OSI Systems, Inc. (NASDAQ:OSIS) Q4 2024 Earnings Call Transcript

OSI Systems, Inc. (NASDAQ:OSIS) Q4 2024 Earnings Call Transcript August 22, 2024

Operator: Hello and thank you for standing by. Welcome to OSI Systems, Inc. Fourth Quarter and Fiscal Year 2024 Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the call over to Alan Edrick, Executive Vice President and Chief Financial Officer of OSI. Sir, you may begin.

Alan Edrick : Well, thank you. Good morning and thank you for joining us. I’m Alan Edrick, Executive Vice President and CFO of OSI Systems, and I’m here today with Deepak Chopra, OSI’s President and CEO. Welcome to the OSI Systems fiscal ’24 fourth quarter and year-end conference call. We are pleased that you can join us as we review both our financial and our operational results. Earlier today, we issued a press release announcing our fiscal ’24 fourth quarter and full year financial results. Before we discuss these results, however, I would like to remind everyone that today’s discussion will include forward-looking statements and the company wishes to take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 with respect to such forward-looking statements.

All forward-looking statements made on this call are based on currently available information, and the company undertakes no obligation to update any forward-looking statements based upon subsequent events or new information or otherwise. During today’s call, we will refer to both GAAP and non-GAAP financial measures when describing the company’s results. For further information regarding non-GAAP measures and comparable GAAP measures of the company’s results and a quantitative reconciliation of those figures, please refer to today’s earnings press release. I will begin with a high-level summary of our financial performance for the fourth quarter of fiscal ’24, and then turn the call over to Deepak for a discussion of our business and operational highlights.

We will then finish with more detail regarding our financial results and a discussion of our outlook for fiscal year 2025. Following record revenues and non-GAAP EPS in each of Q2 and Q3, we again saw record financial results in the fourth quarter, led by the Security division, resulting in outstanding revenue growth and a significant increase in year-over-year operating income. We are encouraged by the momentum in our business. Let’s start with a high-level summary of our fiscal 2024, Q4 and full year results. First, revenues increased 17% year-over-year to a Q4 record of $481 million, driven by the performance in our Security division, where Q4 revenues were up 27% year-over-year. For the full year, fiscal ’24 revenues were a record $1.54 billion, a 20% increase over fiscal ’23.

Second, the significant revenue growth led to record Q4 non-GAAP adjusted earnings per share of $2.84. For the full year, fiscal ’24 non-GAAP adjusted EPS was a record $8.13, a 31% increase over the prior fiscal year. Third, bookings were again solid and we ended the quarter with a backlog of approximately $1.7 billion. Our healthy backlog and robust pipeline of opportunities provide good visibility as we enter fiscal year 2025. Before diving more deeply into our financial results and discussing the fiscal ’25 outlook, I will turn the call over to Deepak.

Deepak Chopra: Thank you, Alan. Good morning, everyone. Thank you for joining us today as we discuss OSI Systems’ strong performance for the 2024 fourth quarter and the full fiscal year. As Alan mentioned, I’m proud to say our revenues grew year-over-year by 17% in Q4 and 20% for the full fiscal year, resulting in record revenues for both of these periods. We ended the fiscal year with a significant backlog of approximately $1.7 billion, which combined with the strength of our very robust pipeline gives us tremendous confidence for fiscal 2025 and beyond. Diving into the highlights. The Security division again delivered fantastic results with year-over-year revenues increasing 27% in Q4 and 37% for the full fiscal year. This growth was spread across many of our offerings in geographic regions, but was particularly notable in Latin America, Middle East and Asia Pac regions.

During Q4, we continue to successfully execute on our major program with Mexico’s Department of National Defense known as SEDENA, which is expected to generate more than $500 million in total revenue over the length of the contract. For SEDENA, we provide a range of inspection systems, including the Eagle high energy and low energy cargo inspection portals, the cargo vehicle inspection system and the CertScan multisite integration platform when inspecting trucks, buses and cars at Mexico’s northern and southern border checkpoints. We also continue to successfully deliver on another major cargo program, the $200 million contract with an international customer. We are performing well with these programs, and they are expected to be nice contributors again in fiscal ’25.

The additional program we won from SEDENA valued at over $100 million is well underway also with revenues expected to commence in mid-fiscal 2025. Our turnkey projects in Albania, Puerto Rico, Guatemala and a European airport continued to perform seamlessly, providing strong recurring revenues and serving as great reference points on further opportunities. Our latest cargo turnkey project in Uruguay is expected to commence operations before the end of the calendar year. These successful projects, each with their unique security requirements, demonstrate our ability to deliver highly customized solutions to meet our customers’ needs. Many of our turnkey and hardware projects also utilized CertScan, our multisite integration platform that is increasingly adopted by port and border customs agencies worldwide.

CertScan sets us apart from competitors enhancing the value of our offerings beside our broad product portfolio. We were active throughout fiscal 2024 with aviation customers also as passenger traffic continued to increase. We expect this general trend to continue. As our aviation related bookings were particularly strong in the second half of fiscal 2024, to that end, during Q4, we announced orders totaling approximately $52 million from two international airports to furnish a comprehensive array of security solutions, including the RTT 110 for whole baggage screening and the Orion 920CT for checkpoint security with extensive service and support commitments and recurring revenue. For ports and border security applications in Q4, we announced two awards from international customers totaling about $20 million for the Eagle M60 mobile cargo and vehicle inspection systems, including follow-on maintenance and support.

These M60 platforms enable efficient and flexible relocation of security checkpoints to optimize security for borders and critical infrastructure. We also announced an award from an international border security customer of approximately $11 million for radiation monitoring solutions and related services and support. This has been a breakthrough year for the Security division in addition to robust revenue and profit growth. Our continued success in securing major projects in ports, borders and aviation security reinforces our confidence in our strategy of offering a comprehensive range of products and services in order to provide our customers with the flexibility to meet their specific security needs effectively and efficiently. This approach ensures that we deliver solutions that offer the best value, further solidifying our position as a leader in the industry.

With a strong backlog and strong pipeline, we are enthusiastic about the division’s long-term growth prospects in fiscal 2025 and beyond. Moving on to the Opto Group. The Opto Electronics Manufacturing division achieved a significant milestone with record Q4 revenues, including intercompany sales of $102 million. Throughout fiscal 2024, including the fourth quarter, we continue to work with our customers to adjust to their demand forecast and we believe we have made progress in rightsizing to this demand, putting this activity behind us in the coming months. We announced a couple of nice wins during the quarter. We announced a $7 million repeat order from a leading healthcare OEM customer for portable device assemblies. We also received another $7 million order to provide electronic subassemblies to an advanced engineering solutions OEM.

In fiscal 2025, we believe that our recent expansion into Mexico, the Tecate operation will benefit us for near-shoring customer activity along with our favorable position globally in South Asia Pac region and in U.K. as large OEMs are seeking to establish or expand their supply chain to derisk their exposure to China-centric supply chain. Based on the ability of our Opto division to effectively adjust to market trends and changes in customer demand, we believe Opto will continue to achieve profitable growth. Now let’s turn our attention to the Healthcare division, where Q4 revenues were the strongest for the fiscal year 2024, though down year-over-year on a tough comparison. Fiscal 2024 brought significant challenges for patient monitoring in the U.S., primarily as hospitals continue to defer capital purchases.

Despite these hurdles, during the quarter, we secured a $6 million award from a U.S. based hospital to provide patient monitoring solutions and related accessories, including exhibit central stations, expression, patient monitors and queue patient monitors. Additionally, our Rothman index predictive and analytics solution is seeing increased success. Our clinical services offerings also continue to be well received by our clients. We are committed to advancing our next-generation patient monitoring solutions and enhancing the innovative features of our products to help doctors and clinicians deliver improved health care treatment. We adjusted the Healthcare division cost structure in the quarter also, the benefits of which are expected to primarily start realizing in fiscal 2025.

To sum it up, we are confident about our company’s future and excited to build on our stellar fiscal 2024 performance. We are extremely excited and confident about fiscal ’25 and beyond. I will close this portion of the discussion by thanking all our employees, customers and stakeholders who have played a part in OSI Systems’ success. With that, I will turn the call back over to Alan to discuss our financial results and fiscal 2025 guidance in more detail before we open the call to questions. Thank you very much.

Alan Edrick : Well, thank you, Deepak. So let’s review in greater detail the financial results for our fiscal ’24 fourth quarter. Again, our Q4 revenues were up 17% compared with revenues in the fourth quarter of the prior fiscal year. This was primarily driven by our largest division, Security. The 27% year-over-year increase in Q4 Security division revenues was led by strong growth in our cargo and vehicle inspection product sales as well as solid growth in our aviation and checkpoint product sales. Q4 revenues included continued shipments from the $200 million plus cargo contract announced in January ’23 and from the $500 million plus cargo contract announced in March ’23. Third-party Opto sales bounced back nicely as sales increased 6% year-over-year.

We continue to see certain Opto customers adjusting inventory levels and/or ordering patterns, which we anticipate through the balance of calendar ’24. Although the Healthcare division’s Q4 sales were the strongest of the fiscal year as Deepak mentioned, revenues were 15% lower than Q4 of the prior year due to a particularly challenging comparison period along with a challenging hospital spending environment. The fiscal ’24 Q4 gross margin of 32.1% was down from the 34.7% gross margin in Q4 of last fiscal year. This was largely due to the mix of revenues as Q4 growth was driven by a significant increase in security product revenues, which typically carry a less favorable margin than security service revenues as well as a less favorable mix of security service revenues in the quarter.

The year-over-year decrease in revenues in the Healthcare division, which inherently carries the highest gross margin of all three divisions also contributed to the lower gross margin. Our gross margin will generally fluctuate from period to period based on revenue mix and volume, impacts of changes in supply chain costs and inflation generally, among other factors. Moving to operating expenses. We continue to work diligently across each of our divisions to improve efficiency and to manage our SG&A cost structure. Q4 SG&A expenses were $71.7 million or 14.9% of sales compared to $67.1 million or 16.3% of sales in Q4 of the prior year. The year-over-year dollar increase in cost was driven by higher compensation costs, including incentive compensation linked to our significant sales growth, increased professional fees and unfavorable foreign exchange rates, among other items.

Research and development expenses in Q4 of fiscal ’24 were $15.9 million compared to $15.5 million in the same prior year quarter. We continue to dedicate considerable resources to R&D and we anticipate further increases in such investment in fiscal ’25, particularly in our Security division as we remain focused on innovative product development, which we view as vital to the long-term success of our businesses. We recorded $3.9 million of restructuring and other charges in Q4 of fiscal ’24 compared to $3.2 million in the same quarter of the prior year. Moving to interest and taxes. Net interest and other expenses in Q4 increased to $8.2 million in fiscal year ’24 from $5.7 million in fiscal year ’23, primarily due to increased interest rates on a higher level of borrowings.

Subsequent to fiscal year-end, we completed a convertible note financing, which is expected to reduce our future interest expense, which I’ll talk more about shortly. Our reported effective tax rate under GAAP was 18.3% in Q4 of fiscal ’24 compared to 17.6% in Q4 of fiscal ’23. Excluding the impact of discrete items, our normalized effective tax rate in Q4 of ’24 was 21.2% compared to a normalized effective tax rate of 21.9% in Q4 of fiscal ’23. For the year, the normalized effective tax rate in fiscal ’24 was 23.4% compared to 22.8% in the prior fiscal year. I will now turn to a discussion of our non-GAAP adjusted operating margin. Overall, our adjusted operating margin in the fourth quarter of fiscal ’24 was 14.8% compared to 15.6% in Q3 of fiscal ’24, driven by the top line reductions in health care and a less favorable mix of sales in the Security division.

The adjusted operating margin in the Security division was 18.5% in Q4 of fiscal ’24, which was roughly in line with that of Q3 but down from 19.3% in Q4 of fiscal ’23, given the less favorable mix — revenue mix in the division. The adjusted operating margin in our Opto division increased to 13.9% in the fourth quarter of fiscal ’24 from 13.8% in last year’s Q4. The Healthcare division reported its strongest quarter of adjusted operating margin for the fiscal year, though a decrease to 9.3% in Q4 of fiscal ’24 compared to 12.1% in the prior year on lower year-over-year revenues. Moving to cash flow. In Q4 of fiscal ’24, we invested significant amounts in working capital in support of the company’s growth. Cash used in operations in the quarter was $29 million, primarily due to increases in accounts receivable associated with the Security division revenue growth.

CapEx in the 2024 fiscal fourth quarter was $8.5 million, while depreciation and amortization expense in Q4 was $11.7 million. Our balance sheet is solid, with modest net leverage of 1.6. Aside from $7.5 million of annual required principal payments under our bank term loan, the bulk of our bank debt matures in fiscal ’27. As mentioned earlier, subsequent to fiscal year-end, we issued $350 million of convertible notes with a coupon of 2.25% due in fiscal 2030 and an initial conversion price of approximately $192. The proceeds were used to pay down our bank revolver and repurchased approximately 550,000 shares of common stock as well as cover transaction costs. This transaction provides enhanced liquidity to capitalize on future strategic initiatives, while simultaneously being immediately accretive, given the significant reduction in interest cost and a reduction in the share count.

In combination with the interest rate swap entered into approximately two years ago, well over three quarters of our existing debt is now fixed versus floating. Finally turning to guidance. We are introducing our fiscal ’25 sales and non-GAAP adjusted diluted EPS guidance. For fiscal year ’25, we anticipate revenues in the range of $1.62 billion to $1.65 billion and non-GAAP adjusted earnings per diluted share in the range of $8.80 to $9.15. This fiscal ’25 non-GAAP diluted EPS guidance excludes potential impairment, restructuring and other charges, amortization of acquired intangible assets and non-cash interest expense and their associated tax effects as well as discrete tax and other non-recurring items. We currently believe this guidance reflects reasonable estimates.

The actual impact on the company’s financial results of timing changes on the expected conversion of backlog to revenues, disruptions in the supply chain and inflation and interest rates is difficult to predict and could vary significantly from the anticipated impact currently reflected in our guidance. Actual revenues and non-GAAP earnings per diluted share could also vary from the guidance indicated above due to other risks and uncertainties discussed in our SEC filings. We continue to remain focused on the growth of our businesses. We believe our efforts will enable OSI to continue providing innovative products and solutions. At this time, we would like to open the call to questions.

Q&A Session

Operator: [Operator Instructions] Our first question comes from the line of Josh Nichols with B. Riley.

Josh Nichols : I guess, first of all, Deepak, congratulations on the retirement, although I know you’re going to be staying on the Board to oversee things. Clearly, the company has been having a great run and it looks like set for another year, right, and fiscal year ’25 as well, too. If I want to dive into a question here, I guess, good to see that the growth for this coming year north of 6%, right, coming in better than what we had thought. I’m just kind of curious, given that we’re already kind of close to two months through the first quarter, I know the September quarter is a little bit seasonally slower just because there’s not much activity in Europe. Could you just provide a little bit of color about how you expect the cadence of that growth rate to kind of play out as we go through the first quarter and kind of build from there?

Alan Edrick : Josh, this is Alan. I’ll take that question. Yes, typically, we see that Q1 is our slowest quarter of the year given the summer and some of the holidays in various countries that you’re discussing and suggesting. That being said, given our strong backlog, we do anticipate robust growth even in Q1, certainly down sequentially from where we were. But on a year-over-year basis, we would anticipate a strong Q1 on a year-over-year basis and then our revenues kind of building into Q2 and into Q3.

Josh Nichols : I just want to make sure I get the cadence right now. I wanted to just kind of touch on gross margin and free cash flow. Clearly, the company has been investing a lot in things like inventory this past year. And I’m wondering, like, what the expectations are for gross margins and how that will impact free cash flow for fiscal year ’25, as you get behind some of these large, like, more product heavy deliveries and services revenue starts to become a bigger component of the mix? Or do you think with the backlog as large as it is today that the gross margins are likely to remain where they are, given the order cadence that we’re seeing that’s been persistently high.

Alan Edrick : Yes, Josh, this is Alan again. On the gross margins, they will fluctuate from period to period based upon a number of factors, some of which I had described earlier in the comments. Sort of that being said, on an annual basis, I think we see an opportunity to expand the gross margins, particularly as service becomes a bigger component, which inherently carries a higher margin than our products generally speaking. So I think there’s some opportunity for gross margin expansion this year and as we move into future years. From a cash flow perspective, this was a year of significant investment in working capital. We concluded the year with a big investment in receivables as we had the strong sales growth. So that being said, we do expect that to effectively flip.

So the higher DSO and higher days inventory that we have associated with the growth when we grew 20% or so last year, with kind of the guidance that we’re providing this year focused on growth is we do see an opportunity to generate very meaningful free cash flow in fiscal ’25 and beyond. So it’s an exciting period for us.

Josh Nichols : And then last question for me. I know there’s been a lot of skepticism over the last year, 1.5 years about like how sustainable all these award wins that the company has been securing. When you look at the backlog today, right, despite the record quarter that you guys had still near record levels of $1.7 billion, I think people are starting to come around to the fact that that this is a durable growth story. And with that, you started seeing the share price continue to grind higher over time. When you look out to this next fiscal year, I’m just kind of curious, like, how much do you think of that current backlog is likely to be recognized and also equally as importantly, what do you think is the potential large opportunity wins that you still have in the pipeline today so that you’ll kind of be able to replenish that backlog as you have recently with other large opportunities that come to market?

Deepak Chopra : This is Deepak here. Obviously, we can’t break it down how much of the current backlog gets shipped out. Alan has mentioned to you many times, that it varies from quarter-to-quarter depending upon the readiness of the customer, the supply chain and stuff. Regarding the opportunities, like I said in my message, we are very confident about it. Our pipeline is very strong. And we’ve been saying for some time, as we get larger and larger and get bigger customers and get a good reputation, we distinguish ourselves from our competitors and the customers all over the globe are looking at it and the reference checks out. We are very confident that the pipeline is very strong, and there are significant large opportunities that are there internationally.

At the same time, the aviation sector is coming back. That’s another positive for us, air cargo. And keep in mind that U.S. business, especially CBP was not a big contributor in 2024. And as it comes into 2025 and beyond, we are quite confident that will be a big participant in that business. So all in all, we feel very good about it. And it’s been a very, very positive move into the next year 2025 and beyond that we’re sitting on a strong backlog, great reputation. And maybe I want to add it on to it, maybe not trying to show up but we crossed the $1 billion mark in our Security division and can proudly say that we are now maybe number one size-wise in our space in security worldwide.

Operator: Our next question comes from the line of Jeff Martin with ROTH Capital Partners.

Jeff Martin : Congratulations on a fantastic fiscal ’24. Deepak, kind of segueing off your answer to the last question there with U.S. CBP. Just curious what you’re hearing out there in terms of potential timing of follow-on orders. I think everybody feels pretty confident that you’re well positioned to win a good portion of a potential follow-on order there.

Deepak Chopra : Well, basically, I can’t comment on specifically, but we are very well positioned, as you’ve said. CBP, we are very happy with our performance. There are some IDIQs that are presently still have some room left on to it. There is more being talked about, the budgets are being looked at it and we think there is a strong possibility of growth in CBP business and we should get a good share of it. More than that, I can’t comment.

Jeff Martin : With respect to the SEDANA and the $200 million international order, I was just curious if you could give some perspective on what percent complete those two contracts are.

Alan Edrick : Jeff, this is Alan. So while we don’t go into specifics on individual programs, I would offer that we are further along on the $200 million international order given that we received that order a few months prior to the previous order. So significant shipments on that occurred in fiscal ’24, which as you might remember, we started shipping that actually in Q4 fiscal ’23. We did make significant shipments on the SEDENA $500 million plus order as well, but a lot more shipments to come on that project. And as a reminder, we also got the follow-on order with SEDANA for another $100 million order that we’re gearing up here in fiscal ’25.

Jeff Martin : And then, Deepak, you mentioned significant or maybe it was Alan mentioned that, significant R&D spending in security. I was just curious, if you have any planned submissions for approvals on products and maybe what end markets those might be geared towards?

Deepak Chopra : Well, a good question in a way, but there are two little separate things. We continue to look at certification of various of our products and technology. But in the R&D spend, one of the success stories that we have and we are very proud about it, we have the broadest product portfolio compared to any of our competitors so that we continue to innovate and spend investment to continue to broaden it, to put more AI into it, to be more efficient into it and to work with our customers for their custom needs, especially doing the CertScan integration into the product line customized to our customers’ needs. And that’s the kind of innovation we are doing, but we want to continue to remain ahead of the market compared to our competitors with our product breadth. And that way, we can continue to grow. That’s very important, and that’s in our DNA.

Operator: Our next question comes from the line of Larry Solow with CJS Securities.

Larry Solow : I guess first question, I know you guys don’t provide specific segment guidance but just curious any color sort of in that 5% to 7% growth. It sounds like all your segments you’re confident are probably improving, maybe all will grow year-over-year. Obviously, security grew mid 30s last year, so we expect that to slow down. Is it fair to just use like that mid-single digit as a starting point for all the segments? The security maybe grow a little bit slower than that? What’s like bookings are kind of — you had a great last couple of years and kept up with that. But in order to grow faster, do we need acceleration in bookings? Or is that service component going to kind of kick up, kick in and drive that sort of mid-single-digit growth? I guess that would be the first question.

Alan Edrick : Larry, this is Alan. And you’re correct. We generally don’t provide guidance by division. But that being said, to give you some direction, we would anticipate the strongest growth to occur in our Security division. We’re again anticipating good year, probably followed by Opto, as I mentioned in the comments, more weighted to the second half than the first half as some more rightsizing of inventories occurring, but we’d expect solid growth in Opto for the fiscal year. And then healthcare, maybe just some small modest growth.

Larry Solow : And just in terms of on the service piece, I know you mentioned mix down year-over-year. It looks like service revenue was basically flat year-over-year and it grew a lot, I know Q4 last year. What’s sort of the outlook, I guess does the service component sort of kick in over the next few quarters as your installed base, obviously, has grown significantly in the last year. I assume there’s some kind of warranty period or a period where you don’t actually get more service revenue. Is there any more color you can give us on that and remind us sort of the difference in gross margin between product and service and general directionally?

Alan Edrick : Sure, Larry, this is Alan. So you’ve sort of hit the nail on the head, as we’ve gotten a larger and larger installed base of our security products and as they roll off of warranty, the service revenues begin to kick in. So we would anticipate some nice growth in our service revenues throughout fiscal ’25. And as you correctly point out as well, the margin profile of service revenues is generally superior to that of product revenues on a kind of a consolidated basis. And there’s a meaningful difference between the two. So all of that can lead to some enhanced margins for us, not just this year, but as we move into future years as well. So we look at the service revenues, which are good recurring revenues as vital for us.

Larry Solow : And just a question, just a follow-up on the CBP question. I know you can’t answer timing or whatnot. But I guess the — I know there’s another — I guess, still a piece of the IDIQ outstanding. So hopefully that will happen in the next year or so or whatever. But I guess my question here is, are there other U.S. agencies? It looks like a lot of your growth has been international. Are there other U.S. agencies besides CBP where they’re sort of in that funnel of opportunities for you guys?

Deepak Chopra : And the answer is yes, yes and yes. One is on the CBP side, as we are sitting here, they’re getting their budgets approved into it and there’s — from it looks like, it’s a pretty strong significant budgets for CBP going into the next year. On top of that, the other question, yes, there are other agencies. DOD is a big customer for us. That continues to do look at it. There’s air cargo in a way, there’s also the Department of Defense. And all these, especially, one of the things that we all talk about it, which is a little bit awkward to say that as the world goes through this unrest in Middle East or in Ukraine and stuff, Ultimately, all that area, as it settles down, requires more security around that area. And that continues to grow for us. Department of State is a big customer of us. So we look at other agencies besides CBP and right now, there’s a lot of interest.

Larry Solow : I guess just last question, Deepak, I expect and hope you’ll remain active — I fully expect as the Chairman when we found a replacement for you. I imagine that, that search is probably a slow process, probably not that easy to find someone like yourself. But any time line, any sense of a time line on that? Is it like before year-end? Do you think you’ll have someone in place? Or what are your thoughts there?

Deepak Chopra : Well, that’s the plan. I mean, per our announcement before that by January 1, we should have the new person on board. And as you mentioned, I’ll still be there as Executive Chairman. But that’s our plan right now. And we are quite deeply involved in it right now of the selection.

Operator: [Operator Instructions] I’m showing no further questions in the queue.

Deepak Chopra: Well, thank you very much once again for attending our conference call. I again want to thank our employees, customers and stakeholders and looking forward to the October call after the first quarter. Thank you very much, and thanks for your support, cheers.

Operator: Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect.