Q3 2022 Franchise Group Inc Earnings Call
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Yeah.
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Thank you for standing by and welcome to them too.
Conference call.
Third quarter 2022 conference call.
At this time, all participants in listen only mode.
This presentation, there will be a question and answer session.
Question during the session you will need to press star one one on your telephone you will then hear an automated message advising is raised.
He buys at today's call.
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I would now like to your home conference over to your host Andrew Kaminski Executive Vice President and Chief administrator The franchise group.
Thank you Dan.
Good afternoon, and thank you for joining our conference call I'm on a call it Brian Kahn franchise groups, President and CEO and Eric <unk> franchise groups CFO .
Before getting started I'd like to mention that certain matters discussed in this call may contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Other provisions of the federal Securities laws. These forward looking statements are based on management's current expectations and are not guarantees of future performance.
Results could differ materially from those expressed in or implied by the forward looking statements and.
Forward looking statements are made as of the date of this call and except as required by law franchise group assumes no obligation to update or revise them.
Investors investors are cautioned not to place undue reliance on these forward looking statements.
For more detailed discussion of the year.
And other risks and uncertainties that could cause franchise groups actual results to differ materially from those indicated in the forward looking statements. Please see our Form 10-K for the fiscal year ended December 25, 2021, and the other filings we make with the SEC.
The financial measures discussed today include non-GAAP measures, we believe investors focus on it and comparing our results between periods and among our peer companies. Please.
Please see our earnings release in the news and events section of our website at franchise at <unk> Dot Com for a reconciliation of non-GAAP financial measures to GAAP measures.
non-GAAP financial information should not be considered in isolation from as a substitute for or superior to GAAP financial information, but we included because management believes it provides meaningful supplemental information regarding our operating results when assessing our business and is useful to investors for informational and comparative purposes.
non-GAAP financial measures. The company uses have limitations and may differ from those used by other companies.
Now I'd like to turn the call over to Bryan Bryan.
Thank you Andrew and good afternoon to our listeners and thank you for joining us I will provide a general update before turning the call over to Eric to provide financial details. We'll then be happy to answer questions.
And franchise groups fiscal third quarter, our execution at American freight was poor well our other five operating companies combined to produce financial results above our expectations.
I think it's important to specifically separate our core execution at American freight from a difficult home furnishings environment that has also been impacting American freight buddies and that for some time, while we can't control the environment, we absolutely can control our execution, we expect execution to be a net.
Positive for FRG in all environments execution as my responsibility and I don't expect to make the same mistake twice specifically.
Specifically, we paid too much for the wrong mix of inventory and that combination creates real consequences throughout the system.
Including reduced profitability from heavily discounting or writing off slow moving and damaged inventory.
This impact of discounting has compounded since our associates are commission driven salespeople landed inventory costs are currently coming down and I expect them to continue to decrease so we need to turn our existing higher cost inventory as quickly as possible.
Quite often discounting and the <unk>.
Consequences instead of $390 million of adjusted EBITDA for 2022.
Likely to report around $350 million of EBITDA.
This cash cost of getting through this process relative to our budget has been and will be paid for by excess realized cash proceeds from bad Cox real estate sales, but as you know the profits on our real estate sales are not included and adjusted EBITDA.
Frustrated with where we are and how we got here, we can't afford to rip the bandaid off quickly and get back to business.
Despite these current operating issues, which has led us to report negative EBITDA for a frayed itself for the most recent quarter I continue to believe American freight will ultimately be the most valuable business. Among the six brands that we own today measured in terms of both annual free cash flow.
<unk> and terminal value to F. R G.
I believe the current asset base of 359 company owned stores and fixed franchise stores as the earnings power in excess of 150 million of EBITDA as it is and we have a tremendous amount of green space Open both company owned in franchise stores I can say with conviction that we will have the opportunity to accelerate new store openings over the net.
Several years and we've hired Peter course to become the CEO of our newly created home furnishings division in part to do just that.
Peter will be responsible for driving operational excellence at American freight buddies, and bad Cox, but I know that Peter shares my views about the unique profitability profile at American freight and the impact that American freight growth can have an FRG.
Many of you already know Peter from is nine years at home, where he was instrumental in growing revenue and EBITDA by over 500% for that value retailer of home decor products is track record as public and its.
Speaks for itself and I'm overjoyed to welcome Peter to the team.
I'm moving on.
Franchising activity continues to accelerate across FRG for the first nine months of 2022, we sold 193 territories and opened 74, new locations will closing 37 locations. We are starting to see cost of construction materials and labour improving and we believe our franchisees will have an easier time opening stores over the next call.
Of years compared to the last couple of years.
Regarding capital allocation and the quarter, we repurchased 2.2 million shares at an average cost of approximately $35 per share and we paid quarterly common dividend at an annual rate of $2 50 per share we did not make any acquisitions during the quarter, but we did increase our revolver capacity to $400 million.
Compared to $150 million at the start of the year.
Eric I'll turn the call over to you to provide financial details and then we can take questions Eric.
Thank you Brian .
Before I address the results of operations I would like to remind you that we will be making many references to pro forma items. Throughout this call are press releases and filings may refer to historical financial results for the acquired businesses prior to their acquisition by franchise Green.
Items have been adjusted to align with our fiscal calendar and accounting policies to the extent reasonable.
Comparisons pro forma results will allow us to discuss and evaluate performance of the acquired companies when a comparable period is not available due to the timing of the acquisition.
In the course of preparing our interim financial statements for this quarter, we identified mis classifications of interest related to <unk> <unk>.
Securitize receivables and cashed using financing activities instead of cash provided by operating activities and.
And the <unk> statements.
Of cash flows for the first two quarters for both of the effect of quarters net impact of the Mis classifications had no impact on the balance sheet. The overall consolidated statement of cash flows the income statement or the operations of the company.
The reclassification relates only to accounting presence presentations required by U S gap.
The result of these Miss classifications will require us to a file an amended 10-Q for both periods, which should be completed and filed next week.
Moving to the third quarter results I will start with a quick recap of our home furnishings businesses and.
In the third quarter system wide, but he has had a negative same store sales comp a 4.6% with franchisee comps declining 3.7% in corporate stores declining nine 6% Buddies open six new franchise stores and awards <unk> locations, maintaining a backlog of 98 locations.
Bangkok pumped down 19.1% for the third quarter during the quarter, we closed on the previous ceiling out sale of Backhouse headquarters for $23.5 million and also sold $198 million <unk> consumer accounts receivable for $168 million.
Net proceeds of both transactions were used to pay down the balance of our ABL.
American Frank calmed down 18.3% for the color, we sold 13, new franchisees franchisees in the third quarter, bringing total franchise backlog to 39 locations. We continually review the carrying value of our assets to ensure that they reflect fair value on our balance sheet do the recent performance of American freight this quarter, we <unk>.
70 million non-cash impairment charges to the goodwill of American freight, which is reflected in our GAAP operating results.
Sylvan continued to perform all in the third quarter and deliver comps of 15.8% Sylvan closed five locations and sold six new franchises in the quarter, bringing its backlog to 18 units.
Plus generated system wide same store sales comps for the third quarter of $6 two per cent franchisee comps grew 8% in the quarter, while corporate stores grew 3.7% for the quarter pm.
PSP continues to accelerate its growth and brand building with the sale of 16, New franchisee area development agreement in the third quarter, bringing the total backlog at PSP to 226 locations.
We also began selling flagon wash franchises this quarter and science development agreements for 31 new locations.
Well I'm in shop comps were down seven.
0.7% in the third quarter direct to consumer accounted for approximately 23.7.
Per cent of the business in franchising continues to build momentum with 35 store sold in the third quarter, bringing backlog 55 stores.
On a consolidated basis for the third quarter of 2022 full reported revenue for franchise group was $1.1 billion net loss from continuing operations was $121.2 million or a loss of $3 nine per fully diluted share adjusted EBITDA was $73.1 million and non-GAAP EPS was 59 cents per share.
Net loss from continuing operations included a goodwill impairment charges $70 million related to our American freight segment.
I want to reiterate that we're still in the process of transitioning consumer financing a bad cough from in house to third party partners and have excluded the non-core results of the finance business from adjusted EBITDA and non-GAAP EPS.
While we can perform the income statement for consumer lending the balance sheet continues to reflect the securitization depth and accounts receivable. Despite also the receivables having been sold to third parties.
Once we discontinue originating consumer loves customer loans, we believe the scrutinize receivables will be accounted for as a sale and the related assets and liabilities will no longer be reported on our balance sheet.
We ended the quarter with approximately $1.1 billion in outstanding term debt and cash of approximately $73 million during the quarter. We increase the size of our ABL revolver, the $400 million and had approximately $265 million of availability remaining.
With the continued increase in interest rates are cash interest expense as of today has increased accordingly.
Is expected to cost approximately $112 million this year compared to our estimate at the beginning of the year of approximately $78 million.
As Brian mentioned, we are reducing our outlook for the balance of fiscal 2022 outlook for revenue will remain at approximately $4.3 billion outlook for adjusted EBITDA is being updated to approximately $350 million for $390 million.
And the outlook for a non cap EPS is being updated to approximately $3.25 from $4.
In conjunction with our balance sheet and business performance. We believe we have sufficient liquidity to continue to meet all our obligations and support all of our businesses for the foreseeable future.
Denise could you. Please open the line for questions. Thank you.
Thank you.
<unk> welcome back a question and answer session.
To ask some questions <unk> one line on the telephone unlikely they'll give you a month.
<unk> <unk> <unk>.
Give me a few there.
Yes can you hear me.
Can you spell <unk>.
No problem <unk> roster.
Our first question comes from the amount of Michael <unk>.
Okay, Hi, guys.
So first question I guess and maybe an obvious I think what what's on a lot of investors' minds is the dividend.
And you know how safe is the dividend.
However on the call or just for some reason the operator has.
Having an issue or not able to.
Occupied judgments here using for a minute.
Okay Yeah.
Okay, Great I'll keep calling the question I think of any of these health, but anyway. Yeah. Yeah, you know get cashed out cause of the higher interest expense because of what's going on with American trade you know a lot of cash drags there how safe is this dividend tomato dividend is one of the most important parts of the story I'll show you save as a dividend and how do you balance it out against buying back stock, which you did this corner.
Sure no.
It's a fair question.
Our normal cadence.
To go through our annual budgeting process in November , which which we start next week.
We need to the board in December and then said dividend policy for what we plan to be for the full year with the benefit of the budget.
I'd like to stick to that past practice.
As we move forward here, but I do agree with you and I recognize that our dividend is important to our shareholders.
It is a cornerstone of our capital allocation philosophy, and we when we instituted the buyback we we did so expecting that.
That would be an additional tool in the toolbox and not necessarily instead of you know I also recognize that if we ever do cut the dividend reliability that dividend will be thrown out the window.
We'd like to be the type of company, that's viewed as growing its dividend in good times and managing through bad times without a dividend cut.
We did manage to do that through Covid. So.
So we'll see if we can continue to be what we want to be.
Hope hope that is a little bit helpful. But I know that's not very specific answer to your question well I guess a follow up is it you know in the past the policy the dividend policy has been.
Twenty-five percent of EBITDA.
Oh like.
This year, presumably just.
EBITDA is.
Orange.
It was getting towards you.
The higher end of that I guess the question is you know will you go would you go above that ratio if there's a year or two when EBITDA is cause lower than expected.
Yeah that was another fair question over the long term our target is to pay a dividend approximating 25 per cent of EBITDA as you know but.
In any given year, it could be higher or lower than 25% and it has been higher.
And lower than 25% over the last several years so it depends on the circumstances.
And I think it's fair to say that the dividend like all of our capital allocations are.
Heavily managed if not micro managed.
So yes it.
There's no hard fast rule, we set.
Each year, we have set the dividend at the end of the preceding year and then.
Manage through the years, so you know in a year where we.
Outperformed our expectations, we didn't address the dividend is in the middle of the year.
And this year will end up it.
At least it appears that will pay over 25 per cent of EBITDA Alec as.
As a dividend based on these charges that were taking an American free.
Okay, great one more if I could on the balance sheet, you said those receivables that the bad cough Securitizations are gonna stay on the balance sheet until you stop <unk>.
Originate in new loans.
When did you stop originating new loans, that's not part of the ongoing strategies I understand if you guys to do those loans. So when does when do you stop that practice and when does that come off the balance sheet.
That's correct. So we are testing a.
Waterfall third party waterfall not that does not include the bad cock.
Writing their own paper, so once we have perfected.
That waterfall and then we will roll it out to the dealers, we want to learn on our dime and not on theirs. So we will make the mistakes and eat the.
The cost of that on our income statement balance sheet, rather than passing you off to them and as soon as that happens.
We'll.
Turn it on and the dealer stores and stop selling backlog credits altogether.
Okay. Thanks, I'll turn it over to somebody else no sure.
Thank you.
Please spell next question.
Question comes from a long line along with <unk>.
Okay.
Yes, hi, good afternoon, it's Pete Lucas for Larry.
Can you speak to volume trends had pet supply at a pet supplies plus and vitamin shop.
I'm not mistaken volume was roughly flat in the first half with revenue growth, mostly attributed to price increases did volume change allowed in Q3.
Volume continues to be weak and pricing is offsetting week volume I think it's been relatively.
Distant for both of those brands.
In that regard.
And then the last one for me.
In terms of you talked a little bit about capital allocation, but in the current environment.
How do you view M&A activity is it more cautious or do you look are you seeing more potential opportunities to purchase good businesses under temporary pressure.
I think we're seeing more opportunities, but I think we have to be very careful about which opportunities we pursue.
A large acquisition that requires us to.
Refinance our existing credit facility could be very costly.
Look like expensive <unk>.
Credits a year ago for us, where we planned on coming into this year and refinancing cheaper is now much more expensive than it was so I think we need to be very cautious. We are extremely active we always are active that one of the reasons.
That we went out to find Peter we need somebody who can spend 365 days a year focused on your value creation and operating or home furnishing businesses.
And that.
He he can do that well we're spending time.
We are pursuing M&A, but I do think we will be very careful I think that we recognize that.
You can buy businesses today as a multiples of come down quite a bit costly capital is higher but.
But if you just think about the math, if we even pick up pick what you might consider to be a low multiple web five times, which many businesses go for.
We can go invest our capital and opening more Americans great stores in less than one time EBITDA. So.
That's a great use of capital is the one brand that we own where we will open as many company owned stores as we can and the return on that cat.
Capital investment is better than really any acquisition, we can make anyway.
But we will continue to pursue diversification of our brands continue to try to scale existing brands and scale franchise group through M&A, but will certainly be very careful.
In this environment.
Ah very helpful. Thanks, I'll jump back into camp.
Sure.
Thank you <unk> next question.
Almost question comes along with <unk> with alcohol or all of all of them.
Alright, great. Thank you very much I just wanted to understand the inventory issue.
More maybe give us examples of what was higher price what was lower priced.
And then also I need to inventory at Americans, Great Butt Buddies and bad Caucasian relatively similar.
Simon than not by Sad talk about.
Pretty similar same store sales declines.
Maybe help us reconcile that are square that thanks.
Yes look all three of our home furnishing businesses have seen prices cost escalate.
And that cost.
It was it attempted to be passed on to the customer and has been passed on to the customers that are actually.
We are willing to make a purchase so.
They're all three are the same in that regard as as you would have.
Soon I think with American freight.
The main difference is when.
Supply was tight and there was a time where.
We really we couldn't get inventory we were struggling.
The supply chain.
Really contracted and wait times were very long and then orders would get cancelled anyway, we really just in my fault we just.
Bought whatever we could.
Instead of what we should and we bought it at higher prices as well. So it's one thing if you're buying.
The same product that your customers are used to seeing.
And you're waiting and you're getting the margin forward. It's another thing when you're just trying to fill the floor because we've got great salespeople on our floors and we think they can sell if anything that we put on the floor, but we did by.
Everything that we could instead of what we should and now we're essentially unwinding that so.
You've just thinking.
Through that a little further we can either driblet out over time and try to maintain normal margins and that is a strategy and I think that's what a lot of people are doing or we can recognize the issue.
Recognize that we can afford to rip the band aid off move that inventory out and reset the deck 'n'.
For my money, there's no question that two wrongs don't make a right and every stick that we have on the floor that shouldn't be there and isn't price properly.
Doesn't turn and it takes up space.
On the showroom floor from the right stick middle turned three to four times while that.
Slow moving stick is just sitting there waiting to be written off damaged or or sold for for peanuts. So it's really just a sunk cost we've already paid for it and we need to move on.
And that's what we're doing as aggressively as we can and will reset the deck.
At the new year in the tax season.
With the right inventory at the right price points.
And allow our salespeople to.
Service our customers.
Okay. Thank you and then.
As a follow up.
It looks like vitamin shop went from positive comps to negative Thompson this quarter.
Give us a little color there on what happened.
And.
I hope you look at that going forward as far as continuing dish deceleration are we getting to stabilize level.
That would be helpful.
Sure.
Vitamin shop slightly negative comps in the quarter.
I think vitamin shop is held up an incredibly well we've been hearing.
For quite some time alright.
Induced bump.
It's gonna come back to where where we were it was 40 something million dollar EBITDA businesses clearly not now.
And I know, we figure that all the time I think that the management team has done a great job.
Bringing new products.
Into the stores and into the distribution centers in the new products generate considerable amount of revenue.
Offset any degradation and some legacy products.
There's been a shift at vitamin shop.
Towards.
As we've seen the Covid bumps come down there all the like the zinc.
If you remember from Coupla years ago zinc was.
Heavy seller.
During COVID-19 that come right back down and R. D. One business is back down to where it was <unk>.
Previously, but it's the sports supplements.
That have grown aggressively.
Those visit that side of the business is a lower margin profile. So we don't see it's showing up.
Quite as much on the bottom line is we do see the growth and the revenue, but I think that's pretty much the dynamics happening there as far as the outlook, we're thrilled they're hanging on.
Activities, certainly been down for a bit.
And they are making up for it in higher basket.
Sizes, and also inflation, but they're not seeing nearly as much as I know they feel like they're saying a considerable amount of inflation, but relative to.
Other businesses other industries, and certainly compared to our home furnishing segment, they're they're really not experiencing significant inflation.
Okay, Great and then if I could just make one more comment.
Comment on the interest rate environment, and what that does or doesn't impact American phrase made bad cop.
You know any sensitivity and kind of run or any kind of waste.
Ways to think about.
Sales levels that those two.
Segments, just given links are kind of continuing to go off.
Sure.
Higher rates.
The economic environment that I think we're in and that we're heading deeper into they're really good for our value driven.
The home furnishings businesses like Americans, great in Bangkok, where we can offer paint.
Payment plans to customers.
We're not quite into it yet we are still.
My mind, well above full employment levels and as.
We keep saying lay offs.
And hiring freezes every day I think Amazon announced.
Hiring freeze no incremental hiring in their corporate office today. That's it just every single day somebody else is.
Shutting it down and we need to get back down to full employment first but then once we get back down to full employment.
It will keep going and as the unemployment numbers pick up those those folks defined value much more value in the payment options at buddies.
Payment options at that payment options at American right. So.
That's.
We're built for that environment.
Okay. Thank you very much.
Sure.
Thank you <unk>.
Next question.
Almost question hung around the wholesome Coca Cola Stevens, perhaps around with my awesome.
Hi, Thanks for taking my questions.
On the on American free down home furnishings generally I'm just wondering maybe if you could talk about how you're thinking about the holiday season promotions so on and.
Just sit earlier comment if I could clarify so.
Do you.
Think and intend to right size since before the tax refund season, so we should be expecting a sort of a normalized.
Home furnishings environment say by the first or second quarter of next year.
Yeah. Thanks, then.
We hope so I don't know the answer to that but we are going to.
Race to get through this and I think by actually both of your questions fit.
Somewhat together and.
Not necessarily even related we just happened to be approaching the holiday season.
We typically wouldn't have.
Large <unk>.
Promotions going into the holiday season, and home furnishings, but we will I mean, we've got some great deals you should definitely take a look and make a purchase because we're going to discount.
And we're going to incentivize our salespeople to move the merchandise that we have now so that we can bring it remember everything we're selling now we're going to be able to replace it with lower cost items as well so as quickly as we can get through that that the better off we are the question and I do not have the answer to it as well.
Be able to get through and move this inventory in the next couple of months so that when the tax money breaks we are in position.
To be back to normal I don't know the answer to that but I know that it's a focus and.
We are we.
We're driving to that every single day.
Okay. Thank you for that and I am.
I'm looking for washer dryer, so and I noticed this deal so [laughter].
I can I can definitely see and agree with that.
Four.
[laughter] separate question on just on the balance sheet on your cash position.
Encouraged I was interesting to see the share repurchases this quarter.
If you could update us, how you're thinking about that and how.
When you say you had to share repurchase and how you think about in terms of the sustainability or if your appetite for that thank you.
Sure well, we don't I think.
Two types of share buybacks, one is I believe with Tenby five one where it's just somewhat automatic and then the other is the way that we handle it we're not.
And I said this last quarter and when we put in the buyback we're not.
We don't have a buyback just to tickle at an offset share issuances, we're looking at buying shares as an investment relative to buying other businesses. So if I can buy.
Your franchise group stock with American freight generating virtually no EBITDA in this point negative EBITDA. That's what's in my consolidated EBITDA earnings per share currently it's hard to ignore and so we did by a considerable amount of.
Stock when we have an open window.
Not sure what's going to happen on a go forward basis of course, but.
Certainly we put the buyback in to be a tool in the toolbox and we will continue.
To look at that as a as a possible.
Allocation of capital.
Okay, great very helpful. Thanks, very much.
Sure.
Thank you.
And my last question.
My last question comes from <unk>.
Global Com.
<unk> okay.
I I guess I just wanted to ask one more follow up if I could and just on the American freight.
Situation.
Brian . We appreciate you you know what I'm, saying your issue your fault et cetera, but.
Specifically like are you, making the buying decisions are you are you are you acting as the merchant or where they are merchants involved making these decisions and how does that structure change with the new President and then I get to fall off.
Some economic issues, there with tobacco industry issues with American afraid as well how much is you know the by mistake and how much is the industry. Thanks.
Right.
So go backwards a couple of years when you couldn't get any I understand why we are where we are I don't love it.
But but I'm not going to pretend it doesn't exist all things regarding capital allocation or execution.
Are are my responsibility, that's what I do and this is really both of those categories.
Categories combined I didn't have to allocate capital to buy more inventory, we could have run skinny and and waited but we needed to get merchandise on the floor of the merchants and the operators of the business. It's their job to go get the best deals that they can and as you point out.
There weren't any good deals you just had to take whatever inventory you could so you could either.
In my shoe their job is to go buy inventory and try to move at my job is to decide whether or not that's a good use of capital and a good bet.
Or not I mean, we make predictions.
Predictions every day, our job is to make predictions about the future you'll figure out which ones have a 99, we've got a 99% confidence level and and which ones. We don't and then go figure out how to execute on those where we have 99 per cent conviction. This was not a 99% conviction bet and we did it anyway.
Allowed it is what it is so I'm not I'm not worried about that we've we've had plenty of good fortune, along the way as well and.
It's.
Like I said, it's disappointing, but it it doesn't have any impact on hell.
You.
The future of American Frayed whatsoever in fact in this environment and again.
Go back to when you first started covering the company and.
And a lot of folks cotton balls, asking what happens in in a recession, how do these businesses too because everybody wants to know that it's consumer driven business and we said several years ago that you are in a recession. That's the time that you go accelerate your your store rollout because you can get those better.
Real estate, Lisa that's really been limiting factor because we're deep value.
We can go into a warehouse next to a nursery like where you buy plants, we don't need to be at the corner remain in Maine. This is not an impulse buy you don't drive by an American freight and say okay.
I want to go in there and buy something you're you're specifically going to Americans great for a purpose kind of like a cracker barrel and you can be wherever you want will this is that time, so we're gonna get an opportunity to to really accelerate that in.
And Peter is the Guy to help US do that this is Peter coming in we went out looking for that right athlete for this rule many months ago. So this is not a reaction to anything this is recognizing the environment that we're gonna be in trying to find somebody who's done previous.
Lee what we're trying to accomplish with American freight and can do it with a sense of urgency like we have and that's why we did what we did just so happens we're going to get the benefit of that same athlete being able to run.
Or oversee all all three of our home furnishing businesses that are home furnishings businesses will have.
Full management teams and run independently as well so I hope that.
I hope that clarifies it a little bit but.
That's why we're doing what we're doing.
Okay. Yeah. Thanks that is helpful. I appreciate the color.
Okay, no more questions <unk>.
The call back over into buying palm for causing Vermont.
Great well. Thank you all for joining us feel free to follow up with any additional questions offline. An operator, you can end the call.
Awesome. Thank you can't.
Thus conclude the program in a marvelous Obama.
The conference will begin shortly to raise your hand during <unk> you can dial 911.
[music].
[music].
Thank you for standing by and welcome.
The conference call franchise groups third quarter 2022 conference call at this time, all participants are in listen only mode.
So just keep this presentation there will be a question and answer session.
Ask the question during the session you will need to press star one on your telephone you will then hear an automated message advising your hand is raised.
Please be advised that today's conference is being recorded.
I'd now like to hand, the conference over to your host Andrew Kaminski Executive Vice President and Chief administrator The franchise group.
Thank you Dan.
Afternoon, and thank you for joining our conference call and let me call. It Brian Kahn franchise groups, President and CEO and Eric <unk> franchise groups CFO .
We're getting started I would like to mention that certain matters discussed in this call may contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095, and other provisions of the Federal Securities laws. These forward looking statements are based on management's current expectations and are not guarantees of future performance actual results could differ materially from those expressed.
In or implied by the forward looking statements and forward looking statements are made as of the date of this call and except as required by law franchise group assumes no obligation to update or revise them.
Investments investors are cautioned not to place undue reliance on these forward looking statements for more detailed discussion of these.
And other risks and uncertainties that could cause franchise groups actual results to differ materially from those indicated in the forward looking statements. Please see our Form 10-K for the fiscal year ended December 25, 2021, and the other filings we make with the SEC.
The financial measures discussed today include non-GAAP measures that we believe investors focus on it and comparing our results between periods and among our peer companies. Please.
Please see our earnings release in the news and events section of our website at franchised <unk> Dot com for a reconciliation of non-GAAP financial measures to GAAP measures.
non-GAAP financial information should not be considered in isolation from as a substitute for or superior to GAAP financial information, but we included because management believes it provides meaningful supplemental information regarding our operating results when assessing our business and is useful to investors for informational and comparative purposes.
And non-GAAP financial measures. The company uses have limitations and may differ from those used by other companies.
Now I'd like to turn the call over to Bryan Bryan.
Thank you Andrew and good afternoon to our listeners and thank you for joining us I will provide a general update before turning the call over to Eric to provide financial details. We'll then be happy to answer questions.
And franchise groups fiscal third quarter, our execution at American freight was poor well our other five operating companies combined to produce financial results above our expectations.
I think it's important to specifically separate our core execution at American freight from a difficult home furnishings environment that has also been impacting American freight buddies and bad for some time, while we can't control the environment, we absolutely can control our execution, we expect execution to be a net.
Positive for FRG in all environments execution as my responsibility and I don't expect to make the same mistake twice.
Specifically, we paid too much for the wrong mix of inventory and that combination creates real consequences throughout the system.
<unk> reduced profitability from heavily discounting or writing off slow moving and damaged inventory.
This impact of discounting has compounded since our associates are commission driven salespeople.
We ended inventory costs are currently coming down and I expect them to continue to decrease so we need to turn our existing higher cost inventory as quickly as possible and replace it with the right mix with lower landed cost that are consistent with the deep value culture that our customers expect.
And our associates to expect to sell.
I estimate this process has cost us $10 million tens of millions of dollars of cash through the end of Q3 and could cause tens of millions more to get past it in our financial statements. This manifest itself in lower revenue and lower gross margin due to higher write offs in discounting and the ultimate consequences.
Instead of $390 million of adjusted EBITDA for 2022.
<unk> likely to report around $350 million of EBITDA.
This cash cost of getting through this process relative to our budget has been and will be paid for by excess realized cash proceeds from bad Cox real estate sales.
But as you know the profits on our real estate sales are not included in adjusted EBITDA.
I am frustrated with where we are and how we got here, we cant afford to rip the band aid off quickly and get back to business.
Despite these current operating issues, which has led us to report negative EBITDA for <unk> itself for the most recent quarter I continue to believe American freight will ultimately be the most valuable business. Among the six brands that we own today measured in terms of both annual free cash flow.
<unk> and terminal value to FRG.
I believe the current asset base of 359 company owned stores and fixed franchise stores as the earnings power in excess of $150 million of EBITDA as it is and we have a tremendous amount of green space opened both company owned and franchise stores I can see.
Say with conviction that we will have the opportunity to accelerate new store openings over the next several years and we've hired Peter Corsa to become the CEO of our newly created home furnishings Division and part to do just that.
Peter will be responsible for driving operational excellence at American freight buddies, and Babcock, but I know that Peter shares my views about the unique profitability profile at American freight and the impact that American freight growth can have on FRG.
Many of you already know Peter from his nine years at at home, where he was instrumental in growing revenue and EBITDA by over 500% for that value retailer of home decor products. His track record is public and it speaks for itself and I am overjoyed to welcome Peter to the team.
Moving on.
Franchising activity continues to accelerate across FRG for the first nine months of 2022, we sold 193 territories and opened 74, new locations. While closing 37 locations, we're starting to see cost of construction materials and labor improving and we believe our franchisees will have an easier time opening stores over the next call.
Full of years compared to the last couple of years rigor.
Regarding capital allocation in the quarter, we repurchased two 2 million shares at an average cost of approximately $35 per share and we paid a quarterly common dividend at an annual rate of $2 50 per share we did not make any acquisitions during the quarter, but we did increase our revolver capacity to $400 million.
Compared to a $150 million at the start of the year.
Eric I will turn the call over to you to provide financial details and then we can take questions Eric.
Great. Thank you Brian .
Before I address the results of operations I would like to remind you that.
We will be making many references to pro forma items throughout this call. Our press releases and filings may refer to historical financial results for the acquired businesses prior to their acquisition by franchise group.
These items have been adjusted to align with our fiscal calendar and accounting policies to the extent reasonable comps.
Comparisons pro forma results will allow us to discuss and evaluate performance of the acquired companies when a comparable period is not available due to the timing of the acquisition.
In the course of preparing our interim financial statements for this quarter, we identified misclassification of interest related to <unk>.
Securitized receivables and cash used in financing activities instead of cash provided by operating activities.
And the consult the statements.
Cash flows for the first two quarters for both of the affected quarters net impact of the Misclassification has had no impact on the balance sheet. The overall consolidated statement of cash flows the income statement or the operations of the company.
The reclassifications related solely to accounting.
Presentations required by U S GAAP.
The result of these misclassification will require us to file an amended 10-Q for both periods, which should be completed and filed next week.
Moving to the third quarter results I will start with a quick recap of our home furnishing businesses.
In the third quarter system wide body has had a negative same store sales comp of four 6% with franchisee comps declining three 7% and corporate stores declining nine 6%, but he has opened six new franchise stores and awarded six new locations, maintaining a backlog of 98 locations.
Bangkok pumped down 19, 1% for the third quarter during the quarter. We closed on the previously only announced sale of that cost headquarters for $23 5 million and also sold $198 million of that consumer accounts receivable for $116 million.
The net proceeds of both transactions were used to pay down the balance of our ABL.
I can frame Comped down 18, 3% for the quarter, we sold 13, new franchisees franchisees in the third quarter, bringing total franchise backlog to 39 locations. We continually review the carrying value of our assets to ensure that they reflect fair value on our balance sheet due to the recent performance of American freight this quarter, we took a <unk>.
<unk> million dollars noncash impairment charge to goodwill of American freight, which is reflected in our GAAP operating results.
Silvan continued to perform well in the third quarter and delivered comps of 15, 8% silver and closed five locations and sold six new franchises in the quarter, bringing its backlog to 18 units.
<unk>.
<unk> generated system wide same store sales comps for the third quarter of six 2% franchisee comps grew 8% in the quarter, while corporate source grew three 7% for the quarter.
PST continues to accelerate its growth and brand building with the sale of 16, new franchisee area development agreements in the third quarter, bringing the total backlog at PSB to 226 locations.
We also began selling black and wash franchises this quarter in science development agreements for 31 new locations.
Well I haven't shop comps were down 7%.
7% in the third quarter direct to consumer accounted for approximately 23, 7%.
Percent of the business and franchise and continues to build momentum with 35 stores sold in the third quarter, bringing backlog to 55 stores.
On a consolidated basis for the third quarter of 2022 total reported revenue for franchise group was $1 1 billion net loss from continuing operations was $121 2 million or a loss of $3 nine per fully diluted share adjusted EBITDA was $73 1 million and non-GAAP EPS was <unk> 59 per share.
Net loss from continuing operations included a goodwill impairment charge of $70 million related to our American freight segment.
I want to reiterate that we're still in the process of transitioning consumer financing at that talk from in house to third party partners and have excluded the non core results of the finance business from adjusted EBITDA and non-GAAP EPS.
While we can pro forma income statement for consumer lending the balance sheet continues to reflect the securitization debt and accounts receivables. Despite most of the receivables having been sold to third parties.
Once we discontinued originating consumer loans customer loans, we believe the securitized receivables will be accounted for as a sale and the related assets and liabilities will no longer be reported on our balance sheet.
We ended the quarter with approximately $1 1 billion in outstanding term debt and cash of approximately $73 million during the quarter. We increased the size of our ABL revolver to $401 million and had approximately $265 million of availability remaining.
With the continued increase in interest rates, our cash interest expense as of today has increased accordingly.
It is expected to cost approximately $112 million this year compared to our estimate at the beginning of the year of approximately $78 million.
As Brian mentioned, we are reducing our outlook for the balance of fiscal 2022 outlook for revenue will remain at approximately $4 3 billion outlook for adjusted EBITDA is being updated to approximately $350 million from $390 million.
On the outlook for non-GAAP EPS is being updated to approximately $3 25.
From $4.
In conjunction with our balance sheet and business performance. We believe we have sufficient liquidity to continue to meet all of our obligations and support all of our businesses for the foreseeable future.
Denise could you. Please open the line for questions. Thank you.
Thank you.
We will conduct a question answer session of the removal of Jeff's question.
One one on your telephone unlikely, we'll give you announced.
<unk>.
Give me a few there.
Yes.
Lou.
Thank you.
The <unk> roster.
Our first question comes from the line of Michael Baker.
Awesome.
Okay, Hi, guys.
So first question I guess.
Maybe an obvious.
I think what's on a lot of investors' minds is the dividend and how safe is the dividend.
Everyone on the call. We're just for some reason the operator has.
Having an issue were not able to.
Thank you, Mike Youre using for the minute.
Okay. Okay.
Great I'll keep it on the question I think if any of these call, but anyway, yes, yes.
Cash is down because of the higher interest expense because of whats going on with American freight a lot of cash drags there.
This dividend to me the dividend is one of the most important parts of the story I'll say save the dividend and how do you balance that against buying back stock, which you did this quarter.
Sure.
It's a fair question.
Our normal cadence is to.
It goes through our annual budgeting process in November .
We start next week.
We needed the board in December and then set dividend policy for what we plan to be for the full year with the benefit of the budget.
I'd like to stick to that past practice.
As we move forward here, but I do agree with you and I recognize that our dividend is important to our shareholders.
It's a cornerstone of our capital allocation philosophy.
When we instituted the buyback we did so expecting that.
It would be.
An additional tool in the toolbox and not necessarily instead of also recognize that if we ever do cut the dividend and the reliability of that dividend will be thrown out the window.
We'd like to be the type of company, that's viewed as growing its dividend in good times and managing through bad times without a dividend cut.
We did manage to do that through Covid.
But we'll see if we can continue to be what we want to be.
Hope that is a little bit helpful, but I know thats not a very specific answer to your question.
I guess a follow up is in the past the policy the dividend policy has been.
25% of EBITDA.
Alright.
This year presumably.
EBITDA.
Is.
Or at least getting towards you.
The higher end of that I guess the question is will you go would you go above that ratio if theres a year or two when EBITDA is lower than expected.
Yes, that's another fair question over the long term our target is to pay a dividend approximating 25% of EBITDA as you know but.
In any given year, it could be higher or lower than 25% and it has been higher.
And lower than 25% over the last several years so it depends on the circumstances.
And I think it's fair to say that the dividend like all of our capital allocations are.
Heavily managed if not micromanaged.
So yes there.
There is no hard fast rule, we set.
Each year, we set the dividend at the end of the preceding year and then.
Managed through the year, so in a year where we.
Outperformed our expectations, we didnt adjust the dividend is in the middle of the year.
And this year, we'll end up at.
At least it appears that we will pay over 25% of EBITDA outlook.
As a dividend based on these charges that we're taking in American freight.
Okay, great one more if I could on the balance sheet, you said those receivables the backhaul securitization theyre going to stay on the balance sheet until you stop.
Originating.
New loans.
When do you stop originating new loans, that's not part of the ongoing strategy as I understand it for you guys to do those loans. So when does when do you stop that practice and when does that come off the balance sheet.
That's correct. So we are testing.
The waterfall third party waterfall not that does not include the bad Cook.
Good writing their own paper, so once we have perfected.
That waterfall and then we will roll it out to the dealers, we want to learn on our dime and not on theirs.
We will make the mistakes and eat the cost of that on our income statement balance sheet, rather than passing it off to them and as soon as that happens.
We will.
Turn it on in the dealer stores and stop selling backup credit altogether.
Okay. Thanks, I'll turn it over to somebody else no sure.
Thank you.
One moment please for our next question.
Okay.
Our next question comes from along with Larry Solow with CJS Securities.
Okay.
Yes, hi, good afternoon, it's Pete Lucas for Larry.
Can you speak to volume trends had pet supply at pet supplies, plus and vitamin Shoppe.
I am not mistaken volume was roughly flat in the first half with revenue growth, mostly attributed to price increases did volume change a lot in Q3.
Volume continues to be weak and pricing is offsetting weak volume I think its been relatively.
And for both of those brands.
In that regard.
And then last one for me.
<unk>.
In terms of you talked a little bit about capital allocation, but in the current environment.
How do you view M&A activity is it more cautious or do you look at are you seeing more potential opportunities to purchase good businesses under a temporary pressure.
I think we're seeing more opportunities, but I think we have to be very careful about which opportunities we pursue.
A large acquisition that requires us to.
Refinance our existing credit facility could be very costly.
It looked like expensive.
Credit <unk>.
Year ago for Us, where we planned on coming into this year and refinancing cheaper is now much more expensive than it was so I think we need to be very cautious. We are extremely active we always are active that's one of the reasons that we went out to find Peter we need somebody who can spend 300.
65 days a year focus.
On value creation, and operating our home furnishing businesses.
And that.
And he can do that while we're spending time.
We are pursuing M&A.
But I do think we will be very careful I think that we recognize that you can buy businesses today as a multiples have come down quite a bit the cost of capital is higher but if you just think about the math.
We even pick a pick what you might consider to be a low multiple.
Five times, which many businesses go for we can go invest our capital in opening more American freight stores in less than one time EBITDA.
<unk>.
It's a great use of capital is the one brand that we own where we will open as many company owned stores as we can and the return on that.
Capital investment is better than really any acquisition, we can make anyway.
But we will continue to pursue diversification of our brands continue to try to scale existing brands and scale franchise group through M&A, but we will certainly be very careful.
In this environment.
Very helpful. Thanks, I'll jump back in the queue.
Sure.
Thank you <unk> next question.
Our next question comes from along with local Kumar with Oppenheimer <unk> co.
Hmm.
Alright, great. Thank you very much.
I just wanted to understand the inventory issue, but a bit more.
Maybe give us examples of.
What was higher price what was lower priced.
And then also I know you point to inventory at American freight, but buddies and that kind of case.
Relatively similar.
Oh, I'm, sorry, and then Sam talked about.
Pretty similar same store sale declines.
Maybe help us reconcile that or square that thanks.
Yes look all three of our home furnishing businesses have seen prices cost escalate.
And that cost.
Was it tempted to be passed on to the customer and has been passed on to the customers that are actually.
We are willing to make a purchase so.
They're all three are the same in that regard as as you would've assumed I think with American freight the main difference is when <unk>.
Supply was tight and there was a time, where we really we couldnt get inventory we were struggling.
Supply chain.
Really contracted and wait times were very long and then the orders would get canceled anyway, we really just didn't my fault, we just bought whatever we could.
Instead of what we should and we bought it at higher prices as well. So it's one thing if you are buying.
The same product that your customers are used to seeing.
And you're waiting and Youre getting the margin forward. It's another thing when you're just trying to fill the floor because we've got great salespeople on our floors and we think they can sell anything that we put on the floor, but we did buy.
Everything that we could instead of what we should and now we're essentially unwinding that so.
You've just thinking.
Through that a little further we can either dribble it out over time and try to maintain normal margins and.
And that is a strategy and I think thats, what a lot of people are doing or we can recognize the issue.
Recognize that we can afford to rip the band aid off move that inventory out and reset the deck.
For my money Theres no question that two wrongs don't make a right and every stick that we have on the floor that shouldnt be there isn't priced properly.
It doesn't turn and it takes up space.
On the showroom floor from the REIT stick middle term three to four times while that.
Slow moving stick is just sitting there waiting to be written off damaged or sold for for peanuts.
It's really just a sunk cost we've already paid for it.
And we need to move on.
And that's what we're doing as aggressively as we can and we will reset the deck.
It's a new year and the tax season.
With the right inventory at the right price points.
And allow our salespeople to.
Service our customers.
Okay. Thank you.
As a follow up.
It looks like vitamin Shoppe went from positive comps to negative comps in this quarter.
Maybe give us a little color there on what happened.
<unk>.
And how.
How do we look at that going forward as far as <unk>.
Deceleration or are we getting to a stabilized level.
Color there would be helpful.
Sure.
Vitamin Shoppe slightly negative comps in the quarter.
Look I think vitamin Shoppe has held up incredibly well we've been hearing.
For quite some time alright.
Covid induced bump.
And it's going to come back to where we were it was a 40 something million dollars EBITDA business, it's clearly not now.
And I know.
We hear that all the time I think that the.
Management team has done a great job.
Bringing new products into.
Into the stores and into the distribution centers and the new products generate a considerable amount of revenue.
That offset any degradation and some legacy products.
Theres been a shift at vitamin shoppe towards.
As we've seen the COVID-19 bumps come down although like the zinc.
If you remember from a couple of years ago zinc was.
Heavy seller.
During COVID-19 that come right back down.
In our <unk> business is back down to where it was pre.
Previously, but it's it's the sports supplements.
That have grown aggressively.
And those business that side of the business has a lower margin profile. So we don't see it showing up.
Quite as much on the bottom line is we do see the growth in the revenue, but I think thats pretty much the dynamics happening there as far as the outlook, we're thrilled theyre hanging on.
Activity has certainly been down for a bit.
And they are making up for it and higher basket sizes.
Also inflation, but theyre not seeing nearly as much as I know they feel like they are seeing a considerable amount of inflation, but relative to.
Other businesses other industries, and certainly compared to our home furnishing segment. They are really not experiencing significant inflation.
Okay, Great and then if I could just sneak in one more could you just comment on the interest rate environment and what that does.
Does that impact American freight in the Babcock.
Any sensitivity to kind of run or any kind of a waste.
Ways to think about.
Sales levels at those two.
Segments, just Kevin Lynch, our kind of continue to go up.
Sure.
Higher rates.
The economic environment that I think we're in and that were having deeper into they are really good for our value driven.
Home furnishing businesses like American freight and Bangkok, where we can offer payment plans to customers.
We're not quite into it yet we are still in my mind, well above full employment levels.
We keep seeing layoffs.
And hiring freezes everyday I think Amazon announced.
Hiring freeze no incremental hiring in their corporate office today.
It just every single day somebody else is.
Shutting it down and we need to get back down to full employment first but then once we get back down to full employment.
It will keep going and as the unemployment numbers tick up.
Those folks find value much more value in the payment options at buddy's.
Payment options at that payment options at American freight so.
That's.
We're built for that environment.
Okay. Thank you very much.
Sure.
Thank you.
Next question.
Okay.
Our next question comes on the line.
Stevens, our hubs around with my outcome.
Alright, thanks for taking my questions.
On the on American Freedom home furnishing is generally just wondering maybe if you could talk about how youre thinking about the holiday season promotions. So on.
Just to an earlier comment if I could clarify so.
Do you.
Zinc and intend to right size since before the tax refund season, so we should be expecting sort of a normalized home furnishings environment to stay by the first or second quarter next year.
Yes, Thanks Vincent.
We hope so I don't know the answer to that but we are going to.
Race to get through this and I think actually both of your questions.
Fit somewhat together and.
Not necessarily even related we just happened to be approaching the holiday season.
We typically wouldn't have.
Yes.
Large <unk>.
Promotions going into the holiday season, and home furnishings, but we will I mean, we've got some great deals you should definitely take a look and make a purchase because were going to discount.
And we're going to incentivize our salespeople to move the merchandise that we have now so that we can bring it remember everything we're selling now we're going to be able to replace it with lower cost items as well so as quickly as we can get through that.
The better off we are so question and I do not have the answer to it is will we be able to get through and move this inventory in the next couple of months so that when the tax money brakes, we are in position.
To be back to normal I don't know the answer to that but I know that.
It's a focus and.
We are.
We are driving to that every single day.
Okay. Thank you for that.
Im looking for washer dryers, so I noticed the steel so.
Hi.
I can definitely see and agree with that.
Four.
Separate.
Question on just on the balance sheet and your cash position.
Encouraged it was interesting to see the share repurchases. This quarter, just if you could update us how you're thinking about that and how.
So you had the share repurchases and how you think about in terms of the sustainability or if your appetite for that thank you.
Sure well, we don't I think it's two types of share buybacks. One is I believe it can be five.
One we're just somewhat automatic and then the other is the way that we handle it we're not in.
And I said this last quarter and when we put in the buyback we're not.
We don't have a buyback just to tickle it an offset sure.
<unk> issuances.
We're looking at buying shares as an investment relative to buying other businesses. So if I can buy.
Franchise group.
Stock with American freight generating virtually no EBITDA and at this point negative EBITDA and that's what's in my consolidated EBITDA and earnings per share currently it's hard to ignore and so we did buy a considerable amount of stock when we had an open window.
Not sure what's going to happen on a go forward basis of course, but.
Certainly we put the buyback in to be a tool in the toolbox and we will continue.
<unk>.
To look at that as a possible allocation of capital.
Okay, great very helpful. Thanks, very much.
Sure.
Thank you.
And the last question.
Our next question comes from Michael <unk>.
Global Com.
Your line is now open.
Hi, I guess I just wanted to ask one more follow up if I could just on the American freight.
Situation.
Brian We appreciate you, saying your issue your fault et cetera, but.
Specifically are you, making the buying decisions are.
Well, you're acting as the merchant or where their merchants involved in making these decisions and how does that structure change with the new President and then I guess a falloff.
There's some economic issues, there with American freight industry issues with American freight as well how much is the buying mistaken how much is the industry. Thanks.
Right.
So go backwards a couple of years when you Couldnt get any.
Understand.
Why we are where we are I don't love it.
But I'm not going to pretend that it doesn't exist all things regarding capital allocation.
Our execution.
Or are my responsibility, that's what I do.
This is really both of those.
<unk> combined I didn't have to allocate capital to buy more inventory, we could have run skinny and end weighted but we needed to get merchandise on the floor of the merchants and the operators of the business is their job to go get the best deals that they can and as you point out there.
There werent any good deals. So you just had to take whatever inventory you could so you could either.
In my shoe their job is to go buy inventory and try to move it my job is to decide whether or not that's a good use of capital and a good debt.
Or not I mean, we make predictions every day our job is to make predictions about the future you'll figure out which ones have a 90, 999% confidence level in and which ones. We don't and then go figure out how to execute on those where we have 99% conviction. This was not a 99%.
Conviction that and we did it anyway I allowed it is what it is so I'm not I'm not worried about that we've we've had plenty of good fortune, along the way as well and.
It's.
Disappointing, but it's it.
It doesn't have any impact on how.
I view.
The future of American freight whatsoever in fact in this environment.
Again go back to when you first started covering the company.
And a lot of folks got involved asking what happens in a recession. How do these businesses do because everybody wants to know thats consumer driven business and we said several years ago that risk.
A recession, that's the time that you go accelerate your store rollout because you can get those better.
Real estate lease so thats really the limiting factor because we are.
Deep value.
We can go into a warehouse next to a nursery.
By plants, we don't need to be at the corner of main and main this is not an impulse buy you don't drive by an American freight and say, Okay. I think I want to go in there and buy something Youre, specifically going to American freight for a purpose kind of like a cracker barrel and you can be wherever you want well. This is that time. So we're.
To get an opportunity to really accelerate that in.
Peter is the Guy to help US do that this is Peter coming in we went out looking for that right athlete for this rule many months ago. So this is not a reaction to anything this is recognizing the environment that we're going to be in trying to find somebody who is done.
Previously, what we're trying to accomplish with American freight.
And do it with a sense of urgency like we have and Thats why we did what we did just so happens we're going to get the benefit.
Over that same math, we've been able to run.
We're oversee all all three of our home furnishing businesses that are home furnishings businesses will have.
Full management teams and run independently as well so I hope that.
I hope that clarifies it a little bit but.
Yes.
That's why we're doing what we're doing.
Okay. Yes. Thanks that is helpful. I appreciate the color.
Sure.
Thank you.
A question on.
I would like to turn the call back over to Tom for closing remarks.
<unk>.
Well. Thank you all for joining us feel free to follow up with any additional questions offline and operator, you can end the call.
Also contributing to those conference. This does conclude the program and mammography along.