QuidelOrtho Corp (QDEL) 2011 Q3 法說會逐字稿

Ladies, and gentlemen, thank you for standing by. Welcome to the Quidel Corporation third-quarter 2011 earnings conference call. At this time all participants are in a listen-only mode. Later instructions will be given for the question-and-answer session.

(Operator Instructions)

I'd now like to turn the call over to Mr. John Radak, Chief Financial Officer. Please go ahead.

Thank you. This is John Radak, thank you for participating in today's call. Joining me today is our President and Chief Executive Officer, Doug Bryant. Today Quidel released financial results for its 3 months ended September 30, 2011. If you have not received this news release or if you'd like to be added to the Company's distribution lists, please call Ruben Argueta at Quidel Corporation at 858-646-8023.

Please note that this conference call will include forward- looking statements within the meaning of Federal Securities Laws. It is possible that actual results and performance could differ materially from these stated expectations. For a discussion of risk factors, please review Quidel's annual report on Form 10-K, registration statements and subsequent quarterly reports on Form 10-Q as filed with the SEC. Furthermore, this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, October 25, 2011. Quidel undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call except as required by law.

For today's call, I will report the financial result for the quarter, and Doug will describe the status of our new products as well as our more recent commercial developments. We will then open the call for your questions.

For the third quarter of 2011, total revenues were $33.1 million compared to $28.2 million in the third quarter of 2010, an increase of 17%. The infectious disease product lines comprised the majority of the revenue increase, driven by the timing of orders for influenza sales and growth in Strep A and RSV. Inventories at distribution have not materially changed from the second quarter. This would suggest that Q3 revenues are reflective of end-user demand.

International sales as a category grew by 41% in the third quarter of 2011, over the same time period last year. Global sales of infectious disease products totaled $22 million in the third quarter of 2011, compared to sales of $16.2 million in the third quarter of the prior year. The main contributors to this increase were strong sales from our influenza product line, combined with continued growth in our RSV and Strep A products.

In the third quarter, our Strep A product line saw a 10% growth over the same period last year. In Q3 of 2011, RSV sales more than doubled from the third quarter of 2010 to just under $0.5 million. Revenues in the Women's Health category declined 7% to $8.1 million as double-digit percentage growth in Thyretain was offset by softness in our bone health product line, along with a 7% decrease in pregnancy sales due primarily to distributor ordering patterns.

Our Gastrointestinal product category revenues were at 3% to $1.7 million on greater sales of iFOB and H. pylori products relative to the third quarter of 2010. Gross margin in the third quarter of 2011 was flat to the third quarter of the prior year at 55%, but was unfavorably impacted by a couple of unusual items.

First, included in costs of sales for the quarter was $0.8 million of higher, lateral flow, intangible amortization related to the royalty buyout transaction versus what we would have recorded at 8.5% of lateral flow revenue. Most of the $0.8 million was a 1-time charge driven by an accounting requirement to expense a portion of the $29.5 million in total buyout payments at signing. We will be amortizing the remaining costs of the buyout over the time period from July 2011 to February 2015. This will amount to approximately $8 million per year and will be allocated between quarters based upon their estimated revenues relative to the estimated full year. Therefore, we will recognize $4 million of amortization in the second half of 2011.

Secondly, we took an unusual $0.6 million charge to write off component parts associated with a new product development effort. Excluding these items, our gross margin in the third quarter would have been approximately 59%, a 400 basis point improvement over the prior year, driven by volume and the manufacturing efficiencies we have achieved over the last year.

Operating expenses were $19.4 million in the third quarter of 2011, compared to $18.8 million for the third quarter in the prior year. Research and Development costs in the third quarter of 2011 were flat to the third quarter of 2010 at $6.1 million. Sales and marketing costs increased to $6.5 million in the third quarter of 2011, due to higher variable compensation associated with sales commissions.

General and Administrative expenses increased slightly in the third quarter this year relative to the same period in 2010 due to stock comp expense. Stock compensation expense in total was $1.5 million for the third quarter of this year versus $1.3 million for the same period in 2010. We expect stock compensation to total about $6.4 million for the full year.

Our tax rate for the third quarter of 2011 was 34%. Year to date, our effective tax rate for 2011 is also 34% versus the year-to-date rate of 32.9% for the first 9 months of 2010.

Net loss for the third quarter of 2011 was $1.1 million or $0.03 per share compared to a net loss of $5.9 million or $0.21 per share for the third quarter of 2010. On a non-GAAP basis, excluding nonrecurring items, amortization of intangibles and stock compensation expense, net income for the third quarter of 2011 was $2.7 million or $0.08 per diluted share compared to a net loss of $0.5 million or $0.02 per share for the same period of 2010. I will now turn the call over to Doug.

Thank you, John. The third quarter was an especially productive time for our Company, particularly with respect to significant advances that we made with our product development efforts. I'll update you on the status of those products and some of the milestones that we achieved and talk about where we are in terms of commercialization of those products.

As a reminder, we are executing on 3 major development programs. Sofia, the brand name of our next-generation immunoassay platform, Bobcat, our automated DFA analyzer, and our molecular program. And again, our molecular program consists of 3 product platforms -- AmpliVIEW, the brand name for our non-instrumented hand-held, molecular assays for hospital-acquired infections; real-time PCR assay kits for use on a number of widely-used thermocyclers that exist today in many molecular diagnostic labs throughout the world; and project Wildcat, the low cost, fully integrated, molecular platform that we are co-developing with Northwestern University and the Northwestern University Global Health Foundation.

Let's start with Sofia, our next-generation rapid point-of-care immunoassay instrument. This is the analyzer that combines a unique fluorescent chemistry with advanced, lateral flow technology as well as other features to ensure a reliable, objective, rapid and highly accurate, diagnostic result. In the third quarter, we received the CE Mark for our Sofia Fluorescent, Immunoassay Analyzer, as well as the Sofia influenza A+B Fluorescent Immunoassay, the first in a series of new assays for infectious disease and other disorders. And just recently we shipped our first Sofia analyzers and flu kits to a small number of [seeding] sites in Europe.

During the quarter we also submitted 510(k) packages to the US FDA seeking regulatory clearance to market both the Sofia analyzer and the influenza assay here in the United States. In addition, we continued with trials of the Sofia group A Strep assay and are encouraged by the results thus far. We expect to apply for CE Mark in Q4, and to complete US clinical trials in Q1, 2012.

We also made significant progress with Bobcat, our automated multiplexed DFA analyzer. We finished beta site trials in Hong Kong and New Zealand, and the data are what we had expected. Therefore, US clinical trials for Bobcat will begin in the fourth quarter and are expected to finish at the end of the first quarter.

Our molecular program also progressed considerably. We're manufacturing clinical lots for our first 2 AmpliVIEW products and expect to begin clinical trials shortly. Notably, we received CE Mark for our Quidel Molecular Flu A+B and Quidel Molecular Human Metapneumovirus assays and just recently launched them in Europe. As a reminder, these are real-time PCR assays that can be run on commercially-available thermocyclers. An example would be Life Technologies' ABI 7500, which has a large install base in Europe. We're developing other real-time PCR assays and hope to have products for sale in Europe before year-end and to have those same products available for sale in the United States following FDA clearance.

Finally, we're moving forward on project Wildcat, the fully-integrated molecular instrument. We're evaluating our Quidel molecular assays on the [Rev-1] device with multiple specimen types. Development of the instrument is progressing, and we continue working toward our goal of launching by the end of 2013.

As I've said in the recent past, products in development always remain subject to change in terms of content and timing because there is always uncertainty around development activities, clinical trials and clearances by regulatory agencies. Nevertheless, I'm very proud of what we've accomplished so far. In the third quarter, we achieved some very significant milestones, especially with respect to Sofia, Bobcat, and our molecular program, and are preparing for the most important step, the commercialization of those products.

With each of the milestones we accomplish, we move closer to the achievement of our larger purpose and goal. To create a broader-based diagnostic company that is uniquely positioned to meet the needs of laboratory customers regardless of location, from rapid point-of-care immunoassays to cellular-based assays to molecular diagnostics, each of which serves an important function in the diagnostic continuum. As a result of our execution on the third quarter, we're closer to realizing that goal.

Before we delve into the Q&A, I want to take a moment to let everyone know that this will be John's last earnings call with us. John will be stepping down from his role as CFO effective October 31. Over the last four-and-a-half years with Quidel, John has been a big part of our Company's success, from securing a credit facility to successfully managing the stock repurchase plan, to the acquisition and integration of DHI last year. More recently, he was instrumental in securing the secondary equity offering, creating a culture of cost awareness inside the organization, and completing the Alere royalty buyout agreement. We will definitely miss John and we wish him well.

Thank you, Doug, for the kind words and for the privilege I've had to contribute to Quidel's success. During my tenure here, I've made a lot of friends across the organization. I will look back fondly on the friendship I've created as well as our accomplishments as a team. While I will miss the people, I leave Quidel confident that it is strong financially and well-positioned for the future.

Thanks, John. Transitioning into the CFO role is Randy Steward who has more than 35 years of experience in accounting and finance. Randy served as Chief Financial Officer for Navilyst, a medical device company based in Massachusetts. Previously Randy was Chief Operating Officer for SeQual Technologies here in San Diego, and prior to that he served as Executive Vice President and Chief Financial Officer at Spectrum Brands, where he was a key member of the Management team that took the company from $390 million to $2.5 billion in revenue. Randy, would you like to add anything else?

Yes. Good afternoon, everyone. Just want to say that I'm very excited to be a part of the Quidel organization. It's a great opportunity, and I look forward to working with Doug and the rest of the Management team to help Quidel maximize its potential and further its strategic objectives.

Thanks, Randy. That concludes our formal comments for today. Operator, we're ready to open the call for questions.

Thank you, sir.

(Operator Instructions)

Please stand by while we compile the list. And our first question comes from the line of Steven Crowley with Craig-Hallum. Go ahead.

Good afternoon, gentlemen, and congrats on a good quarter. You gave us a lot there because you have a lot going on. Maybe just to delve deeper in a couple of areas -- in your rapid, hand-held, molecular platform, seems like you're making progress towards submission, gathering data and submitting here in the US. Your international strategy for that product looks like what at this point?

Our international strategy generally is to focus first on a couple key markets to build infrastructure there. And for the most part, see what needs to be done in order to go direct in those markets. If we end up with a distribution partner for those products, we will figure it out along the way. So far we have actually begun the process of hiring folks in Europe and hope to have the organization necessary to launch those products in Q1, 2012.

Okay. Great. In terms of the open box strategy, you've had 1 distribution partner outside the US announce their efforts with the product. It seems like those are underway now. Is your plan to test drive through 1 partnership and then explore other opportunities or are you doing things in parallel fashion?

Well, generally, Steve, we would not normally comment on our distribution relationships. And in this particular case, Life wanted to make that announcement and so they did. I'd also say that generally I would prefer not to comment on the details of any of those distribution relationships and certainly not on the terms. What I can say is that the performance data on the assays that Life has chosen to represent for their ABI 7500 customers is very, very good. These assays are very competitive. And I would expect that Life will do quite well. And I would also add that clearly their interest in our real-time PCR assays goes well beyond their interest in our flu and metapneumo assays.

Finally, I would add that obviously we're in discussions with other folks depending on the geographic location. Other folks who would also have equal interest in representing our kits on their platforms.

Great. Just a couple more quick ones, I'll hop back in the queue. In terms of the costs you incurred to write off components for a product under development, does that represent you going a different direction with the product, or is that relatively normal stuff that happens along the path to getting something right?

No, this is not usual or typical. It has to do with a mold that is obsolete, it manufactures a plastic part. This is not normal or typical. And we would not expect to see this going forward.

Okay, but it doesn't sound like it's indication that 1 of your projects has hit an insurmountable roadblock.

No, this has nothing to do with anything that we have currently funded in development.

Great. Just 1 question for John and, John, maybe with the front end, obviously we wish you well. Thanks for your help over the last several years. And maybe we'll ask you about this Alere royalty arrangement that you've constructed here. If I understand you correctly, you've given us some guidance for the back half of fiscal 2011. Since we know what you just booked in Q3, you've given us some guidance for Q4. But how should we think about how this drains off at least in 2012 so we're not out in left field?

For the full year for 2012, we'll recognize roughly $8 million of expense over the course of the year.

Okay. And with your disclosures in this press release, you've given us a pretty good mechanism to sort through that and look at the true performance of the Company and its margin structure.

Yes.

Great. Well, thanks so much for doing that. We wish you well.

Our next question comes from the line of Ashim Anand with Natixis. Go ahead.

Thanks for taking my question, guys. Compliments on a good quarter. I was wondering if you can break down the 2.686 charge you have to the COGS and the adjustments you have to the COGS. I know you gave it, but so we can kind of model it accordingly.

So probably 2.5 of it roughly is all related to the Alere transaction.

And that's compensation stock-based?

That's right. Stock-based compensation.

Okay. And if you could provide us with out-of-US revenues this quarter.

About $ 4.5 million.

And DHI, how much DHI did totally?

A little more than $9 million.

Okay. Doug, as you guys have become a bona fide molecular diagnostic company and actually have a product in Europe, if you can generally comment on how is the environment there in terms of adoption of molecular products there, and how that is comparing to US, considering the present macroeconomic circumstances.

Our analysis shows that the market there is as robust as it is in the US. In fact, I'd say in some countries, molecular tests are more common than cell-based assays. So for some companies you could compare, as well, it appears as though the sales of their molecular products in Europe are as high as they are in the United States. So we see a market that is equally interesting.

Would it be fair to say in fact at this point in time it might even be easier or better market, considering what's going on here?

I'm not sure easier or better. It's certainly an attractive market. In most cases, many of the institutions, many of the labs have molecular diagnostic capability. And so the opportunity to convert some of the laboratory-developed tests into kits certainly exists just as it does here. If you're referring to the regulatory differences, yes, there's going to be a delay. Obviously it's a little quicker to get CE Mark than it is to get FDA clearance, that's for sure.

Okay. And finally, you didn't mentioned the BioHelix collaboration you have. It's a little bit on the back burner in terms of Northwestern collaboration has taken a step ahead or it doesn't mean anything?

No, I think you might be misunderstanding, Ashim. The product name now is ampliVIEW. These are the assays that we've co-developed with BioHelix.

Okay.

So the relationship is still terrific. We work extremely well with those folks. And in fact, interestingly enough, they just announced that they had their own assay for HSV approved. This was an assay that predated our relationship actually. And [Wayne Minn] and the folks at BioHelix I think should be congratulated. As I understand it, they submitted the assay in July. So the turnaround with the FDA is encouraging and, perhaps, helpful to us at least in terms of knowing that was the case there as we move forward with the assays that we've co-developed with them. So to review, there are 2 ampliVIEW assays that are in the process of being ready for clinical trial. We are manufacturing clinical [lots] for both those assays as we speak.

Wonderful. Thanks for clarifying that.

Our next question comes from the line of Zarak Khurshid with Wedbush. Go ahead.

Great. Thanks for taking the questions, guys. Nice quarter. With respect to the early adopters of the open box molecular products, or product, what are the features of the platform or the test that are driving adoption currently?

Well, I think early adoption would be a pretty aggressive description. We've just recently shipped product to 1 partner in Europe, and we do know that they've been seeding a small number of sites. What I would say, though, that the fact that these assays take far fewer steps, and that the enzyme and the probes and primers have all been [lifelized], so that the shipping requirements are significantly less arduous. We're shipping the product at 2 to 8, and we understand that in most cases, these assays are shipped at either minus 20 or minus 80. And I would just say they're faster, better in terms of performance, and I think we can be very competitive from a cost perspective. So faster, better, less expensive, is pretty interesting, I think, to some customers.

Sounds pretty good. And then I was wondering if you could talk about the drivers of the strength in your flu business during the quarter. Has anything changed with respect to the selling strategy? What are the promotional activities these days in Q3 versus Q4? And if you have any thoughts on the channel in front of the flu season, that would be interesting, as well. Thank you.

Sure. The promotional programs that we're running are very typical of what we've done in years past and in recent quarters. And in fact, I would say that for each of the major distributors, our programs are pretty much the same as our major competition.

So the real driver to our Q3 flu revenue is more likely tied to the fact that our inventories at distribution are quite low. So that any flu activity that was out there in the marketplace resulted in orders. And right now we see that ILI as a percentage of outpatient visits is pretty low, at about 1%, but that's pretty typical. If you look at last year at this time, the proportion of out-patient visits for ILI was well below the 2.4% the CDC says is indicative of a flu epidemic. And the same is true this year. In other words, the flu season does not normally begin in October. It didn't last year, and it certainly didn't this year. So there's nothing unusual going on in Q3, and there's certainly nothing unusual so far as we move into Q4.

And then I would finally say that we get a question from time to time about what happened in Australia, and is that indicative? And this may sound redundant because I've said it before, but the R-value for the correlation of flu in the southern hemisphere versus the northern hemisphere is very low. In other words, there's little value in knowing what happened in Australia or anywhere else for that matter in the southern hemisphere.

Correlation between Europe and the United States, on the other hand, is very high. So if you told me that we started to see flu in Germany or France, that would be obviously good to know. And we would take that into consideration with our manufacturing strategy. But I would say what we're planning for Q4 and then into Q1, 2012, is what we would characterize at least so far as pretty normal. Pretty normal season.

Thank you for that. Great.

Sure.

Just wanted to echo Steve's comments. It was a pleasure working with you, John. And you will be missed. Thanks.

Thanks, Eric.

Our next question comes from the line of Brian Weinstein with William Blair.

It's actually Pete in for Brian. Hi, guys. So I had a question for you on Sofia. Can you give me any idea as far as how late approval of the flu assay would be able to take place for it to make a difference for this flu season? Is it already too late, or is there still time?

Well, you're referring obviously to US clearance?

Right, right, right.

If we were to receive FDA clearance any time soon, it would be highly likely that we would ship product within days of that approval. And how important that would be is difficult to say. Obviously, there will be time to take an order. There will be time to ship an order. And in some cases, there will be time necessary to do a quick validation of the product in the customer's hands. So I would say given the fact that the flu season typically gets ramped up in January and in February, that we still do have a bit of time. But obviously any week or month that goes by here that would be difficult.

Thank you. I'd reiterate the comments about John. We will be missing him. Thank you very much.

Our next question comes from the line of Jeff Frelick with Canaccord.

Thanks. Good evening, folks. John, can you give us a sense what drove the strong international growth in the quarter?

It was mostly probably timing of orders from Japan for flu products.

Okay. And then, Doug, could you comment on the inventory as you exited the third quarter with respect to flu, strep, and HCG?

Sure. Flu in Q3, 2010 versus Q3, 2011, were down about half of that flu inventory at distribution. And what that means is anything from now until the end of the quarter in terms of flu activity will more than likely result in an order from our distributors. Strep, the flu inventory at the end of this quarter, is actually up about 5% of what we sell on a typical quarter, which is still not up by very much when you consider that strep volumes have been increasing in the last couple of quarters for us. And then for HCG, we're pretty much flat and have been over the last 5 quarters.

Okay. And then with respect to the Sofia flu test, can you touch on how you're going to market it and position it once you receive approval?

Are you referring to Europe or the US?

The US.

Assuming we do get approval in time to launch for this season, we intend to take a look at using our own internal organization to validate what our customers' flu algorithms are and to understand how we might fit into that. We are having conversations with our major distributors about what we might do and how we might use their resources. But none of that actually has been decided, and we won't make the call until after we have FDA clearance.

Okay. And last question with respect to the BioHelix ampliVIEW. The pivotal trial should be starting, I believe, soon. Timing, when does that start, when do you think it's completed?

I think I made a comment in the script itself, but we intend to start the trials for the 2 assays in Q4. And we certainly would expect to be finished and to have that package submitted to the US FDA in Q1.

Great. Thanks.

Our next question comes from the line of Brad Hoover with Sidoti & Company. Go ahead.

Hi, good afternoon. John, did you say the accounts receivables was up $6.5 million from the 2nd quarter. Did you say what led to that and the increase in DSOs in the quarter?

It was mostly timing of when we got orders as we were finishing Q3. We began to get a lot of flu orders and Strep orders. So it was really just how the business fell in the quarter.

Okay. And then on the human metapneumovirus that's the reason you got the CDC approval, could you, either Doug or John, just discuss what the market size is in Europe and what the current testing protocol has been for the last few years and the expectations or outlook for that assay?

It's actually an evolving market. And I would characterize it as quite small. It's growing rapidly in the larger centers, but it's not widely ordered individually by physicians. We believe that combining the assay with our RSV may actually stimulate more demand for the product, and that's what we intend to do. The symptoms actually mimic those of respiratory syncytial virus. We think it's an important addition to the portfolio, but on its own is not a significantly ordered product.

Okay. And then on Thyretain, has there been any changes as far as conversations or progress made with discussions with reference labs as far as maybe getting their sales reps to talk about it and push Thyretain?

We continue to have conversations with our large commercial partners, the big reference labs. This business is still growing in the teens, and I expect that with or without the reference lab involvement that the trajectory is not likely to change dramatically until more papers, more third-party, peer-reviewed articles are published, which is typical for diagnostic assay growth stories.

TSI is clearly better at diagnosing and monitoring grades and are a number of studies that will be published in the next several months and then throughout 2012. So while I think it would be very useful to have our big partners using their very large sales forces to talk about the product, we really need to put some papers in the hands of the salespeople in order to make that happen. So I think the timing element is more the availability of those third-party articles that describe why physicians should be using TSI.

Okay. And it sounds like the growth rate, the mid-teens growth rate from last quarter held up this quarter again, so that was encouraging. And then just lastly, I missed the infectious disease revenue, John, that you gave in the beginning of the call.

It was $22.2 million.

$22.2 million, okay. Great, thank you, guys.

(Operator Instructions) Our next question comes from the line of Tyco Peterson with JPMorgan. Go ahead.

Hi, good evening, it's Evan Lodes in for Tyco. I had a couple of question. First you'd mentioned the Bobcat trials in New Zealand and in Hong Kong, or rather the beta users. For those users, can you talk about their consumable usage per system and how that might translate to a fully commercial system? And then secondly, if that impacted the way that you were planning the US clinical trials at all. Thank you.

The beta trial was conducted in order to demonstrate that the algorithms that we had in interpreting the slide were correct. So we did comparison with cell culture and with PCR and it were those data that led us to believe that the product is ready to go and ready to go to trial. So in this case, it's a beta trial, but it wouldn't be a marketing trial. In other words, it wasn't a customer running routine samples and buying our product.

Having said that, what our market research has shown is that the typical customer that would be doing virology will run something around $25,000 to $30,000 worth of respiratory, these multiplexed panels, per year. And that's what, if you're trying to model what's a Bobcat worth, we believe it's somewhere in that $25,000 to $30,000 reagent trail per year on average.

Great. Thank you. And then I guess also, could you talk about some of the factors that led to the Alere revenue buydown and buyout, and if that has anything to do with availability of M&A targets, i.e., priorities for competing uses of cash?

No, I don't think that this is a matter of whether we had certain M&A targets in mind. This was more a matter of making sure that going forward that we understood what our costs were. And I think that the deal itself is a good deal for them. And certainly is a good deal for us relative to the ROI on the investment relative to our cost to capital. So I don't think it alters what we're looking at in terms of smaller, tuck-in opportunities.

Okay. Thank you.

Our next question comes from the line of Steven Crowley with Craig-Hallum. Go ahead.

Yes, guys. Just a quick follow-up or 2. In terms of your view of the strategic and tactical utility of the Strep Sofia assay, has that evolved or changed at all, Doug?

I can't really comment in too much detail, Steve, on what we're seeing in our clinical data. That would not really be appropriate. I can just tell you that at least at this stage, the product is performing as we had expected. And what we've said previously is that assays that perform at greater than 95% sensitivity are really valuable. And we think as long as we can hit that particular target that that would be quite useful for us in terms of A, securing our presence in the marketplace as it is today and, B, potentially increasing our share, and then C, at minimum, solidifying our price.

And 1 more. In terms of RSV, I know we're still talking about small numbers there, but the products seem to be up smartly. Even before you were able to do some of the combo assay stuff, what's behind that? Have you had some success with awareness or in featuring it with some of your other products?

RSV continues to grow. It's actually just an evolving category. There are more kids being tested for RSV, and we're a reasonable participant in that space. We've spent some time on the physician's side through our distribution partners. That's for sure. But we're also seeing an increase in volume at the hospital level, too. So I think the growth in the marketplace may be due more to simply physicians ordering the test.

Great. Well, thanks for taking my questions.

Ladies and gentlemen, that is all the time that we have for today. Please proceed with your presentation or any closing remarks, Mr. Bryant.

Well, this concludes the call for today. John, Randy, and I thank you again for your time this afternoon and for your continued support. Take care, everyone.

Ladies and gentlemen, we thank you for your participation and ask that you please disconnect your lines.