Charles River Laboratories International, Inc. (CRL) Earnings Call Transcript & Summary

Hey, good morning everybody. I'm Tycho Peterson from Life Science Team. It's my pleasure to introduce our next company this morning, Charles River Laboratories. Just a quick reminder, if you have questions submit them through the website, and with that I will turn it over to Jim.

Thank you Tycho, always a pleasure to be at JPMorgan Conference albeit virtually. Should take notice of our Safe Harbor, Reg G and quiet period disclaimer. So we worked on 85% of all the drugs that were approved by FDA last year. Actually 100% of the CNS drugs and 92% of the oncology drugs. We're obviously very proud of those statistics and very proud of the role that we play in the drug development paradigm. We have doubled the size of Charles River over the last 5 years, and we're proud of that as well. We have the #1 position in most of the businesses that we're in, and we have a market in which we are participating, it's about $20 billion and growing, so we have a nice long runway of potential business to garner from this very large market. We anticipate low double digit growth through 2024, we gave kind of 3.5-year guidance in our investor conference in last May, I'll recapitulate that [indiscernible] presentation. We have worked on 89 novel molecules for our clients who couldn't discover those molecules themselves. So we do do some very pure discovery where we identify the targets themselves and we are pretty proud of that work as well. We've invested a little over $4 billion in 25 acquisitions over the last decade. Returns have met or exceeded our investment criteria. Obviously, lots of our growth rate is a direct result of the companies that we bought as we built out this very powerful, unique portfolio. So we're a leading nonclinical drug discovery development company and now a manufacturing company. The last 12 months revenue was about $3.4 billion. We don't have any clients that account for more than 4% of our revenues. Our customer concentration is relatively low. We've got about 20,000 employees. We work in 120 -- we've 120 sites in 20 different countries. Our work historically was all pharma. And over the last decade, I would say, biotech has grown dramatically and eclipsed Pharma as our largest segment. So we got over 40% of our revenue with biotech and almost 30% with Big Pharma. Geographic footprint is about 65% North America. I think that's probably sustainable since biotech is very much a U.S. phenomenon, principally South San Francisco and Cambridge, Massachusetts. So we should continue to see substantial growth in North America. Our portfolio is a key distinguishing feature, as I said. It's unique, it's powerful, it's wide and deep, it's heavy science. We're the only CRO that sort of integrated in our portfolio, which spans drug research process that holds our research process from target discovery through market approval. We're very proud of that. Increasingly as more biotech companies are created, and of course, biotech companies have no internal capacity or capability or desire to do any of the things that we do. We're garnering more work from them. And as pharma continues to outsource more of the work that they have historically done, we're getting more work from them as well. Our research model business, which was our original business; 1 out of every 2 research models used in biomedical research comes from Charles River. We have about a 36% share. Our next biggest competitor has about 24% share. So we continue to be the market leader by a lot. About 1.5 years ago, we added cell supply to the research model and services business, which has helped stimulate its growth and potential. Research Models is about 20% of what we do from a revenue point of view and provides 20% of the non-GAAP operating profit as well. So we have a growing business in the service portions of RMS, so that's our genetically engineered models business, which was accelerated somewhat by the COVID, so more outsourcing. Clients are very pleased as competition shutdown and they shutdown, they could outsource their work to us, so that was terrific. So it does business, so providing genetically engineered models to our clients for basic research is critically important. Our Insourcing Solutions business is also a really important part of our growth and development. And we have this cradle business where we have sort of incubator space for our clients to use a small proportion of their own for their research with or without our staff. Those businesses are growing well. Price and mix have been substantially impactful to the RMS business. In terms of production of research models, the China business is the high-growth segment where we continue to build additional facilities and there's a lot of share to be gained as the Chinese government invest substantially in the life sciences. And of course, we have the cell supply business, which is in extremely high demand because of the work in cell therapy. And that business has been retarded somewhat by access to donors because of COVID. We had a difficult time in 2021, but we anticipate that we should get back to historical growth levels, which are about 25%-plus in this fiscal year. It's interesting that our DSA segment has now become the largest user of research models. So we are our largest clients, so vertical integration gives us a competitive advantage. We're very pleased with that. And like many of our businesses, our digital footprint, which we've been working on for a while, it's going to enhance the connectivity with clients in the research model business. Our Discovery Services business, we're very excited about. We've moved into Discovery almost a decade ago that I think is a very sound strategic move. We wanted to engage with the clients earlier. We knew that it would take a while to build sufficient scale and geographic diversity and real depth, real scientific rigor. And we bought several companies in this space. We have an early discovery capability in medicinal chemistry. We have some in vitro capabilities. We have a high throughput screening library. We have pharmacology capability. We work in major therapeutic areas, particularly oncology and CNS. We have discovered 89 novel molecules for our clients, as I said earlier, we're really proud of that. And we did an acquisition -- 2 acquisitions earlier this year, one called Distributed Bio, which was one of our technology deals, which grew into an acquisition. We have a couple of years of real life due diligence, and that's a large molecule discovery platform. We think the best of the world from a technology point of view. We also bought a company called Retrogenix early this year, which has some cell therapy -- cell and gene therapy capability, which are giving you -- it's looking for off-target effects of these drugs. So we and the other 3, so the top 4 players in this space is about a 50% share. It's pretty fragmented. We have capable competitors in the space. It's a large market. It's only 25% outsourced. And so we're very pleased that we built this cadre of powerful companies, and we're now growing at significant levels of the top line and the bottom line is now accretive to the DSA margin. So we're really, really pleased with our discovery platform. Safety Assessment, we're clearly the global leader. We have a 36% market share. Covance, the second largest player, it's about half our size. They have a 22% market share. We do non-GLP tox, we obviously we do basic GLP, general toxicology, and we do very complex specialty toxicology in areas like inhalation toxicology, immunotoxicology, gene tox, essentially bone tox where we have very high margins. We also have a large business in bio-analytical testing of toxicology samples. We also have the world's largest veterinary pathology capability. We have about 150 veterinary pathologists. There's only 1,200 in the world and probably 500 that work commercially. So we have 150 of the 500. So very, very pleased with this business, about 60% outsourced. We love being the market leader. So if you look at the DSA segment, it's 60% of our overall revenue, only 54% of our non-GAAP operating margin. This is the business where we have continued opportunity for operating margin improvement through efficiency -- additional efficiency initiatives, through scale, through additional pricing, through better pull-through from discovery into safety. We're finding biotech continuing to not want to build any of the capacity that we have. So all the biotech are our clients potentially. Pharmaceutical companies continue to reduce their internal infrastructure. We continue to add capabilities to straight up M&A and through our technology deals. Nearly 60% of Discovery clients remained with us in the Safety Assessment, which we're delighted with. And all things being equal, clients love proximity. They feel that they have more control over the drug even though they've outsourced it. They like to be on site. They like to engage with our scientists. They like to see the data of the second it's available. They'd like to know about our facilities. So all things being available, proximity is important. So we have 30 DSA sites that are extremely proximate to our client base. Our Microbial Solutions business. We have a 50% share of the testing market by test volume. This is a business with a premier global provider of quality control testing products and services for both sterile and nonsterile applications. So FDA mandates lot release testing of injectable drugs and medical devices, every lot has to be tested for sterile products and also product release testing of nonsterile drugs. FDA also oversees that as well. So this is a business that will continue for us. We love our market leadership position. We have IP. We continue to innovate and develop new generations of our technology, which is holding us in good stead. Our Biologics business has had a wonderful growth rate. The top 5 players, including us, have only have a 50% share. It's very fragmented, the other 50% share, a lot of academic players. This is the business where we have the best of the toughest competitors. All of us are large, well-financed companies with deep science. The market is so robust and everybody is doing well, everybody is growing, everybody has improved profitability, everybody is building space. So we think this has a long runway in this business. This business grew almost 30% for us in 2021 through 3 quarters. If you take out a lot of the COVID work, it's still sort of a 20% grower. Profitability is better. We're providing testing, characterization, cell banking for these companies, providing testing and assay development throughout our whole drug development and clinical manufacturing. They're looking for fast results, and this business, in particular, is closely connected with our cell and gene therapy assets and its growth is driven in large part by the importance of the cell and gene therapy modality as a way to treat and hopefully cure diseases. So -- I'm on Slide 13, by the way. So we've expanded aggressively into the cell and gene therapy space. We did 6 acquisitions over the last 18 to 24 months. In particular, we spent $1 billion for Cognate Bioservices and Vigene Biosciences, both of which we bought in 2021. Cognate is contract and CDMO specializing in CGMP cell therapy manufacturing, particularly its expertise is in CGMP gene-modified cell therapy manufacturing. We anticipate this business will grow least 25% annually. Vigene is a CDMO specializing in viral vector-based delivery solutions, principally in the gene therapy space. So Cognate is more heavily focused on cell therapy and Vigene is heavily focused on gene therapy, but 2 really strong franchises give us geographic diversity, give us plasma DNAs, give us viral vectors, give us manufacturing capacity for clients that are principally or entirely clinical -- at a clinical stage right now, but hopefully many of them will be moving into a commercial phase in the next few years. So I think everybody would agree that cell and gene therapy is the most important growing modality. There's 3,000 -- at least 3,000 molecules being worked on. Probably 2,000 are in the preclinical or Phase 1 phase. We're obviously working on lots of those. We're in the business of providing services for everybody in the drug development business. So having cell and gene therapy capabilities are critical for us. This is highly complementary to the rest of our portfolio, particularly Biologics, but also the Safety Assessment and, to a lesser degree, RMS and microbial. So we love our portfolio in cell and gene therapy, and we're happy to be back in the CDMO space. So if you look at the Manufacturing Solutions segment, 20% of revenue, but 26% of non-GAAP operating income. Microbial Solutions is providing that rapid, efficient testing platform and that business has been growing at low double digits, more than 10% for probably 25 years, and we'll continue to. Biologics, as I said, it's kind of a 20% grower right now, invigorated by cell and gene therapy, a little bit of benefit from COVID testing, with improving operating margins. And the cell and gene therapy, CDMOs are the third major part is growing faster than the other 2 parts of this business. So this should help invigorate the top line growth. Now manufacturing, before in the CDMO business, historically, had mid-30% operating margins. We -- our long-term guidance is that we're going to be slightly below that or around mid-30s. CDMO is a headwind to that. But while it's profitable and dilutive, it will be increasingly more profitable every year. And as we move towards commercialization of some of the drugs that we're working -- that we've been manufacturing for the clinic, that should give us much greater scale, much greater productivity, much greater efficiency, much, much greater margins. And hopefully, it will no longer be dilutive to margins for the manufacturing and may actually be accretive. If you look at our comprehensive discovery and nonclinical development platform for all of our modalities and relate them to the M&A that we've done, we have capabilities now in small molecules that go from discovery to nonclinical development in large measure because of our Argenta and BioFocus acquisition some 7 years ago. In a large molecule space, we can go from discovery to nonclinical development and biologic testing, principally as a result of our Distributed Bio acquisition that we did at the beginning of '21. And in the cell and gene therapy space, we can now go from discovery to nonclinical development, biologics testing and clinical and commercial production and that's as a result of our Cognate and Vigene acquisitions. So if you look at CRL's comprehensive cell and gene therapy capabilities, our whole portfolio including the new cell and gene therapy assets that we bought, nearly 15% of our portfolio is cell and gene therapy related, and that's growing at 25% a year. So it will outpace other aspects, other modalities and other aspects of the business and should help invigorate our top line growth significantly. And if you look at the parts and pieces, from our overall portfolio in Microbial Solutions, we have advanced rapid screening technologies for cell and gene therapy and biologics. As I pointed to previously, we have analytical testing, viral gene therapy and cell banking capability. In our straight CDMO business, we obviously have the ability to do CGMP cell therapy manufacturing, plasma DNA and viral vectors. In research models, we have immunodeficient road models. In discovery, we have a combo pharmacology and safety studies and in safety tested -- safety studies, safety assessment, we have bioanalytical and immunogenicity and biodistribution testing. So we have the largest portfolio in cell and gene therapy and the potential -- and so we're already a leading player in cell and gene therapy manufacturing and revenue and have the -- certainly have the ability and potential to be leading player in the space. If you go to Slide 18, you'll see our kind of revenue journey, coming out of the recession in 2010 and '11, having low double-digit growth in '12 and '13 with a little bit of M&A. Growing 5% to 8% from '14 to '17 with a substantial amount of M&A. Growing 6% to 9% from '16 -- from '18 to 2020. And then growing 15% for the last -- through the third quarter of '21. So really excited about the upward slope of our growth trajectory, and that's a manifestation of this intensifying increasing demand curve. So coupled with pricing power, coupled with many acquisitions that we've done during this decade, I said earlier, we spent $4 billion on these acquisitions. So we've got very, very good returns. And so they have changed and enhanced and strengthened our portfolio in a way that we can do more than the competition for our clients. We can also do more for the clients, particularly the big ones than they can do for themselves. So if you look at our strategic imperatives for this business, we're looking to continually strengthen the portfolio because that continues to be the key distinguishing feature of Charles River. We want to innovate scientifically. We've done 60 acquisitions since we took this company public, and it's a distinguishing feature. So -- and we want to stay abreast of emerging therapies and new modalities, particularly and including cell and gene therapy, as I said earlier, and we want to continue to do M&A. Slide 20 is one of the most important slides in this deck. So let me spend some time on that. So we have 3 ways to enhance value here for both our clients and our shareholders to strengthen our portfolio. The first is strategic M&A. And as I said, we spent $4 billion for more than 25 acquisitions over the last 10 years with great returns. It remains our top priority for disciplined capital deployment. We bought much of the second tier of the Safety Assessment business with WIL, MPI and Citox. We bought a whole bunch of Discovery assets and recently cell and gene therapy assets. So strategic M&A has really changed our portfolio in very, very important and powerful ways. We're also doing strategic partnerships, which is relatively new. These are cutting-edge technologies. We now have, I don't know, 16 of them, and we've invested $60 million to date. So relatively small investments. We kind of look at it as our line of sight on technology kind of the way we do R&D. And I think we'll end up having more than 16 and probably 1/3 of these will scrub out, the technologies won't look viable. We're going to provide equity financing or debt financing in small amounts and return for being the marketing and sales arm. And we'll do real-life due diligence, and we'll be the conduit with the clients. And for the technologies that don't scrub out, we're likely to continue to be the marketing sales and once we really like, we'll buy like we do with Bio. For most of these, we have already a first refusal and for many of them, we have a prenegotiated takeout formula. Also, the venture capital universe is really important to us. And we have about 10 -- greater than 10% of our revenue with portfolio companies and venture capital firms. And they fall into 3 categories, our venture capital relationships: One, more LPs where we've invested capital, and we have very tight relationships with the partnerships and they help us with M&A. They help us understand the areas in which we participate, particularly things like cell and gene therapy. And we -- they recommend that the portfolio companies work with us. And while that isn't the reason for doing it, in addition to the great revenue returns we get, we also get returns on their funds. So those have been great strategic relationships. The next grouping, which is about the same size, are venture firms that don't need or want our money, but want to work with us strategically, and we do a lot of work with them. And then we have a whole host of venture firms that don't need or want to have money, don't really want to work with us strategically, but use us for a host of their work. So if you aggregate that, we're working with dozens and dozens and dozens of portfolio companies. And as new companies are created and have no internal capability, we will continue to be -- to get a lot of that work. So strategic M&A, as I said, it remains our primary priority. I want to update some targets and some metrics that we we've been using. We continue to pretty much insist that everything we buy is at least neutral and preferably accretive to our operating margin. We've expanded our ROIC metrics a little bit. We used to say, meets or exceeds our cost of capital in 3 to 4 years, now we're saying 3 to 5 years. And that's really -- that reflects the current M&A environment, particularly for higher growth emerging sectors like cell and gene therapy. And we intend to achieve our ROIC targets earlier than 5 years for M&A opportunities and lower growth, more established sectors. Our goal is also to drive gross leverage ratio below 3.5x. It used to be below 3x. When I was saying 3.5x, should our debt level increase due to strategic investment opportunities such as M&A. So some slight modifications, but no change in our overall M&A strategy. These changes, I think, reflect a really great track record on doing great deals and generating substantial free cash flow. So we've invested $1.7 billion in 6 acquisitions over the last 2 years. And our M&A strategy has met or exceeded our investment criteria hurdle rates for each of the last 6 years. We're looking to drive efficiency. We've taken $50-ish million out of our business every year for the last decade. We'll continue to do, hopefully, at least that, all about driving efficiency, all about driving margin, all about optimizing our cost structure, all about utilizing best practices in our business. We're all about enhancing speed. Our clients are maniacal about speed to market. We're all on the competitive race. We've decentralized our decision-making. So our general managers run their businesses like they own them, and they make decisions like headcount and capital and wages on their own within reason. Our goal is to be as responsive as possible and use our scientific expertise to take the white space out of drug development process where we're targeting early-stage timelines to be sped-up by at least a year, and we're looking at multiple ways to do this. Principally, we're looking to transform the industry with best-in-class technology, particularly our digital platform. So we can't continue to scale this business unless we engage with our clients digitally, meaning that if you're booking a safety study, you want to get online and book a slot, get a price, devise a study protocol and get your data digitally, real-time. Get your data real-time. You don't want to talk to any of our scientists unless you have to, unless you've got a question or concern about your results unless you want to question your data. So we're really excited about doing this. We feel that digitization will reduce costs, drive efficiency, speed up the connectivity with clients and enhance the connectivity amongst and between the Charles River businesses as well. We're very much focused on our culture. We're all about people. We hired 5,000 people last year. We have 20,000 people. It's half of our cost and that's what distinguishes us. We're providing services, which is the output of these people. So we have to have the best and the brightest. So we're focusing a lot of time on building trust inclusion and accountability, respect and well-being we're looking for good work life balance. We're looking for people to be the best they can be and to be themselves. We're looking for people to spend preferably their entire careers, but hopefully, many years with us. We're spending more time on career development and reducing turnover. So we're really, really excited about that. We announced this morning the planned retirement of our CFO, David Smith who came to us from 2014 with the acquisition of Argenta and by BioFocus. He's been superb CFO. He's been a real strategic CFO. So he really thinks long term, really understands the businesses and utilizes his financial prowess to make us a better business. He's worked with us through many acquisitions and help build a stronger, more capable financial organization. We're going to miss David, that we're happy for him for the next chapter in his life, and he'll stay with us until we have an orderly transition to his successor. We issued '22 guidance this morning. We're looking at revenue growth of between 12.5% and 14.5%, which would be up from last year. We're looking at non-GAAP operating margins, modest improvement from '21. We're looking at non-GAAP EPS of $11.50 to $11.75. We're looking free cash flow is around $450 million, and we anticipate spending more on CapEx than we have previously, just given the growth and development of our business and the significant demand for what we do, we have to have enough space, and we have to build it well in advance. Our growth rate is, in large measure, driven by price increases, this terrific demand, particularly in Safety Assessment and the CDMO space. The revenue segment revenue outlook for 2022 for this year is high single digits for RMS, which is kind of consistent with our 2024 targets that we gave at our last investor conference. DSA is above those targets in the mid-teens. And manufacturing is slightly below in the mid -- but also in the mid-teens, but that should pick up and accelerate over the next couple of years as the CDMO business really comes into its own. So really, really excited about our overall growth rate and the growth rate of all 3 segments. The most significant demand that we've seen for our products and services across the board. So I want to remind you of our 2024 goals, which were RMS mid-to-high single digits and operating margins in the high 20s, where we're knocking all those numbers now. DSA segment 2024 goal was around 10% growth and at least mid-20s operating margin. This year, DSA target is to be above the sales number in the -- and we're looking -- we've been knocking on those mid-20 numbers as well. And manufacturing is approaching at 20% for 2024 now. As I said, we're below that right now, but cell and gene therapy should drive us there. And mid-30s range, and we have been in that ZIP code, as cell and gene therapy continues to improve, we should be back there. So on a consolidated basis, we're looking for growth in the next 3 years for business to be in the low-double digits and operating margins to ultimately get to 22.5% by 2024. We're very confident and very pleased with those results. We feel that we're playing an increasingly more important role in the drug development process that both Big Pharma and biotech companies really need our capabilities, really respect to what we do that we can provide -- help them with speed to market, and we can provide a consistent pull-through approach to getting the work done, but they can use our facilities and our staff instead of hiring their own people and building their own, and we're really proud of the work that we've done in working on 85% of the drugs and working on all of the COVID therapeutics and vaccines that have gotten there. So very bullish about '22 and really pleased with the guidance that we've given you today. So thank you all.

Great. Well, thanks, Jim. It's a good overview. We've got a couple of minutes for questions. I'll start with guidance. Coming out of -- for the third quarter, there was obviously a debate on margins, wage inflation. You are guiding to modest operating margin expansion this year. Maybe just talk a little bit about that, how much do you think comes from price versus other dynamics?

Yes. So we continue to drive margin. We're focused on driving margin in all of our businesses, particularly DSA, some in biologics. Always trying to drive margin in Microbial. We have a headwind with the 53rd week, and we definitely have a headwind as many companies do, I suppose with wage levels to continue to bring on meaningful numbers of people and pay our people well, so we keep our turnover low to do this really, really important work. So that will be a bit of a headwind, offset largely by a meaningful price. We got a terrific price through 2021, at least the 3 quarters we reported, we'll talk about the whole year in February, but we anticipate higher price increases in 2022. We anticipate a nice mix, better capacity utilization and continued growth and improvement in several areas. So we'll be happy to have a modest improvement. We'll -- obviously we'll try to do better than that. We always do. We're focused on driving operating margin, having this business be as profitable as possible. By the same token, it would have been irresponsible not to acknowledge the costs associated with bringing on so many new people and not having compression with the folks that are currently there.

And on capacity utilization, you are also expanding capacity, right? You talked about CapEx increases predominantly on safety and assessment. So how do you think about where current utilization is and how much you need to expand capacity?

Capacity is really well utilized, Tycho, but we have to stay ahead of it, and we have to provide additional capacity for a very high-growth business. Unfortunately, you can't add the space quickly. So I'd say it's kind of 12 to 24 months depending on what we're having, even if it's a site that we already own. So you have to call it early. We'll be building out space this year or middle of the end of '23 and some of it to '24. And we always want to have slightly more space than we need. So if you look at fiscal '21, at least the period that we reported, and if you look at safety, in particular, our results were well ahead of our operating plan. So have we not had incremental capacity, we would have had a problem. So I think we figured out how to do that, notwithstanding the fact that the demand seems to be accelerating, I think we understand the marketplace and the competitive dynamic and the client base and the time it takes to build well enough to call that in advance. So that's the principal reason why you're seeing an uptick in the CapEx from a percentage point of view in fiscal '22.

A couple that came in on e-mail. The commentary suggests you may be looking at a bigger deal that would take longer to be accretive, what gaps do you see in the portfolio today?

Yes. Well, that's not necessarily true. What we were trying to say is for very high growth assets, particularly the things that we have bought and we'd like to continue to buy in and around cell and gene therapy space. The valuations are pretty full, and we're competing with folks that we know are using different metrics. And we think it's appropriate given the high-growth metrics, accretive nature of both revenue and hopefully, operating margin, the fact that we really have to pay up for these things that we look at a 3- to 5-year horizon as opposed to a 3- to 4-year horizon. And we're pretty comfortable with leverage below 3.5 turns and not just 3. So I do think that would provide some runway for larger deals. I don't see a lot of larger deals on the horizon for us. So we're not necessarily trying to be predictive of that, just that we want to give ourselves the latitude, particularly with regard to the things we're looking at to be -- to not have our valuation models preempt us from going forward and filling -- and continuing to invigorate our portfolio. I don't think we have any really big gap, but we have some, CDMO was a gap. We can certainly add 2 and around that. Some of the Discovery things that we're doing, we'd like to do more of. Everybody should watch our technology deals because some of those will become acquisitions. Those will be small bets, Tycho, but they'll -- even though there will be full valuations because those companies will be growing at crazy growth rate, nice, very high growth rates because it will be pretty small and they'll be very cutting edge. So we like the areas in which we're looking. We like to fill in even subtle nuances in the portfolio. The more we can do internally, obviously, the less we have to give up margin to go elsewhere. And even more than that, we don't want to slow down clients by going outside of our portfolio to get services performed.

Maybe last one. Just how about the other side of that, you had the divestitures in Japan and Sweden. Are there other areas of the company you consider selling off to better optimize the mix and free up capital for acquisitions?

We look at our portfolio constantly. We have a Board committee that I'm on that looks at it very seriously once a year, we go very deep and periodically we look at it. So the answer to that is a moving target. We -- things come in and out of favor both in terms of the market, in terms of what we do, in terms of the competitive scenario, also in terms of where we want to spend our money. So we would always look at parts of the portfolio to see whether we could get it -- if we solve the piece, whether we can get a better long-term return by deploying those assets elsewhere. So that's a look that we continuously take.

Great, Jim. Well, we're at the end of the time. I want to thank you for taking the time today. It was great to hear you and earnings.

Always a pleasure, Tycho. Have a good evening.

Bye.