Cirrus Logic Inc

NASDAQ:CRUS

Earnings Call Transcript 2023-Q2

[Operator]

Ladies and gentlemen, thank you for standing by. Welcome to the Cirrus Logic Second Quarter Fiscal Year 2023 Financial Results Q&A session. At this time, all participants are in a listen-only mode. After a brief statement, we will open up the call for questions from analysts. Instructions for queuing up will be provided at that time. As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference call over to Ms. Chelsea Heffernan, Vice President of Investor Relations. Ms. Heffernan, you may begin.

[Chelsea Heffernan, Vice President-Investor Relations]

Thank you and good afternoon. Joining me on today's call is John Forsyth, Cirrus Logic's Chief Executive Officer; and Venk Nathamuni, Chief Financial Officer. Today, at approximately 4:00 PM Eastern Time we announced our financial results for the second quarter fiscal year 2023. The shareholder letter discussing our financial result, the earnings press release, along with the webcast of this Q&A session, are all available at the company's Investor Relations website. This call will feature questions from analysts covering our company.

Additionally, the results and guidance we will discuss on this call will include non-GAAP financial measures that exclude certain items. Reconciliation of these non-GAAP measures to their most directly comparable GAAP measures are included in our earnings release and are also available on the company's Investor Relations website. Please note that during this session, we may make projections and other forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ materially from projections.

By providing this information, the company expressly disclaims any obligation to update or revise any projections or forward-looking statements, whether as a result of new developments or otherwise. Please refer to the press release and the shareholder letter issued today, which are available on the Cirrus Logic website and the latest Form 10-K, as well as other corporate filings registered with the Securities and Exchange Commission for additional discussion of risk factors that could cause actual results to differ materially from our current expectations.

I'd now like to turn the call over to John.

[John Forsyth, Chief Executive Officer]

Thank you, Chelsea, and thank you everyone for joining today's call. As you've seen in the press release, Cirrus Logic delivered record second quarter revenue and earnings per share. The September quarter also marked the fifth consecutive quarter in which we have set a revenue record for the corresponding fiscal period. I'd like to thank all of our valued customers, our partners throughout the supply chain and the entire Cirrus Logic team for their hard work and collaboration in achieving these outstanding results.

Before we discuss the results in greater detail, I'd also like to provide a progress update on the key elements of the strategy that is currently driving our momentum. The three pillars of our strategy are: first, maintaining our leadership position in smartphone audio by delivering world class products and outstanding execution to the leading customers in the market; second, expanding the reach of our audio components and technologies in key profitable applications beyond smartphones; and third, leveraging our world class mixed signal engineering expertise to build a growing footprint of products outside of audio in what we call our high performance mixed signal product lines.

We've already seen meaningful contribution from products in this category and we believe this area presents significant opportunities both within smartphones and in other markets that can contribute meaningfully to future growth. This quarter, we continue to execute successfully on all three of these strategic vectors. In audio against a backdrop where demand for our amplifiers and codecs remains strong and in excess of the available supply, we not only continued the development of our next generation 22-nanometer smart codec, but also began initial development of a next-generation custom boosted amplifier. These are exciting and vitally important products for us and for our customers.

Our 22-nanometer codec development will bring a new level of performance and power efficiency to audio, sensing and other signal processing use cases and our next-generation boosted amplifier will bring significant performance, efficiency and architectural advantages to our customers' products. I'd also like to point out that given that these types of products typically enjoy a long lifespan in production, we believe these new product development initiatives help to provide us with good longer term visibility regarding our business and optimism about their potential for sustained revenue contribution.

Looking beyond smartphones, we've spoken previously about the laptop market and its potential as one of the areas where we see an opportunity to expand the reach of our audio components profitably. I'd like to distinguish between the near-term softness in the PC space that we're all aware of and the secular drivers that we believe are meaningfully expanding our serviceable available market in laptops in the long run. These include a greatly increased emphasis from our customers and end users on higher quality audio experiences due to the growth of remote and hybrid working, a transition to thinner and lighter form factors, a drive for greater power and thermal efficiency, and an evolution towards a more smartphone like audio architecture that leverages multiple boosted amplifiers. This quarter we engaged with multiple customers in design activity around our first amplifier design specifically for this market and we also started sampling our first SoundWire enabled codec specifically designed for laptops. We continue to believe this area can represent a valuable expansion of the market for our audio products and technologies.

Moving on to our high performance mixed signal products, we're proud of the progress we've made growing HPMS revenue, which represented 38% of total revenue in the September quarter. With the launch of a new generation of smartphone devices this fall, we've also been delighted to see an increase in adoption of our camera controllers, which play a vital role in helping to deliver outstanding camera experiences. I've spoken previously about the consistent year-on-year expansion of value that we've seen in the camera space since the introduction of our first product and looking forward we believe we have opportunities to deliver further innovation and continue this trend in the future.

Turning to power. We are currently also developing new power related products and technologies that will expand our range of solutions in battery health, metrology, charging, and other areas and we believe these investments can position the company to expand our footprint in the power area in the coming years. In summary, we made exciting progress this quarter on strategic initiatives that we believe will contribute to sustained multi-year growth and our engagement with key customers around future products and opportunities remained extremely strong. With both the compelling lineup of existing components shipping today and continued investment in innovative audio and high performance mixed signal products, we believe we are well positioned to drive further growth and product diversification in the coming years.

And with that, let me now turn the call over to Venk to provide an overview of our financial results for our fiscal second quarter 2023 as well as guidance for our fiscal third quarter 2023.

[Venk Nathamuni, Chief Financial Officer]

Thank you, John. Fiscal second quarter revenue was $540.6 million, which was a September quarter record, and as John mentioned earlier, represents the fifth consecutive quarter of record revenue for the corresponding fiscal period. Revenue was up 37% quarter-over-quarter and up 16% from a year ago. A strong performance during the quarter resulted in revenue above the high end of our guidance range and was driven by higher smartphone unit volumes associated with our customers' new product ramps. On a year-over-year basis, the revenue performance was driven by higher ASPs, an increase in smartphone unit volumes and high performance mixed signal content gains. I'd like to highlight the outstanding execution by the supply chain organization and the entire Cirrus team in helping deliver these strong results.

Turning to gross margin. Non-GAAP gross profit in the quarter was $271.6 million and non-GAAP gross margin was 50.2%. This was roughly in line with the midpoint of the guidance range we had provided. On a sequential basis, gross margin was down primarily due to higher reserves, product mix and increased supply chain costs. The year-over-year change in gross margin reflects an increase in supply chain costs that came into effect in January 2002 and to a lesser extent higher reserves. Non-GAAP operating expenses in the quarter were $123.9 million, up $4.4 million sequentially. I'd note that operating expenses came in below the midpoint of our guidance range despite higher revenue as higher variable compensation was more than offset by lower product development costs and employee related expenses. We intend to continue to invest strategically in new product development while controlling discretionary spending. Non-GAAP operating income was $147.7 million in the second quarter or 27% of revenue. And finally on the P&L non-GAAP net income in the second quarter was $114.5 million or $1.99 per share.

Let me now turn to the balance sheet. Our balance sheet continues to remain strong and we ended the second quarter of fiscal year 2023 with approximately $428 million in cash and cash equivalents, and we had $300 million undrawn on our revolver.

Our ending cash balance was down roughly $25.8 million from the prior quarter, primarily due to cash flow from operations, offset by stock repurchases during the quarter. Specifically, we generated cash flow from operations of $36 million during the September quarter, which is a seasonally slower quarter for cash generation due to the timing of product ramps.

We have no debt outstanding, and inventory was $165 million, down $10 million sequentially, and days of inventory was 56 days in Q2 down 27 days sequentially as we ship product to support our customers’ new product ramps.

And turning to cash flow. As I mentioned earlier, cash flow from operations was $36 million in the September quarter. Free cash flow for the quarter was $25.7 million. In Q2, we utilized $50 million to repurchase roughly 583,000 shares of our common stock at an average price of $85.78. As of the end of Q2 fiscal year 2023, we had $586.1 million remaining in our share repurchase authorization.

We executed an additional $25 million in stock buybacks subsequent to the quarter end to repurchase roughly 376,000 shares at an average price of $66.46 as part of a 10b5-1 trading plan. We expect to continue to return capital in the form of stock repurchases, which we believe will provide a long-term benefit to shareholders going forward.

And now on to the guidance. For the fiscal third quarter of 2023, we expect revenue in the range of $520 million to $580 million. We expect gross margin to range from 49% to 51%. Non-GAAP operating expense is expected to be flat sequentially in the range of $120 million to $126 million as higher product development cost is offset by lower SG&A expense. We will continue to control discretionary spending but invest strategically in product development to drive long-term growth.

On the tax front, as we have previously discussed, due largely to a tax rule effective this year that requires companies to capitalize and amortize R&D expenses rather than deduct them in the current year, we continue to expect our fiscal 2023 non-GAAP effective tax rate to be approximately 23% to 25%. We maintain our expectation that under this rule, our effective tax rate will decrease and may return to a normalized range in about five years as additional years of R&D expenses are amortized for tax purposes, absent any changes to the legislation. However, there appears to be strong legislative support for delaying or eliminating this rule, which we are watching closely. I note that without the impact of this rule, our non-GAAP effective tax rate would be in our more typical mid-teens range.

In closing, we had a strong Q2 fiscal year 2023 as we executed well to deliver these results. Going forward, we will continue to focus on the best opportunities to enable the company to grow both revenue and profitability over the long-term.

And finally, before we begin the Q&A, I’d like to note that while we understand there is intense interest related to our largest customer, in accordance with Cirrus Logic company policy, we will not discuss specifics about our business relationship.

With that, let me now turn the call to Chelsea to start the Q&A session.

[Chelsea Heffernan, Vice President-Investor Relations]

Thanks, Venk. [Operator Instructions] Operator, we are ready to take questions.

[Operator]

[Operator Instructions] Your first question comes from the line of Rajvindra Gill with Needham. Your line is open.

[Rajvindra Gill, Needham]

Yes, thank you for taking my questions and congrats on really strong results in a tough environment. Just a question on the seasonality of the business. It’s been kind of quite volatile this year and kind of deviating from normal patterns. Just wondering how we’re thinking about seasonality on a go-forward basis. How we’re also thinking about potential supply chain volatility with your top customer, just in general. So any thoughts on kind of seasonality and supply chain delivery would be helpful to understand. Thank you.

[John Forsyth, Chief Executive Officer]

Yes, thank you. I’ll add a few comments and invite Venk to add a little more color, if he wishes. I think one of the characteristics of the climate this year on the supply side has been that most of the supply chain has been running pretty close to capacity. And so that has meant, I think, that things have been a little more linear than they would be typically. Obviously, we have big seasonal ramps and builds for product launches. And there just hasn’t been the headroom in the supply chain to have that kind of acceleration of production.

So, I think that has led to the linearity coupled with the fact that just demand is relative -- is very high and has continued to remain high relative to the available supply in general. Not really sure how that looks as we go further out beyond the quarter we’re guiding. I would say that from the supply chain perspective, we still regard our sales and the situation in the supply chain is being supply constrained primarily around wafer supply. And that’s certainly going to persist best of this year. We see that persisting well into calendar 2023 as well.

[Venk Nathamuni, Chief Financial Officer]

Yes, thanks. John, you answered most of the questions of Rajvi. So Rajvi, first of all, thanks for your nice comment. So in terms of just the seasonality question that you asked, as you know, over the last several years, especially the last couple of years, it has been difficult to predict what is normal seasonality and what’s not just given the changes in customer ordering patterns and the economy overall. I would say that perhaps in the last few months, there’s probably some semblance of normalcy coming back. But then, of course, now we have to deal with the macro uncertainty and so forth.

So in general, it’s hard to call out in the specific seasonal patterns. And clearly, as John alluded to earlier, we are seeing good demand, especially as it relates to the new product launches from our customers, and we’re fulfilling that demand. And we’ll just take it one quarter at a time as it relates to seasonality going forward.

[Rajvindra Gill, Needham]

Thank you for that. And just for my follow-up, wondering, John, how you’re thinking about some of the trends that have been helping your business, namely your expansion into the fast charging market, number two, kind of the increased attach rates for camera controllers and kind of -- and then lastly, your expansion into the midrange audio amplifier. Just wondering if you could talk a little bit about those kind of segments and markets. Thank you.

[John Forsyth, Chief Executive Officer]

Thank you. Yes, there are a number of strings to that bow. I think the big picture is that we’ve been hearing content expansion rather than relying purely on whatever happens with the units and that’s been on multiple fronts. So both expanding within audio, I mentioned the growth we’ve had in the laptop market there and the opportunity that we see, but also significant expansion of the range of products that we are bringing to mobile devices. So those include yet charging products, as you said, in fact, a number of technologies around the battery. So, we brought to market our power conversion and control chip last year, which is additional technology focused on battery health.

And then going forward, we’ve signaled that we have -- we believe we’ve got multiple other opportunities to expand content outside of the audio space, in the high-performance mixed signal area. And that’s something where we believe that gives us visibility and reason for believing that we can deliver year-on-year growth as we go forward.

[Operator]

Your next question comes from the line of Christopher Rolland with Susquehanna. Your line is open.

[Christopher Rolland, Susquehanna]

Hi guys, thanks for the question. I guess there’s a couple of new products that you guys mentioned in the letter. I think you continue to engage with the strategic customer around a new HPMS component. Also additionally, you guys continue to develop your 22-nanometer new Kodak as well. I guess first of all, I mean, any more detail around the HPMS component and then kind of the economics around this? How does that change in terms of ASPs or cost overall for you guys as well?

[John Forsyth, Chief Executive Officer]

Yes, it’s a little early to give much color on the additional HPMS content, Chris. I will say that actually I think we referred to another category of new product as well. So obviously, the 22-nanometer Kodak additional HPMS content, but also kicking off the development of our next generation custom amplifier. So we have – that’s what we’re talking about. We have other stuff in the pipeline as well as you would hope and expect. Those – it’ll be a little while before those come to market. We have signaled that we are working towards a timeline of bringing some additional HPMS content to market in the back half of next year. There’s a long road between now and then. So as you’d expect, we’ll give more color as we get closer to the time and plans get locked.

[Venk Nathamuni, Chief Financial Officer]

And John, just to add to what you just said. I think one of the things that’s evident in our results and also in our guidance is the fact that we are continuing to increase our content in these – in customer’s products. And we’ve talked in the past about having some good long-term visibility and multi-year visibility in terms of content gains. So that – a lot of that is coming in the high performance mix single area. And we feel good about where we stand relative to increasing content over time.

[Christopher Rolland, Susquehanna]

Great. And as a follow-up, given the kind of weak Android background that we have out there. I was surprised that your percentage of revenue from your non biggest customer out there was as strong as it was. I was wondering if maybe you can talk to that kind of strength where you might be seeing strength. Is this all amps or is this new products? I know you’ve been talking up some custom PC products as well. Where’s that strength outside of your largest customer coming from?

[John Forsyth, Chief Executive Officer]

Well, I’m not going to tell you that the Android market is strong. I think we’re all well aware of the challenges around different parts of that market. But I will say that our approach in general is always to work with what we see as being the strongest customers with the strongest products. And so we have seen content gains in Android this year in flagship phones, and that’s meant that we’ve done better than perhaps some have in the current climate. And that’s specifically around getting haptic solutions into flagship phones in addition to our audio devices. So we’ve been doing well there. It’s a tough market, but as I said, we continue to focus on customers and products and sockets where we believe, they’re the strongest and the demand is going to be the most resilient in the current climate.

[Operator]

Your next question is from the line of Tore Svanberg with Stifel. Your line is open.

[Unidentified Analyst]

Hi, good afternoon. This is Jeremy on for Tore. Let me add my congratulations on the record results here. I guess first question would be on the new laptop content. I noticed on the presentation, the ASPs were in the range of I think up to $1.50. Is there a reason I guess can you call out any differences between that and maybe their smartphone counterparts? Is it maybe just early integrated – early stage of the integration cycle here? Anything you can call it would be helpful. Thanks.

[John Forsyth, Chief Executive Officer]

Thanks, Jeremy. And thanks for the nice comment there. It’s actually to do with the multitude of different socket opportunities that we see over time in the laptop market. And I will reiterate, this is very much greenfield space for us. So we see our SAM expanding there significantly in the coming years, even with a very conservative set of assumptions around what happens to the market overall in terms of units.

But to give you some color to that the kinds of sockets that we see representing constituent parts of that addressable market would be on the audio side, you’ve got boosted amplifiers and codecs, but you may see two, four, or in some cases even more than four boosted amplifiers. So you have multiple opportunities for content expansion there.

In addition to that, our fast charging related IP has given us opportunities for sockets really either side of the battery there in the laptop. So again, we see potential for multiple sockets around that. And then of course, as devices get thinner and lighter, the trend will be more towards haptics and moving away from mechanical touch pads and the like. And again, that provides a content opportunity. So if you look five years out or four years out, I guess calendar 2026, we see a SAM there based on those opportunities that I’ve outlined of somewhere north of $1 billion. I would say about two-thirds of that is probably in the audio space and roughly a third of it in the HPMS space.

[Unidentified Analyst]

Great. Thank you. That’s very helpful. I guess the other question would be I think Venk you have mentioned the year-over-year results were driven by our HP [ph] unit and HPMS content gains. I was wondering if you could maybe give us a rough breakdown of the various impacts, if specific numbers aren’t available, could you maybe rank order those impacts? Thank you.

[Venk Nathamuni, Chief Financial Officer]

Yes, Jeremy, again thanks for your nice comment. And yes, as I mentioned, the year-on-year the changes type driven primarily by those – the three factors that you mentioned. We have stated them in the order of significant. So in general, it’s fair to assume that we benefited from the increase in unit volumes and over time we’ll also see a content gain story. But I think it’s consistent with what we’ve stated.

[Operator]

Your next question comes from the line of Matt Ramsay with Cowen and Company. Your line is open.

[Ethan Potasnick, Cowen and Company]

Yes. Hey guys. This is actually Ethan Potasnick on for Matt. I just wanted to kind of piggyback on the prior question, maybe ask it a little differently here. I guess going into the back half of the year, I think we had the expectation that results at your primary customer would be primarily driven by unit growth rather than any socket or content expansion. So given the results in guide, is that how we should still think about it or were there maybe additional wins either within the phone or maybe other products at your largest customer that drove the upside here?

[John Forsyth, Chief Executive Officer]

I think, the story is primarily around phones to your latter question there. The – I would say it’s worth keeping in mind that when we have a significant content expansion as we did with the addition of the power conversion and control solution that came into the generation of devices launched last year that we do have a tailwind from that as we go into the second generation of devices as well. So it continues to contribute to the revenue growth.

[Ethan Potasnick, Cowen and Company]

Okay. Understood. And then as my follow-up, just wanted to get a little more clarity on visibility on the state of demand through the remainder of fiscal 2023 here. If I recall correctly, you guys have previously said growth expectations might be more modest. Is that how we should think about it through the remainder of the year?

[Venk Nathamuni, Chief Financial Officer]

Yes. Hi, this is Venk. So at a high level, obviously, given what we just announced and the guidance we have provided takes into account couple of factors, right? We clearly have a good indication from our lead customer in terms of what the demand pattern is. But there’s also another element of the business, which is more tied to the general market and such. And so – and given some of the macro concerns, we have taken that into account as we provided the guidance.

But at this point, we want to stick with this guidance for the current quarter and not looking beyond. We’ll certainly update you at that time. But it’s probably fair to assume that we do see the content gain that John alluded to, that’s something that we see as a multiyear story, but we’ll give you more specific guidance on the next earnings call.

[Operator]

Your next question is from the line of David Williams with the Benchmark Company. Your line is open.

[David Williams, Benchmark Company]

Hey, good afternoon. Thanks so much for taking the questions. Congrats on the excellent results. First, I wanted to ask maybe – just on the revenue side, just kind of curious what maybe the puts and takes were this quarter. I’m just trying to understand maybe if the surprise was more on the supply side or maybe on the demand side and maybe any color you can provide on the ability to kind of flex up and down as we think about the business going forward.

[John Forsyth, Chief Executive Officer]

Certainly, the demand for components going into smartphones, in particular was strong and stronger than we were forecasting back when we guided, and that demand did tend towards more devices, which had the greater amount of our content in them than we expected when we guided. So really a very strong demand story. I will say that on the supply side, the team is working incredibly hard with our supply chain partners to kind of try to catch up and keep up with that and keep bringing in shipments. But the majority of the impact here was relative to our guide was demand-led.

[David Williams, Benchmark Company]

Thanks for the color there. Certainly helpful. And then I guess, secondly as a follow-up for me is, just are you seeing anything in Asia or China specifically in terms of some of the COVID restrictions and some things we’re hearing there? Is there anything you’re concerned with as we kind of think about the December quarter?

[Venk Nathamuni, Chief Financial Officer]

Yes. We’ve been reading all those reports about COVID restrictions in China and such, and we’re constantly in touch with our contract manufacturers as well as our entire supply chain. And clearly, what we have provided you in terms of guidance takes into account some of those uncertainties, but we’re constantly monitoring the situation. But we don’t have any special insight into it beyond what we just hear from our contract manufacturers as well as our entire supply chain. And we’ve taken that into account as we have guided for the December quarter.

[Operator]

[Operator Instructions]

[Chelsea Heffernan, Vice President-Investor Relations]

This will be our last question.

[Operator]

Your final question comes from the line of Blake Friedman with Bank of America. Your line is open.

[Blake Friedman, Bank of America]

Hi, yes. This is Blake on for Vivek. Thanks for taking my question. Just maybe as a follow-up to a question earlier. I know just looking at the data that you kind of your Android and other businesses that’s been surprisingly resilient, what seems like versus the broader market. But I was just curious as it’s kind of still a weaker demand environment in general. Can this change the tone or time line of implementation of engagements?

[John Forsyth, Chief Executive Officer]

I mean the demand environment there certainly has been softer, but I would maybe reference some of the color I’ve given on previous calls regarding the nature of our engagement with Android because I think that might be a key to what you’re seeing there in the results as well. We’ve been supply constrained through all of the last fiscal year and this fiscal year-to-date. That’s meant that we’ve been very selective out of necessity about which sockets and customers we’ve been able to chase and serve.

We don’t want to let anybody down. So we have been – we’ve just had to be very selective there. And given the products we’re providing into smartphones are generally the performance leaders in their class. We’ve been at the top end of the market and have typically been shipping into sockets where the customer is very committed to having flagship leading performance in their flagships.

So I think the fact that we’ve been doing anything but over serving that market over the past year just because of the supply constraints, has meant that there’s been a resilience there as the weather has changed.

[Blake Friedman, Bank of America]

Great. And then just kind of quickly focusing on your cash balance. I know kind of following the line semi acquisition were kind of back at those to similar levels. So just kind of curious how you think about M&A just in this environment when valuations are lower, or if you’re more focused maybe through cash returns still through buybacks.

[Venk Nathamuni, Chief Financial Officer]

Yes. Thanks for the question, Blake. So essentially our cash balance, as I mentioned on the prepared remarks is in pretty good shape. And we’ve stated all along that our primary uses of cash, number one is to drive the growth in the business through investment in R&D. And then number two is to do M&A and three is to use it for share buybacks and side. So as it relates specifically to your M&A question clearly, the market is now in a situation where there’s a lot of price discovery aspects that are still uncertain, just given how the market has performed.

And for us, we want to be very selective about what M&A we pursue, and we’ll do it both based more on strategy as opposed to just purely from the standpoint of what the current market conditions are. And so we continue to look at M&A opportunities on a regular basis, but we’ll pull the trigger for the appropriate opportunity at the right time.

But our primary uses of cash are in that quarter, number one to invest in R&D, M&A and then to do cash buybacks. And as you’ve seen over the last few quarters, we have been very regular buyers of our stock, and we’ll continue to use that as an additional tool in terms of how we deploy our cash balance.

[Chelsea Heffernan, Vice President-Investor Relations]

With that, we will end the Q&A session. I will now turn the call back to John for his final remarks.

[John Forsyth, Chief Executive Officer]

Thank you, Chelsea. So in summary, in the September quarter, Cirrus Logic delivered record second quarter revenue and earnings per share, driven by strong execution across our three areas of strategic focus. And those are; continuing our leadership in smartphone audio, broadening sales of audio components in key profitable applications beyond smartphones and applying our mixed signal expertise to expand into new adjacent high-performance mixed-signal areas.

We’re more excited than ever about the opportunities that we see in front of us, and thank you for your continued interest in Cirrus Logic. Before we close, I’d also like to note that we will be participating in the Barclays Conference on December 8 in San Francisco. Please check our investor website for the details.

If you have any questions that were not addressed, you can submit them to us via the Ask the CEO section of our investor website. I’d like to thank everyone for participating today. Goodbye.

[Operator]

Ladies and gentlemen, this concludes today’s conference call. You may now disconnect.