PriceSmart Q3 2025 Earnings Call Transcript

Quartr
Provided by Quartr
July 14, 2025

Key Takeaways

  • Positive Sentiment: Strong third quarter results with net merchandise sales up 8% (9.5% in constant currency) and Q3 net income rising to $35.2 M, or $1.14 diluted EPS.
  • Positive Sentiment: PriceSmart plans to open two new warehouse clubs in Guatemala and the Dominican Republic, bringing its total network to 57 clubs and is actively evaluating Chile for future expansion.
  • Positive Sentiment: Digital channel sales jumped 19.8% year-over-year to $79 M, representing 6.1% of net merchandise sales, as the company invests in omnichannel capabilities and migrates to a new ReLex platform.
  • Positive Sentiment: Membership grew 5.1% to nearly 2 million accounts with an 88% renewal rate, and premium platinum memberships increased to 16.1% of the base from 11% a year ago.
  • Negative Sentiment: Total other expense widened to a $7.2 M net loss in Q3 due to unrealized foreign-exchange losses and higher currency conversion costs in key markets.
AI Generated. May Contain Errors.
Earnings Conference Call
PriceSmart Q3 2025
00:00 / 00:00

There are 3 speakers on the call.

Operator

Good afternoon, everyone, and welcome to PriceSmart Inc. Earnings release conference call for the third quarter of fiscal year twenty twenty five, which ended on 05/31/2025. After remarks from our company's representative, Robert Price, interim chief executive officer, and Michael McCrea, executive vice president, finance, You'll be given an opportunity to ask questions at time permits. As a reminder, this conference call is limited to one hour and is being recorded today, Monday, 07/14/2025. A digital replay will be available shortly following the conclusion of the call through 07/21/2025 by dialing (888) 660-6264 for domestic callers or (646) 517-3975 for international callers, and entering replay access code 90598Pound.

Operator

For opening remarks, I would like to turn the call over to PriceSmart's executive vice president finance, Michael McCleary. Please proceed, sir.

Speaker 1

Thank you, operator, and welcome to PriceSmart Inc. Earnings call for the third quarter of fiscal year two thousand twenty five, which ended on 05/31/2025. We will be discussing the information that we provided in our earnings press release and our 10 Q, which were both released on 07/10/2025. Also in these remarks, we refer to non GAAP financial measures. You can find a reconciliation of our non GAAP financial measures to the most directly comparable GAAP measures in our earnings press release and our 10 Q.

Speaker 1

These documents are available on our Investor Relations website at investors.sitesmart.com, where you can also sign up for e mail alerts. As a reminder, all statements made on this conference call other than statements of historical fact are forward looking statements concerning the company's anticipated plans, revenues and related matters. Forward looking statements include, but are not limited to, statements containing the words expect, believe, plan, will, may, should, estimate and some other expressions. All forward looking statements are based on current expectations and assumptions as of today, 07/14/2025. These statements are subject to risks and uncertainties that could cause actual results to differ materially, including the risks detailed in the company's most recent annual report on Form 10 ks, the quarterly report on Form 10 Q filed on 07/10/2025, and other filings with the SEC, which are accessible on the SEC's website at www.sec.gov.

Speaker 1

These risks may be updated from time to time. The company undertakes no obligation to update forward looking statements made during this call. Now I will turn the call over to Robert Price, PriceSmart's Interim Chief Executive Officer. Thank you, Michael, and good day, everyone. Welcome to our third quarter earnings call.

Speaker 1

As we have previously announced, David Price will be PriceMark's new Chief Executive Officer effective 09/01/2025. David is very well prepared for his CEO responsibilities. I am looking forward to working with David in my role as Executive Chairman of our company. I would also like to acknowledge Michael McCleary for his many years of dedicated service to our company, most recently as chief financial officer. With Michael's retirement, I welcome Valverto Hernandez as PriceSmart's new Chief Executive Officer.

Speaker 1

Valverto comes with well prepared for his new responsibilities employees for their dedication to PriceSmart. We are so proud of their many contributions to PriceSmart's success. Finally, I want to thank our stockholders for their support and continuing confidence. Now it is my pleasure to turn the meeting over to David. Thank you, Robert, and good morning, everyone.

Speaker 1

Let me begin by sharing how honored I am to step into the role of CEO of PriceSmart effective September 1. Building on the legacy of my father and grandfather's Paul Price, I'm committed to leading with the same values that have guided this company from the beginning, integrity, excellence, and community. Values that are centered on our employees, members, providers, and the communities where we operate. Over the past decade, I've had the opportunity to work across many areas of the business, from launching and scaling our digital commerce business to advancing our sustainability efforts and more recently to partner closely with Robert, John Holubrand, and the executive team on our broader operations. These experiences have deepened my understanding of what makes PriceSmart different, our purpose, our people, and our model, and sharpened my view of where we can go from here.

Speaker 1

As I step into this role, my priorities are grounded in our core values, prioritizing the welfare of our employees, delivering exceptional value to our members, raising the bar on execution and innovation, and driving sustainable long term results for our shareholders. As we shared in May, Roberto Hernandez joined PriceSmart as CFO on June 1. He brings strong experience in strategic finance and operations, most recently at the S. A. Lauder Companies.

Speaker 1

Michael McCleary will be retiring after more than twenty years of price point, including the last five as CFO. I want to thank Michael for his outstanding service and welcome, Valverto, to the team. Now moving on to the main factors and strategic priorities we are focused on to continue increasing sales and member value, starting with real estate. In April 2025, we opened a new warehouse club in Cartago near the capital of San Jose in Costa Rica. Additionally, we plan to open our seventh warehouse club in Guatemala located in Chefsul Tonongo, approximately 122 miles west from the nearest club in the capital of Guatemala City.

Speaker 1

This club is in the final phases of construction and is expected to open in August. In the third quarter of fiscal year twenty twenty five, we purchased land and plan to open our sixth warehouse club in The Dominican Republic located in La Romana, approximately 73 miles east from the nearest club in the capital of Santo Domingo. The club will be built on five acre property and is anticipated to open in the spring of twenty twenty six. Once these two new clubs are open, Priceline will operate 57 warehouse clubs. We continue to pursue opportunities to expand in our existing markets and to assess opportunities in new markets.

Speaker 1

In particular, we are currently evaluating Chile as a potential new market for PriceSmart. We have hired local consultants to help us in this process and are actively looking for potential sites in Chile. Having recently visited Chile myself together with other members of our leadership team, I am excited about the potential opportunities this market offers us. However, opening price margin in Chi Way remains subject to our completing our market analysis, finding appropriate sites, and securing permits. We continue to strengthen our distribution and logistics infrastructure to better serve our members.

Speaker 1

Today, we operate major distribution centers in Miami, Costa Rica, and Panama. In fiscal year twenty twenty six, we plan to upgrade our Panama DC to support coal products and to open new DCs in Guatemala, Trinidad and The Dominican Republic. These local facilities are expected to improve product availability, reduce lead times and lower branded costs. Along with these new DCs, we are currently testing distribution consolidation in China to streamline shipments directly to our markets. We are exploring ways to enhance logistics in our multi club market by utilizing a combination of PriceSmart managed and third party operations.

Speaker 1

In certain countries, we have also introduced the use of our own fleet of trucks to transport merchandise directly to the clubs. And the last word on distribution and logistics. As international trade becomes more complex, our free trade zone operations in The US and Costa Rica give us a strategic advantage by allowing us to consolidate and export goods without duties or tariffs. We're actively pursuing strategies such as supply chain diversification, expanded offshore consolidation, and increased free trade zone utilization, all to improve efficiencies and help offset rising costs for our members. Turning now to other ways we are enhancing our membership beyond low prices.

Speaker 1

Our private label member selection remains a key part of our value proposition. These high quality competitively priced products offer meaningful savings without compromising on quality. For the first nine months of FY 2025, private label sales represented 27.7% of total merchandise sales, up 30 basis points from the same period last year. In Central America, we've renewed and enhanced our co branded consumer credit card with BAC effective July 2025. The new agreement offers increased cash back rewards on purchases at PriceSmart, pricemart.com, BAC's travel program and other retailers and services, adding even more value for our members.

Speaker 1

We continue to invest in omnichannel capabilities to meet our members where they are. In Q3, digital channel sales reached $79,000,000 a 19.8% increase year over year, representing 6.1% of total net merchandise sales, our highest digital contribution to date. Orders placed directly through our website or app grew 16.7% with average transaction value up 3.2%. As of May 31, 62% of our members have created an online profile, and nearly one third of those have made a purchase online. We see continued opportunity in this space, and we'll keep investing to enhance the digital experience we offer our members.

Speaker 1

We're also modernizing our processes and technology. Taking one example, our migration to the ReLex platform is well underway and expected to be substantially operational by year end. This upgrade enhances employee productivity and is designed to improve inventory management, reduce spoilage and increase in stock availability, driving both sales and efficiency. Lastly, we recently released our fiscal year twenty twenty four sustainability report, highlighting our commitment to environmental and social responsibility. The full report is available at investors.pricemart.com under the ESG tab, and more information can be found at pricemart.org.

Speaker 1

With that, I'll turn it over to Michael McCleary for the financial review. Thank you, David. We had a strong third quarter as net merchandise sales reached almost $1,300,000,000 and total revenue was over $1,300,000,000 During the first nine months of our fiscal year, net merchandise sales reached over $3,800,000,000 and total revenue was over $3,900,000,000 During the third quarter, net merchandise sales increased by 8% or 9.5% in constant currency, and comparable net merchandise sales increased by 7% or 8.5% in constant currency. For the first nine months of the fiscal year, net merchandise sales increased by 7.2% or 8.2% in constant currency, and comparable net merchandise sales increased by 6.5% or 7.6% in constant currency. By segment, in Central America, where we had 31 clubs at quarter end, net merchandise sales increased 7.5% or 7.6% in constant currency, with a 5.7% increase in comparable net merchandise sales or 5.9% in constant currency.

Speaker 1

All of our markets in Central America had positive comparable net merchandise sales growth. Our Central America segment contributed approximately three fifty basis points of positive impact to the growth in total consolidated comparable net merchandise sales for the third quarter. In The Caribbean, where we had 14 clubs at quarter end, net merchandise sales increased 8.2% or 9.7 in constant currency, and comparable net merchandise sales increased 8.6% or 10.1% in constant currency. Our Caribbean region contributed approximately two forty basis points of positive impact to the growth in total consolidated comparable net merchandise sales for the third quarter. In Colombia, where we had 10 clubs opened at the end of our third quarter, net merchandise sales increased 10.1% or 19.3% in constant currency, and comparable net merchandise sales increased 9.9% or 19.1% in constant currency.

Speaker 1

Colombia contributed approximately 110 basis points of positive impact to the growth in total consolidated comparable net merchandise sales for the quarter. In terms of merchandise categories, when comparing our third quarter sales to the same period of the prior year, our foods category grew approximately 7.8, our nonfoods category increased approximately 9%, our food services and bakery categories increased approximately 6.7%. And our health services, including optical audiology and pharmacy, increased approximately 13.9%. Membership accounts grew 5.1% versus the prior year to almost 2,000,000 accounts with a twelve month renewal rate of 88% as of 05/31/2025. A key driver of our membership strategy is the platinum membership, which is designed to offer even more value to our most engaged members.

Speaker 1

Platinum members enjoy exclusive benefits, including an annual cashback reward on eligible purchases, which directly translates to savings that reward loyalty and increased purchasing power. Platinum accounts as of 05/31/2025 represented 16.1% of our total membership base, an increase from 11% in the prior year third quarter and 12.3% as of 08/31/2024. This increase is due to additional focus on growing this important segment of our membership, which included platinum promotional campaigns during fiscal years 2024 and 'twenty five. Total gross margin for the quarter as a percentage of net merchandise sales increased 20 basis points to fifteen point eight percent and $17,500,000 or approximately 9.4% versus the same prior year period. Total revenue margins increased 30 basis points to 17.4% of total revenue when compared to the same period last year.

Speaker 1

During the third quarter, our average sales ticket grew by 1.9% and transactions grew 6% versus the same prior year period. The average price per item remained relatively flat year over year, while average items per basket increased approximately 1.8% compared to the same period of the prior year. Total SG and A expenses increased to 13.2% of total revenues for the third quarter of fiscal year twenty twenty five compared to 13% for the third quarter of fiscal year twenty twenty four and increased 12.8% versus 12.6% for the nine month period ended in May. The 20 basis point increase of SG and A as a percentage of revenue, primarily related to planned technology investments to support the future growth of our business. Operating income for the third quarter of fiscal year twenty twenty five increased 12.7% from the same period last year to $56,200,000 Operating income for the first nine months of fiscal year twenty twenty five increased 4.7% from the same period last year to $179,800,000 In the third quarter of fiscal year twenty twenty five, we recorded a $7,200,000 net loss in total other expense compared to $900,000 net loss in total other expense in the same period last year.

Speaker 1

This increase is primarily driven by an increase in unrealized losses in value of U. S. Dollar denominated monetary assets and liabilities in several of our markets. This increase was also driven by an increase in our cost of premiums to convert local currency into U. S.

Speaker 1

Dollars from $3,800,000 in the prior year to $4,800,000 in the current year. Our effective tax rate for the third quarter of fiscal year twenty twenty five came in at 28.4% versus 30.8% a year ago. Our effective tax rate for the first nine months of fiscal year twenty twenty five was 27.3% compared to 31.3% for the prior year period. The decrease in the effective tax rate is primarily related to our implementation of certain tax optimization initiatives at the end of fiscal year twenty twenty four. On a go forward basis, we estimate our annualized effective tax rate will be approximately 27 to 29%.

Speaker 1

Net income for the third quarter of fiscal year twenty twenty five was $35,200,000 or $1.14 per diluted share compared to $32,500,000 or $1.8 per diluted share in the third quarter of fiscal year twenty twenty four. Adjusted EBITDA for the third quarter of fiscal year twenty twenty five was $79,000,000 compared to $71,000,000 in the same period last year. Net income for the first nine months of fiscal year twenty twenty five was $116,300,000 or $3.8 per diluted share compared to $109,800,000 or $3.62 per diluted share in the comparable prior year period. Adjusted EBITDA for the first nine months of fiscal year 2025 was $245,100,000 compared to $232,900,000 in the same period last year. Moving on to our strong balance sheet.

Speaker 1

We ended the quarter with cash, cash equivalents and restricted cash totaling $183,100,000 plus approximately $94,000,000 of short term investments. When reviewing our cash balances, it is important to note that as of 05/31/2025, we had $75,900,000 of cash, cash equivalents and short term investments denominated in local currency in Canada and Honduras, which we could not readily convert into U. S. Dollars. This is a decrease from the $77,300,000 at the end of the second quarter of fiscal year twenty twenty five, driven by our ability to reduce our position in Honduran Lempiras during the third quarter.

Speaker 1

While we have seen improvement in availability in Honduras of U. S. Dollars during fiscal year twenty twenty five, we continue to monitor the situation actively as the underlying limitations on availability of U. S. Dollars persist.

Speaker 1

From a cash flow perspective, net cash provided by operating activities increased $13,400,000 for the first nine months of fiscal year twenty twenty five, largely due to improved operating results. Net cash used in investing activities decreased by $53,600,000 for the first nine months of fiscal year twenty twenty five compared to the prior year, primarily due to a 40,300,000 decrease in property and equipment expenditures and a $14,000,000 increase in proceeds from settlements and purchases of short term investments compared to the same nine month period a year ago. Net cash used in financing activities during the first nine months of fiscal year twenty twenty five decreased by $82,400,000 primarily the result of fewer repurchases of our common stock, partially offset by an increase in repayments of and a decrease in proceeds from long term bank borrowings compared to the same period a year ago. Looking forward a little and for our current fourth quarter, our comparable net merchandise sales for the four weeks ended 06/29/2025 were up 7.7% in both U. S.

Speaker 1

Dollars and constant currency. In closing, we are excited to be able to share these pivotal investments that we have made in our continued commitment to operational efficiency and excellence. We believe these changes will continue to enhance the member experience, creating a mutually beneficial relationship built on trust, value, and innovation. Thank you for joining our call today. Before turning the call over for questions, we would like to request that due to the CEO and CFO transition process and that due to travel schedules, we were not able to all be on the same location today, We would like to request that you direct your questions on today's call to Robert or myself.

Speaker 1

I will now turn the call over to the operator to take your questions. Operator, you may now start taking our callers' questions.

Operator

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touch tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the two.

Operator

If you're using a speakerphone, please lift the handset before pressing any key. One moment, please, for your first question. Your first question comes from John Bratz with Kansas City Capital. John, please go ahead.

Speaker 1

Michael, a question on your Trinidad funding plans that you discussed in the 10 Q. How does that help solve your conversion is convertible convertibility issue in Trinidad? And how do you see the impact on the P and L and maybe your liquidity premium that you're charging? The and and then lastly, does because your your I guess, it's a Trinidad Jamaica type of transaction. Does does that does that generate an an additional currency issue when you have the conversion between Trinidad and Jamaica?

Speaker 1

Hi, John. Great questions. Thanks. So so, basically, there's a few there's several different components of the of these transactions. Right?

Speaker 1

There's a total of up to $65,000,000. The the cleanest and simplest, if you will, is the is the US dollar loan for $15,000,000 in which we repay Trinidad Dollars. So that obviously gives us a direct connection to work on our our Trinidad payables. The other 50,000,000, as you brought up, there's a piece that's in Jamaican dollars, but it's but it's indexed to US Dollars. So there won't be any additional exposure from the Jamaican currency.

Speaker 1

It's just a matter of where the investors were that were that were subscribing to pieces of that transaction. So the the maximum FX exposure to this transaction would be between the $29 and the US dollar for the 50,000,000, not for the fifth not for the 15 that that we pay back in in $29 and no additional Jamaican exposure. As far as the the purpose, I mean, you know, it's just another tool for our toolbox here. Obviously, you know, just like the most of the rest of the countries where in Trinidad, about half of our merchandise is is imported. So those those vendors

Operator

Johnny, still there?

Speaker 1

Hello? Anybody there?

Operator

Can you hear me?

Speaker 2

Yeah.

Operator

Okay. Great. It looks like you just cut off there at the end of your question.

Speaker 1

I I can't hear anybody.

Operator

Okay. Let me just see what's going on here. One moment. Sorry. Looks like we got disconnected with John.

Operator

I will move on to the next question from Hector Mayer with Scotiabank. Please go ahead.

Speaker 2

Thank you very much, Robert, Michael. Thank you for taking my questions. Just wanted to know if you could please share with us the thinking process that went into your strategic decision to consider Chile for future openings over other markets? And also to understand how you are thinking in terms of the potential for that that market to to understand what's so appealing about this opportunity? And also how open you could be to considering other other opportunities in in the region.

Speaker 1

Hello? Hello? Operator, are we live?

Operator

Please go ahead.

Speaker 1

Operator, are we live now?

Operator

Yes. You are live.

Speaker 1

Okay. Did did my answer to John's question get fully answered before we go before we cut off there?

Operator

No. It it looks like John got disconnected near the end of his question.

Speaker 1

Okay. Did so you did not hear you did not hear my answer to Don's question?

Operator

No. We did not.

Speaker 1

Oh, okay. We are getting some static. So let me let me try to is John still online?

Operator

I'm checking now. I

Speaker 1

Okay. So let let let let's can you have do you want Hector to ask this question again? You can No. But it's fine. Okay.

Speaker 1

Alright. So we're gonna go ahead and answer Hector's question, and then I'll go back to Robert's question. I'm sorry everybody about the clinical difficulty in the So, Hector, I I'll respond to your you really have two questions, I think. One is the considerations that went into considering going you know, our decision or at least almost decisions. We haven't finalized everything to to whether the market is Chile and then other markets that we might be considering.

Speaker 1

I think that would those were your questions. Is is that right? Oh, I don't know where he is now. Hector. Is Hector going still open, operator?

Speaker 1

Okay. Operator, can you confirm that you heard Robert's answer?

Operator

Hi. Yes. Heard that, and I I'm looking for Hector right now just to double check.

Speaker 1

Yeah. Well, we'll we'll just go ahead and proceed, I guess, at this point unless unless he can make not here. You're not there? Okay. So why don't we have Robert, go ahead and Okay.

Speaker 1

Well, regarding the considerations that went into our, you know, at least pretty possible decision to open it. And haven't really final final everything. It's the fact that Chile is a has strong middle class. The economics are good. It has a good trade relation and tax relationship between The United States and Chile, and very stable government.

Speaker 1

I think, you know, a lot of our countries, we are are challenging in terms of some of the political and economic issues that we face in our countries. Chile is a we we believe would be a much more stable and for developed countries. So we think it would be a positive market and also that the market in Chile, we think we could do well because of the strong middle class. As far as other markets in Latin America, at the moment, we aren't doing any serious study of any other markets, but we would continue to assess opportunities that might come up, but nothing to report really on that. K.

Speaker 1

Well, once again, I do wanna apologize for the technical difficulties. Last few calls have been very smooth. Sorry about that. I wanna go back to John's question here. I don't think we have him on the line anymore, but let me just try to recreate that and see if I covered the part of the pieces of John's question.

Speaker 1

John was asking about the TriNet financing arrangements and how that affects our our liquidity situation in Trinidad. To the extent you haven't already heard the answer, I think I don't think it went through. The of the up to $65,000,000 of financing that we've arranged that we expect to fund in q four, $15,000,000 of that is we will receive the proceeds in US dollars, and we will be paying $10,000,000. So that gives us a clear path towards towards converting our our in that dollars in the US dollars. The other $50,000,000 is is going to be primarily in US dollars.

Speaker 1

Some of it is actually tied to Jamaican dollars, but from our perspective, the liabilities in US dollars is indexed to US dollars. So we're not introducing any third currency as far as volatility to the US dollar Jamaican dollar exchange rate. It will just be US dollar for that $50,000,000 entirely. And that was just a convenience factor for certain of the investors that are part of part of that deal. And then overall, the that's just another the the 50,000,000 is just another tool in our toolbox.

Speaker 1

Just like the rest of our country is about 50% of our products are sold in that are sold in Trinidad is is imported, which means we have US dollar vendors primarily through PriceSmart Inc that need to be paid. And so this will allow PriceSmart turn it out to pay money up to PriceSmart Inc who can then pay on to their vendors and get us a path to spread that conversion over several years. Last piece of the question from John was regarding the FX accrual and how we're including the premiums for our members. And that's something that we constantly evaluate to to to see how much that will impact our our our pricing, and we do consider that. And we are figuring that into our calculations for next year.

Speaker 1

We're gonna do our best to make sure that that does not impact member member pricing, but that's a work in process.

Operator

Thank you. And sorry for that technical difficulty then. Not sure what happened. But as a reminder, if you do wish wish to ask a question, please press one. Okay.

Operator

It looks like we have Hector with a question from Scotiabank. Hector, please go ahead.

Speaker 2

Hi. Thank you very much. Hey. Sorry about that. I'm pretty brief.

Speaker 2

Thanks. Thanks so much. Robert, Michael, for taking my questions. I was I was basically asking if you could please share the thinking process that went into the strategic decision to consider Chile for future openings over other markets? And also to understand how you're thinking in terms of the potential in that market.

Speaker 2

And would it be also fair to assume that now Prisma would be open to considering other opportunities in the region? And how this could change the growth algorithm in terms of store openings in the future.

Speaker 1

Hector, I I answered most of that already. I don't know got it or not, but I did answer a few minutes ago most of your questions regarding I think the one thing in Chile that you mentioned now about the potential for that market, I I think it's, you know, the the gross domestic product in Chile is about the same as it is in Colombia, about $350,000,000,000. And the population is much smaller. So the there's a much stronger middle class. And so we think, you know, although a big portion of the population is located in Santiago, we feel that we could have quite a, you know, a number of load of PriceSmart locations in the capital and also in some of the secondary cities.

Speaker 1

If the market potential, you know, it's really hard to say, but we think it could be pretty good for us. So still a work in progress as we continue to assess the market.

Speaker 2

I I understand. I'm sorry about that. I was also having issues to connect initially to the call, so maybe I missed that call.

Speaker 1

There'll be a transcript coming out shortly, so hopefully, you can can catch that.

Operator

Thank you. So there are no further questions at this time. I will now turn the call over to Michael McCleary for closing remarks. Please continue.

Speaker 1

Okay. Once again, everybody, sorry about the technical difficulties. Hope hopefully, everybody was able to hear our answers clearly. I think we answered both John and and Hector's questions, and thank you for your participation today. Take care.

Speaker 1

Bye bye.

Operator

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

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