Exponent Inc

NASDAQ:EXPO

Earnings Call Analysis

Moderate Q4 Revenue Growth with Steady Margins

Looking ahead to Q4 2023, revenue is projected to grow in the middle single digits, with a forecasted EBITDA margin between 26% and 27%. For the entire year, a high single-digit rise in revenue is anticipated, alongside stable EBITDA margins of 27.4% to 27.8%, reflecting robustness amidst challenging conditions. The company expects a slight 2% reduction in technical employee count, with a lower utilization rate of 66% to 68% in Q4, down from 69% previously, and a full-year utilization forecast slightly reduced to 69% to 69.5% from 73.8% in 2022. Price realization rates are estimated to improve by 4.75% to 5.25% for 2023. A prudent financial approach is observed in the anticipation of consistent stock-based compensation and other operating expenses, with G&A projected to be $6.6 million to $7 million in Q4, while tax rate expectations have risen to 28.2% in Q4 from 26.2% a year ago.

Resilient Performance Amid Sector Headwinds

Exponent welcomed investors to its third quarter 2023 Earnings Conference Call with anticipation of providing insights into their latest performance and future expectations. Despite facing a tough consumer electronics sector, with 6% to 7% headwinds affecting revenue, Exponent has designed a diverse portfolio that ensured growth in nearly all other industries. The transportation, life sciences, energy, and construction sectors performed robustly, which underscored the strength of the company's broad footprint. Even with certain projects experiencing declines, the company managed an 8.5% revenue uptick and maintained profitability at or above pre-pandemic levels, demonstrating Exponent's adeptness at navigating industry fluctuations.

Moderate Growth with Firm Financial Expectations

Looking ahead to the fourth quarter of 2023, Exponent forecasts revenue before reimbursements to rise mid-single digits and expects an EBITDA margin between 26% to 27%. For the full year, they anticipate high single-digit revenue growth, with EBITDA margins estimated to be between 27.4% and 27.8%. These figures are commendable, given the comparable pre-pandemic margins, and suggest a strong grip on operational efficiency. Exponent's plans to strategically align resources in response to long-term trends through targeted recruiting and performance management reflect a readiness to adapt to changing market conditions.

Prudent Resource Management for Future Growth

The company intends to reduce its average technical full-time equivalent employees by 2% in the fourth quarter, expecting that this adjustment in headcount will align with the current demand. A slight decrease in expected utilization, from 73.8% in 2022 to between 69% to 69.5% in 2023, demonstrates a cautious approach in anticipation of market recovery, particularly in sectors like transportation which shows robust demand. The longer-term goal remains to achieve mid-70s utilization, highlighting confidence in demand recovery and effective headcount management strategy.

Investments in Stock and Operating Expenditures

The company anticipates stock-based compensation to land between $21.5 million to $22 million for the full year, with fourth-quarter figures ranging from $4.5 million to $5 million. More frequent in-office activities have prompted an expected increase in other operating expenses, amounting to $42 million to $42.5 million for the year. These investments outline Exponent's commitment to both employee incentives and the necessary expenditures to support its workforce in an evolving office dynamic.

Tax Rates and Miscellaneous Income

Investors would note that the forecasted tax rate has increased to 28.2% for the fourth quarter, up from 26.2% the previous year, while the full year is pegged at 25.7%, a notable rise from the previous year's rate of 26%. This change comes without the anticipation of any additional tax benefit from share-based awards compared to 2022. The company estimates interest income to be about $1.8 million for the fourth quarter, in addition to expected miscellaneous income of approximately $750,000, underscoring some additional non-operational revenue components Exponent has in its financial structure.

Commitment to Long-term Shareholder Value

In closing the earnings call, Exponent reiterated its role as a trusted advisor to clients facing the complexities of innovation. Despite the immediate challenges in consumer electronics, the company expressed confidence in the potency of its diversified services portfolio to support clients through industry changes. With a focus on long-term profitability, the outlook remains optimistic regarding future shareholder value.

Earnings Call Transcript 2023-Q3

[Operator]

Good day, and welcome to the Exponent Third Quarter Fiscal Year 2023 Earnings Conference Call.

[Operator Instructions] After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Joni Konstantellos of investigations. Please go ahead.

[Joni Konstantelos]

Thank you. Good afternoon, ladies and gentlemen. Thank you for joining us on Exponent's Third Quarter 2023 Financial Results Conference Call. Please note that this call will be simultaneously webcast on the Investor Relations section of the company's corporate website at www.expone.com/investors.

This conference call is the property of Exponent and any taping or other reproduction is expressly prohibited without prior written consent. Joining me on the call today are Dr. Catherine Corrigan, President and Chief Executive Officer; and Rich Schlenker, Executive Vice President and Chief Financial Officer. Before we start, I would like to remind you that the following discussion contains forward-looking statements, including, but not limited to, Exponent's market opportunities and future financial results that involve risks and uncertainties and that may cause actual results to differ materially from those discussed here.

Additional information that could cause actual results to differ from forward-looking statements can be found in Exponent's periodic SEC filings, including those factors discussed under the caption Risk Factor in Exponent's most recent Form 10-Q. The forward-looking statements and risks in this conference call are based on current expectations as of today, and -- excellent assumes no obligation to update or revise them, whether as a result of new developments or otherwise. And now I will turn the call over to Dr. Catherine Corrigan, Chief Executive Officer. Catherine?

[Catherine Corrigan, executive]

Thank you, Joni, and thank you, everyone, for joining us today. I will start off by reviewing our third quarter 2023 business performance. Rich will then provide a more detailed review of our financial results and outlook, and we will now open the call for questions. During the third quarter, we once again delivered broad-based revenue growth and earnings with our diversified portfolio of services supporting growth across nearly all industries we serve. The deliberate investments we've made to expand capabilities and stay ahead of the pace of innovation, continue to pay off.

Our ability to anticipate client needs throughout the product or assets or technology life cycle is and will continue to be a significant differentiator for Exponent. Of course, uncertainty exists in the broader markets we serve, but our exceptional team of integrated experts and our expansive capabilities provide us the ability to remain nimble and adapt our business to align with these dynamic market trends. Turning to our third quarter in a bit more detail. Growth in the quarter was driven by continued strong demand for our reactive services. Our proactive engagements were driven by increased demand in the chemicals and life sciences sectors, offset by continued moderation in the consumer electronics sector. Overall, I am pleased with the strength we are seeing across the majority of the business. Within our reactive services, we continue to see robust demand for domestic and international dispute-related offerings involving large capital projects in the energy, utilities and transportation sectors spanning various geographic regions.

Additionally, consumer and automotive product liability and recall-related work increased in the quarter. Our proactive engagements were driven by increased demand for regulatory consulting work in the chemicals industry and engagements in the life sciences sector. This was offset by ongoing moderation in the consumer electronics industry due in part to the timing of product life cycles as well as ongoing macroeconomic headwinds. As a result, we saw declines in data collection and human subject research engagements as well as product development consulting. While we do expect this moderation to continue, we are optimistic about the long-term market drivers in this sector, and we remain well positioned to support our clients as these challenges begin to abate in 2024. With regard to our segments, Exponent's engineering and other scientific segment represented 83% of our net revenues in the third quarter, increasing 8% in the third quarter and 10% for the first 3 quarters compared to the prior year.

Growth in the quarter was driven by strong demand for Exponent services across the transportation, energy and construction sectors. Exponent's Environmental & Health segment represented 17% of our net revenues in the third quarter, increasing 13% in the third quarter and 7% for the first 3 quarters compared to the prior year. Evolving regulatory requirements drove increased safety-related engagements, evaluating the impacts of chemicals on human health and the environment, and we also saw increased activity in the life sciences sector. As we close out the year, we remain focused on excellence and execution and expanding our differentiated capabilities to meet the dynamic needs of our clients. The investments I mentioned earlier will continue to be a priority to drive organic growth and development within Exponent and to foster the essential trust our clients place and our team of experts to address their most complex needs.

Further, managing resources in line with the growth of the business remains top of mind. To that end, as we expected, full-time equivalent employees in the third quarter decreased 2.5% compared to the second quarter as we continue to strategically realign our resources with demand across the business. We are taking a two-pronged approach to ensuring our headcount is aligned with not only current demand but also with the longer-term demand and opportunities we are seeing. First, we are focused on recruiting in areas of the business where resources are constrained, but where we see opportunity to meet current and future market demand. Second, we continue to focus on performance management to ensure that our retained consultants are on a strong development path that will contribute to the future growth of the firm.

In summary, Exponent continues to position itself at the forefront of innovation as a trusted adviser to our clients across the product life cycle. Market drivers, including the increasing complexities around safety, health and the environment remain strong and continue to drive opportunity across our business. We remain focused on expanding our capabilities, strengthening our relationships and driving profitable growth and value for our shareholders. I'll now turn the call over to Rich to provide more detail on our third quarter results as well as discuss our outlook for the fourth quarter and the full year 2023.

[Richard Schlenker, executive]

Thank you, Catherine, and good afternoon, everyone. Let me start by saying all comparisons will be on a year-over-year basis unless otherwise noted. For the third quarter of 2023, total revenues increased 4.8% to $133.3 million and revenues before reimbursements or net revenues, as I will refer to them from year on increased 8.5% to $125 million as compared to the same period of 2022.

This includes a decline of approximately $8 million in our consumer electronics business, which created a 6% to 7% headwind as compared to the third quarter of 2022. Net income for the third quarter was $24.5 million, or $0.48 per diluted share as compared to $24.4 million or $0.47 per diluted share in the prior year period. Exponent's consolidated tax rate was 27.9% in the third quarter as compared to 27.0% for the same period in 2022. EBITDA for the quarter was $34.5 million, producing a margin of 27.6% and of net revenues as compared to $34.6 million or 30% of net revenues in the same period of 2022. This year-over-year decline in margins was anticipated as expenses normalize post-pandemic, and utilization was lower due to the growth in headcount. Billable hours in the third quarter were approximately $380,000, an increase of 4.1% year-over-year, which is significant considering the headwinds in electronics. The average technical full-time equivalent employees in the third quarter were 1,050, which is an increase of 9.6% as compared to 1 year ago.

This was the result of successful recruiting efforts in the second half of 2022, coupled with improved retention in 2023. As Catherine mentioned, full-time equivalent employees decreased 2.5% compared to the second quarter of 2023, reflecting our progress on strategically aligning our resources with the current and long-term demand opportunities. Utilization in the third quarter was 70%, down from 73% in the same period of 2022. The realized rate increase was approximately 4.4% and for the third quarter as compared to the same period a year ago. In the third quarter, after adjusting for gains and losses and deferred compensation expense, compensation expense increased 13.4%. Included in total compensation expense is a loss in deferred compensation of $2.8 million as compared to a loss of $4.9 million in the third quarter of 2022. As a reminder, gains and losses in deferred compensation are offset to miscellaneous income and have no impact on the bottom line.

Stock-based compensation expense in the third quarter was $4.9 million as compared to $4.6 million in the prior year period. Other operating expenses in the third quarter were up 24.7% to $11 million driven primarily by increased employee engagement at our offices. Included in other operating expenses is depreciation and amortization expense of $2.4 million for the third quarter. G&A expenses declined 10.6% to $6 million for the third quarter. This decrease was due to a reduction in the use of outsourced personnel and a smaller annual company meeting. Interest income increased to $1.9 million for the third quarter, driven by an increase in interest rates. Miscellaneous expenses, excluding deferred compensation loss was approximately $1 million. During the quarter, capital expenditures were $3.3 million, we distributed $13.2 million to shareholders through dividend payments and repurchased $17 million in common stock.

We ended the third quarter with $137.1 million in cash and cash equivalents. Turning to our outlook. For the fourth quarter of 2023 as compared to 1 year prior, we expect revenues before reimbursements to grow in the middle single digits and EBITDA margin to be 26% to 27% of revenue before reimbursements. For the full year 2023 as compared to 1 year prior, we expect revenue before reimbursements to grow in the high single digits and EBITDA margin to be 27.4% to 27.8% of revenues before reimbursements. This assumes approximately the same headwinds of 6% to 7% from consumer electronics business in the fourth quarter as we experienced in the third quarter. The full year margins remain at or above pre-pandemic levels. As Catherine mentioned, we are taking actionable steps to strategically align our resources with the current and long-term demand trends within our business through targeted recruiting and ongoing performance management. As a result, we expect our average technical full-time equivalent employees to decline sequentially 2% in the fourth quarter.

We expect utilization in the fourth quarter to be 66% to 68% as compared to 69% in the same quarter last year. As a reminder, utilization is seasonally lower in the fourth quarter due to more holidays and vacations compared to other quarters. Our expectations for full year utilization is in the range of 69% to 69.5% as compared to 73.8% in 2022. We still believe our long-term target of sustained mid-70s utilization is achievable as we continue to strategically manage headcount and balance utilization based on market demands. We expect the 2023 year-over-year realized rate increase to be 4.75% to 5.25%. For the fourth quarter, we expect stock-based compensation to be $4.5 million to $5 million. For the full year, we expect stock-based compensation to be $21.5 million to $22 million.

For the fourth quarter, we expect other operating expenses to be $11.2 million to $11.7 million. For the full year, we expect other operating expenses to be $42 million to $42.5 million as we -- as in office activities continue to pick up. For the fourth quarter of 2023, we expect G&A expenses to be $6.6 million to $7 million. For the full year, we expect G&A expenses to be $25.1 million to $25.5 million. We expect interest income to be approximately $1.8 million for the fourth quarter. In addition, we expect miscellaneous income to be approximately $750,000 in the fourth quarter. For the remainder of 2023, we do not anticipate any additional tax benefit from share-based awards. So the year-over-year tax benefit associated with share-based awards are expected to be $2.4 million lower than they were in 2022, which is a $0.05 per diluted share impact to EPS.

For the fourth quarter 2023, we expect our tax rate to be approximately 28.2% as compared to 26.2% in the same quarter a year ago. For the full year 2023, the tax rate, inclusive of the tax benefit from share-based awards is expected to be 25.7% as compared to 6% in 2022. In closing, we continue to be confident in the strength of the business and our ability to drive further profitable growth. I will now turn the call back to Catherine for closing remarks.

[Catherine Corrigan, executive]

Thank you, Rich. For many years, Exponent has been a trusted adviser in supporting our clients throughout the product life cycle. As the complexities of innovation create new challenges, Exponent will leverage our world-class team of experts and diversified services portfolio to guide our clients through the dynamic changes in their industries. We remain confident in our ability to drive long-term profitability and value for our shareholders. Operator, we are now ready for questions.

[Operator]

We will now begin the question-answer session. [Operator Instructions] First question comes from Tobey Sommer from Truist.

[Tobey Sommer, analyst]

Thank you. What sort of run rate do you think that the company may be on in terms of billable headcount growth as you exit the fourth quarter into next year?

[Richard Schlenker, executive]

Yes. I anticipate that we will end the year with a headcount that puts us right around, give or take, around 1,025 is where we'll end the year at. And then we will continue to -- I would expect that, hopefully, that puts us in a good position to be able to grow throughout 2024. We are still in our planning phase. We're sort of in the middle of that part where our business units are working on their 2024 plans.

And the executive team will be meeting with each of those business units later on this quarter. And -- but our expectations is based on the demand environment that we have across a number of our industries that, that will set us up in a good position to be able to really grow in those areas where the demand is increasing.

[Tobey Sommer, analyst]

And Catherine, the company doesn't often miss expectations. And I was wondering if you could describe changes in demand throughout the quarter, whether it was just sort of a bit at a time in each of the months and into perhaps October as well? Or was there sort of an episode or a month at which many things changed and then sort of leveled off from there.

[Catherine Corrigan, executive]

Yes. Thanks, Toby. It's important to sort of look at this from a portfolio perspective. And when I do that, we're very much focused in terms of the headwinds in the consumer electronics sector, as Rich described, and even more granularly around some of that human subject type of work that we've been doing around data collection, machine learning and things like that. It's very much related to the product life cycle timing that we've been seeing and also by some of those macroeconomic headwinds.

But I think the -- as I look across the business, what I'm seeing is a portfolio that is performing well and as designed because what we've done is really design a portfolio that is diverse across industries, right? And so we're seeing growth in just about every one of those other industries, whether that's transportation, which is very strong, whether that's the life sciences side, whether that's the energy side or the construction side, and being up 8.5% despite the headwinds, I think really exemplifies the strength of that portfolio and being able to deliver profitability that's at or above where we were prepandemic without -- with all of those expenses layered back in.

So it is a focused area where there is some moderation. And we expect that to continue in Q4, but we also are seeing some nice activity in the pipeline. We've got requests coming in for scopes of work and proposals. And so that pipeline is filling and that's why we feel like these headwinds are going to start to abate once we hit Q1 of 2024 and then progress even further into 2024.

[Richard Schlenker, executive]

Yes. And Toby, I'd just add a little bit of granularity on to those numbers. As I mentioned there, we had about $8 million headwind. I think we thought that, that would probably be closer to $6 million in July when we put together the quarter. And in addition to that, we thought that would be slightly less, again, in the fourth quarter instead of holding at that level, we -- based on what we understood, of timing of some projects coming in.

We expected those projects to start in Q4 that are now going to come the first quarter, at least that's what we expect now. So those -- that provided that additional sort of headwind in the fourth quarter.

[Tobey Sommer, analyst]

And if I could follow up on what you said about sort of visibility into new projects as you go into '24. How -- if you could describe how much visibility and much insight you have into customer planning and sort of looking out over the horizon to the extent your customers involve you in that to just kind of give us a sense for how you can construct a view for 2024 in that consumer electronics area that did demonstrate a little bit softness.

[Catherine Corrigan, executive]

Yes. And look, I mean, across the business, Tobey, the -- there's quite a bit of variability in that. I mean you can imagine the reactive work that we do has a lot less visibility. But even on the proactive side, that sort of product development consulting can often be driven by things like early field failures, for example. And so there's a piece of that, that the client is not necessarily able to foresee as they're moving into their product launch, let's say.

So that can limit ability to sort of see what that pipeline looks like. that even on the machine learning and the human data collection side, again, they are often -- they're iterating in that product life cycle based on aspects of that, that they may or may not be able to visualize themselves, right? So I think what I'm really trying to say is that there we do the best we can to sort of understand where the client is heading. And of course, we're in dialogue with them, but there is an element of the type of work that we do that is driven through some level of uncertainty.

[Tobey Sommer, analyst]

Understood. Switching gears. I just have 2 more questions, and I'll get back in the queue. In the -- in your business, could you talk to the PFAS opportunity and what you see there? And then I'm curious what the composition of your project book looks like relative to large projects, a question that I often ask about on these calls to assess whether there's sort of upside large project risk or represents neutral or downside risk.

[Catherine Corrigan, executive]

Yes. Thanks, Toby. And maybe I'll cover the PFOS and then I can let Rich cover the large project it. So we absolutely are continuing to see increased activity around forever chemicals. I talked about Poste perfluorinated substances. And it kind of starts at the original chemical manufacturers. But then what we're seeing is that the issues are cascading down into the supply chain.

So these chemicals are used in consumer products -- in clothing in food packaging in various other applications in carpeting and teflon pans and you name it, it's there. And so what we're seeing is really that cascade down into that supply chain, and we're seeing it in the reactive sense, around the litigation environment. So what is the impact on the environment. We're seeing it in the regulatory arena when we talk about that type of work in the chemicals industry. And we're also seeing it more proactively, even earlier in the product life cycle. When you think about product stewardship, clients who need to evaluate potential substitutions for PFOS in their products, and they're looking at those sorts of things, and we are seeing those engagements. So definitely a great opportunity to bring that interdisciplinary team together of our health scientists, our environmental scientists, our exposure chemists and our material scientists to really help clients in that area.

[Richard Schlenker, executive]

Yes. Toby, in relation to the large projects, we don't have any projects today that historically, we've talked about large projects when they've been in that 4% to 5% range. And really, our portfolio in this past quarter has been made up of projects that are 2% or less in what we're doing. That fits into the normal portfolio. Some of those will -- they're part of a litigation matter, and they'll end in the quarter and something else will grow up to that level. Our couple of projects will replace that, but it's more of a -- much more of a normal portfolio projects at this point in time.

[Operator]

The next question comes from Josh Chan from UBS.

[Joshua Chan, analyst]

Thanks for giving the color on the consumer electronics impact I guess, conceptually, if you did 8.5% growth in Q3 with $8 million headwind. And then I guess with the same amount of headwind, you're now expecting mid-single-digit growth in Q4. So something else outside of consumer electronics slowing? Maybe could you talk about the demand outside of that sector, I guess?

[Richard Schlenker, executive]

Yes. Maybe I'll start off and Catherine can fill in. really, the difference, let's say, there, pick your midpoint on that of a 3-point difference is really a combination of where the business was last year in the fourth quarter as what that level of hurdle was, which was pretty strong that the business was flowing out at that time. and just in the mix. I mean, last year, that headcount was very much ramping in the fourth quarter that utilization was holding together an extremely strong. So overall, I'd say we're not seeing any material difference in other parts of the business. But Catherine, maybe you want to double-click on that.

[Catherine Corrigan, executive]

Yes. No, thanks, Rich, and thanks, Josh, for that question. Look, there's -- again, I'll refer to the portfolio. We have ebbs and flows in that when we go out and ask our folks about what they're seeing, what's the dispute landscape and what are the kinds of projects either flowing off or coming on. And when we do that and we compare to the fourth quarter of last year, we sort of come out where we are. But -- when we look broadly just in terms of the business and what's strong, I mean, transportation is a great example of an area that is very robust.

When we think about the litigation around advanced driver assistance, we're looking at inquiries we're getting around electric vehicles. We look at what's going on in Life Sciences. We look at our risk work in utilities we're generally -- I'm feeling good about where the portfolio is over the long term. We have to go with the ebbs and flows sort of on that quarter-to-quarter basis.

[Andrew Nicholas, analyst]

That's helpful. And then on the staffing levels, given the little bit slower demand than expected, do you still expect to achieve this back to normal or desired utilization levels around the start of the year next year? Or does that time line get pushed out a little bit?

[Richard Schlenker, executive]

Look, I think that we are -- as we've made points here today, our objective is to bring our headcount in line with the demand in the environment. And as such, definitely begin to see an improvement in the utilization, we're not complete with our plan and exact and ready to sort of give guidance around that level of granularity as it relates to the first quarter or next year, but are very much our focus is to see our utilization improve in 2024.

[Operator]

Next question comes from Andrew Nicholas from William Blair.

[Andrew Nicholas, analyst]

I want to take another shot at the consumer products commentary and maybe more so try to quantify which piece of that business. I think in your K you disclose how much of revenue is tied to consumer or consumer products. Is this relatively widespread within what I think was kind of the 31% of mix number? Or is there a slice of this that's down pretty drastically -- just trying to kind of piece together all the moving parts here, if you could help me there.

[Richard Schlenker, executive]

Yes. So it is focused primarily, it's focused on the consumer electronics side. We're not seeing a decline in the more general consumer products area. So it's focused there. It's predominantly in -- or almost solely in the data collection human subject study area. So it's very much around that, which are -- and it is primarily focused around where the clients are in that product life cycle. But clearly, there's been some impact from what clients have been going through organizationally in deciding which projects to continue and how to staff things and manage costs in the market turn. But this is consumer electronics, -- the majority of it is in the data collection user study area and primarily about where they are in the product life cycle.

[Andrew Nicholas, analyst]

And then maybe for my follow-up on margin. Can you help me bridge the gap in terms of kind of the revenue guide down versus the margin guide down? It looks like you're still kind of high single-digit expectation for full year in '23 on the top line, which I realize that's below what you were at before at the midpoint, but still within that full year range and yet guidance for margins is below the prior range, if I'm not mistaken.

Is there any other kind of outsized expenses that have come through since you last spoke with us? Or -- anything else to call out? Or is it just a function of the fact that you're kind of hanging in there with fixed costs and people in the consumer products business, the expectation that, that comes

back around at some point next year?

[Richard Schlenker, executive]

Yes. So look, it is -- it's all driven by that being a few million dollars less in the revenue line. We are we're hitting on about where we expected the level of staffing to be. So we had indicated where we thought we would make some adjustments in that and did it.

The fact that we have a slightly lower revenues has led to slightly lower utilization and the leverage you get out of that is quite high. So it -- this is really just about, as I indicated, if you take a look at this at the last quarter, if that $8 million was only $6 million to $6.5 million, which is sort of what I would have expected in the third quarter. probably $1 million of that would fall to the margin line. And you would have been on the upper half of our EBITDA margin. And the same goes for the fourth quarter. We are expecting probably about more of revenues in that quarter would have ended up with us $3 million or $4 million. That would have put us up in the high single digits, let's say, had us hitting that range. And as such, you would have ended up seeing a couple of million dollars more in EBITDA and in return got yourself another 50 to 80 basis points.

[Operator]

This concludes our question-and-answer session, and the conference has now concluded. Thank you for attending today's presentation. You may now disconnect.