Q4 2020 iMedia Brands Inc Earnings Call
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Okay.
Greetings and welcome to the IBD of brands, Inc, fourth quarter and full year 2020 earnings call.
At this time all participants are in a listen only mode.
A question and answer session will follow the formal presentation.
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As a reminder, this conference is being recorded.
It's now my pleasure to introduce Mark Reichman of corporate controller. Thank you you may begin good morning, everyone and thank you for joining US we issued our Q4 earnings release earlier. This morning. If you do not have a copy you may access it through the news section of our IR website and I media brands Dotcom. This release is also an exhibit to the form eight.
K filed this morning.
I'd also like to remind everyone. This call will be available for replay through April six 2021 starting today at 11 30, a M. Eastern time, a webcast replay will also be available via the link provided in today's press release as well as on the IR section of our website.
Some of the statements made during this call are considered forward looking and are subject to significant risks and uncertainties. These statements reflect our expectations about future operating and financial performance and speak only as of today's date, we undertake no obligation to update or revise these forward looking statements for any reason, we believe the expectations.
Reflected in our forward looking statements of reasonable, but give no assurance such expectations or any of our forward looking statements will prove to be correct for.
For additional information please refer to the Safe Harbor statement in today's earnings release, and our S. E C filings.
Finally, we will make references to non-GAAP measures on this call such as adjusted EBITDA and free cash flow.
The information required to be disclosed about these measures, including reconciliations to the most comparable GAAP measures are included within our earnings release now I will turn the call over to I'm media brands CEO, Tim Peterman Tim.
Thank you Monty I would like to begin this morning, reiterating that I media brands continues to be focused on taking every step of it can during these uncertain times to keep its employees vendors customers guest and their families safe.
Q4, 2020 was another strong report card for US Q4, net revenue was $125 million, an increase of 1% compared to the same prior year period Q.
Q4, adjusted EBITDA was 8.4 million of 17.5 million improvement compared to the same prior year period, and Q4, new customers grew by 12% the highest growth rate for this metric in seven years regarding.
Regarding our Q for balance sheet cash was $15 5 million of 5.2 million improvement from the same prior year period.
As a reminder, the company's debt structure today is composed of the credit facility that provides the $75 million line of credit the.
The two of borrowing base and the term loan that matures in July 2023.
As of the end of Q4 2020, the company had 41 million outstanding on its line of credit, which was the 24 per cent decrease or $13 million compared to the same prior year period.
In addition, the company had 12 point for million outstanding on its term loan at the end of Q4, which was an 18 per cent decrease or $2 7 million compared to the same prior year period.
Our Q4 inventory balance was 69 million, a 13% decrease compared to the same prior year period.
Regarding capital expenditures during the quarter, we spent approximately 1.2 million on capital projects, reflecting primarily the investment and upgrades to our website and infrastructure.
Regarding our Q4 expenses operating expenses decreased 16% or 8.5 million to 45.8 million full year 2020, operating expenses decreased 19% or 41.2 million to $175 million.
These meaningful expense reductions reflect the continued positive impact of our leaner organization expense discipline as.
The strongest these Q4 results are I would like to note that these results are also consistent with our full year 2020 performance for example for the full year 2020, the company posted a $42 million annual improvement in adjusted EBITDA of 21 million reduction of net debt and the 16.
The million reduction in accounts payables and accrued liabilities.
Full year 2020 cash flow from operations was $6 2 million of 12 point for million improvement compared to the same prior year period.
Full year 2020 free cash flow was 1.3 million of 14.6 million improvement compared to the same prior year period, we launched the 60, plus new merchandising brands in the year the generated roughly 20% of the company's annual revenue, which is the highest number in the highest per cent of annual revenue.
<unk> in our company's history.
New customer growth for 2020 was 14% compared to the same prior year period. In addition, the company grew its new customer file for three consecutive quarters in 2020, and that's the first time since 2014.
Gross margin growth in Q4 was 560 basis points compared to the same prior year period and for the full year 2020. It was of 420 basis point growth compared to the same prior year period.
Shop, HQ was the first and only national television network to offer an F. D. A authorized at home COVID-19 test to consumers in the U S.
Shop, HQ was the first television retailer to use it to national promotional platform to generate demand from brick and mortar retailers for shop HQ products. For example, our shack kitchen products today are available in over 1700 target and Sams club stores nationwide takes.
Taking a step back from our 2020 financial results I want to reiterate how passionately. We work every day to drive our new interactive media growth strategy that centers on building a growing portfolio of lifestyle television networks consumer brands and media Commerce services.
Since May 2019, we have launched two additional 24 seven television networks shop, Bulldog T V and shop, HQ health as well as our new online discount marketplace. Our Galleria, we acquired an OTT SaaS company float left and two leading consumer brands J W. Hulme.
N shack most.
Most recently we've accomplished the following.
On February 5th the company contributed approximately $3 5 million in inventory to acquire a controlling interest net online marketplace called the closeout, which offers consumers exclusive and name brand products at deep discounts on.
On February 18th the company successfully closed on its oversubscribed common stock equity raise totaling 21.2 million on March 1st the company entered into a licensing partnership with restore capital of Hilco Global Company, where I media will operate and grow the Christopher bank's business in all sales channels.
Including digital TV catalog and brick and mortar.
Regarding our 2021 company priorities. They are consistent with 2020 to accelerate the revenue growth of what we know works in 2021, we will drive continued innovation in our merchandising and programming offerings, while continuing to improve our customers experiences we will incur.
Kris the high definition penetration of our television networks distribution footprint, particularly in the larger DMA markets.
We will drive profitable revenue growth in our proprietary online marketplaces by leveraging I Media's TV networks promotional power.
We will capitalize on the success of our innovative shat business model by deploying it with other key I'm media brands, we will leverage the immediate existing television programming to accelerate our ability to launch compelling OTT streaming services.
And we will Opportunistically and profitably scale, our media Commerce services.
In terms of our 2021 outlook the company anticipate posting Q1 revenue growth between three and five per cent compared to the same prior year period. In addition, the company reiterate its earlier guidance that the company anticipates posting at least $6 million in Q1 adjusted EBITDA.
In between 28, and $32 million and adjusted EBITDA for the full year 2021.
As a reminder, from a tax perspective, the company has approximately $397 million in federal Nols that are available to us to offset future taxable income.
In closing I would like to say that we are excited and optimistic about our ability to deliver consistent profitable annual revenue growth. Thank you for your time. This morning, I will turn the call back over to the operator for Q&A operator.
Thank you we will now be conducting a question and answer session.
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Thank you our first questions come from the line of promise for Tonight with D. A Davidson. Please proceed with your question.
Sure So Jim congrats on the quarter and the.
Here I have one question and one follow up so first of all my question are you sort of touched on the script prepared remarks, but can you talk about the closeout website and Christopher <unk> banks, how is the how those initiatives fit into your overall vision for our media brands.
Yes.
Sure. Thanks, Tom the.
Well, if you think about our agenda and what we're building here, we really have three different for.
The three different parts of the strategy. There is the building out of our lifestyle lifestyle television networks. There is the building of our consumer brands and then there's the building of our media Commerce services. Both of the businesses that you've described Chris for banks and the closeout are really about the consumer brands and media Commerce services.
The if you if you take a step back and think of that when we began in 2019 may of 2019, we launched two new 24, seven television networks right. So in each of those were launch because of the strength of shop HQ customer file and merchandising mix we started with.
Bulldogs shop Bulldog PV and then we last spring launched health two categories that we do very well and we think we have a competitive advantage in and then as we began to build our consumer brands segment. We first started with J W. Hulme of who we acquired in late 19, and then with the Shack launch.
Last spring that was really our second effort in that area of note as you think about Christopher banks, Christopher banks would be the third within that consumer brands. Each of those have a different of different model for them, but certainly Christopher banks is an exciting opportunity for us I mean first if you think about Chris for banks and where it fits in.
Are your agenda I'd like to talk a little bit about who the partners are involved with it and why we think it's so exciting that the the hilco team restore capital's team.
<unk> been north of men and Fredericks and Dan Rubin, both all three great operators, great partners for us as we move to really build the Christopher banks brands. So that's the first part of why we're excited about the second part of the team that we have working on it led by the obviously, Kathy and like all of our team with <unk>.
Working with the came from Christopher banks that we've hired to help us build it Kelly Kelly, So I'm going to go through a couple of those folks of why we're excited the leader on the marketing side of Chris from banks is very strong Kelly I think or is it is it a top operator and we're excited to have her on the team as well as the desk of harm is leading the merchandising.
<unk> of Christopher Bank also very exciting to have her aboard helping us build it when you think about Christopher of banks. The reason that we're so excited about it strategically that they share the same customer that we have today. It starts at 55 female and moves up from there, but what they bring to the table. In addition to just sharing the same customer.
Hap proprietary style of proprietary print there of a very loyal customer file there of a brand that's been around for 50 years. These all of these elements of our strong for us to be able to use our promotional platform now.
Creating relaunching the TV show for them next month, using our promotional platform to complement what they already have it.
I wouldn't say magic, but it's certainly the economic opportunity for everybody involved so Christopher bank building that within our consumer brands segment is important and every brand we do or we build in our consumer brands benefits from our traditional media promotion and our media commerce services, whether that be the pick pack and ship.
Chip creative services or loyalty programs or whatever they are these these brands and these three segments. All work together so moving on from Christopher banks as an explanation that's moving to close out.
So when we talked about our strategy with the TV networks and how we move from a general service of shop HQ into distinct personalities that we go deeper into shop Bulldog as really a mail service for men's products and services and womens shopping for men's products and services. When you think about shop HQ.
Again, very deep into the area of telehealth and telemedicine, we're doing that exact same strategy with our online marketplaces. So as you know last fall, we launched our Galleria our gallery of dotcom as a online discount marketplace, but the branding of it the personality of it is much more.
It's a higher end very feminine more like a real real type of marketplace, whereas the closeout is a different personality and it is a it goes deeper into a market that I call. It's much more of a Rev. Rec marketing, it's a more aggressive price discount it has a totally different feel both of those markets.
We feel our big but we think the way to reach those customers in a more efficient way with our more loyal following is to do it in the different types of personalities or branding. If you will so the you know I'll stop there and see if that answers your question Tom.
Yes, Thank you very.
Very helpful. All right. So then for my follow up Tim I wanted you to remind investors of how the the pandemic has impacted our media and talk about your ability to generate sales growth on top of last year's performance.
Sure Tom the.
Maybe the best thing to do is just look at the the metrics.
As we as we.
Well the answer that question. So I'll start with the merchandising mix is as we all know last year of the in Q2, the hut levels moved up pretty dramatically and there were all sorts of different issues going on with customers as everybody was navigating in their own personal journey through this.
The pandemic and as we began to shift and move in a way that we thought would be best for our shareholders and and really our customers. We began to offer a bit more health product in that Q2.
And that was something that was in very high demand and in fact also in Q3 and Q4, we worked for six months to be the first television network to launch a EUA authorized COVID-19 home test for.
For our customers again all of these things around the idea that this is an evolution of telemedicine and telehealth being accelerated by the the current COVID-19 situation, but as you look at Q2 and you look at our merchandising mix you can see that beauty and health and in that quarter was about 43%. So.
Certainly it was we were addressing the demand at that time, because in Q1 of 2020, our beauty and health of this was only 24% total moved up to 43, but then if you watch as we move through Q3 in Q for the beauty and health mix in Q3 was 34% and then in Q4.
With only 24% so that spike in COVID-19 related products and the high levels of everything else in our minds was a one time event that would move through the system.
Ordinary course, because customers at our marketing of our new brands are in all categories and that's what we've demonstrated by the.
Q4, being the growth in revenue the first time in the very long time and that with a mix of only 24% beauty and health. So those those those kpis give us the very strong.
Comfort that the the pressure or.
We would say the lapping of Q2 with the health products isn't really an issue for US. In addition to just the mix now being normalized.
Shareholders also have to remember is of that.
In Q2 was a high spike in health products for last year, but after Q2, we've been very busy at also launching and acquiring new businesses that we're not also around in Q2. So the lapping of opportunities goes both ways. So you get pressure from.
The COVID-19 call that 10% to 15% lift from the hut levels, but then let's think about what we have done from Q3 forward to where we are today.
Shop HQ health was launched in Q3 of last year and has done really well from us from the very beginning all the new brands that we launched in the back half of the year are now moving through into Q1 and Q2 the closed out with obviously not here last year, Christopher <unk> banks again was not.
There is not anything that were lapping from last year, our Galleria the higher end online discount marketplace. We launched in Q4 of last year those of the elements that make us feel of it feel very optimistic as I said in my prepared remarks about being able to produce consistent revenue growth. Its something that we know is the fundamental thing.
About 2021, because we've moved through the financial turnaround we fixed the gross margin.
Most importantly, we've established the culture and a lean organization that believes in what we're doing in that that's driving all of this but those of the things that make us feel good about as we move into Q1, Q2, Q3 and Q4.
Excellent. Thank you Tim.
Yes, Thanks, Tom.
Thank you. Our next question is coming from the line of Mark Argento with Lake Street Capital. Please proceed with your questions.
Good Sam club.
Couple of quick ones what got the.
Christopher <unk> banks don't particular of the shock.
I called you got them.
Most of the principle of these transactions.
Brands for Kevin.
Do you see the opportunity the more of those types of transactions of about one or two or one or two a year or is there an opportunity.
Work on a bigger portfolio.
The follow up on the balance sheet.
Most of improvement out of the sort of the capital raise recently, but maybe talk a little bit about the balance sheet and how you'd like to see that.
Lay out over the next year in terms of.
Continuing to pay down debt with free cash flow or balance of that with reimbursement.
Sure thing Mark of the.
So yeah, I think what you're starting to see with Shaquille and with Christopher banks is our strategy unfolding. So the strategy of using this.
Hundreds of million home national platform of shop, HQ to drive the opportunities.
For even the brick and mortar opportunity like we're doing with Shaquille, obviously available in over 1700 targeting the Sam's club store.
Stores the debt that we are starting to figure out how to do that and do it well and then in addition to that using our you know the.
Our scaled pick pack and ship platform.
Our sales force with the very strong consumer experience platform all of those elements make for when you have a brand that has the kind of the.
Power I guess it would be of lack of a better word like of Shaquille. The kitchen products. Then we can use our assets to to really build it like like no. Other brand can do it like no. Other company can do out there because we have both the front end of the promotional power of scale of television and then the backend pick pack and ship the digital platform all of the other.
Elements that are of critical so we take that know how and now we partner with Hilco and we're doing Christopher banks.
The reason why I mentioned the partnership with the store capital is that they are a good strong group of operators that are in and constantly in the flow of all of these types of opportunities and so it's a partnership that we expect as partners to replicate again and again when it makes sense. So when I say when it makes sense.
There has to be reasons Christopher banks, we shared the same customer file Christopher banks. They had all of these different elements of a very strong business and.
Everything that we had from the traditional media and the back end services that are much less expensive to do or things that we can immediately complement them on and share the the upside.
With our customers as well our customers are very interested with shop HQ in the Christopher Banks' proprietary styles of proprietary print all the different things that go back and forth. So there are reasons why each of these brands makes sense for us to give an unfair advantage for growth that doesn't mean all brands.
That come across our table or brands that we're going to pursue because we are going to be very selective about it but yes, I think that we're demonstrating that we have of model here because of these of of our particular group of assets that can really do a lot for our brands when that brand makes sense for <unk> media. So that's.
That is yes, something that we expect to do more of the.
Regarding the before I move on to the balance sheet, Mark Let me just see if that answered your question.
So that's that's helpful. I appreciate it.
Yeah. So the.
The balance sheet, let me talk about the balance sheet as the next finance Guy I would say that was it doesn't get enough attention at the Glorious work that we did in 2020 from taking down the <unk> our line of credit.
Moving that down.
A significant move as well as our term note. Let me let me set the table as I did in the in the prepared.
Prepared remarks, we really have the P&C, which is of great partner. We have we are of $75 million of line of credit subject to a borrowing base and then of term note and the.
We have moved down significantly the the borrowing base not the borrowing base of the yet the outstanding balance and the term loan until when we think about as we move through 2021, it's we will be opportunistic, but we don't believe that.
We like paying interest as a matter of process, but we don't think zero debt is.
It is the right answer either so we'll continue to look at what the optimal mix is the certainly the equity raises that we did do well.
Where each for a distinct reason and they werent designed to pay down a 100% of our debt. We were certainly working with the last fall's raise and and really focusing on improving the payment terms for some of our existing vendors that we thought would give us an unfair advantage at <unk>.
The margin opportunities and other ways to make sure that we can continue to grow the business and with these vendors that we like so much. So that was the first part and the second raise what we're really focused on it's not so much again that the raises for anything but working capital, but it's working capital with designed reasons, we talked about.
In my prepared remarks about how we want more high definition distribution for our each of our television network so as folks.
Talk about the linear $24 seven landscape.
Often what everybody will jump to immediately is the difference between the NSO ecosystem, the mvpds and the Internet based ecosystem call that the OTT or over the top but in between that particularly for customers who are our customers that start at 50 and move up there is the high definition neighborhood.
And what we are focused on.
As we move into 2021 is there of certain markets that we do not feel are high definition penetration is high enough and we're going to go out for those.
And the way to go after those are obviously around different payment terms and things like that so we want to make sure that we have the balance sheet to make those big changes and we have demonstrated evidence as we've done this in the past when we move in a market, particularly of top 10 market to our HD carriage it drives.
20%, 30% growth.
Productivity in that market over time, so it's something that we're very bullish on and the reason I'm, saying that before you move from N V. P. D. S. A standard definition to OTT.
Do also have evidenced that more and more customers today are hanging out in the HD neighborhood, they're just not moving out of it and that that's accelerating over the last call. It 36 months and that's why that's such an important priority for us in 2021, so the balance sheet. The cash that we're using will be deployed for opportunist.
Our growth in revenue and in margin rather than just the complete paydown of debt if that answers your question.
Good luck.
Thanks Mark.
As a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
Our next questions come from the line of Palo experiment with Craig Hallum. Please proceed with your questions.
Alright, well thanks for taking my question and congratulations on a tremendously strong year and turnaround the <unk>.
Ask about the new brands that you've launched on the shop HQ platform from a merchandising perspective, I mean, it certainly seems like the caliber and quality of the brands continues to improve but it sounds like from your commentary that theyre contributing more to your business and new brands have historically can you talk of.
Little bit about you know typically what what does the maturity curve look like when you launch of new brand is there kind of a honeymoon period of upfront when you do a big promotion that that fades or does it take maybe a year or two to build and then just curious you know as you as you start to bring in bigger and better brands that you've been doing do they kind of.
The curve that you've seen in the past maybe at a higher level because of their bigger brands or have they been maybe evolving differently than the typically when you launch new brands.
Alex sure so yeah.
Let's take a step back and say.
When we talk about new brands. The reason that you saw so many for.
From us last year and how it was 20% of our revenue was it takes it takes some time so all of the back half of 19, we are developing building. These brands finding brands that are left distributed are exclusive to us and then we're launching them in 2020 that that really hasnt happened, we think of a new brand that is.
Anything over $5 million of successful new brand launch and it has been quite some time really 2014 and 15 since we were able to do that and so that was a top priority for us of 19 to make sure that we introduced in 'twenty and there is no magic curve or no magic.
Our expectation on how you can anticipate the growth of the new brand. It really comes down to the vendor and the merchants involved in and building the brands. It. So for example in Victor has been around for most of our 30 years of history and the reason the debt that brand remains relevant.
And does so well each and every year is because it has a vendor of leader a L debt continually offers of new styles and new ways of new new products, New marketing, it's that constant innovation and so what we did in 2000 Twenty's, we tried to partner with vendors and different areas, whether that's in beauty.
With the launch of Kalamata are on the gnocchi or indifferent in home different areas. We tried to partner with vendors that understood that concept that understood that it's really not about one product being launched and just you know.
Hoping that it's going to do well for the next five years, it's about debt constant blocking and tackling of new product developments of work.
Why we feel good about the brands, we launched in 2020 as we did it with the vendors that have a point of view that have a an aggressive notion of how they want the brand to build and have a realistic expectation about the types of product assortment by price band and by value that they are going to can.
You have to build in order to be relevant on this platform.
Great example of the Mackenzie Childs of brand that is available to other player at places that vary.
Not large distribution and they have a great team that's constantly building new products and not only new products in their core area of the tabletop and home, but in different fragrances in different areas that we've collaborated together to say listen we have of white space here you have an amazing brand what about this migrate.
<unk> into this area. So that's true.
The us it's all about the the vendor relationship and the product assortment and that with Kathy.
Our beauty and jewelry and fashion and Lee who runs our home as well as testing and watches all of them all of those leaders in our merchandising area no debt when they're bringing a brand on we have certain policies and the expectations, where we used to as the company would come and bring the brand on them and throw them out there for.
An hour and say hey.
I hope it does well where today, we're saying listen there's a three to five hour of minimum that means that we as an organization just can't launch of brand, where we're just not sure enough are not committed enough to just put it out there for one hour. So we've organized differently to give any new brand, we do put on air a better chance of success.
It is those fundamentals of why we think that the lifecycle of the new brands, we're launching will actually outpace.
The the the recent history that the company has faced with its new brand launches over the last six years. So let me stop there and see if that answers your question on the new brands Alex.
That does that's really helpful. Tim.
Thanks, very much and then I wanted to also ask.
If I could just however, maybe it makes sense to explain how can you kind of help us size up the health and wellness opportunity here I mean, it was great to see that your strong fourth quarter results were driven by a number of categories and not just health and wellness. You know I think that's certainly speaks of the strength of the customer file in your overall.
<unk> net.
But now that we're in you know hopefully the the final innings of the pandemic or at least the second half of the game here. How do you think about that opportunity 345 years out when presumably sales of facial coverings and things like that will be will be close to the euro.
I imagine the interest that's been building for years and in health and wellness of general isn't going to go anywhere.
But does that maybe take a little bit of the urgency off the category or.
Again, it's just just trying to think about kind of how you view that business three for five years out when the pandemic is is in the rearview mirror.
Sure Alex It is.
We have dug into it even before the.
The pandemic so yes, I agree with you of 100%, let me start with the affirmative which is yet the.
What specifically would you would say we would say is UV lighting some of the products around that that have an acute lifecycle and a shorter life cycle because the just the product development in those areas are going to be so fast that it won't be as big of an area for us as it was in Q2 of last year, but as you look.
Look at even the mix within health that we that you already see from just Q2 to Q4, we're much stronger now in fitness and health mental health, there's all sorts of.
All sorts of genetic spiritual financial Theres. So many elements of telehealth that we are planning for 2021 that the the notion of Covid related products is nothing more than one of six or seven or eight other categories that were debt we're focused on within the within the.
Net health arena, so it's not I wouldn't say, it's the it's an unusual cat of Orient I'll say they'll there'll be categories that come and go based on seasonality there'll be projects that come and go based on the flu that year. When we think about our home testing opportunity it isn't just about.
The Covid testing there are so many different types of home testing and treatments and things that people are more comfortable in buying in the.
The direct to consumer environment than they do even going to their doctors. So we are still very bullish on the health category and and don't and don't see the drop in the Covid related items, it's anything more than a blip it really isn't a something that we are considering.
A bump in the road as we continue to grow both in number of distribution in the homes in streaming services in health in the.
There is and they don't always have to be the thing.
That we're selling the people you know what we've talked about meaning physical products Theres, an information layer that we're very interested in it as it relates to all of our entertainment services. So for example in health care, our Q&A types of opportunities doctors that can give the day the rise of PAH.
Podcast is by no means a coincidence the the information that people were speaking today on the many to many basis is something that we're going to capitalize in the health as well. So it's not always going to be about physical products and you'll see more of that from the as we rollout 2021, it's yes, it's exciting and in and of lot of ways and then I'll stop.
<unk>, there and see if that addresses your question.
That does Tim that's really helpful and I think very much.
Absolutely.
Thank you there are no further questions at this time I'd like to hand, the call back over to Tim Peterman for any closing comments.
I just thank everybody again for their time this morning, I would like to welcome the new the new businesses that we just brought into the into the family here at <unk> media brands certainly the closeout team Mauricio <unk> I. Appreciate everything you guys are doing every day and certainly with the Christopher <unk> banks team Kelly Ann desk.
Saying, thank you again as well as our new partners with burn in and Dan I do I do think Christopher banks at the very Big thing for US you know if you think about you know they were $100 million digital platform in revenue last year.
It is something with a just such a great customer base that we're already interacting with and we're really excited about what we're calling the virtual stylists within the Christopher <unk> banks Arena and also doing that with Chris with our core shop HQ customers as well for we'll talk about that in Q1, but thank you everybody for your time and we will.
Talk again soon.
Thank you that does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a great day.