30 patients per day, making it the fastest ramp of patient treatments per gantry in the world.Turning our attention to FLASH, preclinical research and product development is progressing per plan and we are encouraged by the results we continue to see from the FlashForward Consortium efforts. As our global ProBeam footprint continues to expand, the FlashForward Consortium now has representation from all geographies, enabling future research across different regional populations.Second, let's turn to our progress in leveraging artificial intelligence, machine learning and cloud solutions. Since the launch of the artificial intelligence-powered Ethos therapy system in September of 2019, reception and excitement for the platform has been extremely strong.During the quarter, we received three orders for Ethos. Two of the orders were from Australia, including a second order from the Icon Group and one order from Israel. Ethos is CE Marked and 510(NYSE

[Michael Bruff:]

Thanks, Dow. And hello, everyone. Our fourth strategic enabler is improving financial, operational and capital efficiency by maintaining a balanced focus across growth, profitability and liquidity.So, let me first start with growth. Companywide revenues were $829 million, up 12% in dollars and 13% in constant currency. Organic revenues grew 8%.In Oncology Systems, revenues were $782 million, up 11% in dollars and 12% in constant currency, driven by strong growth in software and services. On a trailing 12-month basis, revenues grew 11% in dollars and 13% in constant currency.Orders were $774 million, up 8% in dollars and 9% in constant currency in both the quarter and the trailing 12-months. Geographic orders mix was 46% in the Americas, 31% in EMEA and 23% in APAC. We ended the quarter with $3.1 billion in backlog, up 4%.Taking a closer look at our Oncology business results, in the Americas, revenues grew 15% in the geography and in our North America region. Orders were $360 million, up 7%. On a trailing 12-month basis, orders grew 6%, driven by continued market demand for our integrated value-based care solutions.In our Europe, Middle East, India and Africa geography, revenues grew 11%. Orders were $237 million, up 8%. On a trailing 12-month basis, orders grew 11%.Asia-Pacific revenues grew 5% and orders were $178 million, up 9% led by double-digit growth in our China and our Southeast Asia/Korea region, partially offset by softness in Japan. On a trailing 12-month basis, orders grew 6% for the Asia-Pacific geography.Our Proton Solutions business posted revenues of $28 million, a decline of 28%, primarily driven by project mix. Service revenues of $8 million grew 54%.During the quarter, we reduced our Proton therapy backlog by $19 million to reflect an Indian customer's decision to cancel the order that we booked in the fourth quarter of 2017. No revenue had been recognized on this order.Turning to profitability. Total company gross margin was $369 million, up 16%, and 44.5% of revenues, an increase of 160 basis points, driven by product mix, acquisitions and tariff exclusions. This was partially offset by Proton business project mix and the $4 million of updated project costs.Oncology gross margin of 45.4% of revenues increased 100 basis points.Investing in R&D to drive innovation remains core to our long-term growth and value creation strategy. We invested $67 million in R&D, up 10%, which is 8.1% of revenue.SG&A expenses were $167 million, up 21%, which is 20.2% of revenue. Excluding the acquisitions of CTSI, Endocare, Alicon and the Boston Scientific bead portfolio, SG&A was up 13%.Company operating earnings were $135 million, up 13%, which is 16.2% of revenues, up 15 basis points, driven by the gross margin expansion and planned investments to drive future growth. The $4 million updated project cost in the Proton business impacted operating earnings in the quarter by 50 basis points.GAAP EPS was $0.96 and non-GAAP EPS was $1.16.GAAP and non-GAAP tax rates were 21% and diluted share count was 91.7 million shares.This quarter, our GAAP operating earnings and GAAP EPS included an $8.8 million change in fair value of the contingent consideration related to our acquisitions of Endocare and Alicon.In the first quarter of fiscal year 2019, GAAP net earnings and GAAP EPS included a $22 million gain on the sale of our equity investment in Augmenix.Turning to the balance sheet and liquidity. We ended the quarter with cash and cash equivalents of $722 million and $544 million in debt. Certain proceeds from borrowings in the quarter were used to fund U.S. operations in the short term. Cash flows from operations were $113 million, down 20% due to investment in working capital to support continued growth. Oncology DSO was flat versus last year at 111 days.Other investments in the quarter include $23 million in CapEx and $46 million used to repurchase shares of our stock. As of the end of the quarter, we had 1.9 million shares remaining under our existing share repurchase authorization.In summary, we are pleased with the solid operating performance in the first quarter, which delivered double-digit growth in both revenues and non-GAAP operating earnings.I will now turn it back over to Dow.

[Dow Wilson:]

Thanks, Mike. Based on the solid operating performance in the first quarter and continued market and product momentum, we're making no changes to the fiscal year 2020 guidance given during the last earnings call. We expect earnings to be weighted towards the back half of the fiscal year as we continue to invest in future growth as considered factors that can influence the business including the strength across the portfolio, growing contribution from software and services, performance variability of the Proton Solutions segment and the mix of mature and emerging markets.Thank you. And now let's go to Q&A, operator.

[Operator:]

Thank you. [Operator Instructions]. Our first question comes from Vijay Kumar with Evercore ISI. Please state your question.

[Vijay Kumar:]

Hey, guys. Congrats on a nice quarter here. Thanks for taking my question. Dow, just on the order front here, really strong. I'm just curious, you mentioned China. We've been hearing a variety of feedback just given coronavirus. Curious how that's going to impact you guys, if at all. And were there any pull-forward of China quota of orders in the current Q?

[Dow Wilson:]

I'll tell you what? Let me start high and then I'll walk down to China. Starting at a high level, you saw the overall 9% constant currency growth on the quarter, 9% trailing 12-months; the America was 7% on the quarter, trailing constant currency growth is 6%; EMEA was still on a constant currency basis, a double-digit quarter, 11% in the quarter, 14% trailing 12-months; and APAC was 9% on the quarter, 7% trailing 12-months.As it relates to China, I would say we are seeing an uptick in the incremental licenses being released. As you know, applications for the remaining category A licenses ended late December, category B licenses continue to roll out. As we said last quarter, we're really kind of starting to see that roll. I think still, though, the best way to think about this is, in the past five years, our revenue CAGR has been 17%. If anything, we've seen that accelerate a little bit. So, the market remains very good. We don't guide our China orders, as you know, but funnel looks good and our win rate for public tenders remains high.I think maybe the other thing I'd add about China is the strength of our portfolio is very strong. We have three Proton orders in China we're executing on in Gary's business, Interventional Solutions. We also have a nice presence in China.As it relates to the virus, we're not seeing anything yet. Good news is – our priority is to make sure we're doing everything to protect and support our employees and customers during this time. We haven't seen any impact in either of those situations at this point. I think, from a business perspective, it's too early to call. We're continuing to monitor the impact on our factory and customers' surrounding activity, of course. We're trying to be very responsible local citizen. We've made a pretty significant contribution to the local Red Cross. And like everybody, watching it carefully.Maybe just one other thing I'd add on kind of China momentum, the Halcyon product is doing very well in China. We have over 20 orders now. So, that's flowing. And seeing – only kind of starting to see after all the regulatory wait, starting to see that uptick.

[Vijay Kumar:]

That's helpful, Dow. And just maybe one on the margin side. Given the tariff relief, I would have expected gross margins maybe perhaps to come in better. While I understand the comments on the growth investments to support the business, I'm just curious on gross margins, if you're seeing anything at all.

[Dow Wilson:]

I'd say, the quarter was right in line with where we were kind of expecting the quarter. I'll turn it over to Mike here and he can kind of do the walk for you on margins.

[Michael Bruff:]

Yeah, exactly, Dow. Vijay, thanks for the questions. The tariff did have roughly around 70 basis points of impact to our gross margin. That was planned in our guidance based on the events and the exclusions that we got back in Q4. But the real story here on the gross margin expansion is the product and geo mix that's playing into that expansion. The 160 basis points of expansion at the company level, 100 of that was product and geo expansion. So, think about the strong software and services growth rates that we had.Acquisitions, as we expected, improved the gross margin rate by around 45 bps. And then, the unexpected thing that we had in the quarter, which we called out, was the unexpected costs in our Proton business. And that impacted around 60 basis points on a gross margin perspective. But on the operating margin, it impacted about 50 basis points.But what I'd like to say about that is, while it was not expected in the quarter, it was something that the team identified early in the quarter. We got our heads around it. It was isolated to a project and some very specific retrofit costs. It triggered a review of all the other projects that we have in process.And at the end of the day, after that deep dive, the $4 million cost, we believe, is well within our tolerance range on the year. And again, I'll just kind of go back to our top line and bottom line growth rates. We are set up in a very good position to achieve our full-year commitments.

[Vijay Kumar:]

Thanks, guys.

[Operator:]

Thank you. Our next question comes from Anthony Petrone with Jefferies. Please state your question.

[Anthony Petrone:]

All right, thanks. And good afternoon. Also, congrats on the strong orders here. Maybe just to dig a little bit deeper into China. At Analyst Day, Dow, the company announced that there was 40 MoUs covering 70 LINACs. And so, just wondering, here in the quarter, if there was any activity out of those specific orders. And then, the follow-up there also would be the distinction between Class A and Class B. It sounds like certainly Class A is moving along, but an update on Class B licenses and where that sits would be helpful as well. And then, I'll have one follow-up. Thanks.

[Dow Wilson:]

Yeah. I would say, Anthony, as it relates to the China Import Expo Meeting, most of those MoUs are long term and tend not to be executed for, call it, 9 to 12 months kind of period. So, I would say that none of those are in here at this point. We had a very strong quarter in China. So, we continue to like very much what we see. We're seeing strong equipment demand. Across the portfolio, frankly.I highlighted Halcyon, but we're also seeing very good traction on Edge, on TrueBeam and on VitalBeam. And believe that, when Ethos comes to market, eventually in that market, we'll also have a strong position there. So, the portfolio is well set-up.As it kind of relates to each contract and whether it was part of that quota or not, what I can tell you is the best way we track it is it was strong double-digit growth on a tough comp. We were also a strong double-digit growth last year. And that's probably the best way to characterize it.

[Anthony Petrone:]

Fair enough. And the follow-up would be just on – over to the US, just any updates from the company's view on the bundle, where it sits? It seems like there's just a range of expectations in terms of timing. So, maybe what the latest is in terms of discussions with CMS and where the final rule is in timing there. Thanks.

[Dow Wilson:]

As you know, given the original time timeline, CMS has clearly been delayed. There were significant comments from customers, from the providers, from the clinical community, from the vendor community, likely led to a delay in issuing the final ruling. There's no definite guidance on timing. I've seen some of the ranges that are out there. I think that it's going to be some time in 2020 and it's not going to be delayed to 2022 as some time is out there.I think that, as we're really thinking about it, clearly, the portfolio, we've been designing to a value-based world for many years. So, I think the portfolio was well set up for the transition.And with the CTSI acquisition, we are particularly excited about having a technology-enabled services play as we believe customers will look to more outsourcing of all kinds of activities and we'll be well set-up for that growth. So, we're seeing both in the quarter.As I mentioned a minute ago, our total Americas trailing-12 is 6%; and on the quarter, it was 7%. So, we're not seeing it impact the order rate at this point in time. Not seeing any acceleration of cancellations or anything else that would cause us to worry. And in fact – and then, when you look at the way the backlog is flowing, the Americas revenue number, as we said in the script, was up 15% on the quarter. So, we're seeing a nice flow in the geography.

[Anthony Petrone:]

Okay, all right. Thanks, again. I'll hop in queue.

[Operator:]

Thank you. Our next question comes from Matt Taylor with UBS. Please state your question.

[Matthew Taylor:]

Hi. Thank you for taking the questions. The first one I wanted to ask about was Ethos and Ethos' timing. Can you give us any update on when you would expect to get approval for that in the US? And then, just on the orders in the quarter, you had three. You had really strong orders out of the gate last quarter. Can you talk about what the funnel looks like there and if you think you will see a step-up in the coming period?

[Dow Wilson:]

Yeah. Sure, Matt. Thank you. We were very pleased with the early orders in Q4, as you know. Got out of the gate late in Q4, launch in, basically, September of Q4. Between Q4 and Q1, we've taken out 20 orders. Frankly, when we look at the ramp versus Halcyon, kind of right on. So, that looks pretty good.The orders are a little lumpy. Or maybe a little bit of pent-up demand or waiting for regulatory approval last quarter. As I said in the script, we do not have yet US regulatory approval. We expect that 510(k) this quarter. So, in the next 30 to 60 days, we should have it. Customer feedback remains outstanding. And frankly, one of the things that we really like is how it positions across our portfolio and gives us again something in the high end of the product mix from a pricing and margin rate point of view. So, it's still early. We do expect 510(k) approval in this quarter. We do think that this shift to adaptive radiotherapy is on the order of the kind of shifts we saw with IMRT and IGRT. So, at this point, I'd say we've seen nothing that discourages us from that and we're bullish about Ethos.

[Matthew Taylor:]

Thanks. So, just a follow-up on – I just would love to hear more about how you're positioning it in the market. Are you kind of putting it up head to head with MRI or positioning it differently? What are some of the things that customers are telling you about your adaptive approach versus others?

[Dow Wilson:]

Yeah. We're getting very, very positive feedback from our customers. I'd say they love the quality of the product. They love the multi-modality image integration of the product. I'd say, right at the top of the list, they love the fact that our workflow is superior to everything else out there.As I mentioned in the script, we haven't seen anything yet that we really can't envision in a 15-minute time slot, and that's kind of sacred to our customers and sacred to patients. It leverages all the Halcyon technology for ease-of-use. I think it's very well-positioned for the APM environment that's coming, has an outstanding ROI with that kind of throughput. So, I think it's going to win on that basis.We're seeing a lot of people engage with us on the product, a lot of enthusiasm. Clearly, we got to get through the 510(k) in the US before we can market and sell it here. But we are, I think, early out of the gate here. We're very much perceived as the AI leader with our previous introductions with machine learning in RapidPlan, the other technologies that we have on the software side in the market and now Ethos. I think we're very much perceived as the AI leader in the market.

[Matthew Taylor:]

Okay, great. Thank you very much.

[Operator:]

Thank you. Our next question comes from Jeff Johnson with Robert W. Baird & Company. Please state your question.

[Jeffrey Johnson:]

Thank you. Good afternoon, guys. Can you hear me okay?

[Dow Wilson:]

Hi, Jeff.

[Michael Bruff:]

Hey, Jeff.

[Jeffrey Johnson:]

Hey, Dow. Hey, Mike. Good to be back. So, question for you. I think the only question I have left here is Tata. I don't know that I heard any update there. Just wondering if you saw any tailwinds here in the first quarter from that relationship and anything you can quantify there, high energy, low energy, anything like that. Thanks.

[Dow Wilson:]

Yeah. Sure. The Tata deal continues to move along. We've had 17 books since the signature of the agreement. We had two more this past quarter. So, that's going to continue to be lumpy. Kind of, I think, as you look, last three quarters, it's something like 213.2 [ph], something like that. So, it's going to bounce around. But the framework for the agreement is for up to 200 systems. We're thrilled for how it's going. RT utilization rate in India is only 15% to 20%. We think that this is a great play. And, frankly, in the long term, kind of combination of this agreement with the position that we have on CTSI for enabling customers to get in to radiation therapy with the services approach we have, we're very encouraged by what we see in India. I'd say most of the products sold there is TrueBeam, Jeff. So, it's a good mix of product. I'd say it's going kind of how we expected. We like what we see.

[Jeffrey Johnson:]

Yeah, understood. All right. That's all I've got. Thanks, guys.

[Operator:]

Thank you. Our next question comes from Marie Thibault with BTIG. Please state your question.

[Marie Thibault:]

Hi. Thanks so much for taking the questions. And congrats again on strong orders.

[Dow Wilson:]

Hi, Marie.

[Marie Thibault:]

Hey, hi. I wanted to ask a quick one that you called out some softness in orders in Japan. Given that's a really important market, I just wanted to hear a little bit about the dynamics going on there.

[Dow Wilson:]

Yeah. I'd say it's kind of just normal oscillations, unfortunately, of what we've seen in Japan in the last two or three years. The overall is down a hair. So, the service business has been very strong in Japan. The equipment is down a little bit. And, overall, Japan is dilutive to our APAC growth rate because China is hitting it out of the park. The rest of Southeast Asia/Korea has been very strong. And Japan is dilutive to the growth rate, of course, but we have a very strong service business there. We're starting to see a little software activity. We had tough comps in APAC and in Japan, in particular, in the first half last year. So, we might see a little bit more of this coming. But we've got a good team there. Service business continues to hum. I'd say, kind of no change in our outlook in China, Southeast Asia, Korea. Very strong and working hard to kind of build some recovery in Japan.

[Marie Thibault:]

Yeah, makes sense. Okay. And then, my other question, kind of taking a look at my model, the spending on both R&D and SG&A, I understand the investments you're making there. At the Investor Day back in November, you spoke quite a bit about some of the R&D projects that are going on, like FLASH. I'd love to hear a little bit more about the SG&A spend that you did this quarter. And it sounds like the second half, some of that should peel off. So, I wanted to hear a little bit about the timing of that as well.

[Dow Wilson:]

Yeah. Let me tee this up and I'll have Mike kind of take you through the walk. I think the first big piece is – there's a huge piece of it that's acquisition. So, between the CTSI and the Interventional Oncology acquisitions that we made last year, you're looking at $13 million of SG&A additive to last year and then $3 million from the extra week on the quarter. And then, the rest is kind of balanced between some infrastructure things we're doing, some ongoing investment in our distribution and marketing, and frankly, the kind of annualization of the build that you saw in the last half of last year. Mike, do you want to put any color on that?

[Michael Bruff:]

I think that's about right, Dow. We said that ex the investments in the acquisitions and the acquisitions themselves that SG&A is growing at 13%. Our revenue is growing at about that rate on a constant currency basis. And so, excluding the acquisitions, we're scaling at 100% even with all of these investments that we're making. So, again, the investment is there to drive the growth, but also to support the growth that we are driving in the business. And as we play out the rest of the year, we would expect to continue to drive scale in SG&A throughout the year and, we said in our long range plan, over those five years as well. So, early days there, but the majority of this lift is acquisition related.

[Marie Thibault:]

Makes perfect sense. Thanks so much.

[Operator:]

Ladies and gentlemen, there are no further questions at this time. I'll turn it back to management for closing remarks. Thank you.

[Dow Wilson:]

Thank you, operator. I am pleased with the strides we've made in the first quarter. Our focused execution enabled us to deliver solid oncology orders growth and double-digit growth in both revenues and non-GAAP operating earnings.Looking forward, we'll continue to invest in our strategic enablers and remain committed to innovating and investing in new technologies to drive for the ultimate victory, a world without fear of cancer.Thanks for joining us today.

[Operator:]

Thank you. This concludes today's conference. All parties may disconnect. Have a great evening.