Q3 2020 Westwater Resources Inc Earnings Call
Thank you for standing by this is the conference operator.
Welcome to the West water resources, Inc. third quarter, 2020 results and business update conference call I.
As a reminder, all participants are in listen only mode and the conference is being.
Courted after.
After the presentation, there will be an opportunity to ask questions to join the question queue. You May Press Star then one on your telephone keypad.
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I would now like to turn the conference over.
Right, Chris Jones, President and CEO. Please go ahead Sir.
Thanks, Anastasia and good morning, and welcome to West Water Resources, Q3, 2020 results call I'm.
I'm, Chris Jones, President and CEO.
And with me here in San Antonio at our Oh.
At our main office is Jeff.
<unk>, Vice President of Finance, and Chief Financial Officer, and with US by phone from Alabama is Dain Mccoig Vice president of operations.
Please turn to page two.
On page two we have cautionary statements. We hope we will be referring to some forward looking information and we invite you to read these cautionary statements.
But it earlier.
Page three.
A quick safety bulletins and message on ensuring the safety of our employees.
To ensure the safety of our employees and the communities where we work.
We have eliminated unnecessarily unnecessary travel.
Instituted health protocols for working together and its two degree more working range moments for our employees based on CDC and state guidelines.
We have ensured that our employees are permitted and encouraged to take Tom uptime off due to illness or the onus of those around them without penalty.
That.
Said, our reclamation activities in South Texas are continuing using protocols designed to ensure the safety of our employees and they have been successful.
[noise] page four.
We continue to work with our business partners to maintain our advanced battery graphite product development.
Schedule doors.
Dr. Anza plan or engineering partner in Germany is presently commissioning our pilot plant for operations. This quarter operations will take place in Germany, New York and Illinois.
We continue to work to ensure financial liquidity to support our key operations and business active.
Ladies.
We had a cash balance of over $53 million as of October 31st enough to finance our base business through 2022.
West waters prevailed in a key decision in that case for compensation from the Republic of Turkey.
The hearing is scheduled for September.
The timber 20 Onest 21.
And we request 36, and a half million dollars plus fees.
With that I'd like to turn it over to Jeff Vigil, our CFO, Jeff [noise].
Yes first.
First let's take a look at our capital position on slide five.
Our closing share price yesterday was.
$4.14.
And with approximately 19 million shares outstanding our market capitalization stands at approximately 79 million.
During these past nine months, our stock performance was influenced largely by the ups and downs in the capital markets due to the country's reaction to the Cove at night.
Pandemic.
Certainly enactment of the carriers back at the end of March added some stability to the capital markets for.
For share prices began to third quarter at $2.35 and ended the quarter at $2.51.
Moreover, it's a series of events triggered exceptional damang upward.
<unk> stock price movement.
And trading volume the first week of October.
These events included Ilan masks presentation at the battery Day conference.
On September 22nd where he projected a shortage of battery materials in the next five years, there's demand for electric electric vehicles growth.
<unk> exponentially.
That was followed by the announcement on October 28 by Piedmont lithium up a supply contract with Tesla for its lithium project in North Carolina and.
And then on September 28.
President issued an executive order declared a national emergency for U.S. production of key.
<unk> minerals and this included graphite in vanadium.
That propelled exceptionally interests in the west sweater stock during the 10 trading sessions beginning on September 28.
And indeed on October 9th trading volume totaled 667 million shares.
Credit or 67 million shares per day average.
And the dollar value of this trading activity amounted to more than $4.5 billion.
Well for average they for an average price of $6.77 over that period.
Also during this period the company.
Utilize its ATM facility with Cantor Fitzgerald.
It would be in line with Lincoln Park capital raise approximately $50 million from stock sales.
By taking advantage of this opportunity to raise substantial cash the company is now in a fundamentally strong position to execute this budget its business plan for 2021 and beyond.
Importantly, because of the improved liquidity.
Management has removed the going concern disclosure from his financial statements.
During the quarter. The company also made the strategic decision to focus management and resource allocation towards execution of its business plan.
On September one we entered into a.
A binding letter of intent to sell west sweaters uranium business to Encore Energy Corp. The cooler at Vancouver base, a public company listed on the TSX venture exchange.
At closing West Waterworld received approximately 2 million U.S. dollars of encore common stock.
We will retain a royalty enter.
In new Mexico uranium properties being sold.
Also and importantly, sell the uranium business, where it will remove $6 million of asset retirement obligation from our balance sheet.
And allow us to reallocate the nearly four and a half million dollar annual uranium budget to get to the graphite.
<unk>.
Turning to slide six.
Let me provide a financial summary for the third quarter 2020.
Net cash used in operating activities was 4.1 million for the quarter ended September 32020, as compared to $2.9 million for the same period in 2019.
The increase in cash used during the current quarter was primarily due to increased graphite product development expenses, including pipe.
Pilot plant engineering costs, and graphite product testing.
For the quarter ended September 30 product development expenses were 1.6 million compared to.
Approximately 19000 and the corresponding.
Finding period of 2019. This significant increase is reflective of the company's strategic decision to Orient additional resources to the graphite business plan.
General and administrative expenses from continuing operations for the three months ended September 32020.
<unk> increased by 500000 from the comparative period.
In between 19. However, this increase was due primarily to a nonrecurring item in 2019, and this was the reversal of executive bonuses of approximately $400000, which which lowered the cost in 2019 again from a nonrecurring standpoint.
Net loss from continuing.
Tune operations represents operating activities related primarily to the Companys graphite business corporate general and administrative costs and arbitration costs for the Companys claim against the Republic of Turkey.
The increase in net loss of 2.2 million for the three months period ended September 30.
Compared to the prior.
Three year period, and 2019 was primarily due to increased.
Product development costs for product testing.
A pilot plant planning their knees arbitration costs.
The net loss was a discontinued operation represents the activities of uranium and lithium businesses, which are reported as discontinued operations.
In accordance with our decision to sell the writing business in discontinued investment in the lithium business well.
Both actions undertaken to oriented additional resource to the graphite business.
Net loss from discontinued operations was 6.4 million for the three month period ended September 30.
$5.7 million increase from the prior period in 2019 was largely due to a 5.2 million impairment charge.
Recorded against.
Uranium property plant and equipment in the third quarter and desert as a result of the terms of the Oh, our agreement with Encore Energy Corp.
On September 32020 companies cash balances were approximately 5.5 million in.
The company had a working capital balance from continuing operations of 2.9 million.
Our cash balance stands at October 31 at 53.3 million.
We believe our.
Current treasury balance significantly mitigates the company's capital received 2021 as the Companys.
2021, non discretionary budget budget graphite plant program and the remaining a bunch.
But is it product development initiatives are now fully funded.
The company is pursuing project financing to support the primer.
Like funding the funding of the capital expenditures for construction of the commercial plant set their occur in the second half of 2021.
And with that I'll turn it back to you Chris.
[noise] and then a quick reminder, on page seven of our core values here at West water safety first that means the safety of each other.
Or safety of our environment or assets that communities, where we work.
And our reputation.
Cost management, that's effective and efficient use of our shareholders assets.
The focus on first quartile cost performance.
And integrity.
The highest level of performance every day, improving our processes and.
Conservative promises well kept.
On page eight.
We are the owner or the leading graphite development property in the United States.
We've developed a new environmentally sustainable.
Proprietary process for purifying graphite and we've applied for U.S. Pat.
Our pilot plant scheduled for operations this quarter.
Specs to produce battery grade graphite for customer tasting and validate the design of our commercial scale facility.
Turning to page nine.
KUSA graphite project has these three key attributes proprietary technology as we previously spoke.
The high purity conversion process that is simple and robust.
A cost advantage U.S. manufactured battery.
Great graphite.
With an ATM potentially improving our project economics.
And sustainability.
We have an environmentally sustainable product process.
And our graphite used in electric vehicles can save 300000 tons per year of.
Cotwo emissions.
On page 10.
Battery market segments include transportation.
Such as electric vehicles, we expect a 23% growth rate over the next 10 years. This is predominantly lithium ion batteries for the qual.
Altercation cycle for our products the three to five years.
Consider this really our C.S.P.G. product that will be speaking about here in the next couple of slides.
Energy storage systems.
Like those for grid power and others at an 11% growth rate expected over the next 10 years.
This is the enabling technology for wind and solar power generating facilities.
And consumer electronics like the phone you may be using right now are the laptop on your desk.
We see a 3% compounded annual growth rate for this well established value chain.
Qualifications for these.
Project products tend to be in the one to three year timeframe.
And specialty markets that we will be working to develop in defense aerospace medical with major players in the United States.
Government and major contract base businesses.
On page 11.
Graphite is a component of all batteries.
This includes lead acid batteries like the vehicle you may have driven to work this morning or as parked in your garage.
Alkaline power sells like those in your smoke detectors or your flashlights and non rechargeable lithium cells like that.
Coin cells, you see on the end caps and places like home depot and Lowe's.
Coated spherical quoted purified spherical graphite C.S.P.G. is a critical component in lithium ion batteries like those that go into electric vehicles.
And the United States has defined graphite has.
Quote critical to the nation's security and prosperity unquote and presidential executive orders ask U.S. government agencies to act with Alacrity.
On page 12.
We talk about the graphite supply and let me summarize this slide.
Right in saying simply that China is responsible for more than 80% of the graphite produced.
Worldwide and almost all of the graphite we use here in the United States.
You asked produces only 11000 metric tons of domestic graphite a year.
None of which is mind here.
In the United States is projected to require more than 124000 metric tons in 2030.
That's only 10 years from now west.
West water resources is poised to provide a direct solution to the security of domestic supply for graphite.
On slide 13.
Because the graphite project provides key advantages.
It is a near term source of domestic U.S. battery grade graphite.
The plant commissioning is underway right now.
Customer qualification on some products is underway right now with a one ton bulk sample order.
Our previously announced.
Well its waters graphite will be produced using as we have previously described in environmentally sustainable process here in the United States.
And west waters graphite products serve all battery markets.
Our vanadium discovery acoustic could contribute revenues in.
Exploration is planned for the first part of 2021.
[noise] on page 14, we talk a little bit about our products Ultra P. M G.
His purified micronized graphite this.
This is the material that goes into alcohol in power sales for instance analytics.
It acid batteries as a conductivity enhancer.
Think of the Oakland power cell market as 10 billion with a b units per year with a gram of graphite in each battery.
Our ultra decks G product, which is de laminate and an expanded graphite.
Goes into those batteries.
And and lead acid and lithium ion batteries as the conductivity enhancer.
[noise] Ultra C.S.P.G. This is the material that goes into lithium ion batteries for electric vehicles, mostly in hand tools as you see in the hardware stores. This is a high performance anode material for lithium ion batteries.
Greece, our target market remembering a it from previous slide is the electric automobile sector.
Our C.S.P.G. can save over 300000 metric tons of C. O two emissions per year when used in electric vehicles. This is enough material for Haiti 5000 electric vehicles.
Per year.
On page 15.
We show our process Flowsheet.
The first step after the graphite as concentrated to 95% by our supplier.
Just to purify that material to 99.95%.
At or greater.
This is Don.
Through a.
Process for which we have applied a patent.
For it with the United States Patent office.
And involves several steps and we'll be talking about that in just a moment.
This material right now is being piloted and Germany.
And in New York.
Our dengue process is being piloted in Illinois.
Germany is responsible for C.S.P.G.N.P.M.G.
Development and we're using three different locations in Germany to do this work it is a complex product project.
Check that is already underway and managed quite well by our management team.
Let's talk about purification for a moment.
Our purification methodology has a more sustainable footprint than those currently used in China, where environmentally damaging.
Damaging and expensive to manage hydrofluoric acid is used.
This project process yields graphitic carbon grade of at least 99.95%.
Our three step process allows for flexible feedstock and consistent performance.
It basically consists of three process steps caustic roasting.
Of the graphite concentrate sample asset.
Acid leaching of the roasted sample and thermal treatment of that sample to get rid of the remaining contaminants.
[noise] on slide 17.
We talk about.
Direct investment options.
As we look for project financing going forward from here, we're looking for loans or loan guarantees to take on some measure of debt against the project.
And the process facility can be used as collateral.
Direct equity investments by a PE firm.
Hi, guys or other investors interested in and an equity level of return and that can happen at the parent or the project level Andrew.
And joint ventures, we're considering all options, we have executed on none of those so far.
We have retained a project finance firm to assist this experienced team in evaluating these various.
The sources of capital.
On slide 18.
Our pilot plant commissioning is underway in Germany.
New York and Illinois.
We expect our pilot plant started a startup to occur as early as next week generating products for pre qualified.
Occasion, and large batches to facilitate seals.
Full scale production is expected from purchase feedstock in 2022, producing battery grade graphite.
And we expect to be mining begin mining and because the graphite project.
In Alabama, beginning in 2028.
On <unk>.
But number 19.
We talk about our economics are pre tax NPV for this project to $603 million internal rate of return is 36% and initial capex is only $118 million will commission that plant in 2022, and we expect revenues in 2023.
To remind our listeners that these are P.A. level estimates going forward from here and our feasibility study to be completed.
At midyear 2021 will further refine these numbers as we go along.
We had a graphical representation of our project plan on slide 20.
Remember that we have a feedstock.
Dr. supply contract through 2027.
To serve the mine started up in 2028.
And we have ensured adequate financial liquidity to support our key operations and business activities for the next couple of years.
On slide 31.
We announced a year ago that we had discovered vanadium on our property will be exploring for that vanadium and the first half of 2021 with results at mid year.
There are solid indications the vanadium as present the drilling activities. We proposed for that site will explore those the vanadium content.
And trade actions and also give us some information on metallurgical work needed to recover we.
We will be able to speak to the economics sometime during 2021 as we finish those those activities.
On slide 22.
We talk about our team.
I've been in business for something over 35 years, we like to say.
And I've been in various mining a environments from gold and silver and molybdenum and coal and oil sands, and others and and I've been able to lead high performance teams like this one on several different.
And occasions, Jeff vigils pick up more than 40 years of financial experience in mining and manufacturing.
Dan Mccoy.
Joined us on in 2004, he is experienced with all phases of is our development and production for uranium but.
Is leading our.
Graphite development business as a licensed professional engineering, Bachelor Science and mechanical engineering.
You bet her joined US in 2015 is founder of MSR K anchor anchor with more than 30 years of Turkish and U.S. mining and environmental experience taking projects from concept to production.
John Lawrence joined US in 2012 with more than 30 years of experience in lawn licensing across nuclear fuel cycle hasn't B.S. and nuclear engineering from Purdue University and a duty from Catholic University Columbus School of law.
Our newest addition, Jay Waco joined in 2020 with more than 26 years ago.
Grants and sales and marketing to the lithium ion and electric vehicle manufactures and markets in the United States and Asia.
On slide 23 Ext.
Experience matters.
We've restructured and recapitalize this company repositioning wastewater.
For an energy materials company with a laser focus on battery grade graphite products.
Our experienced management team has a demonstrated history in finance and Green energy development from concept through production.
And we've executed a proactive M&A program sale of our non core uranium properties.
As we deploy capital and expanding our resource base into Green energy materials.
On slide 24.
Why westwater as an investment.
We have a battery grade graphite development business was strong upside potential.
Graphite has been designated a critical mineral by the United States.
To read every month.
We have a proven management team with experienced in energy and minerals development and financial management.
And you can anticipate catalysts for the remainder of 2020 and 2021 through pilot plant operational results than 80, M. exploration results fees.
Filling these study results and.
Inclusive graphite project development and project milestone achievement.
And with that I'd like to open it up for questions Anastasia.
[noise] [noise]. Thank you we will now begin the question and answer session to join the question.
So you you May press Star then one on your telephone keypad. Your wilshere talent acknowledging your request. If you are using a speakerphone. Please pick up your handset before pressing any key too.
To withdraw your question. Please press Star then two.
Well pause for a moment as callers join the queue.
[noise] [noise].
Your first question comes from Debra Fiakas with Crystal equity Research. Please go ahead.
Thank you and thank you for taking my questions first just a couple of housekeeping questions and one is in regard to the impairment charge that was taken on the uranium properties.
Yes.
This this charge primarily triggered by the pending purchase agreement that you have led to the pending sale and can we anticipate that this would be all the impairment charges that that.
Sale might trigger or can we expect additional charges when the deal finally closes.
Yes, so perhaps in the fourth quarter of 2020.
Hi, Thanks for your question Debra.
Two questions really yes, the impairment charges triggered by the valuation as a result of the deal.
And no there will be no further impairment charges.
As because we finish the deal during this quarter.
Okay very good. Thank you and also I did want to ask a little bit more about.
The recent capital raise and and person it's a very nice little Kitty of cash that you have now I wondered if you could perhaps.
Just given <unk> give us a little bit more color on what you think that.
That amount of money will will support in terms of the.
Strategic plans that you have over the next a year or two.
Can we expect it to fully fund everything related.
She is a pilot plant.
You know can we expect it to help fund I noted that you had mentioned a feasibility study sometime I guess in sometime in 2021. It's maybe you could just provide us with a little color on what you expect to use those funds for.
You bet the.
That plant.
The feasibility study.
The exploration project and all of our base business activities are fully funded for 2021 as a result of this particular raise.
As well as well into 2022.
The project itself at 118 million.
<unk> dollars of capital raise is not yet funded but could be partially funded through some of this cash.
We await results from the feasibility study before we execute fully on project level financing.
Okay very good and then maybe if I could just ask a couple one more question.
About that pilot plant.
You know your you mentioned commissioning in your presentation and I just wondered what there was left to build whats left to connect in the various locations. There's there's multiple locations and maybe you could talk a little bit more about why you chose to do approach it that way.
And then maybe just give us a little bit of color on what that commissioning involves.
You bet. So commissioning means it's bill we're just running it to make sure it works.
Simply put.
And that is taking place at several different locations.
The lapping and Homburg, Germany were door openers.
As doing most of our primary work.
Ah the furnace in New York.
The work in Illinois to make hard to execute <unk> and and are shaping and sizing efforts in in Frankfurt.
So the reason we chose.
Those two.
Execute our pilot plant in this particular way.
It's because it utilizes on the ground expertise.
Important to our graphite processing at each of these locations without importing those people all over the world.
I want to say that our staff was.
Pre absent in defining our our pilot.
Pilot plant this way because with travel restrictions being what they are between even here in the United States, but certainly between here and Europe.
[music].
We don't have to move their experts to us we can utilize their expertise in their lives.
Patients, where its best utilized and we can supervise from afar as we need to.
Okay very good and then you mentioned that project financing and that you've begun to work with an advisory group on how to approach the various options that you have.
And is that project <unk> financing that you're looking for at this point the 118 million approximately that's needed for the initial capital expenditure that that's involved in constructing and starting operations in Alabama.
Yes, the $118 million includes the projects.
Okay itself, all the hardware that we need to buy the pots and pans and a land.
Acquisition et cetera.
But it also includes working capital estimates and other things folded up inside there as well as to remember this is a P.E. level estimates. So we've we seek further refined.
Through our feasibility study that happens.
During the first part of the 2021.
Okay and when would you expect a you know do you have a given a date in mind as to when you want to see the feasibility study done and when you want to have this fees, there's a project financing in place.
On June 30.
On the <unk> feasibility study and the project finance and thereafter.
All right. Thank you very much I will get back into the queue.
Thanks Deborah.
The next question comes from restaurant Lacrosse, and Investor. Please go ahead.
Good afternoon. Thanks for taking my call very quick question as far as the project financing goes.
As an individual investor <unk>.
Very.
Oh concerned about whether or not there is a possibility of.
Making a partnership or say with say automobile dealership.
Is that something that you guys are looking at that.
That's possible problems.
Project financing or are you just looking to raise that.
In other ways.
Thanks Russell for your question I'm sure that you actually mean automobile manufacturer and a.
Well, we're not in in.
Direct talks right now what that automobile manufacturers in terms of a partnership we are certainly in talks preliminary talks with some automobile manufacturers in terms of product sales.
As as.
As we elucidate a little bit on the flight we are interested in considering joint venture partner.
[noise] drips on our project as we go forward as one of our three basic methods of finance debt equity and a JV. So I hope that answers your question.
It does and one last question, yes that is a possibility is that possible.
Nobody anytime in the next quarter.
Typically project financing takes place after the feasibility study is finished which is it mid year of 2021.
Got you. Thank you I'll return to the queue.
Okay. That's helpful.
The next question comes from Alicia lobby and Investor. Please go ahead.
<unk> Hello, Hi, Thank you so much.
Good question I'd like to know like how is their mining.
More seasonable than your competitors.
Great question Alicia Thanks, Thanks for that the mining of our project will be done under U.S. law as it as it's currently applied which is the most <unk> legally robust and environmentally sensitive legislation in the world.
Any let's remind all of our listeners that mining doesn't take place until 2028 and the larger footprint for our work for our processing is really in the post processing of graphite concentrate from 95%.
Two or three products frames. So that's.
Really where the footprint and the environmental.
The sustainability meets the road if you will.
Okay. Thank you very much.
<unk>.
Once again, if you have a question. Please press Star then one.
The next question comes from Sal Con Investor. Please go ahead.
[noise], Yeah, Hello, I was just wondering how come insiders do not own any of the shares.
The.
Rick the question basis, maybe a little bit distorted we do own shares.
And insiders have been investors along the last seven to eight years.
What we have done in order to refinance and re task of this business is to reshape the share structure.
Which has resulted in significant dilution of insider ownership.
So I hope that answers your question.
Thanks.
<unk>.
This can oh pardon me.
The next question comes from Robert do Arcade, a private Investor. Please go ahead.
Hi, Chris.
Hi, Good afternoon My question is.
I know we've talked previously Mike.
News specifically on.
You know the executive board or obviously the political.
[noise] platform is changing as we see it and we still have to weigh on our results for that but considering that you know the U.S. government.
[noise] has signal.
Pacific minerals as strategic.
But to the.
Do the.
So the well being of our country.
My question is as we seek financing for.
For additional projects and the building of the plant are are we see do you.
<unk> support as well as a business maybe some grants you know considering that.
This is now slag that is strategic to the success and security of our country.
Well it thanks for that and thanks for that lead and actually with regard to the.
Presidential Executive order.
We believe that.
That the executive order.
It is true no matter.
Which kind of a president we have going forward to be quite Frank and blunt. These materials are indeed strategic and important to them.
The United States and the safety of security of this country.
On your second question is whether or not we are seeking grants or or other types of financing from the United States government.
I will allow that there is I'll help laws in place a previous.
To to the Trump administration in 2005 in 2007 that allowed for development funds through department of energy to be made available to companies that develop for instance electric vehicles.
Tesla was a major beneficiary of those loan programs.
To the tune of several billion dollars with a b.
We are in conversations with all commerce, including the deal we for Oh for financing for this project as we go along as you might expect.
These these conversations with the various.
Entities take months not weeks.
And we have already begun some conversations with some players.
For a resolution come June when we present, our feasibility study.
Hope that answers your question.
Thank you.
I appreciate that and then in regards to.
You mentioned earlier having.
Having a conversations with electric vehicle manufacturers.
And of course, other battery manufacturers reference to sales.
So.
Earlier in the call you mentioned, some probably additional catalyst going into the end of 2020 and possibly into 2021.
Is the business expect United success in those conversations in the near term obviously the projections for mining.
They're not near term, but I think Tvs I understand that concerning some of that but the deals that have gone out there is that something that the business is actively pursuing them and perceives a successful rate.
[music].
Let me answer your question by saying.
Saying that.
We did discuss during our presentation as much forward looking information has as we can.
And I would refer you also.
To our slide around integrity, we make conservative promises and we keep them.
And with that as a backdrop.
I would say that when we achieve results.
And we can publish them, we will do so with alacrity as we have been for these last almost eight years.
We we adopt a very conservative ethic with regard to pop.
Publishing our news, but we do so on time.
Time and in full as soon as it's real so oh.
I hope that answers your question, perhaps a little differently than you intended.
Yeah, Thanks, Chris and in and last.
And I might have missed it but you mentioned that you're actively pursuing department of defense.
Support and hopefully by Nancy women is that that comes to fruition would that be something that will be announced.
One small correction, what we said is that we see department of defense markets as one of the places.
As we can place materials we.
We didnt speak directly to any conversations directly with the OTI right now and it'll be really up to the D.O.D.. If we get a contract approximately how much of that we will be able to disclose at that time.
Okay. Thanks.
Thank you well go back into the queue.
Thank you Anastasia it back to you.
This concludes the question and answer session I would like to turn the conference back over to Chris Jones for any closing remarks.
Thanks, Anastasia and I want to thank you all for spending.
Turning a little bit of your morning today with us time to hear our story and and to.
Ah allow us a chance to talk about our success.
We invite you to take a look at our web site and our disclosures for any further information you desire and with that I'd like to wish you all a great day. Thank you.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
[noise].