Agilent Technologies, Inc. (A) Earnings Call Transcript & Summary

This morning. I'm Matt Sykes, the life sciences tools and diagnostics analyst at Goldman Sachs. It's a pleasure to welcome Bob McMahon, CFO of Agilent to the stage today. Bob, thank you very much for coming.

Thank you. It's a pleasure to be here.

Great. Maybe I'll let you kind of set the stage first and talk about your most recent results and sort of trends you're seeing in your business as we enter the second half of this year.

Yes. We -- through the first half of the year, we're actually very pleased with the performance of the company. We actually had very solid results in the second quarter, 9.5% core growth and actually 12% earnings per share. But as I'm sure you're aware, we have ended up taking down the full year guidance by about 200 basis points, really based on what we saw late in the quarter in Q2, where the order volume just didn't materialize into actual purchase orders. And so we see that continuing into the second half of the year here. And so our second half, we're experiencing and expecting much less growth on the top line, still expecting earnings per share to grow for some cost measures that we're taking. But a more -- probably a more modest expectation in the second half of the year and even what we had at the beginning of the year, which we were expecting kind of a slowdown in the second half really some of it a combination of very strong performance last year, but also just kind of taking it one step at a time here this quarter. And with some of the volatility that we're seeing, we're expecting even slower growth than what we had at the beginning of the year.

Got it. I mean we've seen broad-based negative earnings revisions across the tool space. Obviously, you talked about your guidance changes and talked a little bit about what you're seeing. I know it's just been sort of a month since the results, but have things kind of lined up with your sort of new expectations that you have for the rest of the year?

Yes. What I would say is no better, no worse as we were assuming what we were seeing as the RFP activity and the activity with our customers continues to be high. What we're actually seeing is a longer conversion rate from that -- the potential RFP or our proposal ultimately to a natural binding purchase order. And so that has continued. It hasn't lengthened any, but it hasn't snapped back either.

Got it. I mean you talked a little bit about at your breakfast this morning, but sort of as the RFPs are sort of building up and there's been sort of this delay of not just the sales cycle, but also sort of the entire process. If things do ease up, and I don't have a crystal ball, so I can't tell you what the macro is going to do, but if things do ease up, could we see that drop through?

Yes. I think there's probably a couple of things that we're seeing, which are actually positives. One is when we think about where we were at this time last year, we had an all-time high inflation, delivery times were extended. And it was a really difficult time to actually even procure some -- certain raw materials and particularly chips. Now fast forward to this year, inflation has started to moderate, delivery times are back to kind of normal. And I think that, that is -- actually, we've seen that benefit our customers as we were able to drive down some of our backlog and meet delivery times. And what we're seeing from our customers is, they're not telling us their budgets have been cut. I think they're just being more deliberate about the process. And to your point, if, in fact, those budgets remain intact through the course of this year, there could be a more than historical budget flush at the end of the year. Now that -- based on our fiscal year, that could show up in our fiscal Q1 as opposed to the end of our fiscal Q4, but we'll certainly take that if it comes.

And assuming the Agilent prudence is not baked into expectations at this point.

Yes. That's correct.

Okay. Okay. So you touched a little bit on instrument demand, and that's been one of the key debates coming out of the most recent quarter. Maybe help us understand -- because I think from the emerging biotech side, I think it's well understood. And I think expectations have been fairly managed with that customer segment. On the large pharma side, though, I think there's still some questions about what exactly is going on in terms of the reluctance, reprioritizing of R&D budget. Is it simply a delay that we need to work our way through? Or is there something else going on there? Given your insight into that market, maybe you can help us understand that dynamic a little better.

Yes, it's a great question. And maybe to frame the size of our -- pharma is our biggest end market. It's combined both with a small molecule, which is primarily a replacement cycle. That's about 60% of that -- it's about 35% overall of Agilent's revenue. About 60% of that 35% is kind of small molecule, which is just a replacement, primarily in QA/QC. And so at best, that's a deferral of revenue. The other 40% is large molecule biotech, and you mentioned kind of the situation, particularly with emerging biotech. That's about 10% of that 30%. But more broadly, what we're seeing is just, I think, a delay. I think it's a combination of a number of factors. We're not seeing one catalyst that's driving kind of this delay in the conversion cycle between proposals and purchase orders. We think it has something to do with just kind of general uncertainty in the macro environment. People are being a little more cautious, particularly on capital side to see how things are playing out. We have heard potential discussions about trying to understand the Inflation Reduction Act that may have impacts on some customers more than others and seeing how that may play out. Obviously, it's still up in the air with some of the legal actions that are happening as last week. And then I think there's also a potential element of -- if you think about emerging biotech, one of the things that we've seen is, the science is still there, particularly in some of these. And now what we're seeing is funding game pulled back. But I think you're starting to see some early stages of potential M&A activities for some of the larger biotech, which ultimately, I think, is a good thing for Agilent because where most of our businesses is in the larger companies. And they may be just looking to say, okay, maybe we want to fund a little more of that with cash, given that the interest rates are higher. Now that's not a reason not to invest in capital equipment. But I think there's a number of those factors that are kind of at play right now.

Do you think -- one thing we've gotten from investors just on the large pharma question is, over the past couple of years, during the COVID period, there was less -- generally less M&A, a lot of the investments were focused organically and therefore, maybe that inflated R&D budgets. Now we're shifting back towards M&A. Do you think there's an internal capital allocation at the large pharma that could be impacting purchases? Or is that just too hard to call? I know I'm asking you to assume what they're doing, which is difficult but...

Yes. Yes. I think it's probably -- I can't say that it isn't a potential. We haven't heard that consistently across our customer base. I do think that what we did see is -- and we've talked about this, we actually had built this kind of into our thinking for the -- at the beginning of the year, particularly on the replacement cycle that this business would -- was in an accelerated replacement cycle because in '18 -- '19 and '20, we actually saw a pullback there to first, focus on biotech, large molecule where you saw capacity expansion, and we saw that and strengthen our business. And then I think they did have excess cash. And so the fleet has been refreshing over the last, I would say, 1.5 years or so, and we were expecting it to moderate in the second half of the year. Now it's moderated more than what we expected. And I think it's all those factors potentially in play.

Got it. Shifting to ACG, which has continued to perform really well, an area of the business that we think is still underappreciated at Agilent. Can you kind of give us an update on that segment and what you're seeing from a service adoption standpoint, certainly around the dynamic of extension of instrument life and what you're seeing from customers through increased service offerings, potentially?

Yes. We're super bullish and excited about the Agilent cross-laboratory service business. So you think about capital on the instrument side, it's -- you look at it on an annual basis, but the beauty of the service is, you look at the cumulative installed base. And what we've been doing over the last several years is how the strategy to increase our attach rate of services and consumables when we actually sell an instrument. And that number was roughly in the 20s, mid-20s a couple of years ago. It's now over 30%. Each one point is a $30 million of incremental revenue on an annual basis. That's highly profitable. And so one of the things that we're seeing is with all the strength that we've had in instruments over the last couple of years, those instruments are now coming off of warranty with our strategy of putting that extended warranty on. You're seeing a nice growth and actually seen our ACG business accelerate. It grew 13%. That's been several [indiscernible] of double-digit growth, and there's 2 components to it. There's the service contracts, which I've been just talking about. But then there's the additional offerings to break -- fix certainly on products that are off -- not on contract. And actually, if you think about the -- as a fleet ages, a fleet of instruments age, you actually will see higher service costs to maintain those instruments. That certainly doesn't offset one-for-one, but we're seeing that as the instrumentation gets a little older. And then adding new capabilities in things like supply -- supporting them from a compliance standpoint, new software and services there. In addition, one of the things that we've been doing, and now it's a meaningful part of our business is the enterprise service offering. And so this is actually going in and helping them manage their lab, not only just Agilent instruments but the entire lab. And given our installed base, we feel like we've got a very strong competitive advantage there and continue to win some pretty good enterprise deals there. And we think there's still a lot of growth left in ACG, our services business. When you think about that, that service attach rate being in the 30s, there's no reason that it couldn't be in the 40s and 50s. Some of our competitors are actually up in those ranges. So there's no reason that we shouldn't be able to get that in over time. And then as customers are looking for more productivity in the lab, one of the best ways is through our service organization. And I actually think that that's a value -- a pretty compelling value proposition for our customers. If we think about we may get into pricing, there's also a stickiness of pricing there because they actually see the value with the service engineer there. And it's a great insight into actually our R&D engine, about what customers are -- what problems they're trying to solve. And so really excited about that, and we expect that to continue to be the -- probably the fastest-growing segment of our business and given the dynamic of it, it never goes real high one quarter or real low. It's a nice, steady grower. And from a predictability standpoint, we like that.

Just following up on one of the last comments you made. We talked actually about at last year's conference. Before we knew the macro environment was going to be what it is today. But you talked about in a more cost-constrained environment, the ability to save lab costs based on your knowledge and your relationship with those labs, it's actually quite important. Have you actually started to see that sort of value proposition [ rest ] for these customers. Is that a revenue driver? Or is that more of a customer loyalty sticking together?

It's actually both. And it starts with kind of the customer loyalty because you're trying to help them manage. At the end of the day, a lab is there to support a bigger function within the company. If it's a QA/QC, it's the last step before product gets released and then ultimately gets recognized as revenue. So there's a lot of pressure on those folks to ensure that, that product and those systems stay up and running. And if it's more on the R&D side, again, being able to run more productivity or more activities through those machines and instruments is important from a productivity standpoint. So we are actually seeing that. Actually, you can go in there and help them manage, understand their asset utilization, which systems are running better than others, how do you actually level load that. And then that actually generates incremental revenue as well because what you can do is, you can help them not only manage the service, which is this enterprise service agreements that I've been talking about before, but you can also help them keep that uptime and they'll be willing to pay for that. And it's been a -- it's a nice part of that business. And I think one of the things that I think sets Agilent apart. So if you think about an instrument, and an instrument can last anywhere from 5 to 7 years if it's a mass spec, maybe a little longer if it's an LC. And so how often do you see the sales rep, you'll see them quite often and then maybe once or twice a year, just kind of checking in but they see that service engineer throughout the course of that life. And that's a trusted partner that really helps them manage their lab, understand the value that Agilent can bring, and then as I mentioned before, bringing that back into R&D or back into Agilent to help us with what are the new workflows that are potentially out there that the customers are looking to try to drive. I'm sure we'll get into kind of PFAS that's one of the ways that we were able to just launch a new workflow at ASMS earlier last week. Obviously, that's an emerging area of opportunity. But it's that cycle, so not only helping them with the economics of the lab but also helping our R&D organization understand where our customers are going with the science.

Got it. I was going to ask this question a little bit later, but I think it's a better time to ask it now. Maybe you can talk a little bit about how Agilent's changed over time in terms of cyclicality. Like I believe the market still has the impression that Agilent is on the more cyclical end of the tool sector. However, you've got ACG, single cell, NASD, plus the industrial end market composition has changed a lot, which we'll talk about. Maybe give us some context around, say, Agilent 5-plus years ago versus what it is today.

Yes. When you think about what -- the company was much more instrument focused and less focused on kind of the more resilient areas. Now we're talking about pharma, but I still think pharma is a resilient end market. And with the consumables and services piece, probably about 5 years ago was, it could have been closer to 55% of our business, now to over 60% of our business. And while we've had a strong growth on the instrument side, if I think about that number going forward, it's only going to increase more in services and some of the consumable side. I think also within the applied markets, what you're seeing is elements and pockets of, I would say, secular growth drivers that didn't exist before. So our chemical and advanced materials market, which makes up about 20% of our overall end market revenues, a couple of years ago, was much more focused on chemicals and the energy segment. And in fact, we've made the change to advanced material to change the names because we were getting an overfocus on 10% of that market or about 2% of the company on energy and exploration and missing the point around these advanced materials, which is now 35% of the business, this is things like semiconductors, which I think we're seeing multiple evolutions or revolutions of newer technologies there and certainly, the electrification of not only cars, but other modes of transportation and clean energy. And so those are things that are also being funded by the governments today, which 5 years ago, they weren't being funded by government. So you think about semiconductor, it's now a national security element not only for the U.S. but for Europe as well. And so they're helping fund capacity expansion there. And then you're seeing the electrification of vehicles, you're also starting to see that through credits on vehicles and the -- trying to have greener energy. So I think you're seeing a series of these secular growth targets. We also talked about PFAS, which is an emerging one that are actually driving even in the applied markets, I'd say, more durable growth. And then as we think about our diagnostics in clinical and pharma business, it's been a bigger part of our business than it was 5 years ago.

Got it. I think in 2020, instruments were about 42% of overall revenues, recurring 58%. That's moved up to sort of 40% instruments today versus 60% recurring. Do you see yourself kind of keeping the 60-40 split? Or do you see that shift to more recurring revenue continue to progress. I mean as ACG grows, that becomes a natural part of it. Could you just kind of talk a little bit about where you see that sort of recurring versus capital equipment revenue mix going to?

Yes. We see that continue to increase more on the consumables or the recurring revenue side over time. It is one of the areas that we placed a lot of investment both internally from an R&D perspective, but also from a capital perspective. We think about not only the ACG business or NASD business that shows up in the recurring revenue stream. And so -- or the consumable side of the business. So I would expect that to continue to grow. And if I went 5 years out, not to put a -- we don't have specific targets. But I would expect that 60% to be higher than that going forward. Now we're not going to let instrument side off the hook in terms of growth. But what we're trying to do with that increased connect rate in those workflow solutions is actually drive more, we think about a customer lifetime value, increasing the customer lifetime value of our instrumentation. And so that is one of the main strategies that we've had over the last several years, and I think it's continuing to bear fruit and there's still a lot of runway ahead of us there.

Got it. Maybe shifting to China, which has been a popular topic. I'm sure you've gotten a lot of questions on it already. It's obviously an important growth driver for you and has been historically. We saw in the first quarter, there was a stimulus impact, but it was very narrow. It was more on the high end where Agilent didn't participate as much. Could you talk a little bit about what you're seeing in the region? What your expectations are for 2023? And will we see some stimulus over the course of the year? And kind of what is baked into your expectations in regards to your China business?

Yes, it's a great question. Let me answer the last one first because that's a 64,000-dollar question is whether or not there's going to be stimulus. And we hope so, but we haven't built that into our plan. And so we've heard talk about that typically, when the government moves and move fairly quickly. But we haven't tried to time that. And we're not that good. And so I would say from our standpoint, actually, the first half of the year was very strong. If you looked at the first half, it was probably 20% growth, was 13% and 32%, Q1 and Q2. Now that was benefiting -- it benefited from last year easier comps because we had the Shanghai shutdown that impacted our business in April -- latter part of March and in April, and then we started seeing that ramp-up in recovery in Q3 and Q4. And so we're expecting mid-single-digit growth for the full year off that growth. That's down from where we expected. But I think a couple of fundamental factors are there, and we still think that China is going to be a growth market for us. We continue to invest in China. I heard the speaker earlier talk about in China, for China. That is real. We are seeing that. Now we've had a presence in China for well over 20 years. And we're investing more and bringing on locally produced instrumentation. We made an announcement or an investment in December of '21, supposed to come online at the end of this year that we will make beyond just gas-phase instrumentation or gas-phase chromatography instruments. And so we continue to invest to actually be able to have that made in China. And if we think about kind of the 5-year plans and some of their strategic priorities, our instruments are really critical for them to advance their national interest. Now obviously, there's a lot of debate and discussion around the tensions between the U.S. and China and certainly, that doesn't help. But we haven't seen buying behavior change on the ground. And I think one of the things that we've been doing is building that ACG business. And so one of the things that we talk about in terms of the local competitors, they're getting better, but they don't have the breadth and depth of service capabilities that we have today. So a lot of our service is done through WeChat, the local version of kind of Twitter for them. And as costs go up and productivity becomes more of an important piece there, the ability to service that instrument in keeping up is as important to a Chinese customer as it is for a U.S. customer or a European. And that's where I think we have a competitive advantage. Now we're not naive to think that they're not going to continue to get better and there certainly are pressures to drive more locally based manufacturing or sourcing of products. And that's why we're making the investments that we are. Obviously, by its nature, ACG is kind of local because the people are there. And then we have been building additional capabilities from our instrument manufacturing to build more of our capabilities across where it's needed.

Got it. Maybe shifting to PFAS. It's funny. We actually wrote about PFAS when we initiated on Agilent.

Yes, you were one of the vanguards.

On 2020, yes, but the response was crickets at the time, no one cared. But now everyone is starting to care. And I think that it's a small market. So I think we have to put the whole thing into context. But just given the regulatory dynamic that's occurring, given the fact that we're only really talking about water right now, and there's a lot of food and cosmetics and other areas where this -- could you talk about, first of all, like what's the size of the market for instrumentation that's relevant to Agilent is first to? What do you think it's growing at? And then three, sort of where do you see sort of the market share dynamics playing out? And how do you think Agilent wins in PFAS moving forward?

Yes, it's a great question. It's one of the things that we've actually been talking about almost the same time as you, and then now people are coming around. And as you said, it's really an emerging opportunity, I think. And so what are PFAS? There's thousands of these chemicals out there that are in everything. And they basically last forever. They don't degrade. And so what the emerging sciences is, what does that mean? They're in our bodies, there -- and they end up staying there in the water and so forth. Right now, it's about a $200 million market, growing double digits. We are by far and away the leader. It's the same customers that we've had for a long period of time. It started in the environmental kind of area. Here in the U.S., it was done state-by-state. So there are various regulations that we've done, there's now a proposal only for 6 of those 1,000 potential substances are being potentially regulated here going through the FDA. And as you say, there's a potential to see even beyond just kind of water testing. That's where the predominance of this is now, but you're starting to see it in food packaging to worry about leaching into food and the requirements there and then other areas as well. And so we think this is very early stages. The government is funding it. And we've been -- we think we're a leader here and we'll continue to really focus on it. And these are customers that we've had for decades. And so I would expect that to continue to grow over the next 5 to 10 years at that double-digit rate, notwithstanding some surprise. The other thing I would just say on this is one of the catalysts, we talked about catalyst being the regulation, which we're starting to see funding from the government, which we're starting to see. And unfortunately, litigation, and you're starting to see that as well. There's a class-action suit down in Florida that's talking about the level of these chemicals in municipal water supplies, which now -- you had all those things together, there will be, I think, an increased testing requirement throughout the course of the U.S. U.S. is actually kind of leading this. But Europe is not far behind, and I would expect Asia to follow suit sometime in the future as well.

Got it. Maybe shifting a little bit more to financials on the margin side. So in Q2, the operating margins were a little bit lower than expected, so there was an unfavorable revenue mix. Maybe give us some insight into what you're seeing from a revenue mix perspective. And just given we're kind of into Q3 for you guys, how are you seeing that play out?

Yes, if you looked at, I would say -- so what happened in Q2 because we still -- we hit the top end of our guidance, but the margins were a little light, as you were saying. But if you looked at our LSAG margins, margins improved very nicely. Same with ACG, both of those were very strong. We're -- we actually had some challenges within our DGG business. And we talked about the genomics market seeing some disruption. We saw it in Q1. We were expecting -- Q2, it actually had a slightly greater impact than what we anticipated. And what we're seeing there is that's a very profitable business for us and some of those customers have just been really struggling. And so we saw the revenue come down and that was the negative mix impact that you were referencing. If I think about what we're doing going forward, if you look at the second half of the year, our expectation is that margins will improve. Now that's through a lot of cost containment and efforts that we're doing internally. When we looked at taking our expectations down for the second half of the year, we also were saying, okay, what do we need to do to help manage the bottom line. And so we're looking at -- certainly, the -- there's an element of compensation that automatically flexes there, but we're also looking at reducing cost to be able to drive continued margin expansion in the second half of the year, maybe more so than we saw in the first half of the year. And I just leave it at that.

Yes. I mean I think this is also related on the pricing side. I think for Q2, it was like 400 basis points of contribution higher than sort of the 3% expected for the full year. So the expectation would be that it starts to come down. And after a few years of pretty strong pricing, how do you see kind of pricing? Are we going back to sort of like the normal historical kind of pricing growth you guys got in the past? And how do see pricing over the course of '23?

Yes, it's a really good question, and we better not. I don't think so. I think what we've seen. Now it's not going to stay at these levels. It will move with inflation. And -- but I think what we've seen is we probably were in the 50 to 75 basis points of annual price improvement kind of pre -- in '21, '22 levels. I don't think it's going to go back to that for a couple of reasons. One is, as we increase our attach rates and really focus on that productivity, those are the areas that are more sticky. And I think we've gotten better at -- on pricing for value across our -- not only instrument fleet, but also our portfolio. And so I do think that it's not going to stay at these elevated levels. We're still on track for about 3% this year. Now to -- we've been tracking at a little over 4% for the first half of the year. We had our last pricing -- we had multiple pricing cycles last year, the last one being in July. So we're going to cycle through that this year. So -- and we only did one this year at the beginning of the year in January. We're not anticipating doing another one. So we'll get back to that regular cadence of doing that. The good news is we've been doing this relative to trying to follow kind of inflation. And we are seeing inflation slow down. That's actually been one of the nice positives. It's still -- costs are still going up. They're just not going up at the rate that we had anticipated at the beginning of the year. And so that's allowed us to be able to continue to drive productivity in our supply chain.

Got it. Shifting to NASD and nice growth in the quarter. It continues to be a really good story for you guys. And you've talked about sort of the Train B which you're pretty close to getting that, and then also the Train C. How are you thinking about capacity expansion specific for this market, just given the macro environment we're in? Has it kind of changed your view as to what you should do? I mean, you've often talked about you're basically building capacity simply to meet demand. Is that still the case? And how are you thinking about that business today?

Yes, nothing has changed our conviction in that business. And as we think about Train B, and then C and D, that we announced back in January, we're still on track for going live with Train B here at the end of Q3 and then bringing online this year. And then we've broken ground for C and D. And when you think about the number of molecules in this space that are in the clinic, it continues to grow. And so we're -- we think that the short-term impact from the macro standpoint is, in fact, that it's short term. We think that the science here will continue to grow. And if you think about the number of therapies that are being targeted at larger patient populations or larger therapeutic areas, it's going to need, it's going to warrant the larger volumes. We're about 50-50 today, commercial versus clinical. Three years ago, we were probably 90% clinical and 10% commercial. And so our expectation is that we'll continue to go. Our job is to continue to build out a robust portfolio of customers and products, and we feel pretty good about that. I think the other thing is with C and D, which is important is today, we predominantly have one modality, siRNA therapeutics. And -- but increasingly, what you're seeing is not only larger patient populations there, but one of our Trains in C and D, which will come in online in the '26, '27 time frame is a CRISPR line. So GMP [ create ] CRISPR. We have a small business today already through NASD, it's capacity constrained. And so what we're looking at doing is building a line there. And so we would have the ability to do not only siRNA, also antisense, which is kind of a related technology with Train C and then also CRISPR gene editing. And so what we've got is an expansion of therapeutic or modalities to provide customers with as well as seeing that clinical volume going up. And so we haven't seen any slowdown to date.

Got it. And maybe just talking about one of the commercial drugs you have in that business, Leqvio, which is Novartis' drug. It's at a bit of a slower outtake, nothing to do with the drug based on my understanding more to do with the billing issues. But has that impacted the business at all? And I mean, it sounds like you're diversifying from siRNA. So maybe that's offsetting some of it maybe talk about Leqvio's impact.

Yes. I would say this, we are diversifying as part of the expansion of capacity. As we get more commercial, obviously, we want those drugs to be successful in the marketplace. No one drug will determine kind of the success or failure of our NASD business. And you're right, it has nothing to do with the efficacy of the drug. I think they're still investing behind clinical trials and trying to drive demand. It may have taken a little slower. But I think our view is that that's one of many compounds or products that we have and progress that we have in the pipeline as well as in production. I would say the beauty of having commercial is it allows you to run more efficiently in the facility. So long campaigns. We saw that actually in Q2, I don't draw the comparison that was associated with that drug. But what we were -- if you have the ability to run the same molecule for long periods of time without having a lot of changeovers and so forth is very efficient for us and it allows us to actually drive more capacity out. And -- so more products is a good thing long term. It does create more changeovers and so forth. And we've built that into our kind of plan going forward.

Got it. And then lastly, in the last minute we have left just on capital deployment, M&A. You guys have talked about it. It sounded like in January when we spoke, you were shifting more to public from private, just given the better spread in private. But how are you thinking about capital deployment as it relates to M&A or organic?

Yes. I think we've been benefited from very strong cash flows, a healthy balance sheet. And we see the valuations coming down. We've been, I think, a disciplined acquirer primarily in the private space because I think we have an ability to offer maybe something else just in cash, and that's the One Agilent culture, which I think is important for founders to have a business that's in the right home. We continue to be aggressive and I think valuations are coming in. I think I mentioned probably then before we weren't even in the same building now we're in the room. And I think we'll continue to see opportunities throughout the course of this year and into next to leverage our balance sheet.

Great. Bob, we're out of time, and thank you very much.

Thank you.

Pleasure.