Q4 2019 Earnings Call
Greetings and welcome to the Ashford fourth quarter 2019 results conference call.
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Question answer session will follow the formal presentation, if anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Please note. This conference is being recorded it is now my pleasure to introduce your host Jordan Jottings. Please go ahead.
Good day, everyone. Welcome to today's conference call to review results for I first 44th quarter and full year 2019 and to update you on recent developments on the call today will be Monty Bennett, Chairman and Chief Executive Officer, Deric, Eubanks, Chief Financial Officer, Jeremy Welter co President and.
Chief operating officer.
Well as well as noted the acceptability of this conference call on a listen only basis over the internet or distribute yesterday afternoon, and a personally I think covered by the financial media.
Time, I remind you that certain statements and assumption and this conference call contain or are based upon forward looking information and our may be made pursuant to the safe Harbor provisions of the federal Securities regulation.
Such forward looking statements are subject to numerous.
Assumptions, uncertainties, and known or unknown risk, which could cause actual results to differ materially from those anticipated. These factors are more fully discussed in the company's filing with the Securities and Exchange Commission before looking statements included in this conference call are only made as that'd be they have this call and the company's obligated to.
Publicly update or revise them.
MS made during this call.
Constitute an offer to itself or solicitation of an offer to buy any security securities will be offered only by means of a registration statement and prospectus, which can be fun sound at www dot at DC Dot Gov.
In addition, certain terms used in this call our non-GAAP financial measures reconciliations of what's your provided the Companys earnings release, and accompanying tables or schedule, which haven't filed on form 8-K with the FCC on February 25th.
2020.
And may also be accessed the companys website at Www Dot Ashford Inc.
Each listener is encouraged to review those reconciliations provided in the earnings release together with all information provided in there really.
Also unless otherwise stated all reports results discussed in this call compare the fourth quarter of 2019 with the fourth quarter 2018.
I'll turn the call over to Mark.
Good afternoon.
Welcome to our call to discuss our financial results for the fourth quarter and full year of 29 team.
Let's begin by giving a brief overview of our quarterly results and then to discuss our recent acquisition of the hotel management business Remington.
I will also provide an update regarding our recent formation of expert securities dedicated platform to raise retail capital.
To conclude with an update on our investor outreach efforts.
After work Derek will review, our financial results, Jeremy will provide an update regarding our hospitality products and services businesses and then we will open it up or do you want to it.
We delivered strong operating and financial performance in the fourth quarter and are pleased with the groundwork. We're looking for the continued success of our platform.
Fourth quarter revenues increased by 1100, 11% adjusted EBIDTA was 8.9 million, which reflects 11.9% growth over the prior year quarter and adjusted net income per share was $1.27 cents Ashford inc. as a growth platform and we believe these strong results demonstrate the benefits.
Of our strategy.
In November we completed the acquisition of the hotel management business of Remington.
This is a very compelling transaction for Ashford.
Upon closing of the acquisition.
We believe all the pieces are now in place to significantly grow our business. We had a one of the kinds unique structure that no one else in our space has with our existing advisory platforms in our growing stable of products and services businesses, we're uniquely positioned to grow and create value for our shareholders. We have two main strategies to grow our business.
This increase our hotel.
And separately pursuing third party clients.
We plan to grow our AUM.
Through the creation of Ashford Securities in late September we announced the formation of Ashford Securities LLC, a dedicated platform to raise retail capital through financial intermediaries and the broker dealer channel in order to grow our existing and future platforms. Our goal for Ashford Securities is to provide the market with highly dip.
Rich shaded alternative investment products.
Types of capital raised May include but are not limited to preferred equity convertible preferred equity mezzanine debt or non traded Reits common equity for future platforms. We believe it's a natural fit for us. Additionally, given ashfords broad experience and ability to execute on many different types of lodging strategies. We believe we have a unique.
Opportunity for new investors also having a dedicated fundraising platforms will provide ashford and its advise platforms and additional source of capital that is not dependent on the traditional publicly traded capital markets.
In the fourth quarter Bremer filed a registration statement with the SEC for non traded preferred equity that registration statement has since become effective. In addition, I am pleased to report that FINRA recently approved Ashford securities application to be a registered broker dealer.
We're excited to pursue a fresh source of capital that will help us prudently grow older platforms over the long term and increase shareholder value.
And we expect to begin raising capital towards the end of the second quarter.
Regarding third party growth.
The second hotel management transaction immediately add scale diversification and enhanced competitive position for Ashford hospitality industry. It expands the breadth of services, we can offer to our advisory side as well as third party owners Remington, which has not historically pursue to third party business recently appointed Sloan Dean.
As a CEO to drive the next stage of growth for the company.
Slowness in emerging talent in the hospitality industry has done a fantastic job guiding Remington as its chief operating officer over the past two years.
During that time implemented numerous operational enhancements continuing to outperform the market and shifting the company's culture to be more engaging and empowering of its associates.
We're excited about the prospects for slow and his team to grow this part of our business.
Third party growth initiative is off to a strong start as Remington has already signed three new hotel management contracts with third party hotel owners.
Strategically with the completion of the acquisition, we added hotel management to our stable of hotel related businesses, which already includes our asset management business Premier project management pure wellness, hoping Qi ji savvy red hospitality leisure and lives more capital now when our advisory platform.
Acquire hotels, we will have the exclusive right to provide all of these services to those hotels.
These services include Hotel asset Management Hotel management project management into your design architecture procurement construction management audio visual services financing services Advisory services property sales services mobile Rucci services, Hypo Allergenic hotel rooms, and water sports activities.
Also in October we purchased 412974 shares of our common stock from Ashford Trust and Bryan Maher.
Derek will provide additional details, but we're extremely pleased to complete this transaction as we believe acquiring the significant block of approximately 16% of our common stock will provide substantial long term accretion given our track record of buying back stock at Ashford Trust during the global financial crisis, we clearly understood the benefits of share repurchases and remain.
Committed to actively pursuing previous capital management strategies.
Additionally, both Ashford trust in Fremont distributed the remaining shares of Ashford inc. to the respective common shareholders and unit holders.
Ashford currently advises to publicly traded reap platforms, Ashford Trust and Bremer, which together owned 130 hotels with approximately 29000 rooms, and approximately 8.1 billion of gross assets as of December 31, 2019.
Ashford has a high growth fee based business model with a diversified platform of multiple fee generators, we believe it to be a scalable platform with attractive margins. Additionally, it has a very stable cash flow base has the advisory agreements with the re stipulate that the base fee is maintained at a level at least 90% of the.
This year's base fee.
We have a fee structure in place that incentivizes Ashford to create shareholder value EPS advisory platforms with our base fee driven by the share price performance in our incentive fee based on total shareholder return outperformance versus the repairs are management teams primary focus is maximizing returns.
We continue to be excited for all of our strategic investments and we're optimistic about the prospects for our two advisory platforms. We also believe at our hospitality service businesses are well positioned to initiate meaningful growth in both through our advised rights as well as third party channels, we see great opportunity for this platform to grow and deliver.
Superior returns to our shareholders by adding additional investment platforms.
On the Investor Relations front, we believe having an activist investor outreach effort and broadening our investor base are important areas of focus to that end since the beginning of 2019, we have had hundreds of meetings and interactions with sell side analyst existing shareholders and potential shareholders. We also held our annual Ashford Investor Day in New York in October.
Which was very well attended and gave us the opportunity to share the Ashford story and strategy with a number of existing and potential investors moving forward. We will continue to focus on this outreach effort.
We'll now turn the call over to Derek Thanks money.
Net loss attributable to common stockholders for the fourth quarter was $15.1 million or $6 on 31 cents per share compared with net income of zero point $3 million or 14 cents per share for the prior year quarter net loss attributable to common stockholders for the full year 2019 was 30.2 million.
Dollars or $12.03 per share compared with net income of $5 million or $2.29 per share for the prior year.
For the fourth quarter total revenues were $107.6 million, reflecting a 111% growth rate over the prior year quarter.
For the full year 2019, total revenues were $291.3 million, reflecting a 49% growth rate over the prior year.
Adjusted EBITDA for the fourth quarter was $8.9 million, reflecting an 11.9% growth rate over the prior year quarter.
Adjusted net income for the fourth quarter was $7.2 million or dollar and 27 cents per diluted share.
For the full year 2019, adjusted EBITDA was $38.1 million, reflecting a 32% growth rate over the prior year.
And adjusted net income was $32.9 million or $7.07 per diluted share.
In early October we repurchased 412974 shares of our common stock from Ashford Trust and Bryan Maher, resulting in a total cost of approximately $12.4 million.
This stock purchase represented approximately 16% of the company's common shares outstanding.
Due to the parameters of the private letter ruling received by each of Ashford Trust and Bryan Maher from the internal revenue service. The company was only able to acquire the shares held by Ashford Trust and Bray Mars taxable REIT subsidiaries.
Subsequently in early November both Ashford Trust and Bryan Maher distributed the remaining shares of Ashford common stock to their respective common shareholders and unit holders through a pro rata distribution.
At the end of the fourth quarter, the company had $32.3 million in corporate cash.
Also as of December 30, Onest 2019, the company had 5.7 million fully diluted total shares of common stock in units, which included 3.0 million common shares associated with our series B convertible preferred stock.
We had 2.2 million common shares issued and outstanding.
0.2 million common shares earmarked for issuance under our deferred compensation plan and the balance relates to put options associated with minority interest of our strategic investments acquisition related shares and some restricted stock.
Ill now turn the call over to Jeremy. Thank you to Eric we're excited to provide updates on our hospitality products and services businesses and their strong results and accomplishments during the fourth quarter.
To explain the strategy more fully our products and services initiative is a unique investment strategy in hospitality industry, where we strategically invest in operating companies that service see industry, and we act as an accelerator to grow these companies.
And doing so we believe we are able to establish synergies for our hotel platforms, providing attractive pricing and higher levels of service than they would receive from a third party vendor. We're also able to grow our portfolio companies in a number of ways by referring them to the hotels owned by advisory.
By leveraging our vast industry relationships and by consulting on best operating practices.
The first business I'd like to discuss is Ashford securities.
Our new retail capital raising platform.
Jay Stier, Walt is leading this effort as president and head of distribution for the company.
Most recently Jay was an executive WP Carey Inc. for nine years and was instrumental in raising $7 billion of fresh capital, but building strong relationships with the broker dealer community.
We're currently in the process of hiring other key executives and support staff as a full team continues to be developed.
Ashford Securities believes the key to success is to offer a differentiated investment strategy hired the best people in the industry build excellent relationships with our distribution partners and provide exceptional service and support to all of our stakeholders along with exceptional shareholder returns.
As I mentioned earlier, we're excited to announce at Ashford Securities became a FINRA member from earlier this month.
In addition, Bray more has an effective registration statement on file with the SEC for Nontraded perpetual preferred security.
Longer term, we believe there is a substantial opportunity to offer.
Different types of products structures and strategies, all with the goal of providing differentiated alternative investment products to retail investors looking to diversify their portfolios.
Our goal is to take a disciplined approach to raising retail capital through multiple products and distribution channels.
In short we're excited to pursue a fresh source of retail capital that will help us grow all our platforms over the long term with the goal of increasing shareholder value.
During the quarter, we completed our business combination with Remington and industry, leading provider of hotel management services Remington is a dynamic and growing hotel management company, providing top quality service and expertise and hotel management.
Today Remington manages 88 hotels in 27 states across 17 brands, including 12 independent and boutique properties.
The company recently promoted Sloan Dean from COO to CEO.
And were very excited about the team. He is building to grow Remington third party business.
Recently Remington signed three new third party contracts and is actively seeking more deals.
Premier Project management provides comprehensive and cost effective design development architecture procurement and project management services to the hospitality industry.
There are first full year of ownership, we have been focused on executing several initiatives to accelerate growth and profitability over the long term.
Premieres, New architecture service, which was launched in February 2019 generated $438000 of revenue in the fourth quarter and 2 million of revenue for the full year.
Down Kelly was appointed as co CEO in May and continues to focus on opportunities to expand premier services to other owners property managers and institutions and hostile the industry.
To that end Premier has developed a robust pipeline of third party business, including opportunities to be the exclusive project manager for several large hostile the ownership groups.
Financial results for the fourth quarter and project management fee revenue of 6.1 million and adjusted EBITDA of $2.9 million.
For the full year Premier generated 25.6 million of project management fee revenue and $14 million of adjusted EBITDA.
Sameer recently signed is first third party deal and we continue to see significant significant growth opportunities for this business going forward.
Jason is a leading single source single solution for meeting event needs with an integrated suite a body of digital services, including show into that services hospitality services Creative services and design in integration, we continue to see outstanding growth at the company with revenue up 36% in AFFO.
Fourth quarter compared to prior year period, and 36% for the full year 2019 compared to the prior year period.
As part.
Of this growth story, the company's acquisition of BVA in the first quarter 2019 is already providing meaningful upside as babies adjusted EBITDA is up 34% their first full three quarters of ownership compared to the prior year period.
Overall, the company continues to see success from the implementation of several initiatives over the past year with adjusted EBITDA up $800000 in the fourth quarter compared to the prior year period, highlighting the great team, we have a JV from our executive management leaders to our associates in the field.
We remain focused on additional initiatives being implemented to support future growth and profitability, including assimilating a new executive management team led by CEO Chet Bowman Retooling The company show services business unit to optimize performance integrating and enhancing be sales processes in cost sharing and streamlining the integration.
In a ramp up of newly transition hotels, we remain excited about the opportunity and free performance going forward in continued to grow profitability.
We also continue to see positive results from integrating Jay City in Ashford asset managed hotels in the fourth quarter capacity executed three new Ashford hotel contracts, increasing the number of multi year contracts in place with hotels and convention centers to 94 compared to 59 at the end of 2017, representing 59.
Percent growth.
For the full year JV took over a record setting 27 hotels, which included 10, New third party agreements.
Since beginning of 2018, we have engaged share city at 31 hotels owned by our advisories once JV partners with the hotel it can take a year or two for abbey operations ramp up. So we believe there are still significant growth opportunities for JCB at Ashford hotels, we see a tremendous opportunity for integrating case.
Maybe in two more hotels in the U.S. and internationally given the company's outstanding reputation as a leading service provider in the industry.
Red hospitality and leisure is a leading provider of bars force activities and other travel and transportation services in the US Virgin Island in key West we continue to see significant ramp up of the company's USPI operations, including the ferry transportation services and beach and Watersports services to the West and say John Beacon Watersports services.
To the Ritz Carlton Saint Thomas Club, the timeshare and rental property adjacent to the Ritz Carlton Saint Thomas Hotel, the reopening of the risk Carlton Saint Thomas Hotel and increased direct bookings and private charter businesses.
In the fourth quarter the company, so generated $1.6 million of revenue, representing 235% growth over the prior year period, and 308000 of adjusted EBITDA.
For the full year, the company generated $6.8 million of revenue and 1.6 million of adjusted EBITDA, representing 387% and 700% growth respectively over the prior year period.
Additionally, the company continues to make progress on the integration of its recent spago acquisition with revenue of 1.4 million adjusted EBITDA of 235004, New recently signed contracts. It will take two to three years to ramp up operations.
Of the new contracts and once achieved we see them, adding 1.52 million and adjusted EBITDA per year.
We remain optimistic about the growth outlook for red hospitality going forward, including as robust pipeline in key west for cost years and other related travel services.
That concludes our prepared remarks, and we'll now open the call up for QNX.
Thank you we will now be conducting a question and answer session.
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Our first question comes from Tyler, but sorry with Janney capital markets. Please go ahead.
Hi, good afternoon, thanks for taking my questions.
Just a couple of them for me and maybe the first place to sergeants is it so top of mind and I know you guys and I want to give guidance on this but obviously lots of news out there about our Corona virus and whatnot I mean are there any data points you could provide in terms of Europe potential exposure to that besides.
Maybe general economic.
Yes, we are you seeing any cancellations of events impacting JV or any sort of.
I was sort of color you could provide would be helpful.
Up on that that Ashford Inc., we're not seeing much direct impact that all at this point.
The platforms that we manage.
Bryan Maher and Ashford Trust have seen some cancellations at this point there fairly modest in the groups and maybe several hundred thousand dollars worth of cancellations, but on platforms. The size. They are just not material. So at this point, we're not seeing anything much specific related to the.
Currently buyers of course that could change but to but at this point.
Right.
Okay, Great. That's a tough woman just couple of questions for you on on Ashford Securities, John and considering the start raising capital towards the end of the second quarter.
Are there any more stops rather be records were illegal, but you need to complete to start raising some of that money then what's your once you go out there I mean any sense as far as timeline, how it by how long it might take.
It's a route.
It was much you think you can.
Yes. This is Jerry there's not really any more regulatory or legal hurdles that are significant the biggest thing is just getting.
Syndicate put together and so that requires a process of going through diligence. There are firms that are deluging diligencing Ashford securities as a sponsor and Bray more as an issuer and the type of security that we are.
Looking to sell App RAMAR as well so as we do that you get their diligence process and then ultimately build out your syndicate.
Which is what we're working to do right now which is why we've given the guidance of the ended the second quarter. There are some some additional key hires that we need to make as well in terms of the ramp that's really difficult to say it can be very very lumpy because.
Some of the some of the firms that we're looking to.
To be able to sell through have massive distribution channels and so it's very very difficult for us to predict but I do think that within.
Let's say six to nine months' I think we should be pretty well ramped up.
So that would we basically at the end of this year.
In terms of being able to raise any meaningful capital.
This is Monte just to add to that we are have some internal.
Schedules to start raising money at the end of the second quarter at this point, we're ahead of schedule. So.
We feel pretty good about that unless something big changes.
So what's really left is.
So the due diligence companies that.
Let me to go through and.
And get on their platform start selling.
As far as amount jeremys right to be cautious, we do anticipate to raise and one hundreds of millions of dollars.
Through this effort for Raymark alone.
How fast we do that.
It's just hard to say certainly in the multiple tens of millions of dollars in the.
Second half of the year, maybe even a more over $100 million.
Just in the second half the year is it just depends on several factors one of which how many of these.
These platforms picks up and at this point it is hard to know well one thing I could add is it so far the management fantastic and folks really like.
Our offerings, so we're pretty excited about it.
Okay I appreciate all that all that detailed then switching gears.
Rob Hospitality, Chairman and you mentioned that had a couple of new contracts that were signed there. So can you talk a little bit more about that and then also if you can expand on the opportunities in terms of growing that business and the other Ashford hotels or other geographies that would be helpful to reflects sure. Yes. So we actually signed four contracts.
Recently and one of those is.
Within the.
The Ashford.
Right structure.
The other through our third party and two of those three I'm sorry, one of those three is in key west. The other two are actually in the Virgin Islands.
And the latter one.
Is going to be ramped up more towards the end of <unk>.
Of this year, but we've given guidance that we think it's going to be about a one of the half to $2 million profitability from those four contracts. So we're excited about that and then in terms of the pipeline, we've got a pretty robust pipeline in key west.
We're in the process of.
We actually have several proposals out that we're waiting to hear back on but I would anticipate that in the next quarter, we probably would have at least a couple more third party agreements signed up as well as.
Another.
Ashford contract signed up in key west.
Okay, Great Thats all from me. Thank you.
Our next question comes from Bryan Maher with FBR. Please go ahead.
Good afternoon, a couple of questions.
Circling back to Ashford Securities can you talk a little bit about the impetus behind doing that in the first place was it generally because most of the wall Street expose you have as more institutional money and this gives you access to more retail money and then second question on Ashford Securities.
As it relates to your comments on frame our fund raising this bramer have a pipeline of assets or prospects of acquisitions to deploy all that capital that you would acquire raise over the next year too.
Hey, Brian This is Monte of regarding the reason to do it. The reason is the public markets.
Other trading markets.
As you know have windows about when it's a good time to raise capital and when it's not such a good time to raise capital and how stock prices to perform and.
Over the past five years generally as she has been a difficult market in our space to raise capital and.
It's just it's just fickle and we wanted to be in a position, where we never had to go back to the public markets again in order to raise capital and at least right now Thats. The plan. So we don't have to go back and raise any comment in the public markets and we can raise capital this way because.
Yeah.
What feature of the preferred that were raising three these retail channels that we can push it converted to common if we so too so.
We just just like that approach, it's just going to be much more consistent capital for us.
Regarding.
Opportunities over in the frame our EBIT of course, we have some opportunity that we've got to be a little careful because.
The capital takes a while the come in and any deal you're looking at right now.
I would that would be in the markets.
Maybe six months from now, but at the capital to build a buy something but at our existing properties, we have a number of opportunities to expand them.
And to to do very well by that recently we.
Over the BARDA Sona Hotel, we built this Maple Grove suite, which is about three suites all linked together for.
3 million bucks or so and.
It may very well add as much of a $1 million EBITDA to that properties bottom line. So just incredible returns on investments great uses of capital and a great potential home for this new capital raised and we're seeing a decent to stream of opportunities out there in the marketplace and expect to continue to see them.
The capital starts to come in.
And then my other question related to the Remington Hotel management business I know you added a couple of hotels view hotels over this past quarter.
If you add the gas me, where do you think that that business grows in 2020 and 2021 is it is it is it 10 hotels a year is it 20 hotels year, what do you what are your thoughts there.
Well I am giving guidance on what we think that might be right now, although we definitely want it to grow rapidly to do very well, although we've got upfront cost as we.
Bring on seasoned executives that are expensive to go out in to sell the services. So our full sales effort.
Still ramping up there and probably won't be fully ramped up until maybe.
Year from now because it'll take that long to start producing revenues that will cover the expense of these additional folks so.
It's hard to say, but we definitely want to continue to to add these hotel management contracts and to grow grow grow.
And I know mark to that you and your team at deep and longstanding industry relationships in the hotel business, but what is the most dependent calm and whether you're prospecting for those hotel management contract.
Pieces.
At least right now it's.
Mainly the relationships of the folks that we have working for us.
Sloan, Dean and and Jared who.
Came on as our top sales Guy already had the.
Extraordinary her of existing contacts charities to work over it.
Benchmark doing the same thing so.
We've been able just a trade off of.
Those relationships right out of the box here.
And then just lastly from me I mean kudos to you guys for buying yes, Js audio visual and then the second piece as well and the growth that's come because of that but if you had to think out.
A couple of years and the potential for that business what inning do you think you're in growing that business as we sit here today is it the third inning is the fifth inning, where do you think were at.
For JLTV, yes.
The second inning.
Okay, Great. That's all for me. Thank you.
You bet. Thank you once again, if he would like to ask a question. Please press star one on your telephone keypad.
Our next question comes from Stephen Vigour with Argus Research. Please go ahead.
Yes, Thanks, guys. Good afternoon, <unk> just to expand on the.
On the sales opportunities for the third party growth opportunities have been a common theme for both project management.
Hotel management. So you mentioned the elevation of those loan day in and just wondering on the new third party contracts that were already.
Signed up was that was has there been some staffing up already.
For those or.
I was just curious about the expense run rate.
Due to that sales staff expansion, you mentioned is going to take place what over the next year.
We've stepped up a few folks on the sales side than on the operations side in order to accommodate the business, but just on the sale side. So we've got to how many folks over there now Jim and maybe three folks over there selling.
Three folks that team of three folks on the.
On the Remington side too to bring in that third party business.
Okay. So as they are cross selling between.
Go ahead, Sir is there cross selling between the do they sell both project management and hotel management them.
Not really they sell hotel management and that's how we run each one of these platforms to be specific on their platform. However, a lot of cross selling occurs and we've got a tremendous amount of business. So.
Someone that's.
Over its read of finding opportunities to.
To add.
Watercraft services to where resort will discover that.
They need the new audio visual services and mix introduction.
So we have a lot of that cross sales going on but as far as direct selling.
They are charged with selling hotel management contracts.
And not to try to be a sales person for everything.
Okay.
And switching topics just the the large cost reimbursement revenue line.
That's new skewed the revenue comparisons and Im sure those are great accounting rationale for doing that but just going forward what it would be the expectations. There I know most of it was reversed in the expense line. So any color on the on that line.
Yes, Stephen this is Derek and that we broke out our reimbursement revenue that used to be part of the advisory services line and there was some there was in the project management line. There were some there was another and there's obviously a significant amount that flows through now that we've got hotel management because of the way GAAP requires us to.
The record those.
Expenses that are at the hotels that Remington manages we have to actually grows up on our income statement and show those as both revenue and expense item. So there's no impact to the bottom line, but you'll see on the if you go through the earnings release in the back tables or if you look at Remington specifically, a large amount of that revenue is reimbursement rate.
Avenue and so we thought it'd be helpful to break that out and put it put it on its own line also so that you can analyze the businesses and see where the margins are of the individual businesses without that cost reimbursement.
Messing up the metrics.
Right, Okay, great. Thanks.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.