Q2 2020 Energy Recovery Inc Earnings Call
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Ladies and gentlemen, we thank you for your patience.
Welcome to the energy recovery second quarter 2020 earnings conference call.
All participants Arnie listen only mode.
<unk> answer session will follow the formal presentation, if anyone should require operator with systems. During the conference. Please press star zero on your telephone keypad.
A reminder, this conference is being recorded.
My pleasure to introduce your host James Picardy, Vice President Investor Relations. Thank you Mr. shook Hardy you may begin.
Good afternoon, everyone and welcome to energy Recoverys, 2022nd quarter earnings Conference call.
I think im sorry, Vice President Investor Relations at energy recovery I'm here today, with our chairman President and Chief Executive Officer, Bob Mall, and her Chief Financial Officer, Josh We're about.
During today's call, we may make projections and other forward looking statements under the Safe Harbor provisions contained in the private Securities Litigation Reform Act of 1995 regarding future events for the future financial performance of the company.
These statements made discuss our business economic and market outlook, the company's ability to commercialize board check growth expectations, new products and the performance cost structure and business strategy.
Forward looking statements are based on information currently available to us and our management's beliefs and assumptions estimates or projections.
We're looking statements are not guarantees of future performance and are subject to certain risks.
Certainties and other factors.
He will bring the documents the company files from time to time with the FCC, specifically, the company's form 10-K and form 10-Q.
These documents identify important factors that could cause actual results to differ materially those contained in projections or forward looking statements.
All statements made during this call are made only as of today July Thirtyth 2020, and the company expressing disclaims any intent where obligations to update any forward looking statements made during this call reflect subsequent events or circumstances, unless otherwise required by law.
Mission, we may make some references to non-GAAP financial measures. During this call you will find supplemental data in the company's earnings press release, which was released the news wires and finish the FCC earlier today.
Yes release includes reconciliations of non-GAAP measures to comparable GAAP results.
At this point I'd like to turn the call over to our Chairman President and Chief Executive Officer, Bob now.
Bob the floor yours.
Thank you again and thank you everyone for joining us today.
I want to start todays call as I did last quarter was a sincere hope that everyone listening and your families are safe and healthy.
I'm happy to report that the energy recovery team and our business remains healthy well and a strong.
The covert 19 pandemic has not abated as coke.
Lead has changed how the world and we at energy recovery must operate.
Today, both the water industry as a whole and the energy recovery.
Have managed well through this can dynamic.
We are optimistic on the future we remain focused on balancing first the health and safety for our employees, but also on protecting our employees livelihoods and shareholders investments.
Energy recovery is at a T inflection point.
First like everyone. We are working through the challenges so if our new normal during this pandemic and adjusting accordingly.
Second our base water business continues to grow and show long term resilience.
And then we continue to support the industry and the millions of people who rely on the freshwater created what does the help of our technology.
Third the Vorteq is at a point, where we must in the near term deliver value to our shareholders either by monetizing the technology, all by bringing and to our spend.
Finally in addition to those clear challenges before us we must think about the future.
When I took well I look at energy recovery.
I do not see a water company, nor do I see and oil and gas company.
I see is a p. ex company you SEC energy recovery is the PX company.
Over the years, including the time spend on board.
Significant investment has been made to build RPX technology platform.
Okay.
Let's turn to our water business, which remain strong and dynamic despite the economic and operational challenges.
Presented by the equivalent around for hours.
As evidenced by our recent order awards, our Mega project cannot continues to show stress.
And has been largely unaffected by events today.
Were seeing a secular shift in desalination demand as water needs continue grow globally, owing to climate change.
Population grows and the industrialized nation.
The need for more freshwater has knock have weakened during these tough times.
That shows not only in our results this year today, but also in our backlog and pipeline.
It is for this reason that we again.
Affirm our guidance of 20% to 25% gross for the year.
Coven 19 continues to create uncertainties for our Twentytwenty you wanting forecast.
Well, we're confident that are a mega project business will remain strong the OEM channel has to be more affected by the global economic downturn.
Our current over all water backlog and pipeline supports.
A flat 2021 up to modest gross of 5%.
There are relative near term stability, where I see and underscores the strength of the overall water market.
The fact is despite economic insert uncertainties.
Access to freshwater is a real and pressing need all around the world.
Our pipeline and industries suggests.
Industry forecast suggests that over the longer term the secular shift he desalination demand remains intact and we expect a rebound once the economic risk that exist today pass.
Additionally, we continue to see proof of this thermo to reverse osmosis technology conversion.
Occurring in the industry.
Recently, evidenced by our Alger, though to announcement.
That project is a thermal replacement and why off the largest project you know company's history.
As a reminder, from 19 eighties through 2018.
Thermal plant capacity of roughly 23 million cubic meters of produce water per day was commission.
These plants will eventually transition to seawater reverse osmosis.
Easier as plants approach to end of their useful life.
Or before owing to the significant efficiencies and cost savings offer by reverse osmosis operations.
This translates into a process was approximately half a billion dollar seeing additional addressable market to energy recovery.
Just to maintain existing capacity.
As I turned to our oil and gas business I would like to repeat what I said at our general shareholders meeting two weeks ago.
The Vorteq is seeing a fundamentally stronger position thing it was when I was named interim CEO in November.
We have cleared every technical hurdles we have faced.
Our late June simulated Frac pass with Liberty has proved to others, what we have long believed.
We are ready for life well testing.
Let me restate exactly what that test.
I've done.
And what is important.
We did not look at this test as indication that the war type work.
Because we had long ago proven back effect.
This test.
One proved to us that the vorteq should not impede frac operations, nor a cost fill their toward job.
Which were satisfied and customer safety and quality concerns.
Two proved to us that the Vorteq can integrate was another team software equipment and Frac crews.
These are important accomplishments twin introducing a new technology to a vastly competitive mature industry.
We're proud of our success during this test.
The Vorteq skit, we tested with Liberty will be our production model one battle.
It is an elegant.
Simple single T X gets solution, which takes advantage of the higher sand concentrations, we can now handle.
The more.
Compact solution is less costly to produce was greatly reduce lead times and has a smaller footprint may cans are less intrusive to frac operations.
In addition, this model allows operators the freedom to scale, the vorteq up or down to configure their jobs, depending on their flow rate pressure and overall job come to fruition needs.
The question for all our shareholders now is.
What's next.
As we mentioned at the AG M three hurdles remain.
We must pass each hurdle or we will see seed investment in <unk>.
First we must successfully complete at least two or three life frac wells, but life well fracs.
As we have mentioned, we're working actively was liberty together to do so.
I think all of US understand the current challenges in North America pressure pumping.
Our preference is to achieve this was our partner Liberty.
However, now that we are free to approach to home market.
We will also explore opportunities with other operators to expand our search if needed.
We cannot wait for the Frac market to return to accomplish these life well beta tests.
Second and related is that we must prove to our customer the value proposition was data from the life well Fracs, we must validate what are we can't achieve our calculate a savings of up to $6 million per frac fleet per year.
Well, we have entered the stated was industry expertise life data will validate our assumptions and calculation.
We should note that the value of our.
Customers.
<unk> expense.
The value to our customers extends beyond the direct opex savings on a frac side that we have calculated but also encompasses areas more difficult to quantify.
Nevertheless, extremely valuable to a customer.
For example, significant operational and organizational efficiencies could be obtained.
As maintenance and logistic challenges become more manageable.
And breakdowns become more predictable.
In addition.
It was the potential reduced downtime for Frac fleet using the forecast.
The number or frac stages, a sleek can complete each day may increase which in turn.
Further lower costs, an increase revenue overtime.
Oh, so by minimizing pump redundancy and the increasing equipment life span.
The vorteq and lower cost and reduce the resources required for well completion operations.
This in turn can indirectly lower.
Commissions associated with oil and gas production.
As longer testing equipment means fewer trucks trips to replace broken pumps and less energy expended on manufacturing redundant equipment.
You can crushing equipment lifespan and also how co promote safety on the job site by reducing the exposure of repair person now.
The third and final hurdle relates to the pressure exchangers themselves.
We must maximize the mountain sent that can be process through the cartridges.
Before where two requires repair or replacement.
These countries are the single largest cost driver for the Vorteq.
Increasing the amount of San process, but each pressure exchangers.
Well, both reduce the frequency of resurfacing needed and the number of cartridges a single Frac fleet would use per year.
This is crucial to meeting our own profit pockets and we are not there yet.
I want to be very clear.
If we do not pass any one of these three hurdles, we do not have a commercial product.
We also do not have much time.
While it is not possible to give them the exact timeline to each of these activities.
I can tell you that all this must happen in less than a year and we must show significant progress.
The life of the cartridges before the end of this year.
We're you know good place, but we're not at finish line yet.
We will only commercialize if we have a product that is technically ready and we will achieve our profit on ROI targets.
A reasonable amount of time.
I would also like to discuss our go to market strategies now.
That we have the entire frac market, that's our potential addressable market.
Were in the early stages of this analysis.
And do not expect to make any firm decisions on potential partnership or license agreement instruments and do we have sufficiently achieved our remaining hurdles.
However.
We will be approaching the larger well established pressure pumping companies in the coming months.
The basic economics of I'll go to market strategy will not change were planning and leasing model.
As we launch much as we have described previously centered around our new single PX system.
Now to turn my discussion to the future.
What does it mean to be a PX company and how will would grow and diversify.
The cruises, we know the PX better than anyone in the world.
The underlying strengths of our business and by extension our financials.
Stance from this unique technology coal plants will be.
Because our tech knowledge. He is so focused on delivering tangible value to our customers.
The form of reduced waste and tremendous savings.
Incurred creates tangible value in our financials in the form of a growing top line and high margin.
We believe we have the potential to achieve additional high margin gross by focusing our incubation efforts applications to RPX technology platform.
Well over two decades the pressure exchanger.
Has proven the ability to effortlessly handle pressure of roughly 1000, p. aside and relatively clean sea water.
We have pushed the envelope of the PX was our work on the Vorteq.
And we're now able to handle harsh hydraulic fluid that pressures of 10000 pair pounds per square inch or more.
There are many applications in many industries was even the sand box that we kind of explore.
This year with bank began work on three projects and to pressures and there is 3000 P.S. side.
Two of these projects address you industrial applications of the PXI and and and at least one of these will not only allow us to expand our water business into new channels, but will also be an enabling technology for a variety.
Of other potential adjacent industries.
The third project aims to further expand the aperture of the PX technology platform itself.
This in turn will allow us to tackle more applications was RPX sandbox.
CR P. accent Bucks.
You can see in our financials that these projects require a modest investment.
But they can create a value that our investors have come to expect.
We plan to come from.
Technical feasibility.
Over the next several months and hope to explicitly discuss our first commercial launch during the third quarter call in late October.
We must be disciplined in our investments maintaining a focus on increasing shareholder value and delivering within reasonable timeframe.
This includes taking a rigorous approach to new product introduction.
That begins and ends was a direct commercial involvement to ensure we keep our eye on costs and ROI.
Incubation efforts must be challenged and we will not hesitate to shelf or stop spending on efforts that do not meet the cost subjective.
And return profile that we have set.
We're also focused on delivering commercial resolved quickly.
This means proving our technical and commercial feasibility whizzing 12 months.
And achieving the first commercial order was a 24.
If we do not believe we can keep that as would begin in new project, we will shelf it.
So we will not pursuing and pursue another vorteq he turns of expected timing.
We do not believe that limits of this are tied to them is our potential.
And some of the application is would pursue.
Can be transformative to both <unk> and to the industry they sir.
At the end of each incubation project for possible outcome will be a chief.
One is that the products will move into existing business unit.
Or to the products will move into a newly formed a business unit.
Or three.
We will form a joint venture.
Or other partnership or four we see some investment and close on the project.
We will continue to keep you updated as we launch these future products in the coming quarters.
Before I hand off the Josh I want to discuss one last item.
Well more than 20 years, we have sought to help our customers achieve more efficient.
Sustainable operations.
Our flagship PX pressure exchanger delivers up to 60%.
Energy saving you see water reverse osmosis.
We have played a major part in transforming desalination from a.
Historically energy intensive industries to one.
A more sustainable and energy efficient.
Well water scarcity remains a significant global concert.
We take pride in providing a solution that reduces both cost and the carbon emission.
Our new incubation efforts are finding new ways to continue that good work.
In addition to focus on how our products can help the world.
We also need to look at how we can build a better energy recovery for our shareholders our employees and the world.
Given our focus on growing our business now seems to ideal time to provide our first U.S.G. report.
Which we will issue in the third quarter.
Taking this that reflects our commitment to work continuous improvement as we strive to become a more sustainable and resilient business.
We look forward to your input once our report.
Is public.
Was the stable and growing water business during this economic turmoil.
Real proof points was a vorteq.
Exacting incubation projects.
And then Barking, our new yes, do you journey.
It could not be a more interesting time at energy recovery.
And it was that.
I handed over to Josh.
Thank you Bob.
You know not many companies can say that they maintain steady revenues during arguably the worst quarter economically so it's a great depression.
But that is exactly what we did we are in a fortunate position and I couldn't be prouder of not only our sales team, but also our manufacturing and support teams that deliver this product during such challenging times.
We do see differing dynamics within each of our channels given the recent economic uncertainty.
Mega projects continue to show strength with revenue growing 19% year on year.
Global economy. However, it is affecting our OEM channel, which was down 38% for the quarter and 31% for the first half of 2020 as compared to the same period last year.
We expect this weakness in our OEM channel to continue with near term project delays in industries, we serve owing to the current economic challenges.
For example, a portion of our OEM revenue historically has come from the travel and hospitality industries, which we do not expect to recover in the near term.
Other industries are also affected.
Overall, we expect our OEM channel will be down between 25% to 35% this year.
However, despite the softening in our OEM channel, we believe we will reach our water revenue guidance of 20% to 25% growth for the year.
As we looked at 2021 the basis of our flatter outlook is specifically due to this weakness any OEM market.
Unlike in our Mega project Channel, where we typically close projects 12 to 18 months out and have visibility you have to 36 months out our smaller OEM channels less clear visibility only six months out on average.
Now if the global economy recovers its possible that we'll see some upside to that forecast due to a strengthening these smaller projects.
We will advise accordingly in the coming months.
Our base product gross margin, which today is entirely driven by the water segment decreased five and a half person for the quarter year on year.
This is largely due to build a 91st reduced production levels due to the Kuroda virus in the second quarter decreased our margin by 3.7%.
However, we returned to full operating capacity in mid May.
Second we experienced some pandemic related delays and commissioning or new Tracy facility late in the quarter, well still assuming the burden of the new overhead costs associated with that facility.
We're pleased to announce this week that we commissioned our new Tracy location in July.
But we will see a small negative effect on margins in Q3, two the delay commissioning we do not anticipate this pandemic related downward pressure to otherwise continue unless the covert situation worse than significantly.
However, you may remember that we guided to gross margin in the range of 68% to 70% this fiscal year due to lower Asps and our Mega project channel and terrorists expenses.
These pressures have not gone away.
We expect gross margin for the second half of the year to average at the low end of that range that we provide.
We understand the importance of continue to manufacture and support our customers as long as we can do so while protecting our employees.
We have implemented strict protocols for the safety of our employees, who must work on site, including masks regular just infections or the facilities throughout the day in between shifts as well as weekly coven testing.
The nature of our manufacturing of the size of our facilities allow our employees the largely maintained proper social distancing while they work.
Our office staff continue to work at home.
Overall, our employees of adapter weld one in normal they remain focused on tasks at hand, we could not be proud of the weren't there doing.
You will see the recent schlumberger separation reflected into areas of our income statement.
First we recognize $24 million a license development revenues this quarter, which is the full remaining amount of the original $75 million.
This is the final quarter that we will recognize licensing development revenue associated with this contract.
Second we recognize in the Paramount of $2.3 million on asset that we consider directly related to this contract.
Typically we wrote off assets related to our large and modular vortex both of which were built with this contract in mind.
We have a fully into launching a single p. export tech and these larger iterations or no longer relevant to commercialization today.
With regards to the single P.S. Vorteq note that beyond his technical advantages it provides as both cost and operational advantages as well.
First a single PX, good cost roughly 10% of our original Vorteq.
With our ability to process higher concentrations of sand. This means that the overall capex involved for single Frac fleet could be roughly one third of the original Vorteq, which is a significant reduction in upfront investment for us.
In addition, it will be easier to source are scared for more suppliers and our lead times will fall from up to six month for the original Vorteq down to at least 68 weeks for the single skid.
We will work on improving that even further.
Now, let's turn to our operating expenditures.
Overall opex, excluding the onetime impairment associated with the Schlumberger agreement was 13 in half million dollars, reflecting a 1% increase in the second quarter when compared to Q2 last year, but a 14% decrease from last quarter.
This decrease is very much related to our new normal owing to reduce travel another employee costs in a delay in marketing expenses that we would have more typically incurred.
In addition, we saw reduction R&D spend about 5%, which was entirely driven by reduced spending in our oil and gas business.
I would also note that although we do show an increase in our incubation R&D spend it remains nominal at this time, which supports Bob's earlier commentary with regards to our focus on disciplined investment.
I also want to take a couple moments to talk about the future of R&D spend so you can better understand whats happening underneath the hood.
In the first half of this year, we averaged six and a half million dollar aren't the expense each quarter with close to $5 million or that attributable to oil and gas.
In the second half of this year, we'll be able to reduce our R&D spend on vorteq without slowing progress to our goals. In fact, we have already realized some reductions from last year. For example, we redeemed decreased the number of R&D engineers working on the Vorteq by half.
This is a natural transition of the R&D challenges grow smaller as a result, our R&D spend not vortex, specifically should decline at least 25% in the second half of the year versus the first half.
This will be offset slightly by some increased spending on incubation efforts in this period, but overall the remaining two quarters of the fiscal year, you're expecting to realize an 8% to 10% reduction in total R&D spend compared to the first half of this year.
And as we looked at 2021.
You can expect oil and gas R&D to fall even further.
Well, we can't define exact numbers today as it depends on the timing of our final R&D push the commercialization, we can say with certainty that either one or two scenarios will play out 2021.
One if we do not passed each of the hurdles in front of a little stop investing aboard tech and that portion of the R&D expense will go to zero.
Or too if we're successful with commercialization that at some point in a year or oil and gas R&D expense run rate will fall to somewhere between 20% to 30% of where it is today.
Do they all of our expenditures in Texas are considered R&D, including the manufacturing facility and our field staff.
As we move into a commercialized product almost all of this expense will move into cost of goods sold. So next year. If we're successful we'll be talking about how our revenues will offset these expenditures and what breakeven and final profitability looks like.
My point of all of this is that there was a finite period during which we will continue to stand at the levels. You will see this year as Vorteq R&D winds down we will settle on a more normalized level of R&D spend as a percent of revenue, which will naturally control the size of our investments in individual projects and how we approach them.
We will better defined 2021 for you in the Q3 call I wanted to be clear that we're not on a never ending vorteq R&D expense cycle.
In addition, I want to further expand on Bob's comments regarding project returns we have to find very specific financial metrics as we look at new projects first a project must have the ability to generate an ROI that exceeds 20% on a conservative basis.
Second any new internal product development must have a potential gross margin that exceeds 50%.
This means if we were to fall short of this initial target would still expect to generate healthy margins north of 40.
In short we are not a little margin company, nor do we seek to be.
Third any project must be able to achieve a cash flow neutral run rate by third here. This means time to market and ramp up the profitability I, both key Cape yards.
It is part of my job to ensure we remain focused on the commercial aspects of our new product development. We're serious about these Cape you guys are continually reviewing our existing projects through this loans.
Finally, a few words on our cash position, we've seen little if any effect of this crisis on our cash flows to date.
We remain in a good position from a cash and liquidity perspective, as our investment portfolio corporate bonds that matured we've shifted a significant portion of these investments into cash when the time being.
Only 6% of our cash and investments our long term investment today.
We have ample liquidity to support the company well, we all fund our way during these uncertain time.
With that let's move to the question and answer portion of our call. Thank you.
Thank you we will now be can talk to your question and answer session.
Please press star.
[laughter].
That's your line is just a question.
He would like to your question.
I just didn't she's actually currently and then maybe not.
<unk>.
Well for questions.
Thank you our first question comes.
With Raymond James. Please proceed with your question.
[noise]. Thanks for taking the question lot lot lots of new information today.
First about this 12 months'.
Timetable for more attack so.
Confirm if this is correct within the next 12 months.
You will make a final decision either commercialized product.
Or your canceling the program permanently is that right.
Ah yes.
And well that.
[laughter] change on.
That three to two to three life while fracs.
With Oh Liberty or are there additional.
[noise] kind of operational milestones beyond knows while fracs.
Two.
Inform your decision.
No there's no additional ones and yes, the it'd be great. We've fully due to the suite was liberty, but we now we can contact every body and a as I said in my Uh Huh.
Earlier remarks.
We we are also contacting others, but liberty is our primary partner.
Okay, and and and Josh if I can ask about the comments about.
Water in 21, you said that current backlog supports revenue.
Flat to up 5%.
Does that imply that you're guiding to revenue flat to up 5% or is it pretty mature since obviously you can build up backlogs, presumably in the next six months.
Yeah, No I think you know today, that's certainly what we're comfortable so I think that you should feel comfortable using that we'll certainly update you as well next quarter.
Got it out because what will change that number as as we mentioned that the OEM business, which you know we can't see that far out so that but otherwise we're pretty comfortable that number right now.
That should be kind of a minimum baseline for 21, hopefully what upside.
That's how we're looking at it right.
Okay.
Thank you very much.
Thank you. Our next question comes from the line.
B. Riley. Please proceed with your question.
Hi, good evening guys.
Josh Josh right.
Let me provide a that you keep breakdown for water revenue by segment MPD OEM and aftermarket.
You bet it is a for megaproject at 62%.
For OEM, its 21% that aftermarket is 17 the quarter.
Great. Thank you.
And Bob coming out of the simulated well you'll task, we conducted with Liberty could you sound upon the nature of the latest.
Nickel improvements you've made sure that the new vortex jet.
The.
You mean, the technical team, whose minstead and allowed us to have the successful similar to past.
Correct.
Well the most important one is we switched to do is a simple the single PX get.
Which made it a.
Or the product easier to control to change the due to manage and.
Looking back you could see you bad to 10, 12, p. eggs or even though he geo missile.
Was it.
Imposing who lack of afterward so.
So the the most important change was that.
Since last October we start moving to this oh.
Oh, no <unk> elegance and single PX configuration.
Great and then just last one for me I was the thermal conversion opportunity set evolved since the last call and what are your expectations Award wise over the balance of 20 point it.
Worldwide for our water business with Uh Huh.
Hope for that they would represent a uptick because.
Much of the world well he's doing better.
Turning to be put dynamic.
And even though dealing the dynamic there was and we did not experience any shutdown of projects.
But some of the.
Future project bidding process were delayed OEM, but definitely was affected so we're hopeful about them the balance of Twentytwenty.
I'm showing improvement and that is why.
I should mention that Dan.
You know the number of a modest yeah, I mean, you flat plus to up to fly person for the next year.
And can be represents is currently our minimal.
But I would add to the it's probably gonna be as high as roughly 20% of revenues. This year, that's pretty significant we've announced a most of those now.
Great. That's helpful. Thanks for taking my questions guys.
Thank you once again, ladies and gentlemen, if he would like to ask the question at this time. Please press star one on your telephone keypad. He told me Paul for any additional questions.
Yes.
Thank you.
You have a question comes from the line Pablo <unk> Oliver.
That's.
[music].
It appears to me has placed us on hold I apologize about that.
Ladies and gentlemen.
A question at this time, please press star one on your telephone keypad.
We do have a follow up question kind of <unk>.
With Raymond James. Please proceed with your question.
Thanks, I wanted to ask about the new production facility in Tracy.
This is going to be eventually you're replacing.
The original JAKKS <unk> facility in San Leandro or are you gonna be running both of these simultaneously.
This is being additions so we'll be running Bose.
Right and how much capacity does this ad relative to San Leandro.
Got it adds yeah, I can jump into it adds about 20% 25%.
Okay very clear thank you guys and it it does have a I'd just add it does have.
You know space that we can add capacity in the future you know much less so much like our current facility does as well our headquarter facility.
Understood I appreciate it.
Right.
Thank you once again, ladies and gentlemen.
The question at this time please.
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The indicate your line is in the question can you. Please let me pull for additional questions.
Our next question comes from the line <unk> a private Investor. Please proceed with your question.
[music].
It appears that your line is playing hold music I apologize.
I'll take your question, while there is music coming from your line.
Once again, ladies and gentlemen, thank you. Your question. Please press star one on your telephone keypad.
Ladies and gentlemen, this does conclude our question and answer session.
Management for any additional closing comments.
Well again, thank you everyone for joining us and a we look forward.
To a are reporting to you and discussion at our next earnings call.
Thank you stay safe Gonna stay well.
Ladies and gentlemen.
Yeah go ahead, just thank you Mr. <unk>. This does conclude our teleconference. We thank you for your participation and you may disconnect your lines at this time.