Q3 2019 Earnings Call
And to our participants standing by for today's Perma fix conference at this time or admitting additional colors and hope to be getting underway in the next couple of minutes. We thank you all for your participation as well as your patience I may ask that you. Please continue to standby.
Ladies and gentlemen, good day and thank you all for joining this <unk> environmental services third quarter 2019 business update conference call. All telephone lines are presently in a listen only mode, but instructions on how to submit a question will be shared after today's prepared remarks.
During today's conference you require operator assistance simply press star in zero on your telephone keypad and as a reminder, today's meeting is being recorded for opening remarks introductions I'm pleased to turn the floor over to Mister David Waldmann with Investor Relations Welcome David.
Thank you good morning, everyone and welcome to permit thinks environmental services third quarter 2900 conference call.
On the call of this this morning are marked off president and C.E.O., Dr. Lucena Funny executive Vice President of strategic initiatives, and Ben Naccarato, Chief Financial Officer. The company issued a press release. This morning containing third quarter 2900 financial results, which is also posted on the company's website. If you have any questions. After the color with.
Like any additional information about the company. Please contact Crescendo communications at 212671, 102 zero and also like to remind everyone at certain statements contained within this conference call maybe Dean forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995 and includes certain <unk>.
Financial measures all statements on this conference call other than a statement of historical fact or forward looking statements that is subject to known and unknown risks uncertainties and other factors, which could cause actual results in performance of the company to different materially from such statements. These risks and uncertainties are detail than the company's filing for the securities and Exchange Commission as well.
This morning's press release company makes no commitment to disclose any revisions to forward looking statements or any facts events or circumstances. After the date here of the bear upon forward looking statements. In addition, today's discussion will include a reference to non get measures Perm effects believes that such information provides an additional measurement and consistent historical come.
Berenson of its performance reconciliation of the non get measures to the most directly comparable GAAP measures is available in today's news release and on our website.
Now like turn the call over to Mark Duff. Please go ahead Mark.
Alright, Thanks, David.
We're very excited report a third quarter earnings today, which we believe demonstrates.
Success of our growth strategy over the past few years, our entire company has been focused on the implementation of the strategy in significant time and energy by or management team as well. Other staff has been spent to receive growth objectives would show are reflected in our third quarter performance.
He's a calm from his accomplishments set the stage.
Performance in 2019 as well as the next several years, specifically I'm pleased to report the perfects achieve strong third quarter operational and financial performance in both the treatment and services segments. However, <unk> more important even as it were very well positioned to heading into the fourth quarter and next year.
Let me take a minute to recap some of our financial highlights in later, Ben we'll discuss the financial results in more detail.
Revenue for the third quarter increase 88%.
22.5 million, our services segment revenue increase 332%.
To 12.4 million and our treatment segment increased revenue increased 11% to.
Pinpoint 1 million.
We generate adjusted EBITDA of 2.4 million.
Paired two 510 k. for the same period.
Last year.
Actually we achieved net income attribute will common stock holders, a 1.8 million or a 15 cents a share for the third quarter of 2019 compared to to 121000 or two cents a share of the same period last year.
As a result of this growth will improve contract backlog within the services segment, we believe that our finance route look for the remainder of 2019 and 2020 remains very strong as we've announced to press releases the past several months <unk> several successful contractor wins.
Impact our services segment performance, both operational and financially. These winds of includes several new projects with the department of energy cleanup program as well as commercial clients Department of defense projects and rapid growth in Canada, I can talk conducting.
Contaminated soil remediation.
Our success and managing these recent projects has resulted in development of a positive client reference base that is critical towards the future of requirements for both the prime and some contract opportunities.
This one modem has been bolstered by a plethora of new bidding opportunities in both the government and commercial sectors that directly in line with the perfect offering which provides an exciting growth outlook for the coming years.
Our performance over the past four or five months.
So loud perfects to strengthen her management team through additional key staff and deserves a segment to include a senior project managers engineers and experienced technicians to bolster our project in performance.
And our customer relations with other new procurement.
In addition, we've been able to enhance our offering through new technologies, including our <unk> school sorting system with two new successful procurement wins this quarter that will support deployment in 2020.
Within a treatment segment, we broaden our offering through ongoing expansion within each of our three treatment plants to include new comprehensive equipment dismantlement capability.
Northwest facility I'll continue construction at our own grid facility to support increase storage.
In new treatments system deployment are insignificant upgrades to our Florida facility to enhance efficiency and improve our working conditions. We believe these steps supposition us to support new procurements within the D., a wee as well as broadening are offering to several targeted do you d. initiatives.
The G.M.L. Vitrification unit at our perfects northwest plant as before him very well.
We continue to increase efficiency is this new capability allows us to address a large inventory of reactive ways currently and storage at several government locations.
Provides a substantial multi year backlog from a new incremental waste stream.
Discussed in the past the inventory of this way stream is estimated to be in excess of 100 million.
Including large inventories at Idaho as well as at Hanford in here in Oak Ridge.
Oh, we're continuing continuing good progress.
On the expansion of our Tennessee in Florida locations, well, managing our capital spending a once complete we anticipate return on investments in excess of 40% for both these initiatives. We expect these initiatives weekly to be completed in the second or third quarter of 2020.
For this reason we continue to focus on expanding our market base in the treatment segment through aggressive marketing initiatives within both utility and decommissioning sectors as disgusting or last call. We finally completed the closure of the M.R.M.C. facility, which consolidates waste treatment.
Capabilities within the three remaining facilities.
As a result of disclosure of M.P.C. facility received 5 million and cash.
<unk> as collateral for the facility under our financial insurance policy.
The perfects team remains focused on safety on all of our projects and facilities walk continuing to drive grow through innovation I have to our clients that result, intangible cost savings in value.
The next few quarters, we anticipate the announcement and launch of additional capabilities.
That will directly result, and sustained growth in financial stability in both waste treatment and our nuclear services offering.
So to wrap up we're now seeing the benefit of our strategic initiatives over the past two years.
<unk> two are strong revenue growth, we're seeing the benefit of our initiatives to improve operational efficiency used within our organizations as well as a result and police report. We've we've achieved net income 1.8 million for the third quarter of 2019 overall were extremely encouraged all the outlook for the business.
US as we continue to grow our services business, which provides as good visibility into the future quarters. At the same time were advancing a number of significant opportunities to leverage are fixed waste.
Ah treatment facilities, providing innovative treatment options variety of new could away streams.
Will broaden our market base.
Oh, we continue to enhance our balance sheet.
Anticipate further year over year growth strong cash flow.
Sustained profitability in the fourth quarter of 2019 and heading into 2020.
On that note.
Oh now turn the call over to ban who will discuss the financial results in more detail then.
Thank you Mark.
I'll start with revenue our total revenue from continuing operations or the third quarter was 22.5 million compared to the prior year 12 million.
Revenue from the service segment 12.4 million compared to just 2.9 million in the prior year, that's an increase of 9.5 million or 332%.
Increases direct result of the increase the project work in the segment primarily from contracts awarded the past your quarters.
Revenue from our treatment segment 10.1 million compared to 9.1 million in the right here.
Increase of 978000 or 10.7%.
Increase so primarily from average higher higher average pricing from waste process and disposed though.
For nine months ending September 30th or total revenue is 51.4 million compared to 37.8 million into prior year.
Both of our service they both of our segments revenues of increase compared with prior year with the service segment, increasing by 101%.
Increase project, we're well the treatments they may revenues of 10.6% at average higher pricing.
Our costs, a sales 17.4 million.
10.2 million it in the prior year costumed treatment segment decrease 796000.
As a result of a decrease in the closure.
Fences at our M.L.D.C. facility of 1.1 million last year.
Decrease was offset by increases in our variable costs, which relates to revenue, while our fix facility costs remain relatively flat.
In our service segment costs of sales increased by million as a result of the increase in rather than.
Or gross profit for the quarter was 5.2 million compared to 1.8 million in the third quarter of 2018 that increase of 3.3 million or 182.6%.
Excluding the 1.1 million reduction enclosure expenses that in many c. gross profit increase by 2.2 million or 76.7%.
Gross profits were higher.
Acted by higher revenue in both segments as X. costs.
Only marginally in the service segment, despite significant increase in revenue.
Ah Argh year to date gross profit.
10.9 billion compared to 7.2 million last year. This increase is the result of higher revenue evoke segments and the reduction of closure expenses that him and he see offset by higher fixed costs.
R.S.G.N.A. for the corridor.
2.9 million or 13% of revenue.
From 2.6 million or 22% of revenue last year and this is due to higher labor related expense.
Year to date, R.S.G.N.A. were 8.5 million or 16.6% of revenue compared to 8.1 million or 21.3% of revenue.
Higher payroll related and property expense, whether it may drivers for this.
Our income from continuing operations net effect.
For the quarter was 1.9 billion compared to 317000.
In 27.
Last year.
You're the date income from continuing operations was 1.7 million compared to 1.4 million prior year.
We had a net income attributable to comment shareholders for the quarter of 1.8 million.
To last years that income of 221000.
Gear to date income attributed with common shareholders was 1.4 million.
There to 965000 last year.
We had a basic and diluted net income per share for the quarter of 15 cents compared to net income per share of two cents prior year.
Yeah, you on the year to databases Bay basic net income per share was 12 cents compared to eight cents in prior year and diluted net income per share was 11 cents compared to.
Right here.
Are adjusted even stuff from continuing operations for the quarter as we defined in this morning's press release was 2.4 million compared to 510000 last year.
And our year to date.
Adjusted even stuff from continuing operations is 3.5 million compared to 2.1 million and are you.
Turning to some key balance sheet activity compared to 12, 30, 118 or cash on the balance sheet was 2.4 million compared to 810000 a year end.
Cash from the finite risk fun and the operating the improved operating formants, where the main drivers for that improvement.
Accounts receivable and Unbilled receivables collectively of increase by 9.2 million, reflecting the increased activity in service segment.
Our current assets are up 710000, due to higher prepaid expenses, primarily from the renewal of the company's insurance program.
Are operating lease right of use assets were 2.6 million representing the present value of operating.
He says as a result of implementing the new A.S.C. 808 42.
Regulation.
Intangible and other assets were 4.5.
<unk>.
Merrily from the release of the 5 million, we're down 4.5 million.
Primarily from the release of the 5 million a define that risk thinking fun closure of Yemeni feet, though and.
Our current liabilities from continuing operations were up 4 million, primarily due to increases in the service is saying.
Backlog quarter end with 10.6 million down from 11.1 at year end, but up from the 9.4 million.
<unk> 2018.
Our long term liabilities from continuing operations were up 3.3 million primarily from.
The new accounting for leases under E.S.C., 42 of which 2.4 million of increase represent the present value of our operating lease liability.
Our total data quarter end was 5 million excluding that issue into costs.
Of which 2 million is O.T.N.T. bank.
2.3 million to our shareholder loan and 670000 for other financing.
Nextel summarize our year to date cash flow activity in September of.
30th of 19.
It's used for continuing operations.
Was threemillion cashews for discontinued operations was 459000.
Cass used for investing continuing operations, primarily capital was 812000.
Cash provided from investing activities.
Discontinued operations was 100000.
Cash provided from financing was 1.1 million.
And this is made up of our monthly payments to our term loan of 717000.
Payments to our revolver of 639000.
2.3 million from funds received from the shareholder loan [noise].
Repayments made.
And the other least financing of 119000.
Finally, before I turn the call over questions I'd like to take the opportunity to discuss the fixed cost savings into treatment segments that resulted from them and you see closure.
At the time the decision was made in 2016 to close them and you see we anticipated that this would result in a decrease the fix facility expenses between or $5 million.
The non cash reductions appreciation in amortization accounted for about 2.4 million of this about while the other fixed costs included labor.
Including labor represented to cash savings.
Cash savings portion turned out to be approximately 1.9 million for a total fixed cost reduction of 4.3 million.
Facilities now clothes than we are not incurring costs at this location. So the for three 4.3 million saving have been realized however, since the announcement.
Which was over three years ago.
The segment has evolved and there's been strategic changes and other changes that have increased in other operating expense.
In 2016 treatment revenue was 32.5 million and this year 2019 were and you live.
The <unk> trending at about 40 million.
5 million of this increases come from new business that was not at M. and see.
In order to generate this new revenue.
We've incurred additional labor and of course cost of living increases that have increased payroll by about a million five.
And the other big number that's gone up has been the healthcare costs, which have increased about 400000.
In addition.
Costs certain costs have been incurred at M.L.D.C. through June of 19, this year and there have been in a few other unusual costs, which annualized at about a million dollars he should not recur.
Moving forward.
So in summary.
Are fixed costs of goods sold in 2016 were approximately 19 and a half million.
Three years later, our third quarter annualized run rate of these fixed costs are 17.5 million.
That that comes from a decrease of or plus million <unk>, which is partly offset by the 2 million of new costs from new business and inflationary related.
Without operator, I'll now through in the fall over the place.
Thank you.
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<unk>.
Thank you <unk> Ben congratulations on.
Not only a grade quarter, but the whole process of what you've been doing since you joined the from Mark So congratulations much <unk> <unk>.
He is very very welcome.
One, but just a couple of question one.
Ugly Mark.
On a going forward basis, how do I look at these split between treatment and services say not to fourth quarter, but certainly for 2020 and 21 could you give me some sensor that please.
Yeah, I'd have to say right now or well, Paul because this year and and the 50 50 range. So just about half a and next year it'll be more 40 to 60 per cent, 6% to 60% being.
Services.
And I mean, we see a much steeper services revenue increase but the margins are are not and not as much as they treat.
So, but yeah 60, 40 for next year at least a and probably probably close to.
<unk> to 70 in the following years.
70, 30, 70 being services 30, D. no treatment.
Right.
Okay.
Then.
A couple of a specific questions and I'd like to talk T.F. law off line about some others. Once accused <unk> when do you expect to q. by the way.
We're hoping to get it out today.
Okay fine Thanks, I <unk>.
Tell me either.
And to free cash flow.
Some sort of a sense now and on a going forward basis.
Well on a going forward basis, you'll see it.
You'll see it you're the one.
Caveat is we are ramping up our capital spending for some of these initiatives so that would be your biggest.
Reduction to a free cash flow.
But generally diva.
Will we expect even stopped continue to be strong you know we have much of the cash from the finite.
If money was really pay the bills that had accumulated from the closure and we're past that now so I think I realize yeah 20 meant by you just on a going for a basis say looking into 2020, just as an example.
Yeah, I think I think you're going to see the even.
You know our cat spending again is probably the only.
Signet, where we we've got pretty good N.O.L.. So we're not paying taxes for this nice little while I'm, so really the cap spending, which we're not going to we're not going crazy with calf spending our usual we used to spend in a million range I think we're going to be looking at more like.
Million a year for the next little bit.
Some of the some of the new initiatives.
So I think you can take your even the minutes and and just.
Factor in about a million five to to have caps fending for free cash flow.
Alright.
Unbilled receivables.
9 million, that's very good number compared to December of last year.
When do you think that runs off and obviously they build up over time. So I'm just talking about current wonder that convert to revenue.
Immediately Howard most of our on Bill because of the service business. It takes if it's a bit of a process to get an invoice put together is an invoice every invoice every month is like a small phone book, but those of you remember phone books and with backlog backup. So we have crew.
We booked the and the revenue at the end of the month, then we usually slip the bill in about a month.
Yeah, I'm old enough to remember a phone looks.
That's a reflection of that's a reflection of the increasing the service side.
And that those those invoices flip a within you know usually within 15 days.
Alright, one last question then all different when they you know when it comes out and give you a call done offline.
I just have to laugh allowance daffodil accounts is up.
Oh, what what part of the government's isn't paying you.
Well, we we have other customers.
That are not necessarily governments and we have a we have a standard model, where we just a crew when certain things get age and some of those good government customers, you're talking about like to nickel and dime us with.
Details of paperwork and sometimes it ages, but it's usually reversing once they do pay.
By aging how we go up so nothing that's a a great concern right now.
<unk> if I may please.
I look at a year from now.
How will I look at the company, we we talked about certainly a service hmm.
16, 70%.
30% to 40% treatment well what kind of revenues do you think we can be looking at say the end of 2020 on a going forward basis.
Well, we've been our our goal has been for quite some time actually two three years ago. We said this goes it by the end of 2020 to be annualized it in 100 million. So that that's been our goal or focus.
And that we feel like we're on that track things can happen between now and the next year, but we anticipate meeting that goal.
Annualized basis on a month monthly burned basis.
Thank you again, Mark then congratulations great job <unk>. Thank you.
My pleasure.
Yeah.
And once again to our phone audience. If you would like to signal for a question that is.
Please be sure that you return.
Before pressing.
A lot.
Next to the line of Walter Shanker at excuse me private Investor rather please go ahead.
Open.
Sure.
<unk>.
Advisers, but two questions first as you ramp up service contracts that requires hiring a significant number of people.
Why the extent as you worked through those contracts, which are multi period contracts.
Do these people go through a learning curve and therefore become more efficient and profitability could improve as you work through these larger contracts. That's the first question.
Yeah, well, that's tough to quantify but you're obviously right. We've we've hired 80 people on the past two quarters, just starting it starting at about the April timeframe.
And so we have hired a a lot on new folks on but not so much that require a lot of training. We're we've been able to find people far projects that are willing to to to go on the road and support the the field operations as well, some here and and and in the corporate as walls the treatment plants.
So that really hasn't been difficult yet as far as having to train folks. So the impact of the that ramp up I I may it may be a few a few weeks of and efficiency, but we're off and running and all are projects within a few weeks and we typically build that into our schedule.
That we put in our proposals.
We're going to have to train a certain number of people. We may have you know a couple of weeks of of a ramp up but for the most part it's it's it's negligible so far.
Good second question I'm, just going to read a sentence at the same time, we were advancing a number of significant opportunities to leverage are fixed waste treatment facilities.
By providing innovative treatment options can you put a little more color on what's so I'm sure opportunities might be.
Oh for the for the plants themselves each plant, we're looking at it new.
Technologies.
As I said, a few calls a go <unk> the thing we've been doing very well or or because of almost half has been doing very well is defining waste streams that either can't be treated that are out there which is surprising.
Uprising large number or waste streams that we can't treat efficiently and in fact that other people retreating or they just are being treated at all or are are being treated inefficient lower level more expensive. So we're looking at those inventories we define those.
And our technical folks and our engineers define technologies that can do the most expensive billy or or at least efficiently.
And we're in the process of the the the pulling those in each of our sites new ones. We we did several last year when we talk about g. them out in the water program in Florida, Oh, we've got a similar ones going on it.
It here in Oak ridge to treat freon into tree. Some other way streams that are coming into view and one of those technologies and get a completed then we'll start marketing and you know announce some through press releases those kinds of things. So each <unk> each plant, we hope to have some type of.
Improvement each year.
And broadened our inventory that we can treat.
Okay.
And you still or at some point.
Thing to hear what might happen at Hanford to expand that we are we are you know the department of energy keeps delaying that award and.
I'm not sure what the new data is now it was was supposed to be last time, we were at a conference. They talked about it was supposed to be in the several January time frame I'd I'd suspect that that we're probably push snap from there. So I'm not sure where it is and you know it would all be speculation to to make a guess as to when that would be.
Okay. Thank you very much.
Thank you Walter.
[noise] next we'll hear from the line of Fisher with long cast advisers. Please go ahead you were line is open.
Hi, Mark a again echoing what other people said you know once you're on a good job on the turnaround was.
Industry had for a sack.
Anytime just sold its managed services business I.
I think florist, considering the salads bears.
What is what do you see shaping have any industry do you see ourselves as acquires.
I'm just wondering if you could just chat a little bit about how the industry might be shifting.
As these large primenews are going through changes.
Well, that's that's it really interesting question of you know and.
I don't know what to make the a calm floor situations, you know, whether they're right at all or or indicative of industry trends.
Oh, one more just indicative of those firms and where the rest of those those guys are you know I I could speculate and say that that it seems like most firms that have big ties to oil and gas had to make some adjustments along the way based on changing margin and those kinds of things, but that'd be just speculation on my behalf as far as our our.
History goes you know it hasn't changed that much you know it it the amount of funding that Department energy has ended up cleanup program has been somewhat flat. The last couple of years, it's increased over your prior years and there's a lot of opportunities to bid.
Way more than normal.
And as far as we're concerned it doesn't really have much of an impact I does impact who we team with an and what who what subcontractors are or or more smaller team partners are on each team.
But generally we provide the same same niche.
To to to your irrespective of how those firms evolving change you know our niche is a waste management and Red Rod protection services.
And that that stays the same so and and that that market or some market has been growing.
And as we build our technical staff, we have more to offer so along with their technology. So.
The answer your question really directly it it has limited impact on us and I think it's more they're changes are more indicative of each firms a specific situation.
You think it changes your ability to gain share.
Not really because the the big Boys you know you can throw a calm floor and and a Jacobs beat of X.T. in a few others in there.
They're they're they're going to be tier one prime contractors and we're not.
We're not going a bit on a billion dollar contract.
No it doesn't have a big impact on us overall.
Alright, thanks, so much appreciated thank you.
[noise] gentleman, if you're attempting to signal us today.
Question or get clarification on anything covered in today's release.
Sure that you return to your handset before pressing.
Sure that your signal does reach our equipment well here next from shareholder Mr. Stephen Fine Your line is open.
Congratulations guys.
You know I think the the interesting point than previous calls.
There there have been comments that what was promised in hot Rod habit.
I think in the last call I remember, marking saying this should be the implant certain quarter and clearly it is.
It's beyond my greatest expectation so congratulation see you all it's wonderful to you know to watch a plan you know put into effect and it to be executed and so forth. So again congrats.
I find what is very very interesting.
As I learn more about this company.
Has.
And I I guess I got to ask the questions <unk> when you talked service.
Do you.
You need the plants for service.
No we define it and service D., even as a very clearly a field project. So.
Services are projects or a contracts that are not in the facilities in the field Adam at a client site or you know support from court from our offices, but not in the plants.
Thank you.
And I got a question for you Uh Huh, Yeah for right now we were to rebuild the three plants, how how much you think that would cost.
Mm.
Oh, well well you know we get this question a lot it's a lot <unk>.
Ballpark probably.
50, 40 50 million.
That's all.
Maybe more.
Hi.
If I'm. It's it's lawyers you know permits you got a lot of intangibles that it's hard hard quantified cost, but probably that number.
Size.
I guess, where I'm Darling, where I'm going here is when I hear you say mark that down the road you could be 70 30 in service. So that means that in essence, using <unk> you know I mean, you're not going to do it because you're doing some neat stuff adopt a neat says hey, you've got to business, if you own needs to plant down the road.
So no I I would yeah I wouldn't I, yeah, we're not assume that at all our plans to provide the real entree into our services yeah real niche for.
For example, we're doing a project out west right now or or do the remediation and <unk> and doing the waste treatment and they're they're very linked together and it's a real discriminator. So no I I would say that that we would not be the same company without this plants in in in bed said and 45 to 50 million that was a ball.
Park, but I'm sure Lou would would agree that the permitting.
Process for those are tens of millions of dollars, so the permits or yeah, probably equal equal and value to the actual facilities.
Okay.
But you know the exciting me being citing thing than me.
You know, having some background in government contract is that you're a bobbing a business where like it's something like hamper those that gentlemen, <expletive> comes along it's yes icing on the cake and that you're building a business that can stand by itself.
And particularly when you say that they the greater proportion of the business is going to be service and that's great. Because you know if you have a change of government or what have you are we got impact. There you are going to have a sustainable escalating business because no. One would think as you get no more.
You know you do more but you know at the same time as you said, which I think it's amazing is that the approach that you're going pro relative to treatment is you're looking at these very esoteric treatments, you're looking at very esoteric thing and your capabilities are are are esoteric so anyway.
About all I have to say because I I, you know and the other point, which no. One has bought out and he did $53 million in sales through three quarters. I don't think he then what did you do last year 40, and the whole year. He did what 40 950.
In the altogether.
Here, Yeah, Yeah, <unk> 53 million in three quarters. So.
So not ones at that point, so we clearly had an escalating thing yeah, which also.
So creates pressure on you because you know hand sport.
You got to keep moving forward, but anyways it sounds very exciting. Thank you. Thank you for allow you to be a stockholder.
Thanks to.
Yeah.
And at this time, we have no further signals from our audience I'd like to turn it back to Mr. Duff and the rest of the leadership team for any additional are closing remarks.
All right. Thank you I'd like to think everyone for participating in our third quarter a conference call as I mentioned earlier were pleased with our Q3 results, which reflects the success of our strategic and business development initiatives over the past two years.
And we remain highly encouraged by the outlook I for the business in Q4 as well as into 2020. So thank you very much.
Ladies and gentlemen, this does conclude today's earnings conference and we do thank you offer your participation you may now disconnect your lines and have a great day.
<unk>.
[noise].
[noise].