Q1 2022 NETGEAR Inc Earnings Call
Yeah.
Additionally, we are taking a new and more efficient approach on how we deploy some of our marketing activities to drive a better return on our investment.
Overall, these efforts will better align our cost structure to the projected revenue levels of our CHP business.
For the first quarter of 2022.
Net revenue for the Americas was $144 6 million.
A decline of 34% year over year.
And down nine 3% on a sequential basis.
EMEA net revenue was $36 9 million.
Which was down 39, 7% year over year, and down 26, 3% quarter over quarter.
Our APAC net revenue was $29 million.
Which is down 22, 9% from the prior year comparable period.
And down 34% sequentially.
Revenue declines were principally driven by the retail portion of the CHP business.
With revenue in the prior year comparative period boosted by elevated end user demand tied to the pandemic.
And replenishment of previously depleted channel inventory levels.
Yes.
For the first quarter of 2022, we shipped a total of approximately $2 4 million units.
Including $1 5 million nodes of wireless products.
Shipments of all wired and wireless routers and gateways combined were about 784000 units for the first quarter of 2022.
The net revenue split between home and business products was about 62% and 38% respectively.
The net revenue split between wireless and wired products was about 63% and 37% respectively.
Products introduced in the last 15 months constituted about 26% of our first quarter shipments.
While products introduced in the last 12 months contributed about 21% of our first quarter shipments.
Okay.
From this point on my discussion points will focus on non-GAAP numbers the.
A reconciliation from GAAP to non-GAAP is detailed in our earnings release distributed earlier today.
non-GAAP gross margin in the first quarter of 2022 was 28, 2%.
Which is down 700 basis points as compared to 35, 2% in the prior year comparable period.
And down 180 basis points compared to 30% in the fourth quarter of 2021.
Okay.
Increased material and production costs as well as transportation costs.
Impacted gross margin performance compared to the prior year.
During the first quarter, we selectively began to increase prices and we plan to raise prices again for serving SMB products before the middle of the year.
We believe these actions will help counterbalance material and transportation cost increases experienced in recent quarters as we progress through the year.
Total Q1, non-GAAP operating expenses came in at $68 7 million.
Which is down one 4% year over year.
<unk>, 4% sequentially.
Our head count was 766 as of end of the quarter down from 771 in Q4.
We expect our head count to continue to decrease but we will rebalance our head count deployment to focus resources and invest in areas that we believe will deliver future growth such as <unk>.
Our eight or 8% to nine with Bae systems and subscription services.
Our non-GAAP R&D expense for the first quarter was 10, 8% of net revenue.
Compared to seven 1% of net revenue in the prior year comparable period.
And eight 7% of net revenue in the fourth quarter of 2021.
Okay.
To continue our technology and subscription service leadership, we are committed to continued investment in R&D.
Our non-GAAP tax rate was 16, 5% in the first quarter of 2022.
Looking at the bottom line for Q1.
We reported non-GAAP net loss of $8 1 million and non-GAAP diluted net loss per share of <unk> 28.
Turning to the balance sheet.
We ended the first quarter of 2022 with $263 $8 million in cash and short term investments.
Around $7 $7 million from the prior quarter.
During the quarter to $1 3 million of cash was provided by operations.
Which brings our total cash used by operations over the trailing 12 months to $17 million.
We used $1 million in purchases of property and equipment during the quarter.
Which brings our total cash used for capital expenditures over the trailing 12 months to $9 2 million.
In Q1, we spent $9 4 million to repurchase approximately 354000 shares of netgear common stock at.
At an average price of $26 $26 50 per share.
Since the start of our repurchase activity in Q4 2013, we have spent $636 9 million to repurchase $18 2 million shares.
We are committed to returning value to our shareholders and plan to continue to opportunistically repurchase shares in future periods.
Our fully diluted share count is approximately $29 6 million shares as of the end of the first quarter.
Now turning to the first quarter results for our product segments.
The connected home segment, which includes our industry, leading Nighthawk <unk> Nighthawk pro gaming and <unk> brands.
Generated net revenue of $133 million during the quarter.
Which is down 45, 9% on a year over year basis and down.
25, 2% sequentially.
We experienced.
A year over year decline in both retail and service provider channels.
As a reminder, the prior year comparative period for the retail portion of the business was boosted boosted by heightened consumer demand in response to the pandemic.
Along with stocking of depleted channel to meet the heightened demand.
Although the overall size of the U S consumer Wifi market contracted to roughly flat to pre pandemic levels.
We experienced strong demand for our Super premium higher margin Wi Fi mesh products.
With higher service attach rates.
Underscoring the confidence we have in our strategy for long term profitable growth.
Not only did we see our end user sales for these products grew over 20% as compared to a year ago.
But we also saw sequential growth contrary to normal seasonality.
Our service provider business performed largely in line with expectations and we continue to expect a strong sequential increase in Q2 and subsequent quarters. Despite continued continuing supply chain challenges.
The SMB segment continued to perform well in the face of supply chain challenges and generated net revenue of $82 million for the first quarter of 2022.
Which is up four 2% on a year over year basis.
And up four 1% sequentially.
Our managed switch products continue to lead the way with over 80% growth as compared to the prior year.
The investments we made to develop the <unk> market are clearly bearing fruit.
Additionally, we see growing traction behind our portfolio of Wi Fi six cloud managed mesh wireless access points.
However, once again due to supply chain challenges, we spent heavily in airfreight to compensate for shipping and production delays.
Dampening the higher margin contribution from this business.
Encouragingly, our market share in switches sold through the U S retail channel remains strong at 55% in Q1.
I'll now turn the call over to Patrick for his commentary after which I will provide guidance for the second quarter of 2022.
Thank you Brian .
Two years into the pandemic substantial supply chain disruption is still plaguing many industries.
This has been a limiting factor in our ability to fully capitalize on the unprecedented demand we see for our SMB business.
And our super premium or benign and <unk> mobile hotspots.
While we overcame challenges to deliver F&B revenue over $80 million, we left a considerable amount on the table.
Our CHP business saw the U S consumer Wi Fi market compressed to roughly flat with pre pandemic levels.
However, with EMC HP, we saw strong incremental demand for our or benign quad band mesh and EB five mobile hotspots.
On the SMB side.
Other than strong demand in pro AAV switches, we also saw meaningful year on year and sequential growth.
In our SMB wireless access points.
We believe easing supply challenges later in 2022 will benefit our SMB and our mobile hotspot sales into service providers channel meaningfully.
Our strategy to create and grow the super premium portion of the CHP market.
And will drive progress.
Higher margin hardware and subscription service revenue.
As we move through 2022 and into 2023.
As a matter of fact, we saw our service revenue grow over 47% year over year to reach seven 6 million for the first quarter of 2022.
We ended the quarter with 627000 paid subscribers.
An increase of 43 barrels and sequentially.
With a seasonally stronger second half we are confident we will reach our target of 750000 paid subscribers by the end of 2022.
While we are taking actions to address the near term external challenges.
Believe the innovation and leadership in wireless and switching technologies that are net gears hallmarks will be at the center of returning our company to profitable growth.
SMB remains on an upward trajectory driven by strong demand across geographies and channels.
In Q1, SMB delivered revenue of $82 million in the quarter for.
For year over year growth of four 2%.
With limited supply we exited Q1.
With our highest backlog in the history of the business.
We are helping revolutionize the pro market and.
And his transition from cumbersome analog solutions to our true high definition intelligent digital aviol of IP.
And that is driving demand for our pro <unk> managed switches.
With end market sales up over 100%.
As compared to a year ago.
Furthermore, we continue to see strong demand for our Wi Fi six wireless products.
Business reopen and upgrade their Wi Fi networks for employees returning to the office.
Net gear is instrumental.
In helping the SMB market upgrade from Wi Fi five Wi Fi six.
To help enable this we intend to accelerate our new product introductions in both pro AAV and SMB wireless in the next 12 months.
Armed with increased demand and new products.
We are on an intensive campaign to recruit new value added resellers around the world.
And our target is to grow that base by 50% in the next 12 months.
We are happy to report that the top 50.
The integrators in the U S are now our reselling partners.
We also have over 300 managed service providers worldwide with selling our SMB wireless access points to their clients together with our insight pro remote management of subscription services.
Our focus on the highest end of the CSP business, which we call. The Super premium segment continues to be the right strategy.
Right before the pandemic, we introduced the <unk> all be eight excuse me a $1000 unmatched system with three nodes.
The demand for the product was strong throughout the pandemic.
Late last year, we introduced the world's first quad band mesh system or benign.
<unk> thousand $500 with three nodes.
Again, the demand was strong.
Combined we have discovered a unique segment of the Wi Fi market.
It uses value the ultimate Wi Fi experience of both speed and coverage.
Extending to every corner of their properties, both inside and outside.
This group of users.
Characterized by wealthy individuals who will pay a premium for on site security and enhances debuted in management services at their residences welcomed the ability to add our AMA smart parameter controls and pro support services to the army, which serves as the front end or two.
They're in home Wi Fi Internet.
To know the price is well worth the value.
That is added to the modern day internet intensive hybrid workplace.
As our supply increases.
We'll expand our retail presence of the or benign into more channels and more geographies worldwide.
We are also making good progress in our direct to consumer web store sales we.
We saw a 27% year over year sales growth on a web stores worldwide.
This channel grew as a percentage of our overall CHP sales sequentially.
We continue to enhance our web stores with unique products.
As the black edition of our or benign.
And with special services, such as the current year, Chet and at home installations.
We aim to make a web stores are vital platform to engage directly with our super premium customers.
And we're confident that it was surpassed 10% of our total <unk> sales by the end of this year.
And with that I'll turn it back over to Bryan to comment on our opportunities and obstacles in the coming quarter and year.
Thank you Patrick.
U S consumer Wi Fi market is currently roughly flat to 2019 levels.
Lower than our expectations to start the year.
Given the smaller market, we will be taking actions to optimize our retail channel partners' inventory levels in the coming quarters to align them to current demand expectations.
We will also be taking measures to better align the cost structure of the CHP business with its current projected revenue levels.
Even in the face of significant supply chain challenges.
We expect second quarter revenue from the service provider channel to be approximately $30 million.
In the SMB to performed slightly above Q1 levels.
Together these factors lead us to expect our second quarter net revenue to be in the range of $205 million.
$220 million.
As a result of these factors.
And the reduced leverage from our top line, our GAAP operating margin for the second quarter is expected to be in the range of negative six 5% to negative five 5%.
The non-GAAP operating margin is expected to be in the range of negative 4% to negative 3%.
Our GAAP tax rate is expected to be approximately 17%.
And our non-GAAP tax rate is expected to be 16% for the second quarter of 2022.
We remain hopeful that fee transportation costs will ease.
In our SMB and service provider supply will improve in the second half of the year.
And these factors will combine with our cost reduction efforts to create a much more favorable environment for our top and bottom lines.
While we are confident in our ability to provide guidance at this time.
We do so with the caveat that considerable uncertainty remains in the market due to the COVID-19, pandemic and supply chain conditions.
Which continue to remain challenged and should unforeseen events occur in particular challenges related to closure of our manufacturer partners operations increased transportation delays into any of our regional distribution of our manufacturing centers.
Greater than expected freight or component costs.
Lower than expected end market demand, our actual results could differ from the foregoing guidance.
We would now like to answer any questions from the audience.
At this time I would like to remind everyone in order to ask a question press star followed by the number one on your telephone keypad.
We'll pause for just a moment to compile the Q&A roster.
Your first question comes from the line of Jeffrey Rand with Deutsche Bank. Your line is open.
Hi, Thanks for taking my question and your SMB business. When you can deliver a product because of supply constraints because the customer just go to someone who has inventory of our most customers just wait until you have the product basically is this lost revenue or just delayed revenue due to supply constraints. So a few things we just discussed at our back.
<unk> is at the highest in history. So thats an indication the customers are not going away. They are staying with us and the reason the customers are not going away to stay with us because pro switches, we are pretty much the only supplier in the market. There is nothing like that so.
This is a resolution of helping the AAV installations going from HDMI Max Max out at one K into Ethernet, which could go up to 8-K or even 12 K is a very unique solution. So is all supplied bow, we're working feverishly to try to get the <unk>.
<unk> going but to produce these products will require components from many many places.
Unfortunately, a good portion of those components come from China, and we just cannot avoid that and when China goes into lockdown one after another.
Probably have heard that there is another big city of Lockdown today, which is going to have significant impact for the rest of the world as the city of new Alright.
So thats really.
Limiting our supply of course, we work feverishly to try to source components outside of China, but is not a one month process is a multiyear process.
Hope that answers your question.
Great. Thank you and as a follow up obviously the first half of the year has been weaker than you expected. During your analyst day last year. When you gave the full year outlook can you give us an update on how youre thinking about the full year on the top and bottom line.
Sure sure.
It's obvious to say that there's still a fair amount of uncertainty out there.
Things like the macroeconomic environment.
What's going on in Ukraine, and just kind of the.
Downstream impact on consumer behavior in Europe .
But that said our best read at this point is that we do expect things to improve in the back half of the year.
We both spoke at length about an improving supply picture for both.
SMB as well as their mobile products for our service provider business.
So that can she gave us the lift we should also expect to see a seasonal lift on the retail portion of CHP in the back half of the year. So.
So I think all of those things.
In aggregate, probably steers second half to be up on first half on the topline basis, probably in the range of 25%.
With that additional topline lift.
The cost cutting measures that we're taking on right now.
An improved picture in terms of transportation cost, we still think that we should be able to achieve something near our original second half guidance from an operating margin standpoint in that 8% to 9% range.
So again I think everything is kind of steering to a much improved picture for the back half of the year.
Great. Thank you.
Your next question comes from the line Adam Tindle with Raymond James Your line is open.
Okay. Thanks, maybe you could just start off.
On that question is it possible to maybe quantify some of the cost actions that youre, taking some of the elevated supply chain costs and the timing that you expect to resolve those so just put a finer point on the dollars in each of those buckets and how quickly those should impact the model because that that second half guidance it sounds like it.
Pretty pretty quick to impact positively so I just want to clarify that.
Yes.
Reiterate I will start with reiterating the impact to some of these.
Component cost increases we shared some of this at our analyst day.
And relative to 2021, those cost increases is about a 400 basis points.
The impact to our operating margins.
Transportation, we said would be up about 200 basis points. So not much has changed on that.
That front.
But again the sphere that I'd, just kind of provided for the second half of the year.
Relative to where we're guiding for Q2 has has a lot to do with what we see on the top.
Top line.
Starting with the improved supply picture for SMB.
Okay.
Okay, maybe I can just hone in on CHP then.
Yes. It is.
Obviously the market is softening based on on the Miss versus your expectation now down to 2019 levels, you've got elevated inventory to clear out I think it is at multi quarter highs and hard to imagine the ability to pass on price increases given that demand picture that youre painting, and 400 basis points of component cost on top of it so as you.
Do clear out that inventory at that higher comp level, maybe you could just remind us are you LIFO or FIFO. So if we hold ASB constant and Cogs are increasing as it flows through the model of those higher costs on inventory coming through how long does that dynamic lasts and how do I match that versus expectations to improve margins.
Going forward.
I'll start with the inventory method, we're on a FIFO basis.
And so some of the component cost increases.
Were announced by major chipset suppliers last October .
But they are just now working their way into our P&L because as you pointed out were carrying roughly two quarters of inventory.
So we think we've got those kind of baked in.
Have selectively chosen to increase prices in the market in the first quarter and we expect those to have further effect as we go forward.
But certainly as we introduce new products, we have OLED factored into where we're pricing the product in the market.
Thank you.
We both talked at length about the success that we're seeing in the Super premium portion of the market, which is obviously going to be less price sensitive.
And we're seeing Asp's, there, obviously north of $1000.
Okay, and then maybe just one last one for me I know it's tough.
Picture, that's being created right now, but on capital allocation stocks now near tangible book value clearly earnings are suboptimal, you've got right sizing on the way what are the puts and takes to accelerating share repurchases of the stock basically trading near liquidation value to try to super size shareholder value creation ahead of this turnaround maybe you can.
Talk about capital allocation and accelerating buybacks, given where the stock is trading relative to tangible book.
Well I think what you just pointed out is certainly a part of our thought process.
Well, it's kind of just liquidity.
Working to bring down our inventory levels back to.
What I would say, our new norm, which historically was about three months, but I think given what transportation timelines are these days optimal it's probably at four months of inventory carrying levels.
But we're going to remain opportunistic buyers of our stock and so all of those things will be a part of that consideration.
Okay. Thank you.
Your next question comes from line of Amit <unk> with BW <unk> financial your line is open.
Hi.
First question I have is.
Given the state.
The HP market right now how are you adjusting your purchasing of components.
Which area of the market are you going to focus on is it going to be just that.
Low end or the high end or are you going to move away from the low end part of the market.
Yes, Ed there is dynamics within the CHP business.
Nearly with the proliferation of mash you see the decrease in the deployment of routers.
And extenders, so clearly we're not purchase.
A lot more components in those declining categories, but mostly on the mash and even with mash. We all know Wi Fi five is going out. So we will have zero purchase of Wi Fi five and even for Wi Fi six the market is starting to move into our <unk>.
Premium and Wi Fi six and of course, we are preparing the purchase of <unk>, which will come around next year. So yeah that would be our our decision of the mix of the components that we're going to purchase going forward.
And how are you going to compete on the pricing and as far as trying to clear out the channel.
Given that your need to raise prices and also of your competitions is also dealing with the same scenario how does that play out for you.
I mean, we're pretty confident that we are seeing after we raised prices alright in Q1, we maintain our market share at 44%.
We still have a loyal following.
I appreciate I mean seriously for those people who are only four price price price they have deserted as already as you can see.
Our market share went from 50% a 44% that's pretty much that the natural process as already eliminated those kind of customers. So we're pretty confident that we would be able to get the inventory back into its normal level. If we were right.
Right that the market was staying at the 15% pre pandemic.
Our channel clearing was done Q4 last year, which took us three quarters, but then we were wrong, but the <unk>.
Market actually sharing even further so we're pretty confident give us three quarters will clean it up.
So the indication that we raise prices our market share stayed the same as very strong vote of confidence from the market.
Okay and my last question is could you just comment on the goodwill write off in the quarter and why does it happen in Q1 instead of the usual Q4.
So.
Given what we just shared with regards to the U S consumer market declining to flat to 2019 levels.
First to go back and look at.
The business overall kind of a triggering event.
Which is the accounting.
The accounting requirements around that exercise, we looked at it we have to take current market dynamics, including <unk>.
Stock market current market cap, all that into consideration to making an assessment as of today. So.
Noncash charge.
But really triggered by kind of our new outlook on the CHP.
<unk>.
Okay. Thank you.
Sure.
Your final question comes from the line of Paul Silverstein with Cowen Your line is open.
I'm personally not closing the question and I'll apologize.
This question more than once in the past I don't want to go back through it.
Given the focus the understandable focus on the Super premium brand.
Thank you, Brian I'm, hoping in the northern system, one slight non water consensuses.
The market.
That is as a percentage of your revenue now.
I apologize.
On the call.
As a percentage of the market.
Sure.
According to Npd's latest data.
<unk>.
Anything thats about $500.
Has steadily risen over the last two years from 4% of the market.
To close to 16% of the market. So you can see meteoric rise of this.
And clearly.
We had the one Brian .
Alright, So you could see we are the one driving yet of course.
Revenue for our Shannon of these things are higher.
And in that year.
So thats why we are encouraging we are encouraged by discontinue rise as I discussed.
In the opening of this call.
After introducing all be eight and then it'll benign.
We are very confident.
That we have discovered.
The user group.
That really resonate with this this set of products.
And as we found out just like anything electronics be it Hi Fi.
<unk>.
Followings, there are always people, who really artful absolute the best.
So we're very encouraged with this.
Patrick before you responsibly bounced one question.
Just more of a concern as in previous quarters.
<unk> 'twenty when you referenced the premium market reference to Margaret.
Premium 25% to 30%.
38% for Q.
The 16% that Youre referencing is.
This is clearly front.
Mark.
Restaurants on previous calls.
Relative to the premium.
Correct previously, we say premium is tri band anything that is tri band as premium now we refer to as Super premium. So the premium is that $500 plus alright, right now we have our competitors Lei.
Names withheld.
Tracking the Tri band prices too.
About 300 box. So that is no more really premium premium is no longer premium is relatively modest sized superpremium recall Randy.
Our Super premium that's right the <unk>, 516%.
So okay.
So last quarter, I think you referenced 11% sequential growth, but I'm not sure if that was for your all what's now the commoditized or whether that was for the Super premium high end Super premium.
Premium Super premium as sequential growth yes.
Was the sequential growth this quarter.
Oh this sequential growth of the Super premium is in the low single digit.
We understand this is very tough because Christmas does.
<unk> is usually the strongest quarter.
The overall market usually go from Christmas to Q1 is down 10%, 15%.
Alright, and this year is even worse because the market shrank alright in Q1.
But against that this super premium steel growth sequentially.
In low single digit is quite a feat.
Alright at the risk of asking a question for which there is not an answer.
Whats the risk that over time and perhaps in short order.
The same thing happens in the Super premium end of the market.
Earnings performance later in this group project products performance et cetera, what's the risk.
Google Amazon or auditors super premium into the market whats already happened to walk.
Does the premium over the market.
And you're constantly chasing your tail.
Yes, you are.
Absolutely right.
We're not going to stop at $500, we're going to raise the bar continuously.
And as we look at the luxury market be it <unk> be it handbags watches.
The market always be raised.
A good example is that I mean, if you looked at the Super Super premium guys late like Lamborghini or protect relief they make very low to units, but they keep increasing the prices and there is always people out there who are willing to pay for it.
Okay.
Alright.
One last question.
If macro cells.
I assume.
But.
There will be pressure, the increasing number of consumers.
We will migrate towards lower price solutions.
Alright.
Crunch on folks pocket books is that true.
Common sense, it's not a given.
Sure.
Given that's a given youre right. So that's why the the thing we got to continue to move into the higher end.
Alright, and raise the ASP of those if you look at the ASP increase is putting incredible alright, we three years ago, we added actually in a three to five years ago, we increased our ESP, the highest and from $500 to $1000.
And then we increased it again from $1000 to $500 after two years.
While you should expect us to increase it again to over $2000 in less than two years. So we will keep going like that.
You look at Rolex watches I mean, they have increased the ASP like there's no tomorrow, we have and increase the production unit they actually decrease the production units.
Alright, I appreciate that Patrick O'brien, all in with US it's not a question.
So respectfully.
Given how dramatically different.
In every aspect of the Super premium into the market that youre shifts understandably shifting your focus to that you've been shifting your focus to given how incredibly different marketers in the mass market from which you were shifting.
To what degree.
These forces to work from.
I would encourage you and I would hope and respectfully request that at some point in the not too distant future you actually provide.
Quarterly breakout of where.
Where you are at as a percentage of your revenue growth terms on things that investors need to better understand your business.
Thank you <unk>.
Service and by extension.
Also service to provide that breakdown.
<unk> I think that.
In the meantime, the best measure for us both internally as well as externally is the growth of the contribution margin.
The <unk> business, which we file every single pane cute.
And if we could and then also the subscribers we talked about right.
As always the I don't know.
If you look at all the real estate reported for New York City right.
Those condos with.
Dormant services cost, 20% more both in rent.
<unk> price simply because these rich people want to have the security.
Service and the convenience of the dome in service, which is pretty much. The same people buying a 1500 are set up they would like to have the same security convenience and service and we're providing them with our AMA.
<unk> support.
And gain boosters.
Checking on the number of subscribers also a proxy on how well we are doing in the Super premium end.
Alright I appreciate it.
I'm not sure why you all haven't done it yet.
Thank you reduce solves a service points on your investments in service by providing this disclosure as to those.
Those two the super premium versus the mass market.
What you just said that's off a welcome outperforms.
Sure.
Ultimately we are looking for subscriber service revenue, which we disclosed total first time today that our subscriber service revenue is at seven $6 million, which is a 43% growth year over year, which is faster.
A number of subscriber growth, which is only about 37%. So that's encouraging.
So we will continue to provide more details as we go along.
Alright I appreciate it thank you sure.
There are no further questions at this time I would now like to turn the call back over to Mr. Patrick Lo.
Sure. Thank you for joining us today EMEA like many other companies, we continue to navigate a number of uncertainties in the coming year.
But we see no impediments to our long term growth strategy alright.
Alright, we pioneered and build our brand.
Around our best in class products.
Premium portfolio, all based on our internal expertise.
Second to none.
Our radio frequency.
<unk> software as well as for switching.
And switching software. So these two core competency of radio frequency and switching enable us to really pursue.
Very unique market that very few competitors will be able to master. So I look forward to continue to update everyone on the progress in these areas.
And the good thing is that we will continue to acquire subscribers both on the F&B and the CHP side with these products. So thank you very much.
Talk to you in about two five months.
Ladies and gentlemen, thank you for your participation. This concludes today's conference call you may now disconnect.
Okay.