Q3 2024 Green Thumb Industries Inc Earnings Call
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Operator: [music] © BF-WATCH TV 2021 Good day and welcome to Green Thumb Industry's third quarter 2024 earnings conference call and webcast. All participants will be in a listen-only mode.
Good day, and welcome to Green Thumb Industries third quarter 2024 earnings conference call and webcast.
All participants will be in a listen only mode.
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Operator: Please signal a conference specialist by pressing the star key followed by zero. On today's call, management will provide prepared remarks and then we will open up the call for your questions. To ask a question, analysts may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the key. And to withdraw your question, please press star then two.
On today's call management will provide prepared remarks, and then we will open up the call for your questions.
Speaker Change: To ask a question Anna.
Speaker Change: Then one on your Touchtone phone.
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Operator: Please note, this event is being recorded.
Please note this event is being recorded.
Shay Caplice: I would now like to turn the conference over to Shay Caplice, Director of Communications at Green Thumb. Please go ahead.
Shane: I would now like to turn the conference over to Shane <unk> Director of Communications at Green Thumb. Please go ahead.
Speaker Change: Thank you Betsy and good afternoon, and welcome to Green thumb third quarter of 2024 earnings call I'm here today, with founder and CEO of basketball Byrd, President George <unk>, and our Chief Financial Officer, today's discussion and responses to questions may include forward looking statements, which are subject to various.
Shay Caplice: Thank you, Betsy.
Shay Caplice: Good afternoon, and welcome to Green Thumb's third quarter 2024 earnings call. I'm here today with founder and CEO Ben Kovler, President Anthony Georgiadis, and our Chief Financial Officer Matt Faulkner. Today's discussion and response to questions may include forward-looking statements, which are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements. These risks and uncertainties are detailed in the earnings press release issued today along with the report filed with the United States Security and Exchange Commission and Canadian Securities Regulatory Commission. including the 2023 Annual Report filed on Form 10-K.
Speaker Change: Risks and uncertainties that could cause our actual results to differ materially from these statements.
Speaker Change: These risks and uncertainties are detailed in the earnings press release issued today, along with our reports filed with the United States.
Speaker Change: And Canadian Securities regulators.
Speaker Change: Including the 20 <unk> annual report filed on Form 10-K S report along with today's earnings release can be found under the investors section of our website.
Shay Caplice: This report, along with today's earnings release, can be found under the Investors section of our website. Green Thumb assumes no obligation to update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this call. Throughout the discussion, Green Thumb will refer to non-GAAP financial measures, including EBITDA and Adjusted Operating EBITDA. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures is included in our earnings press release and SEC and CDER files. Please note all financial information is provided in U.S. dollars unless otherwise indicated.
Speaker Change: Green thumb assumes no obligation to update or revise any forward looking statements to reflect events or circumstances that may arise. After the date of this call throughout the discussion greenbaum will refer to non-GAAP financial measures.
Speaker Change: And adjusted operating EBITDA, a reconciliation of non-GAAP financial measures to the whole directly comparable GAAP measures is included in our earnings press release and SEDAR.
Speaker Change: SEDAR filings.
Speaker Change: Please note all financial information is provided in dress salaries unless otherwise indicated.
Shay Caplice: Thanks, everyone.
Pat: Thanks, everyone and now here's Pat.
Ben Kovler: And now, here's Ben. Thank you, Shay. Good afternoon, everyone, and thank you for joining our third quarter 2024 conference call. Now that the election is over, the good news for us is that Green Thumb is set up to win, regardless of federal change. We've said that from the beginning, and we've built our business on that. We continue to execute as we have all along, staying focused on what we can control to grow our business.
Pat: Thank you Chad.
Pat: Good afternoon, everyone and thank you for joining our third quarter 2024 conference call.
Pat: Although collections over the good news for us at Green thumb set up to win regardless of federal change.
So is that from the beginning and we built our business on that principle.
Pat: We continued to execute as we have all along.
Pat: Focused on what we can control.
Pat: Speaking of decades now.
Ben Kovler: thinking in decades, not what may or may not happen over the next few years. Moving on to the business at hand, for the third quarter, our team delivered impressive results, including $287 million in revenue, adjusted EBITDA of $89 million, and $48 million in cash flow operations, after paying $35 million in taxes. Our focus on cash flow and disciplined capital allocation has played a critical role in building trust and strong relationships in the banking community. As a result, in early September, we entered into a $150 million syndicated bank loan, a first-of-its-kind financing in the cannabis industry.
Pat: What may or may not happen over the next few years.
Pat: Moving on to the business at hand for the third quarter, our team delivered impressive results.
Pat: $187 million in revenue adjusted EBITDA of $89 billion and $48 million of cash flow operations after paying $35 million impact.
Pat: Our focus on cash flow and disciplined capital allocation has played a critical role in building trust and strong relationships in the banking community.
As a result in early September we entered into a $150 million syndicated bank loan.
Pat: First of all its time financing in the cannabis industry.
Pat: It was an oversubscribed non brokered diesel at an industry leading rate of sulfur plus 5%.
Ben Kovler: It was an oversubscribed non-broker deal at an industry-leading rate of SOFR plus 5%, which, after today's 25 basis point interest rate cut, is about 9.5% cash. With the proceeds, we retire the $225 million in senior secured debt due in April 2025. The notes from this new financing don't mature until September 2029. So in one action, we de-levered our balance sheet, maintained our cash interest expense, and added valuable duration.
Speaker Change: Rich efforts day, 25 basis point interest rate cut.
Speaker Change: At nine 5% cash interest.
Speaker Change: With the proceeds we retired the $225 million senior secured debt due in April 2025.
Speaker Change: This new financing don't mature until September 2029.
Speaker Change: So one action Delever, our balance sheet maintained our cash interest expense.
Speaker Change: Added valuable duration, another five years to execute on our growth plan.
Ben Kovler: Another five years to execute on our growth plan. Capital Allocation has always been our North Star, and by now you know we're longtime fans of Warren Buffett and take his wisdom to heart. One of our favorite quotes is, quote, what is smart at one price is dumb at another. We think about that when putting precious capital to work in building our business. Price Matters.
Speaker Change: Capital allocation has always been our north star and right now you know what.
Speaker Change: Longtime fans of Warren Buffett and take his wisdom to heart.
Speaker Change: One of our favorite.
Speaker Change: Well the smart one price is gone and another.
Speaker Change: When you think about that when pulling precious capital to work and effort in building our business price matters. It starts with our team having conviction that every dollar we spend can produce a tangible return and help scale our business.
Ben Kovler: sons with our team having conviction that every dollar we spend can produce a tangible return and help scale our Our strategy has been to invest in cultivation and manufacturing as we launch retail stores. In the quarter, we opened four new dispensaries for a total of 98 locations nationwide. New RISE locations include East Syracuse, New York, two RISE dispensaries in Tallahassee, and one in Jacksonville, Florida. Just this morning, we announced our 99th store will be opening in Orlando, Florida on Good Homes Road.
Speaker Change: Our strategy has been to invest in cultivation and manufacturing as we launch retail stores.
In the quarter, we opened four new dispensaries for a total of 98 locations nationwide new locations to serve New York.
Raj dispensaries in Tallahassee, and one in Jacksonville, Florida.
Speaker Change: Just this morning, we announced our 99 store will be opening in Orlando, Florida.
Speaker Change: Okay.
Ben Kovler: It's unfortunate that Adult News did not pass on Tuesday. We believe our footprint in Florida is right-sized to its medical market, so the failed referendum on adult use is somewhat neutral to our business plan. That said, while frustrated, while frustrated we didn't hit the 60%, we continue to feel good about our opportunity.
Speaker Change: It's unfortunate that adult use did not pass on Tuesday.
Speaker Change: We believe our footprint in Florida is right sized with medical market failed referendum on adult somewhat neutral to our business plan.
Speaker Change: While I'm frustrated.
Speaker Change: I'm frustrated we didn't hit the 60% we continue to feel good about our opportunity in the state.
Ben Kovler: Anthony will go into more detail on our CapEx plan and our exciting consumer packaged goods initiative. On a high level, we are intensely focused on building brand equity from our portfolio of outstanding products. I'm sure most of you know the world-famous Magnolia Bakery that has been a treasured New York institution for nearly 30 years with its beloved banana puddings, cakes, brownies and cupcakes. Our initial collaboration with this iconic bakery in 2023 was a huge success, so both Magnolia and Green Thumb were thrilled to expand our partnership this October. This collaboration is just one example of how our brands are making a big splash in new and innovative ways.
Speaker Change: Anthony will go into more detail on our Capex plans and our exciting consumer package goods initiatives on a high level. We are intensely focused on building brand equity from our portfolio of outstanding products.
Speaker Change: I'm sure most of you know the world payments Magnolia bakery, and there's been a treasurer, New York institution for nearly 30 years with this beloved banana pudding Cape Rally and cupcakes.
Speaker Change: Our initial collaboration with its iconic bakery 2023 was a huge success. So both Magnolia and Greenbaum, we're thrilled to expand our partnership this October.
Speaker Change: This collaboration is just one example of how our brands are making a big splash.
Speaker Change: Native way.
Ben Kovler: and how we expand access to our products through various distribution channels. It is a new world today, one where you can purchase Incredibles in person at Rye Dispensaries, online at IncrediblesHemp.shop. and even convenient same-day delivery, often within one hour through DoorDash. It's becoming easier than ever to access green thumb products for well-being, and this is just the beginning. We are excited by all the opportunity for our brands to reach even more consumers across the country.
Speaker Change: And how do we expand access to our products through various distribution channels.
Speaker Change: It's a new world today.
Speaker Change: You can purchase incredible in personal advisor dispensaries.
Speaker Change: While an incredible dot shop.
Speaker Change: And even convenient same day delivery.
Speaker Change: Often within one hour through door dash.
Speaker Change: Is it becoming easier than ever to access bring some products for well being and this is just the beginning.
Speaker Change: We are excited by all the opportunities brought ramps to reach even more consumers across the country.
Ben Kovler: Accelerating that brand awareness continues to be one of our top priorities as we look to 2025. Rhythm, our highly acclaimed lifestyle brand and new partner to Barstool, Dog Walkers, America's favorite pre-roll brand. our ever-expanding line of Incredibles, and Bebo for the sophisticated cannabis experience, our top-rated brand, building reputations as mainstays in the cannabis industry and the American experience. Anthony will touch on this topic a bit further, but net net, we like the path we are on. Our strong balance sheet is the key to having options and the ability to execute, and to protect our strong balance sheet, we have to pay our taxes to avoid incurring a significant tax liability under 280E, a heavy burden to the industry.
Speaker Change: Celebrating that brand awareness continues to be one of our top priorities as we look to 2025.
Speaker Change: Our highly acclaimed lifestyle brand and new partner to Barstool.
Dog-walker America's favorite pretty well Brian.
Speaker Change: Ever expanding line of incredible and people for the sophisticated candidates experience our top rated brand building reputation that main stays in the cannabis industry and the American experience.
Speaker Change: Anthony will touch on this topic a bit further but not that we like the path we're on.
Speaker Change: Our strong balance sheet is the key to having options and the ability to execute and to protect our strong balance sheet, we have to pay our taxes to avoid incurring a significant tax liability under $2 88, a heavy burden to the industry.
Speaker Change: Before I close I want to reiterate what I've said time and time again, the future is bright for Green Dot.
Ben Kovler: Before I close, I want to reiterate what I've said time and time again, that the future is bright for Green Thumb. We have a very productive asset base with a strong presence in many new and upcoming adult use markets. We love our balance sheet, especially with the recent debt refinancing, and we will continue to thoughtfully deploy capital into the business. explore unique investment opportunities. and remain open to strategic M&A.
Speaker Change: We have a very productive asset base with a strong presence in many new and upcoming adult use markets, we love our balance sheet, especially with the recent debt refinancing and we will continue to thoughtfully deploy capital into the business.
Explore unique investment opportunities.
Speaker Change: And remain open to strategic M&A.
Speaker Change: Most importantly, we have the best team in the business to rise. The Greenway. This team puts their head down and executes focusing on the mission of bringing high quality cannabis products to Americans, who meet them now more than ever.
Ben Kovler: Most importantly, we have the best team in the business to ride the green wave. This team puts their head down and executes, focusing on the mission of bringing high-quality cannabis products to Americans who need them now more than ever.
Ben Kovler: I think it's safe to say that so many gummies were consumed while awaiting Tuesday night's election results, and that consumption is not slowing down.
Speaker Change: It's safe to say that so many companies were consumed while awaiting Tuesday night's election result, and that consumption is not slowing down.
Anthony Georgiadis: Now, I'll turn the call over to Anthony. Thank you, Ben. As you just heard, the team delivered yet another incredibly strong quarter, building upon our year-to-date achievements with impressive financial and operating results.
Anthony: Now I'll turn the call over to Anthony.
Anthony: Okay.
Anthony: Thank you Matt.
Speaker Change: You just heard the team delivered yet another incredibly strong quarter building upon our year to date achievements with impressive financial and operating results.
Anthony Georgiadis: Let's take a look at some of the highlights. First in Ohio on August 6. We launch no use sales at our five retail stores on Toledo Cultivation Productions. Since the launch, our retail stores have seen an approximately 2x lift in sales, consistent with initial expectations. Even better, on the wholesale side of our business, we are extremely encouraged by our market share gains from our branded products portfolio. We remain optimistic that as more stores open and adult-use regs are finalized, more and more Buckeyes will shop for their cannabis within their own state, giving the Ohio program the chance to reach the full potential of its 13 million population.
Speaker Change: Let's take a look at some of the highlights.
Speaker Change: First in Ohio on August six.
Speaker Change: Launching new sales and our five retail stores cultivation production facility.
Speaker Change: The launch of retail stores, we've seen an approximately two X lift in sales consistent with initial expectations.
Speaker Change: You did better on the wholesale side of our business. We are extremely encouraged by our market share gains from our branded product portfolio.
Speaker Change: We remain optimistic that as more stores open in adult use rates are finalized more and more Buckeyes will shop with our key individuals within their own state, giving the Ohio program to chance to reach the full potential of its 13 billion population.
Speaker Change: Second we opened four new stores during the quarter.
Anthony Georgiadis: Second, we opened four new stores during the quarter, three in Florida and one in New York. During the quarter, we invested $18 billion in CapEx, spread equally across our wholesale and retail business. Here today, our CapEx spend is around $55 million, and we expect to invest another $25 million in the fourth quarter, which would bring our total 2024 CapEx investment to approximately $80 million. For 2025, we expect CAPEX to generally be in line with 2024 levels.
Speaker Change: Three in Florida, one in New York.
Speaker Change: During the quarter, we invested 18 billion in capex spread equally across our wholesale and retail businesses.
Speaker Change: Year to date, our Capex spend was around 55 million, we expect to invest another 25 million in the fourth quarter, which would bring our total 2020 for capex.
Speaker Change: To approximate 84.
Speaker Change: For 2025, we expect Capex to generally be in line with 2024 levels.
Speaker Change: Third we continued our focus on getting our portfolio of brands in front of more Americans in unique ways.
Anthony Georgiadis: Third, we continued our focus on getting our portfolio brand in front of more Americans in unique ways. During the quarter, we hosted our second annual Miracle and Mundelein Concert that allowed for open-canvas consumption for all attendees and also formalized our relationship with the folks over at Barstool to deliver customized content across several of its highly followed channels. In addition, last month we expanded our partnership with Magnolia Bakery by collaboratively launching the Incredibles Banana Pudding Bar and Red Velvet Bar in New York, as well as offering a FarmVille-compliant version for sale to customers 21 and older.
Speaker Change: During the quarter, we hosted our second annual Miracle of underlying concert, but allows for them to canvas consumption for all attendees and also formalized our relationship with the folks over at Barstool deliver customized content across several of them several of its highly followed channels.
Speaker Change: In addition last month, we expanded our partnership with Magnolia bakery by collaboratively launching Incredibles, banana pudding bar and Red Velvet Bar in New York as well as offering a farmville compliant version for sale to customers 21.
Speaker Change: These products are available in 25 states nationwide incredible das shop, and door dash for home delivery in several markets.
Anthony Georgiadis: These products are available in 25 states nationwide via Incredible Hemp dot shop and DoorDash for home delivery in several markets. As cannabis continues to become more and more mainstream, we anticipate continuing to find creative ways to introduce our brands to America.
Speaker Change: Canada continues to become more and more mainstream we anticipate continuing to find creative ways to introduce our brands to American consumers.
Anthony Georgiadis: Fourth, we continue to drive strong CPG performance across our fleet and increased our net CPG revenue by over 15% compared to Q3 of last year. As the retail environment has become more competitive, we have continued to drive strong CPG performance by focusing on flower quality, launching new SKUs, and growing our share of products on third-party shelves. We are especially proud of the shared names that we have seen today in Pennsylvania, Ohio, New York, and New Jersey.
Speaker Change: Fourth we continue to drive strong CPG performance across our fleet and increased our net CPG revenue by over 15% compared to Q3 of last year.
Speaker Change: The retail environment has become more competitive we have continued to drive strong CPG performance by focusing on flower quality launching new skus and growing our share of products on third party shelves.
Speaker Change: We are especially proud of the share gains that we've seen to date, Pennsylvania, Ohio, and New York and New Jersey.
Anthony Georgiadis: As we look ahead to the balance of 2024 and into next year, our team remains focused on the following. First, continue to optimize our business within each market. In addition to focusing on the consumer and on operational execution, this comes down to identifying which markets we can continue to underwrite strong returns and allocating our capital and resources accordingly. Tuesday's election results will influence our decision-making on this front.
Speaker Change: As we look ahead to the balance of 2024 and in the next year. Our team remains focused on the following.
Speaker Change: First continuing to optimize our business within each market.
Speaker Change: In addition to focusing on the consumer and on operational execution. This comes down to identifying which markets. We can continue to underwrite strong returns and allocating our capital and resources Accordingly.
Speaker Change: Tuesday's election results will influence our decision making on this front.
Anthony Georgiadis: Second, becoming more efficient in our retail and wholesale businesses to optimize margins in a deteriorating pricing environment. To help achieve this, we leaned into specific technology investments and automation to achieve greater retail throughput and production efficiency.
Speaker Change: Second becoming more efficient in our retail and wholesale businesses to optimize margins and the deteriorating pricing environment.
Speaker Change: To help achieve this we leaned into specific technology investments in automation doing true to achieve greater retail throughput and production efficiency.
Anthony Georgiadis: And last, continued investment into our team and technology infrastructure to allow for continued scalable growth. This includes the ways in which our retail customers shop with us along with how we fulfill wholesale orders to ourselves and third-party accounts. As you'll hear shortly, we are comfortable continuing to increase our SG&A spend given the anticipated reduction in taxes associated with rescheduling.
Speaker Change: Last continued investment into our team and technology infrastructure to allow for continued scalable growth.
Speaker Change: This includes the ways in which our retail customers shop with us along with how we fulfill wholesale orders to ourselves and third party accounts.
Speaker Change: You will hear shortly we are comfortable continuing to increase our SG&A spend given the anticipated reduction in taxes associated with rescheduling.
Matt Faulkner: With that, we'll turn the call over to Matt to review our financial... Thanks, Anthony, and hello, everyone. In the third quarter, we delivered $287 million in revenue, a 4% increase year-over-year. Revenue during the quarter benefited from increased consumer packaged goods sales, along with revenue generated from 13 incremental retail stores and adult use sales in Maryland, Ohio, Pricing continues its downward slide with year-over-year and sequential declines in most markets. Retail revenue came in essentially flat at a 0.3% increase versus the prior year.
Speaker Change: With that I'll turn the call over to Matt to review our financial results.
Matt: Thanks, Anthony and Hello, everyone.
Matt: In the third quarter, we delivered 287 revenue a 4% decrease year over year.
Speaker Change: Revenue during the quarter benefited from increased consumer packaged goods sales along with revenue generator 13.
Speaker Change: Retail stores and adult use sales in Maryland, Ohio, and New York.
Speaker Change: Price continued its downward slide with year over year and sequential declines in most markets.
Retail revenue came in essentially flat.
Speaker Change: 0.3% decrease versus the prior year period.
Matt Faulkner: Third Quarter Comfortable Sales. Super packaged goods gross revenue increased more than 10% versus the prior year. Looking forward, we expect fourth quarter sequential revenue to be flat as price erosion. Gross profit for the third quarter was $148 million, or 51% of revenue, compared to $134 million, or 49% of revenue year-over-year. Increase in growth margin was primarily driven by operational leverage from the company's CPG business, along with lower costs associated with purchase of retail. Turning to OpEx, selling general administrative expenses for the third quarter were $105 million, or 37% of revenue, compared to $85 million, or 31% of revenue last year.
Speaker Change: Third quarter comparable sales decreased two 7% compared to the third quarter last year on a base of 82 stores.
Speaker Change: Consumer packaged goods gross revenue increased more than 10% versus the prior year quarter.
Speaker Change: Looking forward, we expect fourth quarter sequential revenue to be flat as price erosion continues.
Speaker Change: Gross profit for the third quarter was 148 million or 51% of revenue compared with $134 million or 49% of revenue year over year.
The increase in gross margin was primarily driven by operational leverage from company CPG business, along with lower costs associated with purchase retail inventory.
Speaker Change: Turning to Opex, selling general and administrative expenses for the third quarter were $105 million or 37% of revenue compared to 85 million or 31% of revenue last year.
Matt Faulkner: All expenses increased primarily due to costs associated with ongoing claims and litigation, as well as compensation. SG&A excluded depreciation, amortization, one-time transaction costs, stock-based comps, which we refer to as normalized operating costs, approximated $69 million compared to $59 million in the third quarter of last year. The increase year-over-year is mainly attributed to the 13th and parental retails. We believe in the power of brand building and will continue to invest in our brand. which will increase SG&A in the coming months. This could, in turn, push Adjustment Keeps Up below our long-standing 30% target, which we're comfortable with, especially given the beneficial impact of income tax changes that will likely come.
Speaker Change: <unk> expenses increased primarily due to costs associated with ongoing claims and litigation as well as compensation costs.
SG&A, excluding depreciation amortization and one time transaction cost stock based comp, which we refer to as normalized operating costs approximated 69 million compared to $69 million in the third quarter of last year.
Speaker Change: The increase year over year, mainly attributed to the 13th rental retail stores.
Speaker Change: We believe in the power brand building and we'll continue to invest in our brands, which will increase SG&A in the coming quarters.
Speaker Change: Couldn't turn pushing just below our longstanding 30% target, which we're comfortable with especially given the beneficial impact of income tax changes that will likely come in the near future.
Matt Faulkner: The new three-adjustment EBITDA, which includes non-cast stock-based compensation and other non-operating costs, was $89 million for 31% of revenue, as compared to $83 million for 30% of revenue for the third quarter last year, with the increase driven by margin. Third quarter net income was $9 million, or $0.04 per basic and dilute share during... This compares to net income of $11 million or $0.05 per basic and diluted share report last year. After closing out our $150 million five-year credit facility and retiring our existing $225 million senior secured note payable during the quarter, we ended the third quarter with cash for $174 million.
Speaker Change: Q3, adjusted EBITDA, which excludes noncash stock based compensation and other non operating loss was 89 million or 31% of revenue as compared to 83 million or 30% of revenue for the third quarter last year with the increase driven by margin improvement.
Speaker Change: Third quarter net income was $9.04 per basic and diluted share during the quarter.
Speaker Change: This compares to net income of $11 million or five cents per basic and diluted share reported last year.
Speaker Change: After closing on the $150 million five year credit facility retiring our existing 225 million senior secured note payable during the quarter.
For the third quarter with cash of 174 million.
Matt Faulkner: Household and Operations for the nine months came in at $152 million, after paying $88 million in income tax.
Speaker Change: Cash flow from operations for the nine months came in at $152 million after <unk> $88 million of income taxes.
Speaker Change: In summary, we're very pleased with our team's continued execution.
Matt Faulkner: In summary, we are very pleased with our team's continued excellence. who continue to drive long-term growth while maintaining disciplined capital allocations. We thank our team and our shareholders for their trust and confidence and look forward to updating you on our next call.
Speaker Change: To drive long term growth, while maintaining disciplined capital allocation.
Speaker Change: I think our team and our shareholders for their trust and confidence and look forward to updating you on our next call.
Operator: With that, I'll open the call to your questions, operator. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then do. In the interest of time, we ask that you please limit yourself to one question.
That open the call to your questions operator.
Speaker Change: We will now begin the question and answer session.
Speaker Change: To ask a question you May Press Star then one on your Touchtone phone.
Speaker Change: If you are using a speakerphone please pick up your handset before pressing the keys.
Speaker Change: If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
Speaker Change: In the interest of time, we ask that you. Please limit yourself to one question.
Operator: At this time, we will pause momentarily to assemble our roster.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Speaker Change: The first question today comes from Matt Bottomley with Canaccord Genuity. Please go ahead.
Matt Bottomley: The first question today comes from Matt Bottomley with Canaccord Genuity. Please go ahead. Good evening, everyone. Thanks for the for the time here. So I'm just wondering, when you look at the overall growth that you guys saw, just on the top line to 2.4 percent or so, you know, somewhat modest, I guess, as a number. But when you look at the overall macro dynamics in the sector, what some of your peers have reported, it's a pretty significant outperformance in the environment that we're in. So I'm just wondering if we can get a little more granularity.
Matt Bottomley: Hey, good evening, everyone. Thanks for the for the time here. So I'm just wondering when you look at the overall growth that you guys saw.
Matt Bottomley: Just on the top line to two 4% or so you know somewhat modest I guess as a number but when you look at the overall macro dynamics in this sector. So what some of your peers have reported its a pretty significant outperformance in the environment that we're in so I'm just wondering if we can get a little more granularity how much of that is a big step function in Ohio, considering that you know you guys started with five stores out of the.
Ben Kovler: How much of that is a bit step function in Ohio, considering that, you know, you guys started with five stores out of the gate. How much of that is more strategic in terms of maybe what markets you're deciding to accelerate in? Just trying to get an idea as the overall market seems to be flat, but down in the quarter. And it just seems like a notable outlier in what we've seen so far this period.
Matt Bottomley: How much of that is more strategic in terms of maybe what markets you're deciding to accelerate in I'm, just trying to get an idea as the overall market seems to be flat, but down in the quarter and it just seems like a notable outlier than what we've seen so far this period.
Matt Bottomley: Yeah, Thanks, Matt It's Ben.
Ben Kovler: Yeah, thanks, Matt, Ben, Kate. I think you bring up a good point. Look, I think the core explanation there is the team and the drive. And we think we're really up to something special. We really love the product and the brands that we're doing. We look out, we see green thumb up 4% year over year, the industry up to and we do that at some modest market share gain. And obviously, we see what else is happening out there. We feel those headwinds. You know, the price compression is real. So to sell, you know, the price is down 20%.
Speaker Change: I think you bring up a good point look I think the core explanation there is the team and the drive.
Speaker Change: We think we're really onto something special we really love the product and the brands that we're doing we look out we see green thumb up 4% year over year, the strip to and we've added some modest market share gain obviously, what's happening out there we feel those headwinds.
Speaker Change: Price compression is real.
Speaker Change: This is down 20% you've got to sell more units to equal the same revenue sometimes cost anymore.
Ben Kovler: You got to sell more units to equal the same revenue, which sometimes costs you So, you know, the results are not one thing. Obviously, Ohio is nice, maybe not as nice as everybody thought, but it's good, and certainly there's a lot of people in Ohio. We think it'll continue to grow, especially as the operators optimize what's happening there. But there's not any one answer to that. I mean, it's a grind. And as you see out there, you see what's going on. This is hard work, and the team, you know, somewhat makes it look easy because we keep putting up the right numbers, but it's not a single unlock.
Speaker Change: At retail.
Speaker Change: So the results without one thing obviously, Ohio is maybe not as much as everybody thought, but certainly there's a lot of people. How we think it will continue to grow, especially as the operators optimize what's happening there.
Speaker Change: But there's not any one answer to that I mean, it's a grind that you see out there do you see what's going on and this is hard work and the team somewhat makes it look easy because we keep putting up the right numbers, but it's not a it's not a single unlocked. So we're proud of the four versus two just kind of a language we speak.
Anthony Georgiadis: So we're proud of the four versus two, which is kind of the language we speak, and we want to keep driving that.
Speaker Change: And we want to keep driving that.
Anthony Georgiadis: Is there any market you can point to specifically that's better than your expectations from the standpoint of where we were when we were chatting a quarter ago compared to what occurred in the quarter?
Speaker Change: Is there any market you can point to specifically that that's better than your into your expectations from.
Speaker Change: From the standpoint of where we were when we were chatting a quarter ago compared to what occurred in the quarter.
Speaker Change: Yes, so Matt Anthony here I'll take that I'll take that question. Yeah look we've seen nice CPG games I've talked about in my prepared remarks that we've seen nice share gains in a few markets.
Anthony Georgiadis: Yeah, so Matt, Anthony here. I'll take that question. Yeah, look, we've seen nice CP2 gains. I talked about it in my prepared remarks, but we've seen nice share gains in a few markets, you know, New Jersey, Ohio, Pennsylvania, New York, and that certainly kind of helped with the increase. And I talked also about the 15% kind of year-over-year kind of growth on a net basis on the wholesale side. And so, you know, we're really leaning into those markets. We spent big kind of leading up to this year in a few of them, which kind of gave us really the biomass to go ahead and attack.
Speaker Change: New Jersey, Ohio, Pennsylvania, New York and that.
Speaker Change: That's certainly kind of help with the increase that I talked also about the 15% kind of year over year kind of growth on a net basis.
Speaker Change: On the wholesale side and so we're really leaning into into those markets, we spend big kind of leading up to this year and a few of them, which would you kind of gave us really the biomass.
Speaker Change: Go ahead and attack and so we're doing that as we speak.
Anthony Georgiadis: And so we're doing that as well.
Speaker Change: Okay I'll leave it there thanks al.
Matt Bottomley: Okay, I'll leave it there. Thanks, all. Thanks, Pat.
Matt Bottomley: Thanks, Matt.
Aaron Grey: The next question comes from Aaron Grey with Alliance Global Partners. Please go ahead. Hi, good evening, and thank you for the question. So I wanted to stay online a little bit with the wholesale trends. Doing a nice job there. Wholesale mix, at least as looking at net, has been increasing for you guys the past four quarters now.
Speaker Change: The next question comes from Aaron Grey with Alliance Global Partners. Please go ahead.
Aaron Grey: Hi, good evening and thank you for the question.
Aaron Grey: I wanted to stay on line a little bit with the wholesale trends are doing a nice job there wholesale mix at least as you look at it and that has been increasing for you guys for the past four quarters. Now. So you know wanted to ask in terms of maybe you know longer term targets that you are seeing now for for wholesale versus retail is something that we used to speak a little bit more about about a couple of years ago.
Aaron Grey: So I wanted to ask in terms of maybe longer-term targets that you're seeing now for wholesale versus retail, something that we used to speak a little bit more about a couple years ago. And then as we think about the growth opportunities in wholesale, there's been some conversation about the broader competitive environment, struggles of certain operators potentially limiting some of the wholesale opportunities. So just how you're thinking about credit to third-party wholesalers and how that can impact growth opportunities there. Thanks. Yeah. Thanks, Aaron. It's Ben. I can take that. I mean, what really drives the wholesale growth, obviously, it's good products, good brands, good positioning, great team, but it's continuing to invest in the business in that capex.
Aaron Grey: Then as we think about the growth opportunities in wholesale you know there's been some competition some conversation about the broader competitive environment struggles of certain operators country eliminate some of the wholesale opportunity sort of how you're thinking about.
Aaron Grey: Credit to third party wholesalers, and how that could impact our growth opportunities there.
Speaker Change: Yes, Thanks Ed.
I can take that I mean, what really drives the wholesale growth obviously its good products good brands positioning great team.
Speaker Change: To invest in the business and that Capex.
Ben Kovler: You know, combine that with a team that focuses on innovation and understanding where the ball is going and not where it's been, because trends change, whether it's the value consumer or the premium consumer or the bulk buy or the specials or how to handle holidays. And we've been at the game a while, so we can kind of crank it. But I think what drives the wholesale business and where we feel just very confident about are the dollars we've put in over the last, you know, three plus or minus years, you know, two to four or five years, that is producing nice results into a business that we really like.
Speaker Change: Combine that with the team to focus on innovation and understanding where the ball is going not where it's been because trends changed whether it's value consumer is the premium consumer the bulk buy or the specials or how to handle holidays has been at the game a while so we can kind of crank it but I think what drives the wholesale business and where we feel just very calm.
Speaker Change: About our the dollars we put in over the last you know.
Speaker Change: Three plus or minus you're saying two to four or five years that is producing nice result into a business that we really like.
Ben Kovler: And that makes it, you know, a pretty good game to play as we go.
Speaker Change: And that makes it.
Speaker Change: A pretty good game to play as we go.
Ben Kovler: I think the second part of your question was... Oh, yeah, good relationships with the trade. When people are out of money, they behave irrationally, and, you know, expect the unexpected in that kind of case. And that's not undocumented in any industry in anything, and I would say it's not fun when people don't pay you. So I don't know what else there is to say about that, but we've managed to do a great job. Matt and his team keep it tight. But the good news for us is there's a high velocity on the product. And so without the product on the shelf, you start to think the retail store doesn't feel as good about their offer.
Speaker Change: I think the second part of your question was.
Speaker Change: Oh yeah.
Speaker Change: Chips with the trade.
Speaker Change: People were out of money they behave irrationally.
Speaker Change: Expect the unexpected and that kind of case and then that that's not an documented in any industry and anything and I was just not followed people don't pay you.
Speaker Change:
Speaker Change: So I don't know what else to say about that but we managed to do a great job, Matt and his team keep it tight but the good news for US is just the high velocity on the product.
Speaker Change: So without the product on the shelf you start to take the retail store doesn't feel as good about their offer.
Aaron Grey: And so we can leverage that with Rhythm Flower and other things that are happening and visits and celebrity and tie-ins with marketing in order to drive the click. Okay, great. Thanks. I'll jump back in the queue. Thanks, Aaron.
Speaker Change: Can leverage that.
Speaker Change: Our and other things that are happening in visits and celebrity Italians with marketing in order to drive the puzzles.
Speaker Change: Okay, great. Thanks, I'll jump back in the queue.
Speaker Change: Thanks Darren.
Speaker Change: The next question comes from Pablo the Atlantic with Atlantic and Associates. Please go ahead.
Pablo Zuanic: The next question comes from Pablo Zuanic with Zuanic & Associates. Please go ahead. Thank you.
Speaker Change: Thank you.
Pablo Zuanic: Ben, I'm going to ask two questions, but the first one, you know, do you see potential opportunities for what I would call a backdoor listing, right? In the past, you talked about Boston Beer. Recently, you had this transaction with Agrify that maybe you want to clarify, but that could be a possibility. I mean, is there room in the current regulatory environment, if at all, room for a backdoor listing to get you in NASDAQ? Or that's just out of the question.
Speaker Change: I'm going to ask two questions, but the first one is you know do you see potential opportunities for what I would call. It a backdoor listing right in the past you talked about Boston beer.
Speaker Change: Recently, you had the eastern section with Agri refi than maybe you want to clarify but that could be a possibility. I mean is it is there room in the current regulatory environment.
Speaker Change: It all room for the backdoor listing to NASDAQ or does that just out of the question and then the second question I'll ask it right away.
Pablo Zuanic: And then the second question, I'll ask it right away. We can all debate the growth opportunities in the U.S., right? Especially now that Florida is not going ahead. But of course, you have Minnesota, PA, Virginia down the road. But, you know, other companies perhaps, and maybe yourselves could be looking at other businesses, right? Can you get bigger or enter hemp-infused derivatives in a big way? Can you start investing overseas or that will make sense for you? If you can comment on those two questions. Thank you.
We can all debate the growth opportunities in the U S right, especially now that Florida is ongoing I should but of course, you have Minnesota P. A virginia down the road.
Speaker Change: You know other companies, perhaps so maybe yourselves could be looking at other businesses right because you get bigger or enter champion fused everybody was in a big way.
Speaker Change: Can you just study investing overseas or that will make sense for you. If you can comment on those two questions. Thank you.
Speaker Change: Sure I guess I'll tell you Pablo.
Ben Kovler: Sure, I guess I'll take it, Pablo. You know, I don't even think I understand what you mean by a, quote, backdoor listing. So I'm not even sure. Over the years, there's been a lot of different kinds of conversations that have occurred, TSX and ring fence and other sorts of things as you know about. We're opportunistic investors at the core. And we get paid for capital allocation and how those returns manifest. So in the second part of your question is essentially what's in your playbook? And the answer is, we really don't like to share what's in the playbook.
Speaker Change: I don't even think I understand what you mean by a quote backdoor listing.
Speaker Change:
Speaker Change: So I am not even sure over the years Theres been a lot of different kinds of conversations that have occurred.
Speaker Change: <unk> and green spend so those sorts of things as you know about.
Speaker Change: We are opportunistic investors at the core and we get paid for capital allocation and how those returns manifest. So in the second part of your question is essentially what's in your playbook and the answer is we really don't want to share with you. The playbook, but I can tell you is that we are very focused on how we allocate capital and what that's going to produce for investors. So obviously.
Ben Kovler: What I can tell you is that we are very focused on how we allocate capital and what that's gonna produce for investors. So obviously, we see what's happening in Europe. We see what's happening with input product. We understand the cannabis compounds in depthly. And we can think as the consumer. And we talked about it before. The empathy with the consumer is the time machine forward to understand what's going to happen in this industry. And that's just really how we're investing and where we're playing. So we think it's an exciting time. Obviously, it's a tricky time with the industry taking a major step back in terms of valuations this week.
Speaker Change: See what's happening in Europe, you see what's happening with input product, we understand the cannabis compound definitely and we can think of the consumer and we've talked about it before the end of the deal with the consumer as the time machine or to understand what's going to happen in this industry.
Speaker Change: Just really how we're investing in where we're where we're playing.
Speaker Change: So we think it's an exciting time, obviously, it's a tricky time the industry, taking a major step back in terms of valuations this week.
Speaker Change: But you know there's really no change around here, it's head down and execute the whole time like where the business is and we think you know whether it's in the short medium or long term the market rewards. The heaviest weight, we don't really care about the short term voting we wanted to take advantage of that.
Ben Kovler: There's really no change around here. It's head down and execute the whole time. We like where the business is. And we think whether it's in the short, medium, or long term, the market rewards the heaviest weight. We don't really care about the short term voting. We wanna take advantage of that. You know, it's simply a sell high and buy low, which is really what we're doing, and we want to continue to execute.
Speaker Change: Assembly is so high and buy low.
Speaker Change: Really what we're doing.
Speaker Change: And we want to continue to execute in terms of like worried about I think like $30 billion $31 billion run rate record highs the last quarter across the U S.
Ben Kovler: In terms of like, where was that? I think like $30 billion, $31 billion in run rates, record highs the last quarter across the U.S. We have a lot of confidence that has at least a double in it, at least. And so, really, we love where we're at, we love the consumer, we think the U.S. is in a very good spot and obviously the federal government has its own interests.
Speaker Change: We have a lot of confidence that as at least a double in it at least.
Speaker Change: And so really we love where we're at love the consumer we think the U S. It's been a very good spot.
Speaker Change: The central government has its own issues, which is.
Ben Kovler: We'll get into this another time.
Speaker Change: There's another time alright got it. Thank you. Thank you.
Pablo Zuanic: Got it, thank you. Thanks, Pablo.
Speaker Change: Thanks Pablo.
Mike Regan: Again, if you would like to ask a question, please press star then 1. The next question comes from Mike Regan with Excelsior Equities. Please go ahead. Hey, thanks for the question. Quick question on when you talked about the Eventide guidance, and I apologize about the airport so you can hear them announcing my gate, but. In terms of sort of taking it down and noting that 280e taxes will hopefully go away soon, I guess how do you typically think about sort of the reinvestment of, you know, those 280e taxes, which, you know, they're roughly 11% of revenue for most operators.
Speaker Change: Again, if he would like to ask a question. Please press Star then one.
Speaker Change: The next question comes from Mike Reagan with Excelsior equity. Please go ahead.
Mike Reagan: Hey, Thanks for taking my question quick question on when you talked about the EBITDA guidance and I apologize about the airport. So you can hear them announcing my gate, but.
In terms of sort of taking it down and noting that two of the taxes will hopefully go away soon.
Mike Reagan:
I guess, how do you typically think about sort of the reinvestment of those two <unk> taxes, which they were roughly 11% of revenue for most operators.
Ben Kovler: How do you think about if that goes away hopefully next year, how those taxes would be reallocated? Thanks. Yeah, thanks. No problem. We heard you about the 280 tax, how to reallocate the cash. I don't think we think about it exactly like that. I think we think, what's the best use of our capital? What's the capital going to be? And so what Matt says, we have, you know, patience, or we're okay with a smaller EBITDA margin as we have confidence that tax relief is going to come. So we're always just thinking about net pre-cash flow, and we think now there's an amazing opportunity to invest in these brands.
Mike Reagan: How do you think about if that goes away hopefully next year, how those taxes would be reallocated.
Mike Reagan: Yeah.
Mike Reagan: No problem, if we heard you about the two of you tax how to reallocate Josh I don't think we think about it exactly like that I think we think what's the best use of our capital what's the capital going to be and so on.
Mike Reagan: As we have.
Mike Reagan: Patients so were okay with a smaller EBITA margin as we have talked about the tax relief is going to come. So I was just thinking about net free cash flow and we think now there's an amazing opportunity to invest in these brands and talked about it where they can find your rhythm Israel no dog walkers of real vivo incredible. So we want to put our money, where I'm albus invest behind them.
Ben Kovler: We've talked about it. We think find-your-rhythm is real. We know dog walkers are real. Bebo Incredibles is what we want to put our, you know, our money where our mouth is and invest behind them, especially on the heels or the cusp of potential tax regime change.
Mike Reagan: Especially on the heels or the cost potential tax regime change. So that's really how we look at it versus like what to do with this extra dollars that sort of are we confident that how would we go deploy mission.
Ben Kovler: So that's really how we look at it versus like, what to do with this extra dollars. It's sort of, are we confident? And then how would we go deploy?
Ben Kovler: Yeah, and then the second question is, in terms of how you allocate capital, clearly, historically, you've done very thoughtful and pretty effective at it. I guess in terms of Agrify, you know, you were interested in some of their technology. Is that more the precision and cascade extraction business or more the, you know, the grow pods? I mean, you seem to be pretty good at growing cannabis without their technology at this point, or is it just sort of using that, you know, that equity as a shelf for something else, you know, other new technologies or other businesses that are not plant-based?
Speaker Change: Got it and then second question just.
Speaker Change: In terms of how you allocate capital clearly historically, you've done there and very thoughtful and pretty effective at it.
Speaker Change: I guess in terms of agriculture.
Speaker Change: You were interested in some of their technology is that more of the.
Speaker Change: Precision and Cascade extraction business or more of the you know the grow pods I mean, you seem to be pretty good at growing cannabis without their technology at this point or is it just sort of using that.
Speaker Change: That that that equity is a shell for something else. The other new technologies are there businesses that are not plants actually.
Ben Kovler: Thanks. Sure, thanks. I can take it again. Let's see, we really don't comment, like I said, to Pablo, but I can't give you, you know, a hint. I think you're right, you know, if the fork in the road is extraction or cultivation, we like the extraction business with precision. It's done a great job. We understand its position in the market. It's a great team out there. And we respect what they've built. And we want to be opportunistic about what is possible. Every day, the world is changing. And it's, you know, a bummer to get left behind in whatever ways you want to think about the analogy.
Speaker Change: Sure. Thanks, I can say it again.
Speaker Change: Let's see if we really don't comment like I said, the Pablo but I can't give you his I think you're right.
Speaker Change: It's a fork in the road as extraction or cultivation, we like the extraction business would be precision has done a great job we understand its position in the market. It's a great team out there and we respect what they've built.
Speaker Change: And we want to be opportunistic about what is possible every day. The world is changing and it's a bummer to get left behind in whatever ways you'd want to think about the analogy.
Ben Kovler: But you know, We don't want that to be us. So we played the game with a lot of optionality. We talked about opportunistic investing. We've used the buyback. We've used banks. We've used offerings. And I would continue to think about us as being strategic in our capital allocation. I'm not saying it's different here. And we know, for lack of a better way to say it, the DAB game is real. The high-end DABs is a real segment in this market that has pricing power among a very, very loyal consumer base. So if you think about scaling that business and what you would do, you know, it might make sense to be a little smarter or closer to various pieces of it.
Speaker Change: But you know.
Speaker Change: We don't want that to be up so we played the game.
Speaker Change: And with a lot of Optionality and you talk about opportunistic investing it used to do the buyback we've used banks infused offerings and I would continue to think about us as being strategic in our capital allocation and I think it's different here.
Speaker Change: We know for lack of a better way to say that that game is real the high end.
A real segment in this market that has pricing power among the very very loyal consumer base and so as you think about scaling that business or what you would do it might make sense to be a little smarter or closer to various pieces of it.
Speaker Change: Yeah, great. Thanks, a lot.
Ben Kovler: Thanks a lot.
Speaker Change: Sure.
Speaker Change: Yeah.
Speaker Change: The next question comes from Howard Penney with <unk>. Please go ahead.
Howard Penney: The next question comes from Howard Penney with Hedge Eye.
Howard Penney: Please go ahead. Thanks for the question. Ben, you mentioned it's still day one.
Speaker Change: Okay. Thanks for the question Ben You mentioned that it's still day, one as you enter the second decade as a company what specific aspects of the candidate injury industry make you believe that it is still early stages and how does that impact your investment and operational decisions in 2025.
Ben Kovler: As you enter the second decade as a company, what specific aspects of the cannabis industry make you believe that it's still early stages and how does that impact your investment and operational decisions in 2025? Yes, great question. Thanks, Howard. I mean, you know, so many things. One, nobody's really heard of rhythm. Sucks, but it's true. So it's day one to figure out how to get that to change. The opportunity to buy Incredibles, like I talked about in the preparatory remarks, has totally changed within the last number of days, not months. And that changes things. And quite frankly, still walking down the street in any city, you know, half an hour before closing, at last call, is ugly and unpleasant, and we think the future is different.
Speaker Change: Yes, it's a great question. Thanks, Howard I mean, so many things one nobody's really hurt rhythm stocks, but it's true. So if they wanted to figure out how to get that to change.
Speaker Change: The opportunity to buy Incredibles like I talked about in the prepared remarks has totally changed within the last number of days not months.
Speaker Change: And that changes things.
Speaker Change: And quite frankly still walking down the street in any city half an hour before closing at last call. It was ugly and unpleasant.
We think the future is different.
Ben Kovler: So we see headwinds in alcohol, the material nature, and we see a $30 billion industry where we have one in change, so call it three to 4% of total space if you mark up the wholesale for retail, which no industry of that size is that fragmented. We understand the regulatory landscape and we're ready to play offense because we spent 500 million in CapEx over the last X years and it doesn't look the same going forward. So every time it doesn't look the same, it's like, new day, what do we do today? So we're big into the whiteboard, seeing white paper a problem and figure out a solution and now we've got a lot of capital to play offense, we have a great business producing cash, we have an amazing team, and so we're just excited in the morning, we use that day one Meso style around here to kind of fire ourselves up and that's what that means.
Speaker Change: So we see headwinds in the alcohol the material nature, and we see a $30 billion industry, but we have one in change so call it 3% to 4% of total space. If you mark up the wholesale to retail, which no one industry that thought that fragmented we understand the regulatory landscape and we're ready to play offense, because we spent $500 million of capex over the last X.
And it doesn't look the same going forward. So everytime it doesn't look the same it's like new day what.
Speaker Change: What do we do that so we are big into the whiteboard seen white paper at a problem and figure out a solution and now we've got a lot of capital to play offense.
Speaker Change: Great business, producing cash of an amazing team. So we're just excited in the morning, we use that they want batesville style around here to kind of find ourselves up in there.
Speaker Change: That's what that means.
Speaker Change: Thanks.
Howard Penney: Thanks. Sure.
Speaker Change: Sure.
Speaker Change: This concludes our question and answer session I would like to turn the call back over for closing remarks.
Operator: This concludes our question and answer session.
Operator: I would like to turn the call back over for closing remarks. Sure, thanks everybody for joining. Have a happy, healthy holiday, a little extra compassion as we go through everything that's happening over the next few months, and we'll talk to you in about 90 days. Thank you.
Speaker Change: Sure. Thanks, everybody for joining have a happy healthy holiday little extra compassion.
Speaker Change: As we go through everything that's happening over the next few months and we'll talk to you in about 90 days. Thank you.
Speaker Change: Yeah.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Operator: The conference has now concluded. Thank you for attending today's presentation.
Operator: You may now disconnect. http://www.youtube.com.com [music]
Speaker Change: [music].