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spk03: Ladies and gentlemen, thank you for standing by. The program will begin momentarily. Once again, thank you for standing by. We will begin the conference momentarily. Thank you.
spk06: © transcript Emily Beynon
spk03: Greetings and welcome to the Simpson Manufacturing Co. second quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. A brief 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, Kim Orlando with Addo Investor Relations. Thank you, Ms. Orlando.
spk11: You may begin. Good afternoon, ladies and gentlemen, and welcome to Simpson Manufacturing Company's second quarter 2023 earnings conference call. Any statements made on this call that are not statements of historical fact are forward-looking statements. Such statements are based on certain estimates and expectations and are subject to a number of risks and uncertainties. Actual future results may vary materially from those expressed or implied by the forward-looking statements. We encourage you to read the risks described in the company's public filings and reports, which are available on the SEC's or the company's corporate website. except to the extent required by applicable securities laws we undertake no obligation to update or publicly revise any of the forward-looking statements that we make here today whether as a result of new information future events or otherwise please note that the company's earnings press release was issued today at approximately 4 15 p.m eastern time the earnings press release is available on the investor relations page of the company's website at ir.simpsonmfg.com. Today's call is being webcast, and a replay will also be available on the investor relations page of the company's website. Now, I would like to turn the conference over to Mike Oloski, Simpson's President and Chief Executive Officer.
spk07: Thanks, Kim. Good afternoon, everyone, and thank you for joining today's call. With me today is Brian Magstead, our Chief Financial Officer. My remarks today will provide an overview of our financial results, key growth initiatives, and capital allocation priorities. Brian will then talk you through our Q2 financials and our fiscal 2023 outlook in greater detail. We delivered solid performance in a difficult operating environment with second quarter net sales of $597.6 million, which is an increase of 0.7% over Q2 2022. North American volumes increased 2.3%, leading to a growth in net sales of 2% year-over-year to $465.5 million. To further break down our performance, national retail showed double-digit improvements year-over-year from a volume standpoint due to our business model and an improving market environment. We have dedicated teams working with our national retail customers that provide training and merchandising support. In our residential market, While our volumes were down in the low single-digit range, we experienced notable strength in the Midwest and Northeast regions of the U.S. over the prior year, with sales in the Southeast region holding relatively flat in a challenging market. Multifamily continues to be an area of strength. In addition, sales in the West recovered nicely following the significant precipitation that led to materially softer sales in the first quarter of 2023. While 2023 housing starts will finish below 2022 levels, the market continues to improve relative to our earlier outlook, in part due to a high share of new single-family home sales as a percentage of all single-family sales. We continue to believe in the sustainable strength of the housing market in the mid- to long-term given the shortage of new housing. We are confident key attributes of our business model will help stem some of the short-term downward pressure given first, our increasing diverse portfolio of products and software and a commitment to developing complete solutions for the markets we serve. Second, our longstanding reputation, relationships, and engagement with engineers, building officials, and contractors to design safer, stronger structures and improve construction practices. Third, a dedication to innovation, extensive product engineering, and rigorous research and testing in our nine state-of-the-art labs. Fourth, Best-in-class field support, technical expertise, digital tools, and training to make it easy to select, specify, install, and purchase our products. Fifth, industry-leading product availability and delivery standards on our vast product offering across multiple distribution channels with typical delivery within 24 to 48 hours. And sixth, a deep commitment to trade education and partnering with organizations that provide training and career opportunities to attract more people to the construction industry and alleviate labor shortages. Turning to Europe, our second quarter sales totaled 127.8 million, down 4.1% year over year on lower volumes. Etanco continues to perform well in a challenging market with relatively flat sales. Our business associated with the residential housing market was down modestly due to lower housing starts. We continue to believe in the longer term potential of the European market given the ongoing housing shortage Increasing use of wood construction and new regulations that drive new applications and specifications. Our consolidated gross margin for the second quarter improved to 48.1%, primarily reflecting lower raw material costs, partially offset by higher costs in our production facilities. Brian will further elaborate on the key drivers of our margin performance shortly. I'll now turn to an update on our key growth initiatives within our five end-use markets, which help fuel our ambition to be the partner of choice. Residential. Beginning with our residential market, our long-standing relationships and high service levels resulted in many new customer wins with both single-family and multifamily builders and our channel customers that serve them. As a reminder, we have 26 of the top 30 U.S. homebuilders, along with several hundred smaller and regional builders, on our program that specify our connector products and other solutions. Commercial. In the commercial market, our solutions are specified for the first ventilated facade application on a building in New York City, demonstrating the early implementation of energy conservation regulations by several cities and states in the US that are similar to those adopted in Europe. The facade will be built with products already available in the U.S., highlighting the future opportunity to roll out the Ataco product line in the U.S. OEM. In the OEM market, to further support the Mass Timber Initiative, our team designed, manufactured, and installed many critical connections in the construction of a 112-foot wood building that was used for the world's tallest shake table test. The building suffered no significant damage after withstanding 100 large-scale earthquakes. It's another example of our rigorous research and testing effort that is consistent with our mission to build safer, stronger structures. National retail. Within the national retail space, we have successfully expanded our product line and off-shelf merchandising efforts with the Home Center channel, which has resulted in improved sales volume. Our outdoor accents decorative hardware line has been a strong contributor to our success with double-digit sales growth year-over-year in 2023 versus last year. Building technology. And finally, in building technology, we continue successfully converting new component manufacturers over trust software, trust plate, and connector solution set. The software critical to this market segment has improved substantially over the last couple of years. Our strong business model has also helped us become the partner of choice for several new customers. We are pleased with the traction we've made on our growth initiatives to date as we seek to extend our mission to help people design and build safer, stronger structures into new applications. Throughout all of our operating segments, we believe our ambition to outperform the U.S. housing market will be supported by our comprehensive strategies specific to each market segment and product line. Turning now to capital allocation, our priorities remain centered on growth opportunities, both organically and through M&A, returning value to our stockholders via quarterly dividends and opportunistic share repurchases, and paying down the debt we incurred to finance the acquisition of a taco. As it pertains to organic growth, we've been making key investments to not only strengthen our business model, but to also expand our operations in order to enhance our manufacturing capacity and supply chain efficiencies and uphold our best-in-class customer service standards. To that end, we have identified a new greenfield opportunity to replace our facility in Gallatin, Tennessee. In addition, we are continuing to evaluate potential M&A opportunities to accelerate traction on our key growth initiatives, the majority of which are smaller opportunities to expand our product line or solution set and help us achieve better manufacturing and supply chain efficiencies. In summary, we remain focused on our company ambitions, which include strengthening our values-based culture, being the partner of choice, being an innovation leader in the markets we operate, continuing above-market growth relative to U.S. housing starts, continuing to expand our operating income margin to remain in the top quartile of our proxy peers, and continuing to expand our ROIC within the top quartile of our proxy peers. Before I conclude, I'd also like to highlight that as part of our customer-centric approach to be their best vendor, we are thrilled to have achieved a very positive response on our internally-conducted Customer Satisfaction Survey. We are genuinely thankful for their recognition of the everyday efforts we put in to provide them with the exceptional service they deserve. This further validates the superior level of service we provide across all of our branches and inspires us to continue to work harder to raise the bar. With that, I would like to turn the call over to Brian, who will discuss our second quarter financial results in greater detail.
spk08: Thank you, Mike, and good afternoon, everyone. I'm pleased to discuss our second quarter financial results with you today. Before I begin, I'd like to mention that unless otherwise stated, all financial measures discussed in my prepared remarks refer to the second quarter of 2023, and all comparisons will be year-over-year comparisons versus the second quarter of 2022. Now, turning to our second quarter results. As Mike highlighted, our consolidated net sales increased 0.7% to $597.6 million. Within the North America segment, net sales increased 2% to $465.5 million, primarily due to higher sales volumes. And in Europe, net sales decreased 4.1% to $127.8 million, primarily due to lower sales volumes. represented 86.2% of our total second quarter sales compared to 86.7%. And concrete construction products were 13.6% of total sales, up from 13.2%. In North America, wood product volume was up 2.4% and concrete product volume was up 1.6%. Consolidated gross profit increased 10.8% to $287.5 million, which resulted in a gross margin of 48.1% compared to 43.7% last year. On a segment basis, our gross margin in North America increased to 51.2% compared to 48%, primarily due to lower raw material costs, which were partially offset by higher factory and tooling costs as a percentage of net sales. Our gross margin in Europe increased to 37.4% from 29.3%, also primarily due to lower raw material costs as a percentage of net sales. And as you may recall, our raw material costs in the prior year period included a $9.2 million inventory fair value adjustment for the acquisition of a Tonko, representing 6.9 percentage points of Europe gross margin. From a product perspective, our second quarter gross margin on wood products was 48.4% compared to 43.7% in the prior year quarter and was 45.9% for concrete products compared to 43.2% in the prior year quarter. Now turning to our second quarter costs and operating expenses. Total operating expenses were $140.7 million an increase of $20.3 million, or approximately 16.9%, driven primarily by increased personnel costs to support our growth, as well as higher variable compensation. As a percentage of net sales, total operating expenses were 23.6% compared to 20.3%. Our second quarter research and development and engineering expenses increased 27.1%, to $21.5 million, primarily due to higher personnel costs in pursuit of our future revenue-generating opportunities aligned with our strategic growth initiatives. Selling expenses increased 11.9% to $50.4 million, primarily due to increased personnel and commissions in North America, and on a segment basis, Selling expenses in North America were up 15.6%, and in Europe they were up 2.1%. General and administrative expenses increased 17.7% to $68.8 million, primarily due to professional fees, personnel costs, and variable compensation. Integration expenses associated with Atonka were down $4 million. As a result, our consolidated income from operations totaled $145 million, a meaningful increase of 9% from $133.1 million. In North America, income from operations increased 4.5% to $143.4 million, primarily due to higher gross profit, partly offset by increased personnel and variable compensation, as well as professional fees. In Europe, income from operations was $14 million compared to $5.6 million, primarily due to higher gross profit and lower year-over-year acquisition and integration costs, which were partially offset by higher variable compensation. On a consolidated basis, our operating income margin was 24.3%, an increase of 184 basis points from 22.4%. Our effective tax rate decreased 25% from 26%. Accordingly, net income totaled $107.2 million, or $2.50 per fully diluted share, which is inclusive of $0.7 million of net interest expense. This compares to $93.6 million, or $2.16 per fully diluted share. Now, turning to our balance sheet and cash flow. Our balance sheet remained healthy with cash and cash equivalents totaling $408 million at June 30, 2023, up $155.4 million from our balance at March 31, 2023. Our debt balance was approximately $566.8 million net of capitalized finance costs, and our net debt balance was only $158.8 million. We have $300 million remaining available for borrowing on our primary line of credit. Our inventory position at June 30, 2023 was $522.2 million, which was down $54.3 million compared to our balance at March 31, 2023. Our focus on effective inventory management remains paramount to ensure the strong levels of service and on-time delivery standards that our customers depend on in the current uncertain economic environment. During the second quarter, we generated cash flow from operations of approximately 194 million compared to $93.8 million. We invested approximately $21 million for capital expenditures and paid $11.1 million in dividends to our stockholders. While we did not repurchase any shares of our common stock, we continue to evaluate opportunistic share repurchases as part of our capital allocation strategy. Next, I'd like to discuss our 2023 financial outlook. Based on business trends and conditions as of today, July 24th, we are updating certain elements of our guidance for the full year ending December 31, 2023, as follows. We now expect our operating margin to be in the range of 20.5% to 21.5%. Key assumptions include lower U.S. housing starts impacting our top line, albeit at a lesser rate of decline versus our initial expectations earlier in the year, higher overall gross margin compared to 2022, increased operating expenses we believe are necessary to position the company to make meaningful share gains in our markets and growth initiatives, and $6 to $8 million in expected total integration of costs associated with Otanko. We are continuing to make progress on our integration efforts for Otanko in order to realize previously identified offensive and defensive synergies in the years ahead, subject to macroeconomic changes, which will delay the realization of some of the offensive synergies. Next, our 2023 effective tax rate is expected to be in the range of 25 to 26%, including both federal and state income tax rates. And again, assuming no tax law changes are enacted. Lastly, we now expect capital expenditures to be in the range of $105 million to $115 million. In summary, We were very pleased with our financial performance in the second quarter amidst the ongoing challenging macroeconomic environment. We remain focused on executing our growth initiatives and integrating the Etanco acquisition while being mindful of expense and inventory management as we look to grow our share. Thanks again to our team at Simpson for the continued strong performance and to all our stakeholders for your continued support of the company. With that, I'd like to turn the call over to the operator to begin the Q&A session. Operator?
spk03: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that 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 hands before pressing the star keys.
spk02: One moment please while we poll for questions. Thank you.
spk03: And our first question is from Daniel Moore with CJS Securities. Please proceed with your question.
spk01: Thank you. Good afternoon and thanks for taking the questions. Congrats on obviously another strong quarter. Maybe to start with North America, margins continue to outperform expectations. If we look at the outperformance in the quarter as well as the upward revision and guidance for the full year, how much of it reflects stronger volumes than expected versus maybe lower input costs versus what was embedded previously in your guide?
spk07: So, Dan, thanks for the question. So North America overall revenue for us It was up 2%. Volume impact, 2.4, so 4 tenths of a percent, basically, downward pricing pressure. When we look at North America as a whole, we're pretty excited that four out of our five market segments all had positive development in terms of revenue and volume. Our Midwest and Northeast regions are having very good growth. Again, especially considering a difficult market. Southeast also flat and a difficult market, so we're pretty happy with that. And the western part of the U.S. is recovering. And then when you look at some other individual spots in there, we're pretty happy with how multifamily continues to go for us this year.
spk08: And I would add that volumes were greater than where we were three months ago. based on the things that Mike had just talked about and the less negative, if you will, or slightly better outlook for housing compared to where we were at the beginning of the year. So definitely saw, compared to prior guidance, better volumes in North America.
spk01: That's helpful. And a quick follow-up, you know, obviously over the last several years, you've done an excellent job of driving down OPEX as a percentage of revenue. And the tick a little bit back higher, back from the sort of low 20s into the mid-20s with the Tonko and is working its way back down. Just where do you see that metric in two to three years once full synergies are achieved? Just remind us maybe what your kind of longer-term targets look like.
spk07: Yeah, so Dan, we're going to continue to invest in our growth initiatives because we need the salespeople, engineering people, and other team members to realize those. So we'll continue to invest in it. That also helps us continue to provide great service as far as the metrics go. Brian?
spk08: And from a, you know, OpEx is a percent of revenue. You know, seeing where we are from a revenue perspective today, the guide that we have increased slightly for the balance of this year would indicate a run rate a little bit higher than where we were this time last year or for the balance of the year. And then going forward, we're in a scenario where, again, all things being equal,
spk04: relatively flattish from a percent of revenue perspective.
spk01: Understood. Last one for me, and I'll jump out. Just getting a sense of the cadence going into Q3, North America volumes up a little over 2% for the quarter. How is that trended thus far in Q3 from what we've seen quarter to date?
spk08: So as we're looking at July, and just as a reminder, July last year was somewhat soft, and we're around that again so far in the first few weeks of the month. A couple of the interesting things there with July with the holiday falling on, July 4th holiday falling on a Tuesday. We think we've got one less selling day in July. And then also that activity that first week, a little softer than normal due to, I think, a lot of people in the industry taking that whole week off. Again, due to the timing of the July 4th holiday.
spk04: Understood. I'll jump back to any follow-ups. Thank you.
spk03: Thank you. Our next question is from Tim Weiss with Barrett. Please proceed with your question.
spk10: Hey, good afternoon, guys. Nice job. Thank you. Maybe just to start off on the revenue line, I know that you may be expecting, you know, starts activity to be, you know, less bad. than maybe you thought six months ago or even three months ago. I guess as you kind of think about the overall kind of revenue number for 2023, I mean, even with the starts seemingly kind of down in the second quarter for you guys, you still posted revenue growth. So I guess my question is, even if starts are less bad than they were before, I mean, is it possible you can grow the top line organically in 2023?
spk08: Well, just to remember the level set, 23 has got the full four quarters of a Tonko versus 22 only having the three quarters company-wide. But taking that out of the equation,
spk04: see, let me pull that up.
spk08: It's going to be relatively flat on a like-for-like basis when we take the Italico extra quarter into consideration, which would be up compared to where we were entering the year.
spk10: Yep. Okay. And is the difference there, like retail and some of the growth drivers? Because I think that would be, I guess, more positive than I think I would have expected just given where starts are kind of at even here today.
spk07: Yeah, Tim, let me go back to the market. So when we were budgeting for this year, we were thinking the residential starts would be definitely more than 10% down. Now we're thinking based on everything we've heard from our customers, it's going to be 10-ish. maybe right around that 10% down, so again, less bad. On the national retail home center story, we were also expecting that to be a negative market, but with the lower lumber costs, a lot of projects that have been sitting on the side are coming in. So we actually expect that market to be, market again, positive. And then the strategies we have to drive growth in the national retail segment we're pretty excited about, and we think that's helping us drive above-market growth in that area. And then if you look at the other market segments that we're in, OEM, albeit still small, we're still driving big growth in that segment, volume and revenue perspective. And on the commercial side, we still think we're in good shape on that area as well. So, you know, add it all up, the market is getting better than we had budgeted, and we think the strategies that we have in place are delivering.
spk10: Yep. Nope. Understood. And then maybe just on the, on the margin line, I think last quarter, Brian, you talked about kind of EBIT margins being kind of flat year over year in Q2 and Q3, and then, you know, maybe being down a little bit in the, in the fourth quarter, I guess, how are you thinking about the back half margins now? Cause I think if I kind of assume they're flattish in Q3 and Q4 for the, for the rest of the year, I'm kind of at, or maybe even above the updated EBIT guidance.
spk08: Yeah, so from an operating income perspective, Q3, pretty comparable to prior year. And then I would thank you for, let's see, you know, again, fairly comparable.
spk10: Okay. Okay. Okay, good. And then just the last one on the Galveston or the Tennessee facility. Can you just kind of step back and kind of give us some kind of color on why you're kind of replacing that facility and what kind of the benefits to Simpson would be, and then also maybe just kind of the total capital outlay for that?
spk07: Yeah. So the Fasteners business, Tim, has been a big growth driver for us. We continue to expand the top line in the margins area. We think we've got a differentiated product offering. And right now, We make some of our products in our Gallatin facility today, and we import some of our products for that area as well. So the focus here is we want to localize more of our fastener production. We also want to vertically integrate more of our fastener production. We think that'll better help us serve and support our customers. And then if you go back to some of our growth initiatives like Mass Timber, those tend to be projects you either get it or you don't. And if you get it, you need to be able to respond quickly. So having production in the U.S., we believe will help us better respond to our customers in those areas as well.
spk08: So, yes, and the total project cost or fine-tuning numbers and estimates depends on land development, how far along a piece of property may be versus how quickly it can be developed on. About $100 million. you know, net of selling our existing facility. We're a bit landlocked in our current site there. And to Mike's point, being able to insource more of the activities around getting raw wire into finished good, we're going to be able to have on-site there. So $100 million and the outlay would be, you know, mostly... 24 and forward, 24, 25, a little bit this year. We would presume that we're finding land, maybe starting to get that ready to build on. But the bulk of the lifespan would be in the next couple of years.
spk10: Okay, gotcha. And where's Columbus at?
spk08: Columbus is still pretty early from an improvement perspective. We acquired adjacent land there that needed to be graded and we're continuing to work that. So we've not spent a lot of money on that one yet. Still had been going through a lot of the permitting process, approval process. The land is getting ready to be able to get foundations in and get walls up and the like. So still pretty early in that process as well, although we would expect through the balance of this year to be able to see some pretty good improvement in the project phases for that facility.
spk10: Okay, good.
spk04: Well, thanks for your time, guys. Good luck on the rest of the year. Thanks, Tim. Thanks, Tim.
spk03: Thank you. Our next question is from Kurt Yanger with DA Davidson. Please proceed with your question.
spk09: Great, thanks, and good afternoon, Mike and Brian. Hi, Kurt. Just two quick ones for me. I guess first I would just love to hear kind of your latest thinking on pricing environment and pricing risk. Are there any areas where you're getting more pushback from customers or The competitive environment is getting to a point where you're having to make any concessions or not so much?
spk07: So, Kurt, we are actively managing and monitoring our pricing on a regular basis. But really the emphasis on us is more in our business model, and that's making sure that we're investing in products that deliver value for our customers, driving innovation, providing exceptional service. doing the training and all the things associated with that business model. We believe that that business model helps us have a modest premium. Key word here, again, modest. And we're actively monitoring that pricing as we speak.
spk09: Got it. Okay, thanks for that. And then second, can you just talk a little bit more about the component manufacturer wins? I mean, presumably that's a tailwind to the trust plate business, and I'd just love to hear what's kind of changed from a software perspective that's maybe helped catalyze that.
spk07: Yeah, so we're talking specifically about the trust market, and here we've been spending a lot of time and effort over the last three years to really develop our software into one fully integrated program that's easy to use and hits our customers' needs. We've made a lot of progress. Kurt, we think there's still some room for improvement, and we're now coupling that development efforts in the software with everything else we do from a business model perspective, meaning making sure that we're providing great service and support to our customers. And so we have been picking up trust customers over the last couple of years, in part because we believe one of our competitors had some significant delivery problems. They ended up putting customers on allocations, and they did that in a growing market. That obviously had an impact, and I think we've had several customers approach as a result of that. And so now we are taking a very measured and cautious approach with how we onboard our new customers. We want to make sure that goes very well going forward with them. So we think that's also going to be a nice growth driver for us. And everything that we've been doing in that area the last couple of years has been working out very well according to how we planned it.
spk09: Got it. Thanks for that, Mike. And then just quickly, I mean, is the software piece of it now, I guess, capable of fully supporting the full suite of products like wall panels and things like that? If I'm remembering correctly, at least that was kind of a hindrance in the past. Is that still the case or...? Or no?
spk07: So we do have a couple of gaps, and there are some areas we're working on it. So the customers that we're working with, we're doing basically a fit analysis with them, trying to make sure we understand what they need and what we're capable of doing, and we're customizing and developing the software to make sure we have the needs. We aren't exactly where we want to be to date, but we do have, I believe, very good plans to get there. Got it.
spk09: Well, thanks for that. Appreciate all the details, and good luck here in the second half, guys.
spk04: Thanks, Kurt.
spk03: Thank you. Our next question is from Julio Romero with Sidoti & Company. Please proceed with your question.
spk00: Hey, good afternoon, Mike and Brian.
spk04: Hello, Julio. Hi, Julio.
spk00: Hey, good afternoon. Could you talk about the trend on North American volumes throughout April, May, and June? And, you know, was it a gradual improvement throughout the quarter or more of a sharper step up in June?
spk07: So, yeah, June was a real nice month for us.
spk04: I mean, each month got better in the second quarter. Gotcha.
spk00: And, you know, has the magnitude of the improvement in June maybe changed any behaviors either from your customers or competitors at all?
spk07: No. I mean, we continue to think, again, that the market is improving, and we're hearing from a lot of our customers that their business is getting better. And at the same time, Julio, we continue to pick up new applications and new customers. And, you know, I think a combination of that is the reason why you see the numbers develop the way they've developed versus the market.
spk04: Got it.
spk00: If we could talk about... maybe steel for a second. I think steel prices have kind of inflected downward since your last call in April. If you could just maybe talk about the impact of that on your cost of sales expectations for the back half of the year.
spk04: Julio, it's Brian.
spk08: So part of our operating margin guidance for the year incorporates where we see material as a you know, large component of cost of sales. And, you know, as consistent, we don't disclose how much material or steel is as a percent of cost of sales, but it is the largest component of that. And, you know, we feel it's, you know, should be pretty consistent on a go-forward basis, you know, based on the steel markets where we're purchasing. where we are positioned with inventory and the volume assumptions that we have for the back half of the year on how much we're going to consume of that.
spk00: Got it. That's helpful. And then just the last one for me would be just on the CapEx guide. Just talk about the step up in the guide, and is that related to the Tennessee facility or any other kind of capital projects?
spk08: James Beall, Norcal PTAC, Mostly due to the Tennessee facility so we've still have a fair amount of spend for this year that we anticipate for the Ohio expansion and then. James Beall, Norcal PTAC, Some spend for the fastener factory and land acquisition and some associated costs with that.
spk04: James Beall, Norcal PTAC, really helpful thanks very much for taking the questions. You're welcome. Thank you.
spk02: Thank you.
spk03: We have reached the end of our question and answer session. And with that, this concludes today's teleconference. You may disconnect your lines at this time. And thank you for your participation.
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