Q4 2021 Eneti Inc Earnings Call
Today's conference is scheduled to begin shortly please continue to standby and thank you for your patience.
[music].
Hello, and welcome to the <unk> incorporated fourth quarter 2021 conference call I would now like to turn the call over to James Doyle head of corporate development and IR. Please go ahead Sir.
Thank you for joining us today welcome to the <unk> fourth quarter 2021 earnings conference call on the call with me are <unk>, Chief Executive Officer, Robert Bugbee, President Cameron Mackey, Chief operating officer to Baker, Chief Financial Officer, David Moran.
Managing director Sebastian Brock, Chief operating officer, and see Jacks.
Earlier today, we issued our fourth quarter earnings press release, which is available on our website at <unk> dot.
Tom.
The information discussed on this call is based on information as of today February 23, 2020 sales may contain forward looking statements that involve risk and uncertainty.
Actual results and events may differ materially from those set forth in such statements for a discussion of these risks and uncertainties you should review the forward looking statements disclosure in the earnings press release issued today as well as <unk> SEC filings, which are available at <unk> dot com and FCC that job.
Call participants are advised that the audio of this conference call is being broadcast live on the Internet and is also being recorded for playback purposes, an archive of the webcast will be made available on the Investor Relations page of our website for approximately 14 days.
We will be giving a short presentation today. The presentation is available at <unk> Dot com on the Investor Relations page under reports and presentations.
Slides will also be available on the webcast. After the presentation. We will go to Q&A now I'd like to introduce our Chief Executive Officer, and Manuel anywhere else.
Thank you James Good morning, and afternoon to everyone and welcome to this fourth quarter of 2021 earnings results call.
And the first with a fully integrated <unk>.
Starting on the commercial side, we have seen the contract backlog on our existing fleet growing substantially.
Since November last year, we've added nearly $90 million of additional revenue backlog, bringing the total to $193 million. If we include the options we.
We anticipate this important metric to continue to strengthen through the year and beyond as the market tightens further.
On the debt front, we recently announced our new $175 million Green multi currency term loan.
This facility reduces our interest cost.
Welcome to new lenders and complete the repositioning of the company's balance sheet.
As part of the operational side during the fourth quarter, we have executed our option to construct the second international <unk> vessel.
Eddie SME for delivery in 2025. This is in addition to the previously announced original order.
And more recently <unk> has opened its operational base in Virginia Beach. This office will provide support to our partner Dominion energy in the construction and the operation of their vessel.
So we'd be the first Jones Act compliant wind turbine installation vessel.
We continue to believe that the U S will be a high growth market for offshore wind.
And the lack of an additional Jones Act compliant vessel in order, we further tightened and already under supplied international market for the remainder of the decade. This is our view.
The best years remain ahead of us from a supply and demand perspective.
And tenders from new regions reaffirm our confidence in the demand for offshore wind through the end of the decade.
That said.
As far as we're concerned this year, we will install a 145 turbines.
Which will generate over 1000 megawatts per year of renewable energy and have a lasting contribution to a greener future.
We remain excited about the outlook for offshore wind and our role in the transition to a cleaner and more sustainable future.
I will now turn the call over to James Doyle, who has recently been promoted to the role of head of corporate development and IR.
We'll go through a brief presentation, James congratulations and the floor is yours.
Thank you <unk>.
I'm going to start on slide seven.
Revenue backlog and project pipeline since November <unk> increased its revenue backlog by $76 4 million and $86 $6 million, including options.
The increase was driven by several new contracts on our <unk> 25, hundreds and securing employment for the similar in 2023.
This also excludes any contracts we are currently tendering for in 2022 and 2023.
The contracting cycle for the <unk> 'twenty 500 is shorter and closer to the projects start time.
You recall at the end of last year, we had yet to secure any firm contractual backlog from the <unk> 500.
Sebastian Blur the <unk> team has done a great job securing contracts for these vessels were optimistic about the outlook and future employment of these assets in February the <unk> arrived in Taiwan to start work on order stage greater chain law offshore wind farm.
So it is expected to install 111, Siemens Gamesa eight megawatt turbine after which the vessel will began its 2023 contract in Europe with Standalone.
Was there a tan is contracted to install.
20, 242 megawatt turbines at the Akita Shiro offshore wind farm in Japan.
The date of the generic <unk> has been moved back from April to July this year.
Slide eight significant growth in the offshore wind and limited WOTC IV supply.
One of the most attractive parts about this industry is the outlet offshore wind is expected to grow at a compound annual growth rate of 18% through 2026. This year, we have seen additional tenders in new regions, which support our view of a continued increase in demand for offshore wind beyond 2026.
And you already mentioned the best years are ahead, but we are pleased with the contract coverage. We've added for 2022 and 2023 and you are still more to go while demand for offshore wind is increased supply has remained relatively subdued when compared to future demand, we are optimistic, especially on pricing and how it evolves by 2022 out when there is demand for now.
Such investments against supply 'twenty.
As turbines have increased in size the growth in vessel capable of installing merged larger turbines has been modest after 2020 for the demand for 12 megawatt plus capable vessels exceed supply and this sets up nicely with our two new builds delivering in the second half of 2024 and 2025.
Slide 10.
Yes.
Fourth quarter revenue was $16 6 million a decrease from $65 7 million in the second quarter, but expected given the conclusion of contracts in our largest vessels the filler and <unk> in Asia, we were expecting slightly higher revenue for the first quarter from the fourth quarter related to a payment on the <unk>, which is expected to come at some point in the first half of this year.
Daily vessel operating expenses increased on the seller and remained elevated under there again. This is primarily due to higher crewing and travel costs, which increased around 50% due to COVID-19 .
We expect these costs to decline as Covid eases, but we recommend using a daily opex of $50000 a day for the <unk> and fill up and 20000 per day for the <unk> 25, hundreds in the first half of this year.
G&A came in higher than expected due to certain one time expenses related to employee severance accelerated restricted stock amortization higher G&A from the integration with <unk> and on accrued employee employee bonuses to see Jackson embedding. The cash G&A is expected to be seven to seven 5 million per quarter going forward.
To the right you can see the estimated contract revenue by quarter for 2022. This excludes contracts under discussion and project costs. In addition, we provided a breakdown of expected project costs by quarter.
Costs are not rebuild from the client. They are included in the overall contract about the.
The cash flows in our business can be lumpy and often pertained to our milestone of a specific project.
This does not change the full year revenue figure it does impact the timing, which can move between quarters, we've tried to simplify and improve the transparency of this by providing quarterly estimates.
Slide 11, our new loan facility.
Our new $175 million one facility completes the restructuring of the balance sheet inherited from seat Jacks that facility has many positive features it's green multi currency revolver performance bond component and then amortize, which allows the company to Delever over time. In addition, it reduces the interest cost of the company.
After drawing on the new loans will repay the remaining $53 million in redeemable notes and it will be the company's only credit facility.
The bottom right you can see the expected capex payments on our two new building vessels by year as well as the expected debt drawdown on the vessels upon delivery, we expect the new builds to be finance at 60% of their contracted value.
Slide 13 investment highlights <unk> is a leading owner of the wind turbine installation vessels currently only listed in the U S. We have an experienced managed team and develop global platform with operations in Europe U S and Asia since November the company increase the contractual backlog in our existing asset base.
$86 6 million, including option.
And there is still more to go.
New high specification Newbuild offer attractive returns and allowed the company to install the next generation wind turbine.
The outlook for offshore wind is significant demand for offshore wind as increase while supply has remained relatively subdued.
Turbines have increased in size the growth and vessels capable of installing larger turbines has been modest creating a favorable supply demand outlook for the industry. We're excited about the future of the company and our role in the transition to a cleaner and more sustainable future with that I will turn it over to Q&A.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key.
And by while we compile the Q&A roster.
Our first question comes from Ben Nolan of Stifel.
Thanks.
No that was it.
Well anyway so.
I have a couple for you guys here.
First is on <unk> I know that you had said that the contract startup date was moved from April to July .
There's still a decent amount of time between now and July any ability for that vessel.
When any short term business between now and then.
Sebastian do you want to take this.
Yes.
The delays in that contract startup are actually due to client delays.
So I think that the most likely result is that we will stay on that project.
We will definitely.
The.
Payment time delays to those first three months.
And that will continue so we won't be going elsewhere.
Thanks Jay.
There could be some compensation for the for the delays is that.
How we should think about okay, yes.
Yes, okay. Good.
Yes.
That's helpful and then James It is going to come back on the on the G&A side. I think you had said $7 million to $8 million of cash G&A.
As I look at sort of what's normal for the rest of the industry.
Most other companies, they're full and G&A on a quarterly basis is three maybe $3 $5 million, so thats quite a bit higher.
Is it.
Whats can you walk me through whats the difference Mike.
Why.
<unk> might be more elevated.
Yes.
Well I think Tim on weather I think it's difficult to say why are compare because I'm not familiar with other companies. So we are only telling you what we are ourselves.
Okay, I don't have the minions to compare myself with the other companies operating in the same space.
As we discussed we are just opening.
This is the first quarter that we announced.
Fully integrated company after the merger with <unk>. So there may be changes going forward, but this is what it is today. So we are guiding you to what to.
Where we are.
That's helpful and I was I was just really trying to understand if that if there was an apples and oranges kind of a thing but.
I appreciate that it's hard to sort of sure I don't know.
May will be may would be I, just I, just don't know, but I am very happy to discuss this further in more in depth whenever you want.
Okay. Okay. That's helpful. And then lastly for me James You mentioned that in the first half of the year Opex. The two larger vessels was 50 and then the smaller ones as 2025.
I do.
You can get it but.
As we move into the back half of the year and things begin to normalize a little bit can you maybe just what is it the right way to think about sort of the run rate opex for those after repositioning and so forth.
I'll take a stab and then Sebastian feel free to add.
Pre COVID-19 the <unk> until the Opex was around $35000 a day.
And so the increase is really due to crewing.
And travel costs of the CRU most of the crew is European and we have to get them to Asia and also we've been running an additional crew to help us deliver on projects and timing, which is hopefully going to stop but obviously it depends on the restrictions with Covid in Asia Sebastian do you have more to add.
Ed.
I think that that guidance I mean, it's been as we all my brother fluid situation with regards to Covid.
Countries descriptions and policies, we had slovakian China per bit switch.
It's very unclear, whether you might as you might guess nimble renting trains and all sorts of things to get crews backwards and forwards.
Yes, I would expect it to settle down going forward, but again kind of trying to peg a date to that it's difficult.
Again.
So it was the logistics on one side the other pieces in order to meet the quarantine restrictions in certain countries. We have been running three crews instead of two because they've obviously got to be and they got some unproductive time so.
But as soon as that situation settles down we will expect to cost two.
Okay.
Right. That's helpful. I appreciate it thank you guys.
Ben one of the things that I wanted to add on your previous question is actually that the <unk>.
<unk> is the largest W. DIY business currently existing and as you know we do have a global.
Presence Asia U S et cetera, so we probably have more offices.
Than most.
Our than anybody else already having the largest fleet operating.
By a number of units compared to our second competitor so.
That could be one one of the one of the items for which you see the discrepancy.
Sure.
That's a good point.
And I do think that it's a powerpoint.
Add on to that.
The organizations, we have in Japan, and then Taiwan that kind of fully functional and have actually delivered projects. So it's not like it's a shell company does actually.
And it's actually substance, today's which adds real value to us as a company, but obviously because of that.
Perfect great.
Alright, thank you.
Thank you Bob.
Thank you. Our next question comes from Turner Holm.
Of Clarksons.
Hey, good morning, gentlemen afternoon, just wanted to dig a little bit more into the into the contracting outlook into the backlog. So just first for this year it sounded like.
Maybe you thought there were some optionality.
For additional contracts for me and G 2500 that are.
Can I understand that right or should we just kind of look at the backlog as it is I'm, assuming that's what we got for 2022.
James do you want me further would you want to yes Gulfport Sebastian.
No.
We are currently in discussions about additional contracts.
And in fairly advanced stages about additional contracts this year.
But they haven't included in our forecast today.
Okay.
Okay. So it's possible.
The new Rollouts, but not necessarily basically yes, yes, probably okay alright good.
And then just on their tone looking into 2023 after you finish up keyed into euro.
Is there.
A natural project.
That hasn't been awarded yet for that asset either in Japan or in another APAC market.
Well it is.
It's a very good question and it's actually quite a lot.
Topic at the moment.
She will help you out with state to some of the Taiwanese projects, but there are three.
The delayed jaques, having significant delays and if you start looking at what the available supply is in the Asia Pacific It's very limited.
I would say that the prospects of maritime and <unk>.
'twenty three are very positive.
But definitely I think we are actually the only available vessel.
For the periods required.
During the 2023 periods don't hold me to that I mean, that's.
The recognized ultimate as one of the two vessels, but that kind of tied up on.
On projects now and so yes, we are in active discussions about.
Projects outside of Japan, actually and the Taiwan region.
I mean, it's also worth noting on that we've got we've got this kind of this.
Tom its relationship.
China as well so that's always an option for us so there's optionality on Barracuda.
Yes.
Okay very good and then.
Just with regard to one or more contracts.
New builds just thinking about it.
I think you said when you placed the first order about a year ago.
Within about a year.
You thought you might have a contract on the first one.
So Ed is there any update on timing for.
Your expectations for potential contract I can understand that.
Tough to handicap, but yes.
Yes, I guess thoughts on that.
And then also Fisher, Yeah, I know, it's a tender by tender issue, but and.
And then any thoughts you have around.
What youre seeing happening with leading edge day rates for the high spec.
High spec <unk>.
Yes.
I think if I take the SME rebuilding first is it exactly like you said, it's very difficult to.
<unk> interest.
The company previously indicated some but as you suggested I'll focus actually told us projects with kind of highest commercial merits at the moment, but to maximize our revenue and if this means that we elect to folks on a project that's going to come a little later in time, then so be it.
Yes.
It's kind of wherever you don't see any reason why.
We wouldn't for instance target something this year, but again that won't be handicapped by the timing as opposed to being able to focus on kind of optimizing optimizing all returns.
Sure and any thoughts on the day rates.
Yes, I mean without being too granular about it.
The market is tight and it's tightening.
<unk>.
Yes.
We announced the recently announced similar contract.
Is that.
Similar day rates to the highest profile contract that was announced in Taiwan Covenant placement, which will sit on price to Chinese law.
And it's actually for ancillary foundation work.
So what I'm, saying is that there are opportunities across the value chain for us going forward and we see those rates.
In the right direction for us.
Don't see.
Any reason why that would soften in fact based on the tendering activity going forward I would expect the rates continue to go up I mean, thats just a fundamental in my views shortage of vessels in the future.
Yes.
Okay I appreciate it I'll turn it back to kind of interesting question just to add onto that when you when youre looking at the analyst that.
The demand side I have said this once with two other.
Once or twice previously.
When you look at like some of his recent contract announcements ciliary.
Job on our foundation contract.
Isn't.
First in any demand curve going forward.
So.
Our history is that this year, she went off to China, which is not in any of the demand.
And she also has gone into kind of an ancillary foundation work.
I think that going forward the market will be tight to the actually looks on the on the kind of two dimensional demand forecast because.
This acceleration.
<unk>, which is already provided for.
I guess, it's fair point, Thank you I appreciate it.
Alright, Thats looking at it.
Thank you.
Our next question comes from J B Lowe of Citi.
Yes.
Hey, guys. Good morning, good afternoon.
Question was just a clarification James did you say that opex on the larger vessels of the 50 K and on the smaller vessels will be 25, K for the remainder of the year or is it just for the foreseeable future.
Yeah.
J B look we hope they come down I think at this point 50 on the larger so these are 10 and the sell out for the first half of the year is reasonable.
And 'twenty on the smaller there's a slight uptick on the smaller vessels, just because you'll see that the majority of them will be working.
Gotcha Gotcha and then.
I mean, you said part of the reason was because of Covid and getting crews out to Asia. So when I believe the silver is coming to Europe at some point right do you imagine that that would be a big driver of costs coming down when that vessel gets closer to where all the crews are essentially.
Sebastian you want to take that yes, I think it's a fair assumption most of the complications of come the additional costs come from.
The disparity between kind of get crews from Europe , Egypt, rather than cruise within Europe .
Okay.
And then another clarification was.
I know that we've talked about one of the newbuild potentially getting a contract or having a contract announced here in the next however, many months but.
Yes.
But you are saying now that we should not essentially expect contracts to be signed for the first newbuild necessarily this year just because.
We want to get to the obviously the most favorable contract terms is that kind of the.
The message that you guys are spending now is that just kind of a wait and see right now, but don't expect necessarily anything in 2022, I just want to make sure that kind of the message.
Actually to me personally based on experience.
Saying that we won't announce anything in 2022 that there was a cost penalty problems I'm sure you will adjust that going forward.
Accident that we really are trying to achieve optimal day rates and not fall by ourselves in with kind of the data that's more of a principal things and whether or not it's relevant to this particular.
To.
The newbuild coming out now.
Okay.
Yes.
I would add Jamie.
It's important for us not to.
Great.
We're focusing on what Sebastian is saying and correct execution on this and we have a balance sheet allows us to do that.
There are obviously projects that we're working on that.
It can come.
Quite early in this year as well as quiet.
Can come later in this year, but we don't want to get boxed into.
Especially with negotiating with customers with promises to.
Two people.
Like yourselves or the market at the moment, that's not constructive.
So we're going to choose to as we've done with the <unk> 2005, hundreds and the other research revenue.
We are going to choose to sort of around the just announcing what we've done.
As opposed to suggesting what we will do.
Right.
Got it okay.
And last question from me was just on.
Now that the Jones Act vessel, you guys decided not to move forward that.
How do you guys view or how do you think that the.
U S market is going to play out over the next several years because I mean, there is a ton of projects in the backlog, obviously theres constantly delays on projects, but there's also a lack of vessels. So I guess just kind of from a 30000 foot view.
How do you think the U S is going to kind of.
Play out in terms of bringing vessels from the international market when necessary and how you guys can capitalize on those opportunities.
I think it's I think it's a really good question and I think that the lack of Jones Act vessels means that the U S will be less U S centric.
On.
It kind of planned it to be as it were.
And they all going to be subject to the vagaries of the international market doesn't demand and supply and ultimately you're going to help drive rate for us because it is additional demand of high end vessels.
It will play out people find solutions, but those solutions will inevitably require international tonnage.
Yes.
Great.
Thanks for answering all the questions guys talk to you soon.
Thank you.
Yes.
Thank you. Our next question comes from Greg Lewis of <unk>.
Yes, thank you and good.
Good afternoon everybody.
Sebastian I wanted.
But given your comments of the work for the seller.
<unk> does does <unk> have the operational capabilities that potentially enables it to go find work.
And foundation or something beyond the traditional installation work that it's accustomed to doing.
Yes. So she has in her time installed condition pieces on projects.
Based on the time charter basis and on.
And on that lump sum, what you target P&I basis, and the logic behind that is.
If you if you want to install youll foundations in one season, then obviously, having one vessel doing mono policy other doing transition pieces could be it.
It could be an efficient solution.
She is also going to be available to do.
And she's also going to be available to do geotechnical work, which is coring.
The pre planning coring before the foundations are designed to put into these wind farms.
Okay.
On top of that.
Pricing.
Just given the tightness in the market and.
I guess, it's we'll see how things play out over the next six to 12 months, but there is the potential that that this rate could almost be as good as as.
As the seller or is it something where the market just can differentiate between the quality of vessel and really push the rate lower for less qualified vessel.
So that takes it depends on.
What it's being used for typically can be used for acceleration demand.
Youre talking about offsetting the spread costs of the developed of which might be a million Bucks a day or whatever whatever that number is but your stores of components, putting all the vessels on standby and so it's really what's the value of that vessel and an acceleration capacity is pretty high so.
So I would say that.
It is.
Yes.
Honestly.
A nice place to be having some available capacity in Asia next year.
Understood understood and then just one more from me.
I'm not sure if youre if youre on the call, but maybe James get can help me with that.
You announced.
The commitment for the <unk>.
$75 million facility.
Is there any way to think about.
The asset base behind that behind that behind that facility Ie is should I be should we be thinking about this is.
The conventional loan to value model and if so is there any way to think about.
What type of borrowing we are doing against those I guess core seller and Zurich can an asset.
Yes, Hi, Greg.
I think that the conventional loan to value model is not necessarily relevant here because.
The $175 million is secured by assets with.
Quite a high high value above that $175 million. So I mean, I think we can characterize the loan as being a relatively low loan to value I think the banks, who finance us look good.
They look at a number of things when they they finance the assets, including.
Asset value, which is perhaps the traditional way of doing it but also theyre looking at the cash flows the company in the underlying business and so I think we're very happy with.
The.
The facility in pretty much every way.
Without being too sort of.
I don't want to promote it too much but.
$175 million, we can borrow 50% of that in euros, which is very helpful to us in terms of managing our revenues in the.
And the currencies that are revenues come in at.
It covers us for performance bonds.
It really is its revolving which helps us.
Manage our working capital and it's.
We've got five really experienced banks in there who are really.
Providing a lot of validation too.
Future financing needs I mean, these banks are going to support us and supporting us now and they're going to support us in the future and it makes me very comfortable.
About the discussions we're going to have in the second half of this year about the finance for.
On new buildings.
Generally speaking, we're really happy with the loan.
Also like to point out it's a green term loan.
The loan is credited by the governance group in Norway.
Being a essentially a green loan and or at least the assets green assets and that's something that again the banks are taking very seriously and are very comfortable with.
Look we like the pricing we like the terms, we like the relationships.
Really happy with it.
Okay very helpful. Thank you very much.
Thank you.
Our next question comes from Randy <unk> of Jefferies.
Howdy gentlemen, how's it going.
Hey, Randy.
Two questions I guess first how should we think about utilization for the smallest <unk> this year.
Is it kind of ramping by quarter or basically full employment, maybe <unk> and nothing really <unk>.
Randy we have the slide in our presentation. So.
Thank you for for utilization for the full year right now we're at somewhere around 30%.
And then higher with options.
And so if you look at what we've contracted so far in our table I think it's a third airport side in the presentation, you can see which vessels are available.
And which ones they are booked and I think youre, probably right that most of the additional contracts that could arise would be later in the year.
Got it yeah I see the table here is paying for.
Outside possibility and then on slide five you mentioned you in quotes I guess discontinue discussions with the shipyards to construct a Jones Act compliant WT IV. So I guess why not continue these talks and then does this mean now that any new Jones Act projects would be 2025 2026.
At the earliest.
Yes.
I think the second part of your question.
Go ahead Robert.
I think that the.
Clearly the.
With the yard capacity, where it is and the ability or lack of ability for the United States shipyards to delivered Jones Act.
Vessels.
And then let's say.
2024, now clearly its going to be into 2005.
And.
We would most probably.
The earliest opportunity would be the.
Second half of 2025.
And I think Thats part B, what Sebastian was alluding to that you've now as far as international of ships.
<unk>.
U S market itself.
Either.
Cancel projects, which I don't think is going to happen, we're not hearing that from customers or they're going to have to go the international routes.
Which is also goes back to the conversation we had with.
James.
Elliot from Citi.
We're very reluctant for commercial reasons to sell any of our Cogs because we see this market is really talking up the international fleet, partly because of what's happening in the U S.
Okay.
Well that covers it for me thank you.
Thank you.
Our next question comes from Liam Burke of B Riley.
Thank you.
There has been a lot more offshore.
Oil production activity, how is that or how does that affect or tightened.
The supply of available vessels.
Ill take a stab at that.
I would say that.
As a general commentary, yes, even in our home market, which is the north sea.
For the small smaller vessels, which are involved in kind of infrastructure maintenance and what have you is that there have been increased levels of activity. So supply of those vessels both of those vessels has actually decreased.
Which.
Yes, which is obviously a.
A positive for us.
The bulk of these vessels and by offshore.
When primarily but also kind of oil and gas infrastructure projects.
Does that change your.
View on what utilization rates will be for the smaller vessels.
Depending on how long the price of oil stays at high in offshore activity continues.
So I think I think that I actually think that supply in the north Sea had.
Decreased anyway, because the number of vessels have moved out to the middle East.
Will the oil and gas price was down and so I think that even kind of regardless of the oil and gas market.
The market dynamics have improved significantly over the last year or so.
And that in turn has tightened up.
The accommodation requirements on the substation work that we've looked at and also on the.
Offshore maintenance or the wind farms.
So it's difficult to be more specific than that but I think from a kind of high level I think that the.
The market is just tightening that's great. Thank you.
Yes.
Thank you I would now like to turn the conference back to Matt.
New Ali for closing remarks.
Thank you very much everybody, we do not have anything to add at this stage, but thanks for your time and look forward to speaking to you soon.
This concludes today's conference call. Thank you for participating and you may now disconnect.
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