Varex Imaging Corporation

Greetings and welcome to the Varix Imaging second quarter full year 2024 earnings call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone to require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Chris Belfier, Director of Investor Relations. Thank you, sir. You may begin.

Good afternoon and welcome to Varix Imaging Corporation's earnings conference call for the second quarter of fiscal year 2024. With me today are Sunny Sanyal, our president and CEO, and Sam Maheshwari, our CFO. Please note that the live webcast of this conference call includes a supplemental slide presentation that can be accessed at Varix's website at variximaging.com. The webcast and supplemental slide presentation will be archived on Varix's website. To simplify our discussion, unless otherwise stated, all references to the quarter are for the second quarter of fiscal year 2024. In addition, unless otherwise stated, quarterly comparisons are made year over year from the second quarter of fiscal year 2024 to the second quarter of fiscal year 2023. Finally, all references to the year are to the fiscal year and not the calendar year unless otherwise stated. Please be advised that during this call, we will be making forward-looking statements, which are predictions or projections about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties that could cause actual results to differ materially from those anticipated. Risks relating to our business are described in our quarterly earnings release and our filings with the SEC. Additional information concerning the factors that could cause actual results to materially differ from those anticipated is contained in our SEC filings, including item 1A, risk factors of our quarterly reports on Form 10-Q and our annual report on Form 10-K. The information in this discussion speaks as of today's date, and we assume no obligation to update or revise the forward-looking statements in this discussion. On today's call, we will be discussing certain non-GAAP financial measures. These non-GAAP measures are not presented in accordance with nor are they a substitute for GAAP financial measures. We will provide a reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure in our earnings press release, which is posted on our website. I will now turn the call over to Sonny.

Thank you, Chris. Good afternoon, everyone, and thank you for joining us for our second quarter earnings call. Sales in the second quarter was in line with our expectations, resulting in revenue of $206 million. Non-GAAP gross margin of 33% was within the guided range, and non-GAAP earnings per share was 16 cents in the quarter. Revenue in the second quarter was down 10% year over year. Revenue in the medical segment decreased 15% year over year, while the industrial segment revenue increased 6%. Non-GAAP gross margin in the second quarter was 33%, which was flat compared to the same quarter last year, and non-GAAP EPS was 16 cents compared to 26 cents last year. We ended the second quarter with $190 million worth of cash, cash equivalents, and marketable securities on the balance sheet, up $68 million compared to the second quarter of fiscal 2023. Now let me give you some insights into the sales detail by modality in the quarter compared to a five-quarter average, which we will refer to as the sales trend. Sales in our medical segment was down in the quarter due to cautious purchasing behavior by our customers, in addition to the continued softness in China. Global sales of CT tubes improved in the quarter and is now in line with the sales trend. Fluoroscopy and mammography were both in line with their respective sales trends. Oncology, radiographic, and dental modalities were all below their respective sales trends. Global sales of our industrial products were solid in the quarter and in line with our sales trend. Our cargo inspection products and industrial tubes continued to see strong sales while we experienced some softness in other industrial and markets, primarily in semiconductor, electronics, and battery inspection. Now I'd like to take a moment to give you an update on our photon counting technology. As we highlighted in the past quarters, photon counting detector technologies are a significant focus across the entire imaging industry. Both medical and industrial OEMs continue to explore the use of photon counting in imaging applications across various modalities, from food inspection to full-body medical CT. Engagement with our OEM customers has accelerated over the past year, and we believe Verix continues to be well-positioned to benefit from these trends, given our innovative technology and breadth of our product portfolio. Our industrial segment, where technology adoption tends to be faster, continues to be the main driver of our photon-counting detector sales. The technology is being adopted in high-growth niche verticals where there's a need for high-speed and high sensitivity imaging. Our photon counting detectors continue to be integrated into new customer systems, and we expect industrial applications to remain solid source for sales of Varix's photon counting products in the future. In addition, last year we provided an overview of two collaborative photon counting projects in our industrial business, Parsec and Grinner. These projects are sponsored under the Horizon Europe program, the European Union's key funding program for research and innovation. Both projects are focused on the speed of imaging and material discrimination, which are distinctive strengths of photon counting. The PARSEC project aimed at addressing the potential abuse of postal and express courier services by criminals and terrorists is making solid progress. The material discrimination capability of our photon counting technology, coupled with AI software, is being used to test the detection of illicit substances within clusters of parcels. The Grinner project, which is aimed at preventing battery-caused fires in the electronics waste management chain, is also progressing well. A prototype incorporating our photon counting technology is expected to be deployed to an end-user facility in Europe for gathering data and field testing. Once testing at the recycling facility is complete in late fiscal 2024, we expect to work with our customer on commercialization of the final system. In our medical segment, our Photon County technology is being used in full body scans and panoramic dental imaging. As we noted on our first quarter earnings call, We're working with a major OEM to integrate our photon counting technology in their next generation of CT scanners. This process is moving along as planned. We also now have other prospects in the pipeline who are in various stages in assessing our technology for CT application. We expect new and existing applications of our photon counting technology to contribute strong sales growth over the next five years. Specifically, we expect additional applications in medical, including CT, to add over $100 million of revenue over this timeframe. Coupled with traction in our industrial markets, we expect our photon counting portfolio to contribute more than $150 million of revenue annually by fiscal 2029. We continue to be encouraged by the acceptance of photon counting technologies for medical and industrial applications. With that, let me hand over the call to Sam.

Thanks, Sunny, and hello, everyone. Our revenues in the second quarter were $206 million at the midpoint of our guidance, while non-GAAP gross margin was 33% within our guided range. Non-GAAP EPS was 16 cents below the midpoint of our guided range. Second quarter revenues decreased 10% compared to the second quarter of fiscal 2023. Medical revenues were $149 million, and industrial revenues were $57 million. Medical revenues were 72% and industrial revenues were 28% of our total revenues for the quarter. Looking at revenues by region, Americas increased 1% compared to the second quarter of fiscal 2023, while EMEA increased 2% and APAC decreased 27%. The decline in APAC was primarily the result of lower sales in China due to the government's anti-corruption campaign there, and investigation into its healthcare system. China accounted for 12% of overall revenues in the second quarter compared to 17% in the second quarter of prior fiscal year. Further, sales to China in the second quarter declined sequentially from the first quarter. Given this trend, we no longer expect a pickup in China sales before the start of our next fiscal year. We remain optimistic about the prospects of long-term healthcare-related growth in China. Let me now cover our results on a GAAP basis. Second quarter gross margin was 32% flat year over year. Operating expenses were $58 million, up $1 million compared to the second quarter of fiscal 23. And operating income was $8 million, down $8 million from Q2 of 23. GAAP net earnings were $1 million and EPS was 3 cents per share based on a fully diluted 41 million shares. Moving on to the non-GAAP results for the quarter. Gross margin was 33% flat compared to the second quarter of fiscal 23. Gross margin benefited by approximately one percentage point due to a reclassification of fixed expense related to our joint venture depicts from cost of goods sold to SG&A expense. This change is expected to remain in place for foreseeable future and we are assessing ways to reduce this expense. This benefit to gross margin was offset by approximately one percentage point of higher warranty expense in the quarter. We expect the higher warranty expense to taper off and return to historical levels by the end of our fiscal year. R&D spending was $23 million, flat compared to the second quarter of fiscal 23. R&D was 11% of revenue. In the second quarter, we made the fourth milestone payment of $1 million to Micro X. Generally, our target for R&D spending is 8% to 10% of revenue on an annual basis. R&D spending is expected to remain around current levels. However, R&D as a percentage of sales may fluctuate due to overall sales levels. SG&A expense was approximately $32 million, up $3 million compared to the second quarter of fiscal 23. SG&A was 16% of revenues. The increase in SG&A in the quarter was primarily the result of the aforementioned reclassification of fixed expense related to our joint venture, DePix. Operating expenses were $54 million, or 26% of revenues, above our expectations for the quarter. Operating income was $13 million, down $10 million compared to the same quarter last year. Operating margin was 6% of revenue compared to 10% in the second quarter of fiscal 23. Tax expense was $2 million or 19% of pre-tax income compared to $4 million or 28% in the second quarter of the prior year. We continue to expect a tax rate of 21 to 23% for full fiscal year 24. Net earnings were $7 million or 16 cents per diluted share, down 10 cents year over year. Average diluted shares for the quarter were 41 million on a non-GAAP basis. Now turning to the balance sheet. Accounts receivables increased by $12 million from the first quarter of fiscal 24, primarily the result of higher sales in the quarter. Day sales outstanding remained flat at 67 days. Inventory decreased $4 million sequentially in the second quarter, and days of inventory decreased by 13 days to 185 days. Accounts payable decreased by $5 million, and days payable decreased five days to 45 days. Now moving to debt and cash flow information. Net cash flow from operations was $3 million. We ended the quarter with cash, cash equivalents, and marketable securities of $190 million. $68 million compared to the second quarter of the prior year, and down $5 million compared to the first quarter of fiscal 24. Please note that $190 million includes $142 million of cash and cash equivalents and $47 million of marketable securities, which is now broken out as a separate line item on our balance sheets. Gross debt outstanding at the end of the quarter was $447 million, and debt net of $190 million of cash and marketable securities was $257 million. Regarding capital structure, we implemented a $155 million revolver on March 26th. Separately, we recently secured an additional $20 million financing as a delayed draw term loan. Both of these actions put us in a comfortable liquidity position as we approach refinancing of our convertible bonds. Now moving on to the outlook for the third quarter and the remainder of fiscal 24. As discussed by Sunny, due to cautious purchasing behavior by our customers broadly, in addition to continued softness in China, we are reducing our expectations for the remainder of the fiscal year. Based on our current visibility, we expect revenue in the fourth fiscal quarter of 24 to be flat with that of the third quarter. While demand is soft in the near term, we continue to be optimistic in the long term and continue to invest in promising technologies such as photon counting. With the above context, guidance for the third quarter is revenues are expected between 200 and $220 million and non-GAAP earnings per diluted share are expected between 5 cents and 25 cents. Our expectations are based on non-GAAP gross margin in a range of 33 to 34 percent, non-GAAP operating expenses in a range of 52 to 53 million dollars, tax rate of about 22 percent for the third quarter, and non-GAAP diluted share count of about 41 million shares. And with that, we'll now open the call for your questions.

Thank you. We will now conduct a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, that's star 1 to ask a question at this time. One moment while we poll for questions. Our first question comes from Siraj Khalil with Oppenheimer. Please proceed.

Hi, Sonny and Sam. This is Seamus. I'm for Siraj.

Hey, Sam.

How are you? Doing fine. Doing fine. Just to get started, you know, China kind of, you know, any more color you can give there? What's, you know, what are you seeing on the ground? You know, obviously it's kind of pushed out from your initial expectations of second half. of the year of a calendar year kind of getting started, you know, kind of, can you talk a little bit more about the delay pushing out through, you know, the remainder of your fiscal year and, you know, when we may start seeing some pickup?

Yeah. So we, as you might recall, a couple of quarters ago, we started talking about softness in China and based on early signals that we were getting from our customers and our, and this was driven by the, the audit process that the Chinese government had launched on the hospitals there. And it was anticipated that it would take about 12 months to complete that process. So the signals that we were getting from our customers broadly on the ground was that by late spring, early summer, this thing should start to free up and buying would begin again. And so that's what led us to give you the indications that we would expect to start to see recovery in the second half of the year. I think that was somewhat consistent with what others were seeing as well. We are not seeing the early indicators at this time that would lead us to believe that the recovery will happen with any significant volume in our second half. As you know, we're 90 to 120 days ahead in the value chain of our customers With that in mind, we are giving a cautious view of the second half as far as China is concerned. Now, that said, as we continue to keep our ears to the ground there and work with our customers, what we expect is likely to happen is there are multiple factors at play here. One was the audit, but secondly, there may be some impact of The stimulus package that's in the wings, it's not clear what that is, and it's not clear what the impact is, but there's some general confusion. All of this leads us to believe that the recovery in China will be more of a gradual, steady recovery as opposed to any significant burst of pent-up recovery. We're not anticipating that, but again, it's very fluid there, and we're staying close to it.

Got it. Appreciate that. And then can you describe the environment you're kind of seeing outside of China? I think America's growth was, I think, 1%. EMEA was 2% or 3% somewhere there. What kind of environment are you seeing outside there? Let me add one more point regarding China.

We have seen no shift or no change in the Chinese government's intent or their policy for, or their intentions to expand healthcare delivery, continue to expand healthcare delivery services throughout China. And to the contrary, it seems like the intention of the stimulus is also to continue to support that. Now, what we're seeing outside of China, ex-China, is that there continues to be a general softness in demand. And this is what we characterized as some cautious buying behavior by our customers. Our customers, they predict, they forecast their needs, and then they place orders with us within our prescribed lead times. And then as they get closer to their, when they need the product, that's when they give us delivery dates. And what we've seen is general cautiousness around volumes of shipments that they would like from us. So they're asking us across the board. Many customers have asked us to defer, delay, slow down shipments as they adjust their stocking levels and inventory levels to match their more recent forecasts of when they expect to deploy these products into new systems for shipment. So that's a broad-based approach. view that we're getting of the overall medical segment. It's hard for us to tease apart where some of that softness is coming from because, as you know, our customers are global customers. We ship products to them and then they send those products all over the world. So it's hard to pinpoint any specific sources of softness.

Got it. Thank you. And, you know, just one last one from our side. And, you know, photon counting, we appreciate the color and quantification. You know, I think you noted somewhere in that slide deck, it's about $150 million in revenues by about 2029. So I guess kind of can you describe how you're expecting the growth? Is this going to be kind of, you know, a slow burn? Is there going to be some inflection points? where in a year, you know, everything's going to kind of start to accelerate, you know, any color there. Thank you.

Yeah. Our photon counting detectors, first of all, it's a new platform, and any time a new technology is introduced in the healthcare environment, the time to adoption is fairly long. So that's why this, you know, our R&D cycles are long, and it Our customers' R&D cycles are long and then there are regulatory cycles. So with that said, that's the backdrop on the medical side. Our photon counting sales are coming from industrial and medical both. On the industrial side, which is currently our largest chunk of photon counting sales, the uptake there is steady and it's growing and it's accelerating. So in this trajectory from where we are today, in $20-ish million of sales going up to the $150 million-ish that we talked about in the slides. We expect to see steady accelerating uptake on the industrial side and driven by new applications that are coming out. And adoption in industrial tends to be much faster than medical because they just have a product, they just put it out there, and they try it out. On the medical side, we have customers currently that have designed our photon counting detectors in certain applications, and there are a variety of applications that this technology, these detectors, are going into. A few of them are out, and we mentioned that during the earnings call, and then there are more that are in the pipeline. These tend to, in the early stages of these applications, design in process, we see low volumes, largely prototypes that we ship, then there's customers take a couple of years to bring the product to market, and then we see initial pilots, and then in a year after that, we see run rate higher volumes. So that's, I'd say, the general modality. Most of the modalities behave that way. Now, CT. detectors we expect will have a different trajectory, and that's because they are much larger, higher priced, bigger detectors, so there it'll be, we will be in design phase and implementation phase for at least two to three years, after which we expect acceleration to be fairly rapid as our customers take their new CT systems to market, and it'll be driven by the pace of adoption really of CT systems more so than the new CT system that our customers bring to market versus just photon counting technology at that point. Our photon counting technologies are being driven towards mainstream markets, so we're confident that once our customers bring these products to market, it won't be a very narrow niche application. We are targeting at the mainstream CT market. So towards the outer end of our trajectory that we showed you in the walk, it's going to be driven by CT. Between now and 2028, it's going to be, 2026, 2027, 2028, it's gonna be driven by industrial and a few other medical modalities. I hope that gives you the color you are looking for. It's hard for us to go get more specific because there's So challenges in predicting that far out on products that are in design phase with the customers.

Appreciate it. Thank you very much.

The next question comes from Young Lee with Jefferies. Please proceed. Hello, Young.

Great. Hey there. Thanks for taking our question. I guess to start, maybe to follow up on China a little bit, I mean, it sounds like most, if not all, the impact is due to the anti-corruption campaign. Wondering if there's any local competitive dynamics that's at play there as well?

No, we don't see that as the reason for any of this slowdown. The slowdown is, it's substantial slowdown. And it's most, as you know, most of our business in China is driven by x-ray tubes. And within x-ray tubes, the majority of our volume comes from, you know, the CT systems where we are. It's a highly engineered product that's designed in. So what we are experiencing is a result of our customers not needing the products because their sales have have dropped pretty significantly.

Okay, great. Very helpful. I guess just a separate question. I'm just related to photon counting. You know, that generates a lot more images and data. I'm curious, is there a software play or AI play for Verix? And, you know, how's your software business doing recently?

Yeah, absolutely. So photon counting, depending on the application, what you just described would be certainly true for CT. For CT, first of all, high resolution detectors and imaging at high frame rates produces a lot of data. Yes, there is. So the good news is in there that with the high resolution images, the amount of information that's now available in in these images opens up a lot of opportunities for AI plays and for material discrimination and more precise pinpointing of artifacts and reasons and to be able to distinguish between one type of artifact versus another. Our software group is very capable with CT reconstruction and applying image processing and techniques to look into and extract more and more information out of the data that's received. So we certainly expect that our software group will continue to benefit from photon counting. We have quite a bit of technology that we offer currently with our detectors for image processing, And those are actually a key part of our photon counting detector offerings. And as we take our products to market for CT, they are certainly playing a role in the image processing and image construction.

All right, got it. Thank you very much.

Once again, to ask a question, that's star 1 on your telephone keypad. Our next question comes from James Sedoti with Dodi and Company. Please proceed.

Hi, good afternoon, and thanks for taking the question. On the situation in China, do you think there'll be some pent-up demand because of the slowdown in buying now, or the procedures are still getting done, tubes are still wearing out? So when these restrictions get lifted, do you think there'll be an increase in demand?

Yeah, so Jim, procedure volumes are continuing. If people need care, they go get care. So what we are seeing is sales of replacement tubes. And for us, that's a recurring revenue stream. The pent-up demand is a problem. results when we get increased procedure volumes. So that is, I don't know whether we can predict that at this point. However, what we believe will drive the return to growth is the continued push to expand healthcare services in China. They have not come off of that. That is, everything that we hear from our customers is that the Chinese government is continuing to press forward. What is unclear at this stage is what effect the stimulus package that is sort of in the sidelines will have on how that pent-up demand will play out. There is very little – we're not getting much transparency around what hospitals will have to do in order to be able to take advantage of the stimulus program that's being rolled out. Once there's more clarity on that, we'll be able to assess the trajectory of the demand. But the thing that we have noticed over time is when there is any kind of slowdown or stoppage for economic reasons or other reasons, when the demand comes back, the pent-up demand doesn't go away. It comes back. And the question is whether it will be a gradual ramp-up, which we think it's more likely, versus is there going to be a sharp sharp inflow of orders. We don't know that yet, honestly. So that's what, in the next 90 days or so, we expect to get more clarity on that, and we will continue to share that with you.

Okay. All right. And then can you talk about, you know, your options regarding the refinancing, the convert? You know, are you looking at another convert for that? or possibly going with straight debt? When do you need to do it? And how are rates comparing now to the existing loan?

Yes, sure. So thank you, Jim. So, you know, we just recently closed about $175 million of new financing. One is a revolver, $155 million, and another $20 million of delayed draw term loans. So from our position, we feel we are in a very strong position from the liquidity perspective to address the refinancing. So at this time, the existing convertibles are maturing next June, so June of 2025. So we are going to monitor the situation and make the right decision for us. And we'll share with you as the board makes that decision There are a lot of factors that go into it, including interest rates, stock price, and various other things. So that's the way we are thinking about. And then in terms of interest rates, our current loan is at 4%. The current convertible bonds are at 4% based on what we have seen from the convertible market. It's around there. It's probably a little bit less than that if there were to be a new convertible loan. But as you know, convertible loans can be structured with various dimensions and various outcomes. So the interest rates can vary depending upon how it is structured. But at the same time, we feel we have good cash on the balance sheet. We are in an excess cash position. And with this extra liquidity that we now have raised, I think there is also the possibility that we can pay it down partially or completely. So we'll share with you as and when we make the decision.

All right. And that was going to be my next question. How much cash do you need on the balance sheet to comfortably run the business?

Yeah, we... You know, if you go back four or five years ago, we were running the business with about $50, $60 million. Since COVID, we've decided to have $100 million or thereabouts in terms of the cash that we would like to carry on the balance sheet. So with $190 million, we have about $90 million of excess cash compared to that threshold.

Okay, so theoretically you could pay down almost 25% of the outstanding debt. Outstanding debt meaning?

Convert.

No, I mean we could theoretically pay down 50% of the convert because the convert is about $200, and between now and June we are targeting to generate cash, so we might be able to pay down 50% from balance sheets.

Right, right. Which should, you know, theoretically lead to lower interest rates in 2025 and beyond. Right. All right. Thank you. Thank you, Jim.

The next question comes from Larry Salo with CJS. Please proceed.

Great. Thanks, guys. And good evening. I guess first question, in terms of the guidance or the, you know, the lower outlook, is it principally it sounds like it's China, but it's also us or ex China. Cause China is only 10% of your meta or your overall revenue, right? So are there other drivers, I guess the us or ex China is also weaker in medical. Um, and how about industrials that that changed at all, just trying to kind of piecemeal the reduction. And I think when you started the year, you had said you thought medical, I think was going to be,

flattish overall sales if I remember correctly is there kind of a revised number to that I know you kind of only got to the quarter but it sounds like as a whole your whole year is clearly coming down but any any more pieces to that kind of puzzle would be great yes thanks Larry so yes China is soft but on top of that we did say that the broader market in medical is also soft particularly driven by what we said cautious customer behavior and that's that phenomenon is not just China. So yes, there is the effect of China, as well as ex-China, there is also softness in medical. So medical, we expect it to be down this year, year over year. So that's what we are currently seeing in medical. In terms of overall revenue, what we are saying, we have provided the guidance for Q3, and at this time, we are seeing Q4 to be flattish to Q3. So that gives you almost the entire year. We are expecting industrial business to be a slight growth, flattish to slide up year over year. It's a pretty strong comp for the last year for what industrial did. At this time, the cargo business in industrial is doing very well and we expect it to continue to do well. But there is softness in industrial outside of cargo. So with all of those puts and takes combined, we expect industrial to be a growth area for us, but very slightly for full year, 24 compared to fiscal 23. And we expect medical to be down.

And the caution from, I guess, is your OEM customers, right? you're referring to um yeah that that is that and i guess you're kind of down the chain line but does that start from the hospital because my understanding of hospitals are actually doing okay they're doing pretty fine i mean their volumes have been good postcovid and i think concerns about hospitals finances were probably overblown even though i know interest rates are a lot higher and that doesn't help them but as far as i understand capital spending hospitals has been doing okay so Are your customers cautious because there's too much inventory still? Is there any kind of common theme that's driving this caution?

It's all of the above. The conversation starts with, hey, we have what we need and we just need to adjust our stocks and stocking levels. Can we slow this down? Can you push out? And then if you dig into, well, why do you have so much inventory? Well, we had, you know, we had expected a different trajectory for and of orders. And then the COVID buying behavior post COVID where people were worried about, you know, their factories were clogged and supply chain issues. So it's kind of a myriad of things that have come together causing some amount of destocking, destocking and inventory adjustments. And clearly what they had, what they had, in mind when they bought the components didn't match up with all the way with their current quarter production needs. So it's several of those. It's hard to reconcile, see most of our customers ship from backlog. It's not that, so the hospital's health is, that's a good thing. I mean we're glad that procedure volumes are there and growing because that's gonna drive in replacement of these modalities in our tubes. That is not necessarily, that doesn't correlate directly with hospitals accepting shipments of large systems which require then other work on the side of the hospital, civil works, construction, and things like that. So variety of reasons why their shipments have slowed for certain customers.

All right. I guess that's fair. Okay. I guess I'm all set then. Thanks.

Thank you, Larry.

Thank you. At this time, I would like to turn the call back over to Chris Belfield for closing comments.

Thank you for your questions today and for your continued support. The webcast and supplemental slide presentation will be archived on our website. A replay of this quarterly conference call will be available through May 16th and can be accessed at barracksimaging.com forward slash investor relations. Thank you and have a great night.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a great day.