OSI Systems Inc (OSIS) 2011 Q3 法說會逐字稿

Good day ladies and gentlemen, and welcome to the third quarter 2011 OSI Systems Incorporated earnings conference call. My name is Jeff and I'll be your operator for today. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session.

(Operator Instructions)

As a reminder this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Alan Edrick, Chief Financial Officer. Please proceed, Mr. Edrick.

Thank you. Good morning, I am Alan Edrick, Executive Vice President and Chief Financial Officer of OSI Systems. I'm here today with Deepak Chopra, our President and CEO; Ajay Mehra, President of our Security Division, Rapiscan Systems; and Victor Sze, our General Counsel. Welcome to OSI Systems third quarter of fiscal 2011 conference call. We'd like to extend a special welcome to anyone who is a first-time participant on our conference calls. Please also note that this presentation is being webcast and will remain on our website for approximately two weeks. Before discussing our financial and operational highlights I'd like to read the following statement. In connection with this conference call, the Company wishes to take advantage of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 with respect to statements that may be deemed to be forward-looking statements under the act. Such forward-looking statements could include general or specific comments by Company officials on this call about future Company performance, as well as certain responses to questions posed to Company officials about future operating matters.

During today's conference call, we may refer to both GAAP and non-GAAP financial measures of the Company's operating and financial results. For complete information regarding non-GAAP measures, the most directly comparable GAAP measures, and quantitative reconciliation of those figures, please refer to today's press release regarding our third quarter results. The press release has also been filed with the SEC as part of a Form 8-K. The Company wishes to caution participants on this call that numerous factors could cause actual results to differ materially from any forward-looking statements made by the Company. These factors include the risk factors set forth in the Company's SEC filings. Any forward-looking statements made on this call speak only of the date of this call, and the Company undertakes no obligation to revise or to update any forward-looking statements whether as a result of new information, future results, or otherwise.

Alright, before turning the call over to Deepak I'm going to provide a high level overview of our financial performance during our third quarter. We will touch on several themes that we discussed during past conference calls.

We entered Q3 with expectations of significant revenue growth, capitalizing on our strong backlog and the results did not disappoint. Highlights for third quarter of fiscal 2011 are as follows. First, we achieved record sales of $175 million, an increase of 20% over the prior year driven by double-digit growth in all 3 divisions. Leading the way again was our Security Division, Rapiscan, who grew 27%, followed closely by our Opto Division with 25% growth. And as we predicted, we saw solid rebound in our Healthcare sales which posted an 11% top line increase. These results are especially noteworthy since historically our Q3 is seasonally softer. Second , bookings were outstanding, leading to a record Q3 backlog of $304 million, a 32% increase over the same period last year, providing us continued good visibility.

Third, our strong earnings growth momentum continued as we reported a 33% increase in Q3 diluted earnings per share, excluding restructuring on other non-recurring charges. This quarter's results marked our strongest Q3 EPS ever in the fifteenth quarter out of the last 16 that we generated year over year earnings growth. Fourth, we generated positive free cash flow for the thirteenth consecutive quarter . And finally and importantly, subsequent to quarter end, we initiated operations under our contract in Puerto Rico and it recognized revenues and received payment in April. We are pleased to have once again reported another strong quarter and remain enthusiastic about our future. I will provide additional financial details and we'll discuss our updated fiscal 2011 guidance, but first let me turn the call over

Thank you, Alan, and again good morning and welcome to the OSI Systems earnings conference call for the third quarter of fiscal 2011. This quarter, OSI delivered exceptional performance with impressive top line growth resulting in a new quarterly revenue record following a record second quarter. We established several new customer relationships, received regulatory product certifications, and launched multiple new products. We ended the quarter with a backlog exceeding $300 million positioning us well for the future.

Let me go over the highlights for the quarter for each business unit. Starting with our Security division, Rapiscan achieved record revenues of $88.2 million, eclipsing the prior record of $76.7 million just set in second quarter of the current fiscal year. We ended the quarter with a Security backlog of $194 million. Our backlog consists of a blend of US and international orders from military, aviation, and [force] security customers amongst others. We are well positioned for further growth as our screening solutions for people, baggage, and cargo are based on proven technologies and engineered to meet the speed and reliability requirements of the customers in these areas. In addition, as we continue to market our screening as a service solution, we are poised to capture new customers and expand the market by providing turnkey full service offerings. We should be particularly attractive in this market segment because we can offer an integrated approach utilizing our broad platform of products. As with any new initiative that begins to gain critical mass, there will be unique challenges along the way. With the seasoned operations and technical management team at Rapiscan, I'm confident that we will quickly learn to adapt and provide the most compelling offerings and top tier performance in the services segment.

Continuing with Rapiscan services, we recently announced that operations began at the port of San Juan, Puerto Rico for the container screening program and are pleased that operations are proceeding smoothly and as planned. With the first site operational, we will continue to ramp up additional sites at the boat and expect to be operating at all such sites in the next 2 to 3 quarters. We are working on similar opportunities with other customers and continue to believe that this model has significant growth potential especially in the international marketplace. In addition, with an ever-expanding base of installed systems, there are many opportunities to offer a variety of support services to our existing customer base that buy our products. As we grow our services business, we will leverage our sales and distribution channels that not only have a strong presence in measure markets like US, Europe, and Asia, but also extensive reach into smaller but growing markets like Eastern Europe, Latin America, and Africa.

Moving on to our cargo products, during Q3 we received confirmation from the US Customs and Border Protection, CBP, on the total award for multiple Eagle Mobile High-Energy X-Ray systems valued at approximately $24 million. The decision affirms our approach which delivers both technical superiority and best value. During this quarter we also received several orders from international customers for mobile and fixed platform cargo inspection systems. Again, we are benefiting from being able to offer the best solution selected from our wide range of available platforms.

Let me provide a few more highlights from Rapiscan in this quarter. We have always valued the importance and responsibility placed with us to provide screening solutions for major international events and to help insure people's safety. To that end, I'm very excited that Rapiscan was appointed as the exclusive security scanning supplier for the London 2012 Summer Olympic Games. The total contract value could reach approximately $31 million. With our participation in the 2012 Summer Olympics, we are honored to continue a long-standing tradition of providing inspection systems for Olympic Games held around the world and at other major sporting venues like the World Cup.

An important milestone reached in the European region was the Type C Certification of the Rapiscan 620 Dual View checkpoint baggage scanning equipment. Type C Certification is a standard of requirements set in the European Union for the detection of liquid explosives as well as other threats. Our detection technology will allow European Union airports to comply with the upcoming deadline to ease the current ban on liquids. During this quarter, Rapiscan continued its work with security and defense agencies to develop breakthrough solutions addressing the challenges that threaten our national security. To that end, we were awarded a contract by the Department of Homeland Security to develop the next generation non-intrusive mobile and air cargo inspection systems, a system that will be based on multiple inspection modalities. At Rapiscan we also continue to invest with internal R&D funding to drive the development of next-generation solutions in critical areas like high-speed CT, platforms for checked baggage applications.

Staying on R&D as a generic topic, I would like to mention here that OSI's total R&D as a percentage of sales in this quarter was 7.1% versus 6.3% in the prior quarter. In an absolute dollars, we spent 36% more in R&D in this quarter than the prior year. This exemplifies our commitment to developing new technologies and transforming them into commercial systems. As we have mentioned on the previous conference calls, we are introducing many new products in all divisions, especially Healthcare. As we go into next year, our absolute dollars will be pretty much in line to this, though as a percentage of revenue will come down. Rapiscan significant growth can be attributed to not only market demand but also the team's ability to quickly adapt its solutions to the needs of the marketplace.

Turning to our Healthcare growth, in the third quarter our Healthcare Division Spacelabs achieved double-digit top line growth. In spite of the headwinds in the healthcare market, we continue to invest heavily in R&D and new product development at Spacelabs. And in this quarter we started to realize the benefit of keeping a long term strategic view in sight. During Q3, Spacelabs launched a new patient monitor, the elance 7, that has additional features for cardiac analysis and received 510(k) approval for the Enhanced Flow Meter (EFM) unit on the BleaseSirius Anesthesia System. And just recently, we launched the XPREZZON patient monitoring new solution platform. We are truly excited with this latest patient monitoring solution platform, as it provides advanced features and tools for patient care and maintains full compatibility and connectivity with our existing patient monitoring solutions. We expect to make further announcement on new product launches in the near future. As we have mentioned before, over the next 2 to 3 quarters Spacelabs will introduce more new products than we have done in the last couple of years.

On to the Optoelectronics business, which is the engine of our vertical integration strategy, had a fantastic quarter delivering 25% revenue growth to reach almost $48 million and more than doubled its operating profit from the prior year. In addition to new wins from the likes of renewable energy, especially solar, and defense customers, Optoelectronics benefited from growth in demand from several industries. I should mention here that Optoelectronics served a wide range of customers in aerospace, defense, analytical instruments, fire and safety, and healthcare. Our backlog in Optoelectronics now exceeds that of any other quarter in the last 2 fiscal years. With the markets positive growth trend combined with Optoelectronic's ability to serve a diversified set of industrial customers, large and small, we see a very favorable revenue and profitability profile in the future for this business unit.

Finally, we look forward to a successful conclusion of this fiscal year. With continued revenue growth, we are poised to achieve high profitability in absolute and percentage terms through our improved operating cost model. I'm very proud of our team for the performance in this quarter. With that, I'm going to hand the call back over to Alan to talk in greater detail about our financial performance before opening the call for questions. Thank you.

Thank you, Deepak. As mentioned on each of our conference calls over the past few years, we continue to focus on growth initiatives and operating improvements throughout the Company in order to deliver a significant earnings expansion and free cash flow. We are pleased with both the earnings momentum and free cash flow generated and are excited about our prospects given our strong backlog and excellent pipeline of opportunities which are expected to fuel continued growth. I will speak to our guidance shortly, but first let me review the financial results of the third quarter of fiscal '11.

As mentioned previously, net sales were up 20% on an overall basis. Sales in our Security Division increased by 27% driven by continued strong demand of across multiple product platforms. In addition, service revenue continues to show solid double digit growth as our install base widens. Our Security bookings in Q3 were over $90 million which represents a 62% increase as compared to Q3 last year. Complementing the strong growth in our Security Division was the performance of both our Opto and Healthcare Divisions. Sales in our Opto Division increased 25%, which included an 18% increase in third-party sales, and of course a bigger increases in Opto's sister divisions which are arms length transactions. While such inner segment revenues are eliminated in consolidation, they demonstrate the strength of our vertical integration strategy.

Finally, we are extremely pleased to report 11% growth in our Healthcare Division which we were cautiously optimistic would indeed occur. With multiple new products recently launched as well as several additional ones over the coming years as Deepak described, we believe the future is bright for revenue growth and margin expansion in our Spacelabs Division.

Our gross margin was 35.6% for the quarter compared to 36.6% last year. The changes is primarily due to 2 things. First, it is due to the mix of revenue growth. As discussed in the past, while operating margins are strong in Security and Opto, the blended gross margin is below that of our Healthcare Division which historically generates the highest gross margin across the 3 divisions. As Security and Opto revenues grew significantly faster than Healthcare sales, the consolidated margin is thus adversely impacted due to the margin profile of these businesses.

Secondly, in connection with the international aviation equipment service contract in our Security Division, we agreed to take on the role of the prime contractor including construction services. We incurred cost overruns on this latter component which impacted our gross margin in Q3 and is expected to also impact our margin on a similar basis for the next 2 quarters. As we grow at OSI, we expect to be faced with new challenges along with opportunities to meet a customer's needs. Taking the prime contractor role cited above, is a good example of taking on a challenge, learning from the experience, and being better prepared for similar opportunities in the future.

And lastly, our gross margin does typically vary from quarter to quarter as a result of a number of factors including product mix, unit volumes, pricing, inventory reserves, and capacity utilization.

Moving to OpEx, with strong cos controls remaining in place, our SG&A expenses as a percentage of revenue improved 270 basis points over the prior year as we leverage our infrastructure. In absolute dollars, such expenses were up about 7% in support of the 20% revenue growth.

As Deepak mentioned earlier, we continue to invest significant resources in R&D to enhance our Security and Healthcare product offerings. To this end, our R&D spending increased approximately 36% to 37% in the quarter to $12.5 million with such incremental occurring in both our Security and Healthcare businesses. As a percent of revenue, R&D expenses were 7.2% this quarter, We continue to invest resources and technologies to add value to our Security and Healthcare product offerings. As a result, we believe these efforts will enable the Company to capture major opportunities in our core markets in the future.

Our effective tax rate for the quarter was 29.4% compared to 28.3% for the third quarter of fiscal '10. Our provision for income taxes is dependent on the mix of income from the US and foreign locations due to tax rate differences amongst the such countries as well as the impact of permanent taxable differences. So as a result of the improved financial metrics, we reported a 36% improvement in our Q3 diluted EPS to $0.45 per share, compared to $0.33 for the comparable prior year period. Excluding the impact of restructuring charges, our non-GAAP normalized EPS would have been approximately $0.48 per diluted share, representing a 33% increase over Q3 last year.

And moving to cash flow, we generated operating cash of $5.2 million during the quarter and almost $25 million during the first 9 months of fiscal '11 driven by our improved earnings. In Q3, capital expenditures were $2.9 million while depreciation and amortization was $4.6 million. Overall, our net cash position continued its upward momentum. As mentioned in previous conference calls, generating strong cash flow remains a top priority, and we are very pleased with the consistent level of progress we have made in this area over the last few years. With strong top line growth, investments in working capital are expected to be required.

Finally, turning to our fiscal 2011 guidance. Given our strong third quarter sales coupled with our solid backlog and outlook, we are increasing our annual revenue guidance for fiscal 2011 to $655 million to $665 million which represents an increase in the prior year of 10% to 12%. Similarly, we are increasing our fiscal 2011 earnings guidance to increase at the rate of 28% to 34% over fiscal 2010, thus this will equate to between $1.78 and $1.86 per share excluding restructuring and other charges.

During the past few years we have transformed our Company into a consistent sustainable performer building a strong framework for future earnings power. Given the operational improvements that we continue to implement, coupled with the restructuring activities that have reduced our cost structure, we believe and have demonstrated that we are well positioned for continued operating margin expansion in the coming years. Thank you for listening to this conference call, and at this time I'd like to open the call to questions.

(Operator Instructions)

Brian Ruttenbur, Morgan Keegan.

Thank you very much. First question I have is on Puerto Rico. I believe Deepak mentioned you're going to be ramping 100% in two to three quarters. Have you got any guidance that you can give us right now on revenue or profitability out of Puerto Rico?

Brian, this is Deepak here. As Alan has mentioned before on conference calls, we have just started on it. We want to put a quarter or so under our belt before we start talking a little bit more detail of what the modeling is going to look like. So we would like to sort of hold off for another quarter or so. Alan, you want to add something?

That's a correct statement and everything is proceeding very smoothly and as planned at the moment.

Brian, just to add onto it, the important milestone that we want to emphasize and we are very excited about it, the first site is on, we have started scanning, and we have actually started getting paid.

Very good. Can you talk about potential for other type Puerto Rico operations, where do those stand?

Brian this is Ajay. Obviously, first of all I think it was a milestone for us to get Puerto Rico started, and obviously we're using that as a bridge to look at other areas. We're really presenting this model all over the place whether it's in Latin America, in Europe, Africa. So we're very excited. We think it's a very viable model. We think it's a very good model. It makes sense from a customer service standpoint. So getting it into the specifics would be something I'm not going to do for competitive reasons, but we are actively pursuing this.

Do you see a lot of competition in the things that you're pursuing that are like Puerto Rico where you're taking over the operations?

No idea.

Okay, and then just a couple other smaller questions. The R&D, you mentioned that it's going to be essentially held flat moving forward, is that correct, around the $12.5 million mark or the $12 million mark, is that the number that you're going to be spending on a quarterly basis around that number, and that's because the launch of all the Healthcare products and the RTT?

Brian this is Alan, you're right. That is the approximate number more or less given a normal latitude in an appropriate range. The spending has been associated with new product development, not only in Healthcare which has generated a lot of recent launches, but also in Security which has also generated both recent launches as well as upcoming launches, and you're right, a good portion of that incremental spending has been on the RTT project as well.

Okay, and then growth in Healthcare was amazing, 11%. Is that sustainable or is that just because you had weak comparisons. Can you grow Healthcare with all of these new launches double-digit?

Brian, the answer is definite. That's why we're spending the money in R&D. The answer to your question about sustainable, obviously from quarter to quarter there is seasonality, but we believe that going into next year with such broad product portfolio launches, we expect good things.

Okay. And then this is a little housekeeping minor thing, interest in subs going forward, do you anticipate that to be anything, Alan? That's more of a housekeeping issue, but we were modeling that there would be some interest in subs going forward. Do you see anything there?

There'll be some small amounts with outstanding letters of credit and a little bit of borrowings that we have on real estate, but nothing of a material nature.

Okay, very good. Thank you very much

Rick Hoss, ROTH Capital Partners.

Hi, good morning. Just to clarify on the R&D question, so annualized this quarter gets us to close to $50 million gross dollar amount for future periods?

That's correct.

Okay. And is there a split that you can give us an appreciation for where you're spending, and maybe you look at the third quarter split in R&D amongst the segments versus last year's quarter. Is there any difference there or is it the same sort of percentage of total R&D per segment?

Rick, this is Alan. The vast preponderance of the R&D is in two divisions, Security and Healthcare, and as we looked at Q3 we saw a little bit more of an increase in R&D in Security associated with some of the product development activities on a relative basis compared to Healthcare last year.

Okay, perfect. And then, on Puerto Rico can you give us a percent of containers that are being scanned today? I think you talked about a couple additional units that were going to get spun up in the next couple of quarters. So what's being scanned today as a percent of containers coming into Puerto Rico?

This is Deepak here. The best way we can answer right now is that one site is up and running, and it's the prerogative of the port, right?

I think the best way to look at it, the first site is up and running, we're looking at other sites. Really from a what percentage standpoint is getting scanned right now would be inappropriate for security reasons for me to answer. That's something that I'm not sure we want to talk about publicly, but as Alan and Deepak pointed out, we are operational and we are on schedule moving forward.

Okay, but one of planned three sites then is I guess what we can pull from that.

The first site is operational, yes

Okay and then the last question, deployment of cash -- Alan I think you just touched on the need for working capital as you grow, is there a near-term deployment here or do you think it's going to be absorbed into working capital?

I think as we look at opportunities, both business development opportunities, other opportunities such as the Puerto Rico model, and general capital required for growth, it'll likely get absorbed in those areas under the near-term.

Okay, perfect. Thanks, guys.

Tim Quillin, Stephens Incorporated.

Good morning. With regards to the aviation systems integration contract, I -- presumably that's your work for GAP, what are the level of cost overruns and what exactly was misestimated there?

Tim, this is Alan. The areas that we have some cost overruns, without getting into detail relating to the construction services which represented a new area for us as a prime contractor, the overall impact to OSI from a gross margin perspective was a little under 1% for the quarter.

And so -- and I'll have to do the math on that, but does that imply then that this contract is not going to be profitable?

No, we are still anticipating that this is a profitable contract, just not as profitable as we had thought when we initiated a contract, but we are still making money on the deal.

Okay, and then in terms on other deals of this type, you talked about lessons learned, is this still a business model that you think is viable?

The answer is yes. It's very important, and like Alan said that the lessons learned from this are important. As we move up the food chain and look at a turnkey solution model, our construction becomes one of the items of that prime responsibility and we are going to move forward. This is still very exciting to us. We are looking at that, and we will just learn from the lessons.

Right. On the Security bookings, they obviously were strong during the quarter, but seasonality typically would imply that fourth quarter bookings would be sort of weak, and then because the time on the federal budget, your September quarter bookings would be especially strong, do you kind of expect that type of seasonality again this year?

Well, we expect that when we go into the next year we will have pretty much similar backlog and the visibility. So we think that Q4 bookings would be, give or take some, would be in line to what Q3 was.

That would be great. And the -- Alan, in terms of free cash flow, you mentioned the working capital and there's some growth rate now, but what are your free cash flow expectations for fiscal '11 and then should that improve then in fiscal '12?

Yes, so I think our free cash flow expectations, Tim, for '11 remain about where they were before. To date, we should be in the -- we think we'll be in about the low-20s roughly for free cash flow this year, that is working off some of the significant advances that we received in the prior year. As we look forward, we think our free cash flow will only improve as our profitability continues to improve offset partially by continued growth and some working capital needs associated with that top line growth. We think we're in a very good position but to be a significant free cash flow generator for the foreseeable future.

And do you still see opportunities on receivables and inventories kind of long-term to either improve DSO or improve turns? And then lastly, the CapEx is going to come in significantly lower it looks like in fiscal '11 versus fiscal '10, what would be normal level of CapEx that you might expect into fiscal '12? Thanks.

Sure, good questions. We're of course never satisfied, we have a mantra of continuous improvement, so we're always looking to improve our DSOs and inventory turns, and on the latter we think there's some opportunity as we head into the fiscal 2012 to do so. Our CapEx in fiscal '11 is below that of fiscal '10 primarily because fiscal '10 was higher as we started ramping up for the Puerto Rico contract. There was quite a bit of CapEx associated with that, that we spent before the end of the last the fiscal year. Overall, the trend though in our CapEx is it has been declining a little bit over the last several years as the levels of investment haven't been quite as necessary. As we move into fiscal 2012, we probably see us in the same historical rates that we've been at in the last say, three to five years.

Just to add onto it, like Alan said, but with that proviso depending on how much more success we get in 2012 with similar card deals or like Puerto Rico that will consume CapEx.

Sure, that would be a good problem. Thanks.

Josephine Millward, Benchmark Company.

Good morning, Deepak and Alan.

Morning.

On Puerto Rico can you talk about how your turnkey cargo screening services differ from traditional players like SGS. I'm trying to get a better understanding of what is your value proposition relative to a company like SGS.

I think -- this is Ajay, Josephine -- there a lot of different things over here. Number one, we have all the different technologies and products, so we're not just offering services we're able to offer our technology, our equipment, as well as our services, and it's all under one roof. SGS and others obviously rely on equipment purchase from others and I think you'll know in this market technological improvements change very fast and being in the security business that offers our customers a lot of comfort, not just from technology, but from doing the operations and also the service on the equipment. Very different from what SGS offers which is basically just bringing in equipment and their people and trying to make that model work.

Josephine, just to add on to what Ajay said, we've said before one of the biggest strengths on the differentiation we have -- we have a broad product line which makes us one of the unique providers of the service to fine tune the right technology and the right product for the site and the cargo that needs to be inspected. SGS cannot provide that.

That's very good. Do you see -- on that note Deepak, do you see traditional equipment -- security equipment suppliers, say Smiths Detection, do you see companies like them moving into to a turnkey solutions business model?

Josephine, anything's possible. That's a question you have to ask them. Obviously, we have put in a lot of investment, a lot of thought into how we do this modeling. We've been working on it for the last several years. It's not something that happened overnight.

I think again just to add onto this, it's a given, I'm sure that many other competitors would like to play in this. I come back to it is, we are very proud to say we have the broadest technology platform of different technologies in the cargo inspection compared to any of our competitors, and that allows us, what I say, a better solution for different customers, different cargo needs.

Traditionally, I believe the turnkey solutions business model has worked well in developing countries. Do you see this business model working in the developed world? I think Ajay, you mentioned you're seeing activities in Europe, can you talk about that? Or is it primarily a developing country type of screening solution?

I think we're seeing interest around the world and I'm not going to get specifically into which countries in which areas. But as I said, we feel very good about this proposition of we've talked a lot of our customers.

Just a follow-up question on product development in Security, can you expand on what areas you are spending the money? Is it on the explosive detection systems for airports? And if you can give us an update on the sulfur upgrade for the personnel scanners with TSA.

I think we've always said we're spending money on RTT solution, we continue to spend that, we're working closely with both the US and Europe. We're also spending money on other technologies that I'm not going to go into the specifics. As far as the TSA is concerned, yes we are working with TSA. For me to give you any other update on where we are would be inappropriate on what we're doing with the TSA, but yes we are working closely with them and I'll leave it at that.

Just to add onto your question, our strategy has always been we are a broad technology platform Company in Security. So our R&D focus is in all the areas in which we participate in. That's aviation, cargo, people screening, air cargo, checked baggage, ports and services. So our R&D is directed towards all these product lines.

Great, thank you.

Ladies in gentleman, this concludes the Q&A portion of the call. I would now like to turn the presentation back over to Mr. Deepak Chopra for closing remarks.

Thank you very much for attending the Q3 earnings call. Very, very excited about our prospects. We look at that we're going to end the year very strongly. We have the backlog going into Q4 at the same time going into next year. I'm very proud of the employees. The group as a whole is working well, and we look at talking more about Puerto Rico and services model at the next conference call. Thank you very much.

Ladies and gentlemen that concludes today's conference. Thank you for your participation. You may now disconnect. Have a wonderful day.