Q2 2020 HTG Molecular Diagnostics Inc Earnings Call
Greetings welcome to eight H. TG molecular diagnostics second quarter 2020 earnings call.
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A question and answer session will follow the formal presentation.
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At this time I'll turn the conference over to Oneq coffee with life Science Risers. Please go ahead.
Thank you operator earlier today, it's TG released its financial results for the second quarter ended June Thirtyth 2020.
Before we begin the call let me remind you that the company's remarks include forward looking statements within the meaning of the federal securities laws, including statements regarding expected additional collaborations with pharma customers in 2020 anticipated growth in the cookies or youre profiling business and related revenue.
You expected growth in and benefits from biopolymer programs in collaboration product development and commercialization activities and the potential impact of the ongoing cobot lighting pandemic on the company's business.
These forward looking statements are subject to numerous risks and uncertainties many of which are beyond H.T.V. console, including uncertainties regarding the ongoing co big 19 pandemic and its impact on H.C.G. and its customers that may cause actual circumstances events or results to differ materially from those projected onto.
It's called.
Factors that could cause events or results to differ materially.
Those risks and uncertainties subscribed prototypes occurring in the company's FCC filings.
TG cautions listeners not to place undue reliance on any forward looking statements.
She is providing this information as of the data. This call August 11, 2020 in the company undertakes no obligation to update and of course, what's in state.
With that I would like to turn the call over to John Even go see Chief Executive Officer John.
Thank you Monique and welcome everybody, let me just jump right in starting with questions were getting almost every day, but just how its cobot 19 interrupted our growth trajectory and what are we seeing with our customers that would indicate things are starting to return to normal.
So let me try to frame it in terms of what we know.
What we don't know what we're doing about that.
First I want to state that we firmly believe the strength of our core markets is unchanged.
We believe biomarker technologies like those in H T. G are the key to implementing precision medicine.
Biomarkers help clinicians get the right therapies for the right patients.
In this holds the potential for proof patient care in a more cost conscious manner.
We believe the future of Biomarkers includes all the relevant molecules DNA or RNA and protein net H.T.G.'s Arnie technology is well positioned now for the long term to take advantage of this macro trends.
This quarter, however, we're definitely impacted by cold in 19.
Like many in the industry and many of our peers.
Stay at home restrictions impact our business for the simple reason that lab work can be done from home.
Fewer people physically in the labs met fewer customers running or instruments in their facilities and sending samples for lab services.
April and May were very quiet month in both academic and Biopharma.
In late May and June we started and she customers returning to other labs in the U.S.N. reserving their work, especially the academic medical centers.
In Europe with the exceptional the UK, we've seen a similar trend as our academic medical center customers began to returns under laboratories, starting in late May.
Large biopharma to a great extent remains in a work from home mode globally significantly impacting our product related services revenue for which pharma has historically been our largest customer.
Let me turn to the numbers.
Total revenue for the second quarter was 2 million.
This compares to 5.8 million for the second quarter in 2000 and Nike Pro.
Product and product related services revenue or what we refer to as direct revenue was 1.7 million compared to 4.4 billion in the second quarter of 2019.
Well the impact of Cobot 19 was significant we did see a few bright spots in some parts of our direct revenue business, specifically and kept an instrument sales.
Arctic revenue, which includes kitten instrument sales came in at 1 million nearly flat to the 1.3 million reported in the second quarter of 2019.
This partial recovery or product grabbing a refreshed reflects the diligent efforts made by our commercial team.
To work virtually with customers the planned studies and ensure that products were available. So that when these customers returned to their laboratories, we can show a instruments in cats.
Collaborative development services continued on a reduced trajectory with revenue of 235000 for the second quarter compared to 1.4 million for the second quarter last year.
Remained very active in our sales efforts in this area, but understand that the slower return to work for most of our biopharma customers will likely delay our ability to contract new collaborations.
Now, let me take a closer look at our profiling business.
Our sales teams remained very active engaging with these customers.
Previously mentioned the academics segment is partially back but large biopharma remains very quiet.
Our academic and Biopharma partners presented a number of new posters and papers at the virtual Ace are a CR NASSCO conferences this past quarter, adding to the total number of publications. We now have more than 210 publications that reference our edge seek technology up from 120 at the end of 2018.
We believe the growth in this number clearly shows the market adoption by our customers and validates our edge seek technology as a cutting edge scientifically integral part of the research process.
Lastly, we've also strengthened our distribution capabilities in Europe, this past quarter, they adding distributors in Denmark, the Czech Republic in Bulgaria.
In Biopharma, we've continued to see the number of active programs timeout due to work from home restrictions as a reminder, for us to count or program at first needs to be a farmer sponsored trial second it needs to be traceable in clinical trials dot Gov and last it needs to have done an active revenue project within the last.
So much so.
So with pharma not on site either running samples are sending the H T. G projects will start to time out.
With that in mind, we finished the quarter was 67 active programs a net loss of 21 from December 30, Onest 2019.
The first half of 2020, despite having 32 programs time out because of lack of activity. We were able to add 11, new programs and extend 18, others was selected biopharma customers added that have partially reopened we've also added two new farmer customers.
We've also successfully negotiated a new commercialization agreement with hydro.
Disagreement unlike our previous agreement with Qiagen as it comes as a pure commercial distribution agreement.
Each TG will now directly contract future Cdx development programs with our Biopharma clients and page and we'll have distribution options for the end companion diagnostic.
The should enable biopharma worked quickly and efficiently with a smaller highly responsive HPG organization, but yet be assured that global market access options are available through pathogen for the for the diagnostic should that be required for the therapeutic commercialization.
This new agreement recognizes the original value we saw when we first started working with guide you in 2016.
HD GE said chic technology can either be run on an aluminum or term upstream sequencer and that and now with this new agreement in place we have global distribution options through college, and one of the largest molecular diagnostic companies in the industry.
Turning to our product development activities in Arizona, and California, We continue to operate at a very high level. This is really quite an achievement and it demonstrates the incredible commitment or the entire organization to keep driving key value creation workstreams, even in very unusual circumstances.
In California, we achieved our second quarter milestone of initial assay configuration for the whole transcriptome or W. TTX, which is our internal name for the whole transcriptome product that's in development.
Our Arizona team met its Q2 milestones, which was to develop an immune signature on our existing edge seek precision immuno oncology panel.
The purpose of the immune signature is to quantify inflammation response in FSP tumor sections between inflamed and cold tumors.
This validated signature will be embedded in hcg is reveal software for easy customer use.
Inflammation signature out pit output will be designed to provide an immuno score a stromal score and a tumor micro environment score.
We're excited how we're layering on applications to our panels to increase the utility of these products there like applications on a smartphone.
We expect to continue to bring out more and more applications in both oncology and immunology and embed them into easy to use reveal software for customer use.
We look forward to continue to move forward in achieving our technical milestones as the year progresses.
This is about a quarter unlike anything we've ever seen.
What we're adapting and we're working through it.
Revenue will continue to be challenged while work from home restrictions are in place, but we will continue to drive our key results as it relates to building more and better products, improving our business processes and building our organizational capability. So that when markets reopen we will be a stronger and better prepared company than when things shutdown.
That it's my pleasure to turn the call over to our CFO Sharma means for review of our financials Sean.
Thanks, John total revenue for the second quarter 2020 was 2 million versus 5.8 million from the same period in 2019.
Direct revenue to find this product in product related services revenue in our financial statements was 1.7 million for the second quarter of 2020, compared with 4.4 million in Q2 2019.
This decrease was primarily the result of a decrease in product related services revenue associated with slower turnover biopharma customers from cobot might be in shutdowns.
In addition in 2019 this product related services revenue included significant levels of sample procurement.
Talk and subcontracted laboratory services revenue for two large pharma customer programs, which did not recur in 2020.
Oh product revenue decreased approximately $270000 over the second quarter of 2019, we were pleased to see the return of some of our academic customers in the second half of the quarter and the helpful impact of our sales planning efforts through October 19 shutdown that allowed for programs to resume when customers returned to their facilities.
Collaborative development services revenue decreased year over year by 1.1 million, reflecting very limited activity on existing programs subsequent to 2019.
Ongoing revenue reflects completion of remaining contract the development tasks as we await further decisions on these programs.
I do expect the continuing impact from cobot 19, or second half revenue.
Especially the revenue from our large pharma customers.
We're hopeful based on ongoing discussions with our customers the programs planned prior to cope with my team will be restarted in future periods. Once our customers operations returned to pre Tobin 19 levels.
Cost of product product related services revenue decreased to 1 million and the second quarter of 2020 compared to two and a half billion for the same period in 2019.
In addition to lower revenue. This also reflects a decrease in low margin subcontracted laboratory services revenue 2020 compared to prior year.
Research and development expense decreased approximately 1.5 million in the second quarter 2020 compared to the same period in 2019, primarily related to the decrease in collaborative development services revenue.
Costs related to these programs are recorded in research and development expense.
Our continued new product related research and development expenses unrelated to our collaborative development programs were approximately 1.5 million. The first quarter 2020, compared with 2.3 million from the same period in 2019.
This decrease primarily reflects the impact of development staff reductions in the first half of 2020 long with lower program costs and less travel in Q2 2019.
Despite the complications created by Cobot 19.
Our California, and Arizona development team successfully met the first step milestones.
Our operating loss for the second quarter of 2020 was 5 million compared to 4.7 million for the same period in 2019.
Loss per share was nine cents for the second quarter 2000, 2017 cents for the same period in 2019.
This reduction reflects additional shares of common stock and pre funded warrants for common stock sold in an underwritten public and private offering in September 2019.
Common stock sold in the first half of 2020 thrower through our aftermarket facility.
As of June 30, we had approximately 67.1 million shares of common stock outstanding.
We ended Q2 was $32.9 million in cash cash equivalents and short term available for sale Securities I.
Ill now turn the call back to John for some closing comments.
Thank you Sean.
We continue to actively manage our business to deal with and adapt to the market uncertainties, but.
We've adjusted our spending and priorities with a view toward maintaining our cash runway. Despite revenue uncertainties to help ensure that we have the funding.
To maintain our key value creation activities, namely our technology and product development initiatives. So that we're not compromising our mid and longer term opportunities for HD G.
I have no doubt that we views this market paused on proved HPG, our technology and our products.
We believe we're well positioned in a world of Biomarkers to be a platform technology for aren't a gene expression.
This is a large and fast growing market.
We have a novel and patented technology to take advantage of it.
And as seen we have a tremendously talented and motivated employee base. We're facing these challenges head on and are committed to fulfilling our mission.
In closing our strategy remains unchanged our priorities are going to continue to be to grow our base profiling business to grow our pharma pipeline and to invest in R&D, both in California and Arizona.
We believe our strategy is tight and sound and we believe we have the people and the resources to achieve our aims.
Cobot 19 will pass any economy will get back to work.
Patients and payers will again need precision medicine, and biomarkers enable that.
We have a world class are in a solution ready.
We look forward to restarting the growth trajectory of HKG when that happens.
With that I'd like to open up the call for questions.
Thank you.
At this time will now be conducting a question and answer session.
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Thank you My first question comes from the line of Puneet Souda with SPV Leerink. Please proceed with your questions.
Hi, Good afternoon. This is what's the unfair to Nate.
Thanks for taking the questions what are going to start with the whole transcript on I say kind of where things stand currently I know you've mentioned that you've met your twoq milestones.
Just wondering how things maybe have changed over the last few months.
During the looking ahead, and where we stand now versus the prior blood.
Hi, watching this is John.
The Q2 milestone was an initial assay configuration for the the full 23000 gene panel.
That was achieved while we're probably holding within I'd say a couple three weeks of the overall development timeline. The the next milestone for us as a tuck in accordance study and concordance White paper.
To validate that our technology essentially is equivalent to an R&D seek equivalent.
And that is also basically still holding on plan. So we continue to find new things everyday product developments Nada, a linear path by any way shape or form but.
When we run into things we work together, both the that the Arizona and California teams worked together to.
To resolve issues and make the appropriate modifications that we need make odd to build a world class assets. So very very proud of this team both in California, and Arizona for just soldiering on.
And then some pretty strange circumstance, but they're just doing doing a heck of a job.
Great. Thank you and then shifting over to two on the phone development programs I know visibility the bit limited.
Seems like PDP two was flat for the last two quarters.
Is this something that we can continue to expect moving forward and.
I guess can you provide any high level commentary on unplanned traditional PDP than the near term I believe last quarter, you mentioned that one was talking about the door.
So just wondering kind of the funnel looks like there.
Yes, frustration probably is probably the tone for us here.
It's difficult for us to have any visibility or to get any feedback.
All of these pdps or with major Pharmas all of them are more or less than work from home modes. So you know, where we're getting very little guidance from pharma.
On that and so that's what kind of led me in my prepared comments to speak to the fact that I've kind of lowered expectations on what we can potentially see out a future collaborations until I think.
Big Pharma gets back to work and gets away from the work from home restrictions. So it remains to be a.
I guess on that on what we now they're not working what we don't know as wonder when they're going to come back.
Great and then just a quick one kind of on balance sheet and opex expectations for the rest of the year.
Tend to be a bit more fortified right now.
Yes, what levers are left to be pulled if we'd see some continued disruption here and are you feeling about the cadence through the rest of the year.
Obviously this is Sean.
Obviously 33 million on the balance sheet in cash and equivalents.
We feel that.
We can sustain that that target burn that we we've talked about the past.
And.
Get to the end the year still and very healthy.
Position.
We have a couple of equity financing instruments, and we will use as needed to supplement any shortfalls that would be created by operations.
Great. Thanks for taking the questions.
Thank you.
Our next question is from the line of Kristen Kosco with Cantor Fitzgerald. Please proceed with your question.
Hi, John and Sean Thanks for taking my question so.
Press release yesterday, it sounded like the agreement with hygiene was in part as a result of listening to what you're Biopharma customers were looking for so I'm not no I wanted to ask while you were saying connected with your customers and of course, new unique fashion right now because the pandemic. What are you hearing as it relates to ways that you could potentially.
Look to sand business and are there any particular athleisure panels in general where you think theres some excitement for at this time.
Good question so thanks Krishna.
Yeah. The PR, let me first comment a little bit on the cage and agreement.
When we sign initial Cogen development agreement back and 16.
One of the big things that we're trying to check the boxes. A few other we are trying to check was to make pharma more comfortable with our global distribution capabilities.
They loved our technology, they love our science, but there's also a commercial muscle part that we needed to bring to the table and so unfortunately when Tyson.
Had struggles with their sequencer and that agreement kind of came apart. We also lost.
Access to their global global channel so.
As discussed we went out and talked to some different people and quite frankly, the original value that we at start of the stock in a cage and back and 16 was still there and it just made all the sense in a world not the throw out of the baby out what the Bath water and too.
Signed a different type of agreement that lets HPG directly contract.
With pharma so that one when there is no middleman too we've got better economics on those future collaborations and and yet still not lose the global market access that that cage affords us. So I think it really was a good deal for our customers a good deal freight.
TJ in a good deal for Qiagen as we bring additional menu into their into their Automations automation solutions.
Hi to expand we're very active working electronically and virtually.
We are talking to new customers literally every day in pharma, we're very pleased that we added two new customers last quarter. What we are seeing however, though is the largest customers, which historically where the biggest part of our revenues are the ones that are really in work from home, we're seeing some some biotech.
Now open up so we track this on a weekly basis, so about eight or 9% of our customer base is what we would consider to be back in business about 40% to 45% is essentially partially back and about 40% to 45% still remain closed an unfortunate.
The closed our some of the big guys.
In regards to which asset base the workforce product for us continue to be our oncology biomarker panel, which is essentially a cancer seragut.
Our precision immuno oncology panel, which lets people look at the immune response, especially for.
Hi, how checkpoint inhibitors, and then increasingly we picked up quite a few new customers for our new autoimmune product.
And we are actually putting out some statements of work so that product is starting to get traction as we were hoping it would.
I hope I think I answered the questions.
Yes, you did thank you and then during your prepared remarks, you talked about the number of publications nearly doubling over the last year and a half year. So wanted to ask in general.
How you think you publications.
Most help for you is it just driving awareness and then also on that no.
In a virtual world and I know you head to head to head data at ASCO, but how is an important and mutual virtual environment in general.
Yes, it's a different time.
Days of kind of go into and ASKO or an HCR and traipsing through the posters and papers I think might be gone forever. So I think publications and electronic marketing are probably more important than ever before.
And so for us.
Yes, I remember our technology really didnt get it out there to about 2014, that's when our patents were issued so.
We're just now and realizing that publications can take a couple of years. We're now starting to see that wave of publications that kind of validates our technology and the fact that it's Scott utility. So we're really pleased to see that because many times when someone else has faced with a similar problem. The first thing they do they may do a pub meds.
Search in their field and if our technology as referenced.
As as a technology available, especially in a favorable light.
We're more inclined to get those kind of unsolicited requests. So I think publications are probably one of the most important things and bring in future customers.
And then from there it's literally a word of mouth kind of thing, it's a fairly tight and small market and regard so.
The number of tail wells, so it's really important net.
When when we have good customers are talking to other people and again, we're seeing a lot of our new customers coming to us as either people that have left one quick one account move to another and they're bringing us with them or they've talked to appear a colleague and we've been recommended and that's how we've been brought into.
Look at a project.
Okay. Thank you and then my last question is just that.
I understand that some of the programs or timing now in light of Coven 19, but could you describe what have been.
Some of the key drivers, adding new project during this time and.
Mostly coming from the customer base, that's fully back to work. Thank you well, yes, a lot of it is coming if it's coming from smaller.
Yes, I think we're doing a better job at finding.
And using information like that is available through through folks like yourself that profile out the portfolios and the drugs and I think our sales team that was mentioning.
We've been doing a lot of work in kind of this market pause to try to teach them how to find the drugs, where our technology might be a very good fit for biomarker development.
So what we're starting to see is an increasing number of meetings and increasing our funnel of opportunities that are building in our in our pharma business.
For those people that are back to work and even those people that aren't back to work, we're still getting meetings kind of selling our technology. Unfortunately, just knowing that we're not going to get projects until.
People can actually either access or laboratories are access, thereby repositories.
Thank you.
Thank you.
Next question is from the line of Alex Nowak with Craig Hallum. Please proceed with your question.
Great Good afternoon, everyone.
Just hoping you could speak to the trends you saw in July and expect the remainder of the year here a number of life science names are part of the past few weeks and it seems like there are seeing a rebound of products being sold into the lab, even if they're only selling to the ecology space I'm, just curious why isn't hcg seeing a similar improvement.
As biopharma starts to come back online.
Yes, Thanks, Alex I mean, what we saw in July.
Is probably consistent with what we're seeing in June.
We're not seeing an increase in activity I think we're seeing kind of a us a similar trajectory to the June what we saw.
Yes, I think and optimistic point of view from academics that they would be back in total business by July.
And I think with the kind of the.
The surge in co bid, everyone kind of backed up a little bit.
And they Didnt go backwards, but they didn't increase the rate of coming back.
The other thing that we were curious what was going to happen was in Europe.
I was wondering if they're going to take their usual summer holidays, given the fact that the latter part of Q2 was basically a holiday and and.
For in our case at least for the customers. We have Europe is continuing with their plan July and August vacations and that makes for a very quiet our revenue period for us in in.
In Europe in regards to.
Why we're seeing something different.
I don't know I've I've been following other People's Biopharma businesses that are working with retrospective or prospective studies folks like garden and they seem to also have been hit by this I think the folks that actually have tests on market, where like and like any jafar mutation test or something like.
That that's actually being used to drive a patient treatment, they're going to be less affected and folks actually working on.
Retrospective or prospective studies, which are really struggling to enroll patients right now.
Okay understood and then understand your comments or the whole transcripts amass say, we should it be seeing a white paper here over the last couple of months beyond that what were minus the timelines when should we have the as a cost finalized locked down and then ready to be sold.
Pharma.
Type why would that be.
Yes, I think the second half deliverables from that I'm expecting that team is yes first a white paper.
That that will probably be coming in right at the end of the Q3 or within the first couple of weeks in Q4.
And then another major milestone as we want to sign up our first collaboration partner.
With an early access program, we would expect to start fully commercializing this product mid year.
2021 off first any are you all mode, and then clicking at over as a universal companion diagnostic and adding that to the pharma services offering and then also moving that up first into some of the claims.
Work that we plan to have for our own comprehensive breast program, but also began to work with some.
LDC partners in a CLIA environment, where this would serve as kind of a substrate or a universal are in a operating system and then they could actually build their own LDPC on top of this universal panel.
Got it and you had the first pharma collaboration partner identified and they are just moving on to the process or is that still a seeking who make sense here for the first partner.
Well for the Universal companion, that's that's still a little bit down the road when I say.
First our market access partner for collaborator and in Q4 that is likely going to be either a academic institution, who is looking to bring the technology in two are there to their CLIA lab or it could be another test developer who has.
Content, because again, we're kind of positioning the company as a technology provider.
And we're looking to partner for content and we've got several dialogues going on that front, where we essentially would.
Hey to use the overuse metaphor, maybe the Intel inside offer there for their particular.
Medical our value proposition.
Okay understood appreciate the clarification, there and then just Sean of the couple of different liquidity options that you have with the ATM and Lincoln Park capital was any of those use during the quarter and just.
Mounts raised and shares issued would be helpful. Thanks.
Yes, we have we did use the ATM facility during the quarter Alex.
To the tune of about $1.4 million.
$4 million for the first six months of of 2020.
A number of shares issued roughly.
Uh huh.
But 6.5 million.
Okay perfect. Thank you.
Thank you. Thanks question is from the line of each one was a c. Wainwright. Please proceed with your question.
Hi, This is Blair Cowen on three couple of question for me first how is the new Master agreement with quite again, Manchester differ from the previous collaboration.
Sure enough. Thanks for so thanks for dialing in.
The old collaboration.
I'll I'll make it real kind of simple. It was it was designed so that Cajun would would contract with the pharma and then we would write an s. So W. Under that agreement with page and that meets the requirements that Cajun.
Committed to it was kind of almost treated HPG as a subcontractor even now we were in all three of those.
Those programs indirect contract contact and had brought those customers to Qiagen and also involve the profit split so they package and got a 50%.
You know.
Split on recognized our profits after costs.
And it was really built on the the assumption that eventually all of these things would be put into a page and workflow there'd be an h. TG edge box that would sit in front of the gene reader.
And there you know there'd be a significant contribution.
From were on the workflow front from Taiwan.
Obviously, we were disappointed they were disappointed that the gene reader didn't make it.
But we so this new agreement is it literally a distribution agreement and what it says is hcg now is free to directly contract for companion diagnostic opportunities with Biopharma.
And as you probably would.
Imagine, we're pretty nimble and quicken agile at being able to do that.
And yet.
Offer up distribution options for the end companion diagnostic through Cajun. So it basically gives the pharma.
Optionality on global market access for day, one market ready access for the drug in the companion, So and it also leverages, our preexisting development agreements with thermo and with with alumina. So we build them on their sequencers. So it's a little less southern.
An end to end solution then what was originally envisioned however, the new agreement.
Meets our needs of being able to have market access I think it's good for Cajun because it gives them a another stream of revenue.
When companions come through and it meets the needs of pharma, because they like working with kind of fast and nimble technology providers like H. TG.
But still had the security that Theyve got global market access through college and so this one's just a straight distribution agreement the alone was a a development and commercialization agreement.
Okay, Thanks, and what kind of implication to with the tablet revenue for 2020 and 2021.
Wow.
In normal circumstances would probably be able to give you a little better guidance I mean, what we're saying back to what I was saying.
Okay.
What we're seeing in pharma.
It's just a very ambiguous environment in regards to win there they potentially could be coming back from work from home and seeing as this is really an enabler and something I think those pretty important for us to get in place on the kind assigned the next collaboration agreement.
I think were we may be able to sign up a couple of smaller biotechs.
Because many of them have started to come back but.
Until big Pharma returns to work I think we're going to.
Yes that is likely to be impacted by the work from home restrictions. So I guess I'm just telling is we really don't have great visibility that right now.
Okay, great. Thank you.
Yes.
Thank you. This concludes that question answer session for saying I will turn the call back over to management for closing remarks.
Great Hey, Thank you first I want to thank everyone for joining us today on in particular I again want to thank the employees here at hcg for what I think are just extraordinary efforts that they continue to make to help us build and grow this company.
Additionally, I also want to thank our board for their help and guidance, we've had several AD hoc and virtual meetings over the last quarter and it's been highly appreciated.
And last but not least I really want to thank our shareholders. On these are extraordinary times and your continued support.
As the world to the management team into the employees.
So with that we look forward to updating you again on our next earnings call. Thank you.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.