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Edited Transcript of KMDA.TA earnings conference call or presentation 13-Nov-19 1:30pm GMT

Q3 2019 Kamada Ltd Earnings Call

Dec 4, 2019 (Thomson StreetEvents) -- Edited Transcript of Kamada Ltd earnings conference call or presentation Wednesday, November 13, 2019 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Amir London

Kamada Ltd. - CEO

* Chaime Orlev

Kamada Ltd. - CFO

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Conference Call Participants

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* Briana Warschun;Jefferies;Senior Associate Equity Research

* Keay Thomas Nakae

Chardan Capital Markets, LLC, Research Division - Senior Research Analyst of Therapeutics, Devices and Diagnostics

* Robert A. Yedid

LifeSci Advisors, LLC - MD

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Presentation

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Operator [1]

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Greetings and welcome to Kamada Ltd. Third Quarter 2019 Earnings Conference Call. (Operator Instructions). Please note, this conference is being recorded.

I will now turn the conference over to your host, Bob Yedid of LifeSci Advisors. You may begin.

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Robert A. Yedid, LifeSci Advisors, LLC - MD [2]

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Thank you. And thank you very much for joining us today. Joining me from Kamada are Amir London, Chief Executive Officer; and Chaime Orlev, Chief Financial Officer. Earlier this morning, Kamada announced financial results for the third quarter ended September 30, 2019. If you've not received this news release, or if you like to be added to the company's distribution list, please e-mail me at LifeSci at bobyedid@lifesciadvisors.com -- excuse me, I'm sorry, bob@lifesciadvisors.com.

Before we begin, I'd like to caution that comments made during this conference call by management will contain forward-looking statements that involve risks and uncertainties regarding the operations and future results of Kamada. I encourage you to review the company's filings with the Securities and Exchange Commission, including, without limitation, the company's Forms 20-F and 16, which identifies specific factors that may cause actual results or events to differ materially from those described in the forward-looking statements.

Furthermore, the content of this conference call contains time-sensitive information that is accurate only as of the date of this live broadcast, November 13, 2019. Kamada undertakes no obligation to revise or update any statements reflected -- to reflect events or circumstances after the date of this conference call.

With that said, I'd like to now turn the call over to Amir London, Chief Executive Officer. Amir?

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Amir London, Kamada Ltd. - CEO [3]

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Thank you, Bob. And thanks also to all investors and analysts for their interest in Kamada and for participating in today's call. Let me begin by stating that we continue to be pleased with our strong performance in 2019. We are excited about the positive financial and operational metrics generated throughout our business during the first 9 months of the year.

Of course, when reviewing third quarter year-over-year comparison specifically, it's important to remember that our third quarter 2018 financial results were significantly impacted by the then labor strike in our manufacturing facility in Israel. With that said, I will now provide a brief overview of our encouraging results.

In the third quarter, total revenues were $33.1 million. And for the first 9 months of 2019, total revenues were $95.1 million compared with $66.3 million in the first 9 months of 2018. From a profitability standpoint, our total gross profit for the 9 months ended September 30, 2019, was $37.6 million and gross margins were at 40% compared to $20.2 million and 31% margin in the first 9 months of 2018.

In addition, our net income during the 9 months ended September 30, 2019, was $16.9 million compared to $4.6 million in the prior year period. We continue to maintain a solid cash position, which increased to $66.8 million of cash, cash equivalent and short-term investment at September 30, 2019, which provide us with the financial resources needed to continue executing our corporate strategy to build shareholder's value.

Based on our continued strong performance in third quarter and our positive outlook for the fourth quarter of the year, we are reiterating our full year 2019 total revenue guidance of $125 million to $130 million. Looking ahead, we intend to provide our full year 2020 total revenue guidance prior to the end of 2019.

From operational perspective during third quarter, we extended our strategic supply agreement with Takeda for GLASSIA. We will now continue to produce GLASSIA for Takeda through 2021. Based on the extended agreement Kamada projects the total revenue from sales of GLASSIA to Takeda during the year 2019 to 2021 will be in the range of $155 million to $180 million. On an annual basis, Kamada anticipates revenues of approximately $65 million in 2020 and between $25 million to $50 million during 2021 based on Takeda needs.

Takeda intends to complete the technology transfer of GLASSIA and pending FDA approval to initiate its own production of GLASSIA for the U.S. market in 2021. Accordingly, based on the agreement between the companies, upon the initiation of sales of GLASSIA manufactured by Takeda, we will receive royalty payments from Takeda at the rate of 12% on net sales through August 2025 and at the rate of 6% thereafter until 2040 with a minimum of $5 million annually for each of the years from 2022 to 2040. Although the transition of the agreement to its royalties phase will result in the significant reduction of Kamada’s revenue from Takeda, based on current GLASSIA sales in the U.S. and forecasted future growth, Kamada projects receiving royalties from Takeda in the range of $10 million to $20 million in each year for 2022 to 2040.

Upon successful completion of the technology transfer to Takeda, we intend to utilize our FDA-approved manufacturing plant to continue supporting the growth of KEDRAB, our anti-Rabies IgG product in the U.S., our immunoglobulins products and GLASSIA in existing and new markets in Asia, Latin America and other territories as well as manufacturing our Inhaled AAT for its current clinical development and pending regulatory approval, its future commercial launch. We are also proactively exploring opportunities to leverage our experience and manufacturing capacity to initiate the production of new plasma-derived products. We expect that these activities will enable us to utilize most of our plant's available capacity.

With regards to KEDRAB, we recently announced together with Kedrion a publication of the results from the registration study of the product in the peer-reviewed medical journal Human Vaccines & Immunotherapeutics. We've also announced the completion of the enrollment of 30 pediatric subjects in an FDA-required post-marketing trial in the U.S. with a primary objective of confirming the safety of KEDRAB in children aged 0 to 17 years. The results of this study are expected in the second half of 2020.

Moreover, we can report that in its launch year, KEDRAB's U.S. 2018 sales by Kedrion were approximately $15.5 million, representing approximately a 10% market share. We are very pleased with this successful launch, and we expect continued growth of the product in the U.S. market going forward.

Moving on to the status of our clinical pipeline. I will begin with the development program for our proprietary Inhaled AAT for the treatment of Alpha-1 Antitrypsin Deficiency, AATD. As a reminder, we intend to conduct a unified global pivotal Phase III clinical trial in the U.S. under an investigational new drug application, IND and in Europe, under a clinical trial authorization, CTA, in order to submit marketing applications for regulatory approval in both regions.

I'm pleased to report today that during the third quarter, we've submitted our amended IND to the FDA and expect an update from the agency on the status of this filing in the near future. We continue to expect that we will begin dosing the first patient in the Phase III trial in Europe before the end of the year, and pending IND approval, we'll begin recruiting patients to this study also in the U.S.

To reiterate what I said previously, the Phase III protocol is designed to evaluate the safety and efficacy of our Inhaled AAT product in patients with Alpha-1 deficiency and is meeting requirements provided by the FDA and EMA. The protocol includes enrollment of up to 250 subjects who will be randomized 1:1 to receive either Inhaled AAT at a dose of 80 milligrams once daily or placebo for 2 years of treatment. The primary endpoint will be lung function measured by FEV1, and secondary endpoints will include lung density changes measured by CT scan as well as other parameters of disease severity.

We are very excited about the prospects of this program in a market which currently sells approximately $1 billion of IV-AAT and is growing 6% to 8% annually. Kamada will continue to consider all strategic options for this program in order to maximize its value, including potentially seeking a commercialization process in Europe and/or the U.S.

I would also like to highlight a recent scientific meeting that we hosted around the European Respiratory Congress in Madrid in September. The meeting entitled New Insights Into Alpha-1 Deficiency focused on up-to-date information regarding the suggested benefits of augmentation therapy in Alpha-1 deficiency. Professor Jan Stolk, a leading Alpha-1 physician from The Netherlands, discussed Kamada's investigational Inhaled AAT treatment and its potential therapeutic effect on lung function in Alpha-1 deficient patients.

Moving on, let me now provide you with updates on some of our ongoing IV-AAT pipeline programs. First, with regard to our IV-AAT for the treatment of acute Graft Versus Host Disease, GvHD. We concluded our enrollment in the proof-of-concept study. As a reminder, this trial is assessing the safety and preliminary efficacy of IV-AAT as preemptive therapy for patients at high risk for development of steroid-refractory acute GvHD. This study is being conducted through an innovative collaboration with Mount Sinai Acute GvHD International Consortium, called MAGIC. And it's an investigator-initiated study co-funded by Mount Sinai and Kamada. We have exclusive rights to develop and commercialize our IV-AAT product for the preemption of GvHD using the biomarkers utilized in the study. Top line data from this study are expected in 2020.

Second, our Phase II trial of IV-ATT for the prevention of lung transplant rejection, which is being conducted in collaboration with Takeda. We've completed the study and data analysis remains ongoing. We expect the top line results of the study will be announced in early 2020. As a reminder, Takeda has distribution rights and exclusive license to Kamada's plasma-derived IV-AAT product for all IV indication in the U.S., Canada, Australia and New Zealand while Kamada maintains rights in all other territories in all other AAT routes of administration, including Inhaled AAT.

With that, I will now ask Chaime to review our financial results. Chaime?

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Chaime Orlev, Kamada Ltd. - CFO [4]

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Thank you, Amir, and good day, everyone. We were very pleased with our strong financial performance across the first 9 months of 2019. Our profitability metrics, including adjusted EBITDA, operating income and net income each improved significantly.

With that, let me discuss our specific financial results. I will begin with the 3 months ended September 30, 2019. Total revenue was $33.1 million in the third quarter of 2019, an increase from the $15 million recorded in the third quarter of 2018. As Amir indicated, in comparing our third quarter financial results with the prior year period, it is important to consider the significant impact the labor strike at our manufacturing facility in Israel had on our financial results in the third quarter of 2018.

Moving on, revenue from the Proprietary Products segment in the third quarter of 2019 were $24.9 million, an increase from the $9.5 million reported in the third quarter of 2018, primarily driven by increased sales of both our core products, GLASSIA and KamRAB. Revenues from the Distribution segment were $8.2 million in the third quarter of 2019, a 49% increase compared to the third quarter of 2018.

Gross profit was $12.9 million in the third quarter of 2019, significantly greater than the $2.5 million reported in the third quarter of 2018. Gross margin increased to 39% from 17% in the third quarter of 2018. Again, we should consider the effects of the Q3 2018 labor strike on our results of the prior year quarter.

Net income was $5.8 million or a profit of $0.14 per diluted share in the third quarter of 2019 compared to a net loss of $2.4 million or a loss of $0.06 per diluted share in the third quarter of 2018. During the third quarter of 2019, we generated positive cash from operations of $6.1 million.

With that, I will now review the 9 months period ended September 30, 2019. Total revenues for that period were $95.1 million, a 44% increase from the $66.3 million reported in the same period of 2018.

Revenues from the Proprietary Products segment is $72.5 million, an increase from the $47.6 million reported in the same period of 2018.

Revenues from the Distribution segment were $22.6 million, up 21% from the same period of 2018.

Gross profit for the 9 months ended September 30, 2019, was $37.6 million, an increase from the $20.2 million reported in the first 9 months of 2018. Gross margin in the first 9 months of 2018 increased to 40% from 31% in the same 9 months of 2018. I should add that we expect our fourth quarter overall gross margin to be consistent with the recently completed third quarter. Net income was $16.9 million or a profit of $0.42 per diluted share in the first 9 months of 2019 compared to net income of $4.6 million or $0.11 per diluted share generated in the same period of 2018.

Looking ahead from a P&L perspective, as we began our planned Phase III study for our Inhaled AAT program, which Amir mentioned earlier, we expect that our R&D spend will continue to increase in the fourth quarter of 2019 and for calendar year 2020. During the first 9 months of 2019, we generated cash from operations of $18.9 million, which contributed to our strong financial position. As of September 30, 2019, the company had cash, cash equivalents and short-term investments totaling $66.8 million, a $16.3 million increase as compared to $50.6 million reported at December 31, 2018. Importantly, Kamada remains well positioned to continue our efforts to add new sources of growth and execute on our corporate strategy.

With that, I'll open the call for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Raj Denhoy of Jefferies.

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Briana Warschun;Jefferies;Senior Associate Equity Research, [2]

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This is Briana on for Raj. I have a few questions. So I'll just start with your strong Proprietary Products segment. You guys did about $25 million this quarter. I was just wondering how much was attributed to GLASSIA and how much was attributed to rabies.

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Amir London, Kamada Ltd. - CEO [3]

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We do not provide that detailed information on quarterly basis. We do that on an annual basis when we file our annual results.

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Briana Warschun;Jefferies;Senior Associate Equity Research, [4]

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Okay. And then, was there any pull forward or stocking in the Q from Takeda?

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Amir London, Kamada Ltd. - CEO [5]

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Excuse me, can you repeat that?

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Briana Warschun;Jefferies;Senior Associate Equity Research, [6]

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Sure. Was there any pull forward or stocking in the quarter from Takeda?

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Amir London, Kamada Ltd. - CEO [7]

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As we announced in September, our agreement with Takeda has been expanded to include also 2021, and we gave a pretty precise forecast of our revenues for 2019, 2020 and 2021, $65 million of revenue to Kamada in both 2019 and 2020 and between $25 million to $50 million in 2021. In general, we should assess Kamada on an annual basis and less on a quarterly basis because our orders and demand and agreements are done on an annual basis. So there is stocking like every year that Takeda is holding inventory but nothing unusual or nothing different this year than in previous years.

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Briana Warschun;Jefferies;Senior Associate Equity Research, [8]

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Okay. And then has Takeda started to prepare for the transition? And is there any chance that this gets extended again?

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Amir London, Kamada Ltd. - CEO [9]

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Takeda has been working on the plant, we believe, for quite some time. They're planning to complete the plant and have it FDA-approved during 2021, exact timing assumed based on their progress and the FDA approval. I think that one needs to assume that this will happen and that what I just mentioned in the previous question regarding timing and revenue to Kamada are the focus. If there are any delays or change in plans, we will, of course, update the market.

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Briana Warschun;Jefferies;Senior Associate Equity Research, [10]

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Okay. And then since the agreement has been revised, is there a change at all on the transfer pricing or contribution margin on GLASSIA sale to Takeda, now that it's been revised?

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Chaime Orlev, Kamada Ltd. - CFO [11]

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No. The financial terms there will not be negotiated.

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Briana Warschun;Jefferies;Senior Associate Equity Research, [12]

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Okay. And then I have one last question. Can you provide an update on plans for business development heading into the Takeda agreement transitioning from sales to the royalty structure come 2021?

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Amir London, Kamada Ltd. - CEO [13]

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In your previous question, I'm not sure -- did you ask about business development aspect post Takeda transition?

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Briana Warschun;Jefferies;Senior Associate Equity Research, [14]

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Yes, that's exactly what I asked.

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Amir London, Kamada Ltd. - CEO [15]

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Okay. So yes, we are proactively working on different initiatives. And in regards specifically to the post Takeda -- post GLASSIA transition to Takeda, we do have strong confidence in our ability both from business development as well as from manufacturing and technical aspects to be able to add new products and increase our plant utilization post GLASSIA transition to Takeda.

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Operator [16]

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Our next question comes from the line of Keay Nakae of Chardan Capital Markets.

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Keay Thomas Nakae, Chardan Capital Markets, LLC, Research Division - Senior Research Analyst of Therapeutics, Devices and Diagnostics [17]

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A couple of questions. So post the transfer of manufacturing, give us a sense of how easy or difficult it would be to have you guys make other plasma-based products at that facility?

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Amir London, Kamada Ltd. - CEO [18]

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We are growing our existing products within other countries. We are growing KEDRAB sales in the U.S. both in -- exclusively. And both initiatives are yielding excellent fruits and we do see it growing. And in addition, to just answer your previous question, we do have strong confidence in the ability to bring in additional products. We are proactively working in the direction, and we strongly believe -- very strongly believe that we can increase our plant utilization post GLASSIA transition to Takeda. Once we have leads in this regard, we will, of course, update the market.

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Keay Thomas Nakae, Chardan Capital Markets, LLC, Research Division - Senior Research Analyst of Therapeutics, Devices and Diagnostics [19]

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And outside the U.S., what do you think the growth prospects are for GLASSIA if you would make the product at your facility and then sell increasing amounts to other OUS markets?

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Amir London, Kamada Ltd. - CEO [20]

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So traditionally, our gross profit for GLASSIA ex U.S. has been similar to our gross profit in the U.S. of selling to our partners that is selling in the U.S. So we have a network of distributors ex U.S. As you know we're currently not in Europe yet, so we sell ex U.S. to Asia, Latin America, Russia. And the profit -- the gross profit is similar to what we have been reporting for the U.S. market.

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Keay Thomas Nakae, Chardan Capital Markets, LLC, Research Division - Senior Research Analyst of Therapeutics, Devices and Diagnostics [21]

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But if you have additional product capability at your facility to fill in OUS markets, do you -- what do you think your ability to do so would be?

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Amir London, Kamada Ltd. - CEO [22]

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So filling the gap of the utilization is a combination of GLASSIA ex U.S., KEDRAB in the U.S., our other IgGs including KamRAB, the anti-Rabies IgG in international markets and bringing in additional products to be manufactured by Kamada.

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Keay Thomas Nakae, Chardan Capital Markets, LLC, Research Division - Senior Research Analyst of Therapeutics, Devices and Diagnostics [23]

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And maybe switch to the inhaled study. Can you give us your latest estimate of the total cost in the study, the Phase III?

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Amir London, Kamada Ltd. - CEO [24]

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Yes. We believe that the study total cost will be between $30 million to $35 million throughout entire duration of the study.

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Operator [25]

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We have reached the end of the question-and-answer session. I will now turn the call back over to Amir London for any closing remarks.

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Amir London, Kamada Ltd. - CEO [26]

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Thank you. In summary, we continue to be clear with how all parts of our business are performing through the first 9 months of 2019. We're very excited about advancing our unique Inhaled AAT program, which has a potential to be important source of value creation for shareholders, along with the other multiple significant pipeline and business opportunities ahead of us. Our total growth remains strong, our profitability metrics are solid, and we have a robust balance sheet.

We remain highly confident in Kamada's long-term prospects for success.

Thank you for joining us on today's call. And we look forward to providing you with further updates on our progress in the coming months. Thank you very much.

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Operator [27]

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This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.