Edwards Lifesciences Corporation (EW) Earnings Call Transcript & Summary

Okay. Good afternoon. We're back here. I'm Amit Hazan, the Goldman Sachs medtech analyst. And late afternoon session here, we have Edwards Lifesciences with us. We've got Scott Ullem, the Chief Financial Officer, here with us today. So first and foremost, Scott, busy time for everyone, so I just wanted to thank you for making it out to the conference virtually, and appreciate your time.

Yes, for sure. No, it's great to be here. Good to see you, Amit.

You too. And I thought, just given the news last night, maybe it's better, just right at the top, to give you a chance to frame the China approval in the right way. Just maybe talk through how that opportunity ramps from here, both in terms of opportunity and limitations to how -- what needs to happen.

Yes. Well, we're enthusiastic about getting approval. This is something that we've been working on for quite some time with the Chinese regulators. And this market is still nascent. There are a couple of native players who got approval early. And -- but the market is not very well developed. And so this is one where we've got a lot of spade work to do just to really tap into the big patient need in mainland China. And we think that the rates of prevalence in that population is similar to other developed world populations. And so it's a big opportunity. It is a private pay market. There's no government support for procedures in China, but we still think there's a significant patient need. And we think there's an opportunity there that we can tap into longer term.

So as we think about the next year, is there work to be done on the private pay side to kind of make that a material opportunity? I mean is it more of a multiyear, more meaningful down the road? Or can it be meaningful in this first year post approval?

It's more meaningful down the road.

So let's start and talk a little bit big picture before we get into some of the typical recovery questions. And a couple of the things we've been asking folks today during these presentations is, number one, just thinking through your mid-range plan, in the next 2 or 3 years, what's changed, if anything, in your strategy as a result of the COVID situation?

Yes. Some things have changed, but more things have probably not changed. I think we're being very responsive and trying to be thoughtful partners with our customers who have suffered significantly through this COVID experience. And at the same time, in terms of our long-term organic growth strategy to really drive top line growth of the company, our strategy is still really laser-focused on structural heart. And thankfully, we've had a strong balance sheet. We've got a consistent strategy and a team that is very much aligned around bringing new innovations to patients that can really change the way medicine is practiced. So we're enthusiastic about it long term. I think our guidance and our assumptions for this year are based upon the expectation that COVID -- that we continue to improve and get beyond this impact that COVID has had on all of us and that we grow out of it such that by the fourth quarter, we get back to something close to what we originally expected for the fourth quarter.

Yes. And I want to get to that. The other question we were asking is more around the different scenarios that could play out. Obviously, there's a downside scenario that is not unrealistic of kind of a second wave of infections in the fall. So wanted to get your thoughts, and you talked through just your preparation for that downside case and what incremental actions you'd take as a management team, if that were to occur?

Yes. Well, there are so many different scenarios that we and every other company have been puzzling and trying to develop contingency plans for. It's probably not worth getting into every one of them. But suffice to say, we've run different scenarios around what happens in various different countries in the world and what we can do to help continue to support physicians as they support patients who need to get treated. I mean the reality is most of the diseases that we treat in our structural heart businesses, so TAVR, transcatheter mitral and tricuspid, surgical, these are diseases that are deadly and relentless. And patients need care. And so our objective has been to keep our field people in the field, to make them available to physicians as they treat patients, and we're going to be ready to do that as circumstances permit. So if there's a little bit of a blip in certain countries, we'll deal with it, if there's some kind of an extension or reconnection of this global pandemic that's much more significant, then we'll have to react accordingly, and it will affect the guidance that we put out there for 2020.

So let's talk a little bit about the recovery and just kind of set up what you had said or what we estimate where you were in the first quarter and exiting that quarter. We estimated you were down in the U.S. maybe high single digits in the second half of March, maybe high teens in April. Your competitor reported a little bit later than you, obviously. And they reported declines of high-40s in the U.S. and low double digits OUS for their quarter ending April. And there's some bundling things that are changing there. So that might be just a bad number you've got for a while. But just curious how much more you can talk to trends you've been seeing relative to where you were in March and April?

Yes. So I'll tell you, in March, we felt the significant impact of COVID, and it extended into April. But it was really, the first week or so in March, we were continuing to perform well. In fact, the year 2020 was actually up to a better start than we originally anticipated. But everything changed in the latter part of March, and that continued in April. I'll talk about trends up until our earnings call back then. We were encouraged and still are even increasingly encouraged by news about plateauing infection rates. And we've also been pleased that physicians and hospital centers and sites are all eager to get back to treating patients. So especially the ones that were impacted heavily by COVID and are now in a position where they can start returning to activities and serving patients who have more than just emergent needs. These are situations where they're poised for returning to growth and recovery. And that's, again, baked into the expectation that we set out that the second quarter ends up being the trough for us in 2020. And beyond that, I'm not going to be able to talk a lot more about the month-to-month performance during Q2.

Okay. Okay. Let's talk about it then maybe in a high-level sort of way. One of the key variables, obviously, on the supply side is just operating room constraints. You've got 700 sites or so that do TAVR actively in the U.S. Can you give us a sense of how many of those sites are actively doing cases today versus the trough?

Yes. It's hard to say the exact number that are doing cases right now. We mentioned in the earnings call that since COVID hit, we stopped doing training at new NCD accounts. So recall, this new NCD that came online last year could take the number of centers who can qualify and certify under the NCD from something like 700 maybe to 850. But we've paused training at the new NCD accounts, and we don't have a lot of specific information about how many centers are doing cases right now. That said, while COVID certainly slowed the pace of TAVR cases, there's still a lot of TAVR going on. I mean in March, for example, we had Edwards employees participating in TAVR cases in all 50 states in the U.S. and about 60 countries worldwide. And so for the centers that have been affected severely by COVID, I think everybody is really excited about the prospect of resuming a more normal case load and a more balanced case load where they can be treating patients who need aortic valve replacements.

Are you training new sites again?

What we're going to do is start training sites as they're able. And as sites come back and say, okay, we're no longer in lockdown mode caring for emergent COVID cases. We want to get back to training, either for centers that are -- for new centers that qualify to the NCD, or in cases where it's an active center, and we're training them on our new fourth generation SAPIEN 3 Ultra. In both of those cases, we stand ready to work with those centers as they are ready.

So let's move to another key variable, which is, obviously, your patients, I mean, they're all high-risk patients, and how we all should think about them coming back to the health care system is obviously one -- probably one of the biggest challenges and issues we're debating among ourselves. And we look at statistics like, I think last week, the CDC reported that emergency department visits were down 26% in the last week of May, which I suspect tells us something about psychology of higher risk patients. But to try to attack that element from a couple of different directions. First, I'm curious about what you think about just the idea of context of safety. Doctors' offices, hospitals, they have to create this context of safety for patients to feel comfortable coming back. And are you seeing that happen across the spectrum, from screening to surgery to post-op care? Are providers making enough change to foster that for TAVR procedures in your view?

Yes. Well, again, harkening back to April, this has been a very difficult time for structural heart patients and for their physicians. And as both weigh the risk of COVID-19 versus the severe effects of progressive heart valve disease, they've got trade-offs to make. And so we've been encouraged by steps that hospitals have taken to ease patient concerns. And it's also important for Edwards employees who are involved in these procedures. But I think the recovery of the structural heart businesses will be influenced by a lot of different factors and tempered by the time it takes for patients to seek and receive treatment, which, on average, for patients who are just coming into the system and starting to get screened, it could take 2 to 3 months from the time they enter the system and start getting their pre-procedural work and imaging 2 to 3 months up until they actually get a procedure.

Yes. And I want to kind of get to the new patient funnel and just see how you feel about that. You guys have done a good job in the past of describing this. Your Analyst Day, I remember, had a slide showing the treatment pathway in average of 100 days from the DC visit to the treatment and 28% of patients taking more than 6 months between being diagnosed and actual treatment, needing to get screened image, all that stuff, pre-case workup. And that suggests that you would already need to see some level of recovery now or very soon in screenings and diagnosis in order to kind of set up that fourth quarter back-to-normal for treatment. And so are you seeing enough evidence of patients coming into the GCs and getting diagnosed?

It's early to claim that we've seen evidence. What we can say is different sites have been affected differently. So in some sites, for example, in Italy, in Brazil and New York City, there was a severe disruption, almost 100% disruption in some cases, in some hospitals. And so now it's really refilling that pipeline of patients who get screened and then ultimately get treated. In other cases, there are sites who are less affected, and patients have continued to be screened, have continued to work their way through the referral process and have continued to receive procedures. And so we've got different rates of recovery, and we're working with our different hospital centers to support them.

Okay. One of the -- if you take kind of more the deferred patient analysis of this. It's pretty easy to just play around with numbers, see what your run rate was at, as you said, starting out strong in the quarter. And then the actual results that you had in the first quarter, we can get to basically the number of patients that were, in theory, deferred. And if I take that number and I kind of throw it into the fourth quarter or the second half of the year, it's actually -- it's meaningful, obviously, and it actually goes to show why you guys might have been confident in delivering the fourth quarter comments that you delivered. So I wonder if you can just touch on that, as you thought about your base case that you talked about for the fourth quarter, how this return of deferred patients played into that.

Yes. It's tough to isolate how much of the recovery is going to be driven by patients who have been awaiting treatment. In other words, patients who would have otherwise gotten treatment during this second quarter versus patients who are going to come into the system regardless and who would have come to the system where there are no COVID-19 interruption. It's just tough to isolate that. When you think back to our growth rate in the fourth quarter, just U.S., for example, 40%, very high growth rate in U.S. and in Europe in the first quarter as well. When you extend that, if there were no COVID-19, it's tough to isolate how many of those would be patients who would get treated and instead are on the sidelines versus patients who are going to be in the system in the third and fourth quarter absent any disruption. So -- but it did factor into our thinking as we gave guidance for this recovery with the third quarter and ultimately getting back to a more of a normalized run rate for the fourth quarter. We were assuming that some of those patients will survive and will get treated even though they would have otherwise gotten treated earlier in the year. Some of those patients, unfortunately, will not get treated, and they will not survive until they can get treatment in the fourth quarter. So we'd always expected the fourth quarter to be a lower growth rate than growth rates in the first and second quarter because the year-over-year comparisons get pretty tough by the time you get to Q4 2020. But essentially, all of those assumptions are baked into the guidance that we provided on our first quarter call.

Okay. Let's talk about share a little bit. I think since low risk data, it seems apparent that you might be gaining share. And so there are obviously the variables in the market that may explain that. Can you talk to whether your share is coming more from existing accounts or new centers?

It's difficult to get a specific bead on market share. I would say that, first of all, Medtronic is a very good competitor, and we expect that they're going to continue to be active, obviously. We think that for the other 2 new competitors: Boston, now; Abbott, potentially later this year, probably there's going to be a little bit of a delay in they're carving out a position in the market. We expected that we would lose some share as they enter the market, and we expect that loss to be deferred now just because during COVID, there was less focus on introducing new technologies. So we think they're still going to come. We still -- we think they'll still be successful in finding a place in the market. At this point, we haven't seen a whole lot of share shift, though, associated with the new entrants.

So up until the end of the first quarter, you reported -- last reported quarter, impact from Boston Scientific has been -- has it been less than you expected?

It has been less than we expected. But again, it's less than we expected just because of the interruption from COVID. We do expect Boston to be successful in carving out a position in the market. We just expect that it's going to be delayed until hospitals start resuming a more normal workflow in TAVR. The other thing I'd say probably more importantly than share is we're focused on -- less on whether we're battling out an extra point or 2 of share, and focused a lot more on how do we get more patients to come into the system. That's the real opportunity. The opportunity isn't fighting it out with Medtronic or anybody else for more market share, it's helping patients get access to this therapy. Because right now, the treatment rates are so low. When you talk about a disease that's something like 10% treated today, it's really unusually low relative to other diseases that are -- have a very high mortality score and a proven therapy that's reimbursed by a payer. And so that's where the real opportunity lies, not so much in duking it out for market share.

And it's a good point, and I want to come back to that and duke it out a little bit with that question. But -- or that comment. But just a couple more before we get there. The ultra valve, have you -- are you able to say whether you guys have restarted site training there?

Again, I don't want to get into the details, but we are going to be doing it on a site-by-site basis. So when sites come to us and say, okay, let's get back to introducing SAPIEN 3 Ultra and starting to feather that in, in place of SAPIEN 3, we're going to be working with them to do that. So it's not going to be a red light turns green, and everybody is on the same pace.

Okay. And one more. I promise, the last share question. Just Europe. So it's actually stable now and better than it was a year ago, so it's a win for you, and it appears, just given the rate of competition out there. Is that share recovery in developed countries? Or are you doing better in newer adopting countries? Is it a mix of both? Just more color on that improvement now that we've seen in your share out there?

Sure. So our market position did stabilize after we had some share loss 12 to 18 months ago. And you'll recall, sequentially, we were losing share for several quarters. But since that time, our share has stabilized. And I think most importantly, there's been, again, general growth in this therapy, including lifted by the positive results from our PARTNER III clinical trial. So the combination of our clinical trial results, the related New England Journal of Medicine articles, other -- the other body of clinical evidence from the rest of the partner series of trials, local press, society discussions, they've all benefited patients and helped lift treatment rates. In terms of the less penetrated countries, there are a lot that are earlier in their TAVR journey. So you've got countries like Germany that have been on this path for quite some time. There are other countries that are still in the earlier stages of rolling out this therapy. We're still seeing good growth where the lifting the growth rate is probably a little bit more than what we expected in the first quarter, and we're pleased with that trend.

Okay. So let's move to the long-term TAVR market drivers. I mean as you mentioned, you guys had very strong results in the fourth quarter and in the first quarter before COVID. So let's first talk about SAVR conversion and get that out of the way. If I look at papers by Thourani and numbers from the STS database, there's like 45,000 SAVRs in the U.S., 25,000 isolated by their numbers. And I don't know, do you agree with that? Is that, roughly speaking, the right number?

Well, we've never really gotten into the details of the number of patients in the U.S. or the ratio of isolated cases that get treated with TAVR versus surgical.

Okay. So is current penetration now largely happening inside of the isolated bucket, whatever that might be?

It sure is. And this is for -- I mean, now and in the future, what we expect to happen is that patients who just have aortic stenosis, so no other concomitant needs, they will likely, increasingly, be treated with TAVR. There are a lot of patients who are coming into the system for whom surgical intervention is more appropriate. So for example, maybe a patient who needs an aortic valve replacement and some kind of a repair on their mitral valve or their tricuspid valve. And so for those patients, having the surgical as an alternative is really important, and it's one of the reasons why we've been introducing new technologies to cardiac surgeons who can use them to benefit patients.

Okay. So over time, that whatever that group is, we call it 25,000, whatever that number is. I mean should that basically all be converted?

Well, no, because, again, some of those procedure volumes are going to be aortic valve replacements plus other procedures. And so it's -- there's not a lot of data [indiscernible]. So you're estimating 25,000 isolated. Again, there's not perfect science on what that number is like. They won't all get converted. There are going to be patients who are younger patients. There are patients who are in emerging markets, who end up not getting converted from surgery. There are also patients who would otherwise get surgery, but will be converted from, say, mechanical valves to tissue valves. So there's still a conversion, but they're not all going to get converted to TAVR.

Okay. So let's talk about the awareness factor. And you've touched on this in a couple of your responses already. And I'm curious if we can kind of get an Edwards discussion of your efforts at the cardiologist level. And the way I'm thinking about them, awareness for younger, low-risk patients is -- seems to be -- I don't know how to describe it. I mean SAVR's been available for many years, and it's an option. It's an option with fairly good surgical outcomes. It's not as good as TAVR, clearly, from the data that we've seen, but it's been there for a while. So what is it about awareness that needs to happen now that wasn't high already given the SAVR option historically?

No. Well -- and while you're right, SAVR has been a well-known, tried-and-tested therapy for decades, there's still a very low percentage of patients who suffer from aortic stenosis who do get treated. And so we're focused on increasing disease and therapy awareness, and we're doing it in a couple of ways. First, helping move along early and easier diagnosis. And so for example, using more automated tools and automated -- and artificial intelligence. For example, the screen and read imaging from patients who get tested. Just identifying more patients who have the disease and making sure that they don't fall through the cracks is a big opportunity. We're also experimenting with some direct-to-patient outreach, and we're also doing work with direct-to-refer outreach. So to your point, general cardiologists and even primary care physicians, just to increase awareness. One of the problems with this disease is that it affects an elderly population, and oftentimes, the symptoms get confused with just old age. And so if a patient or their family member says, there's just slowing down or I feel lightheaded, but that's just going to happen because I've slowed down, I'm active, but I'm not as active as I used to be, there's this presumption oftentimes that, that's just the normal part of aging. When in fact, it may be the normal part of having a stenosed aortic valve. The third thing we're doing is just working on some strategic programs with hospitals directly and helping hospital systems identify patients who may have already gotten screened, are in the system, but for whatever reason, have not made it all the way to the point of treatment. And so we're working with those hospitals to expose that data to them and help them identify ways where they can improve the yields of patients who have the disease to patients who actually get treated. We've gone through a lot of different data from the government, from the Optum database. And interestingly, there are patients who have all the symptoms of aortic stenosis who are in the system, and a couple of years ago, when we looked at this, there were more patients in that category who died than who got treated. And it just gives you a sense of the magnitude of the opportunity and the need for patients.

Yes. So I imagine this might be pretty difficult to track, but are you trying to track your efforts at improving awareness internally? And then for us externally, qualitatively, are you able to talk to rate of success you feel you've had thus far?

So the answer is, yes, on the first question; no, on the second part of the question. We're learning. Internally, we're trying a number of these different initiatives that I just articulated. But this is a new muscle that we're trying to build at Edwards. Historically, our relationships have been with operators, interventional cardiologists and cardiac surgeons. We are not as experienced at direct-to-patient, direct-to-refer, but we're learning a lot and we're studying it carefully and we're very carefully looking at the numbers and what we think are the impacts of these different initiatives. It's early enough, and these are small enough numbers that we're not in a position to start communicating externally what we think the impact of those efforts have been. What I would say is most of the growth in the therapies come just from natural course and the evolution of awareness. And it's driven by the things I mentioned before, the society -- the society is getting more behind the data, half a dozen New England Journal of Medicine articles. And most of that is what's propelled to growth up until this time. And so it's remarkable that we've actually grown that fast without the direct-to-patient, direct-to-refer campaigns that are still in their very early stages.

That's fair. But clearly, bicuspid is also going to be a part of this growth story over the coming years. I wanted to first ask you where you thought we were at this point already with bicuspid. Is that already part of low-risk adoption? And if not, obviously, your competitor has already presented their low-risk bicuspid trial data. If you ask them, they put a question mark on why you haven't presented more of your data. Maybe just help us think through the bicuspid opportunity in low risk, especially. And then how we should think about you and the clinical data presentation that you might have over the coming months or year?

Yes. Again, I'd just say, reducing this to a market share discussion really misses the point and misses the bigger opportunity. We do expect our data to be presented at a cardiology conference in the future. But there's already a lot of data on bicuspid, and there's extensive published real-world experiences for the SAPIEN family of valves. We're not contraindicated for this cohort of patients. We treat bicuspid patients with SAPIEN valves all the time. The real-world outcomes on bicuspid patients have been outstanding with the balloon expandable technology that is reflected in our SAPIEN 3. And we think the continued body of evidence from both Edwards and Medtronic will continue to help grow the patient populations who get treated with this therapy.

So let's move the discussion to margins in the P&L. Talk about next year. And I know you're not going to be able to say too much specifically. But prior operating margin guide was in the low-30s for 2020. As revenue normalizes, or say if revenue normalizes into next year, maybe just help us think about the headwinds and the tailwinds we should consider just to get margins back to where 2020 guidance was.

Yes. It's really about the top line recovery. So our expense numbers have been impacted, I guess, positively just naturally as a result of COVID because there's less travel, there are fewer society meetings. There are just some natural expense savings that have come from this interruption. Those will recover as the overall environment recovers. But when revenues pick up and we get back onto that top line growth curve that we originally projected for 2020, we think we're going to be able to grow back into our margin profile pretty quickly. Longer term, we still believe that mix and efficiencies are going to benefit our gross margin. And we anticipate that, that's going to trickle down and have an incremental minor impact as our operating margins expand over time. So headwinds, obviously, if there's a resurgence in COVID cases, if there's a second wave, that will be a meaningful headwind to margins. Absent that, we are on a -- we'll be on a glide path to a return to our margin profile that's more like what we originally guided to for 2020.

And longer term, I think you talked about a slow improvement. Are we -- is there a way you can quantify that? I mean is that like a 50 basis point improvement per year? Is there a target that you'd look for on an annual basis, roughly?

Not specifically. And one of the reasons because our -- so much of our expense base is reflected in research and development investments. And so when you got R&D as a percentage of sales of 17% to 18%, that's based upon our original sales forecast for the year. Not -- it will be a lot higher, obviously, on this lower sales pace. When you've got that much investment going into R&D, you've got clinical trials that are rolling off and rolling on until we get these bolus impacts of expense running through the P&L. And so it's tough to say in this specific period, we're going to target this specific amount of margin expansion. But over time, our plan and our expectation is that we're going to gradually, incrementally, in minor ways, creep up the operating margins. We could dramatically expand our margins very, very quickly if we wanted to. That is not the strategy. Our strategy is to invest aggressively for long-term, profitable, organic top line growth.

So the other element of this that we're reminded of just going back to '08 was just pricing for medtech in the U.S. So especially for implantables, but I mean that was really a declining time period where it went from being positive to being negative, and it really hasn't recovered since. And that's a general comment I'm making, but you do have a third competitor now in the market, and as you mentioned, the fourth one coming later this year. And I think that it's quite obvious that these products are not all the same. So there's differentiation, we totally get that. But still with that, and the environment for hospitals, what's the right way to think about pricing for TAVR as we go into later this year and more importantly next year?

Right. As the market leader, we tend to be very disciplined about pricing. And we try to make sure that the therapies we offer have a price that reflects the value that comes with them, the value to the payer, value to the point-of-care and the value to the patient. So we're going to continue to work with customers to provide the very best solutions to meet their needs, and we're going to continue to price those technologies at an appropriate level. We do expect there to be average selling price compression for our therapies over time, driven really as a result of different customers meeting higher-volume thresholds so they get rebates and incentives. And that's really what's going to cause small ASP compression over time. All that said, we're more focused on ensuring the best possible patient outcomes. Because as patients continue to get great treatment, that's a more important focus than what's the price per unit. Obviously, price is important in any business, and we're thoughtful and careful about working with our customers and payers on establishing a price that's fair for everyone. But again, we're -- our biggest focus is on making sure that patients are getting the right kind of outcomes.

Okay. Let's talk about mitral for a moment. Just got a few minutes left here. And first of all, are you able to talk to whether this progress in getting the U.S. trials running again?

We can a little bit. It's a little bit like your question earlier on training new sites who are eligible under the NCD and training sites to move over to SAPIEN 3 Ultra. In this case as well, it's as sites are ready, as they've got bandwidth to restart enrollment in these clinical trials for our PASCAL device in the U.S., we're going to be ready to do that with them. And so there are sites that have already decided that they're ready to do that, and we are activating those sites. But again, it's not going to be a kind of situation where we just said it was off, and now it's on. It's going to be site-by-site activation as we get the class -- the 3 class trials up and running again.

Okay. And with mitral repair, generally, do you think about the pace of recovery differently than you do for TAVR?

You mean after the point of treatment?

I mean the current recovery in the current environment in PASCAL in Europe, how you think about recovery.

Yes, that's one that's, I think, tougher to estimate. Again, as hospitals start to have bandwidth to be able to treat patients who are suffering from these valve diseases, we're ready with therapies. And I suspect there are going to be some hospitals where TAVR ends up recovering faster, and others where maybe TMTT recovers faster. But it's difficult to predict that at this time.

Okay. Let's end it with capital allocation. You've got balance sheet flexibility, obviously. Do you feel comfortable in this environment, either doing M&A if the right tuck-in were available, or doing share repurchases again?

For sure. We're actively working on a number of different external growth opportunities. And one of the benefits of having a more conservative balance sheet going into this crisis is that it doesn't slow down our efforts one bit. In fact, it may even distinguish us and our ability to get positioned for acquisitions, for investments. The deals that we do are generally small. And you should expect they're going to continue to be small because that's what fits into our disciplined strategy. And so we're going to continue to do, almost seek capital level financing for early stage companies. In most cases, these are companies that are pre-approval, pre-commercial, sometimes even pre first-in-human studies. And so they may not hit your radar screen, but we're very actively pursuing some of those opportunities. In terms of share repurchase, yes, we're going to continue to be active. It's a fundamental part of our strategy to return capital to investors. We bought back over $600 million of stock in the first quarter because we saw an opportunity to do it as the stock price came under pressure. And we'll continue to buy back stock opportunistically over time. Our primary objective is to make sure we're offsetting the impact of dilution from incentive compensation. And then over time, we'll also work down the net shares outstanding.

Well, that's a good place to end it, and we're right at the end of our time. So again, Scott, most importantly, I want to say thank you for joining us. It's great as always, and it's a tough time out there, so we really appreciate it this time around. I appreciate that. And everybody else, thanks for joining us as well, and have a good afternoon. Scott, take care.

Thanks a lot. You too, Amit. Take care. Bye-bye.