Certara Inc

NASDAQ:CERT

Earnings Call Transcript 2022-Q3

[Operator]

Good day, and thank you for standing by. Welcome to the Certara Third Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers presentation there will be a question and answer session. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, David Deuchler, Investor Relations. Please go ahead.

[David Deuchler, IR]

Good afternoon, everyone. Thank you all for participating in today's conference call. On the call from Certara, we have William Feehery, Chief Executive Officer; and Andrew Schemick, Chief Financial Officer. Earlier today, Certara released financial results for the third quarter ended September 30, 2022. A copy of the press release is available on the company's website.

Before we begin, I'd like to remind you that management will make statements during this call that include forward-looking statements, and actual results may differ materially from those expressed or implied in the forward-looking statements. Please refer to Slide 2 in the accompanying materials for additional information which you can find on the company's Investor Relations site.

In our remarks or responses to questions, management may mention some non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are available in the recent earnings release available on the company's website. For additional information, please refer to Slide 11 in the company materials.

The conference call contains time-sensitive information and is accurate only as of the live broadcast today, November 7, 2022. Certara disclaims any obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise.

And with that, I will turn the call over to William.

[William Feehery, CEO]

Thank you, David. Good afternoon, everyone. Thank you for joining Certara's third quarter earnings call. Andrew and I will start with prepared remarks, and then we'll take questions.

In the third quarter, Certara delivered growth in revenue and bookings consistent with our plan. Our core biosimulation business in software and services continue to see nice momentum with high teens reported revenue growth despite ongoing headwinds from foreign exchange. Demand for biosimulation software and services remains robust, with particular strength in services, where productivity increased in the third quarter compared with the first half of the year.

As companies look to improve the efficiency and effectiveness of their drug development plans, we are encouraged by the expanded use of biosimulation across customers working on biologics, cell and gene therapy and small molecules.

We reported third quarter revenue of $84.7 million, growing 15% year-over-year on a reported basis and 18% on a constant currency basis. As you know, Certara operates a global business with employees and customers located in many different countries around the world. This global footprint has many advantages, but during periods of foreign currency volatility, our reported revenue growth figures may be impacted. However, the currency effect on our EBITDA and our net income is much less due to our mix of foreign currency revenue and expenses.

Reported software revenue was $28.4 million, growing 54% year-over-year on a constant currency basis with a 93% aggregate renewal rate. These results were in line with our expectations and driven by mid-teens constant currency growth in our core Simcyp and Phoenix biosimulation software businesses as well as the contribution from Pinnacle 21.

We are committed to expanding the role of biosimulation to meet the needs of researchers with innovation and expansion of our software offerings. As we discussed on our prior call, we launched our new Simcyp Discovery Simulator in June. The simulator applies biosimulation earlier in discovery and development and advances lead optimization first-in-human dose prediction and early formulation development.

While still early days for this product, we've been encouraged with the interest in this launch, and we are excited about its prospects in 2023.

In addition, we introduced the new Pinnacle 21 data exchange module, which leverages key functionality and compliance differentiators of Pinnacle 21, but allows for customers to leverage the technology more broadly in their data organization and management. As with Simcyp Discovery, the Pinnacle 21 data exchange module has seen a lot of interest from customers. The cadence of new product introduction accelerated this year, but the investment to build these products started a couple of years ago.

We are encouraged by the reception of new Certara software products into the market and continue to receive positive feedback from customers. Certara continues to support regulators and the growing demand for biosimulation. In October, the Japanese Pharmaceuticals and Medical Devices Agency, or PMDA, renewed licenses for Certara's Simcyp simulator, Phoenix biosimulation software and Pinnacle 21 enterprise software. The PMDA now enters its ninth consecutive year of using Certara software as the adoption of biosimulation and technology to advance novel drug development continues to grow in Japan.

Turning to technology-driven services. We delivered revenue of $56.3 million, representing 6% growth on a constant currency basis compared with the third quarter of last year. Within technology-driven services, biosimulation services revenue continues to show robust growth above 20%, and we expect continued strength for the balance of the year and into 2023. As we evaluate biosimulation bookings and revenue trends, we are pleased with the trajectory of the biosimulation services business.

On the regulatory services side, Certara performs in line with our expectations laid out in the second quarter earnings call. The performance in the regulatory services side of the business was a drag on reported results due to unforeseen delays in late-stage clinical trial completions, which we discussed last quarter, compounded by a difficult comparison versus the same quarter last year due to a large submission project in Q3 2021.

Regulatory services is a solid business for Certara, which generates healthy levels of profitability and offers a differentiated value proposition. We have made some changes in management and our go-to-market strategy, and I am encouraged by the progress the team is making towards improving performance.

Finally, as we announced this morning, I am pleased to report that Arsenal Investment Partners will be substantially increasing their investment in Certara by purchasing EQT's remaining stake in the company. Steve McLean with Partner and Co-Head of Healthcare practice at Arsenal has been on Certara's Board for 9 years and has been instrumental in helping the company involve and mature over the last decade. Steve will remain on the Certara Board, and when the transaction closes, we'll be joined by David State, an operating partner from Arsenal, who has impressive experience in the health care industry. Arsenal has a strong appreciation for our position as global leader in biosimulation and has agreed to a 2-year lockup for transaction in their shares without the approval of the company.

I will now turn this over to our CFO, Andrew Schemick, to discuss third quarter financial results in more detail.

[Andrew Schemick, CFO]

Thank you, William. Hello, everyone. Total reported revenue for the 3 months ended September 30, 2022, was $84.7 million, representing year-over-year growth of 18% on a constant currency basis and 15% on a reported basis. Excluding Pinnacle 21, constant currency third quarter revenue growth was 8%. As a reminder, the largest non-U. S. dollar currency exposures are the British pound, euro and yen, and the majority of the foreign currency translation impacts biosimulation software and services.

We remain well positioned with trailing 12 month bookings coming in at $401 million, up 28% year-over-year on a reported basis and excluding Pinnacle 21, up 17%. We continue to look at trailing 12 months bookings as the basis for forward 12-month revenue.

Reported software revenue was $28.4 million in the third quarter, which increased 54% over the prior year period on a constant currency basis and 47% on a reported basis. Excluding $7.3 million in Pinnacle 21 software revenue contribution, year-over-year growth was 16% on a constant currency basis. The growth in the quarter, excluding Pinnacle 21, was driven by our biosimulation software Simcyp and Phoenix. As a result of the strong performance of Pinnacle 21 and some of our newer subscription software products, the software subscription revenues recognized over time was 62% of total revenue, up from 55% in Q3 last year.

Software bookings were $25.4 million in the third quarter, which increased 22% from the prior year period. Pinnacle 21 contributed $6.5 million to software bookings in the third quarter. So 3Q year-over-year software bookings growth, excluding Pinnacle 21, decreased 10%.

Trailing 12-month software bookings were $117.6 million, up 41% year-over-year and up 6% excluding Pinnacle 21. The year-over-year decrease in quarterly software bookings was due to the timing of renewals and FX headwinds.

Software aggregate renewal rate was 93% in the third quarter, and net retention rate was 143%, 105%, excluding Pinnacle 21.

Reported services revenue was $56.3 million in the third quarter, which increased 6% over the prior year period on a constant currency basis and 3% on a reported basis. As we expected and discussed on our prior call, biosimulation services revenue growth remained strong and was above 20%, while regulatory services was a drag on the overall growth rate, primarily due to a difficult comparison with last year.

Technology-driven services bookings in the third quarter were $54.4 million, which increased 6% from the prior year period. Trailing 12-month services bookings were $283.4 million, which increased 23% as compared to the prior year. As expected, regulatory services booking growth was down in the quarter and single digits year-to-date. We are forecasting a longer conversion of bookings to revenue in this business due to the elongated customer cycles.

Total cost of revenue for the third quarter of 2022 was $32.8 million, an increase from $28.8 million in the third quarter of 2021, primarily due to a $1.6 million increase in intangible asset amortization, $1 million increase in stock-based compensation, $0.4 million increase in employee-related costs and a $0.9 million increase in other cost of revenues such as equipment, travel and software licenses.

Total operating expenses for the third quarter of 2022 were $41 million, a decrease from $45.9 million in the third quarter of 2021. The components of operating expenses are as follows: sales and marketing expenses were $6.4 million compared to $5.1 million for the third quarter of 2021. This increase is primarily due to a $1.1 million in employee expenses due to the expansion of the sales force, $0.5 million increase in marketing and travel costs, offset by a $0. 4 million decrease in stock-based compensation.

R&D expenses were $6.3 million compared to $4.5 million for the third quarter of 2021. The increase in R&D expenses was primarily due to R&D expense from acquisitions and R&D software headcount investments.

G&A expenses were $17.3 million compared to $26. 2 million for the third quarter of 2021. The decrease was primarily due to a $7.5 million decrease in transaction and M&A costs, $2. 4 million decrease in stock-based compensation, offset by $0.5 million of employee-related and $0.4 million in outside services spend. Intangible asset amortization was $10.6 million compared to $9.6 million in the third quarter of 2021, increasing due to amortization costs from acquired intangible assets relating to Pinnacle 21.

Depreciation and amortization expense was $0.4 million compared to $0.5 million last year due to a decrease in depreciation for furniture and equipment.

Continuing down the P&L. Interest expense was $5.2 million compared to $3.3 million for the third quarter of 2021 due to higher interest expense relating to our term loan. Miscellaneous income was $2.8 million compared to $0.7 million for the third quarter of 2021, due primarily to a $2 million increase in remeasuring gains related to the fluctuation in foreign currency exchange rates.

Income tax expense was $4.6 million as compared to a benefit of $1.6 million in the prior year as a result of a 54% effective tax rate impacted by a change in Portuguese tax law, which required the company to record additional tax expense.

Net income for the third quarter of 2022 was $3. 9 million compared to a net loss of $1. 8 million in the third quarter of 2021. Diluted earnings per share for the third quarter 2022 was $0.02 as compared to a loss of $0.01 in the third quarter of 2021.

Reported adjusted EBITDA for the third quarter of 2022 was $32.7 million compared to $26.1 million for the third quarter of 2021, representing 25% growth. Adjusted EBITDA margin was 38.6% in the third quarter of 2022. As expected and discussed on our previous calls, we pulled forward some expenses to the first half of the year that resulted in lower adjusted EBITDA margin in the first half and higher adjusted EBITDA margin in the third quarter.

The expense timing, a highly productive quarter on the services side and a positive impact to margins from FX fluctuations all contributed to the strong margin. We expect the fourth quarter adjusted EBITDA margin to be relatively in line with the full year adjusted EBITDA margin guidance.

Reported adjusted net income for the third quarter of 2022 was $15.6 million compared to $17. 2 million for the third quarter of 2021. Adjusted diluted earnings per share for the third quarter of 2022 was $0.10 compared to $0.11 for the third quarter of 2021.

Now moving to the balance sheet. We ended the quarter with approximately $210 million of cash and cash equivalents. As of September 30, 2022, we had $298 million of outstanding borrowings on our term loan and full availability under our revolving credit facility.

Turning to the guidance. We are reiterating our full year 2022 guidance and the strong third quarter results and customer engagement gives me confidence in high visibility towards achieving the goals set forth during the second quarter.

Revenue in the range of $325 million to $335 million, adjusted EBITDA in the range of $112 million to $117 million, adjusted EPS in the range of $0. 43 to $0.48 per share. Fully diluted shares in the range of $159 million to $161 million, a GAAP tax rate in the range of 40% to 45% and a cash tax rate in the range of 20% to 25%.

I will now turn the call back over to our CEO, William Feehery, for closing remarks.

[William Feehery, CEO]

Thank you, Andrew. In summary, we remain focused on our commitments to customers and delivering strong results for our shareholders as we continue to grow as a global leader in biosimulation.

We will now open the line for questions.

Operator, can you please open up the line?

[Operator]

[Operator Instructions] Our first question comes from Dave Windley with Jefferies. Your line is open.

[David Windley]

You guys had a nice quarter in revenue, and it sounds like biosim continues to be really strong. I wondered if you could give us an update on the breakdown and the revenue mix between biosim, reg services and market access, I haven't heard you really talk about market access in a while, but if you could help us to understand what that mix looks like today?

[Andrew Schemick, CFO]

I can take that, Bill. That works. Still around, sorry, specifically in the third quarter, it was around 26%. We expect it to be about 24% for the fourth quarter. And when we talk about that, we run the reg market access as one group. So that's included in that number.

[David Windley]

And then on the bookings front, after the first three quarters of '21 were a little flat, you really had a nice breakout bookings quarter in the fourth quarter and then that's continued above $100 million for three quarters in a row, dropped back down again this quarter. I wondered if you could kind of -- you talked about some timing renewals on the software front. But I wondered, if you could talk about kind of the delta from 100 and, 108 in the first couple of quarters of this year down to below 80% in the third quarter and what -- kind of what the bridge is there? Where the shortfall came from beyond that software comment?

[Andrew Schemick, CFO]

We had -- if you recall, from Q4 last year, we had our two largest customers push from 2021 into 2022, which gave a kind of boost to the Q1 and the Q2 bookings numbers. As we moved into the third quarter, July and August were slow, I would put it more towards the seasonality factor. We saw an uplift in bookings in September kind of north of $30 million and a continuation of that into October. And the pipeline has grown 15% since the end of the third quarter. So most of the factor I would attribute to some seasonality in July and August.

[Operator]

Our next question comes from Michael Ryskin with Bank of America. Your line is open.

[Wolf Chanoff, Bank of America]

Hi, it's Wolf on for Mike. So I was wondering, if you could provide a little bit more commentary on what you've been seeing in regulatory services as the market began to stabilize? Or are you still seeing volatility from the headwinds we've discussed since last quarter? And I have a few follow-ups.

[William Feehery, CEO]

Yes. Thanks. This is Bill. I'll take this one. So the -- I would say that the market has been pretty much in line with what we told everybody in -- at the end of the second quarter. So we executed according to the plan we laid out then. We have seen a bit of an uptick in our pipeline. So as you know, we've made some changes in management in some of the other operations of that business. So we've -- we're cautiously optimistic. I believe that we will achieve the plan we laid out, and then we'll continue to grow as we move into 2023.

[Wolf Chanoff, Bank of America]

And then on a slightly different note, we've heard from some others in the field that larger pharma’s are starting to take longer or even elect not to sign contract renewals, just given the broader macroeconomic uncertainty. Are you seeing this among your customer base? And if not, can you talk to what recent customer renewal trends have looked like at a higher level?

[Andrew Schemick, CFO]

I can start, Bill. If -- so from a metrics perspective, we did have a 93% renewal rate, which was solid in line with our expectations. The net retention rate was also what we would expect for the third quarter. So no real change there. In terms of renewals, we did see similar trends in terms of new logo additions. So we were actually -- we averaged about 108 per quarter last year. And we had about 123 new logos in the third quarter this year. So on that front, we're still seeing activity there on the kind of split between Top 50 Tier 1 and the SMID. We saw a pretty healthy growth in both segments there. So really no differentiation in the client base, and we haven't seen any impact on renewals.

[Operator]

We have a question from Max Smock with William Blair. Your line is open.

[Max Smock, William Blair]

Just wanted to follow up on one of the bases questions earlier around bookings topping off here after a few nice quarters. We're coming to the end of the year here. So wondering, if you have any comments around what level of growth you think is achievable in 2023 based on where we're at with the macro environment as well as kind of currently what you have in your backlog?

[Andrew Schemick, CFO]

Based on -- the backlog has grown, it remains healthy. It's driven by the uptick in demand we've seen on the biosim side, and we're looking for the reg to pick up more towards the second quarter, third quarter of next year. We -- based on the year-to-date bookings and the kind of October results in the fourth quarter of the pipeline, expecting to have end the year with a book-to-bill north of 1.2, which is kind of pretty supportive of kind of teens growth that we've delivered in the past.

[William Feehery, CEO]

Just we report our bookings on a 12-month basis. So the 1.2 should be pretty indicative of growth within the range of -- in the mid-teens growth that we've been talking about for some time.

[Max Smock, William Blair]

Maybe just one more for me here. So on the regulatory business, I know we talked about it quite a bit already, but I wanted to follow up on some of your comments from last quarter around some of your Tier 2 and Tier 3 clients that have slowed down to conserve cash, just to make sure that I'm understanding this dynamic, right? So these are companies with late-stage programs that aren't cancelling the programs, but also not moving them forward. And if these are Tier 2 and Tier 3 biotechs, you need to conserve cash. I mean is it fair to assume they don't have many programs in the pipeline? Because I guess if that's the case, I'm not really sure why I follow, they would be -- why they would be simply keeping programs in limbo. So can you just maybe help me understand what's the rationale behind these delays and whether or not we should continue to think about these bookings as being delayed as opposed to lost here?

[William Feehery, CEO]

So there are a couple of things going on. So one is there's been a delay in trial completion, which appears to have hit Tier 2 and Tier 3 more than Tier 1. That may have been because they're conserving cash or because they're -- they have a lower priority in their clinical trial operations, hard to say.

The other thing was that we were anticipating and seeing an interesting growth profile from customers outside the U.S. and specifically in China. And that for a number of reasons we talked about last quarter has pretty much dried up, and we're not expecting it to return for some time.

[Operator]

Our next question comes from Luke Sergott with Barclays. Your line is open.

[Luke Sergott, Barclays]

Just real quick follow-up on that one. So when you guys talk about that mid-teens historical growth rate and confident you're going to hit that, but then you have -- the China piece is going to be an accelerator to that. I'm just trying to figure out what is going to -- what you guys are envisioning coming back next year that could offset that or if that was just viewed as all upside?

[William Feehery, CEO]

We're expecting that mid-teens growth for the company. Our biosimulation bookings growth is quite strong and actually higher than mid-teens. And then that's balanced by our regulatory business, which is now just around a quarter of the company, which is growing slower than that. So net-net, we expect to come around mid-teens. It's supported by the trailing 12-month bookings, which we reported. And just generally, we're seeing pretty strong demand on the software and the biosimulation side.

I don't know if you have anything to add to that, Andy.

[Andrew Schemick, CFO]

No. I mean coming off of our adjusted guidance from last quarter, anything that would come out of China in terms of regulatory would be upside. So we're building our kind of point of view on things for next year based on. The trends we're seeing in terms of the increased demand for the [Audio Gap] biosimulation services, the strength of the performance of Pinnacle 21, the new products that we've launched, which are mostly in evaluation stage but we're pleased with the level of client engagement, and the pipelines are growing, which is a positive sign. So that could provide a lift for us.

[Luke Sergott, Barclays]

And then can you talk about the implied 4Q guide for the EBITDA margin? That step down? Is that more of a seasonality? Can you just talk about some of the dynamics going on there?

[Andrew Schemick, CFO]

Yes. We had 59% kind of bookings growth on the biosim side in Q1, Q2. So with that level of bookings, we had an extremely productive quarter in the third quarter. Our revenue per consultant was up about 6% versus the average in the first and second quarter utilization was high. We kind of started pulling through that accelerated bookings growth. So that falls down to the EBITDA margin.

We also had some spending early in the year that won't kind of repeat for the back half of the year on the G&A side and on the sales and the marketing side. So in the fourth quarter, it's more of a reflection of some conservatism given kind of the seasonality in the fourth quarter around holidays and what we saw last year.

[Operator]

And our next question will come from Joe Vruwink with Baird. Your line is open.

[Joe Vruwink, Baird]

I wanted to just focus in on regulatory services again. Some of the commentary from the CROs this quarter seem to indicate that staffing challenges across the industry are maybe getting a bit worse and this lengthens the whole chain of events until I imagine everything that leads up to a database lock and then Certara is brought in. The fact that you seem to have had an in-line quarter and maybe planned for some of these things. Is the second derivative here stabilizing? So you're still facing these challenges, but it's maybe not the surprise that it has been earlier in the year?

[Andrew Schemick, CFO]

That was the intention of our guidance adjustment in the second quarter so...

[William Feehery, CEO]

Yes, I would say we're performing in accordance to the guidance adjustment we gave in the second quarter. We've made a few changes, and we're focused on building up our pipeline. So we move into 2023 in a stronger position. There's a lot of disruption reported in some of the CROs as well that probably have fed through to some of this. But I would say in terms of our staffing, we've been in pretty good shape. And I'd say in terms of the pipeline we're seeing in the business, we're seeing some modest improvement from where we were.

[Joe Vruwink, Baird]

And then the second question, just on the performance of Pinnacle 21. The quarterly revenue build has been showing good sequential improvement. Just as that business flips and becomes organic looking forward, has anything changed about kind of the growth profile, new product opportunities, obviously talked about one earlier, where as you think about now managing that business and contributing on inorganic performance? Has anything changed relative to some of the initial commentary?

[William Feehery, CEO]

Pinnacle 21 is performing at or above the expectations that we had when we acquired the company a year ago. I would say to answer your question directly, the two biggest changes we've had -- well, there's been a number. I would say there's a couple of changes, right? So one has been that we've invested heavily in software sales and introducing them to Certara's wider customer base. The second one is what you referred to, which is we've launched a new product in Pinnacle 21 called Data Exchange. It has gotten some good traction. It's already received some significant new customers, and we're expecting it to grow well as we go into 2023.

And the third piece is that we've integrated the Pinnacle 21 team into our software team, which has been a good thing for, I guess, our future pipeline since we're looking at product to both combined Pinnacle 21, and we're also between the 2 teams, we've completed some interesting new ideas for the future. So I'd say the product we bought was good. I think we brought it to a bigger stage, and that helped. And then it's a healthy business that's got a great pipeline of products, and we're starting to see that take shape right now.

[Operator]

And we have a question from Gora Goparaju from Berenberg. Your line is open.

[Unidentified Analyst]

Just one for me. I was wondering if you guys had any color on the split of your solutions used by customers between different drug modalities like you mentioned, for example, biologics for a small molecule versus cell and gene therapy. Just basically, any insight on modality trends, if possible, would be great.

[William Feehery, CEO]

Sure. Andy, do you want to take that one or?

[Andrew Schemick, CFO]

Yes. Well, what we've seen, generally speaking, the modality split mirrors, the R&D budgets in the industry since we have such a broad-based customer base. What we're seeing is some growth in some of the newer modalities coming off of a small base, and that's where we're seeing progress in our QSP and around some of our kind of engagement platforms we put in place on the biosim services side, targeting those newer modalities.

[Operator]

And our next question comes from Lu Li from Credit Suisse. Your line is open.

[Lu Li, Credit Suisse]

Just a quick one on the interest expense. So is that going to set up on Q2 level. Can you talk a little bit about the how do you strategy on that? And then how do you see the rising interest rate impact on the margin in '23?

[Andrew Schemick, CFO]

Sure. I think I heard that a little bit soft. But in terms of interest expense, we have 76% of the outstanding term loan balance as it stands today is subject to an interest rate swap that is 2.8% plus the 350 spread. So we kind of hit the ceiling on that at the end of the third quarter and then starting October, we're starting to get the credit back on our end. So we think we're pretty well protected in that swaps in place until August 2025.

[Lu Li, Credit Suisse]

And then just a quick one on the M&A strategy. Can you just update on like any thinking about that, like given the valuation coming down, do you see more interest in some of the targets? And what's your pipeline at this point?

[William Feehery, CEO]

Throughout a bit of this year, we did see sort of elevated valuations in the private markets relative to where the public markets would indicate. And so we've been a little more conservative in terms of some of those valuations. As we go forward, we are seeing some signs that might be normalizing. We have a healthy list of interesting companies that we keep track of and talk to. And as I said before, we're in a good position. We've got a healthy market. We've got lots of interesting organic opportunities. So we don't feel any obligations to do a M&A but the time is right for these things that we’ll be in good position to make it the one topic.

[Operator]

Thank you. And I am showing no other questions in the queue. I'd like to turn the call back to Mr. William Feehery for any closing remarks.

[William Feehery, CEO]

Yes. Thanks very much. Just in closing, I'd like to just say that our third quarter performance demonstrated continued strength in software and biosimulation. And really, our revenue and our bookings grew well above historical averages, and we're very pleased with them. We're continuing to build stronger relationships with existing clients and develop relationships around the use of biosimulation. And we're prioritizing our organic investments in new products. So you've seen some of that, and we remain committed to maintain and improve our reported adjusted EBITDA margins.

Our balance sheet remains very strong with over $200 million of cash on the balance sheet and just 0.5 debt-to-adjusted EBITDA, and we are feeling pretty good about our ability to meet our -- meet the expectations that we put out in July for the full year and continue to grow as we move into 2023. Thank you.

[Operator]

This concludes today's conference call. Thank you for participating. You may now disconnect.