Q1 2023 ADDvantage Technologies Group Inc Earnings Call
Speaker 1: And.
Speaker 2: This will 2023 first quarter financial results.
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Speaker 2: The question and answer session will follow the formal presentation.
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Speaker 2: It is now my pleasure to introduce your host, Britt Moss of Hayden IR. Peace go ahead, sir.
Speaker 3: Thank you, operator. We are joined today by Joe Hart, President and CEO , as well as Michael Rutledge, the coming chief financial officer. Before we begin today's call, I'd like to remind you that this conference call may contain four looking statements, which are subject to the same harbor provisions of the private security litigation reform act in 1995. These four looking statements include, among other things, statements regarding future events, such as the ability of advance-
Speaker 3: different from the actual future events results due to a variety of factors, such as those contained in advanced technology, most recent report on the Formatant K out of the file with the Scaries and Exchange Commission.
Speaker 3: Financial information presented on the Stomper's call should be considered a conjunction with the Consolidated Financial Statement and notes included the company's press release issued earlier today and including the Advanced Technologies must reach a report on Form 10K. The guidance regarding it dissipated future results on this call based on limited information currently available on advanced technologies which is subject to change.
Speaker 3: Although any such guidance and factors in influencing it may change, an advanced technology will not necessarily update this information as the company will only provide guidance at certain points during the year. This information speaks only as a data that's called.
Speaker 3: During this call, they also present certain non- GAAP financial measures such as non-gap net income and certain ratios that are used with these measures. In our press release, and in the financial tables issued earlier today, which are located on our website at advancedtechnologies.com, we will find a reconciliation of these non- GAAP financial measures with the closest GAAP financial s in a discussion about why we believe non- GAAP financial measures are relevant.
Speaker 3: These financial measures are included for the benefit of investors and should be considered in addition to and not instead of GAAP measures. I would like to now turn the call over to Joe Hart, President and CEO of Advantage Technologies. Joe, please go ahead.
Speaker 4: Thank you, Brett, and thank you to everyone joining us on the call today.
Speaker 4: This was a challenging quarter.
Speaker 4: The March quarter is always a challenge for our wireless segment, due largely to winter weather in the Midwest.
Speaker 4: It is typically our slowest quarter.
Speaker 4: But compounding that was the sudden and precipitous decline in demand for our telco segment.
Speaker 4: For the last two years, our telco segment has been delivering robust growth, benefiting from several pandemic-related trends, such as the disrupted supply chain, the global chip shortage, and the remote workforce.
Speaker 4: Simply put, enterprises needed more telco equipment from office phones to optical switches to better support a workforce that was more distributed than ever.
Speaker 4: But the chip shortage, supply chain constraints, and high costs to borrow made it difficult and in some cases impossible to buy new equipment.
Speaker 4: Last year, this led to a large demand curve for used and refurbished network components. The result was, over buying in 2022 from network operators, concern that they wouldn't be able to get critical parts or spares for their network.
Speaker 4: Now that the OEMs have improved delivery intervals for new equipment, the operators have focused on burning off the excess inventory that they had built up of spares, which has had a significant impact on our business.
Speaker 4: We expect that inventory buildup will burn off at some point in the next few months.
Speaker 4: and that our equipment business will normalize back to more historic levels during the second half of this year. In the meantime, our wireless segment continues to perform at normal levels with a slight decline in January due to winter weather.
Speaker 4: As the weather improves, we are highly confident that our wireless revenue will accelerate significantly this year.
Speaker 4: We think we've only scratched the surface of the wireless opportunity.
Speaker 4: We continue to add experience talent to our team, broadening our opportunities and improving our competitive position.
Speaker 4: Moreover, the wireless industry is facing unprecedented upheaval.
Speaker 4: Some of the largest service integrators who had served large carriers in many areas of the country are struggling.
Speaker 4: Some have had service issues and one has failed.
Speaker 4: This has created Greenfield opportunities for reliable partners, and we believe we will capture a meaningful share of the near-term CAPEXPEN.
Speaker 4: The overall opportunity is massive.
Speaker 4: In the new additions to our team, bring established relationships and significant experience.
Speaker 4: The continuing 5G opportunity represents a multi-year growth opportunity for tower work.
Speaker 4: as the carriers are less than halfway complete with their initial 5G deployments.
Speaker 4: Although some of the carriers are announcing a brief pause or slowdown in their expansion plans,
Speaker 4: They continue to invest billions of dollars in their networks.
Speaker 4: as they must deliver the capacity and coverage required by the ever demanding wireless subscriber population.
Speaker 4: On the bright side, we benefited from the cost reduction initiatives we put in place last year.
Speaker 4: We again lowered our SG&A expenses and we are poised for solid profitability as revenues normalize in the telco segment and increase in the wireless division in the second half of this year.
Speaker 4: While consolidated revenues decreased 38% from the same quarter a year ago, gross margins remained essentially flat.
Speaker 4: and are operating expenses decreased by $0.8 million.
Speaker 4: With that, I'll now turn the call over to Michael Rutledge, our CFO , to provide a more detailed review of our financial results.
Speaker 4: Michael, please go ahead.
Speaker 5: Thank you, Joe. Consolidated sales decreased 9.1 million or 38 percent to 14.7 million for the first quarter from 23.8 million for the three months ended March 31, 2022.
Speaker 5: The decrease is primarily due to a decrease of $7.9 million or 49% in telco revenue and a decrease of $1.2 million or 15% in wireless revenue.
Speaker 5: 3.4 million with a 23% gross margin compared to a gross profit of 5.0 million or a 24% gross margin for the same period last year. Operating expenses decreased approximately 800,000 or 29% to 2.0 million reflecting the previously announced cost reduction initiatives.
Speaker 5: Consolidated selling general and administrative or S-GNA expenses include overhead, which consists of personnel, insurance, professional services, communication, and other cost categories, decreased approximately 200,000 or 6%.
Speaker 5: to $3.6 million for the three months ended March 31, 2023 from $3.9 million for the same period last year.
Speaker 5: Net loss for the quarter was 2.7 million or 21 cents per basic and diluted share.
Speaker 5: Compared to a net loss of 1.4 million or 11 cents per basic and diluted share for the same quarter last year.
Speaker 5: Turning to our balance sheet, cash and cash equivalents were $2.6 million at March 31, essentially unchanged from December 31, 2022.
Speaker 5: In April , we entered into a securities purchase agreement issuing 13% secured promissory notes in the aggregate principal amount of 3.0 million convertible into shares of the common stock of the company, raising net proceeds of 2.9 million.
Speaker 5: As of March 31, 2023, the company had net inventory of 8.5 million.
Speaker 5: Outstanding debt as of March 31 was 1.7 million consisting of vehicle financing leases.
Speaker 5: This concludes the financial overview segment of our remarks. I will now turn the call over to the operator to facilitate any questions.
Speaker 2: Thank you very much, sir. Ladies and gentlemen, for the public conducting the question and answer session.
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Speaker 2: Since making use of speaking equipment, it may be necessary to pick up your handset before pressing the stockies. The discretion comes from George Kaspar as a private investor. Can you hear me?
Speaker 4: Yes, hello. Here you are George. OK, all right. Well, needless to say, it's disappointing quarter. Much more so than what we addressed in your last call. But I'd like to know on the wireless area.
Speaker 4: Are you going to be able to expand?
Speaker 4: you're what you're operating besides getting on the towers.
Speaker 4: And is there anything going on in terms of tower?
Speaker 4: Development now. You implied that
Speaker 4: There's a lot of potential.
Speaker 4: um, changes that have to be made in the past on towers to update to the 5g that's
Speaker 4: that's coming into the market on a regular basis. Are there things that you envision going on towers that are going to give you even more work? And can you expand your base of operations in terms of the sort of...
Speaker 4: of this way or this area in general. Thanks, George. This is Joe. Thank you for your question.
Speaker 3: Yes, there's a lot of...
Speaker 6: new aspects to the services that we perform on towers that we think will improve the future for us.
Speaker 6: One of those is fixed wireless access, where businesses and homes can directly get internet over fixed wireless, which is going into the cellular network. That gives us an opportunity, small cell, which is...
Speaker 6: pole, light pole, street lights, billboards, you know basically
Speaker 6: Streetside architecture that allows you to put smaller cell sites right in residential and commercial areas in our less obtrusive rather than the big two 300 foot cell towers that exist. Both of those are.
Speaker 6: a coming growth opportunity for us. Some of the carriers are starting to announce their fixed wireless access programs.
Speaker 6: The one in your geography, US Cellular, is a big advocate of fixed wireless. So we see a bright future in that. Also, as you increase the speed in the bandwidth from 3G to 4G to 5G,
Speaker 6: the cell sites need...
Speaker 6: a tremendous amount of bandwidth. And as people do in video streaming and data streaming, it requires a lot more bandwidth.
Speaker 6: The height of those antennas is slowly coming down from probably an average of about 220 to 240 feet, down more to the 150 feet, 180 foot level. What that does, it shrinks the diameter of the cell.
Speaker 6: The height of those antennas is slowly coming down from probably an average of about 220 to 240 feet down more to the 150 feet 180 foot level. Well, what that does, it shrinks the diameter of the cell and then creates holes in the network.
Speaker 6: So what happens there?
Speaker 6: You see companies like Verizon announcing a big program to increase the number of new sites that they have out there. So we'll be doing a lot of new site construction for a number of the carriers. And then recently AT&T announced that...
Speaker 6: As soon as the dual band radios are available, they'll be relaunching and rejuvenating their whole C band program for the new spectrum that they bought in the FCC auctions last year.
Speaker 6: So we see quite a bit of opportunity developing beyond just the plain old, climb the tower and upgrade the radios and antennas. So there's a lot of opportunity out there. And then maybe further down the road, we're looking at potentially expanding into the...
Speaker 6: fiber optic cable network services in some fashion, but that's a little bit further down the road for us. Hope that answers your question. Okay, could I just expand that question? Can you talk a little bit about the...
Speaker 4: geographical coverage that you're involved now relative to say a few months ago and what you're looking at going forward state to state. Where are you really concentrating and where would you like to go from here?
Speaker 6: So we served.
Speaker 6: basically the central region from north to south. So we serve Illinois, Wisconsin, Michigan, Indiana, a little bit of Minnesota sometimes, but it comes straight down through Arkansas, Oklahoma, Missouri, Kansas, all the way down to the southern border of Texas.
Speaker 6: And last year, we branched out into Louisiana, Mississippi, and a little bit in Alabama. We expect that our
Speaker 6: Geography of growth might be the Minnesota Northern Plains States, you know, including Iowa and Nebraska, and then also the Southeastern States, you know, the Gulf all the way over to Florida, Georgia, and potentially up into the Carolinas. But...
Speaker 6: provides the opportunity for deployment.
Speaker 4: We're not just going to go set up a storefront and wait for business. Okay. And then, Joe, can you identify the number of crews that you have working now as opposed to the end of the year?
Speaker 4: this past year and where do you think you're going by, say, the middle of the year? Well...
Speaker 6: I don't know, we had a big rain storm here this afternoon George, so I might be off by a couple, but you know, we're currently at about 30 crews.
Speaker 6: north to south towards the end of the year. We were, you know, with the Christmas holidays and the winter weather that hit in the Chicago area and that Great Lakes area. You know, we were probably down around 25, 24.
Speaker 6: for a few weeks there. But we think this summer will probably hit a level of 50 to 55 crews. We expect our revenues to pick up here in the second half of the year and that will drive crew count.
Speaker 4: Okay, all right. And then the as far as the crew capability, are you finding it, the crew's accessible?
Speaker 4: And for your service, is it hard getting used?
Speaker 6: No, there are a lot of crews available as some of the carrier programs
Speaker 6: hit either a completion point or a pause in their programs or a change in geography, whatever might cause that. But there are a lot of subcontractor crews available. And the more the trickier part about internal crews who's just making sure that you're adding...
Speaker 4: really good internal cruise that you're just not picking up warm bodies. Okay, and if I could ask one other additional question, can you just identify a little more specifically the number of shares?
Speaker 4: That are out at this point in time and in terms of the most recent financing that you've accomplished in the conversion of that Where do where's the where's the share count going to go? Can you just give us a general idea? Yeah, I'm gonna I'm gonna ask Michael Brelich to answer that just so that I don't miss speech
Speaker 5: All right. Yeah, thanks. Thanks, Joe. Um, George is on the 10-Q . We disclose that we have 14.9 million shares outstanding as of May 9th.
Speaker 5: As far as the potential conversion of the financing that we did in April , it's not our intent necessarily that any of those shares would convert. It will be tied to pricing that at the time that if the, if the, if the mass till decided to convert.
Speaker 5: We don't have that number.
Speaker 4: You don't have the number beyond the 14.9 million, is that it?
Speaker 5: That's correct. Like I said, we intend to pay the loan down so we don't have an intent to have the shares convert. I see. I got you. I got you. Okay. Well, that's...
Speaker 4: That's positive also. I hope this all comes together. Thank you.
Speaker 2: Ladies and gentlemen, we seem to have reached the end of the question and answer session. I will now turn the call back over to Jo Hart for closing remarks.
Speaker 6: Thank you, operator. I just want to continuously remember to thank those folks that have invested in Advantage Technologies.
Speaker 6: We had a couple of really great quarters late last year and we're hitting a rough patch right now as the telephone equipment market for used product sort of readjust itself and gets to a new normal but you know we'll we'll get through this we have a
Speaker 6: a good year ahead of us, the wireless growth.
Speaker 2: looks... Apologize sir, can I interrupt you there for a moment? I do apologize. We do have another question in the queue.
Speaker 2: Okay. Thank you. The next question comes from Richard McLean, who is a private investor.
Speaker 2: Thank you. The next question comes from Richard McLean, who is a private investor.
Speaker 7: Yeah, hi. Hello. Yeah, George just touched on these convertible, this convertible promissory note with the 3 million here. Yeah.
Speaker 7: I have some additional concerns about it and it basically is tied to the current.
Speaker 7: have some additional concerns about it and it basically is tied to the current share price.
Speaker 7: of AUY.
Speaker 7: And there are situations that if the state in the agreement that if the price and market price
Speaker 7: is below $1 share, which is the floor price board.
Speaker 7: that first off, the shareholders would get an opportunity to vote.
Speaker 7: that first off, the shareholders would get an opportunity to vote on it.
Speaker 7: Is that going to happen? If not, why not?
Speaker 5: Yeah, thank you for the question, Richard. We have an obligation to once the, as you pointed out, once the shares have been trading for below a dollar for five consecutive days, which they have now, we have an obligation to request that the shareholders.
Speaker 5: for the question, Richard. We have an obligation to, as you pointed out, once the shares have been trading for below $1 for five consecutive days, which they have now, we have an obligation to request that the shareholders...
Speaker 5: approve a potential sale of over 20% of the company, should the shares be, should the, should that be converted to shares. So that will...
Speaker 5: We have a legal obligation to do that and we'll be doing that in the future.
Speaker 5: and we'll be doing that in the future. http://thebusinessprofessor.com
Speaker 7: Also the air will be the aspect of the share price too is...
Speaker 7: And that is the stock is in danger or gets the NASDAQ notifies you that they're going to D-Lest it!"
Speaker 7: from the national market because the price is below $1.30 consecutive days.
Speaker 7: You guys will get a notification from that, and that is considered a...
Speaker 7: a default on this note, which could set a lot of...
Speaker 7: items into play as far as what Mast Hill can do.
Speaker 7: to convert the node, the principal.
Speaker 7: What is the management have plans for concerning that possibility?
Speaker 8: We have
Speaker 5: We have plans in the works to grow the business and
Speaker 5: We'll see where the share price goes from there and if the share price falls, you know, stays below a dollar and we get notified by NASDAQ, we'll have to deal with that as it comes. But right now we're focusing on... We're halfway there already. It's 15 days that it's been underneath.
Speaker 7: $30 is usually being asked that can they will notify you that the company is no longer in
Speaker 7: Oh, what's the word?
Speaker 7: compliance.
Speaker 7: And I guess you will get, if I remember correctly, I think you possibly have 180 days.
Speaker 7: to remedy the situation if the stock price isn't.
Speaker 7: get back up over a dollar again. But as I say you can see, stocks not heading in the right direction for sure and we're looking at a share price that we haven't seen with AEY in over 20 years. And I'm just kind of curious even from the beginning when I first saw this note, what led to the...
Speaker 7: you know, the necessity of coming up with a convertible like this, it's such generous terms in my opinion. Of course, now that I see what the earnings were for the first quarter there, it makes a little more sense.
Speaker 7: of coming up with a convertible like this, it sets Jenner's terms in my opinion. Of course, now that I see what the earnings were for the first quarter there, it makes a little more sense.
Speaker 7: So my concern is the liquidity situation for the company to continue operating as it has been and find being able to have enough liquid cash around to keep business going in dikkato.
Speaker 7: Right and You know
Speaker 7: as planned, but as I say, I'm very concerned like George was about the possible...
Speaker 7: delusion to the current shareholders the same because of this this loan could possibly issue and I mean
Speaker 7: Mass. Hill could end up with close to 3 million shares. I don't know if that includes the warrants in addition to that and end up with 20% or more of the company.
Speaker 7: outstanding shares at that point. Sue, this is Richard. This is John Carter. I mean, this is rather unusual considering what we heard at the end of the last earnings call. So, this kind of broad side is, but I'm just curious about this.
Speaker 7: floor price issue and how it would trigger default.
Speaker 5: Is available by MassTOL possible at the floor price of a dollar a share? Is that correct? It is possible, but as I stated to George, it is not our intent to get to a point where the shares would be converted. Well, it never is, but it does happen. MassTOL would only want to convert if they thought we were not going to be able to pay. I don't think there's an advantage to them to...
Speaker 6: take 20% or greater of the shares when we're making regular payments on the loan. All right. The other thing is because the share price has declined.
Speaker 6: or greater of the shares when we're making regular payments on the loan. The other thing is because the share price has declined, it now
Speaker 6: It now could be a calculation that equals greater than the 20% which meant that we must go to the shareholders to approve such a potential event. It's not something that we want to happen for sure, but by rule, we have to. As far as the NASDAQ, we...
Speaker 6: now could be a calculation that equals greater than the 20%, which meant that we must go to the shareholders to approve such a potential event. It's not something that we want to happen for sure, but by rule, we have to. As far as the last deck, once we're...
Speaker 6: We ultimately notified that we've exceeded the 30-day sub $1 category. Thank you. We get 45 days to submit a corrective action plan to cure on the stock price. And then we have a total of 180 days.
Speaker 6: from date of notification to cure. And then if you're making progress, there's the potential for an additional 180 days after that.
Speaker 6: We don't envision that being a necessity. We feel that we're going to have a lot of problems.
Speaker 6: a much improved year compared to this recent quarter. But I will show you, nothing, we didn't change anything from when we were really having a couple of great quarters in a row.
Speaker 6: and our equipment business was, you know.
Speaker 6: growing like crazy and highly profitable, nicely profitable.
Speaker 6: Nothing changed on our side. It was just the total shutdown of ordering, mostly by the optical fiber network providers.
Speaker 6: who had built up a stockpile of spares and standby equipment because they couldn't order new equipment from the OEMs.
Speaker 6: Once the OEMs finally resolved the chip shortages, supply chain issues, etc., and the OEMs got the supply of new equipment back online,
Speaker 6: then the fiber network providers decided to burn off that stockpile of spares that they had accumulated.
Speaker 6: just put a hold on any additional orders to companies like us.
Speaker 6: until such time as they burned off that stockpile. We feel like that sometime in the next couple of months, there's no way to know for sure. We are talking to the same people that...
Speaker 6: You know helped us grow this business and ordered this equipment over the last two years I mean our equipment business tripled in revenue over the last 24 months Those same customer contacts are saying Look, I need this I need that I need 10 of this 6 of that 12 of this 20 of that
Speaker 6: I am not allowed to order anything until the inventory level comes down to an acceptable level and then as soon as they take that hold off, I will be back ordering again. The only thing is we just have no control over when that gate is going to open again.
Speaker 6: Our wireless division has been going along steadily, earning revenue month after month, margins have been good, and we're gonna get into our summer months here. And...
Speaker 6: people like George it sounds like YouTube Richard been here quite a while as an investor our summer months are really big months for us on the wireless side
Speaker 6: So we think this is going to normalize on the equipment side over the next few months.
Speaker 6: and we still believe we're going to have a strong year on the wireless side.
Speaker 6: We still believe we're going to have a strong year on the wireless side. That will change things.
Speaker 7: Was this note or this financing something that you guys were hit with, happened to do suddenly because of the sudden drop off in the revenues from Delco? You kind of had to get some liquidity.
Speaker 5: from 1231 and this was a way to bolster our working capital. Okay, so the first amortization payment on this note is what, not until October ?
Speaker 7: Is that correct? Yeah, six months out, yeah. Okay, and then each month it's a, I think I saw it in a...
Speaker 7: the filing, I guess you had five payments and then I guess the last one was supposed to finish up the...
Speaker 7: Whatever the balance was with interest left on that. Okay, so liquidity, I don't know if you can tell me, tell us how liquidity is currently going on with this, but you know.
Speaker 5: You don't anticipate, feel like you're going to have a struggle with making those loan payments? No, we don't. We intend to start paying those payments early. So it is not our intent to get to a point where we're at the latter part of the...
Speaker 5: the agreement in making $500,000 payments a month.
Speaker 7: As I said, being with the company and investing in this company for, it seems like, forever, maybe back to the last millennium. But, yeah, 20 years. As I say, it was shortly after the earnings.
Speaker 7: The report came out that the stock went from $1.40 down to $1.10 and then with this, it went from $1.00 to $1.00 and then with this, it went from $1.00 to $1.00 and then with
Speaker 7: The convertible note was filed.
Speaker 7: and saw that it was diluted, then I thought, people ain't going to like this. We've had a drop since mid-March or so, 40 percent, and 20 percent of that has been since I started.
Speaker 7: file the details on it because of what looks like a huge dilution possibility for the current shareholders. cut.
Speaker 7: me included. So I got a pretty decent size holding in this company.
Speaker 7: me included. I've got a pretty decent size holding in this company, and big hopes for it, as all of us do.
Speaker 7: As I say, I was mainly wanting to know how those issues, the default that could be triggered by the share price.
Speaker 7: creating an issue with the delisting.
Speaker 7: and the warrants, the 720,000 warrants.
Speaker 7: And the warrants, the 720,000 warrants, 720,000 warrants here is in that.
Speaker 7: Those go on no matter what, right? But things successfully paid off, those are still...
Speaker 7: Mast Hill still has the chance to redeem those or buy those.
Speaker 5: for five years approximately half of them they'll keep the other half we pay off successfully they return the warrants to us.
Speaker 7: Now, which one is that, the 250s or the 140s?
Speaker 5: Or does it matter? A little bit of each? No, it's the ones that are 140 that return to us.
Speaker 5: Or does it matter? A little bit of each. No, it's the ones that are $140 that return to us. Return to us. Okay, well.....
Speaker 7: It's up to the market and business hopefully getting back to.
Speaker 7: Those were my concerns mainly. I don't want to spook them too much, but it's something that I just felt like I wanted to get more clarification on it and maybe other shareholders would like to know too.
Speaker 7: I didn't want you to be the only one that called in.
Speaker 5: Well, we appreciate the questions and we'll continue to monitor and evaluate what we do on a daily basis to do what's best for the shareholders.
Speaker 7: That's what I depend on.
Speaker 7: That's what I depend on.
Speaker 2: Thank you. Thank you. Thanks so much. Thank you very much, sir. Ladies and gentlemen, we have now reached the end of the question and answer session. I will now turn the call back over to Gerhard for closing remarks. Thank you, sir.
Speaker 6: Thanks, operator. As I started to say earlier, we thank you for your interest and your investment in advantage technologies.
Speaker 6: We feel that we have a bright future You know, we're feeling that we're in a rough patch at the moment but This too shall pass. We we know the cause of it and We know the cure for it. So
Speaker 6: We feel that we're going to be headed in the right direction here over these next few months and we'll hit full stride here as we hit June , July and move into the summer months. It's always our biggest time of the year and it's also our most profitable. Again, we'll go into next year on a different growth trajectory.
Speaker 2: Thank you for joining the call today and that concludes our remarks. Thank you sir. Ladies and gentlemen, that concludes today's event. Thank you for attending. Anyone else?