© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Please be advised that this conference call is being recorded. Welcome to the North West Company Inc. First Quarter Results Conference Call. I would now like to turn the meeting over to Mr. Dan McConnell, President and Chief Executive Officer. Mr. McConnell, please go ahead.
Thank you very much, and good afternoon, and welcome to the North West Company first quarter conference call. I'm joined today by John King, our Chief Financial Officer; and Amanda Sutton, our Vice President of Legal and Corporate Secretary. And I'm going to start the meeting off by asking Amanda to read our disclosure statement.
Thank you. Before we begin, I remind you that certain information presented today may constitute forward-looking statements. Such statements reflect Northwest's current expectations, estimates, projections and assumptions. These forward-looking statements are not guarantees of future performance and are subject to certain risks, which could cause actual performance and financial results in the future to vary materially from those contemplated in the forward-looking statements. For additional information on these risks, please see North West's annual information form and its MD&A under the heading Risk Factors. Dan?
Okay. Thanks, Amanda. We just had our Annual General Meeting of Shareholders this morning. So before I begin, let me thank those of you that were able to tune in. Some of the elements I'm going to mention now have already been briefly discussed at our AGM. So again, thanks for your patience, if you noticed some duplication.
Okay. With that, let's begin our first quarter results now and the overview. We are pleased with our top line results. Following 2 years of exceptional pandemic-related growth in sales, this is especially noteworthy. When we -- considering that the travel restrictions of East and consumer income support payments are substantially lower than they were a year ago. That said, our bottom line is experiencing headwinds driven by higher inflationary cost pressures, coupled with insurance gains we had last year that we didn't repeat this year.
The lower net earnings are directionally in line with what we have previously indicated in our outlook. However, adjusted net earnings are up more than double compared to pre-pandemic levels. Let me start by providing some color around our consolidated results, and then I'll provide you a brief commentary on our results by division, including the airline before I open it up for you for questions.
Okay. In terms of sales, first quarter consolidated sales increased 0.2% to $552 million. Positive results were led by international operations, particularly with tourism dependent markets, mitigating softer sales performance in Canada. Same-store sales were marginally down, decreasing 0.7%, compared to a 3.8% increase last year. To have some perspective on these numbers, same-store sales are up 21.3% compared to the pre-pandemic sales in Q1 of 2019.
In general, we have been observing a shift in customer behavior, mainly as a result of 2 factors: lower income support and higher inflation. This quarter, we saw our customers allocating more of their purchases to food products, which has changed our mix of food and general merchandise sales. On a same-store basis, food sales were up 2.5% this quarter, compared to a 0.5% increase last year. However, general merchandise sales were up -- down, sorry, 16.1%, compared to an exceptionally strong 23.9% increase last year.
In spite of holding our sales flat to last year, net earnings this quarter decreased to $28.2 million, compared to $40.3 million last year. This was largely due to the impact of a $7.1 million after-tax insurance gain last year that we don't have this year and a lower gross profit rate. Gross profit dollars decreased 3.6% to last year, and our gross profit rate was down 125 basis points, mainly due to the falling factors. One, the change in products mix between food and general merchandise sales. This also includes a higher blend of cost-u-less sales, which have a lower gross profit rate consistent with the discount warehouse format; and two, the impact of merchandise and freight cost inflation that was not fully passed through in the retail prices.
Our focus has remained on keeping our momentum on sales by closely monitoring competitive pricing levels with a balanced approach. We are also taking steps to mitigate inflationary increases as much as possible to meet our value offered to our customers. That's why, like many other retailers, our teams are prioritizing cost controls and conversations with our vendors as well as maintaining disciplines around purchasing and pricing to help mitigate pressures on our margins.
Our inventory approach has the same balancing act component. We have focused on maintaining our in-stock positions as we navigate supply chain challenges. Although we've experienced some vendor delays and shortages, we're working closely with them to minimize this impact. Over the past couple of quarters, we have talked about the fact that we took a higher in-stock position in Sealift and Winter Road stores in Canada.
The rationale behind this is threefold. The first is to navigate and get ahead of the current supply chain restraints and extended the lead times; second, it is to take advantage of specific low-risk buying opportunities and hedge rising costs due to industry-wide inflation; and lastly, it was to capitalize on lower freight costs by utilizing less expensive modes of transportation like the Winter Road and Sealift.
We will continue to -- we do continue to believe that this approach is necessary given the supply chain and inflation realities. We are closely monitoring these inventory levels and taking measures to adjust our position to align with changes in consumer demand. This resulted in higher markdowns in seasonal merchandise in the quarter. Having said that, we believe our inventory position by and large, is in the right merchandise with built-up inventory in categories such as motorized home furnishes in Canada, which we expect to see continued demand.
All right. Now let me take a moment to talk briefly about the performance of our Canadian and international operations. Canadian operations sales decreased 1.6% to $315 million, where inflation-related gains were more than offset by the elimination of COVID income support payments and these are for all the individuals. Same-store sales decreased 4.2%, compared to a 6.7% increase last year, but were up 22.9% compared to the first quarter of 2019.
We are holding around on same-store sales, down 1%, in spite of comparing to a much larger income support base last year. The shift in consumer spending patterns I mentioned previously, are reflected in general merchandise same-store sales, which were down 16.5%, compared to an impressive 21.7% increase last year. The other point I'll make here on the changes of sales mix is the fact that we have had a higher participation of motorized sales in the overall sales blend, which has contributed to downward pressure on gross profit rates as well.
On the other hand, international operations increased 2.1% to $187 million, led by strong food sales and the impact of the new Alaska stores, which mitigated lower -- lower overall income support on U.S. territories. There's a [indiscernible] here. Given the fact that there was an increase of benefits from the supplemental nutritional assistance program for SNAP, as we know it, within the U.S. territories that this occurred in the third quarter of last year. We also had improved performance in tourism markets in the Caribbean. We are seeing some tourism come back slowly to the islands and in some regions of Alaska. However, these results are not uniform across the territories.
In some markets, like in the USVI, tourism has been back for some time now, but in others like the BVI, tourism is just making its way back. According to local estimations of overnight tours in the BVI, the island is still down around 50%, compared to pre-pandemic levels. The changes in sales mix in international operations is similar to Canada. Food sales increased 3.8% and were up 7.2% on a same-store basis, compared to a 3.1% decrease last year.
Here, it's worth mentioning that in Alaska this quarter, we did not have the sales of the USDA, Farmers to Families Food Box Program that we had last year. General merchandise sales decreased 14.4% and were down 15.2% on a same-store basis, compared to an exceptional 30.8% increase last year.
All right. Now I'm just going to briefly touch base on the performance of the airline for the quarter. North Star Air's EBITDA increased 1.5% compared to last year. Higher passenger volumes resulting from reduced travel restrictions have more than offset a decrease in cargo compared to last year. This includes offsetting the impact of $400,000 of the Canada emerging wage subsidy payments that we received last year. We've also had cost pressures in the airline.
Jet A fuel costs have almost doubled year-over-year. And between February and April alone, they have increased around 30%. We've been able to pass through, most of these costs through fuel surges -- sorry, through fuel surcharges the same way all other carriers have been doing so far. However, it remains a significant cost pressure we need to manage to avoid further margin erosion on the retail side. Now before ramping up, let me just say that in the short term, there are still global supply chain pressures, high inflation and more broad macroeconomic uncertainties, we still need to navigate.
I have previously alluded to some of the focus areas to mitigate these risks, which include supply management as well as controls on cost, inventory and pricing right across the organization. That said, we are very excited about the future of our company and the strength of our business going forward.
As I mentioned on the AGM, we are actively pursuing growth through new stores, products and services in our Canadian and in our international operations. Beyond the duration of the current environment, as previously noted, the medium- and longer-term outlook for the company is favorable, and this is based on the expected impact of government transfer payments and higher infrastructure spending in the indigenous communities and improved tourism -- in the tourism-dependent economies.
With that, let me open it up for any questions that you might have.
[Operator Instructions]
First question is from Michael Van Aelst from TD Securities.
First question, just on the -- your commentary around the absorption of costs and inflation. Is it more predominant in the international markets or Canada? And is this something that Northwest is initiating to gain share? Or is it a reaction to competition?
Michael, it's a good question. I'd say there's probably both in there. I would say, really there's a number of things. I mean, some of the things are, there's the markdowns, is one factor. The sales mix is definitely a factor. Keeping a balanced approach because a lot of our competitors are not necessarily keeping up with inflation at the same extent. There's a learning that's in the coming for them, unfortunately.
But we're following -- we're setting it where we can, and we're not going over the mark. So I would say on the most part, though, a lot of the inflation that we haven't passed on is kind of comprised in those areas, but then there's also a lot of fuel increases, the increase in the cost of product that has been so sudden, if you've seen it in some of the markets, you'll see that it's up 7%, 8% in a month. And we're -- it's almost like you can increase prices quick enough.
And I mean this is something that we've seen, other retailers are obviously experiencing the same thing. So it's just -- now it's a real focus. It always has been a focus, but now just understanding that it's almost unprecedented of costs increasing at such a rapid rate that we have to make sure we stay on it and keep on with passing those inflation and the price inflations on to our customers.
So that's -- it's really a mix. So I would say sales mix, there's markdown -- markdowns that have come -- and this is -- the markdowns are simply a result of the season hasn't changed as quickly as it has in previous years. We've got a lot of seasonal merchandise that -- the weather hasn't cooperated, not that we like to talk about the weather, but people aren't thinking of buying their outdoor patio furniture until the snow goes away.
So this is something that we expect to start happening very soon. We've also ramped up on some of our selling activities, which were planned. As you've seen and you've heard some of the commentary I've made in the past, we have -- we did make some purchases in order to avoid some of the cost inflation and some of the supply chain disruptions. So we've made some purchases beforehand, and those are all in accordance with some of the selling activities that we have coming in the next couple of quarters. Whether it be through arena sales in the North, truckload sales, Black Friday, all those types of events are all are all accounted for.
So we'll be able to accommodate a lot of that -- the inventory that we have because I imagine there's an inventory question coming, but some of the inventory that we're sitting on as well, and that has been marked down. So in relation to the time that we've held it. So there's a lot of factors, but I would say that everybody is aware, obviously, that cost inflation is a top front-page item. So our customer -- the competitors are definitely starting to increase on some of the markets that maybe haven't been as quick to do so.
So I see that as less of an issue moving forward. It's more along the lines of just trying to forecast and keep on top of some of the cost increases in all the different categories that are experiencing that action. Does that answer your question?
Well, yes, it sounds like there's some climbing to this and that -- and passing on once -- if you were to see some of these cost -- this cost inflation slow down, you'll be able to catch up. But -- yes. But at the same time, I remember when you reported your last quarter results, your gross margin was at the same 32% level. And -- and you indicated that, that was a good indication of where you thought you'd want and make a good balance for you going forward. So is 32% the right level? Or the 32% -- or are we going to see it rise up above that level once you can catch up to some of these cost pass-through initiatives?
I would say 32% is a good level in order to sustain that 32%, especially with all the cost increases. I went to bed last night, gas was at $1.90. I woke up this morning, it was at $2.10. So I think to sustain the 32% margin rate would be something that we'd be looking to sustain right now.
Okay. Great. And on the inventory since you brought it up, you did mention that you thought the inventory was in categories that were going to have some good demand. But -- at the same -- but then at the same time, you're writing down some inventory. So your -- it looks like your inventory is up by 8% to 11% year-over-year, but your sales are not right -- not higher. So how comfortable are you that your write-downs are, that you've taken so far, are adequate and that you won't have to do it again.
Right. Well, definitely. Well, some of our -- for example, we're -- we've doubled down in some of our categories like motorized home furnishings, and we have strategies that are in works in order to execute on sell-through of those items. I can tell you that if you haven't tried to buy a quad or an ATV or a boat lately then I can tell you that it's pretty liquid. It's hard to get. But given our position in the market and the fact that we are the largest distributor of snowmobiles and definitely up there with the ATVs, that we do have a preferred place, and we did take full advantage of that to buy a lot of inventory for the year.
So we expect that throughout the year, with different avenues and the different promotions that we have in place that we're going to sell through that product. However, in saying that we're still sitting on -- we are still sitting on more inventory than we have in the past. So -- and when you move on to some of our other banners, we did go and we purchased probably a little heavier on some of the media site and sound in our international banner. And in doing that, it was under the same premise and for the same reasons we talked about earlier. We've slowed that down in anticipation of the somewhat slowing of the economy. But we do have an outlet for that as our Black Friday and our Q3 selling seasons are basically geared up to move this type of product.
So we would slow down the purchases right now in anticipation of the slowdown of some of the markets and our GM. But at the same time, we'll have the selling season and the outlets to be able to move that inventory in Q3 and Q4. So we thought we were going to sell it earlier on, we've hold it off because we know later on in the year, we will sell it. As a result, we have taken a reserve on some of that inventory.
The next question is from Mark Petrie from CIBC.
I just wanted to ask about some of the sort of early insights from your pricing work and your overall views on your ability to retain some of the out-shopping business that you've won over the last couple of years?
Okay. Well, pricing -- our pricing initiative is -- I mean, to answer the question in bold, it's going well because it's giving us more insight to our consumer trends and the elasticity of our products and our services. But at the same time, it's not -- it's more like business every day. Like right now, with -- there's 2 kind of factors that play into it. There's going to be -- there's a lot more out-shopping potential given the fact that the weather has turned and the pandemic is somewhat behind us.
But at the same time, with the cost inflation and particularly in the airlines, which will have some -- obviously some pretty good insights to. That is preventing people from traveling more than we thought they would have. People are still going to be leaving the market, so that's a given. However, with the cost inflation, not only in urban centers through the products and services, but also in the transportation methods or mode that people have to get out of market, it's preventing people from traveling as much as we considered they would be.
So it's -- let's call it revenge travel. Revenge travel is great in the south and isn't great in the north. But the other competing factor to that is, as I indicated in my discussion, there the fuel has -- air jet fuel has doubled. That is something that the carriers in the North passed through to the customer. So that would prevent people traveling as much as we would have thought they would have prior to this major inflation. So we definitely have created trust within the market, even just being able to get product. I talked earlier about some of the big ticket ATVs. These are products there that are very short supply even in the urban centers. So the fact that we have them and we secure them and we protect the inventory levels for our communities, gives people obviously less motivation from buying it outside of the market.
So I'd say we've definitely held on to some. And to be seen as far as we have all the promotions and the selling entitlements that we can put in place to try and retain as much as we can. Pricing is one of them, selection is another, but it's not something that -- we're not dropping prices in order to persuade the customer to stay with us as we're just trying to get to that happy equilibrium, which seems to have worked so far, as you can tell from our sales momentum from 2019 is still quite large as far as the gap between 2019 and now. So that shows us that we are maintaining those customers. And I don't think there's as much out travel as we would have initially thought.
Okay. And then I guess, suffice to say that most of the opportunity is in general merchandise, but there is also presumably opportunity in food as well. So could you just talk about sort of the different dynamics between the 2 businesses?
Sure. Maybe just clarify for me, Mark, when you say opportunity -- what are you referring to? The...
To this sort of more nuanced understanding of elasticity, and ability to sort of retain sales level.
Got you. So trading sales, trading dollars. So -- yes. So we definitely -- we're definitely seeing people trade. They're trading from maybe more fresh steaks to frozen meat. They're trading from -- to more cost-effective means. We've looked at our private label is seeing some more penetration than previously experienced. So there's definitely a trade within the food categories itself, but not as glaring as obviously the trade from general merchandise over to food. Our general merchandise sales, as I indicated, have taken a significant bump downwards. And we anticipated that, but it's something that is more -- I guess, it's more glaring.
In food, it's all -- it hasn't happened to the same extent by any stretch, but there definitely is some trading down. Worth mentioning, there is some -- as I indicated earlier, as far as moving some of our general merchandise that has experienced some downward pressures, there is some strong selling events that are coming up as well as worth mentioning that the PFD in Alaska has been -- and again, it's not final, I think the governor has until Thursday, tomorrow, to reject this, but the PFD has been identified to be $3,200 this year, which is as high as it's ever been since I can remember. I think last year, it was like $1,100.
So there could be some good opportunities down the road to be able to move some of our general merchandise, as I previously indicated to Michael's question, but I think also ties into this as far as the mix is suffering now, the general merchandise is suffering now, but we hope with some of the activities coming down the road that we'll be able to catch that up.
Yes. Okay. Yes. Thanks for highlighting that. And I guess just with regards to the gross margin and sort of passing along higher costs, would it be fair to say that you are passing through sort of higher product costs but not necessarily all of the higher sort of supply chain costs? Or is it also inconsistent or maybe not passing through all of the product costs as well?
No, I think your prior -- I think generally, yes, that you'd be -- that -- that you're probably -- you probably had hit it on the head there. And it's also -- it's a gradual increase. Like because I talked about how quickly some of these cost increases have come upon us. We've taken a more gradual approach to it, but it's probably some intentional and some unintentional to be honest. And it's just really because we have seen some of our vendors -- some of our vendors have sprung and maybe to their learning as well, but they've sprung some pretty aggressive cost increases on us, which we haven't been able to react as quickly to pass that on to the customer. I mean, fuel and the freight is probably one of the ones that comes to mind as I indicated.
The next question is from Neil Linsdell from iA Capital Markets.
Just trying to figure out, on the, I guess, the improvement in the revenue or the revenue level where it is, is there any way you can kind of give us color on how much of that is because of inflation versus volume? And I know you have a very diverse mix of products, obviously, that you have. But even between food and general merchandise is cost inflation or price inflation helping to mask any kind of volume reductions?
Neil, it's John. I think, look, it's tough to break down that difference. Like our -- inflation in our business certainly has been running on certain products in the 7% range. But we also have the impact, as Dan said, of the -- we've locked in some of that pricing or some of that cost on our Sealift, Winter Road and other merchandise. So when you get to the heart of it, like as you said, across the various products, it's hard to separate out more definitively that balance between the two.
Yes, more -- yes, I think that's a great point. I mean just because of the way we went to market this year, understanding -- never to the extent, but understanding that there's going to be significant cost increases, we did double, triple down on our more preferential modes of transport. And we've -- as you saw, we purchased -- or engaged in leases on other facilities to hold more product. So in order to get the true net inflation of current today sales is less clear.
Definitely, it's something that we're looking at moving forward as a -- and just enabling us to be able to keep up with it and have to make sure we have that pass-through on to the -- on the products and services we deliver. But currently, again, as John mentioned, it's not a number I'd be comfortable throwing out.
Yes. And for context, Neil, like that number, I'm just giving an example of on fresh product, for example, where you see a lot of commodity cost increase Dan talked about that, but also the fuel surcharge increase on their seat could be running a higher inflation rate there. That's not necessarily the inflation rate for the whole business.
Yes. I appreciate it. It's a difficult question. More difficult to answer. Thinking about your -- with the different dynamics, the space allocation that you have in probably some of the larger stores, have you -- did you change anything when the pandemic started and you had more in-community shopping? Or are there any kind of changes to the, I guess, the floor space to emphasize or bring more products that you think you're going to sell better?
No, not really. I mean other than getting as much product into the stores as we can, we probably overloaded the stores, again, taking advantage of some of those cost-effective means of transporting our products. But I would say that, if anything, we didn't necessarily changed the layout, but we had more product in market, and you can't sell unless it's on the floor.
So I know that a lot of the leaders in market were definitely getting a lot more of the products, particularly the general merchandise last year and then pulsing it in this year. And I would imagine some of the seasonal items that wasn't relevant to the market or what people were seeing outside their door was taken and put in the back until the snow was gone or until the weather was appropriate for what we had to sell.
But really, if you think about a lot of our leaders are sitting on the merchandise, they don't have it every week. So it's more -- it's more just kind of [ irrelevant ]. I mean it's market-driven. I guess you could say it's market and demand-driven. So whatever is required to satisfy or essentially provide for the customers that day is typically what the managers would put on the floor.
Okay. That's fair enough, Dan. Just wondering if it's a big whole ship.
Sorry, Neil, it's John. Pardon me. I was just going to build on that. And keep in mind that, again, our stores in Northern Canada, we have warehouses more than, as you know, larger warehouses than would you typically find in a backroom comparison to an urban store. So that's where we're storing a lot of the product. Our actual sales force, as Dan said, we didn't materially reconfigure that. You have your high-volume areas. But it's really that warehouse space in community that we're leveraging here. Does that...
Yes. I was kind of thinking about whether or not now that if you do have the shoppers that are more likely to shop out of the community or take longer road trips without being mitigated by the cost of travel, if that was forcing you to put more of the consumables in your stores or more square footage related to that than items they might spend more time out with community shopping for.
Okay. Okay. Okay. I -- sorry. Yes, yes, we definitely like -- we're definitely on an ongoing basis, developing and evolving our sales mix to accommodate what our customers are looking for. So we do have planogram resets on a regular basis, and it's really catered around new market demand. So currently, depending on the markets, we have definitely altered our mix in order to accommodate either the larger market share that we've been able to acquire in some categories and maybe less significant categories have not taken as much of a presence as they might have in the past.
But nothing that I can summarize -- as far as consumables, we've always been reasonably high in consumables with our quick stop with -- like that with our perishable programs. It is a competitive advantage that we hold -- so it is something that we continue to strive to be out execute our competitors or anybody in market because it's a core competency and a competitive advantage that we hold over anybody else in the market.
Okay. And then in the outlook, you've mentioned this before as well, but you mentioned acquisitions, potential business ventures. Is there a pipeline of acquisitions? Or are we talking about tuck-ins? Or is there anything significant enough like what you did in the Caribbean that might be on the horizon?
I mean with this ever-changing environment, I do think it creates opportunities. And I can tell you that there's definitely tuck-ins that we're evaluating regularly and our head is up and looking at acquisitions that we think can play into our competitive advantage and give us more competency and scale for our shareholders.
So I'd say that it's an exercise that we do frequently, but we're pretty selective on the ones that we kind of strike on. And I think that's probably all I can say about it right now, but we definitely think this environment is right for, call it, people to get fed up with the volatility of the industry at this point. And that is -- that will play into our appetite to acquire other operators. But currently, I [indiscernible] tuck-in -- sorry, go ahead.
I was just asking if that was really kind of where the question was going as far as if the environment has now improved with more people getting fed up that you might be able to be more aggressive or get things at better prices?
I'd say that, that's -- I think that, that would be an opportunity for us. But to answer your question, I'm not down the road on anything right now. But I do -- I suspect that there's going to be opportunities. I've looked at opportunities that -- let me say it this way, I've looked at opportunities that might not have been available a couple of years ago. They're not right for us. But that leads me to believe that there's other opportunities out there that should be right for us.
So I do think that this has created some -- particularly family businesses or smaller operations, that with no kind of stronger succession to think, well, coming out of this last couple of years and now coming into the environment we're in now, this might be a good time to liquidate. And -- that's why I thought that's my -- that's my suspicion. So that's all I can really say about that right now.
Okay. I hope you're right. Just one last thing, I just wanted to end on. You have talked in your commentary about ESG themes and risk mitigation. I know down in the Caribbean, you've spent a lot of money putting much more resilient structures in place for the hurricane force winds that come through those islands.
Is there anything else on that kind of scale around a longer-term view that you haven't talked about yet as far as dealing with climate change? I'm just thinking about ice roads and how long they last nowadays? And if you're thinking like 3, 5, 10 years down the road about anything else that you're doing?
I'd say that the evaluations of our structure with the permafrost defrost in our Northern communities is something that we've been cognizant of for at least a decade if not more. So that's something that we're doing a valuation on the structures on a regular basis to ensure that they're holding up and we've done some work in some of our markets to correct that.
As far as the Winter Road, short -- this is a season -- kind of funny coming off this season. It's been a pretty long one. But I don't, Neil, have really any predictions there, a lot of insights around that particular item. More just so on the infrastructure and the whole lot of our infrastructure, sustaining the elements and the changing of the climate in the different communities.
And you mentioned the hurricane scenario and some of the increased engineering around that. And otherwise, it's just making sure that we're maintaining our assets from a structural perspective to combat the northern climate. And really, the biggest challenge there is permafrost defrost.
There are no further questions registered at this time. I would like to turn the meeting back over to Mr. McConnell.
All right. Well, then that's great. Thank you, everybody, very much for your time, and I hope you have a very enjoyable summer. Enjoy your summer.
Thank you. The conference has now ended. Please disconnect your lines at this time and thank you for your participation.