Electrovaya Inc.

Q2 2023 Earnings Conference Call


spk05: Good day, everyone, and welcome to the ElectroVaya second quarter 2023 financial results. At this time, all participants have been placed on a listen-only mode, and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, John Gibson, Chief Financial Officer of ElectroVaya. Sir, the floor is yours.
spk04: Thank you, and good evening, everyone. Thanks for joining us today on the call to discuss ElectroVaya's Q2 2023 financial results. Today's call is hosted by Dr. Raj Dasgupta, CEO of Electrovia, and myself, John Gibson, CFO. Today, Electrovia issued a press release concerning its business highlights and financial results for the three- and six-month periods ending March 31, 2023. If you would like a copy of the release, you can access it on our website. If you want to view our financial statements and management discussion and analysis, you can access those documents on the CEDAR website at www.cedar.com. As with previous calls, our comments today are subject to the normal provisions relating to forward-looking information. We will provide information relating to the current views regarding market trends, including their size and potential for growth, and our competitive position within our target markets. Although we believe that the expectations reflected in such forward-looking statements are reasonable, they do obviously involve risks and uncertainties, and natural results may differ materially from those expressed or implied in such statements. Additional information about factors that could cause actual results to differ materially from expectations and about material factors or assumptions applied in making forward-looking statements may be found in the company's press release announcing the Q2 fiscal 2023 results and the most recent annual information form and management discussion and analysis under risks and uncertainties, as well as in other public disclosure documents filled with Canadian security regulatory authorities. Also, please note that the numbers discussed on this call are in US dollars unless they are otherwise noted. And now I'll turn the call over to Raj.
spk01: Thank you, John, and good evening, everyone. Electroviae is becoming a serious player in the North American battery space, whether this be on the technology side, where we have recently had a third-party lab validate the exceptional cycle life performance of our Infinity battery technology, or on the operational side, where we have just demonstrated that we can scale production in a profitable manner. Our fiscal year second quarter was an important marker in our recent history. Not only did we achieve a quarterly record for revenue, but we have also made both an EBITDA and net profit. I can't think of too many clean tech or specifically battery tech companies that have reached this milestone. This is a testament to Electrify's commitment to focusing on high margin applications for our unique battery technology and retaining a frugal mindset overall with respect to how we conduct our operations. In today's risk-averse environment, I hope this will become a more valuable and apparent metric for the public and our investors. Our operations teams have been doing a phenomenal job in executing our growing order book while navigating continuing challenges with respect to the global supply chain. With respect to purchase orders, we are seeing an accelerating adoption, which is demonstrated in our receipt of over $20 million worth of purchase orders for the quarter. One trend we have noticed is that the overall sales cycle is reducing. For instance, one recent Fortune 100 customer order which we received was achieved without a physical trial, which used to be a feature as a standard part of the sales cycle. Customers are also becoming more familiar with lithium-ion battery technology in general and ElectroBio's specific performance advantages. I believe material handling customers have come to realize that ElectroBio holds the crown in this space for product quality, safety, and longevity, and there really is no comparable battery technology in the industry that I know of. If you consider our list of end users, we have the majority of the large U.S. retailers and a growing list of Fortune 500 and Fortune 100 customers. Just looking at the Fortune 100 company list, we have 10% of these companies using Electrovia batteries in their operations. Considering that many Fortune 100 companies don't operate warehouses at all, this is a very significant share. These corporations all represent significant potential new sales opportunities as we are currently just scratching the surface of their warehousing fleets. Furthermore, they also offer a pathway to other applications for our battery technology, including energy storage and other vehicle applications. Our relationship with Raymond Corp and the Toyota Industries Group in general continues to grow. At ProMat, a material handling trade show that we exhibited at this past March. We had Electrovia-built batteries powering nearly every Raymond vehicle, in addition to vehicles made by Bastion Solutions, a robotics and AGV manufacturer who's also owned by Toyota Industries. We are also actively working on new products. We recently commissioned a new innovative automated assembly module line at our Kitimat location. which will allow us to manufacture a variety of module configurations and will initially be focused on our new high voltage module. This module will be used in our upcoming high voltage battery packs, which are being optimized for electric bus and truck applications, in addition to high performance energy storage applications. We are expecting to start deliveries of some of these systems this calendar year. The company is also well underway with the development of custom integrated high voltage battery systems for a new material handling vehicle series. This system will utilize Electrovia's next generation battery management system, which allows increased IOT capabilities amongst other features. This next generation BMS will also feature in all Electrovia material handling products next year. Finally, with regards to our solid-state battery development, our team at Electrovia Labs is making great progress, and we will be providing a more detailed update at our battery technology event on May 17th. Electrovia is rapidly growing, and we will ultimately need additional capacity. This was one of the driving factors for our U.S. manufacturing expansion in Jamestown, New York. In March, we acquired the site at One Precision Way by purchasing the shares of Sustainable Energy Jamestown. We are also making good progress with respect to reaching an agreement with a government-backed finance institution to provide the necessary funding to outfit the first phase of our planned Gigafactory. One of the requirements of this institution is to provide a detailed independent engineering review for which we have engaged with a leading engineering consultancy. Their initial analysis is well underway, and we expect to receive it later this month. The Jamestown Gigafactory will be key in enabling Electrovia to grow further and also access new incentives tied to the Inflation Reduction Act. I'll pass it back to John.
spk04: Thanks, Raj. To give everyone a brief highlight of the financials, revenue for Q2 fiscal 2023 was $10.5 million compared to $4.3 million in the fiscal second quarter ended March 31st, 2022, an increase of 144%. As Raj mentioned, this quarter represents a record for the company in recent history. We are looking to build on this momentum and continue to break these records. We are on track to meet our 2023 guidance of $42 million, and we are anticipating continued sales growth in fiscal year 2023 as production continues to scale to meet demand. The impact of supply chain issues and inflationary pressures continued during the quarter. Gross margin was 25.6% for the quarter, a slight increase from the December quarter, which was 25.2. Q2 was the last quarter where customers were locked into historical prices from the summer of 2021. In addition to the price increases carried out during 2022, the company has locked in pricing from key suppliers for 2023 deliveries and will be taking advantage of volume discounts where available. We expect to see an increase in the gross margins in calendar 2023. Adjusted EBITDA for the quarter was $0.8 million compared to a loss of $1.1 million in the prior year. Furthermore, we recorded a net profit of $0.2 million in the quarter compared to a loss of $2.3 million in the quarter ending March 31, 2022. We anticipate the company maintaining a positive adjusted EBITDA position for the remainder of fiscal year 2023, with an overall positive figure for the full year. As Raj mentioned, in March 2023, the company completed its purchase of Sustainable Energy Jamestown, which owns the building that will be the location of our U.S. operations. The company took on the assets and liabilities, including a $3.9 million vendor note, which bears a below-market interest rate, In return for the purchase, the company issued a promissory note for 1.05 million. Further details of that transaction are included in the financial statements and the MD&A. At March 31st, 2023, the total debt was 16.8 million, which includes these additional debts from the purchase of Sustainable Energy Jamestown, compared to 16.6 million from the prior year. The company is actively managing our cash to reduce our interest charges. The company believes its available liquidity, along with the collection of 8.2 million of accounts receivable and conversion of 5.1 million of inventory into saleable finished goods, as well as receiving an additional 4.7 million of inventory in process for which deposits have been recorded in prepaid expenses, is adequate working capital to support our anticipated growth. That concludes the brief financial overview, and I'll now turn the call over to Raj for the concluding remarks.
spk01: Thank you, John. I'd like to start my concluding remarks with a short update regarding our NASDAQ application. The company is well underway with the application process, and we are of the opinion that we are compliant with respect to their listing requirements, with exception of the current share price. Earlier this year, we received nearly 99% shareholder approval for a share consolidation, which would lead to an adjusted share price that would meet the NASDAQ listing requirements. At the time when management believes we are imminently close to executing on the NASDAQ listing, we will act on this authorization and move forward with a share consolidation. I personally believe that by listing on NASDAQ, we will improve the company's overall visibility and enable a much larger pool of investors to consider ElectroBio. In conclusion, it has been a successful period at ElectroBio. We are on track to hit our fiscal guidance, have met our internal goals with respect to deliveries and profitability, and are also setting the stage for our U.S. expansion. I believe our technology offers a unique value proposition, especially with regards to the cycle life and safety of our lithium ion battery products. This technology differentiation is vital to the company's ability to retain strong gross margins and expand our business into new heavy duty markets. That concludes our remarks this evening. John and I would be pleased to hold a question and answer session. Matthew, please open the line for questions.
spk05: Certainly. At this time, we'll be conducting a question and answer session. If you have any questions or comments, please press star 1 on your phone at this time. We do ask that while posing your question, please pick up your handset, if you're listening on speakerphone, to provide optimum sound quality. Once again, if you have any questions or comments, please press star one on your phone. Please hold while we poll for questions. Your first question is coming from Amit Dial from HC Wainwright. Your line is live.
spk03: Thank you. Good afternoon, everyone. Siraj, with respect to the Jamestown facility, once this engineering report is completed, you know, what's the timeline from that point to you guys, you know, Moving forward in the next steps and what are those milestones?
spk01: So I would expect us to execute on the term sheet pretty much right away When the engineering review is complete assuming engineering review is favorable there's there's that risk but So we're pretty close to executing on this term sheet Understood
spk03: Okay. And in terms of the facility that the U.S. government facility that you are trying to obtain for this, you know, what's the size? I don't know if you have shared that previously. Like, how much are we looking for to get this up and running?
spk01: So, ultimately, this facility will be over a gigawatt hour in capacity. That said, the first phase of the project will be looking at more like a third of that capacity because that's what the existing building can handle. And that's what we're looking to finance in this first phase. Okay, understood.
spk03: And then just with respect to the operating expenses for the remaining two quarters for this year, are you expecting any increases or should we expect steady state relative to current levels?
spk04: Yeah, I expect it to be relative to current levels. We don't see any significant increases in the coming months. We've got good visibility from a production standpoint.
spk03: don't expect to see any one-offs okay thank you john um and then just maybe one last question you know congrats on some of the you know positive results for the infinity battery technology um you know would there be any overlap with the ssb uh offering that you guys are also developing in terms of when applications or markets you may be pursuing for these two different batteries
spk01: I would say they're complementary. So the Infinity battery technology is unique. It's got extremely long cycle life, and it's got energy density comparable to typical automotive grade lithium ion battery technologies. And on the cycle life, we're four or five times the cycle life of a typical lithium ion battery. In fact, if you compare it to your cell phone battery, you're looking at even higher multiples. The solid-state battery platform that we're developing, that's got completely different performance attributes. So in terms of energy density, you're looking at almost doubling the energy density, especially on a volumetric basis. But when it comes to cycle life, we're not targeting anything near the Infinity battery technology. So it is targeting... different applications altogether. While the Infinity Battery Platform is targeting heavy duty, one or more cycle per day applications, the Solid State Battery Platform will be targeting high performance vehicles, which are looking for extremely high energy density for long range or high performance, or even new applications like electric aircraft. That said, the solid state battery platform is definitely still in development. We're not at a stage where we can predict the commercializability of it just yet.
spk03: Okay, understood. And then is the Infinity battery ready for pilot type testing with potential customers? Any interest, any inbounds on that one so far?
spk01: Do you mean the solid state or the infinity?
spk03: Infinity.
spk01: Oh, so the infinity, you know, that's present in all our production today. So it's going into all the material handling applications. We have also been providing that cell to some other specialty applications in the, for instance, in the defense sector. There are two companies who are evaluating the technology. We are looking, of course, as we've publicly said, looking to expand into the electric bus market especially and the energy storage market, and there are companies who are evaluating the technology for those applications as well.
spk03: Okay, I understand now. That clarifies it for me. Thank you. Appreciate it. That's all I have, guys.
spk05: Thank you. Your next question is coming from Eric Stein from Craig Hallam. Your line is live.
spk09: Hi, Roger, John. Hey, Eric, good to hear you. Hey, good to chat. So I just want to come back to the cycle life test results. You know, I know that that was underway for, I think it was two to three years. You know, just curious, any prospective customers that were tied to that data, you know, waiting for it, anything triggered on that, or would you kind of characterize that more as, you know, now you can go to market with these, you know, I mean, I guess they're not necessarily new results. They kind of add on to results you've had third-party and other in the past. You know, just maybe how should we think about that?
spk01: Well, first of all, the testing has taken over three years to spread this data. So it's been a major effort on the part of the lab and us to make sure that testing is continuing for that longer period. It's really, the way I look at it is it's a third party validation of what we've been telling the market and telling our customers. So internally we have of course test results which mirror what we've been seeing at this third party. But really having a third party validation is a very good thing to have. It makes sales efforts, it makes it easier for OEMs to select this technology. I think this definitely also will help in providing better residual values for battery systems. So, for instance, currently, Electro-Bi is selling the vast majority of battery systems, whether that be direct sales or through our OEM partners. If our OEM partners decide to lease battery systems, this kind of data will really help improve residual values. And the ultimate end result will be a much wider adoption of this technology. Because if you can have a very strong residual value, even if you have a higher CapEx, this can ultimately be a lower energy storage cost. So that could be a game changer. I think these are the factors which feed nicely into that.
spk09: Got it. Then maybe sticking with the Infinity and as you're thinking about the high voltage product, I mean, maybe obviously that's underway. I mean, maybe it's kind of where we stand there. You know, I know that you have, I believe you've been, you know, kind of have bid for in the, you know, you've got a large project that, you know, you're potentially after. And then I'm particularly interested in just the opportunity with some of your Fortune 100 and retail customers, you know, on the stationary or backup side.
spk01: Yeah, for sure. So the high voltage product line can really be applied to a wide variety of applications. So electric buses, delivery trucks, and energy storage would all use something similar. So we have been developing this product for some time, and I think the market timing couldn't be better. For the last couple of years, there have been companies in this space who have almost subsidized battery system pricing to win contracts. Of course, that type of mentality can no longer be in place. Those companies are suffering or no longer existing as a result of that. And so, of course, the need for batteries is increasing. So the timing is good for us to launch this product line. We have an earlier version of it being trialed on a bus right now. But back to your question, yes, so some of these Fortune 100s have asked us to – about our technology being implemented in some of their energy storage projects, for instance, and even some of their potential delivery truck applications. So it's a nice intro into those types of new applications for us.
spk09: It would seem to me, too, that the attach rate with some of the customers, given that they've got stationary power needs you know, that they're doing that already with something else. I mean, is it fair to say that you would expect potentially a pretty high attack rate?
spk01: We could. It's too early to say exactly, but we are actively in discussions with a number of these parties with respect to energy storage in particular. So we still have a little bit of engineering development work to do. in order for us to be ready to make deliveries to those types of projects. That said, I think we alluded to this last quarter is we bid with a large energy storage developer on a pretty substantial project. And we hope to – we haven't received word yet on the outcome of the RFP, but there are new opportunities coming up with respect to energy storage. Now, in the current fiscal year, we're pretty tied up with the orders and projects that we have to execute on. So, it's really – these are things that you should be considering for fiscal 24 and fiscal 25. Fiscal 23 is – we're fully – essentially fully booked for material handling projects.
spk09: Yep. No, understood on that. Maybe last question for me, and this might be tough to answer, but I know maybe a representative customer, I mean, you're clearly at really early stages. I mean, you're starting to see the growth pick up quite a bit, but you're at early stages of penetration. I mean, is there any way to kind of take a representative customer and say, hey, we've got whatever percentage that may be, just trying to get a sense of how early it is and what the growth opportunity is?
spk01: Yeah, so these customers, especially these Fortune 100 companies, they, in some cases, they operate hundreds of warehouses. And each warehouse is an opportunity size of, let's say, on average about $2 million. So it's a huge pool that we're potentially playing in. For the most part, these companies are early in their adoption. Some of them are at one warehouse. Some of them are at multiple warehouses. But we have a lot of room to grow with these customers. And I'd say in terms of penetration, yeah, we're definitely around that. In some cases under 5% and in some cases a little bit more. I'll give you one other example. This Fortune 100 company who recently placed their first orders with us. These are for new distribution centers that they're building. And most of these types of companies have mandates now that all new distribution centers will go lithium ion or other next-gen technologies. And they do have plans to retrofit existing sites down the line.
spk02: Got it. Okay. Great colors. Thanks.
spk05: Thank you. Your next question is coming from Aaron Martin from AIGH Investment Partners. Your line is live.
spk07: Hi, Raj. Hi, John. First of all, I want to say thank you to Eric for allowing someone else to ask a question. Appreciate it. In terms of the revenue this quarter, I know you consider it still part of material handling, but how much revenue was from non-forklift in this quarter?
spk04: Just over $100,000.
spk07: Okay, so still not material. And then on the gross margin, obviously a step in the right direction, and I heard what you said in terms of pricing finally working through the old POs with the lower pricing. Where should we expect gross margin to go, and is that purely coming from pricing increases, other stuff that's happening there on the gross margin in terms of the supply chain working better? that adds to that?
spk04: Yeah, it's probably a combination of three things. It's our price increases that were initiated last year, locking in supplier prices, and then operational efficiency. So we're getting into our groove now in terms of what's actually happening on the floor. There's very little overtime in that quarter, which is very different from where we were at the end of fiscal Q4 last year. We had a lot of overtime to hit that 9.9 million, but we're getting better with how we're doing things. We're seeing some prices come down and we're seeing some supplier prices go up. So it's hard to say where they're going to be by the end of next quarter, the end of Q3, but what we're seeing right now is we expect it to creep up, the gross margins to creep up as we continue to progress through the year.
spk07: Okay. Based upon what you just said, that we're not doing any overtime, Raj talked about us being, you know, basically at capacity for this year. That's, you know, not running extra shifts or anything like that. If we had to, could we run extra shifts? And obviously that would be at lower gross margins. It's overtime. It's slightly more, you know, it's less cost efficient. But, you know, could we do that if need be?
spk04: Yeah, we could. So, We currently run one shift here in the plant. If we wanted to increase that, we can run a four-day, 10-hour shift to give everybody full-time hours and add another shift on top of that. So we still wouldn't be recording any overtime, but we can increase the output. That would involve us hiring more people. But that's inevitable as we kind of increase our output. from the plant on a monthly and weekly basis.
spk01: Yeah, Aaron, we've also been making some building infrastructure upgrades here to enable higher throughput. So we have quite a bit of room to grow still before we max out capacity here in Mississauga. But we do see, we're looking even six months, we do see us hitting capacity limits.
spk07: getting close to it so having that operation you know a mirrored operation in Jamestown sooner than later is what we're planning okay I mean obviously in terms of driving with your annual annual guidance which are basically booked for without doing these things it's and you're talking about going you know needing more capacity it seems like you're being conservative there but I won't back you into the corner Just a question for John. On the purchase of the building or the entity that owned the building, obviously it added the asset and the liabilities to the balance sheet and then increased the equity. The net income of $170,000, $180,000, that's not including any non-cash gain from that asset coming onto the balance sheet? Correct.
spk04: There's no unrealized gain or revaluation surplus within that $170,000.
spk07: So that net profit is a net profit from operations. It's not including the investment. Okay. Great. All right. Thank you very much, and congratulations on the progress.
spk05: Thanks, Aaron. Thank you. Your next question is coming from Sean Severson from Walker Tower Research. Your line is live.
spk06: Great.
spk05: Thank you.
spk06: Josh, I was wondering if you could talk a little bit about the pricing you saw. I understand you locked up the supply chain and some supply agreements for this year, for the rest of the year. I'm just wondering, on average, are prices up higher or lower relative to the 2022 prices? So, are things going up, down, or the same? I mean, is the battle to keep things the same, or are you actually getting pricing down?
spk01: I think it's going in both directions. It depends on the commodity in question. So the net results is our bill of material costs is more or less unchanged.
spk06: Okay. And second question is, I know you got a lot of balls in the air, both in stationary power and in the commercial side, but if you were to boil it down to a couple milestones in each of them that we should look for to kind of, you know, what should we expect, you know, the type of news flow, obviously not asking when, but the type of news flow that we would see coming from each of those respective markets as they develop for you?
spk01: So on the high voltage side, for instance, on energy storage, look out for potential partnership announcements, maybe even distribution announcements. And then on the bus and other vehicle applications, it would be what we're seeking really are OEM partnerships. And those take time. We're working diligently to get a few. And they will, you know, we hope we're going to be successful in getting some new OEM customers for those applications. That also said, we're making wins on the additional OEM partners on the OEM side, on the material handling side of things as well. So whether that be just material handling or even on the robotics side. I mentioned in the call that Bastion Solutions, which is another Toyota company, had our batteries operating at ProMat. We're starting to market through them as well. So we're seeing, I would say, additional OEMs in that sector as well. Great, thank you, McCullar.
spk06: And last question is on the commercial side, on the bus side. In general, are you displacing an incumbent battery provider, or are these types of OEMs that you're talking to, is there going to be a new product launch, let's say a new line launch, and you're going to be on that? I'm trying to understand, are these already well-established and you're displacing, or are these going to be new programs at OEMs?
spk01: So everything is a little bit new because this is a new sector. That said, the projects that we're looking at currently are displacing other players.
spk06: Great. Thanks, Rod. Congratulations as well. Thank you. Thanks, Sean.
spk05: Thank you. Your next question is coming from Oren Hirschman from AIGH Investment Partners. Your line is live.
spk08: Hi, congratulations on the progress as well. A couple of additional questions. Aaron, thank you for letting me ask some questions. Let's say, for example, the bus application. Infinity technology, is that critical in the bus application where that's differentiated for you, or it's not as critical for the bus application? And what I mean to say is it's very easy to understand for a stationary application for energy storage. how it can make a massive difference in terms of lifetime and financeability, et cetera. But does it make as much of a difference on the bus side?
spk01: Surprisingly, it does. So buses, they traditionally are looking for at least 12-year life on these buses and sometimes up to 16 years. And they're doing at least one cycle on the battery system per day. So there's basically no battery system other than ours that can last the lifetime of the bus. So that in itself is a major selling point. The second thing that is happening on the bus side is, again, this is a nascent industry in terms of having electric buses, especially in North America, and there have been some safety incidents in the industry. We believe that the bus OEMs are going to start placing a higher emphasis on safety, and that also plays well into ElectroBias' hand. So those two factors, I think, are going to beat the capital costs of the solution. So this is a good example of a market getting more mature in what they're looking for.
spk08: Meaning that you're saying the capital costs, meaning that it's not just price that makes the difference. You don't have to beat on price because of the advantages on the lifetime. Really the IRR is what you're saying and the safety, which is tangible.
spk01: We never want to beat anyone on price. We want to sell things at a higher price. So that's why we're profitable. That's why we want to remain profitable. So we're selling a technology, not a commodity.
spk08: Okay. On the stationary for energy storage, I know you still have some work to do. Do you have any idea yet on the calculations, or maybe you won't until you're running a durable system for a certain amount of time in real life, six months or a year, to understand just the extension of the life cycle, just how far it can go? and what that means, and for the stationary application, has the safety aspect come up yet when you've had preliminary discussions?
spk01: It does to some extent. There are some new standards coming up, for instance, in New York, where they require some of these new fire propagation tests, which, again, plays in our favor. But energy storage, for the most part, it's all about the numbers. And again, it fits well with this technology. So we're talking to our, I guess, our prospective developer partner, and they've been informing us there's certain markets where there are more than one cycle per day applications for energy storage. One example was the Texas market, and there are a few others. So again, this is similar to the bus segment where there's a certain degree of maturity forming with respect to the selection criteria of the battery technology. So it's no longer just dollar per kilowatt hour, what's the cheapest solution for my energy storage site. It's now I'm looking at lifecycle costs, you're looking at how many cycles you can do on the battery, and even a little bit on the safety side of things as well.
spk08: Okay. And my last two questions, one is the component side. Is there anything we're having trouble sourcing, the potential for trouble sourcing components, particularly in any power-related semiconductors to be based on carbide? Unfortunately, I should be, but I'm not familiar with what goes into the electronics side. Is there anything that might be a gating factor, and will that change at all on the stationary side?
spk01: I'd say for the most part, those concerns are definitely being allayed. Last year, we had a chip shortage for certain microprocessors that we were using in our battery management system, and our engineering team was very quick in redesigning our BMS to use more easily obtainable chips. So that was a good example of how nimble our team has been. Now those types of challenges are definitely decreasing. So not to say it couldn't happen again, but right now we don't see any significant supply chain shortages with those key electronic parts.
spk08: Are there any exotic material semis and systems on carbide or anything like that? No.
spk02: Not that I know of offhand. Okay, great. Okay, thank you so much. Thank you. There are no further questions in the queue.
spk10: Thank you everybody for your participation. That will conclude today's conference call. Thank you very much and have a good evening.
spk05: Thank you everyone. This concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.

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