Transcat, Inc.

quarter and full fiscal year 2021 conference call and webcast. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Craig Maholick, Investor Relations for Transcat. Thank you. You may begin.

Yeah, thank you. Good morning, everyone. We certainly appreciate your time today and your interest in TransCat. With me here on the call today, we have our President, Chief Executive Officer, Lee Rudow, and our Chief Financial Officer, Mark Dutini. After formal remarks, we'll open the call for questions. If you don't have the news release that crossed the wire after markets closed yesterday, it can be found at our website at transcat.com. The slides that accompany today's discussion are also on our website. If you would, please refer to slide 2. As you are aware, we may make forward-looking statements during the formal presentation and Q&A portion of this teleconference. Those statements apply to future events which are subject to risks and uncertainties as well as other factors that could cause the actual results to differ materially from where we are today. These factors are outlined in the news release as well as the documents filed by the company with the Securities and Exchange Commission. You can find those on our website where we regularly post information about the company as well as on the FCC's website at fcc.gov. We undertake no obligation to publicly update or correct any of the forward-looking statements contained in this call, whether a result of new information, future events, or otherwise, except as required by law. Please review our forward-looking statements in conjunction with these precautionary factors. I'd like to point out as well that during today's call, we will discuss certain non-GAAP measures, which we believe will be useful in evaluating our performance. You should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP. We have provided reconciliations of non-GAAP to comparable GAAP measures in the tables accompanying your earnings release. So with that, I'll turn the call over to Lee to begin the discussion. Lee?

Thank you, Craig. Good morning, everyone. Thank you for joining us on the call today. Without question, our team is pleased with the fourth quarter results and the results for the full fiscal 2021 year. In both the fourth quarter and full fiscal 2021, we generated record revenue, record operating income, record service margins, and record cash flow. The company fought through the challenges of the pandemic and demonstrated both the inherent resiliency of the business and the adaptability of our dedicated team. Our performance underscores the value of our services and validates the investments we've made in technology, infrastructure, and the talent needed to effectively execute our strategic plan, especially this past year. Our service segment continues to be our primary growth engine. The segment generated strong growth across every financial metric. And in the fourth quarter of fiscal 2021, we returned to double digit organic revenue growth. It was our 48th straight quarter of service growth and resulted in Transcat passing the $100 million annual service revenue mark for service for the first time. In addition to service revenue growth, we delivered outstanding service margin performance. Gross margins were up 500 basis points in the fourth quarter to 33.9%, and for the first time, Our full year service gross margin achieved the milestone of 30%. Operating margin was up 470 basis points in the fourth quarter to 15.1%. Margin gains were primarily driven by technician productivity, inherent operating leverage on organic service revenue growth, and the creative acquisitions of pipettes.com and biotech. Distribution was still impacted by the lingering effect of the pandemic, though we're encouraged by the sequential improvement in the business as distribution turned in its best quarterly result of fiscal 2021. The rental business continues to perform well, up 11% in the fourth quarter. Overall, our fourth quarter operating income exceeded our expectations, hitting $4.5 million, up 21%. Even with the downward pressure caused by the pandemic, operating income for the full year hit a record $11.1 million. We generated record cash flow of $23.6 million during the year. Cash was primarily allocated to support our acquisition strategy, technology investments, and to pay down debt by $10.7 million. Our current leverage ratio is now below one, which provides us flexibility to capitalize on future organic growth opportunities, and margin-enhancing technology developments to drive automation and process improvement into our operation. And of course, our balance sheet will aid in the execution of our next-level acquisition strategy. Before I turn things over to Mark, though, I want to walk through an acquisition, announce an acquisition we made on April 29th. We acquired Upstate Metrology, a small, bolt-on acquisition located nearby our headquarters in Rochester, New York. Upstate Metrology's annual revenue is approximately $1 million, but as a bolt-on, it'll be integrated very quickly with our Rochester-based calibration lab so we can fully leverage our current infrastructure. With that, Mark, I'll turn things over to you.

Thanks, Lee, and good morning, everyone. I will start on slide four of our earnings deck, which provides detail regarding our revenue for the fourth quarter and the full year. For the fourth quarter, consolidated revenue of nearly $49 million was up 7% on strong service revenue and sequentially improving distribution revenue. Turning to the segments, as we mentioned, we were very pleased with service segment revenue growth of approximately 16%, with 10% organic growth and 6% coming from acquisition. The strong organic growth was mainly driven by improving order trends and continued market share gains, and to a lesser degree by an easier comparison to the prior year core as the service business began to feel the impact of the COVID-19 pandemic toward the second half of March 2020. With regard to the acquisition growth, we have now lapped the one-year anniversary of our acquisition of pipettes.com, which was acquired in February 2020. With that in mind, beginning in the first quarter of fiscal 2022, pipettes.com will fully become part of our base business. Turning to distribution, segment sales of $19.8 million were down approximately 5% from prior year, the best quarterly comparison of fiscal year 2021. Sales improved 3% sequentially from our fiscal third quarter on modestly improving incoming trends, especially for products sold into the wind power generation market. As a reminder, we did not feel the impact of the COVID-19 pandemic on distribution revenue until early April of last year as we continued to shift out of our backlog through the end of March 2020. Finally, on a full year basis, we were very happy to set a new revenue record of $173.3 million which was up slightly from the prior year. Our service business was up a healthy 9 percent, and as we mentioned, surpassed the 100 million milestone revenue mark. This more than offset the distribution decline of approximately 10 percent. Turning to slide five, our fourth quarter consolidated gross profit was up 16 percent from prior year, and our gross margin expanded 230 basis points to 28.6 percent. Service segment gross margin was up 500 basis points to 33.9% on continued traction from our technician productivity initiatives, operating leverage from organic growth, and accretive margins from our recent acquisitions. Fourth quarter distribution gross margin was down 220 basis points from prior year on lower levels of co-op advertising and rebates from our vendors. For the full year, our consolidated gross profit increased 9% to 46.1 million And also, as Lee mentioned earlier, we achieved an important milestone of over 30% gross margin in our service business for the year. We believe this level of gross margin is largely sustainable as the majority of the year-over-year improvement we saw in fiscal 2021 has been driven by technician productivity and operating leverage on our fixed costs. Turning to slide six and our overall operating performance, Fourth quarter consolidated operating income of $4.5 million was up 21% from prior year and exceeded our expectations. Service segment operating income increased $1.8 million and operating margin increased 470 basis points as a significant portion of the gross profit increase fell through to operating income. Distribution operating income was down approximately $1 million, largely on lower gross profits. Operating expenses for the fourth quarter included incremental expense from our recent acquisitions, higher technology spend, as well as approximately $300,000 in severance expense. Turning to slide seven, Q4 net income increased 29 percent to $3.2 million, and our diluted earnings per share of 42 cents were up 11 cents from prior year, a result of the strong operating performance. For the full year, net income was down 3 percent, and diluted earnings per share were down 5 cents. The fiscal 2021 tax rate of 21.9% was up 470 basis points from the fiscal 2020 tax rate, which was aided by higher discrete income tax benefits. Moving to slide 8, where we show our adjusted EBITDA and adjusted EBITDA margin. Among other measures, we use adjusted EBITDA, which is non-GAAP, to gauge the performance of our segments because we believe it is a good measure of our operating performance and ability to generate cash. A reconciliation of adjusted EBITDA to operating and net income can be found in the supplemental section of this presentation, which, as a reminder, is posted on our website. Fourth quarter consolidated adjusted EBITDA was up 30%, and our adjusted EBITDA margin increased to 15%. We were especially pleased with the service segment's increase of $2.4 million, which drove EBITDA margin up to 21.7% in the quarter. For the full year, adjusted EBITDA was up 12% and driven by service segment EBITDA margin expansion to a healthy 16.8%. Moving to slide nine and our cash flow. Full year net cash provided by operations doubles from the prior year to 23.6 million and was a function of our improved EBITDA and reductions to working capital. Full year CapEx was 6.6 million and we're largely focused on technology infrastructure, service segment capabilities, and rental pool assets. For fiscal year 2022, we anticipate our CapEx to be in the range of 7.5 million to 8.5 million, with investments focused on technology infrastructure, rental pool assets, and operational capability and efficiency projects, including calibration automation. Slide 10 highlights our strong balance sheet. At quarter end, we had total net debt of $19 million which was down $10.8 million from fiscal 2020 year end. With this reduction, our leverage ratio also came down and was slightly below one at quarter end. This is calculated as the total debt at the end of the period divided by the trailing 12 months adjusted EBITDA, including given credit for any acquired EBITDA. And finally, we had $31.1 million available under our revolving credit facility at the end of the quarter. One more thing, we expect to file our Form 10-K on or around June 7th. With that, I'll turn it back to you, Lee.

Okay, thank you, Mark. We enter fiscal 2022 with a strong balance sheet, strong organic sales pipeline, and a very active acquisition pipeline. Operationally, we expect our fiscal 2021 gains in service gross margin to be largely sustainable. From a directional perspective, we like what we see when we look ahead. Our confidence is high that we have both the right strategic plan in place and the ability to execute it. We expect both operating segments to have a strong start to the new year. For the first quarter of fiscal 2022, we expect service organic growth to be similar to what we just achieved in the trailing 2021 fourth quarter. We believe we can continue to improve service margins, albeit at a more moderated level as the fiscal year progresses and technician productivity comparisons become more challenging. Moving forward, automation will be a key focus, and we expect to gain more traction over the next 12 to 24 months. Distribution has progressively improved since the pandemic started over the last year, and we believe the trend will continue. For the first quarter of fiscal 2022, we expect distribution growth to be in the high teens on improving trends and an easy comparison to the first quarter of fiscal 2021, which was heavily impacted by the onset of COVID-19. All in all, Transcat enters fiscal 22 well positioned. We remain focused on continuous improvement and leveraging technology as a competitive advantage to drive sustainable differentiation. In combination with improved macroeconomic indicators, vaccine rollouts, and accelerated expansion, we expect to enhance shareholder value in 2022 and beyond. With that, operator, please open the line for questions.

Thank you. Ladies and gentlemen, at this time, we will be conducting a question and answer session. If you'd like to ask your question, you may press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your headset before pressing the star key. Our first question comes from the line of Greg Palm with Craig Hallam. Please proceed with your question.

Yeah, good morning. Thanks for taking the questions, and congrats on the quarter here. Really good results. Thanks, Greg. Thanks, Greg. I guess just to start off on services, I'm curious, what are you seeing in terms of growth by end market? 10% organic was a pretty solid number. And what I'm trying to figure out is that, is it broad-based? Is it driven more by certain end markets like life sciences? What are you seeing?

Really, I would characterize it, Greg, as broad-based. We are seeing some recovery in the industrial markets, which is always good for us. Life science has been consistent for years now, and so that's certainly playing a role. But overall, I would say that the double-digit growth is based upon a recovery across the industrial marketplace more than anything else from previous quarters.

Is that fair to say then that most of your end markets now are at or exceeding kind of that pre-pandemic level, or do you still feel like there's some pent-up demand out there?

It's hard to tell with certainty, but I think most have recovered somewhat. I think there probably is some pent-up demand. We'll see some of that throughout the year. I don't think oil and gas, for example, has fully recovered. I think it's taken steps in that direction. So a little bit of pent-up demand, some recovery. It's kind of a mix.

Okay. Got to make sense. And then specifically on the margin, I just wanted to kind of clarify some comments. I thought Mark had said something about, you know, gross margins in service being sustainable, but the guidance kind of is vague in terms of, you know, expecting, you know, year-over-year improvement, but not to the same degree experienced last year. So can you just help us understand exactly what you mean by the comments there?

Yeah, so I think Mark and I both tried to allude to the fact that we expect the company to continue to drive improvements in our margins. Now, we're coming off of a year with a 500 basis point improvement, and so we're cautious in that we don't want to send indicators that we expect to do that again. However, we do expect to improve. And as I've said in the past, Mark has said in the past, it's not going to always be quarter to quarter. But directionally, we have things in place. We are investing in technology. We are investing in automation with the end purpose of driving margins, and we're going to get that done. That's our intention. You're seeing some tempering based upon year-over-year improvement. We don't see that necessarily continuing at that rate, but we do see improvements, and that's what we're trying to convey.

But is the, I guess, is the improvement commentary based on what you saw in last year's quarter, or is it based on what you saw for the fiscal year? I'm just trying to gauge what kind of benchmark are we using? Are we using 30% as the improvement level or the 26% in change that you saw last quarter a year ago?

Yeah, I think you've got to get closer to the 30%. And like I said before, it could dip down up, you know, 100 basis points here and there. We're in the 30% range, and I expect to stay there. And again, we alluded to the sustainability of the improvements we made. I think you're going to see that apparent, you know, this upcoming year. So I think I'd guide you closer to the 30% than going back, you know, this time last year at the 26.

Yeah. For the full, just to be clear, that's, you know, for the full year. We have a full year of 30%. We just achieved that milestone. We expect improvement for the full year. And, Greg, to your point around, you know, the Q1 guidance, we do expect improvement there, too. And we were just sort of setting the tone that, you know, 500 basis points was an extremely good year. We expect improvement in both the quarter and the full year, but maybe not to that degree. Yep.

Got it. Okay. Makes sense. I'll hop back in queue. Good luck going forward. Thanks. All right, great. Thank you.

Our next question comes from the line of Scott Buck with HC Wainwright.

Please proceed with your question. Hey, good morning, guys. It seems like a little bit of a slower start to M&A this calendar year. I'm curious, is that a reflection of the pricing environment or You get a little bit of deer in the headlights from COVID with some of the potential targets.

Yeah, I wouldn't read into anything about relative to a slow start to the calendar year. It was about two quarters ago, almost three now, that we hired a VP of corporate development for the express purpose of really taking advantage of what we thought was going to be a good opportune time in the market to make acquisitions. And in combination with the fact, Scott, that we were ready as a company to sort of get to the next level. And nothing has changed. So we've built a really nice pipeline. And I try to characterize that, you know, in our script. And I think you'll see a higher level of activity as the year progresses. So taking the three or four months of the beginning calendar year, I wouldn't characterize it as, you know, anything other than what it is. And it's a time when, you know, we have an active and well-built pipeline. And I expect to see... some results from that.

Okay, good. I appreciate that color. Second one for me, how should we think about margins in distribution longer term? I mean, can they be maintained at these levels, or are we likely to see some compression over time?

I think our goal is to see stability in distribution, and that would be both from a revenue and a margin perspective. We have a You know, we have our rental program, which, you know, we launched about four or five years ago now for the purpose of keeping margins stable. You know, it's not as strategic as it was for the company 10 years ago distribution, but it does still provide us with a lot of leads and ample opportunity to sell service to customers who buy products from us. So we really want to see that business be stable over the next couple of years. And we've designed it so we've invested so that it should get close to that stability. So that's what we would expect. I don't expect margins to increase significantly. You know, I just, you know, as is, is satisfying.

All right, great. And then are you guys having any challenges in sourcing inventory and distribution to meet some of this pickup in demand?

Yeah, we actually are.

Mark, you want to address that?

Yeah, no, I think it's, you know, what you're hearing and reading with all the other, you know, companies, we're sort of experiencing the same thing. Nothing unique to us, I would say, but You know, between container shortages and COVID, you know, ramping up production in certain areas being difficult and drivers. Yeah, so our backlog in the distribution business is higher than it normally is. You know, we've had some good orders recently, but, you know, also the lead times, it just takes longer from the time we tell our vendors we need something to the time we get it.

um and we hope it works that works itself out but but we're not immune to what's going on in the world there all right thanks for that guys and appreciate you taking my question you got it thank you our next question comes from the line of jerry sweeney with ross capital please proceed with your question hey good morning everyone thank you for taking uh taking my questions uh i want to start with revenue just this is more out of curiosity i guess than anything but How much of this jump is maybe we talked about a little bit of pent-up demand in the past versus maybe just general economic expansion?

So, Jerry, I said a little bit earlier, I really think it's a combination of both. We are seeing recovery in the industrial markets. That has been helpful in terms of achieving growth. That we would expect to continue, and without question, there's an element of pent-up demand as well. So I think you're seeing a blend. We're going to continue to guide towards service business towards that mid-to-high single-digit growth organically, and I think we're confident in that range.

Got it. That's fair. And then just on the margin side, not to beat a dead horse, but any way you could maybe bucket out, maybe mix price versus productivity and enhancements. I know in the past we talked about software calibration being a longer-term driver of margin improvement, and just wanted to see where that played out.

Jerry, this is Mark. For the quarter, it really was driven by technician productivity year over year, so achieving more standard hours with less hours, and then leverage. And when you start growing 10% organically, as Lee's talked about before and the team's talked about before, you have a lot of inherent leverage on our fixed costs. Those two things drove the vast majority of the past quarter and really for the full year improvements. So that's what I would continue to highlight.

Got it. And I don't want to put numbers in anyone's mouth, but for some reason, the 35% gross margins long term was a number that just kind of stuck in my head. I'm not sure if that's the exact number. And obviously, I think software calibration and automation plays a big role into that. Is that what we're going to look towards maybe medium to long term?

You know, when we think about margin enhancement and margin growth, you know, we started this, call it a journey for lack of a better word, back when we hit around 24 some odd percent. And we had a pretty good plan in place, Jerry, to get us to 30. We got there probably earlier than we expected. And so that's good news. But we're not done. And so the question is, you know, what's achievable and how long is it going to take. I think we're going to stick to the idea that we're going to have improvement over time. It's going to be fairly consistent. And I don't think it's unrealistic or unachievable to get into the mid-30s. I think that's a conversation, you know, that we're having internally. You know, it's not going to be quarter to quarter. We don't have timeframes on it, whether it be a year or two or three. But at some point in the future, I anticipate that we'll be having that conversation. And so, You probably heard mid-30s as something that was mentioned in the last meeting during one of the Q&A sessions, and that's part of the conversation.

Got it. No, that's fair. Again, I didn't want to put any numbers in anyone's mouth, but that's what I did. The numbers got in my head. And then just on the labor side, any issues in actually acquiring labor? Everything seems to be tightening up across the board. And listen, great quarter. I think a lot of blue sky ahead of you. Um, what I'm trying to figure out is maybe even set the table a little bit that, as you said, uh, things are quartered or don't look at things quarter to quarter as a look at it more year to year. And in the past you've sometimes hired, uh, chunks we'll say of technicians and it's hit margins. Just curious if there's, if that could be in the play at some point, so no one gets deprived, et cetera.

Yeah. So, so it's a great question and, and anyone who has studied this company, knows that when we have to hire a lot of people at one time, there can be short-term deflation in margins. That could be a quarter or two. It takes a couple quarters to get a tech up and running. The more growth you achieve organically, the more you're going to need technicians. Technicians are never easy to find. So there's always going to be those training periods as you hire a large number of technicians. But that shouldn't take our eye off the ball, which is longer-term efficiency in the operation and automation and margin enhancement. So that's why we always say let's not look at this quarter to quarter. High rates of growth do sometimes have a short-term dampening effect on margins. Now, as we get better at what we do and put more technology to our operation, you know, we should be able to offset that better than we've been able to do in the past. So that'll be a factor as well that we would look to achieve.

Got it. And again, great quarter, and I actually look at the hiring as a positive.

Yep, exactly. Okay, fine, Jerry. Thanks.

Thanks. Bye.

Our next question comes from the line of Mitra Rangapal with Sidodian Company. Please proceed with your question.

Yes, hi. Good morning. Thanks for taking the questions. First, just on the higher capex and investments in technology infrastructure, if you can give us a sense in terms of what that might entail and in terms of helping you facilitate expansion via M&A and also overall improving margins further.

Yeah, I would say we are forecasting that we'll spend a little more this year in the $7.5 to $8.5 million range. We're going to continue investing technology. We've talked about that. We'll continue to invest in rental pool assets, maybe even slightly more than the prior year as it grows very quickly. You know, I mentioned in my prepared remarks that automation, calibration automation, there will be investments in that area. And, you know, that's going to have a year-over-year impact more than we invested in the prior year. So, you know, nothing really out of the ordinary. You know, the good news, it's really centered around you know, initiatives that are going to, you know, help us long term. So that's how I would answer that question.

Okay, no, thanks. And then, Lee, just a real big picture question, if you can give us a sense of how much you think maybe the competitive environment has changed as a result of the pandemic and maybe opportunities that you have now from an M&A standpoint, or even just maybe if you're seeing an increased willingness of some potential customers as it relates to outsourcing that might not have been existing before.

Well, from an M&A perspective, Mitra, we did anticipate, you know, some quarters ago, sometime last year, longer term, that the pandemic was going to have the type of effect on the market and on smaller competitors that might perhaps make available some acquisitions that wouldn't otherwise be available to us and that, you know, people would get tired and it would be a difficult challenge for smaller companies. And I think all that's come to fruition. We we have an active pipeline that we are pursuing and working. And I think that an uptick in M&A activity will be a byproduct of some of those factors, you know, the COVID effect. But it's also a factor of the fact, it's also a factor that we, you know, we're focusing on that. We've hired, as I mentioned before, a VP to drive those initiatives for us. So it's a combination of right time, right efforts, right investment. And I think you'll you'll see an uptick in some activity levels.

And then just on the perhaps increased willingness of maybe some customers now or potential clients as it relates to outsourcing the services to you.

Right. We haven't seen a major shift or change so far in this fiscal year or even in Q4 in terms of outsourcing yet. We will always be well-positioned to do what we call our client-based labs when there's a market for it. But we do expect to achieve our organic growth rates, whether it's from client-based labs, which is a byproduct of outsourcing, or any of our other activities to achieve organic growth. So one way or the other. But I can't note a specific change in the last 60 days. That may... occur later in the year, and I would certainly, you know, talk about it when that happens.

Okay. Thanks again for taking the questions. Great quarter.

You're welcome. Thank you.

Our next question comes from the line of Dick Ryan with Collier Securities. Please proceed with your question.

Thank you. Say, Lee, as a follow-up to the CBL, how many of those are you operating now? And what kind of margin contribution do they bring in? Is it additive or dilutive to the core margins you see?

Dick, we've got about 20 of those going nationwide, which is the same number we had last year. We've not lost any of them in the nine and a half years I've been here, and we've gained some through the years, obviously. From a dilutive standpoint, the margins tend to be in range of our normal margins, and it could be 100 basis points less, depending on, you know, the particular customer. But as you know, these are very sticky, and there's a high lifetime value of these customers. So, you know, sometimes that's a benefit that you get. But yeah, I would say that, you know, the number's in the 20 range. Okay.

On the CapEx for the rental pool asset, it's growing rapidly, small base. Any kind of ballpark of how you position that business and what rental could contribute three, five years down the road? How big of a market is that that you're trying to achieve?

Right. Our story, Dick, is going to be about the same as it's been in the past. And, you know, we launched that business back in 16 with the idea of stabilizing distribution, bridging together our distribution segment with our service segment. There was a sort of a myriad of benefits that we were looking to achieve. And nothing's really changed. I mean, I don't see us, it's not part of our current strategic plan to be a $50 million revenue rental company. It is realistic, however, to say that we could go from where we are today, which is a $5, $6 million rental company, let's say, to a $10 million revenue company. That very much is part of our plan. So I think modest growth so that it continues to stabilize that business, help stabilize that business for the expressive purpose of helping to generate leads and cash flow so that we can grow our service business. That's our strategy. That's Reynolds' part in that strategy. I think it's going to continue.

Okay, great. Thank you.

Yep, you got it.

As a reminder, ladies and gentlemen, it is star one to ask a question. Our next question comes from the line of Kara Anderson with B Riley Securities. Please proceed with your question.

Hi, good morning. Just one more on M&A from me. Just curious if there's an appetite for and availability of larger acquisition opportunities out there.

So, Kara, I appreciate the question. So, our pipeline today is rather different than it was a year ago this time for two reasons. One, there are more opportunities that we're looking at today from a volume perspective. And again, that's based upon the initiatives we've launched. to make it so. But within the pipeline itself, we are looking at larger opportunities. And when we say larger, we're talking our average size in the past has been the $3 to $5 million revenue range. We've done some a little bit larger. But I think I would characterize our current pipeline as having similar type deals in it and some larger type deals that are closer to sort of the $8 to $10 million range, $10 to $12 million range. So it's kind of... It sort of runs the gamut, but I do think there's some interesting opportunities, and we just have to, you know, eventually see if it's a good match and if we get some deals done.

Got it. And then just one last one on the guide for distribution growth in the high-teens range, which implies a sequential decrease from the fourth quarter. Can you help me with that? Why would that be the case? If you look more towards a recovery, is there seasonality offsetting it?

Yeah, it's just the normal seasonality of the business. Kara, I would describe that as, yeah, just, I mean, there's a host of factors, but, you know, that's the normal seasonality of the business.

Okay, great. Thank you.

Thanks, Kara.

There are no further questions in the queue. I'd like to hand the call back to management for closing remarks.

Well, this is Lee. I appreciate everyone being on the call today. Thank you for joining us. Feel free to check with us any time. Otherwise, I guess we'll speak with everyone after we release our first quarter results. Thanks again for participating.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.