The Duckhorn Portfolio, Inc.

Good evening, ladies and gentlemen. Thank you for joining today's Doug Horne Portfolio Q1 2024 earnings conference call. My name is Tia and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star one on your telephone keypad. I would now like to pass the call over to Ben Avena Tapper. Please proceed.

Good afternoon and welcome to the Duckhorn Portfolio's first quarter 2024 earnings conference call. Joining me on today's call are Deirdre Mullen, our interim president, chief executive officer, and chairperson, Jennifer Fall Young, our chief financial officer, and Sean Sullivan, our chief strategy and chief legal officer. In a moment, we will give brief remarks followed by Q&A. By now, everyone should have access to the earnings release for the first quarter ended October 31st, 2023, that went out at approximately 4.05 p.m. Eastern Time. The press release is accessible on the company's website at ir.duckhorn.com, and shortly after the conclusion of today's call, a webcast will be archived for the next 30 days. Before I begin, I would like to remind you that today's discussion contains forward-looking statements based on the environment as we currently see it, and as such, includes risks and uncertainties. If you refer to Duckhorn's earnings release as well as the company's most recent SEC filings, you will see a discussion of factors that could cause the company's actual results to differ materially from these forward-looking statements. Please remember the company undertakes no obligation to update or revise these forward-looking statements in the future. We will make a number of references to non-GAAP financial measures. We believe that these measures provide investors with useful perspective on the underlying growth trends of the business and have included in our earnings release a full reconciliation of non-GAAP financial measures to the most comparable GAAP measures. In addition, please note that all retail scanner data cited on today's call is according to CERCANA, which was formerly known as IRI, and will refer to dollar or unit consumption for the 12-week period ended October 29, 2023, and growth versus the same period in the prior year in U.S. tract channels, unless otherwise noted. With that, I will turn the call over to Deirdre.

Thank you, Ben, and good afternoon, everyone. Thank you for joining us today to discuss our first quarter 2024 financial performance. Following my opening remarks, Jennifer will walk us through our quarterly results and our fiscal year 2024 financial guidance. We are pleased with our execution on the quarter as we delivered top and bottom line results at the higher end of our expected range. Net sales were $102.5 million in the quarter, and adjusted EBITDA was $34.7 million for an adjusted EBITDA margin of 33.9%, a 90 basis point improvement over the prior year, driven by gross margin improvement and active management of operating costs. Due to some signs of softening in consumer sentiment, and luxury wine trends, we now expect net sales to come in at the lower end of our previously announced guidance range. Accordingly, we are narrowing the net sales guidance to $420 to $427 million, which reflects an annual growth rate of 4 to 6 percent. This reflects our expectations for continued share gains, albeit adjusted for a near-term lower industry growth rate. Despite this reduction in our top-line outlook, we expect to maintain our previously communicated adjusted EBITDA margin as we manage our spending to account for this revised sales outlook. This translates into a range of $150 to $153 million in adjusted EBITDA for the fiscal year. It's important to note the climate within which we're delivering this full year growth. According to Cercana, growth in total wine softened, as did the luxury wine segment, defined as $15 and above. In the last 12 weeks, the luxury wine segment was flat, and total wine overall declined 1.6%. While we cannot control the macro environment, which has been mixed, The Duckhorn portfolio brands have continued to demonstrate relative strength in their respective tiers. We are confident in our comprehensive strategy and have a track record of profitable sales growth through a variety of industry climates. Our initiatives to support our strategy remain leveraging our brand strength, evolving our portfolio, expanding our wholesale network, and growing our DTC channel. I'll now share some of the highlights from the quarter, driven by strong execution on our initiatives. Net sales were down 5.2% at the higher end of our expectation for a first quarter decline of mid to high single digits. This outperformance was partially driven by timing, as some shipments anticipated for November came in earlier than expected and shifted into Q1. As we shared, On our last earnings call, in Q1, we lapped a unique first quarter of fiscal 2023. Last year's first quarter was marked by strong buys in wholesale, as distributors and retailers alike placed unseasonably large orders, specifically for our higher-priced Duckhorn wines. The result was an all-time high for quarterly net sales, driven entirely by volume. Accounting for this challenging comp, we continue to see our wholesale performance ahead of the broader market, demonstrating our brand strength. It is worth noting here that we have always managed this business for the long term, and quarterly variability is normal in this sector. Volume trends are affected by a number of factors in the supply chain as distributors and retailers adjust to demand signals and manage inventory levels accordingly. The full-year guidance Jennifer is discussing today is consistent with our objective to deliver profitable growth over the long term. On the direct-to-consumer side, net sales declined 10.8% in the quarter, partially driven by a reduction in event revenue due to planned renovations at some of our tasting rooms. There is opportunity for improvement for our DTC business. which is one of our five key growth drivers. Our Q1 results are emblematic of broader post-COVID trends in consumer behavior. Across Napa Valley, hotel occupancy rates have dipped, but room revenue has continued to grow, as strong demand at the highest end has buoyed average room rates. We're actively adjusting our DTC approach to respond to changing consumer behavior and tap into the strength at the ultra high end, and we're seeing some positive results. For example, although the number of visitors and spend per visitor were soft in the quarter, we've seen a strong response to our elevated tasting experiences, where spend per person can be considerably higher than our traditional tasting programs. From a total volume perspective, Q1 declined 3.4% in line with expectations. Shipments to wholesale declined 3% in the quarter, while depletions declined at a slower rate. Wholesaler inventories remained at a healthy level and in line with our expectations. While days on hand ticked higher year over year, this was primarily driven by lower than ideal levels during the peak selling season last year. Drilling down within our portfolio, we see performance slightly ahead of the industry overall, with some areas of particular strength, including Decoy Limited, which had great success expanding into Merlot. The evolution of our portfolio is another important growth driver as we leverage our carefully curated collection of luxury wines across a range of price points and taste profiles. While retail sales for the total wine category decelerated in the last 12 weeks, the $15 to $25 segment outperformed. Decoy was soft at this price point during the period as the brand absorbed recent price increases and lapped an unusually strong quarter in the prior year. The impact was mainly in the red varietals as decoy whites grew ahead of the sub-segment in this period. We remain confident in the brand's ability to distinguish itself from direct competition within its tier. Our higher price decoy limited, as I mentioned, demonstrated continued strength in the quarter with double-digit retail sales growth, and we view this as another proof point that consumers remain willing to pay for luxury wine. Overall, our market share remained consistent. From a channel perspective, despite a challenging environment, we were pleased to report that our account bases increased in both the on-premise and off-premise channels of the business. We believe this to be testament to the strength of our brand and the confidence of the retailers to take stock in our wine, as well as the distributor and sales team efforts in achieving our goals of addressing the distribution opportunities in the marketplace. To conclude, our portfolio of brands performed well in what has proven to be a challenging market environment. While our execution and the strength of our brands partially insulates us from the broader consumer sentiment, we are not immune. Reflecting this climate, we now expect net sales to come in toward the lower end of our guided range, which we are tightening to $420 to $427 million or 4% to 6% year-over-year growth. We expect to maintain an adjusted EBITDA margin consistent with our prior communication as we carefully manage our expenses. With that, I'll turn it over to Jennifer to provide more details on the financial results for the quarter and our outlook for the year.

Thank you, Deidre, and good afternoon, everyone. As Deidre described, we're off to a good start to the year. and believe we will continue to outperform the market as we leverage our strong portfolio of luxury wine brands. Beginning with our top line, net sales were 102.5 million, a decrease of 5.2% compared to the prior year period, at the high end of the expectations previously communicated, as some shipments expected in November came in earlier than expected, shifting some net sales from Q2 to Q1. We managed through a modest mix headwind due to shipment timing from higher priced and greater than expected non-decoy wine shipments in the year-ago period. By channel, the wholesale to distributor channel declined 5.4% in Q1. Absent last year's shipment timing impact, we estimate wholesale net sales growth was flat to slightly down year over year. We remain committed to our wholesale strategy to expand accounts and points of distribution to ensure strong programming is in place to support our brands. Distributor days of inventory on hand remain healthy and in line with our expectations at 65 days. California wholesale direct to trade declined 7.3% compared to the prior year period driven by the same factors that impacted wholesale to distributor. The tough comp due to a surge in buying in Q1 of last year was a nationwide trend and California was no exception. The direct-to-consumer channel was down 10.8%. We do see signs that our strategy to drive our direct-to-consumer business through customer engagement in our tasting rooms is working, as our per-person spend remains high. As Deidre mentioned, we're navigating a changing landscape in multiple facets of the D2C business, but we're confident in the initiatives we have in place, particularly in the elevated tasting experiences. Moving down the income statement, first quarter gross profit was $53.9 million, or a gross margin of 52.5%, up approximately 190 basis points year over year, driven by improvements in the wholesale channel related to our efforts to optimize trade spend, as well as easing input cost inflation as it relates to cost of goods. The DDC channel saw margin contraction of 60 basis points primarily driven by mix and timing. Operating expenses were $30.5 million, an increase of $4.7 million or 18.4% year-over-year. On an adjusted basis, total operating expenses decreased $0.2 million or 1%, driven primarily by careful cost management. This excludes $2.7 million of transaction costs related to our pending acquisition of Sonoma-Couture Vineyards. Net income was $15.5 million or $0.13 per diluted share. Adjusted net income was $17.2 million or $0.15 per diluted share. Adjusted EBITDA was $34.7 million, a decrease of $1 million or 2.7% year-over-year. Adjusted EBITDA margin improved 90 basis points versus the prior year period. The improved margin was driven primarily by lower trade spin, partially offset by lower net sales in the quarter. At the end of the quarter, we had cash of $21.2 million and total debt of $241.3 million, resulting in our leverage ratio of 1.7 times net debt. I'll now share our updated full-year fiscal 2024 outlook, which does not include our recently announced plans to acquire Sonoma-Couture. Net sales in the range of $420 million to $427 million, which represents growth of 4% to 6%. Adjusted EBITDA in the range of $150 million to $153 million, also a 4% to 6% growth. and a margin at the midpoint of approximately 35.5%, consistent with our previously communicated guidance. For adjusted EPS, we expect a range of 67 to 69 cents per diluted share. I also want to provide some color on what we expect to see in the second quarter. As previously mentioned, a portion of shipments expected for November occurred earlier than anticipated. This in addition to a softer consumer environment, contributed to our revised expectations of low single-digit net sales growth in the second quarter. Overall, we are pleased with our first quarter results. We remain in an advantageous position within our industry, and while there is some uncertainty in consumer sentiment broadly, we remain confident in our ability to take share as we continue to outperform the broader wine industry. I will now turn it over to Sean for some notes on the M&A front.

Thank you, Jennifer, and good afternoon. Earlier this quarter, we announced a landmark acceleration in our long-term strategic plan. We believe the acquisition of Sonoma Couture, which is expected to close in spring 2024, subject to customary closing conditions, will deliver significant shareholder value and provide a keystone in our strong foundation of future growth. As we have previously shared, disciplined acquisitions of complimentary winery brands are an important element of our growth strategy and part of our history. Sonoma Couture is an outstanding addition to our portfolio of wine and central to this strategy for growth as a premier luxury wine portfolio in America. I would like to take a moment to reinforce a few of the key elements of the agreement to acquire Sonoma Couture vineyards from Brown Forman for approximately $400 million. Sonoma Couture is one of the largest and most celebrated luxury Chardonnay brands in the United States, and we are delighted to welcome this acclaimed winery brand into our portfolio. Preparations for closing are on track, and we expect to close in spring of 2024, as we discussed last month. We see meaningful wholesale distribution opportunities for Sonoma-Couture. We're excited about the prospect of offering Sonoma-Couture to Duckhorn accounts that don't currently carry us, and also about introducing Sonoma-Couture on-premise and off-premise accounts to complimentary wines in the Duckhorn portfolio. including wines such as our Decoy Cabernet Sauvignon and Duckhorn Vineyards Merlot, which will be exciting new varietal offerings for legacy Sonoma-Couture accounts in which Duckhorn has not had a presence. We will be in touch over the next few months with a more detailed review of the account penetration and distribution white space of Sonoma-Couture. One of the benefits of using our stock as the primary element of consideration for this acquisition is that it affords us flexibility and optionality for future growth, which is specifically important to us in the current high interest rate environment. The structure also allows us to bring the experience and strategic guidance of Brown Forman to our company as a long-term focused shareholder and through the two members of our board who will be affiliated with Brown Forman. We view Brown Forman as a partner invested with us in the successful integration of Sonoma-Couture and committed to our shared mission to set the standard for American fine wine. Delivering an accretive deal for our first public company brand acquisition was paramount in our evaluation of Sonoma-Couture. We estimate Sonoma-Couture's pre-synergy adjusted EBITDA margin profile to be similar to the margin profile of the Duckhorn portfolio, which was approximately 35.9% in fiscal year 2023. the low single-digit adjusted EPS accretion that we project to be realized starting in fiscal year 2025, which is just a few months after the anticipated closing of the deal, will be driven by $5 million of already identified SG&A synergies. During our work preparing for integration, we are keenly focused on identifying additional sources of efficiencies and synergies. Separately, We believe there are a number of opportunities for incremental revenue growth beyond the current growth of the brand, including cross-selling opportunities in existing Duckhorn portfolio accounts and vice versa, as well as expanding Sonoma Couture's footprint in the DTC channel through a heightened focus on the wine club and an enhanced experience for guests at the tasting room, areas where we can draw on our extensive expertise to augment growth. Additionally, we see significant opportunities to promote Sonoma-Couture brand awareness with consumers, which we believe will be a key driver of velocity in sales of these waters. And we also believe there are several incremental medium-term opportunities to manage Sonoma-Couture's fruit sourcing and production models, optimize our company's mix of estate grown and grower fruit, and pursue value-enhancing land optimization opportunities. We look forward to keeping in touch with you about the preparations for closing and our plans for the future of Sonoma Couture over the next few months. With that, I'll turn the call over to Deirdre for her concluding remarks.

Thank you, Sean. I've been closely involved in the evaluation of the Sonoma Couture opportunity, first as a member of the board and now as CEO. And I continue to be excited as I learn more about the brand and the opportunities it brings to the Duckhorn portfolio. Two things couldn't have been clearer. First, we are acquiring an incredible asset that is a great fit with our brand architecture. And second, the Duckhorn portfolio has an amazing team in place to make this integration a success. We have a proven track record through the acquisitions of both Calera and Costa Brown and have significantly expanded our in-house production capability with the recent acquisition of the Geyserville Production Winery. As a company, we are focused on continuing to identify thoughtful synergies and the successful integration of Sonoma Couture into our portfolio and look forward to the strategic, commercial, and financial benefits it will provide over the coming years. With that, I'll close by saying I see ample evidence to give me confidence in the strength and resiliency of our brand. We will continue to leverage our advantage position within the luxury wine space to drive growth and take share through the remainder of fiscal 2024 and beyond. We remain committed to delivering sustainable, profitable growth and will always strive to create value over the long term for our shareholders. In keeping with that goal, we are excited to welcome Sonoma Couture into our portfolio and we look forward to making the acquisition official in spring 2024. Before I move to questions, I'll provide a brief update on our ongoing CEO search. I'm happy to say that the board is pleased with the candidates it's been seeing and the process is going as planned. And I look forward to keeping you updated as the process progresses. With that, Jennifer, Sean, and I are available to take your questions.

We will now begin the QA session. If you would like to ask a question, please press star followed by one or your touch-tone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, press star one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly to allow questions to generate and queue. First question comes from the line of Lauren Leberman with Barclays. Please proceed.

Great. Thanks. Hi, everybody. So just kind of my numbers could be wrong, but I think with the updated guidance and particularly the 2Q comments, it still implies very strong growth in the back half of the year, something like a double digit rate. So I know there was a bit of pull forward this quarter. from November, but it just strikes me that it wasn't large enough to account for what seems to be implied much healthier growth in the back half. So we're just hoping for some perspective on that anticipated acceleration. Thanks. Great.

Thanks for the question. I appreciate it. This is Jen. Yeah, so the back half is differentiated from the first half. So what we have going on in the back half of the year is twofold. Really, there's some innovation. We launched Decoy Merlot Limited in fiscal 23 in the back half, but due to the strong success, we quickly got low on inventory. And so the first half of this year, we've been really limited on our, no pun intended, on our Decoy Merlot Limited inventory, but we will be back in stock towards the back half of the year. In addition, from an innovation perspective, we are launching our... our low-alk decoy Sauvignon Blanc, which will be a first launch of that in the back half. And then finally, we will be back in stock in our duckhorn Chardonnay, which has been performing very well for us.

Okay. All right. Thanks. And just in terms of the no-alk, have you test marketed that? Just kind of curious, because it's a really interesting category, of course, but, you know, the the range, frankly, of like hits and misses. It's, you know, my sense is a lot of the wines aren't quite getting there yet in terms of taste profile. So have you had the opportunity to test market this? Because I'm curious how much of that is a driver of that second half acceleration.

Hey, Lauren, it's Sean. We're very excited about Decoy Featherweight, which will be, as Jennifer mentioned, an offering in the second half of the year. I can assure you our winemaking team, as you know, always is very excited to stand behind everything that bears a Duckhorn portfolio name. And so all of our wines, including the Featherweight, go through a rigorous committee tasting process. And we're very excited about what we think consumers will view this wine in the second half when it's released.

Lauren, let me just add, this is Deirdre, let me just add one more thing to that. I think over time people learn about innovation and how best to balance anticipated consumer demand with supply. And I think while Sean is absolutely right that we are excited about it and we think it's a winner from a taste profile point of view. However, we are also imprudent in terms of what we're planning for it in the back half. So I would not call it out as the driver of what is going to get us to that growth in the back half, because we understand it'll take time to build some distribution, and we'll have to wait and see if the consumer loves it as much as we think they will. So I wouldn't say that that is the driver. It's a contributor. It's a contributor, but it is not the only thing that is delivering that increase, yes.

Okay, great. And then, so therefore, having the inventory on the Duckhorn Chardonnay and the, is it a decoy Merlot, right? A decoy limited Merlot. Yeah, limited.

Right. So, thank you.

They're all good visibility.

Yeah, they're all contributors. And also, I think we have a balanced view with respect to the overall performance of the industry in the back half. I mean, I understand that And we understand there is a lot of cautiousness right now about the consumer. And we share that, which is why we've tightened up our guidance. But that said, you know, we do expect there to be growth in the back half.

Okay. Does the second half assume an acceleration in category growth? Or no, this is much more availability of these, you know, two key categories? product?

I'd say it assumes a range of outcomes in terms of what's happening in the category. So, for example, if you even look at Circona data in November, it's better than it has been. And in fact, our brands in the four weeks in November were in growth during that period. But every month, of course, is an individual month and not something that we would take as an indicator of of the future. But what we're doing is, so if the consumer comes back stronger, we would expect to be at the higher end of that range. And if we kind of continue to see the trends we see now, we'll be at the lower end.

Okay. All right. Awesome. Thank you so much.

Thank you. The next question comes from Delana with Jefferies. Please proceed.

Hey, everybody. Letting me ask a question um well, can we talk a bit more about the category and category softness you know, in the past, you know we heard a lot about resilience, particularly in the high end. piece of the wine business and then it looks like in this instance any incremental distribution gains weren't able to offset anything happening to the category.

Yeah, so basically what we saw in our cercana data for 12 weeks, it's been flat within the wine industry as a whole. And then on a 52-week basis, it was actually up. So we did see some slowing in the $15 and above category. Within the past 52 weeks, we did outperform the industry. What you saw a little bit in Q1 is because we were lapping such a strong quarter last year. We didn't outperform the industry so much, but as we now have that behind us, we anticipate we will continue to outperform where the industry has been.

I see in the industry itself, is it trading down or maybe just buying less?

We see no signs of the industry trading down. In fact, in November, the 15 plus performed while still at declines of slightly less than 1%. Uh, the industry is a total decline 2%. And our brands grew, so, you know, I think across the, our portfolio in the industry, there really isn't an indication of trading down. In fact, the success of our decoy limited. I think is a demonstration of that, which grows is growing in strong double digits on distribution gain and on rate of sale. I think we're getting both on decoy limited. It's a very strong performer and at a higher price point than our other decoy labels. So we are not seeing a sign of trade down.

Got it. Great. Thank you.

Thank you. The next question comes from the line of Peter Gobble with Bank of America. Please proceed.

Hey, good afternoon. Thanks for the question. Jen, if I could just follow up back on Lauren's question, you know, obviously understanding there's some nuance in the product availability, but anything more you can do to help us in the back half of the year just to understand, again, how that ramp might look? You know, your comparisons are kind of a bit wacky just given, I think, some of the dynamics from 2Q of 23 as well. So just any more color just as we kind of try to parse the quarters here on what we might see.

Yeah. Hey, Peter, great question. So as we talked about on our last earnings call in 20... Sorry, I'm getting the years all confused here. So for fiscal 23, when we put the Costa Brown offering in Q4... it drew a bigger comp in Q4. Now, for this year, we're moving it back primarily into Q3. Some will slip into Q4. So you will see more of an outweigh in Q3 versus Q4 just because of that shift in that offering. So keep that in mind that we've, you know, we had it one way in 23 and that as we move forward, we're switching it back to where we had it previously.

Got it. Okay. That's helpful. And then just in terms of... didn't know if you you updated this just like gross margin Cadence as well for the rest of the year um maybe maybe particular to 2Q and then if it follows that kind of same idea in the back half if you're shipping more close to Brown and 3Q then then the gross margins are probably better but just anything you can do to help us there yeah and as I said um it our margin profile remains the same um for Q1 and Q2 we thought we would see um slight improvement year over year but Q3 and Q4

we would see more margin pressure as we anticipated more trade spin because we were extremely clean on trade spin in Q3 and Q4 last year. So first half, slight improvement. Second half, margin pressure due to trade spin. Got it.

Okay. Thanks very much.

Thank you. The next question comes from the line of Andrea DeRixit with JP Morgan. Please proceed.

thank you good afternoon everyone um i wanted to drill back did you mention um the decoy uh red varietal in your prepared remarks being a bit softer within the 15 to 25. so i was wondering and of course you you're limited you're selling as much as you produce but just curious if that is specific and you you pointed out the pricing right so If we think, we look back, do you think you overdid a bit on the pricing or that's what you were expecting? And in that range, of course, decoy, the regular decoy is a bit more on the lower end of that range. Is that any potential implication there in terms of like increased marketing or increased, I would say, promotional activity on the promotional activity there? in that specific price point. And then if you can also parse out the on-premise, you did call out number of accounts both off-premise and on-premise. So if you can talk about also how much is different between the performance was different for on-premise and off-premise if you have that visibility. Thank you.

Hi, Andrea. Thanks for the question. Yeah, the decoy white label, so not decoy limited, excluding decoy limited, the red wines, we did take price on them last year. And I think it's normal for there to be a period after a price increase as that price starts to come through on the shelf and the consumer digests that price and the retailer digests it in terms of what's happening in terms of feature and display. For there to be a period where it's suggested there's some softness in the consumer take off that we haven't learned anything that would suggest that there is any kind of issue or that we, you know, to use your words gone too far on the pricing. Of course, we continue to evaluate how the consumer is responding to our brands, and we will support our brands at the trade level and with the consumer digitally over time to, of course, reinforce the equity at that price point. But we're not seeing anything that would suggest that there is an issue with positioning of the brand, and we expect it to continue. And as I said, I haven't seen all of the detail yet on November because it's fresh, but Our total portfolio in Sercana did return to growth in November. We haven't had time yet since those came out to really dig into the detail. But again, the industry is still soft, so I'm not declaring victory overall, but we're encouraged by what's happened in the November Sercana data. And as we get through that, we'll be able to tell you more about it after this quarter. In terms of the on and off premise, Were you going to say something else? Sorry, did I interrupt you?

No, sorry. I was about to remind you for the on-premise and on-premise dynamics within the quarter and any trade down, as you might see.

In terms of the distribution in the on- and the off-premise, they're both up. Right, but in terms of the consumer? From a consumer point of view, the on-premise, I think, has been slightly stronger in the most recent months than the off-premise. And again, I think we're not the only ones in the industry talking about this. As the consumer has kind of fully returned and gone to their post-pandemic behavior, we are seeing more people out, and that has improved In particular, at the more luxury, higher price points, it has improved the performance in the on-premise. But I wouldn't say that the on-premise is driving the performance. I just think there was some slightly better performance in the on-premise over the course of the period.

And I might just add that we, I think, take a lot of, we think that's a real positive thing, right? That balance between growth in both on-premise and off-premise, that's the confidence of retailers. And that's that diversification of where folks find our wines that we think is important in supporting our omnichannel strategy. So we like those results a lot.

Absolutely. Thank you so much. I'll pass it on.

Okay. Thank you. Thank you. Again, to ask a question, please press star 1. There are no additional questions left at this time.

I will hand it back to the management team for closing remarks.

Sorry.

Thanks again, everyone, for joining us today for our first quarter performance and our guidance for the fiscal year. I look forward to speaking to you again in March when we report our second quarter results. And we wish you all happy holidays and a prosperous, healthy new year. Cheers.

That concludes today's conference call. Thank you. You may now disconnect your line.