Q2 2023 HNI Corp Earnings Call
Okay.
Good day, everyone and welcome to the H and I Corporation's second quarter fiscal 2023 results conference call. Today's call is being recorded all lines have been placed on mute to prevent 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 star one on your telephone keypad and if you would like to withdraw your question. Please press star one again I would now like to turn the conference over to Mr. Matt Mccall. Please go ahead Sir.
Good morning.
My name is Matt Mccall, I'm, Vice President Investor Relations and corporate development for H&R Corporation.
Thank you for joining us to discuss our second quarter fiscal 'twenty 2023 results with me today are Jeff <unk>, Chairman, President and CEO, and Marshall Bridges, Senior Vice President and CFO.
Copies of our financial news release, and non-GAAP Reconciliations are posted on our website statements made during this call that are not strictly historical facts are forward looking statements, which are subject to known and unknown risk.
Actual results could differ materially.
Financial news release posted on our website includes additional factors that could affect actual results. The corporation assumes no obligation to update any forward looking statements made during the call now pleased to turn the call over to Jeff.
It's Matt.
Morning, and thank you for joining us.
Our second quarter results exceeded our expectations, demonstrating the momentum of our strategies our market positions and our recent actions to streamline our businesses.
On the call today I will highlight three key topics first our profit transformation efforts and workplace furnishings are ahead of schedule.
It helps drive non-GAAP profit growth despite lower volume.
Our workplace furnishings margins have been reset.
Second since closing the Kimball International acquisition, we have become even more confident in the benefits of the combination.
In addition, we have signed an agreement to divest popping and anticipate closing in the third quarter.
Once closed the exit will increase our projected accretion and unmask the strength of Kimball International's core business.
And third we put actions in place to support near term profitability and residential building products, while staying focused on our long term strategic investments.
Following those highlights Marshall, who will review our outlook.
I will then conclude with some general closing commentary before we open the call to your questions.
Moving to the first topic, our profit transformation efforts and workplace furnishings are ahead of schedule.
As we grew non-GAAP profit despite lower volume.
When compared to the prior year period, and excluding the Kimball International acquisition non-GAAP EPS grew 6%, despite 15% lower organic sales.
non-GAAP gross margin expanded 270 basis points and non-GAAP operating margin expanded 150 basis points.
The profit improvement was driven by our.
Transformation plan and workplace furnishes.
That plan remains unchanged and consists of four primary actions, which are driving sustained margin improvement.
First we are driving increased productivity.
Our productivity efforts have exceeded our near term targets as reflected in our second quarter results and.
And we expect an even greater impact in the second half.
We're also investing to make our operational footprint more resilient and efficient primarily through our new facility in Mexico.
Our future results will greatly benefit from these investments as they mature.
Second we have streamlined our cost structure, we continue to expect $25 million of our previously announced cost savings initiative to impact workplace furnishings. This year.
Third we continue to simplify our business got it our most attractive markets.
The actions we took over the last over the past year to divest our China business and rationalize our E. Commerce offering are examples of simplification efforts that are currently improving our profitability.
And fourth our efforts to improve price costs continue to provide a benefit.
As a result of these actions second quarter non-GAAP operating margin workplace furnishings expanded 550 basis points to eight 5%, excluding the impact of the Kimball International acquisition.
That was the highest margin since the third quarter of 2019.
And it was the fifth consecutive quarterly period of year over year, non-GAAP profit improvement and workplace furnishings.
Our profit transformation plan does not depend upon volume growth.
However, we are encouraged by the demand trends and workplace furnishings.
Net orders for the first six months of 2023 grew approximately 3% year over year.
We continue to see strong performance in the small to mid sized customer segment, where we have an unmatched competitive position.
Organic orders from the SMB customer group were up approximately 10% during the first half.
While orders from contract customers declined at a mid single digit rate over the same period.
The improving workplace furnishings order rates reflect trends associated with <unk>.
Employment growth with small to midsize offices population shifts the secondary geographies and increased furniture events driven by the adoption of hybrid work models and expiring leases.
These trends all aligned with our strong market coverage, and our product and price point breadth and depth.
<unk> that will be further enhanced through our combination with Kimball international.
Yes.
Moving to my second topic since closing we have become even more confident in the benefits of our combination with Kimball International.
The addition of <unk> will strengthen our business.
Together, we are strongly positioned to lead in the evolving workplace environment with an expanded presence in secondary geographies and leading positions and ancillary products.
And the cultural fit between the organizations as strong and both sides are beginning to identify unlock new opportunities for profit growth.
We now see the previously announced annual run rate synergy amount of $25 million as a floor with strong potential for more.
Okay.
Additionally, we have signed an agreement to sell popping, which was acquired by <unk> in 2020.
Based on trailing 12 month results. The sale of popping is estimated to increase annual operating profit by $20 million, while reducing annual revenue by $56 million.
The divestiture is expected to be closed during the third quarter.
Poppins operating losses have masked the strength of <unk> core businesses, which collectively generate an operating margin over 10%.
My third topic.
We have put actions in place to support near term profitability in residential building products, while we stay focused on our long term strategic investments.
Our residential building products segment continues to face volume pressure in line with the general weakness in the broader housing market.
In response to the volume declines we have expanded our cost reduction efforts to support segment profitability.
Specifically these actions will lower 2023 segment expenses by an additional $5 million to $10 million.
When combined with our previous actions are H ni wide cost reduction efforts now totaled $40 to $45 million.
Up from the 35 million previously announced.
$15 million to $20 million, which of which will impact residential building products. This year.
Our cost reduction efforts along with the return of normal seasonality patterns will result in improved segment profitability beginning in the third quarter of this year.
Yes.
In addition, recent demand trends have shown improvement.
Second quarter orders in this segment decreased 16% versus second quarter 2022.
This is.
A significant improvement from the minus 37% in the first quarter of 2023.
Furthermore, our comps get easier in the second half of this year as we compare against the second half 2022, when orders were down 12%.
Short term notwithstanding the intermediate to long term demand dynamics remain encouraging for this segment as we are well positioned for sustained revenue and profit growth U.
U S housing is under supplied demographic trends point to a robust future construction growth.
And there are indications that renovation activity will accelerate as existing homeowners are less likely to relocate given the current mortgage environment with many having attractive lower interest rates.
In addition to strong market fundamentals, we have unique growth opportunities, we continue to invest in our initiatives aimed at expanding the market, including in the areas of category awareness, new product innovation online capabilities and the expansion of our wholly owned installing distributor footprint.
The market strong fundamentals, our unique growth opportunities and our category leading positions points. The return of strong growth beyond 2023.
I will now turn the call over to Marshall to discuss our outlook Marshall.
Thanks, Jeff, let's start with demand, where we have seen trends generally improve over the past quarter.
And workplace furnishings, we expect organic revenue growth rates in the low single digits for the second half of 2023 that outlook is consistent with first half order patterns and excludes Kimball international.
In residential building products, we expect year over year declines to moderate in the second half.
Due to lower prior year comparisons improved trends, new construction and moving past the normalization of inventory in.
In the channel.
Specifically, we expect residential bone products revenue to decline at a rate in the high teens during the second half of 2023.
The fourth quarter declining at a slower rate than the third quarter.
Let's shift to the financial benefits expected from Kimball International.
We expect to add $290 million to $320 million of revenue to the second half excluding popping.
We also project K III to add 10 to 15 cents to second half non-GAAP EPS again, excluding popping.
A few notes on that projection first it's based on our current view of purchase accounting, which is not yet final.
It includes the benefits of synergies, which we expect to be at an annual run rate of $10 million in the second half.
And third the non-GAAP EPS benefit is expected to be greater in the fourth quarter.
Regarding popping it will negatively impact non-GAAP EPS until the divestiture is finalized which we expect to occur prior to the end of the third quarter.
Specifically, we estimate pop in lad $7 million to $9 million of revenue in the quarter with an expected operating loss of three and a half to $4 million.
I should note that pop and will be included in our non-GAAP third quarter results like it was in the second quarter.
Let's shift a second half profit.
We expect our profit transformation actions to continue to drive profit and margin improvement in our legacy workplace furnishings business those drivers and the net benefit of CAD I and pop in that I. Just covered are expected to more than offset the negative impact from lower volume in residential building products, that's being driven by the week.
You're housing market.
Altogether, we expect profit growth in the second half of 2023 in the workplace first thing segment and for <unk> overall.
Let's now cover our third quarter outlook, we expect organic workplace furnishings revenue to be approximately flat to slightly up compared to the prior year when.
When including Kimball International and popping, we expect workplace furnishings revenue to be at a year over year rate and a low 40% range on a reported basis and.
Residential building products, we expect revenue to decline at a rate in the low to mid 20% range versus the third quarter of 2022.
We expect non-GAAP EPS to be modestly below third quarter 2022 levels, primarily due to lower volume in residential building products.
The normalization of variable compensation.
And the impact of pop and we expect those negative factors to be partially offset by continued profit improvement in workplace furnishings and benefits from <unk>.
Shifting to the balance sheet, we ended the second quarter with debt to EBITDA at two three times as calculated under our existing credit agreements.
However, the definitions governing debt and EBITDA will change if we repay our private notes.
Under those new definitions are leveraged at the end of the second quarter would have been an estimated 1.6 times, we have the capacity to repay those notes, which total $100 million.
Regardless of the definition, we have a very manageable level of debt and we have a history of Jerry generating strong free cash flow through a variety of economic conditions.
Combination with Kimbler National will further strengthen our cash flow, our reasonable leverage and cash generation will provide flexibility for the dynamic environment and continued investment.
I'll now turn the call back over to Jeff. Thanks, Marshall in summary, our second quarter results and workplace furnishing show the clear benefits of our profit transformation initiatives and importantly, there are still many opportunities ahead.
As we look to the remainder of the year, we expect continued year over year profit and margin improvement and workplace furnishings.
The addition of Kimball international to Eni will strengthen our business and we are increasingly confident in the combination of strategic and financial benefits.
<unk> enhances our position to lead in the evolving workplace environment and provides new opportunities for profit growth.
And we have confirmed at least $25 million in annual synergies with a strong potential for more none of which includes eliminating pop ins 20 million dollar annual loss.
Finally in residential building products, we have demonstrated the ability to grow profit over the long term and we will continue to invest in our growth strategies, even as we navigate near term housing headwinds.
The intermediate to long term fundamentals of the housing market is strong our market, leading brands product depth and price point, Brett uniquely position us to drive high margin growth through category awareness and product innovation, all while we continue to leverage our owned installing distribution footprint.
In closing our strategies are unchanged and gaining momentum we will continue to expand margins and workplace furnishings deliver value creation through the.
Combination and drive long term revenue growth and residential building products.
I would like to thank all our <unk> members for their dedication and focus and continued effort as we are.
Pursue our strategies going forward.
We will now open the call to your questions.
Thank you once again, everyone. If you would like to ask a question you simply press star one on your telephone keypad, we will take our first question from Greg Burns with Sidoti.
Good morning.
Can you just talk about maybe the demand trends youre seeing and workplace furnishings, particularly the order trends you've seen.
Since the end of the quarter and are you seeing any improvement in.
Maybe activity in the contract side of the business with.
Yeah, maybe work for.
Return to office trends, improving or anything of that nature that might be driving demand for the work released furnishings business.
Yes, Greg I would say you know since the start of the third quarter, we've seen solid positive.
Orders in our workplace furnishing segment.
Orders are running ahead of the first half rate, which was a 3% rate organically. So.
Generally speaking, where we're out of the blocks.
With some momentum.
Activity is.
Picking up on on a pre buy basis, you know so I'd say you know, it's it's cautious, but where we are like and how we started.
Okay.
Okay and then.
Right.
For the residential buildings product segment is there a target margin.
Our margin that you're targeting for that business with the savings are.
Where where do you think you could.
Operate that business in the current banana.
Yes, Greg as you look at our seasonal.
Profit pattern before the the post pandemic couple years there.
Corn is always our lowest margin quarter. So we expect margins to increase from these levels.
Due to natural seasonality. We also expect that the demand trends are improving and then we've got this additional support from these actions. We just took so when you look at back half margins.
And we expect them to be much better than we were in the second quarter and we expect to get into that mid mid to upper teens range.
Very helpful.
Okay.
Alright, and well move onto our next question from Reuben Garner with the benchmark company.
Thank you and good morning, everybody.
Good morning.
So I guess to start the margin performance in the legacy workplace segment was really impressive.
Kent can you talk about what's kind of baked into the guide for the.
Third quarter.
From a profitability standpoint in that segment any reason why.
You'd go backwards from the levels that you.
Just put up and Jakob.
I guess I'll stop there.
Follow up.
Yeah look we're committed to expanding our margins workplace furnishings Rubin.
If you look at the year over year improvement that we.
We saw in the second quarter in a roughly $20 million year over year, we'd expect similar improvement maybe slightly less.
The slightly less probably has more to do with the variable comp.
Difference from a year over year perspective, which is little a little more challenging.
But yes, we're we don't intend to go backwards.
Although there may be some quarterly fluctuations, but the general trend should be upwards for a bit.
Lots of opportunity ahead of us to continue to expand margins not only this year, but in years to come.
And the big step up that.
What we've seen.
How much of that is it.
Is it pretty evenly divided price cost between the.
On the strategic initiatives that you've put in place over the last.
Nine to 12 months.
Yes.
Compared to the prior year.
Our total profit improvement really is driven by about $25 million of price cost in the second quarter.
About $10 million of benefit from our cost savings program and then it picked up about $11 million from just being more efficient in how we operate our business at the SG&A line, it's kind of reflects our efforts to streamline things.
So those are really what's driving it and if you extrapolate that over to workplace furnishings are pretty similar.
For drivers there three drivers.
Okay, and then moving onto kept popping.
Robocop and decision can you just talk about what kind of went into that is it is it just as simple as you guys, maybe you already have or products or a way to serve that market.
With no path long term to kind of getting that business to be in.
Profitable as the rest of your business any kind of background color you could give would help there.
Yeah Reuben it's good question I mean as a as we pointed out part of this is streamed we've been streamlining our business for profit, where we compete best and the most attractive markets and we've right sized our E com business coming into this we dispossessed, our China business and this is along the same lines.
We looked at it and.
It's Scott.
<unk> got a good brand, it's doing its thing, but it it it really frees up the the strength and profitability of the core <unk> business and so that was really.
That was really the reason we did it is.
It kind of fit that bill like we've been managing the business to this point.
And we would like to maybe point out that it also kind of revealed the value of our investment in NK II. When you look at our our multiple units to enterprise value divided by EBITDA and you subtract out the losses that pop and had an AD in the $25 million of <unk>.
Cheese that we expect and see potential for more youre looking at a valuation multiple in the mid fives, which we see as very attractive.
Very helpful last one for me I'm going to sneak one more in the residential building.
Building product outlook.
We've seen new construction trends kind of stabilize or even improve over the last three to six months is the kind of near term weakness, you're still seeing or into the third quarter is that driven more by what we're seeing on the repair and remodel.
<unk> side of the equation.
Yes, Ruben, yes, we have seen the single family permits trimmed a bit better here late in the second quarter. I mean, typically we we kind of see pretty good correlation between single family permits and our activity 90 days later, so look at the first quarter single family permits are down 32%.
Timelines, where we were in our second quarter.
We did see single family permits really get a lot less bad in June , but we think that's probably going to play out more in the fourth quarter than the third and Thats one of the reasons, we're expecting our declines to moderate as we move into the back half.
And if that that trend continues there is some benefit to our what we've what we projected some upside to it.
Okay, great. Thanks, Congrats again on the strong results and good luck.
Thanks.
We'll take our next question from Bob <unk> with water Tower research.
Good morning, and thank you for taking my questions as well I guess my first two questions are just going to follow up with some comments that <unk>.
Marshall you and Jeff made you said I think in RVP you expect.
Our margins to get back to mid to upper teens is that the second half of this year as its mid and in the third quarter or an upper teens in the fourth or is that a longer term aspiration.
No that comment was meant to be for the full year 2023 Bud.
Okay for the full year, including the second quarter because of those more dressy wears level they've been six years ago ourselves.
Yes, yes.
Yes.
We believe that.
We're going to.
See much much much margin improvement sequentially from the second quarter and this this year.
And the full year will be mid to upper teens.
Yeah, I mean, we're talking to like 16% to 17% range. Okay. That's fine.
Check you said out of the blocks third quarter is better than the second quarter or is that contract versus SMB or exactly how do you how do you characterize that.
Yeah, you know I.
It's mostly SMB when it when youre comparing Q3 to Q out of the blocks to Q2, that's where the relative strength continues Budd.
You know orders are still down year over year mid single digits and contracts, but the funnel continue to show is showing growth.
And activity metrics are picking up.
For sure so orders are still down year over year, but narrowing to getting close to breakeven.
Yeah, I would say, that's a fair assessment, but it's a fair assessment for sure.
Okay.
I don't want to beat this dead horse too much but.
I see on some of the comments on social media kind of things.
Some.
<unk> raised eyebrows on the top end decision can you kind of maybe go over how that decision was made or when that decision was made was it was it made prior to the closing of the acquisition or was it something you are excited.
As you got deeper into it after the acquisition closed.
Yeah, but I mean, I Havent I don't know, what what I don't really follow a lot of social media, but I would tell you. It was made after and we we take all this stuff very seriously and we we looked at it.
You know in the context of how we're managing the overall portfolio of business.
And it kind of fell into that camp of streamlining our business to markets, where we believe we have attractive long term profitable growth prospects.
And.
And that really resulted in the decision.
It's not much more complicated than that.
Okay.
Sure.
And the conditions of the sale agreement are you evidently muster found already buyer, Florida are there any conditions that could cause that to go off the rails.
Or is there a financing conditions or.
Something like that that could cause it to be delayed or deferred or.
Canceled.
But we don't see we don't see that.
No.
It's a pretty straightforward transaction.
Gotcha Okay.
A little and this is my own failings of the accounting it you've got it held for sale was there a reason why it's not disc ops or how does that work Marshall.
And.
Yeah.
Yes, it qualifies as held for sale it would not qualify for discontinued ops since it's been sold.
And you see it on the balance sheet there there's another asset in our held for sale.
Category as well as pop and so theres two things in there.
I gotcha, and so okay and tax rate for guidance what are you looking for tax rate for the.
Second half or the full year.
But for the full year, we expect non-GAAP tax the tax effective tax rate to be close to 23%.
You'd probably be closer to 22% in the third quarter Bud.
That's within the mix.
Different right because of the deductibility of the <unk>.
<unk> transaction expenses.
Right and usually is the amount that youre going to get from popping material or Jack zero number that we can put into kind of a balance sheet or what do you expect when the shale.
Oh, it's all netted out, but the cash flow tax pretty negligible.
Price is a little over $3 million, but when it's all said and done it's pretty negligible impact on our cash flows.
Okay, and I take it you priced it or you.
You put it on the books in a place where that will have no impact on either on gap gap earnings.
Correct.
Correct, yes, the opening balance sheet reflects that valuation.
Gotcha.
Private you make two other comments that I just wanted to make sure I understand the private notes you talked about what the leverage would be.
If you paid them off and you do have the capability of paying them off or.
Are you going to pay it.
Or is that decision just deferred or I'm not sure why you made the comment as your gateway you framed it.
Yes, but we've raised that because it's better luxury of sort of the financial flexibility, we have because we could pay those off with very short notice. They do those notes have attractive interest rates right now so.
Maybe not in our best interest at the very moment to pay them off but it's not meant to be indicative of our plan is to repay them, but it is meant to illustrate that we probably have even more financial flexibility than that 2.3 times.
Debt to EBITDA ratio would lead you to believe it will be one six if we chose to repay those notes.
And there is no prepayment penalty if you do pay them orally.
Right now the make whole on those is zero.
Gotcha, Okay and last for me.
<unk> comp.
We've talked about normalization of variable comp I take that to mean that you expect to have variable comp in this year and last.
Last year was reversed out is that the way to look at think about that.
Yes, our third quarter of last year, we had quite a large reversal of an accrual that is not to repeat this year. So that's you characterized it correctly.
Okay, well thank you.
Thank you very much I know, it's so busy time there. So we do appreciate your commentary and.
Thanks, and best of wishes for the second half and for beyond.
Thanks Budd.
We will take our next question from Steven Ramsey with Thompson Research group.
Hi, good morning, maybe to understand the SMB contract demand trends a little bit further F&B still outperforming is the gap between them.
Expected to close meaningfully in the second half the contract trends improve or do you think SMB the GAAP states pretty wide even over the next six plus months.
Steven Yes, I think that gap is going to.
Continue.
Not as wide as it is right now or it has been over the last year or two but.
It really reflects our position in the marketplace. It also reflects this migration to.
To the smaller locations and just general higher returned office rates in those markets. So we feel very strong about our position and the strength of those markets.
Yes, I think Thats I concur, Steve and I would also say that you know like I said, maybe to Greg our early on that.
Kind of across the board we are.
We're out of the blocks in the third quarter on both both SMB and contract.
Pretty pretty nicely now.
Look I mean, we've been we've been through this before so we're we'll say cautious, but we are out of the blocks pretty well. So there could be some potential for for a little bit of closing of the gap, but I would say Marshall is accurate SMB will the relative strength, we believe we'll still be kind of a lead.
In those two segments.
Got you, Okay, and then our delivery timelines of orders being placed for the workplace segment are those delivery timelines pretty normal now are customers still deferring some of that.
That delivery.
I think there are normal in the once they place the order I mean.
All right.
Theres still a group of customers that continue to wring their hands and look in and look at where their lease terms are expiring and try to figure out what their what their play is going to be but those who have been spurred into activity.
Those those those that group is looks like it's normalized.
Okay helpful. And then definitely interesting color on legacy <unk> margin being 300 bps lower than Kimball ex pop in in the second quarter is there anything irregular there the moves you're making in the legacy workplace.
Is that expected to close that margin gap into the.
High single digit low double digit range something that happens in the next six to 12 months.
Steve we are absolutely committed to expanding margins in our legacy workplace furnishings business and its one of our core efforts as Jeff said in his prepared comments, we got kind of a four point plan to make that happen. So as I as I said earlier, we're expecting continued margin expansion there.
I don't know that our goal is to close the gap, we'd like to see margin expand in both.
And legacy <unk> that we certainly are going to improve margins in legacy hei.
Okay.
Okay helpful. Thank you.
Yeah.
We will take a follow up question from Budd <unk> with water Tower research.
Yes, I just wanted to go over a couple of other quick things on the last two quarters. Apart I remember correctly, you made points about the seasonality of earnings over the year and I'm. Just curious if you had any any expanded comment on that.
That relationship.
I think it was a sturdy shepherding apartment before this year.
Yes, but I think I think we're expecting it to be in that range.
<unk> 2022 averages kind of one third first half two thirds second half and I think we're going to be relatively close to that this year.
Okay and last for me and RVP, you talked a little bit aback about some improvement seeing and I think previously said new housing was weaker than remodel retrofit.
I'm curious if you're seeing that improvement primarily coming out of new housing versus remodel retrofit and whether theres any color on the incidence of attachment, which has been an issue with new houses.
Okay.
We're seeing improvements in the order and projected revenue rates in both new construction and remodel retrofit remodel retrofit with often more than new construction in the second quarter in a lot of that had to do with this inventory correction that we saw.
The trade we underwent in the second quarter some of that will happen in the third but as we get into the back half thats can be behind us can help us see better rates there.
New construction as I said earlier, the single family permit data that the general new construction activity is trending better and we're starting to see that flow through although it's probably more of a fourth quarter phenomenon than a third quarter phenomenon.
Yes.
Oh, sorry go ahead go ahead, I'm sorry, Jeff.
Well I would just give us a attachment rates are about where we've been running and when we can.
Those are those are stable.
Actually we're focused on that as well, but those are those are holding up like they have been.
Last couple of years, you've had some wonderful initiatives trying to.
Get back to reverse show the long short longer term trend and I'm curious of whether or not we're seeing any of that bottoming and starting to maybe get to the bottom of the smile curve back up the other side.
Yes, I think I think we're clearly seeing that bottom, but so I think we're.
We're bullish on our on our ability to turn that given given some early indications we have with with our with our customer journey work and with our category expansions into electric et cetera.
Yes, I was wondering whether weather affected was coming primarily from electric or some of the other expansions.
It's kind of across the board actually it's really it's really category awareness and getting getting the homeowner and homebuyer in their buying journey, when making them aware of their options and educating them earlier in the process.
Thank you. Thank you very much it's a while it's a wonderful business. So.
In fact that you can expand that would be great. Thank you.
Great. Thanks, a lot.
And there are no further questions at this time I would like to turn the call back over to Mr. Warner for closing remarks.
Great I appreciate everyone's interest in <unk> today, Thank you for joining us and having a dialogue have a great day.
And that concludes today's presentation. Thank you for your participation and you may now disconnect.
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Yes.
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