Workhorse Group Inc.
Q3 2020 Earnings Call Transcript

Published: 9 Nov 2020

[Operator:]

Ladies and gentlemen, greetings, and welcome to Workhorse Group’s Third Quarter 2020 Investor Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Workhorse’s Chief Operating Officer, Dr. Rob Willison. Thank you. You may begin.

[Robert Willison:]

Thank you, Melissa, and good morning, everyone. We appreciate you taking time to join us for our call. Before market opened, we issued a press release with our results for third quarter that ended September 30, 2020, a copy of which is in Investor Relations section of our website. We also released our quarterly Form 10-Q.

[Duane Hughes:]

Thanks, Rob, and good morning to everyone on the call. We appreciate you taking the time to join us today. I will begin first with an update on sales orders. Let me start with the order we announced this morning a 500-truck order from Pritchard Auto Company. Pritchard is a 107-year-old premier automotive company, who sells more than 30,000 medium-duty trucks annually across the United States. Pritchard is using Hitachi Capital America as their inventory financing arm. This is exactly what we envisioned and anticipated when we teamed up with Hitachi as our boots on the ground with their dealers and network connections. Hitachi will be assisting Workhorse in developing a national dealer network and will support our sales with vehicle financing options for both dealers and fleet customers, including dealer floor plan programs. As a well known and respected player in the commercial leasing and finance industry, we believe Hitachi can help drive customer orders even more quickly than anticipated. We are also looking forward to benefiting from their manufacturing expertise to further increase our channel sales capacity. A bit more on our Hitachi partnership. As part of an overall production assessment completed by Hitachi, they also recently conducted a dealer survey, and the results could not have been more promising for EVs and Workhorse in particular. 47 dealers in several-high EV adoption states responded to the Hitachi survey, a high 43% overall response rate, with 83% of that group indicating an interest in becoming a Workhorse dealer. These dealers already have a strong interest in placing orders. 84% of the customers are already asking about purchasing EVs.

[Steve Schrader:]

Thanks, Duane, and thank you to all of our joining us for today’s call. This morning, we issued a press release which discusses the results of our operations for the quarter. Additionally, as Rob mentioned at the top of the call, our Form 10-Q was also filed today. I recommend going through both materials to give more color on some of the information being discussed. Now to our financial results for the third quarter ended September 30, 2020. Sales for the third quarter of 2020 were recorded at 565,000 compared with $4,000 in the third quarter of 2019. The increase was primarily driven by an increase in the vehicles produced and delivered. Cost of goods sold increased 2.8 million from 1.4 million in the third quarter of 2019. The increase was primarily driven by increases in labor and materials relating to costs for the C-Series production. Selling and general and administrative expenses increased to six million from 2.6 million in the same period last year. The increase is attributable to an increase in consulting expenses, higher employee-related costs and incentive stock expenses. Research and development expenses were 1.6 million, which was in line with our spend in the third quarter of 2019. Interest expense net was 74.3 million, which was an increase of $68.4 million compared to interest expense net of 5.9 million from the same period last year. The significant increase in interest expense was almost exclusively due to fair value of the convertible note and loss on its conversion to stock and the loss on the redemption of Series B preferred stock. Both of these GAAP adjustments are noncash and were dependent on the underlying stock components of the financial instruments. In addition to cleaning up the balance sheet, these transactions also helped reduce higher cost of capital from previous financings. Net loss was 84.1 million compared with a net loss of 11.5 million in the third quarter of 2019. The increased net loss was due to the increase in interest expense net just noted. With these considerations, we believe operating income would be a better indication of operating and cash performance. Operating income during the period was a loss of 9.8 million compared to a loss of 5.6 million in the third quarter of 2019. As of September 30, 2020, we had cash, cash equivalents and short-term investments of 80.2 million compared to 23.9 million as of December 31, 2019. Subsequent to the year-end, we entered into and closed a convertible note financing with a group of institutional lenders or gross proceeds of approximately 200 million. And this are convertible into common stock by the holders at 35.29 per share as adjusted prior to closing. It mature in four years interest rate of 4% per year, which rate may be reduced to 2.75% if the company meets certain conditions. Interest is payable in quarterly installments and can be paid at the company’s option, either in cash or subject to certain conditions, shares of common stock. In conjunction with these efforts, we entered into a separate agreement with the holder of our prior 4.5% convertible notes to exchange a full 70 million outstanding principal amount of those existing notes for shares of the company’s common stock. Currently, we have a cash balance over 260 million. With this cash in place, we can more quickly advance our production efforts by increasing our supply chain component volumes the hiring of more manufacturing employees and automating certain subassembly processes. Furthermore, we can also accelerate our production time line for new high demand customer products, including a refrigeration truck for grocery applications as well as purpose-built Class 2 delivery van, allowing us to address one of the fastest-growing vehicle markets in the U.S. Finally, we also plan on focusing additional resources toward an expansion of our drone operations. We appreciate our financial partners faith in us and their support and further solidifying our leadership and reach in the last mile delivery segment. With that overview completed. I will now turn the call back to Dwayne for concluding remarks. Duane.

[Duane Hughes:]

Thanks again, Steve. In conclusion, I will provide a brief comment as we always do with respect to our ongoing participation in the U.S. Postal Service’s next-generation delivery vehicle program. As many of you are well aware, under our NDA, Workhorse is only able to provide information, which is already in the public domain. As has been the case throughout this process, any further information or announcements will be issued by the U.S. Postal Service. We appreciate the continued interest we receive, and we will provide updates to the market as we are able. At this time, we do not have any updates to share. That concludes my prepared remarks. Thank you for all your time this morning. We look forward to updating you on our progress moving forward, and we are now ready to open the calls for your questions. Operator, please provide the appropriate instructions.

[Operator:]

Our first question comes from the line of Colin Rusch with Oppenheimer. Please proceed with your question.

[Colin Rusch:]

Can you talk about the qualification process and the maturity of that process for this additional battery supplier? I want to get a sense of how much work is left to do at this point?

[Duane Hughes:]

I’m sorry, Colin, this is Duane. I want to clarify the question. The qualification process in terms of bringing in additional battery manufacturer?

[Colin Rusch:]

With battery suppliers. I mean, it sounds like you are pointing to a supplier having trouble actually delivering the packs that you were looking for, for the balance of the year, along with COVID as the reason for some of the slower ramps. So I want to understand how far along you are with this other supplier if that is early stages or if there is - you are pretty much done at this point, just waiting for that to spool out.

[Duane Hughes:]

Yes. Here is how I would answer that question. One is our current supplier is doing well at finding additional methods to meet our capacity needs, first and foremost. And we have seen good success in terms of how their packs are performing in our vehicles, both through the certification testing processes as well as with real-life customers here. So we are really pleased with their performance of their pack. Now with that said, like with any other supplier, we don’t want to be single sourced. So we had started some time ago with a series of other potential battery pack suppliers, of which I think there is at least three or four. I will hand this over to Rob to give more clarity here. So we didn’t just experience this problem and then just started on that. This has been a work in progress. So I believe that, from my perspective, we are well into it, and we will have solutions in first quarter 2021. But Rob, if you want to add more detail.

[Robert Willison:]

Yes. So all the EV suppliers, we always keep our ear to the ground for emerging technologies, who is coming online. And there are quite a few battery suppliers that are transitioning or indeed to product. So for us, we look for someone that can meet production and the quality that meet our standards. We have designed our vehicle, as we have said before, to be modular, so we can accept different packs. And so we work with these suppliers to make sure that we are getting that optimum battery at a price point and weight and longevity that translates to the warranty. And so as Duane had said, we always have a backup supplier. We have had very good luck with our primary and it is certainly not a performance issue. But we are looking because of our volume and increased orders for secondary suppliers.

[Colin Rusch:]

Great. And then as you look to move into new applications, can you give us a sense of the cycle time on going through those designs and qualification of those designs for production? Should we be thinking about that as kind of an 18-month process? Or do you think you could be shorter than that or longer than that?

[Robert Willison:]

Yes. So like our batteries, our designs themselves very modular. So the 650, the 1000, the 1200, the refrigerated versions all use the same primary parts and that filling out of the portfolio, we are doing in a very systematic way. We look for the customers, the potential customers in the market. As was mentioned, refrigeration is really that next step, and we have worked on that. We will have a prototype coming out. But it is in the six, eight month time frame to get initial production.

[Duane Hughes:]

But when we talk about the Class 2 Colin, that is a little longer time line, that is the 12- months to 18-month scenario because that is - I don’t want to call it a fresh-up design because you know other projects that we have worked on that tend to lend themselves towards that Class 2 platform. And in 2018, we did put a Class 2 unit in California and did five months’ worth of actual real-life deliveries as a test environment for that. So now that we know that there is a market out there for that vehicle, what those particular customers want in a vehicle, we see the ability for us to - after we get to our initial delivery platforms on this and production numbers on the C-Series introducing that Class 2 unit as well.

[Colin Rusch:]

Okay. Thanks so much guys.

[Duane Hughes:]

Thank you.

[Operator:]

Thank you. Our next question comes from the line of Greg Lewis with BTIG. Please proceed with your question.

[Gregory Lewis:]

Yes thank you and good morning everybody. Just as I think about the updated 2021 production guidance of 1,800 vehicles, as we think about the pace or the cadence of increases, is there any kind of way we should be thinking about it, whether you want to kind of parcel that out versus first half and second half or maybe year of end December 2021 kind of run rate? Any kind of way we should be thinking about that as a kind of - as you guys grant production?

[Steve Schrader:]

Greg, this is Steve. Yes, I think the way to think about it is maybe a couple of milestones. So I think you could look at it as getting to 100 trucks per month by the - no little later than the first quarter of 2021 and then getting to 200 trucks a month by no later than the second quarter of 2021. I think that will kind of give you a frame of reference how it ramps up.

[Gregory Lewis:]

Okay. And then just congratulations on the 500-unit order. And you mentioned also, I guess, what was it eTrucks and Fluid Systems, any kind of update you can give us on where backlog is standing around now?

[Steve Schrader:]

Yes. I think we have a backlog now about 1,700 vehicles. So that is good. And like we have mentioned before, Hitachi is out there as our foot soldiers as a writer. And we believe that we will have more orders, hopefully, by the end of the year, but soon.

[Gregory Lewis:]

And then just knowing that you have the Telematics Systems and now the Ryder trucks have been delivered, I guess, that was in early July, I believe. Any kind of feedback, updates? Have you seen more? What has kind of been the overall feedback? And has there been more truck orders from Ryder?

[Duane Hughes:]

From a Telematics perspective and understanding proof of performance, I would tell you that what we are experiencing today is, I think you remember this, Greg, in the initial trucks that we delivered between 2015 and 2017, we averaged about 32 miles per gallon equivalent in those vehicles. And of course, we redesigned the vehicle lightweight and all of the things that we talk about. And the vehicles that are out with the customers today are getting, I will say, right at or north of 40 miles per gallon equivalent, which just translates to a much stronger ROI as well as total cost of ownership savings. Now I’m going to segue here and say this, the Telematics System that we are using today on our trucks, which is all in-house written, also offers an opportunity for us to commercialize that and actually use that as a recurring revenue stream rather than providing it as a proof of performance added value scenario to the current trucks. So just as a segue into there, I wanted to say that. But to your point, the vehicles that are out there are performing well. We have gotten good feedback. Interestingly enough, one of the first pieces of feedback we got was Ryder is a couple of those vehicles, they are actually using through their well, I think it is called their co-op business, which where they lease them to fleets for a short-term service needs. And where I’m going with that is they actually have a couple of customers outside of the parcel delivery business who lease them for I will say, unique projects, which is really opening up further opportunities to expand upon who might use these types of vehicles. As you know, typically, parcel delivery, grocery delivery, laundry delivery, office supplies, those are a lot of the kind of the fleets that use these vehicles, and we have been seeing an expansion beyond that through that rental model. So we are pretty excited about the different paths we have to go.

[Gregory Lewis:]

Okay, great. Thank you.

[Duane Hughes:]

Thank you.

[Operator:]

Thank you. Our next question comes from the line of Craig Irwin with ROTH Capital Partners. Please proceed with your question.

[Craig Irwin:]

Good morning and thanks for taking my questions. So can you talk a little bit about this Pritchard agreement, whether or not there are commitments to unit deliveries at specific times in 2021? How much of that 500 do we expect to be actually shipped in 2021 or are is this much more like your UPS backlog that you have, where 1,000-plus units, but there is all sort of contingencies and commitments that need to be met before we see the full units actually delivered?

[Steve Schrader:]

Yes, Craig, this is Steve. So no, this is a unit order. There is not the contingencies that you mentioned before. And I think we anticipate they will be delivered in 2021.

[Craig Irwin:]

Okay. Excellent. And then we have had several conversations offline about your battery supplier that you had previously announced before. One that had actually prepaid for a few thousand units. I expressed significant reservations about that supplier with you and said, no, you have a supplier, it is not an issue. So if you had changed suppliers, we are changing again or what did it take in the last three months to discover that all of a sudden, you have an issue with your battery supplier, where this has been common knowledge in the market?

[Duane Hughes:]

Okay, this is Duane, Craig, I appreciate your question. I would tell you this, again, we have been working with other battery suppliers as well. And while we have a primary supplier who had a little bit of a hiccup here, they are quickly reacting to that hiccup, and we don’t expect that to last by long. However, a being good business people, we don’t want to be single-sourced on anything. So we have identified multiple battery suppliers and have prioritized them in terms of integrating. We have packs whether they are already being shipped or on order from other suppliers and much of the engineering effort is either already done or is being done now. And I will hand that to Rob.

[Robert Willison:]

The other issue in beginning to sell and supply these trucks, we nominally these with four packs each. And a number of our potential customers and orders now have switched to six packs. So you are looking at it from a four to six pack, and that is thrown a little bit of a wrench into the supply in that everybody wants a longer range, which we are able to accommodate. But from our supplier standpoint, it is 50% more capacity that they had to come up with quick. So the good news is, we have other potential suppliers. Our current suppliers are still online producing at the rate that they can, and we have choices we a number of qualities.

[Duane Hughes:]

So let me just - that is really good - yes, I was going to say that is a really good point Rob made is when we went through the certification processes and we are demonstrating vehicles that get 160 miles, on basically 105 kilowatts, we are seeing a lot of interest in switching from existing customers to say, let’s do the larger pack or the extended range vehicle as opposed to the standard range, which is 105 miles. So giving them 160-mile range versus 105 is something that they switch to, which cost another.

[Craig Irwin:]

Great. Well, congratulations on that Pritchard order. That is a nice size order, and we look forward to seeing those trucks rolling on the road.

[Duane Hughes:]

Thanks, Craig.

[Steve Schrader:]

Thanks, Craig.

[Operator:]

Thank you. Our next question comes from the line of Jeff Osborne with Cowen & Company. Please proceed with your question.

[Jeffrey Osborne:]

Most Of them have been addressed. But I was wondering, I might have missed it. Could you articulate what the Q3 deliveries were and then maybe just touch on in October pre the COVID spike, what deliveries were there, it was unclear with the timing of all the moving pieces between Hitachi, the battery and COVID, what level of production you had Q4 to-date?

[Steve Schrader:]

So in the third quarter, we had seven deliveries. Five went to Pritchard and then two were delivered to Ryder in the third quarter. And from a standpoint of pre-COVID and all that sort of stuff, I think we anticipated hitting our 300 to 400 target. And both of these kind of came at the same time and things substantially.

[Jeffrey Osborne:]

Got it. And then just how do we think about the allocation towards UPS, it is 1,000 or so of your 1,700 in backlog, it doesn’t seem like you allocated any to them based on your comments just now. Given the concerns that investors have had in the short seller report around UPS in particular, can you just touch on, a, your relationship? And then b, why you are not delivering any units to them?

[Duane Hughes:]

Yes. This is Duane, Jeff. Appreciate the question. It is good to talk to you. No, UPS, we got a great relationship with UPS, and the real key was part of the fourth quarter deliveries. We are identified to go to UPS and out in San Diego area, if you will, California. So part of that is under the voucher program and so on. And of course, we notified UPS of our COVID issue and so on in advance so that they would have an understanding of what we are doing. So UPS remains our premier customer, if you will, because they have been along with us for the longest time, they collaborated with us on this C-Series design. They fully understand that using the old, I always call it, 1960s chassis structure as an underlying factor for the old delivery vans doesn’t make sense for moving forward and designing a vehicle in the future. So we feel strong. We are happy where we are with UPS. We will be delivering new vehicles. And the real key for them is us deliver us a high-quality vehicle over and over again, right? We have already been through 345 vehicles with them in the past. We understand their business. We understand how they operate. A lot of what we learned from their business is what we designed into these vehicles. So the first vehicle we deliver them, we want to hit it out of the park, and we want to make sure it is right. So the vehicles that we have delivered to date are all about understanding their performance, do they work for the driver and so on. So we are not using UPS so much as a Guinea pig anymore.

[Jeffrey Osborne:]

That is great to hear. And the last question I had was around the competitive dynamics in the space. So putting aside capital, which clearly, you are well capitalized now, there is other folks that have raised capital in the sector or are raising capital. Can you just talk about the time lines, Duane, of getting the California New York certifications, dealing with the Federal Motor Vehicle Safety Certification. If you had a truck in a prototype ready to go and you have unlimited capital and you are ready to start series production, but you didn’t have any of those items. Can you just talk about what your experience is in getting all of those approvals and certifications? And what that sort of time line would look like for competitors in this sector?

[Duane Hughes:]

Yes. I would say at least when you look at it as a whole, right, and you have got to align the testing environment, which happens in different areas of the country, right. And then those test results are given to another group who ultimately provide it to EPA and CARB, you are looking at least a four to six month process, could be longer based on access to the testing facilities. Actual Dyno test where they are running multiple thousands of miles. We went through the test actually more than once in order to - for example, when we initially did our first test on the extended range vehicle, I think we got in the neighborhood of 152-mile range. And then we made a modification software modification that basically turned one of the two electric motors off when it reaches its not max, but it is continuous speed. In other words, as long as a driver is not releasing the accelerator or stepping on the accelerator, we can turn off a motor to make the vehicle more efficient. And as soon as they release or step on the accelerator, immediately turn that motor back on. So we moved from like 152-mile range to 160-mile range with that change, but we had to go through that testing process a second time. But I think your question is, what is it take to get through the certification processes that are required to do the things that we have done. And I would tell you, I would go back to about a six month time frame from beginning to end.

[Jeffrey Osborne:]

Got it. That is helpful. Thank you.

[Duane Hughes:]

Thank you.

[Operator:]

Thank you. Our next question comes from the line of Mike Shlisky with Colliers Securities. Please proceed with your question.

[Michael Shlisky:]

Hello good morning guys. I have joined on a few minutes late. So what ask you has been already answered, please feel free to refer me to the transcript. First, the Pritchard order, I guess, I’m a little confused about what Pritchard’s role in all is. Are these orders spoken for with end users? Or are they just really an inventory stock up for Pritchard? And if they are a job to actually fund the end users from there?

[Duane Hughes:]

Yes, that is correct. So we appreciate that question, Mike. So Pritchard been a 107-year-old dealership basically out of Iowa. They sell about 30,000 medium-duty trucks a year. Of course, to-date, they have really all been combustion engine vehicles. So they have been getting, A, they are forward-looking dealership that understands that they are going to have to adjust to the market standards. So they did a great deal of research and so on into other vehicles that they could possibly floor plan and sell. But given we are in the medium-duty electric business, particularly in last-mile delivery that extends beyond those sectors. They really viewed us as the first opportunity to reach into that marketplace. So they will find their own end-user customers as they always do. I mean they already have a group. They sell many trucks to FedEx ground contractors as well as beyond that. So that 500 number is a pretty small number in their mind in terms of number of units to sell.

[Michael Shlisky:]

Okay. I also wanted to a few more details on your Q4 outlook here. I guess, first, I’m a little bit concerned where all the vehicles you have planned to build here in Q4 all for FedEx as part of that contract or were there other customers there? And I guess, are you a little worried about customer satisfaction and making sure that you meet their deadlines? I mean it is the holiday season, folks wanted to have their trucks on time to get packages delivered. Were there any reactions from your customers about not having what they needed when they need it?

[Duane Hughes:]

No, it is interesting that, to your point, that is a very logical approach. But in reality, most of these fleets, like the UPSs of the world, right, don’t like taking vehicles in the fourth quarter, typically even leading into Thanksgiving, but particularly after Thanksgiving because November and December and even early January are very busy months for them. So on-boarding new vehicles into their delivery cycles is a somewhat difficult proposition for them. However, as the world changes and things are changing, as they are, all of these fleets, whether it is UPS, DHL and beyond are all willing to work with us for those deliveries. So in some ways, no harm know foul, because it is not something they like to do anyway. But are willing to do it. So more vehicles we get out, we will have a home for them, but we will also be able to make up for our delay, as we said in 2021.

[Michael Shlisky:]

Okay. Maybe when you are going out to find new customers for your vehicles, are you finding that there are additional competitors bidding on some of these packages and that even if they are not necessarily ready today with their vehicles, are they just trying to get out there and get business the way that you are today and can you tell us a little bit about whether other folks’ offerings are price competitive with yours?

[Duane Hughes:]

From what we know and this is Duane again, I would tell you that there is multiple hurdles to get over in order to actually deliver to a customer. The first one is you got to have a vehicle designed and proven to be safe, reliable and so on before you even deliver it. The second part of that is, once you think you have a vehicle that is safe and durable, then you have got to put it through all of the CAFE standards, testings and so on to get through your certification processes, right. Once you are through that and you are able to and start delivering vehicles, that is where you really learn some things. And that is where our vehicles that we delivered between 2015 to 2017 give us a real advantage. One of the keys to success here is learning their business and knowing as much about their business virtually as much about their business, as you know, about your own because you have got to satisfy not just leadership these companies and not just fleet managers, but individual drivers and so on. They have got to feel safe, but not only feel safe, recognize what makes them safer and so on. So putting all of this together, once you put vehicles on the road and you start learning whether it is the performance of the vehicle or where the pedal exists on the floorboard, any number of things, we have and a lot of - I’m going to call them advantages in understanding from the learnings that we have gained over the last five years. So I would tell you, once they are ready to deliver vehicles, then they have got learnings that will come to them about, okay, what is generation two look like for them based on what they just learned out of generation one.

[Michael Shlisky:]

Got it. And perhaps one last one for me. I know you have great Telematics so forth, but have you talked to any of the drivers or users of your most recent vehicles that have just been delivered and gotten their feel for what their view is of the truck and how it is house forming to their standards?

[Duane Hughes:]

Yes. I mean, I would say the most recent customer, and I’m going to let Rob jump in here, but all the customers in reality are getting really positive feedback. I mean everything down to the point where you are talking about a driver who is used to driving this big steel chassis with a big heavy aluminum body and aluminum shelves in it, just the noise alone that is created bumping up and down the road is they are going from stop-to-stop is an incredible amount of deciles of noise in our environment being the composite materials we are and no combustion engine and so on. We have really eliminated a lot of noise at as well beyond just the engine itself. But Rob, do you want to speak to it.

[Robert Willison:]

So in addition, this is the perfect task for EVs and that you have a lot of torque at 0 RPM. It is a perfect condition for electric motor. You don’t have the wear items you do on a ICE based engine. So what we are seeing we sell with total cost of ownership, but the secondary benefits of being in neighborhoods, easy start stop, good visibility, low step in height, these are all huge factors for fleets and so we get a lot of positive feedback. We have always said this is like a big golf cart, and it really is. It is surprisingly easy to drive surprisingly relaxing the drive. So that is the feedback we get. It is almost funny because somebody takes it out for a test drive, they come back, you open the door, they have the biggest smile on their faces, and they say, I can’t believe this. And it really is, as Duane said, these vehicles have been in their forms since the 1950s, this is the next evolution, and it shows with our customer feedback.

[Duane Hughes:]

I think 1 of the testaments one would tell you is we delivered five of those seven vehicles, as Steve said earlier, to Pritchard in Q3, and we are already sitting on a 500-unit order today. I think that speaks volumes as to the - not just the performance of the vehicle, but the overall acceptance of this new generation.

[Michael Shlisky:]

That is outstanding. Thanks so much guys, I will pass it along.

[Duane Hughes:]

Thank you Michel.

[Steve Schrader:]

Thanks Michel.

[Robert Willison:]

Thanks Mike.

[Operator:]

Thank you. Ladies and gentlemen, this concludes our question-and-answer session. I will turn the floor back to Mr. Hughes for any final comments.

[Duane Hughes:]

Thank you for joining us on our call today. We really appreciate you guys. I definitely want to thank our employees, our partners, our investors, for their continued support and we appreciate your continued interest in Workhorse and look forward to updating you on our next call. Thank you, operator.

[Operator:]

Thank you. Thank you for joining us today for Workhorse Group’s Third Quarter 2020 Earnings Conference Call. You may now disconnect your lines.