Q4 2019 Earnings Call
Corporation's results, including the M.D.N.S. and financial statements were issued on February Twentyth 2020, and are currently available via the company's website or sit back before turning the call over to management listeners are cautioned that today's presentation and the responses to questions may contain forward looking statements within the meaning of the safe Harbor provisions.
Of Canadian provincial security laws.
Forward looking statements involve risks and uncertainties, an undue reliance should not be placed on such statements certain material factors or assumptions are applied in making forward looking statements and actual results may differ materially from those expressed or implied in such statements.
For additional information about factors that may cause actual results to differ materially from expectations and about material factors are assumption supplied in making forward looking statements. Please consult the mdna for this quarter.
Dr section of the annual information form and exchanges other filings with Canadian Securities regulators, except as required by Canadian Securities laws exchanges not undertake to update any forward looking statements such statements speak only as of the date made.
Listeners are also reminded that today's call is being recorded and broadcast live via the internet of the benefit of the individual shareholders analysts and other interested parties I would now like to turn the call over to the CEO of exchange and come Corporation, Mike Piles. Please go ahead Mr. Pal.
Thank you operator, and good morning, everyone. Joining me. This morning are Carmel Peter Yes, She was president Daryl Byrd, our CFO, David White, our VP of aviation.
29, GE was a great year free I see as we generated strong financial results and invested in our future.
29, GE was the seventh consecutive year of double digit EBITDA growth free I see.
This performance allowed us to increase our dividend for the 14th farm in our history, while reducing our payout ratio.
Leaves the data detailed analysis of the results to Daryl Byrd like get a few financial highlights for the full year and for the fourth quarter.
Revenue grew 11% to $1.34 billion EBITDA grew 18% to $329 million.
Net earnings grew 18% well earnings per share grew 15% to $2.58 adjusted net earnings grew 11% while adjusted <unk>.
Grew 7% to $3.15.
Free cash flow less maintenance capital expenditure payout ratio fell to 57% well the adjusted net earnings payout ratio declined to 71%.
Our fourth quarter was equally strong revenue grew 15% to 363 million EBITDA grew 28% to 89 billion.
Net earnings grew 37% well EPS grew 25%.
74 cents adjusted net earnings grew 21% well adjusted.
EPS grew 11% to 88 cents.
Free cash flow less maintenance capital expenditure payout ratio was essentially flat at 52%.
The adjusted net earnings payout ratio improved to 65%.
I should point out that both EBITDA and earnings were affected by the implementation of IRS exceed our fresh 60 answers to increase EBITDA, while reducing earnings as adjusted earnings. It is absolutely no impact on cash flow.
The impact of I apologize 16 has been detailed in previous financial period, and I will not repeat it here other than to 'em mind blisters of its implementation.
Your next year, the number of significant to cheaper to 29 gene that contributed to these results I will drive growth in the future as well.
And his team followed up the acquisition of Quest of late 2017, and Mcpick Flight College at 28 team with the acquisition to the he Wi Fi and Lv control the fourth quarter 2019.
Either you why is the first vertical integration acquisition for quest.
Hey, W. wiser Glazer stalls quest products of the northeastern United States.
This will provide quest customers with a single point of contact for the purchase and installation or product.
Batches, how quest operates in Canada.
Oh, the acquisition of VW I simplify things for our customers will generate returns request on installations as revenues continue to grow with this geography.
Oh, we control is a dominant western Canadian electrical systems integrator in the agricultural material handling segment with a strong margin profile.
It services include maintaining grain uploading elevators.
Systems to grade green by quality and put it appropriate silos and automatically up gauging credit to farmers accounts, well updating infidelity positions and financial statements for the grain company.
They have a great relationship with many of Canada's grain companies as a track record of profitability.
Both acquisitions will strengthen our manufacturing segment and fueled growth in 2020 and beyond.
Our existing operations had a year of contract renewals and new contract with.
Not only will this fuel growth in 2020 and beyond it provides great stability for our earnings.
Well, we do have some smaller customer contracts large in the mining sector. We're trying to go shaded on annual basis, we do know material aviation contract in North American Aerospace at aviation segment that expires in either 20 to 24 2021.
A sample of the new.
Reduce new or expanded contracts include the ramp up of Canada's fixed wing search and rescue program, where power will provide in service support.
The due to the medical passenger transport contract the significantly expanded Canadian Department of Fisheries contract awarded in 29, Dean for late 2020 implementation.
Got rid of Manitoba charter services contract.
The maritime surveillance contract based in Paris out.
You also recall Oh Kuwait.
With that about contacts or renewed in recent periods.
Richard a one entered into a joint venture with Skywest, North Americas largest regional carrier to lease engines for regional Jets.
The joint venture subsequently announced that the initial assets of the partnership at least on a long term basis to a regional operators to U.S. operator, we're regional why would be leasing we airframes as well. This initial placement will drive returns in the second album Twentytwenty as the aircraft go into service and beyond.
Our relationship with Skywest is expected to provide other opportunities in the future.
We also took steps to strengthen our balance sheet and provides liquidity to enable us to move quickly when an opportunity has identified.
[noise], we completed two market Fundraisings, a convertible debenture offering in March replacing it debenture, what you would call body I see and largely converted into equity at an offering of common shares in October.
Both were very well accepted by the markets and we're oversold, resulting in the underwriters fully exercising their full over allotment option.
Finally, we increased the size of our syndicated bank facility, while reducing interest cost and improving the flexibility of the covenant package.
We'll leave it to Daryl to detail these initiatives, but I'm pleased to report that in aggregate. These initiatives together with a strong operating person performance has served to reduce leverage while increasing liquidity docs as to capital and increasing our earnings on a per share basis.
[noise] wager between what it might be I see team members at a friend of his came to its 10 year add in November of this year by team member believed that he actually would consistently generated average all lead return to our shareholders of at least 10%.
Spread believed that this was not achievable given that the Ts acts as a whole generate only approximately 7% average returns.
Well the final calculation was completed it showed that you actually your daughter, we generate the return of far higher than the 10% threshold. It in fact at a dividend reinvested average annual return of 21% three times the average of the T.S. Saks generated over the same period.
Do you want as bad as it was not even close.
I decided that the calculations read Dod as at December 31st in order to make them more readily comparable to the TSX is all or other component companies.
We calculated the dividends reinvested returned to our shareholders for one year.
Five years 10 years at 15 years as well since our inception in all of these periods the return exceeded 21% annually.
This is a level of shareholder returns that very few could match at a level of consistency that even fewer have achieved.
Yeah, absolutely love, where returns are that consistency speak to the success of he I see model and I would like to take up over to discuss five reasons why I believe we're able to achieve thus.
Firstly, we have maintained a consistent long term strategy since our IPO in 2004.
I see is driven by building a portfolio strong companies, which will enable the company to provide a reliable growing dividends to our shareholders.
Well, we invest significant effort in examining and refining our business model. Each year, we are committed to being an income story.
This enabled us to increase our dividend 14 times and maintain a dividend cagar a 5% since inception.
We are a dividends story with income is invoke in the markets, but where it income story with growth is what the market desires as well.
Our plan to provide a growing dividend provides growth with income as is evidenced by our consistent 21% aggregate return our shareholders door exactly who we are at what we're trying to achieve.
Secondly, we maintain a long term focus one of the great challenges of being a publicly traded company is the market's focus on quarter to quarter results.
We pride ourselves on looking towards the horizon and focus on generating long term sustainable success, rather than simply maximizing our profit in the next quarter.
Two quick examples of this strategy in action would be the force multiplier program, which required us to invest significant amounts of capital years before revenues and profits could be proven out the design construction and certification took over two years to complete.
Well, we are now realizing the benefit of the project.
A second example, as the slow measured ramp up of the Quest Dallas facility. A choice was made to rabbits production slowly in order to make sure that the quality of the product matched that from our first plant.
Destroy spent losses would be incurred during the ramp up but the long term right mutation of the company is preserved as in fact enhanced.
Third we believe it in a balanced approach to growth utilizing both acquisition and organic investment.
Many people, Saudi I see I barely people view you guys see as simply an acquisition company, but that is not correct. Since our inception, we've invested approximately three quarters of a billion dollars in our platform acquisitions, while at the same time investing over a billion dollars and tuck in acquisition.
And growth capital into those platforms. We maintained the same expected return threshold for both acquisition and growth capital opportunities, which enables us to grow our subsidiaries and maximize the returns we generate.
Yes, it needs to make sure that we have the capital available to fund the opportunities uncovered buyer subsidiaries at any new acquisition opportunities we cover.
The high standard of returns on all investments ensures a growth is accretive on a per share basis and not just growth for the sake of growth. The all time high EPS and adjusted EPS evidence as fact.
Fourth and perhaps most importantly culture, we by strong companies with proven market niches and established management teams.
Our cultural allows these companies to be led by these management teams, who understand the business better than a new older could possibly understand we don't buy brokerage companies, yes, I see provides oversight at the capital necessary to implement their business plan, but we do not.
Over day to day management as a result, our management teams remain motivated and entrepreneurial we've been able to keep the management teams in place in our subsidiaries for years, maintaining that knowledge and expertise enables you guys see to pursue its diversification strategy that will be absolutely impossible.
Without these talented people.
The final driver of our successes social responsibility.
There has recently been a significant increase in focus on environmental and social responsibility by the capital markets. Yes. She has always believed that these matters were fundamental to long term sustainability of the company, which is why since our inception has been a significant part of what we do and who we are from funds.
Economic in the economic development the first nations communities, we serve.
To providing employment opportunities through programs like life in flight.
To provide his life changing experiences to first nations children through our Barbara jet programs or approving our environment by building greener plants like quest zero waste facility in Dallas investing in our environment investing in the communities, we serve investing in the people who our customers.
Our current and future employees.
They don't have immediate results, but consistent with our corporate strategy. We will focus on long term growth, we have a commitment to social and environmental responsibility not just today, but yesterday today and tomorrow.
We know it works not only from our financial results from but for the quality of people. We attract the companies we are able to buy and the support of our customers.
I would now like to turn the call over to Daryl to discuss our 2019 results Daryl.
Thank you, Mike and good morning, everyone.
Before I present, the results I would like to take a minute to speak to some financial highlights from 2019.
2019, as Bina year, where we saw any all time quarterly highs, including in the third quarter, where adjusted net earnings reached a quarterly high of the dollar three which was the first time in the company's history that adjusted net earnings exceeded $1 per share in a quarter.
To wrap up the year.
I see reached a new milestone with regards to annual adjusted net earnings per share.
I broke through the three dollar threshold, reaching $3.15 per share.
2019, also a year, where we demonstrated our ability to maintain a strong balance sheet.
With modest leverage and good liquidity to allow us to be ready when opportunities arise.
Outcome of transactions in 2019 lens, well to our ability to access capital going forward.
And that levels, which is the best the company has experienced.
In Q4, we entered into a new credit facility that improved or access to available capital by 500 million inclusive of the accordion feature while at the same time, providing lower interest on borrowed and onboard amounts increasing allowable leverage from three in a quarter times to four times minimizing security requirements provide.
Being much more flexible covered covenants.
And brought new members indoor syndicate of lenders that can support growth.
Syndication of the facility was materially oversubscribed.
The improvement to our credit facility as we've stated before does not in any way changed or approach to our balance sheet strategy.
Which is a supporting principle of our business model, we take and we'll continue to take a disciplined approach to our aggregate leverage which includes both secured debt and convertible debentures and is adjusted for full year impact of acquisitions, keeping it between 2.5, and 3.5 times, which we have kept consistent.
Since inception.
What are the key tenants have utilizing convertible debentures is managing maturities and retiring these debentures at the first appropriate time.
That said, we decided to exercise the right to call. The seven year, 6% convertible debentures, which were due on March 31st 2021, and we're in the mining.
The result of this decision was 24.7 million principal amount of debentures that were converted into 780 112 shares at a price at $31 in 70 cents per share.
With a very small amount of remaining outstanding debentures redeemed.
When adventures were initially issued in February 2014 shares are trading around $21.70.
As an overall result, the effect on dilution of that could be equity was approximately 358000 shares less than if we had decided to elect to issue equity in 2014.
We replaced the after mentioned convertible debenture issuance with anyone.
The new debentures featured a lower interest rate of five and three quarter percent and a higher strike price of $49. The offering was oversubscribed and the underwriters exercised their overallotment, which brought the gross proceeds to 86.25 million.
Dollars the proceeds of the offering were used to pay down long term debt.
Looking at the combined impact of the two convertible debenture transactions. It resulted in a conversion to common share equity with lower dilution and pay down secured debt, which improved both our liquidity and leverage.
In the fourth quarter in concert with two accretive acquisitions, we chose to complete an offering of common shares the capital raise further reduced leverage and received strong support from the market. The operating was materially oversubscribed and the underwriters exercised their full allotment option. The gross proceeds of the offering.
At $37.65 per share was $80.5 million.
Before I move on I should point out that even with the new share his shares issued as part of the common share offering ended the ventures converted earlier in the year that all of our per share measurements improved this demonstrates the accretive nature of the use of these funds.
Finally, it is worth highlighting another principle that guides our strategy in Q3, we increased the dividend for the 14th time in company history Solidifying one of the best track records of dividend growth on the TSX.
Even with this increase in the dividend, we continue to improve on our payout ratios.
Overall, we're very pleased with the outcome of 2019.
As I've noted on previous calls our 2019 financial results include the impacts of IRS 16 compare ability to results from prior prior periods with respect to EBITDA net earnings and adjusted net earnings are impacted.
Now turning to our financial results I will initially focus my discussion on our annual results and then I will continue with a shorter discussion on our 2019 Q4 results.
Consolidated fiscal 2019 was another great year free I see.
We generated revenue of 1.3 billion, which is up 138 million or 11% over last year.
Aerospace segment revenues increased 91 million and manufacturing segment revenues increased to 47 million.
Aerospace and aviation segment revenue was up 10% to 975 million.
The revenue from the legacy Airlines and provincial increased by 60 million Aerospace revenue increased with the deployment of the for forced multiplier aircraft and greater in service support revenues as overseas Maritime surveillance flying hours increased.
The segment also benefited from new revenues coming from long term contract to provide general transportation support to the due to judicial system in Manitoba.
The regional one revenue increased in 2019 compared to the prior year by 31 million sales and service revenue increased by 12%, which can be attributed to investments made in working capital in prior years.
Lease revenue increased by 8% year over year, despite a customer bankruptcy at the ended the third quarter of 29 team.
The increase as a result of higher utilization of aircraft and an increase in the number of assets in the portfolio on lease.
Notably the assets related to the joint venture with Skywest are currently being phased in and did not contribute in a material way in 2019. The deployment of these assets will be phased in throughout 2020.
Turning now to our manufacturing segment revenue grew by 47 million over the prior period.
Benefiting from the commencement of production of the Quest Dallas plant and continued increases in custom manufacturing and high levels of defense spending.
Revenue for this segment was 367 million.
Moving to EBITDA consolidated EBITDA was 329 million up 18% or 51 million for the year compared to the prior period. This includes the 6 million dollar onetime bad debt write off at regional one because of an airline customer bankruptcy.
<unk> decreased dividend during this period and the adoption of I ever 16, which increased EBITDA compared to the prior year.
Despite the write off EBITDA performance on year with strong FDIC was still able to meet guidance provided this is a further testament deicing has diversified investment strategy working as intended.
EBITDA in the aerospace and aviation segment in 2019 was 299 million, an increase of 51 million compared to the prior year.
EBITDA generated by the legacy Airlines and provincial increased by 48 million.
The increase in EBITDA for the legacy Airlines and provincial was driven largely by the same underlying conditions as noticed as noted with the increased revenue previously discussed.
Again, our EBITDA grew despite industry related challenges industry wide labor shortages resulted in continued higher overtime contractor and training cost the implementation of the IC license plate program will help mitigate the impact moving forward, but its acknowledged that it will require time to take.
Full effect.
He also now began 10 has now also began to implement similar strategies to address maintenance labor challenges.
EBITDA for regional one increased by 4 million over the year.
Over the prior year, excluding the impact of the onetime $6 million bad debt write off EBITDA increased by 10 million over the prior year.
And manufacturing segment EBITDA was 56 million, an increase of 4 million compared to the prior year EBITDA at quest was lower than the prior as a result of costs incurred with the ramp up at the quest.
Question do Dallas facility, where management continues to proceed in a responsible manner balancing production with important quality requirements and risk management.
The balance of the manufacturing segment collectively experienced growth in EBITDA, driven by increased revenues and operational efficiencies.
Growth capital expenditures made in the current and previous periods and able to segment to respond to increase demand from customers, resulting in increased EBITDA.
Turning to earnings net earnings was 84 million an increase of 13 million the adoption of IR back 16 in 2019 negatively impacted net earnings compared to the 2018 year.
Net earnings per share increased by 15% in comparison to the prior period to $2.58.
It should be noted that during the year the weighted average number of shares increased by 3%, partially offsetting the increase on a per share basis, and net earnings adjusted net earnings and free cash flow.
We had adjusted net earnings of 102 million for the 2019 year, representing an increase of 10 million or 11% compared to the prior year. Once again, the IC reached a new milestone with regards to adjusted net earnings per share seeing it increased to above $3 for 2019 adjusted net earnings.
Per share increased to $3.15 compared to $2, a 94 cents last year.
In 2019 free cash flow improved by 10% over last year to 246 million or $7.58 per share.
The main reason for this increases the increase in EBITDA EBITDA and the decrease in current tax expense, partly offset by increased interest costs in principal payments on rate of use lease liabilities.
Free cash flow was impacted by the onetime bad debt write off as previously noted.
Free cash flow less maintenance capital expenditures per share increased 7% to $3.89 per share from $3.64 per share in the prior year.
Growth in adjusted net earnings drove the improvement in adjusted net earnings payout ratio over the year to 71% from 74%.
The stronger free cash flow less maintenance capital expenditures compared to the prior to year led to an improvement in the free cash flow less maintenance capital expenditures payout ratio to 57% from 60%.
In 2019, the corporation announced its intention to reduce the adjusted net earnings and free cash flow less maintenance capital expenditures payout ratios to 60, and 50% respectively over the three year period.
The improvement in both payout ratios. This year shows positive progress towards the Corporation meeting these goals and it shows that reaching these targets does not preclude dividend increases when results warrant.
Turning to working capital during 2019, the corporation invested 45 million in working capital across several entities to support our again organic growth, resulting from various contracts. So contract awards the ramp up a quest Dallas plant and increased operations during the fourth quarter.
The Corporation was also affected by a slow payment of receivables from a significant government customer as a result of a cyber security breach.
Expectations are for this receivable to be collected in the first quarter of 2020.
Our leverage ratios remain within our target range and within our covenant with lenders. In addition, now with the new credit agreement under our belt, we have access to approximately 580 million of available capital and another 300 million. In addition to that in an accordion feature should we choose to exercise it.
Now turning to Q4 2019 results.
Holiday Q4 was another good quarter for IC, we generated revenue of 363 million, which is up 48 million or 15% over the comparative period.
The increase 19 million was generated in our aerospace in aviation segment and $29 billion was in our manufacturing segment.
The primary explanations for financial results and changes in the quarter were largely consistent with drivers for the year to date.
Where there are notable differences I will provide some further commentary.
Aerospace in aviation segment revenue was up 8% to 253 million for the quarter the revenue from legacy or the legacy Airlines and provincial increased by 21 million over the comparative three month periods.
For regional one revenue decreased slightly in the fourth quarter 2019 compared to the prior period by 3 million due to higher than average sale sales of aircraft engines in the comparative period, notably sales apart our a consistent portion of sales and service revenues and it and increased by seven.
18% from the comparative period, helping to offset the lower engine and aircraft sales.
Lease revenues at regional one were down marginally by 2% the lease revenues in the fourth quarter of 2019 were impacted by the bankruptcy of a customer in the previous quarter.
This resulted in some larger assets not being leased.
Now turning to our manufacturing segment revenue grew by 29 million for the fourth quarter versus the comparable comparative period. The total revenue for the segment was 111 million.
Moving to EBITDA consolidated EBITDA was up 19 million or 28% to $89 million for the fourth quarter of 2019 versus the comparative period.
EBITDA in the aerospace and aviation segment in the fourth quarter of 2019 was 81 million an increase of $18 million compared to the prior period.
EBITDA generated by the legacy Airlines and provincial increased by $16 million.
EBITDA from regional one was up slightly in the fourth quarter of 2019 versus the prior period by 1 million.
The manufacturing segment EBITDA was 14 million an increase of 3 million in the fourth quarter of 2019 versus the prior period.
Turning to earnings net earnings in the period was also strong coming in at 25 million, which is an increase of 7 million compared to the prior period.
Net earnings per share increased by 25% to 74 cents.
We had adjusted net earnings of 30 million in the fourth quarter of 2019, representing an increase of 5 billion or 21% compared to the prior period.
Adjusted net earnings per share increased to 88 cents.
Compared to 79 cents in Q4 of last year.
It is also it should also be noted that in the period. The weighted average number of shares increased by 8%, partially offsetting the increases on a per share basis, and net earnings adjusted net earnings and free cash flow.
During the fourth quarter of 2019 free cash flow improved by 15% over the prior period to 696 million or $2.02 per share. Their main reason for this increases the 19 million or 28% increase in EBITDA in the quarter, partially offset by the principal payments on rate of use lease asset liability.
Yes.
Free cash flow less maintenance capital expenditures improved by 9%.
On a per share basis, it is up slightly to one dollar nine.
Shit to $1.90 cents per share from one dollar an eight cents per share in Q4 2018 as maintenance capital expenditures were higher in the fourth quarter as a salt of certain timing of certain aircraft upgrades maintenance capital expenditures were up 22% in the fourth quarter, but were in line with expectations for the full year.
Sure.
The higher investment in the fourth quarter simply offset lower levels earlier in the year.
On a quarterly comparative our adjusted net earnings payout ratio improved to 65% from 69% in the prior year prior period sorry.
Free cash flow less maintenance capital expenditures payout ratio was pretty much flat period over period at 52% compared to 51%.
Subsequent to year end, we applied and received approval from the TSX with regards to the renewal of our normal course issue a bit issuer bid for common shares.
Before I pass the call back to Mike I would like to make a couple of concluding comments.
First a general comment.
As I come to the end of my first year with the IC I would like to share how impressed I am with the depth of talent I haven't that throughout the organization.
You just need to turn to what has been achieved over the course of just this year not dimension prior years.
It would be very difficult for any organization to achieve what he has achieved without without some pretty talented people from within.
Yes, I see his depth can be attributed to efforts around recognition of internal individual development opportunities and succession planning.
Equally as noted within our investment strategy whenever a key parameters in assessing a potential acquisition acquisition is strengthened management.
This is definitely being a success in adding great value both in talent and depth.
My final final comment would be with regards to guidance that might we will further elaborate on in the subsequent comments, we provide guidance on an annual basis that said there are certain conditions throughout any given year that may vary results from quarter to quarter things like seasonality in or aviation segment were winter roads provided temporary.
The alternative means to to our airlines and effect passenger volumes and cargo.
Timing of aircraft in engine overhauls timing of investments and purchased inventory at our one and slower lease revenues in certain periods as utilization of aircraft by customers is generally higher in busier summer months.
That concludes my review of our financial results in comments I will now turn the call back to Mike to wrap up Mike. Thanks, Darryl. We're excited about 2020 investments made in previous periods will begin to generate new profits, while our acquisition pipeline is robust and we examine opportunities for organic growth.
We closed two acquisitions in late 2019, and as such none of the opportunities we're examining.
Our nearing the final stage of the process the capital market in the U.S. remains very liquid and as a result purchase multiples are higher than we think are sustainable over the long term and are higher than we are prepared to pay.
Our pipeline is strong however, and we remain a preferred buyer for companies with paternalistic ownership, who have reservations of the purchase and resale model of private equity.
We currently have opportunities in both of our operating segments, but the larger portion of the transactions under consideration or in our manufacturing segment.
The investments we've made in previous years will bear fruit in 2020, the quest factory in Dallas will increase production to begin and begin to contribute to the bottom line.
The ramp up of production will climb throughout the year ADW why is performed as expected sets. Its acquisition in Q4 and will also grow quest results in 2020.
Investments of provincial also kick in in 2020 the aircraft for the first for the fixed wing search and rescue support contract will begin to be delivered in 2020 and continue for the next two years. The revenue for that contract will continue to grow as aircraft going to service and need to be maintain although revenue was already begun this.
We are required infrastructure in place for the first deliveries.
The new expanded fisheries contract goes into effect in the third quarter and will contribute weight the year before.
The force multiplier is completed several missions and discussions with several countries about longer term deployments or are occurring investigations developing a secondary aircraft are also underway.
Lv controls performed as expected since its acquisition and will also contribute to our growth in 2020.
As a result of these factors and other factors I'm pleased to tell you that we expect EBITDA growth of 10% to 15% in Twentytwenty. This will mark the eighth consecutive year of double digit growth.
Maintenance capital expenditure are expected to grow at roughly the same pace as the low end of our EBITDA guidance.
This is unchanged from previous information I should point out however that the seasonality of maintenance capital expenditures will be different does in 2019, we have more heavy.
Heavy aircraft overhauls, that's about four in 2020, which will be completed in the first half of the year and as such a much higher proportion of the annual investment will be incurred in the first half the year.
We try to complete this we worked in the slower winter period in order to maximize our capacity in the busy summer period.
This contrasts with 2019 was a significant part of our capital program was engine overhauls, which can be completed at Mt. Todd during the year as they can be completed without taking the aircraft out of service for more than a day or to.
Given that maintenance capital expenditures are front end loaded while growth will ramp through the year, we expect payout ratios will rise in the first two quarters before declining in the second half of the year.
Before moving onto questions I'd like to make a quick comment to both the Corona virus.
Yes. She is fortunate that we have little exposure to this pad Devon. Our exposure is currently limited to MFC, where we train pilots for try. These airlines. These pilots arrive regularly and stay for approximately one year. So the flow of pilots be interrupted it wouldn't reduced revenue at MFC.
Lesson on less disruption will go on for a prolonged period, where current classes of pilots graduated no new piloted replaced the impact will not be material to date theres been no impact.
Finally, before moving on to questions I want to thank all customers employees shareholders at all stakeholders for their ongoing support we'd now like to open the call.
Two questions operator.
Thank you we will now conducts the question and answer session. If you do have a question. Please press the star followed by the number one on your Touchtone phone you will hear a tone acknowledging your request your questions will be pulled in the order that their received please ensure that you lift to the handset. If you are using the speaker phone before pressing many key.
Thank you and your first question here comes from the line of Mona Nazir with Laurentian Bank. Please go ahead. Your line is now open.
Good morning, and good morning, and thank you for taking my questions.
So my quick question just has to do with the manufacturing segment Endo kind of the boot of the lower margin is it primarily all Q2 class and can you just speak about how the ramp up is progressing some of the growing pains. Our why it decision to do is slower ramp and then I just have a follow up that now that we're into the enterprise.
Oh, sorry, how things are sitting now.
Sure.
Those those fit together pretty well.
Quest Bill Windows for projects, we don't build inventory and so to a certain extent every project, we do as a custom project and so we want to make sure. When we started rolling this the production into our Dallas facility that we made sure that the product match what came out of Toronto.
And because a delay with our windows delays the whole project and so we slowly ramp where we did a higher level of testing in Dallas of each production unit until we were confident that matched the products from Toronto.
It actually goes a step further than that we had to build up that we call. It tribal knowledge of our workforce because they haven't built certain types of windows. It. So each time they do it it's a complete start from zero, we've seen a material increases the throughput of production. It continues to grow and we anticipate.
Eight by later in the year the throughput on a.
Per employee basis should.
Close to match ignited Toronto as a result, you will see profitability begin to rise through this year and you'll see the full impact of it in the second half of the year.
As for so far this year quest is performing as expected in the first six weeks of the year.
Okay very helpful.
And I know that there is an ongoing pilot shortage, which is further pressurized by new Petite regulation, but aside from that Im just wondering if you could speak about what other areas youre seeing any labor shortages and how things are trending for 2020 do you expect similar pressure.
I'm going to let Dave Wade our SVP of aviation take that one.
Good morning, Walter Thanks for the question you are on target as we monitor pilot challenges over the last couple of years machine increases in other areas inclusive of do maintenance area with it was aircraft maintenance engineers. So we're working on a project we've actually already got some people into the pipeline for civil.
Our approach to bring trained and gain experience engineers.
Through the apprenticeship program to takes for four years for licensing to put people into our airlines This program, which little different to the pilots allows us to focus the experience in the airlines as apprentices at the same time that are doomed or training. So that's that's an initiative.
We brought on this year as well we used to initiatives, we're lucky to have with nine different independent companies to be able to attractive pipeline from various sources. So we are the good reputation note or what our company's you've been able to higher maintenance people and the different companies reach out to their networks also bringing more applications.
We continue to monitor direction pressures in there, but we've we've taken those proactive steps as well as not putting ourselves in a box and say industry only solution. We always have defined multiple solutions to the pipeline mode and just wondering it added we built our light light program, we built it with a platform that we could lever.
Bridge, so that we easily could address that.
Shortfall that we knew existed on for instance, the.
Aircraft mechanics, so having that platform readily available to address other needs.
Obviously very useful for us and that's what we're going to use going forward not only for that but other storage that we see in the industry.
Okay, that's very helpful.
And just lastly from me make you touched on seasonality of Capex about in your prepared remarks I'm. Just wondering if you could speak about the upcoming year and what kind of ebbs and flows are variants are you expecting quarter to quarter and just from my confirmation is it that the annual capex shouldn't be too much different than 2019.
The quarterly split.
It well, we up we anticipate that as the business grows the capex stroke with it so I don't anticipate maintenance capex.
Growth of high single digits to around 10%.
But them in more material changes the fact that in first quarter and early second quarter. We have a number of heavy aircraft overhauls, where we take aircraft out of service for weeks at a time while there.
Effectively torn down to their frames that rebuilt we don't want to do that during the summer and fall season is where we're very busy so that get moved forward in the year. It I think you'll see a material increase particularly in Q1, but also in Q2 versus last year and then in the back half the year, you'll see a decline.
We had $40 million in maintenance Capex in.
In Q4 of this year I don't have Q1 in front of me, but it was materially less than that and thats not typical for us. It's it's 20.
19 that was actually kind of atypical in terms of the breakdown of maintenance Capex 29, 2020 will return to a sort of more normal cycle, where it's front end loaded and then reduces as the year goes on.
Okay. That's helpful. Thank you.
Your next question comes from the line of reveal F. sale with Canaccord. Please go ahead. Your line is now open.
Morning, Ravioli morning, guys. Thank you for hosting the call.
I'll start off with quest is it possible to quantify the margin impact and ramp up costs for quest.
On your manufacturing Division spent the 19 EBITDA.
I'm not sure I want to get that granular with the Ravi what I can tell you is that.
We incurred.
Actual losses in inquest Dallas for the first three quarters of the year before effectively breaking even in the fourth quarter, but the impact.
Is largely on track auto where we effectively put so much stress on our production capacity there to keep up we've made promises to customers and you have to deliver on time. So that meant we were running projects through on overtime and is less than the most efficient manner and so that reduced margins, particularly in.
Q4 in Toronto.
You will see that slowly recovering Q1, and by Q2 I'd expect to see travel back to its more important normal margin profile I think continued growth in Dallas through the end of the year, you're recognizing it to consider is also are investing today to make sure that we have the infrastructure for the kind of large order book that exists so.
Production grows we'll see the absorption grow as well, which will help with margins.
That's definitely helpful. Just one follow up on that what portion of Dallas brought to tell you guys testing now with the C. In Q3, 19, and how that compares but that go into facility. Just so we see how that ramp up is coming into.
It depends on the product itself. So it's not a precise number but that travel number would be the low single digits less than 5% of product is physically tested.
Whereas in Dallas for through Q3 was 100%, we're now down to about 25% and we intend to ramp that down here shortly again towards single digit so we're making great progress on that.
I really im nervous when I talked about this that it comes across as apologetic because it really shouldn't be it's not what we want to do is we have a standard in the marketplace. That's given us our 300 400 billion dollar order book.
Yeah.
We want to maintain that standard ramping the facility.
The profit in the next 10 minutes isn't material to the value we create with that business. It's no different than were with force multiplier, where we took the time David certified so that all governments around the world can use it and now we're seeing a great demand and quite frankly, we're excited about that man as it may mean building.
One other one but it's the investment in making sure you do it right and so.
It's the hard part of being public where people want to know how you did last in the last 10 minutes and then extrapolate it added.
We're fortunate to have.
A group of analysts look at our longer term prospects, but for US we want to make sure people, though there were taken the time to do it right makes a lot of sense. Thank you for that.
And so to speak about fourth multiply congratulations it's been getting a lot of media attention for took in Mozambique.
Can you Directionally beat to the split between provincials airline in Aerospace Division I know you guys don't provided but any direct still help on that would be helpful. And how you expect that would change based on these visible growth drivers for this for this vertical.
Sure.
When we bought it several years ago, the segments were very close to equal between aviation and the.
Aerospace, but even the intervening period, we had two major things that have grown the aviation space. So our Airbar RBS Air Borealis partnership.
With the new it is Labrador increased the size of that business and then the acquisition of Monkton Flight College, which we love being with our aviation as opposed to our aerospace.
Today that about two thirds of pile would be it now.
Lines at about one third would be in aerospace, but as we move forward. The growth goes the other way with the contracts we've talked a lot. So you'll see the percentage of aerospace grow.
Aviation will continue to grow and we don't anticipate at least in 2020, it will keep pace with with aerospace.
Thank you for that and just one more for me I.
Yeah. Good issue remains below your long term target of 60% to 80%. Despite these recent dividend increases that deep does the board have a medium term target that we should be thinking about with respect to additional dividend increases as we look out to twentytwenty in Twentytwenty one.
Yeah, we're definitely well within our comfort zone in terms of of dividend payout ratio, we set a three year target for to get 50% on a free cash flow basis.
60% on an adjusted net earnings basis, and so we've made significant progress towards that and we will over the next couple of years get the rest of the way, but it's important that people understand this isn't an either or with dividend increases you see this year that not only did we issue stock. So some people go that's dilutive while.
No. The use of proceeds was such that we created more earnings of its actually accretive so even with that and increasing the number of monthly.
Dividends, we've been able to pay down of the payout ratio and I think over the next two years, you'll see us do both the working towards that goal of 50 and 60% respectively.
Perfect. Thank you for your time.
Thank you.
Your next question comes from the line of Cameron Doerksen from National Bank. Please go ahead. Your line is now open an account yeah. Thanks, good good morning.
Just one follow up on the there with your Capex question I mean, we understand the maintenance capex going up and the timing of there, but you just briefly the mdna. It does sort of sound like growth Capex expectations for 2020 should be that they would be lower year over year, I guess perceive I got that correct.
Secondly, if you are able to win a couple of these.
Contracts that are overbid, the one you've mentioned in Europe and also the the minimum Intevac what does that mean for Capex. This year or is that more of a 2021 capex event.
First of all if I, if I've led people to believe that maintenance Capex will go down that's incorrect.
Yes back to go up by 10%, but.
Well, what we should go down is maintenance capex in the second half of the year relative to this year because of the timing in the shift to the first half of the year.
As it relates to those major contracts most of them the possible exception would that would be the manitoba not about contract which.
It's kind of government is held in a balance I suspect that's going to go active again very shortly and that could go into effect before the end of the year, which would result in some growth investment for that but the other major.
Opportunity is on the aerospace side, our debt would be next year and even later than that.
Investments.
Growth not just this year the only product real major initiatives. We have is the finishing off of the additional aircraft for the fisheries contract and we're going to buy a couple extra aircraft for our aviation business, it's Chris its growth rate consistently exceed.
That's what we expected to it to be do a good job of looking after our customers we need to add some more aircraft. So we will buy two or three more aircraft in in the aviation segment.
Okay. So just just saw unclear I mean maintenance Capex goes up.
I heard that but just just sort of total capex what should we expect for 2020 apps absent having to make additional investments.
If there is no.
New new initiatives that are that we don't have today growth Capex will decline.
Okay. Okay. That's good that's that's clear.
Just maybe just just secondly for me just talking about the M&A pipeline you mentioned that on the manufacturing side is where you're seeing more opportunities right now I just wonder if you could maybe talk about your I guess.
Are there opportunities there that are fits with existing manufacturing operations that you have are you looking at new potential verticals here that you might look to invest in.
It's a bit of both.
We definitely have a couple of vertical integration opportunities with existing businesses, we find those exciting because once we understand the the segment and the management teams in their identify something that they think makes their business stronger.
Our team puts that to the top of the less than we do have a couple of those opportunities.
We also are looking at a couple of I'm not sure I'd go quite as far as new vertical but that are that it would have different customers are slightly different characteristics, but they would all be is that nish specialty manufacturing segment, where we could explain to you guys. When we buy at what the secret sauce is and why do we.
Thanks. This is a great opportunity so nothing grossly deferred but.
There are couple that are that are producing slightly different products that we have to that.
Again, who knows whether we'll land any of those and then on the aviation side. There. The stuff. We're looking at is all directly related to what we do it may be exactly the same it'd be a geographical expansion or it could be vertical integration to help us control costs, but there's nothing.
Nothing new at Air Canada doesn't have to worry about us buying it athree 20 to fly to Las Vegas.
I'll stick to what we now.
Okay, that's great color, thanks very much.
Your next question comes from line of Chris Murray with Altacorp Capital. Please go ahead your line now open.
Good morning folks good morning.
Quick question for you the yesterday the governor in Manitoba started talking about perhaps moving some of the northern airports.
And to some of the local in Detroit spans and I was wondering with all your operations with Primero calm does that create.
Challenges or opportunities for you because I know you have a lot of facilities on those sites.
Am I thinking also our operational things like fuel facilities and fuel storage.
Any thoughts around that that could see some changes in your business over the next year too.
I got to be forthright on this the we weren't particularly involved in that initiative. So we're still learning exactly what it means.
But quite frankly, if it gives the first nations control over the airports in their area. That's probably a good thing they've got boots on the ground and they can see what's going on.
In their individual communities, it's going to require the build off of a significant.
Management infrastructure for them to be able to manage those it. So I suspect this will take a little bit of time in terms of our business. If we can provide guidance and helped we'll be glad to do so.
But I don't think it's going to have box or an impact because those airports are.
Overseen by Transport, Canada date, maybe if you've got a comment or two on that.
Thanks, Dan today. It is early stages, we just saw the those trends should begin to.
The airports are regularly that into the Anders minimum standards that have to be maintained that year porch, regardless of who's in controller owns those so as far as our carriers going into we always look after our responsibilities we have to save expectations for European airports to be maintained to those responsibilities which company.
Your organization or corporation those they still have to meet the standard set by transport, Canada, the ensure safe operations for the public.
So I was a whole bunch of we're not sure yet, but we don't take it as a big big about yet on us okay.
Just fine it's just a deep you worry about your assets on the grounds to figure out and who is going to pay to maintain those kind of thanks.
I guess your question for you.
Profile is going to change that we're paying for it now we'll have to pay for the future I think the bigger discussion will be who's going to pay to maintain the airports because they're typically right now owned by the province maintained by the province, but.
The emo you implies that it's going to be tripartite between the first stations the province in the Feds.
So we'll see.
Mike Stably thing, we do have assets there, but they are very limited. It compares what we would have to the major centers like with a bigger jobs under St. John's while we have some assets materially when you compare to where we operate it is a great deal of assets there we'll manage it.
Largely be freight hangers and fuel farms, we would have up north.
Yes fair enough.
And Mike just thinking about payout ratio and dividend growth over the next couple of years I mean, as you kind of alluded to you are kind of at the bottom end of your range right now sure Youre going to you got some timing on maintenance Capex I'll take it take your payout ratio is up a little bit but didn't come back and.
How do we think about.
Your your dividend evolution over the next couple of years.
Because as you already alluded to a lot of your growth is already pre baked you've already got a lot of the.
I guess, some pretty good confidence in the fact that that growth is going to be.
Having it in 2020 and likely 2021, just just given the nature of the contracts.
You know is is it something that do you want to get these programs into a more mature stage and get some more proving on them before you start wanting to move.
We will look how do you mean in upper Fortys pretty pretty soon.
Just on a kind of a run rate basis without without changing anything.
I think the I think I'm going to bring you to the board meeting to help me with these discussions with my board, but.
The key thing is is that we want to maintain and show that we're continuing to grow because sustainability as first growth the second but.
There is one of our investors that regularly says that I'd, rather cut off my arm that cut the dividend add well, that's probably not true. It it's reasonably close so the key thing for US is is that we want to be able to move it reliably and regularly and I don't think we need to not grow.
Dividends to reduce the payout ratio if you look where we've come over the last three or four years, we've cut our payout ratios for the seventies fiftys.
Ed for us to drive it the rest of the way while maintaining modest.
Dividend growth I think is entirely achievable.
We'll want to see us deliver our what we think we're going to do in Q1, and then we'll take a peak our board discuss this payout ratio every quarter im not suggesting that we're making a payout change in Jan after Q1, I'm, saying that we look at it every quarter and if we deliver on our plan.
We'll do everything to maintain that 5% dividend Cagar. We've had for 15 years. We're proud of the fact that we're the only ones of the TSX than of that.
Okay. So there is no there's no thought as you grow to start changing the range in ratcheting back down because I mean, I mean historically when your trust your year like 70 to 80 units now sort of 50 to 60 so.
MRG, it's not something to think about like 40 to 50 is right pad.
I think we've talked about getting to 50, I think thats the right stuff.
We will.
Keep you keep you informed if we change it beyond that but for now the goal of 50 on the cash flow basis 60 odd the earnings basis, our where we're working towards.
Okay fair enough thanks folks.
Thanks, Chris.
Your next question comes from the line of contract that's kind of Scotia Bank. Please go ahead. Your line is now open.
Encoder running and good morning, Mike how are you.
We are good that's exciting debt.
Pretty good pretty good. Thanks, Thanks for taking my question I mean, just digging a little bit more on the question. So you you mentioned, the Texas broke even in Q4.
I wanted to understand how do we sure the breakeven level is going to sustain in the first half of this year and then you will see profits in second half or is that you see a profit ramp up throughout the year every quarter you negotiating on behalf of Joe down in my dollars flat no I'll I, we expect them to make money in Q1.
The amount, we make will grow as.
Number of Windows process per day goes up that's really what drives it I mean and the other thing that I don't want to get lost in the washes something Carmel mentioned a couple of minutes ago is.
That's the kind of.
Shift of size that we have for what quest was to what it is to what it's going to be quite frankly, we've invested in infrastructure and head office people and systems and so we need to put out more windows to absorb those kind of head office costs for lack of a better term so you'll see that get UBS.
In Europe, where the the bigger improvement will cause as what we let Toronto run to more normal rates of capacity as opposed to taking every window. Other there, we possibly can and you'll see that subside over the first half the year. So I guess, what I'm, saying is you'll see improvement in each quarter. It will take till the back half.
The year, but it'll be more evident.
As we get later in the year.
Okay. That's helpful. And then what do you think about from like front just for the Texas plant many anticipate.
So timing the steady state margin to be should the mood that'd be something like next year could be after.
No I think it towards the end of this year or the beginning of next year, we should be there now I caution.
A word about steady state because quite frankly, I'm more aggressive than that we built 330000 square feet. So we've kind of talked to our quest guys about two things when does Dallas become drano.
Just trying to operating out of 200000 square feet, but weren't idle we didn't build 330 to build 200000 square feet, where the product. So I expect further ramp ups, we may add pieces of equipment in the future Thats, probably 2021 by the time, we get to that and quite frankly, the travel plant is it too.
Buildings.
Which are both least which the leases expire in three years. The next phase of this is to put Toronto into one building.
And.
And do that so that's probably thats three years from now so.
Steady state will refer for a short period of time, but as long as the market demand is where we've seen it so far.
We anticipate further growth.
Okay, and then you mentioned drawn on our lease expiring in two years right and so.
I think is there any.
Kind of.
In addition to kind of moved the plant before three years. So you want to lead on the Liberty is really the class on that.
By the time something.
The size of building, we need cone arc is probably going to have to be built.
Never say never so it's it's likely that it's at the expire if those leases and then how we would dovetail production as a whole bunch of work that isn't finished yet.
About how we will do this as well we don't want to do is take a plant out of production and put the stress our Dallas that we've put on Travato, well Dallas has ramped up so.
We'll keep you guys have formed in future.
Quarters as to how that plans coming and it seemed its baby steps phases right now.
The most important thing Das is is getting our Dallas plant cooking. Some of you have had the opportunity to see it it's a very impressive place.
I'm pretty confident on what we can kick out of that plays.
Okay, great. Thanks, and then on the region one.
So can you remind us where we are you on skywest deal at this point on like how many aircraft engine. So.
Waiting to be placed and then any similar opportunities like Skywest, that's looking right now.
Sure so.
When we did the joint venture with Skywest and there was 14 engines that were placed in a joint venture.
Those are under contract to be least together with 10 of our airframes that regional one has done a tone.
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We announced shortly after the formation of the joint venture that a.
Everything that we have we're being leased to U.S., operator, and that they were going to be on these are going into lease in phases. Starting in Q4 2019, and then continuing on the first half of the here so that for the second half of 2020, they should all be on lease that's still.
As per plan I believe we had four of our airframes going into lease in Q4 2019, the balance will be this year with respect to additional operator opportunities with skywest, yes.
Can you transfer additional assets into that joint venture for leasing to the same program that the current assets are going on leased for.
And in relation to similar opportunities like a skywest joint venture.
Yes, we have.
Arrangements, whereby we have jointly invested in assets, where we know one uses it management capabilities.
To leverage their know how and in fact under that those arrangements, we have over $100 million of assets under management.
Okay. That's great. Thanks, so much for that and then lastly on the legacy Airlines. So any any contract renegotiations that could happen over time that you're looking at and any new bidding opportunities. You mentioned, obviously one of the medivac site, but anything else be on those.
This is the most finance or no there's nothing I have to negotiate.
Small little things here and there with a.
Specific mine or things like that but in terms of our big picture contracts no. They're all in place for the foreseeable future. We're excited about the opportunity with the bent over provincial government, but so our some of our competitor so.
Up.
We'll work hard to win that when the opportunities there, but outside of that there really isn't a lot going on in the legacy other than looking after our customers and doing a good job.
Okay and under fuel surcharge, Mike any any sense on their recent volatility in fuel price. Obviously, it's been down any any adjustments that you need to make or you have made already.
We think our fuel prices are largely in line when they bumped up a few weeks ago. Several weeks ago, we're getting close to the point, where we want it would have considered putting on a fuel surcharge, but again we.
Because the nature of who were serving in our first nations, we want to make sure that we need to put the fuel surcharge on before we do and so patients paid off the fuel surcharges is about right for now.
If fuel prices change well adapted the future, but for now we're in the right spot.
Perfect. That's one from me. Thanks, so much thank you.
Your next question comes from the line of Tim James with TD Securities. Please go ahead. Your line is now open.
Okay. Thank you good morning.
Yes.
Just dr. question just confirmed the reference in the in the report to.
Relatively flat EBIT does there.
For the prior period, which I assume means Q4.
Is that reference include any contribution that would have come in the quarter for me Wi. It really is that was probably relatively immaterial, but was at least sort of inventory aggregated in aggregate, including a Wi it was about flat.
On its own it was it was down.
And that's again because of the.
Factors I've mentioned before a rough breakeven in.
Yes in Dallas combined with lower margins in Toronto, because of how fast we were running it and the extra infrastructure Bill So facilitate Dallas, so that was offset somewhat by the by the profit today.
Okay. Okay. Thank you.
And then turning to regional one the reference to investing 6.6 million in inventory through the year I just want to confirm that's a net number.
Or another way of thinking about that is that inventory went up by 6.6 million.
The balance the yearend balance relative to the into 2018 is that correct. That's exactly the way to look at it inventory it at.
At our one is moves every day, we're constantly selling stuff we're buying.
Pools of inventory and were parting out some of our own planes. So it goes in and out so we talk about those things.
Our investment there's really three things, it's the net investment in inventory after the cost of sales go through how we've replaced that its maintenance capital, which.
Maintains the aircraft in the lease fleet and then it's any amount invested in excess of maintenance to grow the lease fleet. So those are the three numbers when you look at the.
Inventory it was relatively flat at 6 million that the sale of one engine or or one airframe could spend that so it will bounce around like that for forever.
Okay.
And then my final question more of a big picture question as exchange continues to grow are there any sort of the smaller businesses that you would contemplate selling as as maybe their size doesn't justify the ownership and I'm not asking for specific names of businesses I'm. Just wondering if if you're right deal and optimal average investments.
Hi, guys is changing at all.
Yes.
In terms of new investment to be couldn't be more right. I mean, we aren't buying things that make three or $4 million anymore unless were folding them into a business that we already out we still do tuck in things.
But in terms of Standalone businesses, we do have some that we wouldn't buy today, we understand those businesses pretty well and we've got great management teams in place. So theres no pressing requirement to make any changes.
Quite frankly, I view it as all of our stuff well theyre not quite children. They might be stepchildren that we have to quite a good bye offer to sell them.
And.
The smaller ones are the same they we know them. There is no great need to sell the quite frankly part of our secret sauce is vendors knowing.
That we buy to hold and so.
I hold that reputation pretty close to me, we would sell a business if the offers right, but the offer without to be right.
Okay. Thank you very much.
And Im showing no further questions at this time I will turn the call back over to Mike pile for concluding remarks.
Thank you everybody for joining us today.
We're excited about what's coming up at 2020, I look forward to talking to you in may have a great day.
And ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.
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Okay.
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