Earnings Transcript for EGLE - Q1 Fiscal Year 2023

Operator: Good day and thank you for standing by. Welcome to the Eagle Bulk Shipping Reports First Quarter 2023 Results. All participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. [Operator Instructions] And be advised that today’s conference is being recorded. I would now like to hand the conference over to Gary Vogel. The floor is yours.

Gary Vogel: Thank you and good morning. I would like to welcome everyone to Eagle Bulk’s first quarter 2023 earnings call. To supplement our remarks today, I would encourage participants to access the slide presentation that is available on our website at eagleships.com. Please note that part of our discussion today will include forward-looking statements. These statements are not guarantees of future performance and are inherently subject to risk and uncertainties. You should not place undue reliance on these forward-looking statements. Please refer to our filings with the Securities and Exchange Commission for a more detailed discussion of the risks and uncertainties that may have a direct bearing on our operating results, our performance, and our financial condition. Our discussion today also includes certain non-GAAP financial measures, including TCE, TCE revenues, adjusted net income, EBITDA, and adjusted EBITDA. Please refer to the appendix in the presentation and our earnings release filed with the Securities and Exchange Commission for more information concerning non-GAAP financial measures and a reconciliation to the most comparable GAAP financial measures. Before I turn to our earnings presentation, I would like take this opportunity to address an incident that occurred on board one of our vessels earlier this week. On Tuesday morning, three of our seafarers were kidnapped from the Grebe Bulker, while she was anchored at Owendo, Gabon. While this is an ongoing situation, and I'm limited in what I can say, I would like to convey that Eagle's committed to ensuring the safe and proper turn of the kidnapped men and the safety of their colleagues onboard this ship as a matter of utmost urgency. Our highest priority is the safety and well-being of our seafarers and their families. We greatly appreciate the support of the authorities and our Maritime industry colleagues as we work to bring these men safely home. Given the sensitive nature of the situation, we will be unable to provide further comment. Please turn to Slide 6. Against the backdrop of a seasonally weak market in Q1 and in-line with previous information provided on PC for the quarter, we generated a net income of $3.2 million or $0.25 per share basic. Based on this result, and consistent with our stated capital allocation strategy. Eagle's Board of Directors declared a cash dividend of $0.10 per share equating to 40% of net income. On the vessel sale and purchase front, we've continued to act opportunistically following our recent acquisition of four modern high specification Ultramaxes during a market pullback. We have taken advantage of a recent increase in both S&P liquidity and ship values and sold 3 non-core non-scrubber fitted Supramax vessels for total consideration of $49.8 million. These ships were the only non-scrubber fitted Supramaxes in our fleet and were purchased opportunistically just two years ago for total consideration of $28.2 million. Based on our calculations, we generated a levered IRR of 70% on this S&P trade inclusive of cash generated during the period. Please turn to Slide 7. For Q1, we achieved a net TCE of $12,917, representing an outperformance versus the benchmark BSI Index of roughly 31% or $3,041 per ship per day. Given the seasonal low we experienced during the quarter and our general view of markets for the balance of the year, we believe Q1 will represent a low in 2023 for both the BSI and our TCE. As we look to the second quarter, spot rates have improved considerably. We will discuss market fundamentals later on in the call, but as of today, we have fixed approximately 65% of our owned available days for Q2 at a net TCE of $16,030. I would now like to turn the call over to Costa Tsoutsoplides, who took over the role of CFO on April 1st. For those of you who may not be aware, Costa has been with Eagle since 2010 and most recently served as our Chief Strategy Officer. Costa?

Costa Tsoutsoplides: Thank you, Gary, and good morning everyone. Before I begin with my prepared remarks, I would like to take this opportunity to thank my predecessor Frank De Castanzo for his guidance and support over the past few months, as well as my colleagues within the finance group who have helped make my transition to the CFO seat a seamless one. With that, let's proceed with a discussion of our financial results. Please turn to Slide 9. For this quarter, we have revamped and simplified the presentation of our finance lives to provide readers with additional insight and perspective on our financial results for the period, as well as increased visibility on the quarter ahead. On Slide 9, we're showcasing our P&L reformatted slightly from the GAAP presentation, reflective of the seasonally weak Q1 market, our net top line performance or TCE revenue came in at $59.2 million for the period and based on 4,581 actual owned available days, we achieved a TCE of 12,917 representing a significant outperformance against our benchmark index as Gary indicated earlier. Vessel operating expenses decreased roughly 12% quarter-on-quarter to total $31.3 million or [6,497 per vessels per day] [ph] in-line with our previous guidance. OpEx for the period included one-time takeover costs related to the Gibraltar Eagle, which was delivered to the company in February. Additionally, OpEx continued to be impacted by elevated crew costs related to wages, travel, and our seafarer and nationality makeup, which is primarily Eastern European. As we have discussed on previous calls, the Russia-Ukraine war has created challenges for us in terms of crew sourcing, management, and support for general well-being and has ultimately contributed to the cost inflation we have been experiencing. As a result of these challenges, we have added a new crew manager in order to diversify our source makeup and are currently in the process of reallocating the crew management on 20 of our ships. This transition is expected to negatively impact our crew-related costs for the next few quarters until the management changeover has been completed. General and administrative expenses decreased 5% quarter-on-quarter to total $10.9 million. This decrease is attributable to lower employee related costs. Cash G&A expenses equated to $9.1 million or [18.90 per vessel per day] [ph]. It is worth noting that our G&A figure per ship per day does not include our chartered in fleet. If we were to include those days, our G&A figure would be approximately $1,580 per ship per day. During Q1, we sold and delivered the Jaeger, our oldest vessel in the fleet and realized a gain on sale of $3.3 million. I think it's important to note that we sold the vessel just ahead of our statutory drydock allowing us to save on the associated and required CapEx spend. Net interest expense inclusive of cash interest expense, cash interest income, and non-cash deferred financing fees came in at $2 million for the quarter in-line with our prior guidance. The unrealized P&L on our outstanding FFA and bunker swap positions as of quarter-end was negative $240,000. Adjusted net income, which is net income adjusted for the unrealized gains and losses in the FFAs and bunker swaps came in at $3.4 million or $0.26 per share basic and diluted. Please note that the convertible bond was deemed to be anti-dilutive this quarter from an EPS perspective and as such, the shares underlined the security were not included in the diluted share count. Adjusted EBITDA amounted to $18.7 million. Please turn to Slide 10. We ended the quarter with a total cash position of $155.9 million, down 33.9 million as compared to December 31. We generated positive cash flow of 7.4 million from operations used 18.5 million for net vessel sale and purchase transactions and made 21.1 million in debt repayments and dividend distributions. Please turn to Slide 11. As of March 31, we owned 53 vessels and had a total liquidity equal to $255.9 million. Total debt outstanding was $329.4 million, comprised of $225 million on the term loan and 104 million face on the convert. Based on vessel values assessment of our fleet, we estimate our net debt-to-fleet ratio at 15.4%. In Q2, we expect to take delivery of the Halifax Eagle and Vancouver Eagle and make associated payments for the remaining balance due of 54.2 million. On the sales side, we closed on the Newport Eagle this week and expect to complete the sales of the Montauk Eagle and Sankaty Eagle by the end of the second quarter. We expect to receive total net sales proceeds of $48.6 million for the three ships and realize a total gain on sale of $17 million. Pro forma for these transactions, our fleet will total 52 ships with an estimated total cash and liquidity of 150 million and 235 million, respectively. Please turn to Slide 12. As we look ahead into Q2, we are providing you with an informational outlook. Based on our current vessel S&P delivery time lines, we are forecasting a total of 4,805 owned days for the second quarter and 4,512 owned available days after taking into consideration estimates for both scheduled and unscheduled off-hire. As Gary indicated earlier, as of today, we have fixed approximately 65% of our owned available days at a TCE of 16,030. Please note that this figure is inclusive of our pro rata estimate for realized [FSA] [ph] gains and losses for the period on a mark-to-market basis. On the expense side, we are estimating the following. Vessel operating expenses are expected to come in line with Q1 with an estimated range of $6,300 to $6,600 per vessel per day. This range takes into consideration two vessel takeovers, planned spend on repairs and discretionary upgrades, as well as our estimate for costs associated with the crew management changeover initiative, I discussed earlier. Excluding these non-recurring items, adjusted operating expenses is expected to come in between $5,900 and $6,300 per vessel per day. Non-cash depreciation and amortization expenses to come in between $3,100 and $3,400 per vessel per day. G&A cash expenses to come in between 1,700 and 1,900. Non-cash stock based compensation to come in between $350 and $450 per vessel per day. Net interest expense to come in between $500 and $700 per vessel per day. This concludes my remarks. I will now turn the call back to Gary, who will discuss the industry fundamentals.

Gary Vogel: Thank you, Costa. Please turn to Slide 14. Drybulk markets saw a typical seasonality in Q1. BSI started the first quarter on a continuation of a negative trend we experienced during the fourth quarter and traded down to below $7,000 by mid-February. This weakness is attributable to a number of short-term factors, which we discussed in our last earnings call, including decreased trade flows unwinding of congestion and the seasonal low in economic activity around the Lunar New Year holidays. Since bottoming on February 13, the BSI posted a significant rebound as China came back online after the holidays, and post-COVID reopening. Rates more than doubled by mid-March and have since traded within a fairly tight range between 12,000 and 14,000. The forward curve for the balance of the year remains in contango, with Q3 and Q4 trading at a premium to spot, reflecting the market's continued belief for demand support and a further recovery in rates, void by strong supply side fundamentals. Please turn to Slide 15. Fuel prices were mixed during the first quarter with HSFO rising by 3% on the back of tighter supplies whereas VLSFO prices weakened by 5%, due to a general rebalancing that has been ongoing since late Q3 2022. As a result, fuel spreads between HSFO and VLSFO averaged roughly $193 per ton for the quarter were down approximately $48. Pro forma for our recent vessel sale and purchase activity, 50 of our 52 ships or 96% of our fleet is now fitted with scrubbers, which solidifies Eagle's position as the largest owner of scrubber fitted ships within the midsize drybulk vessel segment globally. Notwithstanding contraction and fuel spreads on an illustrative basis, based on the 2023 year to date and forward curve, we estimate that our scrubbers will generate approximately $32 million incremental net income on an annualized basis. Please turn to Slide 16. Ship values continued to increase on the back of a noticeable improvement in S&P liquidity. As we indicated on our last earnings call, buying interest is coming not only from traditional drybulk owners, but also from container and tanker owners who are looking to reinvest profits and diversify away from their core segments. To illustrate the move in values, the two 2020 built scrubber fitted Ultramax, which we executed purchase agreements on just two months ago and have yet to take in delivery of are now worth about 3 million or 10% more based on recently reported comparative transactions. And as we mentioned earlier on the call, we took advantage of the recent run up in values and improvement in market liquidity to sell our three non-scrubber, Supramaxes and an [indiscernible] opportunistic transaction. Notwithstanding the subdued freight market, we're currently experiencing, I think the current strength in the S&P market is extremely noteworthy and exhibits participants positive view and conviction on the fundamentals. We remain constructive and believe we'll continue to see an improvement in the market and asset prices over the medium-term given the increasingly positive supply side dynamic. Please turn to Slide 17. Following on my last comment, net fleet supply growth slowed in Q1. A total of 114 drybulk newbuild vessels were delivered during the period as compared to 122 in the prior quarter. New building deliveries in Q1 were partially offset by 17 vessels, which were removed from the market and were scrapped. Notably for Eagle, 5 mid-sized geared vessels were scrapped during the quarter. While still low, it was a significant increase compared to just 9 mid-sized vessels that were scrapped during all of 2022. As we mentioned previously, despite high scrap prices, the low level of vessel demolition is not too surprising given the strength in the underlying spot market over the past two years and the apparent shared sentiment by owners generally that rates will be strong going forward. In terms of forward supply growth, the overall drybulk order book remains at a historically low level of under 7% of the on the water fleet. At 2023, drybulk net fleet growth is projected at 2.4%, which will be down about 40 basis points as compared with 2022. The main driver of this low growth rate is a continuation of muted deliveries, as well as an increase in assumed scrapping volumes. A total of 34 drybulk ships were ordered during Q1, down 60% as compared to the prior quarter and just a third of the average over the last five years of roughly 115 ships per quarter. It's worth noting that the vast majority of ships being ordered today will only be delivered in 2025 and beyond. Please turn to Slide 18. We have discussed on prior calls how this chart shows the favorable supply dynamics over the next few years. Based on delivery of the current order book and expected scrapping levels, the mid-sized fleet is expected to surpass the record age of 12 years in mid-twenty 2024 and continue increasing from there. A positive from this trend is that there's an ever increasing number of older ships that will inevitably need to be recycled during the coming years. Given the relative cost advantage of second hand ships versus new buildings today, as well as uncertainties surrounding decarbonization of future fuel propulsion technology, we believe ordering, and the result in order book will remain low for some time. We expect these dynamics combining a near record low order book with a near record fleet age to further improve the supply side in terms of fleet development in the coming years. Please turn to Slide 19. The IMF is currently projecting global GDP growth to reach 2.8% for 2023, down 10 basis points as compared to the previous forecast. The macro outlook appears to be modestly improving as the economic shocks of the pandemic, supply chain disruptions, and Russia's invasion of Ukraine recede, and China's activity rebounds following the reopening of its economy. And with central banks being at or close to the end of their tightening stage, notwithstanding continued uncertainty, I believe we could see an improvement in general confidence in the markets going forward. In terms of drybulk, total trade demand growth is expected to improve by 470 basis points in 2023 to reach a level of positive 1.8% on a core basis and improving further to positive 2.5% once factoring in the ton mile effect. Please turn to Slide 20. Looking into the details of drybulk demand on this slide, we note that for 2023 forecast for most commodities has improved since our last earnings call. Iron ore demand growth has been revised upward by 120 basis points to 1.8%, primarily on an upward revision in Chinese demand of 19 million tons. Coal demand has also been revised upward by 100 basis points to 2.8% growth for 2023 and increased demand from India for both thermal and cooking coal, as well as an increase in Chinese seaborne demand for thermal coal. Demand from minor bulks is generally holding steady with an overall upward revision of 30 basis points to 0.8% growth on an absolute basis for 2023. In terms of grain, trade demand growth has been revised to 3.1% in 2023. While significant year-over-year improvement hits a downward revision of 270 basis points, compared to the growth forecast of February. This revision is primarily due to a decline in Argentine crop yields caused by drought. Export levels, this year from all other grain exporters are expected to see growth of about 6.5% around the same levels forecast in February. We should note also that current grain forecasts include a meaningful increase in Ukraine exports for 2023, which assumes the UN Grain agreement will continue. As has been in the recent news, the official extension of the agreement according to UN runs until July, but Russia is only acknowledging an extension through May 18 and has recently signaled that it will not agree to another extension if a list of demands to facilitate Russian grain and fertilizer exports is not met. Negotiations are ongoing and the outcome of these will be impactful as to the eventual export volumes. While overall demand has been challenged in recent quarters due to various reasons, it's worth reiterating the drybulk demand has grown on a ton mile basis in 20 of the last 22 years and we believe there's considerable upside to the current growth forecast or macroeconomic and geopolitical headwinds abate. Please turn to Slide 21 for a recap. Given our exclusive focus on the midsize segment with an ability to carry all drybulk commodities and a commercial platform with a track record of meaningful outperformance, we continue to be in an optimal position to maximize utilization and capitalize on a rapidly evolving environment. Looking forward, we remain positive about the medium-term prospects for the drybulk industry, particularly given strong supply side fundamentals. With a fully modern fleet of 52 predominantly scrubber fitted vessels and over 250 million of liquidity at quarter-end Eagle is in a unique leadership position to continue to take advantage of opportunities and we're looking forward to continuing to deliver superior results for our stakeholders at large. With that, I would like to turn the call over to the operator and answer any questions that you may have. Operator?

Operator: Thank you. [Operator Instructions] First question comes from Omar Nokta with Jefferies. Please proceed.

Omar Nokta: Thank you. Hey, guys. Good morning. Thanks for the update.

Gary Vogel: Good morning.

Omar Nokta: Good morning. Yeah, Gary. You spent a good amount of time talking about the market. I just wanted to see if you could expand just a bit more on it. Wanted to sort of get your sense on the pulse of the market. You highlighted that the first quarter represents hopefully the bottom for the year. How do you think about how rates are going to progress from here? Obviously, we've seen the bounce, rates is still not that exciting, but it does seem that we're fundamentally in a tighter spot than we were. Just wanted to see if you could expand a bit more on how you think the rate structure of the market will proceed as we, kind of move forward here over the next couple of quarters.

Gary Vogel: Sure. I mean, I think, you know, you're right. It's not, you know, particularly exciting where we are, but we are seeing – we see demand growth this year, right, which is important against last year, which was one of the two negative years in the last 22 that I talked about on a ton mile basis. And so, we're seeing growth in things, you know, particularly like grain Brazil exports are moving up. China is importing more soybeans. We've seen Indonesian coal exports to China, up significantly in the first quarter. So, there's definitely positive momentum here, but it's taking time. I mean, the China reopening, I think we all expected it was going to take time for the economy to come back and their stimulus, but that takes time to work through the system. So, we're seeing good demand overall. Our ships, which we do a lot of cross-trading between the Atlantic and the Pacific. We're seeing meaningful amounts of cargo flows in both directions, which is helpful, especially from an operating standpoint in terms of outperforming the market, bringing ships into areas that we see moving upward in advance and things like that. So, you know, it's – we all love it to move more quickly than it has. But I think it's notable right that the market bottomed out in mid-February at below 7,000 and we're up significantly. And as I mentioned in my prepared remarks, the forward market remains in contango. So, we're positive. And anytime you talk about rate development, I just think it's – we always go back to the supply side. I say it all the time, right? It's always in my career. Now 35 years, it's always about supply. And the order book is just incredible – really low against that rapidly aging fleet. So, it may take a little bit longer than we all would like, but directionally really positive and the supply side is really supportive of future rate development.

Omar Nokta: Yes, thanks Gary. That's good color. And then maybe just, you touch a bit more on the – you mentioned the S&P market and how it's been active. And you took advantage, obviously, you got that nice gain on those three opportunistic Supramaxes you bought a couple of years back. How is the S&P market here, currently? Is it still fairly active? And how should we think about Eagle going forward? I know you guys have been obviously busy fine tuning the fleet. Should we expect the same going forward?

Gary Vogel: Yeah. So, the S&P market is really robust, especially when we talk about the fact that, you know, rates are better, but, you know, they're not rocketing up. And I think it's because people see the same dynamic, right, that the relative value of a secondhand vessel on the water earning positive cash flow from day 1 against – if you go and order a ship today, you're looking at 2 plus, 2 to 3 years out depending on when, you know, where you're going to build that ship. And so, that's why we're seeing it. We also mentioned we're seeing a lot of investment from outside of traditional drybulk owners as people look to redeploy and diversify capital. So, not a doubt in my mind, you know, the secondhand market is bid right now, and we're seeing, you know, values move up from where we were. And I think we continue to see that. In terms of Eagle, I think I'll use the word we use in our prepared remarks, right opportunistic. We saw low in the market came off in the latter part of last year. And, you know, although there was uncertainty in the market, we decided to act, you know, trying not to perfectly time the market, but cost average at that point and notwithstanding a weak Q1. We saw a lot of people come into the market and move up. So, I think, you know, we'll continue to look at that. We don't feel a lot of pressure to go out and continue to buy a certain number of ships, but as we see opportunities based on where we see the market, we have the ability to go out and purchase more vessels. I think the sales that you saw were really an opportunistic approach to these what we call non-core because they were non-scrubber fitted, [Supra] [ph] is the only ones that we had. But in general, we don't have any ships that are more than 14 years old now. So, we don't see ourselves needing to sell any more ships in the current environment giving our positive view on rate development.

Omar Nokta: Got it. Great. No. Thanks, Gary. I'll turn it over.

Gary Vogel: Thank you. Thanks so much.

Operator: Thank you. One moment for our next question, please. And the question comes from the line of Ben Nolan with Stifel. Please proceed.

Ben Nolan: Thank you. Hey. Good morning, Gary, Costa.

Gary Vogel: Good morning.

Ben Nolan: And again, congrats Costa. It's been a long time [I met before] [ph]. So, I have a couple of questions. The first is, from a macro level, there's been an awful lot of financial chaos and we all remember – at least three of us remember, the last time this happened in 2008 and Eagle in particular was hit by the lack of trade liquidity and being able to get letters of credit or actually customers being able to get letters of credit, didn’t feel like that's happening right now, but I'm curious if that has been at all something that you've run into or something that you’d be concerned about given all the big financial institutions that are pretty volatile at the moment?

Gary Vogel: Yeah. So, no doubt. I remember 2008 well. We haven't seen absolute anything at all in terms of inability for people to transact. Obviously, a lot of headlines and concern around macro, but I can say, on the desk, and I'm sitting here next to our Chief Commercial Officer who's looking at me as well and nodding. We haven't seen any impact whatsoever in terms of trade credit.

Ben Nolan: Okay. That's good to hear. And then as it relates to capital allocation, I know you guys have the dividend policy in place, but asset prices have been going up, the share price has been going down. Any thinking about maybe opportunistically either with the convert of the shares just saying, okay, well, the more expedient or higher value use of capital is something in buyback of either of those two, maybe as opposed to the dividend?

Gary Vogel: Yes, look, I mean, I think our board followed through with our dividend policy right down the middle so to speak with the $0.10. I think our view is that the capital allocation policy that was put in place at 30% or the $0.10 minimum was done so that we had capital and the ability to use it as best for the benefit of our shareholders and in the fourth quarter last year, we did buy back some convert. And given the weakness in the shares, it's definitely something that is a possibility, as well as we have a $50 million share buyback authorization too. So, as I like to say, it's a matter, you know nothing to report at this time, but these are definitely options in terms of returning capital to shareholders through various means. And fully appreciate the value of a buyback. The one thing on the convert side is, and I mentioned this, I know at least one-time previously is that the negative carry at the moment against cash, right, given the positive interest that we're able to achieve on cash in the bank, whereas when you buy back the convert, the value includes, you know, future coupons. So that all goes into our calculus, but absolutely, we're fully, you know, not just aware, but we're evaluating all possible uses of capital for the benefit of the shareholders.

Ben Nolan: Okay. And then last on my end, early on you mentioned, sort of retooling your – the labor side of things and sourcing sailors from other parts of the world other than Eastern Europe. And you did say that there was going to be a couple of quarters of cost associated with that. I'm curious from a longer-term perspective though, is it neutral to the cost of labor or does that maybe enable you to actually save a little money on [crewing] [ph]?

Gary Vogel: Yes. We think this will be beneficial from a cost perspective and it's not just around the actual salaries paid, but crew repatriation costs have been extremely high given the war in Ukraine and around Eastern Europe. And so, that's part of it. Length of duration on board ships is also different, which impacts you know, the cost per contract, if you will, because people will tend to spend longer. So overall, you know, directionally, we think this will be beneficial to our OpEx cost going forward once we get through it, and worth noting that as Costa gave in his remarks in terms of guidance, that's in our forward. We expect next quarters or second quarter OpEx effectively in-line with first quarter inclusive of those numbers for the transition over.

Ben Nolan: Alright. Cool. I appreciate it. Thank you, guys.

Gary Vogel: Okay. Thanks, Ben.

Operator: Thank you. [Operator Instructions] Next question comes from the line of Liam Burke with B. Riley Financial. Please proceed.

Liam Burke: Yes, thank you. Good morning Gary. Good morning, Costa.

Gary Vogel: Good morning, Liam.

Liam Burke: Gary, on the macro, you talked about coal being a driver of demand, is this a function of just overall consumption or are you looking at combination of consumption in longer ton miles here?

Gary Vogel: Yes. At the moment, we've seen in the first and into the second quarter, it's really been a function of more volume. China's import has increased significantly, particularly in Indonesian coal. So, at the last few quarters ago, kind of in the early days of the invasion of Ukraine, we were moving coal, Indonesian coal to Europe that's abated on the Supramax, Ultramax side. I think there's still, I know there's still significant amount of coal moving to Europe similar to last year's volumes, but it tends to move on the larger sizes. So, the increase in cold movements for us have been primarily Indonesian coal exports year-to-date.

Liam Burke: Great. And as you look, I mean obviously we're dealing with volatility and commodities, but moving into the second half of the year, is there anything that concerns you more or less in terms of overall end market demand?

Gary Vogel: No. I think the concerns going back to Ben's comment is more about macro and global GDP growth and shocks to that. But in general as we think interest rate increases abate and those headline risks hopefully abate as well that will just continue to see it. So, there's nothing in particular that's concerning to me out there. Across the board, we see growth on across the commodity spectrum and ton mile as well, bringing it up to around 2.5% this year, which we think is, while not robust is healthy especially against the supply side, the net supply side expected to come into the market, which is going to reduce going forward in the second half of the year and into the first part of 2024 as well.

Liam Burke: Great. Thank you, Gary.

Gary Vogel: Thank you.

Operator: Thank you. And with that, ladies and gentlemen, thank you for your participation in the Q&A. I will turn it back to Gary Vogel for his closing comments.

Gary Vogel: Thanks very much, operator. We don't have anything further at this time. So, I'd like to thank everyone for their time and joining us today and wish everyone a good weekend.

Operator: Thank you. Ladies and gentlemen, this concludes the conference call, and you may now disconnect.