Tetra Tech Inc (TTEK) 2006 Q3 法說會逐字稿

Good day, everyone, and thank you for joining today's Tetra Tech third-quarter 2006 performance conference call. This call is being recorded. By now, you should have received a copy of the press release. If you have not, please contact the corporate offices at area code 626, telephone 351-4664; and we will get one to you right away.

With us today from management are Dan Batrack, CEO and COO; Sam Box, President; and David King, CFO. They will provide a brief overview of the results and will then open up the call for questions.

During the course of the conference call, Tetra Tech management may make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These include statements concerning future events and Tetra Tech's future financial performance. The statements are only predictions and may differ materially from actual future events or results.

Tetra Tech's Form 10-K and 10-Q reports to the Securities and Exchange Commission identify certain risk factors that could cause actual results to differ materially from the forward-looking statements. Tetra Tech undertakes no duty to update forward-looking statements.

At this time, I would like to inform you that all participants are in a listen-only mode. At the request of the Company, will open the conference up for questions and answers after the presentation. With that, I would like to now turn the call over to Mr. Dan Batrack. Please go ahead, sir.

Thank you, and good morning. Thank you for attending our quarterly investors' call. I am glad to report our third-quarter financial results, and overall we had a very strong quarter both operationally and financially.

I would like to begin with an overview that our strategy is working. A number of quarters ago, we focused and presented a three-step strategy that the entire Corporation was focused on. The first step was a focus on our core business, and I am very pleased to report that last year's restructuring is complete. All the restructuring activities are behind us. That was the first step.

Second was to emphasize and invest in our internal organic growth, get Tetra Tech back on a growth strategy internally; and as you can see from our financial results, it is actually producing very nice growth. Top-line growth was 12% on a year-to-year basis, with a backlog growth of more than 10%. We eclipsed the $1 billion backlog growth at this time.

Which sits us very well, positions us for the third step, which is -- as a result of the strong generation of cash, our debt is down substantially. This cash generation will help us sustain a long-term growth of this model.

I would like to provide some details on our performance of this past quarter. Our revenue, top-line growth was up to just under $360 million or 12% top-line growth on a year-to-year basis. That was growth in the federal sectors and in the commercial business. Those were our two primary drivers this last quarter.

Our net revenue was at $240 million. That met the high end of our guidance and forecast for the third quarter. Also showed growth of 4.5% on net revenue.

In earnings we're at $0.19 from continuing operations pre-option expense, which was also at the high end of our guidance for the third quarter.

Our current portfolio mix of both work in our segments and from our clients changed a bit this last quarter. I would like to start with our customers. We saw growth in the federal sector. We are seeing very strong spending and strong procurement activity on the federal sector. We went up from 46% to 47% of our overall contract mix in the federal sector. So we saw growth there. We saw the state and local business actually drop a little bit; and I will attribute that to a single program in our communications business in just a moment. International continued to be a very small part, less than 1%; and commercial spending remained strong at about the same level, 36%, same as both last quarter and last year.

Our segments, segments we saw the Resource Management group grow slightly and the communications drop from 5% of our overall business mix to 4%. That was attributed largely to one project. Our largest single project in the communication has been UTOPIA. It is a municipal buildout program in the state of Utah; and we saw essentially no funding from that program last year. It has been pushed out to the fourth quarter. We expect funding this quarter. But that resulted both in a drop in our state and local mix business and a drop in our communications portion.

New wins. This last quarter, we had several key wins in our area of our focus, the area of our core business. First area and a primary focus for the Corporation has been the Department of Defense base Realignment and Closure Market, or the BRAC market. We had a very large contract win with the Philadelphia Army Corps of Engineers district, with an overall contract value of something more than $800 million.

Second focus and a primary area for us has been our EPA recompetes. We fared very well through our recompete process; and we're very happy to announce an award of the EPA RAC contract for Region 5, up in the Chicago area, the joint venture, the $360 million contract value.

Other wins were in the coastal and the water programs, which have also been our focus. Just a note; we had earlier reported that our unexploded ordnance activity in Iraq was expected to potentially begin to lessen in emphasis later in the year. It looks like we have received notice from the client that will continue both through the end of the fiscal year and likely to the end of the calendar year.

Backlog. Backlog may be one of the best strongest metrics that we've had across the Corporation in a number of years. First of all, I would like to note that our backlog is all organic and it's in our core business. There were no acquisitions. This was all internal growth.

This backlog of $1.006 billion is a record backlog for this group of continuing operations. 10.8% year-on-year increase, and the improvement is across all segments. All three segments of our business showed improvement, with the largest improvement in our resource management, our true core business.

With that overview, I would like to turn the presentation over to our Chief Financial Officer, David King, to provide some details on our financials.

Thank you, Dan. This is a solid consistent quarters, in terms of all of our operating and financial metrics. As Dan mentioned, our gross revenue up by 12%, backlog up by almost 11%, ending the quarter over $1 billion, and we continue to see new workload addition in our core business areas.

On net revenue, we grew by 4.5%, and they are in all segments. Let me elaborate on that. Our federal side increased close to 7%. Our commercial increased by close to 4%. Our state and local business without considering the UTOPIA job grew by 5%. So that referred to what Dan mentioned earlier about all markets, key markets.

Income from operations grew 26% from $14.6 million to $18.4 million. We continue to see margin improvement. On the operating margin basis, it is 18.4; equates to about 7.8%. These are post stock option basis. If we exclude the pre option expenses as we report EPS, it equates to about 8.4%. In terms of segment, it is about 8.6% for Resource Management; 8.5% for Infrastructure, and about 5.5% for Communications.

Our diluted EPS on a net income basis is $0.17, an improvement of 31% from $0.13 for the same quarter last year. We took a $0.02 charge, about $1.2 million option expense, during the quarter.

Our SG&A costs increased slightly from 23.7 million to $24.8 million. It is about 10.3% from both quarters. At a pre-option expense basis it is about 9.8%.

Our run rate is about 10.5%, 11% on net revenue. Sequentially, we saw quite a [big] decrease, about $6 million, between the quarter. It had to do with a project charge we had, about $3 million last quarter. Also there was some timing of insurance expense and lower [integration] costs and lower ERP spend during the third quarter, as well as some expense control and timing also during the third quarter. So our run rate should be about 25 to $26 million.

Our net interest expense decreased tremendously from $3.5 million to $1.2 million. We had pretty much no borrowing during the quarter. We paid down our debt $16.7 million. We continue to maintain a large cash balance between 30 and $40 million, which allows us to improve our investment income and return.

Our tax rate is about 43.4%. We paid about $7.5 million in tax during the quarter. We expect the rate to be slightly higher as we true up for the year, as a result of our state and local tax true-up.

Next page, please. Our receivable base increased from about $284 million to $324 million, an increase of about 14-plus%. To a very large extent it had to do with our revenue growth. We did have some Oracle implementation related delayed, about 3 to $4 million during the quarter. We also had the UTOPIA receivable there, at about $3 million impact our Q3, which we will talk about further.

As a whole, our receivable base (indiscernible) correlate very well with our revenue base. For example, our Resource Management, as I mentioned earlier today, is about 63% of our business. It is also 62% of our receivable base. Infrastructure is 33% of our business today; the receivable base is 33%. Communications, 4% of our business, and it's 5% of our receivable base. So we no longer have the mix that we had before, and it shows.

On the payable, it simply reflects the revenue growth.

Net debt, a reduction of close to 60%. We continue to see further reduction in Q4, and I expect to end the year close to $20 million.

Cash, we generated close to $14 million cash during the quarter. We said we were going to do 10 to $15 million, so we are on the high end of it. We are on track to meet our annual goal of 40 to $50 million. Year-to-date it's about $30 million; and we expect to do between 15 to $20 million in Q4. So we continue to focus on that very hard.

The other point I want to make is given, I mentioned earlier, the improvement in our business mix, and our continuing working capital efficiency, our free cash flow is expected to exceed our accounting earnings not only in Q3 but continuously to end of year.

Our CapEx simply reflects a replacement of our aging equipment. Q3 of last year was a low quarter. We started to invest in the right area, in the growth area. And it's a good thing that we started to invest some money in those areas.

DSR at 72 days we continue to see. We end the year at about 72, 73 days.

Again, next slide is our DSR and debt page. I mentioned about 72 days is probably how we're going to end up the year. We probably are going to close to $20 million at the year-end about the net debt. Dan?

Great, thank you very much, David. I would like to provide a summary and our guidance both for the fourth quarter and for the year of our fiscal-year 2006.

In summary, in the market what we are seeing is very strong federal spending. On a year-to-year basis, we're seeing our revenue at the federal level up just under 20%. That is where are we're seeing our strongest growth.

State and local, we actually, as you see, we saw last quarter on a year-to-year basis an actual reduction of about 1%, 1.5%. That was almost entirely attributable to one municipal program that didn't go forward. It was a communications programs, as I have mentioned earlier. It was the UTOPIA problem project that we had forecasted would actually have started up in the third quarter. We saw essentially no revenue from that program in the third quarter and expect it to ramp up in the fourth quarter. If you normalize our state and local for funding that should have come through on that program, we would have seen growth in state and local also.

Commercial spending, we're seeing continued growth in commercial spending, up over 5%. So that is strong spending also. It's faring very well for the Company.

Overall, the demand we are seeing in all three of these markets are for our core business areas, in the water-related services.

I would like to provide guidance for the fourth quarter and for the year. First, net revenue for the fourth quarter, our guidance is 238 to $245 million. We have narrowed the guidance. We are approximately one month into the fourth quarter.

The associated earnings per share on that revenue is a $0.20 to $0.21 of pre-option expense. If you take that and extend these revenues and earnings, on top of the first three quarters, that would put our annual forecast for net revenue at 245 to $253 million, and our earnings per share at $0.71 to $0.72.

Finally, in summary, I hope you take from this call we have very positive business momentum right now. Everything is looking very positive. Revenue up, earnings up, and perhaps most importantly, backlog up. All organic. This is all work in our core business areas.

One note. The new work that has driven much of our backlog increase has been in the federal sector, as I had mentioned. This is low-risk work. It is cost reimbursable work. It has a very fast turn on cash and overall represents the lowest of risk for the Company.

Backlog improvement, new contracts wins. And of the contract wins presented today and as part of the investors' package, very little of this actually is reflected in backlog. These are new contract wins that we'll expect to be converted into backlog in the coming quarters.

Finally, we are seeing many, many opportunities and strength in all of our core markets. With that, we feel that we had a very good quarter, and I would like to open it up for questions.

(OPERATOR INSTRUCTIONS) Corey Greendale.

First Analysis. A couple of questions. First of all, could you just say a little bit more about what specifically is driving the strength in the federal government work?

We have seen some funding on our BRAC programs, Base Realignment and Closure, here. We have seen -- in fact let me give you some examples of where we saw increase both in our backlog and revenue.

First of all, all three segments have shown strength, but the largest has been in the federal. Department of Energy has been a strong contributor to our backlog and revenue here this last quarter. Some of the programs that we have had with the Department of Energy have been at Savannah River site.

We have had the Second Line of Defense, both funding for work in the third quarter and new backlog orders that will be reflected out in the future quarters. We have had some Environmental Impact Report funding on some new wins that we have had some announcements on that have also contributed for the Department of Energy.

Department of Defense, largely in two areas. Base Realignment and Closure, which is one of our focuses of the Corporation. Navy has been a major contributor within the BRAC program, and most of that has been both on the study and remediation and largely on the West Coast. The work being conducted out of the San Diego area for the Navy has been a big contributor. We have seen work with the Air Force in Europe; we have seen some funding and some new growth. And then in the Army with BRAC.

Probably our biggest growth with the Army, though, has been reflected in new work in Iraq. It's been divided up pretty evenly on two areas, the one unexploded ordnance program that I mentioned earlier in the call that has been fully funded with our teams both through the third quarter. We anticipate that both in the fourth quarter and now through the end of the calendar year. Then also in some reconstruction work in Iraq.

So those are the primary drivers that we have had that are driving both the revenue and our backlog.

Great, thank you for the detail. Second question, David, did you say that excluding the UTOPIA impact, that net revenue in state and local would have been up 5% year-over-year?

Yes.

So as I calculate that, that is about like a 3.5 to $4 million impact from UTOPIA not being there.

Yes, about $4 million impact from UTOPIA.

Can you just clarify a little? I am just a little confused about what is going on with UTOPIA. So you're saying that it was there and it went away? Or it's supposed to be there and it's not there? Or what exactly is going on?

This is Dan Batrack. We completed Phase I. The Phase I program was complete largely in the first quarter of this fiscal year, which corresponds roughly to January of 2006. We saw very little funding in our second quarter, which would have been the January, February, March time frame. It really went to zero this last quarter.

It all was tied to additional funding for the second phase of the program for UTOPIA. They made a decision to go to alternative financing. They have had a very public disclosure on this. This public -- this alternative financing mechanism actually took a bit longer than they anticipated.

It is our understanding that that is well through completion, and we expect that to be funded and to receive notice to proceed this fourth quarter. I think our closest estimate here and part of our forecast is we should start that work up at the beginning of September.

The overall size of the Phase II program for Tetra Tech, it's approximately $40 million in total revenue, and would be expended over roughly a 12-month period.

Spread evenly roughly over that 12 months?

That's correct. We expect it to ramp up. You can imagine with somewhere between three to five months getting ready, we're ready to move on it immediately upon notice to proceed. So it will ramp up very quickly.

Okay, so you expect a partial quarter impact of that in Q4?

That's correct, although we have taken -- we have factored that into our guidance.

Okay. Last quarter, you talked about strength in seeing local or municipal water infrastructure projects. Was that still the case this quarter?

Absolutely. We have seen strength and wins in our consolidated sewer overflow work, our water resources, watershed management work, and in the coastal engineering work, one of which we have had listed on the new wins on this presentation today.

Great. Thanks, I well get back in the queue.

Richard Eastman.

Robert Baird. Just a quick question on how the systems and support security business did in the quarter.

Systems support and security was in accordance, in line with our internal estimates. Their margins continue to be among the highest in the Company. As I have mentioned on previous quarterly calls, it was an area that we were going to provide specific emphasis on the mergers and acquisitions side of the business.

The multiples in the marketplace have really caused us to deemphasize that. We're not going to chase multiples that wouldn't be accretive to the Company. But the internal performance has been strong. Margins, operating income, double digits, and the growth has been obviously all internal.

I'm sorry, the growth was it in that 5% range?

Yes.

Okay, for infrastructure? Also in the state and local area, we don't typically talk book-to-bill. But I'm curious, were the billings greater than the growth rate on the net revenue side in the quarter?

It should be about even. It was about even.

Then with UTOPIA, the number that you had suggested, the $40 million over 12 months, that is a gross revenue?

That is correct. We would expect net to be approximately half of that.

Okay, very good. Thank you.

Richard Paget.

Morgan Joseph. There has been a lot of press about cost inflation, whether it is wages or materials in the E&C space. Kind of looking at trends of how your revenues have been translating into net revenue, it seems like -- and I know it's kind of choppy quarter-to-quarter -- but it seems like it's been trending up.

How should we look at that going forward? Do you think it has peaked? Or do you think a lot of these contracts, it's going to get more expensive with subcontractors?

Well, I guess there's two parts. We haven't seen the pricing pressures that clearly are points of discussion throughout the marketplace.

We haven't seen them on labor. As you can see, one thing I would like to note that I did not cover on the presentation is we did see a headcount growth this last quarter. We feel very good about that.

Obviously, the net revenue went up. Headcount went up, and really over the past two years we haven't seen our staffing growth. So we believe that this is the beginning of a trend that will grow.

One note on the costs. If there were any pressures, much of the work that was added both as backlog and the new revenue was at the federal government, as I have mentioned earlier. That was our strongest growth area. Most of that work was cost reimbursable. So any cost increases that may be incurred would largely be passed on to our clients as part of our overall cost recovery basis.

Okay, I realize a lot of that is passed through. But if you have a set contract for X amount of dollars, maybe not as much work would get done. Have you been seeing that, or that hasn't really been an issue?

We haven't really seen it, but we do have escalation factors that are incorporated into our contracts. Part of our bid of review strategy and process that we put in place, that is being led by Sam Box, does incorporate considerations for inflationary impacts that might be associated with these contracts.

Okay. Then moving over to the Iraq work, I know some of it has been extended; and I think you said out possibly to the end of the calendar year. Should we expect that to drop off going into '07. Or is this something that may or may not still be -- the contracts will be reviewed and you could possibly get them reupped?

Well, our contracts generally have contractual terms that will allow us to stay in Iraq as long as the U.S. has a major presence there. So we are not confined by the duration on our contracted vehicles.

We as part of our forecast, we haven't provided guidance for '07; but we certainly see indications we will be there certainly through the beginning of our fiscal year '07; and probably would tail off toward the late '07?

But at this point, we look strong through the rest of the calendar year, probably into early '07.

Okay, thanks. That is it for me.

Matthew McKay.

Jefferies & Company. First question, just actually sort of following up on the Iraq question previously. Can you give us some sense for what kind of revenue Iraq has contributed over the past sort up four quarters? Just so we have some sense as to what it will look like on a comparable basis?

Over the past four quarters, it has been approximately $100 million.

$100 million? Okay. Roughly even between the quarters?

It actually ramped up; so I would say it had ramped up. The last two quarters were a bit more even, probably 35 to $40 million gross revenue; net revenue approximately $10 million on Q3.

Okay. That's very helpful. Thank you. Then, turning over just to the EPA, what kind of usage do you expect on some of these contracts that you have won? I know it is kind of hard to say at times. But do you have any sense as to how quickly you may be able to use some of these?

Typically from the date of award to ramp up, we are seeing a quarter or maybe slightly more in lag time from the time of award to ramping up.

Our primary focus, we do believe that these contracts may ramp up and see more revenue per contract than we have seen previously. The reason is these earlier EPA contracts were multiple awards where there were three or even four contract holders per region.

The EPA as part of this re-competition or recompete process, they are consolidating these and going largely to a single award. So the vehicles that are executed ultimately, we expect to see more revenue than we may have seen as a function of overall contract value than we had seen previously.

Okay. Then maybe just as a reminder, on the RAC 5, can you just give me an example of some of the work you might be doing on that?

It is everything from response actions, just a response action contract, to cleanup of Superfund sites, to assessment work. So it is generally hazardous waste investigation assessment and response work.

Okay, right, just so there is some predictability to it. Turning over just to the securities side, are you able to talk about what is going on with the Second Line of Defense, and kind of what the outlook looks like for that side of the business?

I will have Sam Box give an update on the status with our SLD program.

I would say that our SLD program has been consistent from the beginning and continues to be consistent, and we expect it to remain so. There is really nothing in the pipeline right now that we see that would reduce that level of effort.

Okay, is there any -- when you look at the pipeline, are there opportunities to either expand to more ports or do more work in an individual port? Is there any opportunity to try to grow that organically?

We just received a new task order for Israel. Probably not surprising. But also, there is a major re-competition in the pipeline right now that could expand the program significantly.

Okay, that is a major competition of someone else who is the incumbent?

No, it's a new program.

Okay. New program. Okay. Then actually just one more question, you said on the call that free cash flow, you expect it to be above earnings for the next couple quarters, I think. For how long will free cash flow outperform earnings do you think?

Our goal is to maintain the gap.

Okay. Okay, great. It's a good place to be. Great job guys. Thanks a lot.

Jeff Beach.

Stifel Nicolaus. In Infrastructure segment, can you give us a rough breakdown of revenues among end markets? The way I would like you to describe it -- and just guess if you could -- is water, all government, and commercial.

Just a moment, let me pull that out. On the Infrastructure, as I -- approximation, about 50% of our water business is state and local; and approximately 50% of the work is commercial. A very small portion on our Infrastructure is actually federal. Most of it is municipal wastewater treatment plants or water supply systems and different storage and delivery infrastructure projects.

I was asking, do you take all Infrastructure revenues and divide it in three categories between water programs, government, and commercial? I don't -- maybe that you answered that. But I thought you just gave me just a breakdown of water.

Well, water -- let me back up. Government programs will consist of water program. So I think we (multiple speakers) in this definition. So water programs are comprised very largely of government programs; and mostly at the state and local level. Also commercial work.

So we have clients, which would be -- we would define as state and local, commercial, and federal. Then we have services that would overlap into that client sector. Would be water and other types of building and AE and other services.

Okay. Also, looking out into 2007, would you expect your margins to improve in all your segments? If so, what is the driving force behind higher margins in any of the segments?

We are striving for and do expect continued improvement in margins in all three sectors. We do expect more efficiencies. We do expect, as we continue to grow, there is leverage in the model; so we do expect that to convert to higher margins. I think that we have talked in the past about striving toward a 10% operating income on a consolidated basis.

Our goal would be to break it up into the different sectors, and this would be pre-option expense -- 8% Infrastructure. I'm sorry, 9% Infrastructure; 10% our Resource Management; and 11% Communications.

Are right, thank you very much.

[Mark Siegel].

Canaccord Adams. Just to gain some clarity here, do you expect the state and local funding year-on-year revenue mark to come back to somewhere around that 5% figure going forward?

Yes, we do.

Okay, great. Secondly, I wondered if you could give some commentary; wondering if you are experiencing any increase in the competitive landscape in environmental consulting and engineering front?

We have seen it relatively stable. We have not seen a material change in the competitive landscape.

Okay, all right. Great. Lastly, given the debt paydown and the cash position, wondering if you're willing to comment on any acquisition activity, the likelihood going forward.

Well, we are not going to announce an acquisition on today's call. Our first consideration has been -- are we ready? Our strategy has been focus on the core business, get organic growth driven forward, -- I think you can see the outcome and the results of that -- and then augment it with acquisitions.

Our overall strategy is about 15%. Long term, we believe that we would be able to achieve and sustain 15% growth, about half of it from internal growth, and the other half augmented with acquisitions.

We think we are at a point where we are ready for an acquisition. A couple criteria. It has to be in our core business, and it has to be the right price. We have some deals that we are looking at, but we're not going to overpay. So when we find the right deal, we will take a move.

Okay, great. Thank you.

Corey Greendale.

Just following up on that last question, would you say the spreads between seller expectations and what you're willing to pay is narrowing or widening, or kind of staying the same?

I would say it is narrowing. It is narrowing, staying the same to narrowing. I think that I have heard some of the brokers out there refer to a frothy market, taking that from some of the real estate markets.

We have seen some of the multiples that have been asked that were -- you couldn't even see that high come down to areas that are getting within an area that are what we would consider more appropriate.

So, I think that I'm actually encouraged that we are seeing a little bit of -- two things. We're seeing a little but of tempering of the multiples.

But two, I think what we are seeing, and I'd go to maybe the analogy of the real estate market, the inventory is going up. I think that is interesting, is that before folks, some of the firms out there, felt multiples were so high they were waiting to be pursued, they were not moving. We have seen the multiples come down. But the actual firms that are out on the market and available now have gone up materially, even if the multiple drops haven't followed quickly. Believe that will be coming into play here in the near future.

Good. Second question following up on the margin, can you just say a little bit more about the margin in the quarter, which -- backing out kind of one-time stuff from the margin -- but it looks like they were generally down in each segment a little bit sequentially. Was that just from headcount going up? Or what else might have been causing that?

I think that it was largely the year-on-year growth and even sequentially was driven by the federal sector. Most of the work that we added to our portfolio was cost-plus fixed fee. In the federal sector on a cost-plus, it generally has a lower fee.

So it has tempered our increase in the margin a bit. It has generated, as you can see, a substantially higher backlog. But it is a much lower risk in an overall return on investment, as far as turning to cash and generating cash flow from this. Has been very strong contributor to the Company.

So I do believe that it's been the federal and the cost-plus work that has tempered our margins a bit. But we expect to continue to see improvement across the board.

Okay, and just a last quick one for David. Do you have a suggestion on what interest rate we should be modeling at going forward?

7.5%.

Great, thanks, and good job on the quarter, again.

Richard Eastman.

Robert Baird. Just a quick question. On the Iraq munitions contract, does the government allow you a markup on the subcontracted portion of that business? If so, is it -- can you just give us a range, 3% to 5% or something?

They do allow us a markup on subcontracts, but it is a small markup, and it's a bit lower than you referenced. It is probably somewhere between 1% to 3%.

Okay, very good. Thank you.

With that as the final question, I would like to (indiscernible) closing remarks. First of all, I would like to thank you all for being on the call this quarter.

I think that -- certainly hope it came across that we are on track with our original strategy. I would like to reemphasize our restructuring portion of any focus in the Company is behind us and is over.

Our investment in our internal organic growth is continuing. We have had some good performance, some excellent performance in Tetra Tech with the new record in backlog. We expect to continue to drive and grow that.

With the cash generated from these operations and the continued improvement in margins, I expect that to allow Tetra Tech to become more aggressive on looking for the appropriate acquisition here in the coming quarters.

With that, I thank you very much and look forward to talking to you all next quarter. Thank you.

Ladies and gentlemen, this concludes our conference for today. Thank you all for participating and have a nice day. All parties may disconnect now.