Surmodics Inc (SRDX) 2004 Q2 法說會逐字稿

I would like to welcome you to the SurModics second quarter 2004 earnings conference call. At this time all participants are in a listen-only mode. Following today's presentation instructions will be given for the question and answer session. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded Wednesday, April 21, 2004. I would now like to turn the conference over to Ms. Marion Briggs (ph).

Thank you. Good afternoon and welcome to the fiscal 2004 second quarter conference call for SurModics. Thank you for joining us today. With me are Dale Olseth, the Company's Chairman and Chief Executive Officer, who will give a brief overview of the quarter; Phil Ankeny, Vice President Business Development and Chief Financial Officer, will provide an overview of the quarterly financial results; Bruce Barclay, SurModics' new President and Chief Operating Officer, who will discuss operational highlights; and Loren Miller, Vice President and Controller, who is available for the Q&A session.

Before we begin I must preface all comments with the Safe Harbor statement. Some of the comments made today will be forward-looking and are made under the Private Securities Litigation Reform Act of 1995. Actual results may differ, and factors that may cause such results to differ are identified beginning on page 12 of the Company's fiscal 2003 Form 10-K annual report, and in the MD&A section of the Company's Form 10-Q, filed after the 10-K. With that, I will now turn the call over to Dale Olseth.

Thank you, Marion, and good afternoon. We appreciate all of you joining us today.

SurModics had an excellent second quarter. Compared with the prior year period, revenues rose 31 percent and net income grew 59 percent to 4.4 million, or 25 cents per diluted share. We also set an all-time quarterly record for royalties and license fees, coming in just under $9 million, with royalties on the CYPHER sales continuing to be the most significant contributor to the Company's results. In addition, SurModics delivered strong six-month results, setting records in both revenue and net income. Our employees have worked very hard to deliver these results.

There were several exciting developments on the drug-eluting stent front during the quarter, as the industry continues to experience change. While Boston Scientific's TAXUS drug-eluting stent received FDA approval in March, we are encouraged that the U.S. market is continuing to grow as the adoption rate of drug-eluting stents by physicians continues to increase.

In addition, Cordis received regulatory approval from the Japanese Ministry of Health for the SurModics coated CYPHER stent, the first drug-eluting stent ever approved in Japan. And a new relationship between Cordis and Guidant was announced that is intended to add considerable leverage through an expanded sales force in the United States for the CYPHER stent. We are working with Cordis on their next two generations of drug coated stents, and we are strategic partners with Cordis in developing other sophisticated devices as well.

In the latest quarter, we also announced an important new collaboration with InnoRx to co-develop new treatments for eye disease utilizing our drug delivery technology. In the last two weeks, General Electric closed its long anticipated acquisition of Amersham. We look forward to better understanding GE's plans for our genomics technology. Finally, we announced a corporate reorganization to sharpen our focus on customer needs and accelerate our technology leadership.

Bruce will now give you more detail on these items, but shortly -- but first I'm going to ask Phil Ankeny to report on the financials for us. Phil?

Thank you, Dale. As you will note from the earnings release and Dale's comments, we had an excellent second quarter.

Revenue in the second quarter rose 31 percent to 12.7 million. Revenue was also up sequentially from the first quarter when we reported 12.1 million of revenue. Income from operations totaled 6.7 million in the second quarter, a 67 percent gain from the prior year period. And net income for the quarter was 4.4 million, or 25 cents per diluted share, compared with 2.8 million, or 15 cents per diluted share, in the year ago quarter. Diluted earnings per share also increased sequentially from 23 cents per share in the fiscal first quarter.

For the first six months of fiscal 2004, revenue was up 40 percent to 24.8 million. Income from operations rose 89 percent to 13 million, and net income for the year-to-date period increased 72 percent to 88.5 million, or 48 cents per diluted share, compared with 4.9 million, or 28 cents per diluted share in the prior year. All of these six-month figures are records for SurModics.

Quarterly royalties and license fees reached an all-time high of 8.9 million, up 83 percent from the second quarter of fiscal 2003, and breaking the previous record we set just last quarter. Product sales were 209 million, slightly less than the prior year period. Research and development revenue was 1 million, down 50 percent from the year-ago quarter. This was expected, as we've said before, because we are no longer performing coating work for Cordis' clinical trials as we were last year. Importantly, non-Cordis revenue is up sequentially from the first quarter.

Robust CYPHER sales lead our record royalty revenue this quarter. CYPHER sales were $532 million worldwide, and the U.S. drug-eluting stent market is experiencing strong growth. Industry sources estimated that drug-eluting stent penetration was approximately 53 percent of the U.S. stent market at the end of December. Independent research commissioned recently by Boston Scientific indicated that the drug-eluting stent penetration rate at March 31 had grown to 70 percent. Internationally, CYPHER sales were 100 million, corresponding to a 46 percent market share. Industry sources anticipate the worldwide market for drug-eluting stents will exceed $5 billion in 2006.

On the expense front, we continue to maintain prudent expense management. Total operating expenses for the second quarter rose 5 percent to 6.1 million. Investment in R&D continues, representing the majority of the overall expense growth. SurModics' balance sheet remains strong, with 101.7 million of total assets, 95.3 million in shareholders equity and no debt. As of March 31, the Company had a cash and investment balance of $49 million.

I would like to share just a few words about the recent decision to explore leasing or selling our River Bluff facility in Bloomington. This is the right to move for the Company at this time. After careful examination of our redefined business goals, we do not believe that contract manufacturing, which River Bluff was built to accommodate, warrants a prominent role in our strategic plan. Furthermore, we believe we have adequate manufacturing capacity in our Eden Prairie headquarters to support our business. Our financial results for the current period do not include any adjustments related to the River Bluff facility because we do not believe that an impairment against book value has occurred. We will continue to evaluate this situation as additional information becomes available.

Finally, a word on guidance. We are unable to provide any guidance at this time because the stent industry is so dynamic, particularly now with the introduction of a competing stent. Until the market trends become clearer, we're simply not in a position to project Cordis sales, and therefore, our resulting royalties.

Overall, we have made significant progress to position the Company for long-term growth. And at this point I would like to turn the call over to Bruce.

Thank you, Phil, and let me extend my welcome to everyone on the call as well this afternoon.

I would like to start by talking about the drug coated stent marketplace, which has provided and can continue to provide outstanding growth opportunities for SurModics.

Since its inception, the CYPHER stent has been used to treat more than 600,000 patients worldwide. The adoption of this important therapy has been phenomenal. It is encouraging to see that this acceptance of drug-eluting stent has continued in our second quarter, as evidenced by the growth in penetration rates in the U.S., from 53 percent in December to 70 percent at the end of March.

And SurModics continues to position itself to take advantage of that future growth in this and other markets. In fact, SurModics has the only clinically proven and FDA approved polymer matrix technology available for license to companies pursuing opportunities created by the convergence of drugs and devices. Additionally, we are working on other polymer systems as well.

Cordis also announced recently an alliance with Guidant Corporation to co-promote the CYPHER stent in the United States with an option to add Japan in the future. This approximately doubled the number of sales reps selling Cordis' CYPHER stent. Furthermore, Guidant has one of the top interventional cardiology sales organizations, and this alliance is intended to add considerable leverage through expanded relationships and product offerings.

As Dale mentioned, another important development for SurModics occurred when Cordis received regulatory approval from the Japanese Ministry of Health, Labor and Welfare for the CYPHER stent in Japan. Cordis expects sales there to begin in the third quarter of this year -- that's the third calendar quarter -- as soon as reimbursement is approved. Japan is the second largest interventional cardiology market after the United States, and CYPHER is the first and only drug coated stent available in that country, and is expected to remain so for some time. We remain excited about CYPHER and continue working with Cordis on their next generation products as well.

During the quarter, we signed one new license, bringing our total for the year to seven, well on our way to our annual goal of 10 new licenses for fiscal year 2004. We now have a total of 60 licensed customers worldwide covering 135 product applications. Of these, 72 products are already generating royalties to SurModics, compared with 68 a year ago. Our customers have launched three new products in the second quarter, bringing the total to 5 fiscal year-to-date. We still expect at least 10 new products to reach commercialization this year compared with 8 in fiscal 2003.

In addition to products on the market, we have many more potential products in various stages of development. For many of these opportunities, we are beginning -- we are being paid for our development activity. We have been making a concerted effort to increase the quantity and quality of the projects in our pipeline. The total number of licensed products yet to be launched rose to 63 compared with 54 a year ago.

The number of major non-licensed opportunities under development, which we define as products that have the potential to generate more than $100,000 in annual royalty revenue, rose to 57 in the second quarter, up dramatically both from 19 in the year ago period, and sequentially from 33 projects in the first quarter of fiscal 2004. In summary, we now have 120 potential commercial products in development. We are very pleased with these gains.

Since joining SurModics in December, I continue to believe we are perfectly positioned to take advantage of the convergence of drugs and medical devices. Drug coated stents represents the first of many products that can benefit from our polymer technologies to deliver therapeutic agents from the surface of a device.

To capitalize on the many opportunities in front of SurModics, at the end of March we announced a corporate reorganization. This realignment is designed to enable SurModics to more aggressively execute our long-range strategic plan to focus on significant opportunities in our chosen markets, as well as to provide our customers with the technologies they need. We believe this new organizational structure will make it easier for our customers to do business with us, and will maximize the opportunities to create internally and to acquire externally new value-added technology for the benefit of our customers.

SurModics is now organized into five technology-centered business units, each with its own dedicated resources and general manager, who will direct research and development, drive customer related projects and coordinate activities with the rest of the Company's operating and financial resources. The sales organization will remain a centralized function, coordinating all customer interface in concert with the business units.

The new business units are -- first, Drug Delivery, intended to leverage our site-specific drug delivery technologies into our chosen markets; second, Regenerative Technologies, which includes our hemo-compatibility, fissure engineering, and cell encapsulation technologies; third, Hydrophilic Technologies, which is our business dealing with making products more slippery to enhance placement and maneuverability in the body; fourth, Diagnostics and Drug Discovery -- this business unit was formally called the Diagnostics, Detection and Discovery, now called Diagnostics and Drug Discovery -- which combines our genomics slide technologies, our stabilization business, and our diagnostic format intellectual property; and finally, our fifth business unit is called New Ventures, which is dedicated to the identification, research and development of new technologies outside that research being conducted within our other business units.

Importantly, we also created a new business development unit that will support the Company's increasing activity in identifying, evaluating and gaining access to new technologies created outside the Company. Phil Ankeny, in addition to his role as Chief Financial Officer, will serve as Vice President of this function, and will focus on assessing and acquiring new technologies from outside the Company for the benefit of both our business units and SurModics' customers.

Earlier in the quarter, we welcomed Steve Keough to our management team as Vice President and Chief Intellectual Property Counsel. Intellectual property is our most important asset and the cornerstone of our technology licensing business model. We believe it was strategically important to add an experienced patent attorney who can maximize the value of SurModics' innovations to strengthen the long-term value of this company. Steve has already made a positive impact at SurModics, and we're looking forward to his continued contributions and leadership in the future.

In last quarter's conference call, I discussed the four key markets we are concentrating on to maximize growth -- cardiovascular, ophthalmology, orthopedics, and neurology. I would like to update you on the progress we are making in the ophthalmology arena with our collaboration with InnoRx, an Alabama-based early stage company developing new drug delivery-based therapies to treat diseases of the eye.

Working together with SurModics, InnoRx is developing a patented implantable coil utilizing our polymer technology to deliver therapeutic drugs in the eye. If successful, this device will provide a valuable tool for physicians treating eye disorders such as age-related macular degeneration, or AMD, and diabetic macular edema, known as DME. Both AMD and DME are serious diseases of the retina that can lead to severe vision loss and blindness.

Intended physician and patient benefits of this new therapy are improved patient compliance and reduced side effects. InnoRx's drug delivery platform has several competitive advantages. First, because it is administered in a single, minimally invasive in-clinic procedure, it eliminates the need for frequent injections into the eye. Second, the platform offers the ability to develop different versions of the product that incorporate different drugs or that target different indications. Lastly, if complications arise, the device can be simply removed.

SurModics believes the market opportunity in ophthalmology is significant. The combined markets for AMD and DME alone could potentially reach between 2.5 and $7 billion within five to six years. The InnoRx drug delivery platform is being developed to address these eye conditions, and SurModics' drug delivery polymer technology is being utilized to control the release of drugs into the eye.

Based on our strong second quarter financial results and the important progress we made during the quarter, I believe SurModics is well positioned to pursue opportunities in our chosen markets, which we believe can deliver long-term growth.

That concludes our prepared comments for today, and now we would like to open it up to questions. Operator?

(OPERATOR INSTRUCTIONS). Clint Morrison, Piper Jaffray.

On your royalty rates, I know you've never disclosed them, but my question is with regards to Cordis -- should we expect that you will be getting the same kind of royalty structure and rates on the new stents you're working on and on the business that you will do in Japan?

The business in Japan will be the same royalty rate.

So that doesn't change, but --

For future applications of our technology in the drug delivery area, those royalty rates we would expect to be higher than what we have with Cordis today, but obviously those are not all in place.

That's what I wanted to know. I just want to confirm -- I think -- you threw a lot of numbers at us, but you said you've basically got 120 new products in development, 57 of which had a potential for more than $100,000?

That's correct, yes.

I heard that correctly?

That are currently not licensed.

They're currently not licensed.

Yes. So let me break down the numbers again. We have 72 products on the market and an additional 120 in development that are not on the market. Of that 120, 63 are licensed already and 57 are unlicensed that have significant value, what we would call major, above $100,000 potential.

So you're saying -- so all 120 in development have over 100,000?

No. The 63 that are licensed, I don't have those broken down.

But the 57 unlicensed do?

Yes. That's correct.

Ryan Rauch, SunTrust.

Just a couple of quick questions. Can you just provide a little bit of insight into the three new products that were launched during the quarter? At least anecdotally, what the market opportunities are, or how we should look at non-Cordis new product offerings over the next 12 months, as far as the market opportunities your licensees are entering into, etc.; just to give us a feeling there. Can you provide us a little bit more insight?

The three opportunities that were launched this quarter -- our customers have not specified our application of our technology in the marketplace. So I think those are three products that we're not in a position to talk about at this point. Going forward we have, of the 120 projects in the pipeline, we have all of our chosen markets represented in those different chosen markets. And we have all of our business units, with the exception of the New Ventures business unit, which has a little bit different strategic focus, represented. So we feel like we have very significant opportunities in the pipeline across all of our business units.

Okay. Two more quick ones. Phil, your tax rate was slightly lower at 37 percent; is that sort of the rate we should look at going forward?

37 to 37.25 is proper. This is Loren.

Perfect. With respect to the corporate restructuring, are there any more important hires that you need? How should we look at SG&A going forward? Should it be pretty flat or stable going forward, or should we expect a jump? And then secondarily, how do we look at the finance as far as whether you lease or sell that facility, as far as what that facility is worth and how we should look at that going forward?

SG&A we would expect to be flat to down over the next few quarters. We have one additional significant hire to make; that would be the general manager of our Drug Delivery business unit.

Ryan, your question on the facility. It's really too early to tell exactly how that is going to play out. We are in discussions with numerous parties at present, and they are exploring leasing or purchasing the facility. And it's really too preliminary to say exactly where those conversations will go and how long that will take. But we'll, obviously, actively monitor that, and --

Okay. One final question. As you know, J&J recently received a warning letter with respect to their manufacturing facility. I'm just curious -- are you working with J&J at all to rectify any of the issues that were highlighted, or have you been contacted by the FDA or are you just not involved with this process at all?

We're not involved at all.

Richard Rinkoff, Craig Hallum.

Based on what J&J reported, your revenue -- your stent revenue from them must have declined, and yet you showed almost a $700,000 increase quarter to quarter. Should we expect that all other areas outside of J&J will continue that kind of growth rate into the next quarter?

We had said in our 10 Q that likely the non-Cordis revenue would be flat sequentially for the remaining three quarters of the fiscal year. And in fact, in this quarter we did experience some growth there. Whether that trend continues or not, we just don't know in terms of the growth. But we would believe that it would be somewhere in the range of last quarter and this quarter, so roughly flat to potentially some growth from the first quarter.

Flat to up from the first quarter? Does that main flat to down from the March quarter?

That's the piece that we just don't have visibility on yet.

Jayson Bedford, Adams, Harkness & Hill.

Bruce, you talked about SG&A being flat to down the next few quarters; can you give us a little bit of color on R&D going forward?

As we stated in our organizational change press release, that we are committed to increasing investments both internally and acquiring technology externally, we're evaluating with the intent of acquiring technology externally. And so from an R&D perspective, while we're continuing to look for efficiencies in R&D, we do intend to look at additional projects on which we can develop internally, based upon investment from SurModics. So I would expect that to be slightly increased over the next couple of quarters. And beyond that, it's still under active evaluation and discussion at this point.

Okay. That's fair. Quickly on the quarter. Product sales came in a little ahead of our expectations. I guess I'm just wondering why, and is this a level we can build off going forward?

Jayson, this is Loren. I would suspect that you're going to see product sales probably slip a little in the next two to three quarters. We did have a strong quarter in reagent sales, and we all anticipate that that's going to be taking a little bit of pressure in the next, like I said, next two or three quarters.

The relationship with SeraCare, is that in that product sales line, or is that a royalty item?

It is in that product line.

Did that help in the quarter?

Not as much as you would think. I wouldn't read anything into that right now. It was a very successful quarter. The relationship is going very well, but it's much to early to tell, so I wouldn't build a whole lot into that particular line yet.

Steve Denofsky (ph), Copper R. (ph) Capital.

The product sales was one of my questions. It just seems a little weird with J&J going down and product sales actually going up to almost where it was when it launched. But also, a couple of things that I'm trying to figure out; if inventories went up and then DSOs went up, if you could just comment on both of those and where you expect those to go? Thanks.

Inventory did go up in the quarter. It's directly related to some raw materials that we purchased to manufacture the products that we're selling to SeraCare. So I would just leave it at that. That is the reason for that particular line. But the DSO, you said; is that what the other question was?

Yes. It seems like it's has been trending up and I'm just wondering when it's going to trend down.

My guess is -- well, I don't know when it's going to trend down, but it's directly related to the high royalties that we're getting from Cordis and some of the later reporting royalty or licensees in this particular quarter.

Okay. And on the product sales, were the Cordis Regent sales up sequentially?

Were they -- excuse me, which way?

Up sequentially, the Cordis product sales, reagent sales?

Yes they were.

Chris Sesunni (ph), Eagle Asset Management.

I have a number of questions. During the time that I have worked with you and examined the results of your various quarters, you have always said that you really can't disclose what products are in the pipeline. And yet, at least in certain of your sales materials, you do disclose certain types of products which you describe as application areas or examples of devices, which I presume that's now in the public domain or has been for some time. So I guess I scratch my head and wonder -- I can understand not being able to disclose the companies that you're working with and who are your customers, but in fact you are disclosing device application areas and examples of devices. Now, are those theoretical application areas and theoretical devices, or are those actual devices?

Those are actual devices. And in fact, when the customer gives us permission to disclose the application of our technology of their products, we do that, and we gladly do that. But in fact, many times you don't; they're not comfortable with that or we haven't gotten permission, in which case we can't. And that's simply a factor of the business model that we have here at the Company. It's very much dependent upon our customer being comfortable that they can work inside SurModics confidentially with their new technology, oftentimes when we're working with their competitors on other technology inside these same four walls. So I understand your question; where we can become public with that application we do, but many times we can't.

But of those that I have seen in the sales literature, I mean, some of these have some pretty interestingly sized markets. I presume that you could in fact talk about those or not. That's I'm trying to ask.

You know, maybe I just don't understand the question.

The question is if I'm staring at a listing of devices that are listed as examples of devices that presumably you can apply your technology to or have applied your technologies to, are you allowed to talk about those?

Not specifically, no. In other words, tying a particular customer to a particular device -- no, we are not.

I understand not being able to tie it to a particular device, but once you're in the market for a particular device that you've listed in your sales literature, presumably that means you're now a participant.

Again, I think what you're talking about is a general reference to where we think the technology might apply or could be applied to a specific application or a specific customer. And again, that's a level of detail that when the customer gives us permission, we will; otherwise we're not able to.

Another question I have is, sales and marketing is only 5 percent of sales. And I guess I'm scratching my head a bit as to why that is.

You think it should be higher?

Yes. I guess my question to you is if you had more marketing personnel, would it impact your topline?

Our sales and marketing group would be glad to hear you ask that question. I don't think so, although I can tell you being new to the Company it's under evaluation, like many other things are. The way we sell our products is a little different than, for example, the way our customers sell products, where having more feet on the ground can actually help. SurModics is extremely well known. While we're out actively soliciting new customers, we have a number of customers that contact us directly. We have a number of customers that are repeat business for us. And frankly, it is a somewhat defined group of customers. So it's a good challenge for us; it's something that we challenge ourselves on constantly. But at least for the moment, we feel like we are well staffed in that area.

Last two questions. J&J had problems with the manufacturing of their stent early on, and I was wondering whether -- there was obviously scuttlebutt as to whether or not that was the result of the difficulty of coating the stents, or was there was something that you observed that was different? Or was it just a typical learning curve?

Those are issues that would be better addressed to Cordis. We're not at liberty to talk about what those issues were to the extent we know or our involvement.

Last question is -- do you have any visibility on the timing of when you are likely to be able to announce the second stent manufacturer that you have a license agreement with?

No, not at this point.

Alan Kessler (ph), Oracle Partners.

With the GE acquisition of Amersham, are there any final royalty payments still archived from Motorola that might need to be paid to you prior to the closing of that deal that perhaps have augmented (ph) this quarter?

No, there aren't.

And will there be as one progresses, or have those been finally paid?

I'm not sure I understand your question. There are ongoing obligations that GE now is responsible for under that contract, and those have not all been paid; they will be paid going forward.

And what is the dollar amount of those that are outstanding?

Can we disclose that?

Are you looking at the royalties or the license fees?

Combination.

I don't believe we have disclosed the royalties. The license fees that were part of the contract, I believe there's $500,000 million remaining, and they're milestone-based. And those did not change -- and the nature of those didn't change due to the acquisition of Amersham by GE.

And in terms of contractual minimums, are you at this point or is that Motorola business exceeding that which would be contractual minimums?

At this point we're just at the minimum royalties.

Sam Chang, RBC Capital Markets.

Just a clarification on the license fees from Amersham. I know you guys hit the $500,000 payments every so often; was one paid out in the most recent March quarter?

No. It was in the June quarter of last year.

When do you anticipate the next half -- when do you expect the remaining 500,000 payment to be made? (inaudible)

It's actually broken into two $250,000 milestone payments, and the precise timing of those is not -- we're not yet giving precise guidance on that at this point.

Just kind of a broader question regarding the changes you have made regarding R&D. When do you anticipate to kind of reap returns from the restructuring that you guys have gone through recently?

The restructuring was much broader than changing the R&D; it was a change to the focus that we gave to our customers and the ability to both internally develop and externally acquire new technologies. I think the numbers we have given you this quarter in terms of the number of projects in development, both paid and unpaid, represent the productivity that the Company has demonstrated over the past several quarters. So I -- again, being new to the Company, I've been extremely encouraged with what I've seen. And what we're trying to do with the reorganization is keep all of those terrific qualities that the Company has had over the last several years and build upon them. So the exact visibility of R&D is always difficult, but I am very confident with the productivity of the organization and where we are going to go from here.

(OPERATOR INSTRUCTIONS). James Terwilliger, Morgan Keegan.

Nice quarter. A couple of things real quick, and I missed part of this. When J&J launches in Japan and they get reimbursement, should we assume our current assumptions regarding the royalty rate, or would that go up at all in any way?

The royalty rate stays the same.

You said in terms of your ability to work with J&J on the second and third generation stents -- is it possible that we could have an increase in the royalty rate on the second and third generation stents, or probably at current levels?

That will remain at current levels.

In terms of the eye application, are you guys currently in animal testing at this time?

Yes? We're in pilot animal studies and progressing to GLP animal studies in this half. And then intend to be in humans second half of the year.

So at this time you still intend to do pilot human clinical trials by the end of this year, correct?

That's correct. Timing remains unchanged.

Thank you, sir, for your question. Mr. Olseth, it appears there are no further questions at this time. Are there any closing comments you would like to make?

Yes. This is Dale Olseth again. We want to thank you again for participating in our conference call this afternoon. SurModics has had an excellent second quarter, with record royalties and license fees and a 59 percent increase in bottom line. Our pipeline is expanding rapidly. We're making our prospects for future growth compelling. We look forward to speaking with you again in July on our third fiscal quarter results. Thank you.

Thank you, sir. Ladies and gentlemen this concludes the SurModics second quarter 2004 earnings conference call. If you would like to listen to a replay of today's conference, please dial 800-405-2236 and enter a passcode of 576226#. (OPERATOR INSTRUCTIONS). I would like to thank everyone for their participation in today's teleconference. You may now disconnect.