Paycom Software, Inc. (NYSE:PAYC) Q3 2023 Earnings Call Transcript

Paycom Software, Inc. (NYSE:PAYC) Q3 2023 Earnings Call Transcript October 31, 2023

Paycom Software, Inc. misses on earnings expectations. Reported EPS is $1.3 EPS, expectations were $1.6.

Operator: Good afternoon, and thank you for attending today’s Paycom Software Third Quarter 2023 Quarterly Results Conference Call. My name is Chasson, and I’ll be the moderator for today’s call. [Operator Instructions] I would now like to pass the conference over to our host, James Samford, Head of Investor Relations.

James Samford: Thank you, and welcome to Paycom’s earnings conference call for the third quarter 2023. Certain statements made on this call that are not historical facts, including those related to our future plans, objectives and expected performance are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent our outlook only as of the date of this conference call. While we believe any forward-looking statements made on this call are reasonable, actual results may differ materially because the statements are based on our current expectations and subject to risks and uncertainties. These risks and uncertainties are discussed in our filings with the SEC, including our most recent annual report on Form 10-K and quarterly report on Form 10-Q.

You should refer to and consider these factors when relying on such forward-looking information. Any forward-looking statement made speaks only as of the date on which it is made, and we do not undertake and expressly disclaim any obligation to update or alter our forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law. Also, during today’s call, we will refer to certain non-GAAP financial measures including adjusted EBITDA, non-GAAP net income, adjusted gross profit, adjusted gross margin and certain adjusted expenses. We use these non-GAAP financial measures to review and assess our performance and for planning purposes. A reconciliation schedule showing GAAP versus non-GAAP results is included in the press release that we issued after the close of the market today and is available on our website at investors.paycom.com.

I will now turn the call over to Chad Richison, Paycom’s President and Chief Executive Officer. Chad?

Chad Richison: Thanks, James, and thank you to everyone joining our call today. We delivered solid results in the third quarter with very strong profitability. All focus on Paycom innovations that are transforming our industry and strengthening our competitive position. Following that, Craig will review our financials and our guidance, and then we will take questions. Throughout our 25-year history, Paycom innovations have been transforming the payroll and HCM industry. And now we have fundamentally shifted how businesses use core HR and payroll products. We started transforming the industry in 1998 by moving payroll to the web. We have made many innovations in those 25 years, but none more important than do-it-yourself payroll for employees with Beti.

This is a paradigm shift for our industry and delivers tremendous value to our clients when employees do their own payroll. Along with our focus on automating and innovating all of our current products, we’re continuing to enhance our global HCM and payroll product for international enterprises. Today, we announced that we are expanding our global payroll product to include Mexico. During the third quarter, employees in Canada started doing their own payroll with Beti and now employees in Mexico can, too. We are continuing to help clients navigate to the new way of doing things. And as a result, nearly two-thirds of our clients have made the shift to Beti. For most employees, the value of the perfect payroll is oftentimes immeasurable. If their check is perfect, they don’t need to borrow money from a friend or family member to get through the weekend or make a bill payment.

How do you measure the value of that? We’re getting better and better at helping employers measure the full value available to them when payrolls are perfect. A portion of that value is easy to calculate because it’s the value they receive by the elimination of after-the-fact payroll errors that require correction payroll runs, manual checks, voided checks, direct deposit reversals, additional wires, tax adjustments, W2Cs, et cetera, et cetera. Perfect payrolls eliminate these common after-the-fact payroll corrections that would otherwise be billable. So the more employees do their own payroll, the greater the savings delivered to the client from Paycom future billings, which results in lower related revenue recognized by Paycom. I’d like to thank our employees for their consistent execution and their commitment to our long-term strategy.

I also want to wish Paycom a very happy 25th birthday. I look forward to many more. And as many of you know, we’re just getting started. With that, I’ll turn the call over to Craig for a review of our financials and guidance. Craig?

Craig Boelte: Thanks, Chad. Before I review our third quarter results for 2023 and our outlook for the fourth quarter and full year 2023, I would like to remind everyone that my comments related to certain financial measures will be on a non-GAAP basis. We delivered fundamentally strong results this quarter with solid revenue and earnings growth. Revenue of $406.3 million was up approximately 22% compared to the prior year period that came in below our guidance range as a result of lower-than-expected service revenues and unscheduled payroll runs. As Chad mentioned, Beti adoption and usage creates tremendous value to clients as they experience perfect payrolls and eliminate errors, corrections and unscheduled payrolls, which would otherwise be billable items.

In addition, our CRR teams continue to focus on Beti adoption and overall system usage, which resulted in lower cross-selling revenues. We delivered very strong GAAP net income and adjusted EBITDA in the third quarter. Net income was $75.2 million or $1.30 per diluted share based on approximately 58 million shares and adjusted EBITDA was $165.6 million, representing third quarter margin of nearly 41%, up over 300 basis points year-over-year. Non-GAAP net income for the third quarter of 2023 was $102.4 million or $1.77 per diluted share, up 39% from the prior year period. During the quarter, we repurchased over $76 million worth of stock and paid nearly $22 million in cash dividends. As of September 30, 2023, we have retired nearly 5 million shares and when combined with dividends, we have returned over $700 million to stockholders.

We still have $1 billion remaining under our buyback authorization and the Board has approved our next quarterly dividend of $0.375 per share payable in mid-December. Adjusted sales and marketing expense for the third quarter of 2023 was $94.3 million, representing 23.2% of revenues. We continue to hire top talent to expand our sales footprint and invest in marketing to drive lead volume. Adjusted R&D expense was $46.2 million in the third quarter of 2023 or 11.4% of total revenues, up 20 basis points year-over-year. Adjusted total R&D costs, including the capitalized portion, were $69 million in the third quarter of 2023. The capitalization rate increased approximately 33% in the quarter as we continue to invest in new products and support our international expansion efforts.

Third quarter GAAP tax rate came in at 26.3%. For the full year of 2023, we expect our effective income tax rate to come in at approximately 29% on a GAAP basis and approximately 26.5% on a non-GAAP basis. Turning to the balance sheet. We ended the quarter with a very strong balance sheet, including cash and cash equivalents of $484 million and total debt of $29 million. The average daily balance of funds held on behalf of clients was approximately $2.1 billion in the third quarter of 2023. Now let me turn to guidance. Throughout 2023, we have been seeing moderating upside to our guidance model, which corresponded with increases embedded usage and macro headwinds from inflation that may impact each client differently. Now that more clients are achieving the ROI that Beti has to offer, it has eliminated certain billable items, which is cannibalizing a portion of our services and unscheduled revenues.

With 10 months of data from increased Beti usage, we are incorporating the impact that our clients’ ROI achievement has on our model. Based on these factors, we expect fourth quarter 2023 total revenues to be in the range of $420 million to $425 million, representing a growth rate over the comparable prior year period of approximately 14% at the midpoint of the range. We expect adjusted EBITDA for the fourth quarter in the range of $169 million to $174 million, representing an adjusted EBITDA margin of 41% at the midpoint of the range. With our Q3 results and our Q4 guidance, we now expect fiscal 2023 revenues to be in the range of $1.679 billion to $1.684 billion or approximately 22% year-over-year growth at the midpoint of the range. We expect adjusted EBITDA in the range of $712 million to $717 million, representing an adjusted EBITDA margin of nearly 43% at the midpoint of the range.

Combining our expected revenue growth and adjusted EBITDA margin, we are still on track to reach the Rule of 65 in 2023. As we look out to 2024, we have a number of strategic initiatives that we believe will further strengthen the value clients receive from our offering. We are making strategic performance and client value decisions that, we feel are best for our long-term relationship with our clients. Our mission is, to ensure and achieve client value and that is our focus. Our guidance for the next 15 months assumes, the impact from the strategic revenue decisions, we are and will be making. As a result, we believe it is prudent, for us to set expectations, for 2024 year-over-year revenue growth, of between 10% and 12%. We’ll have more visibility when we provide formal guidance in early February.

With that, we will open the line for questions. Operator?

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Q&A Session

Operator: [Operator Instructions] Our first question is from Raimo Lenschow with Barclays. Your line is now open.

Raimo Lenschow: Hi. Thank you. I’m trying – to get a little bit more clarity on the Beti impact. So if I’m listening to you, it sounds like Beti is the main problem here or the main issue for what’s going on. But it’s kind of – but it has been launched for a while. So, why do we see the impact like so dramatically now? And maybe you can link it in with the strategic revenue decisions for next year. Is that kind of Beti or do we need to think broader here? Thank you.

Chad Richison: Sure. I mean, first, in regards to the first one, Beti usage has continued to increase throughout the year for us, and that continues to increase. We’ve been pretty close to guidance almost every quarter this year. And so Craig kind of talked about that moderating throughout the year. And we’re seeing what accelerated impact Beti has. And then, Craig, you can add kind of the…

Craig Boelte: Yes. So Raimo, I mean, it impacted it in a couple of different areas. I mean, obviously, the unscheduled runs to correct payrolls and some of those service revenues that, we have as it relates to correcting payrolls, those numbers were moderating, and they typically come in towards the end of the quarter. So that’s part of the impact for the quarter as well as the CRR impact, which I called out on the prepared remarks. And then also the pre-employment services came in a little light. So it was really a combination of all four of those items.

Operator: Our next question is from Samad Samana with Jefferies. Your line is now open.

Samad Samana: Hi. Thanks for taking my questions. I guess I want to unpack a couple of things to follow-up on Raimo’s question. I mean if I think about the dollars that you would add based on that 10% to 12% growth in 2024. Yes, I guess I’m curious, based on the staffing levels of the organization, should we see either a change in the cost structure or just thinking about dollars added and sales headcount that’s adding it? Just how do we kind of square those two things, especially with the offices that you added in late ’21 and early ’22? I’m just trying to understand, because 10% to 12% would be a pretty significant departure, from the growth we’ve seen historically?

Craig Boelte: Yes. We haven’t given any guidance as it relates to the cost structure, Samad. I mean that’s something we’ll be looking at. One thing we just wanted to do is give you guys kind of an indication, of what we would expect with some of the things we’re seeing now, as to how 2024 would be shaping up.

Samad Samana: And maybe just, I guess, a follow-on on that. So I understand that Beti’s efficiency drives maybe some services revenue that you would have otherwise gotten, but what about in terms of whether – can you give us any update on maybe the number of new customers that you added in the quarter, or ARR added in terms of new represented seats that, can maybe help us think about either growth in customer count going forward? Or what are you assuming for that for 2024? Just any color would be helpful?

Chad Richison: Sure. I mean what we can tell you about, what we see right now, is outside sales remain very strong inside sales remain very strong. And cross-selling with our CRR group continues, to be down as we are focused on these current clients that we have.

Operator: Our next question is from Brad Reback with Stifel. Your line is now open.

Brad Reback: Great. I’ll keep it simple. Is there any ERTC revenue in 2023?

Chad Richison: Brad, I know — I mean some of the competitors have called out that top of revenue and that it was going to have an impact. Our client base are quite a bit larger than what you’re hearing from some of the competitors in terms of our client size. So I’m sure there was some. We had some people that were applying for the employee retention credit. And most of that, I think you have to file – by the first or second quarter of next year and the IRS has kind of put a moratorium on that for a period, but I would say it’s not significant.

Operator: Our next question is from Mark Marcon with Baird. Your line is now open.

Mark Marcon: Just following on, on the other questions. Thanks for taking my question. Is it possible to breakdown like what the impact was with regards to what you’re seeing in terms of these efficiencies, how much you’re seeing out of the CRR group and can you clarify what you mean by the strategic revenue decisions that you’re taking for next year? Does that mean potentially pairing some clients or not renewing them? Or what exactly does that mean? And how does that – how does strong outside sales correspond to the 11% to 12% growth?

Chad Richison: Sure. Well, the first question is, you may have a client that was used to – they’re supposed to be running 13 payrolls in a quarter. And they were running 19, and now they’re back to running 13. And so you have some of that going on with Beti as well as a lot of just the fixes. I mean it just eliminates everything. I mean perfect payroll’s a thing. New clients come on with Beti and half of their employees are doing their own payroll by the end of the first month. Our new logo sales are strong, like I said, inside sales is a cross-selling, I mean it’s been pretty weak. And that’s not going to change for a little bit. I mean we’re not going to keep trying to sell more products to a portion of the base, not using it or receiving value.

We’re going to go back in and partner with the client to ensure they’re achieving the full value available to them. And so that’s a big part of our strategy here. And I will say our strategy is related to the base, not the go-to-market.

Operator: Our next question is from Brian Schwartz with Oppenheimer.

Ari Friedman: Hi. This is Ari Friedman sitting in for Brian Schwartz. Thanks for taking my question. I guess like a question I have, can you just talk about like the – what you’re seeing just in terms of SMB and mid-market in terms of demand in comparison to last quarter and how it’s trended? Thanks.

Chad Richison: Demand remains strong. I believe that what we’re talking about is more specific to Paycom and not something that would necessarily well, I mean, be happening with the rest of our industry. I mean we’ve made a big paradigm shift and going through this. These are things that we’ve done before as we’ve gone through these types of things. And I think that we’ve stayed very dedicated, and there’s a lot of clients that we have that we continue to onboard all the new ones that, continue to get great value. And so, we’re going to stay focused on what we’re doing and also looking out for our current clients.

Ari Friedman: Thank you.

Operator: Our next question is from Joshua Reilly with Needham.

Joshua Reilly: Yes. Thanks for taking my question. Has anything changed in terms of customer retention in the last couple of quarters? And how much of an impact, if any, is that having on the Q4 and the initial 2024 guidance?

Chad Richison: Sure. So neither what I would call is our surprise in the third quarter nor our larger-than-normal adjustment for fourth quarter guide, are related to any change in our expectation for retention achievements. Said a different way, there have been no changes to our retention expectations since we gave Q3 guidance on October 1.

Operator: Our next question is from Steve Enders with Citi.

Steve Enders: Hi great. Thanks for taking question here. Maybe just I guess, follow-on to the last question. I mean, it seems like gross retention hasn’t changed, but it’s more of a view of the net retention dynamics. I guess, first of all, is that the right way to be thinking about it even for next year as we think about that low teens guide? And I guess, any way to like quantify the change in net retention that you’re kind of talking about here?

Chad Richison: Sure. So, we report gross retention once a year in February. As I’ve said before, we measure retention throughout the year. It’s usually strongest in the fourth quarter. And so in February, we’ll give our gross retention number. When you’re looking at retention of revenue specific to a client that is using the Paycom system, if they’re a new client, that revenue retention remains strong and specific to that one client, because they were new. It’s not something we had previously. If they were a current client, as we transition them to Beti that does impact their future billing with us. And so, absolutely, as they continue to get great value, it is – a lot of that value is reflected in reduced billing. I mean I would say from a customer perspective, that’s a smaller portion of the overall value that, they receive for Beti.

But I mean, look, the only people that went in the old model is the payroll company and whoever is getting the accolades for fixing all the errors. I mean the employee and the business loses. And so, we’re continuing to work with our clients in that – on that.

Operator: Our next question is from Siti Panigrahi with Mizuho. Your line is now open.

Siti Panigrahi: Thanks for taking my question. Chad, what I understood that Beti now seems like cannibalizing your services revenue. But have you thought about the incremental revenue that you could get from Beti or even raising pricing? I understand you even did it for free. Have you thought about any changes strategically, to offset some of this services revenue coming from your unscheduled payroll?

Chad Richison: Yes. I mean I will tell you right now, I’m focused on the client value and the differential between what they’re paying and what they’re actually achieving. And I’ve kind of been saying it for a while, we’ve got the early adopters, the late adopters. I mean, Beti rollout to new clients was revolutionary. I mean our go-to-market is continuing to be unchanged on the health indexes for that group. And by that, I mean the usage, how many employees are using it, manager on the go, everything across the board. They’re very strong. Beti rollout to our current client base, I mean it was heavily nuanced. And it’s not Beti’s fault. Beti’s the way to do payroll. People may need some time to see the value, and I get it. But I mean Beti is still the right way.

Operator: Our next question is from Bryan Bergin with TD Cowen.

Bryan Bergin: Hi guys. Thank you. I’m just trying to unpack this 2024 early growth view. And if I just think about how we understood your growth algo before, I guess in round numbers, if normal growth was around 20%, we figured 15 – 75% of the 20 points would have been new logo-driven. It sounds like there’s demand there, but that’s – there’s a pretty sharp disconnect versus the 10% to 12%. So just can you help us with this?

Chad Richison: Sure. I mean, new business sales as well as cross-selling within our base has always been a mitigating factor to any type of transition shift, we make like this. And again, new business sales remained strong. In fact, most of the calls we get in is about Beti. We’ve got our first enterprise rep and they’re only targeting deals that have greater than 25,000 employees. Its current rep to Paycom. And they’ve got plenty of leads. And so, it’s a paradigm shift that we’ve been making and, but as far as the go-to-market and the new business logos that we’re on-boarding, I mean we’re not having issues with that, and we’re not looking to make changes in regards to that.

Bryan Bergin: Okay. Is the activity that you’re seeing for client with Beti usage? Is it occurring any differently with any particular client segment sizes, i.e., larger clients using it more on that having that bigger impact?

Chad Richison: I would say that’s more specific to the setup of the client at what time we actually went and set them up and kind of how we walked through that. It’s also kind of dependent upon their own payroll and how they’re doing things. As far as does it have a bigger impact on one versus the other? If deployed correctly potentially, but the larger the impact would really be, based on how much were you messing it up. I mean, you get to some points in large companies. And I mean, they don’t even have pray to do it correctly. I mean they just don’t. So – and then if you’re dealing with a four-employee company, their employees not care about perfect payroll. I mean – so from that standpoint, I mean, it’s the way to do it. And like I said, the only person that wins in the old model is the payroll company.

I mean we’ve been charging people to fix mistakes for 80 years, our industry, mistakes that we’ve allowed them to make. And so yes, we could look at – well, if we eliminate all these mistakes, we’re not going to have as many direct deposit reversals and tax changes, and W2Cs and new payroll runs. I mean we get it, and we’ve been mitigating it with business sales along the way. But now our CRR group, as I said on the last call, we’re dedicated to helping clients achieve value. That’s where we’re at today and the decisions we’re making today will drive long-term share or long-term value for our shareholders, me being one of them. And so, the decisions we’re making today will allow us to get to the next step. But we’re not abandoning and/or changing our strategy in regards to Beti.

If anything, I would say we’re leaning in more.

Operator: Our next question is from Jason Celino with KeyBanc.

Jason Celino: Great. Hi guys. I’m just also trying to unpack these new numbers and when we look at the exit rate from Q4, it kind of assumes a 14% growth rate. So, the early look for next year is a deceleration from that. So I guess, I’m just trying to wonder if this early look you’re giving us, does it imply incremental bookings headwinds?

Chad Richison: No. Bookings from our go-to-market, no.

Operator: Our next question is from Arvind Ramnani with Piper. Your line is now open.

Arvind Ramnani: Thanks for taking my question. I just was – I have two questions. One is, can you just expand on the kind of the strategic initiatives you’re taking that’s kind of causing you all to kind of, I guess, do what’s right for our client, but see like deceleration in your revenue growth. Can you just expand on what specific strategic initiatives that you’re taking?

Chad Richison: So I mean, we’re making strategic decisions with our base to make sure they’re achieving full value. We don’t really need to telegraph more than that. I don’t want to share what we’re doing and I’m not going to hand one end of the thread from, which someone can pull. I can tell you that all these decisions are specific to what we are doing with our base and not our go-to-market or new clients.

Operator: Our next question is from Bhavin Shah with Deutsche Bank.

Bhavin Shah: Great. Thanks for taking my questions. Chad, just one clarification and one question. Just clarifying the 10% to 11% guidance, is it fair to say that those headwinds that you’re seeing next year is primarily all due to changes in assumptions to your customer base? Or is that more a little bit on the new logo side as well?

Chad Richison: No, it’s a paradigm shift. And no, I would not say its regard – again, back to my previous statement. We’re not seeing anything within our go-to market. And by that, I’m talking about outside sales, new logo and/or inside sales new logo from that perspective. We’ve made a paradigm shift. I mean, we can’t change the industry and not change the industry. So we’ve been going hard at it for two years. And I mean that’s not changing. Some of the largest companies in the world are going to be using Beti. It can be challenging to make a paradigm shift, but it’s not our first rodeo. I mean, back in ’98 would have been, a lot easier to install Windows 95 on a software 486 desktop with a hard drive communicated with a modem like our competitors.

In 2003, it would have been easier to partner with best in breed. So we don’t necessarily do what’s easy. We do what creates value for our clients and drives the return on investment. And when we stay disciplined doing the right things, we accelerate opportunities for ourselves, the client and consequently drive shareholder value, which is very important to me personally.

Operator: Our next question is with Robert Simmons with D.A. Davidson.

Robert Simmons: Hi. Thanks for taking the question. I guess how much revenue are you generating today from your international efforts? And how quickly do you think that can ramp up? Is that included in the outlook for next year? Or is that would that be a potential upside to those numbers?

Chad Richison: Every – we’re not – I think what Craig was trying to give is more initial outlook, if you will, a nod to all the initiatives that we have right now as we move forward. I do believe that next year, we’re already seeing it now will be – continue to be pulled up market. But still focused on our core market that we focus on, but we’ll continue to be pulled up as we have been. And yes, a big part of that continues to be the global HCM product and expansion into additional countries. I mean zero employees are doing their own payroll in Canada until I think it was August. And now employees in Mexico will be.

Operator: Our next question is from Matt Pfau with William Blair. Your line is now open.

Matt Pfau: Hi. Great. Wanted to ask, one of the items you mentioned were some macro headwinds from inflation. Maybe you can just clarify how big of a factor that those are? And then in the initial 2024 guide, what you’re anticipating from a macro or a demand perspective? Any change there? Thanks.

Chad Richison: I mean from the macro headwinds, where we’re seeing it specifically related to preemployment services that we have. So that’s really more in regards to that, that carries through.

Craig Boelte: We expect that to carry through into the fourth quarter and into next year as well.

Operator: Our next question is from Adam Bergere with Bank of America.

Adam Bergere: Hi. Thanks for taking the question. I guess kind of open-ended, but what’s like the silver lining in this from like an investor shareholder perspective, like win rates go up pretty materially since there’s tangible cost savings there when you use Beti. Is help with the move upmarket, given more value. Just trying to think about past this initial cannibalization period, like what should we look at like as the positives on the other side. Thank you.

Chad Richison: Well, yes. No, I think that’s actually a good point. First of all, I think you should see this as a transitory period. And we’ve kind of been talking about our continued ability to move current clients over to Beti and help them achieve value. I came out and said I hope all clients are on 100% within the first because it produces that much value. I thought it’d be quickly. We have one-third of our clients that we want to make sure are getting value out of Paycom with what they’re using. And we also want to be able to preserve the opportunity to be able to sell them on the real value of Beti and the opportunity it has for them.

Operator: And our last question is from Alex Zukin with Wolfe Research.

Alex Zukin: Thanks for taking the question. I guess maybe just a clarifying one. If I think about recurring revenue versus services revenue, what’s the right way to think about services revenue specifically for Q4 or implementation revenue? And then for next year, is that just going to be something that trends down significantly from where it’s scheduled to end this year. I know you’ve typically not provided that level of detail, but it sounds like this strategic shift is associated with maybe some elimination of that implementation or services revenue.

Craig Boelte: Yes. I mean there’s going to be two pieces. There’s a services revenue and then obviously, the unscheduled to do some of those corrections as well. So I mean, as you’ve seen throughout our history, you kind of see a sequential Q3 to Q4. So you can tell that a lot of those services revenue and on schedule, even though some of them relate to bonus runs, there’s quite a few of those in Q4. So as we were looking out to Q4, that’s really the impact that we saw into Q4. And some of that’s going to carry over into 2024. And that’s why we thought it was important for us to give that initial look.

Chad Richison: And we’ve got 80% of our employees. Okay. Go ahead. That’s fine. We’ve got 50% of the ones using Beti – the clients have deployed Beti, 50% of their employees are now doing their own payroll. So that eventually goes to 100 and then eventually, we continue to work with their client base. And so all that’s to say is our clients should be getting more and more efficient if we’re – if it actually works, that’s the way the value would be showing up. And then to us, it will show up in go to market. So, all right.

Operator: There are no more questions. So I’ll pass over.

Chad Richison: Sorry, I’m going to go ahead and – very good, want to thank everybody for joining the call today. Over the coming months, we’ll be hosting meetings at a few conferences. In mid-November, we’ll be participating in meetings at the TD Cowen and Needham Virtual conferences. On November 28, we’ll be attending the UBS Global Tech Conference in Arizona. In December, we’ll be in San Francisco at the Barclays Global TMT Conference. We look forward to catching up with many of you soon. Operator, you may disconnect, and thank you.

Operator: That concludes the conference call. Thank you for your participation. You may now disconnect your lines.