ECC Capital Corporation Reports Results for Second Quarter Ended June 30, 2006

Company Announces Formation of a Special Committee of the Board of
Directors to Consider Strategic Alternatives
Company Maintains Current Policy to Suspend Third Quarter Dividend to
Maximize Capital and Enhance Near Term Liquidity

IRVINE, Calif., Aug. 14 /PRNewswire-FirstCall/ -- ECC Capital
Corporation (NYSE: ECR), a mortgage finance real estate investment trust
(REIT) that originates and invests in residential mortgage loans, today
announced financial results for the second quarter ended June 30, 2006.
Financial and Operational Summary
* Loss for the three months ended June 30, 2006 of $18.6 million or
$0.19 per fully diluted share. Loss for the six months then ended of
$25.0 million or $0.25 per fully diluted share.
* Completed the securitization of $1.1 billion in loans through BMAT
2006-1 during the second quarter.
* Operating costs declined 26.3 % during the second quarter of 2006 as
compared to the same quarter last year, reflecting positive results
from the company's previously announced cost control efforts.
* Cost to originate declined to 2.03% for the three months ended
June 30, 2006.
* Loan production for the second quarter of 2006 totaled $1.5 billion as
compared to $3.2 billion for the second quarter of 2005 and
$1.7 billion for the first quarter of 2006.
* Special committee of the board of directors established to review and
evaluate potential strategic alternatives to enhance shareholder value.
* Third quarter dividend payment suspended; Structural changes, including
REIT status, continue to be evaluated.
The loss for the three months ended June 30, 2006 of $18.6 million
includes accounting adjustments to increase reserves $16.4 million for
expected losses on repurchased loans and to mark certain loans to the lower
of cost or market. In addition, during the second quarter of 2006, ECC
Capital disposed of certain aged and repurchased inventory at a significant
discount to par, which resulted in an overall loss on sale of loans
(excluding accounting adjustments) of $5.5 million. The loss on sale of
loans was partially offset by gains on Eurodollar futures hedging ECC
Capital's held for sale inventory of $5.7 million. The sale of this
inventory, together with a decline in operating costs and additional
borrowings secured by ECC Capital's interests in its securitizations,
resulted in improved liquidity as cash balances increased to $51.8 million
as of June 30, 2006 as compared to $48.2 million at March 31, 2006.
"During the second quarter, our operating costs declined significantly
as a result of the cost containment efforts announced and implemented
earlier this year," said Shabi Asghar, President and Co-Chief Executive
Officer of ECC Capital. "Unfortunately, overall results were negatively
impacted by an increase in repurchase claims related to whole loan sales
made in prior periods. We are currently in the process of managing through
these claims. We've resold a large portion of these repurchased loans, but
at a significant discount to par. For repurchased loans remaining in
inventory at quarter-end, we have marked the loans to the lower of cost or
market. In addition, we have settled the majority of the remaining
repurchase claims subsequent to June 30 and, as of June 30, 2006, we have
accrued the loss we expect to incur upon the final disposition of these
claims. These factors resulted in a loss on sale of loans recorded in the
second quarter."
Financial Results
ECC Capital reported a net loss for the three months ended June 30,
2006 of $18.6 million, or $0.19 per diluted share, as compared to a net
loss for the three months ended June 30, 2005 of $34.0 million, or $0.35
per diluted share. For the six months ended June 30, 2006 and 2005, ECC
Capital reported a loss of $25.0 million and $36.7 million, respectively,
or $0.25 and $0.46 per diluted share, respectively.
A comparison of summary pretax operating results for the three and six
months ended June 30, 2006 and 2005 follows:
Three months ended Six months ended
June 30,
2006 2005 2006 2005
Dollars in thousands
Net interest income $23,875 $28,914 $56,877 $41,151
Provision for loan losses 5,421 3,510 11,520 6,010
Net interest income after
provision for losses 18,454 25,404 45,357 35,141
Gain (loss) on sale of loans
Net execution (5,513) 3,550 (27,043) 10,890
Provision for losses on
repurchases (8,753) (1,982) (16,214) (2,749)
Lower of cost or market (7,636) (1,300) 14,256 (1,417)
Net gain (loss) on sale of
loans (21,902) 268 (29,001) 6,724

Residual mark-to-market gain
(loss) (2,118) (594) (1,489) (4,995)
Derivative gains (losses):
Eurodollar futures 5,657 (7,131) 10,527 (320)
Interest rate agreements 3,198 (10,486) 14,216 (6,015)
Net receipts (payments)
under interest rate
agreements 8,784 (3,360) 13,625 (3,751)
Net derivative gains
(losses) 17,639 (20,977) 38,368 (10,086)

Net revenue 12,073 4,101 53,235 26,784

Operating expenses 29,428 41,597 69,060 73,309
Severance and lease
termination costs 1,226 -- 9,128 --

Loss before income taxes (18,581) (37,496) (24,953) (46,525)
Provision (benefit) for
income taxes 4 (3,531) 7 (9,862)

Net loss $(18,585) $(33,965) $(24,960) $(36,663)



Net interest income
Net interest income for the three months ended June 30, 2006 declined
to $23.9 million as compared to $28.9 million for the three months ended
June 30, 2005. Higher average balances of interest-earning assets drove
interest income higher during the three months ended June 30, 2006 as
compared to the three months ended June 30, 2005. However, net interest
margins narrowed as ECC Capital's cost of borrowing increased
significantly, resulting in a decline in net interest income for the
quarter.
Second quarter 2006 loan production was originated at a weighted
average coupon, or WAC, of 8.28% as compared to 7.27% for second quarter
2005 production. At June 30, 2006, ECC Capital's weighted average cost of
borrowings was 5.63%, as compared to 3.91% at June 30, 2005. ECC Capital's
borrowing costs are indexed to the London Interbank Offered Rate, or LIBOR.
As LIBOR increases, so does ECC Capital's borrowing costs.
The impact of declining spreads was more significant within the held
for investment portfolio, as these loans have not yet reached interest rate
reset dates. LIBOR has climbed steadily over the past 18 months,
significantly increasing the cost of financing this portfolio. A summary of
ECC Capital's interest rate spread as of June 30, 2006 and 2005 is as
follows:
June 30,
2006 2005
WAC - Loans held for sale 8.28% 7.25%
Cost of funds 6.08% 4.39%
Net interest rate spread 2.20% 2.86%

WAC - Loans held for investment 7.21% 7.28%
Cost of funds 5.44% 3.60%
Net interest rate spread 1.77% 3.68%

WAC - Total loan portfolio 7.54% 7.27%
Cost of funds 5.63% 3.91%
Net interest rate spread 1.91% 3.36%
The decline in net interest rate spread for the total loan portfolio
reflects increases in LIBOR. ECC Capital hedges its exposure to the risk of
changes in LIBOR using Eurodollar futures for loans held for sale and
interest rate swaps and caps for loans held for investment. Increases in
LIBOR, which reduce ECC Capital's net interest rate spread on its loans,
increase the value and cash flows received under these derivative interest
rate agreements offsetting in part the reduced net interest income from ECC
Capital's loans.
Delinquencies and provision for losses
During the three months ended June 30, 2006, ECC Capital recorded a
provision for loan losses of $5.4 million, bringing its reserve for losses
to a total of $48.9 million as of June 30, 2006. The reserve balance is
1.5% of the total unpaid principal balance of the loans as of that date.
The provision for loan losses for the three months ended June 30, 2006
exceeds the $3.5 million provision for loan losses recorded for the three
months ended June 30, 2005 as a result of the growth in and seasoning of
ECC Capital's loan portfolio.
At June 30, 2006, total delinquencies were approximately 8.0% and
serious delinquencies (greater than 90 days) were 4.3% of the unpaid
principal balance on ECC Capital's portfolio of loans held for investment.
The portfolio was unseasoned at June 30, 2005 and delinquencies were
nominal. Delinquencies have increased as expected over the past several
quarters as the portfolio has seasoned. ECC Capital believes that it is
probable that losses have been incurred and has estimated those losses
based upon management's experience in working with nonconforming
portfolios. As the portfolio seasons, ECC Capital will experience
additional delinquencies and foreclosures, and will realize losses upon the
liquidation of the underlying collateral. As a result, management expects
that the allowance for loan losses will continue to grow as the portfolio
continues to season.
Loan Sales
A summary of whole loan sales by premium and discount sales follows:



Three months ended Six months ended
June 30,
2006 2005 2006 2005
(in thousands)
Whole-loan sales at a:
Premium $1,233,475 $659,827 $2,818,530 $1,169,338
Discount 117,190 12,281 533,732 35,630
Total whole-loan
sales $1,350,665 $672,108 $3,352,262 $1,204,968

Weighted average
overall price 100.4% 102.2% 100.0% 102.3%
Weighted average price
for premium sales 101.7% 102.4% 101.1% 102.5%
Weighted average price
for discount sales 86.0% 93.2% 94.1% 96.5%
Gain on sale execution on premium sales declined during the three
months ended June 30, 2006 as compared to the three months ended June 30,
2005, largely due to increased interest rates. Execution on premium sales
improved during the second quarter of 2006 as compared to the first
quarter, but overall execution during the second quarter was adversely
affected by the significant discount required to dispose of repurchased and
aged inventory.
Sales volume during the three months ended June 30, 2006 increased over
the three months ended June 30, 2005 reflecting lower sales levels in early
2005 as ECC Capital accumulated inventory for future securitizations.
A summary of the components of gain (loss) on sale follows:

Three months Six months
ended June 30, 2006
Gain (loss) on sale of loans
Premium whole loan sales $22,621 $33,551
Discount whole loan sales (18,206) (33,512)
Yield spread and fees (8,608) (25,762)
Change in lower of cost or
market (7,636) 14,256
Change in reserve for losses
on repurchased loans (8,753) (16,214)
Loss on sale of loans - BMAT
securitization (1,320) (1,320)

Net loss on sale of loans $(21,902) $(29,001)
ECC Capital records a valuation allowance to reduce the carrying value
of its held for sale inventory to the lower of cost or market (LOCOM) at
each balance sheet date. When the underlying loans are sold, the valuation
allowance related to the loans is reduced, offsetting the loss realized in
the period the sale settles. Many of the whole loan sales settling at a
loss during the first six months of 2006 were traded during the fourth
quarter of 2005. These losses were offset, in part, by the decline in the
LOCOM reserve. However, at June 30, 2006, ECC Capital still holds
approximately $90 million in loans originated prior to 2006. During the
three months ended June 30, 2006, ECC Capital increased the valuation
allowance related to these loans reflecting continued deterioration in
value.
Gain on sale for the three and six months ended June 30, 2006 was also
negatively impacted by additions to the repurchase reserve of approximately
$8.8 million and $16.2 million, respectively, related, in part, to losses
ECC Capital expects to realize on higher than anticipated repurchase
volume.
As previously announced, during the three months ended June 30, 2006,
ECC Capital completed a securitization resulting in the transfer of $1.1
billion in mortgage loans to Bravo Mortgage Asset Trust (BMAT 2006-1). The
transfer was accounted for as a sale of loans and ECC Capital recorded a
net loss of $1.3 million on the transaction.
Residual interests in securitizations
Loan pools underlying ECC Capital's residual interests in
securitizations executed in 2003 and 2004 generally performed as expected
with respect to prepayment and loss estimates during the three months ended
June 30, 2006. However, continuing increases in LIBOR reduced estimates of
future cash flows resulting in a reduction in the carrying value of the
residual interests accounted for as trading instruments. During the three
months ended June 30, 2006, ECC Capital recorded a mark-to-market loss of
$2.1 million after the accrual of approximately $1.5 million in interest
income. In addition, a total of $1.1 million was accreted as interest
income related to the retained interest in the BMAT securitization.
Derivatives
Higher interest rates increased the value of ECC Capital's interest
rate derivatives resulting in derivative gains during the three months
ended June 30, 2006. ECC Capital's derivatives are designed to hedge the
risk of an increase in its LIBOR-based funding costs. For financial
reporting purposes, the derivatives are marked-to-market and changes in the
fair value of the derivatives are recorded through the statement of
operations. However, under generally accepted accounting principles, the
assets and liabilities producing the hedged cash flows are not all reported
at fair value and the offsetting effect of changes in cash flows from those
assets and liabilities from changes in interest rates is not fully
reflected in the statement of operations. A small change in interest rates
has a significant impact on the value of ECC Capital's derivatives.
ECC Capital uses Eurodollar futures to hedge the risk of changes in
interest rates and the effect such changes may have on the value of its
held for sale inventory. As a result, derivative gains on Eurodollar
futures for the three and six months ended June 30, 2006 of $5.7 million
and $10.5 million, respectively, partially offset the loss on sale of
loans, excluding the provision for loss on repurchases, for the three and
six month periods then ended of $13.1 million and $12.8 million,
respectively.
Derivative gains for the three and six months ended June 30, 2006 also
include $8.8 million and $13.6 million, respectively, in payments received
from interest rate contracts (swaps and caps) within ECC Capital's
securitizations that offset the noted decline in net interest income.
Operating expenses and cost to originate
Cost to originate(2) as a percentage of production is summarized as
follows:

Three months ended Six months ended
June 30, June 30,
2006 2005 2006 2005
Dollars in thousands
Total operating expenses $30,654 $41,597 $78,188 $73,309
Deferred origination costs 9,846 24,451 21,620 42,486
Net REO gains (losses) (858) -- (913) --
Severance and lease
termination costs (1,226) -- (9,128) --
Loan servicing costs (3,322) (3,071) (7,559) (5,787)
Adjusted operating expenses 35,094 62,977 82,208 110,008

Premiums paid, net of fees
collected (4,137) 13,743 (6,878) 26,666
Total costs to originate $30,957 $76,720 $75,330 $136,674

Loan originations $1,524,476 $3,160,052 $3,248,221 $5,414,467

Total operating expenses 2.01% 1.32% 2.41% 1.35%
Deferred origination costs 0.65% 0.77% 0.67% 0.78%
Net REO gains (losses) -0.06% -- -0.03% --
Severance and lease
termination costs -0.08% -- -0.28% --
Loan servicing costs -0.22% -0.10% -0.23% -0.10%
Adjusted operating expenses 2.30% 1.99% 2.54% 2.03%

Premiums paid, net of fees
collected -0.27% 0.44% -0.21% 0.49%
Cost originate as a
percentage of production 2.03% 2.43% 2.33% 2.52%
Total operating costs for the three months ended June 30, 2006 declined
26.3% to $30.7 million as compared to $41.6 million for the three months
ended June 30, 2005 reflecting lower production and lower resulting
commissions, and the results of management's efforts to contain costs.
Total operating costs for the six months ended June 30, 2006 increased 6.7%
as compared to the six months ended June 30, 2005, reflecting a higher cost
deferral in 2005 as a result of higher production levels and the costs of
ECC Capital's restructuring efforts in the first half of 2006.
As a percentage of production, adjusted operating expenses increased to
2.30% and 2.54% for the three and six months ended June 30, 2006,
respectively, from 1.99% and 2.03% for the three and six months ended June
30, 2005, respectively. Although the dollar amount of adjusted operating
expenses has been reduced, these costs are spread over a lower base of loan
production. Overall cost to originate as a percentage of production has
declined to 2.03% and 2.33% for the three and six months ended June 30,
2006, respectively, from 2.43% and 2.52% for the three and six months ended
June 30, 2005, respectively. This decline is the direct result of declining
yield spread premiums paid to brokers.
Liquidity
As of June 30, 2006, ECC Capital had unrestricted cash balances
totaling $51.8 million, and approximately $2.6 million in net margin
deposits related to investments in Eurodollar futures contracts.
ECC Capital's sources of liquidity have included additional
collateralized borrowings utilizing its ownership interests in
securitizations, loan sales and the BMAT securitization, refunds of income
taxes paid during 2003 though 2005 through carry back of operating losses
and distributions of excess cash flow from its securitizations. In July
2006, ECC Capital received a refund of income taxes paid in prior years of
approximately $27 million.
ECC Capital has either extended or is currently in the process of
renewing or extending the terms of certain of its warehouse lines of
credit. ECC Capital anticipates that existing warehouse capacity will be
adequate to fund expected levels of loan production.
ECC Capital currently believes its current liquidity will be sufficient
to sustain operations for the foreseeable future.
Dividend distribution policy
Depending on the extent ECC Capital is required to utilize its various
sources of liquidity, its ability to pay a dividend may be negatively
impacted. ECC Capital did not pay a dividend in the first or second quarter
of 2006 and does not intend to pay a dividend for the third quarter of
2006.
To retain REIT status, ECC Capital must distribute at least 90% of its
REIT taxable income. If ECC Capital utilizes available liquidity for
operations, it may not have sufficient liquidity to pay the distributions
required to maintain its REIT status. ECC Capital is considering a variety
of strategic and structural changes, which may affect ECC Capital's REIT
status. These and other potential structural changes may or may not require
stockholder approval.
Second quarter loan production
Production for the three months ended June 30, 2006 declined 52% to
$1.5 billion as compared to production of $3.2 billion for the three months
ended June 30, 2005. As compared to production for the three months ended
March 31, 2006, which totaled $1.7 billion, production declined by 12%.
Factors contributing to reduced production include, but are not limited to,
general declines in the levels of mortgage originations resulting from
increases in interest rates and declines in sales of residential housing.
Consideration of strategic alternatives
During the second quarter, ECC Capital's board of directors established
a special committee of the board of directors, consisting of its four
independent directors, to review and evaluate potential strategic
alternatives to enhance shareholder value. The special committee has
engaged Friedman, Billings, Ramsey & Co., Inc. and Milestone Advisors, LLC
as financial advisors to assist it in the review and evaluation of any
potential strategic transactions that might be presented. ECC Capital
cautions that there can be no assurance that the exploration of strategic
alternatives will result in a transaction. ECC Capital does not intend to
disclose developments with respect to the exploration of strategic
alternatives until its special committee and board of directors have made a
decision regarding a specific transaction.
Quarterly conference calls
In order to concentrate efforts on operations and the evaluation of
strategic alternatives, ECC Capital's management and board of directors
have concluded that ECC Capital will discontinue conference calls to
discuss quarterly results. Additional information regarding ECC Capital's
financial position as of June 30, 2006 and its results of operations for
the three and six months ended June 30, 2006 will be available in its
Quarterly Report on Form 10-Q expected to be filed today with the
Securities and Exchange Commission.
About ECC Capital Corporation
ECC Capital Corporation, headquartered in Irvine, Calif., is a mortgage
real estate investment trust (REIT) that originates and invests in
residential mortgage loans. Primarily through its wholesale subsidiary, ECC
Capital offers a series of mortgage products to borrowers, with a
particular emphasis on "nonconforming" borrowers who generally do not
satisfy the credit, collateral, documentation or other standards required
by conventional mortgage lenders and loan buyers. ECC Capital is currently
structured to qualify as a REIT by managing a portfolio of nonconforming
loans it originates or acquires. As a REIT, ECC Capital is required to
distribute dividends to its stockholders from net income generated from the
spread between the interest income on its assets in its portfolio and the
costs of capital to finance its acquisition of these assets.
Safe Harbor Regarding Forward-Looking Statements
Certain statements contained in this press release, including
statements relating to ECC Capital's repurchase loss expectations,
portfolio performance and allowance for loan losses, liquidity, recovery of
prior year taxes, warehouse capacity, ability to pay dividends and
consideration of strategic alternatives, may be deemed forward-looking
statements under federal securities laws and ECC Capital intends that those
forward-looking statements be subject to the safe-harbor created thereby.
These forward-looking statements are based on current expectations and
assumptions and are subject to risks and uncertainties, which could affect
ECC Capital's future plans. ECC Capital cautions that these statements are
qualified by important factors that could cause actual results to differ
materially from those reflected by the forward-looking statements. These
factors include, but are not limited to: (i) the condition of the whole
loan sale market and ECC Capital's ability to improve the value received in
the whole loan market for its loan originations, (ii) the condition of the
U.S. economy and financial system, (iii) interest rates and the subsequent
effect on the business, (iv) the stability of residential property values,
(v) the potential effect of new state or federal laws or regulations, (vi)
the effect of increasing competition, (vii) ECC Capital's ability to
implement successfully its business plan, (viii) continued availability of
credit facilities and access to the securitization markets or other sources
of capital, (ix) ECC Capital's ability and the ability of its subsidiaries
to operate effectively within the limitations imposed on REITs by federal
tax rules, (x) ECC Capital's ability to retain qualified personnel, (xi)
the risks associated with the use of leverage and (xii) other factors and
risks discussed in ECC Capital's Annual Report on Form 10-K for the year
ended December 31, 2005, which was filed with the Securities and Exchange
Commission on April 17, 2006. You should also be aware that, except as
otherwise specified, all information in this news release is as of August
14, 2006. ECC Capital undertakes no duty to update any forward-looking
statement to conform the statement to actual results or changes in ECC
Capital's expectations.
For Further Information:

AT THE COMPANY:
Roque A. Santi
Chief Financial Officer
(949) 856-7611
rsanti@encorecredit.com



June 30, December 31,
ASSETS 2006 2005

Cash and cash equivalents $51,790 $46,904
Restricted cash 2,500 18,600
Other receivables 9,414 24,966
Mortgage loans held for sale, net 1,456,662 2,744,423
Mortgage loans held for investment,
net 3,218,059 4,222,063
Accrued mortgage loan interest 40,801 46,840
Residual interests in
securitizations 64,475 14,753
Prepaid expenses and other assets 52,601 30,502
Derivative instruments 70,314 58,948
Equipment and leasehold
improvements, net 10,437 14,422
Income taxes receivable 29,199 31,197

Total assets $5,006,252 $7,253,618

LIABILITIES AND STOCKHOLDERS'
EQUITY

Warehouse and repurchase facilities $1,388,734 $2,708,266
Advance on uncompleted loan sale 15,109 --
Long-term debt 3,184,103 4,166,127
Securities sold under agreements to
repurchase 66,817 13,074
Accounts payable and accrued
expenses 91,266 63,236
Dividends payable -- 18,044

Total liabilities 4,746,029 6,968,747

Commitments and contingencies -- --

Stockholders' equity 260,223 284,871
Total liabilities and
stockholders' equity $5,006,252 $7,253,618



For the three months ended For the six months ended
June 30, June 30,
2006 2005 2006 2005
(unaudited)
Revenue

Interest income $101,349 $62,547 $217,180 $88,086
Interest expense (77,474) (33,633) (160,303) (46,935)
Net interest
income 23,875 28,914 56,877 41,151

Provision for
loan losses -
Loans held for
investment 5,421 3,510 11,520 6,010

Net interest
income, after
provision for
loan losses 18,454 25,404 45,357 35,141

Gain (loss) on
sale of loans,
net (21,902) 268 (29,001) 6,724
Gain on trading
securities and
derivative
instruments, net 15,521 (21,571) 36,879 (15,081)

Total revenue 12,073 4,101 53,235 26,784
Expense
Personnel 12,351 19,857 32,011 34,980
Production and
marketing 3,691 4,714 6,226 8,450
Servicing fees 3,322 3,071 7,559 5,787
Occupancy expense 1,639 2,056 3,836 4,024
Severance and
lease
termination
costs 1,226 -- 9,128 --
General and
administrative 8,425 11,899 19,428 20,068

Total expenses 30,654 41,597 78,188 73,309

Loss before
income taxes (18,581) (37,496) (24,953) (46,525)

Provision
(benefit) for
income taxes 4 (3,531) 7 (9,862)

NET LOSS $(18,585) $(33,965) $(24,960) $(36,663)
Net loss per share
of common stock
Basic $(0.19) $(0.35) $(0.25) $(0.46)
Diluted $(0.19) $(0.35) $(0.25) $(0.46)



(1) WAC reflects the stated interest rate on loans and does not include
the effect of amortized origination fees and costs. Cost of funds
reflects the stated interest rate on the related debt and does not
include payments or receipts under ECC Capital's interest rate
derivatives or any amortization of bond discount or deferred issue
costs.

(2) Cost to originate is a non-GAAP financial measure within the meaning
of Regulation G promulgated by the Securities and Exchange
Commission. It represents the reported operating expenses, the most
directly comparable GAAP measure, of ECC Capital before the deferral
of origination costs under SFAS No. 91 (Accounting for Nonrefundable
Fees and Costs Associated with Origination or Acquiring Loans and
Initial Direct Costs of Leases) plus the net fees paid to or received
in connection with originating the mortgage loans less (i) the direct
costs associated with servicing ECC Capital's portfolio of mortgage
loans and (ii) the severance and lease termination costs associated
with ECC Capital's announced restructuring and (iii) net REO gains
(losses) on ECC Capital's held for sale portfolio. Companies in ECC
Capital's peer group measure their operating efficiency in a similar
manner enabling comparisons of overall operating efficiency. These
factors make total cost to originate a useful measure of the
efficiency of ECC Capital's production operations. Over time, loan
sale prices need to exceed ECC Capital's cost to originate if ECC
Capital is to be profitable.