SG Blocks, Inc. (SGBX) CEO Paul Galvin on Q1 2019 Results - Earnings Call Transcript

About: SG Blocks, Inc. (SGBX)
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Earning Call Audio

SG Blocks, Inc. (NASDAQ:SGBX) Q1 2019 Results Conference Call May 13, 2019 4:30 PM ET

Company Participants

Chris Tyson - Managing Director, MZ North America

Paul Galvin - CEO

Mahesh Shetty - President and CFO

Conference Call Participants

Gerry Sweeney - Roth Capital

Ashok Kumar - ThinkEquity


Good day and welcome to the SG Blocks First Quarter 2019 Conference Call and Webcast. Today’s conference call is being recorded.

At this time, I’d like to turn the conference over to Chris Tyson, Managing Director of MZ North America. Please go ahead.

Chris Tyson

Thank you, and good afternoon. I’d like to thank you all for taking time to join us for the SG Blocks’ first quarter 2019 conference call. Your host today are Mr. Paul Galvin, Chief Executive Officer; and Mr. Mahesh Shetty, the Company’s President and Chief Financial Officer. Paul will provide a business update, which will cover customer and partner announcements, while Mahesh will discuss the financial results.

A press release detailing these results, crossed the wire this afternoon at 4:00 p.m. Eastern, and is available on the Company’s website, Following management’s prepared comments, we will open the floor for questions.

Before I turn the call over to management, please remember that certain statements contained in this release are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

All statements other than statements of historical facts contained in this presentation, including statements regarding our future operations and financial position, business strategy and plans and objectives of management for future operations are forward-looking statements. In some cases, forward-looking statements can be identified by terminologies such as believe, may, estimate, continue, anticipate, intend, should, plan, expect, predict, potential or the negative of these terms or other similar expressions.

We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions described, including those set forth in our various filings with the Securities and Exchange Commission, SEC, which are available at

You should not rely upon forward-looking statements as predictions of future events. We cannot assure that the events and circumstances reflected in the forward-looking statements will be achieved or occur.

This presentation also includes non-GAAP financial measures. SG Blocks uses certain non-GAAP financial measures in assessing its business and operations. Reference to these non-GAAP financial measures should be considered in addition to GAAP financial measures, but should not be considered as a substitute for results that are presented in accordance with GAAP.

Finally, this conference call is being webcast. The webcast link is available in the Investor Relations section of our website at

At this time, I’d like to turn the call over to Paul Galvin. Paul, the floor is yours.

Paul Galvin

Thank you, Chris, and welcome to the SG Blocks’ first quarter 2019 financial results conference call.

The first quarter of 2019 was highlighted by continued operational execution, as defined by our continued revenue growth and gross margin expansion. We continued to attract innovative new clients, ranging from mobile hospitality units in New York to affordable housing for those displaced by Hurricane Maria in Puerto Rico, while making progress in realizing our long-term operational goals.

Due to the close proximity from our year-end conference call late in March, today’s call will be brief, but full of exciting updates. So, now let’s first discuss the three main housekeeping items discussed last call. One, legacy project in Los Angeles. There is no material update since our last earnings call. We continue to negotiate in good faith to come to an amicable resolution for both parties.

Two, pace of revenue recognition on large contracts and backlog. Our larger projects continue to advance through our backlog. Multifamily projects go through a series of pre-development steps prior to construction, including but not limited to site acquisition, environmental testing, geotechnical testing, entitlements and approvals, traffic studies and market feasibility reports. When these are completed, projects then can move to a closing on funding and commence the design build process. We will discuss the projects and the progress in our backlog later in the call.

Three, cash position and recent capital raise. We supported our cash positioning with a small equity offering in April 2019. We engaged Roth Capital for the transaction and on a going forward basis. The monies raised will satisfy immediate concerns from our client on our ability to perform. The Company believes these funds will allow us to execute on our backlog and convert our pipeline of opportunities. While the offering was dilutive to our common stockholders, it was modestly sized, and the Company still has a relatively small number of shares outstanding on a fully diluted basis and still no debt.

2019 progress. Next, I will record on the progress we made in the first quarter of 2019. Our gross revenue of $1.7 million represents a 12% increase compared to the first quarter of 2018. The revenue number is consistent with the Company’s anticipation of 2019 revenue of $18 million to $20 million, as construction revenue is expected to increase in the second half of the year, barring any unexpected site delays.

Gross margin as a percentage of revenue increased to 31.4% in Q1 2019, as compared to 10.6% in Q1 2018. We continue to target margins at 18% to 20% on a going forward basis, but were able to going better overall margins this quarter. We ended the first quarter of 2019 with 11 projects, totaling 677,536 [ph] square feet and the $95.8 million backlog.

Our business model. We continue to invest time and resources in building out and broadening our factors. Areas we are focusing in on include manufacturing, procurement and logistics, project-based finance and design services. We anticipate that these efforts will eventually result in SG Blocks offering a full turnkey solution for our clients, who are looking for a single source of contact to their projects, and believe the benefits of modular construction will make them more profitable.

On the governance front. We kicked off the first quarter with the integration of James Potts on our Board of Directors. Jim is a 25-year Commercial REIT veteran with extensive C-Level public company experience and the Founder and President of State SteelWorks based in Atlanta, Georgia.

Jim’s appointment as an independent Board member in late December 2018, increased the total number of Board members to 7 with 5 independent members. Jim brings an incredible breadth and depth of operating experience to SG Blocks, which we believe will not only prove invaluable in strategic decision-making, but also in helping the Company further develop its commercial presence with multifamily REIT customers as well. I look forward to working closely with Jim to drive long-term shareholder value-creation.

Lastly, our partnership with Grimshaw continues to flow, and we are excited to be completing our initial commercial product catalog with Grimshaw, launching towards the end of Q2 2019. We look forward to sharing catalog on our website.

Our customers. We have organically densified our customer base around core markets, and they are as follows: Food, beverage, food halls, and hospitality. The most notable win in this sector is the $25 million purchase order for unique hospitality units across the U.S. The initial two sites are in full design for two West Coast sites.

We have delivered and are designing many variations relating to these markets. To-date, we have delivered one compete food hall and have another one under construction. We also have a West Coast food park in the design stage and an additional 2 sites working their way through our pipeline. Subsequent to the closing of the first quarter, we signed a contract to build the unique hotel prototype for a waterfront development in Hudson Valley, New York. The total order expected to be approximately 15 proprietary hospitality units, will be delivered to an initial location in Hudson Valley, New York, where Arizona Investissements recently acquired the Twin Lakes Resort through one of its subsidiaries. This 55-acre estate is currently under renovation and is poised to become a leading eco resort in upstate New York.

When complete, we anticipate it will represent a revenue opportunity of approximately $4 million. These unique guest suites will be mobile and travel seasonally to their target market. We have other hotel projects in our ecosystem. Both multistorey structures, as well as standalone units. We continue to receive a steady stream of inquiries for units that provide food, coffee, beverages, as well as public bathroom.

Second vertical, equipment enclosure. Our business has always included projects that secure and transport equipment of various types and uses, both for private and military sectors. For example, we delivered over 500 electrical rooms for Square D, and modified containers that were deployed in Walmarts all over the country. We have now expanded this opportunity into a related space. We recently signed a Master Service Agreement with Blockchain Holdings Capital Ventures, BHCV as the firm’s sole partner in designing and fabricating its single and multi-container data centers. These low-cost, decentralized innovative data centers will offer secure and affordable solutions for BHCV’s customers, including built-in disaster recovery options.

The first prototype units are expected to commence fabrication in the second quarter 2019. BHCV will then establish a sales distribution channel to scale production of data centers, with an anticipated volume of 150-200 units by 2020.

BHCV plans to roll out mobile data centers which can be launched faster and at much lower prices and often in modular fashion, allowing for additional capacities to be easily added on demand. The robust nature of such mobile centers will allow BHCV to offer a full solution for static data centers, ensuring competitive pricing level and capacities and added value services.

We receive steady inquiries for equipment storage of all kinds including electrical, commercial kitchen, agribusiness, water purification and computer servers to name a few.

SG Residential. We launched SG Residential in late 2018 to help provide sustainable single-family homes to the many people that contact us. We are working towards completion of our design build platform and anticipate we will have news to share on that front in the near future.

Subsequent to the closing of the first quarter, we announced further progress on this front with our partnership with Capital Plus Financial, a certified Community Development Financial Institution, to complete 55 affordable houses to families displaced by Hurricane Maria in Guayama, Puerto Rico by executing the finish-out and site work of existing concrete shells. These homes will be sold to families displaced by Hurricane Maria, who will have the opportunity to utilize Housing and Urban Development, HUD, vouchers for their purchase.

Puerto Rico is still in dire need of new housing, and we now have in excess of 2,000 homes in our pipeline. We are in the process of completing all of the necessary steps to do business in Puerto Rico. We expect to eventually locate a local manufacturing facility to cater to the local market opportunities on one of several identified locations. SG Residential is also currently analyzing a channel strategy for the single family house market in the United States.

And four, multifamily residential. The majority of our backlog and inquiries are from multifamily developers looking to use our building system for better quality, better return on investments and a significant reduction in time. The thing that would help developers most would be to provide them with easy access to the equity and debt needed to develop a project beyond the land acquisition. We have spent an enormous amount of time in developing the solution. We believe it is a close at hand and look forward to announcing this practical solution, when it is firmly in place. Once in place, we anticipate that all creditworthy projects in our backlog would have immediate access to capital and accelerate the development of the project. We believe this will greatly expedite revenue recognition and reduce investments of management resources on the pipeline opportunities.

We are pleased to report substantial progress on the $55 million project in our current backlog. The project it is fully entitled at 305 units, and the market study and all environmental tests are completed and satisfactory. We anticipate the financial closing for the project before June 30th and in keeping with our plans for 2019 revenue recognition.

Our Bronx [ph] midrise project is advancing and the next step is for the developers to select a capital partner and begin that process.

There are multiple, similar midrise projects in our pipeline, currently undergoing preconstruction services. 2019 and beyond, barring any site or other unanticipated delays, we believe we can achieve our previously stated revenue target of $18 million to $20 million in 2019, as compared to approximately $8.1 million in 2018.

I will now turn the call over to our Chief Financial Officer and President, Mahesh Shetty for his financial summary. Mahesh?

Mahesh Shetty

Thank you, Paul, and good afternoon.

Revenue in the first quarter increased 12% to $1.7 million in the first quarter of 2019, as compared to $1.5 million in the first quarter of 2018. This increase in revenue was mainly driven by growth in the Company’s retail and office contracts that were either in progress or completed during the three months March 31st of ‘19, compared to March 31st of 2018.

Gross profit totaled approximately 544,000 in the first quarter of 2019, as compared to 164,000 in the first quarter of 2018. Gross profit margin as a percentage of revenue increased to 31.4% in the first quarter of 2019 as compared to 10.6% in the first quarter of 2018. Gross profit margins are positively impacted by lower than anticipated costs on contracts in this quarter. We believe that the margins will revert back to our previous guidance of 20% on those contracts.

On larger contracts that can potentially result in recurring revenue, the Company may like to take lower margins. Our operating expenses increased to $1 million in Q1 of 2019 from $0.9 million in Q1 of 2018. The increase in operating expenses for the 3 months ended March 31, 2019 was primarily due to increases in salaries and additional headcount of approximately 129,000, and increases in stock-based compensation expense of $82,500 offset by decreases in marketing and business development costs of approximately $36,000, a decrease of approximately 111,000 in amortization expense. And amortization expense caused by customer contracts, we fully amortize at the end of 2019, and an increase of approximately $40,000 in Board of Directors fees.

Our net loss totaled $0.5 million or $0.12 per basic and diluted share in Q1 of 2019 compared to a net loss of $0.8 million or $0.18 per basic and diluted share in Q1 of 2018. Adjusted EBITDA loss increased to $0.3 million in Q1 of 2019 from $0.5 in Q1 of 2018.

See today’s press release under the use of -- under the heading, Use of Non-GAAP Financial Information for a discussion of adjusted EBITDA and a reconciliation of such measure to the most comparable measure calculated under U.S. Generally Accepted Accounting Principles or GAAP. Cash at March 31 of 2019 totaled $0.3 million as compared to $1.4 million at December 31st of 2018.

Subsequent to the close of the first quarter of 2019, we raised approximately $0.7 million in net proceeds from a follow-on equity offering of the Company’s common stock to be used for working capital and for general corporate purposes.

The Company has made progress in developing a debt equity platform that will allow our deals in the pipeline to be funded within the platform and potentially result in accretive learnings to our shareholders. We expect to provide a comprehensive update during our first quarter 2019 conference call on this potentially transformative development.

As of May 6, 2019, we had approximately 5.1 million basic and diluted shares outstanding. The company also has approximately 10 million in carry forward operating losses which will reduce our tax burden in future years. The net operating loss expires through 2037. The Company’s net operating loss carry-forward maybe subject to annual limitations.

As Paul mentioned earlier, construction backlog totaled $95.8 million at March 31, 2019, completed $97.7 million at December 31, 2018. As of March 31, 2019, the Company had 11 projects or approximately 677,536 square feet in backlog. Construction backlog at March 31, 2019 included three large contracts in the amounts of approximately $55 million, $15 million and $25 million approximately. The $25 million contract is spread over 20 plus locations. The Company believes that barring any delays and site approvals or site related constructions, these projects should all convert to revenue by June 30, 2021.

I’ll now turn the call back over to Paul. Paul?

Paul Galvin

Thanks, Mahesh. We ended the first quarter of 2019 with no debt, a backlog of $95.8 million and a promising project pipeline of over $200 million, positioning SG Blocks for significant financial performance in 2019 and beyond. We believe that our business model allows us to handle incremental revenue with a relatively modest increase in general and administrative expenses, leverage both inventory and labor on our supplier’s balance sheet, and in most cases, pay for products and services only after we have been paid by our customers. Our model creates significant leverage and reduces working capital constraints to growth.

Our focus continues to be becoming cash flow positive, growing our backlog and our pipeline, converting our existing backlog to revenue with consistent and predictable margin and building out the platform to create a one stop shop for our clients. We are pleased to be working with Roth Capital as we look to grow and execute on our business plan. We continue to believe we have a superior product in the marketplace and that the marketplace for our product is enormous. There is a growing movement to challenge tradition construction and at the expense of cost and time. We believe SG Blocks is one of the companies at the forefront of this disruption.

I will now hand the call back to the operator.

Question-and-Answer Session


[Operator Instructions] And we’ll take our first question from Gerry Sweeney with Roth Capital. Go ahead.

Gerry Sweeney

I was wondering, could you -- I apologize, there’s a lot that you went through in terms of projects, and what I want to see was on your guidance of $18 million to $20 million in revenue for this year could you maybe highlight some of those projects you think are going to sort of drive that revenue for the remainder of the year?

Paul Galvin

Sure. Mahesh, will you just want to walk through the outline of that structure?

Mahesh Shetty

Sure. We had -- Gerry, so we had three large projects in a backlog, one for 55, another one for 15, and another one for 25. We feel the progress that we’ve had on primarily that $55 million contract, and the $25 million contract will translate into revenue before the end of the year -- the anticipated revenue, I’m sorry.

Gerry Sweeney

The $55 million one. That is a project in the Hudson Valley, as well as, it’s different from the $4 million. That’s correct?

Mahesh Shetty

That’s correct.

Gerry Sweeney

[Multiple speakers]. On the $55 million, I think you talked about getting your -- getting close to getting finance or the project does also setting close to get financing. Any update on that front?

Paul Galvin

So, we anticipate that financial closing will occur on or before June 30, 2019, by next month. And then, that project will be off to the races.

Gerry Sweeney

And then, switching gears a little bit towards -- the Grimshaw, actually product catalysts, I think it’s pretty interesting, especially, I think one of the products within the catalog, are they going to be sort of be like utility runs and stuff like that or sort of a modular construction that you perform and then you insert into a project into the Grimshaw if there is a high project I should say. Is that how to look at it? And I’ll leave there.

Paul Galvin

So Grimshaw has 500 industrial designers and they work on very large projects and a lot of infrastructure and transportation projects. So, what we’ve done is we worked closely with them to come up with, to start a dozen or so modular container products that could be plugged and played into any project, whether it was traditionally built or modularly such as bathrooms, servers rooms, entrance wave mailroom room, bicycle racks, things along that. And that hopefully, the speed and quality and even the greening up of some of these highrise projects that they work on, can include these core components and help make it a win-win. So, we’re very excited about that component of the Grimshaw partnership.

Gerry Sweeney

Got it. And then, just one other question on I think Puerto Rico, and as these are in no particular order, just curious, is that how -- it sounded like you needed to get approval for to sell the modular homes in Puerto Rico, is that correct? And maybe just a little bit of details, opportunity --- or how long that may take?

Paul Galvin

It’s just a registration process, which we’ve undertaken and are using local talent to help facilitate that process. I don’t know exactly how long the process itself takes but it’s not anticipated to be a gating item to doing business.

Gerry Sweeney

Okay. And would that be -- could we view that -- I mean, obviously, Hurricane product, so would that sort of be now trading to maybe not emergency housing, but housing, post catastrophic events type opportunity that you can build upon in the future?

Paul Galvin

Yes. That’s a natural market for us. Our products are approved to do exceedingly well in these eco disaster areas. So we’re looking forward to getting some products built on the island, and showing that the technologies will keep you and your family safe during the storm. And we have a platform partner, who for certain circumstances will provide a 50-year mortgage for those homes. So, when you factor in that you’re living in steel and that you’re protected, and that you have a modestly priced home, eventually produced on the island and with that kind of a debt structure for certain people and for even folks in our domestic market, it’s a very good value proposition. And we think bringing our products to coastal areas and areas that are impacted severely by changing weather patterns, that’s a natural [indiscernible] for us.


[Operator Instructions] We’ll take our next question from Ashok Kumar with ThinkEquity. Please go ahead.

Ashok Kumar

Thank you, Paul and Mahesh. The first question is the timeline for sustainable cash flow positive. And I think the original position was to give directional guidance on revenue and then focus on getting cash flow positive on a sustainable basis. So, could you provide a concrete timeline for that please?

Paul Galvin

So, Ashok, we anticipate getting and remaining cash flow positive by the end of 2019. That hasn’t changed.

Ashok Kumar

Got it, okay. Now, in terms of process in place, so do you feel if you have your process in place, where you’ll be able to get the percentage of completion from the different projects on a real time basis, so, there would not be any repeat of what they witnessed in 2018?

Paul Galvin

Go ahead, Mahesh.

Mahesh Shetty

Yes. So, Ashok, I’m going to repeat your question, just make sure that I understand. So, your question is related to the percentage of completion on projects. I that the question?

Ashok Kumar

Yes, Mahesh. Yes.

Mahesh Shetty

Okay. So, I think the percentage of completion, we normally -- and we do this on a monthly basis, we get data from all our ecosystem, our partners, if you will. And the providers information actually has been completed. And we use that to actually extrapolate the revenue, because the use of costs incurred on a job to determine the revenue, because that’s the more conservative way of recognizing revenue. Just on a different note and a related note, the issue that ‘18 was not a function of the percentage of completion methodology, it was more a question about also recognizing the costs that have been incurred but to give more time than we should have in hindsight for the customer come and pay us for those escalation in costs. So, the methodology was sound, but the collection was something that we could have done a better job.

Ashok Kumar

As a follow-up Mahesh on this large project upstate New York, the $55 million project that you have discussed, I think original timeline was to be manufacturing this by third quarter of ‘19. So, are there any updates on that timeline?

Mahesh Shetty

We’ll be able to give you a better once we close on the funding, if you will, which is expected to occur by the end of June. We will be able to give you a more defined timeline on that specific project. At this point, we feel comfortable that the manufacturing or the fabrication will start in the third quarter. But if it changes, we’ll be able to give you a better guidance at the end of Q2.

Ashok Kumar

And just some additional color on the debt equity platform. In terms of the transition of going from concept to financing of project, I think as you discussed that this could be a quantum improvement from the existing situation. So, what would be the compression in timeline given that there is no sales cycle there, and from concept of financing. So, how much of the cycle do you think would be compressed with this equity and debt platform, and do you see a materially changing and mix in backlog between the entrepreneurial projects which will be susceptible to this kind of financing as opposed to commercial?

Paul Galvin

So, Ashok, we do believe this will be transformational, because the amount of time projects will stay in our backlog will be greatly reduced, and to a much larger degree, influenced by us. Because by creating the project based financing platform, we’re going to be able to see which projects have the greatest intrinsic value and can go quickest from opportunity to pipeline and into a paying backlog project. So, that is something that we’ll be able to talk more detail about in the near future, and the benefits to the company and its shareholders, which at times will include some carried interest in particular projects that go through the platform, and occasionally the ability to draw down some of the developers fee when our work is required. But most importantly, it’s going to be a catalyst that helps people who own land that want to develop either track housing, or multi-storey and multifamily projects, and that we’re going to be help -- able to help lubricate and shorten the process so that revenue recognition process is both visible and it’s expedited. And we’ve been working diligently on that.

Ashok Kumar

One last question related to this, do you see any potential risks with the fund being a potentially the largest client and being able to retain the vetting [ph] to this fund, do you see any potential risk factor there?

Paul Galvin

No, the fund will be just investing at the asset and the project level. So that won’t afford them any ownership in SG Blocks. The reason SG Blocks will help facilitate the platform is that will be guaranteed all of the manufacturing work for the projects that gets investment from the platform. So, no there’s not that opportunity that the project investor becomes a big player at the manufacturing level.

Ashok Kumar

So, just to clarify that, you will still be responsible for vetting decline -- this new platform?

Paul Galvin

Oh, sure. Yes.

Ashok Kumar

Okay. Thank you so much. I really appreciate it. And all the best.


[Operator Instructions] We’ll take your next question from David [indiscernible] with Triple Research. Please go ahead.

Unidentified Analyst

Can you give me just sort of a specific characteristics of what constitutes backlog -- what happens along the line of project that you -- at the point where you say, okay, this is now backlog? I’m just trying to get the vernacular statement.

Paul Galvin

A project to be in our backlog has to be controlled site with a capable developer with the track record, and a project that’s financially viable and has -- and as of right yield on the site, that makes financial sense. And then, we assess whether or not a project has certainty of permitting, certainty of financing outcome, any land use changes or any other gating item that could professionally act as a barrier to that actually happening. And at the end of the day, what we’re doing now is we’re moving a little more judiciously with some of the projects in terms of making sure the developers have a handle on some of their own gating item, so that we can reduce the amount of time projects spend in our backlog. So, the solution for the debt and the equity and kind of providing that or helping to facilitate that is to eliminate what has historically been one of the largest gating items, which is just this providing the necessary debt or equity or mezz financing at the project level. Mahesh, do you have anything to add?

Mahesh Shetty

Nothing. A signed contract is a backlog, if it’s in the pipeline, it’s obviously not good time. And within the -- so once it is signed and we have -- we know the developer is working on permits et cetera, we’re comfortable in show it as a backlog. One example of our conservative approach has been when we relegated another contract that we had signed back into a pipeline at the end of 2018, primarily because we didn’t have visibility into the highest and best use of that particular project. So, despite having a signed contract, we pushed it back into pipeline. So, the adoption -- we have to reduce contract on a case-by-case basis. But we feel comfortable the projects as visibility, site control and the ability to close, we feel comfortable, but leaving it on as a backlog. But without question, seeing in the backlog is a signed contract.

Unidentified Analyst

Okay. So, I missed the first part of that, but is the Los Angeles project the only project that has -- sounds like it’s not, but is it the only project that was at one point part of backlog that isn’t anymore or that there is other projects that were considered backlog that are not anymore?

Paul Galvin

So there’ve been two projects in the past two years that have gone from backlog back into pipeline. And one was in upstate New York project and one was a small, I think 20 key boutique hotel in the southeast. Both of those projects, one is still under contract, but they need to provide us with greater certainty of what they’re doing. And the other is in our pipeline and our ecosystem. But those would be the two projects I think that would have been in backlog that went back into the pipeline.


[Operator Instructions] At this time, this concludes our question-and-answer session. I’d now like to turn the call back over to Mr. Paul Galvin for any closing remarks.

Paul Galvin

Thanks to everyone for joining us on the call today. SG Blocks is the product of many hardworking people throughout the Company and our supply chain and ecosystem, our sales and marketing and business development folks, architects, engineers, manufacturing partners, who work every day to advance our sustainable solution in new and exciting ways. Without them, we could not do this. Lastly, if we have been unable to address all of your questions today, please feel free to contact the MZ Group and they’ll either answer them or coordinate a call for us to answer them. So, thank you very much.


Once again, that does conclude today’s conference. Thank you for your participation. You may now disconnect your phone lines.