Q4 2024 Northern Technologies International Corp Earnings Call
Okay.
Good day and welcome to NCI.
Fourth quarter 2020 for a conference call at this time, all participants are in listen only mode.
After the Speakers' presentation, there'll be a question and answer session and instructions will be given at that time.
As a reminder, this call maybe recorded.
As part of the discussion today, the representatives from NTIC will be making certain forward looking statements regarding ntic's future financial and operating results as well as their business plans objectives and expectations.
Please be advised that these forward looking statements are covered under the safe Harbor provisions of the private Securities Litigation Reform Act of 1995, and that NTIC desires to avail itself of the protections of the safe Harbor for these statements.
Please advise that actual results could differ materially from those stated or implied by the forward looking statements due to certain risks and uncertainties, including described it in the Ti sees most recent annual form.
10-K subsequently quarterly reports on Form 10-Q, and recent press releases.
Please read these reports and other future filings that NTIC will make with the SEC.
Speaker Change: NCIC disclaims any duty to update and revise its forward looking statements I would like to turn the call over to Patrick Lynch CEO. Please go ahead.
Speaker Change: Good morning, I'm, Patrick Lynch Ntic's CEO.
Speaker Change: And I'm here with Matt Wolsfeld Ntic's CFO.
Speaker Change: Please note that a press release regarding our fourth quarter and full year fiscal 2024 financial results was issued earlier this morning and.
And is available at NTIC Dot com.
Speaker Change: During today's call, we will review various key aspects of our fiscal 2020 for fourth quarter and full year financial results.
Speaker Change: To provide a brief business update and then conclude with a question and answer session.
Speaker Change: We closed fiscal 2024 with robust sales growth in both our <unk> oil and gas and its nature take businesses.
Speaker Change: The more thanks to the continued successful execution of various margin improvement initiatives.
Speaker Change: NTIC was also able to achieve another year of significantly improved profitability.
Speaker Change: Our fiscal 2024 results continue to demonstrate the value we bring to our global customers as well as our resilience amidst ongoing economic challenges.
Speaker Change: Higher sales of <unk> oil and gas engines nature take products, along with improved gross profits contributed to a nearly $6 million or 21, 5% year over year increase in gross profit for fiscal 2024.
Speaker Change: This expanded gross profit allowed NTIC to offset a $2.2 million reduction in joint venture operating income, primarily resulting from a one time gain of nearly $2 million last fiscal year tied to the liquidation of our former joint venture in China, as well as challenging market conditions, including.
Higher energy prices and other regional economic pressures that affected sales and profitability across various European joint ventures. We are actively focused on our European joint ventures, and remain cautiously optimistic that demand and profitability in Europe will begin to improve in fiscal 2025.
Speaker Change: As we enter fiscal 2025.
Speaker Change: Demand within our North Americans U S industrial market remains stable.
Speaker Change: And we believe we are well positioned to capitalize on opportunities within our zero, its oil and gas and niche tech businesses.
Speaker Change: The strategic investments, we made in our workforce and infrastructure in fiscal 2024 are set to support growth opportunities across our global markets.
Speaker Change: While the economic environment remains fluid, we anticipate the fiscal 'twenty twenty-five will bring further sales growth and improved profitability.
Speaker Change: So with this overview, let's examine the drivers for the fourth quarter in more detail.
Speaker Change: For the fourth quarter ended August 31 2024.
Speaker Change: Our total consolidated net sales increased 12, 7%.
Speaker Change: To a fourth quarter record of $23 $3 million.
Speaker Change: As compared to the fourth quarter ended August 31 2023.
Speaker Change: Broken down by business unit. This included a 76.6% increase in <unk> oil and gas net sales.
16.4% increase in the niche tech net sales and a 0.1% increase in zero industrial net sales.
Speaker Change: Total net sales for the fiscal 2020 for fourth quarter by our joint ventures, which we do not consolidate in our financial statements decreased three 6% over the prior fiscal year period to $23 $3 million.
Speaker Change: X core, Germany, our largest joint venture experienced a 15% decrease in net sales during that period.
Speaker Change: This decline was due primarily to softer demand across the territory serviced by our global joint ventures as I explained previously.
Speaker Change: Fiscal 'twenty 'twenty four fourth quarter net sales by our wholly owned NTIC, China subsidiary increased by 1.1% to $3 $6 million.
Speaker Change: Sales trends in this geography have stabilized and NTIC, China has experienced three consecutive quarters of sales growth as compared to the respective fiscal prior year periods.
Speaker Change: We remain cautiously optimistic that demand in China will improve in fiscal 2025, helping to support higher incremental sales and profitability in this market.
Speaker Change: We are committed to the long term opportunities in the Chinese market provides our industrial and Bioplastics segments, and we continue to take steps to enhance our operations in this geography.
Speaker Change: As a result, we continue to believe China will likely become a significant geographic market for us in the future.
Speaker Change: Now moving on to zero to oil and gas.
As anticipated <unk> oil and gas had a record breaking fourth quarter with revenues, reaching $4 $2 million.
This was supported by approximately $600000 in sales that shifted from the third quarter due to timing as well as increased orders from both new and existing customers.
Speaker Change: The significant growth in oil and gas during the fourth quarter highlights a transformative year for this business unit has full year oil and gas sales increased 18.3% to an annual record of $9 $2 million.
Speaker Change: Overall demand continues to grow among both new and existing customers of ours, <unk> oil and gas solutions, which today is still focused primarily on protecting above ground oil storage tanks and pipeline casings from corrosion.
Speaker Change: While we expect seasonal ordering patterns to drive fluctuations in oil and gas sales.
Speaker Change: We believe we are well positioned for compelling growth in this sector through fiscal 2025 and beyond.
Speaker Change: Turning to our nature take Bioplastics business.
Speaker Change: <unk> sales remained strong during the fourth quarter and increased 16, 4% over the prior fiscal year period to a quarterly record of $5 $7 million.
Speaker Change: <unk> growth during the quarter was a result of increased global demand arising primarily from new customer wins in North America, and India, as well as expanding relationships with our existing customers.
Speaker Change: We expect <unk> sales growth to remain strong in fiscal 2025.
Speaker Change: Globally, we continue to see robust market demand for new applications of certified compostable plastic products and resin compounds as well as increased interest in commercial and municipal programs that use certified compostable plastics has alternatives to conventional.
Speaker Change: Six.
Speaker Change: Throughout fiscal 2020 for them.
Speaker Change: We made a number of strategic investments across several parts of our business in order to capitalize on current and expected future growth opportunities.
Speaker Change: In India, we are in the process of consolidating three separate nature tech warehouses into a single larger facility and also are adding manufacturing capacity to support the nature Tech sales growth in the region.
Speaker Change: Sales in Brazil have nearly doubled since fiscal 2019. So we are adding a facility to support the growth opportunities in both that country as well as the broader region.
Speaker Change: We also continue to invest in our domestic operations as demonstrated by the New Circle Pines, Minnesota facility that came online earlier this year.
Speaker Change: At this location and we've been able to in source certain manufacturing processes that were previously outsourced as part of our effort to improve gross margin.
Speaker Change: We expect these strategic investments to support growth and enhanced profitability in fiscal 2025 and beyond.
Speaker Change: As you can see fiscal 2024 was a transformative year of growth profitability and strategic investments for NTIC.
Speaker Change: We are excited by the positive momentum underway and the direction NTIC is headed.
Speaker Change: Before I turn the call over to Matt I want to acknowledge the hard work and dedication of our global team of both employees and joint venture partners.
Our recent success and the opportunities we are pursuing to drive value in the future are a direct result of their efforts.
Speaker Change: With this overview, let me now turn the call over to Matt Wolsfeld to summarize our financial results for fourth quarter and full fiscal year 2024.
Speaker Change: Thanks.
Matt Wolsfeld: So your periods Ntic's consolidated net sales increased six 5%.
Matt Wolsfeld: In fiscal 'twenty 'twenty four to an annual record and grew 12, 7% in fiscal 'twenty 'twenty four fourth quarter because of the positive trends Patrick reviewed in his prepared remarks sales across our global joint ventures declined three 6% in the fourth quarter joint venture operating income decreased 51, 4% compared to the prior.
Matt Wolsfeld: Fiscal year period, primarily due to a one time 2 million dollar gain that was recorded during the fourth quarter of fiscal 2023 associated with the liquidation of the company's joint venture in China as well as a decrease in net income at NTIC joint venture in Germany, partially offset by increases in net income at other Joe.
Matt Wolsfeld: <unk> ventures.
Matt Wolsfeld: For fiscal 2024 sales across our global joint ventures decreased 4.7%, while joint venture operating income decreased 18, 6% compared to the prior fiscal period.
Matt Wolsfeld: Total operating expenses for fiscal 2024 fourth quarter increased two 3% to $9.5 million and for fiscal 'twenty 'twenty four increased five 9% to $35 $4 million.
Matt Wolsfeld: Operating expenses for both the fiscal 2020 for fourth quarter and full year were primarily due to increased personnel costs and other inflationary increases in expenses.
Matt Wolsfeld: As a percentage of net sales operating expenses were 47% for the fourth quarter compared to 44, 8% for the prior fiscal year period.
Matt Wolsfeld: For fiscal 'twenty 'twenty four operating expenses as a percentage of net sales were 41, 6% compared to 41, 8% for the prior fiscal year.
Matt Wolsfeld: Gross profit as a percentage of net sales was 43, 8% during the three months ended August 31, 2024, compared to 36, 5% during the prior fiscal year period.
Matt Wolsfeld: The 730 basis point improvement was primarily a result of successful actions taken by the company to address inflationary pressures and the increased sales of higher gross margin Z arrest oil and gas solutions.
Matt Wolsfeld: Gross profit as a percentage of net sales was 39, 7% for the fiscal year ended August 31, 2024, compared to 34, 8% for the prior fiscal year.
Matt Wolsfeld: NTIC reported net income of $1.8 million or 19 cents per diluted share for the fiscal 'twenty 'twenty four fourth quarter <unk>.
Matt Wolsfeld: Compared to $939000 or 10 cents per diluted share for the fiscal 2023 fourth quarter for the full year NTIC reported net income of $5.4 million or 55 per diluted share compared to $2 $9 million or <unk> 30 cents per diluted share for the fiscal 'twenty twenty-three full year.
Matt Wolsfeld: Here.
Matt Wolsfeld: For the fiscal 2020 for fourth quarter and test. These non-GAAP adjusted net income was $1 $9 million or 20 cents per diluted share compared to the non-GAAP adjusted net income of $280000 or three cents per diluted share for the fiscal 2023 fourth quarter, which included.
Matt Wolsfeld: A one time gain related to the liquidation of Tianjin the arrest.
Matt Wolsfeld: For fiscal 'twenty 'twenty four non-GAAP adjusted net income was $5 $8 million or <unk> 59 cents per diluted share compared to $2 $6 million or 27 cents per diluted share for fiscal 2023.
Matt Wolsfeld: A reconciliation of GAAP to non-GAAP financial measures is available in our fourth quarter and full year earnings press release that was issued this morning.
Matt Wolsfeld: As of August 31, 2020 for working capital was $23 $7 million, including $5 million in cash and cash equivalents compared to $23 million, including $5 $4 million of cash and cash equivalents as of August 31 2023.
Matt Wolsfeld: As of August 31st 2024, we had outstanding debt of $7.1 million. This included $4 $3 million in borrowings under our existing revolving line of credit compared to $3.6 million.
Matt Wolsfeld: As of August 31, 2023.
Matt Wolsfeld: Reducing debt through positive operating cash flow and improving working capital efficiencies will be a strategic focus in fiscal 2025.
Matt Wolsfeld: We generated $5 $9 million in operating cash flows for the 12 months ended August 31, 2024 on August 31, 2024, the company had $25 $4 million of investments in joint ventures of which $55 three or $14 $1 million was the cash with the remaining balance.
Primarily invested in other working capital.
Matt Wolsfeld: During this fiscal 'twenty 'twenty four fourth quarter Ntic's Board of directors declared a quarterly cash dividend of seven cents per common share that was payable on August 14th 2024 to stockholders of record on July 31 2024.
Matt Wolsfeld: To conclude our prepared remarks, our fourth quarter and fiscal 'twenty 'twenty four financial results reflect the progress that we've been making navigating the fluid business environment, while securely pursuing succeed.
Matt Wolsfeld: <unk> successfully pursuing our product end market and geographical diversification strategies.
Matt Wolsfeld: We're seeing stable north American demand trends and robust growth across our global oil and gas and bioplastic markets.
And we expect these trends to continue as a result, we believe in fiscal 'twenty twenty-five that it will be another good year of sales and higher profitability for NTIC and we're excited by our long term prospects with this overview, Patrick and I are happy to take your questions.
Matt Wolsfeld: Thank you if you would like to ask a question. Please press star one one.
If your question has been answered and you'd like to remove yourself from the queue. Please press star one again.
Speaker Change: One moment, while we compile the Q&A roster.
Speaker Change: Our first question comes from Gus Richard with Northland Capital markets. Your line is open.
Gus Richard: Yes, thanks for taking the question and congratulations on the strong results.
Gus Richard: Could you add a little color to your.
Gus Richard:
Gus Richard: HR Tech wins that you mentioned the new wins.
Gus Richard: What sector of the market.
Speaker Change: Any color there would be helpful.
Gus Richard: Yeah.
Gus Richard: And some of the nature Tech questions I asked beneath the law who's the vice president of nature tack to join the call. So he's sitting next to me here and would be happy to answer questions about <unk>.
Gus Richard: Nature Tech specifically.
Gus Richard: Yes, yes.
Gus Richard: Yes.
Gus Richard: Both very much.
Gus Richard: Ross all regions and all the market segments.
Gus Richard: And we've seen growth in Asia.
Speaker Change: North America.
Speaker Change: We've seen growth for both finished product as well as our residence in North America, obviously, we sell a lot of finished product.
Speaker Change: We sell it through.
Speaker Change: Several dozen national distributors distributors have been on an acquisition spree.
Speaker Change: Over the past 12, 18 months I think picking up smaller distributions smaller regional and local distribution houses. So we've been able to grow along with them.
Speaker Change: But we're also seeing market demand for composite wood products in the U S.
Speaker Change: And then.
Speaker Change: Resin sales, we are seeing increased demand for our cutlery rather than.
Speaker Change: Especially with.
Speaker Change: More adoption of it.
Speaker Change: Zero waste solutions across North America.
Speaker Change: In India, we've seen growth both in the apparel space as well as demand for foodservice residence.
Speaker Change: The largest.
Speaker Change: Fast fashion brand in India is adopted.
Speaker Change: Materials for their packaging and they've been growing at a pretty strong clip and we benefited from that growth.
Got it.
Speaker Change: Super helpful.
Speaker Change: And then just.
Speaker Change: Shifting over to <unk>.
Speaker Change: <unk> industrial.
Speaker Change: North America stable, but I'm sort of wondering what trends youre seeing in Europe, particularly Germany has that.
Speaker Change: Do you feel that will be stable going forward or is there still a bit of a headwind due to the weak.
Speaker Change: Macro over there.
Speaker Change: Yes, I'll be seeing headwinds in Europe.
Speaker Change: Paul.
Speaker Change: We also have to transition the vehicles.
Speaker Change: Volkswagen is my other manufacturers.
Speaker Change: Okay.
Speaker Change: Okay. That's helpful and then.
Speaker Change: In terms of gross margin.
Speaker Change: The tabular results for the quarter.
Matt Wolsfeld: Matt what do you think.
Matt Wolsfeld: Gross margin trend going forward I know, it's heavily dependent on mix, but.
Speaker Change: Nominally what are you where do you think gross margins go next year.
Speaker Change: I think it's obviously, it's going to be entirely dependent on the weighted average components coming in from the different the different business units.
Speaker Change: We are still seeing.
Speaker Change: A stabilization of the industrial gross margin that we kind of experienced over the past.
Speaker Change: 12, plus months, which has been helpful.
Speaker Change: The nature of that gross margin is stable has improved over the past 12 months and also kind of stabilize that.
Speaker Change: Similar similar margin towards the traditional U S businesses, and obviously, we have a slightly more favorable gross margin coming in from the oil and gas business.
Speaker Change: Is that.
Speaker Change: Those amount of dollars increase.
She is going to skew the weighted average gross margin of the company slightly.
Speaker Change: So all in all it's.
Speaker Change: Certainly was a nice.
Speaker Change: A nice bump up in gross margin for the quarter.
Speaker Change: But if you look at it on a business by business basis. The gross margin has been pretty consistent in each business unit.
Speaker Change: For the past few quarters.
Speaker Change: Got it.
Speaker Change: Let me try it this way.
Speaker Change: If you think about it.
Speaker Change: Taking mix out of the equation structurally how much do you think you increased gross margins out of that.
Speaker Change: 500 basis points to improved year on year for the full year in 2000 and for how much was that structural structural and how much was that mix.
Speaker Change: I would say.
Probably half and half I mean, we saw a lot of improvement in the first few quarters.
Speaker Change: I mean, if I'm comparing Q4 of this year to Q4 prior year, we're certainly seeing stronger gross.
Speaker Change: Gross margins that don't have to do with mix, we're seeing stronger gross margins kind of comparing.
Speaker Change: Certainly the industrial business and the nature of that business, but kind of comparing from what would be Q3 to Q4 that would be pretty consistent gross margins from a business line that business line.
Speaker Change: Got it that's Super helpful. And then last one for me.
Sort of what's your expectations for growth of oil and gas and 25.
Speaker Change: I mean, just looking at it.
Speaker Change: Some significant growth in Q4, which we anticipated and if you look kind of look back to our Q2 and Q3 earnings calls we cannot forecast that a stronger second half of the year, which certainly came to fruition with the strong core.
Speaker Change: $4 $2 million of fourth quarter.
Speaker Change: They're all going to be.
Speaker Change: Very volatile.
Business line for us just because of the size of the opportunities that come in and the timing that comes in we're finding a little bit.
Speaker Change: Seasonality to the business as well so.
Speaker Change: Look at.
Speaker Change: Our year over year basis, we certainly expect to see.
Speaker Change: <unk> growth going into fiscal 'twenty five.
Speaker Change: That meant that we're making in various new regions around the world and also existing and new customers in in North America and some other areas. So.
Speaker Change: Okay.
Speaker Change: Towards the total for the fiscal 'twenty five I think is going to see some very nice growth.
Speaker Change: We've put out from an expectation standpoint.
Speaker Change: 20% to 30% growth with potential opportunities for.
Speaker Change: More of an acceleration and so that's we're kind of waiting to see but youre not going to see.
Speaker Change: Our first quarter, that's consistent with fourth quarter.
Speaker Change: Thank you are likely going to see a first quarter that is better than prior year first quarter, but I think for the year year over year Youre going to see some nice improvements in.
Speaker Change: In oil and gas that makes sense.
Speaker Change: Yes, it does.
Speaker Change: I'll turn it over to let somebody else ask some questions. Thanks a lot.
Speaker Change: Thank you as a reminder, if you'd like to ask a question. Please press star one one.
Speaker Change: Our next question comes from Joseph <unk>.
Speaker Change: Well isn't that Manalapan Oracle capital management your line is open.
Speaker Change: Yes Hello.
Speaker Change: Matt and Patrick.
Speaker Change: Great quarter, I love to see it.
Speaker Change: I just just one question actually.
Speaker Change: And you've talked about.
Speaker Change: I believe awaiting a certain certification for the oil and gas.
Speaker Change: Technology in the U S.
Speaker Change: Wondering if you can remind me.
Speaker Change: What what the timeframe is for that.
Speaker Change: Do I have that correct or not.
Matthew: Yeah. Thank you Matthew.
Speaker Change: Yes, there is a.
Speaker Change: There was an API change that came through that looks like it's going to take effect sometime in late.
Speaker Change: Late fiscal 2025 as far as the utilization utilization of <unk> and in.
Speaker Change: Certain preservation markets.
Speaker Change: But if I look at kind of what we're doing around the world I don't know if thats going to be the one key change then all of a sudden dramatically accelerates the product, but we're certainly working through the API and <unk> too.
Speaker Change: Push the acceptance of <unk> in the in the industry and Thats certainly I think there's more to do with just the overall credibility of <unk> and that technology, taking more of a foothold in the and the preservation business.
Right right I mean, my assumption was that this really.
Speaker Change: It really only impacts.
Speaker Change: The speed of adoption within United States.
Speaker Change: Not really.
Speaker Change: It doesn't really affect it anywhere else around the globe.
Speaker Change: Would that be correct do you think.
Speaker Change: Thank you and the rest of the world in Washington.
Speaker Change: Especially with API guidelines.
Speaker Change: And so it would be a net it would actually be a much bigger.
Speaker Change: Net positive then when once that is actually yes.
Speaker Change: Yes.
Speaker Change: Right right right.
Speaker Change: You guys also I believe last.
Speaker Change: A question last quarter, you talked about good growth in Brazil, and just wondering if you could highlight.
Speaker Change: In General South America talk about what's going on down there.
Speaker Change: Yes, just to just.
Speaker Change: To kind of highlight.
Speaker Change: So some growth that we've seen one of the nice increases that we saw going from fiscal 'twenty three to fiscal 'twenty four is the.
Speaker Change: It's kind of the growth that we saw specifically in oil and gas at our zero, Brazil location in a nice increase in revenues to Petrograph are working with with Petrobras companies.
Speaker Change: And.
Speaker Change: They have some new opportunities that theyre looking at Nash perpetually restaurants, some of the Petrobras suppliers to sell more oil and gas products and so that's part of the reason why Patrik mentioned in his prepared remarks, the increase that we're doing in the infrastructure of our Brazil, because we see a significant opportunity in South America for somebody to go after that.
Speaker Change: Oil and gas market. So there are industrial sales in Brazil, and really what we've seen is that.
Speaker Change: Over the past four or five years. The overall revenue that we're seeing coming out of Brazil, both from an industrial standpoint, and from an oil and gas standpoint.
Speaker Change: <unk> have increased.
Speaker Change: So we're looking to kind of capitalize on that momentum and kind of keep that going through.
Speaker Change: Obviously for the next.
Speaker Change: The foreseeable future that makes sense.
Speaker Change: Sure sure sure I appreciate it that's all I have I appreciate you taking my questions.
Speaker Change: Thank you I'm showing no further questions I'd like to turn the call back over to Patrick Lynch for any closing remarks.
Patrick Lynch: Okay. Thank you everybody for joining us today and your interest in NTIC and the next day.
Speaker Change: Thank you for your participation. This does conclude the program you may now disconnect.
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Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Great.
Speaker Change: Yeah.
Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Yes.
Okay.
Okay.
Speaker Change: Great.
Speaker Change: Yes.
Speaker Change: Yes.
Yes.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change:
Speaker Change: Yes.
Speaker Change: Sure.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Yes.
[music].
Speaker Change: Okay.
Speaker Change: [music].