CryoLife's (CRY) CEO Pat Mackin on Q1 2016 Results - Earnings Call Transcript

| About: CryoLife, Inc. (CRY)

CryoLife, Inc. (NYSE:CRY)

Q1 2016 Earnings Conference Call

April 28, 2016, 08:00 ET

Executives

Pat Mackin - Chairman, President & CEO

Ashley Lee - EVP, COO & CFO

Analysts

Jeffrey Cohen - Ladenburg Thalmann

Jeff Chu - Canaccord Genuity

Joe Munda - First Analysis Securities

Operator

Welcome to the CryoLife First Quarter 2016 Financial Conference Call. [Operator Instructions]. It's now my pleasure to introduce your host, Mr. Pat Mackin, President and CEO and Mr. Ashley Lee, Executive Vice President, CO and CFO at CryoLife. Thank you, gentlemen. You may begin.

Ashley Lee

Good morning and thanks for joining the call. I'm Ashley Lee, the CFO at CryoLife. Before we begin, I would like to make the following statements to comply with the Safe Harbor requirements of the Private Securities and Litigation Reform Act of 1995. Comments made in this call that look forward in time involve risks and uncertainties and are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The forward-looking statements include statements made as to the Company's or management's intentions, hopes, beliefs, expectations or predictions of the future.

These forward-looking statements are subject to a number of risks, uncertainties, estimates and assumptions that may cause actual results to differ materially from current expectations. Additional information concerning risks and uncertainties that may impact these forward-looking statements is contained from time to time in the Company's SEC filings and in the press release that was issued last night.

Now I will turn it over to our CEO, Pat Mackin.

Pat Mackin

Thanks, Ashley and good morning everyone. I'm very pleased to report that we had a strong start to 2016 which was no easy feat given the many moving parts in the first quarter. We successfully closed the acquisition of On-X Life Technologies and began the integration efforts. We combined three sales teams in the U.S. We went direct in five markets with the On-X product line in Europe. We divested two non-core product lines and put CryoLife on a path toward enhancing revenue growth and expanding our margin. Further, just after the close, we closed on the acquisition of PhotoFix.

On today's call, I will be providing an update on the strategic initiatives for 2016 that I laid out at our yearend 2015 conference call in February. Following my comments, Ashley will provide a detailed review of our first quarter financial results. I will conclude with my closing remarks before opening the call for Q&A. As you may recall, our first key initiative for 2016 is achieving our full year revenue and EPS guidance. We got off to a solid start on this front with total revenues of $43 million for the first quarter. This is 27% increase year-over-year as reported and a 9% on a pro forma basis accounting for the On-X acquisition and HeRO and ProCol divestitures.

On a GAAP basis, gross margin for the quarter was 64%, slightly ahead of our expectations. And on the bottom line, we delivered adjusted EPS of $0.10. Our second key initiative for 2016 is realizing the potential for the On-X business with a goal of delivering double digit percent or higher compounded annual growth over the next five years. As I mentioned, we reported $6.7 million of On-X revenue in the first quarter and the business delivered $8.3 million for the full quarter on a pro forma basis which includes the first 20 days of January prior to the acquisition closing. This represents a growth of 7% year-over-year which we believe is a positive result given the level of disruption in our direct and in particular our distributor channels during the quarter due to the acquisition integration. It is early, but we believe this demonstrates the strong execution of our sales team, the strength of the On-X clinical data and utility of those products.

As I said, the On-X integration has gone very well. During the first quarter, we successfully combined three sales organizations in the United States, the CryoLife cardiac team, the CryoLife vascular team and the On-X team, into a single, focused group on cardiac surgery. As a result, we effectively doubled the size of our direct cardiac surgery sales force to 51 reps and now have full coverage in the United States. We also terminated relationships with three On-X stocking distributors in the U.S. which led to some disruption in the market that we serve as we introduced new sales reps.

By the end of the second quarter, we expect to be selling directly to all U.S. customers previously served by distributors. With our sales team in place, we completed a realignment of our territories to provide coverage for the markets previously covered through distributors and to eliminate overlaps between historic territories of CryoLife and On-X sales reps. The new territories are approximately one-third the size of our prior territories which should give you some sense of the potential for improved sales force productivity just from less travel. And then, when you layer on top of this the expanded and more focused product line, we believe there's tremendous opportunity.

In Q1, we held two sales meetings focused on On-X and CryoLife products and we're very encouraged by the sales team's enthusiasm and buy in toward the new strategy. Our cardiac surgery reps are now actively engaging customers with our full product portfolio and we're very pleased with the early results and feedback from our customers. In Europe, we terminated relationships with six legacy On-X distributors shortly after closing the acquisition. This had an anticipated negative impact on European On-X revenue in the quarter as we work to train our direct reps and to ramp up selling on the On-X portfolio through our existing direct sale force.

Prior to the acquisition, On-X had no direct sales activity in Europe and we now have 25 CryoLife direct reps promoting our On-X product line, so we feel we're in a good position to drive adoption of On-X, cross sell the full portfolio and build momentum in the market. In fact, the more experience we have with the On-X portfolio, the more enthusiastic we become about the potential for it. I want to share with you a few of my interactions with cardiac surgeons since we closed on the On-X deal because I think it provides meaningful insight into why we're so excited about it. In February I attended a meeting of 50 cardiac surgeons and was given the opportunity to present the On-X clinical data and conduct some informal market research.

I presented the PROACT clinical trial results that showed only patients with the On-X valve can reduce their INR from the current standard of care which is 2.0 to 2.5, down to 1.5 to 2.0. The results show that you can get a 65% reduction in bleeding complications with no increased risk of thromboembolic events. After the presentation, I then asked surgeons, based on these results, whether they would replace their current mechanical valve with the On-X valve and 83% responded favorably. This once again reinforces the tremendous competitive advantage of the On-X valve as the only mechanical valve in the market with FDA approval for a lower INR. It also presents us with a great opportunity to get this message out to surgeons which we're now doing with our 50-person direct sales force in the U.S. and our 25-person direct sales force in Europe.

Our third key initiative for 2016 is driving efficiency in our tissue processing business. Tissue revenues were up 11% in the quarter, reflecting the continued high demand for our tissues and improved efficiencies in our tissue processing to meet this demand. In the first quarter we experienced significant growth in our vascular tissue, despite the transition of our sales team to be more focused on cardiac surgery. This demonstrates the stickiness of our vascular tissue products and provides early evidence that our sales reps should be able to continue support in both cardiac surgery and vascular tissue.

On the margin front, tissue gross margin also remains strong at 48% as we continue to benefit from the tissue processing improvements we implemented during 2015. Our fourth key initiative in 2016 is to continue to grow BioGlue in the U.S. and in international markets. Total BioGlue revenue was up 9% for the quarter. This increase was primarily driven by transition to a drug sales force in France in October of 2015, where we benefited from direct market pricing and a newly dedicated sales force.

Looking forward, we expect international BioGlue sales to continue to gain from our transition in France, as well as in Japan, with our recently expanded indication. While distributor sales in Japan have not yet fully reflected the impact from the new indication, Japan BioGlue unit growth has been strong double digit since we launched this new indication mid last year. In the U.S. we expect BioGlue sales to benefit as our expanded cardiac sales team gains momentum in the market and capitalizes on cross selling opportunities. Our fifth key initiative in 2016 is investing in clinical programs focused on gaining regulatory approvals that will significantly expand our future market opportunities. In the U.S. this includes the PerClot IDE trial.

In February we had a positive meeting with the FDA regarding changes to the PerClot trial and to support more rapid enrollment and a more robust collection of clinical data. We're now in the process of working with the FDA to revise the trial protocol and expect to be able to resume enrolling patients in the trial the second half of the year. Outside the U.S., we're making excellent progress with our clinical trial activity to gain China FDA approval for BioGlue. Our last key initiative for 2016 is continued business development activity. With the On-X acquisition, we now have a synergistic portfolio of well-regarded cardiac surgery products and a large experienced sales team to address the market. We further focus a team on cardiac surgery with the divestiture of the HeRO graft and ProCol product lines during the quarter.

While we think both products have compelling clinical value, these divestitures were advantages for CryoLife as these product lines did not fit well with our strategic focus. Also on the business development front, we recently exercised our purchase option for PhotoFix, solidifying our product portfolio and providing a clear pathway to improved margin of this product once we transition to internal manufacturing in about 18 months. So there's been a very active start to the year in terms of business development and while we still have some work left to do with On-X integration, we continue to be active in evaluating additional business development opportunities to enhance our focus on cardiac surgery.

I will now turn the call over to Ashley for a detailed review of our first quarter 2016 financial results.

Ashley Lee

Thanks, Pat. This morning we reported our results for the first quarter of 2016. Compared to the first quarter of the prior year, total company revenues increased 27% to $43 million. This was primarily driven by the acquisition of On-X. On a pro forma basis, revenues increased 9% compared to the first quarter of last year. The pro forma revenue increase was primarily driven by the improved performance in our vascular tissue business, BioGlue, On-X and PhotoFix.

On a geographical basis, North American revenues which includes the United States and Canada, were $32.9 million, up 19% year-over-year driven largely by the acquisition of On-X. On a pro forma basis, North American revenues increased 8%, primarily driven by increases in vascular tissue revenues, On-X and PhotoFix. Revenues from our European region were $6.8 million, up 68% year-over-year, primarily as a result of the acquisition of On-X and commencements of our direct sales operation in France in October 2015.

On a pro forma basis, revenues from this region increased 16%, driven primarily by an increase in BioGlue revenue. And finally, revenues from Asia-Pacific and Latin America were $3.4 million, up 55% year-over-year primarily as a result of the acquisition of On-X. On a pro forma basis, revenues from this region increased 3% year-over-year. I would like to spend some time focusing on individual product lines and specifically on On-X tissue processing and Bio-Glue which combined account for about 90% of our total revenues. As Pat mentioned earlier, we've made significant progress in our tissue processing business where both revenues and gross margins are improving.

In total, tissue processing revenues increased 11% for the quarter compared to the prior year. Vascular revenues increased 23% year-over-year on an 8% increase in unit shipments. Cardiac revenues decreased 4% year-over-year on a 4% decrease in unit shipments. We've implemented programs over the last three to six months that we believe have positioned the cardiac tissue program for year-over-year growth for the full year. These programs were primarily focused on increasing the supply of high-demand valves and we're starting to see signs of improvement there.

BioGlue revenues in the first quarter increased 9% year-over-year to $15.3 million. North American BioGlue revenues were $9 million which was an increase of 1% year-over-year. Though U.S. Bio-Glue revenues increased 23% year-over-year to $6.2 million, the primary driver of the O-U.S. increase was our direct sales effort in France where we recorded $1.2 million in BioGlue revenue in the first quarter. On-X revenues for the quarter were $6.7 million. On a pro forma basis, On-X revenues for the first quarter were $8.3 million. This includes $1.6 million in revenues in January prior to the close of the On-X acquisition. Pro forma first quarter revenues increased $561,000 or 7% compared to the first quarter of 2015 On-X revenues of $7.8 million.

We were very pleased with this performance considering the channel disruption that Pat mentioned earlier in his comments. North American On-X revenues were $4 million. On a pro forma basis, North American On-X revenues were $5.1 million which represented an 18% year-over-year increase. O-U.S. On-X revenues were $2.8 million. On a pro forma basis, O-U.S. On-X revenues were $3.2 million which represented a 6% year-over-year decrease. The O-U.S. decrease was likely due to demand disruption as we went direct in five O-U.S. markets.

Moving on, our overall gross margins for the quarter were 64%. This was ahead of our full year guidance of 63%. If you exclude the $565,000 write up of acquired ON-X inventory that is included in cost of goods sold, gross margins would have been 66%. Regarding On-X, gross margins for the first quarter were 56% and excluding the $565,000 mentioned above, gross margins on On-X sales were approximately 64%. We estimate that the remaining On-X inventory step up that will be amortized into cost of goods sold over the balance of the year to be around $2.5 million. In addition to the inventory basis step up, we have purchased inventory from former international and domestic distributors that were recently terminated. The unit cost of that purchased inventory is higher than the unit cost to manufacture valves.

The current aggregate incremental carrying value of that inventory which is approximately $700,000, will eventually run through cost of goods sold beginning late this year or early next year. Tissue processing gross margins improved to 48% for the quarter compared to 37% in the prior year and 48% for the fourth quarter of last year. This is a result of the efforts in late 2014 and during 2015 to improve efficiency in the tissue processing lab. SG&A expenses during the quarter were $26.3 million, including approximately $5.6 million in transaction and integration related cost.

The transaction and integration costs include approximately $2.3 million in costs associated with distributor terminations, $2.3 million in M&A cost, including professional fees and $1 million in severance costs, including change of control payments to former On-X executives. Excluding these items, SG&A expense for the quarter was $20.7 million. Over the balance of the year, we expect to incur between $1.5 million and $2 million more in integration related cost, with the bulk of those occurring during the second quarter and gradually decreasing over the balance of the year. These costs primarily include salaries and severance costs and other integration related costs. Also included as an operating item was the divestiture of the HeRO product line and the ProCol distribution rights and related assets. The combined pretax gain related to these two transactions was approximately $7.9 million.

Amortization charges were approximately $962,000 for the quarter. This includes approximately $409,000 in amortization related to the On-X acquisition. Going forward, we anticipate that total amortization expense which is included as an add back to arrive at non-GAAP income, will be approximately $1.1 million per quarter. Our tax rate for the first quarter was 58%. During the quarter we recorded $5.6 million in transaction related expenses, a portion of which are not immediately deductible for tax purposes. These expenses, along with some non-deductible transaction expenses from 2015, drove the tax rate up 14 percentage points during the quarter.

Additionally, we wrote off non-deductible goodwill as part of the HeRO And ProCol divestitures which drove the tax rate up by approximately four percentage points. Over the balance of the year, we expect our quarterly effective tax rate to range from the upper 30% to mid-40% range. On the bottom line, we reported non-GAAP net income of $3.2 million or $0.10 per fully diluted share for the first quarter of 2016 compared to a non-GAAP income of $230,000 or $0.01 per share in the first quarter of 2015.

Among other things, the non-GAAP income in the first quarter of 2016 excludes the $7.9 million gain related to the sales of the HeRO product line and ProCol distribution rights, business development and integration charges of $5.6 million, amortization expenses of $962,000 and On-X inventory basis step up of $565,000. In calculating pro forma income, a 38% pro forma income tax rate was applied to pretax income. A complete reconciliation of GAAP to non-GAAP income is included in the press release that we issued with morning. GAAP net income was $2.5 million or $0.08 per share in the first quarter of 2016, compared to a net loss of $274,000 or $0.01 per share in the first quarter of 2015.

As of April 25th, 2016, we had approximately $49 million in cash, cash equivalence and restricted securities. We had approximately $74.5 million outstanding on our senior credit facility and had our full $20 million revolving credit facility available to us. The interest rate on our credit facility is just under 4%. And now for our 2016 financial guidance. We're reiterating our 2016 full year guidance. Those details are outlined in the press release that we issued last night.

That concludes my comments and I'll turn it back over to Pat.

Pat Mackin

Thanks, Ashley. So as you've heard today, we're off to a very solid start for the year and remain confident in our strategy to grow the company. The company is on track towards delivering on all of our key initiatives for 2016. I previously discussed our senior management team and the key additions we've made over the last year. They have collectively brought with them a wealth of experience to CryoLife. They've been instrumental in development of our strategic initiatives. The investment to build such a knowledgeable team has been an important factor in our successful start to the year.

So to summarize, CryoLife is well-positioned. We've built a critical mass of competitive products supported by an experienced sales team. We have a compelling new product opportunity with On-X and finally we have clear goals and objectives that strive to make CryoLife a higher growth and more profitable company with a leadership position in the cardiac surgery market.

Last, I continue to remind all of our employees that our products help people each and every day across the globe and thank you for making the quarter a successful one. With that, we will now open the lines for questions. Operator, please proceed.

Question-and-Answer Session

Operator

[Operator Instructions]. The first question is from Jeffrey Cohen from Ladenburg Thalmann. Please go ahead.

Jeffrey Cohen

So I'll get a couple quick ones in. So can you clarify as far as HeRO and ProCol, any ramifications on the income statement for Q2 and forward or are they both zeros for Q2 and forward?

Ashley Lee

No, we expect to have an additional approximate $1 million related to HeRO and that's really just you know contract manufacturing for Merit while they move that operation to their facility in Utah. Other than that, that's it.

Jeffrey Cohen

Okay. So $1 million HeRO revenue for the second quarter?

Ashley Lee

That's correct.

Jeffrey Cohen

Okay, ProCol is zero for Q2 and forward?

Ashley Lee

Right.

Jeffrey Cohen

And Pat, could you review the footprint now with the combined sales force altogether? You said 50 or 51 U.S. direct reps for cardiac, vascular, On-X altogether and 25 X-U.S.?

Pat Mackin

Yes, that's right. Fifty-one, we have 51 territories right now in the U.S. And as I commented, that was a combination of the CryoLife cardiac surgery sales force, the CryoLife vascular surgery sales force and the On-X sales team here in the U.S. So that new combined entity is 51 territories. In Europe, there were no direct reps for On-X in Europe, so that's just the existing channel that we had with the most recent addition of the French team that we added kind of in the October timeframe. So that's about a 25-person team.

Jeffrey Cohen

And one more if I may. Could you call out and go into a little bit about the vascular tissue market? It seems like it's a steeper trajectory than we previously anticipated. Is that because of -- is that being demand driven or it's a function of a few of the aspects that Ashley reviewed, such as going direct in France?

Pat Mackin

Yes, so we don't sell tissue in Europe, so the French direct didn't have any impact on tissue. You know, one of the things I've been saying kind of over the last six to nine months is that there is a tremendous amount of demand for the homograft products, both in the heart valves and in vascular tissue. And one of the things our customers had been requesting for a long time is very long saphenous veins for -- they're doing these long revascularization procedures from the groin down to the ankle.

And our ability to -- all the improvements we've made in the TPL lab, in our procurement group, has really contributed to that. So we've got a tremendous amount of supply and we've been able to meet the demand and you know a 23% growth on vascular tissue was pretty impressive in the quarter, particularly given the cost improvements we've seen as well.

Jeffrey Cohen

Okay. Were there price increases in the first quarter?

Ashley Lee

We had some nominal price increases in the middle of last year, but not in the first quarter of this year.

Operator

The next question is from Jason Mills from Canaccord Genuity. Please go ahead.

Jeff Chu

This is actually Jeff Chu filling in for Jason. Pat, I was hoping you could comment briefly on your sales force productivity. I understand there's a lot of moving pieces here, but I'm just curious on what type of target level have you set for your team over the next several years and how do you see that trending through the balance of this year?

Pat Mackin

Yes, so I mean again, as we commented in the comments that were just provided, I mean there was a lot going on in the first quarter. I mean to acquire a company and to merge three sales forces, depending on where the sales rep came from, whether they're, so for example, a CryoLife cardiac rep to transition to selling aortic mechanical valves was not very steep. They've been selling aortic homografts for years. So we had significant training. We had two different training sessions. We've had multiple different kind of, you know, webexes at night. For example, the vascular team who has been previously associated with the vascular surgeon had what I call a steeper learning curve.

So I mean to me this has been, you know the first quarter we combined three sales forces. They've got their new territories. They've got their new comp plans. And we're now kind of, as we commented, just getting rid of some of these remaining distributors. In the second quarter we'll have full access to the U.S. market and the same in six countries in Europe. Now, this is going to kind of go in phases. We're going to, as we move through the integration, we're now aggressively going to be focusing on opening new accounts and taking market share.

So that's really going to be the focus going forward. And I mean we've stated our objectives for this team which is, you know we're expecting double digit On-X revenue over the five years on a compounded basis, so that's how we're going to measure them.

Jeff Chu

And in terms of gross margin, I was wondering if you could calibrate our expectations going forward. How should we think about the cadence as you move through this year and next and what are some of the headwinds or tailwinds that you expect?

Pat Mackin

Yes, and maybe Ashley can chime in at the end here. I mean so you see in the comments where you know we reported 64% gross margin against kind of a stated guidance of 63%. When you adjust for the purchase accounting that goes along with the On-X transaction, that will flow through our P&L, you know through the rest of this year. And if that step up did not happen, we'd be a more of 66% gross margin. If you think about multiple different factors here, number one, you know the On-X product line, when it's direct, carries about a 90% gross margin in the U.S.

So as we're successful in opening new accounts in the U.S. with On-X, that should drive our margin. Going direct with On-X in Europe is going to drive our gross margin. And as we kind of bleed through that purchase account, that's going to drive the margin. So yes, I think as all those things kind of come through as we go into 2017, I would expect our margin to be looking even stronger.

Operator

[Operator Instructions]. The next question is from Joe Munda from. First Analysis Securities. Please go ahead.

Joe Munda

Pat, I just want to touch on a comment, a few comments you made on the product side. You talked about increasing supply of high demand cardiac tissue. A, can you kind of walk us through how you do that? And B, can you talk about supply in general as far as donor tissue is concerned?

Pat Mackin

Yes, so I mean I think one of the things we've, you know over the last year we've talked about, we had a bottleneck in our tissue processing facility and we actually had to stop procurement groups from even sending us any tissue because we couldn't process it. We've, you know the leadership team here and the people in that area have done a fantastic job in really turning around the kind of productivity. So not only are we not accepting new tissue, we've actually gone out and aggressively pursued new procurement groups.

So we've had capacity and we continue to be aggressive on bringing on new groups. So I think that's really the key here is that we've shown what we can do on the vascular side when we get the procurement and kind of the throughput on the yields and we're now heavily focused on the cardiac side to make sure we're getting the aortic and pulmonary valves. And that's going to, again is going to be a big focus of ours going into -- as we go through the rest of the year.

Joe Munda

How much excess capacity do you think you have as far as the tissue process?

Pat Mackin

I mean it varies. I mean we track it pretty closely, but I mean we probably have a 15% capacity on any given day. Sometimes it's at 100%, but we flex. You can't really control when it comes in, so we have to be able to flex the model. Sometimes you may run at 110%, sometimes you might run at 75%, but we've got capacity and that's the important point.

Joe Munda

Okay. Just two quick other ones here. PhotoFix, you talked about internal manufacturing about 18 months. Are there any costs associated with that or is the infrastructure in place already?

Pat Mackin

There will be some capital expenses.

Ashley Lee

Yes, I think the total capital to get that up and running is going to be less than $1 million.

Pat Mackin

And then just the operating costs which I don't think is significant to basically move the manufacturing from Denver to Atlanta.

Ashley Lee

And we're going to fit it into our existing footprint here at our corporate headquarters.

Joe Munda

And I guess, Pat, last question for you. How long do you think it will take to be fully integrated and have everything up and running the way you want it to be up and running with On-X and the movement around here of the distributors? Just to give us a sense of time.

Pat Mackin

Yes, to be honest, I mean I'm actually pleasantly surprised about how well the organization executed with everything that was going on in the first quarter. Not that it isn't a great team, it's just it was a lot. When you add up the acquiring On-X, divesting HeRO, divesting ProCol, exercising the acquisition right on PhotoFix, merging three sales forces in the U.S., shutting off distributors in the U.S., going direct in six countries in Europe, I mean it was a lot.

And so, you know, May 1st which is coming up, we're going to have pretty much full access in Europe, except for Switzerland. I think Switzerland doesn't go live until June. But we're direct and selling right now to all of our distributors in those five countries in Europe with our dedicated team. In the U.S., over the next week or two, we will have access to all of those stocking distributor accounts.

So our field team by kind of mid-May is going to have access to all of our direct markets which is well ahead of where we thought we were going to be. And I think each kind of month and quarter that goes by, the team will strengthen. We'll continue to train. We'll continue to be aggressive in targeting accounts. So I mean I think every quarter that goes by, we can expect to be stronger.

Joe Munda

Okay. And if I may, one quick follow-up. As far as being a cardiac focused business, as far as vascular tissue is concerned, any chance of a divestiture there or is that a key piece of keeping cardiac and vascular together?

Pat Mackin

No. I mean one of the things about the vascular tissue, I mean we're in the major heart centers and in fact we have several cardiac surgeons that use vascular tissue. So it's not a huge stretch. I mean it's not like selling, you know, something to an E&T surgeon, I mean where you're in a totally different part of the hospital, a totally different procedure. So the vascular tissue is not very far away from what we do on the cardiac side and we think it's a very strong product line, as we've just showed with the growth and the margin improvement. So we don't have any plans in the near term for that.

Operator

There are no more questions at this time. I will like to turn the floor back over to the management for closing comments.

Pat Mackin

Well again, thanks everybody for joining the call. And you know, we were very pleased with the first quarter and we're committed to delivering the guidance. And I feel like we're very well positioned, as I just said, particularly on the channel side and we're going to be aggressive in going after accounts. So we look forward to updating you with our progress in the next quarter. Thanks for joining.

Operator

This concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participating.

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