Q1 2022 Adaptive Biotechnologies Corp Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the adaptive Biotechnologies first quarter 2022 financial results Conference call. At this time, all participants are in a listen only mode.
We will conduct a question and answer session and if you would like to ask a question. During this time simply press star one on your telephone keypad.
And once you require assistance during the conference. Please press Star zero.
I would now like to hand, the conference over to your speaker today Karina closer to year head of Investor Relations. Please go ahead ma'am.
Thank you Alexander and good afternoon, everyone I would like to welcome you to adaptive Biotechnologies first quarter 2022 earnings conference call.
Earlier today, we issued a press release reporting adaptive financial results first quarter of 2020 to the press release is available at Www Dot adaptive biotech dot com. We are conducting a live webcast of this call and we will be referencing to a slide presentation that has been posted to the investors section in our corporate website.
The call management will make projections and other forward looking statements within the municipal federal security laws regarding future events and the future financial performance of the company.
These statements reflect management's current perspective.
As of today actual results may differ materially from todays forward looking statements depending on a number of factors, which are set forth in our public filings with the SEC and listed in this presentation joining.
Joining the call today are Chad Robbins, our CEO and co founder on call fiscal our interim Chief Financial Officer.
In addition, Harlan Robins adaptive Chief Scientific officer, and cofounder Nathan soon.
R&D business Unsharpened Zeno antibody immune medicine business will be available for Q&A with that I'll turn the call to Chuck Robbins.
Alright, Thanks Karina.
Good afternoon, everybody and thank you for joining us on our first quarter 2022 earnings calls.
As always I want to thank all of our adaptive employees for their dedication and for their solid execution during a quarter in which we completed the reorganization of our business.
This strategic restructuring focus is adaptive and two business areas MLR D and immune medicine.
Along with our recent head count reduction. These changes will result in a more streamlined organization to fuel growth as we navigate this turbulent market.
We continue to hire talent strategically in key growth areas, such as our <unk> sales team and our cell therapy group in South San Francisco.
We also look forward to formally welcoming our new CFO , Tycho Peterson and leveraging his extensive expertise.
We will officially start on June 1st following completion of his garden leave.
We have prioritized product development efforts for each business area and the teams are in place to execute towards our 2022 goals.
Slide three shows the respective key drivers of our MRV and immune medicine businesses.
The value of our <unk> business is a combination of the Columbus test offered the clinicians and the <unk> assay offered to pharma partners, who integrate MLD status and their heme malignancy trials.
Aligning these synergistic components of the <unk> business under the same leadership at adaptive will drive execution and enhanced visibility.
Immune medicine business is comprised of pharma clinical testing and drug discovery all of which are driven are informed by our T cell energy our T cell receptor antigen map.
As with our <unk> business within immune medicine, there is synergistic value between the utility of the information for clinical diagnostics and to pharma partners and research and drug development.
As shown on slide four our first quarter results reflect a solid start to the year with revenue of $38 6 million.
Both business areas delivered key achievements and are set up for significant growth in 2022 and beyond.
Within the <unk> business <unk> test volume experienced strong growth of 45% versus prior year.
The <unk> sales team of 70 reps is now fully hired trained and is being deployed to hit the field.
Progress continues with Payors data generation and guideline expansion.
For MLD pharma, we continue to grow our partnerships.
This quarter, we entered into an expanded <unk> portfolio, a partnership with a major pharma partner in multiple myeloma in CLO for the use of MRV as a clinical endpoint.
The medicine business is also delivering on multiple fronts generating a total of approximately $21 million this quarter.
Revenue from pharma partners that use immuno seek and data generated from our TCR antigen map grew 100% versus prior year.
We are well positioned for continued growth as we expand the use of immuno seek in multiple therapeutic areas and secure additional key map deals beyond COVID-19.
For example, this quarter, we entered into a new collaboration with J&J to map T cell responses to RSV for its vaccine program.
The clinical diagnostic pipeline with T detect is advancing in both infectious diseases and autoimmune disorders.
And in drug discovery, we continue to make good progress with our shared and private product programs under our <unk> collaboration.
Moving on to MRV business on slide five.
Tests delivered grew 12% to seven 698 <unk> versus prior quarter with double digit growth observed in all three indications.
Ordering hep's and ordering accounts experienced significant growth of 53% and 36% respectively versus prior year.
<unk> patients tested also grew 59%.
Growth in the community setting although off a small base was north of 60% during the quarter demonstrating a strong start by our expanded sales force focused on increasing our reach beyond academic centers and.
In addition, about 30% of all MRV tests were delivered in blood with multi myeloma experiences the highest uptake versus prior periods.
As part of our strategy to cement our leadership in lymphoid malignancies, we plan to expand into non Hodgkin's lymphoma, using Cte DNA, which is the best measure of relapse risk.
We have submitted our application for <unk> coverage to <unk> this quarter.
We continue to enhance the overall customer experience by investing in the integration of <unk> into customer ordering systems.
This integration can positively impact both order volume and order pull through.
To a great start and on track to accelerate our growth trajectory for the remainder of the year.
I wanted to share on slide six new data about using quantum seek in pediatric <unk> patients.
In this published study of 143 pediatric <unk> patients receiving car T were tested for MRV at multiple time points using slow and clumsy.
Data show that closed seek detected disease in blood.
Hello, Miss in Mero.
Furthermore, in bone marrow the performance of <unk> was very strong closely detected <unk> and 100% of patients prior to relapse with a median lead time of 168 days versus 52 days using flow given the clinician significant lead time to inform treatment decisions.
<unk>.
I look forward to sharing additional data readouts. This year further demonstrating the increasing utility of closing MRV testing.
As mentioned before our emerging pharma partnerships are a key component of our <unk> business.
<unk> seven shows our pharma portfolio, which is comprised of partnerships with over 60 companies that integrate close seek in their clinical trials.
As efficacy of blood cancer drugs continued improve pharma companies are looking for more expensive ways to measure response.
Of note our closed <unk> assay was used as a clinical endpoint in support of regulatory approval of five drugs to date.
Almost every major pharma company developing a blood cancer drug is using <unk> in their trials as a clinical endpoint.
From these partnerships, we have a portfolio of more than $330 million in future eligible milestones based on additional drug approval from ongoing and future studies.
We continue to grow and expand our pharma partnerships and look forward to seeing close seek data derived from these pharma trials to further drive clinical utility of the <unk> test to clinicians.
Now turning to our immune medicine business on slide eight.
The immune medicine business is comprised of three growth areas pharma clinical testing and drug discovery.
Each of these areas has multiple shots on goal to create value in the short medium and long term.
This value is predominantly driven by data that we generate through our TCR antigen map.
Yeah.
The pharma research area, which includes over 100 companies using our immuno seek or T. Map products is expected to continue to grow significantly in the short and medium term.
The clinical diagnostic area area or <unk> is in the early innings with its first indication launched last year, which also served to establish T. Detect is a new class of molecular T cell diagnostics.
We expect <unk> to be a more meaningful contributor to revenue in the medium to long term as we generate and validate T cell signatures and multiple autoimmune disorders with high unmet need.
And the drug discovery area, which is currently focused on our cell therapy collaboration with Genentech is in early stages of development and is expected to be a significant growth contributor in the mid to long term.
We aim to secure additional collaborations beyond cancer cell therapy that could further accelerate our growth.
Let's take a closer look on slide nine as immune medicine business performance this quarter.
Pharma was the biggest contributor of revenue growth in the quarter and represented 30% of the immune medicine business.
<unk> product is gaining traction with additional Covid studies, and a new RSV program, which I mentioned.
We expect to expand the use of existing and future T maps and more disease areas as we continue to generate data from our TCR antigen map.
Our strategic Tech Covid this quarter orders decreased versus last quarter is we're seeing the virus moved from a pandemic to an endemic state. We continue to offer the test to consumers with modest promotional activities to maintain brand awareness.
We are focusing on making TD take line available via our CLIA lab. During this lyme season, while we accelerate data generation and signal validation and select autoimmune disorders.
Drug discovery revenue is attributed to the amortization of the genentech upfront payment, which varies quarter over quarter.
For our shared product this year, we're on track to deliver up to two additional TCR packages.
We also continue to work closely with Genentech to establish the private product specifications and to build our private product data package.
Zooming into key detect on slide 10.
Key to tech and infectious diseases has served as a proof of our TD Tech platform further investments and Covid and lime indications will be pursued opportunistically.
Specifically in Covid, our efforts to establish the T cell response as a correlate of protection continue.
We have been making progress at a policy level couple of weeks ago adaptive alongside a group of nearly 70, leading academic industry leaders and patient advocates sent a letter to the FDA urging the incorporation of T cell response, and Covid vaccine studies. This could further drive opportunities for T detect and.
For T map COVID-19.
We also expect to make <unk> available in the next quarter data from our immune cell line study shows <unk> sensitivity of 54% nearly double that of standard standard of care serology at 30% when we hold specificity at 99% for bolt.
We anticipate this sensitivity to increase as we identify additional lines specific TCR from new datasets that we will use to update our diagnostic classifier.
By making <unk> available in our CLIA lab, we aim to implement the processes, which will be necessary for all future indications.
In parallel the team is working on initiating a clinical validation study in IBD and continues to improve our signal and MFS.
Our objective is to launch.
To launch at least one autoimmune indication test by the end of 2023, we're excited about multiple opportunities stemming from our immune medicine business.
I'll now pass it over to Kyle Pinnacle for a financial update.
Thanks, Chad.
Turning to our financial results on slide 11.
Revenue in the first quarter was $38 6 million, representing a slight increase from $38 4 million in the same period last year.
In prior periods, we have disaggregated revenue is the sequencing and development category as you can see on the left side of the slide this.
This quarter, our revenue reporting it now disaggregate it to reflect the reorganization of our business around our MRP and immune medicine market opportunities.
I mean medicine consist of revenue generated from immuno seek and have you mapped to pharma and research customers are key detect COVID-19 test clinical customers and our collaboration agreements in drug discovery.
<unk> consists of revenue generated from quality to clinical customers and our <unk> services to pharma and research partners at.
We have included a revenue bridge for the last eight quarters in our earnings release and 10-K to reflect the revised revenue disaggregation.
Our revenue mix for the first quarter consisted of 54% for EMEA medicine at 46% from MRV.
On the medicine revenue in the first quarter was $20 8 million a 4% increase from the same period in 2021.
With an immune medicine was primarily driven by $3 4 million increase in revenue from our pharma and research partners, partially offset by a $3 3 million reduction in the amortization of our genentech upfront payment.
As a reminder.
Revenue amortization amounts may vary quarter over quarter.
<unk> revenue was $17 8 million in the first quarter of down 3% from the same period last year. This.
This change was primarily due to recognizing $7 million in regulatory milestones in Q1 of 2021 versus three months this quarter.
This reduction was partially offset by $3 6 million increase in revenue from quality clinical testing.
Quality test volumes also increased by 45% versus prior year.
Shifting now to our operating cost guidance on slide 12.
Total operating expenses for the first quarter of 2022, or $101 7 million, representing a 28% increase of $79 7 million in the same quarter last year.
Cost of revenue was $13 2 million during the first quarter of 2022 compared to $10 million for the first quarter last year, representing a 32% increase.
Cost of revenue was primarily driven by an increase in material cost and revenue sample volume growth and an increase in labor overhead facilities.
Research and development expenses for the first quarter of 2000 to $37 8 million compared to $33 8 million in the first quarter of 2021, representing a 12% increase.
This increase was mainly attributable to increased personnel costs, including expenses related to our restructuring.
Sales and marketing expenses for the first quarter of 2022 or 26%.
$2 6 million in the first quarter of 2021, representing an increase of 27%.
This growth was largely due to increased personnel costs, primarily due to the expansion of our classic field team and our related customer operations teams as well as increased travel and customer event related expenses.
One time charges from our restructuring efforts contributed to the growth in expenses.
These increases were partially offset by a decrease in marketing expenses due to reduced corporate marketing efforts.
General and administrative expenses for the first quarter of 2022 were $24 1 million compared to $14 9 million in the first quarter of 2021, representing an increase of 62%.
The increase was primarily driven by expanding our overall facility footprint in higher depreciation expenses.
Net loss for the first quarter of 2022 was 62.
Compared to the first quarter of 2021 net loss of $46 million.
With respect to our full year guidance, we are reiterating our revenue range of $185 million to $195 million, which already contemplated the MRC milestone we recognized this quarter.
With our MRP immune medicine businesses are off to a great start and we expect them to contribute to our full year revenue approximately 50 50 at the midpoint of the range. Although it is early in the year, we are confident on our ability to achieve our full year commercial.
Yeah.
Regarding our operating expenses, we are on track for operating expenses to grow at low rates and revenue as a result of our restructuring activities and as we continue to prudently manage our investments and improve our operating efficiencies.
We're being thoughtful about our cash and expect to deploy capital on our balance sheet to support those projects with the greatest potential while also reducing our burn rate.
We look forward to providing further updates next quarter I'll now turn the call back to Chad.
Thanks Kyle.
As outlined on the call and listed on Slide 13, we executed on key strategic decisions around the restructuring of our business and are on track to achieve important milestones during the rest of the year in both <unk> and immune medicine.
Our capital position is strong and we continue to manage our investments to fuel growth across the businesses. We're looking forward to a great 2022, so with that I'd like to turn the call back over to the operator and open it up for questions.
Thank you Sir at this time I would like to remind everyone in order to ask a question press the star one on your telephone keypad again that is star one to ask a question.
And we have your first question from Brian Weinstein with William Blair. Your line is open.
Hey, guys. Good afternoon, thanks for taking the question.
Sure Brian Thank you.
I just wanted to go through.
Growth rates here, a little bit because I know there were some moving parts here it seems like in the quarter, because you posted basically flattish growth but.
Sure.
Can you guys just go through some of the factors that.
Kind of drove that flattish growth I heard some genentech stuff that was in there.
And.
Some other things that might have impacted that growth rate on a onetime basis I just want to make sure that we understand what those things were.
Sure I'll take that Brian .
No.
First like to start with the two main components that drive a bit of quarter to quarter comparative challenges.
The first thing the MRV milestones and just as a reminder, Q1 of last year, we had.
Approximately $7 million in milestones from from our MRM business and this quarter. We had 3 million 16 4 million in compression there from a comp perspective.
The second component is the genentech amortization and <unk>.
Comparing that to last quarter of last year, we had about $16 million versus this quarter, where we are at about $12 million. So those two things kind of really compressed the growth. If you back those out you'd see about 47% year over year growth.
So that's kind of driving some of that optic issue.
And when we think about the genetic amortization, it's always somewhat of a black box for us I think.
How should we be thinking about that.
Going forward I mean.
Just so we're level set here so that we can turn it back that stuff out in with a little bit more visibility, it's always always somewhat confusing for us.
Yeah. Thanks for the.
Tied to our expense investment and the Genentech collaboration.
For the remainder of the full year, we're still on track to be about the same total revenues last year, maybe a little bit of a bell curve. This year through Q2, and Q3, and then come back down a little bit in Q4, but but overall I would say.
It will be fairly consistent to last year.
Got it and then Chad for you obviously the markets are very focused on pushes towards profitability cash flow breakeven.
I don't think you guys have given kind of formal talks about that but I'd love to kind of have some sort of a path that you guys are thinking about towards profitability. You know the steps that you guys think that you will need to take and any thoughts on timing there.
Yes so.
First of all I'll, just acknowledge that the path to profitability at least cash flow neutrality is incredibly important for us to adaptive and we I think we got out ahead of it earlier early this year and took proactive steps with doing the restructuring and the reduction in force we continue to look at ways to.
To manage expenses and at the same time look we're looking at.
The opportunities to bring in what I'll call non dilutive cash flow through different partnership and financing mechanisms.
Let's let's face it the cost of capital is high right now and we're kind of on a path to do what we can so that we don't have to take in capital that will be dilutive to the company in this economic environment.
That said too with Tyco coming onboard.
Really sharpening that long range plan and should have better visibility into into that time horizon to get to kind of cash flow profitability and should be providing that for you.
Within the back half of the year.
Okay. Thanks, guys.
Sure. Thanks, Brian .
We have your next question from <unk> Richter with Goldman Sachs. Your line's open.
Hey, guys. This is Elizabeth on first of all Lee and thanks for taking my question just on the Genentech, maybe if you could kind of walk us through what might be needed for it.
Private product specification.
What you kind of aim to deliver this year and just maybe remind us what goes into those data packages. Thank you.
Sure I'm going to have Sharon <unk>, who is head of our immune medicine business like the culture.
Thanks Elizabeth.
As we previously stated and on the <unk>.
Our successful proof of concept screens using our blood from 60 cancer patients last year.
That was the first pass at the signing.
Vacations that we're carrying through this year.
And expanding that and an additional set.
But 30 or more cancer patients as well.
So the goal there is importantly.
Running the end to end workflow.
And in our dedicated South San Francisco Lab end to end.
And in parallel in conjunction with the pieces of the puzzle that genentech is putting together.
The process being the product so.
That's what we're aiming this year building off of the success.
Last year.
Got it. Thank you that's helpful.
We have your next question from Mark Massaro with <unk>. Your line is open.
Hey, guys. Thanks for the questions. If I can I'll ask to all at once I guess first nice growth from <unk>. This quarter can you just comment on your visibility of what Youre seeing in the field. Now are you guys fully open nearly to pre pandemic levels and maybe just comment about what kind of.
Access you have reps in the field versus virtual and then the second question is.
On Slide 17, you show, you've got Crohn's and MFS in celiac kind of in the lead.
For your auto autoimmune diseases should we think of those as like the lead candidates.
What my question really boils down to is.
To what extent are you committed to advancing and investing in.
Obviously, crohn's and colitis are linked so can you just help us think about the priorities of the autoimmune disease portfolio.
Sure Hi, Mark I'm going to have net suite who's head of our <unk> business take the first question and then with regards to prioritization of Heartland.
So.
Hey, Mark Yes, so we're seeing an improvement in in person meetings and spending.
In a positive direction, but I would say is today still has about 60% of our business are virtual.
But on a day to day basis on a week to week basis, we see a positive trend in <unk>.
I expect us to be sort of 50%.
Very shortly in terms of.
Hi.
Yes in person visits.
Okay, and then just on the priority of the auto immune disease portfolio.
Sure. Thanks Harlan.
So.
We're focusing our resources, where our signals our most advanced and we have the highest quality samples for.
Early diagnosis of disease and of course, having a high unmet need we prioritized MF in crohns.
Higher than raw simply because we have.
We're a little bit farther behind in collecting samples.
Samples.
Not for any other particular reason.
And the.
Key.
The real key that we're focusing on is our is our.
Our differentiator is specificity here. So so just just as referenced we are aiming to.
Really reduced the number of false positives.
So that we can hit an earlier diagnostic market and so thats really been the focus and that's where we've had the biggest increase in our signals as we go.
And we're going to take the learnings from this and apply it into.
Other diseases as we create panels.
In particular for IBD as we were going to initiate a sample collection for clinical validation study in the coming months.
Great. Thank you.
Yeah.
We have your next question from Derik de Bruin with Bank of America. Your line is open.
Okay.
Excuse me Derrick your line is open.
You May ask your question.
Yeah.
Let's go onto the next question.
We have your next question from Tejas Savant with Morgan Stanley . Your line is open.
Hello. This is Hugo from you call on the call for Ddos.
Thank you for taking our questions would you elaborate on the plans to reduce the workforce are the reduction mostly in administrative overhead R&D or commercial.
Projects are prioritized and should we anticipate any delays in key timelines as it relates to Corona inflection.
Expansion into.
Bcl.
Uh huh.
Okay.
Any color around that would be great.
Yes sure.
Hey, <unk>.
I'll take that.
So first.
There was many areas affected across the business, but it wasn't uniformly distributed.
For example, there.
We are very very few cuts and the <unk> business. So to your questions about <unk> or any of the kind of project development pipeline is is all on track and additional in addition.
The.
Kind of a cell therapy group and check Cisco had very little cuts. So there were cuts across kind of general in minutes and administration of project management and frankly some duplicative.
<unk> of our stack hiring as well that we had an opportunity.
We thought we could gain some efficiencies and leverage.
The existing business.
So we are we are moving forward and as Harlan said, we're being very very very.
Clinical if you will to be used upon here.
How we're prioritizing the Teeter Tech program and we're also being very opportunistic about continued investments for example in Covid given.
That's taken more of an endemic state and we've seen from the <unk> orders kind of wane.
As COVID-19 kind of becomes more normalized in the population. So hopefully hopefully that's helpful color to you and in terms of kind of how we looked at the.
The reduction in force and prioritization.
Got it no that's.
Super helpful and then on the product development and expansion efforts into any child could.
Could you walk us through the rationale for using a cell free DNA is there a specific advantage to using <unk>.
Free DNA NHL versus some of the other indication and could this be a strategy that you would like to deploy on a go forward basis.
Yes, so I'll ask that question to that question since Nixon spin.
Specifically for <unk> there have been studies that have been published that demonstrate that cell free DNA as a better analyzed.
But.
For other diseases, namely.
<unk>.
<unk> and multiple myeloma.
Our Shannon our assay <unk>, so on an ongoing basis.
Any changes on those three indications, but for non Hodgkin's lymphoma, and more specifically for <unk>.
We're going with the annualized we know.
Has the best best performance and longer term.
We will also look at potentially combining both the analytes, namely the cell free DNA and aligned and the cellular assay.
Obviously, we're the one company that can do both so we potentially look at combining.
With the analysts.
Great. Thank you so much for that color.
We have your next question from Derik de Bruin with Bank of America. Your line is open.
Hi, sorry about that my phone dropped earlier, Hey can you give us some color on the <unk>.
Asps for <unk> sake.
Didn't break out the clinical sequencing revenues like historically, so can you give us some idea on coverage.
On just the ASP <unk>, just give us a little bit more clarity.
Yes. So I think this is Vincent again, we've seen steady ASP growth for <unk>.
Over the past couple of years, and we're anticipating that the growth will continue in the mid single digit range over the next.
Two to three years.
Very close to $1000 in ASP today, and our expectation is in two to three years within that $100800 range for ESP.
Got it and I know this was asked earlier, but just wanted to go back and revisit it I mean do you expect the cash burn was quite a bit higher in the first quarter do you expect that to.
Ramped down throughout the rest of the year basically it's a question on <unk>.
Do you have enough cash to get through this year.
This is Kyle yes, so a couple of things in Q1, obviously, you don't have the full effect of our restructuring efforts and the cash burn because of the timing of when we initiated that was late March.
The second thing as it relates to Q1, a bit of seasonality, we have our corporate bonus payouts in Q1, so from a cash perspective.
I'm generally thinking of the rest of the three quarters is between 50 and $60 million of cash burn.
Great. Thank you that's helpful.
And.
I guess any.
I'm sorry did you talk about when you expect to see the NHL assay to be commercialized I know you're in validation and CLIA validation now.
Yes with respect to NHL, we're going to launch that later this year in our CLIA environment.
We have submitted our tech assessment to mold Exxon are waiting to hear back on reimbursement, but as with many of our diagnostics and our ethical launch we'll launch ahead of reimbursement towards kind of the back half back after the year I mean, it is currently available and are clear environment.
Cellular assay, but we've got as mentioned earlier, we've got product development efforts on.
Going to convert that to incorporate ct's DNA into into the assay as well.
Or due to an actual product.
Yes.
Great. Thank you.
One more item to that as you know.
<unk> ahead of that launch will be.
What we call our clinical experience program with 30 physicians, so that's already underway.
And we're pretty confident.
By October November of this year, we will have a fully.
Commercial launch with Strep cubes NSE.
<unk> assay.
By October of this year.
Thanks.
I am showing no further questions at this time.
Ladies and gentlemen. This concludes today's conference. Thank you for your participation you may now disconnect.
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