Q1 2024 Stella-Jones Inc Earnings Call
Following the presentation, we will hold a question and answer session.
Operator: All participants are in listen-only mode. Following the presentation, we will hold a question and answer session. To queue up for questions by phone, please press star one and a moderator will contact you. If anyone experiences difficulties hearing the conference call, please press star one for operator assistance at any time. I would like to remind everyone that this conference call is being recorded on Wednesday, 8 May 2024. Please note that comments made on today's call may contain forward-looking information, and this information, by its nature, is subject to risks and uncertainties. Actual results may differ materially from the views expressed today. For further information on these risks and uncertainties, please consult the company's relevant filings on SEDAR+. These documents are also available in the investor relations section of Stella-Jones' website at www.stella-jones.com.
Moderator: To queue up for questions by phone. Please press star one on our moderator will contact you.
Moderator: If anyone experiences difficulties hearing the conference call. Please press star one for operator assistance at any time.
Moderator: I would like to remind everyone that this conference call is being recorded on Wednesday may eight 2024.
Speaker Change: Please note that comments made on today's call may contain forward looking information and this information by its nature is subject to risks and uncertainties.
Speaker Change: Actual results may differ materially from the views expressed today.
Company Representative: For further information on these risks and uncertainties. Please consult the company's relevant filings on SEDAR plus.
Company Representative: These documents are also available in the Investor Relations section of Stella Jones as web site at Www Dot Stella Jones Dotcom.
Company Representative: We have also prepared a corresponding presentation, which we encourage you to follow along with during this call.
Operator: We have also prepared a corresponding presentation, which we encourage you to follow along with during this call. I'll now hand the call over to Éric Vachon, President and Chief Executive Officer of Stella-Jones. Éric?
Speaker Change: I'll now hand, the call over to <unk>, President and Chief Executive Officer of Stella Jones, Inc.
Speaker Change: Thank you Matthew good afternoon, and thank you for joining us today.
Éric Vachon: Thank you, Matthew. Good afternoon, thank you for joining us today. I'm here with Silvana Travaglini, Senior Vice President and Chief Financial Officer of Stella-Jones. Earlier this morning, we issued a press release reporting our results for Q1 2024. Along with our MD&A, it can be found in the investor relations section of our website at www.stella-jones.com, as well as on SEDAR+. As a reminder, all figures expressed on today's call are in Canadian dollars, unless otherwise stated. After a highly successful 2023, 2024 has begun on an equally positive note, with higher sales and record Q1 profitability. We are pleased with the solid momentum of our infrastructure product categories, which has continued into 2024. Our results continue to reaffirm our strategic approach of being future-ready.
Speaker Change: Here with Silvana, Travaglini, Senior Vice President and Chief Financial Officer of Stella Jones.
Silvana Travaglini: Early this morning, we issued a press release reporting our results for the first quarter of 2024.
Silvana Travaglini: Along with our MD&A can be found in the Investor Relations section of our website at Www Dot Stella that John's dot com as well as on SEDAR plus.
Silvana Travaglini: As a reminder, all figures expressed on today's call are in Canadian dollars unless otherwise stated.
Silvana Travaglini: After a highly successful 2023.
Silvana Travaglini: 2024 has begun on an equally positive note.
Silvana Travaglini: With higher sales and a record first quarter profitability.
Silvana Travaglini: We are pleased with the solid momentum of our infrastructure product categories, which has continued into 2024.
Silvana Travaglini: Our results continue to reaffirm our strategic.
Silvana Travaglini: Approach of being future ready.
Silvana Travaglini: We remain proactive in our pursuit of meeting customer needs, while staying ahead of industry trends and dynamics.
Éric Vachon: We remain proactive in our pursuit of meeting customer needs while staying ahead of industry trends and dynamics, anticipating how we'll evolve and being prepared to capitalize on opportunities. We have done this through strategically and diligently building out our network through growth investments and acquisitions and investing in inventory levels required to meet demand. We continue to leverage strategic locations of our operations. We have the largest presence that spans North America, and this has allowed us to better cater to customer needs while serving them effectively, creating synergies and maximizing economies of scale. These initiatives are supported by the strong long-term fundamentals of our business, primarily the steady and growing demand for our products, which I will now discuss in more details. Sales of utility poles were higher year over year, driven by favorable pricing.
Silvana Travaglini: Anticipating how.
Silvana Travaglini: We will evolve and being prepared to capitalize on opportunities.
Silvana Travaglini: We have done this through strategically and diligently building out our network through growth investments and acquisitions and investing in inventory levels required to meet demand.
Silvana Travaglini: And we continue to leverage strategic locations of our operations.
We: We have the largest presence that spans North America and this has allowed us to better cater to customer needs, while serving them effectively creating synergies and maximizing economies of scale.
We: These initiatives are supported by the strong long term fundamentals of our business.
We: Primarily the steady and growing demand.
We: For our products, which I will now discuss in more details.
We: Sales of utility pools were higher year over year, driven by favorable pricing.
We: In terms of volume, we noted sequential volume increases compared to Q4 last year, particularly for non contract customers.
Éric Vachon: In terms of volume, we noted sequential volume increases compared to Q4 last year, particularly from non-contract customers. For our contract business, which represents 70% of our pole sales, we continue to see a shift whereby certain customers are moving to longer-term agreements. We also secured additional multi-year commitments from new and existing contract customers, which is indicative of their commitment and need secure supply on a longer horizon. Our customers' projects are poised to span several decades. There continues to be growing need to maintain the North American electrical grid. There's also sustained momentum from our utility customers to increase pole purchases to support their broadband access and expansion projects. Our goal is to be the supplier of choice and a company our customers can rely on when they proceed with their projects.
We: For our contract business, which represents 70% of our coal sales, we continued to see a shift.
We: Whereby certain customers are moving to longer term agreements.
Speaker Change: We also secured additional multi year commitments from new and existing contract customers, which is indicative of their commitment and need secure supply on a longer horizon.
Speaker Change: Our customers projects are poised to spend several decades and there continues to be growing need to maintain the north American electrical grid.
Speaker Change: There is also a sustained momentum from our utility customers to increase pulp purchases to support their broadband access and expansion projects.
We: Our goal is to be the supplier of choice in our company our customers can rely on when they proceed with their projects.
We: As always Stella Jones managed its business with an eye on the larger picture, making decisions that are best for the Companys long term stability and growth.
Éric Vachon: As always, Stella-Jones manages its business with an eye on the larger picture, making decisions that are best for the company's long-term stability and growth. Sales of railway ties also increased over the same period last year, above the low single-digit growth target. With the replenished level of tie inventory, we are now better positioned to service the non-Class 1 market. The ability to cater to this market is a significant shift from 2022 when the industry experienced limited availability of untreated wood ties. Sales for residential lumber pulled back slightly on account of the lower market price of lumber. We remain Canada's largest manufacturer of treated residential lumber, and many customers across North America rely on us for their premium treated lumber, composite decking, and accessories. I'll now turn it over to Silvana to provide a more detailed overview of our Q1 financial results.
We: Sales of railway ties also increased over the same period last year.
We: Above the low single digit growth target.
We: With the replenished level.
Stella Jones: High inventory, we are now better positioned to service the non class one market.
Stella Jones: The ability to cater to this market is a significant shift from 2020 due when the industry experienced limited availability of untreated wood ties.
Stella Jones: Sales for residential lumber pulled back slightly on account of the lower market price of lumber.
Stella Jones: We remained Canada's largest manufacturer of treated residential lumber and many customers across North America rely on us for their premium treated lumber composite decking and accessories.
Stella Jones: I'll now turn it over to savanna to provide a more detailed overview of our first quarter financial results.
Savanna: Thank you Eric and good afternoon, everyone.
Savanna: As Eric indicated Stella Jones had a robust start to 2024, we generated strong financial results and help establish a solid foundation for the rest of the year.
Silvana Travaglini: Thank you, Éric, good afternoon, everyone. As Éric indicated, Stella-Jones had a robust start to 2024. We generated strong financial results that help establish a solid foundation for the rest of the year. Sales for the quarter were CAD 775 million, up CAD 65 million from Q1 of 2023. The increase was driven by higher infrastructure product sales, which grew organically by CAD 58 million or 10%. We benefited from favorable pricing across all our infrastructure product categories, higher railway tie volumes, and the contribution of the acquisition of the Baldwin assets. Utility pole sales increased to CAD 402 million compared to CAD 362 million for the same period in 2023, due to higher pricing when compared to Q1 last year. The slower pace of purchases this quarter largely stemmed from contract customers with long-term volume commitments.
Savanna: Sales for the quarter were $775 million up $65 million from Q1 of 2020.
Stella Jones: The increase was driven by higher infrastructure product sales, which grew organically by $58 million or 10%.
Eric: These benefits and favorable pricing across all our infrastructure product categories higher railway type volumes and the contribution of the acquisition of the bottling assets.
Eric: Utility pole sales increased to $402 million compared to $362 million for the same period in 2023 due to higher pricing when compared to Q1 last year.
Eric: Slower pace of purchases this quarter largely stemmed from contract customers with long term volume commitments.
Eric: So purchases from customers, who have deferred and we named lower about it in the first quarter of 2023, we saw a progression in our utility pole volumes over Q4 of last year.
Silvana Travaglini: Though purchases from customers were deferred and remained lower relative to Q1 2023, we saw a progression in our utility pole volumes over Q4 of last year. Sales of railway ties were CAD 227 million, representing an increase of 16% compared to Q1 2023. This increase was attributable to both higher pricing and volumes, particularly for non-Class 1 customers, due to the available supply of railway ties. Residential lumber sales were CAD 87 million compared to CAD 90 million during Q1 2023. While volumes remained relatively stable quarter-over-quarter, the decrease in sales was attributable to the lower market price of lumber compared to the same period last year. Led by the strong organic sales growth for our infrastructure products, EBITDA increased to a record Q1 of CAD 156 million compared to CAD 120 million in Q1 2023.
Eric: Sales really kind of 227 million.
Eric: Representing an increase of 16% compared to the first quarter of 2023.
Eric: This increase was attributable to both higher pricing and volumes, particularly for non class one customers due to the available supply at random link ties.
Eric: And residential lumber sales were $87 million compared to $90 million during Q1 2023.
Eric: While volumes remain relatively stable quarter over quarter decrease in sales was attributable to the lower market price of lumber compared to the same period last year.
Speaker Change: Led by the strong organic sales growth of our infrastructure products EBITDA increased to a record first quarter of $156 million compared to $120 million in the first quarter of 2023.
Eric: EBITDA grew to 21% and 16.
Silvana Travaglini: EBITDA grew to 20.1% from 16.9% in Q1 of last year. Similarly, net income for Q1 increased relative to the same period last year. We generated net income of CAD 77 million, or CAD 1.36 per share. This compares to CAD 60 million, or CAD 1.03 per share in Q1 of 2023. The increase in profitability was attributable to the margin expansion realized across our infrastructure product categories, particularly due to the favorable pricing dynamics compared to Q1 last year for utility poles and railway ties. We ended the quarter with a net debt to EBITDA ratio of 2.7 times, which is within our expectations due to our typical working capital requirements in Q1 of each year. During the quarter, we continued to invest in our inventory position, particularly for the seasonal build of residential lumber ahead of peak demand in Q2 and Q3.
Eric: 9% in the first quarter last year.
Speaker Change: Similarly, net income for the first quarter increased relative to the same period last year we.
Speaker Change: We generated net income of $77 million or $1 36 per share.
Speaker Change: This compares to $60 million or $1 <unk> per share in the first quarter of 2020 to be.
Speaker Change: The increase in profitability was attributable to the margin expansion realized across our infrastructure product category, particularly due to the stable pricing dynamics compared to Q1 last year for utility Poles and railway ties.
Speaker Change: We ended the quarter with a net debt to EBITDA ratio of two seven times, which is within our expectations due to our typical working capital requirements in the first quarter of each year.
Speaker Change: During the quarter, we continued to invest in our inventory position, particularly for the seasonal sales of residential lumber ahead of peak and then in the second and third quarters.
Speaker Change: Inventory levels are however, expected to decrease by year end and be in line with levels at the beginning of the year.
Silvana Travaglini: Inventory levels are, however, expected to decrease by year-end and be in line with levels at the beginning of the year. Inventories are a significant component of working capital and an investment in our ability to provide service to our customers and meet their demand. During the quarter, we also used our liquidity to maintain the quality of assets and expand our production capacity, as well as return capital to shareholders. In Q1 2024, we repurchased CAD 50 million of shares and declared a dividend totaling CAD 16 million. As a result of our buyback programs, we had 2 million fewer average shares outstanding this quarter compared to last year's Q1. As of the end of March, we had returned over CAD 225 million of capital to shareholders out of the CAD 500 million committed for the 2023 to 2025 period.
Speaker Change: Inventories are significant component of working capital and an investment in our ability to provide service to our customers and meet their demand.
Speaker Change: During the quarter, we also used our liquidity to maintain the quality of assets and expand our production capacity as long as return capital to shareholders in the first quarter of 2024th we repurchased 15 million shares and declared a dividend totaling $16 million.
Speaker Change: As a result of our buyback program, we had 2 million fewer average shares outstanding this quarter compared to last year's Q1.
Speaker Change: I said at the end of March we have returned over $225 million of capital to shareholders.
Speaker Change: $500 million committed for the 2023 to 2025 period.
Speaker Change: Yesterday, our board of directors approved a quarterly dividend of 28 cents per share, reflecting our continued confidence in the long term strength of our business.
Silvana Travaglini: Yesterday, our board of directors approved a quarterly dividend of CAD 0.28 per share, reflecting the continued confidence in the long-term strength of our business. In summary, our financial performance to begin the year has positioned us well to remain on track to continue to achieve profitable growth and return capital to shareholders. I will pass it back to Éric for his concluding remarks.
Speaker Change: In summary, our financial performance to begin the year has positioned us well to remain on track to continue to achieve profitable growth and return capital to shareholders.
Eric: With that and we'll pass it back to Eric for his concluding remarks.
Eric: Thank you Silvana.
Eric: Our first quarter results help set the tone for a positive year ahead, and our focus in 2024 will remain on the growth trajectory of our infrastructure business.
Éric Vachon: Thank you, Silvana. Our Q1 results help set the tone for a positive year ahead. Our focus in 2024 will remain on the growth trajectory of our infrastructure business. We are well-positioned to meet or exceed the objectives laid out in our three-year financial plan. We continue to work towards achieving more than CAD 3.6 billion in sales by 2025. Despite the impact of short-term trends, the underlying fundamentals of our business remain rooted in maintenance and replacement requirements, which play out over the longer-term horizon. For utility pole product category, we continue to expect sales to grow at a compounded annual growth rate of 15% for 2024 and 2025, largely driven by volumes. Expected volume growth is based on information shared with us by customers in terms of their needs, as well as additional volume commitments recently secured from new and existing customers.
Eric: We are well positioned to meet or exceed the objectives laid out in our three year financial plan.
Eric: We continue to work towards achieving more than $3 6 billion in sales by 2025.
Eric: And despite the impact of short term trends the underlying fundamentals of our business remain rooted in maintenance and replacement requirements, which play out over the longer term horizon.
Eric: For utility pole product category, we continue to expect sales to grow at a compounded annual growth rate of 15% for 2024, and 2025 largely driven by volumes.
Eric: Expected volume growth is based on information shared with us by customers in terms of their needs as well as additional volume commitments recently secured from new and existing customers.
Eric: As our customers undertake many of those projects during the second and third quarters. We expect these peak volume periods for our business to support the expected volume growth.
Éric Vachon: As our customers undertake many of their projects during the Q2 and Q3, we expect these peak volume periods for our business to support the expected volume growth. While our railway tie product category had a strong start to begin the year, we are reaffirming our annual sales growth rate in the low single digits. A Class I customer has recently modified their 2024 maintenance program, which is expected to reduce overall volume gains for the year. We maintain our projection of sales between CAD 600 million and CAD 650 million for residential lumber, which is expected to comprise less than 20% of our overall sales mix. In terms of profitability, considering the strong performance of our EBITDA margins through 2023 and into the Q1 of 2024, we are currently well-positioned to exceed our 16% annual margin target.
Eric: While our railway tie product category had a strong start to begin to begin the year. We are reaffirming our annual sales growth rate in the low single digits.
Speaker Change: A class one customer has recently modified our 2020 for maintenance program, which is expected to reduce overall volume gains for the year.
Speaker Change: And we maintain our projection of sales between 600 $650 million for residential lumber, which is expected to comprise to comprise less than 20% of our overall sales mix.
Eric: In terms of profitability, considering the strong performance of our EBITDA margins through 2023 and into the first quarter of 2024.
Speaker Change: We're currently well positioned to exceed our 16% annual margin target.
Speaker Change: Potential pricing pressures in the second half of the year for utility pole spot market business are expected to impact our current level of EBITDA margin.
Éric Vachon: Potential pricing pressures in the H2 of the year for utility pole spot market business are expected to impact our current level of EBITDA margin. We look to the future with confidence, thanks to the strengths, resilience, and profitability of our business, and we will continue to put in the work every day to keep reaching further and higher while creating value for our shareholders. I would like to conclude the call by acknowledging our employees across North America, many of whom are listening today. You are what makes Stella-Jones unique. Our customers rely on us for quality products and timely service, and we have a best-in-class reputation because of our team and the care and attention to our work. Thank you for delivering your best every day. With that, I will now open the line to questions.
Speaker Change: We look to the future with confidence thanks to the strength resilience and profitability of our business.
Speaker Change: And we will continue.
Eric: To put in to work every day to keep reaching further and higher while creating value for our shareholders.
Speaker Change: I would like to conclude the call by acknowledging our employees across North America, many of whom are listening today.
Speaker Change: You are what makes <unk> unique.
Speaker Change: Our customers rely on us for quality products and timely service and we have a best in class reputation because of our team and the care and attention to our work.
Speaker Change: Thank you for delivering your best every day.
Speaker Change: With that I will now open the line for questions.
Eric: Thank you Eric.
Eric: <unk> is now open for questions I would like to remind you that if youre on the phone and wish to ask a question. Please press star one.
Operator: Thank you, Éric. The line is now open for questions. I would like to remind you that if you are on the phone and wish to ask a question, please press star one. Our first question is from James McGarragle from RBC Capital Markets. Please go ahead.
Eric: Our first question is from James Mcgarrigle from RBC capital markets. Please go ahead.
James Mcgarrigle: Fair enough congrats on.
James Mcgarrigle: Congrats on a great quarter.
James McGarragle: Very nice. Congrats on a great quarter. I just had a question on the pole pricing outlook. You've flagged you expect recent strength to persist early in the year. We clearly saw that in Q1, and then that you expect pricing to fall off in the back half. Given some of the near-term demand headwinds, do you see any risk to margin? I know you reaffirmed that margin outlook, if demand is coming in a little bit lower due to some of these near-term headwinds, pricing comes on, falls off in the back half as new capacity comes on. Any risk to margins in Q3 and Q4? Any color you can provide there would be appreciated.
James Mcgarrigle: Thanks for the question on the pricing outlook.
James Mcgarrigle: You flagged that you expect recent strength to persist early in the year.
James Mcgarrigle: Clearly saw that in Q.
Speaker Change: Q1, and then that you expect pricing to fall off in the back half.
Speaker Change: If you could give us some of the.
Speaker Change: I guess, the near term demand headwinds.
Speaker Change: Any risk to margin and I know you reaffirmed our margin outlook.
Speaker Change: And coming out a little bit lower because some of these near term headwinds pricing comes on falls off in the back half as new capacity comes on any risks at the margins.
Speaker Change: Three in Q4 any color you can provide there would be appreciated.
James Mcgarrigle: So thank you James.
James Mcgarrigle: So I guess I'll start by reaffirming our belief in our 15% CAGR growth for 'twenty four 'twenty five supported.
Éric Vachon: Thank you, James. I guess I'll start by reaffirming our belief in our 15% CAGR growth for 2024 and 2025, supported in better part by volume growth. To your point, I guess I sort of took away two parts to your question. First, obviously, was the pricing. Had strong pricing in Q1, obviously for utility poles. I believe, and I think we stated this before, we believe that H1 of the year, we will still see some uplift coming from pricing and we still maintain our assumption of pricing pressures in H2 of this year, driven or supported or justified by the fact that we're seeing new capacity come online. That being said, the volume piece, as I said, we still have strong confidence because we have strong communications with our customers.
James Mcgarrigle: Better part by volume growth.
James Mcgarrigle: So to your point I guess.
James Mcgarrigle: Sure.
Speaker Change: It took away two parts to your question and first of all.
Speaker Change: The pricing.
Speaker Change: Had strong pricing in the first quarter, obviously for utility Poles.
Speaker Change: I believe and I think we've stated this before we believe that the first half of the year, we will still see some uplift coming from pricing and.
Speaker Change: Still maintain our assumption of up.
Speaker Change: Pricing pressures in the second half of this year driven.
Speaker Change: Which supported our justified by the fact that we see new capacity come on line.
Speaker Change: That being said the volume piece as I said, we still have strong confidence because we.
Speaker Change: Strong communications with our customers we have brought on some new customers. This year that were not part of our customer list last year, and so we feel pretty strong about 50%.
Éric Vachon: We have brought on some new customers this year that were not part of our customer list last year, and so we feel pretty strong about our 15% growth for the year.
Speaker Change: Growth for the year.
Speaker Change: Okay, Thanks, and just switching gears over to the railway tie business.
James McGarragle: Okay, thanks. Just switching gears over to the railway ties business. You've highlighted in the past some potential catalysts related to funding from the US Infrastructure Bill. You've talked about losing that Class I customer, reducing their volume outlook a little bit. As we start to look into 2025, do you have any update on if we could see an uptick related to the US Infrastructure Bill and what type of upside that might represent if those funds start getting to be spent? Thanks.
Speaker Change: You've highlighted in the past some potential catalyst related to funding from the U S infrastructure Bill.
Speaker Change: And you've talked about.
Speaker Change: Losing that that cost or that cost one customer reducing their volume outlook, a little bit, but as we start to look into 2025 do you have any update on.
Speaker Change: Could see an uptick related to the U S infrastructure Bill and.
Speaker Change: What type of upside that might represent.
Speaker Change: Those funds start to be getting.
Speaker Change: Thanks.
Speaker Change: But we are seeing.
Speaker Change: Subsidies or subsidy programs in the U S supported by.
Éric Vachon: We are seeing subsidies or subsidy programs in the US supported by the US federal government's infrastructure plan. As recently as 30 April, there was a deadline to apply for CRISI grants in the US, that budget was around $2.4 billion US, which is double the amount that was there in the previous year. I do believe that obviously projects will most likely have been applied for and we would see those funds deployed in the next 12 to 18 months. CRISI grants are grants that are in place to support rail infrastructure safety and typically the short line and commercial business would be the targeted market, I guess, for those subsidies. I do feel that there will continue to be strong dynamics in the non-Class I business as we go forward into 2025.
Speaker Change: Bye.
Speaker Change: The U S federal government infrastructure plan.
Speaker Change: As recently as <unk>.
Christy: April 30, there was a deadline to apply for Christy grass in the U S and that budget.
Christy: Was around I want to say around two 4 billion U S dollar, which has doubled the amount that was there at the previous year. So I do believe that Odyssey project will most likely have been applied for and we would see those funds deployed.
Christy: In the next 12 to 18 months.
Christy: Christy Grads are.
Christy Grads: Grafts that are.
Christy Grads: It plays to support.
Christy Grads: Rail infrastructure safety and typically the short two item commercial business would be the targeted market I guess for those subsidies. So I do feel that there will continue to be strong dynamics.
Christy Grads: On the non class one business as we go forward into 2025.
Speaker Change: Thank you and I'll turn the line over.
Speaker Change: Thank you.
James McGarragle: Thank you. I'll turn the line over.
Speaker Change: Thank you. Our following question is from Ben what Bobby Bobby from theirs are best Securities. Please go ahead.
Éric Vachon: Thank you.
Operator: Thank you. Our following question is from Benoit Poirier from Desjardins Securities. Please go ahead.
Speaker Change: Sure.
Ben Bobby: Good afternoon, just to come back on the utility we've seen some several large utilities like American electric power and Dominion that I've mentioned, they're seeing an uptick in the future electricity demand for data centers coming from AIG.
Benoit Poirier: Thank you very much, and good afternoon. Just to come back on the utility, we've seen several large utilities like American Electric Power and Dominion that have mentioned seeing an uptick in future electricity demand for data centers coming from AI growth wave. Has this been a point of discussion with customers in recent months? How much of a tailwind could this fortunately be on top of the infrastructure and EV backdrop for you guys?
Speaker Change: <unk> growth waiver so.
Ben Bobby: There's been a point of discussion with customers in recent months.
Speaker Change: Much of a tailwind could this are fortunate to be on top of the infrastructure and easy backdrop for you guys.
Speaker Change: Yeah.
Speaker Change: It's hard to say how much of an impact it would have.
Éric Vachon: It's hard to say how much of an impact it would have. You are correct, it is a topic of conversation that we've been hearing more frequently in the last year, I would say, where energy consumed by data centers is significantly higher. I'm assuming you're referring to AI, versus your regular internet use. I think in the end, for our customers, it's part of their consideration for overall requirement for electricity. Many utilities in North America are faced with, I would say, maybe a dual challenge. One is ensuring they have enough generating assets for the next few decades to support demand. Obviously you need transmission and distribution to be able to support it.
Speaker Change: But.
Speaker Change: You are correct. It is a topic of conversation that we've been hearing a more frequently in the last.
Speaker Change: Year, I would say where energy consumed by data centers.
Speaker Change: It is significantly higher particular.
Speaker Change: I'm, assuming you're referring to AI.
Speaker Change: Versus your regular internet use.
Speaker Change: But I think in Indiana.
Speaker Change: For our customers as part of their consideration for overall requirement for electricity many utilities.
Ben Bobby: North America.
Ben Bobby: Faced with.
North America: Our cemetery dual challenge one is ensuring we had enough generating assets for the next few decades to support demand and then obviously you need transmission and distribution to be able to support in office in the same theme for me by to your appointment.
Éric Vachon: It all fits in the same theme for me, but to your point, Benoit, the data center topic is something that has been coming up more frequently, but very hard to quantify that impact.
North America: Centric topic is something that has been coming up more frequently but very hard to quantify that impact.
North America: Okay, and just looking at your EBITDA margin above 20% in March the new record level for you.
Benoit Poirier: Okay. Just looking at your EBITDA margin, obviously above 20% marks a new record level for you. It's up almost 340 basis points versus last year. I don't know if you could maybe provide more color or break down the contribution between how much of the increase was driven utility poles versus railway ties, and how confident are you that the margins could be maybe a little bit stronger than initially expected on the back of the start in Q1?
Ben Bobby: It's up almost 340 bps versus last year or so.
Ben Bobby: I don't know if you could maybe provide more color or breakdown the contribution between.
Ben Bobby: How much of the increase was driven.
Ben Bobby: Utility Poles versus railway ties and.
Ben Bobby: How confident are you that the <unk>.
Ben Bobby: Margins could be maybe a little bit stronger than initially expected on the back of the start in Q1.
Ben Bobby: Well.
Speaker Change: I know you know very well, we don't disclose margins by product category.
Éric Vachon: Right. Well, Benoit, you know very well we don't disclose margins by product category. Obviously as stated in our MD&A, the better pricing for railway ties did contribute to that favorable uplift in EBITDA margin. Also very proud on how our team is managing our cost and leveraging our network to make sure that we compress costs as best we can. Going forward, with my comment earlier, that pricing would be still strong in Q2. I would still expect some relatively stronger EBITDA for Q2. Now, please, I'll remind the listener that we also usually have a stronger volume for residential lumber in Q2, so the mix would obviously make it different because I guess the mix of residential lumber in Q1 is obviously lower.
Speaker Change: But obviously the as stated in our MD&A, the better pricing for Paul in the vendor pricing for utility.
Speaker Change: Sorry for railway ties.
Speaker Change: It did contribute to that.
Speaker Change: Favorable uplift in EBITDA margin.
Barry: Barry also also very proud on how our team is managing our cost in that.
Barry Smith: Leveraging our network to make sure that.
Barry: We are.
Barry: Compress cost as best we can.
Barry: But.
Barry: Sure.
Barry: Going forward.
Speaker Change: With my comment earlier that pricing would be.
Speaker Change: Still strong in the second quarter, So I would still expect some some relatively.
Speaker Change: Stronger EBITDA for the second quarter now please.
Speaker Change: I'll remind the listeners that.
Speaker Change: We also usually have a stronger volume for residential lumber in the second quarter. So the mix would obviously make a difference because or I guess.
I: The mix of residential lumber in the first quarter is obviously lower.
Speaker Change: But I do believe that our first half of the year will show very strong performance.
Éric Vachon: I do believe that our H1 will show very strong performance from an EBITDA margin standpoint. The H2, we are guiding to softer margins compared to H1, driven by our belief that there will be more competition for utility pole sales.
Speaker Change: From an EBITDA margin standpoint.
Speaker Change: And then the second half we are guiding to softer margins compared to H one.
Speaker Change: Driven by our belief that there will be more competition for four or utility wholesales.
Speaker Change: Okay, that's great color and last one for me on the residential lumber side.
Benoit Poirier: Okay. That's great color. Last one for me on the residential lumber side. What are you seeing on the retail side so far in Q2 in your discussion with customers as we enter the summer peak season?
Speaker Change: What are you seeing on the retail side, so far in Q2.
Speaker Change: Your discussion with customers as we enter the summer peak season.
Speaker Change: Obviously, it's a it's a.
Speaker Change: Q2 data point, but it seems that where our customers are looking for similar volumes year over year pricing lumber price of lumber is similar to last year. It ebbs and flows a bit but in the same range I don't think pricing would be.
Éric Vachon: Obviously, it's a Q2 data point, but it seems that our customers are looking for similar volumes year over year. Price of lumber is similar to last year. It ebbs and flows a bit, but in the same range. I don't think pricing would be a big factor necessarily, and volumes would be flattish or similar. Thus our conclusion that it would be the same range of 6 to 650, CAD 100 million in sales annually.
Speaker Change: Big factor necessarily in volumes would be flattish or similar.
Speaker Change: So.
Speaker Change: Thus our conclusion that it would be the same range of $6 to $6 $50 million to $100 million in sales annually.
Speaker Change: Perfect. Thank you very much and congrats.
Speaker Change: Thank you my pleasure.
Benoit Poirier: Perfect. Thank you very much, and congrats.
Speaker Change: Thank you.
Éric Vachon: Thank you. My pleasure.
Speaker Change: Following question is from Jonathan Goldman from Scotia Capital. Please go ahead.
Operator: Thank you. Our following question is from Jonathan Goldman from Scotia Capital. Please go ahead.
Jonathan Goldman: Taking my question.
Jonathan Goldman: Eric I appreciate the comments you made on the mix in Q2, but Q2 is typically your strongest EBITDA margin quarter.
Jonathan Goldman: Thanks for taking my question. Éric, I appreciate the comments you made on the mix in Q2. Q2 is typically your strongest EBITDA margin quarter. Wouldn't it be logical to assume margins would be up quarter on quarter?
Jonathan Goldman: Wouldn't it be logical to assume margins would be up quarter on quarter.
Eric: Quarter on quarter, No I think.
Éric Vachon: Quarter on quarter? No. I think the mix will make it potentially slightly lower. It'll still be a strong EBITDA margin quarter, but it is the peak season for residential lumber. What we sell in April, May, and June, volume-wise, significantly outweighs the other three quarters of the year. You are right that poles and ties also have a large presence in Q2, but I still think that the mix would have it slightly lower.
Eric: I think the mix will make it potentially.
Speaker Change: Slightly lower it was still being strong it was still be a strong <unk>.
Eric: EBITDA margin quarter, but it is a peak season for residential lumber what we saw in April may and June volume wise significantly outweighs the other three quarters of the year.
Speaker Change: But you are right that pulls and ties are also.
Speaker Change: No.
Speaker Change: Have a large presence in the second quarter, but I still think that the mix would have.
Speaker Change: Slightly lower.
Speaker Change: But that mix be different than historically.
Jonathan Goldman: Would that mix be different than historically?
Speaker Change: Yes.
Éric Vachon: Yes.
Speaker Change: Okay.
Speaker Change: And the second one I guess.
Jonathan Goldman: Great.
Speaker Change: So I don't want add some color maybe just add some color Jonathan also keep in mind that.
Silvana Travaglini: Yeah, just to add maybe.
Jonathan Goldman: Second one.
Éric Vachon: Hold on. Silvana, you want to add some color?
Silvana Travaglini: Yeah, maybe just add some color, Jonathan. Also keep in mind that our poles sales, with SYP being a bigger portion of our portfolio, there's a little bit more consistency throughout the year. We have seen less seasonality, let's call it, currently versus in the past, just because of the greater weight that we have of SYP in our portfolio.
Jonathan Goldman: You know our pools.
Speaker Change: Pools.
Speaker Change: <unk>.
Jonathan Goldman: With FY <unk>.
Jonathan Goldman: A bigger portion of our portfolio, just a little bit more consistency sloppy ourselves we have seen less seasonality.
Speaker Change: Seasonality, let's call it.
Speaker Change: <unk> current fleet versus in the past just because update later weight that we have the best White PNR portfolio.
Speaker Change: Okay. That's great color. Thank you and then I guess the second one would be on pull volume outlook.
Jonathan Goldman: Okay, that's great color. Thank you. I guess the second one would be on pole volume outlook. Éric, you discussed 15% growth in your poles business this year. That would be mostly volume, I think you said. That would imply 20% growth in the back nine months of the year. Is that the right way to think about it? What sort of visibility do you have on growth accelerating to that degree?
Speaker Change: Can you discuss 15% growth in your <unk> business. This year that will be mostly volume I think you said.
Speaker Change: That would imply 20% growth in the back nine months of the year.
Speaker Change: Is that the right way to think about it and what sort of visibility do you have on growth accelerating to that degree.
Speaker Change: Okay.
Speaker Change: I think your math Directionally is correct.
Éric Vachon: Yeah. I think your math directionally is correct. As well as I mentioned in my remarks, our assurance or certainty that which we come forward with our 15% growth comes from discussions we have with our key customers, the project that they have coming in the next quarters and lapping into actually 2025. As well as I mentioned, we have some new customers that we're ramping up in the Q1 that are now fully supported by us, going forward. I do feel pretty good about it. Those are our pole teams, spend a lot of time looking at our number, making sure that we could come today with a level of comfort in stating or reiterating our 15% growth.
Speaker Change: And you know.
Speaker Change: Well as I mentioned in my remarks.
Speaker Change: That.
Speaker Change: <unk>.
Speaker Change: Our capability to two.
Speaker Change: Sure, it's certainty there, which we come forward with our 50% growth comes from discussions we have with our key customers.
Speaker Change: The projects that you have coming in.
Speaker Change: The next quarters and lapping into actually 25.
Speaker Change: As well as I mentioned, we are we have some new customers that were wrapping up in the first quarter that are now.
Speaker Change:
Speaker Change: Totally supported by us.
Speaker Change: Going forward so.
Speaker Change: You feel pretty good about it and so those are our four teams spend a lot of time looking at a number of making sure that we could come today was the level of comfort and steady or reiterating our 15% growth.
Speaker Change: Okay perfect. If I can just squeeze one more in do you have a sense on the tie in of sales growth the organic growth how much of that was volume versus price driven disorder.
Jonathan Goldman: Okay, perfect. If I could just squeeze one more in. Do you have a sense on the tie, the sales growth, the organic growth, how much of that was volume versus price driven this quarter?
Speaker Change: I would offer.
Speaker Change: Half and half about 50%, 50% youre talking for the entire growth rate.
Éric Vachon: For all three, it's about half and half, about 50%. You're talking for the entire growth, right?
Speaker Change: The organic growth for Tycho.
Speaker Change: Yes, 50 50 50.
Jonathan Goldman: The organic growth for ties. I guess it's all organic.
Tycho: Volume and 50 on pricing.
Éric Vachon: Yes. For ties, 50/50. Yeah. 50 volume and 50 on price.
Speaker Change: Perfect. Thank you for taking my questions. Thank.
Jonathan Goldman: Perfect. Thank you for taking my questions.
Speaker Change: Thank you.
Michael <unk>: Thank you. Our following question is from Michael <unk> from TD Securities. Please go ahead.
Éric Vachon: Thank you.
Operator: Thank you. Our following question is from Michael Tupholme from TD Securities. Please go ahead.
Michael <unk>: Okay.
Michael <unk>: Thank you good afternoon, maybe a similar question to the one you just asked Eric.
Michael Tupholme: Thank you. Good afternoon. Maybe a similar question to the one you just were asked, Éric, but with respect to the poles product category, if you can provide a breakdown of the 7% year-over-year organic growth you saw in the quarter, how much of that was volumes versus price?
Michael <unk>: With respect to the polls product category.
Michael <unk>: If you can provide a breakdown of the 7% year over year organic growth you saw in the quarter how much of that was.
Michael <unk>: Volumes versus price.
Michael <unk>: Thank you Michael so as we.
Éric Vachon: Thank you, Michael. As we explained actually in February in our Q4 call, our Q4 2023 volumes were down 5% year over year. At that point, we did take the opportunity to say that we would see a similar trend in Q1 of this year. That is exactly what we've observed. No surprises there.
Michael: Explained actually in February in our Q4 call.
Speaker Change: So our Q4 'twenty three volumes were down.
Michael <unk>: 5% year over year and at that point, we did take the opportunity to say that we would see a similar trend in the first quarter of this year and that is exactly what we've observed so.
Michael <unk>: No surprises there.
Michael <unk>: Okay.
Michael <unk>: Okay and then.
Michael <unk>: What are you seeing through the first part of the second quarter as far as perhaps the month.
Michael Tupholme: Okay. What are you seeing through the first part of Q2 as far as perhaps the month of April in terms of what you saw on the volume side year over year for poles?
Michael <unk>: The month of April in terms of what you saw on the volume side year over year for pulse.
Michael: Well Michael.
Michael <unk>: Michael those are that's really Q2 question. So what really I want to reiterate is that we have confidence in our 50% growth for the year.
Éric Vachon: So Michael, that's really a Q2 question. What really I want to reiterate is that we have confidence in our 15% growth for the year. Obviously As I mentioned in my comments, it's really a long-term view on things. I really even would say 15% CAGR over 2024 and 2025, as we know that a lot of projects from our customers, although there's been a bit of deferral in Q4 and Q1 into the coming quarters. It is a long-term initiative for all our customers, but still feel comfortable with our 15% CAGR.
Michael <unk>: And obviously, it's a.
Michael: As I mentioned in my comments, it's really a long term view on things I really would say, 50% CAGR over 'twenty four 'twenty five.
Michael: We know that a lot of projects from our customers.
Speaker Change: It's been a bit of deferral in Q4, and Q1 into the coming quarters, it's a bit of it is not a it is a long term.
Speaker Change: Initiative for all our customers, but still feel comfortable with a 15% CAGR.
Speaker Change: Okay, that's fair.
Speaker Change: Absolutely took your point that you reiterated the 15% CAGR.
Michael Tupholme: Okay. That's fair. Absolutely took your point that you reiterated the 15% CAGR, and I think you were just talking with the prior analyst about what's implied for the remaining nine months to get you there. Maybe I'll ask the question a little bit differently. The question is really then, how do we think about the cadence here as we move through the year, just to ensure we're not being too aggressive as we think about Q2 for the poles business in terms of organic growth? How does this ramp as you make your way to that 15% organic growth for the year?
Speaker Change: I think you were just talking with the prior.
Speaker Change #101: The prior analyst about what's implied for the remaining nine months to get you there I guess.
Speaker Change #101: Maybe I'll ask the question a little bit differently I guess the question is really then how do we think about the cadence here as you move through the year just to.
Speaker Change #101: And sure we're not.
Speaker Change #103: Being too aggressive as we think about Q2 for the pools business in terms of organic growth like how does this ramp.
Speaker Change #102: You make your way to that 15% organic growth for the year.
Speaker Change #108: So as I mentioned, we've seen better volumes in Q1. This year in Q4 next year is going to keep growing.
Éric Vachon: Yeah. As I mentioned, we've seen better volume in Q1 this year and Q4 next year, and it's going to keep growing. I'll reiterate that Q2 and Q3 would be our strongest volume quarters. I guess you could expect us to have a jump, I guess, in the volume in Q2 and Q3 simply because, it is the maintenance season in North America, granted that in the South US, as Silvana explained, SYP is a year-round activity. Canada and the northern part of the US, April to October are the months where installation and maintenance, a lot of it gets done.
Speaker Change #102: <unk>.
Speaker Change #105: Reiterate that Q2 and Q3 with your strongest volume quarters. So I guess, you could expect us to have.
Speaker Change #109: A jump I guess in into volume in the second and third quarter simply because.
North America: It is the maintenance season in North America granted that the south USS Silvana explain us why P is a year round activity.
North America: Canada, and the northern part of the U S.
Dubai: April to October, our Dubai, where installation and maintenance a lot of it gets done.
North America: Okay.
Speaker Change #106: Okay Fair enough and then maybe just one other one you had previously talked about the prospect to the potential for some pricing pressure I think you reiterated that.
Michael Tupholme: Okay, fair enough. Maybe just one other one. You'd previously talked about the prospect or the potential for some pricing pressure. I think you reiterated that risk or potential here on this call as far as the poles business and pricing pressure, particularly in H2. I think previously you'd talked about those pressures potentially the poles market. Can you just talk about where do you see potential pricing pressures now? Is it still very much in the spot market, or do you see anything going on in the contract market? If you can just talk about that, it would be helpful.
Speaker Change #110: Risk or potential here on this call as far as the Poles business and pricing pressure, particularly in the second half.
Speaker Change #106: I think previously you had talked about those pressures potentially materializing in the spot portion of the call is market.
Speaker Change #106: Can you just talk about.
Speaker Change #106: Where where do you see potential pricing pressures now is it still very much in the spot market or do you see anything going on in the contract market. If you can just talk about that'd be helpful.
Speaker Change #106: So our users would be entirely in the spot market.
Éric Vachon: Our view is that it would be entirely in the spot market. Our contract pricing is set and has mechanism for adjustments that are based on the different cost drivers. Market trends, much less or no influence at all. It's entirely into the spot market. Can't say that it's something that we've necessarily seen or measured. As I explained, with the additional capacity in the market and us securing a lot of the long-term contracts, in the North American market, I feel that a lot of our competitors to move their products, will have to take a second look at their pricing. Obviously, that's an assumption that Stella-Jones has taken, and that's how we've sort of laid out our expectations for our margins for H2.
Speaker Change #106: Our contract pricing is set and has mechanism for adjustments that are based on the different cost drivers so market trends much less or no influence at all so it's entirely into the into the spot market has to say that it's something that we'd necessarily.
I: Seen or measured but as I explained with the additional capacity in the market and thus securing a lot of the long term contracts in the North American market.
I: I feel that a lot of our competitors to move their products. We will have to take a second look at their pricing, but obviously, that's an assumption that Stella Jones has taken and Thats, how we sort of laid out our expectations for our margins for the second half of the year.
Stella Jones: But at this point, you're not yet seeing it in the spot market. This is more of a.
Michael Tupholme: At this point, you're not yet seeing it in the spot market. This is more of a potential risk still?
I: Potential risks.
Speaker Change #104: Still a potential risk just.
Speaker Change #104: Got it okay. Thank you I'll leave it there thank.
Éric Vachon: Still a potential risk, yes.
Speaker Change #104: Thank you Mike.
Michael Tupholme: Got it. Okay. Thank you. I'll leave it there.
Maxim <unk>: Thank you. Our following question is from Maxim <unk> from National Bank Financial. Please go ahead.
Éric Vachon: Thank you, Mike.
Operator: Thank you. Our following question is from Maxim Sychev from National Bank Financial. Please go ahead.
Maxim <unk>: Hi, good afternoon Hello.
Maxim <unk>: Tim.
Maxim Sychev: Hi. Good afternoon.
Silvana Travaglini: Maybe the first question for Silvana timing. So when you talk about normalization of working capital kind of intensity. So runoff in 2023, there was a chunk of $345 million for noncash working capital do you mind, maybe providing.
Éric Vachon: Hello, Maxim.
Maxim Sychev: Maybe the first question for Silvana, if I may. When you talk about normalization of working capital kind of intensity, when I look in 2023, there was a drag of CAD 345 million for non-cash working capital. Do you mind maybe providing some thoughts around where 2024 might land? Would we be able to unwind kind of the vast majority of that? How should we think about this? Thanks.
Tim: Some thoughts around where 2024 month land.
Tim: Be able to unwind the vast majority of platform how should we think about this.
Tim: Thanks.
Tim: So the our expectation for that for this year for 2020 is that the inventory level at the end of 2020 before it will be a similar level in.
Silvana Travaglini: Our expectation for this year, for 2024, is that the inventory level at the end of 2024 will be at a similar level as at the end of 2023. It will remain at those higher levels. A part of it is the need to have this higher inventory level to service additional volumes that we are projecting into 2025, particularly for utility poles, but also for railway ties.
Speaker Change #117: In <unk> at the end of 2020 to be so.
Speaker Change #116: It will remain at those higher levels are private data.
Tim: Yes.
Speaker Change #120: They need to have this higher inventory levels to service additional add volumes to add back to the Iowa projecting into 2025 particular thing for you to really close that also.
Speaker Change #114: Let's hope they don't wait times.
Speaker Change #124: Okay, and then I guess I mean, I know that 2025 is a bit.
Maxim Sychev: Okay. I know that 2025 is a bit far, but I'm just trying to think about sort of a normalized, perhaps EBITDA to kind of free cash flow conversion. Maybe if you have any thoughts there, how we should be approaching this.
Speaker Change #115: It is a bit far but I'm, just trying to think about sort of a normalized perhaps EBITDA to free cash flow conversion.
Speaker Change #119: Maybe if you have any thoughts there how we should be approaching this.
Speaker Change #121: In terms of I guess, maybe two data points that might be useful and the first one is that.
Silvana Travaglini: In terms of, I guess maybe two data points that might be useful. The first one is that our expectation is that our inventory build is always about 40% of additional revenue. For the additional dollar of revenue, there's about CAD 0.40 of inventory build typically that is seen throughout the company. In terms of free cash flow conversion on a normalized basis, I would say probably a 50% to 60% would be, I believe closer to 50% would be more of a normalized level.
Speaker Change #119: Expectation is that we.
Speaker Change #119: All of that inventory is.
Speaker Change #119: Ill make about 40% of additional revenues sell lab pack.
Speaker Change #119: Additional dollar of revenue with us about what your sense of inventory.
Speaker Change #123: <unk> locked and the company and in terms of free cash.
Speaker Change #118: Free cash flow conversion on a normalized basis I would say probably.
Speaker Change #118: Yeah.
Speaker Change #118: Thank you.
Speaker Change #112: I will pass it to 50% would be more of a normalized level.
Speaker Change #122: Okay. That's useful thank you so much.
Eric: Eric I mean, I know, obviously, we're kind of beating the dead horse around pricing dynamic, but how quickly do you think that can clear do you think it's really just a back half of 2024 event and then there is sort of like a reset in 2025, what do you think it can have a bit of a longer tailed lines. What are your thoughts from that perspective. Thanks.
Maxim Sychev: Okay. That's super useful. Thank you so much, Silvana, for that. Éric, I know obviously we're kind of beating the dead horse around pricing dynamic, but how quickly do you think that can clear? Do you think it's really just a H2 2024 event, and then there's sort of like a reset in 2025, or do you think it can have a bit of a longer tail? What are your thoughts from that perspective? Thanks.
Eric: So I mean, it's a good point.
Eric: The.
Éric Vachon: It's a good point. Obviously, it's an assumption. Is it going to happen in Q3 or starting Q4 and lap into early next year? I think it's sort of like the presence of this pressure, once it starts, it'll be there for a couple of quarters. The longer it takes, I would think the better off we are as I think demand will normalize again, because I think it's short-lived. We're still expecting to see interest rate drops, maybe not this year at this point, I don't know, later in the year or early next year. I do think that as soon as we see interest rate moves, we will see more projects come forward in North America, and that will most likely help absorb some of that excess capacity.
Speaker Change #126: Obviously, it's an assumption now is it going to happen in Q3 are starting Q4 and lap into early next year I think it's sort of like.
Eric: We will have.
Eric: The presence of this pressure will once it.
Speaker Change #125: It starts it will be there for a couple of quarters the longer it takes I would think the better off we are and I think demand will who will normalize again I think it's short lived.
Speaker Change #125: Yeah.
Eric: We're still expecting.
Speaker Change #128: To see interest rate drops maybe not this year at this point I don't know later in the year or early next year, but I do think that as soon as we see interest rate moves we will see more projects.
Eric: Come forward in North America, and that will most likely help.
Eric: Absorbs some of that excess capacity.
Eric: Yeah. Thanks, Thanks, a lot of sense, Okay. That's great. Thank you so much disciplined.
Maxim Sychev: Yeah. Makes a lot of sense. Okay, that's great. Thank you so much. That's it from me.
Eric: Thanks, Jim.
Eric: Okay.
Eric: We have no further questions in the queue. Thank you.
Éric Vachon: Thank you, Maxim.
Operator: We have no further questions in the queue. Thank you.
Jim: Well. Thank you everyone for joining us today and look forward to talk to you again next quarter.
Éric Vachon: Well, thank you everyone for joining us today and look forward to talk to you again next quarter.
Jim: Okay.
Speaker Change #129: Ladies and gentlemen. This concludes today's call. Thank you for participating you may now disconnect your lines.
Operator: Ladies and gentlemen, this concludes today's call. Thank you for participating. You may now disconnect your lines.
Speaker Change #129: Okay.
