Enerflex Ltd. (EFXT) Q1 2019 Earnings Report, Transcript and Summary

Good day ladies and gentlemen. Welcome to the Enerflex First Quarter 2019 Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] And as a reminder, this call will be recorded. I would now like to introduce your host for today's conference Marc Rossiter, Incoming President and Chief Operating Officer. Please go ahead.

Good morning everyone. Thank you for joining us. Here with me today is James Harbilas, Enerflex' Executive Vice President and Chief Financial Officer; and Blair Goertzen, our outgoing President and Chief Executive Officer effective today. During this call, James and I will be providing our financial results for the three months ended March 31st 2019. A brief commentary on the performance of our three business segments and a summary of our financial position. Approximately one hour following the completion of this call, a recording will be available on our website under the Investors section. During this call, unless otherwise stated, we will be referring to the three months ended March 31st, 2019 compared to the same period of 2018. I'll proceed on the basis that you have all taken the opportunity to read yesterday's press release. Enerflex' first quarter financial results benefited from a record backlog at December 31st, 2018. We saw strong engineered systems revenue and gross margin realized from projects secured in the second half of last year. Although bookings activity this quarter slowed compared to previous quarters, the company's backlog remained strong at well over $1 billion. We continue to see a healthy bid pipeline for engineered systems globally as well as interest for rental and build own operate maintain solutions. Enerflex continues to focus on opportunities to increase recurring revenue from our rental and aftermarket service product offerings, which was reflected in the positive results for these product lines in the quarter. In the United States, the company continued the expansion of the contract compression business, while internationally we made progress on our long-term build own operate maintain projects. Now, to our -- now looking to our regions. In the United States, results were higher when compared to the same period of 2018, driven by increased revenue across all product lines. Higher engineered systems revenue was due to the realization of strong bookings seen in prior quarters and continued progress of certain projects. However, during the quarter the company experienced delays in the timing of customer project approvals and the corresponding reduction in the conversion of opportunities into bookings. The acquisition of Rental Assets in 2017 added an established and growing platform that contributed to increasing recurring revenues from the segment. During this first part of the year, Enerflex continued the expansion of the USA rental fleet which now totals approximately 240,000 horsepower. We remain focused on investing in these assets and as production continues to expand the company sees additional potential in this high-growth market. As we look forward, Enerflex remains focused on building on its successes for engineered systems products in various prolific liquid-rich plays. The company has seen significant demand in the USA over the past two years and there continues to be a strong bid pipeline for future work. Continued development in key resource plays should translate into further demand for Enerflex' engineered systems products as well as contract compression solutions to improve performance in maturing fields. The Houston manufacturing expansion will be coming online shortly which will materially increase our throughput capacity for engineered systems sales destined for the USA and rest of world markets. We continue to monitor egress issues in the Permian Basin for any potential slowdown in product inquiries related to this basin. Our optimism for this segment is reinforced by the anticipated resolution of these egress issues in the latter half of 2019, as well as increased activity in other U.S. basins where we are positioned to capitalize on these opportunities. Rest of World results were down slightly when compared to the same quarter last year driven by lower Engineered Systems revenue and higher SG&A costs. Despite a slight reduction in total revenue, Enerflex saw an increase in recurring revenue and opportunities for Rental and Service offerings remained strong in many of the regions covered by this segment. Looking specifically at the Middle East, this region continues to provide stable earnings from our rental fleet, which consists approximately of 100,000 horsepower in contract. We are seeing opportunities across this diverse region including Kuwait, Bahrain and Oman. In addition, the company is exploring new markets and opportunities in order to enhance recurring revenues with the continued focus on Build-Own-Operate-Maintain projects. In Latin America, Enerflex remains cautiously optimistic about the outlook as customers recover from soft commodity prices. The company believes there are near-term prospects within Argentina, Bolivia, Brazil and Colombia and mid to longer-term prospects in Mexico. Enerflex made progress on the company's two 10-year BOOM projects awarded in Argentina and Brazil in the second half of last year. As capital investments increase to develop the Vaca Muerta shale in Argentina and to build out natural gas infrastructure in Columbia, there will be further opportunities for Enerflex' products and services in those countries. In the Canadian region, the oil and natural gas industry remained somewhat constrained by negative sentiment and the lack of consistent access to market. However, the company benefited from major project awards relating to the midstream sector from the second half of 2018, which was reflected in our financial results of this quarter. Despite progress in transportation issues and optimism for further LNG projects, there remains some uncertainty in the Canadian market as 2019 unfolds. In addition, the aggressive delivery window for new prospects during the quarter and our record level of opening backlog, met the company's ability to respond to some projects with delivery times that met the clients' needs, was limited due to company's fabrication and supply chain capacity. We believe that this delivery issue is isolated to the first quarter of 2019. In the near-term Enerflex has a positive outlook globally, supported by continued strength in our backlog and high inquiry levels across all regions. The company is committed to diversifying revenue streams across multiple markets and product lines to grow our backlog and ensure profitable margins. I will now turn it over to James Harbilas, Enerflex' Executive Vice President and Chief Financial Officer to review our financial results.

Thank you, Marc. Revenues of $485 million for the quarter reflect improved results across all product lines, particularly Engineered Systems. Enerflex' Service and Rental product lines benefited from the company's focus on increasing recurring revenue streams and from higher activity levels, while Engineered Systems benefited from a strong opening backlog. Consolidated gross margin for the quarter was $89 million compared to $65 million as a result of increased revenue and improved gross margin percentage. While gross margin percentage was up due to the realization of higher-margin projects, including opening backlogs and the continued contributions of the Service and Rental product lines. These improvements were partially offset by higher estimated costs to complete certain projects and a write-down of equipment related to a decommissioned facility in the Rest of World segment. Selling, general and administrative expenses were $56 million this $11 million increase was due to higher compensation costs, partially offset by positive foreign exchange impacts. Increased compensation costs were the result of mark-to-market impacts on share-based compensation and increased profit share on improved operating results as well as higher headcount in the USA and Rest of World segments. EBIT for the quarter was $33 million, driven by higher gross margin partially offset by higher SG&A costs. For the first three months of the year, Enerflex generated net earnings from operations of $17 million or $0.19 per share compared to net earnings of $11 million or $0.12 per share in 2018. Adjusted EBITDA was $67 million versus $44 million in the prior year. The increase in adjusted EBITDA was largely driven by higher margins as previously mentioned. During the quarter, Enerflex collected the amounts owing from our customer in Oman concluding the arbitrations proceedings. The amounts received were immediately used to repay debt. In total, the company repaid $95 million of debt in the quarter. Moving onto our regional results. In the USA segment, Enerflex's bookings of $75 million represented a significant decrease when compared to the prior period. The company experienced delays in the timing of customer project approvals and a corresponding reduction in the conversion of opportunities, which impacted bookings this period. During the first quarter, revenue in the USA was $293 million. This increase of $101 million was largely due to higher Engineered Systems revenue as a result of the realization of strong bookings in recent quarters and continued progress on some large projects. Service revenues saw an increase due to higher activity levels while rental revenues improved as a result of the organic growth of the contract compression fleet. Operating income for this segment increased to $26 million, driven by higher revenues across all product lines and improved gross margin performance. This was partially offset by higher SG&A cost driven by increased compensation on a larger workforce and mark-to-market impacts on share-based compensation. In the Rest of the World, backlog of $50 million was lower than at December 31, 2018 due to Engineered Systems revenue outpacing bookings in 2019. Bookings in the Rest of World segment are typically larger in nature and scope and as a result are less frequent. Revenue in the Rest of the World for the first quarter was $94 million, a slight decrease from the comparative period due to lower Engineered Systems revenues, partially offset by higher Service and Rental revenues. Engineered Systems was down in the quarter due to a lower opening backlog while service and rental revenues increased as a result of higher activity levels in Australia and improved performance in Latin America, respectively. Operating income of $2 million represents a slight decrease compared to the same period of 2018. This decrease was a result of increased SG&A costs, partially offset by higher gross margin percentage. However, gross margin for the quarter was negatively impacted by higher estimated costs to complete certain projects and a write-down of equipment. SG&A costs have increased from the prior year due to increased compensation on a larger workforce and mark-to-market impacts on share-based comp. In Canada, several project wins drove bookings of $42 million, an increase of $25 million compared to the same period in 2018. Backlog for the Canada segment remained strong at $378 million. This market is seeing investment focused in the midstream sector where Enerflex offers solutions to maximize the value of Canadian production. Revenue in Canada was $99 million, which was consistent with the comparative period. Engineered Systems revenue decreased due to weaker bookings seen in the first half of 2018, which was offset by higher service revenues on increased part sales. Operating income increased by $3 million due to higher gross margin on improved project margins, while SG&A costs were consistent with the comparable period in 2018. Turning to the balance sheet, Enerflex continues to spend capital on Rental equipment to expand the fleet in the USA and Rest of World segments, consistent with our strategic objective of increasing recurring revenue, which grew by 20% on a year-over-year basis. The company also remains diligent in managing working capital to retain flexibility to pursue opportunities as they arise. In managing liquidity, the company has access to a significant portion of its bank facility for future drivers, to meet the company's future growth targets. As at December 31 2018, the company held cash and cash equivalents of $305 million and had drawn $28 million against the bank facility leaving with access to $665 million for future drawings. The company's net debt-to-EBITDA ratio currently stands at 0.2:1. Demand for natural gas is growing globally continuing to drive demand for Enerflex' products and services. Strong market conditions in the USA and Rest of World segments and midstream activity in Canada, all contributed to a record opening backlog which provides visibility for Engineered Systems revenue through 2019 and into 2020. Bidding activity for Engineered Systems remained strong across all regions however the conversion of those opportunities into bookings and backlog has slowed the start of 2019. The company expects quarterly bookings this year to be more in line with historical activity, and we continue to see interest for Rentals and build-own-operate-maintain solutions in the USA and Rest of World segments. Building off of the success of adding assets which contributed to recurring revenues the company remains committed to this strategy in 2019 and going forward. This completes the formal component of the webcast. Additional details can be found in our May two press release. We will now be happy to take any questions, Operator?

Thank you. [Operator Instructions] And our first question comes from the line of Greg Colman with National Bank Financial. Your line is now open. Q – Greg Colman: Thanks very much for taking my questions. Wanted to start by focusing on the backlog the $1.2 billion that you've got there going forward. In terms of market could you give us a little of color as to the duration of that how far in the future it lasts? And it's even-weighted or if through the course it should be a little bit more lumpy as that $1.2 billion works through? A – James Harbilas: Yeah. In terms of the backlog at the end of the quarter of roughly $1.2 billion that's probably another 12 months to 16 months of visibility. In terms of how we expect it to come through from a reporting standpoint we said even at year-end that we would expect the step change in Q2, as the additional capacity in Houston comes online. And we start to move product through it so we would see a material increase in Q2, relative to Q1 and then Q3 and Q4 would be pretty consistent with where we expect Q2 revenue to be. The additional capacity is about a 30% to 40% increase in throughput. So that's what we would expect to see as the year progresses. Q – Greg Colman: And then, taking that and running with it for a minute on the capacity – on the Engineered Systems side you've been kind of running in the low $300 million revenue range on a quarterly basis for the past few quarters. Can you give us an idea first of all and then this quarter's $345 million? Can you give us an idea of how much of your capacity is being utilized at the current revenue level? And then would it be correct in taking that 34% to 40% you mentioned there in saying that then just adding that to whatever your total capacity is at the moment from a revenue perspective? Just trying to figure out what on a quarterly basis you would be able to push through Engineered Systems in a 100% utilization environment.

Yeah. I think it's – when you guys are all referring to 100% utilization it could be a little misleading, right? And let me answer your question and then I want to come back to that. So, in Canada obviously, where we had some of these opportunities where the delivery window was aggressive and we consider that isolated to Q1, the shop is very busy and Canadian revenue reflects a very busy shop. In the U.S. with that additional capacity coming online that's where we would expect a 30% to roughly 40% increase. And the Rest of the World segment on the Engineered Systems side is driven by project work in the field. It's not a capacity issue or delivery window relative to the facility. So I come back to the comment, I made to your previous question, we would expect that with that additional capacity coming online to see a meaningful increase in Engineered Systems in the magnitude that I've already described. In terms of capacity, we're never 100% booked it really depends on the delivery window, right? And if those are aggressive, as we saw in Q1 in Canada specifically then we can't hit those delivery windows. That's where we get pushed out. But we see that as an issue that's isolated to Q1 Greg.

Got it. Okay. And I mean, not to put words in your mouth, but I'm looking to wrap some numbers around It just rough ideas if your Q1 revenue was $345 million and it was at a point where you were unable to deliver on tight schedules in Canada, because it was fully passed utilized and adding 30% of that 30% to 40% would be an additional $120 million or so in total revenue. Should we be thinking about approaching $500 million on a quarterly basis, as sort of a perfect Engineered Systems revenue number?

If all of the equipment is available for us to put it into a shop floor and that wouldn't be out of the realm of reasonableness.

Got it. Okay. And then on the backlog staying there, I know we've talked about margin profile in the past. Can you give us an idea now that you're starting to turn through the record backlog is the margin profile of the backlog still as you've said in the past superior to the margin profile of the trailing 12 months Engineered Systems?

It is, it is. And we stay – we stand by the comments we made in Q4 you will see sequential increases as the quarters unfold throughout 2019. And you have seen it in Q1 as well. If you normalize for stock-based comp and the acceleration of some of that stock-based comp then margins in the U.S. are over 10%. And that's what we would have – relative to where they were in Q4 of 2018 and we would expect to see sequential improvements as we see some of our higher compression and gas processing work coming through the facilities as the year unfolds.

Got it. Okay. That makes sense. And then on the sort of forward-looking statements you are talking about returning to the historic level of bookings for a period here in the future. There's a lot of history. And so I'm just saying, if we look at your previous comments on bookings, we've sort of looked at $250 million to $300 million as being historically normal level of bookings. Is that a reasonable level to be thinking about? Or should we be thinking materially higher or lower than that?

No. I think, if you look at historical averages that's our maths as well, its $250 million to $300 million, but we did – we have said in our statements that we still see a very healthy inquiry pipeline. I just think that that pipeline -- we feel that that pipeline is going to be back-end loaded as opposed to in the first half of the year. Q – Greg Colman: Got it. And then last one for me. With the cash received in the quarter with the debt being paid down, your net debt is -- versus trailing 12 months is incredibly low and it looks like over the next year or so as the backlog moves through, you're going to be getting a ton of free cash flow at you -- coming at you. How do you think of the deployment of free cash flow? What's sort of your internal waterfall of these other priorities for using cash? A – James Harbilas: So for us, it's always been organic growth. And we feel that the opportunities that we're seeing in the U.S. Rentals is going to be -- is going to continue to be healthy throughout 2019. We've obviously got a couple of very significant BOOM projects that we announced in the back half of 2018 that we're going to be fully funding through the year as those are build out. And then we'll always -- with the balance sheet being where it is and very little in the way of drawings on the facility, we've always looked to dividends as a way of returning capital to our shareholders on a consistent basis. So those capital allocations priorities haven't changed for us. That's going to continue to be our focus. Q – Greg Colman: Excellent, that’s it for me. Thanks for taking my questions. A – James Harbilas: Thank you.

Thank you. And our next question comes from the line of Jon Morrison with CIBC Capital Markets. Your line is now open. Q – Jon Morrison: Good morning all. When you think about the missed opportunity because of some of the field execution tightness, does that make you think about adding incremental installation capacity or people? Or ultimately that would feel like a fairly bad idea for what was a fairly short type time horizon and you're comfortable with the overall staffing levels? A – Marc Rossiter: Jon, this is Marc. I'd say the latter, we're comfortable. And I'd like to point that that acute issue is specific to Canada and it's a matter of just balancing the opportunities with the backlog and make sure we're being smart about what we're approaching. So we wouldn't feel that because of that experience in the first quarter, we would have to fundamentally change our staffing levels or facility in Canada at this time. Q – Jon Morrison: Okay. And in general looking Canada using different, so it would be -- it would feel like a misstep to pick one quarter and kind of extrapolating the future. A – Marc Rossiter: Absolutely. Q – Jon Morrison: And this is generally across the platform not just a Canada-specific question but does the slowing bookings in the quarter materially change how you think about the overall business in 2019? A – Marc Rossiter: It doesn't materially change how we think about it. When we think about the positives, we've got the big backlog, we're drawing recurring revenue. U.S. contract compressions, BOOM opportunities and Service globally are all healthy. If we -- we haven't seen material downshift in any of that stuff. We haven't seen any cancellations of projects in the backlog. So when I think about all of those good things, it doesn't make us believe that we're running into a really big downturn. We really feel like we said in the statements that it's a matter of deferment and sort of slowdown of customers funding projects over sort of a quarterly time period. Q – Jon Morrison: You talk about the order inquiry remaining strong and apologies for getting granular on this, but obviously it's the largest market focus today. But when you use the -- what is a reference point when you use the term strong? Is that in a general sense? Is it strong compared to what we've seen over the last three or four quarters? Just trying to get any sort of a sense of whether there's been any material rate and change of order inquiry on a sequential basis. A – James Harbilas: Yes. So I think it would be fair to say that when we -- if you compare it to Q3 and Q4 those are obviously -- and we've state -- we've characterized those essentials were higher watermarks in terms of booking and I think it would be fair to say that those are also high watermarks in terms of the opportunity set in front of us. So for comparing it relative to the back half of last year, yes, the inquiry levels are down slightly. If we're comparing it to what we've seen historically, they continue to be very strong, especially relative to the last downturn that we came out of in 2016. This is by no way where we kind of retrace what we experienced in 2016 with respect to the opportunity set.

Okay. James, would you say that there's been any material change in order inquiry by any bucket of customers, whether that be private producers, the independents, midstreams or any geographic region? Or not really?

Well, not really in terms of public versus private. But we have seen a shift in the last couple of years, especially, in Canada that is more heavily weighted to midstream infrastructure being built out. And that's still the kind of opportunities that we're seeing in Canada for the balance of 2019. The U.S. has been pretty steady in terms of midstream producer split.

Okay. Did the growth in the international product support surprise to the upside, based on any one-time events in the quarter? Or is that really just the growth trajectory that's unfolding their businesses, you've got a larger installed base globally? And ultimately your rental fleet continues to grow in those markets?

Jon I think -- this is Marc. It's the latter, the growing aftermarket service globally is important to us. It's a strategic imperative. And I will say the growth in the quarter is more reflective of a long-term effort from the team in the regions to achieve that goal.

And, Marc, earlier you made the comment about -- there's been no cancellations in the backlog. There's been no conversations around cancellations in the backlog or pushing in it either, would that be a fair statement?

That would be a fair statement.

Okay. Just the last one for me, just on the time line for the BOOM projects that have been previously announced, all of those hold at this point and we shouldn't be shifting anything around when we think about capacity coming online?

No. Nothing to shift around. We've said that those are only going to become contributors to EBITDA in 2020 though, right? And I'll just remind -- I just want to remind everyone of that.

Yes, for sure. Appreciate the color. I'll turn it back.

Thank you.

Thank you.

Thank you. [Operator Instructions] Our next question comes from the line for Jeff Fetterly with Peters & Co. Your line is now open.

Good morning, guys.

Yeah.

Follow up on the bookings side. So if you're expecting more traditional bookings in line with historical levels, how do you think about maintaining a book to bill and ultimately replenishing backlog? Because if you're running at, as Greg said, $345 million of Engineered Systems right now and that number obviously in the U.S. is scaling, do you not need to push harder on the bookings side in order to sustain the manufacturing business?

We always push hard on bookings, Jeff. So I wouldn't say that, we have to push any harder or less harder in any given quarter. We've got teams and people that push hard all the time. And we consider book-to-bill ratios. Definitely, we look at that when we look at our numbers. But, in general, we're just trying to book the very best work we can in each of the regions.

Yes. And, look, I guess, the -- we've never come out and said that $1.4 billion of backlog is certainly the new normal. I mean, the Engineered Systems business is going to fluctuate and we think that the back half is going to give rise to additional opportunities. But, yes, we will see backlog turn, just given the throughput of the facilities, plus what we expect bookings will look like in the first six months.

So let me ask in a different way. Do you think the market right now is strong enough, or the -- in the foreseeable future strong enough to support a book-to-bill ratio of one-times? Especially with your expanded capacity?

How far out are you looking at? I…

Just little color between now and the end of the year.

I would say, no, where we're sitting today.

Yeah. I agree.

Okay. The cost -- the project cost overruns in the ROW side, what's that related to and is the risk for any additional cost overruns tied to specific projects or to -- or specific projects or any other projects that you could see a risk on?

It's tied to a specific project in the Rest of World region and we think we've got a good handle on it.

And are there any others that you're concerned about in terms of potential cost overruns, or any of these potential delays?

We're always concerned about every project, doing our very best but I wouldn't say there's any other particular ones that we need to highlight at this time.

And just a follow-up to Jon's question earlier on the service side, just so I understand your comments, Marc. The growth in the service side, is that more because of the strategic focus on adding service business? Or are you benefiting from an installed base that you see either yourselves or on a broader market basis in some of these regions?

Aftermarket service always grows with installed base primarily and we can also grow it by just adding technicians and servicing other people's equipment, which really speaks to the installed base. In the Rest of the World segment, specifically it's a matter of us having more time in the Seattle and building up a good team and getting our name out there and making sure that clients in that region are aware of what our capabilities and what our desires are with executing that business. In more mature areas, North America it really ebbs and flows with the installed base and with our customer’s maintenance CapEx budgets. As long as they are healthy that business can grow.

Last question. The comment in the prepared remarks around perusing rental opportunities in other EMEA countries. Whereabouts are you looking or what type of opportunities are you looking at there?

Well, we mentioned Kuwait, Bahrain, Oman and I would say that what we're pursuing is what we've done in the past, which is primarily Build-Own-Operate-Maintain contracts.

Sorry if I missed understood, but did you not say after that that you were looking at expanding your EMEA presence with the BOOM projects?

We are. Like we're always trying to get more BOOM projects everywhere in the world within EMEA, within those countries I just mentioned we would love to add BOOM projects in the future.

Okay. Thanks for the color. Appreciate it.

Okay. Thank you/

Thank you. And our next question comes from the line of Tim Monachello with AltaCorp Capital. Your line is now open.

Hey, good morning, everyone. Just a couple of questions on bookings here. How many -- how much of the bookings in U.S. in the quarter were destined for international markets?

So there was a -- out of the total U.S. bookings there was probably about 40% of it that was destined for international markets.

Okay. And then were there any potential bookings or opportunities that you saw that you had to turn down because of the lower margin than you would have wanted to have? And if so, can you quantify how much that would have been?

Tim, I don't think that we would say there was. I would say that the situation in the first quarter was our customers that had projects on the books, delayed decisions on those. That's really the main driver of why the bookings number in USA is lower than prior quarters.

Okay. You mentioned an O&M agreement in Bolivia, I was wondering if you guys give a little bit more color on that.

What kind of color are you looking for?

Term, size, I think, you can speak about those two things that would be great.

No. We're not going to talk about size that's just competitively sensitive information. I mean, as far as terms goals, it is a longer-term agreement that takes it beyond just this year and I think it's an important watershed in terms of being able to establish an aftermarket service presence and start to compete for work in Bolivia. But we're not going to talk about individual contract values.

Okay. No. That's great. In terms of the Mexico, rental contract that you mentioned, was that basically a partial renewal of those two expiring contracts?

Correct. That's correct.

Okay. And then one more question here. Can you speak to the pace that you expect to see the U.S. rental fleet grow through the rest of the year?

We would say it's going to grow very much like it has in the back half of 2018 and what you saw in the first quarter of 2019. So we spent about $30 million on the U.S. Rental business.

Okay. And then the 240,000 horsepower that you have in U.S., was that at the end of the quarter or is that today?

That's at the end of the quarter.

Okay. Awesome. I’ll turn it back. Thanks a lot.

Thank you.

Thank you. And that does conclude today's question-and-answer session. I would now like to turn the call back to James Harbilas for any further remarks.

Since there are no further questions, we would like to thank you for joining us on this call. As this is Blair's last quarterly webcast, I think it's been 60 in total. Am I right with that number?

Yes.

As Enerflex' President and Chief Executive Officer, Marc, the executive management team the Board of Directors and I wanted to recognize Blair's tremendous leadership and invaluable contributions in building Enerflex into the global energy services leader it is today.

Well, thank you James and Marc, and to the employees my peers on the executive management team, the Board of Directors, thank you for continuing to demonstrate Enerflex' ongoing commitment to our customers and our shareholders, the communities we work in. It's been a real privilege to lead Enerflex alongside this highly effective team. I also wish to extend my gratitude to our customers and suppliers. It's been an honor to partner with you, as we delivered safe and reliable solutions for the natural gas industry. And the last thing to our shareholders and the investment community, thank you for your continued trust in the vision, the long-term strategy. I wish you all the best. The business is in great hands with these two leaders, and I look forward to reaping the benefits as a shareholder in the future years. Take care.

Thank you, Blair. And we wish you all the best as you start your retirement. Thank you once again to everyone for joining us on the call. James and I look forward to giving you our second quarter results in August. Have a great weekend.

Ladies and gentlemen, thank you for participating on today's conference. This does conclude today's program. You may all disconnect. And everyone have a great day.