CNMD - NYSE

Thank you for standing by, and welcome to CONMED's First Quarter Fiscal Year 2024 Earnings Conference Call. [Operator Instructions] Before the conference call begins, let me remind you that during this call, management will be making comments and statements regarding its financial outlook, its plans and objectives. These statements represent the forward-looking statements that involve risk and uncertainties as those terms are defined under the federal securities laws. Investors are cautioned that any such forward-looking statements are not guarantees of future events, performance or results. The company's actual results may differ materially from its current expectations. Please refer to the risks and other uncertainties disclosed under the forward-looking information in today's press release as well as the company's SEC filings for more details on the risks and uncertainties that may cause actual results to differ materially. The company disclaims any obligation to update any forward-looking statements that may be discussed during this call, except as may be required by applicable law. You will also hear management refer to non-GAAP or adjusted measurements during this discussion. While these figures are not a substitute for GAAP measures, management uses these figures to aid in monitoring the company's ongoing financial performance from quarter-to-quarter and year-to-year on a regular basis and for benchmarking against other medical technology companies. Adjusted net income and adjusted earnings per share measure the income of the company, excluding credits or charges that are considered by the company to be special or outside its normal ongoing operations. These adjusting items are specified in the reconciliation supporting the company's earnings releases posted to the company's website. With these required announcements completed, I will turn the call over to Curt Hartman, CONMED's Chair of the Board, President and Chief Executive Officer, for opening remarks. Mr. Hartman?

Thank you, Latif. Good afternoon, and thank you for joining us for CONMED's First Quarter 2024 Earnings Call. With me on the call is Todd Garner, Executive Vice President and Chief Financial Officer. We're also joined today by our new Chief Operating Officer, Pat Beyer. Today, we will share with you our first quarter results and the overall outlook for our business. We will then open the call to your questions. I'll start by reviewing our first quarter results. Total sales for the quarter were $312.3 million, representing a year-over-year increase of 5.7% as reported and 5.9% in constant currency. Prior to these results on top of last year's inflated growth, which was driven by a tailwind from the final sales catch-up from the fourth quarter 2022 warehouse issue. Our Global Logistics team has never operated in as coordinated and efficient fashion as they are today, and I'm very proud of this team. From an earnings perspective, during the first quarter, our GAAP net income totaled $19.7 million, this compares to net income of $1.8 million in the first quarter of 2023. Excluding special items that affected comparability, our adjusted net income of $24.8 million increased 20.3% year-over-year, and our adjusted diluted net earnings per share of $0.79 increased 19.7% year-over-year. Overall, I'm very encouraged by our start to the new year as we saw strength across the domestic business and finished as expected outside the U.S. given the year-over-year comparable sales. First quarter surgical volumes were steady and capital spend in our categories remains consistent. Our new product launches, including the introduction of BioBrace into the Foot & Ankle space, while early, have us encouraged. We've made good progress in the supply chain challenges we were dealing with last year and our back quarter is now back to pre-pandemic levels relative to sales. Most importantly, we delivered solid results on both the top and the bottom line and are set up for continued strong 2024 performance. Before closing, I want to congratulate and welcome Pat Beyer as he has been promoted to the newly created role of Chief Operating Officer. I see this as a natural evolution for CONMED and our leadership team. Pat has great commercial and operational instincts and builds tremendous teams that deliver results. He was the first member of the current team that joined CONMED back in December of 2024. He's well known across the company and, with over 30 years in the industry, is well known across our markets, both domestically and internationally. Finally, he has participated in various investor events during his time at CONMED so he has exposure to this area of the business and many of you listening as well. Overall, I'm pleased with our start to the year, excited by the broad underlying strength of our diverse portfolio and very encouraged by the positive engagement we are seeing across our business offering in all areas of the company. I'll now turn the call over to Todd, who will provide a more detailed analysis of our Q1 financial performance and take you through our full year guidance. Todd?

Thank you, Curt. All sales growth numbers I reference today will be given in constant currency. The reconciliation to GAAP numbers is included in our press release. As usual, we have included an investor deck on our website that summarizes the results of the quarter and our updated guidance. For the first quarter of 2024, our total sales increased 5.9%. As a reminder, a year ago, we grew 19.4% organically in Q1 of 2023 as we had a tailwind from reducing the warehouse-related backlog. When we look at the first quarter over a 2-year stacked growth rate, the average growth rate for the company is in the low double digits. Q1 of 2024 has also had one less selling day compared to the prior year quarter, which we estimate to have impacted consolidated growth between 100 and 150 basis points. For Q1, our sales in the U.S. increased 7.2% versus the prior year quarter, and our international sales grew 4.2%. Worldwide orthopedics revenue grew 3.0% in the first quarter. In the U.S., Orthopedic sales grew 10.6% and internationally, Orthopedic sales declined 1.6%. Total worldwide general surgery revenue increased 8.2% in the quarter. U.S. general surgery revenue grew 5.7% while internationally, general surgery revenue increased 14.1%. Now let's move to the expense side of the income statement. We will discuss expenses and profitability in the first quarter, excluding special items, as noted in our press release. Adjusted gross margin for the first quarter was 55.6%, an increase of 160 basis points compared to the prior year quarter. This was meaningfully better than expected due to product mix in specific geographies. Research and development expense for the first quarter was 4.4% of sales, 20 basis points higher than the prior year quarter. First quarter adjusted SG&A expenses were 38.7% of sales, 80 basis points higher than the prior year quarter. On an adjusted basis, interest expense was $8.2 million in the first quarter. The adjusted effective tax rate in Q1 was 23.8%. First quarter GAAP net income was $19.7 million. This compares to GAAP net income of $1.8 million in Q1 of 2023. GAAP earnings per diluted share were $0.63 this quarter compared to $0.06 a year ago. Excluding the impact of special items, in the first quarter, we reported adjusted net income of $24.8 million, an increase of 20.3% compared to the first quarter of 2023. Our Q1 adjusted diluted net earnings per share were $0.79, an increase of 19.7% compared to the prior year quarter. Turning to the balance sheet. Our cash balance at the end of the quarter was $33.9 million compared to $24.3 million as of December 31. Accounts receivable days as of March 31 were 70 days compared to 67 at the end of 2023 and 65 days a year ago. Inventory days at quarter end were 207 compared to 198 at December 31 and 215 a year ago. Long-term debt at the end of the quarter was $990.1 million versus $973.1 million as of December 31. Our leverage ratio on March 31 was 4.0x. As discussed on our last call, given the heavier cash requirements in the beginning of the year, we expect our leverage ratio to stay around 4x in the first half of 2024, and then drop into the low 3s by the end of 2024. Cash flow provided from operations in the quarter was $29.1 million compared to cash flow used for operations of $3.8 million in the first quarter of 2023. Capital expenditures in the first quarter were $2.0 million compared to $4.3 million a year ago. Now let's turn to financial guidance. The first quarter came in a little better than we expected, and we feel good about the expectations we set in January for the first half and full year. Currency did get worse by about $10 million on the top line for the year. So our reported range for revenue drops by that $10 million and is now $1.33 billion to $1.355 billion. We expect the currency headwind in Q2 alone to be approximately 50 basis points. So we're now guiding to reported growth between 4% and 6% in Q2. The currency impact is affecting gross margin as well, and we expect a portion of the mix favorability we experienced in Q1 to potentially swing the other way in Q2, resulting in gross margin improvement between 60 and 80 basis points over Q2 of 2023. This would put the first half 2024 gross margins in the range of what we expected back in January. Given the currency impact and expected higher interest rates for the year compared to 3 months ago, we are lowering our adjusted EPS range for the year by $0.05 to be between $4.25 and $4.35, which still represents growth between 23% and 26% over 2023. Overall, we are pleased with the Q1 performance and, excluding FX, we see the year unfolding the same way we did in January. And with that, we'd like to open the call to your questions, and I'll hand it back to Latif.

[Operator Instructions] Our first question comes from the line of Matt O'Brien of Piper Sandler.

I think we could ask 2. So just for starters here, good to see general surgery come in above expectations. But the continual concern is just going to remain around this competitive threat. So I'm just curious what you've seen from that competitor as far as their insufflator. Is it similar to what you're offering with AirSeal? Is it more similar to some of the other previous products that have been introduced to the market that claim to be low pressure, but they're really not? And then what is your expectation in terms of the potential for some impact there versus being more aggressive on the traditional app side? And then I do have one more follow-up.

That was a pretty healthy string of questions there, Matt. So I may not get to all of them, so please remind me if I do miss some. So I think where we are is it's early days. To use a poker analogy, the cards have been dealt and CONMED's got the same hand we've been playing since 2016, which is a clinical insufflation hand where low-pressure consistency, precision pressure, all yielding significant studies, showing length of reduction, length of stay, a reduction in length of stay, reduction in length of surgery, reduction in post-op pain, all of that is still in our hands. What we've said going back to Q2 of last year is that we believe it would be a standard insufflation device in the marketplace. I think it's early. I don't fully have all the reports on what they're doing, but I think we still feel very good about our position with our product in the marketplace. And as Todd said back in January, our guidance going into this year incorporated some level of potential headwind, and our view on that has not changed. Todd, I don't know if I missed anything?

No, I think that's right.

There was one more piece to that long-winded question. It was really on the traditional app side. Are you guys making more investments there just to get ahead of any potential pressure?

I think that's a natural progression, Matt. The business had zero revenue in that space. And as at the end of last year, we had 40% of our AirSeal revenue in that space. And that is just a natural progression and evolution. We know how to do that. We've done it both internationally and in the domestic market. And we'll continue to go there. It's really a byproduct of marketplace saturation. And I'm not going to communicate if we're making more strategic investments in that area or not. But our sales force well understands that there's business out there to get both in general laparoscopic as well as robotic surgery, and we're going after both of them.

Got it. And then the follow-up, and sorry for taking up so much time here, is just on the ortho side, specifically Biorez. I know you said -- I think you said tens of millions of dollars this year. Is it going to be more than a doubling of what you saw last year or even higher than that? How should we kind of frame up what Biorez could look like this year?

Yes. No, great question. I'm glad you asked it. When we acquired Biorez in 2022, we said it would be about $1 million in '22, and it was right in that range. And we said in '23, it would get to mid-single digits. A year ago on this call, I said, high single digits. And in fact, we exceeded that number last year. And we said that as we got into 2024, it would be double-digit millions, and we feel very confident about that performance. And when we made that statement back in 2022, that was before we fully understood how it would play out in our Foot & Ankle business. And as I alluded to in my opening, we are in the early stages of launching that as indicated at Academy into Foot & Ankle, and we feel very good about the contributions Foot & Ankle and Biorez will make to the business as well. So we feel great about Biorez and feel great about its future, not only in 2024, but well into the future.

Our next question comes from the line of Young Li of Jefferies.

Congrats on the promotion, Pat. I guess, to start, was curious about just on the AirSeal side of service. Still currently relatively low penetration in the ASC channel. I guess, I'm kind of curious about sort of the economics and reimbursement in ASCs versus hospital inpatient settings for procedures. Is it a tougher sell into ASC, given the premium price versus conventional insufflators?

Young, I think I missed the first part of your question. I'm going to try to answer it, and if I'm a little off, please correct me here, but I think the genesis of the question is, is it harder to sell AirSeal into the surgery center? I think the short answer is there's not yet a substantial volume of laparoscopic or robotics procedures being done in the surgery center in general surgery overall. I don't think in any market, whether it's the hospital or the surgery center, we've run into pricing pressure because of the clinical differentiation and the substantial savings and value that facilities get from reduction in length of surgery, reduction in length of stay and reduced headaches for the clinical community in terms of post-op pain management. In fact, you have many institutions that are taking it into their ERAS program, which is the overall anesthesia and protocol care and looking at that inclusion of AirSeal to help with those programs. So I think the ASC setting, as procedures move there, we'll be ready to go there. I just don't think that's a big portion of procedure volume at this point in time in the U.S. market specifically. Hopefully, I got the question.

Yes, yes. You got it. That's spot on. I guess, for my follow-up, I'm kind of curious, as leverage dropped to the low 3s by the end of the year, maybe you can talk a little bit about thoughts on M&A. When are you more comfortable doing some deals, the size of the deals and what you might be interested in?

Yes. I would say no change really in our approach or filters, Young. It's -- I'll remind you of our filters and how we think through acquisitions needs to be accretive to the company's revenue growth, which is getting harder, right? As that revenue growth goes up, it's got to be accretive to that. It needs to be accretive to our gross margin profile. If not on day 1, we have to have a clear line of sight for that to happen. I'd point you to Buffalo Filter, which came in -- when we acquired them, they were at the corporate average but quickly became accretive to the company's gross margin. So that's one of the filters. And then it's got to have some sort of protection to it, right? We don't want to buy a big splash that then becomes an anchor. So we need to see some -- we like to buy platforms more than just products and we want to see some protection through IP or some other know-how that makes that -- those -- that accretion that I've talked about be durable. And then, of course, the last one and sometimes the toughest one is it's got to be at a value that benefits CONMED shareholders, right? We can't give all the value to the seller. That doesn't make any sense. And so that's the same approach we've been taking. We've been pretty successful at that. We continue to engage in the market and know what's out there, and that's our approach to M&A.

Our next question comes from the line of Vik Chopra of Wells Fargo.

Two for me as well. So maybe I'll just start off with patient volume trends. Can you talk about what you saw during the quarter with respect to patient volume trends for orthopedics and general surgery and any color on April, perhaps? And then I had a follow-up, please.

Yes. I think as I tried to indicate in my opening comments, the quarter was pretty consistent. Availability of capital dollars, consistent with what we had historically seen. Availability of procedure volumes, pretty consistent with what we had seen. And whether it was orthopedics or general surgery, candidly. So the market specialties we serve were very consistent. There's always little pockets here and there. I think there's surgical community strike in Korea that's going on right now that is delaying things. But those things tend to come and go. And I'm probably not going to get into Q2 at this point in time, Vik. But I think we thought things were pretty consistent in Q1.

Okay. And then for my follow-up. I think last quarter, you called out some near-term challenges in your Foot & Ankle business. And Curt, I think you said that you expect to get back to full stride as you get into the second quarter. Can you just provide an update on where you are with the Foot & Ankle business and the performance this quarter?

Sure. No, that's a great question. And a couple of things were -- I'm going to go back in time and then talk about current. Remember, that was a smaller business with the founder start-up management team. And we largely left it alone. It's kind of a first do-no-harm philosophy when we do acquisitions as. We further integrated them in and as time pass by, the founder had told us he was going to retire, and that transition occurred in the second half of last year. That business reported into Pat. Pat went out, did a successful search, brought in a new general manager third quarter of last year. That individual is getting up to speed, was out at Academy with the Foot & Ankle team during AOS, showing products, meeting customers. Has a background in the space anyway, which was important as well. In addition, we started doing more of the later-stage integration work. But the real drag on that business is we had run into some supply challenges with that business, kind of our orthopedics category in the second half of last year really hit some struggles. And we said as we came into 2024, we would be working through those in first quarter. But again, it takes sales force and customer engagement a little bit of time to get back to where it was. And so as we got into the second half of 2024, we thought our orthopedics platforms, be it Foot & Ankle, be it the legacy Orthopedics would be right back on stride and at the growth rates that we expected. And honestly, our Q1 growth rate domestically for Orthopedics was a positive step in the right direction, and we like the trends, and we think we're on track with what we said in the January call.

Our question comes from the line of Kristen Stewart of CL King.

I just had a question on the international performance in U.S., in Orthopedics that came in a little bit below where I was expecting. Is that just kind of the Foot & Ankle impact? Or is there more there?

No. I would say it's looking at the warehouse catch-up that moved into Q1 of 2023, Kristen, and a lot of Orthopedics capital shipments in Q1 of 2023 that didn't -- it was just a lot of volume in Q1, and it really didn't have anything to do with Foot & Ankle at all.

Okay. Perfect. And then, Todd, just on the gross margin, I just wanted to make sure I understood your comments. Do you still expect gross margins to be up 100 to 150 basis points for the year? Or has that changed?

Yes. No change to the full year guide there, Kristen.

Our next question comes from the line of Rick Wise of Stifel.

I want to make sure, Todd, that I'm understanding carefully the guide. I understand what you're saying about the second quarter and the currency. But it would seem like the implication is that we see a strong acceleration in second half to get to your new full year guide midpoint. I just -- maybe just at a high level, your confidence in the ramp, but maybe talk to us about some of the drivers of that acceleration. And maybe just as always, the moving pieces in the portfolio, what are you feeling particularly good about that maybe could drive you towards the upper end or better as we contemplate the rest of the year?

Sure, Rick. Thanks. Yes. So really no change in how we see the year or first half versus second half versus 3 months ago. So we're pleased with Q1 came in a little better than we thought. We still see the year playing out the way we laid it out last year. Obviously, currency has gotten a little worse for everybody and interest rates are obviously not projected to go down like they were 3 months ago. So those are really the only 2 changes to how we see the year. So -- and as Curt talked about earlier, the Orthopedics business for the last couple of quarters, we've been talking about supply challenges. We think Q2 is the quarter where those teams kind of get their legs back under them, get back out, engaging get, back on offense. And really, the results of that show up in the back half of this year. So that's how we saw the year 3 months ago, and that's how we see the year today.

Rick, just on the product side. The company has built a lot of diversity in its portfolio with a lot of new products. You were at academy. You saw some of the new products we were showing there. Obviously, we remain incredibly excited by BioBrace and now with the expansion in the Foot & Ankle. We've got the entirety of the Foot & Ankle portfolio. We're clear in the back order and the team is getting back on offense. Our general surgery business, both internationally and in the U.S., remains very strong. And so it's not 1 or 2 products. It's really the diversity of the portfolio and the market segments we call on. And I think sitting here today, we feel pretty good about our offering. So I think that's what gives us confidence in that second half. And that's consistent with what we said in January that the second half was going to be a big second half.

Yes. And I'll just remind you that that's really -- those growth rates that we're talking about in the second half are not new growth rates for us, right? That's what we did in the quarters last year that didn't have abnormal comps, we were in that kind of low double-digit organic growth, right? So that's what this portfolio does. So that's not like a new level that we're trying to aspire to. We're working through a couple of quarters of challenges on the supply side, right, which we're getting behind us. But then it gets back to what this business has already shown that it can do.

Got you. I want to -- I've got 2 more questions, if I could. I want to come back to AirSeal. Maybe you could expand a little more on how your AirSeal U.S. commercial strategy is evolving in recent months. I mean, it strikes me, and this might be very naive of me to say it this way, but it strikes me that if you face some pressures in one market or with one customer group, you focus your team commercially a little more aggressively in some other segments or geographies. I don't know how you're thinking about it. But I mean, there's no doubt in my mind that AirSeal is a great product and that it doesn't own the whole market. There are opportunities. How are you thinking about other opportunities that -- so maybe you do end up with a little more pressure on one side. Are there other areas to tackle that could help you limit or minimize or partially offset whatever pressures folks are worried about?

Yes, Rick, Listen, I'm not going to get into competitive strategies on a public call, but I think our teams are well versed on going to where the business opportunity is and taking advantage of that. And especially when you have a clinically differentiated product that has been used over millions of patient lives with a plethora of studies around all things related to patient outcomes. We believe that, that combination, when presented to the surgical community, independent of the specialty setting is a game winner and our view on that has not changed. And if it's a tougher sell in this market, we can either find new strategies to sell into that market or we can go to where it's not as tough a sell. But let's be brutally honest, medtech is a tough sell across the board because you have to convince people of clinical value and you have to work through value analysis committees. And we know how to do both of those with AirSeal because of what it brings to the table as demonstrated in the 8 years that we've owned it, and in the years before we owned it. And that body of evidence just grows daily. So we feel very good, independent of what may be in front of us, whatever path that we're going to find success here with AirSeal.

Got you. And I apologize for asking 3, if you don't mind. Just want to make sure we get in the smoke evacuation legislation. Two more states recently passed smoke evacuation legislation, I think both West Virginia and regular, old Virginia. So I think you're up to 17 states now. You got more and more states. We're further along post legislation passing. Are you -- what are you seeing? Is this changing the dynamic and the outlook for the business? Any color would be great.

No, I think it's interesting. You would think at this point, there would be actually more legislation passing. It's been a little bit slow and I think if my memory and reading the data is correctly, I think Florida actually pulled the legislation, so they've actually taken a pause for a moment. I could be off on that. I'll have to double check that, but that's what my memory says. What we know is where states have passed legislation is that over time, as that legislation goes into effect, the growth rates in those markets is higher. And we think that's what will happen in West Virginia and Virginia. And we support the legislation. We support the operating room staff nursing to have a safe and healthy environment. So our offense here has not changed. We still believe we have a best-in-class product in the marketplace. We still believe we have a comprehensive portfolio that addresses all procedure types where smoke is created. And we still believe we have it in the hands of a great sales force around the world.

Yes. And just to clarify on Florida. So there was a Florida bill in process. That process ended on March 8, so that was kind of -- Florida was in -- had something in line to pass, but it didn't pass and they have -- they're going to have to restart that bill.

Our next question comes from the line of Robbie Marcus of JPMorgan.

Great. Todd, just wanted to clear up some stuff on the guidance. You guys beat by $5 million on the top line, $0.05 on the bottom line and there's a $0.10 headwind -- or $10 million headwind for FX and you're lowering by $0.05. So is there $5 million I'm missing? Or is it really you're lowering by $10 million, but it's a $15 million headwind? And is it a $0.05 headwind for FX or really a $0.10 to get to the net down 5% after the beat in first quarter?

Okay. Thanks for the clarifying question, Robbie. So the reduction on the year is $10 million, which is entirely due to FX. So no change to our full year guide. You are correct that we beat consensus in Q1 by $5 million on the top and $0.05 on the bottom. What we're saying is that relatively small beat does not change how we see the year on a constant currency basis. So no change to our full year guidance in constant currency. The only change is due to currency, which was that $10 million. So we still see the first half the way we saw it 3 months ago, even though we beat Q1 by a little bit, we still see the first half the same and we still see the second half the same as we did. The only adjustment being currency for the full year. And that goes for the top and bottom.

Okay. And then maybe just to help everybody get level set on what your first half expectations were. Anywhere you want to help set second quarter as we think about EPS or interest expense, which came in a bit lower? And you reiterated gross margin, which I believe FX gets offset in sales, correct, right? So that wouldn't change any of the OpEx guidance?

No, we definitely see FX affecting gross margin as well. So yes. So that's why I did provide the -- a little more detail on the Q2 in my scripted comments. So we see Q2 as a 4% to 6% reported growth. So that would mean -- and I said there's 50 basis points of currency headwind there. So that would be $4.5 million to $6.5 million constant currency growth for Q2, but 4% to 6% reported for Q2. I did not give specific EPS guidance for Q2 but I did give that back in Q1, we kind of talked about that. And I think The Street has that in the general area. So if you take the commensurate impact on the bottom line to get to those revenue numbers, I think we should be in the right place.

Our next question comes from the line of Travis Steed of BofA Securities.

Todd, maybe another follow-up on Q2. I think I heard adjusting for currency, you're at like 4.5% to 6.5% constant currency growth. You did 5.9% in Q1. I just want to understand the cadence for -- I assume supply gets better in Q2. Anything to kind of consider like why we wouldn't see a step up in growth rate in Q2? And then I'll ask my second question, that's just on the In2Bones and Biorez. I assume you still assume that business is a double-digit growth in 2024?

Yes. So yes, so I'll take the second one first because I'm remembering that better. Yes, we still see those growing double digits for the year. Okay. So Q2, why 4.5% to 6.5%, we just did 5.9% That's all kind of in the same range as I see it. So I see those as pretty consistent. You are correct that supply -- the supply issue should be less as we move forward. But that's -- as we look at the normal seasonality that happens between Q1 and Q2 sequentially, I think our Q2 guidance is reasonable based on what that normal sequential seasonality is. Now when you start comparing that against the prior years, it gets a little noisy, right, because not every quarter is normal. And there's been -- if you go back a couple of years, you've got COVID affecting how those played out sequentially. But as we looked at pre-pandemic world and what would -- our business normally does between Q1 to Q2 sequentially, we think that where our guide is, is the right place to be for now.

Our next question comes from the line of Mike Matson of Needham.

I just really have one question, and I want to kind of follow up on Robbie's question about the change in the guidance. So look, I understand you don't give quarterly guidance, but you did beat where consensus was in the first quarter by about $5 million, and then you're lowering for the year by $10 million. So I think that the, I guess, pessimistic view here is that you're taking down guidance for the remainder of the year by like $5 million. I know it's not a big number, but in an environment where people are hyper focused on any potential impacts from intuitive, it seems like -- it kind of sends a bad sign, I guess. So I just want to know why not just take it down by the $5 million net impact netting out the currency versus the $5 million from the first quarter, $5 million upside from the first quarter.

Mike, we take our job seriously. We gave you guidance based on our latest information, and there is no change to how we see the year. You are right, we had a small beat in Q1. We don't think that is big enough to alter our view of the year. We still see the year the same way we did 3 months ago. And we've given the guidance we've given today, and we think it's appropriate.

Okay. I understand. But I guess the $5 million effective reduction for the rest of the year, what's causing that, I guess, maybe let me put it a different way.

That nothing has changed on how we see the year 90 days later.

I would now like to turn the conference back to Curt Hartman for closing remarks. Sir?

Thank you, Latif, and I want to thank everybody for their time today, and we look forward to speaking with you on our next earnings call. Thank you, and have a good evening.