A warm welcome, both you on the call as well as for you that are participating from the web. My name is Martin Carlesund. I'm the CEO, Evolution. With me today, or with me, I have Jacob Kaplan, our CFO. I will start by commenting our performance during the second quarter of this year. I will then hand over to Jacob, who will closely look at the financials. After that, we will open up for questions. Okay. Let's get started. Operator, let's go to slide number two, please. I'm very happy with the delivery in Q2. Q2 was a very strong quarter. We're seeing strong growth momentum. We are also strengthening our margins. I'm pleased with that. I'm happy. Let's look at some highlights. We have a revenue growth in comparison to last year, 56% to EUR 42.3 million.
We have an EBITDA increase of 81% to EUR 19.2 million. The EBITDA margin is 45% compared to 39% last year. Also, very gladly, we've seen EBIT increase, which is even stronger, amounting to 91% compared to last year, EUR 15.9 million. We see a continued high demand for live casino, successful launch of the Dream Catcher. We have had a successful launch of the Jumbo 7 Jackpot. Besides that, we moved to Nasdaq Stockholm main list, listed as a large cap company, which was a very good and very nice process for us and went very well. After the end of the period, we also have a confirmation from the Georgian authorities that we are okay to operate a live studio in Georgia, Tbilisi. The momentum is exceptional, there are several things contributing to that. I would like to just outline a little bit about that.
We're working successfully with our operators to get the most out of the live operations, and we're using BI to optimize. We're probably one of the strongest BI in the industry right now. Tuning, opening hours, bet limits, product mix, promotions, and so on. We also see that operators are even more promoting live offering as they recognize it being the most strategic, fastest-growing, and most profitable vertical. The underlying growth in the online gaming in general, together with that live actually takes shares or share of live increases in online gaming together with the fact that we're also geographically expanding, guides our growth. It makes the growth driven from multiple dimensions. I also want to mention that we are working hard on the efficiency internally, and we can see some signs of that. Also, of course, with the margin and others.
The last part that I want to mention, which creates this exceptional situation that we have, is that we have put together management which is very strong. We're working hard to be the best organization. Management is delivering. I'm very happy. I see also that the total organization with everyone is coming together towards our goals. I want to humbly say that. It's much more important than many of the things that we talk about here today. Next slide, please. During Q1, we introduced bet spots as an indicator for the activity in our network so that you can get the feeling for what is happening inside the network. It's a way and it's something in line with our urge to actually be more transparent and for you to be better understanding our operation.
We see the activity in form of bet spots increasing 78% year-on-year in Q2. Next slide, please. We have a limited increase in staff the last two quarters when it comes to FTEs. I would like to comment on some of those. We have less growth in number of tables this period compared to last year. The aggressive growth that we saw in combination with the Euro Championship last year was pushing a lot of tables in early, which we don't see this year. Due to that push that we had, we are in a little bit of the consolidation, two quarters consolidation phase, where we see to that we get the right table mix together with our operators, that we tune it, that we have the right staffing and so on.
This higher efficiency, of course, contributes to the margin. It's also worth mentioning that we see an increased demand for exclusive environments second half of 2017. In conjunction with that, it's also worth mentioning that in any situation where we would have a trade-off between growth or margin, we would always go to aggressively seeking that we get growth. Next slide, please. As we are growing 57%, we need place to grow. The new studio supporting that has been evaluated a lot. We have looked at over 10 different countries to find where to put our next top-of-the-line studio to support our continuous growth. After that evaluation, we selected Tbilisi in Georgia. After that, we got the confirmation from the Georgian authorities that we can and not violate any laws by putting the live studio there.
We will start the project to build a fantastic studio in Tbilisi. I foresee that that will cater for our growth with the coming two, three years. I would like to take the opportunity as well to just comment a few things about Tbilisi, just to get the feeling for it. Number of students in Georgia is about 140,000, which is a very good recruiting ground for us compared to Riga, maybe where it's about 84,000. Size of Tbilisi about twice as in comparison to Riga. We also see that the second language in Georgia is, for the young generation, English. We also see Georgia is closing its cooperation with EU, we also notice that they are now removing the visa demands for any travel between EU countries and Georgia. We also note low corruption and crime rates.
We are happy with the selection, this what I mentioned now is of course just a handful of a long list of evaluation points that we have made. Next slide, please. Continued product leadership. I will come back to that, increasing the gap to competition, taking more market shares, that's something that keeps us awake at night. We're paranoid. We want to continue. We want to drive forward. We have released Dream Catcher, a new type of game, never been seen before in live. It's fantastic. It has had a great start. It's a little bit softer game, aiming towards new categories of players. We see good figures from Dream Catcher. We have released the Jumbo 7 Jackpot, EUR 1 million funded by us, we are aiming that to become one of the biggest jackpots.
Gladly, I also want to highlight the fact that we got the 8 consecutive EGR award as the Live Casino Operator. If you have got the prize 8 times in a row, the seventh time coming to the eighth, you're actually more worried than ever. I'm extremely proud that we can announce that we got 8 in a row. It also shows that we are continuously putting the new boundaries, breaking them, putting new boundaries, and we really are increasing the gap to competition. By that, I would like to hand over to Jacob, our CFO, for a closer look at financials.
Thanks, Martin, and good morning to everyone on the call. Operator, we can go to the next slide, please. As Martin just covered, the strong momentum we had coming out of the first quarter has continued also during the second quarter. This makes for an exceptional result in the period, and it's reflected in our broader financial development. As you see in the slide, revenues in Q2 grew 7% quarter-on-quarter compared to the first quarter of this year and 56% year-on-year. EBITDA increased to EUR 19.2 million in Q2. That's up 13% quarter-on-quarter and 81% year-on-year. At the moment, we are seeing very good growth numbers throughout the customer base. Customers who have worked with their Live offerings for a number of years are growing, as well as smaller customers who more recently launched with us.
This indicates an underlying growth in the Live product, but it's also a result of our active work with operators, sharing our best practices and supporting them in getting the maximum out of their investment with Evolution. The broad base for growth is very positive in our view and encouraging as we go into the rest of the year. Margins here illustrated by EBITDA margin are also up during the quarter. 45% is the highest level we've registered in a single quarter. Also here, development from the first quarter, as Martin covered earlier, with a high player activity on existing table has continued, and this supports margins in the quarter. We have also added new tables during the quarter, mostly toward the end of the period. Still not quite at the same pace as last year.
However, we still see high demand for expansion of dedicated environments and expect to add more tables during the second half of the year than during the first six months. It's natural that demand for tables will vary between quarters and also between years. As we said in the past, during times of more rapid expansion in tables, that will pressure margins as we spend up front on recruiting, hiring staff, training, building environments while revenues take some time to develop. As shown during the first half of this year, margins return when growth is a little bit more stable. Forward, I think we repeat the statement we had in Q1 that the rolling 12-month average is around 40, and clearly that's where our expectations start. Looking toward the second half of the year, we should be able to stay clearly above that level.
Let's go to the next slide for a close look at our P&L in the period. Thank you. Revenues in the three-month period, April to June 2017, totaled EUR 42.3 million. As mentioned, that's up 56% compared to the same period last year. For the first half of the year, revenue growth is 58%. Moving down to expenses. Personnel expenses total EUR 17.6 million. That's up almost 49% year-on-year, mainly driven by an increase in the number of game presenters, but also IT engineers and admin staff have increased between the periods. Depreciation is EUR 3.3 million in the quarter, an increase 44% year-on-year. We are net investing at the moment. I will come back to capital expenditure on the next slide a little bit. Moving on, other expenses, that includes rent, consumable equipment, consultants, other advisory costs.
In Q2, roughly EUR 300,000 is related to the list change process that most of you know, and Martin just mentioned, with our transfer from First North to the main listing at Nasdaq Stockholm was completed on the 7th of June. I'm happy about that and also happy about sort of moving on. Tax for the period, EUR 1.3 million. That's mixed with a tax rate of 8%, bringing us the profit for the period of EUR 14.6 million equal to an earnings per share of EUR 0.40 per share, and for the rolling 12-month period, EUR 1.21 per share. Let's go to the next slide. Coming back to investments, the graph to the left shows CapEx just over EUR 4 million in the quarter.
As we mentioned, also last quarter, we will increase CapEx during the second half of the year due to investment in new studios in both Vancouver and in Tbilisi. Also, we are continuing to invest in our building in Riga. That should also be mentioned. This affects mainly tangible investment, where I'm expecting at least double the Q2 level for the second half. In Q2, close to EUR 2 million, that will be at least EUR 4 million in Q3 and probably similar level in Q4. Heavy investments during the second half of the year. We are investing to meet future growth. Operating cash flow is up a little bit in Q2. Cash conversion, fairly steady at 60%, just under 60%. Just a quick look at the balance sheet shows we have a strong financial position at the end of the period.
That was the end of my prepared comments. I'll hand back to Martin for some closing words, and we'll take questions after that. Martin?
Thank you very much. Let's have a little bit look ahead. Next slide, of course. We see continued growth. There is nothing right now that we see or know that is blocking our continuing growth. We're fiercely fighting to do everything to cater for that, setting up Tbilisi, we're going into Canada. We've stated that we're on our way to New Jersey, just finding the right things or how to do it. Of course, we don't know. We haven't gone outside 10 years ahead. Still, nothing that we know will hamper or do anything to our growth. Important. We want to take market shares. We want to continue to be on top. We are paranoid in increasing the gap to our competitors. I think that is the most important gene inside Evolution. We constantly want to move on. We constantly want to do things better.
We constantly. I'm very happy with seeing our company coming together towards these goals. With that, I would like to wrap up and move to the Q&A part of the call.
Ladies and gentlemen, please press 01 on your telephone keypad if you wish to ask a question. 01 on your telephone keypad to ask a question. Please stand by for the first question. The first question comes from the line of Michael Lacin with Carnegie. Please go ahead. Your line is open.
Yes, good morning. Congratulations to a strong quarter, first of all. First question is about Georgia. Can you say something more about the OpEx there, when you will start it? The timing, regulatory political situation in the country. That's first question.
I can comment on that. Martin here. We don't comment on OpEx at the moment when it comes to levels. We have said we are going to set up a top-of-the-line studio, which is really something fabulous to cater for the growth going forward. We are going into an active phase with the project right now. It's a bit too early to state when investments will take place. I wouldn't like to go into that. We have to move from this initial stepping up before commenting on it any further than what Jacob already done, but we see that it will increase. Political situation, the country as such, we see it as stable. There are other operators being there. We have a very positive outlook of Georgia, and we have a very positive outlook on the future development of Georgia.
In comparison to the evaluations we did with a lot of other countries, it came out really strong.
Okay, thanks. Will you set up the start investment in Q3, or is it late this year?
No, it will start in Q3.
Okay, good. When it comes to exclusive environments that you mentioned, a lot of operators want to do that and develop them further. Can you say something more what this means for revenues in the short term, Q3, Q4, and also for headcounts? Is this a significant change in the second half that could hold back more sequentially?
No, it is not a significant change. I would say that it is more the two quarters we have had now with a little bit of consolidation, and then we will probably continue in the same shape or form that we have had before. No significant change. Quite the natural behavior. The table and the expansion, it can vary between quarters, and it is more a comment on the current situation than going forward. No significant change.
Okay, thanks. Can you maybe comment a bit more where you see growth coming in regional terms or geographical terms in Europe? Give some more color on that would be great.
We do not comment on geographical, where our growth is coming from. We do not go out or disclose those figures. I think that basically we stated that U.K. is our largest market, and naturally then lots of growth comes from there. In general, I would say that all markets are growing. Some might be a little bit more, some might be a little bit less, but we do not comment on those deviations between the single markets.
All right, thanks.
Thank you very much. Moving on to the line of Martin Arnell with DNB Markets. Please go ahead. Your line is open.
Yeah. Hi, this is Martin here.
Hi, Martin.
First question is if you can comment anything on near-term trading in Q3, if you have seen these growth levels that we saw in Q2 continuing so far in Q3.
The start of Q3, you mean? Okay.
Yes.
The only comment, I'm sorry for repeating myself, I would rather comment it in the way that we don't know or see any blocking issues for our continuous expansion and growth. We don't, in particular, comment the first days of the third quarter. It's very early.
Okay, thank you. Then for the full year, Jacob, you say that you have this view of rolling 12 months EBITDA margin of about 40%. Could you just clarify if you commented that you expect it to be above 40% for the full year?
Yes, definitely. I think what we said is the same as Q1. Our expectations start there. I think we're higher than 40 in that year. 45 is of course excellent margin in this quarter. We'll see what the rest of the year, how it unfolds. As Martin said, in the situation where there's a trade-off between growing and margin, we will still be investing in growth. Clear for us right now, it's higher than 40, our expectation.
Okay, thanks. Just finally, two questions on customer development. Canada, what's the latest in the development there?
The latest in development in Canada is that it's an ongoing project going according to our plans, internal plans. We haven't really commented on those. Besides that, there is nothing more that I can disclose at the moment.
Okay. Can you say anything when you expect to be live?
I can reiterate what we said earlier. We aim to go live somewhere between late 2017. Potentially could be early 2018, but late 2017.
Okay, perfect. Thanks. Then just final question on your contract in the Netherlands, which you highlight in the report as a key contract. What's your view on the latest regulatory development in the Netherlands, and how do you expect that to impact you?
Of course, I have a view. I have an opinion. I have insights, but it would be highly speculative from my side to comment it. I can't do it. It's a very difficult situation. Lots of parameters. I refrain from comment on that.
Okay. Thank you, guys.
Thank you.
Thank you very much. Moving on to the line of Rasmus Engberg with Handelsbanken. Please go ahead. Your line is open.
Yes. Hi. Good morning.
Hi, Rasmus.
Great report again. Can I start with just a little bit of a nitty-gritty here? For Jacob, probably. The other operating expenses are quite a bit lower than in Q1 in this quarter. Can you sort of just what is it, and also is it unusually high in Q1 or unusually low in Q2, or is that some sort of pattern there? I'm just trying to understand that because it's like EUR 1 million in difference there.
That sort of small million EUR nitty-gritty, but I'll have to come back to you on the specifics of that. There is no sort of big trend shift. I don't have a straight answer there, Rasmus. I'm sorry.
Okay, good.
That means that it was a good question.
When do you anticipate to drive recruitment? Would that tie in with Tbilisi or is it independent of that?
Come again, please.
You have had, as you say, certainly compared to last year, you have had somewhat slower setup of new tables and therefore recruitment and so on. When do you think that will pick up significantly again? Is that waiting for Georgia to open or?
No, I would expect it starting to pick up in Q3.
Not massively, is that what you said, yeah?
It's hard to use these adjectives, massively, strong, or significant. It means different things to different persons, we will see a pick up in Q3.
Yeah. All right. Then coming back to Georgia, I didn't relative to Riga. Also when is it roughly going to be operational? Is it sometime next year?
Yes. That we can state. Sometime next year.
Your ambition is that for the size of the site, is it similar to Riga or is it significant?
I would state it like this, that the potential should be similar to Riga.
Yeah, of course.
I would like to add one thing to that, is that it's also important for us. You don't want to fill the studio to the absolute maximum because the maneuverability inside the studio is then very hard. Probably I also want to have a balance between the different studios, but the potential size of Georgia is the same as Riga.
Okay, good. I think those were my questions. Yes. Thank you.
Thank you very much.
Thank you. Moving on to the line of Christian Hellman, Nordea. Please go ahead. Your line is open.
Hi. Thanks. Few questions. Just the first one on this new KPI that you've started to report in the Q1 report, the bet spots. It was up around 80% this quarter. How should we interpret that relative to your revenue growth?
You should interpret it as that the activity in the network increased 78%. I would be in the long term, I wouldn't really make a connection directly to revenue. It's more an indication of that activity increases in the network.
Okay. There is no indication of pressure on the rev share or anything? If your revenues are up-
No
60% and-
No
activity is up 80%, what's the difference?
No. I wouldn't draw any conclusions from that.
Why?
Activity in the network can vary a lot between quarters and quarters, and it can be a lag, or it can be before, or it can be after. Revenue is one thing and activity is another thing.
Okay. Fine.
In the long run, of course, directionally they'll correlate, but it's not the quarter to quarter indicator in that way.
Okay. I'll wait until we have a few more of those KPIs. I'll do a sort of average on them.
Exactly. I think exactly that is the right conclusion. Give it a little bit more time. We'll probably add some more KPIs. We will try to add the right ones and slowly try to build up a little bit more holistic view on what's happening without them, of course, showing too much to our competitors. That's the balance.
Understandable. Another question on Georgia. Can you comment on the cost level compared to Riga? I'm thinking of wages, rent costs, perhaps, but I guess the wages would, in the long run, be the main cost item. Compared to Riga, what's the difference, if you can give some sort of guidance?
First, before going into the cost, I would say that we are setting it up for expansion. We are setting it up with the same or better quality, or same quality as we have today. Always pushing to develop the quality that we have in Riga, in Malta, in all the other studios it's continuously doing. We're not doing it for the cost level. Secondly, I would say about similar cost levels as Riga, give or take, also because of the scalability and the size of Riga and so on.
Okay. wages are roughly the same in Georgia and Latvia?
I would at least say initially like that.
Okay. in the long term, lower or higher?
It's hard to say. I don't want to comment on it, but naturally, we don't aim for higher costs.
No. All right. The Dream Catcher, which you highlight as a positive in the quarter, can you give some sort of number on the Dream Catcher? Just give us an idea of how it's doing, or is it early days?
It's not that early days that I couldn't do it, we also don't comment on specific games as such. I will say it like this, we had quite high expectations on, or potential belief in Dream Catcher, I would say that it currently fulfills those. That's as much as I can do when it comes to numbers. Maybe we could look at disclosing something next quarter, I don't know. Right now we don't want to do it. It's a bit too early, too sensitive for us, both in competition and other.
Fine. How many Dream Catchers do you have up and running, or is it just one wheel or is it five?
One.
It's one.
It's a huge wheel. It's one.
Okay.
It's one running 24/7. Two times a day, we stop it for overhaul, cleaning, and doing like that. It's a short break, and then we go again. Of course, we're looking into an expansion of potentially more.
Thinking different languages or something.
Yeah
Exclusive tables or wheels.
Yes.
Right. An integrity question before I round off. Mobile revenues, you said it was above 50%. Just for the sake of my model, was it 51% or 50.5% or?
I think it's 52%, actually.
52%. Okay.
Yeah.
Thanks. Just a final question, coming back to margins in the second half of the year. I think I know the answer, but just sort of puzzling together what you've said. On EBITDA level, you're basically saying in Q3 and Q4, or second half of the year combined, margins on EBITDA will be most likely at least above 40%, but below the level of the first half of the year. Is that correct?
We haven't stated that. Let's put it like this. We don't see any blocking. We see continuous growth. We see that we are delivering on a certain level. We are seeing great margins right now. Maybe very strong. Our expectations come from 40%, it should be well above that.
Yes.
We haven't stated if we will be here or there.
All right. Okay. Your expectation is-
That's the only thing we can say on the option.
All right. You're saying that you are going to invest in new tables, picking up in Q3, and tables that initially are margin dilutive. All else equal, at least, margins should come down. Am I missing something?
I'm not worried about the margins.
No, me neither. I'm just sort of.
No
I'm penciling in for the second half of the year, okay. I'll leave it at that. Thanks.
Thank you very much. Moving on to the line of Christer Fåhraeus with Danske Bank. Please go ahead. Your line is open.
Thank you so much.
Hello, Christer.
Hi, guys. I have a couple of questions. On you come that you guys will go live in Canada in, is it second half or later in 2017 or early 2018? Is that when you guys are going to start the studio building of it, or is it when you are going to go live with the first part?
No. It's ongoing right now. Go-live date
That's when you will go live with BCLC, right?
Yes.
Okay, perfect. Just looking, I think Christian touched upon that question as well. How at staff costs, you guys, of course, more tables, you'll go live with a new customer in a new studio. Looking at expansion in staff, how much I presume those are going to be higher compared to first half of this year in terms of relative to sales personnel costs, right?
I'm not sure I got your question there, Christer. Expenses second half, you mean?
I'll try to simplify it. Personnel expenses relative to sales, I guess those are going to come up much more in [inaudible]?
Much more, it's hard to say. We will expand with more, it comes back to the earlier question. I think we're expecting a little higher growth in tables during the second half. That drives recruitment a little bit, personnel will come up along with that. Will margins end up? Of course, this depends a lot on what will the player activity be. We see a good trend right now. As Martin stated, no change in that. I think we will be able to maintain good margins also with expansion in tables during the second half. As we've seen looking at last year, we don't expect to go sub 40 in EBITDA margin as we did the second half of 2016. Not at all. That's not what we're saying.
As you see, the margin kind of varies a little bit, I think right now we're at a little higher level than we were if we look back at last year, but there's no sort of dramatic shift expected in the second half.
Okay, just back to that question. We talked about it before me. Margins, just looking at EBITDA margin in Q3, Q4, I guess those are going to be below 45, but somewhere at least.
We have talked about this 102 times. We have stated we don't see anything hampering our growth. We continue. We don't have anything that explicitly would deteriorate the margin. We reiterate what was stated in Q1. Our expectations on margins start at 40%, where it will be in Q3, Q4 is dependent on a couple of things, there's nothing that is stopping us from delivering a very good margin as we are doing now. It's very hard to pin that down if it's going to be here or there. We reiterate, our expectation starts at 40%, we continue our growth pattern. It's very hard. I know that you want sort of to put down a figure, it's very hard to do that.
All right.
Even if you ask us a couple of more times, we can't give you that figure. I'm sorry.
That's fine. Thank you so much for just clarifying it for the hundredth time. Lastly, on the seasonality effects on top-line, is there something, is Q3 going to be, I guess, slow in terms of activity, or not slow but relatively slow, or do we see good top-line growth both in Q3, Q4?
Seasonality will be strong in Q3, Q4. That is sure. We have also to remember we had a really strong Q3, Q4 last year, so comparable. The seasonality will be strong Q3, Q4. I would say that from that note, Christer, we are on Q2 much stronger this year naturally than last year in comparison to Q1.
Yeah.
We are, as we have talked about, growing through the seasonality clearly in Q2, and that is extremely strong.
I agree. Just to clarify it or simplify it for myself, I guess Q3 in terms of activity, slightly lower, and then it picks up much better in Q4. Just to simplify it.
Come again. I'm not very, sorry.
I was just thinking of activity and seasonality in Q3, Q4. I guess slightly lower in Q3 and then picks up in Q4 in terms of activity.
If we leave Evolution, General Online seasonality would be like strongest month is December, January, February coming down due to figures. It goes down, I would say that end of Q1 and Q2 is the slowest for sure, Q2 then is the slowest quarter. You see a pickup in Q3 and a pickup in Q4.
I see.
Q3, I would say, in general terms, being a stronger quarter than Q2.
Perfect. That's it for me. Thank you so much for-
Thank you very much
the presentation.
Thank you very much.
Thank you. Moving on to the line of Rasmus Engberg with Handelsbanken. Please go ahead. Your line is open.
Yeah, hi. I'm not going to talk to you with any margin questions. I just had a reflection on one thing which I find very interesting is this concept of pool jackpots. Is that possible to expand to others outside of poker? Is it something that you have thought about?
Yes and yes.
We have not only thought about it, but we created the fundament, I wouldn't use platform, but the piece of software, the jackpot software to be able to also use that for other products.
We have a plan to do so.
Yeah. Just on that matter, is it for you, is that a pool where you pool the money from several operators? Is that how it's going to work?
Correct
With this? Yeah. Right.
Correct.
Very good. Sounds extremely interesting, I think.
Yes. You can, of course, as an operator, decide to be part of it or not, naturally. It's a very good business model. We expect the jackpot to grow phenomenally well, of course, and its stickiness. That is a way for us to leverage on the liquidity we have in our network-
Yes
Which is something unique as the players pool into this jackpot. We're very happy with that.
Very good. Thank you.
Thank you.
Thank you. No further questions in queue. With that, I would like to return the conference call to the speakers.
Thank you very much.
Thank you. We have received one question regarding price pressure in general. Maybe you want to comment on that, if we see any price pressure in the segments.
Yes, I can comment on that. There is this question in mail on the price pressure in general. I would say that we don't see any general price pressure. We don't feel that. Naturally, as the large customers are growing, we feel a pressure as always from those negotiating, renegotiating the terms. I would say that there we can see that we are pressured on the margin in comparison to our total margin, where of the lower segments, the other one are contributing much more where the smaller operators are simply paying a little bit higher fee. No general price pressure. Naturally, as customers double and double again, they are negotiating hard, and we see a net contribution from the lower tiers, which is higher to the margin. That's a bit it. Do you want to add anything, Jacob?
No.
I would like to thank everyone for participating, and I hope that you found it informative. Again, I will reiterate, I'm very proud of the quarter. I look forward to the next quarter and the next one after that. I hope you enjoy the rest of the summer. Thank you very much.
Ladies and gentlemen.