Earnings Call Transcript - COOK Q1 2023

Operator, Operator

Hello, and welcome to Traeger's First Quarter Fiscal 2023 Earnings Conference Call. My name is Terry, and I'm the conference operator for today. I would now like to hand the call over to Nick Bacchus to begin. Please go ahead.

Nicholas Bacchus, Vice President of Investor Relations

Good afternoon, everyone. Thank you for joining Traeger's call to discuss its first quarter 2023 results, which we released this afternoon and can be found on our website at investors.traegers.com. I'm Nick Bacchus, Vice President of Investor Relations at Traeger. With me on the call today are Jeremy Andrus, our Chief Executive Officer; and Dom Blosil, our Chief Financial Officer. Before we get started, I want to remind everyone that management's remarks on this call may contain forward-looking statements, including regarding our anticipated full year 2023 results which are based on current expectations but are subject to substantial risks and uncertainties that could cause actual results to differ materially from those expressed or implied herein. We encourage you to review our annual report on Form 10-K for the year ended December 31, 2022, and our other SEC filings for a discussion of these factors and uncertainties which are also available on the Investor Relations portion of our website. You should not take undue reliance on these forward-looking statements. We speak only as of today, and we undertake no obligation to update or revise them for any new information. This call will also contain certain non-GAAP financial measures, including adjusted EBITDA, adjusted net income, and adjusted gross margin, which we believe are useful supplemental measures. The most directly comparable GAAP financial measures and reconciliations of the non-GAAP measures contained herein to such GAAP measures are included in our earnings release, which is available on the Investor Relations portion of our website at investors.traeger.com. Now I'd like to turn the call over to Jeremy Andrus, Chief Executive Officer of Traeger.

Jeremy Andrus, CEO

Thank you, Nick. Thank you for joining our first quarter earnings call. Today we'll be discussing the first quarter results as well as our progress on executing our long-term strategies. I will then turn the call over to Dom to discuss further details on our quarterly financial performance. In the first quarter, we continued to execute against our plan as we navigate a challenging environment and position the business for a return to top and bottom line growth in the second half of 2023. First quarter revenues of $153 million came in towards the higher end of our guidance range, while adjusted EBITDA of $22 million exceeded the high end of our range by $2 million. I am pleased with our ability to overdeliver on our adjusted EBITDA guidance for the quarter and believe our results demonstrate our strong organizational focus on positioning Traeger for improved profitability. While our top line continues to be pressured by retailer destocking as well as lower consumer demand in our grill business, our first quarter results increase our confidence in our ability to achieve our full year guidance. And as a result, we are reiterating our prior guidance. During the quarter, sell-through of grills remained negative versus the first quarter last year as we continue to lap our very strong multi-year comparisons. The impact of lower consumer demand in the first quarter was compounded by continued retailer destocking compared to the first quarter last year when retailers were still building inventories. However, sell-through in the quarter was in line with our forecast coming into the year. Importantly, following a holiday period in which we leaned into promotions at retail in an effort to accelerate demand and clear channel inventories, we reverted to a more typical promotional cadence in the first quarter that was similar to the prior year. I am encouraged to see consumer demand return to a more predictable pattern despite less aggressive promotions and in the face of what continues to be an elevated promotional environment in the outdoor cooking industry more broadly. In the first quarter, we continued to execute against our near-term tactical priorities which we have discussed over the last three quarterly calls. In terms of inventories, we are making substantial progress on our rightsizing efforts. Our initiatives to drive sell-through in channel and our retail partners destocking efforts in conjunction with lower production levels have led to a materially improved picture on inventories with both our balance sheet inventories and inventories in the channel declining sequentially relative to last quarter. We continue to expect that this inventory rationalization process will continue through the second quarter and believe that inventories will be more fully aligned in the second half which will allow for more normalized replenishment rates of grills. On gross margin, our team remains highly focused on driving margin improvement. In the first quarter, we made a strategic decision to optimize our pellet manufacturing footprint by consolidating our pellet mill portfolio from seven mills to five by divesting two higher cost mills and increasing efficiencies in the other five facilities; we expect to drive meaningful improvement in capacity utilization and cost per pound. Moreover, we have ample capacity to fuel strong growth in our pellet business in the coming years. In terms of our cost structure, in the first quarter, we realized the benefit of the cost reduction efforts we undertook last year, which resulted in annualized cost savings of over $20 million. Further, we have planned our expense structure prudently for 2023, which will enable the company to deliver growth in adjusted EBITDA despite our guidance for lower sales. We plan to remain highly focused on expense efficiency as we move through the year while remaining nimble enough to invest in high-priority growth initiatives if investment capacity increases. Moving on to our strategic growth pillars. Our largest long-term opportunity continues to be accelerating brand awareness and penetration in the United States. Our strategy is to meaningfully increase household penetration from our current 3.5% by driving awareness of the Traeger brand and increasing the productivity of our existing distribution network through community engagement, enhanced retail merchandising, in-store marketing, and product innovation. We believe we can materially expand Traeger's share of space devoted to outdoor cooking on our retail partners' floors. Our brand awareness remains at an all-time high and is up significantly from this time last year, despite our limited top-of-funnel marketing investment capacity over the last 12 months. In the first quarter, engagement with our community on social media continued to demonstrate the growing awareness of and participation in our brand. We grew our followers by 19% versus last year, and user-generated content posts, which we view as a key medium for our brand evangelists, were up by 16%. For the Super Bowl, we offered up unique content and recipes for the game and encouraged our community to post content using the Traeger game day hashtag, resulting in another record year of UGC posts on the day. Our awareness also continues to benefit from consistent and increasing media coverage with articles and reviews covering our new product launches, TV spots featuring Traeger recipes and cooking tips for the Super Bowl, and numerous mentions in top 10 grills of 2023 list. Our media reach has more than doubled versus the first quarter of last year. Traeger continues to be the grill brand that everyone is talking about. Going into our peak summer selling season, the excitement and enthusiasm around the Traeger brand remains as strong as ever. Next week, on May 20, we will celebrate our Sixth Annual Traeger Day, our holiday dedicated to family, friends, and wood-fired food cooked on the Traeger. In anticipation of Traeger Day and ahead of the grilling season, we have released a series of videos featuring Meat Church barbecues Matt Pittman with recipes cooked on our new Flatrock and Ironwood. The content is designed to generate top-of-funnel awareness and to encourage our massive community to cook together and post about it on May 20. Next, on to our second growth pillar, which is disrupting outdoor cooking with product innovation. The first quarter was a critical period in our product innovation roadmap with the launch of two new grills in February, our new Ironwood and our new Flatrock griddle. These launches were some of the most successful in our brand's history, and I'm extremely proud of the team's execution of our go-to-market strategy from product development to commercialization. Innovation is at the core of our company, and the level of innovation that we are bringing to the outdoor cooking market is remarkable. The first quarter's product launches cement our position as an industry disruptor. Our new Ironwood offers unrivaled flavoring consistency through a series of upgrades and new features. Building on the innovation of last year's Timberline introduction, the new Ironwood includes features like Smart Combustion technology, FreeFlow Firepot, and a touchscreen user interface, enabling consumers to master their cooks every time. The response from consumers and retailers has been fantastic. The Ironwood had over 400,000 views on social media during the launch period and received positive media coverage from Rolling Stone, Men's Journal, GQ, and Forbes. The launch of our premium Flat Top Grill, the Traeger Flatrock, has been something of a phenomenon. We have seen the grill category expand meaningfully over the last few years. And in speaking with our community, we understood that there was a gap in the marketplace for a premium griddle and an opportunity for Traeger to disrupt the space. Complementing the Tried and True dishes of the Wood Pellet Grill, our new Flat Top Grill opens a Traeger hood up to an entirely new menu of foods like pancakes, Philly cheesesteak, and smash burgers. The Flatrock solves several common pain points for grill users with innovations like our true zone heating system with three separate cooking zones, Triple U-burner design for even cooking across the cooking surface, and FlameLock construction, which locks in heat and blocks out wind. The launch has been the most engaging in our history with over 838,000 video views and over 27,000 engagements on social media during the launch period. We are extremely pleased with the consumer response thus far. And as we have launched Flatrock with limited distribution, there is a significant opportunity to increase distribution as we move through this year. Our next strategic pillar is driving recurring revenues. As expected, our consumables business was pressured by lower demand from a large customer who introduced a private label pellet offering last year. Outside of this, our pellet business remains healthy and sell-through in the first quarter was relatively in line with the first quarter last year, excluding that customer, demonstrating the recurring nature of this revenue stream. We also continue to grow distribution of pellets into the grocery channel. In the first quarter, we added pellets into nearly 450 new grocery doors across Albertson's, Spartan Nash, and Raley's. We also grew our pellet offering at Kroger by adding our new value-sized 30-pound barbecue select pellet in over 1,600 doors. On the food consumables side, we continue to execute on our growth strategy through channel expansion and new product offerings. Of note, we secured new distribution for Traeger rubs and sauces in over 250 doors of Myer. We also launched three new rubs focused on the most popular griddle meals to support the launch of Flatrock: Burger Rub, Breakfast Rub, and Spicy Fajita rub. Our final growth pillar is expanding the Traeger brand internationally. Similar to the U.S. market, our international business was pressured by the retailer destocking in the first quarter. However, results internationally for the quarter were in line with our expectations. In the first quarter, we introduced our new Timberline in European markets and our new Ironwood in Europe and Canada. The product launches drove excitement on retail floors and led to improved reorder activity. Overall, we were pleased to see the consumer respond to the new product. And while we continue to expect near-term softness in our international markets, we do expect meaningful improvement in second half sales trends. In conclusion, I'm encouraged by the meaningful progress we have made in the last three quarters on our tactical priorities. Our team's focus on rightsizing inventories, reducing our cost structure, and driving gross margin improvement will position the business for a return to growth in the second half of the year and beyond. Moreover, the excitement and exceptional consumer response to our new product launches bolster my confidence in Traeger's long-term strategy and positioning as an innovator and disruptor in the outdoor cooking industry. And with that, I'll turn the call over to Dom. Dom?

Dominic Blosil, CFO

Thank you, Jeremy, and good afternoon, everyone. Today, I'll review our first quarter performance and discuss our outlook for fiscal year 2023. First quarter revenue declined 32% to $153 million. Grill revenues declined 40% to $90 million. Grill revenue was negatively impacted by lower unit volumes as our retail partners continue to destock in an effort to drive lower channel inventories, partially offset by higher average selling prices. Consumables revenues were $30 million, down 24% from the first quarter of last year, driven by lower volume of pellets. Our consumables business was negatively impacted by the loss of volume with a customer who introduced a private label pellet last year as well as lapping the large load-in of food consumables into the grocery channel in the first quarter of last year. Accessories revenue decreased 1% to $33 million due to lower unit volumes of Traeger branded accessories, partially offset by increased sales of meter. Geographically, North American revenues were down 33%, while Rest of World revenues were down 13%. Gross profit for the first quarter decreased to $55 million from $83 million in the first quarter of 2022. Gross profit margin was 36.2%, down 80 basis points versus the first quarter of 2022. The decline in gross margin is primarily driven by: one, lower grill margin due to pricing mix and the timing of some expenses tied to our spring promotion, which negatively impacted gross margin by 240 basis points; two, increased amortization of 70 basis points; and three, other unfavorable items worth 110 basis points. Offsetting these margin pressures were: one, FX favorability, which positively impacted margin by 170 basis points; and two, lower freight and logistics costs, which drove 170 basis points of margin favorability. Sales and marketing expenses were $22 million compared to $35 million in the first quarter of 2022. The decrease was driven primarily by lower marketing expense, employee costs, and lower professional service fees. General and administrative expenses were $27 million compared to $41 million in the first quarter of 2022. The decrease in general and administrative expense was driven primarily by lower stock-based compensation expense, lower professional service fees, and reduced employee costs. First quarter operating expenses benefited from the restructuring and cost savings actions taken last year, and we realized in excess of $20 million in annualized savings. Net income for the first quarter was $8 million as compared to a net loss of $9 million in the first quarter of 2022. Net income per diluted share was $0.07 compared to a loss of $0.08 in the first quarter of 2022. Adjusted net income for the quarter was $5 million or $0.04 per diluted share as compared to adjusted net income of $19 million or $0.17 per diluted share in the same period in 2022. Adjusted EBITDA was $22 million in the first quarter as compared to $30 million in the same period of 2022. First quarter adjusted EBITDA was approximately $2 million ahead of the high end of our guidance range. Outperformance relative to our guidance was driven mainly by lower-than-expected operating expenses largely due to the timing of expenses between the first and the second quarter. Now turning to the balance sheet. At the end of the first quarter, cash, cash equivalents, and restricted cash totaled $28 million compared to $52 million at the end of the previous fiscal year. We ended the quarter with $404 million of long-term debt. At the end of the quarter, the company had drawn down $41 million under its receivables financing agreement and $43 million under its revolving credit facility, resulting in total net debt of $460 million. From a liquidity perspective, we ended the first quarter with total liquidity of $98 million. We expect liquidity to ramp as we collect on receivables and reduce inventory moving through the second quarter, which is our peak selling season at retail. Inventory at the end of the first quarter was $132 million compared to $153 million at the end of the fourth quarter of 2022 and $160 million at the end of the first quarter of 2022. We are pleased with the progress we made in the first quarter in rightsizing our balance sheet inventories, and particularly grill inventories, which drove the majority of the sequential decline in total inventories versus the fourth quarter. In channel, we are seeing continued improvement in our retail partners' weeks of supply. While we expect the inventory rebalancing process to continue in the second quarter, we are well positioned to be in a substantially more balanced position going into the second half of the year. In terms of our outlook for full year 2023, we are reiterating our guidance for revenues to be between $560 million and $590 million and adjusted EBITDA to be between $45 million and $55 million. As we discussed on our fourth quarter call, we expect our first half sales to be pressured by continued retailer destocking and challenging multi-year comparisons before seeing a return to growth in the second half of the year as replenishment rates normalize and we lap the substantial sales decline driven by destocking in the second half of 2022. We continue to expect that second quarter sales could decline in excess of 20% versus prior year. We are reiterating our outlook for gross margins of 36% to 37%, which represents 80 to 180 basis points of improvement relative to our fiscal 2022 adjusted gross margin of 35.2%. We expect to see the largest gain in gross margin in the third quarter given the expected improvement in fixed cost leverage as we lap the large sales decline we experienced in the third quarter of 2022. We expect that lower transportation costs will be the largest driver of gross margin improvement for the year due to the decline in inbound freight rates. In summary, I am pleased with the solid progress we made in the first quarter on our key tactical priorities and believe we are well positioned as we move through our peak selling season. We will continue to balance our building confidence in our outlook for the year with the continued uncertainty around the macroeconomic environment, which remains highly volatile. We will remain agile in this rapidly evolving environment as we continue to execute against our strategy. And with that, I will turn the call over to the operator for questions.

Operator, Operator

The first question on the line comes from Simeon Siegel from BMO Capital Markets. Please go ahead.

Simeon Siegel, Analyst

Thanks so much, guys. Good afternoon. So I was hoping that we could talk a little bit more about pellets. Maybe both sides. So can we talk a little bit more about what you think the consolidation will do of the mills? So any color there from the supply side, thinking through the benefits, maybe quantifying some of the costs? And then secondarily, on the demand side, so can you guys talk through obviously the element with a large retailer. So when do we lap that? Maybe any color you've seen from their offering, how people are responding? And then lastly, we use pellet as an engagement proxy. So to distill out maybe the change in retailer and timing? Just help us think through how you're seeing engagement of just usage in general?

Dominic Blosil, CFO

Good questions. I’ll start with the closure of the two pellet mills. This decision is part of the broader strategy we’ve been implementing over the past year to optimize our entire cost structure. Considering the dynamics during the pandemic and what we are observing now in the post-pandemic phase, we have gained a better understanding of the demand pull-forward we experienced. We concluded that moving forward, we have excess capacity in the system, which has been putting pressure on the unit economics of our pellets. The opportunity we identified involved rebalancing our capacity according to what we can currently forecast for demand over the next two to three years, allowing us to enhance the utilization rate of that capacity. This adjustment will, in turn, improve the unit economics for our pellets, which we are very excited about. Additionally, we were fortunate to pinpoint two pellet mills in our portfolio that were less efficient compared to the others, enabling us to shift demand or capacity utilization to more efficient areas and further enhance unit economics for those pellets. This is just a component of our broader strategy and an aspect we wanted to address as we think about improvements in our operations and continuing to increase gross margin. Could you please repeat the second question?

Simeon Siegel, Analyst

Just maybe through demand.

Dominic Blosil, CFO

We analyze the usage and demand for consumables in two main ways. First, we look at consumable attachment rates relative to our installed base. Currently, we are observing a return to pre-pandemic attachment rates. As we discussed in earlier calls, there was a surge in attachment during the pandemic, which we anticipated would normalize afterwards, influenced by various factors. The positive aspect is that the attachment rates are aligning more closely with pre-pandemic expectations, despite some minor pressure from a private label pellet introduced by one of our large customers. The second aspect we consider involves consumer demand, assessed through the IoT data we gather, which provides a more accurate measure of usage rates. The results in this area remain encouraging. We evaluate this through various lenses, including cohorts, which allow us to track usage over time as well as the total number of cooks month-to-month. The total cook numbers remain consistent with our prior reports regarding monthly cooks. In terms of cohort data, we observe expected trends; as a cohort ages, there's a slight decline in usage, which can often be attributed to customers replacing grills as they reach the end of their lifespan and transition into new cohorts. The behavior of pandemic cohorts mirrors that of pre-pandemic and post-pandemic cohorts, indicating that we are developing a stable base of consumers who engage with our product in similar patterns over time. The cooking behaviors in the first year resemble historical trends, reinforcing our belief that the demand surge we anticipated is taking place, and we are acquiring consumers who will remain active and involved with our product moving forward.

Simeon Siegel, Analyst

That's great. Perfect. Best of luck for the rest of the year.

Operator, Operator

The next question on the line comes from Peter Benedict of Robert W. Baird & Co.

Peter Benedict, Analyst

The question first, just on gross margin, Dominic, see a little over 36% during the first quarter. I recognize you guys are still expecting 36%, 37% for the year. Do you still expect gross margin rate to kind of build sequentially as we move through the quarters? And so that's my first question, kind of related to that and how you see kind of maybe the walk to north of 37% over time longer term?

Dominic Blosil, CFO

Sure, I would say we are taking a more cautious approach for the second half of the year. We're satisfied with our performance in the first quarter, with no surprises when comparing actual gross margin to our internal projections. The challenges we faced in the first quarter are likely to persist into the second quarter. I wouldn’t expect the first half of the year to show significant sequential improvements in gross margin, primarily because our inventory carrying costs remain higher than we would prefer. However, we anticipate seeing sequential improvements in the latter half of the year. This will be largely due to clearing out our higher-cost inventory and benefiting from improved rates in the inbound transportation market. While transportation costs haven’t fully returned to pre-pandemic levels because of various factors, there have been considerable reductions compared to what we were paying for containers a year or six months ago. Thus, my perspective is a cautious outlook on gross margin comparisons for the first half of the year, followed by sequential improvements in the second half. Regarding our future outlook, it aligns with our previous statements. Our strategy focuses on portfolio management to enhance gross margin through an optimized product mix, strategic sourcing, and general operational improvements. For example, we've implemented direct imports, which has effectively streamlined our value chain and contributed positively to our gross margin.

Peter Benedict, Analyst

No, that's helpful. The second question is about whether inventory is improving. You mentioned a normalization in demand patterns. Jeremy, I believe you might be referring to the week-to-week build as we transition into the spring season. Is this what gives you confidence in predicting that retailers will restock in the latter half of the year? Could you elaborate on this a bit more? It's a crucial aspect, and I want to ensure we grasp what you're observing in the early part of spring.

Jeremy Andrus, CEO

Yes. I believe there are a couple of elements contributing to our predictability. For the first time in several years, we are observing a trend toward predictability. We monitor this carefully on a weekly basis and compare it to prior years that exhibited more stable seasonal patterns, as well as our forecasts. Currently, we see point-of-sale data that appears to be reasonably predictable, especially in contrast to the volatility experienced over the last three years during the pandemic, which included ups and downs. Another factor contributing to our confidence in our guidance is that retailer inventory levels are returning to healthy figures, allowing us to restock as products are sold. We have observed significant improvement in inventory health during the first and second quarters. By the end of the quarter, we anticipate that retail inventory levels will be in a strong position, which positively influences our revenue outlook.

Operator, Operator

The next question on the line comes from Peter Keith of Piper Sandler.

Peter Keith, Analyst

Thanks. Good morning, everyone. Sorry, long day. Good afternoon, everyone. The credit environment is obviously something that has kind of a steady drumbeat in the background. And we're hearing that smaller retailers are having to pull back on inventory purchases just because of the tighter credit backdrop. You guys do have some big wholesale partners, but you also have some small ones. And I'm wondering, is there any issue on order trends with some of your smaller retail partners out there because of this backdrop?

Dominic Blosil, CFO

No, not from our side. I mean we have a really strong partnership with our retail partners, and we work on terms and it sort of ebbs and flows over the course of the season, where we're setting larger quantities in, say, late Q1 for promotional periods or just the uptick in demand in Q2. We tend to work on extended dating programs, et cetera, to sort of optimize their own cash flow positions given the fact that they are smaller retailers. In addition to that, we tend to think of specialty within our realm as kind of this one to show one to go model where they're not necessarily going to preload inventory at the levels you would see it a larger big box, right, because they don't have the storage and therefore, that gives them the ability to turn inventory more efficiently and manage their own cash conversion cycle accordingly. And so we want to be great partners here, and I think that goes a long way in terms of the trend we're seeing relative to what you're seeing, but we haven't necessarily seen anything pop up that would signal a problem from a credit standpoint and/or impact order behaviors.

Peter Keith, Analyst

Okay. Helpful. And then maybe for Jeremy, on the marketing side, you've talked about kind of pulling back on some of the top of funnel marketing. What about that bottom funnel marketing? I'm thinking more specifically around your boots on the ground efforts with retailers. I know you do in-store demos, you would train sales associates, you gave sales associates discounts, so they would own the product. Are those efforts still ongoing? Or is that something that also you're having to pull back on, just given the demand environment?

Jeremy Andrus, CEO

No, I would say those efforts are still ongoing. As we consider our near-term and long-term needs, we recognize the importance of investing more in brand awareness through top-of-funnel customer acquisition in the long run. In the near term, we are focusing on two key areas: community engagement and metrics related to our success in social and user-generated content, which highlight the unique elements of our platform. We built our brand before spending on top-of-funnel marketing by effectively executing at retail, which gives us a competitive edge in outdoor cooking. Our presence in key markets involves boots on the ground in retail, where we manage demand, partnerships, and merchandising, and we believe this is a high-return investment. As we transition from specialty to national retail, like Home Depot, our approach changes accordingly, but we are committed to investing in point-of-sale efforts, including a broader assortment and the development of Traeger islands at retail. Our ground-level investments are strong, and as we stabilize and start to grow, we will increase our focus on this market and sales strategy that connects our retail execution with top-of-funnel media investments.

Peter Keith, Analyst

Okay. That's great. Maybe you just mentioned Home Depot at the end. Has there been any update on the building out of the island and the two bay walls?

Jeremy Andrus, CEO

The partnership with Home Depot is robust. We have made significant strides in expanding our space. We introduced several hundred additional fixture doors in the fall. In the latter half of this year, we will further increase both our floor space and the number of fixtures in retail. This approach represents a long-term and predictable growth strategy, as enhancing our retail presence is closely linked to our brand's growth.

Operator, Operator

The next question comes from Joe Feldman of Telsey Advisory Group.

Joseph Feldman, Analyst

Yes. I wanted to ask you a little bit more on some of the innovation with the Ironwood and the Flatrock griddle. It sounds like you've seen a great response, at least via social media. I'm curious if you're seeing a good unit response as well. Is the industry at retail taking it in? And you're seeing pretty decent demand from the end user. I would guess the Ironwood probably more so. You mentioned Flatrock is a little more limited distribution at the moment. But any thoughts on that?

Jeremy Andrus, CEO

We're still in the early part of May, but the energy we've observed on social media is aligning with our sales performance. We anticipated that Ironwood would do very well due to its accessible price point for our consumers. It shares significant design and innovation features with Timberline, which is priced nearly twice as high. We're pleased with how consumers are responding to Ironwood. As for Flatrock, the social media reaction surprised us; there was a lot more excitement around its launch than we anticipated. This reflects the strong connection we have with our engaged community and our robust retail partnerships for product distribution. It gives us confidence in branching out beyond wood pellet grills while still complementing them. We believe a focused launch for Flatrock at retail, combined with stronger than expected sales, will keep our inventory somewhat limited over the next six to eight months due to long lead times for certain components. However, we are optimistic that heading into 2024, Flatrock could significantly contribute to our growth.

Operator, Operator

Thank you, everyone. We have no further questions. Therefore, this does conclude today's conference call. Thank you all for joining. You may now disconnect your lines.