Chalice Brands Ltd.
Q3 2021 Earnings Call Transcript

Published: 23 Nov 2021

[Operator:]

Welcome to the Chalice Brands Limited Third Quarter 2021 earnings call and Corporate Webinar. At this time, all participants are in a listen-only mode. As a reminder, this conference is being recorded today, Tuesday, November 23rd, and will be available for replay on the Company's website at investors. chalicebrandsltd.com. It is now my pleasure to introduce the host of the call, John Varghese Executive Chairman and Jeff Yapp, President and Chief Executive Officer, who will share strategy and business updates, operating highlights, and financial performance for Chalice Brands ' third quarter of 2021. At the end of the presentation, management will answer some previously-submitted questions. If you are interested in asking a question and haven't done so already, please forward them to chalicebrandsltd.com and we will address them in a timely fashion. Lastly, RVMG is not a registered investment advisor or broker-dealer. For more information, please visit chalicebrandsltd.com. And now I will hand it off to John Varghese, Executive Chairman of Chalice Brands Limited.

[John Varghese:]

Thank you, David. Hello, everyone. And thank you all for joining us today to review Chalice Brands record-setting performance for the third quarter of 2021. On the call with me today is Jeff Yapp, our President and Chief Executive Officer. I would like to remind everyone, that except for historical information, our discussion today will include forward-looking statements that are based on assumptions which are subject to risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Management can give no assurance that any forward-looking statements will prove to be correct. Forward-looking statements discussed on this call are relevant as of the date of this call, and we undertake no obligation to update or revise any of these statements, except as required by applicable law. Management refers you to the cautionary statement and risk factors included in the Company's MD&A, by which any forward-looking statements made during this call are qualified in their entirety. Please note that all financial information is provided in U.S. dollars, unless otherwise specified. Jeff and I have prepared a few remarks, followed by the review of the financial statements for the third quarter of 2021. And then during the webinar deck presentation afterwards, we'll answer some of the frequently asked questions of the past quarter. As anyone invested in the cannabis space knows the entire sector has been in decline since March 1st, 2021, for a variety of reasons. Chalice, like all others, have suffered in terms of market capitalization and share price. In spite of it all, Chalice has continued, and will continue to execute our strategy. We closed the homegrown transaction in May, and now after a full quarter of ownership, we're able to demonstrate the benefits of the synergies, both in terms of revenue and margin growth. Our short-term strategy comprise of organic growth combined with small, bite-sized acquisitions that allow us to add to our footprint. The reverse of the capital markets made access to capital difficult, which then forced us to delay some of the acquisitions that were available to us. The purchase of the four cannabis stores from Acreage as announced in September, allowed us to add another four stores in Oregon without dilution, demonstrating our continued commitment to capital allocation and to try to build shareholder value. At the same time, we believe scale is important. And to achieve scale, we need to keep finding ways to grow. Earlier today, we announced the closing of our financing that was announced in October and we're able to complete the equity component at $0.75 per share, though the stock closed today at $0.65, reflecting almost a 17% premium on that close price. This reflects the continuing confidence in the Company by our supporting shareholders. As we're now cash flow positive, we can, and will use these funds for strategic purposes. With that, let me turn the call over to Jeff.

[Jeff Yapp:]

Thank you, John. Chalice Brands exists to serve the community, enable consumers, and empower small farmers and businesses, so that more people can enjoy the benefits of cannabis. We continue to scale with discipline and build deeper relationships across our ecosystem, which has enabled Chalice to position itself as a market leader in Oregon. The Company remains dedicated to executing our conservative crawl-walk-run capital allocation strategy, which will ensure Chalice is well positioned and prepared for both short and long-term growth and expansion. Inspite of the market conditions, Chalice executed on several key strategic objectives during the quarter, building on our solid foundation and strengthening our position as a best-in-class multi-state operator. As of today, Chalice has an incredible workforce of over 250 employees and a combined retail portfolio of 16 locations, of which 12 are owned. 7 of those are operated under the Chalice Farms brand, and 4, under management services agreement, until we receive all our regulatory approvals. Additionally, Chalice Brands has retail presence in 3 significant Oregon metro areas

[John Varghese:]

Thank you, Jeff. As Jeff has highlighted, the team that he has built has executed, and continues to execute, on the crawl-walk-run mantra that is embedded as the fabric of our culture. We continued our focus on operations and moving into the walk phase in California, and boldly executed on the run phase in Oregon with the acquisition of Cannabliss as we previously stated. Specifically, the third quarter of 2021 represented another strategic step towards positioning Chalice in a sustainable and profitable manner. We have reported a record revenue quarter and continue to show record year-over-year results. And we recorded a fourth consecutive and record adjusted EBITDA positive third quarter 2021. For the quarter ended September 30th, the Company reported record revenues of $8 million, growing 29% year-over-year, compared to $6.2 million for the same period in 2020. The increase in revenue from the second quarter 2021. is in part driven by a full quarter of revenues from the Company's homegrown stores. Material growth in gross profit for the third quarter of 2021 of $3.6 million or 45% gross margin compared to $2.2 million or 36% gross margin for the same period in 2020. When we say the benefits of vertical integration, this is what we're talking about, as we blend in more Chalice -branded products from Bald Power -- Bald Peak, we start seeing a drop to our gross margin line. For the third quarter of 2021, we're extremely proud to support a sustained and positive adjusted EBITDA of $600,000, compared to a loss of $260,000 for the same period of 2020. that's more than a 300% improvement on the bottom line. For the 9 months ended September 30th, 2021, total revenue from continuing operations was $20.4 million, as compared to $16.4 million for the same period of 2020. And almost matching the entire sales of fiscal 2020. For the 9 months ended September 30th, 2021, gross profit w as $9.2 million, again at a 45% gross margin, compared to $5.1 million or 31% for the -- as of the same time in 2020, an almost 100% increase in gross margin dollars. For the 9 months ended September 30, 2021, adjusted EBITDA was approximately $1.6 million positive compared to a loss of approximately $1.9 million for the same period in 2020. This underscores what the team has been able to achieve. We have set the foundation for ongoing and continued growth, management believes that a well-run, properly scaled, vertically-integrated cannabis Company should be able to achieve north of 25% adjusted EBITDA margin, and we're laser-focused on achieving this goal. And as you can see by our quarter-on-quarter improved performance, we are laser-focused on this. Our third quarter revenue grew 29% year-over-year compared to a year ago. Gross profit was up 43%, gross margin 45%. We're very proud of all of these results and cannot wait to show continued improvement for the remainder of 2021 and beyond. At this point, I'd like to thank everyone who joined our call and we look forward to continued conversations in the new year. Now, if we could turn your attention over to your screen, Jeff and I will take you through the presentation focused on the third quarter, followed by a few commonly asked questions from investors during the quarter. David, if you could slide. Then the screen be -- obviously, we have to highlight the disclaimers that are contained as we included in our presentation earlier. Next page. Chalice today, and we're proud to say, is a best-in-class multi-state operator. We have demonstrated that we're an adjusted EBITDA -positive, financially disciplined, multi-state operator, that's focused on building a leading brand presence in the West Coast. Our high-level competencies which we show on this page

[Jeff Yapp:]

Sure. Next slide, please. Season 2 highlights. Next slide, please.

[John Varghese:]

Next slide, please.

[Jeff Yapp:]

So as we just discussed on our update, we're now workforce of 250 people. We're working towards the 5% market share. We represent all the key metro areas in Oregon, Portland, Salem, and Eugene. We have statewide wholesale distribution. I think the thing we are most proud of and clearly shown up in our financial results is a completely vertically integrated organization from our grow all the way through to our retail stores, which I think continues to drive really strong results and allows us to continue to acquire other operators and make that very accretive for its shareholders. We're now up over 3000 pounds of annual combination capacity at Bald Peak. We have a genetics library of just over 60 strains and can do as many as 45 in a flip. So overall, we feel great about where we're operating. We have a wholesale operation in California which distributes Chalice 's Elysium Fields, as well as our edible products. And we'll continue as it expands our presence in California, our next big opportunity. Next, please. We built the business around core brands. We have a fairly sophisticated brand architecture. Each brand having a distinct target, distinct benefit profile, and the sig product mix. Those brands are Chalice, which has really targeted our new users. Pleasing builds to their crafts are highest quality. Think of these products are supposed to flowers possible. RXO target towards active seniors, and then Fifth & Root really a brand that allows us to build a nationally commerce presence. Currently distributed nestling in some large retailers like Ulta but it's a CBD cosmetic product, but the target is where we believe the growth opportunity exists when the -- if federal legalization, it opens up, we believe female Head of House will be fundamental to the decisions to bring cannabis and plant-based medicines in the homes, so we look -- took them. It allows us to build that relationship. Next, please. I think, when you think about our team, I want you to think about the terms of balance. One things in those swing first got started was that you -- there's an art of running -- the science of running profitable business and Art of cannabis. And I tended to see either or in business. I saw people who have had long track record of making money in other businesses, but didn't understand cannabis. We have lots of people who love cannabis and didn't know how to make a lot of money with all the regulation requirements. So we set off from the very beginning to balance those 2 things, John and I represent the balance. John has focused on capital markets and our investors, I get to focus on running the business. We both recognized early on that both require intense focus, and the best way for us to do it would be to partner up any way we go, so we have 2 -- my background's primarily in running businesses and John 's is on the financial side of the business and capital markets, so it actually works great. Megan is just a great example of extremely experienced cannabis person. She started in the genetics business, worked with some of the top growers around the world, and brings – on top, strong sales background and sales leadership. When she came in, start first with our grow and vendors and I think today we have some of the best vendor relationships in the state of almost anybody we have access to the best products for our customers. We made a commitment to our partners that we -- our target is about 50% of revenue for our own products and 50% from the community. It's critical, and when we think it's a responsibility to provide a great opportunity for small farmers, innovators, to have a home for their product also, Megan does a good job doing that. Andrew has started at Chalice, originally Goldman, left, came back, and then we convinced him to come on full-time CFO, but has not only strong public accounting background, but more importantly, strong financial across several companies in cannabis space and some experience. Ginger is a great example of someone who comes out of a strong cultural Company, she spent 17 years at Apple, throb global readiness. We really think about her as Integration Officer. From a culture standpoint, she's a GM of Fifth & Root. for a long time, Karen comes out of probably bleeding edge of digital innovations to marketing officer to really understand marketing as a platform, building digital platform. Jane is 40 years in the HR space, large retail, Sunglass Hut, . She was then 12 years with Apple, and then I worked with her for almost 7 years, 8 years at . And then Joel -- Joel Klobas, who runs production, I think had 1 of the first production licenses in the State of Oregon was response for launching some key brands out there today, and has just been an incredible partner, but really, really deep experience. You see a real balance across our team, and I think that's what differentiates our team. Next slide, please. ? John, you will go through the board?

[John Varghese:]

Yeah, our board -- Jeff and I are lucky. We've got the support, one long-term continuity. If you think of where this Company was 2 or 3 years ago, really none of these structures would have had any reason to continue except for their commitment first, to the Company and then to Jeff and I. Rick Miller is our lead director, he is a gentlemen that runs multi-state businesses in the senior healthcare. He is very much involved. He's a great counsel for Jeff and I, great strategy, and a voice of reason on the Board. Bob Mcknight was a co-founder of Quiksilver, an organization that he built until 2015. Strong retail, branding, and marketing expertise, which ties into where we want to take everything related to branding. He fits in nicely with Jeff 's background set. Scott Secord came on the board this year. He brings a wealth of public Company experience. As a CEO, he's had experience in the cannabis industry, and he acts as Head of our Audit Committee. Larry Martin is a lawyer by background, but with an entrepreneurial background. He has been 35 plus years in various technology companies, real estate, consumer branding, and the medical industry. So it's a really well rounded board. They are an engaged board. They certainly aren't getting paid much to be here, so people don't really understand the commitment that the people at this table are doing, or making, to try and deliver value to this Company. And we're proud -- Jeff and I are lucky, and we're proud to have them around. Next slide, please.

[Jeff Yapp:]

I mean, you hear us talk about this a lot. We spend a lot of time, but it's the foundation under which we do, which -- I've always come to believe that capital and cash is the only lifeblood a business has, and if you don't watch it, and guard it, and protect it carefully, you could find yourself on the wrong end. And so we think about minimizing the risk of our capital, minimize our capital allocation, so our -- we have 4 phases. Crawl is all about validating our revenue opportunity, we try to minimize our capital investment, and to do so we have to forego margins. So you end up basically offsetting margin to balance your risk. If you validate the revenue opportunity then you can invest to accelerate revenue growth, which is the walk phase, kind of what we're doing in California right now. Run phase is that big step for you now invest to accelerate margin. And the great thing is, you've taken all of -- you know what your risk, your turning goals are, you know exactly what you'd expect to see and invest capital. Because you have an understanding of your revenue, you're not guessing. So you have a pretty disciplined expectations of returns in each deal, and that's really allowed us to -- I think allows us to be very smart. It's an example of Nevada. We made a decision to pull out in Nevada beginning of COVID because we didn't want to -- we didn't believe we were in a position to accelerate the growth. want for COVID to -- % of the audience went away. We'd like to get back into Nevada. It represents a great opportunity, but just -- we use this framework to make those kinds of decisions. Next, please. We talking about this a lot and I just think it's important. I think some people have written up Oregon as a mature, highly competitive market. But we think Oregon really is a bellwether, and I think if you're an investor in the market you need to think differently about Oregon. Oregon was one of the first states to decriminalize marijuana 1998. It has fairly decriminalized the rest of I think the next thing, for example, saw 7, first to decriminalize and put a framework -- regulatory framework in place for markets. It's a mature and competitive market and one exact I've talked to several investors, but it's clearly 1 of the most competitive in terms of #1 in retail stores per capita was 16.5 dispensaries per 100,000. And if you can compete in a market that's that competitive, you then look at a market like Massachusetts. It doesn't take a lot of scale to operate in those markets, just takes a lot of money. For us, operating in a market like Oregon, then California doesn't make us afraid. Colorado, we think there's a great market there. We think Oregon is -- it's to our advantage to learn how to work in a highly competitive market. It's a big business. I think it surprised everyone with its growth. It surpassed the billion-dollar mark. And now is the third largest market per capita consumption with 275 annual cannabis spend per capita, it's pretty amazing. We think that when it is fully-legalized, Oregon will be, if not the premier, one of the premier growing environments in the country. It will yield the best quality product anywhere in the world, and it will be coming out of Oregon. And then lastly, we're very proud of our senators, both Ron Wyden, our senator, and Earl Blumenauer, Congressman. They really are leading, I've seen at the forefront of the legalization efforts. We have great relationships with both of them, so we are honored to have them represent us in Washington This here's just some of our stores. Obviously, we have a lot more. I mean, more drawn quickly so you can see them all, but not the 16 stores, but just gives you a sense of what --

[John Varghese:]

Next slide.

[Jeff Yapp:]

-- our stores look like.

[John Varghese:]

Homegrown,

[Jeff Yapp:]

Quickly just to talk about it. It's a run rate of $11 million business, really proud of the business that was founded by Alicia and her team. And we love the brand, we love the people. It's been a really nice acquisition for us. We're seeing really nice growth in our vertical product sales, which I think is a great reflection of the quality of our products. It's -- we'd love them to push them, but at the end of the day it's up to folks and stores and the customers and our products which is really, really well received. So overall, we think this was a great addition to our footprint. Next? Cannabliss for us -- The thing we love about Cannabliss, it's got of the very first retail dispensaries in the State of Oregon. The Firehouse is now in our umbrella. We have the Sorority House down in campus in Eugene, it's one of our favorite stores, and 2 other nice stores. It's a really nice fit. We've liked working with the team. They're terrific. And this is a deal we're able to close without putting cash down. For us this is a great addition and we'll wait for it, then it'll be able to transfer the licenses. And when that happens, that will become a fully part of our footprint organization. The plan is to have both Homegrown and Cannabliss all operating under Chalice. This time for the first time, we will have the same holiday programs in all of our stores, the same point-of-sale material, the same look and feel All of our vendors who participate in our holiday programs, will have the benefit of all of our stores in being able to participate, and show up every one of those stores, so it's been a huge win in the scale, and leverage that just allowed us to have as it has gone from 7 to 16 is a huge change and has been great for our vendor partners. Next?

[John Varghese:]

So coming back to the financial highlights, and then, we'll wrap this up, I think as we announced in the earnings call, which was -- I think we made -- the biggest milestone we'd like to talk about is the over 300% swing in EBITDA from -- adjusted EBITDA from a loss same time, this time last year, to a adjusted positive EBITDA of around $600,000 That's another record for us. And really, it's a statement of everything that Jeff just finished talking about. The vertical integration is starting to work. And we are poised to just keep seeing a creative growth as we layer in our organic growth, the swing of the product mix, and, of course, the opportunistic acquisitions that we'll do. Our revenues for the quarter, we're a record $8 million, a 29% increase year-over-year, compared to the $6.2 million in 2020. In part, as we said before, driven by a full -- the benefit of a full-quarter of Homegrown within our financials. Got a 63.7% growth in gross profit for the third quarter, up $3.6 million or 45% gross margin compared to $2.2 million, or 36% gross margin for the same period in 2020. Gross margin improvements were due to the increased contribution from our vertical product growth and retail sales of our own Bald Peak flower. Our Chalice -branded products grew in Homegrown from 3% pre -acquisition to 24% by the end of the third quarter. We expect to see that number grow, and as they match up closer to the existing Chalice stores. In the Chalice Brands stores, we reached a high of 43% for the quarter, compared to 20% in the same period in 2020. That growth, and if we are able to match, just -- just by doing that swing within homegrown to more approximate into 43%, will lead to a broader, bigger margin increase on it. Next page, please. Sorry. I'm having a little problem here, I'm stuck. As we mentioned earlier, the adjusted EBITDA positive quarter of $600,000 was a dramatic improvement. For the 9 months ended September 30, adjusted EBITDA was approximately positive $1.6 million, compared with a loss of approximately $1.9 million for the same quarter in -- the same period in 2020. On a year-to-date basis, as of September 30th, we had almost matched the full 2020 revenue of $21.9 million and September 30, 2021 to 25% increase compared to $16.4 million for the same period in 2020. The Cannabliss acquisition of the 4 retail stores was done for a total consideration of $6.5 million. But we structured in such a way that is a deferred note that only starts -- the clock only starts once we get the approved -- the license transfer approvals from whole . The timeline of course, there's a pro and con. We won't start seeing the revenue benefits until the license is transferred over. In the meantime, we're running under management services contract, and we're able to bring in Chalice product into Cannabliss. So for the fourth quarter, we'll have the benefit of not the revenue, but at least getting the Chalice -branded products on the Cannabliss shelves, following the similar pattern that we did within Homegrown. And I think from a management team perspective, I think one of the best things we did that Jeff and I are proud of is just watching how good and strong she is. She is a natural that Megan Miller became our Chief Operating Officer and she is doing a phenomenal job. Quarterly highlights, as we've highlighted, on a revenue basis, 29% year-over-year growth. The annual growth continues to be strong. As I said, we matched 2020 already, give or take in the fourth quarter. This is going to be an important week as Thanksgiving rounds up, and we like the trends that we're seeing thus far. The progress to profitability. Look at Q4 2019. We lost almost $3.5 million for the quarter. Jeff and I entered 2020 with $4 million of cash in the bank, running on that million a month loss basis. We found a way to get the thing cash-flow positive, survive 2020, and now create the foundation for incremental and sustained growth. The capital structure, this is actually effective, the financing that we announced close today, and that's also worth talking about. We were able to close on CAD5.7 million in a very tough market, of which we were able to get a significant chunk of that, was equity priced at $0.75 a share, which I think is a reflection of a better value than the stock represents, but really, the support and confidence of the shareholders who did participate. So with the benefit of what we've just done in terms of financing, Jeff and I will continue to tell you that we think we are woefully undervalued, but we're going to stand back. We're going to keep executing and let our performance eventually, hopefully, it gets noticed and reflected in the share price. We have delivered on all the objectives that we set for ourselves. We think the foundation of the $600,000 that we just did in the quarter. We see nothing ahead that will distract us from reaching our Q4 EBITDA objectives. Clearly the inability to -- the market's being soft meant that the acquisitions that we had on top had to be put out. That will, of course, affect long-term growth, but we're well on our -- in terms of where we want to be market share-wise. But I think our organic growth and the bringing the companies that we have, the Homegrown and Cannabliss, further and further into the Chalice fold will lead to better and better performance. Jeff, you want to wrap up the highlights of why we are the Company we are, that'd be great. Jeff, that was you

[Jeff Yapp:]

All right. So as -- No, I'm right here. I said the simplest way to think about what we've done is the balance of our leadership team, it's complete discipline. The way that we are executing on our vertical integration strategy. The competencies that the team brings in both knowledge from a growing perspective balance against branding balance against marketing. But I think what we have in our team is experienced balanced integrity and transparency. And I think you will invest in people and I think we have not demonstrated. We have built an amazing team whose results show financially. So hopefully, that's a highlight that would make you interested in investing and continue invest in the Company.

[John Varghese:]

David, with that, turn it over to you.

[Operator:]

Thank you, gentlemen. That was terrific. We do have some questions. We've about a handful. If you're ready, I'll begin

[John Varghese:]

All right.

[Operator:]

The first question. Does the Company intend to expand acquisitions beyond the State of Oregon in the near future? And what are the characteristics of an acquisition that Chalice would target?

[John Varghese:]

Well, I think the answer is we're opportunistic, David he most leverage and the most sense makes -- Oregon has what makes the most sense. As Jeff said, we're now into the walk phase in California. So as we expand, there. There will be opportunistic acquisitions that will make sense. But ultimately speaking, the characteristics are -- it's going to be -- it's going to fit within our culture. Bite-size. We like the 3 to 5 as we continue to build scale. I think as we set ourselves up into 2022 and beyond --

[Jeff Yapp:]

Revenue and mark price store is above that.

[John Varghese:]

Right. So I think, I know the characteristics will continue to remain as same as once we've done thus far. Well priced. If you looked at where the valuations were at the beginning of the year, if we started approximating where we think the proper value is, it would be great. If we can keep buying between 0.75 and under 1 times revenue. And ideally as our multiple expands, it becomes a very, very accretive strategy. Right now, it's obviously a little bit more challenging. But by bringing the right stores on, by making the product mix swings, we can really affect margins and profitability. Next question.

[Operator:]

What is management's pulse on the cannabis market as a whole in the U.S., in regards to legislation at the state and federal level, sector performance, and potential catalyst for the industry?

[Jeff Yapp:]

I have to be a little conservative with my comments because obviously I've been optimistic before. I think generally, the momentum seems fairly positive. I think we all had some expectations built up with the change in leadership in the White House, but in the Senate, and the house didn't materialize. But now you've got interest and pressure from both the Democratic side of the house, and the Republican side of the house. And almost feels like they are racing to see who is going to get credit for legalization. So I would say we're cautiously optimistic, but as I want to tell everyone, this one's a hard one to guess. So I think the signs are all good. But like anything, the proof will be in the pudding when something finally gets signed.

[Operator:]

I couldn't agree more. All right, next question. Can you explain your marketing efforts with Oregon being a crowded market?

[Jeff Yapp:]

Absolutely. I think for us, it was not recognized early on the importance of brand, the consistency, and their positioning, packaging, product quality. And then the other thing that we've done probably better than anyone is we built in a marketing platform. Our marketing platform, there's everything from our in-store network s, to our social campaigns, to digital campaigns, our techs platforms. and most importantly, our partner platform. We've produced our own magazine, our partners participate in that magazine, it creates tremendous amount of capital. that then allows our partners to retweet to their audience. So think of this as a network or platform effect. But we're now up over 1.5 million impressions per execution. So you walked in one of our stores today, you will see a network video on screen. You'll see execution consistently throughout our stores. You'll see our magazine, you'll see our social posts. Everything is tied together. Our loyalty program ties into it. So Karen's always thought about our platform as a marketing platform. And I think as a result, you're seeing the kind of performance we continue to get.

[Operator:]

Great. Next question. How long until Chalice invests in East Coast? For example, buying a store in New York or Connecticut, or Boston.

[John Varghese:]

Maybe we can say it in unison, never. If you go to that run walk call up brought online we're West Coast and our definition of West Coast is west of Mississippi; is that fair, Jeff?

[Jeff Yapp:]

Absolutely.

[Operator:]

Fair enough. Final question today. Do you see Fifth & Root taking any major steps in 2022 in terms of production and distribution?

[Jeff Yapp:]

Yes.

[John Varghese:]

I love detail. On that momentum, we want to thank you.

[Operator:]

That was a mic drop. That's terrific. Thank you, John and Jeff, and thank you everyone for joining today's webinar. Today's webinar recording will soon be made available on Chalice's website. If you have any additional questions that have not been addressed this webinar, please feel free to email us at [e-mail]. Again, that's [e-mail]. Thank you. And you are now free to disconnect. Thank you, gentlemen.

[John Varghese:]

Thank you.