NV5 Global Inc (NVEE) 2017 Q3 法說會逐字稿

Good afternoon, everyone, and thank you for participating in today's conference call to discuss NV5's financial results for the third quarter and 9 months ended September 30, 2017.

Joining us today are Dickerson Wright, Chairman and CEO of NV5; Michael Rama, CFO of NV5; and Lauren Wright, Director of Investor Relations for NV5.

I would now like to turn the call over to Lauren Wright.

Thank you, operator.

Before we proceed, I would like to remind everyone that this conference call may contain forward-looking statements within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995, including statements concerning future events and future financial performance.

The company cautions that these statements are qualified by important factors that could cause actual results to differ materially from those reflected by the forward-looking statements contained herein.

All forward-looking statements are based on information available to the company on the date hereof, and the company assumes no obligation to update such statements, except as required by law.

I would like to remind everyone that a webcast replay of this call will also be available via the link provided in today's news release in the presentation section of the company's website.

Any redistribution, retransmission or rebroadcast of this call in any way without the express written consent of NV5 Global, Inc.

is strictly prohibited.

We will begin the call with comments from Dickerson Wright, Chairman and CEO of NV5, before turning the call over to Michael Rama, Chief Financial Officer for a review of third quarter 2017 and year-to-date financial results and outlook for the rest of the year.

We'll then open the call for your questions.

Dickerson, please go ahead.

Thank you, Lauren, and thank you to everyone joining us for NV5's Third Quarter 2017 Conference Call.

After the close of the market today, we issued a news release announcing our financial results for the third quarter and 9 months ended September 30, 2017.

We are very pleased with NV5's performance in the third quarter and year-to-date.

Once again, profit margins increased among all of our service lines in the third quarter, our backlog increased, and we minimized subconsultants.

In the third quarter, total revenues increased 50%, EBITDA increased 80% and net income increased 74%.

Adjusted earnings per share for the quarter increased 80% to $0.75 per share over 10.8 million shares compared to $0.41 per share over 10.4 million shares in the third quarter of 2016.

We have grown every quarter since we first went public in 2013.

As some of you may have noticed, NV5 is starting to draw attention from Wall Street and the national media.

Fortune magazine ranked NV5 13th on its list of the 100 fastest growing public companies in 2017, following Facebook at #6 and Amazon at #9.

Rankings were determined by revenues, profits and stock returns.

NV5 now ranks 31st on Engineering News Record's list of 100 pure design firms and 54th on Engineering News Record's list of 500 E&C firms.

NV5 also ranked #1 this year on Zweig's 2017 top firms list.

Now I'd like to give you an update on the performance of each of our service verticals including recently won contracts.

Then I will speak about recent acquisitions, our current acquisition pipeline and our goals for the remainder of the year.

Our construction quality assurance platform in the East was impacted by hurricanes in Florida and Texas.

This resulted in delayed revenues of approximately $2 million.

We expect to recapture these revenues in the fourth quarter in calendar year 2018.

Construction quality assurance in the West showed significant revenue and profit growth.

Our recent acquisition of Holdrege & Kull allows NV5 to provide geotechnical design in construction and inspection services to our Northern California program management vertical.

The infrastructure vertical in the West is very strong led by our power delivery transportation and municipal services, resulting in 15% organic growth year-over-year.

Infrastructure in the East continues to be impacted by project delays resulting in an erosion from budget of approximately $4 million in revenue.

However, long-delayed projects are now underway and we expect to recover these revenues beginning in the fourth quarter.

One positive example is we now have been authorized to begin work on the $60 million New York City Department of Design and Construction project.

Our environmental service vertical has been instrumental in Texas and Florida in the wake of Hurricanes Harvey and Irma.

Although we lost approximately 21 combined business days in our infrastructure, program management and construction quality assurance verticals, the revenue loss was somewhat mitigated by increased activity in our emergency response and environmental services for flood damage assessment.

We anticipate this increased environmental activity to continue through the fourth quarter and beyond.

Our program management vertical has experienced increased activity at the end of the third quarter after a slow start of government-funded projects.

We were recently awarded a $14 million contract in Central California that will also support increased activity in our CQA vertical.

The Building, Technology and Sciences platform is led by our mechanical, electro and technology services.

Our combined platform was developed through the acquisition of the former Sebesta, JBA and RDK companies.

These acquisitions and combined service offerings make NV5 a true leader.

The focus continues to be the seamless integration of these companies to provide uniform scalable technical services.

In that regard, we are also seeing highly profitable growth in the health care sector.

We are also making significant headway in expanding our technology services in energy managed analytics, acoustics and value-added services.

As I mentioned last quarter, our Building, Technology and Sciences group, which contains our energy practice is growing at a rapid rate and we continue to seek new opportunities to expand the value-added revenues.

In recent months, NV5 has won contracts to provide energy efficiency services on the 3 million-square-foot Hong Kong Convention and Exhibition Center, the Wynn Paradise Park project in Las Vegas, and a new contract to provide commissioning services on the Obama Presidential Library and Museum, where we previously anticipated providing lighting and design services.

A final word concerning our cross-selling and scalability of our model.

Wired into NV5's DNA is cross-selling throughout all of our 100 locations.

This is evidenced by approximately $30 million in year-to-date revenues generated by our employees.

The use of subconsultants continued to decline and now is 18% of revenues.

The scalability of our model has been also demonstrated by our increase in earnings per share and EBITDA at 17% of revenue.

Now a few words on our acquisition pipeline.

In September, we were pleased to announce the acquisition of Marron and Associates, an environmental consulting firm that specializes in environmental document preparation services.

Marron has offices in Albuquerque and Las Cruces, New Mexico.

The Marron acquisition was strategic to support environmental services practice in Albuquerque and we expect the acquisition to add approximately $2 million in annual revenue to our existing Albuquerque operations.

The acquisition was made entirely in cash and is immediately accretive to NV5's earnings.

Including Marron, NV5 has completed 27 acquisitions since the company's inception.

We are known in the engineering sector for yields ranging from $3 million to $50 million annually, which we continue to execute as a part of our strategic growth plan.

At any given time, we have approximately 10 to 15 opportunities in our pipeline at various stages of the acquisition process.

We are very selective and conservative about the companies we acquire.

The company must share a culture of growth with NV5, be proactive in integration and must also be part of a growing industry.

In particular, we are interested in the environmental, program management, energy efficiency and building technology markets where we see the high profit margins and high barriers to entry.

I am very optimistic that we will meet and exceed our goal of reaching $600 million in revenue by the end of 2020, through a combination of organic growth and strategic growth.

I would now like to turn the call over to our Chief Financial Officer, Michael Rama, for a more detailed overview of the financial results for the third quarter and 9 months ended September 30, 2017, and our outlook for the remainder of the year.

Michael?

Thank you, Dickerson, and good afternoon, everyone.

First, I will review the results for the company's third quarter and 9 months ended September 30, 2017, and then I will provide an updated outlook for the remainder of 2017.

Gross revenues in the third quarter of 2017 were $91.3 million, a 52% increase compared to gross revenues of $60.1 million in the third quarter of 2016.

Net revenues for the third quarter of 2017 were $75 million, an increase of 56% from the third quarter of 2016.

These increases were due to organic growth from our existing platform as well as the contribution from acquisitions closed during 2017.

Gross margin for the third quarter of 2017 was 51.2%, compared to 46% for the third quarter 2016, which is a result of increased use of our billable professional employees.

EBITDA for the third quarter of 2017 was $12.7 million or 17% of net revenues, an increase of 80% from $7.1 million or 15% of net revenues for the third quarter of last year.

Net income in the third quarter of 2017 was $5.9 million, an increase of 74% compared to net income of $3.4 million in the third quarter of 2016.

Third quarter 2017 adjusted earnings per share, that is excluding the impact of amortization of intangible assets from acquisitions, was $0.75 versus $0.41 in the third quarter of 2016.

Third quarter 2017 GAAP earnings per share was $0.55 versus $0.33 in the third quarter of 2016.

Our third quarter 2017 adjusted and GAAP earnings per share reflects the weighted average shares outstanding of 10.8 million shares for the 3 months ended September 30, 2017, compared to the weighted average shares outstanding of 10.4 million shares for the 3 months ended September 30, 2016.

Now, we'll review the year-to-date results for the 9 months ended September 30, 2017.

Gross revenues in the 9 months ended September 30, 2017, were $239.1 million, an increase of 49% when compared to the same period in 2016.

Net revenues year-to-date in 2017 were $195.1 million, an increase of 50% from the same period in 2016.

These increases were due to organic growth in our existing platform as well as acquisitions closed during 2017.

Gross margin for the 9 months ended September 30, 2017, was 50.1% compared to 47.7% for the 9 months ended September 30, 2016, which is a result of the increased use of our billable employees as well as the decreased use of subconsultants.

EBITDA for the 9 months ended September 30, 2017 was $27.9 million or 14% of net revenues, an increase of 58% from the 9 months ended September 30, 2016.

Net income for the 9 months ended September 30, 2017 was $12.5 million, an increase of 50% compared to net income of $8.3 million for the 9 months ended September 30, 2016.

Adjusted earnings per share for the 9 months ended September 30, 2017, was $1.67 versus $1.11 for the same period in 2016.

GAAP earnings per share for the 9 months ended September 30, 2017 was $1.16 versus $0.90 for the 9 months ended September 30, 2016.

Our year-to-date 2017 adjusted and GAAP earnings per share reflects the weighted average shares outstanding of 10.7 million shares for the 9 months ended September 30, 2017, compared to the weighted average shares outstanding of 9.2 million shares for the 9 months ended September 30, 2016.

As of September 30, 2017, our cash and cash equivalents were $15.6 million.

At September 30, 2017, the company reported backlog of $274.5 million, an increase of 24% from $220.8 million as of December 31, 2016.

Our backlog is an estimate of revenues to be recognized over a rolling 12-month period.

Now, moving on to our outlook for the remainder of 2017.

The company is raising its guidance for full year 2017 earnings per share.

The company expects that full year 2017 adjusted earnings per share, including the impacts of acquisitions closed through September 30, 2017, will now range from $2.30 to $2.46 per diluted share versus previous guidance of $2.22 to $2.36 per share.

Furthermore, the company expects that full year 2017 GAAP earnings per share will now range from $1.68 to $1.83 per diluted share versus previous guidance of $1.62 to $1.76 per share.

The company is reiterating its full year 2017 total revenues.

The company expects that full year 2017 total revenues will range from $340 million to $358 million, which represents an increase of 49% to 57% from total revenues in 2016 of $228 million.

This guidance for total revenues, adjusted earnings per share and GAAP earnings per share excludes any anticipated acquisitions for the remainder of 2017.

This completes our prepared remarks and now, we'd like to open the call for your questions.

(Operator Instructions) And our first question will come from Rob Brown of Lake Street Capital.

Just wanted to clarify your comments from the hurricane impact.

I think you said 21 days of operations.

What was the sort of revenue level that impacted you this quarter?

The revenue, of course, was just for the specific areas that we had lost and had the delays in.

But we estimate that to be about almost $9 million of total lost revenue.

But you know, Rob, let me just clarify, when I say lost, it's delayed.

It's going to get pushed.

And I'll give you an example, our -- we mentioned our CQA group, all -- if you happened to be watching the news, the 3 tower cranes that you saw balancing there in Miami, those were all our projects.

So the delays of first the safety checks to get back in those projects, then the extra delivery of the materials, so we had significant impact.

And the mitigation was that we were able to do a lot of environmental assessments from our emergency response group.

But not enough to mitigate the total of business lost.

Okay.

And it sounds like based on your guidance, a fair amount of that's made up in Q4.

Is that true?

Or does it take maybe some -- how much of that can be made up in Q4?

You know that's the -- that is a good question -- the $64,000 question.

Our business is not linear.

We are anticipating revenues of $100 million or so in the fourth quarter, which is usually a time that really gets impacted by weather in the Northeast.

So we are assuming that we're going to have a solid -- and looking at our backlog results, we are assuming we're going to have a solid fourth quarter.

And in the range of $100 million or so.

And that's why the guidance will stay where it is at the -- on the low end at $340 million.

Okay, good.

And then, you talked a little bit about several projects starting to loosen up, I think, in the Northeast in particular.

But what's the status of that?

And are they sort of loosened up now where they can flow nicely into 2018?

Well I can say this, in our Northeast, which was our public, design, civil infrastructure sector, those people are very, very, very busy right now.

And we were just awarded our first big piece of the $60 million contract, which was roughly $1 million award for services.

So I look at the staffing, I look at our utilization rates and we are very busy on pent-up demand on projects in the Northeast where we're seeing that.

And we're really also picking up very nicely in our program management group in California, where we've had some delays in projects starting.

So we anticipate those to -- well, they're beginning right now, they're going to be in the fourth quarter, we just don't know how much of the revenue we're going to be able to recover.

But that's why we've kept our guidance pretty much where it was on the revenue side.

I mean, the encouraging thing, and I don't mean to be filibustering here, Rob, but the encouraging thing is our gross margin improvement and our EPS was above guidance, and that just shows that our divesting model of many service lines and some of those that is reoccurring revenue and added-value services is the strategy seems to be working.

Yes, and then my final question really is how much of that margin improvement was integration of the acquisitions that you've made over the last 12 months?

And how much was just really utilization improvements in the cross-selling benefits you're getting?

Well, our BTS side of the business is historically -- and our program management piece of the business is historically our most profitable.

And we saw significant gains in those.

And those depending on the period of acquisition, but that mainly came from the MEP technical and design group, where we had significant high barrier of entry and higher profitability.

So most of that came through the profit of those groups.

But we've had great growth in our infrastructure business and as we get larger, we keep becoming more and more scalable, which increases our EBITDA across all of our service lines.

So a lot of that work came from the acquisition process that we've been going on for as far as about a year ago through to what we're doing now.

And that is more in the BTS side.

And our next question will come from Mike Shlisky with Seaport Global.

I'm not sure if I missed this, but can you give us a sense of the organic growth that you saw in the quarter and just broad brush strokes as to what you think the organic growth rate might be over the next, call it 15 months?

Okay, that will be a very broad brush but let's, yes, the 4% -- yes, we had a 4% organic growth in the fourth quarter and I think it was one of the bullets in our press release.

And that was very encouraging because -- quarter-over-quarter -- because we also had the project delays.

I had just come from an industry conference and I think the total organic growth of our industry sector is looking -- their projection is 6%.

And I certainly feel comfortable that we should exceed, or will be able to exceed the 6% organic growth looking further out in the 15 months.

Got it.

And I also wanted to touch on your EBITDA margins.

I mean as a percent of your gross revenue, it did grow something like 14% in the quarter.

That might be an all-time record for NV5, if I look back far enough.

Can I get a sense as to was there anything really unusual in this quarter on the positive side that might make that not a good floor going forward?

Well, Mike, you probably heard me say a number of times, we believe in a very flat organization.

And we have to be scalable.

So services to support the operations should be fixed.

And those costs that are fixed go down as a percentage of total revenue.

And so then -- therefore, there is always an improvement in the bottom line.

However, we are classified in 2 areas.

As you well know, we are in a sector called E&C, which is engineering and construction.

We don't do any construction.

So ours is engineering and certification.

And the other piece of our business is what particularly in Europe is said to be a TIC: A testing, inspection and certification business.

So if you look, we are much higher much, much higher than the E&C standard for EBITDA.

And we approach and we're in the high end of the TIC business.

So we are a bit of a hybrid.

But the key thing for any services is fixed cost, be scalable and those costs should continually go down as a percentage as your -- as revenue increases.

So we become more efficient.

So that's one way to pick it up.

And the other thing that may have been lost is the continued reduction of the amount -- well, the continued reduction of the amount of subconsultants.

We're down to 18%, and since 70% of our business or so is public and there's always disadvantaged business requirements at certain percentages, we're really getting close to optimum on that.

What every work that we keep in-house, we get a higher margin on than work that is subconsulted out.

So that also improves for the -- accounts for the EBITDA improvement.

Okay, great.

And then I wanted to touch briefly on your balance sheet.

I just saw that the total debt did tick down a bit in the quarter.

You did do a deal for cash, so nothing to borrow there.

I'm kind of curious, I mean barring any major deal that might come along that might be debt financed, can you give us a sense as to -- do you have a plan to kind of pay down more debt going forward?

Or is it still just so many targets out there that you'll probably end up having to have additional debt.

Obviously, with (inaudible) EBITDA in the somewhat near future?

Mike -- I'm going to refer it to our CFO Mike Rama for that question.

That was a good one.

Yes, Mike, good question.

It's all centered around our collection of our receivables.

As you probably noticed, our AR has gone up.

It's typical at this time of the year in the second, third quarters as we ramped up business that our AR does go up.

We did pay down some of our line of credit during the quarter, about $5 million.

But as I mentioned, AR goes up during these summer months when we start new projects, little bit of a cash drain.

But we've already seen an uptick in our cash balances since the quarter ended of about $5 million.

So the plan is to pay down the debt with the free cash flow that we're generating and from the receivables that we're going to collect, that are good and collectible.

Okay, got it.

And maybe, one last one from me if you would.

I see you mentioned some of the services that NV5 can offer to the folks in the Gulf Coast with the hurricanes.

Is there anything that NV5 can offer to the folks in California who recently saw those crazy wildfires?

Yes.

Particularly for our utility clients, we have a wildfire mitigation program, a QA program and a source program that does not only preventive work but for recovery work afterwards.

So we -- I'm very -- thank you for asking that, because that's something we've really been focused on.

And it's many rudimentary things.

It's brush clearing and inspection.

But we do surveys.

And we do all -- make recommendations for the mitigation.

So we expect that some increase in activity because of the wildfires in Northern California.

And we're really starting to make a different market or a more proactive market in the prevention work in Southern California for -- but it's part of our service line in our infrastructure group.

Are there any active contracts with the state or the localities that are in the process right now?

Or just you are talking about very broadly about what you could do in near future?

Well we have active work right now with a number of utility clients.

And I haven't -- I could say that, we have one major utility that we have in Southern California.

And I know that we've had negotiations.

So we have contracts under the way on fire mitigation in Southern California.

And I know we are in negotiating and their presentation process on utilities in Northern California.

But we haven't been approached by municipalities on anything to do with the fire mitigation.

But it's mostly in the utility work that in our PUs -- public utility clients that we are active.

(Operator Instructions) Our next question will come from the line of Jeff Martin with Roth Capital Partners.

Could you clarify, you said $9 million of delayed revenue in the quarter per the first caller's question.

I thought you said in your prepared remarks, that the hurricanes were a $2 million revenue impact.

Was the $9 million a collective impact?

And if so, what are the other --

Let me clarify.

If the -- I was looking at overall delays.

So I was also mentioning a $4 million, so hopefully I said that in the narrative.

There was a roughly $4 million delay in our East Coast infrastructure on contracts that just had not gotten started or awarded.

And we also had a delay in won contracts that were not awarded in the program management group in California.

So those were not impacted.

But the pure impact from the hurricanes was the business days lost of roughly 14 business days.

And that represented about -- for that group, that represented roughly $4 million in revenue.

Okay, and then how much did you pick up in the quarter from your disaster recovery and remediation work in the hurricane areas?

Yes, I think we utilized and cross-trained and cross-sold.

But I was -- I can give you that number.

We probably gained about not quite $2 million, maybe $1.7 million, $1.8 million in additional revenues from our emergency and recover.

Certainly not enough to offset what was delayed from the hurricanes.

Okay, so you had 2 projects that were $4 million each and then you had $2 million from the hurricane?

Is that correct?

Well, 2 service lines.

They're not projects, 2 service lines.

Okay.

And at what stage in the quarter did you realize those projects were delayed and not really going to be contributing to revenue in the quarter?

Well, a lot of it in the quarter was assessment as you go.

I mean, our first concern was were our employees safe in Florida and Texas?

Were they able to even get to the projects or get to their house or their homes.

So we spent a tremendous amount of time just checking in on our employees.

Then when we realized, obviously, they cannot work and that we cannot have that work then we started to assess the revenue.

But if you really look at when the 2 hurricanes occurred in Texas and in Florida, that's when we really started to say there's going to be some loss of revenue but we just don't know much -- how much we are going to be able to recover through our environmental response group.

I'm sorry, let me clarify.

I was referring to the East Coast infrastructure group and then the program management group on the West Coast?

When did we know the delays and when they -- not hurricane-related?

Is that part of your question?

Yes.

Okay.

Well you noticed during the quarter we announced that some very significant wins, but these projects were just -- and that was public sector projects in the Northeast that were delayed.

One was that $60 million project that we just are being released now.

So we kept thinking that is it going to spill over to another quarter.

So we started to realize that these delays were coming in at about the middle of the quarter.

The program management group in Central Valley, we anticipated a delay but we didn't know when that was really going to happen.

And that really almost a loss of that projected revenue came in the quarter itself.

And that started about the first -- after the first month of the first quarter.

Got it.

Okay.

Next question is for Mike.

Given the current book of business, what is a normalized DSO given, because there has been a lot of additions to the group in the past 2 years.

But as you look at it today, what would be a normal DSO for the business?

We think, in our business, across all our lines, we have some businesses that are at 60 day DSO, we have some that are at 90, so optimal point for us it'd be 80 days.

We've ticked up closer to 90.

But we've put some measures in place to improve that internally as well as again, seasonally, as I mentioned before, our AR typically does go up this time of the year and we've already seen some monetization, if you will, of those -- of that AR that we've built.

Got it.

Okay.

And just to clarify, the backlog number, that's a funded backlog number for a rolling 12 months.

Is that still accurate?

That's correct.

And Jeff, as you know we use our benchmark.

A good backlog is roughly 65% and above of work that we are going to build.

So we use our budget as actually our backlog tied in very, very closely with our budget.

So it's not a hunting license, these are specific contracts that we envision to be work performed in a rolling 12-month period.

We try to be very conservative.

Sure.

Has the mix of business shifted much in the past 6 to 12 months in terms of quasi-public and public versus private work and is that having an impact on your margins if it is moving around?

Well, yes.

It has moved some.

You realize that we -- as you understood we bought a company called Bock & Clark, which was 100% private transactional work and that's a reoccurring revenue stream because that is for existing buildings and buildings that are sold and it's transactional work for survey work.

That's all the private sector.

And that represents roughly $30 million to $35 million in annual revenue.

So we have -- we used to be about 75% public and now we're about 70% public because of the impact.

As far as the mix of business, we think that the infrastructure work is a great way to have a client entry.

It's great for design work and it feeds the other verticals.

And that allows us to enter in that much more profitable.

So our BTS side, building, technology and the science group is historically higher-margin business.

And so we're -- you'll see some diversity and that we hopefully will have some positive things to report in my closing remarks about how we are shifting the focus and -- to a balance but really diversifying our service line to the higher margin, higher barrier business with a reoccurring revenue.

Okay.

Great.

And then last question, are there any noticeable changes positively or negatively in terms of the funding environment out there on the public side?

Well, yes.

Let me say this and I'll say this, I'm always a glass half-full.

But we see a tremendous amount of funding from the public sector.

And we really are starting to see the benefits of municipalities being stronger through tax base, state agencies being stronger through tax base and we are also seeing some support from the federal government.

So I would say now it's -- we are experiencing some significant tailwinds in the public sector.

And so we haven't seen anything on the slowdown.

We have not participated, nor do we have a strategy to participate in this public -- the P3 work, the public-private partnership.

So I don't have a frame of reference for that.

But the pure funded infrastructure backlog, we see it to be very strong.

At this time, this concludes our question-and-answer session.

I would now like to turn the call back over to Mr. Wright, for closing remarks.

Thank you.

Thank you to everyone for listening in to our call.

We are very pleased with the quarter result and the things that we watch for.

We cannot -- our business isn't linear, sometimes we can't account for major disruptions in some of our work verticals and service lines.

But being diverse, you'll notice that we had an increase in operating margin an increase in earnings per share and that is because the diversity of our platform and the strengthening of our platform in the other service lines.

Watch in occurring months for more emphasis on reoccurring revenues streams, added value services streams, where we get more and more embedded with the client.

And so infrastructure will always be a driving force of our business.

But we now are positioning ourselves as we grow to really make an impact in areas that are not subject so much to climate influences.

And so we're very, very happy with our technology group and we made an announcement of you heard us say about the Hong Kong Convention Center, we are doing very well in our Asian offices.

And we feel that there's always -- we're looking for reoccurring streams of revenue and much more embedded with the client for this and not for projects.

So we are very pleased with the quarter.

Pleased with the results that we've had and more than anything, that we can say to our shareholders, we've increased our earnings per share, we've increased our margin of operation and we are positioned ourselves to really expand the company in a meaningful way.

So I want to thank everyone, again.

We want to thank you for your interest in our company.

And we will work hard to continue to fulfill the guidance that we give.

So thank you, everyone for listening to our call and we'll look forward to speaking to everyone again on the fourth quarter.