EPAM Systems Inc (EPAM) — Q2 2019 Earnings Call Transcript

Thank you, Operator. And good morning, everyone. By now, you should have received your copy of the earnings release for the company's second quarter 2019 results. If you have not, a copy is available at epam.com, in the investors section. With me on today's call are Arkadiy Dobkin, CEO and President; and Jason Peterson, Chief Financial Officer. Before we begin, I would like to remind you that some of the comments made on today's call may contain forward-looking statements. These statements are subject to risks and uncertainties as described in the company's earnings release and SEC filings. Additionally, all references to reported results that are non-GAAP measures have been reconciled to GAAP and are available in our quarterly earnings materials located in the investors section of our website. With that said, I will now turn the call over to Ark.

Thank you, David. And good morning, everyone. Thanks for joining us. I would like to start with a few financial highlights from our second quarter. We delivered revenues of $552 million, reflecting an approximate 24% year-over-year growth or 25% in constant currency terms. Additionally, we delivered strong non-GAAP earnings per share of $1.28, which represents approximately 27% growth from Q2 of 2018. Our growth during the first half of 2019 reflects our position in the markets we serve, which continue to transform at an extremely fast pace. Disruption is occurring across every industry, driven by the impacts of new technologies on one side, and very dynamic changes in the competitive landscape, led by digitally native companies separating at different speed levels from another. We believe that these trends have and will continue to create opportunities for EPAM. We feel we are well positioned to continue to serve our clients and offer solutions to solve their increasingly complex business challenges, all while we challenge ourselves to adapt our offerings and our own organization to new market needs. Our journey to drive our own relevancy in the market is nonstop as we push across EPAM to challenge and change the ways in which we operate and serve clients. That involves all aspects of our operations, including our talent acquisition strategy, expansions into new geographies, and additions to our offerings and capabilities. Everything is done to increase value by elevating our core product, engineering, digital engagement, and consulting services to the next level. Our recent acquisition of Competentum, which we announced in July, is a good illustration of our direction. While it is a small company in terms of revenue and employee base, Competentum allows us to extend EPAM's education and learning capabilities as part of our digital proposition across both our clients' portfolios and our internal needs. We believe professional development in the digital transformation space is becoming just as important as the strategies that guide this. As the platforms that power the enterprise evolve, new organizations should become highly adaptive in nature and will require cross-functional teams who master each step of the digital product lifecycle to have an enterprise-wide digital-first mindset and a real hunger for constant skills and capabilities upgrades. This approach is critical for successful transformative efforts and another example of how EPAM continues to evolve itself while helping our clients across different parts of their organization to evolve as well. Before I hand the call over to Jason, I would like to highlight a few recognitions EPAM has received in the first half of 2019, which are good illustrations of the types of changes happening within us. As we've shared many times in the past, EPAM has historically differentiated itself through strong engineering practices. We believe this remains a critical area of focus for us, to maintain our position in both software engineering and growing into other high-volume directions. In the first half of 2019, EPAM was recognized among the top 50 largest agencies in the United States, up from our position of 130 just several years ago. In the U.K., we have been among the top 10 for some time. Plus, Forrester placed EPAM among the top largest digital experience agencies based on our demonstrated market presence and capabilities across customer markets, commerce, and product/service offerings. Agencies have a different definition in that context. In reference to Forrester, a digital agency should have over 10,000 relevantly skilled employees and be able to demonstrate the delivery of experience architectures that combine the right software and custom portfolios, large amounts of data and content, integrations with transactional systems, and insights across various channels, to ultimately elevate brand awareness. Or in short, to analyze, create, design, build, and manage the digital customer experience in the context of their digital business transformation. On another note, EPAM was recognized by Forrester as one of the most significant application modernization and migration service providers capable of addressing the diverse set of needs in both legacy and cloud-native architectures. It's important to point out that, of all those large companies listed, we are typically the smallest yet the fastest-growing player because of our higher proportion of in-demand service offerings. I would also like to remind everyone about two key points we discussed during previous calls that remain very important for supporting our growth story. We continue to build our consulting offering to blend together industry experience and technology capabilities, enabling our global engineering services to deliver smarter and in turn bring real value to our clients. We continue investing in our internal digital platforms, making our operations not only agile but also truly adaptive, allowing us to better apply the talents we have, as well as attract new talent and smartly grow and retain it. This is also an ongoing effort. To summarize, despite some macro-level uncertainties we discussed before, which seem likely to stay with us for an undefined duration, we delivered another quarter of consistent, high-quality results that underscore our ability to execute and grow in a market that demands high-end expertise and ever-changing capabilities. That said, I will now hand the call over to Jason to provide more details on our second quarter results. Jason?

Thank you, Ark. And good morning, everyone. In the second quarter, we produced strong results in both revenues and profitability while delivering across several key operational metrics. Here are a few highlights from the quarter. Revenue came in at $551.6 million, a year-over-year growth of 23.8% on a reported basis and 25.1% growth in constant currency, reflecting a negative foreign exchange impact of 1.3%. Our demand patterns this quarter were relatively consistent with those of previous quarters. We saw strong, broad-based growth across most industry verticals, balanced by slower growth in a few specific industries. Looking at Q2 revenue across our industry verticals: Financial services, our largest vertical, delivered 16.9% year-over-year growth. We continue to see increasing demand for offerings in asset management and payment processing. Additionally, insurance, which accounts for a modest share of revenues, represents a rapidly growing part of our financial services portfolio. Consumer grew 6% reported and 8.2% in constant currency terms. Growth in Q2 reflected the continued ramp-down of projects at a few consumer clients in Europe, along with lower growth in North America. Software and high-tech grew 24.1% in the quarter, and business information and media posted 26.4% growth in Q2. Rounding out our vertical performance, we saw strong growth in both life sciences and health care, which grew 53.7%, reflecting broad-based growth across both industries and in existing and new client programs; as well as emerging verticals, which delivered 51.3% growth, driven primarily by clients in telecommunications and energy. From a geographic perspective, North America, our largest region representing 60.7% of our Q2 revenues, grew 26.6% year-over-year, or 26.9% in constant currency. Europe, representing 32.2% of our Q2 revenues, grew 18.4% year-over-year, or 21.1% in constant currency. CIS, representing 4.5% of our Q2 revenues, grew 29.3% or 32.4% in constant currency. Finally, APAC grew 19.9% or 23.3% in constant currency, and now represents 2.6% of our revenues. In the second quarter, growth in our top 20 clients was 14.8%, and growth outside our top 20 clients was approximately 31% compared to the same quarter last year. Our revenue results from the quarter are underpinned by a diverse set of growth drivers across the portfolio of clients we serve. Moving down the income statement, our GAAP gross margin for the quarter was 35.5% compared to 35.1% in Q2 of last year. Non-GAAP gross margin for the quarter was 36.8% compared to 36.7% for the same quarter last year. GAAP SG&A was 20.3% of revenue compared to 20.9% in Q2 of last year, and non-GAAP SG&A came in at 18.5% of revenue, compared to 18.9% in the same period last year. Our SG&A spend in Q2 was focused primarily on investments in facilities and our employees and is intended to support our longer-term growth. GAAP income from operations was $72.9 million or 13.2% of revenue in the quarter compared to $54.2 million or 12.2% of revenue in Q2 of last year. Non-GAAP income from operations was $92.6 million or 16.8% of revenue in the quarter compared to $72.3 million or 16.2% of revenue in Q2 of last year. Our GAAP effective tax rate for the quarter came in at 16.6%, which includes a $4.7 million excess tax benefit related to stock option exercises investing in restricted stock units. The actual benefit was lower than the $10 million forecasted at the beginning of the quarter, due to a substantially lower number of stock options exercised in the period. Our non-GAAP effective tax rate, which excludes the excess tax benefit and includes the tax effect of non-GAAP adjustments, was 22.5%. Diluted earnings per share on a GAAP basis was $1.02, reflecting the lower-than-expected tax benefit in the quarter. Non-GAAP EPS was $1.28, reflecting a 26.7% increase over the same quarter in fiscal 2018. In Q2, there were approximately 57.6 million diluted shares outstanding. Turning to our cash flow and balance sheet, cash flow from operations in Q2 was $44 million compared to $59.5 million in the same quarter last year. Free cash flow was $32.4 million compared to $50.9 million in the same quarter last year. Reflected in our cash flow this quarter were payments related to our annual variable compensation program and the ongoing support of our inorganic growth strategy. DSO was 79 days compared to 78 days at the end of Q1 fiscal 2019 and 83 days in Q2 of last year. We remain focused on managing our DSO at these levels. Moving on to a few operational metrics. We ended the quarter with over 29,400 delivery professionals, a 21% increase year-over-year and a net addition of more than 1,500 production professionals driven primarily by new hires in our global delivery locations and low attrition in the quarter. Our total headcount ended at more than 33,100 employees. Utilization was 78.4% compared to 78% in the same quarter last year and 79.9% in Q1. Now let's turn to our business outlook, starting with fiscal 2019. Based on continued strong demand, revenue growth will now be at least 23% reported and at least 24% in constant currency, factoring in a 1% estimated unfavorable foreign exchange impact. We expect GAAP income from operations to continue to be in the range of 12.5% to 13.5% and non-GAAP income from operations to continue to be in the range of 16% to 17%. We expect our GAAP effective tax rate to now be approximately 14%, reflecting an updated assumption for a lower level of excess tax benefit. Our non-GAAP effective tax rate will continue to be approximately 23%. For earnings per share, we now expect GAAP diluted EPS to be at least $4.43 for the full year, which reflects the impact of the higher GAAP effective tax rate. Non-GAAP diluted EPS will now be at least $5.25, reflecting a modest improvement in expected profitability for the full year. We expect a weighted average share count of 57.7 million fully diluted shares outstanding. For Q3 FY '19, revenues will be at least $579 million for the third quarter, producing a growth rate of at least 23% reported and at least 24% in constant currency, factoring in a 1% estimated unfavorable foreign exchange impact. We expect GAAP income from operations to be in the range of 12.5% to 13.5% and non-GAAP income from operations to be in the range of 16% to 17%. We expect our GAAP effective tax rate to be approximately 15%, and non-GAAP effective tax rate will be approximately 23%. Earnings per share: We expect GAAP diluted EPS will be at least $1.14 for the quarter, and non-GAAP EPS will be at least $1.32 for the quarter. Lastly, we expect a weighted average share count of 57.9 million fully diluted shares outstanding. Finally, a few key assumptions that support our GAAP to non-GAAP measurements. Stock compensation expense is expected to be approximately $16.2 million in Q3 and $15.5 million in Q4. Amortization of intangibles is expected to be approximately $2.8 million for each of the remaining quarters. The impact of foreign exchange is expected to be approximately a $2 million loss for the second half, with a $1 million loss in each of the remaining quarters. The tax-effective non-GAAP adjustment is expected to be around $4.5 million in Q3 and approximately $4.4 million in Q4. We expect excess tax benefit to be around $6 million in Q3 and $4 million in Q4. Lastly, we expect interest and other income to be $2.6 million for each of the remaining quarters. In summary, we are pleased with our second quarter results, which reflect continued strong demand for our services, underpinned by a diverse mix of projects and offerings across the industries we serve. Our first half for 2019 positions EPAM well for continued success in the second half of the fiscal year. With that, let's open the call up for questions.

I wanted to talk about the digital transformation scope that you touched on, Arkadiy. How much of the employee base do you feel like is adequately trained in those types of digital transformation skills? And then can you talk about how you're defining that internally, what scopes are truly considered digital? Or maybe asking in a different way, what's more in focus now than would have perhaps been roughly 3 or so years ago?

Maggie, yes, that is actually a very difficult question because we're not sharing or reporting what our digital capabilities are versus non-digital because it's very hard to classify. I can refer back to the Forrester profile, which states that we are increasing our category with more than 10,000 employees versus those companies, where even if it's just 10,000, it's already at least 30% of our people compared to others who might be much less. We believe that the majority of our work actually falls into this category, as our core legacy centers around product and software engineering, which many classify under digital services as well. Inside of EPAM, we are definitely focusing on engagement platforms and analytics platforms as very core digital aspects. However, modernization, for example, a lot of other activities like RPA could be classified differently. In short, I will say that we consider the majority of what we do today as digital. In terms of training, the majority of our people are being trained in this area. Developing skills in this area has been one of our key points of focus as we look to improve not only internally but to also help our clients through their transformations. So it may be a bit of a fuzzy answer, but it is indeed a challenging question.

Okay. And then you've talked about the efforts to continue to drive relevancy in the market. You've been somewhat more acquisitive in the last two years. Should we expect a more consistent acquisition engine going forward? And does the current M&A funnel support that? Also, Jason, what was the organic growth in the quarter and what is the expected organic contribution for the full year with the most recent acquisition you did?

So I think, from a consistency point of view, the only consistency is that we're constantly looking for the right fit and how to improve our capabilities. There are no plans to do two acquisitions per quarter or four acquisitions like we discussed for next year. That's not part of our thinking; we will constantly look for opportunities. In terms of how this impacts our growth, I think it is very minimal because we are looking for small, competency-led companies, not a roll-up approach. That said, Jason can comment on the numbers.

Yes. No, Ark is absolutely correct. When we guided at the beginning of the year, we included an assumption that we'd get approximately 1% of revenue from inorganic contributions. That has not changed at all. These are relatively modest-sized acquisitions. Just to answer the question on Q2: The reported growth rate was 23.8%. If you adjust for foreign exchange, we experienced about a 1.3% impact, so the constant currency growth rate will be 25.1%. The inorganic contribution was actually just below 1% for the quarter, so in terms of constant currency organic growth rate, this brings us to 24.2% for Q2 of 2019.

Very good quarter here. Congratulations. The question I have is you spent a lot of time and effort and investments here in creating a much better-diversified business than it used to be across many verticals. As we move past that phase and it becomes more about continuing to just scale what you built, should we expect some operating leverage to emerge in the financial model in the next year or two?

Yes, here's how I would think about the business. I'll discuss what's happening this year first and then maybe we'll have some general discussion around next year. We're very focused on continuing to make investments that allow us to grow the business in excess of 20% annually. So we are focusing on a range of 16% to 17%. We think we're clearly going to operate very firmly within that range this year. If you've looked at your model, it probably shows that we'll operate in the upper half of that range in 2019. We're going to continue to focus on 16% to 17%. In the second half, we'll continue to make investments, including some of the ones Ark discussed regarding learning platforms and professional development. So you should continue to think about the business in the 16% to 17% range.

Understood. And regarding the travel vertical, can you remind us when the wind-down of European clients ends? Additionally, does Q3 and Q4 have any ups and downs related to billing days?

Yes. I didn’t completely understand your first question. However, we’ve seen some softness with our European consumer accounts. It isn’t specific to the wind-down but more a mixed performance where some accounts are growing while others are flat or declining. This has produced a lower growth rate than in the past. For Q3 and Q4, it's a bit complicated, but in general, we have more billed days in Q3. However, we also have more holidays and some summer vacation days incorporated. Generally, you might see a slight improvement in gross margin during this period. Q4 typically tends to be strong for us, but we have been operating at high profitability levels in the first half of the year, hence I don’t expect a substantial increase in gross margin or profitability in the second half. Nonetheless, we should see some positives in gross margin due to the uptick in billed days in Q3.

In summary, all this volatility aligns more or less with usual fluctuations we have seen with different verticals over time. While there is some softness, particularly with U.K. retailers, we can attribute that to the usual starts and stops in our experience.

I wanted to follow up on Ashwin's question for clarity regarding travel and consumer. Are you expecting any re-acceleration in the second half? I believe your comparables get easier, but there may be lingering macro headwinds. So I want to ensure we're framing the second half correctly. Are we looking at potential growth from the 8% constant currency rate, or should we anticipate stabilization? Also, while on the topic of verticals, any commentary on financial services? It had a nice rebound and re-acceleration this quarter. Is that sustainable in the latter half of this year?

I think I'd echo what Ark said previously. The business is broadly diversified across industry verticals and customers, whether new or longer-term EPAM customers. Therefore, in any given quarter, you might see one vertical driving more growth than another. A couple of years ago, we were talking about low growth rates in health care and life sciences, and now we’re exceeding 50% growth. Last quarter, financial services saw single digits, and now we are firmly in high-teens growth. While demand for travel and consumer could potentially increase a bit in the second half, we're still experiencing mixed results across that portfolio. In financial services, we are seeing very strong growth in areas such as cards and payment processing, along with asset management, with insurance rapidly expanding, although still small for us. Overall, we feel positive about market demand.

What does the current composition of your top 10 client list look like compared to 12 to 18 months ago? Should we expect significant changes within that list over the next 12 to 18 months as newer clients ramp up work with EPAM? The growth in non-top 20 clients remains robust.

There has been slight movement in our top 10 client rankings over the last few quarters due to some changes among our clients. Notably, one of our top 5 customers split into two, which means that what used to be 10 customers in our top 10 is now effectively 9. Beyond that, I would say there has been minimal change overall.

I wanted to ask about the acquisition of Competentum and what this means for your internal strategy. Is there any function of internal savings or benefits that are quantifiable? More broadly, how should we perceive software and platforms as an offering? Does this signal a shift towards more emphasis on them going forward?

Yes, our educational capabilities have implications internally as well, but we’re constantly investing in this area. We don’t anticipate any specific SG&A savings, especially since Competentum is quite small. However, it enhances our capabilities in a way that would be difficult to build ourselves. Regarding software platforms, we consider them as accelerators; we believe our differentiation comes from effective integration and customer extension. We’re not viewing them as a separate line of business focusing purely on licensing or subscription revenue. While we have minimal current licensing, they do provide a jump start for larger implementations and are essential for building an agile portfolio of accelerators to start faster while being adaptable to quick technological changes.

That's helpful. Can you also comment on the health care vertical's current mix of work? Do you believe you're gaining market share in that space?

We’ve been planning this expansion for some time. Initially, our focus was mostly on R&D life sciences, but we’ve now expanded to include commercial life sciences and health care insurance segments as well. So, if four or five years ago, our growth was primarily in one area, we now see at least three different focus areas for growth.

We are also seeing an increase in consulting opportunities in the health care space, which complements our engineering offerings.

There is a healthy complementarity emerging as R&D becomes integral to general commercial life sciences, with many overlaps between health care providers and payers, thus ensuring that our ability to grow remains strong.

Your growth seems fairly balanced across all your verticals, which historically is rare in IT services. Can you describe the strategy in some of your newer verticals and perhaps why you believe your acceleration in those verticals has surpassed what we've historically seen from other companies?

This relates to our historical foundations, where we initially started as a product engineering extension for our clients. Like many top technology companies, we helped clients primarily, which constituted the major source of our revenue a decade ago. As we began to understand the industries, especially through the lens of digital transformation, companies started to adopt new software platforms rapidly. Consequently, we built on those skills. With our entry into new verticals today, we clearly focus on how to develop the right products and also conducted comprehensive digital strategy and consultative components over the last several years, integrating these closely with our engineering services to not only advise but also deliver effectively, hence, scaling effectively to meet demand.

As a follow-up, regarding the margin outlook, you provided guidance for this year, but could you discuss margins over the long term? What levers do you have that might improve or reduce margins?

We’ve demonstrated that we can operate within a range of 16% to 17%. In the past, we were closer to the lower end of that range, now we’re performing near the top. This suggests that we can run comfortably within that 16% to 17% range, with fluctuations by quarter depending on utilization and billed days. It is best to consider us in the 16% to 17% adjusted income from operations range as our target moving forward as we continue to invest in growth opportunities.

I wanted to discuss Europe, which demonstrated solid growth this quarter, despite previous concerns over uncertainty around Brexit. Could you update us on what you're observing in that market and your expectations for the remainder of the year?

The situation aligns with what we've communicated previously: certain volatility persists across various verticals and regions, given we're working with global accounts. These global accounts can grow at different rates in various regions, making it exceptionally difficult to predict volatility in particular segments. However, we’re more comforted by the demand for service types we provide, which keeps us balanced and able to deliver our projected overall numbers.

In relation to the gross margin numbers, there seems to be consistency. You've mentioned a strategy towards implementing nearshoring capabilities, which could eventually impact margins. Could you provide an update on that strategy and its potential effects on gross margins?

The strategy remains in place. We're looking to improve our presence in the local markets with more local expertise and dynamics, especially with the complexity of the services we provide. While this might affect gross margins, we believe we can enhance total value to clients and effectively balance this to maintain our margins. Our focus will remain continuously on profitable pricing practices.

We are certainly focused on individual account margins, ensuring we maintain or improve our profitability in the gross margin area. As discussed previously, we're committed to pricing strategies that reinforce this objective.

Good quarter. Two follow-up questions, both regarding margin trends. To start, could you discuss wage inflation trends in your focal Eastern European regions?

From a headcount growth standpoint, we've observed growth in both our traditional regions and further growth in India. Regarding wage inflation, I would say there hasn't been any change. In fact, we've seen a decline in attrition year-over-year, making us feel positive in that regard. Ark, would you like to comment on new deals and pricing?

Overall, I think we are not noticing anything particularly new or extraordinary. At our company’s size and scale, our segment of the market is seeing consistent trends. Even with Brexit concerns that have produced some fluctuations, we’re confident in our ability to mitigate effects through our diversified geographic focus.

Okay, great. Also, looking at legacy vendors transitioning into this space, Ark, are there any notable competitive changes? Or does it remain a tight field dominated by a handful of companies, thus providing you a significant edge?

The market remains competitive, however, it is a growing sector where we're focusing our efforts. The challenge lies in building the right capabilities and remaining adaptive to rapidly changing conditions. Hence, when it comes to future gross margins, our guiding focus will be on continual reinvestment to enhance our offering.

Congratulations on your good results. I have a specific question on your guidance. I've analyzed your full-year guidance and when I break it down into quarters, I see the potential for significant deceleration in EPS growth, potentially at below 15% in Q3 and around 10% in Q4. There also appears to be notable slowdowns indicated in your non-GAAP operating margins. Could you provide insights into the factors driving this? Is it mainly a high base effect, or are your reinvestments in business development a factor? I also noticed that R&D hiring has accelerated. Is there a correlation?

Regarding profitability in the second half, there haven't been changes from our expectations since we provided guidance. We’ve just seen some improved profitability in the first half along with expectations for Q4. For context, last year we operated at 18.4% non-GAAP adjusted IFO in Q4, primarily due to outsized demand that quarter. We do not expect to replicate that in Q4 this year, which likely explains the slower EPS growth rates. We believe our guidance reflects strong performance and growth prospects.

In terms of client concerns, they largely align with industry-wide concerns based on the need for scalable capabilities and the assembly of appropriate teams. Clients also seek our thought leadership, looking to us for solutions that deliver substantial value, rather than just basic engineering services. These are the three main focal points: capability scaling; repeatability; and the integration of thoughtful, valuable contributions.

I want to ask about your recent acquisition of Competentum. It definitely seems like a strategic acquisition. How much value do you expect to extract from using it internally for your talent versus when you sell to clients?

The main focus is on enhancing our educational capabilities and publishing components. The competencies this firm brings will allow us to penetrate this market more aggressively than before. We have a solid offering in this space, but this acquisition will help us strengthen it. In terms of content development, we are able to leverage external authors efficiently while orchestrating our internal efforts. This positions us to better scale both internally and externally.

How will this offering be marketed? Will it be a distinct offering or packaged with others? How is the content developed?

It improves our competencies in the educational and publishing space by allowing us to bring solutions to market more quickly. The intent is to position ourselves as market leaders in education and talent development while maintaining the flexibility to build and leverage external capabilities.

On the utilization rate, I understand you're down a couple of hundred basis points. Is this about where you're comfortable?

Usage levels will fluctuate based on quarters; typically, we have demonstrated we operate around 77% to 78% comfortably. There may be quarters where this will be higher. Remember, Q4 at 80% is quite elevated and typically requires unexpected demand. I don't see utilization declining, and 77% to 78% remains a comfortable target for the firm.

Could you remind us of the growth we're seeing in Ukraine and Russia? Are these shifts just due to client demand or indicative of larger, systemic growth?

Yes. It's a good question. We observed growth in both traditional markets while also witnessing accelerated growth in our India sector. This quarter did not feature any major shifts towards in-market talent; it represents a balanced growth across the organization, which I find very promising.

Are you satisfied with the current regional growth, or is there a need to enhance it?

You can anticipate evolution in our business model as Ark has always mentioned. Geographic distribution may change incrementally, but there's no expectation of substantial shifts anytime soon. However, there is growth in newer regions like Mexico and our delivery center in Spain, both of which remain small-scale but are showing strong demand.

Our approach is consistent; we emphasize integrated solutions and focus on comprehensive delivery rather than siloed consulting segments.

Thank you all for joining us today. We are quite pleased with our Q2 results, and we will continue to strive forward. The challenge remains in keeping ourselves well-aligned to tackle evolving markets effectively. Thanks to all of our 30,000-plus team members around the globe for their efforts. Feel free to reach out to David for any additional inquiries. Thank you.