Alpha Teknova Inc

NASDAQ:TKNO

Earnings Call Transcript 2023-Q3

[Operator]

Hello, and welcome to Alpha Teknova, Inc. Third Quarter 2023 Financial Results Conference Call. [Operator Instructions]I would now like to hand the conference over to Jennifer Henry, Senior Vice President of Marketing. You may begin.

[Jennifer Henry, executive]

Thank you, operator. Welcome to Teknova's Third Quarter of 2023 Earnings Conference Call. With me on today's call are Stephen Gunstream, Teknova's President and Chief Executive Officer; and Matt Lowell, Teknova's Chief Financial Officer, who will make prepared remarks and then take your questions.As a reminder, the forward-looking statements that we make during this call, including those regarding business goals and expectations for the financial performance of the company, are subject to risks and uncertainties that may cause actual events or results to differ. Additional information concerning these risk factors is included in the press release the company issued earlier today, and they are more fully described in the company's various filings with the SEC. Today's comments reflect the company's current views, which could change as a result of new information, future events or other factors, and the company does not obligate or commit itself to update its forward-looking statements, except as required by law.The company's management believes that in addition to GAAP results, non-GAAP financial measures can provide meaningful insight when evaluating the company's financial performance and the effectiveness of its business strategies. We will therefore use non-GAAP financial measures of certain of our results during this call. Reconciliations of GAAP to non-GAAP financial measures are included in the press release that we issued this afternoon, which is posted to Teknova's website and at www.sec.gov/edgar. Non-GAAP financial measures should always be considered only as a supplement to and not as a substitute for or as superior to financial measures prepared in accordance with GAAP. The non-GAAP financial measures in this presentation may differ from similarly named non-GAAP financial measures used by other companies.Please also be advised that the company has posted a supplemental slide deck to accompany today's prepared remarks. It can be accessed on the Investor Relations section of Teknova's website and on today's webcast.And now, I will turn the call over to Stephen.

[Stephen Gunstream, executive]

Thank you, Jen. Good afternoon, and thank you, everyone, for joining us for our third quarter 2023 earnings call. Teknova is a leading producer of critical reagents for the life sciences industry to accelerate novel therapies, vaccines and molecular diagnostics that will help people live longer, healthier lives. We manufacture high-quality custom reagents with short turnaround times and are positioned to scale with our customers as they advance their products from discovery to commercialization.We had a solid third quarter, both financially and operationally, against the backdrop of a difficult market. Our ability to deliver in these challenging conditions is a testament to the dedication of our very talented team and the diversity of our market segments. Also, during the third quarter, we raised $22.9 million of capital through a registered direct offering and concurrent private placement, and we paid down $10 million of long-term debt.We remain optimistic about the potential of our target markets and are pleased with the progress we've made executing our growth strategy in the third quarter. As we reported during our Q2 update, our new facility has been certified for GMP-grade production. We are enthusiastic about the potential this multiyear investment will unlock for the business. During Q3, we extended the types of products available for both research and clinical grade production, which now include single-use bags and an assortment of bottles, giving us the ability to serve nearly all bioprocessing and diagnostic customers in our target market segments.In addition, since the beginning of June, we have been qualified by 12 high profile customers, 8 of which are companies involved in cell and gene therapy development. We have been very encouraged by the reaction to our new GMP facility in Teknova's transformation. The response to the qualification audits and our conversations with these customers have increased our confidence that the facility investments we have made will begin to bear fruit in mid to late 2024. As a reminder, we believe this new facility plus our existing operating infrastructure will give us the capacity to deliver approximately $200 million in annual product revenue when fully utilized.Next, on the R&D front, I'm pleased to say our new product introductions are progressing ahead of schedule. In September, we added the third serotype of our AEX buffer screening kit by extending the portfolio to include AAV6. And we launched a suite of reagents to support the plasmid bioproduction workflow. Our AAV product pipeline, which we just introduced earlier this spring, now encompasses more than 60 total reagents, simplifying and streamlining AAV-related workflows for process development scientists. In late October, we presented 3 posters at the European Society of Gene and Cell Therapy, including data for our new reagent kit to streamline PCR analytics for empty/full capsid analysis. The full launch of this kit is expected in Q4.Through our new product offerings, we expect to become an even more valued supplier to our customers as they advance their therapies towards commercialization. Needless to say, along with many others in the life sciences, we found ourselves confronting a challenging and dynamic market environment in Q3. I'm proud to note, we continued to deliver against our operational plan during the quarter and successfully managed our expenses. Our total employee count at the end of the third quarter was 216 associates, reduced from our high of more than 300 last year. I am very grateful for the effort of our past and present employees who worked tirelessly to put us in a position for success going forward.In the near term, we continue to see emerging biotech, historically one of our larger growth segments, focused on conserving capital by delaying, reducing or canceling clinical trials. That said, we have seen an increase in the total number of clinical customers purchasing from us annually. Combined with our recent audit qualifications and new product launches, we are cautiously optimistic as we look into 2024.As we turn to our revenue outlook for the remainder of 2023, we expect the market conditions we observed in Q3 to persist, and therefore expect to finish at the low end of our revenue guidance of $37 million to $40 million. Even so, we believe we will outperform our previously communicated free cash outflow target and now expect free cash outflow of less than $30 million for fiscal 2023.I will now hand the call over to Matt for a discussion of the financials.

[Matthew Lowell, executive]

Thanks, Stephen, and good afternoon, everyone.Starting with revenue. Total revenue was $8.2 million for the third quarter of 2023, a 24% decline from $10.7 million in the third quarter of 2022. Excluding 2 large non-biotech customer deliveries in the third quarter of 2022, underlying growth was approximately 5%.Lab Essentials products are targeted at the research use only, or RUO market, and include both catalog and custom products. Lab Essentials revenue was $7.3 million in the third quarter of 2023, a 23% decrease from $9.5 million in the third quarter of 2022. The decline was attributable to a lower number of customers, and to a lesser extent, lower average revenue per customer. Excluding 2 large customer deliveries in the third quarter of 2022, Lab Essentials revenue grew approximately 11%.Clinical Solutions products are made according to good manufacturing practices, or GMP, quality standards and are used by our revenue -- our customers primarily as components or inputs in the development and manufacture of diagnostic and therapeutic products. Clinical Solutions revenue was $0.6 million in the third quarter, a 35% decline from $0.9 million in the third quarter of 2022. The decline in Clinical Solutions revenue was attributable to lower average revenue per customer, partially offset by a higher number of customers. We expect revenue per customer to increase over time as they ramp up their purchase volumes. However, this metric can be affected by the mix of newer clinical customers who typically order less. Just as a reminder, due to the larger average orders in Clinical Solutions compared to Lab Essentials, there can be quarter-to-quarter revenue lumpiness in this category.On to the income statement. Gross profit for the third quarter of 2023 was $1.5 million compared to $4.8 million in the third quarter of 2022. Gross margin was 18.0% of revenue in the third quarter of 2023, which is down from 44.6% of revenue in the third quarter of 2022. The decrease in gross profit percentage was primarily driven by the decrease in revenue and the associated lower absorption of fixed manufacturing costs, and to a lesser extent, increased overhead costs, which were partially offset by reduced headcount.Operating expenses for the third quarter of 2023 were $10.2 million compared to $27.7 million for the third quarter of 2022. Excluding the non-recurring, non-cash charges of $0.4 million in the third quarter of 2023 related to the write-off of ATM facility offering costs and the $16.6 million goodwill impairment charge recorded in the third quarter of 2022, operating expenses were down $1.3 million in the third quarter of 2023 compared to the third quarter 2022. The decrease was primarily driven by reduced headcount and spending primarily in professional fees.During the third quarter, we raised $22.9 million of capital through a registered direct offering and concurrent private placement, and we paid down $10.0 million of long-term debt. As a result, we wrote off ATM facility offering costs of $0.4 million because we do not expect to use this facility in the near term.Net loss for the third quarter of 2023 was $10.2 million, or $0.34 per diluted share, compared to a net loss of $22.5 million, or $0.80 per diluted share for the third quarter of 2022. The company recorded minimal non-current tax expense this quarter against its pre-tax losses due to increases in our valuation allowances against incremental net operating loss carryforwards.Adjusted EBITDA, a non-GAAP measure, was negative $5.5 million for the third quarter of 2023 compared to negative $4.6 million for the third quarter of 2022. The increase in the third quarter of 2023 was primarily driven by higher operating losses, excluding the non-recurring goodwill impairment charge recorded in the third quarter of 2022, somewhat offset by higher depreciation add-backs.On to cash flow and balance sheet. Capital expenditures for the third quarter of 2023 were $1.0 million compared to $6.6 million for the third quarter of 2022. This marks the fifth straight quarter of sequential decreases in capital expenditures. We have now completed the initial capital investment necessary to utilize our new manufacturing facility.Free cash flow, a non-GAAP measure that we define as cash used in operating activities, less purchases of property, plant and equipment, was negative $5.4 million for the third quarter of 2023 compared to negative $14.9 million for the third quarter of 2022. This decrease compared to the prior year period was due to both lower cash used in operating activities and a decrease in capital expenditures.Turning to the balance sheet. As of September 30, 2023, we had $32.1 million in cash and cash equivalents and $12.1 million in gross debt.And now on to our 2023 guidance and outlook. We now anticipate that fiscal year 2023 total revenue will be at the low end of our previously communicated range of $37 million to $40 million. We expect the challenging market conditions we have seen during 2023 to persist at least through year-end. On the other hand, we now anticipate free cash outflow to be less than $30 million for 2023 despite a revenue outlook significantly below where it started the year. The company continues to manage expenses aggressively while preserving the critical investments we believe will allow us to achieve our long-term growth targets.At the end of September, the company had 216 associates, down from 232 at the end of the second quarter of 2023 and 290 at the end of fiscal year 2022. The company posted operating expenses, excluding non-recurring charges, below $10 million for the second quarter in a row. To that end, we have taken a number of steps during the fiscal year aimed at reducing operating expenses, which have resulted in total annualized cost savings of more than $8 million compared to fourth quarter of 2022, excluding non-recurring charges.Similarly, the company saw a reduction in free cash outflow during the third quarter of 2023. This marks the fifth straight quarter of lower cash outflow and is consistent with the company's expectations for the year, despite our lower revenue outlook, as we anticipate operating expenses and capital expenditures to remain at lower levels. Based on our guidance, we expect less than $6.5 million in free cash outflow in the last quarter of 2023. We believe that we have already made the step-up investments needed to execute our growth strategy and believe there is significant margin expansion potential when top line growth resumes. We also strengthened our balance sheet with the additional capital raised in the third quarter.With that, I'll turn the call back over to Stephen.

[Stephen Gunstream, executive]

Thanks, Matt. Overall, we were pleased with our performance in the third quarter of 2023. The long-term outlook for our end markets is positive. We are committed to executing on our strategy to help our customers accelerate the introduction of novel therapies, diagnostics and other products that improve human health. We will now take your questions.

[Operator]

[Operator Instructions] Our first question comes from the line of Jacob Johnson with Stephens.

[Jacob Johnson, executive]

Maybe first, just on the macro and guidance. You're pointing to the lower end now. Is this just a function of kind of the persistence of the macro headwinds and a lack of improvement? Or are there any areas where you've seen headwinds intensify?

[Stephen Gunstream, executive]

Yes. Thanks, Jacob. I would say we're not seeing headwinds intensify. I think it's a persistence of improvement -- of a lack of improvement. Specifically, we actually have seen some orders slide out, but the good news there is we're actually seeing additional orders. So I think there's some positives here, but we are pretty cautious about it given the fact that this has been an extended period and there's lots of discussions. On the positive side, like I mentioned in the transcript there, we have an increase in clinical customers and just that the order dollar amount is lower. And then if you really look at our apples-to-apples comparison from a quarter-to-quarter perspective against last year, if you remove those orders which are non-biotech related, we did have a positive growth of 5% and 11% in Lab Essentials. And then like I said, we are starting to get a feel for that the orders are starting to potentially pick up. And then a lot of customers are saying, hey, we're ready in Q1 for some orders. But we are -- want to be very cautious about it, given the fact that even -- and they don't totally know their funding environment going forward.

[Jacob Johnson, executive]

Got it. And then maybe for the follow-up, just on the AAV buffer kits. It's good to see you continue to build out that offering. And I know it's kind of a screening opportunity to get you in the door with customers. And from kind of a revenue perspective, I think it's somewhat limited in the near term. But is there any way to quantify kind of the interest level in that, the number of customers who are asking for those kits? Or maybe just anecdotes about as you think about how traction of that offering is going?

[Stephen Gunstream, executive]

Yes. So yes, we're really happy with the team. I mean we have a team that's super efficient here and has done a great job developing products. That AEX buffer screening kit that you mentioned has been very popular, lots of conversations. A number of orders there from multiple companies in the AAV space. It's a combination of two things. One is do we have the serotype they're interested in. We talked about AAV9, which is of interest, and that one we're still working on. It's a very complicated one to purify, but we've had a number try it. And the goal here is not necessarily right away near-term revenue, as you mentioned. It's to get them into the right buffer and then have them scale up. So I can tell you, of the customers that have tried it, within about a month or so, one of our customers has actually now ordered for delivery probably next year, a larger scale of one of those buffers. So that kind of gives us the idea that this is actually working the way we want it to. And that will pay off, obviously, as they take those platforms, those new therapies down the pipeline.I also want to point out that we have the AEX buffer screening kit, but also a number of other products which we've launched that are catalog products for us that help complete the entire AAV manufacturing process end-to-end, including now plasmids, which we launched this last quarter. And then we are doing some work on reagents to help streamline and simplify the analytical side on empty/full ratios. This quarter, we'll be launching a product that sets up the workflow for digital PCR that we're seeing great results for internally. But then also externally, we've had a couple of customers give that as early access and they've given us some great feedback. So again, real happy with the progress we've made in developing that pipeline. But yes, these are things that it's about getting our customers into these products and then helping them get down that pipeline.

[Jacob Johnson, executive]

Got it. That's really helpful context. Thanks, Stephen.

[Stephen Gunstream, executive]

Thanks, Jacob.

[Operator]

Our next question comes from the line of Steven Mah with TD Cowen.

[Steven Mah, analyst]

Great. A question for you, Matt. On the gross margins, which were impacted by the absorption of the fixed cost of the new GMP facility, how should we think about when a gross margin low point will be hit? Or maybe this is the low point? And when do you think the gross margins are going to start inflecting and then starting to grow?

[Matthew Lowell, executive]

Yes. Thanks, Steve. Yes, the gross margins have been impacted here recently as we've added additional depreciation in particular from the -- bringing on the remainder of the facility in Q3 for GMP production. I would say that it's hard to say if we're actually at a low point. I mean, they're certainly possible it could be lower. But when we start seeing the revenue growth, we have a very high fixed cost ratio in our cost structure -- not just depreciation, but other costs -- which will allow that to leverage up pretty quickly. And maybe just as a reference point to think about what we saw in Q2, when we had a much higher quarter and more GMP revenue, we had quite significantly higher gross margins. But of course, we've added additional cost and depreciation since then. But I do think that once we see the revenue growth resuming, we'll see some pretty good leverage there.

[Steven Mah, analyst]

Okay. Got it. Okay. Yes. Yes, that makes sense. It's highly dependent on the product mix.

[Matthew Lowell, executive]

Yes. Mix and total volume.

[Steven Mah, analyst]

Yes. That makes sense. And then I just wanted to dig in a little bit more on the operating expenses. It's down significantly. You guys had a pretty significant reduction in force. Are there going to be any more cost cutting efforts, or do you think the company is now rightsized? And then should we think about the OpEx run rate going forward as this quarter, Q3? Or how should we think about that for the balance of the year and then also into 2024?

[Matthew Lowell, executive]

Yes. As it relates to operating expenses, as we mentioned in the remarks, we've worked really hard there during the course of the year to bring that down substantially, again, over $9 million in annualized savings on a run rate basis. So we're always looking to manage -- obviously manage, but reduce costs where we can. I would say we've done the lion's share of that through the rift that you mentioned earlier this year and other things that we've done since then. So I do expect a slightly downward trend on those as we move forward, but nothing as substantial as you've seen from the beginning of the year until now.So it's really important for us to make sure that we maintain the investments that we've made that we think are going to be key drivers of growth and be able to support that growth, which will come back. So we're being very careful to find the right balance of maintaining the investments while also taking out any excess costs that aren't needed for the short term. So that's kind of where we're at. And so I think the outlook is sort of flattish to slightly down, looking outward. And obviously, a lot is also going to depend on when the revenue comes back and how we think about costs in the future.

[Operator]

Our next question comes from the line of Matt Larew with William Blair.

[Matthew Larew, executive]

Thanks for the update on the customers who've been into your new GMP facility, and it sounds like they've done audits and have qualified the facility. You talked about sort of a full fall audit calendar. I'm just curious, as you're now kind of peeking into winter, at least for those of us in the Midwest, and into spring, sort of what the pipeline of audits look like. And then sort of beyond that, Stephen, you referenced sort of scaling into production with customers next year. Could you just maybe give us a sense, like are there break points along the way as they move from qualification to full production that either reflect the level of commitment to working with you or give you some higher level of certainty that sort of business is afoot? Anything sort of at least internally that you track?

[Stephen Gunstream, executive]

Yes. Great. So certainly in winter, we're starting to book audits into 2024 right now just based on requests and continue to build out that calendar. So it looks pretty good from that perspective. Obviously, the feedback has been really positive from the customers that have seen the facility. So the pipeline, I'm pretty happy with the work that the team in the field is doing, but also just our current customers going through there and being really excited about what we've built.Now for the next year production piece, right, and that is -- what you're alluding to is the timing from that qualification until really they start ramping with scale, and that is a delay. It's less so a delay for existing customers that have audited us before and have bought GMP-grade products from us than those that were converting from other companies. And there's -- for example, we have one that we've been working with that we've done a number of pilots with where we'll actually make their products in our facility, then we'll ship it to them, and then they will test it at very small batch sizes to make sure it's meeting what they need from their current supplier and comparing the two, and then start migrating. And we can then do an audit, and then we host them and we start planning a transition. And that period can be -- sometimes if they're an urgent need, it could be quick. But at this point in time with the current environment, they tend to be much more selective with timing of those things, and they take more of a 6- to 12-month time period. So that ramp-up can take some time when you are shifting from a new customer. And that's -- we've been doing quite a bit of that fairly recently. So that gives us a little bit of confidence as we move into 2024, particularly the back half.

[Matthew Larew, executive]

Okay. And then given you have the benefit of sort of going last year within earnings season, we've heard sort of two sides of the coin from companies throughout this earnings season about sequential improvement or not throughout the months in the third quarter and then October. And so just curious if you could sort of give a sense of the latest. We obviously saw the year-over-year declines and the sequential declines in revenue. But from an order perspective, just kind of curious what the more recent trends have been.

[Stephen Gunstream, executive]

Yes, I'm not -- I don't think we're in a position to say we're at the bottom. But I can tell you that it feels like we're at or near the bottom, for our perspective. Just the question is about how fast it ramps back up more than anything else. We have been -- I've been pretty encouraged by the orders recently. And like I said, for us, when I look at it, obviously I have a lot more insight than you get to on the customer perspective. But I know we had 2 really large orders last year that were very unique one-time orders outside of this biopharma space. When you take -- you remove those, you really start to see, hey, this underlying growth is there for Q3. And so to me, that is an actual financial metric of where we are.And I do think that the biotech funding has -- seems to have stabilized, right? And so -- and that is typically for us a 3-, 4-quarter leading indicator as we look through the data. So, starting to feel good about -- those are all positive signs, and then the conversations are also pretty positive. It's just it's really a question of seeing the timing of those orders and whether or not there'll be additional pushes out as we get into next year and how fast that ramps.

[Matthew Larew, executive]

Okay. And then sorry, just one more. I'm just trying to wrap my head around the gross margin. So having been out to the facility, I certainly can appreciate that there's more dollars and sophistication built into the new facility relative to legacy ones. Matt, is there anything different about any of the depreciation schedules or any of the accounting with respect to the new facility compared to the last facility, just we'd need to be aware of as we're thinking about building out depreciation going forward?

[Matthew Lowell, executive]

Yes, it's a good question. I would say that generally speaking, we have pretty long lives associated with these assets maybe on average compared to our legacy facilities because of the quality of the equipment and other improvements that we've made in this versus our other facilities. So the depreciation is spread out a bit longer on average than the others. And of course on the others, those have been depreciating for a while in some cases, so some of that's rolled off or will be rolling off. So if I had to make any high-level observations, those would be it.But I would also just say that we have been absorbing this depreciation into gross margins. And I think as we ramp up production with sellable products and making inventory out of that facility, we'll be able to absorb some of that more into inventory as well, but right now, it's been kind of directly hitting our margins. So we're getting the worst of it right now in terms of impact. But as I mentioned earlier, it's going to be the revenue growth coming back where we get that absorption that's really going to see those come back higher and where they used to be.

[Operator]

Our next question comes from the line of [ Anna Snopkowski ] with KeyBanc.

[Unknown Analyst]

This is Anna on for Paul Knight. My question is about revenue per customer. Do you still see a 1.4 increase in revenue in 2024? And if so, what would be the reason for that increase? Is it just customers moving towards commercialization, or what are you seeing with that?

[Matthew Lowell, executive]

Maybe just to make sure we clarify the question. You're asking if we are expecting to see average revenue per customer climb next year? Is that -- or did I misunderstand?

[Unknown Analyst]

No. Yes, that is my question.

[Matthew Lowell, executive]

Okay. Well, I would just say this. I mean, it's a little bit different for our Lab Essentials versus our Clinical Solutions, right? So as we ramp up the more -- the smaller part of our business, the Clinical Solutions business, there's going to be -- actually, revenue per customer may stay flat or go down. That's not necessarily a bad thing. It just means that we're bringing on more customers that are younger in their cycle. Maybe haven't gone through that clinical pipeline or just ramping up with us for whatever reason. So I wouldn't expect necessarily to see higher revenue per customer on the Clinical Solutions side.On the Lab Essentials side, we have been seeing strong trends there in terms of average revenue per customer going upwards. In this particular quarter, we did have a year-on-year decrease in that metric, as I mentioned in the remarks. And that was not because we're not seeing good increase in customer -- average customer volumes. It was due to the fact that last year, we had 2 very large orders shipped, which skewed the average revenue per customer metrics. So it's a little bit of a technical answer there. But we have, in general, been seeing pretty steady increases in average revenue per customer on the Lab Essentials side and are certainly expecting that going forward, depending on the rate at which depends on the health of the overall market and when a more normalized revenue ordering or order patterns return next year. It will be dependent on that.

[Operator]

Our next question comes from the line of Mark Massaro with BTIG.

[Unknown Analyst]

This is [ Vivian ] on for Mark. Just on the narrowing of the guide, you're assuming that the current funding environment continues. Can you just remind us what percentage of your customer base you feel you have visibility on? And just how would you characterize your customer base as far as the percentage of smaller emerging biopharma?

[Stephen Gunstream, executive]

Okay. So I think the question is around what percent of our -- what visibility we have, and particularly you're interested in the biopharma side. Is that accurate?

[Unknown Analyst]

Yes.

[Stephen Gunstream, executive]

Okay. So we don't typically disclose the exact percentage of the biopharma. I could say that generally, biopharma is probably about half of it, of which half of that is emerging biotech, let's just say, put it in that ballpark, right? And we have seen a significant decline there. There's two pieces out this that make me confident. One is, obviously that's related to the funding. We can see that directly. The other piece is that we have the rest of our business, which actually is growing quite nicely. So as this stabilizes, that's why we're pretty confident about where we sit long term as we onboard these customers.

[Unknown Analyst]

Okay. Perfect. And then just to dig into OpEx a little bit more. Can you guys discuss how you're thinking about cash utilization after the financing and just what you're prioritizing as areas of investment maybe on the commercial or versus where you might look to pull back?

[Matthew Lowell, executive]

Let me take a stab at that one. So in terms of OpEx, as we discussed a little bit, right now we're -- we feel comfortable with the investments that we've made. You highlighted one area, which is in the commercial side and the team that we've built there and the other investments that we've made, branding, website, et cetera. And then we've also been spending in OpEx on our new product development team, and Stephen alluded to some of the product launches that we have made and plan to make there. So we're continuing to invest as we see those as critical for building awareness and relationships with companies in our target market. So we're not pulling back anywhere there.We have over the course of this year, as I mentioned, with the over $9 million in annualized savings, we have reduced in many different areas where we there was opportunity to do so or there were capabilities that might not be needed to execute on the near-term priorities. So that's where we've -- and obviously, that's in areas of G&A, in some cases in the manufacturing itself, and also sprinkled throughout the organization, engineering and some other areas. So those are the tough decisions that we've had to make and we continue to make. As I said, we are not expecting dramatic reductions in OpEx going forward in order to preserve those investments, but we feel confident that we're making the right decisions there.

[Operator]

Thank you. I am showing no further questions in the queue. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

[Stephen Gunstream, executive]

Thank you.

[Matthew Lowell, executive]

Thank you.