Cochlear Limited (ASX: COH) has announced its FY 2024 results, showcasing strong financial performance with revenue reaching $2.258 billion, marking a 15% growth in constant currency. Despite increased investments in cloud technology reducing the net profit margin to 17%, Cochlear reported a net profit guidance range of $4.10 to $4.30.
The company has assisted over 47,000 individuals with hearing implants this year and plans to target over 50,000 in the coming year. Cochlear Implants continue to be the major revenue driver, accounting for 59% of the total revenue. The company announced a $75 million share buyback program and a 24% increase in dividends, indicating a robust financial position and confidence in its long-term strategy.
Key Takeaways
- Cochlear Limited's revenue increased to $2.258 billion, with a 15% growth in constant currency.
- Net profit margin is projected to be 17% due to cloud technology investments.
- Cochlear Implants represent 59% of total revenue, with unit sales growing by 9%.
- The company has a net profit guidance range of $4.10 to $4.30.
- A $75 million share buyback program has been announced.
- Dividends increased by 24%, reflecting a strong financial standing.
Company Outlook
- Cochlear aims for a 10% sales revenue growth and anticipates unit sales growth to align with market growth.
- The company is investing in R&D and standard-of-care initiatives to drive future growth.
- Cochlear expects services revenue growth to slow but sees high potential in the Acoustics market.
- The company plans to increase market penetration, especially in adult and senior demographics.
Bearish Highlights
- The company's gross margin is affected by cloud-based expenses, which are projected to be around $30-38 million annually for the next two years.
- Services revenue growth is slowing due to affordability constraints and other factors.
- Surgical constraints, particularly in audiology, pose challenges to capacity.
Bullish Highlights
- Cochlear's market leadership is strengthened by a strong pipeline of products in development.
- The company is focused on increasing awareness about the importance of hearing for healthy aging.
- There is continued opportunity for market growth and upgrades, particularly in developed markets.
Misses
- Growth in emerging markets, particularly in India, was lower than expected.
- Costs related to the cloud transition program are substantial, with a total estimated expenditure of around $150 million.
Q&A Highlights
- Price increases for 2025 are not expected to be significant, with some increases for Nucleus 8 and Osia.
- CapEx for capacity expansion is estimated to be between $100 million and $120 million, focusing on clean rooms and equipment.
- 15% of seniors receiving Cochlear implants opt for bilateral implants, with efforts to increase this number if reimbursement policies allow.
Cochlear Limited's FY 2024 earnings call revealed a company in strong financial health and with a clear vision for the future. With a focus on market leadership and innovation in the hearing implant market, Cochlear is well-positioned to continue its growth trajectory. The company's commitment to R&D, along with its efforts to raise awareness about the links between hearing loss and cognitive decline, align with its strategy of enhancing life-long cochlear function and promoting healthy aging. Despite some challenges in services growth and emerging market penetration, Cochlear's overall outlook remains positive, supported by its plans for capacity expansion and capital management initiatives.
Full transcript - None (CHEOF) Q4 2024:
Operator: Thank you for standing by. And welcome to the Cochlear Limited FY 2024 Results, Analyst and Media Briefing. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to Mr. Dig Howitt, CEO and President. Please go ahead.
Dig Howitt: Good morning, everyone. Thank you for joining for our 2024 results updates. Let’s get started. As always, we like to start with our mission. Our mission is the inspiration for employees at Cochlear, but also at a high level guides our strategy and the core of our strategy is focused on the middle piece of our mission. We transform the way people understand and treat hearing loss. Hearing loss is one of the most prevalent medical conditions out there and one of the least treated. That’s our opportunity and that’s the core of our strategy. So let’s get into having a look at F2024. The highlight of the year for us was helping over 47,000 people hear with one or two of our implants. And in doing so, we created over $8 billion of value for society. The way we think about how we create value is in terms of the overall banner and then the five pillars that we showed here. So I’m going to talk about a lifetime of hearing solutions and a healthier and productive society a little bit more depth in the presentation because they are the core elements of our strategy, our market leadership and our growth strategy. Very importantly, our people and environmental responsibility and the value. So from a people perspective, we are a technology company. So our people are critical to our knowhow, our customer relationships and to our growth. So we remain very focused on having committed and engaged people. Employee engagement maintained at 80%. And we also are very conscious of providing opportunities for people in the organization and bringing new people into the organization as we grow. So we have over 1,000 roles filled for people outside Cochlear in the year and 37%, so another 400 roles, which is filled by people within Cochlear. And to do all that, we have over 43,000 applications. So there are clearly many, many people who want to work for Cochlear. You would have seen this recently, an announcement on some executive changes. This is all part of providing broader experience across Cochlear with Richard Brook stepping down, Anthony Bishop moving to be President of EMEA and Stu with us today, moving from CFO to be President of APAC and that being effective all from 1st of January. And then on environmental responsibility, we are a very small emitter of greenhouse gases, but we’ve made significant steps, as you can see here, to reduce that small footprint. And we obviously, as others, prepare for the new reporting requirements coming, and part of that is doing the full Scope 3 inventory. But significant reductions in Scope 1 and 2. Okay, so let’s move on to the financial summary. So strong year for revenue, up to $2.258 billion, 15% growth, 12% in constant currency. I will talk through the elements in terms of the Cochlear Implant Services and Acoustics in just a few minutes. And strong profit performance, $3.87, up 27%. Obviously, currency part of that was at 15% in constant currency. And then with the closure of the Oticon Medical acquisition and the restructuring costs that we’ve taken up, our statutory profit up 19% in constant currency to $3.57, but largely that’s the Oticon Medical restructuring that accounts for that gap. But importantly, our margin. So we say that, and we have said consistently, we target 10% revenue growth over the long-term. We target a net profit margin of 18% pre-cloud with our investment in cloud. Over the last few years and the next couple of years, that’ll take about 1-percentage-point off the margin from 18% down to 17%. But our long-range outlook and goals there are unchanged. And overall, we remain a very strong financial position. Significant cash on the balance sheet. The opportunity to lift the dividend up 24% for the full year to $4.10 and I’ll come to our guidance at the end of the presentation, talking about our outlook more holistically. So if we now dive into each of the elements, let’s see, Cochlear Implants being 59% of revenue, critical driver of overall performance, the core piece of our strategy here, particularly driving developed market growth and developed markets -- in developed markets, as you know, it’s the adults and seniors where the opportunity is. So if you see we grew Cochlear Implants 9% across the year, sales revenue was up 14% in cost and currency. In developed markets, which is a significant part of our business, we had 11% volume growth and a 2% increase in ASP. Stu will talk more about that. But we saw really strong performance across the U.S., across Western Europe, in part from share grains, but largely from our growth strategy, looking, continuing to look like it’s working. We’ve said this over the last couple of results, that the actions we’re taking to develop alternative care, to increase referrals, increase awareness of hearing loss, increase the motivation for treatment, they do be working. We see that anecdotally when we talk to clinics and we talk to them about the people coming in, their awareness and the numbers of them, we see backlogs and we also see it through our results with 11% growth in developed markets, seniors growing at 15%. And we just put an example here from the U.S. with our direct-to-consumer activities contributing more than 30% of surgeries in the U.S. and 70% of our lead generation there, coming from digital engagement with seniors. And as part of that, we can see increasing professional referrals. And part of that, more awareness of people coming in as they’re moving through the funnel a bit faster than we have seen in the past, which is clearly a good thing. So overall, developed markets worked as came out where we expected. We said at the half that we’d seen unusually high growth in children. That moderated in the second half, again, as we expected it to, and we said at the half that we expected children growth to slow to normal, that has happened. But the seniors and adults continue. Our emerging markets, we saw 5% growth with a really strong first half and a decline in the second half. Where we finished up the year, this is one we didn’t expect. We didn’t expect the emerging markets to keep going. The key driver of this was in India. So we saw really good growth in China and Brazil, Central and Eastern Europe. But in India and we think it was related to the election, there were virtually no government tender activity from November through the rest of the year. So what we see in that part of the market is quite a lot of volume at a lower price. So the consequence of not having that volume come through, as we pulled down our overall unit number a little bit below our expectations, not a huge impact on the revenue, but did mean our ASP in emerging markets was higher than our expectations. Stu will talk more to those impacts on the ASP that explain the gap between the 40% revenue growth and the 9% implant unit growth. On to services. So good growth in services. You can see in the chart there that services, apart from the time around COVID, have had a long run growth. We said at the half that we expected upgrade growth to slow. So we saw some very strong halves, and as we start to get a little bit further from the Nucleus 8 launch, we see that growth slowing. So that’s what we did in the second half. We expect that services growth to slow a little bit more, again, as we move later into the cycle. And then going on to Acoustics. And Acoustics also worked, came in where we thought it would, for the year at the half. We’d actually gone backwards in the first half and you can see that in the yellow bar on this slide. We said the reason for that was that we had announced and launched the OSI300 Implant, which is a 3 Tesla (NASDAQ:TSLA) MRI compatible Osia Implant. With that product launch, with that product announcement, we saw surgeries being held. And in some countries, we also need to re-contract with hospitals when we have a new price and it takes some time to work through the administrative. So when we have a new product, we need to re-contract and it takes some time to work through that process, and particularly, if we’re taking a price rise, which we were into markets with the OSI300, because it is a better product. So we saw that dip in the first half, but then a very strong second half with 15% constant currency growth, volume growth in Osia over the year of 30% and we continue to expand the opportunity for Osia by adding countries, France, Sweden, examples of countries that where we now have reimbursement for Osia. We didn’t -- a year ago, the age of implantation in the U.S. has moved just right late in the half from 12 to 5, and it expands the market. We talked for a while about saying that Acoustics implant opportunity is similar to the current implant opportunity, very, very large. It’s an underserved area of hearing loss. We do think that Osia is the right product to work to close that gap between the uptake and the opportunity. What we’ve seen with the uptake of Osia in the last few years is just increasing confidence of that opportunity and that we do have the right product to realize it. So that’s a quick look through each of the three segments. Now I’ll jump on to our strategy and I’m going to jump over our strategy here because we talk about it consistently. It is unchanged, it has been unchanged for a number of years and what we do each year is continue to refine our learning and therefore our focus, particularly in these first two of a lifetime of hearing solutions, about retaining our market leadership and growing the hearing in that market. So under retaining market leadership, we continue to have more than 60% global market share. That’s underpinned by a very strong technology portfolio and the quality of people and service that we offer around the world. We continue to make a significant investment in R&D, as you’d expect, 4% of sales, $270 million and we made really good progress in the last year on meeting development milestones across a whole range of our development areas. We remain excited by the opportunity we have for our products in the future, as well as the strength of our portfolio now. Just one example of an area in which we’ve made progress in the last year is the development of a drug eluting electrode. We did get some trial data where that has demonstrated a substantial impedance reduction from a drug-device combination. What that indicates is, impedance indicates reduced inflammation, lower fibrosis and therefore less trauma and potentially healthier cochlear over people’s lifetime, which possibly could be a path to hearing preservation in the future. We don’t know those things yet at the point of developing these products and getting the evidences to do that. We certainly do have from history a small number of implants we did back 10 years ago with drug eluting electrodes that we’ve seen sustained reductions in impedances over that 10-year period and that’s a really important outcome for us. So very pleased with our position and progress on our product development and a strong pipeline of products to come to build on the strength of the position that we have now. And then on to the growing hearing implant market. Here I want to talk particularly about the adults and seniors work there. We’re looking to build our standard-of-care, which is to make sure that adults with hearing indications for Cochlear Implants are being referred routinely to implant clinics to be assessed. And given the market penetration is under 5%, clearly that is not happening routinely in any country in the world at the moment, and our goal is to make progress step by step towards that. And our results are giving us good confidence that the actions we are taking are having an impact. But the parts that are awareness, the living guidelines are part of getting evidence-based guidelines that can be adopted as clinical practice in countries around the world to get that more consistent referral. So that’s getting the part clear. An important part of that is the motivation, is making it important to treat hearing loss. And the links between healthy hearing and healthy ageing and the importance of healthy hearing to healthy ageing are growing in a whole range of areas, but particularly cognition. And there are a few points on cognition just from the last year. One is just recently the Lancet updated their analysis of the research into the modifiable causes of dementia. Hearing loss remained the number one modifiable cause of dementia from their analysis of the literature. We know about the ACHIEVE study from Frank Lin, which showed people at higher risk of dementia that were wearing hearing aids over three years reduced their cognitive decline by 48% compared to an equivalent group of people with hearing loss that didn’t have their hearing treated. And then a study that was published later this year in Australia analyzing the cognition of people with Cochlear Implants, showing that after 4.5 years of wearing Cochlear Implants for older people, executive function and working memory had improved in that group compared to another cohort. That again strengthens the more direct evidence of the benefits of Cochlear Implants. So there’s links between cognition, hearing loss and treating hearing loss through slow cognitive decline or even in this case improved cognition are critical around as are the broader links for healthy ageing providing that motivation and that motivation not only for the individual but also for healthcare systems funding Cochlear Implants. So core pieces of our strategy that we continue to execute well on but still clearly a long way to go. Okay, I’m going to skip over these next couple of slides because I’ve already talked about people. There’s a lot more information on our annual report on this as well and again on environmental responsibility and our actions there. I’ve talked about them up front and our sustainability report forms part of our annual report so you can read more there as well. And then on the value, excuse me, in a minute we’ll just talk about this in -- but just two points I wanted to make from this slide. One is we make good progress on our cloud system transformation and this isn’t just replacing our core systems, it’s actually about standardizing our processes, our data architecture across the world so that we have -- we’re able to be more agile, we’re able to move faster, we have better and more insightful data on the business and we are setting ourselves up to scale as we grow to become a much larger business as we make progress on executing our growth strategy. So in the year we deployed a new human capital management system, a new customer relationship system, both of those have been successfully rolled out and now we have the opportunity to start getting benefits from them and that program continues as we go on to replace core manufacturing and finance systems with more modern and more flexible systems and getting that process and data standardization as well. And we closed the Oticon Medical CI acquisition, there’s a picture here of the team in Vallauris in France, some great knowledge that we picked up with this team, many longstanding CI engineers involved in product development which is a great boost for us, as well as the 20,000 Oticon Medical customers that we will provide support throughout their lifetime. With that I’ll hand over to Stu to talk in more detail on the financial outcomes.
Stu Sayers: Thanks, Dig. Good morning, everybody. Good to be with you. Dig’s already spoken -- on the P&L Dig’s already spoken to the 12% constant currency revenue growth, I won’t add anything to that. I’ll take you to gross margin, so it’s 75%, it’s slightly better than we’re expecting and it’s where we want it to be long-term, that’s certainly where we’re targeting long-term. It’s really a combination of some ASP, some pricing increases, offsetting the impact of some stock write-offs and some headwinds and ramp up in Chengdu. If we start with the ASP increases, it was actually up 5% in constant currency, that’s abnormally high for us. 2% of that 5% was driven by real price increases in developed markets, places like the U.S. and others, and that’s off the back of N8 and taking price increases where we can. Obviously there’s a number of markets where we’re a price taker, so we don’t actually -- we’re not actually able to influence price. And then the balance of that 5% constant currency impact was significant mix shift from lower priced tender volume in emerging markets to higher priced private pay volume. That was on ASP. On stock, we took a write-down of about $23 million for the full year, but again, that’s abnormally high for us. The bulk of that was in half one, $16 million half one, and that was off the back of obsoleting the Freedom Series implant and sound processor. That product launched in 2005. It surfaced very, very well. As you probably know, we talk about a lot on these calls, we tend to prefer to hold slightly more stock and components to make sure that we, A, don’t miss a sale, and B, we’re buffered from any sort of demand, volatility and we’ve always got pieces ready to go to get people on the air. The downside of that, the upside is we don’t miss sales because of supply. The downside is when we do obsolete a generation, we need to write some stuff off, so that’s what went through this year. And Chengdu has remained, as expected about a 0.5% headwind for us as we ramp up production there. Pleasingly, we are now selling sound processors that are manufactured in Chengdu, and we remain confident that we’ll get approval to start selling implants that we are currently manufacturing there today. We’ll get approval to sell them come December this year as well. On to selling, marketing and general. Sorry, thanks a lot, thanks. That’s up 10%. That’s up continuing to invest to really underpin future growth and so that’s things like investing in standard-of-care, the COACH trial, the TREAD trial [ph], Frank Lin’s work, those kind of things to try and establish that, try and make that genuine standard-of-care for treating severe profound hearing loss. R&D, 12% up, and very much where we want to be, also 12% of revenue for the year. Again, similar for the 75% price margin and topline long-term, we want R&D to sit at about 12% of revenue. You’ll note the cloud expense was slightly lower this year down from $38 million down to $30 million. We’re about $90 million through our 100 to 150 program, and so our plan at the moment is to have somewhere between $30 million to $38 million for the next couple of years, so in the range we would expect. Two more things on this page. The net margin you’ll see pre-cloud. That’s the one we’re trying to manage to, and we want to hold that at 18%. It’s actually 18.1% for the year. It looks like it’s improving about a percent from last year, but really the bulk of that impact is currency. When you wash out currency, previous year would have been 18% if we re-baselined on the same currency as well. And lastly, that one-off item, $29.8 million, the vast bulk of that $28 million of that, is the integration costs to do with acquiring Oticon Medical business. The extra 1.8% is just very small changes in valuations in some of the innovation fund investments that we have. So if we take you to the balance sheet, so working capital up $84 million, as you’d expect as we’re selling more and very good trading volume receivables and payables are growing nicely, nothing concerning there. Inventories, again, we are taking a deliberate choice to hold more component stock and also increase our finished goods stock. So we’re buffered from demand spikes. In property, plant and equipment, you’ll see $28 million going in there. The bulk of that went into lane codes in F2024. We’re about two thirds of the way through a significant site refurbishment. The total footprint of the building is not getting any bigger, but the footprint of the clean room there, the real manufacturing engine of that building is getting materially bigger and will continue to do that across multiple sites over the next couple of years. And you’ll note the net cash, the decreasing net cash of $41.9 mil, $43 mil, but reminder that we did spend $43 mil on the F2024. If you go to cash, it’s a very similar story from the balance sheet there. Again, great operating cash flow off the back of strong trading. CapEx broadly in line with last year and where we expected it to be. And again, $28 mil of that going into Lane Cove. I do think that number is going to pick up a bit in the next couple of years as we look at making more capacity enhancements and expansions across our network. And again, just a reminder, the $43 mil going out in the share buyback. And with that, I’m going to hand you back to Dig.
Dig Howitt: Thank you. And onto the outlook before we then move over to questions. To give context for our outlook is that we are targeting, continue to sell over the long run, 10% sales revenue growth, 18% margin pre-cloud. As Stu said, and for the next couple of years, we’ve got that cloud investments that will bring our margin down to nearer 17% when we include that. We’re targeting to get over 50,000 people viewing this year up from the 47,000. Again, there’s one or two implant peaks to that. And that gives us a net profit guidance range of $4.10 to $4.30, which is a 6% to 11% increase. A little bit of context for that, if we look back over the last few years, our growth rates have exceeded -- our revenue growth rates have exceeded 10%. And what that’s meant is that we have had the opportunity to reinvest the extra in either more R&D, if we kept the R&D at 12% or particularly opportunity to drive growth. And given the opportunity, and we’ve said over a long period of time, it makes sense for us to continue to invest while we can sensibly see how to do that and have the capacity to do it because of the huge opportunity. What this guidance range gives us with the context of those targets up top is the opportunity to continue to invest and make sure that we don’t starve our future growths in a year so that we keep investing. Then a little bit more detail on that cognizant Cochlear Implant is the key part of our revenue. We’ve seen very good growth over the last few years in developed countries based on higher awareness and increasing referrals. We expect that to continue. We do see some evidence of growing waiting lists for audiological evaluation or sometimes for surgery. We’ve talked about capacity constraints in audiology for some time and we continue to work hard both on the technology side with clinic care, but also on clinical practice with a number of clinics around the world to make sure that we streamline them, do what we can and what the whole therapy area does to streamline those post-surgical appointments so that there is capacity up front for further assessment and enabling more people to get access to a significant lift in hearing outcomes that they get from a Cochlear or an Acoustic Implant. We do expect services growth to slow. We said that at the half and we saw it through at half. We expect services to slow as we get a little bit further away from that Nucleus 8 launch. And Osia, we have high expectations for growth of Osia with the OSI300 out there with the expanded market access that we have and we continue to work across a range of countries where we don’t yet have Osia and particularly across the Asia-Pacific region where there is significant opportunity and as we’ve said, taking a long-term approach in terms of pricing and our market access work to get the right conditions for long-term access in Acoustics. We expect the gross margin to come up by 0.5% in the year and that’s with Chengdu ramping up through the year. R&D as normal at 12%. Stu talked about the cloud computing. The currency has been bouncing around a bit recently. The guidance has given it $0.66 and $0.61. Obviously, even with our hedging, that currency does move our revenue and our net profit around. And that we -- I think, restarting the share buyback that we started about 18 months ago, and again, the same conditions, long-run share buyback to bring our cash down slowly. We’d say this is a really good way to increase value to our long-term shareholders by doing a gradual and long-term share buyback. Okay. So, with that, we will turn over to questions.
Operator: Thank you. [Operator Instructions] The first question today comes from Andrew Goodsall from MST. Please go ahead.
Andrew Goodsall: Good morning. Thanks very much for taking my questions. Just -- if we look at the second half growth rate for CI, particularly the U.S., just what read-through you’re taking from that in terms of your efforts to grow the market? And I guess, how are those investments being placed? I’m just trying to get a bit of interpretation around that particular number?
Dig Howitt: Yeah. Yeah. So, certainly, we continue to see good growth in developed markets and in the U.S. through the second half. Obviously, we had a higher comparable. If you remember back to 2023, we had a stronger second half and first half, so the comparable was up, but we continue to see good growth rates through that half and again, particularly the adults and seniors. So, we saw the children reverse back to normal. So, in a sense, sort of half-on-half, that was a drag on that. Age two, my child, was a bit of a drag on growth, but the underlying seniors and adults, we continue to see that progressing well.
Andrew Goodsall: Would it be fair to say that some of the sort of growth over the last couple of years might have been attributed to a COVID sort of recovery and I guess we’re more normalizing now?
Dig Howitt: I think certainly in the earlier, if you go back, we saw a bounce in 2021 coming out of 2020. Then they had hospital capacity constraints in 2022. We saw them opening up towards the end of 2022 and so certainly through into 2023, we saw some backlogs being worked through in some areas. I think -- yeah, I think they’re not lingering COVID effects now, perhaps possibly in the U.K., there’s still backlog there. So, I think we’re seeing a normalization. What we are seeing, we’ve seen a bit more, is as the therapy area grows, which it is, you’ve got to expand capacity across the whole value chain, audiology, surgery and we do see some bottlenecks, as I’ve talked about in the audiology side.
Andrew Goodsall: And just a quick follow-up one for Stu, just the Oticon integration expenses, just any flow through into 2025 with that?
Stu Sayers: No. Look, we’re expecting it to pretty much wash out as a result in 2025, so definitely integration costs associated with onboarding the staff and some changes that were made in Vallauris, but from 2025 we’d expect business as usual for each of our functions in the region.
Andrew Goodsall: And just ballpark, the cost of opening up Chengdu or the cost that you’ve incurred that wouldn’t be normal?
Stu Sayers: We’ve put about $90 million to the Chengdu site, which is appreciated as now we’re in production.
Andrew Goodsall: Okay. But no sort of one-off costs in this last 12 months that you’d describe as sort of just getting doors open that…
Stu Sayers: No.
Andrew Goodsall: … weren’t capitalized? Okay. No worries.
Stu Sayers: Thank you. No. We’re starting from zero volume a year ago, we’re getting it up to speed, but it’ll take three years or four years to get full capacity.
Andrew Goodsall: Great. Thanks very much.
Operator: Thank you.
Dig Howitt: Thanks.
Operator: The next question comes from David Low from JPMorgan (NYSE:JPM). Please go ahead.
David Low: Thanks very much for taking my questions. I might stay on the same topic that Andrew started with. Just -- could I get you to talk a bit more directly about what assumptions you’ve made about bottlenecks in the system? Given the senior segment’s growing 15%, it strikes me that double-digit growth in developed markets is achievable if there isn’t bottlenecks. And if I could get you to expand into developing markets as well, and given there’s a lot of timing issues there, it seems a bounce back would be a reasonable assumption. Just wondering what you’re thinking there, please?
Dig Howitt: Yeah. I think I understand the question. So, certainly we’ve seen in adults and seniors’ double-digit growth continue for a few years. We expect that to continue and we see that there is capacity there to deliver that. I think with any -- there are hospitals and places where there -- clinics where there is less capacity, that’s certainly true. But overall, we think there’s enough capacity there to maintain that sort of level of growth for the adults and seniors. I’m not sure if that answers all your questions, but I think…
David Low: The other one was the emerging markets, given they were very successful in half of India. Does that recover?
Dig Howitt: Yeah. So all the three, I mean, what -- the big impact there was in India, where there was a reasonable amount of volume that didn’t occur pre-cloud and have some revenue there that didn’t occur, but certainly brought our unit number down. We’d expect that to come back in through this year, but it doesn’t really make a huge impact on our overall numbers and certainly now that, we like to see good growth there because they’re helping lots of children and their lifetime customers. But in terms of the overall financial impact, it’s not that significant. And we’ve said over time that we do see, the great thing about healthcare, which you all know, is that certainly in a developed world, it’s pretty immune to macroeconomic conditions. But in emerging markets, we see much more impact from both macroeconomic conditions, but also from political cycles.
David Low: Okay. Thanks for that. Just a couple of other quicker ones, I hope. The Acoustics market, you said that it’s a similar sized opportunity to Cochlear Implants, which if I knew that I’d forgotten. Where are we at in terms of the level of penetration? Maybe you could give us something around volumes versus Cochlear Implants, so we could assess sort of how big an opportunity that is, perhaps in dollars as well as volumes.
Dig Howitt: Yeah. So I think in terms of absolute numbers, very similar to Cochlear Implants and it’s a less developed market, so it’s even lower penetration, so under 5%. It is at a lower price point than Cochlear Implants in terms of absolute dollars. It’s probably half the potential or something like that or a bit less than half. We’re far more advanced in Cochlear Implants on standard-of-care in terms of the evidence, the awareness and there’s still clearly a long way to go. In Acoustics, we’ve been working on standard-of-care. We’ve got a global advisory body of professionals that work with us to understand what’s the evidence that would help us open up the market more. Because what a lot of people who have been through Acoustic Implants, they’re getting hearing aids or they have something like chronic otitis media, so they’ve actually got an ear that hurts. It’s uncomfortable and the treatment is more about the pain than it is about the hearing. Now what we want to do is make sure that there’s a follow-up to get the hearing solved and there’s often a lot of reconstructive surgery done in this area too, which makes -- which -- when it works is fantastic, but has a pretty high rate of not working and that’s where one of the big opportunities for acoustic implants are. So it’s a long-run program to build that evidence, to build the awareness and we’ve still got geographic expansion as well, as you saw from the detail on the ASX release and the countries we’ve added. This year there are still countries that don’t have good access to good reimbursement to Acoustic Implants.
David Low: All right. I’ll leave it there. Thanks very much.
Dig Howitt: Thanks, David.
Operator: Thank you. The next question comes from Saul Hadassin from Barrenjoey. Please go ahead.
Saul Hadassin: Thanks. Good morning, Dig. Good morning, Stu. Maybe just a comment -- a question on unit sales growth and your guidance for FY 2025, that sort of 10% range. I’m just wondering if you think that is consistent with market growth or industry growth or whether you think you’ll be taking some share in FY 2025 consistent with sort of what you’ve seen in the last couple of years?
Dig Howitt: Yeah. I think it’s consistent with our expectations from market growth. We’ve taken a level of share over the last few years for a whole range of reasons, but largely in the back of the strength of our product portfolio and the reliability and quality of our products. As we always say, there’s far less opportunity for that, so it’s much more about a market growth focus. Our run rate is much more in line with market growth, is our expectation.
Saul Hadassin: Great. And then, Dig, just on the services commentary, slowing revenue growth, not unexpected as it relates to where you are in the cycle of the N8 upgrade, but historically there’s been some commentary from Cochlear about trying to smooth the upgrade revenues…
Dig Howitt: Yeah.
Saul Hadassin: … through mid-cycle technology upgrades or the Kanso, et cetera. Just your comments on the ability, as we look forward into the next cycle, what is the ability of you guys to actually try and smooth that so you don’t see sort of negative revenue growth in a particular year?
Dig Howitt: Yeah. Look, we are working very hard on that and I think if you look back as you would have over time, you’ve seen that it is smoother than it used to be, but there is still faster and slower growth rates. As you say, more frequent launches with the offer here and the BTE combined, that’s obviously a change in the last, since 2016 when we launched Kanso, that wasn’t there. So we’re working hard at doing that and I think we can do better at it, but there’s some progress made, more to be done. And I think part of this too, if you remember, there is often a bit of a trade-off between Cochlear Implant and upgrade growth. Sometimes that’s budget-related, sometimes it’s clean capacity, sometimes it’s our capacity. And so those two things, if you look back in time, they often are a little bit out of sync because there are resource trade-offs on a number of levels.
Saul Hadassin: Great. Thanks. And just if I could squeeze one more in for Stu, you mentioned on the call, just with cloud-based expenses coming through, I think you said $30 million to $38 million roughly per year the next two years. You’ve guided to $34 million for FY 2025. If I add up all the expenditure today, that gets me to around just under $130 million. So for FY 2026, is the expectation then that the whole program exceeds $150 million? Because otherwise I would have thought it’s about a $20 million expense that you’re facing in FY 2026.
Stu Sayers: Yeah. We’re still looking at the plan currently about $150 million, we’re about $90 million in, so we think in that sort of 30-year-old range for the next couple of years, it’ll move -- the exact number will move around a bit based on what we can sort of productively spend in year, but still using plan today, $150 million.
Saul Hadassin: And does it drop away meaningfully then once that $150 million is complete or does it again depend on where you are in the cycle of SaaS investments? In other words, it could linger for an extended period of time?
Stu Sayers: The plan is, it’ll ramp down at that stage. Obviously, there’ll be some, five stages should be through the bulk of the transition, and that’s really going from old -- it’s really the cost of going from the old systems and processes to newer ones and better ones. And that will bring with it, we’re largely shifting to cloud-based services, but we want to be able, our plan is to absorb the ongoing running and improving costs of those in our standard sort of performance here now, so we’re still targeting 18% at the bottom, pre- and post-cloud by that stage.
Saul Hadassin: All right. That’s all I had. Thank you very much.
Dig Howitt: Thanks, Saul.
Operator: Thank you. The next question comes from Steve Wheen from Jarden. Please go ahead.
Steve Wheen: Yeah. Good morning. Follow-up question on the services side. And the second half, the revenue went, was basically flat, just a little bit under flat. And as a result, is that deceleration in the services perhaps a little bit faster than expected? And I wonder if you could just touch on that, maybe explain that. Is there any affordability-type issues emerging and what sort of penetration of the installed base that are due an upgrade, would you say you’ve reached in the first 18 months since you’ve launched the N8? Thanks.
Dig Howitt: Yeah. Thanks, Steve. All good questions. So that slowdown was sort of broadly in line with where we thought it would be on -- in terms of affordability. So there certainly is a copay in the U.S. and in a few other markets, and with the inflation and tightening macroeconomic conditions, that possibly has some impact. Now, we -- the way we pick that up is we look at people who are dropping out because of the waiting time between asking for one and getting insurance approval and finding out what they have to pay. We’re not seeing at this stage a pickup in that dropout rate, but it’s certainly something we are monitoring carefully and it’s been a while since we’ve been through a cycle with higher inflation and those economic pressures to understand what that would mean. So we’re learning a bit as we go. In terms of penetration, there’s still plenty of scope. There’s still lots of opportunity to upgrade people. And it’s on us, which we’re doing, to be able to help identify who can upgrade and be able to increase their awareness of an upgrade. And as I said, there are some clinic capacity bottlenecks and clinics, as we want, will priorities new implants over upgrades and that makes perfect sense of what should happen from a societal perspective and what we want to happen too. So there’s a number of moving pieces on the services that are planning out broadly in line with where we’d expect it to be.
Steve Wheen: Great. Thanks, Dig. And Stu, just wanted to reconfirm, I didn’t quite hear your comments on working capital, in particular, the inventory balance. Are you saying that that’s the sort of level that you would expect to maintain or can that come down now that we are seeing that slowdown in the upgrade cycle that you’re anticipating in the Nucleus 8?
Stu Sayers: No. I think that level, we’re not looking at that feeling too high, given the growth. And what we’re seeing is demand is a bit more volatile in terms of specific products and the mix. In fact, that big mix shift we saw in the emerging markets is an example. I think we’re pretty comfortable with it right now.
Steve Wheen: Great. Thanks, guys.
Stu Sayers: Okay.
Dig Howitt: Thanks, Steve.
Operator: Thank you. The next question comes from David Stanton from Jefferies. Go ahead.
David Stanton: Good morning, team, and thanks very much for taking my questions. I’d like some more color on what you’re calling out in terms of surgical constraints. What’s driving that? Is there a focus on sort of other more emergency surgery that’s emerging, particularly in the developed markets?
Dig Howitt: Yeah. That’s -- because where we’re seeing surgical constraints, in terms of our constraints, we’re seeing audiology as more of a bottleneck than surgery.
David Stanton: Okay.
Dig Howitt: Where we do see surgery constraints, it’s more people related. So from what we’re hearing from anesthetists being in short supply, what we’re not hearing, there’s not many places where we’re hearing we’re being deprioritized against other therapies. There’s a couple of areas where backlogs are long that can -- so the operating field is used to do three sets of grommets in the time it could be doing one CI. So we’re a few, but that’s not significant across the globe. But, yeah, it’s much more about other fields, sort of fetal staff, anesthetists, where we see it. And I think it’s just natural as we grow, as the therapy area grows, the capacity has got to expand and either it expands or something else has got to get pushed out of the way. And we’ve got a compelling case which helps us, but we’ve got to work that through hospital-by-hospital. But our audiology is the one that’s more restricted.
David Stanton: Understood. Thanks. And I guess a follow-up, in terms of second half F2024, you talked about in the emerging markets, some tender delays. I mean, are they delays or do you think, is your understanding that there may be cancellations being given? I mean, I guess the question is, are they delays or do you think you can get that volume back in time?
Dig Howitt: Yeah. We think it’ll come back. Certainly the children are definitely there. The money is there. We expect that those tenders will come back over time rather than cancel.
David Stanton: Understood. And final one from me, if that’s okay. Cochlear used to talk to 55% to 60% penetration of -- with a new implant into that upgrades market. Are we around that getting -- topping out around there at the moment or is there more to go? I guess it’s a follow-up to Steve’s question.
Dig Howitt: Yeah. We’re short of that level of penetration. So that’s why we think there is more opportunity, and as we took that, we measured our opportunity more about now, in a year, how many people are eligible for upgrades in terms of their reimbursement, how many of those people are aware and how many can we get. But there’s still definitely more opportunity. Yeah, and that will, that’s over the whole life of a sound processor until we launch the new one and that was back in the days where we only had the on-the-air version. We’re only about two years into that, typically more like a four or five-year cycle.
David Stanton: Thank you. Understood.
Operator: Thank you. The next question comes from Gretel Janu from E&P. Please go ahead.
Gretel Janu: Thank you. Good morning. I just want to go back to Saul’s question on the CI units. You’ve historically always said market growth was high single digits and now you’re guiding to CI unit growth of 10%. So I guess what has really changed here is that you now have this increased confidence to guide higher from a market growth perspective and do you expect that acceleration in market growth to continue into past FY 2025 into the medium-term? Thanks.
Dig Howitt: So, no. I think, what’s happening here is, you’ve got to think about it in developed markets, emerging markets and you’ve got to think within the segments of children and then adults and seniors. We have seen a lift in the growth rate over the last few years, as we’ve talked about, and I think that’s our strategy working. When we look at saying around 10% this year, it’s not a lot of difference between 10% and high single digits, but we think that’s where the market is.
Gretel Janu: Okay. So do you expect that 10%...
Dig Howitt: Yeah.
Gretel Janu: … to continue more into past FY 2025, I guess or is it just more of one-off factors that…
Dig Howitt: Yeah.
Gretel Janu: … have led to the 10%?
Dig Howitt: Yeah. We do expect that to continue. And remember, too, it’s the number of adults and seniors comes through. The proportion of children in the developed world continues to reduce and that’s the part that’s not growing. So just on the maths of that, the growth rate should improve very gradually over time if we can keep driving the number of adults and seniors coming through.
Gretel Janu: And…
Dig Howitt: But I don’t think our outlook is substantially different to what we’ve seen in the past.
Gretel Janu: Right. Understood. Thank you. And then just in terms of capital management, you’ve announced that $75 million buyback. That’s not really going to make a dent to the cash balance. So I just think, what is your long-term thinking about capital management here and what would make you increase the buyback, understanding that you do want to keep reinvesting back into the business?
Dig Howitt: Well, it is a long-term buyback. That’s the -- 70 -- up to $75 million is one year. What we said at the outset and what we’ll continue to do is do this over the long-term. We don’t think it’s in the shareholders’ interest to bring our cash down to the level we think it could be at and do that all in one year.
Gretel Janu: Understood. Thanks very much.
Operator: Thank you. The next question…
Dig Howitt: Thanks.
Operator: … comes from David Bailey from Macquarie. Please go ahead.
David Bailey: Yeah. Thanks. Good morning, Dig and Stu. Some questions there just around the industry growth rate. Just interested in your views on the competitive dynamics at the moment. Obviously, some market share gains have come through in more recent years. But what are you seeing at the moment? And then just given some of the updates coming through from peers, new technology from Sanova and TIKI from MED-EL, just thoughts around market share opportunities from here?
Dig Howitt: Yeah. So we -- first of all, we have a very strong market position and a very strong product portfolio. We are in a competitive market. We talked before, MED-EL are working on a drug eluting electrode. We are doing both those things as well. And yes, Sanova recently announced their deep neural network for noise reduction in hearing aids, and I think probably they’ll probably bring that into CI in time. A few comments on that one. First of all, the constraint on hearing performance for a Cochlear Implant, we believe, is the electrode-neural interface, the interface between the electrode and the hearing nerve, and that’s one of the significant areas of our investment in our R&D. But as we’ve talked about before, too, with the scale of R&D, we work across all elements of the system. Signal processing in the externals remains an opportunity for improvement. The potential for deep neural network is well-known and has been known for a while.
David Bailey: Great. Just on the COACH trial, just can you remind us as to the recruitment for that I couldn’t see on the website and potential timing for that one?
Dig Howitt: It’s running as -- running well behind where we wanted it to. We kicked this off pre-COVID and then being in the U.K., got hit by COVID impact on the NHS. Even coming out, we continue to see delays in recruiting. So that’s disappointing for us. We do want this data of head-to-head hearing aid versus Cochlear Implant, so it’ll happen, but it’s going to happen later than we wanted. But I think the data we are getting, which we’ve talked about, is this data on hearing and healthy ageing and then there’s a study on CI and cognition in Australia. They’re at least as valuable as COACH. So we’ll get coach in time, but later than we wanted, there’s a lot of evidence coming through and we continue to work hard to try to get more. But again, we’re disappointed by the progress of the COACH study, that’s for sure. It’s one of the things that it’s got to be arm’s length for us, but hopefully we can also get involved in trying to speed it up.
David Bailey: Okay. Understood. And then just a quick one for Stu maybe, just the impact of currency for 2025. So obviously the currency is looking pretty flat in terms of your guidance, but thinking through hedge movements, just your thoughts on what that could mean for earnings either pre-tax or post-tax earnings for 2025?
Stu Sayers: If I could foreground currency, I wouldn’t be sitting here. We haven’t started the hedging policy. We’re sort of 80% plus hedge for six months and then decreasing in sort of six-month tranches going out, and that’s really just to try and provide a bit of buffer and smoothing to the results. If there’s a big swing, it’s not coming as a big shock. I don’t want to get into trying to predict it. Obviously we benefited a bit last year. We’re not assuming that that continues, but I’d love to have a reliable forecast on currency.
David Bailey: Thanks very much.
Dig Howitt: Thanks, David.
Operator: Thank you. The next question comes from Andrew Paine from CLSA. Please go ahead.
Andrew Paine: Good morning. Thanks for taking my question. Just coming back to the surgical capacity constraints and tenders, just trying to understand how big a headwind was that in FY 2024, and are you expecting that to subside and essentially unwind in FY 2025 or is this kind of a multiyear journey you’re on there?
Dig Howitt: Yeah. I think the right thing about surgical capacity is that it’s a multiyear journey. It -- there are always going to be some capacity constraints somewhere and the key is that we keep driving demand, moving those constraints and we keep driving demand in. So I think those constraints didn’t have a significant impact on our FY 2024 result. In terms of tenders, it did at least, but as I said, it’s more on reducing just the overall CI growth rate, not a huge financial impact, and again, that probably will return in FY 2025. If it does, it would lift that CI growth rate number a bit further, but again, not a huge financial piece.
Andrew Paine: Yeah. Okay. That makes sense. And you also said direct-to-consumer is about 30% or greater than 30% of Cochlear Implant surgeries. Just trying to understand what that was historically and what you think it grew to. Also, is there an ASP or margin impact there?
Dig Howitt: Yeah. The way we think about that is it’s a growing proportion of our surgeries. It should be, because if we’re investing in something to drive growth, we want it to grow faster than all the surgeries, otherwise we’re not being effective in driving growth. So rather than it was X percent, and we’ve got a target of Y percent, what we’re looking for is that as a proportion of our surgeries, it grows each year, because that’s the measure of effective investment. If it’s growing more slowly than our surgeries, we’re probably better off putting the money into something else that’s lifting referrals or awareness or expanding funding.
Andrew Paine: Okay. And sorry, is there an ASP or margin impact there?
Dig Howitt: No. That’s what we spend on our D2C promotions there and our SG&A. It’s not a huge number. We obviously monitor it carefully and we measure the returns. But if we slowed that down, we would spend more on something else to drive growth.
Andrew Paine: Yeah. Okay. Got you. Okay. Thanks.
Operator: Thank you. The next question comes from Shane Storey from Wilsons Advisory. Please go ahead.
Shane Storey: Yeah. Good morning. My question is just back to just looking at where the profit ended up this year. I mean, when you look back at what prompted you to guide, I mean, upgrade the guidance in February, what would you say would be the most important factor or upside component that you saw then that show up and to explain where we ended up this year?
Dig Howitt: So I’m not quite sure if your question’s answered. We lifted the range. I would say in the last year we landed in that range. If you’re looking at the revenue, then 60% of our revenue is from Cochlear Implants. So that’s the biggest driver of the outcome. So I’m not quite sure what you’re asking.
Shane Storey: Oh! No. Just, I guess, when we looked at the top end of the revised guidance, it’s say $400 million NPAT, you’re just trying to think through that because it seems most of the, most of the elements of in terms of the commentary have been reasonably in line. It’s just trying to understand what you felt the biggest contributor to the delta, say from, in missing the top end was.
Dig Howitt: So, first of all, we set a range. We’re not going to be aiming at the top end. We’re aiming in the range. I think the thing we did, if that’s another way to answer your question is, we set out a certain set of assumptions at the half on growth rates and outlooks for each of the areas. But one of those that they all turned out as we expected, the only one that didn’t was the emerging market growth rate and particularly those, those tenders in India. So that was lower than we expected. So if you’re looking at, what did we think was going to happen over the last half? I’d say pretty much everything we thought was going to happened apart from those low cost tenders not coming through.
Shane Storey: No. That’s exactly what I want to check. Thanks, Dig. That’s all for me.
Dig Howitt: Okay. Thank you.
Operator: Thank you. The next question comes from Craig Wong-Pan from RBC. Please go ahead.
Craig Wong-Pan: Thank you. It’s just on services on a constant currency basis. The services revenue declined year in the second half. So I just wanted to clarify for your FY 2025 outlook. Are you expecting negative services revenue growth in FY 2025 or just a lower level than the 12% growth you achieved for the full year of FY 2024?
Dig Howitt: A lower level. Service will grow, expected to grow, but at a lower level.
Craig Wong-Pan: Okay. And then just on the Oticon integration costs, I didn’t quite understand the, if there’s any more cost to come through in FY 2025 or not, or is that done now?
Dig Howitt: No. That’s pretty much done now. So the costs -- the team have been absorbed predominantly in Vallauris and a few others around the world. And they’re now very much baked into the budgets of the countries and functions. And so we’re back to sort of normal, I won’t use the word guidance, but sort of normal guardrails of 10% topline long-term, 25% COGS, 12% in R&D and then trying to drop 18% at the bottom. And as we talked about on the 18%, there’s probably a couple more years left of the cloud investment. So we’ll be targeting that 18% pre-cloud impact.
Craig Wong-Pan: Okay. And then my last question, just on the CapEx, that $110 million to $130 million, that’s something that’s going to Lane Cove and Malaysia. I just want to understand what that investment’s going to be directed towards there.
Dig Howitt: Yeah. So it’s all about adding capacity. So basically, we think about that in terms of floor plate for the buildings. Do we need more bigger buildings? We don’t think we do in the short-term. We’re a little longer term. We then look at the infrastructure within the building and that’s really in manufacturing, that’s kind of three things. There’s the clean rooms, and so we have a very sterile environment, order of magnitude more sterile than operating theatre. So we actually make the implants. So we’re expanding those. There’s then the equipment within the clean rooms and within the other manufacturing premises to actually each stage of the process, whether it be doing the activity or testing to make sure that the quality is remaining very high. So there’s quite a bit of CapEx going into in 2025, expanding clean rooms and more investment in plant and equipment and then obviously the labor force that comes with it, but that’s not CapEx.
Craig Wong-Pan: Okay. Thanks. That’s very helpful.
Dig Howitt: Thanks, Craig.
Operator: Thank you. The next question comes from Lyanne Harrison from BofA. Please go ahead.
Lyanne Harrison: Yeah. Good morning all. If I could come back to Cochlear Implants again. Developed market adults and seniors was quite strong for 14% and at 15% growth. Is that the sort of growth that we should be expecting or similar growth in 2025 or is there a possibility to track high given what you’re doing with direct-to-consumer and the increased rate of audiologist referrals?
Stu Sayers: No. I think that’s a reasonable expectation for 2025 to stick around there and the expectation that now children grows by sort of 1% or 2%.
Lyanne Harrison: Okay. Thank you. And then just one more on price increases. What can we expect for 2025?
Stu Sayers: I think we don’t expect price increases of significance through this year. We did on the back of Nucleus 8. We’ve done that with Osia where there’s opportunity and we will obviously seek it, but in terms of looking forward to this year, I’d hold.
Lyanne Harrison: Okay. Thank you very much.
Dig Howitt: Thanks, Lyanne.
Operator: Thank you. The next question comes from Mathieu Chevrier from Citi. Please go ahead.
Mathieu Chevrier: Yeah. Good morning. Thanks for taking my question. I just had a last one on CapEx beyond F2025. How should we think about it given that it’s been a bit higher than what we were expecting in going into F2025?
Dig Howitt: Yeah. Like I said, we’re putting a bit more into more capacity. So yeah, in that sort of like $100 million, $120 million range. And I think given that we are targeting that $0.10 growth, that’s going to be an ongoing thing for us in the medium- to long-term.
Mathieu Chevrier: Got it. So $100 million to $110 million is kind of the new your CapEx.
Dig Howitt: Yeah. About $100 million, $120 million I think.
Mathieu Chevrier: Yeah. Yeah. Excellent. Okay. Thank you so much. That’s all I had.
Dig Howitt: Thanks, Mathieu.
Operator: Thank you. [Operator Instructions] The next question comes from Laura Sutcliffe from UBS. Please go ahead.
Laura Sutcliffe: Hello. Thank you for taking my questions. Could I just go back to Chengdu for a second? Does what you said today about gross margin impact for 2025 impact any of your projections for when that turns from a headwind into a tailwind for you?
Dig Howitt: Not very much kind of where we expected. 2025 will be the first year where we’re sort of producing all year and certainly count breakers is all year and implants hopefully for about half a year and we think, I said, sort of four-year to five-year journey for that thing to get to full capacity. But that’s very much where it’s tracking where we expected.
Laura Sutcliffe: All right. Thanks. And then just one more. I was wondering if you could talk a little bit about what portion of seniors at the moment are receiving two implants or one? And to what degree there’s any focus on changing that versus trying to drive recruitment of completely new patients as you try and further penetrate that large senior population?
Dig Howitt: Yeah. It’s about 15% of seniors are getting bilateral and we’re both are opportunities, both bringing new people in. Actually, the thing sort of country-by-country helps us think that just what’s the reimbursement. If there is reimbursement, easier reimbursement for bilaterals, then we want to push that. If that’s really difficult, we’re just going to keep driving new. I mean, everywhere trying to drive awareness and get new people in. But if there’s stable reimbursement, then we want to get clear benefits of bilateral hearing. We want to promote that and that’s obviously only up to people who actually get implants in the first place and that’s been a tiny fraction of the addressable.
Laura Sutcliffe: And that’s 50 in 15%?
Dig Howitt: 15%. Yeah.
Laura Sutcliffe: Thanks very much.
Operator: Thank you. At this time, we’re showing no further questions. I’ll hand the conference back to Mr. Howitt for any closing remarks.
Dig Howitt: Yeah. Thank you all for joining and look forward to talking again in February. Thank you.
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