Q2 2025 Lifecore Biomedical Inc Earnings Call
Okay.
Good afternoon, and thank you for joining life course financial 2025 second quarter earnings call. During the call all participants will be in a listen only mode. Now I would like to turn the call over to Stephanie Diaz manager of Investor Relations for Alaska.
Speaker Change: Please go ahead.
Speaker Change: Good afternoon, and thank you for joining us today to discuss life core biomedical second quarter fiscal 2025 earnings result.
Paul Joseph: Hosting the call today from life car or Paul Joseph <unk>, President and Chief Executive Officer, and Ryan Lake Chief Financial Officer.
Paul Joseph: Before we begin today, we'd like to remind everyone that certain statements made in the course of this conference call contain forward looking statements. It is important to note that the forward looking statements made during this call reflect management's judgment and analysis only as of today January 2nd 2025, and the company's actual results could.
Paul Joseph: Differ materially from those projected in such forward looking statements.
Paul Joseph: For a more thorough discussion of the risks and uncertainties associated with any forward looking statements. Please see the disclaimer regarding forward looking statements that is included in our fiscal 2025 second quarter earnings release, which was furnished to the SEC today on form 8-K, as well as our other filings with the Securities and Exchange Commission.
Paul Joseph: <unk>, including but not limited to the Companys Form 10-Q for Q2 fiscal 2025, which was filed this afternoon.
Speaker Change: With that I'd like to turn the call over to Paul Joseph Chief Executive Officer.
Paul Joseph: Thank you Stephanie good afternoon, everyone and thank you for joining our fiscal 2024 second quarter update.
Paul Joseph: The second quarter was a very productive time at <unk> core our achievements. During this period expand finance operations and business development, all of which supported our overall growth strategy.
Paul Joseph: Revenues in the period were strong and in line with our fiscal guidance.
Paul Joseph: Gross margins were improved during the period as compared to Q1 margins, reflecting greater leverage over overhead costs across increased revenues and a favorable sales mix.
Paul Joseph: Our business development team was successful in signing multiple new projects.
Paul Joseph: And importantly, our balance sheet was materially strengthened during the period with a combination of the successful completion of our previously announced type financing and the restructuring of our revolving credit facility with BMO on significantly improved terms for last quarter.
Paul Joseph: I will provide additional details on business development and operations for the period following an overview of our second quarter fiscal 2025 financial results.
Paul Joseph: That I will turn it over call over to Ryan.
Ryan: Thank you Paul in conjunction with my comments I'd like to recommend that participants refer to life course Form 10-Q filing with the Securities and Exchange Commission, which we filed today.
Speaker Change: I'll now go over the results for the second quarter and six months ended November 24, 2024, beginning with results for the quarter.
Speaker Change: Revenues for the three months ended November 24th 2024 were $32 6 million, an increase of 8% compared to $30 2 million for the comparable prior year period. The increase in revenues was primarily due to a $1 9 million increase in <unk> revenues, which increased <unk>.
Speaker Change: Posted a $3 8 million of higher sales volume from our largest customer partially offset by $1 9 million of lower sales volume from our other CMO customers.
Speaker Change: In addition, <unk> manufacturing revenues increased <unk> 5 million, primarily from increased revenue from a customer due to timing, which increased shipments in the second quarter of 2025.
Speaker Change: Gross profit for the three months ended November 24th 2024 was $11 1 million compared to $10 million for the same period last year. The $1 1 million increase in gross profit is primarily due to a $1 6 million increase in <unk> gross profit as a result of price increases.
Speaker Change: Certain customers, partially offset by a $1 $5 million decrease in manufacturing gross profit due to manufacturing variances.
Selling general and administrative expenses for the three months ended November 24, 2024 was $11 1 million compared to $9 3 million for the same period last year.
The increase was primarily due to increases in noncash stock based compensation expense of $1 8 million. The majority of which was related to the new higher performance stock grant to our principal executive officers.
For the three months ended November 24, 2024, we reported net loss of $6 6 million and 25.
Speaker Change: Loss per diluted share as compared to net income of $14 2 million and 39.
Speaker Change: Income per diluted share for the same period last year, which had included an infrequently large favorable $27 million noncash fair market value adjustments of our debt derivative liabilities associated with our term loan credit facility.
Speaker Change: Adjusted EBITDA for the three months ended November 24, 2024 was six 5 million an increase of $1 1 million compared to $5 4 million in the prior year period.
Speaker Change: The increase in adjusted EBITDA was primarily due to the increase in gross profit.
Speaker Change: I will now review results for the first six months of fiscal 2025 reps.
Speaker Change: Revenues for the six months ended November 24th 2024 were $57 3 million, an increase of 5% compared to $54 7 million for the comparable prior year period. The increase in revenues was due to a $2 million increase in HLA manufacturing revenues, primarily due to higher sales volume.
From our largest customer at $1.6 million increase in <unk> revenues, which increased composed of $3 3 million of higher sales volume from our largest customer partially offset by a customer working down inventory levels built in the prior year period of $2 6 million.
Speaker Change: Gross profit for the six months ended November 24, 2024 was $16 5 million compared to $12 7 million for the same period last year to $3 8 million improvement in gross profit is due to a $5 $1 million increase and CMO gross profit, which reflected a $3 $2 million increased due to.
Speaker Change: Price increases to certain customers and a $1 9 million increase due to a favorable sales mix, partially offset by a $1 million write down on existing inventories to their net realizable value and a <unk> 3 million decrease in Asia manufacturing gross profit due to manufacturing variances.
Speaker Change: Selling general and administrative expenses for the six months ended November 24, 2024 was $25 9 million compared to 18 5 million for the same period last year. The increase was primarily due to a $4 $4 million increase in professional fees, including legal fees related to the civil litigation related to the.
Speaker Change: <unk> foods and the stockholder after the settlement.
Additionally, noncash stock based compensation expense increased by $2 7 million the majority of which was related to performance stock unit grants to our principal executive officers.
Speaker Change: For the six months ended November 22024, we recorded a net loss of $22 8 million and 76 loss per diluted share as compared to net income of $3 5 million and 10.
Speaker Change: Income per diluted share for the same period last year, which had included and frequently large favorable $29 million noncash fair market value adjustment to our debt derivative liability associated with our term loan credit facility.
Speaker Change: Adjusted EBITDA for the six months ended November 24th 2024 was $4 7 million or $1 $3 million increase from $3 4 million in the prior year period the.
Speaker Change: The increase in adjusted EBITDA was primarily due to the increase in gross profit, partially offset by increased legal and audit costs.
Speaker Change: During the second quarter, we reported two additional important financial achievements.
Speaker Change: First in October we successfully closed the previously announced $24 $3 million pipe offering with various new and existing shareholders. These funds significantly improved our liquidity position and have allowed management to focus on opportunities to further grow the business. In addition in late November we successfully.
Speaker Change: Amended and extended our revolving credit facility with BMO in terms of the amendment provide amongst other items, a three year extension as well as a reduction in interest rates that we believe have further strengthened our balance sheet and overall financial position.
Speaker Change: We are very pleased with our financial performance during the quarter, which was bolstered by a successful pipe financing and debt restructuring, which we believe helps to position us well for future growth.
Speaker Change: Concludes my financial overview for.
Speaker Change: For those interested in reviewing our reconciliations of our non-GAAP financial measures, including adjusted EBITDA. Please refer to our 8-K filing or earnings release issued today I will now turn the call back over to Paul for an update on operations and achievements during the period.
Speaker Change: Thank you Ryan during.
Speaker Change: During the second quarter, our company held its first Investor day webcast, where we are.
Speaker Change: Outlined our plan for growth in the coming years.
Speaker Change: I am very pleased to report that we believe the achievements during this period as well.
Speaker Change: Well to achieve the ambitious goals that we have articulated.
Speaker Change: As we discussed during our Investor day life core is put into action in a three pronged growth strategy that seeks to drive a 12% revenue CAGR and increase EBITDA margins to over 25% over the next few years.
Speaker Change: This strategy seeks to maximize our existing customer business.
Speaker Change: Vance programs within our development pipeline towards commercialization and finally drive new business to our company through expanded business development efforts.
Speaker Change: Though this growth program is in its early days progress we've made in each arm of this strategy during the second quarter.
Speaker Change: With respect to the first strategic goal the company made great progress to maximize our business with our existing customers in both our fermentation and fill finish operations.
Speaker Change: During the second quarter, our team worked closely with our customers on their changing supply chain needs to ensure that they have adequate supply to meet their demands.
Speaker Change: Recently after working with one of our customers to meet their near term challenge a senior executive at a large multinational pharma company said <unk> support is the strength of our business.
Speaker Change: This represents a trust that we are working to establish with every one of our customer base.
Speaker Change: This brings us to our second area of focus in achieving our growth versus the advancement of development our development pipeline towards commercialization. We continue to maintain 10 late stage programs and all have the potential to achieve commercial approval status by 2028.
Speaker Change: While there is no guarantee that they will reach each reached the finish line.
Even a modest subset of this group could generate substantial and impactful growth for the company in the midterm.
Speaker Change: I will now move to our third area of focus for growth, which is driving new business to our company through expanded business development efforts.
Speaker Change: We continue to collaborate with our clients and grew and grew our development pipeline by two programs.
Speaker Change: As we discussed during our Investor day, we have deployed a new sales strategy to expand our target market capitalizing on investments, we have made in technology and creating a more agile organization to support our expanding pipeline.
As many of you know in the past life Corey was focused only on complex highly viscous formulations in an effort to achieve significant growth are our new team is committed to expanding its focus to include other products and formulations across multiple modalities.
Speaker Change: As a result, our BD project pipeline has grown significantly in the recent months with our team working aggressively to qualify in advance more than 50 new opportunities.
Speaker Change: In addition, with our expanded business development deployment plan, we have seen an increase in the number of large multinational pharmaceutical companies, where we are qualifying leads being evaluated and progressing opportunities towards closure.
Speaker Change: We are confident that our expanded team and increased level of activity will result in an expanded and more diverse customer base that we expect will continue to fuel our pipeline with new and impactful programs for years to come.
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Speaker Change: To further support this effort our company has adopted a team approach to driving new business, including engagement at the highest level of our organization.
Speaker Change: We have begun working closely with our business development team to strengthen and expand our BDC platform and brand awareness across the market.
Speaker Change: Everyone at life core sales.
Speaker Change: This was a philosophy at the heart of all we do at lifeboat and.
Speaker Change: And we are committed to meeting the needs of our customers and working hard to position ourselves for new opportunities as our customers needs arise.
As I mentioned earlier, we signed two new project agreements during the period with new customers. These new programs added to our early stage pipeline.
Speaker Change: Early this earlier this month, we announced one of these deals with nurse them laboratories.
Speaker Change: And there are some selected <unk> to provide CD or most services focusing on supporting <unk> clinical development of its lead development candidate and Rs 033.
Speaker Change: 033 is a novel treatment for opioid use disorder and alcohol use disorder.
Speaker Change: <unk> 033, which is wholly owned and internally discovered it by nurses.
Speaker Change: Currently entering phase III clinical development.
Speaker Change: Pursuant to the newly signed agreement <unk> will provide nurses.
Speaker Change: With filled syringes for use in their clinical development of NRL zero <unk> III <unk> III.
Speaker Change: We are excited to add <unk> to our growing list of customers and appreciative that their team and she has instructed us to collaborate with them on these activities.
Speaker Change: Right.
Speaker Change: Supplementing these efforts during the second quarter the company installed the high speed multi purpose sides had isolated filler.
Speaker Change: <unk>, which has the capability to fill vials syringes and cartridges.
Speaker Change: Double the company's available capacity and increased our revenue generating capacity to approximately $300 million annually and extended the range of project opportunities we can support the.
Speaker Change: The Isolator technology is state of the art and provides the capabilities and compliance that the world's leading pharmaceutical companies would expect and demand from our leading CMO business.
Speaker Change: Finally during the second quarter as part of our leadership team transformation, we added significant talent with the appointment of Thomas Gold Digger as our senior Vice President of operations.
Speaker Change: And they experienced pharmaceutical industry professional with extensive <unk> experience.
Speaker Change: Thomas brings a strong operations and finance background, which we believe will help them drive operational productivity within our company's performance driven culture.
Speaker Change: In conjunction with his appointment Jackie Clicker has been named executive Vice President of quality and development services.
Speaker Change: <unk> created a position, which will take advantage of her leadership and strong regulatory compliance experience to maintain the company's reputation for excellence in this area.
Speaker Change: This organizational change strategically bifurcate, the operations and quality functions, representing a natural but critically important evolution for <unk> as we embark on our next phase of growth.
Speaker Change: This will allow us to leverage the strengths of both Thomas and Jackie and advancing our key sustaining objectives of reducing operational expenses and maintaining exceptional quality.
Speaker Change: In closing I would like to reemphasize that we are executing against our transformational plan.
Speaker Change: And Thats significant changes have been made at <unk> over the past year.
Speaker Change: Ranging from capabilities to leadership through an enhanced commercial strategy.
Speaker Change: These changes are designed to maximize the great opportunities in front of us to serve a larger segment of the drug development and commercial manufacturing market.
Speaker Change: In doing so we believe that we will be best able to serve our existing customers as well as new customers and achieve the aggressive growth objectives that we're targeting including significantly increased revenues as well as improved margins and adjusted EBITDA.
Speaker Change: We are pleased with our progress in the first half of fiscal 2025 and are increasingly confident that our growth strategy and leadership priorities are tracking the company for success in the near mid and long term.
Speaker Change: This concludes our prepared remarks for today operator, you may now open the call for questions.
Speaker Change: Thank you so much and to ask a question simply press star one on your telephone and wait for your name to be announced.
Speaker Change: To remove yourself press star one again.
Speaker Change: For our first question please.
Speaker Change: And it comes from the line of Matt Hewitt with Craig Hallum Capital Group. Please proceed.
Matt Hewitt: Good afternoon, congratulations on all the progress in the second quarter, maybe first off if we could dig in a little bit on the <unk> opportunity.
Speaker Change: A couple of different questions here first and foremost how did this come into the pipeline secondly, as you look at this opportunity is there any way to size up I assume that there's some <unk>.
Speaker Change: Services. In addition to the CMO fill finish services or is there also some development opportunities with them and maybe even beyond the current opportunity do you see other things in their pipeline that you could ultimately win.
Matt Hewitt: Thanks, Matt first of all and happy New year, Yes, we're excited about the <unk> opportunity.
Matt Hewitt: As I think about it in any opportunity that comes in it really is our BD team working aggressively to identify potential opportunities to drive new business into our organization. So that's how the lead manifested itself and then from there.
Matt Hewitt: Although we've signed a limited scope of work to start the program.
Matt Hewitt: And the idea is contemplating ongoing development over the long term through phase II to phase III and then ultimately the commercialization and we will finalize those agreements.
Matt Hewitt: Development continues down the down the.
Matt Hewitt: They're on the way if you will.
Matt Hewitt: It relates to commercial volumes and.
Matt Hewitt: Our numbers, we haven't yet quantified those with the customer at this point, but we think it will be meaningful.
Got it that's helpful. Thank you and then maybe a more broad question, but over the past couple of months I assume that you've been having lots of conversations with your pharma customers those existing and potential new customers. What are you hearing from them as they look at fiscal 'twenty fiber calendar year 'twenty five from either from a budge.
Matt Hewitt: Getting perspective, or whether or not theyre looking at.
Matt Hewitt: Priority prioritization of pipelines.
Matt Hewitt: The feedback youre getting from the customers and how can you be a solution to any bottlenecks that they are coming up against thank you.
Matt Hewitt: Great question, So I see ongoing and continued momentum as it relates to development programs and also the opportunity for late stage site transfers, which may be here to for life core Hasnt participated in the other leading indicators.
Matt Hewitt: Some solace in is the growth in our pipeline with related related to large multinational pharmaceutical companies. It now represents.
Close to 30 plus percent overall overall pipeline and when I joined the organization. It was like less than 10. So it tells me that not only the combination of our momentum in the market, but I will say our hunting business development strategy is leading to.
Matt Hewitt: What I would say indicators of potential future success, which we're very optimistic about.
Speaker Change: That's great. Thank you.
Speaker Change: Thank you one moment for our next question.
Speaker Change: It comes from the line of Jacob Johnson with Stephens. Please proceed.
Jacob Johnson: Hey, good afternoon.
Speaker Change: New years everybody.
Speaker Change: Maybe Paul sticking on the business development front.
Speaker Change: Kind of thing that you alluded to I think maybe trying to win some late stage.
Speaker Change: Customers I guess thinking about the fill and finish capacity you have in some of the dynamics in that end market is it possible for you to go after a commercial tech transfer project. Obviously, it's good to see the early stage wins I'm, just curious kind of the opportunities on maybe later stage or commercial opportunities for fill finish.
Speaker Change: Jacob Thanks for the question and happy New year, a 100%.
Jacob Johnson: I think that's certainly part of our strategy.
Jacob Johnson: I think I may have articulated to you or to others is we want to be strategically positioned.
Jacob Johnson: To take advantage of.
Jacob Johnson: Late stage or commercial site transfers of which we've had now six.
Jacob Johnson: Difficult opportunities enter our pipeline so working aggressively to close those we wanted to be positioned and be top of mind within our customers' mind when those needs arise and.
Jacob Johnson: We're working hard to do with our expanded business development team, but certainly we have meaningful ones in our pipeline that we're working on today.
Got it thanks for that Paul and then maybe for Ian just on the margin side of things, obviously nice top line beat the sled periods to solid gross margin outperformance at least versus our expectations.
Jacob Johnson: I'm just curious how should we think about various margins trending throughout the rest of the year was there any kind of benefit from that and any timing in the quarter that we need to be cognizant of and I guess the other kind of piece of this is the new five <unk> is there any impact on gross margin that we need to take into account there.
Jacob Johnson: Thanks Jacob.
Jacob Johnson: So as we've mentioned previously we have some great opportunities to continue to improve gross margins and as adjusted EBITDA as well over time sequentially.
Jacob Johnson: Sequentially. The primary improvements in Q2 margins were driven by higher revenues, a favorable sales mix and favorable absorption of overhead costs, coupled with lower operating supplies and head count expenses.
Jacob Johnson: We still expect overall margins for the year to be in the low 30% range and with the improvement in Q2, I think that makes kind of a gross profit split roughly in the 40% range in the first half and improving to approximately 60% in the second half I don't think that Youll see anything.
Jacob Johnson: Dramatic this year as it relates to the <unk> had in terms of improvement in margins, but as we look out to the future. It is certainly one of the areas, where we do expect.
Jacob Johnson: Revenues continue to grow in future years that we're going to continue to experience increased leverage of our overhead costs.
Jacob Johnson: Over greater revenues.
Okay. Thanks.
Jacob Johnson: Yes go ahead, Paul sorry.
Speaker Change: I'm, sorry, I would just add some of the things that are maybe not revenue dependent we're working very hard at spending a lot of time on scheduling labor utilization, we want to ensure that we are an efficient indirect and SG&A structure those things will positively affect margins over time, not all of that will manifest.
Speaker Change: Itself this year, but those are areas, where we're spending significant time and focus.
<unk> built.
Speaker Change: Building this organization.
Got it thanks for that Paul if I could just sneak in one kind of clerical question you guys reiterated EBIT guidance.
Speaker Change: For the year in the press release, I don't think I heard any update on the revenue outlook.
Speaker Change: Any change in thinking into I think that $126 five to 130 range for the year.
Speaker Change: No changes in our topline revenue guidance.
Speaker Change: Okay. Thank you Ryan I appreciate it guys.
Speaker Change: Thank you.
Speaker Change: For our next question comes from the line of Michael Pitofsky with Barrington Research. Please proceed.
Michael Pitofsky: Hey, good afternoon, guys a lot that's going on.
Michael Pitofsky: So let me start real quick housekeeping I haven't seen the Q, yet and Brian I'm, just curious because I know your debt your debt calculations, a little bit funky and I think you have to have the debt discount figure to sort of figure out total debt can you either give that figure or the total debt figure as of the end of the quarter by any chance.
Michael Pitofsky: Yeah.
Michael Pitofsky: It should be filed Michael but.
Michael Pitofsky: I believe in my mouth.
Michael Pitofsky: It's going to come around quickly.
And $60 million I believe.
Michael Pitofsky: Total debt figure is 160 for Alcon, yes.
Michael Pitofsky: Okay.
Michael Pitofsky: Okay Alright.
Michael Pitofsky: Okay. So in terms of the quarterly really look strong, including the adjusted EBITDA.
Speaker Change: Brian did you say that there was some in addition to favorable mix. If there was some favorable timing that impacted that I'm, just curious because I would've honestly with the historical seasonality of this business, particularly second half and particularly the fourth quarter.
Speaker Change: I would've expected you to take our EBITDA guidance up unless you felt like there was some pull forward in Q2.
Speaker Change: Yes, I mean, we did see some early fulfillment of some orders in the quarter.
Speaker Change: Which is just timing between the quarters and you are correct I did mention.
Speaker Change:
Speaker Change: An improvement in the overall mix of that revenue for the quarter.
Speaker Change: Okay. So I mean can.
Speaker Change: Can you by any chance to quantify the pull forward the pull forward.
Speaker Change: I think it was.
Speaker Change: Few million dollars more than what we had originally anticipated.
Speaker Change: And how did that hasn't been flogging EBITDA.
Speaker Change: I don't have the specifics of that.
Speaker Change: Okay.
Okay.
Speaker Change: Alright fair enough.
Speaker Change: Hey, Paul in terms of <unk>.
<unk> been in the chair for a bit.
Speaker Change: Just curious.
Speaker Change: Early learnings conversations with multinationals.
Speaker Change: Is there anything like is this sort of.
Speaker Change: You've talked about the sales cycle for some of these.
Speaker Change: Types of conversations being six to 18 months I mean has anything changed in your thinking on that have.
Speaker Change: Have you learned anything about how they how life course viewed.
In terms of the space is it more education required in terms of your new capabilities can you can you just talk about.
Speaker Change: Early learnings I guess thanks.
Speaker Change: Great question, Michael and thank you and happy new year.
Speaker Change: I would say this that there is a level of ignorance as it related to it related to.
Speaker Change: Knowledge about life core I'll say, our expanded capabilities certainly life core very well known for our <unk> capabilities and fermentation, but they're really the great opportunity is expanding that and opening the aperture.
Speaker Change: Our sterile fill finish capabilities and I think thats been welcome greatly by our potential customers.
Speaker Change: Directly related to the growth and I will say large multinational programs within our with our within our BD pipeline and the level of customer visits to Tosca that are planned.
Speaker Change: In the future and that have taken place in the past so.
Speaker Change: I'm optimistic about the opportunity we have based on the early learnings and experience with him.
Speaker Change: Hi, there in the early days.
Michael Pitofsky: Okay, Great and just one quick clarification I just wanted to absolutely make sure I heard this right did you say Paul that you have roughly 50 ish opportunities new opportunities in the pipeline and 30% of which involve large multinationals.
Speaker Change: Sure.
Speaker Change: Yes, Okay fantastic. Thanks, guys I really appreciate it.
Speaker Change: Thanks take care.
Speaker Change: Thank you and this concludes our Q&A session and I will pass the call back to Paul Joseph for closing comments.
Paul Joseph: Thank you operator in closing again happy new year to everyone I wish to thank our investors, who continue to support our growth strategy for the future I wish to acknowledge our customers and collaborators and our board who continue to entrust life core as a partner of choice and importantly, I wish to extend my gratitude to our incredibly hard working and talent.
Paul Joseph: That team for driving each of the successes at life core with the support of each of these stakeholders and with our strategic priority is clear and achievable. We believe we are well positioned to achieve growth and sustainable profitability in the coming years.
Paul Joseph: Thank you very much that concludes our call today.
Paul Joseph: And thank you everybody for participating in today's conference and you may now disconnect.
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Paul Joseph: Okay.
Paul Joseph: Yeah.
Paul Joseph: Okay.
Paul Joseph: Yes.
[music].