Cronos Group Inc.
Q3 2019 Earnings Call Transcript

Published: 12 Nov 2019

[Operator:]

Good morning. My name is Jay and I'll be your conference operator for today. I would like to welcome everyone to the Cronos Group Third Quarter 2019 Earnings Conference Call. Today's call is being recorded. At this time, I would like to turn the call over to Ann Shlimak, Investor Relations. Ma'am, please go ahead.

[Anna Shlimak:]

Thank you, Jay, and thank you for joining us today to review Cronos Group's third quarter 2019 financial and business performance. I'm joined by our Chairman President and CEO, Mike Gorenstein; and our CFO, Jerry Barbato.

[Mike Gorenstein:]

Thank you, Anna and good morning everyone. In the third quarter of 2019, we continue to strengthen Cronos Group's foundation for long-term growth and success by staying focused on our core strategic initiatives. I'd like to begin by sharing our developments in both product and brand launches and what you can expect to see from us in the future. In the third quarter, we made significant progress in expanding our brand portfolio to include additional brands that resonate with adult consumers. We closed the acquisition of Redwood in the third quarter and are very excited to have such a talented and creative team join the Cronos family. Redwood manufacturers markets and distributes hemp-derived CBD-infused skin care and other personal care products. These products are sold online and through premium retail and hospitality partner channels under the Lord Jones brand. During the third quarter, Lord Jones introduced several new CBD products to the U.S. market. We launched the Lord Jones Heavy Duty chill balm a nourishing balm that melts on contact leaving skin with a velveteen finish and the Lord Jones CBD formula bath salts which are small batch bath salts made from pink Himalayan salt, arnica, magnesium-rich Epsom salts, calendula petals, and a unique blend of terpenes and essential oils to help support body relaxation.

[Jerry Barbato:]

Thanks, Mike and good morning, everyone. Both our press release and MD&A includes comparisons of our financials for the same period in 2018. As we shared last quarter, we believe the best way to evaluate our business and the industry is the comparison on a sequential quarter basis as comparison to the prior year do not reflect the current operating or regulatory environment. I will focus the majority of my comments discussing the third quarter's performance versus that of the second quarter of 2019. Turning to Q3 results. The company reported net revenue of $12.7 million in the third quarter, a 24% increase from the second quarter. Revenue for the quarter was driven primarily by opportunistic sales into the wholesale channel and the inclusion of financial results for the Redwood acquisition.

[Mike Gorenstein:]

Thank you, Jerry. For those that have been following Cronos for a long time, you'll know that our plan has always been to learn from Canada, to develop intellectual property, to build an elite team, fuel iconic brands and to create a turnkey solution that we can deploy in other markets like the U.S. when they are available to us. We know the cannabis market is real and we believe the opportunity is huge. But no one in the industry can force the market to be opened immediately at full run rate without using existing channels. Unlike the U.S. hemp-derived CBD market, where we can distribute through established infrastructure, in Canada we're developing all new distribution channels and we can't move faster than the channels open. We're marketing new products to consumers in new ways and it will take time for existing consumers to switch from the illegal market and for new consumers to adopt new products. So we continue to invest in researching consumer needs globally and developing products that meet those needs and we believe as strongly as ever that now is the time to continue to allocate capital to R&D and brand development. They want to continue to be a first mover in innovation which we believe will position us for long-term success. We are excited and energized by this next phase of the industry and of our business. One thing that we know won't change about this industry is that it will continue to take disciplined, strategy and flexibility to succeed and create value in the long term. We believe the opportunities are large and are excited by the prospects of entering the Canadian derivative market and the U.S. hemp-derived CBD market in a meaningful way. With that, let's now open the line for questions.

[Operator:]

Thank you, Sir. Our first question comes from the line of Michael Lavery of Piper Jaffray. Your line is open.

[Michael Lavery:]

Good morning.

[Mike Gorenstein:]

Good morning.

[Michael Lavery:]

You talked about your asset-light model again as you have of course, can you give us a sense -- you also mentioned you had some wholesale purchases in the quarter. Maybe just give a sense of the magnitude of those? And then as you look ahead, what stage are you in the transition to where you would expect or want to be in terms of really taking advantage of lower cost inputs as a buyer growing relatively little and getting a margin benefit from that. Can you just give a sense of what timing might be and when to expect a turning point on the margin side?

[Mike Gorenstein:]

Sure. Most sales went through wholesale in the quarter which resulted in our lower ASP. And as the market evolves and cultivation capacity across the industry growths, the wholesale channel will be utilized opportunistically to better align our inventory stream with the adult-use consumer demand. And I think over time with new form factors in Canada and sales from hemp-derived CBD products in the U.S., we believe this will result in a sales mix weighted more towards adult-use sales and less towards these opportunistic sales through the wholesale channel. And I think what you will see is as there's more and more supply of inputs flower based or otherwise crude oil and we see more stores and we're allowed to launch derivative products. The cost of getting those inputs is going to continue to come down as more and more supply comes online. And so I don't think we're quite where we want to be. And certainly on a transition where we want to move from being the ones that are producing that to being the ones that are sourcing that. And between being able to produce ingredients through Cronos fermentation and Cronos GrowCo, we expect within our supply chain as well as third parties that over the next year things will transition pretty rapidly towards margin improvement. And also I think we're not looking for cost to come down but again, depends on other derivative products in Canada to be available to us. And I think we're – well, certainly will improve. We're already seeing in the U.S. in the hemp-derived CBD side, the price for ingredients is certainly coming down. And there's still work we can do to optimize that. But I think the market will run its course and continue to make those inputs become more and more cost-effective for us.

[Michael Lavery:]

Thanks. That's helpful. And then just a follow-up on Alberta from the revenue side, you're launching there. That's obviously where all the stores are. Can you give us a sense of what we should expect maybe from a top line trajectory both some sense of the opportunity, but also how not to get expectations too high on what that might do?

[Jerry Barbato:]

Yeah. I think as you've heard us say in the last few quarters, we don't know it's appropriate for guidance at this time. There's a lot of shifts that are difficult to predict. And we have an idea of where things end long term, but considering we're about a month away from the first derivative product launch, how things will play out over the next few months is difficult to really assess. So I think I'll hold off on further comment on specifically what numbers will be. But overall, we're excited for the new opportunity.

[Michael Lavery:]

Okay. Thank you very much.

[Operator:]

Thank you. Next question comes from the line of John Zamparo of CIBC Capital Markets. Your line is open.

[John Zamparo:]

Thanks. Good morning. I wanted to ask about the PEACE+ test and Lord Jones. Can you talk about what the margin profile is on these products versus your existing portfolio? And I'm not sure if you can share exact details, but any directional commentary on how Lord Jones has been growing or perhaps seasonality would be helpful? Thanks.

[Mike Gorenstein:]

Sure. I think comparing the products, we have quite a wide range so it would be really difficult to speak to specifics. I think you'll see among the different skews, they're so different in the different price points. That it's I think hard to generalize, but I would say that Lord Jones is generally premium, ultra-premium brand is going to be higher margin and lower volume than the rest of our product portfolio. But we do see just given the environment the ability to communicate consumer benefits to build a community with our consumers in a way that is much less constrained than in Canada. We do have a stronger opportunity. PEACE+, we're in the process of launching. So we're excited for that. And excited for you to be able to see where we're coming out with.

[John Zamparo:]

Okay. That's helpful. Thanks. And then my follow-ups on Europe. You've now got an executive with oversight in Europe. And Mike, you've spoken about the attractiveness of that market. Can you talk about your expectations for the region? Is it material in 2020, or do you look further out in other particular countries that you find attractive?

[Mike Gorenstein:]

Yeah. Europe, I think what we're seeing -- and again, this goes back to my comment on guidance and why we're being hasn’t provide guidance at this point. A lot of it is certainly driven by regulations, but we are seeing that with respect to the cannabinoids and product mix that the trend seems to be towards opening up for non-intoxicating cannabinoids similar to what we're seeing in the U.S. and still there's a lot of restrictions and things that may slow down the more medicinal regulated THC side. So we would expect that meaningful growth is likely to be more from non-intoxicating and intoxicating.

[John Zamparo:]

Okay. Thank you very much.

[Operator:]

Thank you. Next question comes from the line of Andrew Carter of Stifel. Your line is open.

[Andrew Carter:]

Hey, thanks. Good morning. First question, the $0.9 million in sales for Lord Jones that came in the quarter. Can you give us an indication of kind of how representative that is of the business to stay in terms of its distribution channels kind of what we should expect from the contribution of that to really meaningfully step-up in the fourth quarter, or is it more of a step-up in 2020?

[Mike Gorenstein:]

Yes. So that's the Redwood acquisition took place September 5. So it's a partial month and I wouldn't read too much into the partial month of revenue. I don't think it has a fair assessment of what the run rate will be going forward.

[Andrew Carter:]

Okay. Just kind of a second question kind of thinking, you mentioned the new products. So I kind of wanted to understand where you stand today in terms of new products submitted to Health Canada? Is your expectation to get those products as soon as possible December, or will we see more of a wait into kind of the calendar first quarter?

[Jerry Barbato:]

Yeah. Our focus is getting they tends out in the market as soon as possible. So something that we have submitted and again we're hoping for December. But because of the timing, it's tough to predict whether it's, end of December, beginning of January. But, our focus is really rolling that out to start and then, phasing in, other derivative products. We certainly have IP product formulations around topicals and edibles. But specifically with edibles, what we haven't been able to see is how are the packaging rules specifically around single-serve, versus multi-packs, going to resonate with consumers. We have formulations, that have been tried and tested, and very successful with consumers and markets where you can sell multi-packs. But we want to make sure that, before we launch that we have a little bit of market data on how best to satisfy consumer needs.

[Andrew Carter:]

Got it, thanks, I'll pass it on.

[Operator:]

Thank you. Next question comes from the line of Chris Carey of Bank of America. Your line is open.

[Chris Carey:]

Hi. Good morning, guys.

[Mike Gorenstein:]

Good morning.

[Chris Carey:]

So, on the last call, you said that, your U.S. CBD sales could be bigger than, Canadian cannabis, in 2020? And I guess, just taking the large ones run rate. And fully appreciating that you said that's not really typical going to be that, instructive on the go forward. But we still haven't seen guidance for FDA. You had a peer report last week that was calling out increased competition. But clearly, especially in the context of going U.S. GAAP and reporting segments on U.S. versus rest of the world, it's pretty clear what your intentions are? And so, I wonder if you can just maybe address the puts and takes on, how 2020's mix might look? And it's not really looking for guidance at all. But just kind of reading the tea leaves on some of the developments, you've seen over the past few months? And how that might form how things shape up over the next year?

[Mike Gorenstein:]

Sure. I mean, I'd say, we're certainly only a few months into our entrance into the CBD market. But, just one illustrate as an example, when we're thinking about a test market. And just starting off with the brand that we're announcing today PEACE+ and we're comparing that to Canada. In Canada, there are a total of 24 stores in Ontario. And for the CVD brand launch, our test market is 1,000 stores. So I think, being able to leverage, the Altria's distribution is a huge advantage, and our ability to scale, when we talk about in free competition, we're -- we think, that the opportunity is very strongly. We are I'd like to open that, we are not going to go into any environment right now where, there isn't competition. That really just shows that, it's a fragmented market. There's opportunity. And market leaders have not yet, commanded dominating share. So, we're very excited. We think we have an advantage on the distribution side. And we think that, between Lord Jones, PEACE+ and the other brands that you'll be hearing about in the near future, that we can have meaningful contribution. And I just would point again to -- on our side, being able to leverage existing infrastructure. We don't need to go and build out the retail stores or wait for them to be built for us to get CBD products on shelves. So I think, we have just a little bit more clarity. It's less of a comment of what that means for Canada say, in two years or three years. It's just when you can see the stores open. And you know the demand is there and that you can address it. It's easier for us to be comfortable with showing where contribution comes from.

[Chris Carey:]

Okay. That makes sense. And then, just on a follow-up. So you've got $2 billion in cash, right, which at current cash burn is like 41 quarters. I think, by my math. Which I think makes a lot of sense actually, to be measured on cash especially given the capital raising environment right now. But, just as we go forward here, how do you think about, deploying that cash? Obviously -- and I come back to changing reporting segments to U.S. and Rest of World. So again, it's quite clear your intentions are. Is this the type of approach where you perhaps stay patients on any potential change to U.S. law, or is this just a function of not having the types of investments right now that you think are the most interesting for the long term and it makes more sense to hold off? Just how are you thinking about broader deployment and the sorts of geographies or assets that you might be interested in?

[Mike Gorenstein:]

Sure. I think first when you think about some of the markets we're in today, it's not simply financial modeling, its a little bit of game theory that comes into it. And so when we look out at how things develop and the timing and when you talk about cash burn and being able to wait for the market to come open. I think having the capital being able to be patient, wait for things develop and watching what happens is something that we looked at whereas say a year ago focused on speed. I think the focus is going to quickly shift to survival and we want to be in an advantageous position to be able to capture that market when it comes online. As far as thinking of the global picture and what's available to us. There's been a lot of capital that's poured into cultivation and green supply. But it's interesting when you look at most of how capital is deployed and allocated in CBD, typically you would think about researching and addressing different consumer needs. And we actually think that there has been an under allocation of capital there and then towards research and development against those consumer needs. And that's right now where we see the opportunities making sure that when there's retail infrastructure open and when there are laws that allow us to be in the markets where there's the biggest business opportunity, how are we making sure that we've got the best internal landscape and product portfolio. And as part of that mapping exercise also what the best targets are to be able to go and execute against that and really be able to translate what we look now is an addressable markets that we can't address in the short-term is something that we capture and are able to start generating durable margins and long-term shareholder value.

[Chris Carey:]

Make sense. Make sense. Thanks so much.

[Operator:]

Thank you. Next question comes from the line of Tamy Chen of BMO Capital Markets. Your line is open.

[Tamy Chen:]

Yeah. Thanks. My first question is on the Canadian business this past quarter. You mentioned that most of the sales came from the LP to LP market or the wholesale channel. So I'm just wondering what does that say about your ability to sell more in the Red channel? You mentioned this was opportunistic, but it seems like you were alluding to that you may not have the right mix of products that maybe the provinces or consumers are looking for. So is this big LP to LP sale you had this quarter really a onetime thing, or is this something that until you align your mix that's better with consumer demand it will be more gradual for you to push further into the Red channel.

[Mike Gorenstein:]

Yes. So I think the adult-use cannabis market here in Canada still in its infancy. And that means, consumer preferences are evolving rapidly as new consumers enter the legal market and new products become available and we are aligning our production as well as our third-party pool that we've collected to make sure that we are matching consumer demand, but what's in our inventory. Additionally, as we continue to roll out this third-party strategy, we're going to make sure that we're adapting quickly to consumer demands. That being said, we believe that the launch of derivative products is where the brand equity will be built with consumers based on quality, product differentiation and the ability for brands to match their brand ethos to the derivative products that they sell. Unfortunately, the current restrictions on marketing and branding for flower products don't really allow for this and contribute to an environment where it's difficult to build the brand off of flower alone. That being said though, we believe that the marketing activities that we have executed are creating brand equity so that once we have the right strings in the marketplace and the derivative products that you'll see positive reaction from adult consumers.

[Tamy Chen:]

Got it. Okay. Thank you. And my follow-up is on the U.S. aspect as well. Just taking a step back, I just wanted to better understand given how as you mentioned competitive and fragmented. And also the regulations are so ambiguous right now in the U.S. CBD market. I hear you on the ability to leverage Altria's distribution. But could you speak to other parts that you believe will help you stand out in this market whether it's product development, M&A, brand strategy. Just trying to understand if you go into the C-store channel as a test market, what specifically are you testing for? Is it all of the above that I just mentioned so should we still think of 2020 as a very gradual trajectory and basically a test year for CBD before you learn more and you really further develop your CBD strategy past 2020?

[Mike Gorenstein:]

Sure. I think for PEACE+, it's something that we plan to expand gradually throughout the year as we get market learnings and see expansion opportunities. But what we're really testing for and hoping to learn or all the facts of the value equation for specifically here for the tester category, for consumer preference, the consumer insights, pricing, merchandising, insights from the retail partners, flavors. And it's important for us to get that in the 1,000 stores because as we look at expanding when you go from 1,000 to 10,000 to 50,000 to 100,000 we want to make sure that we understand -- just the logistics around what type of volumes or which SKUs are going to be moving because there's a lot -- certainly that will be planned there. But we think that product development that generally brand and brand management it's going to be very, very important. Like any other consumer category there is something simple about what we need to do is find out what consumers want. And we have a good idea of what consumers want and deliver to them. I think that there's -- with the different brands you'll see a lot of different channels that we target that aren't just specific to Altria distribution, Lord Jones I think its the only CBD brand that you can go in a Sephora in-store and purchase, being able to go to places like Soulcycle or the standard hotel that are really about brand building. And I think differentiate more zones than the products that you'll see that it's very unique like the -- Bath Salt and Tamara Mellon, Stiletto Cream, and some of the other products you mentioned we think that that's ultimately what the market looks like in the future as differentiated products or differentiated segments.

[Tamy Chen:]

Okay. Thank you.

[Operator:]

Thank you. Next question comes from the line of Matt Bottomley of Canaccord Genuity. Your line is open.

[Matt Bottomley:]

Yeah. Good morning. Just wanted to touch again briefly on your strategy for the 2.0 implementation. Are you thinking of launching it, sort of, at a more muted province by province level similar to what we saw in sort of the dried button oil in cannabis, its we'll call 1.0, or are you planning on attacking a broader, I guess, breadth of markets right out of the gate in Canada?

[Mike Gorenstein:]

Yes. One of the things that we've been doing is trying to make sure that we internally have a logistics and understand how to work with the provinces. So now that we've opened relationships with provinces, we don't see going and reverting back. We -- it makes sense for us to continue expanding among the provinces, but once we've opened a relationship with provinces. Our focus is really on satisfying those channels and being able to deliver products. So I'd say the way that we approach it with 1.0 in terms of not wanting to go to all 10 provinces at once and have so many SKUs, it was difficult to manage. We're thinking of it as starting specifically with a focus on base and then expanding different types of products, and layering those in. So it's still the same idea of making sure that we can stay disciplined and focused. But we see proliferating that in a little faster than what we did with 1.0.

[Matt Bottomley:]

Great. Thanks. And just a second question just switching to the CBD side of things. Just obviously including the Lord Jones and hemp-derived sales that hits your books. How many markets or regions are those in? And can you give any color on what the distribution points are today?

[Jerry Barbato:]

So specific to Lord Jones roughly 800 stores. And I think about those stores, I think, a little bit differently than the c-stores. Those are channels like Sephora, SoulCycle and even markets a lot of luxury boutique stores. A lot of the sales also -- there's a DTC direct from the website. And I think online will continue to be a place where we see more margin, there'll certainly would be scale coming from the wholesale channel, meaning into retail stores. But that mix will continue to expand. And then with PEACE+ we're seeing that in more of a mainstream market. So convenience stores, grocery stores, specialty shops and they carry CBD products, channel -- channels more like that.

[Matt Bottomley:]

Okay. Thank you.

[Operator:]

Thank you. Next question comes from the line of Graeme Kreindler of Eight Capital. Your line is open.

[Graeme Kreindler:]

Yes. Hi. Good morning. Thanks for taking my questions. I wanted to follow-up with respect to the comments on the asset-light model. And understanding that you're removing the disclosures of capacity at the various assets. As it relates to GrowCo, given what we've seen in the supply and demand dynamics. And you mentioned earlier that you think inputs are ultimately going to get cheaper in the wholesale market. Has there been any discussion or view to right-size that GrowCo facility because it was -- the expected capacity from last disclosed was expected to be quite substantial?

[Mike Gorenstein:]

Sure. When we've had discussions and maybe I'll go back to originally the whole concept behind GrowCo. With the belief that there would be a drop in prices and some form of commoditization on inputs, we looked across Canada and said, what's the comp for plant you grow that there's going to be price compression and you can be successful. And we looked at lettuce, tomatoes, cucumbers, strawberries. And what you find is there is, two or three groups that really dominate all of Canada, really in any of those agricultural ventures. And Moochies are one of those groups. It was our favorite group and our first pick. And rather than simply sitting back and waiting, we went and recruited them and we knew they would move into cannabis at some point. And so, it's not simply about supply-demand. I think driving some of the efficiencies that are going to be necessary for us to be able to compete in the market and being able to have a close relationship and being able to make sure that the right products are being produced is important. But at this point we've seen, I think, almost every year the Moochies have built another greenhouse and we haven't seen the addressable tomato market or strawberry market or cucumber market grow, but it's about driving efficiency. And certainly, while it's competitive, we've seen that they have consistently had the ability to succeed and thrive in hypercompetitive commodity agricultural markets.

[Graeme Kreindler:]

Okay. Thanks. And then, as a follow-up, with respect to the higher proportion of wholesale in the quarter, I understand that sell-in has largely been challenged during the period in the market. But I was wondering, what -- is there any read-through there with respect to -- or any color you can provide with respect to Cronos' brands at retail? What the demand is like, what products have been popular? Given the higher proportion of allocating products into wholesale this quarter.

[Mike Gorenstein:]

I don't know that there's much read-through there. And I think one thing when we talked about being opportunistic. I think the ability to see sort of what was coming in terms of changes in prices, certainly drove us to be a little bit more proactive there. When you look at aided awareness and there's a lot of third-party studies you can look for aid awareness, that gives you a good idea of how brands are doing. I think that is something that read-through is very positive for our brands. But ultimately because of the way the system works and the timing it takes to align SKUs, there certainly is an element of production planning that, without being able to work directly with the retailer and quickly adapt to SKUs. When we find out which SKUs are in demand and when we launched with listings that were early on, we were essentially producing based off of listings and some SKUs are more popular than others. I don't think it was necessarily based off of brand. We're still really in a point in the industry where, when you go into a store I think consumers are picking based off of a strain or SKU rather than brands. So when some SKUs move faster some SKUs just had much more depth in based off of the way that we planned our production, it made sense for us to, I think, turn over some of the inventory and then be able to reallocate production to other SKUs that would say, there was more demand than we had supply for. And one of the ways I think that we can make sure we address this is, by going forward having everything roll to a GM accountable for in the territory. We have production planning plus operations and demand planning and sales, all rolling into the same function. And I think that's something that will help smooth that going forward. And I also think that with derivative products, the ability to pivot your manufacturing to meet shifting demand. It's a much faster cycle than with cultivation.

[Graeme Kreindler:]

Great. Thank you very much guys.

[Operator:]

Thank you. Next question comes from the line of Shayne Laidlaw of Hedgeye Risk Management. Your line is open.

[Shayne Laidlaw:]

Hey. Good morning. Thank you very much for question. Just turning back to the PEACE+ brand, I was hoping to get a little bit more color on kind of what the brand positioning will be? Is this something that's going to say something to the effect of powered by Lord Jones, or is it going to be a completely separate brand on its own?

[Mike Gorenstein:]

Yeah. It's a completely separate brand. And certainly I think there is a halo effect that we expect to get from Lord Jones, but it's got its own positioning, its own formulations and it's really targeted to a specific channel. So we think the consumers are different than Lord Jones, but consumers are increasingly more aware not just of the brand, but of the companies behind it and what other brands might be produced. So, we do think that there's a lot of benefits that we get from having those under the same platform. But, you'll see them look quite different and the website is up, so you'll be able to take a look and understand what we're positioning. And I think probably get some read-through on what that will look like and what we're preparing for in terms of expanding in other product formats.

[Shayne Laidlaw:]

Great. And then just turning to the repurposing of a portion of the Peace Naturals facility, how much of this was driven by kind of a change in philosophy by Cronos to be more heavily focused on derivative products R&D and more of a global view versus a reaction to the competitive cultivation environment, and kind of the below par rollout of some of the retail locations in some provinces?

[Mike Gorenstein:]

Yeah. I would -- certainly this was not a change in philosophy. I think that this was more of a recognition of timing, and how things are pacing. One of the reasons we like having an indoor facility, as the first large facility we've built, is the ability to have optionality and being able to pivot from cultivation to downstream manufacturing. I think that when we look forward, and the fact that right now there is -- due to the number of retail stores, or we think that there's a headwind in terms of oversupply. It makes sense for us to really take this with a perfect opportunity to begin converting from more in-house manufacturing for derivative products. It's really been always our philosophy. We just -- I think in terms of timing, we're going to wait a little bit until we had GrowCo fermentation fully up and always thought once we were able to get lower cost and more consistent inputs, that is something that we would do. And I think that it's certainly been choppy on, we believe at one point oversupply will come earlier then it seemed to come later. And I think now that's here we're executing against the plans that we've had.

[Shayne Laidlaw:]

And if I could just squeeze one more in there, I saw that you estimated the cost to be no more than $15 million. Is there any way you could share kind of what percentage of the cultivation space will be converted?

[Jerry Barbato:]

Yeah. We're still working through that. So based on preliminary work that we've completed to date and in the spirit of transparency, the company currently estimates that it's a pre-tax onetime charge to be no more than $15 million. And we have a team working diligently to identify all the assets that will be subject to the write-down. So, we'll provide additional color in the fourth quarter and full year results.

[Shayne Laidlaw:]

Okay. Thank you so much.

[Operator:]

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. Have a great day.