Key Tronic Corporation (KTCC) on Q1 2022 Results - Earnings Call Transcript
Operator: Good day and welcome to the Key Tronic Corporation First Quarter Fiscal 2022 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Brett Larsen. Please go ahead, sir.
Brett Larsen: Thank you. Good afternoon everyone. I am Brett Larsen, Chief Financial Officer of Key Tronic. I'd like to thank everyone for joining us today for our investor conference call. Joining me here in our Spokane Valley headquarters is; Craig Gates, our President and Chief Executive Officer. As always, I would like to remind you that during the course of this call, we might make projections or other forward-looking statements regarding future events or the company's future financial performance. Please remember that such statements are only predictions. Actual events or results may differ materially. For more information you may review the risk factors outlined in the documents the company has filed with the SEC specifically our latest 10-Q, 10-K and 8-Ks. Please note that on this call we will discuss historical financial and other statistical information regarding our business and operations. Some of this information is included in today's press release and a recorded version of this call will be available on our website. Today we released our results for the quarter ended October 2, 2021. For the first quarter of fiscal year 2022, we reported total revenue of $132.8 million up 8% from $123.2 million in the same period of fiscal year 2021. We're excited to see measured success in revenue growth in new and existing customer programs. While demand has remained strong for both new and existing customers, revenue for the first quarter of fiscal 2022 continued to be significantly constrained by challenges related to the global materials supply chain transportation, logistics, and the pandemic. The global supply chain issues and pandemic continue to cause factory downtime, overtime expense, and increased transportation costs, which had an adverse impact on our margin and earnings. In the first quarter of fiscal 2022 gross margin was 7.6% and operating margin was 1.6% compared to a gross margin of 8.1%, and operating margin of 2.3% for the same period of fiscal 2021. For the first quarter of fiscal 2022 net income was $800,000, or $0.8 million or $0.07 per share, compared to $1.7 million, or $0.16 per share for the same period of fiscal 2021. Earnings for the first quarter of fiscal 2022 were also impacted by legal and other professional services expense related to the previously disclosed internal financial reporting investigation of approximately point $0.4 million during the quarter. Turning to the balance sheet. We continue to maintain a strong financial position as a result of supply chain related production delays in the first quarter of fiscal 2022 and the continued ramp and transfer of new programs. Our inventory turns decrease from the prior quarter. We are carefully balancing customer demand and the likelihood of successfully bringing in parts in time for planned production. The production planning now requires that we look out much further in the future than in historical periods. In future quarters, we expect to see our net inventory turns increase to be more in line with the expected revenue. At the end of the first quarter trade receivables were up $16.1 million from the prior quarter, reflecting the timing of shipments later in the quarter. Our DSO increased to about 83 days up from 65 days a year ago, which of course reflects both the timing of shipments during the quarter, and some delays and payments from customers who were also impacted by pandemic related slowdowns and restarts in their respective markets. Overall our balance sheet has total working capital of $184 million and a current ratio of 2.3 to 1. This is largely due to growing customer production requirements and on-boarding new programs. Nevertheless, we feel it is prudent to preserve cash and expand liquidity where possible. To this light you will recall we increased our credit facility with our existing bank up to $120 million of total availability subject to our borrowing base. This gives us more flexibility to potentially ramp up production and to manage potential pandemic related risk and other risks in coming periods. Total capital expenditures were $1.8 million for the first quarter of fiscal 2022. We're keeping a careful eye on expenditures during fiscal 2022 and expect our capital expenditures for the full year will be around $8 million. We plan to continue to invest selectively in our production equipment, SNT equipment and plastic molding capabilities, as well as make efficiency improvements in our facilities to prepare for growth and add capacity. Despite growing customer demand, the new program launches, we expect that delays in the supply of key components will continue to limit production and adversely impact operating efficiencies. For the second quarter fiscal 2022 we currently expect to report revenue of approximately $125 million to $135 million and earnings of approximately $0.03 to $0.08 per diluted share which includes an estimated $0.03 to $0.05 of legal support expenses from the previously disclosed financial review in a week of holiday shutdown later in the quarter. That said we cannot predict the outcome of any regulatory actions related to the subject of the internal investigation. We're also working closely with our customers, key suppliers, and employees to minimize the effects of delays attributable to the continued global pandemic, increased global freight and logistics costs and limited availability of key components. While our facilities in the U.S., Mexico, China and Vietnam are currently operating while following current health guidelines uncertainty as to the possibility of future temporary closures, customer fluctuations in demands and costs, future supply chain disruptions during the rapidly changing COVID-19 environment and other potential factors could significantly impact operations in coming periods. In summary, we continue to see increased demand and new customer wins. However, supply chain disruptions and the pandemic continue to impact our business during the first quarter and remain risks in future periods. But we are encouraged by our growing backlog and by our prospects for future growth. New sales prospects and recently won programs continue to increase our customer demand to unprecedented levels for Key Tronic. The overall financial health of the company appear strong and we believe that we are increasingly well-positioned to win new EMS programs and continue to profitably expand our business over the longer term. That's it for me. Craig?
Craig Gates: Okay, thanks, Brett. While we continue to face the stiff headwinds from worldwide supply chains challenges and the pandemic were pleased with our positive momentum moving into fiscal 2022. We reported 8% year-over-year growth for the quarter and continue to ramp up new programs and win new business. During the first quarter the industry continues to face persistent worldwide shortages in the supply of key components particularly for electronic parts. The shortages have extended production timing and caused transportation costs to triple. Had it not been for the supply chain issues we believe burgeoning customer demand would have driven revenue for the first quarter in excess of $160 million. Unfortunately, we do not expect the supply chain disruptions to improve significantly in the near term. We also struggled with increasing labor costs and shortages of production staff at some of our sites as a part of the broad based labor shortages. In the face of all these challenges, we continued winning new customers and ramping new programs. During the first quarter we won new programs involving industrial testing equipment, medical diagnostic products and pharmaceutical water treatment. We would not have won this many programs without the opportunity to first ramp the programs in our U.S. plants and subsequently transfer to our lower cost plants offshore. You'll recall that last year we increased our capacity to over a million square feet in Mexico. Moreover, production in our new Vietnam facility continues to grow doubling its workforce from a year ago and generating profits. We continue to expect big things from our Da Nang facility in the future. As we discussed on previous calls, the pressures on our customer base to lessen their Asian supply concentration remain very powerful. Demand for North American production continues to grow with no foreseeable end to tariffs, intensifying political tensions between China and U.S. , increasing Asian production costs and time to market and a weakening U.S. dollar. These factors have driven a significant increase in our business. Key Tronic has emerged as the ideal answer to overconcentration of Asian supply and for onshore into North America, particularly for those companies with programs in the range of $5 million to $100 million. We provide everything needed to make supply chain diversification easy, less risky, and less costly. Our solution set provides companies with both local sources for low volume products and low cost sources close to geographic markets for higher volume products. We also attract the companies that have been overly concentrated with an Asian source, and hence have lost engineering control of their product. We can facilitate the move of production from a competitor to our site, enabling the smooth transfer by providing design and production engineering services to those companies who no longer have that capability. Our vertical integration can lessen the risk time and cost involved in a transfer. We're over after decades of developing custom processes for a staggering array of products we can onboard just about any product imaginable. Moving further into fiscal 2022, significant uncertainty still surrounds the continuing disruptions to global supply chains for key components and the threat of a pandemic. At the same time, we believe that these challenges will continue to force our customers to wait carefully the degree to which they concentrate their supply chain on any one region and see their design control to their outsource partner. The recent macroeconomic events continue to force many companies to more fully recognize the significant impacts and elongated supply chain can have on both costs and availability, the risks of IP appropriation and the attractiveness of doing business with an outsourced partner who can minimize their risks on all these factors. These market trends and our capabilities should continue to power our growth over the long term. This concludes the formal portion of our presentation. Brett and I will now be pleased to answer your questions.
Operator: Thank you. And we will hear first from Bill Dezellem of Tieton Capital.
Bill Dezellem: Thank you. Let me start with my normal with your three program wins. Kind of what size are each of those please?
Brett Larsen: Well, there's two are about 10 billion. The third is about five.
Bill Dezellem: And would you give some perspective on kind of how these wins came about and as you do that, to what degree are they leaving a Chinese supplier to circle back to the U.S. versus some other story?
Craig Gates: I'd say just about everybody who's talking us talking to us today is trying to deleverage themselves on Asia. I think two out of three of these are examples of that. The narrative remains the same. They went there over the last 20 to four or five years ago. They were happy when they went because they were able to lay off their factory people, lay off their production people, eventually lay off their engineering people. And now that the time is come to try and reverse all that you really don't have the wherewithal to bring a product back on their own. So we ended up being ideally situated to help companies in that sort of circumstances survive the issues that are happening today.
Bill Dezellem: And the component issues that you spoken halfway of and frankly almost every company out there is talking about, when are you expecting that you will have enough components? And I'm actually going to ask the question in two parts for A, meaningful sequential growth, and then B, to fully meet your customers demand.
Craig Gates: I don't have an answer to that. I think anybody who tells you they do is wrong. We are continually surprised by suppliers that call us up very late in the game as in the day the product was supposed to ship and tell us that they've been shorted by one of their suppliers. They're not going to be able to supply us. We are seeing the lead times of up to two years for a new PO for certain ICs and we see nothing in sight that says it's going to end soon. And everything I read confirms that view.
Bill Dezellem: So you just said two years, which is quite unusual period but it's certainly an extension from I think the one year that you had mentioned in the past. What proportion of your revenues would you say are constrained by these lead times of one to two years?
Craig Gates: What portion you mean, which I don't want to answer that question because I am not sure what it is. Are you asking which of our customers use electrical components that are constrained?
Bill Dezellem: I am specifically thinking you did about $130 million in revenues, you could have done $160 million plus of revenues. What proportion percentage of those revenue numbers are currently constrained not by these components, but by components, with lead times of one to two years.
Craig Gates: Almost every customer has parts that have lead times a year out or more. Some customers are doing a better job of reacting to our efforts in finding those components on the gray market. Some customers are doing a better job of forecasting out and started doing a better job a year ago of forecasting out their requirements. And some designs have lent themselves to being quickly respond to take advantage of a component we can find on the marketplace as a replacement for one that we can't. So there's an incredible amount of effort and I'm not sure this is widely known. It has been amusing to watch the press catch up to the shortage situation and watch our government attempt to address logistics with a fine of $100 a day for late containers. But that's another topic for another day. But as we see, people catch up to how bad it is, it just depends how far gone they are on how soon we're going to be able to help them.
Bill Dezellem: That's insightful. Thank you. Let me take a slightly different angle on this same topic. What level of revenue are you currently buying parts for today? And I'm recognizing that doesn't equate to revenue because you just said that we have one year plus lead times?
Craig Gates: That's an interesting question to answer because what we've been able to do is convinced a number of our customers that they should sign up to covering us in the event that the vast majority of the parts that we need for their product are available, but one or two of them or not. So we've got a number of customers who said that go ahead and buy components out to a year ahead of when you think you're going to need them for my product. But if you can't get one or two, or three, or four or five, or whatever those components, we will pay, we will buy the inventory from you in order to make it a low enough risk that Key Tronic will do this on our behalf. So there's that mix. There's our own judgment calls on the availability of parts for customers who aren't yet to that stage and there is our bets on things that we're working right now that we think you're going to pay off that may or may not. So right now, my best answer to your question would be that we're driving about $145 million worth of parts. We are driving that amount of parts to support that amount of revenue, I guess is the right way to say it. We're driving parts to support about $145 million in revenue. How much of that we are going to be liable for is still being reduced as we educate our customers and they educate themselves on the severity of the situation and the right ways to address it.
Bill Dezellem: And so that's what you're doing today. How long or when did you start buying how long ago or when did you start buying at this level, call it the 145 per quarter level?
Craig Gates: We were actually buying at a higher level previously and that's why we have been hit so hard with inventory levels that are above where we want them to be. So two quarters ago, we were probably buying at around $160 million equivalent revenue worth of parts because we thought we were going to be able to convince our customers to pay PPV for parts that we found on the gray market. We thought that suppliers were going to miss their commitments by a reasonable amount, but not an unprecedented amount. But it just continues to get worse rather than better. So we've backed off on what we're buying.
Bill Dezellem: And I want to tie that to something that Brett had said relative to accounts receivable increasing sequentially that was simply due to timing of when business shipped in the quarter. Does it have anything to do with customers not being willing to follow up on their commitments because it's easy to say that they will buy parts if you don't have a full bill of materials. But it's another thing to write a check when they don't actually have product coming out of the factory?
Craig Gates: Well, Brett said that was due to two reasons. He said one was, as you say, but the second one he mentioned that you missed was that some customers are having difficulties in paying on time because they're not getting paid on time. The whole supply chain is bound up by people not paying in time from one end to the other. As far as the answer to your second or to your question, when we asked for commitments from customers to pay for inventory that we can't complete we don't get it with a handshake. We get it with a written agreement. So we haven't had anybody renege on those agreements. Although it does take more than just an email that says, hey, we missed pay up before they write you a check.
Bill Dezellem: And I'm going to have a little fun with you here. You had in your annual letter said that there was about 700 million of demand. And when I cut that by four for quarterly run rate, that's about $175 million per quarter run rate which is higher than the number you mentioned this quarter. Not to split hairs too tightly here but would you reconcile what you were saying here today versus the annual letter?
Craig Gates: Annual is not the same as quarterly. Things don't run flat. I know you and I have had a number of discussions where you can't believe they don't run flat. Things don't run flat.
Bill Dezellem: .
Craig Gates: Did we lose Bill?
Bill Dezellem: No, I'm here I just made a quick, it was easier to run things flat in a spreadsheet?
Craig Gates: Yes.
Bill Dezellem: So that's really the difference is this looking at a full year versus this quarterly fluctuations?
Craig Gates: Yes.
Bill Dezellem: Excellent. All right. Thank you for the time.
Craig Gates: Thanks Bill.
Operator: And we'll hear next from Sheldon Grodsky of Grodsky Associates.
Sheldon Grodsky: Hi there. It's a little demoralizing hearing what you go through quarter after quarter. But I think you mentioned something today that I haven't heard before. You mentioned something about whether there might be certainly about some possible regulatory fines or something like that. If you can elaborate on what that was somebody at the SEC or some other regulator?
Craig Gates: We have no comment on that other than what's been in our 10-Ks and 10-Qs.
Brett Larsen: Yes. Continuing to go through our internal investigation.
Sheldon Grodsky: Is that ever going to end do you think?
Craig Gates: What did you say? Will it ever end?
Sheldon Grodsky: Is it ever going to end?
Craig Gates: Sure. Yes.
Sheldon Grodsky: It seems like it should be over by now.
Craig Gates: No, that's unfortunately, a rookie response to this situation as I've been educated by all the people who make money off of these situations. They typically go for a year to two years.
Sheldon Grodsky: Even though it didn't have an impact on that income this is the case of whether it's finished goods or goods in process or raw materials. Okay, I'll let it go with that.
Craig Gates: Thank you. I appreciate it. Because I have strong opinions that I'm struggling to not express.
Sheldon Grodsky: Okay.
Operator: And we will go next to George Melas of MKH Management.
George Melas: Hi Craig, hi Brett.
Craig Gates: Hey George.
George Melas: Congrats for running a business . Quick question on the internal investigation record. it seems to be a little higher next quarter, roughly 100,000 score do you think or?
Brett Larsen: Yes, we're expecting over time that will go down there it's unfortunately we're going to continue to have some professional services and legal support over the coming quarters. I wouldn't expect at this point any real ramp up at this point. We're expecting those to go actually decrease over time. But again we just can't forecast that.
George Melas: roughly $400,000.
Speaker: It is.
George Melas: Okay, great. And Craig you mentioned labor shortages. I think that last quarter of last two quarters, though it has had eased somewhat, but they seem to be coming up with is it mostly in the U.S. or is it nature of labor shortages?
Craig Gates: We're okay in Vietnam. We're okay in China. But the U.S. is horrible. It's says if we're in some different country that I don't recognize and Mexico is tight, but not as tight as I've seen it in Mexico before.
George Melas: Okay.
Craig Gates: I mean, I don't know about you, but I've never driven down and not been able to get off at exit because I wasn't sure McDonald's would be open.
George Melas: Right. Yes. Maybe I think there's like 6 million people who have not quite returned to the workforce participation on the inventory, is there any way you guys can quantify how much of the inventory is back by the customer? And how much is it that way you make bad bring in inventory, that at which you add risk. Not exactly sure how to quit and now and how it was a couple of years ago?
Craig Gates: Georgia it's our business model and it's the contract manufacturing business model industry as a whole that we don't bring in material on our own risk. It's always purchased per contract per either a forecast or appeal that is binding. Where the risk comes into it is timing. So if we were to buy something and not be able to get apart for a year, then we have our cash tied up in the rest of it for a year, that hits our balance sheet and our loan and everything else. But we are out buying stuff that we may not be able to use for certain intentionally, and all of our businesses covered by contracts.
George Melas: Okay. So then how much of your business is covered by where after a certain period of time, the customer pays in inventory that's basically in process.
Craig Gates: Almost all of it has timing clauses in there. But most of these contracts were written well before anything like this ever occurred. So those timing clauses are much longer than what we need to operate in this environment today. So in essence we're going back and getting agreements with certain customers that state that during this time of horribleness in the supply chain, instead of 180 day period that we have to hold it, I guess the new norm is that the amendment to the contract says that day that we would have been building, and we can't build that today that we're allowed to invoice for all the parts that are sitting in our dock.
George Melas: Okay. And how much of that, so in that case, your inventory would shrink, the would go up, but you would still hold the inventory for the customer, but it would be customer own inventory?
Craig Gates: Correct? Yes.
George Melas: And how much of that already happened?
Craig Gates: What do we got, probably 30 million, 35 million, 40 million. Yes.
George Melas: Wow.
Craig Gates: Yes. Again I can't stress enough that people don't understand what's going on in this world. It's unbelievable.
George Melas: So that 35 million to 40 million are working progress that your customer has actually paid you for?
Craig Gates: No, that would be four components they've paid us for.
Brett Larsen: So it's inventory. It's not whip.
George Melas: Okay, all because you only really care to go parts and product went through it.
Brett Larsen: Right.
Craig Gates: We wouldn't start building until we had all the components on hand.
George Melas: And that's really what did last quarter or a year ago?
Brett Larsen: It has increased substantially over the last year. I don't have the exact numbers, but it has grown significantly in the last year. And I expect it to only grow further.
George Melas: Okay, I know mobile risk of that, because you have, you are so vertically integrated and you have a much bigger .
Craig Gates: I wouldn't say that we're more at risk for it. I wouldn't say that our numbers in that respect are any bigger than our competitors. A number of our customers are served by more than one contract manufacturer and these deals are not unique.
George Melas: Okay. Great. On the gross margin, I think your target is roughly 9%. Is that still that target but if you were to do $160 million will that target go up?
Craig Gates: Yes. That target would we would the target wouldn't go up but our performance would certainly exceed the target.
George Melas: Okay. . So what do you think it could be?
Craig Gates: It's a well to stick with the analogy it's a moving target, George. The right now what's happening is that the cost of materials is going up so fast that we can't keep up with raising our prices to our customers quick enough. As you can imagine customers don't say, oh, you, you feel like you need to raise your prices. Sure, go ahead, send me a new invoice. Every time we have to raise our price, we have to do a hell of a job with proof that we've done everything we can to mitigate that price increase. So we are in a delayed position where materials have gone up, logistics have gone up. And we have to go argue with every customer to say that why your price has to go up 4% or 5%. Those arguments are getting easier because the world is now becoming aware of the situation that we all face. But there's still arguments and they still take time. So we're caught in a bit of a squeeze until inflation abates a bit which I have no actual faith that will actually happen. But until it does, we have to get faster at moving price increases through to our customers in order to get our margin back up where it needs to be. A little bit of that, and a few more parts would move us back to our target easily.
George Melas: Okay. Great. So that's something that you never, you haven't had to do really I've been doing .
Craig Gates: I have been doing this for 35 years. And I've never seen a situation where across the board, we were continually going out and succeeding at raising prices.
George Melas: Done.
Craig Gates: Ever. I've never seen a situation where we can't get our stuff through a port. I've never seen a situation where you call up and say, hey, I got an order. And they say, well, we're not accepting orders. And if we do accept your order, even though our part is standard, it will be at non-cancelable, non-returnable. And if we decide to ship it to you, it might be two years from now. Never seen that.
George Melas: Right.
Speaker: I've never seen that. Have you ever seen a situation where if F150 pickup trucks are parked in a parking lot waiting for an IC?
George Melas: Yes, no, it's mind boggling. Yes. You see sort of a segmentation your customers some that are really willing to work with you and sort of, you as a partner on your transaction --.
Craig Gates: Sure. As you may or may not know, we run our business through program managers who are much like miniature CEOs of their portion of the business. And these people will typically be running a business between $10 million and $80 million a year in revenue. And each of these people have a whiteboard in their cubicle. And on each of those whiteboards, I draw a round circle and I put a dashed line through it. And that is the moral knob of their customer. Some customers get a 10 out of 10. We will do things for those customers verbally on a handshake, because they've proven themselves to be upstanding customers. And they proven to be trustworthy. Things go much faster for those customers. We have other customers who are essentially untrustworthy. We won't do anything for them without a signed agreement on whatever it is that they want us to do. So our business and our people have to be flexible. And some of our program managers will have customers at both ends of the spectrum. They have to talk to one guy on the phone who they know they can't trust, have to hang up the phone and talk to the next customer and know that he's their best friend and they can trust him as long as the day is. So an answer your question is yes, there are significant differences in the ways customers have responded to this. The ones who have responded, the ones who have the 10s on their moral knives have been hurt the least. And the ones who have the ones or the twos have suffered the most not out of vindictiveness but because agility determines how well this goes for you in this kind of unprecedented situation and agility is hampered by untrustworthiness.
George Melas: Yes. And is there a way to say what proportion of your customers are in the trustworthy category as opposed to not?
Craig Gates: Not? The nice part about our business is that our big customers. I'm thinking just me give me a minute here. All of our big customers fall into the trustworthy category. Yes. There are a lot of these customers that I've known for we've known for over a decade. We've gone, we go all the way back on battles fought together, and one and crisis see staved off and so we have a great relationship with all of our big customers. Some of our smaller customers not so much, but I'd say the majority of our customers fall into these are good guys. Majority of the revenue, majority of the revenue falls into these are good guys, and you can trust them most.
George Melas: Okay, that's good to know. Okay, that's it for me. Thank you very much.
Craig Gates: Thanks George. Thanks.
Operator: And we'll go to a follow up from Bill Dezellem with Tieton Capital.
Bill Dezellem: Thank you. I would like to jump to Vietnam. Would you elaborate on your comments that you made that Vietnam has showing nice signs and one day will be quite meaningful for you all, and just provide some more detail behind that, please?
Craig Gates: We've had a number of big things out. I don't know why. You get an echo --
Bill Dezellem: Yes.
Craig Gates: Are you getting an echo when I speak?
Bill Dezellem: Yes, I am. I'm going to put you on mute. See if that makes any difference? I put mute me on mute sorry.
Craig Gates: Okay. Test, test. Nope, that didn't fix it. Well, I'll ignore myself speaking, which is pretty easy to do. Now it went away. So Vietnam, right before COVID hit, had a lot of customer interest, a lot of customer visits, and had two or three nice wins. But Vietnam's national response to COVID was a hard lockdown on people in and out, on people go into work. And very few customers are willing to put business into a plant they've never seen. So that is slowed down Vietnam's growth or Vietnamese plants growth, but even with that massive limiter, they managed to grow, they managed to win accounts that have never actually seen the inside of their factory. And they managed to become profitable. So we expect that win limiters to visits and business are overcome by vaccines or whatever they are going to do it, that they should return to a very rapid growth.
Bill Dezellem: And has the country reopened or are they still in that lockdown mode? I've kind of I've heard kind of conflicting things.
Craig Gates: They change very rapidly I think right now they're kind of open. But it's they're very, very reactive if they see a slight concentration or uptick in cases, man, they shut it right back down again.
Craig Gates: It's based on regions .
Bill Dezellem: Okay, maybe that explains why I've feel like I'm hearing different things it just changes very quickly. So with it now open, once again, does this increase your, I guess, your confidence or compartment comfort at having new business move into that facility? And B, does it increase prospective customers interest and desire and putting new business in that facility?
Craig Gates: I don't think the customer's desire or interest is ever diminished. They haven't been open big enough and long enough that we've seen people start to scheduled trips there to review the factory.
Bill Dezellem: This may be a silly question but that review something that can be done via video.
Craig Gates: We try that Bill. We've done all kinds of video walk arounds, and we've been able to gain some traction from that. But there doesn't appear to be any substitute for going and actually see in the facility.
Bill Dezellem: Right. Okay. Thank you. And then Brett I don't want you to feel left out. So relative to SG&A it was down versus last quarter by 800,000 or so. Would you talk to us about how you were able to do that?
Brett Larsen: Yes, a couple of things. One is, we are carefully managing new hires during this time and the other is that there was some performance based compensation that was accrued in the last quarter of last fiscal year.
Bill Dezellem: All right, well, thank you both. And thank you for all the detail behind the logistics supply chain and all of the craziness out there. I really do appreciate it.
Craig Gates: You bet.
Operator: And with no other questions in the queue, I'll turn the call back to our presenters for any additional or closing comments.
Craig Gates: Okay, thank you again, everyone for participating in today's conference call. Brett and I look forward to speaking to you again next quarter.
Operator: This concludes today's call. Thank you for your participation. You may now disconnect.
