Earnings Call: Q2 2019

Jan 28, 2019

Good afternoon, and welcome to the Ethan Allen 2009 in fiscal Second Quarter Earnings Release Conference Call. All lines have been placed on mute to prevent background noise. After the speakers in March there will be a question and answer session. It is now my pleasure to introduce your host, Corey Whiteley, Executive Vice President, Administration and CFO. Thank you. You may begin. Thank you, Rafael. Good afternoon and welcome to Ethan Allen's conference call for our second quarter ended December 31, 2018. This conference call is being recorded and webcast live on Ethanolen.com, where you will also find our press release, contain supporting details, including reconciliations of non GAAP information referred to in the release and on this call. As a reminder, our comments today will include forward looking statements that are subject to risks and uncertainties, which could cause actual results to differ materially. Please refer to our SEC filings for a complete review of those risks. The company assumes no obligation to update or revise any forward looking matters discussed during this call. After I provide some brief details on the financial results, our Chairman and CEO, Faroo Cafore, will provide updates on the business and on our ongoing growth initiatives. We'll then open up the telephone lines Our consolidated net sales for our fiscal 2019 second quarter of $197,200,000 compared to $198,500,000 in the prior year and we ended the 1st 6 months of the fiscal year with a consolidated net sales increase of 1.4% despite challenging macroeconomic conditions. Our strong retail net sales of $158,500,000 compared to $153,000,000 in the prior year and resulted in net profitability Our retail segment has in driving increased profitability. Wholesale net sales of 100 and 7,700,000 compared to 118,000,000 in the prior year quarter. During the previous year, 2nd quarter wholesale sales were at elevated levels as the shipping delays and high order backlogs from the prior year first quarter were getting caught up during the second quarter. This year, the wholesale segment order backlog levels in the first quarter were at normal levels as our manufacturing running much more efficiently this year with no shipping delays. Wholesale experienced a 31% decrease in international sales. Compared to the prior GSA pricing. We provided these extraordinary discounts in order to win important GSA bids, while another tory during their bankruptcy. Consolidated gross margin for the quarter was 55.2% compared to 54.3%. Retail sales as a percent of total consolidated sales was 80.4% for the quarter compared to 77.1% in the prior year quarter, increasing our consolidated gross margin expenses were $92,400,000. The 2.1% increase in adjusted operating expenses was primarily due to distribution costs increases, and increased variable costs at retail, partly offset by a decrease in advertising. Year to date, advertising is running about 4.1% of sales. For the quarter, the operating margin was GAAP EPS was $0.45 per share for the 2nd quarter compared to $0.54 per share in the prior year period. Adjusted EPS was $0.46 per share compared to $0.53 per share. The tax rate for the second With the effects of the 2017 Tax Act on last year's income normalized to the current year rate, comparative adjusted EPS would have been $0.45 per diluted share in the prior year period. Turning to the balance sheet. During the quarter, we paid $5,100,000 to dividends and ended the quarter with cash securities of $38,800,000 with no bank debt outstanding. With that, I'll turn the call over to Farooq. Alright, Corey. Thank you. As mentioned in our press release, Our unique vertically integrated structure provides us an opportunity to differentiate and grow both sales and profits. Our key initiatives include: expanding reach through new products. Recent introductions include Artisan, a more modern in style, smaller in scale, simpler and linear, Uptown, transitional, updated, take on traditional dressier in style, passport, global in style, and distressed finishes. This spring, introducing relaxed modern which is transitional in style with classic forms reinterpreted in a casual manner. These designs project a diversity of style in an eclectic fashion to attract a larger audience. All our products are developed with a consistent level of superior quality. These new products gives us an opportunity to expand our customer base. Our next important focus is always on talent. Our vertically integrated structure requires talent in many diverse areas from managing a sawmill in the northeast Vermont to manufacturing locations in North America to a retail network logistics network and teams to develop various aspects of marketing, merchandising and also managing operations. A major strength includes our 1500 interior design associates who take a customer and convert them to a long term client. The continued positioning of design centers to more relevant locations is ongoing. During last 15 years, over 60% of the 200 design centers in North America have been relocated. The company operates 150 of the 200 locations. Recently opened new design centers in Denver, Colorado, and under construction, our design centers, all relocations in Albany, New York, Coralville, Iowa, Tysons, Corner, Virginia, and Ann Arbor, Michigan. Internationally, last 3 months, we opened a large flagship design center with our licensee in Wuhan, China, and also a new design center in Braun Pen, Cambodia. Expanding our integrated marketing initiatives are critical. These include continued utilization of direct mail. In the in fiscal 2019, this last 6 months, we mailed about 10,000,000 copies of our direct mail magazine. Also expanded reach through digital campaigns. We are also implementing and advanced version of a CRM, a customer relationship management program. Continued focus on improving efficiency of manufacturing and logistics, with 70% of furniture made in our North American workshops. Our National Logistics delivers products in North America at landed costs, and our retail logistics delivers in a white cloud service to clients, resulting in excellent service and control on returns. We believe that our manufacturing and logistics create gives us a competitive advantage. We also continue to focus on on conducting our enterprise in a socially responsible manner, including environmental, health, safety management. With this brief introduction, I'm pleased to open for questions or comments. And Rafael, we'll go ahead and open the lines. Yes, sir. Thank you. Your first question comes from the line of Jeremy Hamblin from Dougherty And Co. Your line is open. Yeah. Hello, Jeremy. Hi. Good evening. Thanks for taking the questions. I wanted to start by seeing if we could get some color here on the wholesale division, that looks like that was, probably the significant difference between expectations and final results. In terms of the GSA contract, I had 2 things I was hoping you could provide color on. The first is you noted that, that, you know, the, the Drexel or the Heritage, bankruptcy led to some discounting to continue to win, that contract. They've kind of gone through their bankruptcy proceedings at this point in time. But what type of impact is that going to have going forward on Q3 and Q4 results? That's part 1. And then part 2 is, obviously, the, you know, with the government shutdown, you know, over the past month, what type of impact is more specific color? Jeremy, good questions. The state department bidding as Corey just mentioned, had an impact both on the top line and on the bottom line because these were basically provided almost at cost with the result was that if it had our normal gross margins, the sales would have increased as well as operating margins would have increased. Now the good news is that most of this has already been delivered. So the orders that we have been getting in the last month, 2 months, and they've been pretty good. Are we are now getting them at our regular gross margins. And they will be delivered in the our 3rd fourth quarter we should help us Okay. So can you give more specifics on in terms of Corey? Can you help us on, on the total amount of back log on that state department contract at the end of Q2? Jeremy, I don't think based upon our agreements with the GSA, we are able to give all those numbers out. But I've, as I said, I can use the word. It is good. It is strong. And this is going to help us both at the top line and at the and we'll be able to recoup our margins that we lost in the in our second quarter. And maybe just to clarify a little bit on the volume hasn't been really substantially impacted because of the government shutdown. Oh, yes. The government has not interestingly this whole this whole area, this whole division. Was impacted to some degree, but not much. The good news is now they are back. So they are actually, they were just a little bit slow in sending orders but now starting actually even today, they're very busy. So I think that we did get they did not stop the orders coming in. They've just slowed slowed them down. Okay. So you're saying that you expect the state department related contract to be up on a year over year basis in Q3 and in Q4. Yes, right. Both, both in terms of sales, because as you, as we discussed, let us assume that in, let's say, let's say, a $1,000,000 and when you give it a cost or show you're talking of, taking off 30% on sales and 30% on operating margins. That's what it really means, or maybe 30% plus, but that's the impact of that. And even with the discounts, they were up for the 2nd quarter. I shouldn't make too much of on them, but they were just slightly up on the second quarter. And keep in mind, the previous year also, we were impacted because of that was the year when we were, we were shipping the products where the sales were at a higher number, but the margins were impacted because we had to ship a lot of product, if you recall, the second quarter and the previous year, we had to ship a lot of product in a very short period of time, which impacted our efficiencies and even deliveries to the rest of our retail network. That was not the case this second quarter of this fiscal year. Okay. And then, and just another, a follow-up question here on the wholesale segment. I think what I caught in your prepared remarks was that, did you say the China sales in China were down 31%. I'm sorry, do you want to go ahead? And just Could you provide some color or can you clarify that in terms of China? And then you also noted, that you saw your business in Canada down at retail as well. I'm just hoping you can provide a little more color on the international side of your business. Jeremy, let me give a basic overview and then Cory can add on. In China was impacted, as we know, by a number of factors. 1st, Chinese economy has slowed down. Secondly, the tariff situation also created a big problem. They held up. They were not sure whether it was going to be 25% So we had to also work very hard in trying to determine what should we do? Where should the product be made in our operation should be made in Mexico in Honduras. So all of this created a lot of confusion. And so the result was they were holding up orders we also had to determine the source of manufacturing. And so the combination of the garment, I mean, this whole issue of the taxes and as well as somewhat of a slowdown in China had an impact. Now the good news is that our Chinese economy still is not as strong as it was, but there is somewhat of a less of a concern on the question about these tariffs because it looks like we didn't I mean, we didn't go to the 35%, which was a concern last quarter. It's now about 10% So 10% is a little bit more tolerable. And then to clarify, Jeremy, on the wholesale, the 31% referred to both China as well as Canada, as for the wholesale component of the of Canada. So Canada impacted wholesale and of course, it also impacted retail at the retail sales level. And Jeremy, just again, in Canada, the same situation was there. For the beginning of the quarter, there was a lot of concern on the fact of tariffs on, on American products to China. So people got concerned. They were holding up. On the second thing is in the China, in Canada, especially on the West Coast of Canada, which is the same situation in the West Coast of the United States. Chinese residents also for a number of reasons slowed down their purchases, which have been a pretty good important customer base for the whole coastline from Vancouver down to San Diego. So that was another factor. Okay. So the potential for 25 percent tariffs in 2019 slowed orders at the end of 2018, like in your second quarter? Yes, right. Because that's really when the whole thing was implemented or they were talking about the question of having a 25% tariff. And this was the tariffs was supposed to start on January 1st. Then later on, they decided to hold off the implementing the 25 percent tariff. It created a lot of confusion. Okay. Thanks for taking the questions. I'll hop back in the queue. All right. Thank you. Your next question comes from the line of Christine Fernandez from Telsey Advisory Group. Your line is open. Yeah. Hello, Christina. Hi, good afternoon. I wanted to ask about the cadence of the order intake during the quarter. It was down 3% to 4%. Can you walk us through why you saw just given that you had ended the prior quarter on an increase note, it seemed like it was a little bit more volatile here. Yes, it's a good, it's an interesting situation that developed that we were up in November. We were doing extremely well to the middle of December. And then all of a sudden with the issue with the issue of number of factors, the stock markets were drowned substantially, the, the, the, the government shutdown, the tariffs, you could, we could see it that customers rarely held back in the last and most of our this change took place in the last 2 weeks of December And as we said in our press release, the good news is that in January, people started coming back, and we've had sequentially increase in traffic. In our design centers so far in January. Okay. Thanks. So a second question was on the on the gross margin, it was up 90 basis points even with a lot of that pressure from the government contracts being low margin. Can you help us understand what were the drivers of that, expansion? As Corey mentioned, one of the main one was the relative increase, the percentage of retail sales to total sales. When that happens, Corey said what is 80%? For? 80.4% versus 77%. So as you know, the retail gross margins are much, much higher. And that had an impact. And the other factor is, I'll just mention it that our operating margins were impacted also by not only somewhat lower volume, but also higher freight costs that we had to, that we had to somehow towards the end of the year, there was a lot of freight costs that we had to incur. But having said all of this, another important thing is this would show the leverage of our business that our that our retail sales increased during the quarter. There's a delivered sale by 3.6% and our operating margin went to a positive 2.2% versus a negative 2.1%. That's a major thing, because I've always said, that our business has leverage on both sides. So similarly, our, our operating margins at, you know, 8.3% is for in our industry, that's on the more or less toward the middle or the higher side. But for us, it's on the lower side. So I think that leverage we have on both sides, on operating side, as well as on our retail division is pretty good leverage. Being a vertically integrated company, we get impacted both ways. When sales are somewhat down, it impacts our operation, retail. It affects our manufacturing, our solvents, everything. But on the other hand, with even a slight increase, we have an opportunity and ability to take our operating margins. And I would say that many years back, our operating margin was much much higher, but going from 8, I mean, going up to 10% or so with some increase in volume is within reach. Thanks. And one last question for me. Marketing spend based on my calculation seemed like it was down about over 20% this quarter. Can you confirm that and how should we think about the marketing spend going forward? Against the pretty big increases you saw last year? Yes, I mean, this quarter, we spent about 3.8% versus 4.3% the previous year quarter. And I and if you go to the 1st, the third quarter of last year, we spent 7.6 percent. So it will be lower and it will be closer to 4% or in that range as against 7.6 sent because that was a very we spent a fair amount of money last year in 3rd 4th quarters. Thank you. Your next question comes from the line of Justin Bergner from Gabelli And Company. Your line is open. Yeah. Hi there, Justin. How are you? Good. How are you doing, Farooq? How are you Corey? Disappeared. I know where you where you have been. These things happen. So I wanted to ask about the comment in the press release about January traffic or January, activity improving. Is that supposed to suggest that January traffic or, you know, some sort of comp or orders number was positive in January or just that it was sort of less negative than what you saw in the 2nd quarter? January, we compare it to the January of the previous year. And when we say it's positive, it's positive to the January of the previous year, not to this last, not to our 2nd quarter. And Now as you know, the line, the next 3, 4 days are critical because that's when a lot of our business is closed, what the positive trends have been, as I said, in December, last last 2 weeks in December, we just saw people just held, held back So in January, progressively, they have started to come back. So traffic has increased and has increased compared to the previous year, not to the 2nd quarter. Okay. Great. So it is a traffic metric. That's helpful. And then are you able to quantify how much higher transportation costs or how much higher transportation costs net of what you were able to recover impacted margins in the quarter? You know, Corey will tell you, but the impact of this was on several fronts. Impact of it was, for instance, on the transportation of products from the East Coast to the West Coast. So that is taken by our logistics division. The costs also increased from some of the shipments from, Mexico and Honduras to the United States. The costs increased also at the retail level in terms of the additional costs that our retail had to pay in delivering to the consumer's home. So if you take it at all different levels, Corey, you haven't given any numbers? It's over $1,000,000 in the wholesale side. Then because the volume at retail, the Virgo component for the home delivery, that also increased what we're seeing is higher costs and drivers in contract carriers and, and in the fuel. So it's and across the board. We also have shipped a little bit more on a ground basis versus on a rail basis just because of the service levels and the timing that rail has grown to. Also, Justin, as we were talking earlier about the state department contract, So we shipped a lot of this product because, of course, we are taking it to lower margins, but we pay the freight from our distribution centers to the ports And so with very little margin, we have to bear that too. But going forward with the higher margins, we'll be able to take it in. Okay, great. And if any of those shipping pressures eased or if not yet? It's a little bit too early, but I think that you know, I'm just I'm just making a judgment that business overall, I think people are somewhat more somewhat softer when we're doing all right. I mean, our business, as I said, January was positive. It depends on how the overall economies of the business is. If that is the case, then there'll be less pressures in the last, in the second quarter, there was a lot of, lot of demand for shipments. And So we will see. So at this stage, we are just counting on whatever we spend in the first, in the last two quarters. Okay. And then lastly, just could you maybe say a few more words about the relaxed modern product line that's coming out this spring? Yes. Well, I hope you are able to come next month to Danbury, which you really should because this is a beautiful, beautiful program. And I think that is good that you raised it, our objective really has been to expand our reach so that we our brand is similar. I using an example of BMW of Mercedes, but these great companies have taken a brand and expanded their reach to, you might say, younger people or even folks who are interested in products that are somewhat smaller in scale. Similar to that, there's products that we have been introducing, whether it's an artisan or whether it is this new modern, it reflects an attitude like great automobile companies created a 3 and a 5 and a 7. This you might just say is a 3. We already had a 5 and a 7 So this will expand our reach and we're going to market it in a very, in a manner, so people will understand the today at Ethanol and we have an opportunity of reaching a wider consumer base, but maintaining our quality and great design. Okay, great. Thank you so much for taking my questions. And we have a follow-up question from the line of Jeremy Hamblin from Dougherty And Company. Your line is open. Yeah. Hello, Jeremy. Yeah. Thanks for taking the follow-up. I wanted to just ask about the operating expenses, $92,700,000. In terms of the increase, could you quantify, that's about 2,500,000 dollars up year over year, of that increase, how much of that was related to the wholesale distribution costs, versus the increased variable costs at retail. Cory? Yes. Retail had about $1,100,000 of increased costs much of it was variable. And, and then you take, you could take $1,000,000 of the distribution expenses on the wholesale side. And then there were some other minor costs. So at a high level, that's how I would look at it, Jeremy. Jeremy, as Corey said, half of that is due to the increase in sales and deliveries of retail and the other half is basically, as we mentioned, increased, I mean, distribution and trucking costs. Okay. And where does the the where do the distribution costs stand today compared to where they were in Q2? We know that there's been some tightness out there and terms of the trucking systems across the country? I think it's more or less similar. We are watching it very carefully. We did this give, I mean, I'm giving too many details, but we decided also in the second quarter to ship products from the East Coast to the West Coast by by rail because of Christmas holidays and everything else. So we decided that that was an important thing to do that I most probably added $500,000 to our costs in the 2nd quarter Right now having no Christmas in this quarter, we're not going to do that. That's like truck versus rail and the truck is higher than the rail. $500,000 cost Jeremy on that, just in the last quarter. And that's all part of the demand. Rail has taken longer. And for those holiday deliveries, we really wanted to while the customer with the very speedy delivery. So in terms of looking forward here back half of the year, as your kind of baseline G and A run rate closer to this $92,000,000 to $93,000,000 range or closer to the $90,000,000 that you saw in Q1? Jeremy, yes, keep in mind, of course, everyone can make an assumption. It also is a factor of how much, if you whether you're considering flat business because our operating costs, especially at the retail division, are variable, especially both in terms of the compensation to our designers as well as the delivery costs is based upon is a variable cost based on sales. So depends on what you use, you can then use your judgment based upon based on that, you can use the numbers, but they are variable costs, if you give me Understood. If all else is equal, if your sales were exactly the same and the split between retail and wholesale were exactly the same as last year for Q3 and Q4, what would that translate? Well, it will translate in the wholesale side at least $500,000 less. And on the retail side about the same. On a year over year basis? No. Under quarter. Just in the just in the 1 quarter, right? Right. Compared to Q2 or compared to Q2. Okay. So about $92,000,000 seems to be the baseline run rate? Yes, that $91,000,000 to $92,000,000. It's going to depend on where freight after you finally comes in at. And Oh, Jeremy 92 is fine. Alright. Okay. No. I'm just trying to clarify so that we can It could be a little bit lower, Jeremy. Understood. Okay, thanks for taking the follow-up guys. Good luck. Got it. Thank you. Your next question comes from the line of Ian Dominguez from Sean Field. Your line is open. All right. Thanks for the question. 2, I guess, 2 actually. 1 is on, I guess, in the Q, it mentions a release of intercompany profit. Previously held in inventory, that served to increase gross profit by $1,100,000. Can you just explain, how that works And then second, on, lease accounting, the ASU 2016 dash 2, I also noticed in the queue, it says expects company expects will have a material impact on our consolidated balance sheet Can you just outline early thoughts as to what that exactly looks like in terms of the material impact? Thank you. Sure Ian, this is Corey. On the, on the inventory side is really what kind of drives the release of that intercompany profit. So our inventory, that we held at December 31st, was about $6,500,000 less than where it was at the end of the prior quarter. So when we leave that inventory, we captured the embedded wholesale profit at the time that retail relieves it. So that's the capture. So as inventory decreases, we get the capture of the profit as inventory increases then it kind of works the other way and the profits held until it's sold. On the lease accounting, in our 10 K, we have about 175,000,000 lease obligations. So under the lease accounting rules, we'll net present value that and throw it up as an asset with of course bonding liability on the balance sheet. There's really no P and L impact as a result of the lease accounting change, just primarily be the asset and the liability, basically at a net present value at a high level. Thank you. Your next question comes from the line of Brett Reese from Janney. Your line is open. Yes, thank you for the opportunity to ask a question or 2. Do you give out net store count figures and is it a metric that even one should pay attention to? Yes, we give out our accounts It's a it was in the press release also, but at the end of the quarter, our company operated, we had 146 design centers and, 305 in total with our independence. And that compared to last year, our retail had a 148 so there was also a difference in total store count, which had an impact on the difference in total written sales. Okay. But you mentioned the 3 or 4 that you're planning to open. Do do you at year end, do you think you're going to wind up the year with more or less, you know, design centers? Yes, you know, it's a good question. Because our focus has been to reposition all these all these locations that I talked about are basically relocations. Keep in mind that our historically all the design centers about or almost 95%, 98%, fifteen years back were operated by our licensees. And then as they retired and we took them over, then these stores had been opened up in the 1960s 70s, and we started relocating them. So the total number would more or less stay the same. In some cases, when we close before we determine that we may have another location close by, which will get the business. So we don't we look at it very carefully, whether it is going to have any major negative impact. If we don't, then one location is better than 2, if it can do the business. That's we have also been consolidating that way. But all the ones that we have listed today that we are going to open are relocations. Okay. Could you talk to me a little bit about your design consultants, you have 1500. Is there a great, is there a low or high turnover of these people and with unemployment being so low, if somebody leaves, are are they hard to replace? And and what's the timetable on a, on a learning curve for a design consultant to, you know, to come up to speed. Yes. Again, a very, very important relative question, which we deal with all the time. The 1500 designers, where our turnover is very, very low. These, these designers are, I would say, the vast, vast majority have come through many years of being associated with Ethan Allen. And we have also been able to get many interior designers who ran their own businesses. And they come and join us because under our umbrella, they have the ability to operate a business for interior design in an entrepreneurial manner, but also disciplined. They get the benefits of being an employee but they also have the benefit of being an entrepreneur because their compensation is based on the business that they do. Yes, there has been some pressures because of the economy. On the other hand, the many businesses that were involved with interior design are no longer existing. So there are not that many companies left over there that do what we do. And so we have the opportunity of getting a really strong interior designer to come and join us. Right. Right. Oh, that's helpful. I appreciate that. And how correlated is your business to, new housing sales. You know, they've been soft the last, you know, couple of reported, you know, data points on that. Is, is are you Is there, a 1, what's the correlation there, you know, in your experience? No, I understand. It is not necessarily one to one. Because in our case, really, the more important factor is consumer confidence. If consumer confidence is impacted as it was with, for instance, with this, the stock market being down or the shutdowns and all these external factors makes people hold up. Obviously, we do have an impact, a longer term impact with the housing, but this is not immediate for us. Because, we are not dependent on necessarily only new homes. A lot of our business does comes from existing homes, where people are redecating. So we don't see it immediate impact. Of course, longer term, it does have some impact. Right. Right. Now in in my own business, it's been a challenge, you know, to reach out and and curry favor and win business from millennials. It seems in in looking at your business, you're having the same challenges. Can you talk to me a little bit about how that how that going? And how are you gonna hit the, you know, hit the right buttons there? You know, that's a it's an important issue. Certainly, and I I was referring to it earlier question, I think it was Justin, when he talks about the and asked me the question about our newest product program, we introduced that we introduced last last last year, this last quarter called Artisan, and he asked about that. And I answered that our objective has been to expand our reach. And our objective has been to expand our reach in a manner that is consistent for us, you know, in our industry and many, many industries, I'm just using the auto industry many years back General Motors to expand the reach they develop to a lot of different brands. Similarly, some furniture car home companies have developed a lot of different brands. We've felt that with our one brand, Ethan Allen, is a brand that as well is desired. Is well known. And obviously, it has been known somewhat for, you might say, the folks, not necessarily the millennials of the younger folks. Our objective has been to reach them, but reach them in a manner that would be consistent in maintaining quality, maintaining good design, but an offering folks design and a price point that would be somewhat more compatible without taking off similar to, as I mentioned earlier, companies like Mercedes and BMW and Audi have been able to do. So you're going to see us being much more focused in reaching out to folks, millennials as well as everybody else that today Ethan Allen has the opportunity of reaching a larger consumer base with our offerings in design, in quality price points, yet we're going to maintain great quality. And you're going to see a lot more of that as we go forward. And we have a follow-up question from the line of Justin Bergner from Gabelli And Company. Your line is open. Hi, again. Just a quick, a couple of clarification questions. The adjustments that you took to your adjusted results in the quarter, it seems to include, an, I guess, asset purchase cost in your I assume your retail, retail asset purchase costs, what's that? Go ahead, Carter. Yes, that was associated with a location where we had a retailer that retired and we acquired some of those assets and are continuing to operate in that market. So there are certain costs that are incurred during that process. So an independent became company owned? Yes. Yes, that's the one that shows as a transfer on the, the design center chart in the back This is a very great family in San Jose for the last 50, 60 years, the 2nd generation retired. I've known them for a long time, we sat down and like we've done with all these other folks. So we took it over just last, last, I think, or December. In December, December, end of the month. Yeah. And so that $160,000 that represents the entire cost to bring them in? No, that just represents a certain cost that go around the acquisition related activities, not, seeing inventory? No, that's the main cost is inventory and that we of course take into inventory. Yes, that's just a basic asset purchase. With our operating cash flows. Okay. And then the wholesale, sorry, the international being down 31%, that is mainly China and Canada, but there are some other markets in there too, right? There are, especially the Middle East. They've been down too. As you can see, the situation in Saudi Arabia and Dubai Kathar, Kuwait, John, they all they all have been impacted. The good news is they're all motivated. They want to they're still operating it. They want to keep it going, but they had a tough time in the last with all the problems that are that's taking place in the Middle East. Okay. And then lastly, the special dividend obviously was just paid out $1 per share. Does that sort of exhaust your cash return for this current fiscal year? Or, is it still, you know, possible that we could see share repurchases pick back up? Well, we just declared our we just also announce our today, our regular dividend. So we'll continue with the regular dividend. Then we will see what we need to do. We have continuously purchased, as you know, we purchased 42% of the company back. I just got to make sure that we have no We got to also watch the float over there. But we have been doing both things. We have been buying shares. We have been paying a bit half a $1,000,000,000 of dividends since we took this company private. We invested about an almost $800,000,000 in capital expenditures. So we have been fortunate so far been able to buy our shares back, pay a lot of dividends, invest in the company. And at this stage, the up state basically, we have used up most of the cash, Justin. So we got to build the cash back up. Okay. Thank you. All right. And there are no further questions at this time. For starters, please continue. All right. Thanks very much and good to have good to have everybody on the call. And if there are any questions, please, please let us know. Thanks very much. This concludes today's conference call. You may now disconnect.