Farmer Bros. Co. (FARM) Q4 2021 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen, and welcome to the Farmer Bros. Fiscal Fourth Quarter 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'll now turn the call over to your host, [Jennifer Milan]. Please go ahead.

Thank you and good afternoon, everyone. Thank you for joining Farmer Bros. fourth quarter and fiscal 2021 yearend earnings conference call. Joining me today are 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 Securities and Exchange Commission's website at www.sec.gov. A replay of this audio-only webcast will be available approximately 2 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 the call, 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, Jen. And good afternoon, everyone. Thanks for joining us today. Our business showed continued improvements throughout our fiscal 2021 year. At a high level in the fiscal fourth quarter, we grew our net sales by nearly 30%, expanded our gross margin by more than 800 basis points, more than halved our net loss and significantly expanded our adjusted EBITDA, all on a year-over-year basis. Our DSD sales improved on a sequential basis in each of the four quarters throughout our fiscal year. And we ended the quarter with DSD sales down 27% relative to pre-COVID levels, compared to down 57% one year ago 2020 and down 36% in the previous quarter. This sequential improvement is driving better gross margin, which also expanded in all four quarters of our fiscal year. Reflecting the efficiencies we built into the business throughout the year we posted a gross margin of 27.6% in our fiscal fourth quarter, which is the best we've seen since the onset of the pandemic. It's worth noting that since completing the Boyd’s Coffee acquisition in fiscal Q2 of 2018, our gross margin has historically hovered around 30% on a pre-pandemic basis. Keep in mind that we're still operating under considerably reduced volumes relative to pre-pandemic levels. So, given the improvements we've already seen, we feel very comfortable in our ability to achieve better gross margins and improved profitability relative to pre-pandemic levels as volumes recover. Looking beyond the end of the fiscal year, we posted our best two weeks of DSD performance since the start of the pandemic in early August. However, these games backtracked marginally later in the month as we saw some week-to-week variances owing to the Delta variant. While I don't want to discount Delta, I can say that it's currently most significantly impacted regions like the Southeast, where we are much less penetrated. Additionally, we're seeing businesses and consumers react differently to the Delta variant than they did to the original spread of COVID-19 virus, resulting in less volatility to our business relative to the initial onset. So while COVID remains a factor to watch, overall, we feel good about the trajectory of the business and how our P&L is responding to our strategy. With that update, I think it's helpful to recap how we executed our strategic initiatives over the fiscal year. We’ve set the stage for what we believe will be a resumption of attractive, longer term growth in due course. In early 2020, we set out to optimize our footprint, rebalance our volumes across our network, and increase operational efficiencies through technological implementations and other productivity initiatives. We communicated our plan on our 2020 fiscal fourth quarter call, one year ago. To optimize our footprint, we said, we would close our aged and outdated Houston facility, further build out our Dallas-Fort Worth or DFW facility and open a new distribution center on the West Coast, where many of our customers operate. Additionally, we set out to modernize our sales strategies and distribution operations and expand our e-commerce offerings. Since that time, we've made rapid progress in each successive quarter. By the end of fiscal Q1 2021, we were planning to exit our Houston facility. Again, installing an additional roaster and several new retail packaging lines in DFW and perform location studies that resulted in signing a lease in Rialto, California, a location we believe would lead to better optimization of our distribution network. Further, we began rolling out our new handheld sales technology to our DSD sales team, invested in new e-commerce and distributed order management software and accelerated the rationalization of our product SKUs. By the end of fiscal Q2, many of these initiatives were materializing as planned. The Houston decommissioning was on track. We doubled the output at DFW and we were preparing to operationalize Rialto. Moreover, we completed the full rollout of our handheld sales technology to the rest of our DSD team, and launched e-commerce sites for our Boyd’s Coffee and Public Domain brands. By the end of our fiscal third quarter, most of our initiatives were complete. Houston was officially shut down. We continue to optimize DFW and brought any appropriate equipment from Houston online, and we opened and fully ramped up Rialto, which allowed us to begin consolidate surrounding regional branches. Finally, we began testing our new distribution order management system and launched our third e-commerce site for our China Mist brand. I'm proud of our team's rapid execution of these critical initiatives, which have set the foundation for the performance improvement we're starting to see. Rialto is now fully operational and new employees are working through training, onboarding as we speak. The three nearby own branches are now consolidated, and proceeds from the sales have been collected. We also have a fourth branch currently listed as held for sale that’s already been consolidated into a nearby Texas location, and it should close in the coming weeks. Our consolidation and network optimization efforts remain ongoing. And we expect they should further improve our cost structure and operations as we move forward. With much of what we set out to do only a year ago already accomplished, we're now focused on optimizing this new structure and driving long term sustainable growth. These initiatives include: continuing efforts to ramp up volumes and further optimize throughput and operations at our DFW and Portland facilities; strengthen our competitive advantage with our coffee and tea brewing equipment servicing lines, CBE; leveraging our wholly-owned natural DSD network to commercialize innovative new products and services and bring them to the market with measured upfront investment; and launching comprehensive digital and IT environment studies to plan our technology roadmap for the future. Speaking first to DFW, it’s operationalizing several new packaging lines and a new NEPTUNE roaster. We've continued to optimize our throughput while simultaneously expanding our capacity. The facility is performing well and volumes and output have increased in each successive month since the onset of the pandemic. We also began rolling out our new back office infrastructure at the facility that will ultimately streamline our workforce productivity and further improve operations. In Portland, we're in the early phases of optimizing our regional footprint, which currently consists of two roasting facilities and several local branches. These efforts fold into our broader footprint optimization strategy, which is increasingly providing better production and flexibility across our network. On the servicing side, we continue to make progress with our Coffee Brewing Equipment business or CBE. We’re currently pilot testing several enhancements for existing and potential third-party customers and expect to share some exciting news soon regarding these efforts. As part of our commitment to return Farmer Brothers to an innovative company, we continued to leverage our DSD network and rolled out several new products throughout the quarter. As you know, our network spans across the entire nation as wholly-owned by us. As such, it provides efficient distribution, which allows us to pilot launch new products into market with lower upfront costs than our competitors. This ability to leverage our network is a significant competitive advantage. It allows us to commercialize new products and services to expand our offerings and further diversify our revenue channels. As part of our commercialization process, we refined and improved our product launch framework, which now enables consistent development from concept to customer and drives internal cross-functional accountability. Ultimately, this process will provide faster product launches and keep us agile and innovative as we expand our offerings and look for future growth opportunities. Another strategic initiative we've been working hard on throughout our turnaround is rationalizing our product SKU count to optimize our products and customer base for profitability. As previously mentioned, we accelerated this process in our fiscal second quarter. We're proud to say that since 2019 we began this process, we've now successfully reduced our SKU count by 48%. As we continue to transform our product portfolio, and shift our focus to harder working SKUs, these efficiencies will continue to flow through our business as we're already starting to see. The last forward-looking initiative I mentioned was our comprehensive digital and IT studies. Again, these studies will provide valuable insights into our operational efficiency of our business, and allow us to act on them effectively, as we further improve our operations and position the business for long-term growth. As these efforts progress, we'll provide you with updates. While we're incredibly proud of the progress we made in our broader turnaround strategy and remain very excited to see our efforts materialize as volumes return, we're still unfortunately facing some lingering headwinds from the pandemic. We continue to face varying paces of recovery across our end markets. We're still waiting for consumer behavior to normalize and for restaurants, hotels and casinos in particular to recover to normal operations. Further, we're working through the same inflationary and workforce shortage challenges that many others have noted. Labor availability remains limited and costs are pressured. Shipping costs and trucking rates have risen across the country, including a price increase imposed by our primary trucking partners in July. Another headwind associated with the current inflationary environment is coffee prices. I will let Scott will talk about our hedging strategy in more detail later, we remain confident in our pricing power, given the structure of both our DSD and direct ship businesses. As we've mentioned in the past, our direct ship business is primarily a cost plus business. So while there can be near-term timing differences, most of the price increases ultimately pass through. On the other hand, our DSD business has required us to manage the headwinds more actively, which we continue to monitor on an ongoing basis. Unfortunately, these inflationary challenges will mitigate some of the cost saves that we built into the business in the near-term. Nonetheless, we remain confident in our ability to manage through this environment and feel comfortable with our position, given all the improvements we’ve made to our cost structure this past year. Overall, our cost structure and operations are in a much better place than they've ever been in recent history. And we expect these efficiencies to continue to accelerate and scale alongside the recovery. In closing, we're happy with the significant progress we made against our objectives over the past year, and are pleased with our year end results, which were better-than-expected given the pandemic's ongoing [rattling] effects. The business is in a much stronger position relative to where we were only one year ago. And while consumer behaviors have yet to normalize fully, we remain confident that the efficiencies we have implemented throughout the business and the structural cost savings we achieved will drive meaningful performance gains as volumes improve. With that, I'd like to turn the call over to Scott. Scott?

Thanks Deverl. While we are not providing a formal forward-looking guidance, I wanted to call out some key metrics and data points that we follow closely, which should give some color on how we're tracking some key metrics internally. Our focus on implementing efficiencies and optimizing our new cost structure remains a top priority for us. As Deverl outlined, we've executed against many of the objectives we laid out at the beginning of the fiscal year. Given the incremental expansion in our gross margin, which we experienced in each of the past four quarters, it's safe to say that these efficiencies are beginning to materialize, despite the reduced volumes associated with the pandemic. At the onset of the pandemic, we set a $6.5 million per month cost savings target, which was relative to our pre-pandemic normalized expense run rate. We exceeded that goal in the fiscal fourth quarter of 2020. Today, we're recording approximately $5 million of cost savings per month relative to our normalized run rate despite the increased SG&A expenses associated with bringing back employees, which speaks to the efficiencies we've built into our cost structure. We expect a portion of these cost structure improvements to continue to materialize in our cost of goods sold and ultimately provide gross margin expansion over the long-term. Given these factors, we're excited to see what the business will look like once volumes fully recover, and feel comfortable with the expectation of higher gross margins, a lower cost to sales ratio, and therefore, a higher EBITDA margin over time. Turning now for fiscal 2021 fourth quarter results. Compared to pre-COVID levels, we achieved notable sequential improvements in DSD sales in each of the four quarters throughout our fiscal 2021 year. As we noted in the past, the most significant DSD sales declines have been in our restaurant, hotel and casino channels, while demand in our healthcare and C-store channels was impacted to a lesser degree. However, as Deverl noted, we recently experienced some minimal deterioration in our DSD performance due to the Delta variant, which we began to see a couple of weeks into August. Nonetheless, our DSD business has been far more resilient recently, compared with the choppiness we saw during the onset and first waves of COVID. As we look to outpace the recovery within each of our DSD end markets, we continue to monitor our DSD performance closely and find ways to optimize our operations, including new investments in technology and personnel. Turning now to our direct ship business. Overall, our direct ship sales in the fiscal fourth quarter improved from last quarter, and were slightly below last year's fourth quarter sales due to some customer wins and other factors I will cover shortly. But our full year direct ship sales declined 12% on a year-over-year basis. As we've mentioned in the past, our direct ship channel has been less affected by the pandemic given the types of customers we serve in the channel, which includes our grocery and third-party e-commerce customers, both of whom experienced rapid expansion throughout the pandemic. Overall, our year-over-year direct ship volumes throughout the current fiscal year were primarily impacted by customer exits in the previous year. These exits are part of our optimization strategy as we’ve continued to refine our customer base to ensure profitability, which did result in lost volumes on a year-over-year basis over the past few quarters, with the previous third quarter being the most heavily impacted. Due to the size of these customers and their orders, we can also experience tiny differences at quarter end, when large orders are fulfilled in the first days of the next quarter. This is also a contributing factor in the year-over-year declines we saw in the previous quarter, although it was reversed in the current quarter. And as Deverl had mentioned, we are not immune to inflationary headwinds. However, we continue to leverage our pricing power to manage our DSD business and remain less concerned about our direct ship channel as the business’ cost plus nature will, for the most part, take care of itself. Nonetheless, the current environment has continued to put inflationary pressures on commodity prices, and coffee is no exception. As such, we remain aggressively hedged on coffee prices throughout our heaviest volume, near-term seasons, and partially hedged through much of the next 12 months. With that said, we remain confident that our hedging strategy will help mitigate any near-term price fluctuations. Our net sales in Q4 '21 were $103 million, an increase of $22 million, or 27% from the prior year period. The increase in net sales was primarily driven by the continued recovery, as restrictions have eased across the country, and vaccines have become increasingly accessible. Our gross profit in Q4 '21 was $28 million, an increase of $13 million from the prior year period, and our gross margin increased to 27.6% from 19.2%. The increase in gross profit was primarily driven by higher net sales, while the increase in gross margin was driven by improved customer mix within our DSD business, and the structural improvements implemented throughout the fiscal year, all of which lead to better margins within the DSD and direct ship channels. However, the improvements in both metrics were partially offset by higher coffee brewing equipment costs, including higher servicing and parts prices, in addition to unfavorable production variances, resulting from costs associated with the closing of our Houston facility, and the production ramp up at our DFW and Portland facility. We posted a net loss of $4 million in Q4 '21 compared to a net loss of $9.7 million in the prior year period. We produced adjusted EBITDA in the fourth quarter of $3.4 million compared to adjusted EBITDA of $0.7 million in the prior year period. Our adjusted EBITDA margin improved from 0.9% in Q4 of '20 to 3.3% in Q4 of '21 due to the structural improvements implemented throughout the business, and continued cost controls. Turning now to expenses, our operating expenses in Q4 '21 were $35 million, compared to $29 million in the prior year period, and decreased as a percentage of net sales to roughly 34% compared to 36% of net sales in the corresponding period of the prior year. On a dollar basis, the increase in operating expenses was primarily due to a $3.2 million increase in selling expenses, as we continue to bring back workers and routes to support our sales growth, and a nearly $1 million increase in G&A expenses, which was primarily associated with our supply chain optimization initiatives. Additionally, SG&A expenses as a whole were negatively impacted by an accrued employee incentive bonus that was paid out this year. This was needed to ensure proper talent retention and reward the employees who performed at such a high level throughout such a challenging year. Of note, we did not pay employee incentive bonuses in the prior year due to the pandemic’s impact on our business. Looking ahead, it's worth quickly noting that as volumes continue to recover, we can also expect some expenses, such as costs associated with routes and employees as they return. Additionally, we will have the costs related to our newly leased facilities in future periods. Our total CapEx in the fiscal 2021 year was roughly $15 million, compared to approximately $18 million in the prior fiscal period. The decrease was partially due to lower equipment demand given to the pandemic and more significantly due to the continued momentum in our CBE business as we're increasingly refurbishing more equipment than buying new. This initiative, alongside other cost savings initiatives put in place due to the pandemic drove our maintenance CapEx down to roughly $8 million in the fiscal 2021 year, compared to about $12 million in the fiscal 2020 year. This was partially offset by higher initiative capital spending of $7.4 million compared to $5.7 million in the fiscal 2020 year, which was due to several investments made in our new facilities and other optimization initiatives throughout the fiscal 2021 year. As we look forward, we anticipate maintenance CapEx to be between $11 million to $14 million in the fiscal 2022 year, which we expect to be driven by higher coffee and tea equipment placements, and our ability to refurbish equipment versus buying new. Deverl touched on our CBE business briefly, but I'd also like to say a few words on the initiative as well. In terms of our refurbished versus new equipment mix, we will likely settle into a regular blend of about 70% refurbished and 30% new in the longer term. Please note that this is for our wholly-owned CBE business. This is not to be confused with our third-party CBE offering, which we began pilot testing in some of our key markets during the fiscal fourth quarter. Once fully operational, this initiative will largely turn a cost line item into service revenue line item, as our CBE team will begin servicing customers outside of our current network. This initiative remains in its infancy, but we look forward to updating you on future progress. Now turning to the balance sheet. At the end of the fiscal 2021 year, our total outstanding borrowings were $91 million, including $43.5 million under our revolver and $47.5 million under our term loan. We ended the fiscal year with $10.4 million of unrestricted cash and cash equivalents and $25.7 million of liquidity available to us under our credit facilities. Our net debt, which we define as the gross amount borrowed on the revolver and term loan balances, less cash and cash equivalents was $80.7 million at fiscal year-end, compared to $79.5 million at the end of the previous quarter. To provide a more real time update, our net debt was $79.6 million at the end of August. Lastly, before turning the call over to the operator, I want to call out one more notable line item on our balance sheet. On a year-over-year basis, we significantly reduced our accrued pension liabilities and accrued post-retirement benefit line items. Cumulatively, the line items declined from roughly $69 million at the end of the fiscal 2020 year to around $40 million at the end of the current fiscal year. This reduction in liabilities is primarily due to pension investment performance, and the annual revaluation in addition to the cancellation of specific retiree life insurance programs. Thank you. And with that, I'll now turn the call over to the operator to answer any questions. Operator?

[Operator Instructions] Our first question comes from Gerry Sweeney of ROTH Capital.

I was wondering, obviously, Delta is an issue, right? And I was wondering if you could maybe give a little bit more detail of what you saw in the Southeast versus maybe the West Coast where I think a higher percentage of your coffee. And there are different reasons, different vaccination rates, maybe different personalities for lack of a better word, but just curious if you saw any material or what's the difference between the regions for instance?

Yes, as you know Gerry, we don't break out regional performance by regions. However, when you look at the country, as we mentioned in the Southeast, we felt more impact there from an overall industry perspective. But we don't have as much penetration in the Southeast. That being said, when you look at the overall performance, we've seen a lot of pushes and pulls, as you know, we've put additional sales ambassadors. We put additional business development managers and we're aggressively in our strongest markets attacking new sales opportunity and are winning in many cases. I think when you look at the cost savings, you look at the revenue opportunities that we are driving that a lot of work that we're doing, once we get back to that new normal and a full recovery, we'll see much better lift. That being said, the differences in the way you described, the Southeast and your question there is, I think we all know from the data, as we're watching the CDC and other governmental officials, how it's been really difficult in certain regions of the country. And in that perspective, we can see those numbers move, as we've seen other parts of the country, open at a very steady clip. I'll turn it back to Scott and let him give you a little bit more color from his perspective.

Yes. Thanks, Deverl. I think the only other thing we've learned really from being in this kind of pandemic environment now for going on 18 months is that -- and we noted in the script as well is, on one hand, we've got a national footprint, so we have lots of data. And as we see, maybe, virus outbreaks in particular regions or areas, we can watch that really closely and see what's happening on a localized basis. And I think as we called out in the script, we're just not seeing the same behaviors in the last few months with the Delta variant as we did last year. And obviously a lot of governments and businesses, they're not putting the same restrictions and closures and other things on the business. So I think that we're just seeing people react differently and kind of learning to live with the virus a little better, even though where there is an outbreak on a local basis we see an impact, but nothing to the degree that it was in the past.

Got it. And Deverl, you touched on it a little bit on the growth side, sales ambassadors to aggressively going after business. Are you starting to take share getting new customers? Obviously, there is the COVID headwind, but then there it sounds like you're also gaining new customers. Is this being driven by new products, reinstating routes? What's happening on that front?

Well, there is a plethora of strategies as we noted in the script that, we're taking in terms of broad restructuring our sales groups and having these sales ambassadors and business development managers. But let me be a little bit more specific. There is current channels that we are really strong in, casinos being one that we've had a historical presence and we are fighting every inch down the street to win that business. We have had a recent few wins. When I talk to my sales team, their pipeline is full of those examples. And in some cases, we've had a double up in some of our casino business, not just by our traditional products that they bought like coffee, let’s say, but we’re going there with our tea program, our spice program and a plethora of other premiumization on the espresso side and in room. And in one case, we had a double up. We've got a lot of others that we are winning. And then you look across the up and down the street business to your question on share, as you know, this industry being the only publicly traded company and the information that we provide, I will just tell you that, share is something we broadly define. We look at it, we don't report it publicly. But I can tell you we’re as aggressive right now we've ever been. And when we get opportunities, and we get that call, our folks are out there. And I think our biggest opportunity to see how much leverage that we've created through our network over the last 12 months, is when we get that full recovery, and we get back to the new normal of volume, you'll see better drop through than what you've seen in the reported numbers that we just gave for the full-year. And the current few months that we’re in right now. Even with the balance of Delta, and overall COVID, we're still holding around winning in many accounts. I think we could attribute some share opportunity in the key channels that we’re chasing. And lastly, I’ll just say this. You heard us talk, we needed to fix the base, we needed to optimize the base, and we got to define a better future growth strategy for where when we get back to that full turnaround, we can import to our commercialization on new products. We’ve reformulated our entire pancake line, which has been a really great success. We have other specific direct ship private label type customers that we've innovated of recent and launched new cold brew products and other types of services with them. And I think when you start to see us ramp-up, we can really focus hard on commercialization of new products or bringing in products like we did with High Brew or NuZee or things of that sort to continue to leverage our single biggest competitive strength against all our competitors, stand at the fact that we have a national distribution network with a CBE tech services capability to install, refurb and repair equipment. And that is what makes us differentiated against the marketplace. So, I'm excited about where we're at. And this is a really good quarter results relative to where we've been over the last six quarters. So, I think, hang on and watch us do more as the quarters come, and we'll be more open in terms of some of the strategies around growth as we define those in the coming months and quarters.

Got it. And as you know, I'm a huge fan of the DSD business and I don't want to shift away from everything you just said there. Just one quick question. And -- on the direct ship side. Obviously some of the volumes came down. Some of it was timing, but some of it was maybe around less than ideal contracts that had been on the books for a while. How much of that business still remains and how much more of that you have to work through on maybe under price contracts?

Well, I would say right now, we're clear of those contracts. As I've said in my first quarterly call, when I joined two years ago, we weren't going to not grow for the sake of growing, we were going to look at what business that we could go back and work with those customers and either take price or change the operational cost basis to make those customers profitable. And we've done that, and we've cleared those and now you're seeing the net result. We have during that period of time grown new customers and grown inside the existing ones that we define as strategic direct ship national accounts. And that's, I think you'll see us continue to position and grow that business as we can't invest and not build it and they will come. We will not be taking that strategy on. We will be working the volume, building out the capabilities. We have room and facilities to do that. And as we bring on good profitable volume, we will add it in. And I can guarantee you that direct ship is still in the ratio that we had, and we reported on a pound basis is still roughly two-thirds of our pound volume and one-third. So, let me kick it to Scott if he has got some additional information, and I think he can give some more color on that.

Yes. Gerry, just as we think about both quickly, but direct ship, I think that losing and gaining customers on the direct ship side of the business is intuitive enough because we've literally described exiting unprofitable customers. And obviously, as we're adding customers, we're being pretty diligent about ensuring their profitability. So, you can almost make the same analogy back on the DSD business, if you think about there for a moment. If we look at the customers that we declare as lost customers that haven't bought in over 90 days, they definitely over-index to what we call Tier 5 customers, which are our lowest sales and our lowest profitability customers. Whereas when we look at the new customers that we've been adding in the DSD channels, they are a much more profitable, they're higher sales and higher profitability. So again, that's part of that productivity and structural improvements within the business that we talked about, it's definitely on both sides as far as lost and gained customers.

Thank you. At this time, I'd like to turn the call back over to CEO, Deverl Maserang for closing remarks. Sir?

Thank you. I look back at my last two years and this last year specifically, and really the last six quarters, I would say that our team absolutely has had some of the most challenging times in each of their careers, and yet some of the most rewarding. The results that we've posted today speak to how our strategy and all the changes we've made to our business over the past year, it's working. And since the end of the fiscal year, our performance has continued to show signs of strength and that should further improve as our volumes recover. We're excited about what the future holds and look forward to communicate more updates with you in the coming periods. Thanks again for joining us today, and we look forward to talking to each of you soon.

This concludes today's conference call. Thank you for participating. You may now disconnect.