Q2 2023 Avid Bioservices Inc Earnings Call
Good day, ladies and gentlemen, and welcome to the avid bio Services' second quarter fiscal 2020 financial results Conference call. At this time all participants are in a listen only mode. Later, we will conduct.
A question and answer session and instructions will follow at that time as a reminder, this conference call may be recorded I would now like to hand, the conference over to Tim Brons of Abbott's Investor Relations group.
Please go ahead.
Thank you.
Good afternoon, and thank you for joining us on today's call, we have Nick Green, President and CEO , Dan Hart Chief Financial Officer.
Average chief commercial officer.
Today, we will be providing an overview of avid bio services contract development and manufacturing business, including updates on corporate activities and financial results for the quarter ended October 31.
Yes.
After our prepared remarks.
Before we begin I would like to caution that comments made during this conference call. Today December six 2020 will contain certain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Concerning the current belief of the company, which involves a number of assumptions risks and uncertainties.
Actual results could differ from these statements and the company undertakes no obligation to revise or update any statements made today.
Encourage you to review all of the Companys filings with the Securities Exchange Commission concerning these and other matters.
Our earnings press release, and this call will include discussion of certain non-GAAP information you can find our earnings press release, including relevant non-GAAP reconciliations on our corporate website at avid bio dot com.
With that I will turn the call over to Nick Green Abbott's, President and CEO .
Thank you Tim and thank you to everyone participating today via webcast.
Based on the company's performance during the first six months, we anticipate that fiscal 2023 will be another strong year.
During the second quarter. The company recorded record revenues for any Q2 period, reflecting increases in both process development and manufacturing work.
On the new business front, we signed multiple new customer agreements with both existing and new customers contributing to our strong backlog.
With respect to the company's facilities, we continue to make progress without expansions and at the same time as successfully concluding both our frontline unlike but annual shutdowns.
We remain on track to have the market expansion complete by the end of quarter. One come into 2020, we also expect the new cell and gene therapy facility to come online in mid to late.
Finally to manage our growing business and capabilities during the period, we added significant talent across a broad range of functions along with some notable additions to the senior management team and operations.
This development and human resources.
Mark and I will provide additional details on business development and operations for the period. Following an overview of our second quarter and first six months of fiscal <unk> financial results.
And for that I'll turn the call over to Doug.
Thank you Nick.
Before I begin in addition to the brief financial overview I will provide on the call today additional details on our financial results are included in our press release issued prior to this call and in our Form 10-Q, which was filed today with the SEC.
I'll now provide an overview of our financial results from operations for the quarter and first six months ended October 31 2022.
Revenues for the second quarter of fiscal 'twenty, three were $34 $8 million.
Representing a 33% increase compared to $26 1 million recorded in the prior year period.
For the first six months of fiscal 'twenty, three revenues were $71 $4 million.
A 26% increase compared to $56 9 million in the prior year period.
For both the quarter and the year to date periods. The increase in revenues can primarily be attributed to increases in process development and manufacturing revenues as compared to the prior year periods.
Notably our second quarter process development revenues were at an all time high representing a year over year increase of 74%.
Gross margin for the second quarter of fiscal 'twenty, three was 12% compared to a gross margin of 35% for the second quarter of fiscal 'twenty two.
Gross margin for the first six months of fiscal 'twenty, three was 19% compared to a gross margin of 36% for the same period during fiscal 'twenty two.
For both the quarter and six month periods. The decreases in gross margins were primarily due to increases in costs associated with our growth of our business and our facility expansion.
The primary drivers of these costs were increases in labor overhead and depreciation which accounted for incremental decreases in margins of approximately 11% and 9% for the quarter and six months periods respectively.
Split roughly 50 50 between on the $1 million in cell and gene therapy operation.
It is also important to note that the prior year's gross margin included benefits from Unutilized capacity.
Excluding all of these factors, our second quarter and year to date gross margins were in line with the same period.
The prior year.
We expect the expansion related costs incurred to date will continue to affect near term margins in the coming quarters, we foresee incrementally incurring additional expansion related costs in line with anticipated growth.
Total SG&A expenses for the second quarter of fiscal 'twenty, three or $6 8 million, an increase of 36% compared to $5 million recorded in the second quarter of fiscal 'twenty two.
SG&A expenses for the first six months of fiscal 'twenty three were $13 2 million, an increase of 39% compared to $9 5 million recorded in the prior year period.
The increases in SG&A for both the quarter and year to date periods were primarily due to increases in compensation and benefits related costs.
Legal accounting and other professional fees.
For the second quarter of fiscal 'twenty three the company recorded a net loss of $1 2 million or <unk> <unk> per basic and diluted share.
As compared to a net income of $3 5 million or <unk> <unk> per basic and diluted share for the second quarter of fiscal 'twenty.
For the first six months of fiscal 'twenty three the company recorded net income of 400000 or <unk> <unk> per basic and diluted share.
As compared to net income of $9 8 million or 16 and 15.
For basic and diluted share respectfully.
During the prior year period.
For the second quarter and the first six months of fiscal 'twenty three the company achieved an adjusted EBITDA of $1 9 million and $8 1 million respectively.
Okay.
Our cash and cash equivalents on October 31, 2022 were $77 3 million compared to a $126 2 million.
On April 32022.
This concludes my financial overview I'll now turn the call over to Matt for an update on our commercial activities during the quarter.
Thanks, Dan.
The second quarter with both busy and productive we continued to see strong demand in the marketplace for abbott's current offerings as well as interest in the cell and gene therapy capabilities online and coming online in the near term.
Our expanded team continues to build visibility within the industry regularly interfacing with potential as well as existing customers. We've seen an increasing client interaction through face to face meetings as well as through our increased presence at trade shows conferences.
As a result, we continue to add to our client base.
Our new business pipeline continues to be strong and our proposal values and other leading indicators continue to develop in a very positive manner.
During the second quarter, our team signed $26 million and net new project orders, bringing the total new business for the first six months of this fiscal year to $67 million.
Our backlog at the end of the quarter was $147 million, representing a 23% increase compared to the backlog of $120 million at the end of the second quarter of fiscal 'twenty two.
We expect to recognize the majority of our current backlog over the next 12 months.
We are already starting to see the impact of the investments made earlier this year and our commercial team as it relates to the leading indicators we measure internally, we anticipate these opportunities converting into backlog as we bring on our new capacity and capabilities.
Looking ahead, we believe that the momentum generated during the first half a busy year, we will continue and the team is ready to embrace the challenge and looking forward to a successful second half of the year.
This concludes my overview of the commercial activities I will now turn the call back over to Nick for an update on operations and other achievements during the period.
Thanks Mark.
I am pleased to report that our team continues to execute according to plan our.
Our business development team continues to fill our project pipeline on top of a significant year over year revenue growth.
Our manufacturing team continues to produce and deliver on time, while employing the highest quality standards.
Our facilities and capabilities expansions remain on track and we continue to invest in the talent required to ensure our success across the business.
This consistent execution has strengthened and expanded our customer base and significantly improved the company's financial position as compared to prior years.
This is perhaps most evident through our revenue growth.
And the first six months of fiscal 2020 today, our revenues of $71 4 million, representing a 26% increase compared to the same prior year period.
It is very important to note that this growth is not simply a result of expanding the companys co manufacturing business.
During the second quarter, we had a particularly strong revenues from process development services spin.
Typically revenues from <unk> during the second quarter of 2023 exceeded TD revenues from the first quarter by 37% at.
That exceeded our prior high PD revenue Mark by 23%.
This is particularly encouraging as PD is where the majority of new customers and new projects are on books.
Bodes well for the future growth of the business as a whole and validates our decision to invest in further expansions of both capacity and capabilities in this key element of our business.
As we look forward to the new calendar year and the new capacity, we have coming online. We are excited to report that our rich.
But the staff required to operate these facilities is progressing well.
Our assets require high quality well trained individuals and in many cases these must be brought in and trained ahead of time.
As we forecast these investments have impacted and will continue to impact our margins in the short term.
This investment in personality differentials to meet anticipated customer demand.
What is particularly gratifying.
As we have been making these investments we are seeing continued growth and the growing interest in average offerings further validating the decision taken almost two years ago to move ahead with phase two of our expansions.
With the exposure is progressing to plan and coming online at the end of Q1 2023.
We will be in a great position to start to consume this capacity at this stage look forward to seeing positive margin development towards our longer term targets.
During the second quarter, we continued to make progress with our cell and gene therapy expansion.
As we announced during quarter one we have already launched the analytical impressive development capabilities August business, which has allowed us to escalate our dialogue with prospective new customers.
We are pleased to report that our first customer is already on border unit facility.
With respect to the GMP suites for our cell and gene therapy business.
Two continued on schedule and we expect them to be completed by mid calendar 2023.
Based on discussions with prospective customers. We believe this timing will align well with our customers' needs to advance early projects entered GMP suites.
Likewise on mammalian cell business capacity expansion is progressing according to plan.
During the first quarter much of the downstream equipment was positioned in the facility and validation of this equipment was initiated.
During quarter, two we installed the upstream equipment.
And as we said today the facility mechanic is mechanically largely complete and validation well underway as we remain on schedule for release of the operate to operations during quarter, one calendar 2023.
And finally expansion of our process development capacity is also well underway as we announced here in quarter. One this PD capacity will provide additional space to onboard future customers ultimately seeking to utilize the new manufacturing capacity.
I am pleased to report that we remain on track to have all of the current mammalian expansions completed by the end of quarter one calendar 2023.
During the quarter, we successfully completed both annual shutdowns in myeloid and frankly in our lines.
It is also worth while noting that our shutdown. This year was extended slightly to accommodate tie ins of certain services on the noon central utility stocks.
It is an incredibly busy time at <unk>. The company is transforming expanding and growing and in order to manage this transformation, we recognize the need to bring an expertise and experience to manage and lead our growing workforce.
As you have seen during the quarter, we have continued to strengthen our management team.
In September August promotions, Michael Austin Junior So and in addition to vice President of operations.
Mr. Also was promoted from average direction project engineering.
Road in which he led all of the company's ongoing facility expansion.
Mr. Austin has more than 15 years of experience spanning operational and capital management responsibilities supporting GMP manufacturing facilities engineering, and environmental health and safety functions.
Oxon under cash also joined avid as vice President people.
This is a cash has more than 20 years of human resource experience with both established and entrepreneurial organizations across a range of industries.
Prior to joining Abbott, Mr. Cash said as vice President people and culture at <unk> Corporation, a precision diagnostics.
In closing I wish to again highlight our accomplishments in the first half of fiscal 2023.
Our top line revenues remains strong.
Our backlog is substantial and has grown 23% year over year and given the demand we continue to see in the market. We expect it to continue to grow.
As we approach full utilization of our current capacity and with additional capacity and services soon to come online. We expect this momentum to continue.
For all of these reasons I am pleased to report that avid is increasing its revenue guidance for the full fiscal year 2023 from between $140 million to $145 million to between 145 and $150 million.
This concludes my prepared remarks for today and we can now open the call for questions operator.
Thank you as a reminder to ask a question you will need to press star one on your telephone please standby, while we compile the Q&A roster.
Our first question comes from Sean Dodge with RBC capital markets. You May proceed.
Yes, thanks, good afternoon.
Maybe just starting with the macro backdrop.
<unk> to be a lot of concern around biotech funding and the extent to which that's affecting demand just kind of broadly.
Nick It sounds like client interest continues to be strong, but the $26 million you signing new business in the quarter is lower than it had been running at so I guess is there anything notable you can share there around you seen a change in.
And behavior and body language around spending anything around delays in placing new work re prioritization et cetera.
New business win can be lumpy quarter to quarter, and this isn't necessarily represent a trend or ethane.
Yes.
Sean.
Thank you.
Point is Israeli.
The overall overarching comment that I would make is that it is about lumpiness quarter to quarter. We've talked about this before in terms of BNS, sometimes people will sign just before the quarter end, which is always great and some people are buying just afterwards, which is great. When it comes to reporting quarterly numbers, but.
If you look at the if we look at the sort of backdrop behind that.
We're very happy with the amount of interest.
And the demand at.
At least for avid services that we see in the marketplace.
Trends in the marketplace do we do we see some of the smaller players.
A more cash strapped than others maybe.
Doing a little bit more navel gazing and taking a little longer I think that's probably the case, sometimes it's always difficult to say.
To determine whether or not the macro.
The impact is where you only see a relatively small subset of everybody.
But overall in general we wouldn't be raising guidance.
If we weren't seeing continued strong demand.
Right.
We saw the same thing in the last call the same quarter last year.
As we did in this one it was a little lower but no.
Again, it was no it.
There was no general.
General and principally the strength of the market as we see so.
We remain optimistic as long as the interest in Africa.
Okay, Great and then.
Dan just one on margins and trajectory over the next several quarters.
I guess the question is are we pretty much at the bottom here you talked about.
My third phase two set to open very soon and the weight the growth related investments are adding to margin.
As those facilities opening become revenue producing I guess the trajectory of margin at the direction of margins from here be upward.
Hey, Sean Thanks for the questions. Good good question.
As far as looking forward.
I'm still confident that we will see incremental margins as we start to fill.
New capacity and start to absorb some of the costs that we brought on.
We've invested aggressively through the second quarter and getting the folks in place and some other operational cost for the expansion and the standing up of the cell and gene therapy business.
Going forward on the cost side.
We plan to make some further investments we're going to we're going to make that investment in line with anticipated growth.
So essentially as we start to rollout the new capacity and start to fill that new capacity, we should be able to continue.
Then move towards incremental margins and ultimately get to that margin goal that we've discussed in the past.
Okay, great. Thanks, Thanks, again for taking the questions.
Thanks, Sean.
Thank you one moment for questions.
<unk>.
Our next question comes from Matt Hewitt with Craig Hallum Capital Group You May proceed.
Good afternoon, and thank you for taking the questions and congratulations on the progress on the building up of new capacity.
The first one for me.
As you talk to customers I guess, let's back up.
You made a comment in response to one of the prior questions about some orders coming in late in the quarter some coming in right. After the quarter's closed.
Can you talk about has anything closed already this quarter.
Okay.
Can't really talk about the next quarter.
As we just conclude this call by a quarter, but.
Again I'll just go about we've raised guidance, we just brought in the.
The labor ahead of the.
The capacity coming online for a reason.
We remain.
Very optimistic regarding.
The interest in the business that we see.
We see lumpy quarters.
In the past, we have some lumpy good ones and we have some lumpy.
Not so good ones.
It started trajectory of the <unk>.
<unk> business, which I think is pretty clear.
Got it okay. Thank you for that and then maybe one of your peers had talked a little bit about not just.
Kind of delays are dragging their feet and signing new contracts, but even on the payment side now looking at your Dsos for the quarter I think I've come up with 54.
The DSO here in Q2, but are you seeing any of that from customers or our payments coming in as you would anticipate.
From our side, Matt payments continue to come in as we would anticipate.
I do see some.
Some more conversation than we've had in the past.
But yeah.
As you can see with the DSO dropping I think it's approximately 20 days or so from the prior quarter.
People are still paying.
Fantastic and then maybe one last one then I'll hop back in the queue.
As far as your conversations with customers, both existing and new customers as they look at this new capacity and the timelines for those to come on.
Are you hearing from those prospects.
Some excitement that hey, this is going to work out perfectly with our internal timelines.
Is anybody pushing you to maybe try and get something done a little bit faster I guess, just what are you hearing from your customers. Thank you.
Yes.
I think Matt alluded to that and I'll, let him add to Tony's comments I'd make if he's got anything further.
We've had some really good response to the.
So the facility has been greatly.
Clearly quite nice over the last few months, probably the last five to six months if not more.
Sure people around without having to go and open go and see every little bit of it and walk them around the flows and the like.
Yeah.
I think we've had nothing but good comments positive comments and people very happy that this sort of high quality.
City capacity.
Alongside of US offering is going to be available shortly.
We're delighted to be standing that up in the very near future.
Timing is pretty close to to ideal.
Obviously I think on the first phase of expansion that we did last year with DSL DSP to.
Our backlog actually hit our capacity in the same quarter, we brought it online so.
We'd look to do that again.
Next quarter coming up.
And if we did that and I don't think we could we could have time to get any better. So again my somebody would be lots of really good interest and just excited to have it online and then starting to to fill it.
And absorb some of those costs that we've invested in at a time.
See that progression in margin anything further on your side.
No I think well said I think it's accurate.
A lot of client interest in the in the build out and the additional space and a lot of excitement and positive really great feedback we've had a number of clients come out and actually towards the site is.
Early on in construction and eager to get back.
And see how the progress is going and get engaged so it shows very very well and there has been a lot of interest so.
We remain optimistic for sure.
That's great. Thank you very much.
Thanks, Sean.
Thank you one moment for questions.
Our next question comes from Jacob Johnson with Stephens You May proceed.
Hey, Thanks, good afternoon.
As we think about kind of forward looking kpis.
I think backlog was <unk>.
<unk>, what many of US expected, but you also had a record quarter in process development can you just talk about how what that record quarter and process development could mean as we think about looking forward and then just a related question can you remind us kind of how much process development capacity you have today and maybe where you are in.
PD capacity expansion on the biologic side.
Okay.
Yes so.
Yes.
The PD.
In my view really encouraging sign I mean, when somebody takes John sorry, as the project into the <unk>.
The business typically will go in and we'll do some small scale runs in PD.
Spending on the client obviously, we may do some work on that process.
The process is already well developed we're just basically.
So demonstrating what they've already told us ready for moving across into the into the manufacturing facility.
It's really the front end of the business, where things are coming in so I just see those set of revenues in math.
It is a good indication that people are getting in and then obviously.
We hope to see those people move from small to larger scales.
The largest 2000 ultimately so that.
That to me is a really good indicator.
So where the business is heading and then in terms of the capacity.
$7 million this quarter is that still an overcapacity.
We've often talked about capacity is a little bit of a fungible number because it's not a perfect science. It can vary between certain different activities and whether you're doing campaigns and all that sort of thing so.
We actually beat our capacity, we would've had overcapacity down somewhere around $5 million for the quarter and we hit seven so.
That was it was.
Really sort of the.
Super quarter in terms of where the capacity is going so five $5 million gives us $20 million annual we are doing the expansion that comes on in quarter, one as well.
And that would give us then.
Collectively 40 million or $10 million a quarter.
Obviously give or take based on the.
Vascepa soft performance in the last quarter.
Got it thanks for that Nick and then just just as a follow up to maybe put a finer point on the gross.
And discussion.
I think cost of goods sold.
Sequentially.
You called out a variety of things, but it sounds like a lot of hiring.
I don't know if theres a way to quantify kind of the number of people you have and the revenue that would support that.
Could you just talk about.
Maybe as we think about the journey of staffing up the various capacity expansion how much you accomplished during this quarter and maybe how much is left to go going forward.
So Jacob so on the gross margin front.
As far as heads.
We ended the quarter of approximately 360 folks which is.
Up significantly over where we were last year.
Looking forward as far as how many heads do we need to bring in.
And have a function of what the anticipated growth looks like.
And as we start to fill in.
Phil or add specific needs that.
That we see in the different groups.
Yeah.
<unk>.
Yes, I think I think that's essentially kind of where we're at and why we see that as we start to fill these.
These expansions and starts.
The load some of that additional revenue within that capacity will be able to absorb some of those costs.
As we move forward.
Yes.
As well as Jay can be that you see.
<unk> seen the cost come in to the organization in different areas.
For example, we started Beijing.
The commercial organization with additional BD representation.
Also.
Increased marketing and increased.
Proposal rises and all those sort of things that are all on the on the front end with zero revenue associated with those initial BD KOL marketing stuff all of that didn't get any revenue so that certainly hit the margins.
In the short term again, I don't think we need very large numbers of.
Increases in those areas to fill out those facilities. So we don't need to repeat those as we go forward.
So that goes then also through the organization as you start to bring in project management and things like that.
Got you onboard they're using PD.
And then ultimately as we see going forward and I think and this is where youll see more of the growth as we go forward is in the more hands on operational people, whether in actually making the batches. So what you've seen as the.
Early investment in <unk>.
Thank you Linda hit our margin is by standing up all the things that you need to get the business in and then as we go forward. Now then we will start to just applying the people, which is kind of the variable costs associated with the manufacturer.
Got it thats helpful context.
David.
Thank you and as a reminder to ask a question you will need to press star one on your telephone.
Our next question comes from Paul Knight with Keybanc you May proceed.
Nick I didn't quite catch the number of our process development revenues and how much that number was up in the quarter.
So first of all.
The reason, we use I think is about $7 million.
$7 1 million for the quarter and it was up 74% year over year Okay.
And then is this in.
Cell and gene therapy development or monoclonal or both.
Both but primarily in.
And Monaco.
Okay.
And.
The.
I guess a question for Matt and then that is water water customers responding to well, what's giving abbott.
The edge on some of the larger competitors today.
Yes, I think the available.
The capacity I think that the.
Track record of success.
The quality background, I think resonates very very well.
I think our approach to dealing with clients is unique in that we are.
Accommodating and flexible and a good partner to work with so.
Clients respond well to that so a lot of active engagement for sure.
And Matt what's your customer is it large biopharma medium small is there a profile that they like.
They fit in your in your view.
At this point, it's all of the above every everyday as you mentioned, we had we had brought on someone to manage key accounts for us.
Six to nine months ago, and we're already seeing an impact there.
And.
<unk> always had already previously been engaged with the small and emerging.
Biotechs and.
And that continues so we're encouraged by the AD.
Each quarter of new client base.
As well as <unk>.
Additional work from existing client base.
Okay and Nick a question for you and that is can you talk to in your opinion is there till still tight supply in monoclonal manufacturing.
And secondly, how.
How is the supply chain for you in getting things brought online and produced.
Yes, so I mean, I think when you.
You've always got to look at.
The mammalian capacity in some of the segments that you operate in and when it comes to sort of commercial grade high quality.
Milling capacity, we still see plenty of.
Sure a shortage of capacity I would say, we see lots of demand.
So what we're doing.
Explanation you can have meetings.
The demand.
We are doing so.
In terms of the supply chain itself.
Again, it's one of those things that just seems to continue to slowly get better.
I wouldn't say, it's perfect by any stretch of the imagination.
We still we still do scramble, so things here and there.
We are able to anticipate some some.
Customer demands so we.
We do find that.
Customers will come here, whether maybe it's a shortage in the market. Unfortunately, we have actually.
The various components available. So we can move quickly on that one.
So it continues to get better not where it needs to be.
I'm still a little bit variable because it's not always in the same place.
Where do you see the shortage, which makes it difficult to manage but.
Again quarter on quarter better than previous.
Okay. Thanks.
Thank you and im not showing any.
Further questions I would now like to turn the call back over to Nick Green for any closing remarks.
Thank you operator.
Thank you to everyone participating on today's call.
In closing I would like to emphasize our excitement as we draw closer to launching our new capacity and capabilities.
This could not be possible without the hard work of our many talented employees, who drive and take pride in its continued success.
You again for participating on today's call and for your continued support.
Biosynthesis.
Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
The conference will begin shortly to raise your hand during Q&A you can dial one one.
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Okay.
Okay.
[music].
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Yes.
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Yes.
Yes.
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[music].
[music].
[music].
Sure.
Yes.
Yes.
[music].
Okay.
Yes.
Yes.
Yes.
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Yes.
[music].
Yes.
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Yes.
Yes.
Sure.
Yes.
Thanks.
Okay.
Yes.
Yes.
Okay.
[music].
Okay.
Tom.
Yes.
Sure.
Yes.
Okay.
Okay.
Sure.
Yes.
Okay.
Thanks.
Okay.
[music].
Sure.
Okay.
[music].