Delta 9 Cannabis Inc. (VRNDF) CEO John Arbuthnot on Q3 2020 Results – Earnings Call Transcript

Delta 9 Cannabis Inc. (OTCQX:VRNDF) Q3 2020 Earnings Conference Call November 12, 2020 9:00 AM ET

Company Participants

Alexa Goertzen – Senior Executive Assistant

John Arbuthnot – Chief Executive Officer

Jim Lawson – Chief Financial Officer

Conference Call Participants

Greg McLeish – MRCC


Good morning, ladies and gentlemen, and welcome to the Delta 9 Third Quarter 2020 Results Conference Call. [Operator Instructions] This call is being recorded on November 12, 2020.

I would now like to turn the conference over to Alexa Goertzen. Please go ahead.

Alexa Goertzen

Good morning, everyone, and welcome to the Delta 9 Cannabis Q3 2020 earnings call. At this time, all participants have been placed in listen-only mode. Following the presentation, we will open the line for a question-and-answer session for financial analysts.

Delta 9 would like to remind listeners that today’s call may contain forward-looking statements that reflect the company’s current views with respect to future events. Any such statements are subject to risks and uncertainties, which could cause results to differ materially from those projected in the forward-looking statements. For more information regarding risks and forward-looking statements, please refer to the Delta 9 Cannabis Inc. public filings, which are available on SEDAR.

I would now like to turn the call over to Delta 9’s Chief Executive Officer, John Arbuthnot.

John Arbuthnot

Thank you, Alexa, and good morning, everyone. Thank you for taking the time to join us for Delta 9’s Q3 2020 earnings call. With me this morning is the company’s Chief Financial Officer, Jim Lawson; and our VP of Corporate Affairs, Ian Chadsey. Our earnings press release, Q3 2020 financial statements, and Management Discussion and Analysis have now been made available on SEDAR and our company website.

And with that, let’s begin. As we all know, the Canadian cannabis industry has encountered growing pains and challenges over the past several quarters in Canada’s initial rollout of a legalized recreational use market. Over the past 12 months, cannabis sector participants have experienced headwinds relating to missed revenue and earnings expectations, delays in retail store rollouts, bottlenecks at provincial crown distributors and a general oversupply situation, which has worsened into 2020. More recently, the global escalation of the COVID-19 pandemic has created uncertainty for businesses across all sectors and volatility in global capital markets.

To date Delta 9 has been fortunate to have weathered this crisis better than many companies. We are pleased today to be presenting you Delta 9’s Q3 2020 financial and operating results. These results demonstrated significant year-over-year improvement for Delta 9. We have many positive takeaways from today’s results, which we’ll highlight as well as analyzing our misses, the challenges we have encountered and the changes we’re making to continue to drive growth and create shareholder value.

We’ll begin with a discussion of operations and material milestones for the company achieved over the reporting period. But firstly, an overview of the impacts of COVID-19 on our operations. On March 30th, we announced publicly that we had implemented numerous precautionary health and safety measures across our operations to protect customers and employees while maintaining operations amid the COVID-19 pandemic.

The company’s management have been actively implementing measures to protect staff and stakeholders from exposure to COVID-19. These measures include moving many head office functions to work-from-home, or unstaggered head office shifts, implementing flexible sick time, increasing sanitation procedures in retail stores and production facilities, encouraging proper hygiene and hand washing for staff members, providing PPE for both staff, and in our retail stores and production facilities, enforcing physical distancing practices between our staff and/or customers and more. We continue to update these policies and procedures at the recommendation of our health professionals.

Our company, as with many others has encountered challenges with staffing in our retail and production operations and operational constraints in certain areas of our production operations, where we are limited to occupancy while maintaining physical distancing. Although, to-date, these challenges have not caused material disruptions to our operations. Delta 9 has incurred extraordinary costs as a result of some of these actions and measures, as we will discuss in more detail shortly.

We feel it’s important to note that we would acknowledge that this crisis is far from over, and the company’s business could be adversely affected by the effects of the ongoing crisis and economic fallout. However, we would reiterate, the company continues to make wholesale shipments to all of our provincial markets. Our retail stores continue to operate, and we continue to provide consulting services, Grow Pods and Genetics to B2B clients across North America.

On cannabis cultivation and processing side of our business, we will begin with an update of activities for our Delta 9 facilities in Winnipeg. The primary purpose of the Delta 9 facilities are to cultivate process and manufacture high quality cannabis products. The company’s proprietary cannabis production methodology is based around a modular, scalable and stackable production unit which we call the Grow Pod.

Now as we all know, on December 2, 2019, the company announced that it received approval from Health Canada for an additional 95 Grow Pods, bringing our total number of Grow Pods approved by Health Canada to 297. Over the first nine months of 2020, the company’s principal focus was on bringing these assets into full production. We anticipate that once the current license Grow Pods have begun to produce finished products on a recurring basis, that the facilities will have a production capacity of approximately 8,325 kilos of dried cannabis per year.

On April 8, this year, the company received approval from Health Canada for our purpose-built processing center, which fully automated bottling, packaging, capping and labeling functions for our consumer packaged dried cannabis products. We anticipate that once the processing center is fully operational in that capacity, it will allow for processing of up to 25,000 kilos per year of dried cannabis flower material.

On April 13, this year we announced that in light of COVID-19, we paused our previously announced expansion plans and capital deployment for the remaining Phase II areas of our facility. This expansion will continue once the company has greater certainty regarding global capital markets, macroeconomic and public health conditions. We will continue to update the market on expansion progress and licensing approvals as they are received from Health Canada.

Now in our portfolio of cannabis products, there’s been a significant amount of excitement in the cannabis space over the rollout of cannabis 2.0 products. However, dried cannabis flower continues to demand over 70% market share by category in the Canadian marketplace, with much of the consumer demand in the high potency segment.

Delta 9 currently produces over 30 different genetic strains of cannabis, each with its own unique chemical cannabinoid content, terpene and flavonoid profile, and with over 100 additional strains being stored in an onsite seed bank to provide for future product options.

Management believes that the company has one of the largest in-house stocks of unique genetic cannabis strains among cannabis producers in Canada. We’re continuing with our production pivot towards higher potency cannabis strains, which are the highest demand segments with the retail consumer. Whole flower dried cannabis currently accounts for over 70% of the company’s overall product offering by revenue.

In Q3 2020, the company also introduced several value products branded as House Indica, House Sativa and House Hybrid products in 3.5 and 7 grams settings, which compete against other value segments products introduced by our competitors.

Cannabis pre-rolls became an increasingly important category throughout 2019 as consumers move to smaller packaging sizes and sought convenience in a pre-rolled setting. The company’s pre-rolled products currently account for approximately 15% of our overall product offer with our Bliss and Twist pre-rolls, making up two of our top selling products in Delta 9 retail stores in Q3 2020.

On oils, extracts and derivative products, on October 17 last year, Health Canada released updates to the cannabis regulations, which allow for the production and sale of an expanded portfolio of cannabis derivative products. The company is undertaking multiple strategies to bring these 2.0 products to market. It is our belief that these products will become an increasingly important component of the medical and recreational use cannabis markets into the future. Our current derivative portfolio accounts for approximately 10% of our overall product offering.

The company produces a line of dried sift or kief cannabis products for the recreational and medical cannabis markets, which is ramped up into Q3 and Q4 of this year, the process involve sifting the company’s blended cannabis products refining it, leaving more of the high potency resin glands and less of the low potency plant material. The final product is a yellowish brownish powder that has a potency that is up to double that of full flower dry cannabis materials putting this into the concentrate category. The company released these products early in 2020 and again it’s wrapped that up into the back half of this year.

The company is currently working with Decibel Cannabis through their subsidiary Westleaf Labs to develop a line of vaporized cannabis oil products, including a vaporized oil cartridge and a disposable vape pens. These products will be branded as Harmony, Cruise and Blast and contain distilled cannabis oil and cannabis terpenes in varying concentrations of active cannabinoids. The company received its first shipment of vape products from Westleaf Labs in the third quarter this year. And we’ll launch our vape product shortly in Q4 this year.

In our retail stores, the company is carrying the full complement of new 2.0 cannabis products from the industry’s leading manufacturers. We believe that through our retail unit, we will be able to extract valuable intel, on which of these new product formats are having a positive impact with the consumer and be able to capitalize on these new product opportunities and deploy capital appropriately.

Overall, 2.0 cannabis products became better supplied over Q2 and Q3 2020. Addressing previous supply shortage concerns for many of these product categories, over 15% of our retail revenues within this quarter came from these 2.0 product categories.

From a distribution standpoint, we believe that the domestic market for recreational cannabis use presents a major growth opportunity for the company over the next several years. Wholesale revenues from the sale of recreational use cannabis products are expected to make up a large component of the company’s overall business.

We’ve undertaken a strategy to add new distribution markets incrementally as our increased supply capacities come online in order to reach our ultimate goal of becoming a national distributor of recreational use cannabis products. As the post legalization market has progressed and supply capacities ramped up, we’ve added several additional supply agreements. As at the end of the third quarter, Delta 9 was licensed for distribution in Manitoba, Saskatchewan, Alberta, British Columbia, Ontario and Newfoundland.

Delta 9 is now licensed for distribution in six provincial markets, representing over 50% of the Canadian population. As we continue to increase our production capacity, we plan to expand distribution into additional provincial markets through supply listings, or formal supply agreements in those markets.

On vertical integration in cannabis retail, we believe that there are a number of benefits to pursuing a vertical integration strategy into retail, including control over direct-to-consumer sales force and product distribution, control over direct-to-consumer branding and marketing initiatives, capturing additional revenues and gross margin from retail sales, direct feedback from consumers regarding product trends, marketing strategies, et cetera and live capture of data and analytics which are invaluable to our production and wholesale business.

Over the past 12 months, Delta 9 has made significant progress and expanding our retail footprint. On May 29 this year, we closed our previously announced transaction with the Modern Leaf Group to acquire two cannabis retail stores in Alberta.

Following the completion of that transaction on June 9th, the company opened the retail store in Calgary, Alberta, in the First Alberta Place building. And on June 20th, the company opened a retail cannabis store in Grande Prairie, Alberta in the Northridge Business Center.

On September 8 this year, the company opened its fifth retail cannabis store in Manitoba and approximately 4,000 square feet the newest Delta 9 cannabis stores located in the Kenaston Common, one in Southwest Winnipeg’s premier shopping destinations with high traffic anchors including Dollarama, Walmart, Home Depot, Safeway, and Tim Horton.

The Kenaston Boulevard shopping corridor in Southwest Winnipeg sees over 50,000 vehicles a day. The new store is the largest cannabis retail store in the area offering customers an open and modern shopping decor, highly trained staff and a wide range of products.

On November 9th, and subsequent to the end of the reporting period, Delta 9 announced, they closed transactions Auxly and Kolab project to acquire retail store in Lloydminster, Saskatchewan. Delta 9 reopened or — excuse me, opened the rebranded store in Lloydminster on the same day.

The company now operates eight cannabis retail stores, which produce significant retail revenues and growth over the past year. We plan to open and operate up to an additional 12 retail outlets in jurisdictions, which allow for privatized cannabis retail over the next 24 months.

Management is actively pursuing retail expansion opportunities in all Canadian provinces, which allow for privatized cannabis sales, and will continue to expand on our vertical integration strategy into the real retail sector.

On these opportunities, the company derives a portion of our overall revenue from sales of cannabis genetics, sales of Grow Pods and from licensing and consulting activities provided to other licensed and pre-licensed cannabis company.

We believe that these opportunities provide us with a number of benefits, including a complimentary business vertical, which produces diversified and high margin revenue, third-party validation of the company’s proprietary growing platform valuable partnerships with other pre-licensed and licensed cannabis companies and opportunity for international expansion through non-cannabis touching revenue streams.

Today Delta 9 has licensed five third-party facilities across Canada, representing over 75 Grow Pods for micro cultivation partners. We will continue to pursue and expand on these the B2B opportunities over the coming year.

Now turning to the financial results from the balance sheet, the company undertook one financing activity during the period. On August 27, the company announced amendments to the company’s existing credit facilities with Canadian Western Bank. These amendments bring the company’s total credit facilities with CWB to approximately $22 million and increase the company’s cash position by $5.4 million.

The company ended the quarter with approximately $7.2 million in cash, an increase from $5.8 million as at the end of last year, and approximately $25.6 million in working capital, an increase from $22.8 million as of the end of last year.

Total assets, at the end of the quarter, totaled $77.5 million, up from $66 million as of the end of last year, resulting from an increase in current assets, investments in property, plant and equipment and right-to-use assets. Liabilities totaled $43.7 million, up from $31 million as at the end of last year, resulting from an increase in long-term borrowings and lease liabilities.

As the company’s asset base has expanded over the first nine months of 2020, we have maintained a healthy debt to equity and debt to asset ratio. We believe that the company is currently positioned with a strong balance sheet and as well capitalized for our continued growth.

On key performance indicators, management provides quarterly updates on progress on key performance factors for our business. In the third quarter, the company produced approximately 1.9 million grams of dry cannabis, up from approximately 1.65 million grams in the second quarter of this year. We expect these production numbers will continue to increase over coming quarters, as the company reaches full capacity and efficiency for our Delta 9 facilities here in Winnipeg.

Production costs per gram and total cost per gram decreased significantly to $0.74 and $0.86 respectively versus $0.96 and $1.08 for the second quarter of this year. We would highlight that these production cost figures are quite competitive, even comparing to our largest competitors to the context of the current cannabis flower market.

We anticipate that the decrease in production cost per gram will translate into improved gross profitability over upcoming quarters. Total grams sold in the wholesale and medical cannabis markets was approximately 960,000 grams, up significantly from 400,000 grams in the last quarter. The company’s average selling price declined to $3.06 per gram from $3.77 per gram, due mostly to the sale of approximately 450 kilos of bulk cannabis at a relatively low selling price per gram.

While we would highlight the overall weakness in the Canadian cannabis wholesale market, we generally believe that average selling price per gram will begin to improve over the upcoming quarters. Continuing to address the company’s wholesale business and improving our overall gram sold and average selling price will continue to be a focus for us moving forward.

In our retail business, the number of grams sold, number of transactions processed and average selling price program remained relatively stable through the second and third quarter this year.

On revenue and revenue segmentation, total net revenues for the three months and nine months period ending September 30th, were $13.1 million and $37.9 million. This compares with $6.7 million and $21.2 million for the three months and nine month periods last year, an increase of 97% and 79% respectively year over year.

Sequential quarterly net revenues were flat at $13 million for the three month period ending June. From a segmentation standpoint, revenue from wholesale cannabis sales was $2.97 million, up from $1.44 million in the second quarter this year. Retail cannabis revenues were $7.9 million versus $8.2 million. Although we would note, a significant increase in marketing, promotion and other revenues and ancillary product sales in the third quarter versus the second quarter as well has led to overall revenues from our retail cannabis business being larger than the second quarter.

B2B revenues were $1.9 million versus $3.07 million in the second quarter this year. We would point to significant year over year increases in net revenue as a very positive indication that our diversified revenue and growth strategies have been able to contribute significant revenue growth.

We attribute the increase in sequential quarterly revenue to strong performance in our retail and wholesale cannabis segments, while the company experienced general weakness in our B2B revenues due to a slowdown a new project development and Grow Pod deliveries due to the economic impacts of COVID-19 and a general slowdown in capital spending in the Canadian cannabis market.

In the upcoming quarters, we would emphasize that our focus will remain on three main growth drivers. Firstly, a continued expansion of the company’s retail store chain, while continuing to market the company’s price leader strategy to leverage customer acquisition at new and existing company stores. Building continued momentum in the Cannabis wholesale segment with a focus on expanding product distribution in our six provincial markets, and renewing B2B revenues through a focus on creating relationships in the Canadian micro cultivation industry, and expansion into emerging markets, including the United States.

We believe that given the relative novelty and uncertainty of the global Cannabis industry, the company’s diversified revenue strategy and vertical integration strategy will allow us to better react to market challenges than our competitors with single business strategies. Gross profit before accounting for changes in the fair value of biological assets for the three month and nine month period was $3.9 million and $13.5 million. This compares with $2 million and $6.8 million for the three months and nine month period last year, an increase of 95% and 98% respectively.

In terms of gross profitability by business segments, for the nine month period this year, our wholesale Cannabis business segment saw gross profitability of 53%, our retail cannabis business segments saw profitability of 25% and our B2B segment also saw profitability at 53%. On a volume weighted average basis, this contributes gross profitability of 36% across our businesses for the first nine months this year. In the company’s wholesale business segment, we would note that we’ve continued to see downward trending in our program production costs as a result of incremental efficiencies and labor costs and overall economies of scale, as production output has scaled over 2019 and 2020. We expect that production cost per gram will continue to trend down with the introduction of sales of higher margin Cannabis derivative products in the fourth quarter of 2020 and the company will experience a general improvement in gross profitability from our wholesale segment.

Management would also notes that gross profitability in our wholesale segment was negatively impacted during the three month period ending September 30, due to a one time sale of aging bulk Cannabis inventory at a sales price per gram, which is below inventory cost. This resulted in a negative gross profit of approximately $207,000 on that transaction. We had determined that it would be a strategic value to the company to relieve that aging inventory at a loss, rather than be subject to potential future write-down as well as freeing up physical storage space and other resources towards other products, which produce improved gross profitability and margin into the future.

In the company’s retail Cannabis business segment, we anticipate that the addition of higher margin Cannabis extract products as well as increased marketing and promotion activities will assist in improving overall gross profitability in 2020. These strategies are intended to drive gains in overall gross profit over the fourth quarter of 2020 and into 2021.

Gross profit after accounting for changes in the fair value of biological assets for the three month and nine month period was $1.6 million and $16.3 million. This compares with $3.4 million and $11.1 million for the same period last year. We would note the relatively large unrealized loss from changes in the fair value of biological assets for the three month period is contributing a negative impact on overall gross profit. This loss is attributed to the one time sale of aging biological asset inventory as noted above, which contributed to a gross loss of approximately $2,050,000 within the period.

Operating expenses for the three months and nine month period were $6.5 million and $16.7 million, this compares with $4 and $13.8 million for the same period last year.

We would highlight the cost controls implemented in early 2019 has been largely successful, as revenues have grown and expenses have represented a smaller percentage of net revenue versus the previous year.

The most notable increases in operating expenses for the three months and nine month period have come from amortization expenses, insurance expenses and personnel expenses as the company has grown its overall headcount. However, again, we would note that we’ve been able to achieve proportionately higher revenues and gross profits versus increases in our overall operating expense.

As discussed previously, in response to the COVID-19 pandemic, management has implemented a number of measures to ensure health and safety of staff and customers as well as to ensure continuity of our business operations. Many of these measures such as increased sanitation, equipment and supplies, increase PPE provided to staff, temporary pay increases and temporary staffing services have contributed to increased costs.

We estimate the COVID-19 pandemic has resulted in an additional 679,000 in extra ordinary expenses to our operations during the nine month period ending September 30.

Company’s net loss from operations for three months and nine month period was $4.95 million and $359,000 versus a loss from operations of $625,000 and $2.6 million for the same period last year. This also compares with a net income from operations of $1.7 million for the three month period ending June this year.

We would attribute the loss from operations for three month period to narrowing gross profitability from certain operating segments, modestly higher operating expenses and the one-time non-cash loss on the sale of aging inventory as described previously. This marks the first loss from operations in the past several quarters for the company.

We are confident that our renewed focus on revenue growth, gross profitability and prudent cost controls will return the company to profitability over the coming quarter.

The company’s adjusted EBITDA loss for the three month and nine month period was a $474,000 loss and $1.8 million gain for the nine month period. This compares with a loss of $850,000 and $3.5 million for the same period last year. This also compares with a positive adjusted EBITDA of $700,000 for the three month period ending June.

We would highlight the improved adjusted EBITDA versus the previous year as a positive indication of the performance of the company’s operating businesses over the past 12 months. We would also acknowledge the EBITDA loss for the three month period and attribute that loss again to narrowing gross profitability, higher operating expenses and the one-time items that we have described. Again, we are confident that our renewed focus on growth and profitability will return us to a positive adjusted EBITDA figure over the coming quarter.

As we look forward to the rest of 2020, we feel that the company is well positioned to continue to execute on its vertical integration and growth strategy. We will continue to push forward to maximize the utility and efficiency of our existing assets, increased production output and increase our ability to supply volumes cannabis across our markets.

We will add to our retail distribution capacity by adding new stores to our existing chain. And we will continue to cultivate long-term and value added relationships in our B2B segments as we deliver on growth projects across North America.

There is little doubt that we will face challenges as a result of COVID-19 and the associated economic fallout. However, we believe that through these types of tough environments, there is significant opportunity for a strong operator like Delta 9 to emerge as a winner. We see 2020 as a critical year for the company, which will lay the foundation for Delta 9 to become a major competitor in the Canadian cannabis market and beyond. I want to thank everyone for taking the time to join the call this morning.

And I will turn the call back over to the operator for question.

Question-and-Answer Session


Thank you, ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from Greg McLeish, MRCC. Greg, please go ahead.

Greg McLeish

Good morning, guys. Just a couple of questions. My understanding that there’s been a large spike of COVID-19 cases in Manitoba. What is the likelihood that your stores could be shut down under this new sort of mandate by the government?

John Arbuthnot

Good question, Greg. At least to date, cannabis, both retail and manufacturing operations have been declared essential. This is similar to the treatment from government in the initial lockdowns that Manitoba experienced in March, April this year. Again, for many conversations that we have had with government today, that essential service status will continue for both cannabis and liquor, and again, across our cannabis retail and manufacturing operations into the future. So we do not anticipate any formal shutdown.

Greg McLeish

Great. And I understand that some of your competitors did shut down during that time period. Do you think that they — that that could be the case again and that you guys could benefit from them?

John Arbuthnot

Good question. I would have to join their learning sculpt to see. As you mentioned, we did see at least one of our major competitors closed stores for pivot to a click and collect only model during the initial shutdown, Delta 9, again is positioned so that our retail stores are able to operate. We are extremely cautious in our retail operations in terms of maintaining physical distancing and complying with any of the — the health mandates that are coming down from the province.

We are of course paired as well with click and collect. We have rolled out functionality for clicking collect, and home delivery services now across an expanded retail store base, including most recently our brand and store. So in the event of a shutdown, we would be prepared to offer those services, but again, no, no plans from our standpoint. And if our — if our competitors are looking to close down, we have more than enough room for their customers as well.

Greg McLeish

Right. And just looking at the B2B what types of — how should we be looking to forecast revenue and one is sort of your sales channel in that right now?

Jim Lawson

Yeah. So that’s been the difficult part for us to forecast the, Greg I mean, we had a very large pipeline of projects coming into this calendar year. The large number of deliveries in Q1 and Q2, although we saw a real drop off in terms of inbound demand for new projects, which coincided with the March, April, May period this year, again, the real uptick in initial COVID-19 cases, both here in the province senate and across Canada. We have now seen an uptick in inbound project demand through call it the trailing part of Q2 and into Q3. So there is a good pipeline of new project development ongoing.

I would anticipate orders within the fourth quarter. I would anticipate those orders to accelerate into the first half of next year. The other component that the company is looking to pivot to drive growth in our B2B segment is the United States and international markets. Obviously significant excitement around the U.S. election cycle and new demand coming out of new states which have has legalized, as a part of that election cycle.

Of course, as a TSX main board listed company, we are prohibited from cannabis touching activities within the United States. However, we are able to proceed with sales of our cannabis equipment, and infrastructure into the U.S. market.

So we have now over the first nine months of this year built out projects, in the state of Maine in the state of Michigan. And again, are seeing that the U.S. market presents a significant opportunity for us.

Realistically, our marketing and sales activities in the U.S. have, I would say, struggled to gain traction through COVID, given border closures and traditional marketing activities like conferences, et cetera, are obviously not taking place.

But have seen again, significant inbound demand from new projects, in those types of growth markets. So that will play a part of our expansion of our B2B segments, again, into Q4 and into next year.

Greg McLeish

Great. And just one final question on the B2B, you were looking to expand outside of cannabis, I know into the medical side. Have you ever seen additional opportunities in that? Or How is that — just how is that sort of progressing?

John Arbuthnot

Sure. On — sorry, on the B2B side and medical, not necessary, but so I think they were looking to do some cleaning of basically set paws up inside of hospitals to sanitize. A formal announcement will go out on that in the very near future, Greg, but yes, do anticipate some additional product development in that B2B segment.

Greg McLeish

Perfect. I’ll get back in a queue. Thanks, guys.

John Arbuthnot

Thank you.


Thank you. [Operator Instructions] There are no further questions at this time.

John Arbuthnot

Perfect. We would like to again thank everyone for joining us for the call this morning. If there are any further questions, please do not hesitate to contact us, at Investor Relations. And once again, thank you for joining us.


Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.

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