UCB's (UCBJF) CEO Jean-Christophe Tellier on Q2 2016 Results - Earnings Call Transcript

| About: UCB S.A. (UCBJF)

UCB S.A. (OTCPK:UCBJF) Q2 2016 Earnings Conference Call July 28, 2016 8:00 AM ET

Executives

Antje Witte – Head-Investor Relations

Jean-Christophe Tellier – Chief Executive Officer

Detlef Thielgen – Chief Financial Officer

Jeff Wren – Head-Neurology

Iris Loew-Friedrich – Chief Medical Officer

Emmanuel Caeymaex – Head-Immunology

Analysts

Nicolas Guyon-Gellin - Morgan Stanley

Richard Vosser - JPMorgan

Peter Verdult - Citi

Peter Welford - Jeffries

Trung Huynh - Credit Suisse

Kerry Holford - Exane BNP Paribas

Operator

Operator Ladies and gentlemen, welcome to the UCB 2016 Half Year Financial Results Conference Call. I’m pleased to present Ms. Antje Witte, Head of Investor Relations, who will be the moderator of this conference. Mr. Jean-Christophe Tellier, CEO; and Detlef Thielgen, CFO. [Operator Instructions]

I’ll now hand over to Antje Witte. Please go ahead.

Antje Witte

Thank you very much. Also from my side a good afternoon and good morning for those in the United States. Welcome to our half-year results conference call. As mentioned Jean-Christophe Tellier, our CEO, and Detlef Thielgen, our CFO will give you a brief overview of our achievements in 2016 and the financials. This will be followed by a Q&A session, where Jean-Christophe and Detlef will be completed by Emmanuel Caeymaex, Head of Immunology; Jeff Wren, Head of Neurology; and of course, last but not least Iris Loew-Friedrich, our Chief Medical Officer to answer your questions.

The upcoming brief presentation is under a disclaimer and safe-harbor statement, which you can see here. I’m happy to hand over to Jean-Christophe now.

Jean-Christophe Tellier

Thank you, Antje. Good morning, good afternoon. It’s our pleasure to be with you and thank you for joining us for this presentation about our results and we are pleased to share with you our first half year results, where UCB is continuing to progress and to deliver on its growth strategy in 2016. When you look at our overall results, these results are built first on the strong growth of our core products.

You see here the combined net sales of Cimzia, Vimpat and Neupro who have reached EUR1.1 billion, growing more than 19%, which also the launch of Briviact in North America and in Europe with the finding of romosozumab in the US, following the positive outcome of the FRAME study. And with also a nice growing in our pipeline, with which now nine new molecular entities in clinical early Phases 1 and 2.

We also during the first half of the year continue our focus of our core therapeutic areas and divested areas and divested our nitrates. All of this positive outcome lead us to confirm our outlook for 2016 as well as our objective of reaching 30% of rEBITDA margin by 2018. So with this we’re preparing a promising future and also delivering good value for the patients and for the shareholders.

And now, I would like to handover to Detlef, to get more on the financial details of these results. Detlef?

Detlef Thielgen

Thank you very much, Jean-Christophe. I’m happy to give you a first view on the financials and I think you have seen that we had a strong first half of the year; our revenue going up by 5%, nice growth as expected driven by our core products. Operating expense, slightly down. Here, please keep in mind that as you have seen in other years there is a slight positive phasing that will probably go the other way in the second half of the year.

This leads to a quite significant EBITDA increase by 18% or 11% in constant rates for EUR549 million and also net profit of the Group was EUR316 million of which the EUR300 million are attributable to the UCB shareholders, and this is plus 12%, we are very happy to report. As a result of that core earnings are at EUR1.72, great improvement compared to last year, and well on track for our guidance.

If we take a look to our sales, this is even much nicer to look at with plus 10%, which gives you also an appreciation that some of our license – the royalty income is decreasing with some of the underlying products going generic. But what is more important is that all of our key products Cimzia, Vimpat and Neupro are growing significantly and Keppra is keeping up very well with strong growth in Japan and China.

We saw a bit of a dampening this half year on Keppra, but based on the comparison to last year, which was very strong, but that is another pattern that is structural, so we will see that somewhat mitigating over the coming months and probably throughout this year. In terms of the product mix, you see that we are now at roughly 80% of our products in our core focus areas.

Cimzia is still growing, as our biggest products, still growing very nicely in the U.S., especially on PsA and AS the newer indications. In Europe, we can report that there is a very modest impact and very indirect impact through the substitute biosimilars so we see that as, I would say, a validation of what we had been thinking before. And we see very nice growth in Japan.

Vimpat was plus 18%, shows also a very nice and robust growth across all markets. And you might have seen it just recently that we are now also approved in Japan and you know that we have filed in China as well as we are waiting for Europe for the mono indication. So there is also still potential for more to come on this very high positive level.

Keppra, I just elaborated on with minus 8%, a little decrease, but very well within our expectation. And I’m absolutely delighted to report that Briviact, while only EUR7 million of sales had a very good start in some markets in Europe and in North America. It was good marketing and very good feedback also from physicians.

Neupro and somewhat – I am myself surprised that product with nearly 10 years of maturity still growing that nicely, so we are very happy about that and really very, very nice to look at. Looking quickly also on our development and research products. Romosozumab, I think as this slide shows us very nicely, we have delivered the first important clinical studies, which has led to the submission through the U.S. FDA of the BLA just recently.

I wanted to highlight and that might be important for better understanding of the profile of the product that data will be presented at the ASBMR in September 2016 and then we expect the ARCH data in the first half of 2017. So we are very advanced in this program that we are doing together with Amgen to bring a potential important treatment option for osteoporosis to the market.

I am also very happy about the look of our pipeline. We have seen again in this half year that we made good progress, I’m getting close to my 10 years with UCB and this is the time of having the most products in early Phase 1 and 2, ever. We are very happy about that and we feel that there is good innovation within these products. The highlight for this half year was the start of the Phase 2b for the CD40 antibody.

Also the Phase 1b for APDS for our P13K inhibitor – protein inhibitor – sorry, getting a bit confused myself – and the results of the Phase 1 study that we had in asthma with our partner, Vectura. So all in all good progress here with a lot of data to be expected in 2016 and even more in 2017, so we’ll have lots to tell in the coming year. And for this year we feel very comfortable confirming our outlook for 2016 with the three parameters as mentioned, revenue EUR4 billion to EUR4.1 billion, EBITDA in terms of recurring EBITDA in EUR970 million to EUR1.10 billion and the core EPS of EUR2.90 to EUR3.20.

We feel that based on the results of the half year that is a realistic targets to keep, especially with the mentioning some of the phasing that we are expecting which is also based on some of the clinical studies starting in the second half year or having started at the end of the second quarter.

With that I would like to close out on this little presentation of the financial and the operational things in the first half year, and I think we are opening for questions.

Antje Witte

Yeah, thank you very much Jean-Christophe and Detlef. We may now open for the Q&A session.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] We have a question from Nicolas Guyon-Gellin from Morgan Stanley. Please go ahead. Mr. Guyon-Gellin, your line is open.

Nicolas Guyon-Gellin

Can you hear me?

Antje Witte

Yes, we hear you Nicolas.

Nicolas Guyon-Gellin

Yes, thank you very much. Thanks for taking my questions. So I have two actually. The first one is about R&D and for Detlef. So R&D was down in absolute term in H1, so correct me if I’m wrong but you clearly mentioned that it could be a little bit higher for the full year with a ratio in the 28% plus or minus 1 corridor, which implies a significant step up in H2. So are these comments still valid? Or is there a scenario in which R&D could go down in FY2016.

And second, around romo and the way the partnership with Amgen is structured. Have you made any decision with regards to the commercialization? I mean I’m not asking about the strategy or the positioning here, but rather about the technical details around geographic regions or target populations or physicians, and the way it may impact your P&L. And finally, on Vimpat, any idea about the splits between monotherapy versus adjunctive therapy in the U.S.? Thank you very much.

Jean-Christophe Tellier

Thank you. Detlef, you want to start with the…

Detlef Thielgen

Yes, I can start with the R&D costs. So Nicolas, it’s a good catch 28% plus 1, I think will not happen, but I would say at this moment in time if we have nothing unforeseen. So there is a possibility that we see in the 28% minus 1, but it will depend clearly on what progress we make with our studies and also whether we are bringing additional studies into the pipeline. So it’s a bit early to tell but I would say they will be going up substantially in the second half. So the percentage in itself, I’m a bit uncertain about at this moment.

Jean-Christophe Tellier

Thank you, Detlef. I may take the second one on the romosozumab. We are currently working with Amgen to look at that. You may remember that we have under the agreements territory needs, maybe for example, Amgen for the U.S. and us for Europe. But the detail of how we would operation on that is currently under discussion with them. Jeff, you want to mention and to look at the Vimpat, to answer the Vimpat case?

Jeff Wren

Absolutely, so looking at Vimpat in the U.S. on mono, it’s a prime focus for us, so right now we’re running between 22% and 24% of our total business looking at mono. Last year, at about this time, it was between 18% and 20%, so we continue to see growth in our mono indication.

Jean-Christophe Tellier

Thank you, Jeff.

Antje Witte

Can we have the next question please.

Operator

Our next question is from Richard Vosser from JPMorgan. Please go ahead.

Richard Vosser

Hi, thanks for taking my questions. First question, on the Vimpat patent case, just wondering when – if you could give us some more details when we might expect feedback from Judge Stark there. And if you could talk about your confidence in the patent given the further IPO challenge, that would be helpful. And second question on Vimpat, growth seems to have slowed a little bit, so perhaps you could talk about the market dynamics, what you’re seeing and whether there is a focus of the reps in the U.S. and Europe on the Briviact launch, and has that had any impact? Do you need to spend more I suppose in the second half or separate sales forces? And then final question, just if you could give your view on how you’re seeing M&A and the requirement of M&A to supplement the pipeline. Is this a strategy for the next few years or a strategy beyond them? Thanks very much.

Jean-Christophe Tellier

Thank you for your questions. I may quickly comment on the first one because it could be an easy one to answer in the sense that I don’t have any particular insight about the dates on the Vimpat litigation, it’s really fully in the hand of the judge but we are as confident as we were previously on the solidity of our patent. I may take the last one and then Jeff, I will hand over to you. You had seen the nice progress of our pipeline and I think it’s a good demonstration of two elements.

First is that, the focus on innovations and on quality is probably the key success factor in our therapeutic areas to find differentiated solution that help patients. And so when we look at where we are today, it’s more about how we can strengthen what we have either through partnership corroboration and continuing to connect with academics or biotech or other companies in order to strengthen what we have much more than merger and acquisitions.

We think that for us, with what we have, size is not the most important feature, yes, it’s more the ability for us to continue to strengthen the quality of what we have. Jeff, maybe you want to comment on the dynamic of the sales?

Jeff Wren

Absolutely, yes. Thank you Richard for the question. If you look at our sales overall, we’re growing at 18% constant rate. But if you look at the U.S. in particular from a volume perspective, from a fundamental perspective, we are growing at 22%. But if you do the quarter-over-quarter comparison, you will see that we’re only growing at 6% and that’s a little bit misleading because really we’re talking about puts and takes associated with rebates and accruals. And so just over the normal course of a year, increasing accruals, limiting rebate and how we focus on those is our fundamentals. So our fundamental growth rate, right now, you have this 22%, which is actually slightly higher than it was the year before. So we feel very confident that our message is resonating. We feel very confident that we have the right mix between a Briviact message and the way that fits into a Vimpat message. So once again, we’ll look at it over the course of the year, we’ll smooth itself out the 22% growth rate, that’s what we’ve seen year-to-date.

Jean-Christophe Tellier

Thank you, Jeff.

Antje Witte

Okay, thank you very much. Can we have the next question please?

Operator

Our next question is from Peter Verdult from Citi. Please go ahead.

Peter Verdult

Yes, good afternoon. Peter Verdult, Citi. Just two questions. So I have Jean Tellier on the call, so not sure if Iris is on the line as well but maybe it’s Iris with JC. On romo, when you speak to KOL’s they will note that no osteoporosis drug has ever shown, a non vertebra fracture benefit after just one year of treatment. So given ARCH, like FRAME, is only looking at romo over one year of use versus active control, can you just remind us or give us your perspective how we should interpret the ARCH data when we see it next year? And then secondly, one for Detlef, maybe a bit more duller, I apologize, but when we think about the royalty income and the other revenues given all the recent news flow and milestones, just on a medium to longer term view is the outlook shop down, flattish, can you give us some shape as to how you’re thinking about those lines? Thank you.

Jean-Christophe Tellier

Thank you, Peter. The question, Iris is there, so I will hand over to her for the answer to the first question.

Iris Loew-Friedrich

Yes, thank you very much, and good afternoon Peter. The line was not exactly good, so I’m not sure I heard your question well enough. If we are looking at the current results with romosozumab, consistent from Phase 2 and into Phase 3, I think you have captured very nicely the essence and this is a very rapid onset of efficacy with the unprecedented efficacy in terms of non-vertebral fracture risk reduction within 12 months.

And as you know, there is excellent efficacy also very tough on clinical fractures and other fracture types as well, although in FRAME not statistically significant due to a relatively healthy population and small event rates overall. We have had the data initially with the investigators and thought leaders and what I am telling you is confirmed in their percepture.

When we are trying to anticipate the ARCH data, then of course we are talking about a much more severely diseased patient population, so here in ARCH we will have patients with osteoporosis, some patients who have had severe osteoporotic fractures in advance. And as we all know, the risk of fractures in such a population is much higher than in a healthy osteoporosis population. A fracture that just happened indicates that the risk of an imminent fracture is very high.

And so the ARCH population is a more severe population, on top of that, the study is an event [indiscernible] and the primary variables and the primary outcome [indiscernible] fracture which is the classical end point in clinical fracture. So we are paying attention to the importance of clinical fractures because of course, these are the fractures that bring the patient to seek medical consultation or be in hospital.

So from my perspective, the ARCH results will route up the picture but we have our romosozumab with FRAME very good, very stark onset of efficacy in a relatively mild patient population; with ARCH we expect to see good efficacy in the very severe population. We have BRIDGE in the male patient population and we have struct-chart, where we have patients who have been pre-treated with [indiscernible] on bone mineral density as the primary end point.

So a round and solid picture, that will be completed with the ARCH data, and I think you also take the FRAME that we have submitted the FRAME data to the FDA within record time after we got the results, that is a very positive signal.

Jean-Christophe Tellier

On your question to royalty income, I think what you see for this half year is probably good run rate for the short term, we see that there is still a few products that will show decline and therefore royalty income will decline, we see some new royalty fees coming in but they need time to grow. So I think for the short term thing with the new run rate that we have established for this first half year is quite good.

In terms of other revenue, they have two things to say to that; first of all you cannot extrapolate this up for the second half of the year, some of that is deal driven, some of that are extraordinary things. And the second is that there is a lot of low profit numbers in there. So I would also caution to use this too extensively for profit calculation. So that we overall will be within our guidance that I think I was going to promise I would estimate. But usually we are not so bad on this.

Antje Witte

Can we have the next question please?

Operator

Our next question is from Peter Welford from Jeffries. Please go ahead.

Peter Welford

Hi, yes. Thanks for taking my questions, I have three. Firstly on Cimzia, I notice your comment at the start about biosimilars, but just wondered if you can talk specifically about what you are seeing in the Nordic regions for Cimzia. And also I noted on the slide it looks as if the European market share has flattened over the last few months, I appreciate it is very short term but is there anything in that that we should look into at all from an on the ground perspective?

And then secondly just on Briviact in the U.S., just wonder if that the – presumably the second detail of impact, but how about physician relative are your reps certifying; you mentioned you are getting good feedback on that. And then just thirdly on romosozumab, I guess for Iris, it was stalled in the U.S. on the basis of the FRAME data, presumably obviously the other data was also submitted to the FDA. I appreciate they didn’t require the BRIDGE trial, but is there any possibility of getting the BRIDGE male data in the U.S. or further study is required for that? Thank you.

Jean-Christophe Tellier

Thank you. Emmanuel, you want to start…

Emmanuel Caeymaex

Yes, certainly. Thank you for the question. First of all, with regards to the Nordic region, so what we see is markets that are increasingly driven by tendering agreements and things have still derived substantial business there. I think the exceptional discount rates that we’ve seen offered by some biosimilar players haven’t necessarily repeated themselves this year but clearly significant discounts are being offered to win the tender switch in the Nordic market. The payers are able to sort with pretty high level of control.

So therefore who wins the tender gets a majority of the new and switch patients. In terms of the European market share, I wouldn’t read too much into those data points there, I would certainly not say that they would relate to the behavior of biosimilar competition in those Nordic market.

Jean-Christophe Tellier

Thank you, Emmanuel. Jeff, you want to continue with Briviact - Vimpat…

Jeff Wren

Sure, yeah. Looking at in the U.S. especially how Briviact has done past the first half, the current trial has no influence on our launch, that’s first and foremost. So we continue to have a message for our physicians, which is the right product for the right patient at the right time. We feel that these products fit perfectly together, two different mechanisms of action, one has a mono-indication, which is our lead detail and Briviact is the perfect adjunctive add on therapy.

And so they really fit hand in glove, so it is a message that fits very well for our sales force and resonates with our physicians. It’s early days. Right now, we have data for about eight weeks, but overall anecdotally we are hearing that the patients, who need this product, are receiving it and they are receiving the value that we want them to receive, and that is to know quickly if this product works. Because remember, there is no titration for this product and it’s therapeutic dose on day one. So once again, right now, right now it is fitting very well together.

Jean-Christophe Tellier

Thank you, Jeff. Maybe Iris you can continue on the romo story.

Iris Loew-Friedrich

Yeah, thank you, Jean. Peter, thank you for the question. You are absolutely right, the BLA that we have just submitted is based on the FRAME study and of course we plan to submit the BRIDGE data in order to obtain a legal – osteoporosis as a supplemental BLA after the initial approval. The reason why we did not do it now is that the BRIDGE study technically is still ongoing to generate some long-term data; you have seen the top-line results, they won’t change.

But with our excitement about the FRAME data, we had our partner Amgen did not want to lose a single day to proceed with the BLA submission. So that’s the reason why they have not waited for BRIDGE. And as you know, BRIDGE will be an integral component of our Japanese submission because in Japan there is only osteoporosis claim, it is not split in a gender specific way, so the Japanese NDA that will go in later this year will include both FRAME and BRIDGE.

Antje Witte

Great, thank you. I see, we have one more question. So if you want to have further question, please dial accordingly. And if we could have the next question please.

Operator

Our next question is from Trung Huynh from Credit Suisse. Please go head.

Trung Huynh

Hi, Trung Huynh from Credit Suisse. I have a few Briviact questions and then a few modeling questions after that. Could you give us the feedback from the payers you are seeing in Europe and U.S. for Briviact and has there been much sampling of the product? And then modeling questions, the change in working capital this half was at EUR205 million, but in last year it was EUR46 million. What is the reason for this big change? And do you expect any further discontinued operations for this year? Thanks very much.

Jean-Christophe Tellier

Thank you. Jeff on Briviact and the payers’ feedback in Europe?

Jeff Wren

Sure, so we can start in Europe, so it’s a journey. And so if you look at Germany right now we’re receiving the reimbursement, but we’re going through the process. We’ve received positive reimbursement from the Scottish authorities, and right now it’s a journey and this takes time. Now, specifically, looking at the U.S., we’re tracking this very closely and once again it’s a journey and it takes time.

So we’re receiving our formulary approvals; some have a six months date so we have to work through the timeframe. We’re presenting our data and we’re seeing our reimbursement come through. But overall, I think we’re very pleased with the way the reimbursement is taking place so far. And once again, I think we have roughly around 4,500 patients that have already received our products for those in Europe or in the U.S. and so it’s a journey, but we are pleased with the progress and it really I think attests to the value of Briviact.

Jean-Christophe Tellier

Thank you, Jeff.

Detlef Thielgen

And in terms of the modeling questions I would not look too much on that half year number. As you know, there are usually ups and downs. If you would look back you would have seen that last year especially end of the year trade receivables were going down. We have strong sales and a good growth, so it is not unusual for them to go up, but we will see a leveling out throughout the year on this one. So, I would just go with normal modeling assumptions.

Inventory was up due to some different factors, one of them being that in some regions we have some changes that we do on the products and so we have in – are pre-producing to make sure that we have enough safety structure to more or less support the very nice growth that we have in these regions. And then it’s depending on some of the order pattern that we see in some of the emerging markets. So also here nothing that has a structural impact. It’s more temporary topics.

And I in terms of discontinued operations; this is always when we decide to sell something and at this moment in time we’re not having anything that is on hand, but we are always looking into these things. And it gives me a nice opening to say that you should keep in mind that we have sold a few assets and still shows this nice growth in our sales and revenue numbers. So we feel quite positive about this. But we’re not in a hurry. We like to get more focus on the core products over time, but we also like good prices for the assets, because these are good assets and if this fits together you might see something and if it doesn’t then we might not see something.

Jean-Christophe Tellier

Thank you, Detlef.

Trung Huynh

Thanks very much.

Antje Witte

Thank you. Can we have the next question please? Hello?

Operator

Yes, we have a question from Kerry Holford from Exane BNP Paribas. Please go ahead.

Kerry Holford

Thank you. I have three questions, please. So firstly looking at the disposal of the nitrates business earlier this year, are there any other products or preferably as you would say the non-core potentially divestment candidates? Secondly, on tax, you clearly given us guidance of high 20s for this year, but is that a reasonable guide to the longer-term tax rates for UCB? If you could throw your thoughts on that, please. And then thirdly, on the bimekizumab, can you remind me your thoughts here on why this will be differentiated versus the other anti-IL-17 on the markets. I know the mechanism is slightly different, but do you think that will confer a clinical difference given this is an increasingly competitive market? Thank you.

Jean-Christophe Tellier

Thank you. Detlef, can you take the first two and…

Jeff Wren

Yes. So in terms of what other business could be considered as non-core. I would say, if you follow just the established brands as an overall bucket that would be considered as non-core, but it is also sometimes very helpful in different countries or regions to have these products. So as I said, it is a value proposition that has to come out in the right way for us to let that go. In terms of the tax rate, I still would feel more comfortable for your modeling purposes, if you stay with the guidance that I have given in the high 20s, at this moment, because there is also differences between cash taxes and the accounted taxes and I feel that you are at this moment in time and when we get through a different moment in time I will be very be happy to let you know on more safe grounds with this high 20s number for your modeling.

Jean-Christophe Tellier

So, Emmanuel…

Emmanuel Caeymaex

Thank you for the question. Glad to have a question on bimekizumab. So indeed we presented the result of our Phase 1b study as you know very recently. This was a study in psoriatic arthritic patients. And it was also a study which we decided advocating study towards further investments in the assets. What was shown there in this placebo controlled study is that using a patient statistical design or test, that the ACR score, which is one of the important scores to look at in psoriatic arthritis patient was superior to what had been observed with TNF inhibitors and the available data on IL-17A products like Secukinumab for example from Novartis.

And this was very, very clear in this study and using this test. And so based on this we have decided to pursue the development of the product. Now, the scores also looked attractive and besides that there is, of course, also the opportunity to look for patients, who suffer from inflammatory diseases where interleukin 17f is clearly expressed. And additional opportunity try to improve the value of bimekizumab in learn phase experiment in those patients.

Kerry Holford

Could I ask a quick follow up. The Phase 2b that was started have you published what indications you’re going for within that Phase 2b framework?

Emmanuel Caeymaex

No, not yet. And we hope to be able to update you on those in the near future.

Kerry Holford

Thank you.

Antje Witte

Thank you very much. Do we have any further questions?

Operator

We have no further questions for the moment.

Antje Witte

So, thank you very much for the call. Anything else to ask give just two minutes, two seconds if somebody wants to raise a question, but if we have answered all your questions, thank you very much for listening in and otherwise follow up, you know where to find us. And please check out the new Investor Relations app of your city. Thank you. Bye-bye.

Operator

Ladies and gentlemen, this concludes today’s conference. Thank you all for your participation. You may now disconnect.

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