Q2 2023 Unifi Inc Earnings Call
Okay.
Ladies and gentlemen, good morning, My name is Abby and I will be your conference operator today.
This time I would like to welcome everyone to unify second quarter fiscal 2023 conference call.
Today's conference is being recorded and all lines have been placed on mute.
Got any background noise.
After the Speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question Press Star one once again.
Thank you and I will now turn the conference over to a J Acker Vice President of Finance and Treasurer you may begin.
Thank you Abby and good morning, everyone on the call today is al Carey Executive Chairman, Eddie Ingle, Chief Executive Officer, and Craig creates door Chief Financial Officer. During this call we will be referencing a webcast presentation that can be found in the investor Relations section of our website unified Dot Com. Please turn to page two of that slide.
Deck for our cautionary statements management advises you that certain statements included in today's call will be forward looking statements within the meaning of the federal Securities laws management cautions that these statements are based on current expectations estimates <unk> projections about the markets in which Unifi operates these statements are not guarantees of future performance and involve certain risks that are <unk>.
If a cult to predict actual outcomes and results may differ materially from what is expressed forecasted or implied by these statements. You were directed to the disclosures filed with the SEC on unifies forms 10-Q, and 10-K regarding various factors that may impact these results.
So please be advised that certain non-GAAP financial measures such as adjusted EBITDA adjusted net income adjusted EPS adjusted working capital and net debt may be discussed on this call I will now turn it over to Al Carey.
Thanks, a J and good morning, everyone and thanks for joining this call I have a few remarks to kick this off and then I'm going to turn it over to our CEO Eddie Ingle.
So as you can see quarter two of 2023 has been a very difficult environment to operate in and you saw that in the pre release that we had a couple of weeks ago and also our materials for today.
At this point I think most of you have heard about apparel retailers and apparel brands that have had significant backlogs of inventory.
In their system and in their stores and they've been trying to discount this inventory and clear it out all the way through the Christmas holidays.
This imbalance of inventory began all the way back in June of 2022, So it's been with us for a while and this is very definitely had a significant impact on our volume and our profits in Q1 as we reported before and then it's also persisted the cynthia's issue has persisted and actually worsened.
Q2.
Now there is good news.
We have seen a pickup in.
In the month of January in orders for our U S operations.
It looks like we should see a gradual improvement through the balance of this fiscal year, and then a corresponding improvement in profitability as well.
With regards to our Asian business that same inventory backlog from U S retailers is having an impact on our China business because a great portion of our business. There is from you for you U S. Retailers. So it's had a significant volume decrease for our Asian business.
This situation has continued all the way through Chinese lunar new year holiday.
That ended last week, we expect to see some level of volume improvements coming very soon we will know more in the next couple of weeks, but we do know that many manufacturers are opening up this week in China.
While all of this has been going on our people were busy working on several ideas one was working with our customers on future volume increases.
And I'll tell you, there's a very definite increase from our customers for recycled materials for their apparel and it gives us optimism for our brand Repreve.
And this activity will show up in future sales, but I would say that the brand has actually gained momentum with our customers in terms of their interest all the way through the pandemic period and likely to include to continue right now.
The organization has also been very hard at work on cost reductions, we've managed our inventories aggressively and we've been able to reduce north American labor and head count by a voluntary attrition strategy and holding positions opened and that gave us the opportunity to avoid excess costs.
Additionally, the team has done a good job of generating cash even in this tough environment and we have a strong balance sheet. Thanks to a new credit facility you will hear more about that from Craig.
We do believe the worst is behind us and we're going to see gradual improvements in volume and profits in the next two quarters and we also see the fundamentals for our long term business to remain in place. Despite all the turbulence that we have had over the last six months.
In closing I'd, just tell you this the unify employees and the management team. During this timeframe has done a very good job and we're proud of them.
Everyone's working hard to offset these challenges and they've kept an enthusiastic attitude, even though most of the challenges we face are well beyond their control. So we are proud of them. So at this point, let me turn it over turn the presentation over to Eddie Ingle, Our CEO , who will take you through the details of our performance.
Thanks Al and good morning, everyone as Al noted our second quarter fiscal 2023 results reflect a very difficult operating environment stemming from the continued demand disruption we have experience and a result of inventory destocking measures and slowed global apparel production.
As Al mentioned, our employees really has shown an amazing amount of resilience, while enduring a very challenging period across the interest rate I want to thank them for their commitment to the company.
And their hard work.
For many reasons, we remain confident in our business model and we are optimistic towards the future growth opportunities of the business as a global leader in sustainable fibers.
Now turning to slide three for a closer look at the quarter, our net sales for the quarter were $136 $2 million down 32% compared to the second quarter of fiscal 2022.
This resulted in an unusually large amount of fixed costs, becoming stranded which we were not able to overcome in our domestic operations unfavorably impacting our profitability.
Last quarter, we cautioned that the higher than normal inventory levels across the worlds largest brands retailers would negatively impact our results in the second quarter the.
The magnitude of these macroeconomic trends was unforeseen and the resulting adverse impacts to our business worsened in November and December far beyond what we had anticipated.
In the U S. In particular demand disruption caused by Destocking efforts from retailers became more and more severe.
This demand decline caused a slowdown in apparel production globally and lead to results that fell below our expectations.
Now while these challenges have created a difficult operating environment for our business in the near term the disruption to our business are expected to be temporary as retailers and apparel brands worked through their normalizing their respective inventory levels and supply chains.
While this process plays out our core business model remains intact, and we remain ready to meet increased demand as we return to more normalized levels.
In the last few weeks, we've already seen in the U S. As al pointed out notable improvements in weekly demand trends compared to the levels. We experienced in November and December which leads us to believe that demand levels bottomed out in the December quarter, and we are optimistic that our business is down the road to recovery.
The building in the Americas during the quarter was primarily pressured by higher material costs from the summer.
<unk> asset leverage on lower volumes.
We were glad to see that input cost stabilized during the December quarter, and our pricing is healthy against current levels, putting us in a solid position moving into the third quarter.
Our expectation is that both energy prices and the geopolitical situation will remain volatile. However, we don't currently have any significant pricing actions planned.
We continue to be proactive in our efforts to offset the impact of the temporary headwind headwinds and challenges we've been experiencing in the U S.
During the second quarter of some of the cost saving measures. We took included reducing external spend programs.
I think overtime hours extending production shutdown periods.
Delaying the back filling of open positions.
Our head count temporarily and lowering raw material purchases and taking advantages of some of the payment term extensions we received.
Turning to Brazil in Asia, We continued a strong demand in Brazil with higher sales volume versus a year ago.
This strength was completely offset by significant margin pressure from decreasing March at market prices in connection with excess capacity in Asia, while the sales inventory cost profile remained elevated from earlier months of higher cost purchases.
In Asia, our operations performed well against the much lower demand as compared to any recent historical measure the.
The segment has maintained a strong margin profile with a rich sales mix and we are quite optimistic that demand will recover following the lunar new year.
Now I'd like to move on to slide four to discuss were pretty fiber in the second quarter were pre fiber products comprised 31% of net sales significantly impacted by the lower sales in Asia.
We have full confidence that were pre sales will rebound strongly in the near future. Once the operating environment normalizes as we continue to see momentum in the Repreve brand for new products customer adoptions and co branding.
In fiscal.
Fiscal 2023 third second quarter, we shipped $19 8 million or prepaying tax too.
Brand customers.
On the marketing front Repreve continues to gain traction with a mix of co branded product launches social media partnerships activations in PR placements during Q2 separate brands and launched new Repreve co branded products, including <unk> arcade bouts, Tom and Taylor and H N M.
The <unk> loans was particularly successful and we're quite proud of that activation.
In order to become more sustainable Asics is committed to converting core styles from Virgin polyester to Repreve. The launch includes several women styles and was supported by Cobranded hang tags digital marketing social media and PR and we see this as a first step in a much larger partnership.
For example, our mobile tour, but activate at the ASX sponsored La Marathon in March.
Our new PR strategy is certainly starting to bear fruit as we secured 56 placements, resulting in over 660 million impressions during the quarter.
It's really a new creative direction is resonating, particularly well on social media.
Highly curated mix ever pre branded content combined with imagery from key brand partners is driving increased consumer awareness and engagement.
Over the quarter, we partnered with Quicksilver pottery barn, Scotch <unk> soda beyond yoga <unk> and.
Many others.
Now shifting to Activations are both seasoned partnership accumulated with our mobile tour activation of the Duke's mailboat in Charlotte at the end of December .
Is there myself watching NC state play University of Maryland with over 37000 fans in attendance. Additionally, the gain was broadcast live on ESPN to over $2 6 million people.
2022 was the first year of a three year partnership. So we look forward to building on this for 2023 and 2024.
On November 28th unifying that expansion of textile takeback unifies textile Takeback program is designed to reduce waste generated from fabric production or at the end of an article's lifestyle lifecycle through a strategic mix of diligent media relations. The textile takeback knowledge garnered 12 pieces of notable immediate media coverage with over <unk>.
<unk> 5 million impressions across the business and trade media.
Trade shows remain a core tenant of our BTB marketing mix, while attendance is not back yet to pre COVID-19 levels, we exhibited at both <unk> and unique and they're running events in Austin in November. This is the first time unify exhibited at the running shoe.
It was well received by both existing and potential new brand new customers.
Looking ahead to Q3 and beyond we are focused on building on the momentum in both Repreve and.
Seeing the business return back to more normal levels with that I will now turn the call over to Craig Craig.
Thank you Eddie and good morning, everyone. The quarter, we just completed exhibited the impacts of reduced demand by retailers and brands softer than our first fiscal quarter the activity flowing through the apparel supply chain drove significant margin pressure and lower than expected profitability outs.
Outside of the short term disruption, we believe underlying demand for our products remains strong and our management team is focused on managing operating costs and working capital to remain nimble as we continue to pursue our long term goals.
Before reviewing the segment performance I would like to discuss 200 items in the income statement first.
First when we refinanced our credit facility during the second quarter.
And transactional fees incurred approximately $800000.
And $273000 were recorded as debt extinguishment costs to interest expense driving a portion of the non routine increase in interest expense.
Second we recognized additional benefits from our efforts in recovering prior tax payments in Brazil, and the <unk>.
December quarter, we filed amended Brazil tax returns to recover certain components of income taxes paid.
As a result, we expect to receive the associated cash refund of approximately $3 $8 million within the next 12 months or so.
You'll note that this item has been included in our adjusted EPS calculation to improve the understanding of tax expense that relates to the current fiscal year.
Let's turn to slide five of the webcast presentation.
The review of our reportable segment performance.
The Americas segment revenues decreased 25, 7% driven by significantly lower sales volumes.
And mix impact demonstrated generally higher selling prices with the volume reductions, partially offset by a higher proportion of chip and flake sales.
In Brazil sales levels were strong with eight 1% increase from volume was offset by lower average selling prices in connection with the anticipated pressure from Asian imports that we've mentioned in the prior earnings call.
For our Asia segment sales volumes were challenged by the overall apparel weakness, while pricing and mix remained strong.
Accordingly, consolidated net sales were $136 $2 million with the vast majority of the decrease since December 2021 quarter characterized by near term apparel production weakness.
Turning to slide six for the quarterly gross profit overview.
Consolidated gross profit decreased from $16 $9 million to negative $8.0 million with the with gross margin declining from eight 4% to negative five 9%.
The Americas segment expected decline in gross profit and weaker gross margin percentage were attributed to the shortfall in product demand and the associated impact on fixed cost absorption.
We took actions to reduce labor hours to appropriate levels, while minimizing overtime allowed attrition to help normalize our employment levels and made diligent efforts to control operating costs during this difficult quarter.
In Brazil, the gross profit and margin rate demonstrated the pressure on selling prices from low cost import competition.
Brazil's cost of goods sold were impacted by higher input costs at the start of the current fiscal year cross selling prices required adjustment to the more current market dynamics.
The Asia segment maintained a strong gross margin profile with a high proportion of repreve products, albeit at a lower sales level due to the constrained demand.
Our asset light model continues to prove to be a great choice for the Asia region.
Outlined on slide seven and as we described in our earnings release, we completed a refinancing of our asset based lending facility during the second quarter.
This new facility increases our borrowing capacity from $200 million to $230 million.
We moved a significant majority of our short term outstanding borrowings to the expanded term loan.
Continues the favorable borrowing rate structure and overall loan flexibility that has been in place for several years.
Extends the maturity date to October 2027, and provides helpful liquidity. During this current period of demand softness.
It's helpful to note that the leverage ratio drives our interest rate pricing, but it is not a covenant for compliance purposes.
Fixed charge coverage ratio only springs into consideration of for available borrowings fall below established triggered level.
At January one 2023 quarter and trigger level was $23.0 million and our available borrowings was $64 $7 million, thus $41 $7 million could be borrowed before the trigger level became applicable.
Accordingly, we have great flexibility and runway on our new credit facility.
We ended the second quarter with $3 $4 million BARDA grants to our ABL revolver and $115 million borrowed against our term loan.
Moving to slide eight and our balance sheet highlights.
Under our balanced approach to capital allocation, we expect to continue to invest in the business to drive innovation and organic growth maintain a strong balance sheet and remain opportunistic with share repurchases <unk> M&A prospects.
As a reminder, $38 $9 million remains available for repurchases under the current share repurchase program with no repurchases conducted in fiscal 2023, so far.
During this demand suppressed environment, we continue to assess the proper timing of vendor payments and the magnitude of our capital expenditures, ensuring we conduct the most advantageous purchases and investments.
As noted in our outlook, we're expecting sequentially less cash flow for capital expenditures in this third quarter of fiscal 2023, along with further reductions in subsequent fourth quarter of fiscal 2023.
I'll now pass the call back to Eddie to make some final comments Eddie.
Thank you Craig and before we turn the call over to our Q&A session. So I'll give you an outlook and the expectations, we have for the third fiscal quarter.
As we discussed on this call the operating environments and demand trends, we're seeing both domestically and in our international regions within the apparel and retail markets are still working through demand pressures.
Although our demand signals remain choppy.
We are expecting stronger results in the second half of the fiscal year for.
For the industry, where you're expecting the operating environment and the textile demand trends from the apparel markets will recover at a modest pace during the calendar year.
And with this we expect modest sequential operating improvement from the second quarter to the third quarter.
But as for the fiscal third quarter, we expect revenue to increase sequentially. After we get past the normal slowdown in Asia during the lunar new year.
We expect significant sequential operating performance improvements on an operating income and adjusted basis.
And our effective tax rate is expected to remain volatile.
While there are many near term demand challenges that we need to navigate the long term growth potential of unify has not changed we remain optimistic about our future and position as a global sustainable fiber leader the drivers of our business remain valid today.
Of course, everyone on the unified team is looking forward to the time, when we have a more normal environment, where we can leverage our strengths.
We've been pleased with our increased liquidity to our amended and expanded credit facility and we will continue to maintain our strong balance sheet to act opportunistically on growth initiatives as we remain well positioned and focused on being the sustainable <unk> partner of choice to brands across the globe.
We'll now open the line for questions. Thank you.
Thank you and at this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad and we will pause for just a moment to compile the Q&A roster.
Okay.
And we will take our first question from Daniel Moore with CJS Securities. Your line is open.
Thank you good morning, and thanks for taking the questions.
Maybe start with.
The obviously give good color and challenging.
Really challenging macro any more detail on what kind of modest sequential increase in revenue and significant operating improvement looks like for fiscal Q3, I guess I'm wondering do we expect gross margin overall <unk> EBITDA to turn positive.
Or is that.
Visibility a little bit more difficult at this stage.
Dan I'll take part of that question and I'm going to hand, it over to him.
So Craig from a volume perspective.
The three segments, Brazil is.
Certainly coming back nicely they didn't suffer as much as the other business segments.
During Q2, while they were down.
Severely down.
We expect the volumes to come back there nicely in Asia.
It was very strange what happened during the end of the.
Calendar Q4 around Covid.
That resulted in lower production levels, even further than normal in January but we are expecting a very very decent.
Increase in the volumes relative to the December month, which was better than the November month. So we're beginning to see quite a nice uplift there.
And in the U S.
The I'm going to refer to the first set of two weeks of December relative to where we are now we are seeing a nice uptick.
Relative to the beginning of the December month outside of the holidays. So quite positive all around at all of our segments yet the a little more color on the retailers.
Units were up 1% for the first three weeks of.
Of January so, it's a very small window to look at but it's definitely.
It's better it's better than it was in.
To add Dan to add to your question as far as additional commentary or color around the outlook I would say for our Q3, we are expecting to return to positive gross profit.
We do feel like.
The signs that we've seen especially here in early January where we're seeing our January sales volumes up.
5% and 5% to 10% or so versus where we thought they would be I think that is giving us comfort that we will be returning to positive gross profit here in the in this march quarter.
I think we're continuing to watch it as Eddie was mentioning we expected kind of a similar but slightly lagging rebound in Asia I haven't seen that.
Just yet as we as we're still finishing out the lunar new year, and Brazil did have a they had a tougher quarter here in this December quarter.
As we noted a lot of that was input cost kind of flowing through and some challenges on more competition lower price, that's really got to a more reasonable level and we definitely expect them to start to return to more normal profitability. So all that adds up for a much noticeable improvement in gross margin in Q3.
Super helpful. Appreciate it.
You just jump right into my next question, which is Brazil.
It's impossible to tease out, but any color on sort of the <unk>.
The magnitude of the impact from increased Asian competition is all that extra volume sort of flowed through flowed around the world versus just timing in terms of.
Mismatch in terms of Cogs in pricing.
Just trying to get a sense for how much is in your control as you increase prices and how quickly those margins might snapback.
Yeah, I'll jump in and answer that question Ben Q, our fiscal Q2 in Brazil was a.
It was quite unusual it was similar to what happened in Q4.
Fiscal 2022, where there was a.
You know the Chinese.
And Asian importers.
Into Brazil.
We're putting the R&R and the market at incredibly low prices and that really we are very market driven down in Brazil.
<unk> in us reacting as we should have to the market conditions.
Situation is changing now we will flow through that higher priced raw material in Q3 that we purchased.
And that will improve the margin significantly down there and the volumes are.
As we said coming back nicely all sorts, so that will change the profit profile down there.
Okay.
Got it maybe one more and I can jump back in queue, but just what was the sort of volume versus price in the quarter and.
Do we expect pricing to be maybe a little bit more of a headwind going forward as input costs have declined.
Yeah.
You know kind of where we are you mentioned stabilized but are input cost stabilized pullback in what's the latest.
Both from a Virgin perspective, as well as spell bottle pricing.
In Brazil, the input costs.
Will it be.
Declining as we move through the quarter really really significant impacts in probably Q4 more than Q3.
The Americas, we have paas.
Through all of our higher priced raw material inventories.
In Q2, so we're expecting.
We know that in Q3, we'll have a more stable more normal raw material costs and our pricing is.
<unk> nicely positioned relative to our raw material costs and what we're looking forward to seeing this volume come back. So we can take advantage of that.
Okay.
Got it. Thank you I'll jump back into you then a follow up thanks.
Thanks.
Thank you and as a reminder to star one if you would like to ask a question and we will take our next question from Anthony <unk>.
With Sidoti Your line is open.
Yes, good morning, and thank you for taking the questions.
So your inventory first.
It was down sequentially and so on a year over year basis as well.
So have you sold most of the high cost inventory by now.
Should we think about that.
Yes, I would say.
In the U S, where we had a particular problem the inventory has flushed through in Brazil, it's going to because we have a longer supply chain. It just takes a little bit longer and there.
Profiles.
We saw the impact in the higher price inventory in Q1 in the U S. We flushed out in Q2.
So already the the margin pressures because of their raw material.
Cost really impacted in Q2 were coming out of that as we move through Q3.
So we feel quite good.
Good about that in both regions.
And China and Asia, we haven't had.
That situation occur.
Got it okay. Thanks for that and then as far as the.
Asia as far as far as what you're seeing there.
We've heard from other companies that many companies have taken more extended.
Periods of shutdowns around the lunar new year, or so is that really what what's what's happening here.
And are you seeing any size now that I think we're just past the lunar new year that things have picked up.
Yes, so two comments on that you're right.
Our.
Not just suppliers, but also our customers did take extended shutdowns in January and the lunar new year was early also so along with the.
The number of people that are out in the workforce. Even if you wanted to get some stuff made us sometimes difficult to get it made we are seeing in February where oney judge.
A week past the lunar holiday.
The signals, we're getting are quite good near this huge demand for repreve. The innovative products. We have over there are certainly garnering some new interest.
When we when we make product in Asia.
In February there's usually a six month lag. So we know thats companies brands and retailers are going to be gearing up for fall sales and they're going to start placing orders in the February March timeframe.
And.
We have seen reductions we've heard on the street that there are reductions in inventories.
It felt some work to do at the brand and retail level, but they have certainty.
<unk> made a lot of changes to their inventories over the last six months. They will continue to do that over the next six months, but they need to order now in Asia to meet the demands are going to have for fall and for Christmas.
Thank you got it okay. Thanks for that and then so in the quarter on a consolidated basis. Your price mix was up four 5%, but you talked about material costs stay.
Stabilizing.
So what is your confidence level as far as your ability to hold pricing or do.
Do you think that perhaps given that the current.
We macro environment that you may have to.
Adjust your pricing.
Competitive pressures perhaps.
It's a question that we ask ourselves all the time, we are very strategic in how we're pricing.
It's always a balance between.
Volumes and the opportunities, but we're being very thoughtful.
Around pricing and I think we've made changes to how we approach the market.
Which are very different from how we use to approach a market several years ago. So I would tell you we're being very thoughtful and we're being considerate to our our customers at the same time, we are waiting for volume to come back which.
Which will allow us to be.
A little more strategic in our pricing.
Understand Okay, and then last question. So obviously I realize that you are very heavily tied to the apparel markets, but that being said the just curious as to what you've seen from other vertical markets.
Is it similar downward trend that you saw in the quarter end.
Do you think with this current macro environment that we're in will this make it more difficult for you guys to expand beyond apparel.
Yes, so I think everybody in the U S. We're trying to reduce their inventories as they went through December . So we saw a lot of that destocking, taking place orders being canceled as people were trying to manage their cash through the quarter.
Some of the markets, we're chasing beyond a book called beyond apparel would be home, we have seen some nice interest coming out of that.
Today season in.
In mattress, we have seen an uptick in some demand in automotive.
And I think that two things one is they've gone past there.
Inventory targets that they wanted to achieve but also there is some uptick in cement demand in some of those different markets and we are still very focused on beyond apparel on trying to be less dependent and particularly in the U S. On some of the <unk>.
Markets that we service.
Got it well, thank you very much and best of luck.
Thank you.
Thank you.
And we will take follow up question is from Daniel Moore with CJS Securities. Your line is open.
Yes. Thanks, one of my follow ups was covered.
And you gave good detail, obviously capex is going to.
Ticked lower as we go through the balance of the year or just any comments on what cash flow might look like for the back half either for Q3 or the back half of the year.
In terms of operating cash flow and free cash.
Their usage or generation.
As it relates to that liquidity position. Thanks.
Yeah.
Dan we've been doing a lot of things to help put ourselves into a good cash position.
In the release, we noted that we.
We generated $7 million of operating cash in the first six months of this fiscal year by comparison, we have used $4 million.
Net.
FY <unk> same six month period in FY2023 so we feel like we've.
We've done a lot of good things there we did talk about the specifics about the things that we're doing here in the U S being careful on inventory purchases, we've got lower amounts of inventory, we've got lower price per pound as the pricing has moderated we've taken the actions labor wise and can really specifically.
<unk>.
We've allowed them about a 10% reduction in our U S workforce.
And that's really again through through attrition through.
<unk> slow too.
Kind of evaluate and make sure that we're back filling where we need it we've asked people to take on some additional responsibilities and really I think back to Al's comments about really everybody is stepping up and doing well.
That's that's that is what we're seeing so we've been able to do that.
And that's it.
That's about 10% or around 200 people here domestically. So those are the some of the things that have set us up to be in a good spot.
From a cash generation perspective, we're actually thinking and anticipating that as the business comes back we will have higher levels of sales. Then we will have higher levels of accounts receivable and will need to start to build a little bit more inventory to be ready for that than we have so over the next couple of quarters, we know will be utilizing or using some.
Working capital to do that and again, we've got plenty of headroom. Good good things that we've done here recently is setting this up to be able to grow that business.
As it comes back. So again, we're also very fortunate and I think as we've touched on a little bit both of our Brazil operation, both our Brazil operation and our Asia operation are very self sufficient they don't need or require cash from this region. So that's very helpful. Even even in spite of some lower.
Demand in both of those regions both of them are doing fine financially. So we're.
We're looking forward to seeing that business come back and we know it's going to take some working capital to address that but we were prepared to do that.
Perfect. Thanks again.
And ladies and gentlemen, this concludes today's conference call and we thank you for your participation you may now disconnect.
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