Q1 2020 Earnings Call
Ladies and gentlemen, please standby or conference call will be in momentarily. Once again, thank you for your patience and please standby.
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20 earnings conference call.
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After the speakers presentation, there will be question answer session.
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I would now like to hand, the conference over to Justin Benincasa, Chief Financial Officer. Thank you. Please go ahead Sir.
Thank you operator, good morning, everyone and thank you for joining us on our call to review our first quarter 2020 result.
With me here sitting a socially saves distance from me as Michael prior eighteens Chief Executive Officer.
During the call I'll cover the relevant financial information and Michael will provide an update on the business and outlook [laughter] before I turn the call over to Michael.
For his comments I'd like to point out that this call in our press release contain forward looking statements.
Concerning our current expectations objectives, and underlying assumptions regarding our future operating results.
And are subject to the risk and uncertainties that could cause actual results to differ materially from those described also in an effort to provide useful information to investors. Our comments today include non-GAAP financial measures.
For details on these measures and reconciliations to comparable GAAP measures and for further information regarding the factors that may affect our future operating results.
We refer you to our earnings release on our website at 89 dot com or to the 8-K filing provided to the FCC and I'll turn the call back to Michael.
Thank you, Justin Oh, I kind of like a having you [laughter] maybe they keep that.
All right I'm joking aside obviously major major changes going on the understatement over the past couple of months.
Because of that I'm going to limit the amount of time might spend in my prepared remarks, covering the historical results.
In order to make sure investors get a sense of our outlook and potential impacts from the Corona virus pandemic.
So having said that I want to note that this is a third quarter in a row of significantly more positive results from our telecom operation.
There are still some areas that need improvement, but the overall trajectory has been strong and shows real progress.
International Telecom experienced moderate revenue growth and another quarter of strong subscriber broadband subscriber gains.
And U.S. telecom delivered results that reflected recovery in that business similar to the fourth quarter and far ahead of one year ago.
Consolidated operating income and net income also would have shown greater improvement, but some negative items that Justin will touch on held us back from a strong profit performance.
Since the crowd of ours outbreak turned into a global pandemic in the last part of the quarter.
We have taken a number of actions to adapt and to keep our employees and customers safe.
So far we've been fortunate and not having any related health impacts to our roughly 1600 employees and weve been able to keep substantially all of our services running.
We have not taking any major hits to date and we are moving rapidly to adapt our operations to the current uncertain environment.
As to outlook.
We feel pretty good about the underlying strength of our business and demand for services.
But we do expect there will be an impact from the economic pain facing our customers and the communities in which we operate.
That said, our ability to weather any adverse impacts and to take affirmative action to add value to our businesses.
Strengthened by our positive net cash position and substantial liquidity.
So with that I'll turn to the individual operating segments, starting with international Telecom.
[noise]. So this segment turned in another solid quarter revenue and EBITDA, both showed modest growth mainly due to increased broadband and other fixed data revenue.
Mobile revenue was flat and mobile subscribers were down year over year.
Data subscribers, however, increased 8% year over year, roughly consistent with recent quarters and voice subscribers actually increased during the quarter as more customers took up our bundled broadband and voice offerings and cellphone.
And just who will walk you through the cash flows but this quarter continued the strong performance of 2019 in that regard.
So looking at the likely Corona virus impact on this operating segment.
Keep in mind that more than a half of our international Telecom revenue comes from markets that rely on tourism.
As a major economic contributor.
Right now, there's very little travel into or out of any of these markets.
And hotels restaurants, taxis and many other small businesses are hurting.
That impacts our revenues and margins directly today.
But the indirect impacts could be greater if there was a prolonged downturn.
Against that I'll note that more of our revenue comes from residential customers and it will take severe impacts indeed for them to stop buying high speed Internet or mobile phone service altogether.
As a smaller matter, we're actively working not only to adopt adapt sorry, our operations to the changed circumstances, but to take the opportunity to achieve additional operating efficiencies such as increased digital engagement with our customers, which lowers care and billing costs and improves there.
Experience.
Both customers and employees, they're having to adapt to new interfaces and technologies and we believe that progress will remain post crisis.
Each of our international Telecom businesses are looking closely at their operating and capital costs to see where they can reduce or defer cash outflows as we build up additional resiliency in the face of the uncertain short term future.
Some of these changes may have long lasting benefits.
In addition to these more defensive or protect it moves in light of our relative financial strength. We're also looking at investments and moves we can make today they could have a multiplier effect in the recovery.
Among other things this includes helping our customer base and building loyalty through discounted services waiver of late fees free Wi Fi spots for those without connections.
And other measures.
Looking to take market share through selectively investing in capacity and capabilities in the heart of the crisis.
Looking for smaller so called bolt on deals that can expand our territory scale or service Brett.
And working with government to deploy solutions that help with its pandemic response and an economic recovery.
Our goal is not just to weather the storm, but to position our businesses to thrive.
Moving to U.S. Telecom this was the third consecutive quarter in the segments recovery.
The changes apparent in the year on year comparisons revenue and EBITDA are up with the main drivers being the first net deal and Caf two revenue as much discussed, but there are some other smaller items going into right direction, as well, including enterprise and fixed wireless broadband sales.
And some promising smaller wholesale fiber network investments.
From what we can see today. We think this segment is less sensitive to current of iris related impacts than our international Telecom segment.
A substantial majority of our revenues and cash flows comes from multi year fixed price contracts or government subsidy programs.
Nothing is risk free, but we're not expecting changes to any of those contracts from UBS.
The pandemic related effects on this segment are mainly tied to a slowdown in the timing of expected growth.
At the moment the government restrictions and measures we have taken for the safety of our employees.
Let's put initiatives on hold firm with sales activities to larger strategic customer discussions and private LP.
However for the time being we're still making some progress in advancing customer discussions and winning some in progress or inbound commercial and consumer business.
Lastly, with renewable and energy segment.
This segment showed no year on year revenue growth despite progress in 2019, bringing additional facilities forward.
Building the customer pipeline.
Pre Corona virus, we were expecting to see solid revenue expansion in the first few quarters of this year as a result that those activities.
Now we expect revenues to decline further in the second quarter due to factory shutdowns at the direction of the Indian government.
We are undertaking cash conservation measures. During this time to try to prevent negative operating cash flows while our customers electricity needs are at historically low levels.
So in summary, as I said at the outset, we feel good about the underlying strength of our business and the demand for our telecom services.
Well our operations have been relatively recession resistant during the past.
We are in unchartered territory at the moment.
The impact of the measures governments companies and individuals have taken to reduce very serious health risks.
As of course, the big unknown.
It's hard for us to predict the negative impacts on our various operations. When we don't know how long government measures will last and how into the visuals and businesses will react as these measures ease.
But we will try to give you a sense of it.
As we as we go along and in coming quarters, and U Penn and really the fundamental messages you control, which you can control.
At the moment, we're focusing on three major areas.
In order of priority they are adapting our operations to the pandemic to enhance employee and customer safety and comply with changing government requirements.
Deal with new operational limits and customer interactions.
Examining all cash flows carefully to see where we can further enhance our financial condition in the face of market uncertainties.
And looking at smaller and larger strategic moves we can undertake to create.
Ladies and gentlemen, please standby.
You may begin.
Okay Alright.
We back operator like Ron all right I think we dropped off right. After Michael handed off so I'll just going to go back into what I started on the on the numbers for the quarter. So for the first quarter total consolidated revenues were 110.9 million up 7%.
From last year's reported total of 103.3 million. This year on year growth was led by the recovery of our U.S Telecom segment, where revenues increased 27% over last year, we continued to experience steady growth in our international Telecom segment.
Consolidated EBITDA for the quarter was 29.8 million up 31% over the first quarter 2019.
I should also note that we restructured the presentation of revenues on the consolidated PNM fall into two revenue lines communication services and other revenues to better align with industry standards and how management looks at the business. In addition, we provide a further breakout of each of these revenue categories in the segment financial tables.
Looking at each of the segments and starting with International Telecom revenues were 82.3 million up from 80.3 million last year, and EBITDA was up 3% to 27.8 million.
Similar to the last several quarters much of the year over year increases comes from our broadband subscriber and revenue growth in the international markets, where weve invested in expanding and upgrading our fiber networks.
Capital expenditures in the quarter totaled 10.5 million early in the year, we expected 2020 capital expenditures in the segment to be between 45, and 50 million for both maintenance and additional growth projects in multiple markets.
As we continue to assess the impact of the pandemic. We currently expect capex to be below this forecast as we anticipate delays in completing certain projects and choose to defer or do some of the discretionary spending we hope to have more clarity on the 2020 capex forecast by the time of our second quarter.
Earnings release.
In the U.S. Telecom segment revenues were 27.3 million for the quarter up from 21.5 million a year ago, and adjusted EBITDA was 8.1 million up significantly from.
The 2.1 million in the first quarter 2019.
This increase was primarily from the Caf two federal support revenue that began in the second quarter 2019 and increases in carrier service revenue as part of the first that transaction.
I should note that given the terms of the recent carrier service contracts event, we entered into we expect very little seasonality in revenue and EBITDA this year compared to past years.
With respect to site construction and related revenue under the first net agreement. The overall timing has been delayed due to permitting and construction delays caused by the pandemic. We currently expect construction revenues to begin in late 2020, but this could be further delayed bye bye.
By any of the pandemic impacts.
As we noted in in the release, though the delay in construction revenue should have little impact on operating income as revenues will largely be offset by construction expenses.
Similar to the International Telecom segment, we also expect capital expenditures to be lower in the US segment as about half of the original forecasted 35 to 40 million is for tower construction in building backhaul as part of the first and that agreement some portion of that will likely be pushed it.
22021.
In the renewable energy segment revenues were 1.3 million in the first quarter compared to 1.5 million last year, an EBITDA was 158000 compared to 413000.
As we noted in the release and Michael mentioned, we do expect revenues and EBITDA in their segment to be negatively impacted in the short term as many of our customers in India were forced to closer operations during the pandemic and in power usage declined.
We incurred a consolidated net loss for the quarter of 1 million or six cents per share. This includes a $2 million write down of our Oneweb minority investment and 900000 of.
Of ex FX losses.
Also included in operating expense for the quarter was $1.2 million noncash stock based compensation expense and 1.6 million of costs related to the early stage investments in the U.S. Telecom segment.
The effective tax rate for the quarter was approximately 32%. However, we anticipate a full year rate in the mid teens as we expect a benefit from in a well carry backs as part of the cares Act.
Moving to the balance sheet at March 31, we ended the year with total cash and short term investments of 147 million in total debt outstanding of 85.5 million. In addition to our cash position, we've committed credit lines of 200 million, which leaves us pretty well positioned to answer your uncertain economic times.
Yes, and provides us with significant financial flexibility.
And with that operator, I'd like to obey before you go before you go back to the operator, I think I got to note that.
We cut off before the end of my so.
Okay.
Part so I think one I just finished at the very end.
Might be some overlap but just.
If you can bear with us operator so.
The last two points I made we were first that.
Since we don't.
So it's hard since it's really hard to predict what's what the situation is going to be going forward. We have we're focused on the things we can control and I talked about three major areas in order of priority. The first is.
Adapting to the pandemic and the cut and the government measures related to the can pandemic and.
Making sure our employees and customers are safe.
The second.
Point is too. We're then examining all cash outflows carefully to see where we can further enhance our financial condition in the face of the uncertainties.
In the last one is looking at smaller and larger strategic moves we can undertake to create value for our stockholders and take advantage of our relative financial strength.
And longer term, we believe that the current of Iris pandemic will change future business and social behaviors and increased teleworking and social distancing is likely to accelerate a shift to heavy telecom and data reliant activity.
Which we think plays well for both our established and emerging businesses.
So I think I think we've now covered to glitch, hopefully we have and operator.
What we now field questions. Please.
As a reminder question at this time. Please press Star then number one of your touched on telephone.
Your question has to answer though you should move yourself from the Q. Please press the pound key.
Our first question.
Greg Burns with Sidoti <unk> Company. Your line is open.
Morning.
Good morning, just wanted to follow up a little bit on the expected impacts from the core virus.
Looking at.
The international Telecom.
Segment what percent of.
I guess the markets that you think will be affected because of.
Tourism bar what percent of those.
Markets, our business versus consumer and.
Dynamic that you expect the businesses to temporarily churn off just our turn off the services BOLI wafer.
Economy to rebound or are they on usage based models, what why do you expect that that is.
Yes, I, Greg I don't have a percentage for you except to say repeat what I said, which is.
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The bigger portion of our revenue comes from the consumer residential side.
But.
So theres a couple of different things that can happen so.
In extreme version of the.
Hotel or restaurant that has no occupancy right.
In some cases, there is some services they're keeping.
Going and but in others, particularly if it if they are shut down for a prolonged.
The amount of time it may be that.
Revenue from those customers goes goes away entirely for a period of time.
And then there's the impact on.
The.
On the.
People, who work there right so people, who work in restaurants, and hotels and other small businesses dive shops things like that those will be impacted.
I think in the short term haven't seen a significant and people are very even more reliant on their telecom.
Services in this event and to counter some of the the.
Commercial business that down that's gone down in some some has already gone down.
There are there have been some increases in other areas like the governments and in several markets.
We are working with the government to.
Help them.
Put out measures to set up programs and so on so both in our managed service side and on the connectivity side. So there may be some offset but I I think to the key takeaway is should be that if there is a prolonged downturn.
The market's multiple market, so Cayman us Virgin Islands, Bermuda little bit less but still very important they really rely on tourism is a major economic driver. So that's that's the risk we see.
Okay, Great and then.
Turning to the Us telecom.
Fixed revenue is really strong this quarter I mean, I think it was like.
Good averaging like sub 1 billion Boes little over 3 million. This quarter can you just.
Talk about what's what's driving that.
Good.
Run rate to build off of here.
The first quarter. Thanks.
Say that again, Greg It was saying I don't know what's wrong with our connection.
From the beginning please I was just around the.
The strength from the fixed.
The fixed component of the U.S. wireless.
Over 3 million this quarter it's been.
Thanks.
1 million for like the West yourself. So I just wanted to better understand the strength you're seeing in that line item and it's just a good.
Well good level to build off over a good run rate for that Yep Yep level, Craig adjusted that level is good the that is the cath lab. The majority of that as the connect America fund revenue in that's in there.
Okay.
And again Thats started that was not there a year ago.
Okay. So that started that started in the in the second quarter of last year.
Okay, great. Thanks in terms the.
Carrier services part of the U.S. what percent of that.
Business is fixed now versus variable.
We don't have a percentage, but the vast substantial majority so just how about that it's.
The the part that is not that is variable is relatively small.
Great. Thank you.
Yes.
Our next question comes from the line of Ric Prentiss with Raymond James Your line is open.
Sorry, I missed some of the stuff in between years drop it in their mind drop and.
First question I've gotten first actually view your family employees are all safe and well, obviously, it's a difficult time for us on it sounds like you guys are prioritizing things correctly.
Thank you and and likewise.
The thanks.
Triggering a business perspective, maybe first.
Happened in April.
Front than March can you give us any kind of color about what kind of magnitude of.
Impacts you've seen.
Knowing that I think allow your business actually is seasonal maybe more skewed towards the winter months in the spring months, but just anything anecdotal was hers impact April versus what you were seeing through the first quarter.
Yes, I think.
Not major I would say first of all but definitely some so the types of impacts we saw.
Range from the fact that.
Gross adds in.
We have gone down in multiple businesses, because the selling activity is way down.
You don't have customers coming into your stores than in most markets for that period, and new and there were some outbound sales efforts that we had to completely curtail.
In things like fixed wireless in the U.S.
The second thing that happens, though that the flip side of that is churn goes down right because the same things happening other way.
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And.
And I would say net net net there's probably more costs that go down and go up because of it on the cost side.
Other revenues that are impacted or.
The roaming revenues for example in our international Telecom segment. Those those are cute and they would typically be huge and the like the first quarter, but in particular, but those are not nothing and right now there's our customers or not.
Traveling and.
Roaming and.
In Nobody's traveling to the places where our networks are.
In these international markets and then.
So thats that that's a negative impact.
As well.
And.
I think the other thing is.
There's normally some.
Revenue generated from overage charges and things like that.
Late fees and so on and those are those are not there I mean, we've been.
First of all usage on something certainly mobile is down so you don't have the overage charges.
And then in other areas Weve waived late fees or for those who are affected by the pandemic.
And.
And there's when I just think the behaviors have changed a little there and then lastly.
As I said in answer to the before.
Certain activities customers who are.
Hotels or condos or.
Restaurants, you can see no activity.
That didnt necessarily have a material impact on the first few weeks. So this but as it grows.
That could have more of an impact over time.
Yes.
If these markets don't start to open up.
Makes sense, how about from a from a bad debt or accounts receivable standpoint anything that you've noticed there I know you're going to waive late fees on some of the items, but any larger issue on bad debt or accounts receivables.
We we were we are we have heavy cash collections right. So it's a little tough for us to tell right now because a lot of the places they typically pay in cash. Our you know are they have to find other avenue. So we do I think we'll see more we probably it's likely we'll see some more back.
Bad debt in the second quarter, but it's hard to put a.
Size on that right now.
Just because the a lot of people aren't able to actually get to places to pay great great.
Okay and then.
You mentioned, the new reporting details.
Is it possible or have you maybe pose it's been an are busy earnings week.
To get like the recast second quarter third quarter fourth quarter 19 numbers. So we can look at mobility versus fixed versus carrier versus other for the different.
Yes.
Yeah, we probably could do that let me talk with you guys offline on that well to put it out there somehow maybe up on the website or something.
And as we think about not just the history, but the drivers in the metrics you've done a good job, giving us some of the.
International customers in broadband versus data.
What kind of metrics should we be looking at as drivers on the domestic side sure removal versus fixed versus carrier.
Yes, I think.
As we talked about a lot of that is fairly fixed certainly the carrier services side.
And that's that's something.
We need to look at to the point, where it becomes material to two to put additional information out there I think it's I think in.
Some of the more important stuff from an economic standpoint are not your classic metrics. So its new.
Enterprise contracts wholesale contracts.
But there are some some other areas certainly you know as private LT grows there may be.
I expect that industry will start to do something like square footage.
Ill.
Under operation or something like that our buildings under operation that.
Some of the Das providers for example, do so.
We'll look at that those things aren't material, yet so we're kind of waiting to see where that goes.
I also noticed you guys have now differentiate between an EBITDA and adjusted EBITDA for some of the miscellaneous items.
What triggered that addition of an adjusted EBITDA versus EBITDA.
I I'm one of these people I can't stand the freight adjusted EBITDA I feel like.
So I just feel like we've had it for too long.
And we and we're going to try to get to something that is like everybody knows what it means and everybody calculates the same way which is EBITDA.
And then do the math for them give everybody. The other piece parts. So they can make the adjustments they like but my problem with adjusted EBITDA as you can't compare.
Adjusted EBITDA from one company do another with confidence.
Right and that actually was my last question you mentioned that one of the reasons for breaking out the new reporting was industry comps, who do you consider your industry comps as you look at EBITDA adjusted EBITDA and other things.
Yes, it depends obviously on the segment you know in in our.
And none of them are perfect. So in our in our US Telecom segment, it's really hard to find a comp right because of the nature of our business.
In the blend of our business.
Theres pub Theres public regional players like Shentel that some of you cover you cover Rick.
But their operation is.
Much more like a lot of our international telecoms operations then.
Our us telecom and.
In international there's lilac.
Is it you know is an example, millicom as an example, but.
There are also very different because they they are much larger and operate in.
Both of them largely have there.
Our biggest bulk of revenue and cash flows comes from Latin America as opposed to the Caribbean.
So.
But they there at least some somewhat instructive.
Okay, great. Thanks again.
Wishes for you your family employees as we make it through this difficult time.
Yes, Thanks ran to you. Thanks.
Our next question comes from the line of Outlink Allen Klee with National Securities Your line.
Hello can you give us an update on your emerging investments and also on the cash flow statement. You showed a 2.8 million purchase of its strategic investments. So maybe you also kind of touch on that thank you.
Yes, I don't I don't really have okay. So I don't really I don't have anything substantial to say on the emerging investments there's refer back to my comments that.
Some of the some of the sum of what's going on feels like it could slow down a little in terms of momentum just because it's harder to when you're in that stage to get deals done having said that there.
No in for example, and private LTE, we continue to make progress system.
Customer discussions and.
Items there. So we think right now we think it's maybe slowed down what we'd hope to see happened in this this year, but.
Not derailed it.
I would say and you know in other areas. We've got we have so we've made some good progress.
Put some additional provided some additional funding in Australia to the tower business, there and Weve and we've seen some tangible progress there, but it's still it's still early stage.
In terms of.
Scale and scope compared to the rest of our business. So I think I'll wait to have bigger bigger events to provide more detail and the and the number you're referencing was an additional investment in the Australia operations.
Okay great.
International Telecom.
Is there way to think about how much of your revenue revenue typically comes from tours that are visiting.
Not a lot of our revenue comes from tourists.
Alan It's it's more indirect.
So.
Wireless roaming revenue does come from.
In basically from those tourists although its.
We we get paid for less than I suspect they pay their carrier but.
But it's.
It's really the indirect impacts that I talked about right. So it's it's our customers who serve the tourists.
Or work for businesses that serve the tourists.
We saw the back in the financial recession.
Which.
There is nothing like this in terms of uncertainty and shutdown of activity, but it did.
There was a.
Market downturn in tourism to those areas during that period.
And we could see that it wasn't it didnt have a major impact on us because.
Things basically stayed open and so thats. That's the uncertainty is if businesses don't last or.
Can't stay open.
Then then there will be more more impact on us.
Thank you my last question is on domestic telecom.
Besides caf, two and first status or anything else that's.
Impacting the business or you expect impact a business that that's supporting.
Better results than what you've had before or or the other side of it.
Well I think we solidified.
More than just first that on the wholesale side on the carrier service side to that we always we said we feel fairly good about those numbers. There. There are some pieces of that that are still variable, but we don't.
Don't really see.
You, probably think there's a little more upside potential there than downside.
And then on the.
The other side of the business at some of the things I referred to before it's.
Some enterprise sales and and things like that that.
We think could again, probably have more upside potential than downside because it's it's a small but growing piece of that business and I would say the same is true the.
Fixed broadband.
Service, which were which we do with the fixed wireless solution.
Thank you.
And as a reminder, ladies and gentlemen, if you have a question at this time, Please press star and the number one of your touched on telephone.
Our next question comes from the line of common Khorsand with Bws.
Financial your line is open.
Hi, I'm. So first question I had was.
What kind of growth are you expecting this year that your termination expense was higher in Q1.
Say that again Thomas your termination access expenses were higher in Q1 of this year.
And that should trend is it's changing up from the trend here. So I'm just trying to get to understanding is what kind of data our voice kind of.
Growth are you expecting that you're spending more.
Yes, it's just it's really increased data use right. So as we you know in multiple markets, where you've seen the broadband subscriber growth has been other data service growth than that.
So that increases.
Our backhaul requirements.
And I think thats, so I think thats the major piece of it.
And then the other question hospitals in the Guy and I was just given the elections are over there.
Are you comfortable with the current climate.
Comfortable with the current climate.
Local climate.
In Guyana.
Yes.
No.
No not don't don't think it's great for the country right now the delay.
The.
Final and accepted election results don't don't think Thats a great outcome.
I think.
IMF and others are still predicting fairly strong growth.
Even in the face of the current of ours this year in Guyana, but but less so than they thought I definitely think it.
This political uncertainty slow foreign direct investment.
It hasn't slowed.
Exxon by all reports, they and they've said that.
And their recent earnings call, but but a lot of the other related.
Sort of.
Triggered benefits I guess of of of the oil development. I think is you know inhibited a little bit by by that.
Okay and hominid just just to expand on your question.
The other the first part of the question.
The.
Some of those probably if you're looking at the comparison of year over year quarter than the termination and access the in 19, we had some onetime kind of credits that were going through that artificially made a lower so it's not necessary up off of that year, just 19 was lower.
Okay. Thank you and then last question I had was regarding the.
Yes.
Business.
Is that all really first not just using the current network structure or are you adding.
Some towers to help grow that business right now with first in the contract.
No just using the current network.
We're not we're not expanding network, we will spend some money on infrastructure in terms of.
Call in towers is part of that deal.
But but the traffic right now is on existing network.
Alright, thank you.
Thank you I'm not showing any further questions I'll now turn the call back over to management for closing remarks.
Okay. Thank you everybody.
Thanks for joining us be well and we will see you on another quarter.
Ladies and gentlemen, this does conclude the program you may now disconnect everyone have a great day.
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