Farmer Bros. Co. (FARM) Q2 2021 Earnings Report, Transcript and Summary

Good afternoon ladies and gentlemen and welcome to the Farmer Bros.' Second Quarter Fiscal 2021 Earnings 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] As a reminder, this call is being recorded. I would now like to turn the call over to your host today, Jeff Majtyka. Please go ahead.

Thank you operator and good afternoon everyone. Thank you for joining Farmer Bros.' second quarter fiscal 2021 earnings conference call. Joining me today is Deverl Maserang, President and Chief Executive Officer; and Scott Drake, Chief Financial Officer. Earlier today, the company issued its earnings press release which is available on the Investor Relations section of Farmer Bros.' website at www.farmerbros.com. The press release is also included as an exhibit to the company's Form 8-K and is available on the company's website and on the Securities and Exchange Commission's website at www.sec.gov. A replay of this audio-only webcast will be available approximately two hours after the conclusion of this call. The link to the audio replay will also be available on the company's website. Before we begin, please note that all of the financial information presented is unaudited and that various remarks made by management during this call about the company's future expectations plans and prospects may constitute forward-looking statements for purposes of the Safe Harbor provisions under the federal securities laws and regulations. These forward-looking statements represent the company's views only as of today and should not be relied upon as representing the company's views as of any subsequent date. Results could differ materially from those forward-looking statements. Additional information on factors that could cause actual results and other events to differ materially from those forward-looking statements is available in the company's press release and public filings. On today's call, management will also use certain non-GAAP financial measures including adjusted EBITDA and adjusted EBITDA margin in assessing the company's operating performance. Reconciliation of these non-GAAP financial measures to their most directly comparable GAAP measures is also included in the company's press release. I will now turn the call over to Deverl. Deverl, please go ahead.

Thank you, Jeff. Good afternoon everyone and thanks for joining us today. We hope your families and loved ones are continuing to stay safe and healthy. I want to first express my gratitude to the entire Farmer Bros. organization. Because of them, I can proudly say that the supply chain and network optimization strategy, we've communicated over the past several quarters, has now largely materialized. While I'll let Scott discuss the financials in more detail, I want to provide a few updates first. The headwinds associated with COVID-19 continued to impact our business throughout the quarter, especially, within our DSD segment, which sells to restaurants, hotels, and casinos among other channels. Over the past several months, we have seen our business respond rather quickly in both directions as the pandemic has progressed, including renewed downturns tied to holiday time case surges and encouraging data following localized re-openings. Underneath all of this, our fiscal Q2 results show improving rates of decline in the worst periods. So, we remain cautiously optimistic that we're in a good position to recover as the country gets vaccinated and economic activity begins to normalize. In the meantime, we continue to apply rigorous cost discipline, as we have actively managed our SG&A expenses relative to volumes and continue to protect our liquidity. While we can't control COVID, we can control our execution. And as such, that's where I'll focus the balance of my prepared remarks today. In the past, I've recapped progress against our five E's turnaround strategy. But as we enter 2021, we've successfully executed the major essential items within those areas. So my goal today is to paint a clear picture of where we are regarding business optimization and where our next priorities lay. I'll then turn the call over to Scott to walk through the financials. Our supply chain and network optimization strategy aim to rebalance volumes, across our manufacturing facilities and our national distribution network. The process consisted of three main steps. One, rebalancing our Houston manufacturing facility which has now led to its closure; two significantly improving our Dallas-Fort Worth facility; and three opening a new West Coast distribution center. Let me recap each step briefly. We began rebalancing our Houston manufacturing facility a few months ago. As of mid-January of this year, production was ceased and the facility will permanently close at the end of May. The facility was our oldest and most outdated manufacturing plant. And given its proximity to our Dallas-Fort worth support center, it was underutilized, inefficient and expensive to operate. Simultaneously, as we wound out our Houston operations, we began making improvements to our Dallas-Fort Worth facility. We moved and reinstalled the best equipment from our Houston facility, added brand-new NEPTUNE roaster to enhance our roasting capabilities and operationalized new retail packing lines. Today our Dallas-Fort Worth operation is an efficiently run state-of-the-art manufacturing and distribution facility with an annual roasting potential and packaging capacity capabilities of over £100 million. While currently, this facility is not a full capacity, we've doubled our output over the last 12 months. The last step was establishing a distribution center on the West Coast where 40% of our customers are located. Earlier this week, we announced the opening of our brand-new distribution center in Rialto California, which includes a refurbishing center for our coffee brewing equipment or CBE servicing business. As of last week the facility opened on schedule and is fully operational. The facility will significantly improve delivery lead times for our customers and strengthen our West Coast CBE business. Further, it will reduce Texas to California freight costs for our existing suppliers and provide us with further network optimization optionality in the future. I want to pause here to provide a bit more color on our CBE business, which remains a core competitive advantage. We boast the largest independent technical service operation in the industry. With the new refurbishing capabilities, we now have at our Rialto facility, we moved closer to many of our customers in the West and gained attractive incremental CapEx efficiencies by refurbishing more equipment instead of buying it new. It's worth noting that due to the reduced near-term volumes associated with COVID-19, many of the financial benefits of these initiatives may not become visibly apparent until later in the calendar year. However, as volumes return, we expect these savings to scale. Not to mention, our customers will see benefits immediately. And as such we expect Rialto to strengthen our competitive advantage in our western markets. As we look forward to vaccinations, workers returning to work and volumes rebounding, we expect these synergistic efficiencies alongside the many other initiatives, we've implemented during this time to meaningfully reduce our cost structure and accelerate our profitability. Turning now to our ongoing initiatives, the pandemic's rippling effect have brought both challenges and opportunities, but haven't deterred us from focusing on optimizing our business from the ground up. First, we've continued integrating our distributed order management and e-commerce platform, within our sales channels, and expect these to produce incremental efficiencies and business opportunities once, both are fully deployed. We are also continuing to test and integrate new technologies throughout our entire ecosystem the most evident example being HighJump, which is now fully rolled out to our DSD representatives. HighJump is a handheld device with software featuring presale capabilities that perpetually analyzes our supply chain and optimizes time and cost. As these initiatives come to fruition, you will see us increasingly refocus on growth opportunities and new ways to leverage our proved fixed cost structure and optimize supply chain. As we move forward, our focus will shift primarily to the following three key strategic initiatives: one, becoming a premier specialty distribution company; two, leveraging our internal and external contract manufacturing capabilities; and three, building upon white glove service quality and innovation capabilities. So first let me address becoming a premier specialty distribution company. One way we are doing this is through partnerships that utilize capacity, leverage our current distribution network, and expose us to new industry innovation. We recently announced our distribution partnership with High Brew, an innovative leader in the ready-to-drink cold brew market a fast-growing niche, especially among younger demographics. We're excited about this partnership's future as High Brew has a terrific innovation pipeline and can ultimately expand our market opportunities. Before that, we announced our manufacturing partnership with NuZee, another innovative company with strong brand recognition throughout Asia that's now looking to establish a US. presence. Secondly, we will continue to leverage our network to become a contract manufacturer for both our institutional foodservice and retail channels. We are also making progress on longer-term initiatives that can leverage our new infrastructure such as omni sales channel integration, cross-channel sell, future innovation and strategic growth within our direct ship business. Historically, we've utilized a multichannel sales approach. But as we continue to optimize our business and integrate new technologies, we are increasingly finding attractive crossover opportunities and synergies. Some of the most apparent cross-channel opportunities lie within our broader e-commerce strategy. Two quarters ago, we adopted and began integrating some of our businesses with a full-service retail e-commerce platform. The first brand we launched was Boyds. Although, we faced unique challenges in the initial implementation phase, this site ultimately launched successfully and continues to receive strong retail traffic today. The process taught us a lot about e-commerce and legacy channel integration. We now believe, we have a replicable model, which we've since leveraged to launch another e-commerce site for our public domain brand and expect to launch another for China Mist later this year. We continue to look for other innovative revenue opportunities within our e-commerce channel, such as subscription-based service models, which both newly launched sites now offer. Further, as we make iterative improvements to our system, we look towards broader e-commerce integration opportunities in the future, including the launch on our very own Farmer Bros. e-commerce website and one for our CBE business. Other opportunities within our e-commerce channel are currently being tested such as our B2B e-commerce platform, which offers increased flexibility to our roastery direct customers. Turning now to our third strategic initiative, which is building upon white glove service quality and innovation capabilities. As we look forward, innovation remains a core commitment at Farmer Bros. With our foundational structure now in place, we're excited to get back to the lab. Similar to the agreements made in our recently announced partnerships, our ability to create innovative new products under our wholly-owned brand names and pilot launch them via our national DSD network provides cost-effective optionality with an attractive risk-reward profile. Many of these opportunities provide attractive upside with little downside, a strategy we intend to continue to utilize, as we create future growth opportunities for ourselves, with little upfront capital investment. So to wrap up, we are continuing to and have already made significant progress on our broader turnaround plan. While we have executed the main initiatives within our supply chain optimization strategy, culminating in the Rialto facility's opening, we still have work to do. Nonetheless, these initiatives, completion marks and an inflection point that escalates our focus on growth initiatives. We are cautiously optimistic that our timing is right, as recovery from the pandemic becomes a positive glimmer on horizon. I look forward to keeping you posted on our progress in the future. And will now turn the call over to Scott. Scott?

Thanks, Deverl. During the three months ended December 31, 2020, we experienced sales declines in our DSD and direct ship sales channels compared to the prior year period, as both channels continue to face ongoing headwinds related to COVID-19. Despite these declines, we experienced sequential sales growth of 7.5% from the first quarter, as our DSD channel saw improving conditions until the COVID-19 resurgence and our direct ship business experienced some seasonality benefits. Until the resurgence of cases and reinstated lockdown that California experienced this quarter, we saw consistent month-over-month improvements in volumes. This momentum continued through September, where our weekly sales improved to a decline of 32% from our pre-COVID levels, representing continued progress compared to the 44% decline we saw in June and the 65% to 70% decline we saw in April. If not for this new wave of cases, we believe the trajectory of rate improvements would have continued throughout the current quarter. But, ultimately, we ended the December quarter with DSD volumes down 40% compared to the prior year period. As a result of the lower volumes, we experienced a lower gross margin than in the prior year quarter. Our gross margin decreased by 3.7% to 25.1% compared to 28.8%. While our improved cost structure within our cost of goods sold offset some of the contraction, our higher-margin DSD business was primarily responsible for the decline, as our direct ship business largely remains stable. We posted a net loss of $17.7 million in the quarter, compared to a net income of $7.8 million in the prior year period. This figure includes a $13.7 million non-cash tax expense associated with the gains on the post-retirement medical plan in the previous years. More information on the tax expense can be found in the accompanying earnings press release and more details will also be found in the 10-Q to be filed shortly. Our EBITDA was $5.3 million, compared to $16.9 million in the second quarter of last year and our EBITDA margin was 5.1% compared to 11.1%. Adjusted EBITDA in the second quarter of fiscal 2021 was $8.3 million compared to adjusted EBITDA of $7.4 million in the prior year period. Included in that $8.3 million figure is a $7.2 million amortized gain from the post-retirement medical plans curtailment in March 2020. The amortization of this medical plan gain has now ended with the sunsetting of our Retiree Medical Plan effective December 31, 2020. Our adjusted EBITDA margin improved to 7.9% during the quarter, compared to 4.9% in the prior year period. As a reminder, EBITDA, EBITDA margin, adjusted EBITDA and adjusted EBITDA margin are non-GAAP financial measures. You can find a reconciliation to the comparable GAAP measures at the end of the Q2 financial press release we issued earlier today. Overall, the operating expenses benefited from cost savings actions taken due to the pandemic and cost controls implemented over our variable spending, as we right-sized our SG&A expenses against volumes. However, compared to the prior year quarter, our operating expenses increased slightly. The increase was primarily due to a $9.9 million decrease in net gains realized from asset sales and a $1.2 million non-cash fixed asset impairment charge offset by a $10.1 million decrease in selling expenses. The $9.9 million decrease in net gains from asset sales was primarily due to the sale of two branch properties at a net gain of $1.2 million during the current quarter, compared to the prior year quarter asset sales, which included the sale of our Houston manufacturing facility and four branch properties, representing total gains of $11.4 million. Also included in that operating expense figure is a small increase in administrative expenses, which was primarily associated with a one-time severance cost and other strategic cost savings actions, partially offset by reductions in third-party costs and head count. The execution of the optimization initiatives that Deverl spoke to is expected to result in meaningful cost savings for the company. While we'll benefit from some of these cost savings immediately, such as those from our Houston closure and West Coast distribution center opening, we expect the synergistic efficiencies of all the improvements made throughout the pandemic to scale with volumes as they recover. In other words, we believe the cost structure of the business will be fundamentally different as we emerge from the pandemic. As such, we'll be well positioned for margin expansion as the environment normalizes. For the six months ended December 31, 2020, our total capital expenditures were $9.6 million and consisted of $3.7 million in capital maintenance spend and $5.9 million in capital investment spend which was needed to fund our optimization initiatives. We expect our capital spending will be lower in the second half of the fiscal year as the most capital-intensive projects within our broader turnaround strategy are now completed. The $3.7 million of maintenance spend represents a near 50% reduction compared to the prior year 6-month period driven by several initiatives put in place including a focus on our refurbished coffee brewing equipment business. Our revolver's outstanding debt was $82 million at quarter end, a decrease of $40 million since June 30, 2020. Over the same time period our cash balance decreased from $60 million to $5.9 million. These changes resulted from the repayments on our revolver completed under the terms of our amended credit facility. Our debtless cash at the end of Q2 was $76 million representing an increase of $17 million from Q1 and an increase of $14 million from the June period. This use of working capital was primarily due to a decrease in our cash position as we built out inventory, an increase in our capital expenditures needed to optimize our footprint and the pension contribution made in December to catch up on payments that were deferred under the CARES Act. The inventory investment was needed to better position us for an anticipated recovery in the back half of the fiscal year. As COVID unfolded last spring, we made aggressive inventory cuts. As a result when recovery picked up more than anticipated in the summer months, we were caught a little short on inventory which is a mistake we won't let happen again. Given these changes, we ended the quarter with total liquidity including availability under our amended revolver and cash on hand of $43 million which is down slightly from $44 million in Q1. This again was due to the revolver repayment, investments in inventory, increased capital expenditures and pension funding requirements. Despite this slight decrease, we still believe we're in a strong liquidity position to execute our future growth initiatives. Overall we're pleased with the progress we've made despite the challenges faced relating to the pandemic. While we expect some volatility to continue in the near term we remain optimistic about a recovery in the long term as vaccinations and reopenings progress. Until then, we'll continue to manage our expenses, protect our liquidity and further optimize our business. We're proud of the progress we've made so far within our broader turnaround strategy. We firmly believe that the company is poised to show performance improvements in the back half of our fiscal 2021 year especially as volumes recover. With that, I conclude my prepared remarks. I will now turn the call over to the operator to take your questions. Thanks.

[Operator Instructions] Our first question comes from Kara Anderson with B. Riley Securities. Your line is open.

Hi, good afternoon.

Hello Kara.

I'll start with an easy kind of housekeeping -- quarterly housekeeping question around roast and ground coffee sales as a percentage of total sales, if you can provide that?

Absolutely. So the number for the quarter is 66.4% of roasted coffee as a percent of total sales and the year-to-date number is 67.2%.

Great. Thank you. And then on the inventory investments that you made in the quarter, are you caught up at this point or should we expect further investments needed to sort of position yourself for the recovery?

Yeah. We feel good about where we are with inventories at this point. And obviously, the balancing between the coffee and the allied products is a lot of what we're doing and we feel good about where we are. We'll obviously -- or we do monitor it week-to-week based on what we're seeing in the marketplace and we just want to make sure because of lead times on some products that we're staying in a good place with that. So as we see this recovery as we see markets open again, we'll be keeping a really close eye on it, but we think we're in a good place.

It's a hot topic around the office.

It's certainly a good sign that you think that there's a recovery on the horizon. And then kind of on that theme with the rising cases, particularly here in California and ultimately the shutdown here, did you make any adjustment kind of with the reversal of some of the progress in the weekly sales that you saw within the quarter?

Say that question one more time. I missed the back half of it. In terms of the recovery in the quarter...

I'll just rephrase it for you. Whether you made any adjustments to the organization or your cost as a result of things going from down 32% to down 40% within the quarter?

Okay. I got it. Yeah. And we did see a decline as the quarter progressed. And since then as the vaccinations over the last several weeks, we've seen an uptick. And we're seeing that same pattern, we saw if you remember back during the July 4 period. The same time of effect November, December had we're seeing it reverse at same course and follow the same trend that we saw previously. I think what we're trying to anticipate here is how fast with the new administration and the vaccination program that's going across the country and Governor seems to be relaxing and maybe not everyone following 100% of the guidelines and more people packed into outdoor dining or indoor dining, just timing those orders and making sure we're ready for that volume. And from that perspective to your direct question, Scott in terms of the percentages that we've been reporting and then kind of how it ended up in the quarter?

Yeah. Yeah. Absolutely Deverl. As the recurrence of COVID cases happened, you're right. In Q1 you could kind of think of Q1 as being a little bit better month to month to month. And I would say that end of September, when we were reporting the DSD business down 32% to prior year to pre-COVID that was kind of the peak. And then it started to regress a little bit in October. And then it was interesting because as we saw COVID reach new heights in all regions of the country, obviously the case count, the hospitalizations, the closures and actions that we're taking were far more severe than we've seen before. In mid-November, we obviously had a deterioration in our DSD sales, but we hit this level of about 40% down to prior year or to pre-COVID levels and we really stayed there. It didn't get any worse as we moved through November and through December and early January we really found kind of I guess a near-term floor that the down 40% level. And as Deverl said, we're nice to see it starting to move up from there on a positive direction.

Got it. And then I'm sorry if I missed it, but I think previously you've talked about a non-branded or non-farmer owned coffee brewing equipment service. Can you remind us of that? And I think it was a pilot just provide an update there, correct me if I'm wrong?

Yes, it was a non-branded service tech in Texas and the fortunate thing is Scott Drake's been the key executive leading that effort. So, I'll turn to him to let you give a quick update to some of the results that we've been seeing.

Yes. Absolutely. Absolutely. A lot of what we've been doing is that that foundational groundwork if you can imagine the back-office work of making sure that we could actually -- it's a service we provided to our current existing customers for years had no charge. So, you've got to come up with the revenues and the billings and invoicing and all those different things that we would need as well as the service level agreements that we'll be offering people at different levels. So, a lot of that foundational work is now nearing completion. And what we're finding is that as you go look to maybe manufacturers to partner with and others, the lack -- it's the timing, I guess, of the restaurant business and the restaurant recovery will be key to that business as well. So, we're kind of moving around a little bit and talking with a lot of different parties, but we have started having some actual service calls and some work around that and really, really good discussions with a lot of different parties. So, we think we'll be able to provide a meaningful update on that hopefully next quarter, but it is moving in the right direction. And we're kind of done with the groundwork phase and we're really moving now into starting to execute.

Great. Thank you. That’s it for me.

Thanks Kara.

Thank you. We have a question from Gerry Sweeney with ROTH Capital. Your line is open.

Good afternoon, Deverl, Scott. Thanks for taking my call.

Hello Gerry.

I wanted to touch upon the comment around the premier specialty distribution. Obviously, great DSD network rate sort of distribution. Wondering if you could maybe expand on maybe what the opportunity is there? I think you mentioned High Brew, which I think would be an opportunity to leverage that DSD network? Are there other things that you have in mind or maybe a little bit -- any more detail you could provide on what you see for that strategy?

Yes. Thanks for the question Gerry. I think you hit on it. In terms of leveraging the platform, it's with no question that Farmer Bros. has built this platform over 109 years in the GSE side. And there's a lot of products that are on trend that in fact we don't sell to coffee forward customers. So, if I think about a coffee forward, tea, and spice type account, there's more premier specialty type products that we could sell in that network. Now, today, you look at some of the products that we don't have and you ask yourself why? We're not putting some of the high-end non-dairy replacement products such -- you've got oat milk, almond milk, soy milks, and the like, that's a huge opportunity. In fact, if you go to most locations across the country that are coffee forward, you'd find us not playing that. And we're in conversations with individuals around those types of products just as we learn heavily from our initial hybrid discussions that we've always known that we needed to be in the RTD space, but didn't want to spend the capital in terms of innovating those products because there was really good companies out there that did that. So, leveraging our network especially in institutional foodservice as the initial step forward with companies like High Brew and then looking for other opportunities. So there are other types of products that we do sell today that are gaining popularity and we could get into the whole category around sweeteners of all types, especially agave, other types of sweeteners that we can have right on our network. And today we have the typical traditional color packets in raw sugar. And frankly, if you go to a typical coffee shop you're going to find a lot more progressive types of things that consumers are asking for and we know, we have the network by which to deliver those. So we're constantly out there searching for partnerships that make sense to leverage on top of the robust platform that Farmer Bros. built over the course of time.

Got it. That's helpful. And then I'm not sure how much you can answer this, but obviously, you've made a lot of changes since COVID and already accelerated some of the changes Houston West Coast distribution. Could you sort of quantify how much expenses you've taken out of the model over the past year?

Well, as you know, we don't provide guidance at this point but I will commit to both Kara and you and others that as COVID stabilizes, we absolutely plan to get on a path of giving you some cost savings inputs around guidance and also margin. And I expect to do that – I would hope that we might be able to do that by fourth quarter call. I think third quarter call is going to be a little challenging because we'll still be navigating through COVID. But with that let me give it to Scott, because he can give you some updates on things we have discussed as it related to COVID and cost savings. And then I think the bigger question that you're asking for is one we've got to move toward and that is a much harder thing to do right now since much of our success has been covering the downturn due to COVID and we got a lot of moving parts. But I think Scott's got a means by which to give you a little sense of that and just showing you kind of where it is without formally going down this path of giving guidance at this hour. So Scott?

Yes. Thanks, Deverl. So Gerry, what I would say is a couple of parts here I'll give you. One is on cost savings. And if you look at the quarter just ended I know that we talked early on when COVID first broke about having an internal goal of saving $6.5 million per month and then we talked about how we had exceeded that goal. And it's tough to see sometimes because about a third of those savings are in our margin number in cost of goods and about the other two-thirds are down in our operating expenses. But if you just look at the gross margin, the first quarter gross margin we reported was 23%. The second quarter of the quarter just reported was 25.1%, yet the sales level to prior year were both very similar down, 30% and down 31%. So you see some of that progress in cost of goods there. And I can also kind of just tell you directionally that for the quarter we just ended we've obviously brought back a lot of the business from Q4 when COVID was really at its peak. So some of those expenses are back, but we're still running at a rate just below about $6 million a month of cost savings. So hopefully that kind of gives you a framework on cost savings. Now thinking of cost savings going forward and the West Coast DC and the Houston facility and all the other things we've talked about, as Deverl said, we hope to get things to a more stable level. And as we talk about a little bit in the release, a lot of those savings especially at a DC and at a manufacturing facility are volumetric. So the more volumes we put through those facilities the bigger the savings are. But I would just caution you not to look for a big difference in Q3, as we move forward just a lot of obvious reasons there. It's -- Q3 is this first quarter for both facilities. It's also the quarter we've got the final transition of both facilities. And as anyone knows it's kind of obvious moving -- winding down a production facility, you're not at high efficiency, starting up new production in a new place similar. So Q3 it's sound like we're going to take a big step back, but you're just not going to see I don't think a big difference there. We think however in Q4, we've also gotten through a lot of -- we captured a lot of production variances and we recognize those in the next quarter. So from Q2, we'll recognize some in Q3. So you'll really get a clear picture of some of these facilities and their impact at current levels at least when we get to Q4 and Q1 and that's where I think yes Deverl and I will work hard to give you some more clarity on that.

That's really helpful. I mean just reviewing some of the cost savings that you sort of targeted before and just understanding it and I get Houston going down and North Lake running up. It's not always linear. There's a little bit of a learning curve. So that's very helpful. So I appreciate it. I’ll jump back in line. Thanks a lot.

Thanks, Gerry.

Thank you. There are no other questions in the queue. I'd like to turn the call back to Deverl Maserang for any closing remarks.

Thank you. And as we continue to navigate the COVID-19 environment, we will continue to prioritize the health and safety of our team members and our customers as well as take actions as we've been taking over the last many months to support the long-term sustainability of our business. We're very confident right now as we look forward to the recovery and the vaccinations and seeing people come back to work. We have everyone working remote at this point that can work remote and we are confident in our strategy and believe the actions we have taken that will put Farmer Bros. in a position of strength when the nation or the country emerges from this state of crisis. And we appreciate each of you joining today and thank you for your continued interest in Farmer Bros.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. Everyone have a great day.