Calix, Inc. (CALX) Q1 2012 Earnings Report, Transcript and Summary

Greetings and welcome to the Calix Q1 2012 Financial Results Conference Call. [Operator Instructions] As a reminder this conference is being recorded. It is now my pleasure to introduce your host David H. Allen, Director of Investor Relations and Treasurer for Calix. Thank you, Mr. Allen, you may begin.

Thank you, operator and good afternoon everyone. Before we begin the call, I would like to remind you that this call contains forward-looking statements regarding future events including the future business and financial performance of the company and our expectation of revenue, gross margins, earnings per share, stock-based compensation and amortization of intangibles. These forward-looking statements are based on management’s expectations, estimates and judgment and current trends and market conditions and involve risks and uncertainties that may cause actual results to differ materially from those contained in the forward-looking statements. I would encourage you to review the company's various SEC reports including our annual report on Form 10-K for the fiscal year December 31, 2011 available at www.sec.gov in which we discuss these risk factors. All forward-looking statements made -- are made as of the date of this conference call and except as required by law, we do not intend to update this information. Also on this conference call we will be discussing GAAP and non-GAAP results. We are providing the non-GAAP estimates to enable interested parties to evaluate the company's performance in the same manner in which Calix evaluates its own operations. These non-GAAP measures exclude certain charges and benefits which we do not consider to be part of the company's ongoing activities or meaningful in evaluating the company's financial performance, including stock-based compensation expense and amortization of acquisition-related intangible assets. To help you better understand those results, we have included a reconciliation of our GAAP and non-GAAP results in the earnings press release. All numbers that are discussed in today's conference call are non-GAAP unless otherwise noted. This conference call will be available for audio replay in the Investor Relations section of the Calix website at www.calix.com. In addition, our earnings press release has been posted on our website along with supplemental financial data on the Calix Investor Relations website which you may want to review in conjunction with our press release and conference call remarks. I would now like to turn the call over to Calix’s President and CEO Carl Russo. Carl?

Thank you, Dave. And good afternoon, everyone. Joining me on the call today is Michael Ashby, our Executive Vice President and Chief Financial Officer. Before I turn the call over to Michael I would like to give a brief review. The first quarter of 2012 saw continued momentum in every market. After a stumble in the third quarter of 2011, we’ve had 2 strong bookings quarters. Product acceptance is at an all-time high and our improved processes are beginning to have a positive impact on the business. I will come back after Michael discusses our Q1 results to add some thoughts on the business going forward. With that I would like to turn the call over to Michael Ashby.

Thank you, Carl, and good afternoon. If you've not already done so, I would encourage you to go to the investor portion of our website and download the financial slides that we posted concurrently with our press release earlier today. My prepared remarks will provide a financial overview and the related business trends and I’ll provide guidance for the second quarter of 2012. I am pleased to say that we had another solid quarter and while revenue came in slightly under our guidance, gross margin and EPS was slightly better than our guidance. As a reminder the guidance we provided in February for the first quarter included revenue of $80 million to $82 million, non-GAAP gross margin to be up slightly from our Q4 level of 43.1%, non-GAAP operating expenses to be little less than our fourth quarter level of $35.7 million, with a breakeven non-GAAP bottom line. We also expected to have slightly positive cash flow. Actual revenue for the quarter was $78.6 million, non-GAAP gross margin was 45.1%, non-GAAP operating expenses came in at $34.7 million. Non-GAAP net income for the first quarter of 2012 was $0.01 per fully diluted share and we generated $9.9 million of cash, ending the quarter with $49.6 million of cash on hand. Customer response to our Unified Access portfolio remained high as we have another strong quarter across the board particularly in bookings. Our major accounts, national accounts and regional accounts all performed strongly during the quarter. We also began to see an uptick in bookings from broadband stimulus wins and we did begin to ship against some of those orders. As you are aware, we employ a very conservative revenue recognition policy, particularly when it comes to our U.S. contracts which include broadband stimulus orders. Revenue was $78.6 million, slightly under our guidance for Q1. However you will notice that our deferred revenue increased by $4.2 million, the majority of which was broadband stimulus orders where the revenue will be recognized later in the year. The revenue recorded from broadband stimulus orders were less than 10% of revenue for the quarter. We did have one specific 10% customer in the quarter and our international revenue was 7%. International has been at 6% of revenue for the last few quarters, but we are beginning to see that increase as our international presence starts to expand. Gross margin for Q1 increased to 45.1% from 43.1% in Q4. This increase was primarily driven by mix issues of customer and product versus service with services being a lower percent of revenue than in the previous quarter. Operating expenses came in at $34.7 million, a little lower than our guidance. Operating expenses actually came in right on our planned number, but we benefited from a $400,000 business credit on our operations in Nanjing China which brought operating expenses in under our guidance. Improvement in gross margin and reduced operating expenses enabled us to achieve a slight profit on a non-GAAP basis for the quarter versus our guidance of approximately breakeven. Turning to the balance sheet, strong cash collections and our ongoing activities to reduce inventory levels enabled us to generate positive cash flow from operations ending the quarter with total cash of $49.6 million, up $9.9 million from the end of Q4. In addition we continue to have no debt. First quarter DSO was 49 days, an increase of 6 days from Q4, but still below our target range of 50 to 55 days. While we reduced our inventory levels by around 17% to $37.2 million, we remain committed to further inventory improvements. Q1 inventory turns were 3.6 and our goal is to increase these to between 6 and 8 turns by the end of this year. Deferred revenue was $34.3 million, an increase from $30.1 million at the end of Q4. This increase was due to shipments on broadband stimulus and to extend the warranty contracts booked during the quarter. Let me now move to our guidance for the second quarter on a non-GAAP basis. We expect to have another solid bookings quarter with another strong contribution from broadband stimulus as the wins we previously announced turned to orders. We expect revenue to be in the range of $93 million to $97 million. That range is fairly large only because the timing of revenue recognition to broadband stimulus orders is difficult to predict. What is not recognized in revenue will be reflected in deferred revenue and will be recognized later in the year. So we would expect to see deferred revenue increase by between $4 million to $8 million depending upon mix of orders. We expect gross margin to be again around 45% and operating expenses to increase to just over $38 million reflecting primarily our increased investment in OSMINE, our continued investment in the international infrastructure, increased commissions and of course the one-time business credit recorded in Q1 that will not be repeated. In terms of non-GAAP EPS, we expect that to be in the range of $0.07 to $0.11 a share. We expect DSOs to remain within our range, inventories to continue to slowly decline and to be cash flow positive once again in the second quarter. I would like to take this opportunity to remind you that we will be holding an Analyst Event on June 13 in New York City and we look forward to seeing a number of you there. With that I will turn the call back over to Carl.

Thank you, Michael. The secular trends that are driving our industry remain unchanged and we are well positioned to grow our market share and our revenues. We have seen strong interest in Calix’s products and services across all our addressed markets, which bodes well for Q2 and beyond. While we are excited about the opportunities ahead, we remain mindful of the economic climate. At this point, I would like to turn the call over for questions. Operator?

[Operator Instructions] Our first question comes from Simona Jankowski from Goldman Sachs.

Just a couple of questions. First, I did want to follow up on the first of upside to your gross margin in the quarter, and I know you indicated a different customer mix there, but if you can just give us a little bit more color as far as what surprised you versus your expectations.

Sure, Simona, this is Michael. It was a strong quarter from the margin point of view, and as you know, the mix of product has significance there and the new E-Series products have higher margins than the older CMB Series product. So as those increase as a percent of share that obviously improves margin. And as I did say in my comments the service, as a percent of revenue, is slightly less this quarter. But we’ve been working on improving margins, as you know, for a number of quarters and have seen progress over the last 6 or 7 quarters and we expect that progress to continue as we go forward.

Okay. Then just the second question, if you can just update us on the opportunities for share gains that you’ve discussed in the past. A couple of your bigger customers, Frontier and Qwest, and it looks like your investment in OSMINE is increasing. So should we read into that that potential win at Qwest is eminent?

Simona, this is Carl. So let me go backwards, forwards if you will. The increase in OSMINE, you are going to see OSMINE be noisy, it will go up and down from quarter-to-quarter depending upon the specific timing of releases and other things. So I don’t know that I would read anything into that. As for penetration in the 2 accounts that you are referring to, we expect late in the year penetration in the former Qwest properties in CenturyLink as we go through both the OSMINE process and then the internal IT integration at CenturyLink. Obviously, nothing has changed there from last update. And then towards the Frontier, Verizon lines -- as I think we’ve stated before, they have rotated off a base in and on to the Frontier IT systems and as that has happened, we have begun taking orders, and so we are actually now active in those properties and interest funnel, etcetera continues to build. So we expect that to build methodically throughout the year.

Okay, got it. So as far as Frontier, then are revenues from that going to be recognized in the second quarter?

I believe there were some revenues that we recognized in the first quarter and it will grow.

There will be some revenues in the second quarter and they will grow each quarter as we go through the yes, Simona, yes.

Our next question comes from Blair King from Avondale Partners.

I guess the first one is just broad, and may be for you Michael. Just in regard to annual revenue growth, is the 20% revenue target still something that’s on the table for this year for you guys?

Yes Blair, it is indeed. I think what we said over the last conference call was that our goal was 20% revenue growth this year, and that hasn’t changed. That is still our goal and still something that we fully expect to be able to achieve.

Perfect. And then the follow-up question to that is, CenturyLink has put out some pretty aggressive spending plans with regard to IPTV built and fiber-to-node deployments for this year. So if I believe within the Qwest properties, but also within the legacy embarking and CenturyTel properties together. And it would seem that you guys would have an opportunity to grow business at CenturyLink this year. I was wondering if you can just comment on what your thought process there is with regard to that CapEx budget and whether you feel your revenue contribution from that particular account can grow this year versus last?

Blair, this is Carl. The answer is we do believe we can grow obviously but I don’t know that I would make any specific comment on their plans as they alluded where they are heading, but I will let them speak for themselves. Very clearly, we believe we have a good set of technologies that fit where CenturyLink is heading, but we will see over the quarters how that progresses.

Our next question comes from Ehud Gelblum from Morgan Stanley

Couple of questions, did you see any disruptions from your largest customer in the first 2 months of the year as they did the provisioning system move over, any more than normal, and can you compare kind of like what March looked like the linearity from that customer as you went through the quarter?

No, we did not see any perturbation in that customer during the first quarter of the year. So no change in the way we are seeing business or on dealings with them.

So as they move their provision system over in to Qwest properties, they continue to spend in line with the expectations on the primary legacy CenturyLink properties?

Yes, that’s correct as you know we are not as yet able to sell into the Qwest properties. So if there was an effect on that side, then we wouldn’t be aware of it.

Right, I just wanted to see if it affected the entire business or just...?

No, it is not.

Kind of -- sort of a follow-up question to the 20% question from before. You guys, I believe, both Mike and Carl had talked about a 90 million number for broadband stimulus for this year. Correct me if I am wrong, but is that still the angle you’re looking at for broadband stimulus and is that orders or actual recognized or both?

The number that we have talked about Ehud is $80 million to a $100 million, we said, broadband stimulus this year. And I did say originally that we thought that the revenue of $80 million to $100 million. Since then when I have been talking to investors I have somewhat changed that and said we expect $80 million to $100 million between revenue and deferred revenue, because it’s a little difficult to predict exactly when these contracts will come to revenue. So we’re still confident that we’ll get to an $80 million to $100 million broadband sort of revenue and deferred revenue. Having said that, we also think that the 20% goal that we've set is achievable, even if more ends up in deferred revenue than we perhaps originally thought. So it doesn't change our outlook.

So you can either clear that with this $80 million or low revenue number and the rest is deferred. When you look at where your visibility, your visibility looks like now versus 3 months ago, can you give us a sense as to how far out are orders coming in now versus where they were 3 months ago? And do you have the same visibility at your largest 2 customers as you do at the rest of your customer base and -- or is it stronger than Tier 3 is than it is perhaps in the Tier 2s or kind of throwing Centurylink into that Tier 1 to Tier 2 category or do you see different levels of visibilities across the industry?

There is a lot of sub questions in there Ehud, this is Carl. So let me see if I can just sort of address at broad brush. I don't know that I would give you a time answer to your question. I would tell you that I believe our visibility is improving and I think it's improving for a couple of reasons. One is, there is better visibility in general for our customers starting to show up now as we are going through all of the cap USF/ICC stuff that's starting to clean-up. Secondly, there were as you know from last year the fiber shortage piece has started to mitigate, so that's removing some of the cloud from a visibility standpoint. But the other piece is frankly, the mea culpa that we gave 2 quarters ago in the third quarter of 2011, we clearly have utterly revamped our sales forecasting data gathering process and I think that has significantly improved our visibility as well. So I think there is 3 reasons why we are seeing improved visibility and I would not restrict it to any one set. I believe we see it across all of our market segments.

One last thing, just a trend type of thing, are you seeing more business with -- I know you had some several years ago and you still do have business with some fiber to towers and mobile backhaul. Are you seeing any difference or pick-up in either a fiber to tower type build or mobile backhaul type build whether it be high order DSL or fiber versus wireline broadband access built. I guess what I am going at is wireless backhaul versus broadband access to homes and businesses; are you seeing an acceleration in the wireless side or is it still growing somewhat in line with the broadband access piece?

Yes, there is so much broadband being built out at different directions, I don't know that I would segment it that way. I would tell you that I will answer your question unfortunately, orthogonally the way you are asking it, is we are clearly seeing that the trend to the tower is now fiber; that the traffic volumes that are coming off of those towers are dictating that you just have to be on fiber. But I don't know that I would tell you that that one is outgrowing the other per se.

Our next question comes from George Notter from Jefferies & Company

I wanted to ask you about your largest customer in the process there. My understanding is that lab trials on OSMINE were Q1. I guess I just want to confirm it that you are through that phase now. And I believe we’re going to go to field trials in Q2 and if you were looking for revenue in the second half, I just want to make sure that that was the expectation? And from what I heard you say earlier, sounded like potential revenue on the Qwest side of that account would have come late in the year. So I am wondering if there is a delay here that I am sensing or am I just kind of parsing some of the commentary here too finely?

No, I think you are parsing then and that, your parsing and sensing is aligned. And I think Michael has been speaking to this when he has been out on the street. Most of what you just said is accurate, so going to OSMINE and doing those things, et cetera. The piece that moved was internal IT integration to CenturyLink/Qwest. So that comes sort of after OSMINE and before deployment and that stretched out a couple of months. So it’s still second half, albeit I think Michael you’ve been signaling a little bit and you expect it to be later in the second half than previously expect.

Yes, I think we had originally thought that we would then be equipped to start selling in Q3 and I think we have another last month having tell the people and really Q4 it's going to be ready because of this delay in internal IT Qwest process.

And then as I step back and look at it, it sounds like there are some questions now that how quickly you are going to be able to take deferred revenue for broadband stimulus. And it sounds like the Qwest situation is maybe pushed out a little bit, at least a few months. I guess you guys are also kind of reinforcing this 20% growth idea for this year. I guess I am trying to figure out what parts of the business have improved fundamentally relative to what you were thinking before?

I think, George, the business is strong across the board and I think that was what we said in the comment that each area of the business is actually quite strong. We do have some very conservative rev-rec policies with regard to these IUS [ph] contracts. So the timing of those becomes difficult to predict. We don’t know exactly when it’s going to go to get revenue. And in this case is then, I think we've been through this before, we don’t take revenue until in some cases signed off by the board or the CEO of the company and that’s frequently not easy to get. So it’s very tough to predict those. And in some cases, if we have been delivering, the network is up and running perfectly and there may be some other vendors whose product isn't working properly. And we don’t get sign off until it's all complete. So those things can delay it, but they don’t change our overall outlook for the strength of the business that we have seen.

Well, George actually, so just kind of little bit differently, new platform penetration and new accounts, so as we have our platforms available, as we address new accounts with them or existing accounts with new platforms, that’s moving up at very rapid rate. So the business is doing better I think than we had originally thought, which gives us I think the room to say 20% is still the goal and we believe that’s achievable.

Our next question comes from Mark McKechnie from ThinkEquity.

So Michael, I guess you said your broadband stimulus revenue was about 10% this quarter, I am trying to figure out what’s the range do you think will come in, in June in your guidance for broadband stimulus?

Actually, broadband stimulus was less than 10% in Q1 and so it’s not past that 10% mark and then I don’t think it will in Q2 either. I think we have always said that it’s going be heavily loaded towards the second half the year. And some of it will shift this year, will not become revenue until 2013. But the first half of the year we’ve always said it’s going to be relatively small and then it will ramp up in the second half.

I mean it’s interesting your guide it’s not -- the sequential growth is really -- is not incremental broadband stimulus. It sounds like it’s just your core business. Can you give us a sense for what some of the bigger drivers; is this Verizon Frontier lines certainly kicking up for you, what’s driving the majority of the uptick there in June?

Well, Mark, it’s really just finished broadband stimulus, you can track the broadband stimulus to certain extent by seeing what goes into deferred revenue and we give that number each quarter. So you will see that that can increase some -- and obviously eventually that moves into the top line number. As far as the overall business, I think as I just said it, it’s pretty strong across the board. There is no one area that’s been a surprise to us or anything that has been sort of out of line with what we had expected would happen.

Now in my opening comments Michael as I said, we’ve seen strong bookings over the last 2 quarters. We expect that to continue. So again we think that we’re getting good clarity now across all of our segments so that folks can make decisions. In the past, you’ve heard us share with you that there were times when the clarity didn’t exist and that has the tendency of slowing decisions down. So the best way -- spring is in the air, how’s that.

Our next question comes from Nikos Theodosopoulos from UBS.

Just a couple of quick questions. On the bookings was the broadband stimulus under 10% of bookings as well in the quarter?

So obviously you know we won't answer that question, but I appreciate you are asking.

Okay, I didn't know you wouldn't answer it, but that's okay.

Great, as you didn't know I wasn't going to answer.

And a lot of people are asking about the goal of 20% yet perhaps a slightly pushout on when you might be able to recognize revenue with Qwest and the mix of revenue recognition versus deferred on broadband stimulus. And you mentioned the strength across the business, do you see a potential second 10% customer in any of the quarters later this year or do you think you could -- it' just so broad based you will just have the typical one?

My answer to your question would actually be both. There is a potential for that but really when you are thinking about this, I think both Michael and I would say the same thing that we are simply seeing strong support across all the products and all the segment. So I wouldn't hang your hat on a second 10%, although that is possible. I would much prefer you to look at the model just in a statistical nature of the broad bases that we have, obviously north of a 1,000 customers.

Okay and then just lastly on the gross margin mix -- helped this quarter and it obviously changes quarter to quarter. Do you -- I mean the continued shift to the E-Series would seem to be something that’s ongoing. Do you see the mix that helped you this quarter continuing throughout the year or do you see it kind of lumpy and the gross margin could reverse and what’s your sense on that?

I’ll look at Michael as I answer this. But I think Michael would say that we expect to trend on GM, gross margins to continue to go up. It will not go up necessarily smoothly and monotonically, but it will go up into the right. And I think there is a couple of reasons, for that Michael feel free to chime in. One is clearly from a mix standpoint, we’re continuing to see accelerating growth in products that have a greater than corporate average margin mix. But the other thing that I think Michael you started to highlight, there’s been a lot of effort inside the company on improved processes. And just better execution on the business which is more of a horizontal statement on improving margin and we think we can continue to do that as well. So Michael, any other color?

Yes and I think we have stated before Nikos that we have a goal of getting to margin, gross margin with a 5 in front of it over the longer term and we are certainly moving towards that and we’ll continue to progress I think towards that. So I'd be surprised to see margin drop, it can go up and down slightly, but it' not going to drop significantly I think now.

Our next question comes from Simon Leopold from Raymond James.

First I wanted to just get a quick clarification, the G&A expenses in the quarter took a little bit of a jump. Wondering if there is something one time-ish going on there or anything you needed to highlight?

Simon, you are talking about the guidance for Q2 I guess right?

No, no I am talking about the quarter we just reported, it looked like about 5 million, if I am doing my math right.

Oh, you are talking against the prior year?

Yes.

Yes, well that is -- a large part of that is the acquisition of Occam which was not included in Q1 of last year.

And then just maybe shifting gears a bit, I wanted to see if you can talk about what’s going on in the regulatory environment and how your customers either are reacting or aren’t, specifically what’s going on with the proposed shift of USF funding to the Connect America Fund. If you could maybe parse that based on different customer types and what thoughts they may have and if it's affected their spending patterns?

So Simon at the risk of going down a very detailed discussion. Let me see if I can just abstract it to a high level. As you know the whole USF ICC Carrier Reform Connect America Fund, that has been driven by the FCC, has caused quite a bit of uncertainty in the environment. When the original proposal came out, it caused a lot of as Woody Allen would say nervosity in the market place. Subsequently and just recently, there are 2 categories as you know of the smaller telcos. Those that are price cap and those of rate of return. And the price cap rules have driven, I think $300 million out in Phase I, some $240 million of it directly to our customers. And so that's been, obviously going to be a big positive over time. But I think more importantly and through the work of some of the industry trade organization, the rate of return folks, they went through what is called a quartile analysis. They updated that analysis and it is much more favorable to those folks, but not only is it more favorable, but I think there is much greater clarity. And so we have heard a collective sigh of relief come out of the Tier 3s. And so once you have clarity and a clear view into how you can invest and what the returns are going to be, they will begin their investment again. So if you want to get into a lot more detail on that we can, but I don’t know -- we could spend hours on this subject. So I hope that gives you at least a high level of sense.

It does and I think your answer is sufficient, but let me just clarify what I think you said was that there was some bit of a pause in the rate of return spending in the March quarter and now with the clarification you see that group spending back on normal patterns with maybe some catch up?

Actually, I would tell you that we have felt a lot of that dissonance for the last 4 quarters and we spoke to it last year not only in the form of -- remember we started speaking to it quite a while back that there was a lot of uncertainty in the Tier 3s as to where this was all going to go. And it would cause some of the group to sort of stop spending and some of the group that were more aggressive to spend. Now you are getting the clarity and you are starting to free-up, but I think you are just starting to see the effects of this going forward frankly. Secondly, the Tsunami in Japan, if you remember with all of that, with the fiber shortages, et cetera that started to free-up. So there is a set of effects here that I think are basically giving the whole set of our customer base, a much clear view what the future holds. And now they will make decisions by the way to invest or not to invest, but that’s very different than everybody sort of holding their cash to the side trying to figure things out.

And the second thing I wanted to talk about was what you see going on in your addressed market specifically North America in terms of market share; given what you have described in terms of your growth and looking at your pipeline, how do you see your market share shaping up by the end of this year; do you have a prediction of what your market share might be?

Simon, that’s even a longer conversation than the one we just had. So look, that was just the report that came out that placed us as #1 in the North America marketplace overall. And that's been a 10 year endeavor for us to get to that point of #1 in the North American broadband access market space. Having said that, the same thing that got us there I believe can continue to bode well for us in the future. So we will grow. The report I referred to you by the way was just done by Infonetics, so I am happy to point you in that direction. But I wouldn't even hazard a guess as to where it can go from here. We are just going to sort of keep twiddling away at it.

[Operator Instructions] Our next question comes from Sanjiv Wadhwani from Stifel, Nicolaus.

Just a quick question on the international side. It was mentioned a couple of times on the call, I am curious are these the traditional Caribbean properties that you've been addressing or some new stuff happening with the Andy Lockhart in there for I think 6 plus months?

Sanjiv this is Michael, the answer to that is that the traditional sort of Caribbean properties have been around 6% of revenues and have been for the last few quarters. And so any sort of increase -- we don't expect that really to grow very much, so the increase is from expanding our presence in Europe, Asia, Australia, South America, et cetera and then while we are only beginning to see small increases at the moment, we are beginning to see strong increases in pipeline. And that's really what we are looking for is to see that pipeline increases and towards the end of this year we will start to see a little bit more significant revenue increases and then really in 2013 we expect to grow significantly.

And then just another crack on gross margins. Obviously, the E-Series impacting gross margin positively, has your broadband stimulus revenues increased at the back half of the year; I think a lot of those customers are taking an E-Series; should we expect you to start getting closer to that 5 handle or is it a little too soon at the back half of the year?

No I think that's way too soon, I mean that's our longer-term goal, a 3 to 5 year goal and then maybe we can get there before that, but it certainly isn't going to be this year. Well, we will be happy to keep margins for the full year this year in the mid 40s and then continue to rise from there.

[Operator Instructions] There appear to have no further questions at this time. I would like to call back over to David Allen for closing comments.

Thank you, operator. We hope you can join us at one of the upcoming Investor Conferences we are participating in this quarter including 2 that will be webcast this month, along with our Analyst Day event in New York City on June 13th. Information about these events is posted on our Investor Relations section of our website. Thank you for joining us today. We remain excited about the opportunities ahead of us and we look forward to speaking to you at one of these events. Goodbye for now.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.