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Edited Transcript of ASM.V earnings conference call or presentation 8-Nov-19 4:00pm GMT

Q3 2019 Avino Silver & Gold Mines Ltd Earnings Call

Vancouver Nov 16, 2019 (Thomson StreetEvents) -- Edited Transcript of Avino Silver & Gold Mines Ltd earnings conference call or presentation Friday, November 8, 2019 at 4:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* David Wolfin

Avino Silver & Gold Mines Ltd. - President, CEO & Director

* Jennifer North

Avino Silver & Gold Mines Ltd. - Manager of IR

* Jose Carlos Rodríguez Moreno

Avino Silver & Gold Mines Ltd. - COO

* Nathan Harte

Avino Silver & Gold Mines Ltd. - Interim CFO

* Peter Latta;Technical Services Manager

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Conference Call Participants

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* Bhakti Pavani

Alliance Global Partners, Research Division - Senior Research Analyst

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Presentation

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Operator [1]

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Welcome to the Avino Silver & Gold Mines Third Quarter 2019 Conference Call and Webcast. (Operator Instructions) I would now like to turn the conference over to Ms. Jennifer North, Manager of Investor Relations. Please go ahead.

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Jennifer North, Avino Silver & Gold Mines Ltd. - Manager of IR [2]

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Thank you, operator. Good morning, and welcome to the Avino Silver & Gold Mines Limited Third Quarter 2019 Financial Results Conference Call and Webcast. On the call today, we have the company's President and CEO, David Wolfin; our Interim Chief Financial Officer, Nathan Harte; our Chief Operating Officer, Carlos Rodriguez; and our Technical Services Manager, Peter Latta.

Before we get started, please note that certain statements made today on this call by the management team may include forward-looking information within the meaning of applicable securities laws. Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results to be materially different than those expressed by or implied by such forward-looking statements. The company does not intend to and does not assume any obligation to update such forward-looking statements or information other than as required by applicable law. For more information, we refer you to our detailed cautionary note in the presentation accompanying this call or on our press release of yesterday's date.

I would like to remind everyone that this conference call is being recorded and will be available for replay later today. Replay information and the presentation slides accompanying this conference call and webcast will be available on the website. Thank you.

I will now turn the call over to Avino's President and CEO, David Wolfin. David?

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David Wolfin, Avino Silver & Gold Mines Ltd. - President, CEO & Director [3]

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Thanks, Jen. Good morning, everyone, and welcome to Avino's Q3 2019 Financial Results Conference Call and Webcast. Thank you all for joining us today. Before we begin, please note that the full financial statements and MD&A are now available on our website.

Today, we will cover the highlights of our third quarter 2019 financial and operating performance and our plans for the remainder of 2019, and then we'll open it up for questions. Please note that all figures are stated in U.S. dollars unless otherwise noted.

During the third quarter of this year, silver equivalent production was affected due to decreasing consolidated silver and gold feed grades that were offset slightly by higher mill throughput, copper feed grades at Avino and an increased consolidated recovery. The lower consolidated feed grades were mainly caused by the fact that the San Gonzalo mine is near the end of its economic life as well as variability in the deposit at the Avino mine. In addition, production was affected by minor production interruptions as a result of delays due to heavy rain season. The expectations are for higher production in Q4 2019 as we change our feed mix to focus more on the Elena Tolosa area of the Avino mine.

Overall, silver equivalent production was down 19% to 570,000 ounces compared to 704,000 ounces in the same quarter of 2018. During the quarter and compared to Q3 2018, our silver production was down 34% to 222,000 ounces from 342,000 ounces. Gold production was down 34% to 1,448 ounces from 2,204 ounces. And copper production was up 39% to 1.4 million pounds from 992,000 pounds in Q3 2018.

While Q3 2019 production results were lower compared to the same period in 2018, they were in line with our internal expectations, and output remained similar to the first 2 quarters in 2019. The quarter witnessed an increase in throughput and recoveries and significant progress in the open pit tailing storage work, specifically the installation of a geo membrane, which is almost complete. The newly commissioned tailings thickener has transitioned to full operation and has reduced the water content sent to the tailings facility while similarly increasing the amount of water recycled back to the processing plant.

During the fourth quarter and into 2020, we are looking forward to advancing our processing plant optimization initiatives and transitioning to full mining production in the Elena Tolosa area of the Avino mine. The mill configuration in the third quarter 2019 was the same as the second quarter in 2019, where Mill Circuit 1 processed materials from San Gonzalo mine. Mill Circuit 2 processed materials from San Louis area of the Avino Mine. Mill Circuit 3 processed materials from the Elena Tolosa. And Mill Circuit 4 processed materials from Avino historic aboveground stockpiles.

At the Avino Mine, mill throughput was up 43% on a quarterly basis, which offset lower silver and gold grades of 28% and 42%, respectively. Copper grades increased by 10% compared to Q3 2018. Silver and gold recoveries increased by 3% and 10%, respectively. These factors resulted in a 12% increase in silver equivalent, which totaled 418,352 ounces in Q3 2019 compared to 372,604 during the same period last year. At the San Gonzalo mine, silver equivalent ounces produced during Q3 2019 totaled 56,203, representing a decrease of 64% compared to 155,990 in Q3 2018.

During Q3 2019, silver and gold feed grades declined by 75% and 65%, respectively, compared to Q3 2018. Recoveries for silver increased by 2%, while recoveries for gold dropped by 3%.

As we've been messaging over the last year, San Gonzalo is approaching its end of life, and the grades and recoveries and productions are rapidly in decline. This is in line with our internal expectations.

In Q3 2019, the Mill Circuit 4 processed 62,656 tonnes of AHAG stockpiles, which represents 29% decrease in throughput compared to Q3 2018. Accordingly, our consolidated cash cost for the quarter were at $12.74, and our all-in sustaining

$15.56 compared to $9.69 and $11.15, respectively, during Q3 2018. The increase in the cost is due to less ounces produced. We anticipate an increase in production in the fourth quarter and into 2020 as well as a transition from development to long-haul mining at Avino, which should lead to cost being spread over more ounces, which should result in a lowering in our all-in sustaining cost per ounce.

At Bralorne, Avino continued its exploration and drilling campaigns in Q3 2019 using flow-through funds that were raised in April of 2018. Phase 1 of the drilling proceeded from Q4 2018 to Q1 2019, targeting unexplored portions of known veins. Phase 2 of the drilling continued from Q1 and will continue into 2020 and will target new drilling in under-explored portions of the property. Phase 2 drilling has confirmed a new targeting model in the Northeast block and highlights potential for another large-scale Bralorne style, narrow-vein gold system. To date, 29,000 meters have been drilled in the program, which is intended to be between 28,000 and 30,000 meters.

I will now ask Nathan Harte, Avino's interim CFO, to present the financial results.

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Nathan Harte, Avino Silver & Gold Mines Ltd. - Interim CFO [4]

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Thank you, David. It's my pleasure to be on the call today, and welcome everyone who has joined us and is viewing our presentation today.

During the quarter, we generated lower revenues, a mine operating loss and a net loss after taxes compared to Q3 2018, which is directly related to the winding down of the San Gonzalo mine as well as lower-than-expected production from the Avino mine due to seasonal heavy rains and variability in the deposit. In addition, the company had a larger-than-average concentrate inventory balance of 4.8 million, of which the majority was sold subsequent to the end of the third quarter 2019. This is expected to have a positive impact on the company's Q4 2019 revenues.

Revenues from mining operations during the third quarter were $6.8 million compared to $8.5 million during the third quarter of 2018. Mine operating losses were $177,000 compared to mine operating income of $657,000 in Q3 2018. After taxes, there was a net loss for the third quarter 2019 of $1.6 million or $0.02 loss per share, compared to a loss of $1 million or $0.02 per share in the third quarter of 2018. Losses before interest, taxes, depreciation and amortization, or EBITDA, was $1.6 million in Q3 2019 compared to earnings of $264,000 during Q3 2018. Adjusted EBITDA was a loss of $136,000 in Q3 2019 compared to earnings of $536,000 in Q3 of 2018.

Working capital at the end of the quarter was $10.1 million compared to $13.1 million at the end of 2018 and $9.1 million at the end of Q3 2018. Cash of $2.9 million was on hand compared to $3.3 million at the end of 2018 and $7.1 million at the end of Q3 2018. Subsequent to the end of the quarter and following the realization of concentrate inventory, cash on hand today is approximately $6 million.

Our consolidated cash cost for silver equivalent ounce increased 31% to $12.74 in Q3 2019 compared to $9.69 in Q3 2018. And our all-in sustaining cash cost increased 40% to $15.56 in Q3 2019, up from $11.15 in Q3 of 2018.

Our revenues of $6.8 million were derived 35% from silver, 34% from copper and 31% from gold. Capital expenditures during the first 9 months of 2019 were $7.3 million compared to $10.9 million in the first 9 months of 2018. These capital expenditures at the Avino property mainly related to the membrane of the previously mentioned open pit area for holding tailings, buttressing of the existing tailing storage facility, moderate upgrades to the tailing thickener and crushing circuit as well as equipment to facilitate metallurgical improvements.

Exploration capital expenditures at the Bralorne mine amounted to $4.7 million for the year-to-date period 2019. During the quarter, management continued to remain focused on its previously announced cost reduction initiatives, which have resulted in a cost savings of 23% in our G&A expenditures when compared to Q3 2018 and a 29% overall reduction in the first 9 months of 2019 compared to the first 9 months of 2018.

Along with others in the mining space, we look forward to continued improvement in the metal sector throughout 2019 and beyond.

At this point, I will hand it back over to David for a discussion on our plans for the remainder of the year.

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David Wolfin, Avino Silver & Gold Mines Ltd. - President, CEO & Director [5]

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Thank you, Nathan. We would like to see a stabilization in current metal prices and certainly hope for continued improvement going forward while we continue to control our capital, operating and administrative costs.

Looking ahead into Q4 2019, we have outlined our expectations as follows: At the Avino property in Mexico, our plans are to transition from development to underground mining at the Elena Tolosa area of the Avino mine. Develop along Level 9 on the Hanging-wall Breccia material and test the material using Mill Circuit 1; continue to explore options to add mineable tonnage that will increase overall head grade. At Bralorne, Phase 2 drilling will continue to target new discoveries in under-explored areas of the property. We remain focused on our projects and controlling costs across the company as we continue to optimize operations and evaluate other areas of the vast Avino property for future exploration.

Finally, I would like to say thank you to the teams in both Mexico and Canada for their perseverance and dedicated efforts during what has been a challenging quarter and, specifically, for decreasing our corporate G&A by 29% compared to 2018.

We would now like to move the call to question-and-answer portion. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Bhakti Pavani with Alliance Global Partners.

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Bhakti Pavani, Alliance Global Partners, Research Division - Senior Research Analyst [2]

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Just a quick question. You did mention about transitioning from development-style mining to long-haul retreat. Just was curious to know, could you maybe provide some information on the cost economics, and if possible, quantify the number as to what kind of percentage reduction should we expect to see in the mining cost maybe in 2020?

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David Wolfin, Avino Silver & Gold Mines Ltd. - President, CEO & Director [3]

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That's a loaded question there, Bhakti. Right now, I mean, for long-haul caving, I mean, we do it -- I don't think we could say --

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Nathan Harte, Avino Silver & Gold Mines Ltd. - Interim CFO [4]

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I don't think we -- Bhakti, Nathan here. I don't think we can give an exact cost estimate at this time, especially as it is a transition. So you may not realize some of that right away. Obviously, we're expecting and hopeful that costs will decrease on a per unit and overall basis. But at this time, we can't give you a number.

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Jose Carlos Rodríguez Moreno, Avino Silver & Gold Mines Ltd. - COO [5]

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Yes, this is Carlos here, Bhakti. The thing is in the last 5, 6 years, we have been developing the mine, and we don't have a reference for production. But yes, I guess, in the first or second quarter, we can provide you with approximately cost per tonne. But yes, of course, mining is cheaper than developing along the bank in different levels. The only reference that we have is that -- I was working in 2001 in Avino. And then at that time, I recall that it was cheap. But yes, certainly, we don't -- we cannot provide with a cost per ton right now. Maybe middle of next year.

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Bhakti Pavani, Alliance Global Partners, Research Division - Senior Research Analyst [6]

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So if I understand correctly, would you be testing the mining method in Q4? Or is it more of a 2020 time frame item?

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Jose Carlos Rodríguez Moreno, Avino Silver & Gold Mines Ltd. - COO [7]

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No. I think that, yes, we can -- in Q4, we can start testing. We can start mining by the long-haul mining method. And yes, it maybe -- Q1, yes, we can provide a preliminary number for you. But yes, Q4 will be a testing time for us.

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Bhakti Pavani, Alliance Global Partners, Research Division - Senior Research Analyst [8]

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Okay. Fair enough. Then moving on to the product mix. The San Gonzalo coming at the end of the mine life, just was curious to know, how does your product mix look like in Q4? And when should we expect to see the Avino mine throughput processing or feeding all 4 mill circuits at this time?

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Peter Latta;Technical Services Manager, [9]

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Bhakti, Peter here. I can take that one for you. So as Nathan alluded to here, we finished off San Gonzalo in mid-October, so we won't be processing that any further. And as we mentioned in the press release, we're processing Hanging-wall Breccia materials through Circuit 1 right now. So Q4 is all about just working out the bugs to ramp up production to meet all the circuits for ET material, and so we expect that to be done in the fourth quarter here.

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Bhakti Pavani, Alliance Global Partners, Research Division - Senior Research Analyst [10]

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So Q4, if I understand correctly, Q4 will have some of the stockpiles that you would be processing, am I correct in assuming that?

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Peter Latta;Technical Services Manager, [11]

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Yes. And as we transition to full-scale mining as Carlos mentioned with ET.

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Bhakti Pavani, Alliance Global Partners, Research Division - Senior Research Analyst [12]

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Okay, perfect. The other question was related to inventory. I know -- I think Nathan did allude to inventory balance. Would you -- of $4.8 million. Would you be able to quantify as to what percentage was recovered already subsequent to the quarter?

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Nathan Harte, Avino Silver & Gold Mines Ltd. - Interim CFO [13]

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Bhakti, percentage-wise, I would say, just over half. I think a lot of it was due to just the timing of when our shipments went out. And so that obviously affected our revenues for Q3 and should have an impact on Q4 kind of the other way. But yes, I would say about half of it is realized in October already, along with our regular shipment cycle.

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Bhakti Pavani, Alliance Global Partners, Research Division - Senior Research Analyst [14]

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Got it. And lastly, what -- how does the stockpile inventory currently look like?

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Peter Latta;Technical Services Manager, [15]

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Bhakti, Peter here. I'll jump in on that one. And, Carlos, jump in if I'm incorrect here. We planned for about another 3 to 4 weeks of processing stockpile material before we can fully transition to ET, just to give you a bit of a background on that. We do have a bit more stockpile material, but like we can use it strategically depending on how the full ET production is going.

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Jose Carlos Rodríguez Moreno, Avino Silver & Gold Mines Ltd. - COO [16]

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Yes, it's correct, Peter. But yes, the geologists, they have been sampling around the -- all open-pit mine and identifying some little piles with still economic values on it. So yes, we are expecting or we are planning to feed Circuit #4 in the next 2, 3 weeks, or 4 weeks. But after that, yes, it will be gone.

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Operator [17]

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(Operator Instructions) Our next question comes from [Troy George].

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Unidentified Analyst, [18]

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Okay. I have a question about the drilling report that you issued back in August. I was wondering what the economic level for grams per tonne is for Avino to make it economical.

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Nathan Harte, Avino Silver & Gold Mines Ltd. - Interim CFO [19]

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Sorry, can you repeat the question?

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Unidentified Analyst, [20]

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What grams per tonne level are you looking for to drill for gold up in Canada to make it economical? I know you had 1 hole that produced 12.35 grams per tonne over 0.9 meters. Is that something that would trigger you to actually dig a hole and extract that gold? Or are you looking for a higher level?

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David Wolfin, Avino Silver & Gold Mines Ltd. - President, CEO & Director [21]

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We're looking at adding quantity of mineable ounces. So currently, we have 43 101 of about 150,000 ounces. We're looking at trying to double or triple that number before an economical mining decision is made.

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Unidentified Analyst, [22]

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Okay. And I'm looking to have to --

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David Wolfin, Avino Silver & Gold Mines Ltd. - President, CEO & Director [23]

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It really depends on what the metal prices are, where the ore is located, how close to the surface. All of that drives what is economical.

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Unidentified Analyst, [24]

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Okay. Okay. And then it's on the property that you already have up in Canada. So does that mean that you won't have to file for new permits? Or is there going to be sort of --

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David Wolfin, Avino Silver & Gold Mines Ltd. - President, CEO & Director [25]

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Currently, we have the M207 which is a mining permit that allows us to mine up to 100 tonnes per day on a property. But 1.5 years ago, we decided, due to metal prices and the size of the deposit, that we have -- we needed to find more ounces. And so we're -- and look at a higher throughput. So we're looking into 400 to 500 tonne per day operation. So an amendment to the permit will be required.

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Operator [26]

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This concludes the question-and-answer session. I would like to turn the conference back over to Mr. David Wolfin for any closing remarks.

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David Wolfin, Avino Silver & Gold Mines Ltd. - President, CEO & Director [27]

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Okay. Well, thank you, everybody, and thanks to the team in Canada and Mexico for controlling costs. We're optimistic that next year, we're going to see higher output. And in this year, we're processing the historic stockpiles which were cheap because there was no mining, but the grades and recovery rates are lower than the fresh ore from the underground. So now we're transitioning to mining in the underground, we should see higher output, which should affect our all-in sustaining. So these are things that we're looking at controlling and maintaining. And just want to thank everybody for taking the time today to be on the call.

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Operator [28]

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This concludes today's conference call, you may disconnect your lines. Thank you for participating, and have a pleasant day.