Earnings Call Transcript - FPH Q2 2024

Operator, Operator

Greetings, and welcome to the Five Point Holdings Second Quarter 2024 Conference Call. As a reminder, this call is being recorded. Today's call may include forward-looking statements regarding Five Point’s business, financial condition, operations, cash flow, strategy, and prospects. Forward-looking statements represent Five Point’s estimates on dates of this conference call and are not intended to give any assurance as to actual future results. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties. Many factors could affect future results and may cause Five Point’s actual activities or results to differ materially from the activities and results anticipated in forward-looking statements. These factors include those described in today's press release and Five Point’s SEC filings, including those in the risk factor section of Five Point’s most recent annual report on Form 10-K filed with the SEC. Please note that Five Point assumes no obligation to update any forward-looking statements. Now, I would like to turn the call over to Dan Hedigan, Chief Executive Officer.

Dan Hedigan, CEO

Thank you, Paul. Good afternoon, and thank you for joining our call. Just a little announcement for you. I am recovering from a cold, so my voice is going to sound a little bit different. And hopefully it doesn't flare up in the middle of the call. But I just want to let you all know that. I have with me today Kim Tobler, our Chief Financial Officer; Mike Alvarado, our Chief Operating Officer and Chief Legal Officer; and Leo Kij, our Senior Vice President of Finance and Reporting. Stuart Miller, our Executive Chairman, is joining us remotely. On today's call, I'll update you on our Q2 results, on our team's focus during the quarter, and the steps we're taking to implement our strategic priorities. Next, I've asked Mike Alvarado to overview Five Point’s experience managing and participating in our joint venture at the Great Park, given the meaningful improvement and execution of the venture over the past two years. We believe this experience represents a proxy for potential opportunities to grow as we look towards the future in our existing master plan communities and beyond. Last, Kim will give an overview of the company's financial performance and condition with some limited guidance for the third quarter and the full year. We'll then open the line for questions for our management team. So let's begin. I'm very pleased to report a strong quarterly performance as we continue to focus on fortifying our balance sheet by generating revenue, controlling our expenses, and carefully managing our capital spend to match near-term revenues. In the second quarter, we generated net income of $38.2 million, which reflects the continued strength of builder demand for residential land. In this quarter, most of our performance is driven by execution in our Great Park community, as evidenced in part by our closing during the quarter of 12.3 acres of land at the Great Park for $96.1 million, netting $7.8 million per acre at a 70% profit margin. This sale contributed to the $15.5 million of equity and earnings from unconsolidated investments for the quarter. Additional income derived from participation in better performance on prior land sales in the Great Park. Additionally, consistent with our focus on holding down costs, we held our overall SG&A at $12.2 million, which is slightly less than the second quarter of last year and the first quarter of this year. During the quarter, in addition to the previously mentioned closed sale, our Great Park Venture also signed a contract to sell additional home sites in our next development area for $9.6 million an acre for a total purchase price of just over $300 million. This sale is anticipated to close in the fourth quarter of the year. Our venture also recently marketed for sale additional residential land in another development area in the Great Park that we would anticipate closing in the first half of next year. We were not surprised that we received strong builder interest in these home sites with continuing increases in per acre land values. We're now in negotiations to document those transactions. While increases in per acre land values can be attributed in part to market conditions, we've begun allowing builders to design the home programs in our communities, as this change has also contributed towards the higher land residual values for us. As we look to increase the engagement we have with our guest builders and design to drive land value, we will always maintain our role as master developer to ensure that we segment the programs being built and sold by the builders in order to maintain an appropriate velocity in each community. While the news regarding interest rates and inflation continued to send mixed signals during the quarter, we were able to achieve these results due to the team's execution and our ability to capitalize on the fact that California, generally, and our community specifically, remain in a chronically undersupplied residential land market. The shortage is primarily driven by California's challenging land use approval process. We expect shortages of entitled land and existing home inventory will continue to drive strong demand from builders. Moving to our balance sheet, we entered the quarter in a healthy liquidity position with $217 million in cash and zero dollars drawn on our $125 million revolver, giving us a total liquidity of $342 million. Kim will cover more details regarding our financials during his comments. Let me now expand a bit on general market conditions. While interest rates trended up during most of the second quarter, they trended down towards the end of the quarter and generally have continued in that direction since quarter-end. The continued lack of existing home inventory, coupled with low unemployment, and fairly strong consumer confidence has helped sustain demand for new homes in our communities and therefore land acquisitions for our guest builders. The limiting factor on new home demand remains affordability, which is driven in large part by the impact of higher interest rates. Conditions in our markets remain relatively strong for home builders. As we have mentioned in the past, our home builders, who for the most part are large, publicly owned builders, have a variety of incentive structures to mitigate the impacts of interest rates and support new home sales. With the ability to adjust those incentives in response to interest rate movements, these home builders remain uniquely able to capture and sustain demand to allow new home sales to continue. While there have been reports of a slowing in new home sales nationally in Q2, we saw our guest builders close 84 new home sales at Valencia compared to 62 in Q1 and 63 new home sales at Great Park compared to 69 in Q1 despite very limited inventory. On the commercial land side of our business, we currently are only actively marketing two sites at the Great Park as the commercial-oriented land in our other communities won't come in line for some time. While we're still seeing interest from both developers and users for these sites, we're also looking at opportunities to repurpose these sites for residential use given the depth of demand and values being driven by residential uses, much like we did with the 35-acre commercial site in Valencia that we converted to a residential use. We'll have more to report on this in the coming quarters. Let me now provide you with some updates on our communities, starting first with the Great Park neighborhoods. As a reminder, the Great Park is the most mature of our communities, and its ongoing contribution to our financial results reflects the benefit that we and our Great Park Venture partners are receiving from the investments made in this community in prior years. During the first quarter, builders in our Great Park community sold 63 homes. As I noted earlier, that number is lower than normal due to a limited number of open builder programs at Great Park. During the quarter, there were only two to three actively selling products in our two open neighborhoods. Our Solis neighborhood currently has one builder product open for sale, and Luna Park, our newest neighborhood, only has two builder products open for sale. We anticipate another six builder products open in the third quarter at Luna Park, as these programs also will once again be able to offer a wide variety of housing options in Great Park neighborhood. Despite the limited inventory, we are encouraged by sustained interest and traffic in the community, affirming the ongoing appeal of Great Park neighborhoods to prospective home buyers. As I mentioned earlier, there remains strong homebuilder interest in acquiring homesites at Great Park. In this quarter, we completed the bidding process for a group of five new residential programs, which is under a signed contract with a meaningful deposit received by the Great Park Venture. We have also completed the bidding process and are negotiating the contracts with our home builder partners for the sale of five additional programs with approximately 400 home sites. We'll have more reports on these programs later in the year. Now, I'll move to Valencia, our other active community. Valencia is still in its early stages of development with many future phases of land delivery ahead of it, which will enable us to add much needed supply for housing, particularly in the Los Angeles market. During the second quarter, our guest builders sold 84 new homes. Valencia’s initial phase of 1,268 homes is now sold out. In our current Valencia development areas, we have seven builder programs open and actually selling. Additionally, from the land we sold at the end of last year, there are six programs we anticipate will open in late 2024 and early 2025, offering more product diversity for prospective home buyers. As I noted above on our last call, we have discussed the potential conversion of a 35-acre site from commercial to residential use, which is permitted under our flexible zoning. We are now finalizing a contract with a home builder to sell this 35-acre mixed-use site for 179 homes, with the sale anticipated to close in the fourth quarter of this year. We've also completed the bidding process for four additional programs with approximately 300 home sites, and we currently anticipate that these four programs will also close in the fourth quarter of this year. As we work closely with our builders to develop products at Valencia, it has become clear that the current fire insurance situation in California is requiring us to move away from attached programs to single-family homes and detached condominiums to meet current insurance underwriting restrictions to allow for more reasonable insurance premiums. While the state is also working to address the current limits on insurance availability, our proactive approach will allow us to continue to meet the demand for housing in California. Finally, we continue to work with Los Angeles County and other agencies to perfect the entitlements for our future development areas, which will allow for the delivery of thousands of additional home sites and commercial acreage, and will add much-needed supply to this land-constrained market. While the state is passing a variety of new laws in an effort to expedite delivery of housing, the regulatory approval process remains challenging to get completed in a timely manner. That said, we have been in this business a long time, and with our proof and track record of delivering first-class master plan communities, we hope to finalize these approval processes with a reasonable balance between expediency and feasible conditions. Turning to San Francisco, I'm happy to report that the city, county, and other political regulatory agencies have initiated the public approval process to rebalance the entitlements between our two San Francisco communities, Candlestick and the Shipyard. As I discussed before, we are seeking the rebalancing to enable the development of Candlestick as a standalone project. This rebalancing will allow us to begin the development of Candlestick without having to wait for the Navy to complete these remediation activities at the shipyard. With the current momentum to complete the rebalancing, we're now turning our efforts to identifying a partner to work with us on this amazing piece of property to begin the process of creating the larger mixed-use communities that have always been envisioned for these irreplaceable sites along the San Francisco Bay, starting with Candlestick. We expect that a properly constructed partnership can work much like our Great Park partnership, with capital partners working closely with our management oversight team. This coordinated engagement will focus on maximizing value and executing a well-crafted development plan. I've asked Mike Alvarado to briefly describe the workings of our Great Park partnership, which has driven its extraordinary performance as a model for future five-point opportunities. Let me conclude by saying our second quarter has seen continuing progress on our three main priorities: generating revenue and positive cash flow, controlling SG&A costs, and managing capital spend to match near-term revenue opportunities. Additionally, our entire team is focused on progressing entitlements for our next neighborhoods in Valencia and moving Candlestick forward through the balancing process and beginning development. While economic and geopolitical events may continue to impact the financial markets, home buyers in our markets continue to show interest in our communities, and we believe that pent-up demand will continue to be a driving force for our land sales to builders. Land development is a very long game in California that has structurally produced a severe supply shortage. Our efforts today are ensuring we are well positioned within that long game while recognizing the importance of creating and maintaining shareholder value. Now, let me turn it over to Mike, who will briefly discuss our partnership experience, and then to Kim, who will report on our financial results and provide some limited guidance for the remainder of the year.

Mike Alvarado, COO

Thanks, Dan. In the past, you have heard us talk about the life cycle of our three communities and where each one of them stands in terms of its development status. The Great Park is clearly the most mature of our communities in terms of development and revenue generation and is proving year after year the value creation within this community. What is more interesting about the Great Park, however, is its organizational and operational structure that we believe has resulted in excellent performance. The Great Park is the one master plan community asset in which we own a minority capital interest and operate under a joint venture management structure. We operate and manage the Great Park venture alongside our other capital partners, with whom we engage on a weekly basis in order to maximize value and returns and to provide a built-in system of accountability. Our partners provide their own unique perspectives on a variety of matters when dealing with developments of this scale, and together with aligned interests, we have executed our plan with continuously improved bottom-line performance. We believe this is a structural advantage to our existing business model. As I mentioned, at the Great Park, we own an equity interest, but we also provide management services to the venture, and we earn an incentive promoted interest for excellent performance. We are paid for our management services through a stipulated management fee that allows us to recover our costs for delivering these services, plus that incentive compensation component that has delivered significant revenue and earnings for the company. We believe this structure and equity interests coupled with a management services component is one that can be repeated in the future, not only within our existing communities, but also in future projects as we consider the growth of Five Point beyond our existing communities. We are enthusiastic about this business model and believe it can be replicated. Bringing in capital partners reduces our capital investment and gives Five Point opportunities to move to an asset lighter balance sheet model under a well-crafted partnership program. Management fee income offsets our SG&A while a promoted economic interest aligns interests while embedding a system of accountability to drive performance. At Valencia, while there is more work to be done to advance our entitlements, once achieved, we expect to engage in a possible venture arrangement like the Great Park. With approvals in place, we view Valencia as no different than the Great Park in terms of potential for engagement with partners who can add value and also share in the development lifecycle as this community matures. In San Francisco, as you know from our prior calls, we have been talking about a partner for some time now. As we finalize our entitlement rebalancing efforts, that accomplishment will provide a catalyst for advancing conversations with potential venture partners. We have a proven track record with the Great Park Venture whose members have seen rising returns over the past several years driven by our management working together with their active engagement. We believe this is a business model that we can take advantage of as we look at other opportunities for future growth of the company. We hope to have more to report on this in the near future. Now, let me turn it over to Kim to report on our financial results for the quarter.

Kim Tobler, CFO

Thank you, Mike. Let me give you a little more background on our operating results. For the second quarter of 2024, we reported consolidated net income of $38.2 million, which was generated primarily from $47.2 million of revenue from incentive management compensation and $15.5 million of equity and earnings from our investment in the Great Park Venture. As Dan noted, the Great Park Venture's income for the quarter was largely generated by the sale of 105 home sites on 12.3 acres of land with a sale price of $96.1 million and a profit margin of 70% before closing costs. We will note that the profit margin improved from last quarter's 60%. This sale comes out to $7.8 million per acre. The venture also recognized $6.4 million of profit participation revenue related to prior year land sales and $36.6 million of price participation revenue associated with last May's land sale of 798 home sites which is now the Luna Park community. I'll have more to say about that additional price participation revenue later in my comments. Turning back to Five Point’s consolidated results. For the first six months of the year, we have recognized net income of $44.3 million. Our first half results included $61.1 million of total revenue and equity and earnings from the Great Park Venture of $33.1 million. Consistent with our continued focus on managing our costs, our second quarter SG&A expense was $2.2 million compared to the prior year second quarter of $12.7 million and $12.9 million in the first quarter of this year. Now let me turn to liquidity and cash. We ended the quarter with $217.4 million of cash as well as $125 million of availability on our revolving credit facility, resulting in total liquidity of $342.4 million. At the end of the quarter, our debt to total capitalization was 20.6%. I'll also give you a little more detail around our cash flow for the quarter and year to date. For the quarter before debt service, we had positive cash flow of $3 million. For the year to date before debt service, including the senior note transaction costs, we had negative cash flow of $2.2 million. The significant sources of cash have been equity distributions from the Great Park Venture of $23.4 million for the quarter and $47.3 million year-to-date, incentive management compensation of $6.3 million for the quarter and $12.8 million to date. The significant uses of cash other than SG&A and debt service have been development costs at Valencia of $14 million for the quarter and $31.4 million year to date, which are largely related to entitlement activities and preparing for the sales expected to close in the fourth quarter. In addition, we incurred development costs at San Francisco of $7.3 million for the quarter and $8.4 million for the year that are largely associated with the rebalancing efforts and our litigation against Tetra Tech and the Navy. Last quarter, I took time to emphasize the significance of the Great Park Venture in our financial results. This quarter, it continued to stand out in two particular places. Firstly, as an unconsolidated joint venture, we report our proportionate share of the venture’s earnings and receive distributions for our ownership percentage interest. Secondly, we provide management services, as Mike discussed, to the Great Park Venture. As compensation for these management services, we receive a fixed monthly base fee and incentive management compensation, which is expressed as generally as 9% of the distributions that the venture makes to its members. We often give specific information about the Great Park Venture’s activities because of the significant impact they have on Five Points results. When we do so, we try to advise the listener that we are speaking about the Great Park Venture and not Five Point operations. Now I'd like to give you a little more background about the Great Park Venture's contributions to this quarter's results. First, in addition to the land sale at the Great Park Venture during the quarter, as I noted earlier, the Venture also recognized additional revenue as variable price participation consideration. As you will recall, as I mentioned earlier, in May of 2023, the Great Park Venture recognized revenue of $357.8 million from the sale of 798 homesites on approximately 84 acres of land, which we now call the Luna Park community. The land sale agreement was comprised of a fixed amount paid at closing and a price participation component to be paid from future home builder home sales. Accordingly, the revenue recognized consisted of $214 million paid at closing plus $143 million for recognition of a contract asset. You might think of it as a receivable, representing the Venture's estimate of variable consideration from future price participation payments. The home builder is now actively selling homes in the community and based upon actual experience and near-term forecasts of future home pricing, the venture made the assessment that under applicable accounting guidelines, it was appropriate to increase the estimate of variable consideration by $36.6 million to a total of $179.7 million. Now, the other area where the Great Park Ventures performance influenced our consolidated results this quarter is with respect to the $47.2 million of incentive management compensation revenue that Five Point is reporting. Here also, we are required to estimate the amount of incentive compensation that Five Point expects to receive under our management agreement and to report revenue as it is earned by recording a contract asset, which may be in advance of receiving the actual payment. In order to do so, we have to estimate the activity of the venture and project distributions that the activity will generate. If there are significant changes in that estimate, it can lead to adjustments to the amounts previously recognized. Since the Venture's Luna Park sale in May of 2023 at a base price of $4.3 million per acre, which is currently at $4.7 million per acre with the additional variable price participation consideration that I just discussed. The venture had a sale in the first quarter at $6.4 million per acre and the sale in the second quarter that was just reported at $7.8 million per acre. In Dan's comments, he mentioned that we are currently under contract for a sale expected to close in December at $9.6 million per acre. Partly as a result of this trend of increasing land values and other market factors, we adjusted our estimates of future distributions. And the resulting increase gave rise to the majority of the $47.2 million in revenue recognized by Five Point this quarter from incentive management compensation for our management of the Great Park Venture. As a result of this additional revenue as of June 30th, Five Point has a contract asset for expected future incentive management compensation payments of $104.6 million that will be received when future distributions to members occur. These cumulative adjustments to revenue are attributable to changes in estimates and may not be reoccurring in nature. Now, for some limited guidance. The second quarter performed better than we expected, which was primarily attributable to the strong performance at the Great Park. Currently, we are not expecting to close any residential land sales in the third quarter and therefore expect to have a small reported loss of $5 million to $10 million for the quarter. This will turn around in the fourth quarter as we finish the year strong with sales at both Valencia and the Great Park that Dan mentioned earlier. Therefore, we expect to end the year with annual net income of over $100 million and a cash balance in excess of $300 million. It remains critical for us to stay focused on our strategic priorities of generating revenue, controlling our expenses, and carefully managing our capital spend to match near-term revenues, and we are committed to those priorities. With that, I will return the call back to the operator.

Operator, Operator

Thank you. We'll now be conducting a question-and-answer session. Our first question is from Alan Ratner with Zelman & Associates. Please proceed with your question.

Alan Ratner, Analyst

Hey, guys. Good afternoon. Congrats on the continued progress. Great to see and thank you for all the additional color this quarter. Very helpful given all the moving pieces. My first question, I just want to make sure I understand the management service revenue this quarter, and I think you explained it well. But am I right to think of this quarter's revenue as more of kind of a gross up and going forward, assuming there's no major changes in your estimates from this point that the quarterly run rate would look more similar to kind of what it's been over the last several years, kind of in that $10 million per quarter range, or is this kind of resetting a higher bar and we should think about, for modeling purposes, a higher number going forward?

Dan Hedigan, CEO

Yeah. Thanks, Alan. Always good to hear from you. Let me ask Kim to answer that question. Make sure we get it from the authority.

Kim Tobler, CFO

Yeah, Alan, you identified. It's a catch-up because of the additional projected income that we're expecting. And so there's a catch-up, but it'll go back to a more regular flow as you mentioned.

Alan Ratner, Analyst

Got it. Okay. That's helpful. All right. I have two more questions if I can. First, Dan, you mentioned some of the issues with fire insurance in the state and the changes to the product plans you are bringing forth. You referenced Valencia, so I'm unsure if that also pertains to Great Park. My question is whether the plans, at least in the near term, will be more focused on detached products, as you indicated. Does this impact the density opportunity within the community? Should we now anticipate a smaller number of home sites over the duration of the community if you are prioritizing detached homes?

Dan Hedigan, CEO

Those are very good questions, Alan. First, we are not encountering any fire insurance issues in the Great Park due to its location and setting. In Valencia, the situation is different. There is fire insurance available, but the premiums have risen because of the new development and proximity to open spaces. Builders have noticed that the increased HOA dues make homes and attached homes less competitive in terms of cost. Therefore, while we are still pursuing density, builders are opting for high-density configurations like duplexes, allowing them to secure separate insurance. We have moved away from the traditional 10-unit or 11-unit high-density buildings. These types were beneficial for the market as they provided a lower entry price for buyers. We appreciate this segment and believe that the state will eventually address the insurance concerns, allowing us to return to those products. We consider entry-level products crucial to the market. Given our substantial land holdings and time available, we believe our unit count will remain stable. This situation is likely a temporary hurdle. However, under current market conditions, the HOA dues are significant. Builders have expressed interest in the land and are willing to pay the same amount, but adjustments to the products are necessary. We are proactively addressing these challenges, and long term, we expect to maintain similar unit counts.

Alan Ratner, Analyst

No, that's really helpful, Dan, I appreciate that. And then, sorry, were you going to say something else there?

Dan Hedigan, CEO

No, I was going to say it hasn't really impacted our land valuations. We still view things in terms of units and continue to sell land, and it hasn't affected valuation at all. It's mainly about having a broader market segmentation, which we appreciate.

Alan Ratner, Analyst

Got it. This wasn't my other question, but I guess just to follow up on that then, if you're kind of eliminating that entry-level price point, and maybe you can say what that was, now what is kind of, at least the way you see it in the near term, your kind of entry-level price point given this shift? Like, how much has it gone up by?

Dan Hedigan, CEO

With the density we achieved in detached homes and duplexes, when we opened the community a couple of years ago, we were able to offer high-density detached homes for under $500,000. Since then, prices have naturally increased due to the pandemic and rising costs. Currently, our entry-level homes have shifted to the high fives and low sixes, now closer to the high sixes and low sevens. We hope this situation is temporary, as we believe there are still opportunities for more density and product variability in future communities. For now, if you’re considering this, the entry-level price is approximately in the mid-sixes.

Alan Ratner, Analyst

Got it, okay, that's helpful. All right, I've taken a lot of time here, so I'll pass it on and get back in the queue. Appreciate it.

Dan Hedigan, CEO

Thanks, Alan.

Operator, Operator

Thank you. Our next question is from Matt Jackson with Mycor Capital. Please proceed with your question.

Matt Jackson, Analyst

Thank you for taking my question. I have two quick inquiries and I'd like to congratulate you on the progress with Candlestick. I'm curious if you mentioned plans for a similar structure for Valencia, potentially moving towards a joint venture. For both projects, how should we view them? Are you seeking a partnership, or could there be some capital coming into the business to assist you given the expensive debt you still have? I'm interested in how you foresee all these elements coming together in the next year and what you ultimately envision for the company.

Dan Hedigan, CEO

Thank you for your question, Matt. Regarding the Candlestick and Valencia communities, we are focusing on an entitlement-first strategy. Our priority is to deliver on the entitlement before seeking partners or additional capital. Valencia has a longer timeline for obtaining that additional entitlement, while we are closely collaborating with Candlestick and the City and County of San Francisco to move towards completion. We have received interest from several parties in the past, but we aren't committed to any specific structure at this point. Our main focus is to ensure that whatever we pursue creates the most value for our shareholders. We are considering a model that has been successful for us at the Great Park, but we will determine our approach based on who we ultimately collaborate with in that region. The goal is to establish a partnership that brings capital into the company.

Matt Jackson, Analyst

Great, that's super helpful. And then, I guess just more on a housekeeping item. Actually, looks like sometimes you've reported the home sites at Valencia and other times not, haven't been following the name that long. Just curious, does that imply no home sites were sold at Valencia this quarter, am I correct?

Dan Hedigan, CEO

This quarter we didn't close any sales at Valencia. Any land sales to builders you're talking about, is that correct?

Matt Jackson, Analyst

Yeah, yeah, land sales to builders.

Dan Hedigan, CEO

Yeah, we did not close any land sales to builders this quarter at Valencia. The sales we have queued up there, the ones we're talking about, will all close in the fourth quarter.

Matt Jackson, Analyst

Okay, great. Great. Awesome. Thanks guys and good luck.

Operator, Operator

Thank you. Our next question is from Kyle Chung, private investor. Please continue with your question.

Kyle Chung, Investor

Hi. I actually have kind of a big picture question if I can. Dan, I think, you and your team for the past 2.5 years, you guys have done a great job of highlighting the valuable assets that are in this company. You've lowered SG&A, you've pushed out the debt maturity, you've done all these things and you're selling to commercial, residential and all these things. And despite all that, your stock is trading at $3 a share, the public investors just don't seem to care. So my question is that, what's the benefit to staying public? I mean, why, I mean, I guess another way to it is, why not launch a formal process to see if there are private investors who will value these assets as something that's closer to book value than what the public investors are doing?

Dan Hedigan, CEO

Thank you for your question, Kyle. I want to emphasize that our Board of Directors is always very engaged and will consider any opportunities that come our way. Our priority is to support our shareholders. However, we understand that we do not control the market price. We are hopeful that, in time, the market will recognize the positive developments within our company. We've been concentrating on managing our general and administrative expenses, cash, and capital allocation, and we believe this will eventually be acknowledged by the market. To answer your original question, we remain open to exploring all options as they arise.

Kyle Chung, Investor

It seems you’re suggesting that you’re waiting for an incoming inquiry. You’re making all the right moves, but the public investors don’t seem to be responding. As a public company, you also face costs, and it doesn’t seem strategically sound to have low stock trading in the public market. Why not officially initiate a process and let private investors know that the company is exploring options?

Dan Hedigan, CEO

Well, the team we have here on the phone today, we really focus day to day on running the business, but I can just assure you our Board has considered all options and we're not waiting necessarily for inbound offers. The Board has and continues to consider all options that are available to them.

Operator, Operator

Thank you. Our next question is from Robert Cohen, private investor. Please proceed with your question.