Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Natuzzi 2023 Second Quarter and First Half Financial Results Conference Call. As a reminder, anyone who'd like to join the conference via telephone may do so by dialing 1-412-717-9633, then passcode 39252103 pound, in addition to the link already provided to join via video. As a reminder, if you'd like to join via telephone, it's +1-412-717-9633, then passcode 39252103 pound, in addition to the link already provided. At this time, all participants are in listen-only mode. Following the introduction, we'll conduct a question and answer session. Instructions will be provided at that time to queue up for questions.
Joining us on today's call are Mr. Antonio Achille, Natuzzi's Chief Executive Officer, Mr. Carlo Silvestri, Chief Financial Officer of the Natuzzi Group, Mr. Pasquale Natuzzi, Founder and Executive Chairman, then Mr. Jason Camp, Senior Vice President, Retail for the North American market, and Piero Direnzo, Investor Relations. As a reminder, today's call is being recorded. I'd now like to turn the conference call over to Piero. Please go ahead.
Thank you, Kevin, and good day to everyone. Thank you for joining the Natuzzi conference call for the 2023 second quarter and first half financial results. After a brief introduction, we will give room to a Q&A session. Before proceeding, we would like to advise our listeners that our discussion today could contain certain statements that constitute forward-looking statements under the U.S. securities laws. Obviously, actual results might differ materially from those in the forward-looking statements because of risks and uncertainties that can affect our results of operations and financial conditions. Please refer to our most recent annual report on Form 20-F filed with the U.S. Securities and Exchange Commission for a complete review of those risks. The company assumes no obligation to update or revise any forward-looking matters discussed during this call.
Now, I would like to turn the call over to the company's Chief Executive Officer. Please, Antonio.
Thank you, Piero, and thank you everyone to join our second quarter press release on 2023 results. Let me start by providing some facts about the markets. I believe the fact that most analysts in our sector still refer to 2019 to compare 2023 data speak by itself. We've been through an unprecedented cycle that brought the sector to potentially one of the most positive momentum in its finance to a very difficult situation. If we look at what's happening around the globe in the real estate market, we do see sign of enduring uncertainty.
I believe everyone is read with interest of the news about the CEO of Evergrande being de facto put under, you know, physical restriction. We do see that the continuing tension on the debt side because of the high interest limits the purchase on new houses, which is a primary driver for the industry. I want to share these elements to put in perspective our 2023 second quarter performances. As you've seen by now, unfortunately, our top line has been suffering versus 2022 quite seriously in term of decrease and also in the term of sales, total sales, we are below 2019.
I think that it's still important to notice that if we look at the branded invoice sales, which is, in a sense, the strategic direction the company is heading to, the sales are above 2019, so above 5%, 2019. Currently, our business is composed by more than 90% by brand sales, which means sales which are done under the name Natuzzi Italia or Natuzzi Editions, which are our dominant brands. This is important to us because we stated clearly in our long-term strategy that we are here to fully leverage the strengths of the brand of the company and act in more high price point segment of the market.
Another element which is important to share is that despite the very low sales, we have been working to compensate at the gross margin level, the tension on production cost, which has been necessarily higher because of lower optimization of our factory. As you know, Natuzzi is a manutailer which means which is vertically integrated, which means we have fixed cost, not only in retail, but also in the factories. So despite the non-saturation of our factory, we achieved 36.4 gross margin compared to 31.4 in 2022. And again, looking at a normalized year, 27.8 in 2018. So versus 2019, the company increased by 9% the gross margin, despite the impact of production on production cost of reduced sales volumes. How this has been achieved.
This has been achieved by a better discipline in terms of pricing and a better cost management. In 2023, we didn't do any price increase. The last price increase was put in place in June of 2022 in the U.S. and Eastern. So it's almost one year we didn't do any price increase, even more than one year. But what we've done, especially in 2022, has been carefully looking at all our price list to make sure there was no situation in which a specific market or specific partner benefited from price condition, not allowing us an adequate marginality. In terms of cost, we of course did a lot of effort to contain the cost of our raw material and utilization of our raw material.
I remind you that gross margin does not include the cost of transportation, which has been deflationary this year, but, in this gross margin, we don't take an apprentice for that. So these allow us to achieve, in second quarter 2023, an operating breakeven. I think it's important to notice that this compare with, for instance, 2019, a loss of nearly EUR 8 million, with a base of sales which was 10 million above than 2023. What it means? It means that by working diligently in our cost structure, we can go nowhere the breakeven of EUR 20 million and more of sales per year, which as you will see, is a kind of underlying topic of, this press release.
To make explicit this journey, we're not having the sales we aspire to, because in this mostly market condition, we try to accelerate the optimization of our, let's call it, back of the house operational machine, so to extract more value, more cash, when, as I'm sure, growth will come back. Let's look at cash. Cash at the end of the period, so June 2023, was EUR 44.5 million, which compared to EUR 54.5 million at the end of 2022. Here, despite the difficult year, we didn't stop investing in a critical area. We invest EUR 2.6 million, of which EUR 5.3 million went to optimize Italian factory, and EUR 2 million to open direct store. Operating activity were paused, despite the lower level of sales by EUR 1.6 million.
So as you can understand by now, we don't anticipate a quick inversion of the market cycle, at least for the end of the year. And in this market context, we believe, and we are acting accordingly, the cost and capital efficiency are of paramount importance. For that reason, we launched a sector initiative to reduce cost and improve working capital discipline, which Carlo will comment later, more in detail, but this include, for instance, really, working on our structure, including head count. So more, I would say, a turnaround approach than a transformation.
I believe it's important to remind that we have done already since 2021, I would say, a silent restructuring, in the sense that we didn't heard about it, despite we work in a highly unionized country like Italy, but we reduce already by 577 units our overall workforce, including headquarters and factory. And we're gonna be continuing in this direction. So to streamline and making more agile our headquarters and also to optimize and continue optimizing our factory.
Additional activity in the, let's say, chapter of cost optimization are the ones which are taking the simplification and streamlining of our complexity, starting really from the collection, where we have this philosophy of having fewer and bolder launches in the market, rather than operating with several launches, which was the modus operandi of the company when distribution was primarily the same. In terms of growth, our priority remain organic growth. One distinctive asset of the company is the one of having 700 stores. We believe that that is really where we should start from, because if we make the store more productive, we're gonna get more sales momentum, but also better utilization of the investment we've done directly, and investment our partner done directly of the store. Of those 700 stores, roughly one half are in China, and I will expand later on China.
So what we are doing to improve retail? We are improving our talent pool. We have built a central retail division, which really helping to capture the best practice, starting from similar individual market like U.S., codifying them and disseminating them. We also invested in having a improved IT system that can pass to read very carefully the performance at retail level, which is now the standard we use to engage in discussion with store management, so the store manager, and on the level in the organization, up to the country manager. We want to strive to excel in retail management, so to be a credible partner also to our franchisee. As you know, out of 700 stores, roughly 600 are operated by franchisee. So clearly, that is where we expect, the benefit to come from as well.
So every effort we do in our directly operating store has the ultimate objective to be able to be credible partner for our dealers to improve their own performances. To support organic growth, we also strengthened our marketing team. We hired and retained a person which was already known to the group, Daniele Tranchini. He brings really a wealth of incredible experience. He held senior position in agency, including J. Walter Thompson and Publicis, and they're really already making a huge difference in shaping our unique story around the different market. Talking about market, a couple of highlights on two important geographies. The first one, China. As you all know, especially the group, investor and analysts that follow us, in China, we are in JV with Kuka, and we don't consolidate line by line because we own 49%.
But our aspiration is not to consider China as a financial investment, but really as part of our operation, and to ensure that also China benefits from our learning, and especially manage the brands in the way they should be managed. After that, for almost three years, and at least since the beginning of my chairman date, was impossible to travel to China. We have been already 2x in China since May last year for a reasonable period of time, so we spend two weeks with the most important people in the organization, which are our Chief Brand Officer and including our Chairman, Pasquale. I also in full agreement with our board take full responsibility to the support of the China operation to work in partnership with our JV.
China, is clearly a market where the wind, not only for furnishing, but for everything, has changed significantly. I mentioned in my initial speech, the potential implication of Evergrande, which was the market leader in real estate, which is down 90% of its market cap and is facing really a difficult situation. So we're really strengthening the quality of the relationship with our JV team in the spirit of making sure they really can benefit from our brand, merchandising, retail knowledge and guidance. And in accordance with our board, I'm planning to be back in the next few weeks in China for at least two, three weeks, really, to support this process. U.S. is the other market, with the distribution, the second engine of our airplane.
U.S. is our potentially largest single opportunity, has been very central to the story of the success of this group, and we believe it can go back to be as important as it's been. To ensure we are closer to our business, we really focused on the two channel, with very talented manager. I really anticipate in the last press release, that we're very pleased to have Scott Luker joining us to lead the whole sales and gallery business, which is still predominant in term of business, in total business in North America. Jason, I know everyone who knows and fully respect for his retail competencies and drive, will focus entirely on retail, where is the future in term of future growth, especially in Italia.
To ensure that the service provided to these two business units are really sharpened, we ask a senior manager from the group, Ottavio Milano, to take on the role of president, really overseeing the staff function, which include finance, customer care, HR, really to provide streamlined and more agile services to Scott Luker and Jason Camp, who remain the persons in charge for running and building business. So in closing, and sorry, on North America, will ask Jason to comment, but, even in a year, which as you see, has been difficult, we didn't decelerate in term of new opening. We opened seven new stores, of which six on Italia, located really in primary location for our city development strategy, which include San Diego, there has been a l ocation in Miami, Fort Worth, and Manhasset, Atlanta, and Houston.
We opened one Natuzzi Edition in Frisco. Our brand is kind of imitated, especially in Italia, and so we are doing with our retail, so we're looking really for locations which are flagship, and which are a good cathedral for, let's say, our brand. If you have a chance, I invite you to visit our newly opened store in Manhasset, which really is a great example of this strategy. It's located in the Miracle Mile in Manhasset, so the part of Long Island that goes to the Hamptons, is 10,000 sq. ft. and two floors, with a signature location, a similar design, and is the kind of quality we aspire from the location. In conclusion, it's evident that the current situation is unlikely to change in the next week or next month.
We see definitely the situation to endure till the end of the year, and potentially is something we need to confront with also the beginning of the year. Our strategic direction is more clear than ever. We aim to invest in our brand with a focus on organic growth and retail in our core markets, which are remaining, a reminder, is China, is U.S., and in Europe is Italy, U.K.. At the same time, we want to continue and accelerate the work to reduce cost and enhance the agility of our organization. So you know that we don't provide guidance, but I want to tell you that we are highly confident in the strength of our brand and our long-term growth potential.
You know, we're talking with a, of a brand which has more than 60 years of heritage, and heritage is something a brand cannot buy or copy. We believe this is central and will be an important element that eventually will bring us to achieve our midterm plans. Having said so, I stop for potential questions at this level. With Carlo, we're definitely gonna be providing more detail on the restructuring effort, which keeps us extremely busy. But let me stop here for potential question on this initial strategic introduction.
Thank you. At this time, if you'd like to ask any questions, you may do so by using the Ask a Question feature on your screen. The provider is now live.
Good morning, David Kanen, thank you for taking my questions. Are you guys able to hear me clearly?
We do. At least I do.
Okay. Yeah, so I guess at a high level, to me, the call out here is at EUR 83 million in revenue, we were actually operating profit neutral and generated a little bit of cash, which is impressive, given the cost containment, the increase in gross margin, and then the prospects for the future. So that being said, I'd like to understand, or drill down a little deeper on the new branded stores, the direct operated stores that you've been opening. So my question is for Jason. When you look at all of these new stores you've opened, Atlanta, and Manhasset, Long Island, Houston, Fort Worth, et cetera, can you give me a sense as to what those stores will run rate in annual revenue, Jason?
Dave, good morning. Listen, we, you know, three of those openings have happened in the last 45 days, and, so I think it's, you know, premature to attempt to predict, an annual run rate on, on these openings. But I would say, based on the, the traffic, the quality of the traffic, that, that we're getting, we, we expect these stores to perform above our, let's say, network average for, the Fort Worth Italia.
Okay. And just as a reference point, Jason, what is the network average?
Just shy of about 3 per unit.
Okay, so these, these new stores should be, is it, you know, your internal plan, is it EUR 4 million plus, or is it closer, you know, just slightly above EUR 3 million?
We're, you know, we're watching these new guys carefully, and we obviously got to align on budgets per location as we get closer to the end of the year. But, I think for, you know, for public consumption purposes, I think I probably said as much as I, you know, can say and should say.
Okay. So, I mean, it seems clear to me that given, you know, the production per location and the high marginality, that it's critical, and I've had these conversations before, and I know that you acquiesce to them, but it seems critical, that we open up more, DOS-branded stores. And so can you give us an update? I know that, we need to preserve our, our balance sheet, but also at the same time, opening these DOS stores puts us in a position over the next two years to get revenue back over EUR 100 million per quarter, where it seems we could generate meaningful operating profit.
So, Antonio, the question is, we've had a, let's call it a non-core asset in North Carolina, that has meaningful value that could potentially subsidize the next 10 stores, if not more than that. Can you give us an update on that? And just reiterate that this is a top priority to open these DOS stores, hopefully, you know, getting to 15 or 20 additional in the next two years.
Thank you, Dave, for the question. So, I answer with two sentence. The first one is that we do confirm that opening U.S. for North America is a strategic priority. We are doing business sizes with respect of 2024 budget, which include, of course, also the investment case statement, but the principle is to safeguard this intent. On the dismissal of non-strategic asset, there have been some progresses. We are considering option. I cannot say more than that, but there's been some positive, let's say, evolution, and so we hope that there will be some news on that front, which I remind you, is a bold decision, because especially if we talk about High Point, it goes beyond what is my autonomy.
But we've been following up with all the meaningful approach with the asset. We always said publicly that we are considering disposing, including our plant in Italy, High Point in North America, the n the iconic building, plus some terrain we have in Greensboro. For all those three assets, we have either offers pending or processing advanced stage, so we've been not dormant. So for NATCO, we have a process. For the asset in U.S., we have offer which are pending, either some final due diligence or some final consideration or approval from the board. But this has been definitely something we'll be following up.
Okay, thank you for that update. Because, you know, my—here's my view, not that I have a crystal ball, but I think there's a high likelihood that interest rates are going to have to be lowered during 2024. Possibly, my opinion is in the first quarter of 2024, and, and at that point, we'll see mortgage rates come down. And, you know, there's a high correlation of, you know, to, to housing as it relates to furniture, which should put us in a position where we start to see the business growing again organically. I would like to see a lot more stores by the end of 2024, so that we could start doing EUR 90-100 million a quarter, generating significant profitability, given your leaner structure and higher gross margin profile.
So I just wanted to reiterate to you guys that, you know, I'm hoping that you don't take your foot off the gas pedal in expanding some of these great markets in North America.
Oh, sorry, David, interrupt you, but also in the light of this, you should be right what I mentioned before in terms of the organization, because we want really to have a heavy weight in terms of confidence in Jason, not of weight, heavy weight of Jason. We need to focus internally on business development, not be bothered and have peace of mind from running, you know, more the operation, because really we intend to spend our, our, our network. And again, I don't want to second extrapolate, but, you know, there's some-- there's a lot of been changes, unfortunately, not always for the good in the landscape in the U.S., and some brands and company, which in our view, are also interesting, uh, company, are at risk of exiting the market. I'm mentioning Mitchell Gold, you know, that is filing for Chapter 11.
So we're looking at all the possible way to on an individual store basis to accelerate our growth. So absolutely, they were aligned. We need also to make sure this happen in a self-financing manner and disposal of non-strategic assets is clearly the way we are trying to do to accelerate our self-financing capability.
Okay. So the, the next question for Jason, which you alluded to in your prepared remarks, are the organic growth initiatives at our DOS stores. Jason, could you drill down into some of the opportunities you think exist to drive meaningful same-store sales at your current small fleet in North American stores?
So first of all, I'd say when we study the last six months of written orders and compared against 2019, those 13 like for like stores are, you know, running around 44% above 2019. So there's you know been a lot of our work to build a much more solid base from, let's say, pre-pandemic times. You know, second, you know, as we look towards the future, I think there's really two significant opportunities here. One is for the team and I to build you know a talent base in those stores that can fully capitalize on any incremental trade and design project business. Our average order even compared to last year is up in the neighborhood of 20% year-over-year.
We're fully committed to building a team that can engage in more design project work, more complete rooms, more multiple rooms, whether that's with our clients directly or through trade partners. To complement our efforts, you know, I think, we have an opportunity with our, you know, with the headquarters partners team to, you know, really study our assortment and add items inside the living space room and outside, you know, living spaces to build the size of our average ticket to sell, you know, more things to, you know, a similar number of customers or a growing amount of customers. That's really the strategic path that we're focused on.
Okay. Thank you. I'll return back to queue so other people can pose questions. Thank you.
But one thing I realized, David, in your question, maybe can be done in a form of a special conference, not necessarily a quarter result conference. We can organize a meeting with our team division to walk you through a bit what we are doing. I mentioned here, you know, for instance, our new IPC systems, which provide really accurate data, which to my experience, you know, my background, I've been for 24 years consultant in retail, and I work a lot of corridors. And I must say, I'm biased, but this, to me, is one of the best system I saw ever.
So maybe for those of who are interested, we can organize a special informative session, where we share some of these initiatives we do on trade, some of the initiatives we do to support our team with better system tools, to walk you through more in detail what we mean here. That seems to be a bit generic statement. So, we're gonna capture your interest for a follow-up session in the next weeks. It doesn't need to be tomorrow, but we can definitely do a deep dive on retail if you, if you're interested in that.
Sure. Thank you for that.
If I may, Antonio,
Please, please. Pasquale.
First of all, thank you very much for the way you are explaining performance, the company, and concern, obviously. And thanks to David for his optimism, which is optimism, which is very important to us. Certainly, what we create has been, you know, we create a lifestyle brand, which is not something that, you know, easily in the furniture industry, few people really create it. As far as I know, there is certainly Restoration Hardware. There is certainly, primarily Restoration Hardware, there is Natuzzi and Roche Bobois. Those are the global, not global, yeah, global brands that really have been able to create a lifestyle brand.
Now, obviously, in order to promote and show, and to promote a lifestyle brand, retailer plays a strategic role because, you know, you need to show that what the, the, what the lifestyle brand could represent, how can, you know, really be attractive for the consumer? And I must say that we have done great progress on lifestyle brands certainly, but also on retail, thanks to digitization and, you know, and also in other geographies. So again, today, we need to be optimistic on one side, but also realistic on the other side. The consumer confidence, it's very low everywhere, not only, I mean, it's everywhere. There is no geography where there is enthusiasm to buy, because for reasons that everybody knows, I don't need to repeat things that everyone knows. So that's what I want just, you know, to emphasize.
Thank you for listening.
Thank you, Pasquale, for your comments, especially for your perceiving entrepreneurial passion and enthusiasm. Thank you so much.
You're welcome.
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Kevin, my one suggestion, my people might digest, understand we download a lot, so maybe people are still digesting.
Sure.
And thinking about question. I will ask our CFO that, you know, joined almost one year ago to provide some more color about, you know, I would normally call it transformation, but the ambition of, in fact, we want to create push me to call it more restructuring. So maybe you can provide some more color on that while we were waiting for other questions to surface. If you agree, we can go this way.
Please proceed.
Hi, and thank you, Antonio. Good day, everybody. So as Antonio anticipated, I will give more color of this transformation process that we are starting, and we start already. Allow me to say that we, as a top management, we are fully aware that given the express sales, the current structure is no more sustainable, and it's crucial, vital for us to deliver a structure that lead towards a more agile reaction to be resilient to the volatile market. So what we have been doing and analyzing is all our operating expenses, that includes selling expenses and administrative expenses.
As a general comment on our P&L, I will not go deep in what Antonio already mentioned on our improved marginality, but on the operating expenses, I can say that we did benefit on our generalized decrease in transportation rates that counterbalance the higher cost for opening U.S. and third assignments. Given the analysis on our costs, we did realize that we need to intervene on both our industrial side and our selling and administrative costs. On the industrial side, we already started the process a few years ago, and we will keep monitoring and working closely with our operation department in order to find opportunity to improve the marginality and to have a more agile, versatile, industrial footprint.
We are keep working with our outsourcing in Vietnam, and we are reducing the number of workers in China and in Romania to align our structure to the current level of demand. Same as for the Italian operation, the upgrade of the plants and the continue of reduction of redundant workers is part of the plan, and that keep going. What is becoming new and more interesting to discuss at this stage is the work that we are doing on our SG&A structure, where we did start a deep analysis on our processes to verify the maximum level of optimization in order to decrease operational costs and headcount, to get significant savings, and to boost and accelerate all these actions.
So to give you more details and explain, so to let you understand what we are doing, I will give you some complete example. We are analyzing all operational side, and we are trying also to reduce the complexity of our operations. As an initial program, for example, we focus on our Natuzzi Editions, cover codes offer, and for cover codes, it means the variety of possibility that we give to our customers, and we were able to reduce it from 152 to 53. And you can imagine what that imply this in terms of purchasing stock, management of the stock, and in terms of communication and retail experience. So once we will put in practice all of these findings, we will expand this approach to the other markets and to Natuzzi Italia, and Mr. Natuzzi has been involved in this.
Of course, this will not impact on our customer in terms of quality and variety of our offer. Also, in terms of maximization of the current situation for the codes and the materials that will be dismissed, we have a specific program to incentivize the depletion of the stock. Talking about the stock, we are also shortening the supply chain processes, and we are getting our supply for order closer to the relevant manufacturing plants, so that we will save on delivery times. We are also reviewing all the algorithm for the forecast of the purchase to decree, to align more carefully to the recent trends, and working also with the purchasing department to see if there is any possibility of intercompany transfer to optimize the financial and the supply demand.
Another activity that we have done recently is the centralization of the group credit management at HQ level to reduce the position abroad, and by doing this, we have reached positive results in reducing the number of group DSO. We were able to better forecast our cash flow so to maximize it. So as you can see, there is a spectrum of activities that we already launched, and there are analysis that are going in this moment in order to find the best setup for the future, as I mentioned before, to achieve significant savings. This is what we have been working on the operational side.
To be also more specific and to go, as Antonio was mentioning, giving our finance structure and talking about our net finance cost, we report EUR 2.7 million of finance costs and EUR 1.6 million deriving from interest expenses and bank charges. If we compare to the same period of last year, we had, last year we reported EUR 1 million, and now we are at EUR 1.6. This, even the fact that the interest rates more than double, it means that we did work to have a selective adoption of usage of our lines and our credit facilities and our securitization. But, as we discussed in Italy, this is not a target.
Of course, we will keep looking in our any possibility to improve our working capital and to go towards a self-finance that is needed in this period, and to provide more cash for the investments that, once again, we repeat, is more focused on the retail side and on the growth.
Okay, thank you, Carlo. And, of course, this is turning quite a detailed discussion, but I think it would be helpful to focus our strategic course. We need to remind, as David helped us, priority number one, which is retail expansion. I would put almost the same level, at least in the short term, priority two, which is reducing our SG&A. And we'll keep reporting on this priority in the follow-up conversation we will have during our next quarter review or intermediate press release. Kevin, would you want to again poll the audience to see if there is any emerging curiosity or question?
Certainly. As a reminder, if you'd like to ask a question today, please click on the Raise Your Hand feature to be placed into question queue. One moment, please, while we poll for further questions. Once again, please click on the Raise Your Hand feature if you'd like to ask a question at this time. We do have a follow-up from David Kanen from Kanen Wealth Management live now.
Quick question. Given the mix now, and will that will continue a branded product, hypothetically, at EUR 100 million, 100 million per quarter in revenues, is it reasonable to assume with, with the initiatives that we've already taken, that gross margin would get up to around 40% or better? This question is first semester. Thank you.
I think your assumption is directionally right.
Okay. Thank you, guys. Good luck.
Thank you.
Thank you very much.
Thank you.
Any further questions, Kevin?
I might suggest that
I'll turn the floor back over to you, Antonio.
Yeah, thank you, Kevin. Once again, thank you all for being so attentive following our story. We have high confidence in what we represent, which is an incredible brand, an incredible potential, given the strength of our brand. We are very sure whether this difficult circumstance emerging stronger from a posting financial standpoint. I might suggest that here reach out to Kevin, and we know what technically can, can be done to serve you and to capture interest for a follow-up conversation on detail. So once you have, who are interested, of course, we're gonna be making this public, but we are sure to reach you so we can organize another conversation on detail in the following week without waiting for the next press release. Other than that, I wish you a great start of the week.
Of course, you know, as a servant to the company, I stay at your disposal if you wish to have follow-up conversation, in respect, of course, of our public company status. Thank you so much, and have a wonderful day.
Thank you.
Thank you. That does conclude today's webcast. You may now disconnect. Have a wonderful day. We thank you for your participation today.