Q4 2019 Earnings Call
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Good day and welcome to the bio late 2019 fourth quarter and you're in financial results Conference call.
Today's conference is being recorded.
At this time I would like to turn the conference over to Todd currently.
Do you see group. Please go ahead.
Thank you operator, good afternoon, everyone and thank you for joining us today to discuss BIOLASE. His financial results for the 2019 fourth quarter ended December 31 2019.
On the call today from BIOLASE or Todd never be President and Chief Executive Officer, and Jon Lieber Executive Vice President and Chief Financial Officer.
Management will review the company's operating performance for the fourth quarter and full year before opening the call for questions.
Before we begin I'd like to remind everyone that a number of forward looking statements, which are statements that are not historical facts.
During this presentation, including forward looking statements regarding the company's strategic initiatives and financial performance.
These forward looking statements are based on BIOLASE. This current expectations and are subject to a variety of risks and uncertainties that could cause the company's actual results could differ materially from the statements contained in this presentation.
Such forward looking statements only represent the company's views as of today March 26 2020.
These risks are discussing the company's filings with Securities Exchange Commission.
A replay of this conference call will be available on the BIOLASE website. Shortly after the completion of today's call when listening to the call. Please refer to the news release issued earlier today announcing the Companys 2019, what's called result, if you do not have a copy of the news release. It is available in Investor Relations section.
On the BIOLASE website at Www Dot BIOLASE Dot com.
Ladies and financial results can also be found in the company's annual report on form 10-K, which will be filed with the FCC. The tables. We provided in today's news release offer additional financial information. So we encourage you to review that the tables include a reconciliation of unaudited GAAP net loss and loss per share to non.
GAAP adjusted EBITDA, adjusted EBITDA loss per share as well as the details of the company's non-GAAP financial disclosures.
I'm pleased to turn the call over to violations, President and Chief Executive Officer, Todd Darby.
Thanks, So I, thank everyone for joining us this afternoon.
Appreciate your interest in your support BIOLASE.
First off I want to acknowledge the impact of Corona virus in express our heartfelt concern you do those [laughter].
The safety of our employees customers partners and stations is Paramount as we're taking every good fortune to ensure that well be during this difficult period.
Well, we hope the impacted virus is controlled very soon.
It is difficult to estimate at this time, when our commercial activities and more specifically the dental market will return to normal levels.
Correct Corona bars, and then any actions taken in response.
All right precedented.
It's impossible to know how and when it's exact on our business will come true.
However, we do know that dental office closures.
I have occurred in much of the world have significantly impacted our first quarter 2020 sales.
Last week, we implemented a temporary closure or building a nirvana.
Which houses our manufacturing operations due to the exact water from the Governor, California.
This time, we do not know the duration of this order and how this closure will ultimately impact the company.
One of 19 marks my first full year as CEO of buyers.
Sorry, I recall with instead of a recap when I joined the company a little over your half ago.
I believe it was not a question yeah, but when laser dentistry would become the standard of care.
I still feel the same today.
There's no doubt that laser dentistry will become the standard of care and there's no doubt that violate the industry leader in advancing laser dentistry, Peter waterways never technologies. Furthermore, violate.
Well position within a market, where general practitioners and Dsos, we carry large groups.
Eagerly look for ways to expand their services keeping all revenues in house.
With this target market dynamic violate needed to change its go to market.
Restructure the organization to focus investment on the customer and shift from an R&D centric culture.
A culture that was activity happy.
Had a clear but did not have a clear focus on the desired result.
There's also a perception that this business we continue to be funded.
By the fact, the company has never made money.
A lot of heavy lifting and Chad James measured by the team has occurred over the last year.
The culture centered around the clock.
Hey results minded discipline.
There are now about halfway through our journey are constantly changing the trajectory of BIOLASE.
Over the past year and Uh huh.
Many positive changes.
Proved our cost structure.
Built our talent bench to create a healthy operating company.
Let me share it with your some of the actions we took in 2019.
First of all senior manager men is now under the same route for the first time the company.
The company history, both CEO and CFO or base the company's headquarters.
Second we brought a new management in a board members, who have significant industry experience and proven success in growing businesses within the dental stays.
Hi, good rights talent to create positive change in have into implemented. This is systems to guy, what we do and measure how well we execute across all functions.
The majority of our commercial team is new and we believe complementing their skills will be leadership. We now have in place will allow us to focus on growing sales in doing so probably.
We have rationalize our cost structure and 2019 reduced non sales head count by approximately 25%.
We reduced R&D spend less than 10% of revenue.
And for Kobe 19, we were on a path to deliver growth margins.
The above 50% and we hope to return to that have soon.
As a benchmark of this progress and improve operational efficiencies. We've also outsourced consumables this year and focused on design for Manufacturability to reduce assembly time, Warner epic laser by 75%.
<unk> revenue side, we created guidelines around pricing discipline and payment terms improving collections in margins. This is yet. Another example of something that was far into the violates culture.
In building our commercial engine, we heard you experienced sales leadership that is now represents 75% of the team.
Along with turning over 60% of our field selling game to a new assessment process.
We also made great strides in building, a strong commercial culture or marketing and sales very full collaboration processes have been built to drive leads through inside sales to see field sales.
Ladies functions were not line.
They they are with the cost structure it rises Todd collaboration.
Many other processes are also underway like our growth War room.
It's like implementing Salesforce CRM learning management system and many others.
We still have much to do in the spirit of continuous improvement.
2019, we walked away from unprofitable business in the company's legacy imaging business is just one example that.
Well some of our actions contributed to short term revenue disruption. This year. It was the right thing to do because the health of the business, it's achieve our long term growth and profitability goals.
And I join BIOLASE revenue was 46 million in the company was operating with a $15 million EBITDA loss.
Not only was this unacceptable it was not sustainable.
We successfully pared back by 30% in 2019 to 10 million, while exiting additional topline revenue.
So what does the plan for 2020.
No. There we've made significant changes to the business in 2019 to improve margins lower costs improve sales.
Let me review some of the other exciting initiatives that we expect to accelerate our progress.
When our U.S. and international businesses returned some level of normalcy.
One of our initiative is to continue to penetrate the DSL market.
2019, we did assays, one where lease trial with Harlan the largest yes, Oh group in the U.S. phase one of those.
Yes, with a for a partners.
More progressive clinicians adopting our technology.
Each clinicians saw complete return on investment within appeared at five to seven months based on any incremental revenue generated from laser treatments, mainly around procedures like aereo carry implant tightness in soft tissue management.
The goal is for Heartland does validate our technology and expand in house procedures, we achieved that in 2020, we plan to expand this two phase two trial, adding additional heartland dentist to see if they can replicate similar results.
Based on the successes heartland.
No other dsos pilot plan across North America.
Also apartment and others are now trying our newly released ethic hygiene later, which received FDA clearance in December.
As mentioned drivers are in place to increase the adopt your technology and we believe the sophistication growth at the Dsos, saying there is one of these key drivers.
You don't have to look forward to see what happened with lasik.
It was a D.S. so like move in that segment that drove.
That new standard of care incorrect division that we know today.
Not only does the Dsos segment represented a significant growth opportunity for Barclays for years to calm, but it also spawn what we now call the waterways mentoring experience where W.M. me.
This new sales approach puts training firsts connects a group of progressive dentists and shows in the power of the technology first can while allowing them to use the quarterly technology post training in their office.
We also still learning and refining here early success and results show, 55% close ratio and an improved BIOLASE overall experience.
We are seeing our referrals increase by creating this rewarding experience.
We had four WMD programs into first quarter expected to increase this through 2020 based on early success, we believe the W. Jeremy could generate up to half of our U.S. equipment sales by 2021.
Another milestone in 2020 will be publishing the landmark study performed but like wire Institute on the clinical efficacy of water ladies assisted treatment appeared on tires.
Versus traditional open slap them surgery. The study also tracker Fisher reported outcomes are pros for each procedure.
No its discussed as previously but due to its important it bears repeating it Mcguire study is an important study for buyers. They actually an important study for the industry validating minimally invasive aereo treatment without the need for extensive surgery, where extended patient recovery time.
This will benefit both the specialist and the general practitioner, allowing for improve patient care and treating carry of disease.
The full study will be published in the journal appeared on college in the next few weeks it'll show up first electronically.
We have noted before we believe this study will establish new protocols superior surgery and drives further adoption of all tissue lasers, and our target markets.
We're also equally excited about the additional studies on treating parity disease expected to be released in Twentytwenty from Columbia Harbor, and you see L.A.
We believe we had the best technology to advanced Dentistry and now our complementing this with a commercial infrastructure to support and extend the reach of our great devices.
Over the past year, we have been building the business processes that we believe are necessary to successfully aligned violated innovative technology with an approach that can achieve commercial success.
Well, we continue to make significant progress we have much more work to do to reach our ultimate goal, while our strategic decision in 2019 to rebuild a substantial portion of the sales team had a short term impact on our revenue.
We believe it had to be done to successfully recruit likeminded sales team members.
For success.
Turning 2019 out up to 32 sales tour territories about third we're open for the majority of the here today I'm pleased to report that we have now still all but two territories and look forward to the revenue lift this will produce once U.S. business returns at some level of normalcy.
We believe we have successfully been successful recruiting new sales talent that is more aligned started.
Transitioning from an R&D centric company.
To a more disciplined customer centric commercial organization driving best practices.
Well, it's too early to measure success. This new sales talent is already change into violates culture, the energy and enthusiasm throughout the company is high and we have Ics.
We are excited to have this new talent on board as part of the team.
Before the Corona virus epidemic, yeah, we were confident that the prudent cost reduction initiatives. We didn't plan meant that along with but we still have plan will put us on track.
To significantly reduce our EBITDA loss again in 2020, however, given curtain current uncertainties impossible to know how the rest of 2020 will play out.
In closing we remain excited about our progress to date, our direction, our cost initiatives and our growth prospects. Once you have to an international business returns at some level of normally.
We've made some important strategic decisions in 2019 will benefit our future and before cobot 19 pandemic kit. We are beginning to see some really positive results from these decisions. We're confident that these decisions along although not easy will ultimately build a healthier business going forward and position buyer raised for long term.
From a sustainable and profitable revenue growth.
With that said I'll turn the call over to John for review of our fourth quarter and full year financials in more detail John.
Thanks, Todd and thank you all again for joining US this afternoon and now let me review some of the numbers.
Total worldwide revenue for the fourth quarter of 2019 was 10.2 million an increase of 18% sequentially over Q3 results.
This represents 2.8 million decreased compared to $13 million in the fourth quarter a year ago.
Revenue from the U.S. for the fourth quarter 2019 increased 18% sequentially on a year over year basis U.S. revenue was down 34%. This reflects a strategic decisions we made to realign a significant portion of our U.S. salesforce.
Platinum revenue was primarily attributable to these open territories.
As Tom noted, we're changing the culture of the company, increasing transparency and accountability throughout the organization.
Actually pretty new direct sales team members, who put our new customer centric discipline commercial culture.
Internationally total revenue for the fourth quarter 2019 increased 17% sequentially on a year over year basis International revenue was up 3%.
Gross margin for the fourth quarter of 2019 was 43% compared to 44% in the third quarter, and 43% and a year ago quarter.
We achieved this improvement compared to a year ago quarter, Despite lower revenue.
Total operating expenses for the fourth quarter of 2019 were seven and a half million compared to 7.9 million in the third quarter and 12.1 day and for the fourth quarter 2018.
The continued reduction in operating expenses, both sequentially and year over year represent the benefits as a cost rationalization efforts that we had been implementing throughout 2019.
Selling and marketing expenses declined 200000, or 6% sequentially and 1.4 main or 27% year over year in the fourth quarter due to reduced compensation related expenses due to the open sales territories that we've talked about.
General and administrative expenses decreased 600000 or 18% sequentially.
And 400000 or 14% year over year in the fourth quarter Engineering development expenses increased 26002% sequentially.
And to make a 200000 or 14% year over year in the fourth quarter.
Operating loss for the fourth quarter of 2019 was 3 million compared to an operating loss of 4.9 million in third quarter of 2019, and six and a half man in the fourth quarter of 2018.
Net loss for the fourth quarter, 2019 was 3.6 million or 13 cents loss per share compared to net loss of five and a half million or 25 cents loss per share in the third quarter of 2019, and a loss of 6.9 man or 33 cents loss per share for the prior years fourth quarter.
As a reminder, our earnings release includes a reconciliation between unaudited GAAP net loss on adjusted EBITDA. We believe adjusted EBITDA provides useful measure the company's operating results, excluding depreciation amortization expense noncash stock comp expense change allowance for doubtful accounts and expenses related to disposable.
Internally developed software and the cost of patent litigation settlements.
The adjusted EBITDA loss for the fourth quarter of 2019, which excludes these items decreased 39% year over year to 1.6 million or five cents per share.
Basic and diluted share count. It ended the fourth quarter of 2019 was 28.1 million shares compared to 20.7 million shares for the year ago quarter.
Now, let's turn to 2019 full year results total worldwide revenues for the full year 2019, with 37.8 million down 18% compared to 46.2 million in 2018, excluding revenue from a non core imaging business, which we exited during 2019 revenue for the full year 2019.
Great, 16% compared to a year ago period.
Revenue from the company's core U.S. laser related products for the full year 2019 decreased 28% year over year.
Internationally total revenue for the full year 2019 was 14.9 million down 14% compared to the prior year. The main reason for this decrease was the impact of our transition to a new Chinese distributor.
Gross margin for the full year 2019 was 38% up from 37% for the full year 2018, despite lower revenue increasing gross margin reflects a reduction overall manufacturing expenses.
Total operating expenses for the full year 2019 were 29.9 million and decrease of 21% compared to 37.8 name for the full year 2018.
It was a marketing expenses for the full year 2019 decreased by 3.7 million, primarily due to open sales territories in the U.S. discussed earlier.
General and administrative expenses decreased by 1 million in engineering and development expenses decreased by <unk> point 4 million.
Net loss for the full year 2019 was 17.9 main or 77 cents loss per share.
Net loss of 21, and a half ban or dollar and five loss per share for the prior year. The decrease in net loss was primarily due to decreased operating expenses.
Adjusted EBITDA loss for the full year 2019 decreased 29% year over year to 10.4 man or 44 cents per share when compared to adjusted EBITDA loss in 14, and a half man or 71 cents per share for the prior year.
Tend to the balance sheet cash and cash equivalents unrestricted cash totaled 6.1 man at the end of.
2019.
As we face the challenges posed by Cobot 19, we are focused on liquidity cost containment and prudent cash management.
Now moving on to guidance in Q1, we expect to krona buyers to have a negative impact on revenue as dental procedures are down.
As many dental offices and clinics are close worldwide.
The situation remain remains very fluid. So we don't know when they plan to reopen when did not know what the manpower price will be once again offices in clinics.
Do reopened.
This will impact consumable revenue as well as laser ourselves.
In addition, laser sales will be down as most dental shows on workshops had been canceled for now.
Sample I'd M. The biggest then also in Asia, which happens every two years as currently been postponed to two months.
Closely monitoring the situation unfolds.
Lastly, I want to add that prior to the krona virus epidemic pandemic, we felt very strongly that having filled almost all of our you opened U.S. cells territories would lead to year over year revenue improvement for the last three quarters of 2021.
Have a whether we can achieve this depends on how quickly both you U.S. and international business returned to some level normalcy.
This concludes our prepared remarks, and now I'll turn back to the over to the operator to open the call for questions.
Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad. If you were using a speaker phone. Please make sure. Your mute function is turned off to will now you're signaling to reach our equipment.
Again press star one to ask the question.
We'll take our first question from tile Boucher of Dougherty and company.
Hi, John Thanks for taking my questions here.
Glad to hear that almost all the territories are now failed.
Unfortunately, it was right when coven 19 situation is starting to flare up.
So given.
Recommendation.
Hi, selective in dental procedures.
Are you potentially exploring the option to consolidate those last couple of territories into 31, or just kind of pausing things are was 31 territories, just kind of spread things too.
I'll answer that Kyle this is Todd begs the question I think we're looking at things are pretty fluid here to understand what the next steps are in reference to field selling and filling those territories. We may have to look at.
Providing more geographic size in territory with the current head count that we had but that decision has not been made yet currently we have to open positions as was mentioned.
Okay, and Carl I would add to that this is John we actually had all positions open up until two weeks ago.
Which was certainly our goal by the end to the first quarter and we had two people back out of the last minute given the cold the 19 situation.
Okay got it and I.
I know you mentioned you said some John.
The next dental clinics have closed so are there are there's still some out there that are operating them in surely there are some emergency down procedures that can move forward right now is that right and which procedures.
With that.
So there there are dental procedures being performed we're actually getting information and request from our customers to support them on that with the disposable tips orders and service calls.
A lot of a lot disrupt revolves around a endodontics.
And we had done a say some late breaking news.
Yesterday in that.
We got very comfortable working with the D.A. and our clinicians.
To be able to believed that we are a central business under the.
State of California requirements, and so we have begun very skeleton shift you know keep in social distancing for some of our workforce they've gone back into the plant now and began shipping.
Somebody central materials that are required as up today.
Interesting, Okay, that's helpful and.
And then.
Hey, you speak you spoke a little bit about it Todd.
Didn't acquire study do you have any visibility.
When we could see data read out here and you also mentioned that study that included Columbia, Harvard D.C.L.A. I'm wondering if you could just provide a little bit more color on on that.
Sure Kyle Oh, sorry, ironic I actually had a confirmation today of the email from little Mcguire group that the.
A manuscript, whereas a crew.
For general or paradigm, how lucky and that it would show electronically as I mentioned in my statements. So I would expect that we would see that in the next three to four weeks, depending on what happens here with obviously the or.
And then it is and what they do in reference to publications, but you're on top of that and then on the heels of that we also had another very compelling study that's coming out of hardware, which you're gonna have histology behind it and this is around appirio treatment of disease implants.
And it's sharing unbelievable <unk> results as well.
And then.
Colombia as well as you sell a we'll have something very similar so I think but this does is really almost validates what we've known and what lasers do with soft tissue and healing and being able to bring and is there a life in getting regeneration as well as getting better.
Tax mint regeneration in their pocket as well been doing this for quite some time, but now we have really high caliber.
Really extensive landmark study that are going to further validate this in car I think it helps really with its segment of the population who's been on the sidelines waiting for this type of information to move forward in a better you know.
Treatment of care and when that minimally invasive and also provide that lot better in the patient reported outcomes.
Please stand point.
Right no that's great.
Certainly keep an eye out for those and and then just lastly, we're hearing about some really nice conversion rates in the field as it relates to that mentoring experienced program can you just remind me.
How many mentors you plan to have out there on a quarterly basis, maybe she things around on hold by yearend now going forward on a quarterly basis.
Yes, Okay, let me run through the Korean and let me give historical perspective as well we had to be me events in Q2 of last year, we follow that up with seven in Q4.
We had another seven planned in Q1 this year, but we had to cancel the last three because of the pandemic.
So for we're finishing up kind of as we entered into March we've extended those given the situation.
We had 10 planned in Q2, but we postponed the person for.
That so right now we have six planned in Q2, but obviously, that's a very fluid situation given the current status and then our plan for the back half of the year in Q3 in Q4 or to have 10 of these W.P. a knee events programs in each quarter.
Okay got it.
That's helpful.
That's it for me thanks for the update you guys.
Hi, Thank you felt.
Thank you won't take our next question from Bruce Jackson with benchmark.
Hi, Thanks for taking my questions and congratulations on all the progress we made during 2019 you guys did a lot.
So.
Looking at the marketplace right now Abby came out on March 18 took some some guidelines on what was essential not essential.
And certainly I mean anything having to do a some pain or infection management comes under essential, which I think would would favor some other procedures that you do so.
Can give us a rough idea for the offices that are still operative you know we can you give us a sense of how many there might be out there.
Or.
Yeah, just generally.
Who's who's still doing procedures out there right now.
Yeah. So Bruce I think you probably fine the majority of those procedures being done by the specialty groups. So are the ended on it.
Appeared on its oral surgeons. It also finds a way we called Super GPS Gpus that are doing here more surgery in hiring procedures and you're absolutely correct. You know our technology and lasers are hurt for what they're doing and.
Arms that are using as a standard of care around area of treatment.
I'm also around.
The root canal process and cleaning the root canal out for many irrigation standpoint.
So you're going to continue to seek it out with demand for at least our consumables in a short term and that's the reason John mentioned.
That we opened up you know limited shifting out of our facility for making sure that we can get tips out for the customers that neither.
And then on that point [noise].
Do you have you know what's your inventory situation like so you've got some manufacturing going <unk> are you even now under this deterrent set of conditions you're working with.
Are you are you set up to adequately meet the to customer needs.
So Bruce we have to be clear, we don't have manufacturing going on right now just shifting from inventory.
And we will determine when the bring manufacturing back based upon the situation as it unfolds.
We have inventory both at our German facility and our Irvine facility.
We think we have enough to cover the certainly decrease level of needs over the next.
Couple of weeks and then we'll play it played by you're going forward. That's about all I can tell you there.
Okay fair enough.
And then do you have in the conversations you've been having with the the desktop system or the other specialists [noise].
Do you do you get a sense, if what has to happen for for them to come back online are there any things that they need to.
What are the things that that they need to see before they decide that they're going to reopened.
Oh, I think one would be as they know that lot of the offices are listening to the 88 guidance as well as any type of state requirements that are being put on on them. So I think that would be your step warm.
And once they have that cleared I think they're eager to get back that with their staff and there's going to be year pent up demand because you know people that need these services.
These things don't go away and I think you have an ability for many dental offices.
Bruce too.
Increase or you know the level of services that they can provide because im not working five to six days a week. Most are working your four days. So they can add additional work they are to hopefully catch up with the demand that sits out there with patients meeting there for work.
Okay.
And then with you're right. Your sales force. So now you've been able to too so most of the open territories.
Tell us a little bit about what you're doing to kind of help retain the people that youve managed to to higher and are there any activity instead of sales person can do right now even though.
The market may be somewhat disrupted.
Yeah, I think good question there Bruce.
So we're we're keeping the team you know really busy for a few two things one is how do they hold their current skills in reference to the clinical knowledge and so forth. That's one thing that's exactly right now.
The team has pivoted are.
Fairly rapidly here we've scheduled.
<unk> webinars for ER and customers within four weeks.
We conducted a one yesterday it was sold out with a 500 dentists are telling it it was all around.
How you treat disease in player. So that's obviously indication that there's a huge demand for what we do here, but on a tailwind to that you know what does the sales there has to do well typically there's the next action around that webinar hardware, that's just wants to learn more or virtually being able to.
A lunch and learned on crews do so those are all the things that the team is currently active with and working on there's a creative ways now to reach customers under change the paradigm a little bit, but we have there which is actually opportunistic we have that says that have time.
Remember here now that you know because of this pause.
Can get educated and can worried about this technology. So we're taking every advantage of that as we possibly care.
That's great and then certainly continuing medical education credit associated with any of these programs.
Oh, absolutely best where pay certified so depending on the duration of the educational program that depends on how many a C credits. They also upgrade.
Okay great.
Last question for me on the the newer studies with Columbia, Harvard and you CLA.
Any idea when those might reach publication.
Yeah, we expect a probably they're all going to hit and Twentytwenty. Yeah. We didn't talk a lot about though as we primarily about you know look wire.
But there wasn't bad active and in the works for a at least a year or so depending on the study.
So it should all hit and Twentytwenty based off of what we're seeing because there really close to a manuscript level.
Okay. That's it for me. Thank you very much for taking my questions.
Thank you for here.
Thank you won't take our next question from Ed Woo with Ascendiant capital.
Yes. Thank you for taking my question. My question is more on you know what a customer base. The status I know you mentioned that they have a little bit more time is that really different from the U.S. or Europe or are they pretty much in the same boat and have you heard about you know whether they're struggling financially at at all.
Yeah. So first question that are in reference to crime on their hands to listen to your new technologies or be educated the webinar. We did actually wasn't just a U.S. We had I think the number was close to 30% <unk> international participants on that.
Webinars. So I think the answer is yes, I'm very very similar situation they get it depends on the country.
Thinner financially I think you're dealing with dental offices that are small businesses and they've got X number of employees or that they have to cover and we heard everything from ERM. You know the death is saying you know I'm not going to take a paycheck here and I'm going to keep my folks in fluid.
Got to air we're going to for low or let go of our your team or until we can get back air operational so it varies and I think it also varies by state depending on what the situation is.
Great well, thank you for actually my questions and good luck.
Thank you had said too.
Thank you at this time I would like to turn it back over to the company for closing remarks.
Thank you operator, and thank you everyone for your interest in BIOLASE. This concludes our call have a great day.
This concludes todays call. Thank you for your participation you may now disconnect.
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