1Q19 Earnings Primer by Corbin Advisors

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1Q19 Earnings Primer Investor Sentiment Survey April 12, 2019 CORBINADVISORS.COM

Inside The Buy-side® 1Q19 Earnings Primer

Issue Date: April 12, 2019

For over a decade, we have surveyed global investors and analysts on the equity markets, world economies and business climate. We share our research broadly with corporate executives, investor relations (IR) professionals and the financial community.

Market Performance

Survey Scope: 76 participants globally, comprising 64% buy side and 36% sell side; assets under management total ~$768 billion Survey Timeframe: Mar. 13 – Apr. 3, 2019

1Q19

YoY 1

DJIA

11.2%

7.6%

NASDAQ

16.5%

9.4%

S&P 500

13.1%

7.3%

Russell 2000

14.2%

0.7%

By Type Generalist

Industrials

By Region 67%

Multi

11%

13%

7% 7%

Financials

REITs

Cons. Staples

33%

By Investment Style

51% Technology

As of 3’29’19

Core Value

25%

GARP

25%

North America

Core Growth

12%

EMEA

Hedge Fund

12%

APAC

Inc. Value/Yield

Latin America

Aggr. Growth

Specialty

VC/Private Equity

Other

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10%

Word Cloud: Frequency of Occurrence Investor Feedback Indicates a Shift Upward to a More Neutral Tone QoQ

4Q 2018

1Q 2019

Key: Underlying Sentiment

  

Positive Neutral Negative CORBINADVISORS.COM CORBINADVISORS.COM

Investor Sentiment Improves to a More Neutral Stance as Fears of Imminent Recession Recede; Still, a Gradual Deceleration in Growth is Expected in 2019 #1 Peak Market Pressures Abate, Taking the Edge Off but Softening is a Reality and Priced In 

Significantly fewer express concern with an imminent recession, trade conflicts or rising interest rates – Those expressing Continued or More Concern with a recession fell to 43% from 59% last quarter; still, growth is expected to slow, with 82% anticipating 2019 U.S. GDP of ≤2.5%, an increase from 77% last quarter – Rising interest rates, which were identified as the #2 concern in 4Q18, are no longer a worry for nearly 80% of surveyed respondents; 54% Do Not Believe the Fed will hike rates in 2019 – Only 35% express High Concern with trade wars, down from 63% last quarter; still, this is cited as the top unaided concern



70% note they are placing More Emphasis on balance sheet strength versus a year ago; ideal Net Debt-to-EBITDA target for nearly all sectors (ex. REITs) is 2.0x, down from 2.5x in 2016

#2 Expectations are for Earnings and All Key Performance Metrics to Remain Flat or Decelerate QoQ 

Nearly 60% of participants report 2019 outlooks were In Line with expectations; heading into last quarter, most were predicting more conservative guides relative to 2018



Organic Growth, EPS and Margins expected to Stay the Same or Worsen following the most pessimistic levels registered last quarter since Dec. 2015; general views are for “positive, albeit slowing” performance



50% expect earnings to Decrease sequentially, up from 41% last quarter and significantly higher than in Sep. 2018, when only 17% predicted deceleration; 2Q18 seemingly is the high-water mark – enter tougher comps next quarter



Negative views on global economies eased somewhat except for Europe, where 56% expect the economy to Worsen over the next six months; responses from European-based investors support these concerns

#3 Investors Largely in a Holding Pattern; Trends Should Crystalize with this Earnings Season 

Amid the strong start to 2019, U.S. equities are seen as Fairly Valued and 59% expect flat performance in 1H19



69% report Holding or Rotating QoQ, an increase from 59% in 4Q18



Technology and Industrials register the most significant increases in bullish sentiment, while Building Products, Financials and Consumer Discretionary remain out-of-favor; REITs see their fewest bears in three years CORBINADVISORS.COM CORBINADVISORS.COM

With Expectations Aligned with Conservative 2019 Guides, Investors Anticipate Flat to Slightly Worse QoQ Performance

Expectations Regarding 1Q19 Earnings Performance vs. Consensus

Slowing Growth

Jun '18 Sep '18 Dec '18 Mar '19

50% 45%

49%

50%

43%

Global Slowdown Government Shutdown No Trade Agreement Weather

Conservative Guidance

32% 21%

30%

18%

32%

18% 12%

Better Than

59%

In Line

Note 2019 Guidance Outlooks Were In Line with Expectations 58% Expected More Conservative 2019 Outlooks vs. 2018 CORBINADVISORS.COM CORBINADVISORS.COM

Worse Than

50%

Expect Earnings to Decrease Sequentially vs. 41% Last Quarter

Commentary on Earnings Expectations vs. Consensus Better Than – 18%

In Line – 50%

Worse Than – 32%

“Guidance in Q4 was made when sentiment was low.” Buy Side, Generalist, Europe

“Generally strong economy.” Buy Side,

“Improving trade, more impact from increased prices, reduced fears of recession.” Sell Side, Industrials, N. America

“1Q 2019 earnings may surprise given the rate of change exhibited by analyst revisions, coupled with an expectation for revenues to be sequentially higher.”

“General worldwide economies are weaker than most have factored into their estimates/expectations.” Buy Side,

“Street estimates for my sector are driven by company guidance, which sandbags numbers.” Sell Side, Technology, N. America

Buy Side, Generalist, N. America

“Some tailwinds for companies we cover.” Sell Side, Multi, Asia

Generalist, N. America

“First quarter is traditionally poor and there were added challenges, such as trade, currency and prolonged government shutdown.” Buy Side, Generalist, N. America

Generalist, N. America

“General slowdown.” Buy Side, Multi, N. America

“Trade war with China is not having the effect President Trump thinks it’s having. Brexit is a wildcard.” Buy Side, Multi, N. America

“Weaker growth and pricing power.” Buy Side, Generalist, Europe

“Stronger start into 2019 than 2018.” Buy Side, Generalist, Europe

“Liquidity issues with non-banking financial companies have strangulated GDP growth, as entire supply chain is levered.” Buy Side, Multi, Asia

“Macro indicators (lower income/spending growth), government shutdown, reversion of anticipatory effects due to trade conflict.” Buy Side, Generalist, Europe

“We still don’t have a trade agreement and the USD continues to be strong.” Sell Side,

“The market for my space remains strong but expectations are high. 4Q18 likely had some budget flush in it.” Sell Side,

Generalist, N. America

Technology, N. America

Europe

“Volume, pricing.” Sell Side, Generalist, “Weak economic indicators.” Sell Side, REIT, Asia

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Last Quarter’s Precipitous Freefall in Positive Sentiment Finds a Floor; Majority Expecting Flat to Lower Growth, Margins and FCF QoQ

KPI Trends – Expectations Organic Growth

EPS 64%

50% 39%

39%

44%

38%

45%

35% 28%

21% 17%

Improving

49%

45%44%

11%

Staying the Same

17%

47%

Worsening

Improving

58% 55% 45% 44%

32% 14%

29% 26%

19%

6% Improving

Staying the Same

Source: Thomson Reuters

Sep '18

Dec '18

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36% 34%

26%

30%

11%

Improving

Worsening

Jun '18 1

Worsening

42%

38%

20% 22%

Staying the Same

Operating Margins

46% 35% 34%

21%

19%

Cash Flow 51%

38%

36% 34% 28% 30%

Staying the Same

Worsening

Mar '19 7

Topics of Interest for Upcoming Earnings Calls: Amid Slowing Growth, Focus Turns to Margin Preservation

Margin Trends

Capital Deployment Strategy, Including Deleveraging

2H19 Outlook

Out of N. America

Out of Europe

“Labor costs.” Buy Side, Generalist

“Cost-cutting potential; cushion in case of revenue/earnings decline.” Buy Side, Generalist

“Margin trends.” Buy Side, Generalist “How is business in a slowing global economy?” Buy Side, Generalist

“Whether they notice a slowdown + capital allocation policy.” Buy Side, Generalist

“Outlook for 2H 2019.” Buy Side, Generalist

“Profit margins.” Buy Side, Generalist “Growth prospects and planned use of tax cut windfall.” Buy Side,

“Margins.” Buy Side, Generalist

Generalist

“ESG - responsible investments.” Buy Side, Generalist

“FCF.” Buy Side, Industrials

“Driver’s guide for margin development.” Buy Side, Generalist

“How the global turmoil and U.S. leadership will affect their earnings going forward.” Buy Side, Multi

“Preparation regarding trade tensions.” Buy Side, Generalist

“End period gearing, order books 18-24 months out, control of management costings, capital spending.” Buy Side, Multi

Out of Asia “Balance sheet resiliency.” Sell Side, Multi

“How they plan on reducing their debt levels.” Sell Side, Generalist

“Price/cost.” Sell Side, Industrials “How the 2H hockey sticks like they think it will.” Sell Side, Multi

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Consistent Themes this Survey: Peak Market Pressures Identified in Late 2018 See a Significant Pullback Concern Levels Trade Wars Jun '18

22%

Sep '18

22%

14%

Dec '18

19%

18%

26%

31%

Mar '19

Tariff Impact 52%

Jun '18

21%

64%

Sep '18

23%

25%

52%

63%

Dec '18

22%

28%

50%

34%

No Concern

35%

Moderate

Mar '19

High

55%

High

40%

27%

37%

35%

28%

Sep '18

Dec '18

24%

38%

Dec '18

Moderate

33%

35%

No Concern

28%

Jun '18

44%

41%

40%

35%

21%

32%

43%

Rising Interest Rates

Sep '18

Mar '19

32% No Concern

Rising Input Costs Jun '18 10%

36%

27%

76%

Mar '19

High

No Concern

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35%

38% 20% 4%

Moderate

High

On the Heels of the Most Cautious Sentiment Levels Registered Since Dec. 2015, Investor Sentiment Shifts to a More Neutral Stance While Management Tone Slightly More Optimistic

Investor Sentiment

Management Tone

Bullish

11%

Neutral to Bullish 32%

28%

30%

Neutral

34%

Neutral to Bearish Bearish

14% 33%

31%

49%

28%

33%

38%

11% Dec '18

32%

27%

28%

31%

Mar '19

Dec '18

Mar '19

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26%

Commentary on Sentiment Drivers Bullish – 6%

Neutral to Bearish – 28%

“Lack of competition for investment dollars in other areas.”

“Starting to see weakening growth globally and no stimulus tailwind.” Buy Side, Generalist, N. America

Buy Side, Generalist, N. America

“Underlying U.S. macro data continues to be solid; there is, however, increased concern on a weakening Europe.” Sell Side,

“Global macro.” Buy Side, Generalist, Europe “Leading indicators, consensus overconfidence.” Buy Side,

Industrials, N. America

Generalist, Europe

Neutral to Bullish – 28% “Positive, albeit, slowing growth in the economy constrained by certain geopolitical factors.” Buy Side, Generalist, N. America “The market is cognizant of slowing economic expansion and holds reasonable expectations for companies.” Buy Side,

“Concerned regarding macro; a move back to rate cuts is not a great sign.” Sell Side, Multi, Asia

Bearish – 5% “Obviously falling earnings.” Sell Side, Generalist, Europe

Generalist, N. America

“I feel positive about the underlying trends but things could bump up against high expectations.” Sell Side, Technology, N. America

“Earnings outlook - particularly around margins - is terrible. With no inflation at the finished goods level, companies can’t pass on higher wages/commodity price increases.” Sell Side, Generalist, Australia

“Things are better than expected.” Sell Side, Financials, Europe

Neutral – 33% “Strong start into 2019.” Buy Side, Generalist, Europe “Economic environment is worsening and not as bullish as previously.” Sell Side, Technology, N. America

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Market Performance Continues to Track In Line with Late 2015/Early 2016 Trends S&P 500 Price Performance 120%

Significant Fears over China Economic Slowdown and Plunging Oil Prices

Sell-off Begins Amid

110% Tariff and Input Cost

Market Nadir Feb. 11

Concerns

4Q18 Earnings Season

May-19

80%

1Q19 Earnings Season

Apr-19

3Q18 Earnings Season

Mar-19

May-16

Apr-16

Mar-16

Feb-16

Jan-16

Dec-15

Nov-15

Sep-15

Oct-15

80%

1Q16 Earnings Season

4Q15 Earnings Season

3Q15 Earnings Season

Feb-19

90%

Jan-19

90%

Market Nadir Dec. 24

Dec-18

100%

Nov-18

100%

Oct-18

110%

Sep-18

120%

When Do You Think the Economic Cycle Will Peak? Assumptions 40%

36%

35% 28% 20%

23%

18%

11%

Already Peaked

2019 Sep '18

2020 Dec '18

24%

17% 14% 20%

2021 and Beyond

82%

Expect 2019 U.S. GDP of â&#x2030;¤2.5% vs. 77% Last Quarter

54%

Do Not Believe the Fed Will Raise Interest Rates in 2019

Mar '19 CORBINADVISORS.COM CORBINADVISORS.COM

Top Unaided Concerns from around the Globe

Trade Conflict

Brexit

Europe Economy

Slowing Economy

Rising Interest Rates

Inflation

Debt Levels

Lofty Valuations

China

Out of N. America

Out of Europe

“Valuation contraction, recession, inflation.” Buy Side, Generalist

“Global macro, credit.” Buy Side, Generalist

“Geopolitical (e.g., trade conflicts, changing landscape within both the Eurozone and the U.S.), impact of deregulation within the U.S., prospective slowing within the ongoing impact of prior efforts, non-market incident.” Buy Side, Generalist

“Global output trends, ECB capability to support the next downturn, consensus expectations.” Buy Side, Generalist

“Possibility of no trade deal (China), business capex undershoots our expectations, leftist policy agenda making headway in the U.S.” Buy Side, Generalist

“Global economy slowdown bigger than expected, mismanaged Brexit, arms races.” Buy Side, Generalist

“Equity valuations, GDP slowing, Europe/Brexit-related noise.”

Generalist

“Escalating tariff troubles, hard Brexit.” Buy Side, Generalist

“Global trade war, increasing oil prices, Fed uncertainty.” Buy Side, Buy Side, Generalist

“Trade, geopolitics, socialism.” Buy Side, Generalist

“Impotence of monetary policy, consequences of trade disputes, inflation dynamics.” Buy Side, Generalist

“China, inverted yield curve, U.S. government debt.” Buy Side,

Out of Asia

Generalist

“Slowing global growth, federal deficits/debt, geopolitical shocks.”

“Trade war triggers other issues, interest rate cuts a sign of slowdown, stretched valuations vs. growth realities.” Sell Side, Multi

Buy Side, Generalist

“Slowing growth, valuations, trade conflict.” Sell Side, REITs CORBINADVISORS.COM CORBINADVISORS.COM

Buyer Beware: Investor Optimism Largely Focused on Trade Resolution and Rate Hikes Taking a Breather What are You Most Optimistic About in Terms of Equity Investments, Macro Landscape?

“Resiliency of the U.S. economy and the nimbleness of U.S. corporations in their ability to innovate and capture market share outside of the U.S.” Buy Side, Generalist, N. America “China-U.S. trade deal.” Buy Side, Generalist, N. America

Resolution of U.S./China Trade Agreement

“We like the Energy complex; commodity price action has been resilient in light of softer data and historically the group has worked following curve inversion. We also like industries exposed to the U.S. consumer.” Buy Side, Generalist, N. America

Fed Not Expected to Raise Interest Rates

“Fed isn’t going to raise rates this year.” Buy Side, Generalist, N. America “Resolution of tariff conflict liquidity measures by Chinese government.” Buy Side, Generalist, Europe

Energy

Construction Spend

“Central banks on hold.” Buy Side, Generalist, Europe “Technology. No recession in U.S. in the next two years. U.S. slowing down and then rebounding again.” Buy Side, Generalist, Europe “Agreement on tariffs.” Buy Side, Generalist, Europe “Efficiency gains due to digitalization and automation driving productivity.” Buy Side, Generalist, Europe

Technology/Digitalization

“China and the U.S. reaching a trade agreement.” Buy Side, Generalist, Europe “I am optimistic about the prospects in the U.S. given the amount of investment coming into the country.” Sell Side, Technology, N. America

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Nearly Universal Improvement in Sentiment; Concerns around Europe Grow

Global Economy Expectations over the Next Six Months

Brazil

42%

35%

23%

-10 pts

UNCH

India

37%

51%

12%

+2 pts

-6 pts

Southeast Asia

35%

49%

16%

+13 pts

-12 pts

China

31%

33%

36%

+13 pts

-28 pts

Mexico

28%

57%

15%

+7 pts U.S.

-13 pts 24%

41%

35%

+16 pts Latin America

-14 pts 22%

53%

25%

-7 pts Japan

-7 pts 18%

66%

16%

UNCH Eurozone

12%

-7 pts 32%

56%

+2 pts

+2 pts Improving

Staying the Same CORBINADVISORS.COM CORBINADVISORS.COM

Worsening

Expectations Over the Next Six Months: Global Capex, Global PMI and O&G Markets Improving

Staying the Same

Worsening

Global Capex

56%

34%

19%

“Staying the Same: Uncertainty affects capex.” Sell Side, Financials, Europe

40%

41%

“Worsening: May weaken given the confluence of geopolitical and social issues, including ongoing trade conflicts, which may restrain corporations. The latter may, in the near-term, lead to focus on returning capital to shareholders.” Buy Side, Generalist, N. America

Dec '18

Mar '19

44% 34% 10%

22%

Jun '18

Sep '18

Global PMI 24%

14%

49%

58%

27%

28%

Jun '18

Sep '18

12% 38%

13% 42%

“Worsening: Epicenter of slowing growth.” Buy Side, Generalist, N. America 50%

45%

Dec '18

Mar '19

Oil & Gas Markets 49%

47%

41%

43%

10%

Jun '18

Sep '18

“Worsening: The Eurozone may be an anchor to sustaining global PMIs.” Buy Side, Generalist, N. America

“Improving: Supply constraints.” Sell Side, Generalist, Australia

36%

26%

38%

66%

26% Dec '18

“Worsening: Especially service sector.” Buy Side, Generalist, Europe

“Staying the Same: Staying in a wide trading range.” Buy Side, Generalist, N. America

8% Mar '19

“Staying the Same: Shale is too expensive to produce and supply/demand is balanced. This is oil only, not natural gas.” Sell Side, Generalist, N. America “Staying the Same: Supply cuts are working.” Sell Side, REIT, Asia CORBINADVISORS.COM CORBINADVISORS.COM

Expectations Over the Next Six Months: Non-Resi, Resi and Consumer Confidence Improving

Staying the Same

Worsening

Non-Resi Construction 35% 49%

25% 49%

14%

18%

47%

50%

16%

26%

39%

Jun '18

Sep '18

Dec '18

32%

46%

22%

12%

“Improving: Rates low, new generation of buyers.” Buy Side, Generalist, N. America

27%

Jun '18

Sep '18

54% Dec '18

“Improving: Rebounding from a weak 4th quarter as long as rates stay low.” Buy Side, Generalist, N. America

39%

53% 25%

“Worsening: Retail overcapacity is a drag on construction.” Buy Side,

Mar '19

34%

20%

“Staying the Same: Fiscal stimulus/tight RE markets.” Sell Side, Generalist, Australia

Generalist, N. America

Resi Construction 34%

“Staying the Same: This sector cycles in huge timeframes; won’t peak out until 2022.” Sell Side, Generalist, N. America

34% Mar '19

“Improving: There is wholesale and retail demand for housing.” Sell Side, Financials, Europe

“Staying the Same: Much worse in Australia, pickup in U.S.” Sell Side, Generalist, Australia

Consumer Confidence 25%

22%

11% 35%

50%

51%

25%

27%

Jun '18

Sep '18

54% Dec '18

15% 42% 43%

“Staying the Same: Elections will divide U.S.” Buy Side, Generalist, N. America

“Staying the Same: Employment stable.” Buy Side, Generalist, N. America “Worsening: Unemployment to start to pick up.” Buy Side, Generalist, N. America

Mar '19 CORBINADVISORS.COM CORBINADVISORS.COM

U.S. Equities Now Viewed as Fairly Valued; Investors Anticipate Valuations to Remain Flat for 1H19 and Largely Report Holding Investments U.S. Equity Valuation Classification Mar '18 1%

42%

Jun '18 4%

Dec '18

57%

48%

Sep '18 8%

Under

25% 16% 11%

Net Buyer

Over

Dec '18 Mar '19

41% 25% 16% Expand

28% 24% 59% Remain Flat

Net Seller

Holding

Rotating

Dec '18

Liquidating

Mar '19

QoQ Portfolio Cash Holding

1H 2019 U.S. Equity Valuation Expectations Sep '18

28%27%

14%

Sep '18

43% Fairly

12%

25%

4% 5%

55%

51%

29%31%

30%

48%

32%

Mar '19 6%

42%

48%

44%

13%

QoQ Investment Trends

50% 44% 35%

31%

47% 37% 33%

51% 25%

Increase

Remain Steady Sep '18

Contract CORBINADVISORS.COM CORBINADVISORS.COM

10%13%

Decrease Dec '18

13%

7% 6%

Do Not Hold Cash

Mar '19 18

When in Doubtâ&#x20AC;¦Technology!

37%

Technology

51% 51%

Healthcare

37% 40%

28% 28%

26% 34% 26% 25% 24%

Cons. Staples

27% 11%

30%

REIT

25% Dec '18

12%

Industrials 35%

Cons. Staples

Industrials

Comm. Services

28%

Financials

40% 37%

Cons. Disc.

21%

Energy

40% 42%

Financials

42%

Biotechnology

47% 48%

Building Products

Mar '19

21% Dec '18

Industrials and Tech See the Most Significant Increases in Positive Sentiment

Mar '19

REITs Ward off Bears for Second Consecutive Quarter and See Fewest Bears in Three Years, While Materials and Energy See Largest Decrease in Negative Sentiment QoQ

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Amidst Increasing Scrutiny, Buybacks Still Favored by Investors but with Several Caveats Preferred Capital Allocation Uses, According to Investors (Last 24 Months) 1

“When it comes at the expense of R&D or capex.” Buy Side,

54% 42%

M&A

Buybacks

39%

Reinvestment

Generalist, N. America

31%

20%

Dividend Growth

Debt Reduction

Investors Disagree with Companies Executing Buybacks When…

“When there are other opportunities to deploy capital to increase revenues or decrease costs. Also, when used as an earnings manipulation tool.” Buy Side, Generalist, N. America “When their stock is near all-time highs.” Buy Side, Generalist, N. America

“Financed by debt, not sufficient FCF.” Buy Side, Generalist, Europe

“If the debt burden increases.” Buy Side, Generalist, Europe

1 2

There are Better Uses of Capital, Particularly Long-term Investment Opportunities

“When the debt level is increasing (too much).” Buy Side, Generalist, Europe

“Buybacks at high valuations and increased gearing.” Buy Side, Generalist, Europe

Financed by Debt

“When they have monstrous debt levels.” Sell Side, Generalist, Australia

A Stock is Trading at All-time Highs

Used to Manipulate Earnings

“When there are better organic or inorganic growth alternatives, when cap structure must be altered to execute or maintain (debt to buyback).” Sell Side, Multi, N. America “When taking on leverage to do so.” Sell Side, Technology, N. America

n = 724; contributors are asked, for a given company, to rank their preferred uses; percentages represent the top two choices, on average

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ABOUT US

CORBIN ADVISORS CORBINADVISORS.COM

About Us

Deep Experience. Deeply Committed. Founded

2007 by Rebecca Corbin

Sr. Team Experience

175+ Years Combined in Capital Markets

Location

Proudly...Hartford, CT (US)

Client Size

$250M to $360B+



Leading investor relations research and advisory firm



Track record of value creation and committed to the highest quality standards and client satisfaction



Extensive C-suite and board-level advisory experience



Thought leaders: Leading-edge research on investor sentiment and best practices; quarterly surveys regularly featured on CNBC

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