Q1 2021 Groupon Inc Earnings Call
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Good day everyone.
And welcome to the coupons first quarter 2021 financial results Conference call. At this time, all participants are in a listen only mode.
<unk> and answer session will follow the companys for ammonia for months.
A question press the Star key followed by the number one on the Touchtone phone once again the star One chassis question. Today's conference call is being recorded for opening remarks, I would like to turn the call over to the Chief Communications Officer, Jennifer of Bugle night, He's got good.
Morning, and welcome to Groupon, its first quarter 2021 financial results conference call on the call today are interim CEO, Aron Cooper and CFO Melissa Thomas the.
Following the discussion and responses to your questions reflect management's views as of today based off of 2021, only and will include forward looking statements.
Actual results may differ materially from those expressed or implied in our forward looking statements.
Additional information about risks and other factors that could potentially impact our financial results is included in our earnings press release and in our filings with the SEC, including our annual report on form 10-K.
We encourage investors to use our investor relations website at Investor day at Groupon Dot com and the way of easily finding information about the company Groupon promptly makes available on this website reports of the company filed or furnished with the SEC corporate governance information and select press releases and social media postings.
On the call today, we will also discuss the following non-GAAP financial measures adjusted EBITDA free cash flow and FX neutral results in our press release and our filings with the SEC each of which is posted on our Investor Relations website, you will find additional disclosures regarding the non-GAAP measures, including.
Filiation of these measures to the most comparable measures under U S GAAP and with that I'm happy to turn the call over to Aaron.
Good morning, everyone and thank you for joining us to talk about our first quarter results.
We've made a lot of progress over the past year from demonstrating the resilience of our business model for launching of new growth strategy and we continue this momentum into the first quarter.
We're excited to highlight our strong first quarter results and to provide you with more insight into our plan to become the destination for local.
In 2020, we significantly reduced our cost structure and expect to deliver substantial additional savings this year as well.
These fixed cost reductions are allowing us to achieve greater flow through to adjusted EBITDA as our topline recovers, giving us an opportunity to deliver $250 million of adjusted EBITDA in 2022, if we can drive the business to just 80% of our 2019 gross profit levels.
Based on this we believe that we are well positioned to with the value to all of our stakeholders over the coming quarters and continued to benefit from the macro recovery.
Our first quarter results demonstrate the potential we generated $30 million of adjusted EBITDA and took additional steps to further strengthen our balance sheet.
From an operational point of view, we saw acceleration in North America local in March underscoring the world Groupon is playing in connecting customers with local merchants.
All of this hard work and results are foundational to our ability to execute on our growth strategy.
And international both supply and demand remain constrained as restrictions on human interaction and business policies are still stringent.
Based on this we expect the longer recovery cycle and international the North America.
In addition, the recovery as we've discussed over the past few quarters, we've of plan for growth and were executing on two strategic priorities.
Expanding our inventory and modernizing our marketplace the.
These two goals are highly intertwined and successful execution should allow us to fundamentally improve our customer and merchants value propositions.
And do we feel we can unlock our marketplace flywheel drive billings growth and purchase frequency over time and take share and are trillion dollar addressable market.
Our recent focus has been on launching of new customer experienced in North America that we believe will drive greater sell through of our expanding inventory.
So let's start with an update on the progress we've made in this area.
As you recall last quarter, we outlined plans to leverage the new CX to drive sell through of our expanding inventory base.
World purchase frequency over time and begin to bend the perception of groupon as the destination for local experiences.
In order to become the destination for local we believe we need to update our customers' perceptions about how to use the groupon marketplace.
So we are evolving our brand positioning to reflect our expanded value proposition.
While we will continue to inspire customers to try experiences available on the groupon marketplace.
Want them to think about it more than episodically and the need to educate them on how groupon can play a role in the 80, plus groupon for a moment happening every year.
The first step in this process is to make sure we of the user experience. The supports this goal.
And we are excited to announce that in April we started to rollout the new customer experience to millions of our North American App and mobile web users.
So what does this actually mean for our customers.
Let me take you through a simple journey.
Our homepage is an important first impression of our brand and now in our customer of opens the homepage the look and feel of different.
It reflects the content that more closely matches from preferences and includes curation of seasonally relevant inventory.
The homepage also allows for fast access to favor categories, such as nail salons and things to do with their kids and brands. So she can quickly access for favorite experiences.
And by bringing category growth front and center on the homepage, we begin to bench of perception of Groupon.
She begins to know and understand groupon as a destination to explore the vast selection of local experiences in our area.
Next she starts to search.
She is looking for a massage room for area and she quickly is introduced from the sizes near per location that match for search intent and she chooses service to purchase.
After she redeemed the App intelligently starts to include buy it again button and strategic areas of the App, we're mining or that you should book of next massage.
While the simple example, this illustrates how all of the new features including the new homepage improved search and new repeat purchase flows come together to support the main goal of the launch.
We're delivering the experience that is familiar with modern consumer marketplaces, one that is uniquely groupon.
And one that we see changing from inspiration to needs based purchases more frequent purchases, allowing us to attract more customers over time and.
And to get there, we're moving faster than we have on CX and coupons recent history for them from concept to delivery from <unk>.
Next I'll provide an update on our inventory initiatives in the first quarter, we focused on removing restrictions on deals and launching offers for beauty and wellness merchants in North America.
We're on track to achieve our year end goal of removing restrictions on approximately 80% of deals and our north American marketplace.
In addition, we have successfully incorporated offers us an inventory option into our pitch for new beauty and wellness merchants, which means that all existing beauty and wellness merchants now have access the offers.
For this initiative, we first prioritize our top merchants in our top markets, which allows us to scale more quickly.
This progress demonstrates that our merchant value proposition is resonating. We're hearing for merchants that are new offers product makes it possible to run more listings on groupon, because they now have the flexibility to choose the margin structure that works for their business.
And at the very low risk option for them as they never incur any costs almost groupon delivers of customer to the door.
Offered us even allowed us to reengage with the merchants, who previously left our platform because of our office product to address the previously unmet needs.
And for customers they have access to more purchases of inventory and the success of our test markets demonstrates the positive impact this can have on demand.
We believe the work we're doing on the inventory front is providing value for our entire marketplace for merchants to customers and positioning groupon is the destination marketplace.
Next I'll provide insight into the continued progress, we're making to modernize the merchant experience.
This quarter, we launched new features and improvements to self service deal recommendations in our merchant Center.
Tools like this provide merchants with more actionable insights created from coupons wealth of marketplace data and demand dynamics and allow groupon to be a more effective partner.
Bigger picture I'd like to put a finer point on the power of self service overall, we are building a new way for all merchants to interact with Groupon and we think the potential for leverage self service to drive productivity and growth is considerable.
Ultimately by offering of sophisticated merchant interface, we can become a better partner to our merchants and use our internal resources far more effectively and strategically.
We know that merchants want to have the power to quickly and efficiently self manage routine updates to their listings and by facilitating this we can free up our sales team to focus on higher value of interactions.
We are freeing of bandwidth for our sales team to educate pitch and sign merchants up for more and more groupon products and services.
In addition of self service. We're also looking at opportunities to help merchants do more in the group by marketplace.
One key opportunity we are helping merchants leverage is the power of advertising.
As we've discussed over the past few quarters, we've been piloting our first paid merchant advertising product sponsored listings.
We're excited to see the interest in this product growth as we build capabilities to offer it to even more merchants later this year.
And the most exciting part of sponsored listings is the success. We are beginning to drive for our merchants in the form of positive return on Ad spend.
As we continue to explore opportunities to refine and scale of this AD product. We believe this is a great example of how we can launch paid merchant services that can drive velocity in our marketplace, creating a win win win for our merchant customers from Groupon alike.
As we launch additional merchant products and services. We believe we can significantly increase merchant participation in the groupon marketplace and create deeper relationships that we believe will help us reach our goal of retention and growth among our merchant base.
While we will have more work to do on this area. We are prioritizing progress on this front as this is a key component of the modern merchant experience of that offer.
Everything we're doing as I said earlier is focused on improving the customer and merchant value propositions.
At the highest level, we want to improve the ease with which merchants can interact with the groupon marketplace.
And the reach to new and existing customers and.
And given the monetization levels the need to achieve healthy unit economics.
Likewise for customers, we intend to expand our wallet share with them by giving them the value selection and convenience they want.
For merchants this means modernizing their experience with self service of portfolio of inventory listing options and advertising products like sponsored listings that will allow them to do even more with groupon.
For customers this means giving them the more compelling inventory and re imagine the CX the mix the customer journey more intuitive and fun.
We're confident the success across these focus areas will allow us to achieve our goal of becoming the destination for local.
Lastly, I want to provide you with some insights on our marketing plans.
As we've mentioned in the past we are prepared to lean back into marketing spend when the kind of rate essentially when we begin to see the green shoots of recovery take hold.
During the first quarter, we saw opportunity in North America to do just that and in March we began to lean into both our lower form of transaction channels as well as mid force them.
Throughout the rest of the year, we intend to increasingly lean into recovery with the marketing spend and gradually move up the funnel with a focus on reshaping our brand perception as the destination for local.
Additionally, we will continue to leverage our owned media channels, including E Mail mobile push to drive engagement, new customer acquisition and purchase frequency.
One Great example of how our marketing strategy is coming to life as our so we have been ready campaign that we launched in April the idea behind this campaign is simple.
We're tapping into the raw emotions and pent up demand for activities and services, we've all been missing.
We're just drilling the frustration the Mr experiences and the collected joy we of feelings parts of the world Reemerge from the loneliness of the pandemic and we all begin to find a new normal.
There is no better destination for customers and merchants to reconnect and groupon.
This is just one example of how we're leveraging groupon is unique position to help reconnect millions of consumers for ready get to get back to enjoying local experiences with all of the local small businesses, who are ready to serve them.
Before I turn the call over to Melissa I want to take a moment and reflecting the strong progress we've made since the onset of the pandemic.
Over the past few quarters, we've seen that as restrictions lift and supply returns consumer demand is returning.
We believe that we are well on our way to improving our customer and merchant value propositions as we continue to make progress towards recovering to pre COVID-19 levels. We are executing on a strategy that we believe will for coupon on the path to long term profitable growth.
With that I'll turn the call over to Melissa to provide insights on our financial performance.
Thanks Darren.
Thanks to everyone for joining us today.
First I want to Echo what Aaron said, we made important progress in 2020 and I'm encouraged by the momentum we brought in for 2021.
We see an exciting energy of Groupon debt, we believe is fueling our success.
Today I'll spend my time updating you on our financial and operating progress.
Including a review of our first quarter results business drivers and recent trends.
The status of our restructuring plan and liquidity.
An update on our full year 2021 financial guidance.
I encourage you to review, our slides and press release, which each contain additional details on our outlook for the remainder of the year.
Starting with our consolidated first quarter results.
We delivered $554 million of gross selling too.
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$167 million of gross profit from <unk>.
$30 million of adjusted EBITDA.
We ended the quarter with $677 million in cash, which reflects the repayment of $100 million of revolver borrowings in the first quarter.
We are excited about our first quarter financial results.
As Aaron mentioned included an acceleration of North America local performance beginning of March.
While it's still early and we believe recovery will continue to ebb and flow.
Our first quarter results highlight how compelling our financial and business models are even before we see the benefits from our growth strategy.
With improving top line performance and a significantly lower fixed cost base, we were able to deliver strong adjusted EBITDA flow through.
Now I'll provide more details on our first quarter results.
<unk> key operating metrics.
We ended the quarter with 26 million active customers.
Consistent with our expectation as we lap the onset of the pandemic.
As we noted with our fourth quarter results.
We expect our active customer balance which of the trailing 12 month metric to stabilize mid year.
We sold a total of 18 million units during the first quarter income.
The 10 million local units of $7 million of unit.
Moving into our segment and category of results.
Starting with North America local.
As I mentioned performance began to accelerate in March where we delivered our strongest rate of recovery.
Of the pandemic.
As a result of North America local billings recovery increased to 56% of 2019 levels in the first quarter.
Gross profit the coverage of 70% for 2019 level.
The improved performance was largely driven by our beauty and wellness.
To the your verticals.
From a geography perspective, the lift was broad based across the world.
We believe there are a few key factors contributing to this accelerating performance.
One there were macro factors at play Richard.
Actions were lifted a lot of U S market.
Vaccination rollout was accelerating and we believe there was pent up demand.
In addition, many states experienced warmer weather and our annual spring break in March.
Q.
In anticipation of this demand, we leaned into marketing from for lower and mid funnel to further stimulate demand.
And the international local the restrictions on consumers and businesses that were put in place in late October of 2020 continued to heavily impacted results throughout the first quarter.
As Aaron mentioned.
It is important to note that the international restrictions have been more prolonged and stricter.
And the vaccination of rollout slower.
Therefore, we expect the longer recovery cycle in international and North America.
That said, we believe the trends in international are transient I think Brian North America for.
We remain focused on what we can control.
And our goods category, our global transition to a third party marketplace model is on track.
North America goods successfully completed its first full quarter on the third party model, which allows us to run the category at a lower cost.
And the international we are beginning the transition in the second quarter and expect to be substantially complete early from the third quarter.
Turning to our operating expenses.
The marketing expense was $34 million for the first quarter.
As I just mentioned in March we started to lean more into marketing from.
In anticipation of accelerating local demand in North America.
SG&A was $127 million for the first quarter.
With the favorable compared with our expectation as we remain prudent with our strength.
Moving to our restructuring plan, we remain on track to realize 200 million of savings in 2021 from our restructuring actions.
And once fully implemented we continue to expect to deliver $225 million of run rate savings from our restructuring actions.
Now for an update on our liquidity.
We recently issued new convertible notes to address our upcoming $250 million convertible notes maturing in April 2022.
And we also paid down $100 million of revolver borrowings.
Recently, we reached an agreement to repurchase the convertible note due April 2022 by May 14th of this year.
We intend to use the net proceeds from our new convertible notes issuance, which is included in our restricted cash balance as.
As well as cash on hand to fund the repurchase.
We believe these actions coupled with the cash preservation steps. We took in 2020 have allowed us to create ample financial flexibility to execute on our growth strategy.
Looking ahead into the second quarter and beyond we feel.
We're confident that we can continue navigating the uncertainty of COVID-19 recovery.
And at the same time execute on our strategy to return groupon to growth.
Following our first quarter performance, we are raising our full year 2021 guidance.
We now expect to deliver $950 million to $990 million of revenue.
And $110 million to $120 million of adjusted EBITDA.
Let me provide some additional context around our full year outlook.
North America local accelerated faster than our expectations in both March and April.
We're watching the trends closely and while performance may ebb and flow we are cautiously optimistic.
Second while North America performance accelerated international.
International local remained challenged as supply and demand the hit harder and as I mentioned, we expect the recovery to the more prolonged.
Lastly, we intend to lean into marketing and expect marketing as a percentage of gross profit to significantly step up beginning in the second quarter.
And for the remainder of the year.
Based on the drivers we continue to believe we will be able to deliver sequentially improving gross profit as we progress throughout 2021.
That said based on the timing of SG&A savings and our intention to increase marketing spend to accelerate our recovery, we no longer expect adjusted EBITDA to increase sequentially every quarter.
Continue to expect our adjusted EBITDA performance for the back half weighted.
As a reminder, our outlook still does not assume a material contribution from our growth strategy.
Before I open the call for questions I want to send a big thank you to our employees.
The team has been hard at work on the most important priorities and their efforts are showing up in our financial results.
And in the progress, we're making on our growth strategy.
An exciting NRG of Groupon.
Hope our shareholders for two.
With that let's open the call for questions.
As a reminder to ask a question for you will need to press the star one on your telephone to withdraw your question press the pound key.
Please standby, while we compile the Q&A roster.
Our first question comes from the line of Trevor Young from Barclays. Your line is open.
Hi, Thanks for taking the questions two for me I guess, the first one more of a higher level of strategy question noted being able to deliver upwards of $250 million EBITDA. If you get back the 80% of pre COVID-19 GP and then some upside from there how should we think about balancing profitability versus this one trillion Tam which seems like it's not.
All of that members of our consolidated is the gating factor for going after that pay of more aggressively just getting the value prop right from merchants and customers.
It seems like you could take profitability down over the medium term to accelerate the top of mind on it sounds like maybe we're getting a little bit of that.
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Second question could you provide some color on the linked quarter customer trends to help us frame, possibly getting the stabilizing trend later of the year and other kinds of TTM metric and now we are capturing kind of the full year of the COVID-19 impact, but are you seeing kind of any sort of stabilization in trends there. Thanks.
Thanks Robert.
Yeah, let me start and I'll ask.
As for Melissa thoughts as well so.
Your first question related to the the strategy and the longer arc here, so lets take that in context.
What we're talking about and as you mentioned is the.
Trillion Tam and the large local marketplace and we're a market leader so over the past year, you've seen us stabilize the business and invest heavily in the value prop components that you talked about and this is really where our energy is so the suite of tools, we're bringing forward the merchants the.
The more inventory in all of the CX that we're bringing for the customers. So as we begin of all these things out of your starting this year and they're going to roll more and more throughout the year.
Right now this is happening right into recovery and <unk>.
We see recovery very much as the.
From a marketing opportunity for us.
In order to help customers and merchants understand all of the changes that we've made to help them do more with groupon. So for merchants, it's more services more tools to work with us easier ways to work with us for customers to more inventory that they can buy and buy again, none of the interface that makes it more intuitive.
I am very much right now the recovery is a core focus and Thats whats driving one of the energy on our platform and we see that recovery.
As being the Catalyzing factor.
The advance or marketing and help customers from merchants understand so you take the order at stabilization, which is now without behind US where right now we are in the recovery and as we rollout of components of our value prop and they become more core of the way customers and merchants think about us than growth and taking share in the Tam on the other side of that.
As it relates to our customer trends.
One.
I would just I would very much relate that to your first question. So there's two opportunities to consider in our customer base and and they relate exactly to what we were just talking about so one.
With our customers, we're changing the composition of our customer base. If you take the groupon of bold and the groupon that we envision in the future.
We're focusing on this core local customer this is a customer that's worth two times the value of other customers can you talk about the value propositions that we're changing for the merchants. So they can put on more supply for we talk about the changes, we're making for the customers as more inventory. She combined by again the interface with the communicative of that is.
We're doing this for this customer who will make up of greater share of our customer base.
And then with this customer this is where we envision the ability to take greater wallet share as well.
So over time, we will be expected to build of greater concentration of this type of customer of its more value to us north of.
Thanks, Darren covered two things I would add on for John.
Your question around balancing profitability and growth in around the $2 50.
What I'd say there is really given the the significant reductions that we've made to our cost structure.
We believe we are well positioned to deliver substantial adjusted EBITDA levels. If our business just recovered to 80% of 2019 gross profit levels and the two.
$150 million of adjusted EBITDA is really intended to illustrate the power of our financial model on a significantly reduced cost structure and world.
Look to provide actual guidance for 2022, once we get further down the path of recovery.
Got to have more visibility into recovery.
Post COVID-19 that will likely be in connection with the reporting of our fourth quarter results.
We are most excited about though is the progress we're making on the strategy and executing there and how that position the company for growth.
And then on the second point on on customer as I mentioned in my prepared remarks.
We did take a step down in Q1, and our customer balance that was expected.
Laugh because that is a trailing 12 month metric it does take time to have the <unk>.
The impacts of initial onset of COVID-19 in there. So we just lapped the onset of the pandemic this quarter and we still expect our customer balance to stabilize by the middle of of this year.
To Echo Aaron's 0.1 thing here is that we don't believe we need to get to pre COVID-19 customer levels in order to deliver substantial gross profit and adjusted EBITDA.
For this business of.
A lot of power in just being able to drive more engagement and purchase frequency out of our existing scale customer base that we have.
That's really helpful. Thank you both.
Our next question is from the call around young but Bush Securities. Your line is open.
Hey, good morning, guys.
I wanted to go back to the.
The growth initiatives around inventory last quarter, you took them.
Out of the four test markets and extent of the expanded that nationally. So maybe just an update on that.
As that progresses.
In the North America local as Youre seeing the acceleration in March and April.
Is there any way to think about.
How much.
Those initiatives are helping the growth versus just the reopening and then also versus the the <unk>.
<unk> of the marketing for.
For the too difficult to do that and you kind of think of it holistically.
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Sure. Thank you and thanks for asking about the strategy so.
When we look at the test work.
Bring everybody back to what we talked about we launched our cash in the second half of last year.
Laid out milestones and we hit the milestones when we completed the test we told everybody that we were going to rollout.
Offers for our beauty and wellness merchants and we're going to remove restrictions. So that we could have 80% of our inventory b inventory the customers can repeat on and we're making progress against both of those goals.
So.
Why werent.
We told our customers we know the customers are working on things that they want to buy and our site and our merchants have been saying no and we want to be able to say, yes, and we know that our merchants want to be able to do more with us. So they can have always on inventory with US now the results that we saw in our test was that we saw merchant new merchants coming on.
With 80% of them didn't have these types of restrictions for the customers could buy and buy again as we're rolling this out we're seeing 80% of new merchants coming on are happy to not have restrictions and want more customers and the other 80% number as our target for this year by the end of the year is that we want to make sure that we have 80% of our inventory.
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All of that is working and all of that's on track. The other thing that we've done is we brought on offers to our beauty lens merchants. The key metrics should take a look at there is our inventory per merchant was about 75% 80% higher.
In our test market results and as we're rolling that out now are new merchants are coming in in the same range actually a little bit better. So everything we're doing in our inventory first and the things.
Said, we are going to rollout are happening and are on track now to your question of timing and impact. These things are rolling out now. So you have both offers are rolling out and the restrictions of rolling out and then other components as well such as our new CFS. So as these things gradually rollout.
Expect the impact of engaged with to ramp the pets.
That's not the type of impact that Youre seeing in March and April.
Okay. Thanks.
I'm sorry.
Add on more on our churn in April.
Yes.
And what's attributed to reopening for sales growth to add a little bit more for color there.
You think about the acceleration that we thought there certainly were a lot of factors as you highlighted that in my prepared remarks, both macro on but we are seeing in terms of restrictions being lifted pent up demand vaccines.
Well as marketing side, though so hard to tease out there, but if you just step back and think about 2021, and what's going to be driving our results. We continue to believe that recovery will be the biggest driver of our results for for this year with the growth strategy really having the opportunity to.
Accelerate that recovery for us.
On the North America local side in particular, we're cautiously optimistic there what I would say is we do still expect performance to ebb and flow.
And one example of that would be as.
As we think about the second and third quarter.
The year, we typically mixed into categories like things to do those are still more much more heavily impacted by capacity constraints and other restrictions.
We certainly feel good about what we drove in March and April and we're optimistic on the North America side, but we still expect the medical out there.
Okay. Thanks for all the color just one quick follow up on that.
I just wanted to be.
The U <unk>.
You took this national right. So youre doing this kind of.
In health and beauty on a national basis.
At this time.
<unk>.
The last quarter, you talked about not really.
Moving into the restaurants, yet it.
It looks like we're still not doing that but any more thoughts as we got closer to kind of a full scale the opening on.
Moving across more categories than beauty.
Yes, great question.
As we look at all of the things that we're rolling out yes, we rolling out of offers at scale in beauty and wellness because we saw outsize engagement from those merchants even in the midst of COVID-19 as we think about our strategy overall.
The huge opportunity in all of our verticals and we are very much designing value proposition that's going to work for all of local.
And what we learned in our test and what we've continued to see that it is not going to be a one size fits all approach as you point out. So now if you take that and contrast, it with the fact that we've kind of had only of deals product the economy.
We worked with US one way for all of our history.
Hindsight is 2020, but the fact is it's not going to be a one size fits all approach. That's why we're making all of these changes to the value proposition. So that merchants can be able to partner with us in more ways and that's what we see youre seeing from them.
Thats, how we show up to be of better partner. So we're rolling out a full suite of products and tools.
The have numerous components of dimension. So just to put them. Together. These are all things or you are aware of but we know that all merchants want it to be easier and what we make it easier going to watch it even more easier and Thats why we are rolling out self service that takes the costs down from them for working with US the nice thing about self services that once they are engaged with the things like.
The recommendations tools that we've rolled out can actually make the deals performed better with everything that you're doing also want to give them the ability to do more and so that shows up in the sponsored listings and <unk>.
No one else our merchants want they want better unit economics, and so that's why we have multiple listing types such as deals offers in market rates.
So once you realize that all merchants are unique no matter, which categories they're in.
That's clear and that's why we've rolled out this broad suite of tools.
We are now watching week by week greater adoption of all of these.
Across our merchant base, and we expect that to continue more and more into recovery.
Great. Thanks for all of the car.
Yeah.
Again, if you would like to ask the questions seem purpose for followed by the number one on your telephone keypad.
Yes.
There are no further questions at this time.
That concludes today's conference call. Thank you everyone for participating you may now disconnect.
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