MarineMax, Inc. (HZO) Earnings Call Transcript & Summary

Good morning. Welcome to the MarineMax Fiscal 2024 Third Quarter Conference Call. Today's call is being recorded. [Operator Instructions] At this time, I would like to turn the call over to Scott Solomon of the company's Investor Relations firm, Sharon Merrill Advisors. Please go ahead, sir.

Good morning, and thank you for joining us. Hosting today's call are Brett McGill, MarineMax's President and Chief Executive Officer; and Mike McLamb, the company's Chief Financial Officer. Brett will begin the call by discussing MarineMax's operating highlights. Mike will review the financial results, and then management will be happy to take your questions. The earnings release and supplemental presentation can be found at investor.marinemax.com. With that, I'll turn the call over to Mike.

Thank you, Scott. Good morning, everyone, and thank you for joining this call. I'd like to start by reminding you that certain of our comments are forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Any forward-looking statements speak only as of today. These statements involve risks and uncertainties that could cause actual results to differ materially from expectations. These risks include, but are not limited to, the impact of seasonality and weather, global economic conditions and the level of consumer spending, the company's ability to capitalize on opportunities or grow its market share, and numerous other factors identified in our Form 10-K and other filings with the Securities and Exchange Commission. Also on today's call, we will make comments referring to non-GAAP financial measures. We believe that the inclusion of these financial measures helps investors gain a meaningful understanding of the changes in the company's core operating results. These metrics can also help investors who wish to make comparisons between MarineMax and other companies on both a GAAP and a non-GAAP basis. The reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures is available in today's earnings release. With that, let me turn the call over to Brett for an overview for the quarter. Brett?

Thank you, Mike. Good morning, everyone, and thank you for joining us. Our team's exceptional performance drove 5% top line growth in the third quarter despite the challenging retail environment across the marine industry. To deliver solid same-store sales growth of 4% in this environment is a testimony to the strength of our strategy and our team. With aggressive marketing and promotions, we were able to generate an increase in boat revenue, complemented by nice contributions from our Super Yachts Group, marinas, and finance and insurance businesses. At the industry level, the aggressive promotional environment continued in Q3 amid elevated inventories, interest rates and persistent concerns about inflation. The weakened consumer sentiment was evident in U.S. powerboat registrations. According to data from statistical surveys, the fiberglass segment, which drives much of our revenue, was down in the quarter. While the premium end of the market is performing better than the value segment, and as we have said all year, it's not without its challenges. We continue to communicate regularly with our manufacturing partners to ensure they are getting accurate real-time information about the retail environment. Our manufacturing partners have responded with increased incentives and promotional support to help drive sales. As expected, gross margin of 32% was down from last year due to higher promotional activity. Our stated goal when we initiated our higher-margin growth strategy many years ago was to improve and sustain our gross margins above 30%, which we have achieved for 15 consecutive quarters. With industry-wide boat margins having settled back down to pre-COVID levels or lower in certain categories, our strategy to structurally enhance the long-term operating profile of MarineMax has resulted in a stronger and more resilient company. We credit that to the acquisitions of IGY Marinas, Fraser and Northrop & Johnson, as well as many other marina and storage focused entities, among others. Our strategic vision for the recreational marine industry has centered on leveraging our decades of experience, relationships and customer service excellence to build a meaningful presence in higher-margin year-round areas of the business. Supported by our strong balance sheet, the strategic acquisitions we have completed over the past several years have significantly expanded our geographic reach, broadened our product offerings and increased our customer base, giving us touch points across the entire recreational marine ecosystem. The vision for our business is to provide the world's best boating and yachting experience, backed by premium brands and exceptional customer service. When our customers travel to a marina, our goal is to make it one of our destinations. When they store their boat, we want it to be a MarineMax storage location. When they have a need for financing or insurance, superyacht management or to plan a Caribbean vacation, we want our offerings to be first in mind. Through our industry-leading technology and digital tools such as Boatyard and Boatzon, we drive great experiences for our customers and high levels of engagement. We are delivering on that vision and believe that the future power of the brand and our platform has never been stronger. I would add that each of the businesses we have acquired over the past several years has generally met or exceeded our expectations and also brought an increased base of talent into MarineMax. The recent formation of our new SuperYacht Division, SYD, which we previewed on prior earnings calls, is an example of how we are able to generate increasing operating and commercial synergies across our portfolio. The SYD integrates the operations of Fraser Yachts, Northrop & Johnson, Fairport Yacht Management, SuperYacht Management and Atalanta Golden Yachts, streamlining the back office functions of these businesses into a unified entity. Our expansion into superyacht services began many years ago to support our Azimut, Galeon and Ocean Alexander customers, along with others from our retail dealership operations as they migrated to increasingly larger yachts. The complexity of these vessels demanded specialized services, which our SYD companies are exceptionally well positioned to provide. The creation of this new division also creates opportunities for us to increase synergies between the SYD and our IGY portfolio to expand our international customer base. As part of our long-term operational improvement plan, we initiated strategic cost-cutting actions to better align our expense structure with the current operating environment and improve operating leverage. Some of our actions will increase toward the end of the selling season and into fiscal 2025. We expect increasing cost savings from these and other initiatives contributing to enhanced cash flow over the longer term. On the governance front, during the quarter, the Board appointed Dr. Rebecca White as Chair of our Board of Directors. Dr. White, a MarineMax Director since 2018, brings a wealth of expertise to this pivotal role. As the James W. Walter Chair of Entrepreneurship and Director of the John P. Lowth Entrepreneurship Center at the University of Tampa, she offers invaluable insights in governance, strategy and organizational development. Her leadership will be instrumental as MarineMax continues to execute its value creation strategy. We recently announced the retirement of 3 esteemed Board members. First, our Founder and Executive Chairman, Bill McGill, who spearheaded MarineMax's growth over a career in the marine industry spanning more than 50 years. On behalf of all of the team members of MarineMax, I want to thank Bill for his vision to transform our industry. He is truly a pioneer. I also want to acknowledge the work of 2 other distinguished Board members, Joe Watters and Charles Oglesby. On behalf of the entire Board, I extend our gratitude for their enduring contribution to MarineMax's success. During our second quarter call, I briefly discussed the situation concerning our marina operations in Cabo San Lucas and mentioned that we were actively pursuing appropriate remedies. While the situation is fluid, we have been operating the marina since early May as we continue to work on longer-term remedy. Given the nature of the process, we are unable at this time to provide further comments. And before I turn the call over to Mike, I also want to address recent public comments from Island Capital Group. As we stated in the press release we issued on July 12, our Board is open-minded and regularly evaluates bona fide opportunities to enhance shareholder value. The Board is always open and responsive to inputs from key stakeholders, and we have spoken with Island Capital on several occasions. MarineMax will continue to make decisions and take actions that we believe are in the best interest of the company and our shareholders. Today's call is focused on our results, strategy and guidance, and we don't plan to comment further on this matter. Now, let me turn the call over to Mike for the financial review. Mike?

Thank you, Brett, and good morning, again, everyone. I'd also like to start by thanking our team for their efforts in producing a strong quarter despite the ongoing industry challenges. For the quarter, revenue grew 5% to approximately $758 million, reflecting same-store sales growth of 4% and contributions from acquisitions, including at Atalanta Golden Yachts, C&C Boat Works and Williams Jet Tenders. This is the first full quarter that Williams has been part of MarineMax, and their performance in the quarter exceeded our expectations, reflecting the strength of their exceptional team. Despite the industry facing unit declines this quarter, we maintained our unit sales at nearly the same level as last year, resulting in market share gains. This resilience in a challenging market not only demonstrates our company's strength, but also positions us strategically for future growth. For the quarter, as expected, gross margins declined due to pressure on boat margins. On a consolidated basis, however, margins of 32% reflect the benefit of the higher-margin business expansion strategy, as Brett mentioned. SG&A expenses increased 6%, excluding transaction costs, changes in contingent consideration and other items identified in the earnings release. As Brett mentioned, given industry trends, we did initiate cost reduction actions during the quarter, which did include select store closings and reductions within our team. These actions will continue to positively impact our expense structure as we move through Q4 and also fiscal 2025. Interest expense increased as a result of rising interest rates and increased inventory, as expected. Adjusted net income was $34.8 million, or $1.51 per diluted share, compared with $46.5 million, or $2.07 per diluted share last year. Adjusted EBITDA for the quarter was $70.4 million compared with $83.5 million last year. Turning to the balance sheet, cash and cash equivalents at June 30 increased to over $242 million. Inventories at quarter-end decreased sequentially from March, consistent with historical trends and our expectations. More importantly, our aging of inventory continues to lead the industry as monitored by our industry-leading floor plan lenders and is generally in great shape, especially considering the environment. On a same-store basis, comparable unit inventories are more than 30% below 2019 levels. Turning to liabilities, our short-term borrowings, which is our floor plan financing, was up primarily due to increased inventory. Customer deposits, as expected, declined both year-over-year and sequentially, given seasonality and the availability of inventory, which is generally consistent with historical patterns. Debt to EBITDA net of cash was a little over 1x at quarter-end, as we continue to maintain a strong liquidity position. We have additional liquidity in the form of unlevered inventory and roughly $200 million in available lines of credit. Turning to guidance, based on our year-to-date results, challenges in the industry and expectations for the remainder of the year, we are reaffirming our fiscal year 2024 adjusted net income guidance range of $2.20 to $3.20 per diluted share and our adjusted EBITDA guidance range of $155 million to $190 million. These expectations do not consider or give effect for, among other things, material acquisitions that we may complete or other unforeseen events, including changes in global economic conditions. Our guidance assumes an annual expected tax rate of just over 27% and a share count of 23.1 million. The wider range on EPS versus EBITDA is because our non-cash items like stock-based compensation and depreciation and amortization grow more meaningfully as a percentage. For the full year, we continue to anticipate same-store sales growth in the low-to-mid single-digit range and gross margins remaining in the low-30s on a percentage basis. We expect fiscal 2024 SG&A expenses to be elevated above our 2023 level, given our year-to-date performance, but with the year-over-year increase continuing to moderate as we implement additional cost reduction actions. July continues to reflect the tough retail environment. That said, we expect our team will continue to rise to whatever industry challenges are thrown their way. As of today, our same-store sales for the month of July are trending positively year-over-year, but there's much work to do to ensure we finish the month on a strong note. Our Q3 results demonstrate that with the proper level of manufacturing support, coupled with our retailing strategies, we are able to generate sales growth and drive significant cash flows in a challenging environment. With that, I'll turn the call back over to Brett for closing comments. Brett?

Thank you, Mike. The foundation on which MarineMax was founded 26 years ago remains true today: to provide the world's best boating and yachting experience by consistently exceeding the greatest expectations of our customers, our team members and our stakeholders. Today, we have evolved into a highly diversified global business with exclusive distribution rights to more than 40 premium brands, industry-leading superyacht brokerage services and a portfolio of strategically-positioned luxury marinas. We are executing our value creation strategy to enhance the growth and earnings power by acquiring complementary higher-margin businesses and investing in brand expansion, services and experiences for the premium segment. Our strategic initiatives are yielding results, and we anticipate significant performance enhancement as market conditions improve and our newly integrated acquisitions gain momentum. We will continue to be disciplined in our approach with a core focus on allocating capital to the highest-return opportunities that meet our high investment criteria. We are committed to maintaining the company's long-term financial strength and generating sustained value for our shareholders. And with that, operator, let's open up the call for questions.

[Operator Instructions] Our first question comes from Michael Swartz from Truist Securities.

Maybe just to start with guidance, you reaffirmed your fiscal year '24 outlook. With 2 months left in the quarter, it's a pretty wide range. Any kind of, I guess, philosophy or justification around maybe why you didn't narrow the range a bit here, again, 2 months to go in the fiscal year?

Good question, Mike. We just produced a pretty good quarter in a tough environment, but the industry clearly is challenged. And we ran all kinds of different scenarios, and we just felt it was the most prudent and warranted to leave the guidance range wide like that, just given the uncertainties that are in the industry today.

Okay. And then just with the -- I think you said you closed a few dealerships in the quarter, and I would assume that's part of the strategic cost reduction plan that you're putting in place. Is there any way at a high level to quantify what maybe the savings and maybe the revenue impact is of closing those locations and with some of the other actions you've taken?

Probably the best way to look at it, Mike, is last quarter, we talked about our first goal is to get our SG&A expense in 2024. The goal was to get it back to 2023's level. So if you look at how we've operated in Q1, Q2 and Q3 now, our SG&A percentage is getting closer and closer. I think we're 20 basis points higher on an adjusted basis at the end of this quarter, but we're still 110 basis higher on a year-to-date basis. So our goal overall, if you just do the math and that would tell you is, we're trying to get something like $20 million or $25 million out of the company from some of the actions that we've taken.

And I'll add that a lot of the -- some of those stores are duplicative in a market and shouldn't affect revenue in any way. That was some of the decision in that case.

Yes, that's a good point. The stores that closed are largely satellite stores, where we have an adjacent store to a hub store nearby, if you will.

The next question comes from James Hardiman from Citigroup.

This is Sean Wagner on for James. I just wanted to -- I might have missed it, but what was the breakdown of the same-store sales number between ASPs and units? And then, I guess, what was the same-store sales assumption in your guidance and kind of where do you expect that ASP versus unit trend to go from here?

Yes. Good question, Sean. Now, we had said for the whole fiscal year, low-to-mid single-digit same-store sales growth. We don't give quarterly guidance, and we reaffirm that same low-to-mid single-digit same-store sales growth for the full fiscal year. In the June quarter, we had 4% same-store sales growth. And what I said in the prepared remarks was that we held units flat year-over-year. So the entire growth is basically an increase in the average unit selling price. But I think it's extremely noteworthy that we're able to hold our units flat year-over-year, where for fiberglass boat sales, which is primarily what we're selling a lot of, in the month of June, the industry was down 23%. In the month of May, it was down double digits. And I think in April, it was down double digits also. I think it speaks to the testimony of the strategies that we deployed and the strength of our team.

Okay. And I guess, just on the state of the consumer, sort of when do you think this market bottoms? Do you have any reason to think things get better from here and sort of without -- I guess, get better from here without interest rate cuts? And how much would interest rates need to move to spark demand?

Yes, your guess is as good as ours. Obviously, any signaling of interest rate relief would clearly help kind of all consumers and definitely in our marketplace. How much is needed? I don't know. A lot is needed, but something would help. And where are we? I think all of us in the industry want to feel like we're somewhere skimming along the bottom of this cycle, trying to figure out how to get level, but it continues to be challenged on a year-over-year basis. But it feels like we're down towards the bottom of the cycle.

The next question comes from Drew Crum from Stifel.

So, you provided some commentary on your inventory. Could you expound on that and maybe give us a sense as to how your position compares to the industry and how you see inventory trending for your business over the next few quarters?

Yes, I can take a stab at this, and then Brett can chime in if he wants to. But we get a lot of data from our floor plan lenders that would show that we're very well positioned, especially from an aging perspective relative to the industry overall. There's been a couple of other reports that have tried to compare our inventory versus others. I think we're in pretty good shape. We've been focused on it for a while. Our level of noncurrent is pretty low. Our fresh products is higher, obviously. So, all that's good. The way inventory traditionally seasonally rises and falls, usually the end of June is a low point, and then it begins to rise as you go through the summer. So I would expect, as we get to the end of September, the inventories will come up something from where they are now at the end of June. It just all depends on what comes in from the manufacturers. We are, as you can imagine, working very closely with all of our partners about build rates, I think Brett said, giving them real real-time feedback on what's happening at retail, adjusting trends, adjusting product that we're getting daily with our manufacturing partners, just given the fluidness of the industry today.

Yes. And I'll add that all of our manufacturers have done an outstanding job stepping up with this kind of providing the support needed to push retail, even with these trends that are shown in the data, they're helping us push inventory through, which is great.

Got it. And then, maybe just a follow-up, guys. Just your confidence in your ability to sustain a gross margin at or above 30%. It looks like the rate of decline -- year-on-year decline has moderated as you progressed through the year, but just confidence that you can kind of keep it in that low-30s range going forward.

Yes, I think that we've generally felt confident when we deployed this strategy many years ago that we'd be able to keep it up there. I think that what probably confused a lot of people was when boat margins expanded as much as they did during COVID, so it was kind of masking our strategy. And so, we kept trying to articulate, of our margin breakdown, how much of it's boat margins versus how much of it is these higher-margin businesses. And clearly, today in the industry, boat margins are at or below pre-COVID levels. So we're -- there's no longer this upside in our margins from the product that we're selling. And so, the margin you're seeing this quarter at 32% is the reflection of these strategies. And actually, I would probably tell you there may be some upside in those margins long term because of where the industry is, right?

You break it down into the -- the new and used boat sales margins are clearly at some of the highest pressures they've been under. And then, you look at our strategy, really, these -- some of these acquisitions are very new in the higher-margin businesses. And as we continue to integrate, find synergies across the platforms, which we are, the next several years, we think there's opportunity and upside in that.

The next question comes from Joe Altobello from Raymond James.

So, first question, just curious, on retail trends throughout the quarter, I think on the last earnings call, you mentioned that the April comps were up nicely. So if you look at the industry data, it seemed to get worse as the quarter progressed. So I'm curious what you guys saw.

Yes. Our April was strong, and I'd tell you, we finished strong. Despite the data in June, we finished strong. We finished the quarter strong. So it doesn't mean that May was bad. It wasn't necessarily bad. It just -- we needed a strong -- we had a strong June. But geographically, I know you didn't ask that, but no region really stood out as a real bright spot. I think we continue to cite Florida as a good place to be. But the Midwest came alive seasonally, the Northeast did, as you would expect, to a degree, Texas. But, yes, April was strong, as we said earlier, Joe, and then we finished the quarter with a pretty strong month as well.

Okay. Helpful. And then, on the cost savings, I think you mentioned earlier, $20 million to $25 million. I assume that encompasses all of the cost savings initiatives that you guys are talking about. And in terms of timing, is that by the end of next year, so we'll see the full benefit of that in fiscal '26?

Yes. So what -- kind of the way I'm articulating it, Joe, is we're -- our first goal is, let's get back -- let's get our SG&A in line with where it was in 2023. And if you do that math with where we are now, you get to that mid $20 million range, and that would be like on a run rate for [indiscernible]. I'll probably add some caveats. Obviously, that's subject to inflation and other changes and all that stuff, but that's the goal that we've set out. We've been making good progress. As you can tell, just in the current quarter, how our SG&A percentages are pretty close year-over-year.

The next question comes from Eric Wold from B. Riley Securities.

So let's sort of dive into the margins a little bit more. We know that OEMs continue to lean heavily on incentives to push sales and reduce channel inventories. But you also noted that boat margins are at or below pre-pandemic level. So do you expect OEMs to keep incentives at current levels longer term? Or if they take their foot off the gas on those when demand improves on lower rates, how much upside can you have on boat margins from here? And does that imply that boat margins, on a normalized basis, should be above pre-pandemic levels longer term?

Good question. Maybe the way I'd answer it, Eric, is boat margins are under pressure today. So when you look at transaction margins, they're probably, in aggregate, a little below where they would have been averaging for most of the years before COVID only because of how soft the industry. I don't think the industry has seen declines like this. If you take out the financial crisis, I don't think the industry has seen declines where it's down 23%, 15%, stuff like that in a long, long time. So I think there is upside, from a boat margin perspective, long term. I think on the first part of your question, I think manufacturers are going to continue to help drive retail and work closely with their dealer partners.

I would add that their incentives and support are in line with historical trends also. So I think that kind of plays out normally.

Got it. And then, just the follow-up question, kind of thinking about kind of the 2 groups of buyers that would come into your store, obviously, the value boat buyer that needs financing and maybe a higher-end buyer that maybe at least indicates he is a cash buyer but may be financing somewhere else [ but maybe ] a little bit better positioned than the value buyer. Have you seen -- on the higher-end guys, have you seen any shift in their demand or any improvements or deceleration in demand from maybe the better positioned buyer in recent months?

I think as a general rule that, because of the brands we carry, most of our buyers technically are better positioned. But maybe a way to answer the question a little bit is -- and Brett has been saying this for a while, from a smaller product to a larger product, including yachts, it's a tough environment out there across the spectrum. People are very selective. They really need a reason to buy today, which we've been able to obviously unlock that and find those reasons successfully. But it doesn't really matter where they are in the spectrum is [ when I'd say ] it's difficult.

Yes. And I don't think we've seen any major shift in their appetite to finance with us or finance or not finance or the profile looking much different. Nothing has really dramatically changed there. I think you were touching on that in your question.

Next question comes from Brandon Rolle from D.A. Davidson.

First, just given that fiscal year '24 is almost coming to a close, would you provide any early thoughts on fiscal year '25 and maybe some puts and takes to think about as we model fiscal year '25?

Brandon, thank you for the question. We don't get into talking too deeply about 2025 until this year-ends, and then we [ state ] our guidance for 2025. I guess, the only thing I would say is, and I may change this commentary in a quarter, who knows, but Brett kind of touched on this, it's hard to think the industry can get a whole lot softer.

Yes. And I think you could kind of -- we've been pretty consistent for many, many years on how we model our business, although it's changed a lot with a lot of our higher-margin businesses, but we model around what do we think the industry units are going to be next year, we kind of derive a number up or down, usually up, from that. And so, I think we'll be consistent with the way we've done it year in, year out with also applying our higher-margin business and how they'll perform, and I think show in this quarter, we feel that those are a touch more resilient and should continue to show that.

Okay. Great. And then, just one more question. I think you had mentioned you're expecting maybe inventory levels maybe start rising in September. I guess, are you kind of underpinning maybe 2 more months of destocking and then dealers are ready to take on more inventory? Or do you feel like, given where kind of industry inventories are at, it could last throughout the remainder of calendar year 2024?

I think that's a great question. I think it really depends on dealer by deal. I think overall, from an industry perspective, there's a lot of dealers out there who have too much product still. They have too much aged product. So they're going to be hard-pressed to take new models of anything today. And I think you're seeing that reflected in the earnings reports in the industry today from the different manufacturers that are coming out there. From our perspective, we're in -- we think we're in a lot better -- well, we are in a lot better shape from an aging and a noncurrent perspective. We're going to be bringing in product that we think we need for the foreseeable future. And traditionally, that means inventories rise slightly as we head into September. All that depends on retail trends and how we're seeing in July, August and September, obviously, and we'll make adjustments as needed.

The next question comes from John Healy from Northcoast.

Just one question on the gross margins. I know there's been a lot of discussion of that on the call already, but just wanted to ask it this way. When you kind of look at that and where we're at, I take your comments as being we're at a pretty low point. But I'd love to get your thoughts on how they recover from here and kind of how that process evolves. Is it simply that we need retail? Or do you feel like the situation at your competitive dealers, will that weigh on gross margins for a period, even if you are starting to see some continuation of this retail trend? I'm just trying to understand the pace and maybe some framework of how you think it might get better from here?

Yes. I'll just comment. I think you do need -- a healthier industry environment would be beneficial for sure, in terms of inventory levels, all of that, which is happening. There is some data out there that some of the floor plan lenders have shared that is projecting and showing weeks on hand dropping at the end of September and then really dropping at the end of December. And what's driving a lot of that is some level of retail, but also significant drops in wholesale. So the product coming in isn't replenishing as fast as the sales are going out, which is good. So, you can kind of check that box, that should be happening here early in our fiscal 2025, so maybe late calendar 2024, early calendar 2025. And then, obviously, the consumer feeling better, I think, will help. And it's a normal cycle, I chalk it up to. We're in some type of a cycle now that we, as an organization, have been through multiple times as a management team, and it's not all that uncommon. Margins do contract and then they do rise afterwards.

And our manufacturers have been great. They know that there's tough decisions to make to bring some production levels down so that we can kind of start getting ahead of this retail downward trend. And so, that's going to help, too. But with the industry trends, like Mike said, it's going to be hard to get uptick in those quickly.

The next question comes from David MacGregor from Longbow Research.

I guess, a couple of questions. First of all, just around the acquisition cadence, do the cost reduction efforts and maybe the other points of focus in your business right now mean you kind of throttle back on acquisition activity? Or does this environment kind of accelerate and create a little more motivation around the seller, and as a consequence, we'd see a little more activity?

Yes. I think the industry trends and you're kind of wanting to make sure cash flow is in a great place has as probably throttled things a little in the past, I'll call it, year. But I think there's opportunities out there, and there's -- we're keeping an eye, as we always do, on what we could do to continue to grow.

A follow-up question. Just I wonder if we could dig a little further into some of the cost reduction programs in reference to $20 million to $25 million. And you talked already about maybe closing some underperforming locations. Is that the largest part in terms of the composition of that number? Or are there other things going on here that are worth talking about?

David, thank you. We've talked, I think, on last call, it's -- we're looking at everything in the business, every line item. And certainly, facilities costs are a big part of it. It comes with insurance and a bunch of other things that are related to the facilities. So, that may end up being the largest overall percentage, although I don't really recall for sure, but then some level of team member reductions, which we've done, and then other just internal costs and spend with different vendor partners that we've really dug into to decide do we need that or do we not, or can we renegotiate it? So that's the goal that we're working on.

Thank you. This concludes our question-and-answer session. I would like to turn the conference back over to Brett McGill for any closing remarks.

I want to thank everybody for joining the call today. And we'll be hard at work, and we'll talk to you on the next quarter call.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.