Heartbeam Inc (BEAT) 2008 Q3 法說會逐字稿

Good afternoon. Thank you for joining us for the CardioNet 3rd Quarter 2008 Earnings Conference Call. Certain statements during the conference call, and question and answer period to follow, may relate to future events and expectations and, as such, constitute forward-looking statements within the meaning of the Private Securities and Litigation Act of 1995.

Such statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance, or achievements of the Company in the future to be materially different from the statements that the Company's executives may make today.

These risks are described in detail in our public filings with the Securities and Exchange Commission, including our latest periodic report on Form 10-K or 10-Q. We assume no duty to update these statements.

(Operator Instructions). It is now my pleasure to turn the floor over to your host, Mr. Randy Thurman. Sir, you may begin.

Thank you very much. This is Randy Thurman, Executive Chairman of CardioNet. Thank you all for attending our 3rd Quarter 2008 conference call.

With me this afternoon is Arie Cohen, President and Chief Executive Officer of CardioNet, and Marty Galvin, Senior Vice President and Chief Financial Officer of CardioNet.

I have been with CardioNet now for approximately three months as executive chairman. Amongst the many opportunities that I considered prior to joining CardioNet, I made the decision to join because of the tremendous future that I perceived that our company has. After three months of coming to understand the business model more, and getting to know the management team, I am even more enthusiastic about the prospects for your company in the future than I was when I joined.

We have accomplished a number of things in the last several months. In addition to the very successful secondary offer, we have begun to restructure at the corporate governance level and have added two extraordinarily accomplished executives to our board of Directors. Ron Ahrens has joined. He is currently Vice Chairman and Director of Temptime Corporation, and previously was President of Merck Consumer Healthcare Group Worldwide.

Also joining CardioNet is Kirk Gorman, Senior Vice President and Chief Financial Officer of Jefferson Health Systems, and previously was Senior Vice President and Chief Financial Officer of Universal Health System, one of the five largest investor-owned hospital companies in the United States.

Also, in the period of time that I have been with the company we have undertaken a longer term strategic view of the Company, and have set forth various operational priorities in order for us to achieve our strategic goals.

Internally, we call these operational priorities BEAT Excellence, focusing on functional and operational excellence in everything that we do as a company. Arie will speak to more specifics about the BEAT Excellence program during his presentation.

At the end of our presentation, we will entertain all of your questions. At this time, I will turn the conference call over to Arie Cohen, President and Chief Executive Officer of CardioNet, Incoporated.

Thank you, Randy. Good afternoon and welcome everyone to our conference call. Before we begin the quarterly review, I would like to take a few minutes to recognize our employees for their strong commitment and hard work during the fire that impacted our corporate headquarters in August. Our employees successfully executed our disaster recovery plan and activated our back-up monitoring sensor facility with virtually no disruption to patient service. I would like to thank our dedicated employees for their diligence and tireless efforts during this crisis.

Now, onto the quarter review. I am very pleased to report another quarter of strong operating and financial performance. Revenues for the 1st Quarter increased to $31.2 million, a 52% growth year over year. Gross margins increased to 67.9%, and adjusted operating income increased to $4.3 million, compared to $1.5 million in the same period last year, and diluted earnings per share of $0.11.

Marty Galvin, our CFO, will provide you with a more detailed financial report in a few moments.

Our success demonstrates the continued penetration of the CardioNet System in the $2 billion cardiac arrhythmia monitoring markets as physicians and payers continue to recognize the superiority of our technology over event and Holter monitors. We once again achieved financial performance ahead of analyst expectations.

During the 3rd Quarter we achieved a number of important milestones in driving physicians and payers' awareness of our System. On October 10, the American Medical Association has published Category I National CPT codes with the CardioNet System.

This unique code represents a major milestone for CardioNet that solidifies our foundation for future growth. The code gives the CardioNet System unquestionable technology validation.

The AMA has deemed that the clinical efficacy of our System is well established and documented in U.S. peer-reviewed literature and that the CardioNet System is being broadly performed by numerous respected physicians. This directly removes a major obstacle for commercial payers that still do not reimburse for the CardioNet System, categorizing it as experimental technology.

The specific CPT code also creates a more simplified and stable reimbursement environment that will allow for automated payment processing, simplifying the process for physicians and payers. Reimbursement today is obtained through no specific billing code that in most cases requires manual processing as well as additional review by payer.

In short, it will become easier to do business with CardioNet. We believe the establishment of the national CPT code significantly accelerates adaptation of the CardioNet System by physician and payers, resulting in greater market share and accelerated growth in 2009 and beyond.

Moving to the new commercial contracts, we were extremely pleased that our System achieved covered benefit status with Humana in September. This was the second major commercial payer contract we announced in 2008, bringing the total number of covered labs to 190 million. The CardioNet System is now covered by 75% of the total life under coverage by commercial payers and Medicare.

We continue to have very active and productive discussions with the remaining commercial payers about the major clinical benefits patients can obtain with our System, and the substantial savings they can realize by avoiding hospital admission charges.

Extended commercial reimbursement will bring additional upstart to our growth trajectory, although it is important to note that the benefits from new contracts will be realized gradually in our financial results as new payers integrate the CardioNet System across their many plans.

Let me just add one other thing -- that I just received information that the Center of Medicare and Medicaid, CMS, has just published an established reimbursement rate that covers the CardioNet System. The reimbursement rates are applicable to the Category I CPT codes established by the AMA on October 10.

The 2009 national payment rate for CardioNet Systems has been carrier priced, meaning similar to current investment of $1,123 established by our carrier, Highmark Medicare Services. This is very positive news for CardioNet and is consistent with our expectations all-in-all. We are pleased with the outcome, and we believe it will have a positive impact on our business in 2009 and beyond.

We plan to issue a press release tomorrow with additional details.

Our sales and marketing initiatives continue to produce results as we extend both our geographical presence and our overall team. We added recently four new territories and our total sales force now stands at 89 representatives.

Spreading the message of CardioNet's three times diagnostic yield has been a major initiative for our sales force and has brought success in increasing market shares.

We have also initiated a new marketing program to support our sales force efforts that we believe will further strengthen the CardioNet brand within the physician community. We recently established a peer-to-peer, key opinion leaders program that leverages some of the most respected CardioNet users in different geographic areas to extend awareness in the clinical community.

We have already conducted 22 programs across the country, focusing on the clinic use by these key-opinion, leading cardiologists in their practices. The early stages of this program have produced great results in building our brand with physicians and we expect to continue to broaden our reach into 2009.

We believe our sales force has a tremendous opportunity to further leverage our superior technology, our unique and robust body of clinical data, establish national CPT codes, and a new product to achieve a greater share of the $2 billion arrhythmia monitoring market over the next several years.

With respect to product development programs, the core of our differentiation strategy is a deep focus on research and development and a commitment to release a new product that are at the forefront of the innovation curve. In September, we launched our new atrial fibrillation reporting package, providing physicians unmatched capabilities for the diagnosis, treatment, and management of their AF patients.

As many of you know, AF is the most widespread cardiac rhythm disorder in the world, affecting approximately 1% of the general population. The reporting enhancement provides detailed AF statistics including the duration of AF episodes, the percent of time the patient is in AF over a 24-hour period, and heart rate trends while the patient is in AF.

The package also allows us to extend our addressable market into the post-surgical follow-up of AF patients. The program provides physicians with an efficient and flexible monitoring program to evaluate the clinical efficacy of catheter and surgical ablation procedures, allowing improved management of these post-surgical patients.

We believe the capabilities offered by our AF package are by far the most advanced on the market and further strengthen our established competitive differentiation.

From the clinical study side, the body of clinical evidence that supports the use of our superior technology continues to build beyond our landmark 300 patient randomized clinical trial.

A recent study at the Allegheny General Hospital was published in the issue of Neurology, titled "Atrial Fibrillation Detected by Mobile Cardiac Outpatient Telemetry in Stroke."

Another study was recently conducted by Dr. [James Gamey] at the University of Maryland, titled "Surgical Correction of Atrial Fibrillation with the Cardiolase Procedure: Long Term Outcomes Assessed with Continuous Outpatient Telemetry."

As we move into 2009, in our next stage of growth, we continue to strengthen and improve our internal operation. CardioNet employees are extremely passionate about the growth of our business and strive to continuously raise the bar in terms of their contribution to this growth.

We have established a program called the BEAT Excellence Initiative, focusing on achieving operation excellence across all functional business areas. Combined with other infrastructure upgrades, we believe we are well prepared for the robust, long-term growth and market share expansion that we expect.

And finally, it is worth mentioning that in October, CardioNet was awarded the 2008 Frost & Sullivan North American Competitive Strategy Leadership award, presented to the company whose competitive strategy has yielded significant gains in market share through the introduction of innovative technology. We would like to thank Frost & Sullivan for this recognition.

I will now turn the call to Marty Galvan, who will review our financial results. Marty.

Thank you, Arie, and good afternoon everyone.

Now that Arie has provided you with an update of our operations, I will review our third quarter and year-to-date 2008 financial results and the factors that contributed to these results.

I want to remind everyone that unless mentioned otherwise, all of my comments will refer to financial results on a non-GAAP basis. There is a reconciliation included in the press release that we issued earlier today that describes in detail how we have calculated these non-GAAP figures.

In the 3rd Quarter, revenue increased by 52.1% to $31.2 million, compared to $20.5 million in the 3rd Quarter of 2007. Driving the growth are CardioNet System sales of $26.3 million, up from $15.2 million in Quarter 3 of 2007, or an increase of 72.9%. This increase was offset by decreases in event and Holter revenue.

CardioNet System revenue in the 3rd Quarter accounted for 84% of revenue, compared to 83% in the 2nd Quarter of 2008, and 74% of revenue in the 3rd Quarter of last year.

For the year-to-date comparison, if you adjust the prior year's PDSHeart acquisition was completed as of January 1, 2007. Revenue increased by 62%, to $86.0 million. During this same period, CardioNet System revenue was $70.7 million, compared to $36.2 million in the same period last year, an increase of 95.4%.

For the first nine months of 2008, the CardioNet System was 82% of revenue, compared to 68% of adjusted revenue for the same period last year.

With respect to payer mix, consistent with our first half performance, our business was 33% Medicare, and 67% commercial end the quarter.

Gross profit in the 3rd Quarter increased to $21.2 million, or 67.9% of revenue, compared to gross profit of $13.4 million, or 65.4% of revenue in the 3rd Quarter of 2007.

This gross profit improvement of 250 basis points was due to operational efficiencies, primarily in our Cardiac Monitoring Center, and related areas, cost reductions negotiated with some of our larger suppliers, and the fact that in the quarter many of our C2 devices in the field became fully depreciated.

As we continue to roll out our C3 devices we expect that by early next year the depreciation expense will offset some of these savings, as most of the fully depreciated C2s are retired.

For the first nine months of 2008, gross profit increased to $56.7 million or 65.9% of revenue, compared to gross profit of 65.7% of revenue for the same period last year. If you adjust the prior year to include PDSHeart, as if the acquisition occurred on January 1, 2007, the gross profit for the first nine months of 2007 would have been 65.2% of revenue.

The resulting 70 basis point improvement is driven by the favorable results in the 3rd Quarter.

With respect to gross profit for the remainder of the year, we expect 4th Quarter to be similar to the 3rd Quarter as a percent of revenue.

Operating expenses increased year over year as we continue to expand our sales and marketing efforts, invest in our infrastructure, and strengthen our management team. However, on an adjustment basis our operating expenses continue to decline as a percent of revenue compared to the prior year as we continue to gain leverage and achieve efficiencies.

Included in our 3rd Quarter GAAP operating expenses is $2.9 million of one-time charges. As discussed during our 2nd Quarter call, $900,000 is related to our secondary offering while an additional $1.1 million is related to previously announced departures from our Board of Directors.

The remainder is related to our ongoing restructuring of our San Diego operations, and the final charge is related to the integration of PDSHeart.

At this time, we expect the 4th Quarter charge for San Diego restructuring to be approximately $200,000, and this should be the last of the charges for this restructuring.

Turning to operating income. In the 3rd Quarter we achieved our fifth consecutive quarter of profitability with $4.3 million in adjusted operating income. This compares favorably to the $1.5 million in operating income in the 3rd Quarter of 2007, and the $3.1 million operating income in the 2nd Quarter of 2008.

As a percent of revenue, our operating margin in the 3rd Quarter of 2008 increased to 13.7%, compared to 7.5% in the 3rd Quarter of 2007, an improvement of 620 basis points.

For the first nine months of the year, adjusted operating income increased to $8.1 million, or 9.4% of revenue, compared to a loss of $1.7 million in the same period last year. Our operating income continues to improve due to our higher revenue in 2008, and the operational efficiencies we are achieving.

Our effective tax rate for the quarter was 43.8%. The 43.8% rate assumes no utilization of the $62 million in federal operating loss carry forwards that we had as of year-end 2007 because we are continuing the process of determining the timing and manner in which we can utilize such carry forwards.

We do expect to be able to true-up the tax rate in the 4th Quarter, as appropriate. This is explained more fully in our 2nd Quarter 10-Q in the income tax note to the financial statements, as well as in the MVNA.

Adjusted net income in the 3rd Quarter increased to $2.6 million, or $0.11 per diluted share, compared to adjusted net income of $1.8 million in 2007, or $0.11 per diluted share. Despite the significant improvement in adjusted net income, EPS is unchanged due a much lower share count in 2007.

Adjusted net income for the first nine months increased significantly to $5 million, or $0.23 per dilute share, compared to an adjusted net loss of $2.5 million, or a loss of $0.82 per diluted share for the same period last year.

With respect to share counts, it is important to note two share count balances for purposes of calculating EPS. The adjusted EPS of $0.11 per diluted share for the 3rd Quarter of 2007 was calculated using a share count of 16.8 million shares. The adjusted EPS of $0.23 per diluted share for the first nine months of this year was calculated using a share count of 22.2 million shares.

These are the diluted, weighted average shares outstanding for the periods indicated. This is opposed to the 3.1 million shares in the 3rd Quarter of 2007, and the 16.6 million shares for the first nine months of 2008 that you see in our earnings release.

The reason for the difference is, because on a GAAP basis we incurred a net loss for these periods and as such we are required to use the basic share count as reported for both basic and diluted EPS.

Using the higher diluted share count would have had an anti-diluted impact on EPS, but because on an adjusted basis these two periods had positive adjusted results, we are providing the respective diluted share counts here.

Now, to touch briefly on the balance sheet and cash flow. At the end of the quarter, cash and cash equivalents were $56.3 million and debt was negligible.

Operating cash flow for the quarter was $3.4 million. Capital spending was $3.1 million, and free cash flow was $300,000. The capital spending was almost entirely on monitoring devices.

Accounts receivable were $35.9 million, as compared to $29.3 million at the end of quarter two, with DSO increasing to 94 days.

As mentioned in our earnings release, while our 3rd Quarter operating results were not impacted by the fire, we did divert internal resources, including collectors, to patient care to ensure there was no interruption in service. As a result, our cash collections were negatively impacted as evidenced in our increased DSO.

If not for the fire, we believe that our DSO for the quarter would have been 84.9 days, compared to 84.5 days at the end of Q2. We are already seeing a catch up in our collections as our operations have returned to normal, and we expect to fully recover our cash collections by year end.

Turning to our expectations for 2008, we previously announced a revenue target of $117 million to $120 million for this year. As we stated in our press release, we continue to be comfortable with the high end of that range.

With respect to the future, we expect to continue to invest in our infrastructure and to continue pursuing strategic initiatives to position the Company for 2009 and beyond.

Thank you. I will now turn the call back to Arie for some closing comments.

Thank you, Marty. In closing, this was a milestone quarter for CardioNet. The recently established, Category I National CPT codes, and the CMS (inaudible) published this afternoon, will positively impact a number of important components for our business and significantly enhance our ability to accelerate market penetration of the CardioNet System.

With only 6% penetration of the $2 billion cardiac arrhythmia monitoring market, we see a huge growth opportunity for the Company. Our growing sales force continues to penetrate the market with our superior technology that was clinically proven to be three times higher in diagnostic yields than advanced monitors.

Looking longer term, we also see large and unique opportunities for CardioNet to leverage our leading wireless medicine platform for new applications in multiple markets. Our employees share a deep commitment to growth and improved human life and, most importantly, build value for our shareholders. Thank you, and now we would like to open the call to your questions.

(Operator Instructions): Your first question comes from the line of Amit Bhalla of Citigroup. Please proceed.

Hi, good evening. Well, I guess you guys had a World Series win and a reimbursement rate in your favor, so not bad. Can you guys hear me all right?

Yes, absolutely, Amit.

Given that CMS has not posted the rate yet, or put out a press release, can you give us a little bit more color on maybe more specifics between the professional fee, or professional rate, as well as a technical rate, and then I have a couple of other questions.

Well, I appreciate it, Amit, but I am sure you are going to appreciate the fact that we just got this breaking news while we were on the call and my understanding is that it was really published online. We were kind of waiting for that, but it was published online while actually we initiated the call.

So, tomorrow we plan to publish a press release with more additional details and I am sure that Marty will be in a better position to talk to you with the details.

Okay, so it is your understanding that the rate, at least on the technical fee side is unchanged then, is that what you are saying, but professional we do not know yet?

Yes, I mean did not have the time to analyze what that is but I am confident on the technical side is the carrier price, which is $1,123, and as you know, we have had this relationship with Highmark for a long time and, as you recall in the number of discussions that we had, all along I was saying positively that we feel that the pricing will be at the same level it is today, so for us it is really a World Series event.

Okay. Understood. Now, Marty, before he finished his remarks, stressed that you are going to continue to invest in the infrastructure so can you give us a little bit more color around that, maybe talk about your SG & A spending, and maybe some targets for sales reps, because I do not recall you guys stressing that infrastructure spend as much in the past.

Yes, let me give a little of color on that and if Marty wants to jump in after that please.

We talk about the infrastructure obviously. Let's start with the facility. We are investing and growing in the facility, improving the work environment, but really extending to where, as you recall, we are on the third floor. We are really taking over the second floor, so we are spending.

In the sales area, we are extending. As I mentioned, we have 89 people on board and so with 89 territories.

Definitely, we are in the hiring mood and we would to expand the sales force really quite a bit, to really prepare for 2009 growth that we project.

So, other areas, too, that we invest in, we invest in training, the BEAT Excellence program is really getting to every area of the business, and we are just challenging everybody. It is really just the objective to get to world class operation across the board.

So, IT is an extremely important component of that, you know automation in every direction is critical to that, and just to give you a little bit more color, really, on the sales force. We anticipate that from 89 today we will go to 104 by the beginning of January, so that is literally adding 15 more sales reps in the next two months, and probably, again, we need some more evaluation, but probably will be at 120 some time in the second quarter of next year.

So, you know, tremendous investment in the infrastructure and sales force going forward.

So how does this translate to the bottom line for 2008? I realize you have not given 2009 guidance. And then --

It does not have any impact on the 2008 bottom line. We are on target to meet the numbers, so it does not have any impact on 2008, sorry.

Amit, I would just like to add one thing. I think it is fair to say that if, you know, your comment at emphasizing at this time. I think we basically explained in our plans about investing, pretty similar to how we have done it in the past, so we do not think we are particularly stressed at this time, versus others.

Okay, and can you just break out gross margin, just talk to us about gross margin between the CardioNet System and the PDS Legacy business, and I will hop back in queue.

Well as we kind of have discussed, we looked at our CardioNet System and the gross margin for that part of our business is in the high 60s. The gross margin, on the other hand, with our event and Holter business is roughly about 10 percentage points less, in the high 50s.

So the significant mix aspect as the company grows now to be more mixed, ever so much moves more to the CardioNet System it just helps to move our gross margins higher.

Okay, thank you.

Thank you.

You are welcome, thank you.

Your next question comes from the line of Bob Hopkins of Banc of America. Please proceed.

Hi, thanks very much. Can you hear me okay?

Hi, Bob, how are you?

Great, thank you. Two questions, a little bit more specific questions. Marty, on the last call, you guys expressed comfort with the 2008 consensus which at that point was a range of $0.38 to $0.42, so is the message here this afternoon that you remain confident in that kind of a range?

I would say, yes, Bob. I think that is a fair statement.

And then I just want to ask a question about -- sort of a philosophical question about 2009, because if you look at the consensus expectations that are out there you have got some of us, like myself, that are closer to $0.80 for next year, and then you have got others that are suggesting you will not invest as much and therefore they are up around $1.00, and that is a huge range of consensus for 2009. I have been an advocate of further investment and trying to seize this opportunity, and spending a little bit more money and I am just wondering, sort of philosophically at this point, which end of the spectrum do you guys stand on?

Well first of all, in terms of 2009, we are obviously looking at the opportunity to increase and accelerate the growth, especially now with the CPT code in place. It is really giving tremendous opportunity. And so, that is the process we are going in for the next two months and so forth, but we definitely feel confident that, you know, in terms of the top line, we can achieve that.

In terms of guidance, we are going to provide guidance in the February earning call, and we definitely will give the top line guidance. I am not sure if we are going to do anything on the EPS. This is something we did not decide yet. We are in the process of evaluating that. So, does that answer your question, Bob?

Well, sort of. I mean, I guess I am just trying to understand. I mean, one other way of phrasing the question would be -- you have got this great clinical data out there, you have now got a CPT code that looks very favorable. Why wouldn't you get more aggressive in terms of spending on SG & A to try to realize and maximize this opportunity, and you are going to make sure that you reach or exceed your top line growth guidance, and frankly I do not think the investment community would care if you are spending a little more money, as long as the top line is at or above expectations. So, I am just wondering, you know, why wouldn't you accelerate the spending in order to capture this opportunity, given that you have got so much tailwind in your favor right now?

Bob, I agree. I mean, absolutely. This is really on the top of our minds, that is what we are doing. We are analyzing the situation, of what is the optimal sales force, what else we need to do in every direction, but this is part of the process that we are going through next month and then that is it, but we agree. The opportunity, the way you describe that makes sense. Period.

Okay, thanks very much.

Your next question comes from the line of Rick Wise with Leerink Swann. Please proceed.

Good afternoon, everybody, and congratulations on the code.

Thank you.

Maybe starting with that, Arie, or Marty, I mean you all have been very consistent, saying you thought it would come in where you were. It has, but maybe help us understand how, in practical terms, if it drives or accelerates the business. With this is hand, what are you going to do next in terms of conveying this information to your clients that perhaps could produce some even faster growth than we are all assuming?

Well, as you know, Rick, the code is effective in January, so we have lots of ideas actually. We developed a plan on how to attack this, and obviously we need to broadcast that all the way down to our customers, and we want to take advantage of simplifying the whole process for us.

So, we have a plan that we developed internally. We definitely will communicate this to our sales force, which has been waiting for that, so we have a plan of attack here. At the end, effective January 1, we expect that our sales force will be on top of that. Our customers will be notified before that, and we have a team that is part of our building and reimbursement team that will help any customer switch over, so we have a very effective plan of attack here.

Okay, maybe you can help us think about gross margins a second, Marty. You talked about the 4th Quarter equalling 3rd Quarter levels. What am I missing? I mean, the restructuring continues, volumes continue to rise. You continue to focus on efficiency. Why wouldn't -- since it is a higher-volume quarter, why wouldn't it be stronger? Why wouldn't gross margins be slightly above?

Well, because, Rick, because we think that the various elements of the benefits that we have seen in the 3rd Quarter will be basically about the same in the 4th Quarter. We do not see it moving more positive, let's say, and it is basically that.

Okay. 4th Quarter tax rate, you know, if you were at, I think, 40% in the 3rd Quarter, can you help us true it up in the 4th Quarter, Marty.

That is a bit of a difficult call right now, Rick. It all -- as I mentioned in my prepared script, we have an ongoing project now to determine over what period of years, literally, we can utilize the cost carry forwards that we accumulated -- the $62 million. So, right now we have a range from the folks doing that work for us. It is being done by Ernst and Young.

We have a range that they are assuming to get close on, but the challenge is that one has to go back over time and reanalyze the ownership of the company, and because of the type of company, and CardioNet's groups, that is a lot more difficult that it might sound on the surface. So, right now I am not in a position to give you what that adjustment would be in the 4th Quarter.

Okay. How many PDS patients have you converted at this point. Am I remembering correctly that it was something like 16% the last time we spoke?

To convert over?

Yes, we converted 4% per quarter and we continue to actually -- that actually has been going above what our expectation is. So, 4% per quarter.

Okay. And, again, just remind me, that is another positive for gross margins, correct?

Certainly. Yes.

Okay. And, just a last general question. I mean, I struggle when I think about how the economy might affect most companies, but it would seem like CardioNet should be less affected, either on the capital side, the consumption side, the prescription side. How are you all thinking about the larger backdrop of the economy and what steps, if any, are you taking as this complex environment evolves?

Well, really we think that the business is very solid. It is truly recession-proof. We do not see anything really going forward that will impact the business. That is the type of business this is.

Right. So we should assume that you are relatively insulated?

Yes, I agree.

Okay. Thank you very much.

Thank you.

Thank you.

And at this time there are no further questions in queue. I will now turn the call over to Mr. Arie Cohen for any closing remarks.

So before we close out the conference call I would like to say thanks to all of you for spending the time with us today. We appreciate your interest and your continuing support. Thank you.

Ladies and gentlemen, if you joined the conference late today, you may listen to the conference on digital replay, which will be available from October 30 to November 14, 2008 on 888-286-8010 or 617-801-6888, with passcode 40141982. Thank you for joining today's conference. This concludes the presentation. You may now disconnect, and have a great day.