Q4 2019 Earnings Call
Welcome to the Sad fourth quarter 2019 earnings conference call at this time, a participant manzanar listen only mode. After the speakers presentation, there will be a question and answer session.
Asked a question during this session you need to press star one on your telephone please be advised the today's conference is being recorded.
You acquire any further assistance. Please press star Zero I would now like to him a conference over to your Speaker Brendon Frey. Thank you. Please go ahead Sir.
Thank you Justin.
Good afternoon. Thank you for joining us today to reviews that fourth quarter 2019 financial results.
On the call today, we of course of her Chief Executive Officer, and Taylor Smith, Chief Financial Officer.
Oh of course, and tell us with her comments, we will open the call for a question answer session.
Our fourth quarter earnings press release issued today after the market close at approximately four oclock PM Eastern time.
As a follow onto the earnings we publish the supplemental financial information on our Investor Relations website.
Also furnaces documents, yes, we see our form 8-K.
You can find all of our earnings documents on our Investor Relations website, Zagg Dot com and the quarterly results section under the financial stuff.
We are recording this call that a webcast of accomplish all will be archived zagg investor Relations web page trying to be best after one year.
Before we begin we would like to remind everyone that the prepared remarks contain certain forward looking statements.
And management May make additional forward looking statements in response to your question.
These statements include but are not limited to our outlook for the company statements that estimate for project future results of operation for the performance of the company.
These statements do not guarantee future performance can speak as of the date hero.
For more detailed discussion on the factors that can cause actual results could differ materially from those projected any forward looking statement. We were for all of you. The risk factors contained exact annual report on form 10-K, and quarterly reports on form 10-Q filed with Securities and Exchange Commission.
That assumes no obligation to revise any forward looking statements stuff you me maybe made in today's release for coal.
Please note that on todays call. In addition, discussing the GAAP financial results and the outlook for the company will discuss adjusted EBITDA and diluted operating earnings per share both non-GAAP financial measures.
At expiration is that uses these non-GAAP financial measures in this call and the reconciliation between GAAP and non-GAAP measures acquired by FCC regulation. G is included in Zaggs press release today, which are getting can be found on the investor Relations section of the company's website.
Non-GAAP information is not a substitute for any performance measures derived in accordance with gas and the use of such non-GAAP measures has limitations, which are detailed in the company's press release.
And now I'd like to turn the call over to Christopher Chris.
Thank you Brenda.
Good afternoon, and thank you for taking the time to join us today.
Our fourth quarter revenue increased 14% year over year $290 million, which represents our highest growth rate and sometimes the coffee topline record for the company.
In terms of outperformance versus expectations for your revenue came in just below the low end of our guidance range, what adjusted EBITDA and shocked about projections.
It proved to be more challenging holiday season than planned many of our retail partners experienced lower overall demand.
He categories due in part to the shops are sending p. between Thanksgiving and Christmas and continued softness in devices.
That's all I've said should we increased our advertising spend and Ryan incremental promotions with several major accounts well at least had a positive impact on central we didn't generate the amount of replenishment orders that we had hoped has many retail retailers chose to India will leaner inventory levels.
We also experienced some cost over runs from our newly acquired brands and greater pressure from tariffs in the Fourq Hawker Hi, Joe we're not able to fully offset I'll pass it on to what extend to the price increases we had planned India and the combination of higher spend tariff headwinds and an unfavorable channel on product mix versus expectations resulted in our EBITDA falling short of projection.
Despite holder for costs going forward that there are number take away. Some 2019 that give us reason to be optimistic about our business and 2020 and beyond.
Oh, sorry acquisitions gear forehand on breakeven, which we acquired a near 2018 and already 19, respectively contributed approximately $83 million in revenue between 19 over 20% over 28 11.
During 2019, we made great progress since significantly increasing distribution for gear for into U.S. Following a successful test a number of horizon doors in may we rolled out to auditor locations of September.
Joined the back half a year. We also had a doors that 18, t. sprint target as well as several others. We began 2020 would approximate 27500 domestic points of distribution for gear for compared to roughly 9500 to start to 2019.
Over the past 12 months, we've also expanded any bugs give fourth product offering launching new case designs compatible several new OEM devices from Apple Samsung and Google.
So in response to brand and its differentiated DCIO technology has been very encouraging.
We are focused on continuing to build awareness among U.S. consumers in the coming here.
Joining 2019 gear for again to find some market share going head to head against established brands, we fully expect our market share to continue going in 2020 and beyond.
As we've discussed in the past the acquisition handle bought with a great portfolio Paul products, along with strong relationship with with the home shopping network and QVC, a direct to consumer channels, that's I could not develop prior to this transaction.
Joined a fourth quarter handle was regularly featured on QVC and says, particularly for the brand of the important line up for vehicles doctors were very strong.
Well this business has historically been quite seasonal with the majority of says events clean joined a toward and four quarters, we're working on increasing to brands channel presence. During the first half of this year. During 2019, we also made headway securing sands opportunities for some of our other brands on HSN.
For example, we lost a portfolio of I frogs brand, a true wireless ear buds and it won't be power skew during the second half a 2019.
Based on performance, we're looking forward to a successful relationship contagious.
What is the smallest Archie acquisitions, brave and had to be Q4, adding 1100, new doors into fall, we launched an all new rugged portable speaker product line, featuring durable shock proof and waterproof construction one delivering exceptional song close these products have been very well received and we expect Bhavan contribution to our overall results to continue to grow and 2020.
In terms of our core business or domestic screen protection Master shows stabilized at a proxy, 45% number one and industry by a wide margin.
Invisibleshield continues to lead the kind of be true innovation 29 teams product launch was highlighted by the glass lead vision got plus suite of products that offers maximum break is protection, but also protect into NT rice. Our newest innovation is an anti microbial solution, which is integrated into the screen protection and <unk> and we'll continue to protect consumers against 99.9% of harmful back.
Area for as long as the screen Petra remains on the device I.
At CES in January we announced that all future invisible she'd probably launch has been stooge been feature of this anti microbial technology.
Innovation, we continue to drive to business forward and 2020 as we have a great product pipeline at that went further enhanced the consumer experience allow us to maintain angrily price points at retail.
We've also seen good success with the product segmentation strategy and addressing entry level, our value price points, which we implemented in mid 2019 as I mentioned, our screen protection Master show stabilized at a proxy 45% since this strategy has been implemented.
Internationally, our screen protection business enjoying great momentum driven by the success of ideas. So the strategy in which we invested heavily joint 2019, and 2019, we installed invisibleshield on demand machines in over 2900 additional wireless carriers on retail doors across Europe, and Latin America, Bruno Global installed base to over 6200 units at the end between 19.
These productive new doors long way addition accounts time twice a day in 2020, we'll continue to serve as a matter proponents of all growth going forward I. Just same time, we continue to walk towards replicating. The success, we've had been diversity overseas here in the U.S. by expanding needs to be but its availability beyond our core network of roughly 620, CPR stores and Zagg franchise location.
Yes.
And 2020, we plan to roll afford to 4000 machines across four key markets Europe, North America, Latin America, and Asia Pacific bring our global installed base to over 10000 units.
Morphea was highlighted by launching several new products that after retail stores, where we expanded offering with a full line of came as a new wireless charging solutions, including two multi device why discharge pets designed to work with a variety of devices Minneapolis ecosystem. We also launched a new wireless charging solution across most of our retail partners I'm very pleased essentially we're seeing.
In fact.
The wireless products were so successful across our patented base and sold well above forecast, which resulted in us chasing supply to the four quarter into the first few months of 2020.
Morphing into 2019 is another one brand in wireless has probably carry with it 21% market share.
[noise] midway through 2019, the response to the challenges faced by Zagg in the industry at large we implemented a series of cost initiatives in order to put the company in a stronger position and drive long term profitable. They include one reducing our global headcount by approximately 10% to accelerating some synergies from recent acquisitions intrigue decreasing the number of discretionary.
Operating expense categories. These actions generated approximately 8 million in gross annual savings starting in 2020 more recently, we've identified opportunities increase cost saves me tell twentyeighty between 19 acquisitions and efficiencies deploy marketing spend the globally better leveraging ISO de investments and had invested their resources have been proven venture.
Forecasting a management, we expect a year over year decrease in total opex expense and improvements in eventually tones.
We also announced last on where does the board of Directors retained Bank of America Securities to assist the company in exploring strategic alternatives to maximize shareholder value.
It was a very toro and rigorous process during which we engage with approximately 60 interest the strategic and financial part is we provided a tourist summary of the process in the press release filed earlier today based primarily on the challenge is the business faced during 2019, which include a softer demand for devices the impact from tariffs on a more than difficult expected holiday season offers for the company.
Significantly below the common stock price the board therefore unanimously determined that delivering on the company's long term strategic plan is the best Pat to driving share stockholder value.
And eventually receive future transaction interest the board would welcome the opportunity evaluate any transaction that can maximize stockholder value.
And 2020, all key priorities under long term planner continues to drive innovation and product categories that address consumer pain points.
Execute straight strategies, and the increasing market share in a core product categories capitalize on the rollout of Fiveg in the second half a 2020 by launching innovative products that protect and enhance fiveg enabled devices improve profitability to optimization of our operating expense structure and improved inventory management.
We feel we have the right long term strategy in place to gross adds an increased profitability.
That said based on the past two years on how they have unfolded with several external headwinds beyond our control and taking into account to corn challenges and uncertainties being caused by the outbreak of spread of Corona virus. We believe at this point is proven to guide a full year 2020 revenue consistent with 2019 would improve profitability to $48 million.
Our objective is to exceed this ties it and we look forward to updating you on to progress, especially as we get better understanding of the impact of krona virus and visibility into the rollout and adoption of Fiveg homecare into second half the year.
As it relates to the outbreak of Corona virus. It's obviously very fluid situation that we continue to monitor closely we have taken safety or employees and our partners as top priority.
This has resulted in a copper travel ban to and from Asia, No country to country tried to it in your.
Within the U.S., we have restricted traveled to essential travel only weve and we will continue to monitor this situation the U.S. closely.
China based team have predominately being walking remotely and have done a great job working with our manufacturing partners minimizing supply chain impacting Q1, the biggest impact. We currently see in Q1 would be an increase in just six cost based on having to securely airfreight et cetera.
2020 outlook is based on what we know right now and we provide updates spending changes in future.
Now I'll turn the call off Taylor, who will review the financials and guidance in more detail.
Thanks, Chris since many details of our quarterly financial performance were included in the supplemental financial information issued earlier today.
We just like to take a few minutes to add some additional comments on our fourth quarter financial performance Q4, net sales increased approximately 14% to $190 million inline with the low end of our guidance range year over year increase was driven by increased sales of protective cases under a gear for brand and increased power management sales driven primarily by Halo product sales.
And new mostly wireless product launches during the second half of 2017. These increases were partially offset by lower by lower sales of screen protection and power case products compared to last year at the beginning of 2019, we estimated our newly acquired gear for Halo and Brave and brands would grow by approximately 10% over 2018 levels. It was great to see these.
Loans grew by over 20% and we expect solved future growth in the years to come.
Gross profit as a percentage of net sales remained flat, but we saw upside from an increase in sales of gear for cases, and Halo power products. These improvements were offset by increased duties from products manufactured in China, a decrease in sales of our screen protection products and a shift in our channel mix.
We mentioned on the first or on the last earnings call. There are several levers we've attempted to pull to mitigate the significant increase in tariffs that we've experienced in 2019 those levers of included one negotiating price reductions with manufacturers to passing along tariff increases to customers three purchasing inventory in advance of tariff increases in four exploring the move.
But of manufacturing out of China.
These efforts were largely successful during the first three quarters of 29 team. However, given the significant increases that went into effect late in the year, we struggled to offset a significant portion of the tariff increases which impacted both our gross profit as well as duties capitalized into inventory during the fourth quarter.
Although we did achieve cost downs with our factories many of those price reductions were not realized until late into the fourth quarter. In addition, due to the competitive nature of the categories that we competed we founded extremely difficult to pass along the duty increases to customers as we had originally projected.
As we look into 2020 were pleased with the Trump administration provided a waiver on our wireless charging products and in mid February further reduce tariffs by seven and a half percentage points on a number of our categories, including multi power stations and juice packs Invisible Shield film screen protection gear for cases, and Bravener NIE frogs, Bluetooth speakers and headphones.
Although these tariff decreases combined with the cost downs achieved with our factories will provide some relief from the tariff increases in 2019, we still expect tariffs to be at margin headwind throughout 2020, which has been incorporated into our 2020 guidance.
Q4, operating expenses increased 20% or approximately $7 million compared to last year due primarily to the full quarter impact of gear Ford Halal operating expenses, including some unanticipated cost over runs in the fourth quarter.
Increased marketing investments to support second half product launches as well as to drive sell through of our growing portfolio of brands products and channels during the holiday season and last additional investment in our Invisibleshield on demand infrastructure. This these increases were partially offset by a companywide restructuring as Chris mentioned, there was executed during the third quarter two.
2019th.
Q4, adjusted EBITDA was $31 million versus 28 million in the prior year period, although we saw growth compared to the prior year Q4 results fell short of our fell short of our expectations. The key drivers that impacted adjusted EBITDA relative relative to guidance included some unmitigated tariff increases product and channel mix shifts.
And operating expense Overages, particularly with our newly acquired brands. Despite these headwinds to profitability. We're confident in the strategy. We have in place and expect 2020 to be a year of adjusted EBITDA margin improvement.
Turning to the balance sheet compared to a year ago accounts receivable decreased 9% to $143 million and Dsos improved significantly from 87 days to a more normal level of 69 days. Despite some headwinds from increased terms internationally and with key west customers Dsos benefited from the timing of sales during the fourth quarter of 2019.
Mean versus the prior to year the quality of our receivables remains very good.
Inventory was $145 million compared to 83 million at the end of 2018 and 138 million at the end of the third quarter 2019. The key drivers of the increase in inventory were one incremental inventory associated with our acquisitions to duties and freight capitalized in inventory three inventory.
The growth for international markets to support that growing business and for some excess inventory linked to the decrease in demand for handsets in the U.S.
Despite the increased inventory position the excess skews are largely current product, which has helped mitigate some of the tariff impacts during 2019 and alleviate some of the supply chain constraints in China due to the Corona virus consolidated inventory turns excluding capitalized duties and freight was approximately five times down from seven times in the prior year, we expect to get.
Back to approximately six turns by the Tommy exit 2020.
Net debt, which is consolidated debt less cash increased $89 million compared to 43 million last year. The increase was due to cash used for the Halo acquisition of approximately $20 million $1 million for share repurchase and the remaining to fund ongoing operations, including expenses associated with our newly acquired brands and set.
Can have 2019 tariff increases.
With regard to our free cash flow our priorities are consistently been to service our outstanding debt repurchase stock fund tuck in acquisitions and last support internal growth initiatives.
Given our recent M&A activities in 2019 business headwinds our focus for the next several quarters will be on paying down the debt to give us flexibility down the road, including the ability to opportunistically buyback our stock in the second half of the year. Our year end gross debt was $107 million unintelligible $100 million were prohibited from repurchasing stock under our existing costs.
During 2019, the board approved a $20 million stock repurchase authorization that is still active with the entire $20 million available for future buybacks will revisit our capital allocation as we move through the year.
Last I wanted to spend a few minutes discussing our guidance for 2020 as Chris mentioned, although we're confident in our strategy and expect Fiveg technology to contribute a long term uplift to our business given some of the macro uncertainties that could impact the business, particularly in the second half we've decided to take a more prudent approach to guidance in 2020 were forecasts.
During 2020 net sales flat with 2019, the key assumptions built into this guidance include increase first half sales from our core business and the recently acquired gear for Halo and braving brands offset by challenging comparisons in the second half combined with some uncertainty related to the impact of Fiveg technology in 2020, and the potential impact of the outbreak and spread it out.
Krona virus, which has created a fluid situation both from a supply perspective in China and a retail perspective in the rest of the world. We did experience some delay in or Chinese factories coming back online in the first quarter after Chinese new year, but up good line of sight to delivering on the vast majority of the customer demand during the quarter, though we'll incur approximately $2 million an incremental expedited airfreight.
Charges during the quarter.
Our current guidance is based on what we know now and will provide updates if anything changes down the road.
Gross margins are currently estimated estimated to be in the mid thirtys as a percent of sales roughly flat compared to 2019. This takes into consideration product cost downs of factories come product category mix improvements, including a higher mix of screen protection in cases, offset by a full year of the increased duty rates and the additional air freight that I mentioned we.
Estimate our annual tax rate at this time to be approximately 25% and will provide updates as we progressed through the year.
We estimate 2020 diluted earnings per share to be approximately 50 cents on approximately 30.1 million shares outstanding.
Adjusted EBITDA for 2020 is estimated at $48 million or approximately 9% of revenues. This assumes an overall reduction in operating expense during 2020 as a result of the restructuring activities during 2018 as well as other cost down initiatives, one important call out in our business model any incremental sales and associated margin above our current.
Earnings would come with very little incremental operating expense and therefore, the percentage flow through to the bottom line would be very meaningful.
Well, we don't typically provide quarterly guidance given the number of moving parts and that were more than two thirds the way through the first quarter. We wanted to share. Some specific details to help you understand the change in our year over year performance. We currently estimate Q1 2020 sales to be in a range of 90 million to $94 million compared to 79 million last year.
We're projecting Q1 adjusted EBITDA to approve to negative mid to low single digit range compared to negative 9 million in the first quarter last year with further improvement in the second quarter versus the prior year period with that we'll now open up the call for questions.
Thank you.
As a reminder to ask a question you need to press star one on your telephone to withdraw your question press the pound key and again, ladies and gentleman that is star one if you'd like to ask a question and our first question is going to come from Mike on move from Craig Hallum. Your line is now open.
Great. Thanks for taking my questions.
I can just talk about Invisibleshield first.
It sounds like you maintained market share for a couple of quarters. Now can you just give us a little bit of insight into what's going on when that market.
And how attach rates are going are you seeing.
The catch rates go down a little bit just kind of an overview of what's going on with Invisibleshield market would be helpful. Thanks, Yeah. Thanks, Mike So firstly in terms of attach rates.
Here Q1, we're actually seeing our sense is quite strong overall, it's showing over last year. So demand is clearly there for the product.
What we've done from a segmentation perspectives as really have to solidify our market share. So for instance, being able to capture to value price point, but also be able to attain the higher MSR piece with the Invisibleshield brand. So on an all what we're very happy with how to segmentation strategy has played out I'm or seem to demand reflect that in Q1.
Uh huh.
And what would you say is your average.
Unit price difference between say at the end of 19, given some of the changes you had versus say the end of 18 or even the end of 17.
What would you see the average cost per shield.
Yes, good question Mike.
It's gone down slightly but.
I'd say, it's not materially different I think what the strategies as enabled us to do as hit some of those lower price points, which although not a terribly significant portion of our overall sales is just allowed us to maintain the share that we were at so overall, it's probably a couple of dollars of of total selling but but still fairly consistent what we saw.
Last year, and we've maintained our gross margin percentage split on best segmentation, yes, okay.
Just.
On inventories.
It looks like yet.
Some continued sort of pressure there do you sort of.
Give a list of four things I'm just wondering if you could just give us a little bit more detail surrounding the specific on the duty side.
Yes, good question so.
Part of inventory any any frieden duties that used to or that you pay to bring the inventory to your location and prepare to sale I'm gets capitalized into your inventory and so.
If you kind of compare year over year.
And this is a combination of both some increase in inventory and then also the the rate increase with the tariffs, particularly in the fourth quarter.
Capital is free and duties increased by a little over $20 million and so if you compare kind of where we were out with Q Q3, with where we ended in Q4 on a straight inventory perspective were actually down, but the but obviously, we're up because of the capitalized freight and duty. So it was definitely meaningfully contribute.
To the increase in the fourth quarter as far as inventory goes Okay. And then we'll just one final question on the acquisition.
Strategic review process.
You said that you had I think I've read it right you didn't get any bids that were above the stock price.
One is that how I should read it and then to perhaps you could provide just maybe some insight into what the acquisition or let the acquirers are potential acquirers, where there were.
The thought process was if you got any feedback.
Yes, so I would say Mike you read it correctly, that's how you should read us.
In terms of the potential buyers at the time some of the concerns.
Mainly around the uncertainties around you know tariff.
We had more difficult holiday season, some softer demand and all of those combined they didnt have put into place than there were some of the the key concerns and then obviously towards the back end up of the the actual process itself as we got into February.
Corona virus Didnt headlight up as I would say not the key differentiator, but didnt help in terms of instilling confidence.
Okay. Thanks for taking my questions.
Thanks, Mike Thanks, Mike.
Thank you.
And our next question comes from Thomas Forte from D.A. Davidson. Your line is now open.
Hey, Thanks for taking my question.
First one I had was.
The tariffs.
And my team and more recently the current environment.
The long term all fine.
Your supply chain.
Yes, so I'll, let Tom frosting on the way.
With the tariffs and all new pilots going forward, where designing the products with the tariff in mind.
That's not to say that we're looking alternative supply chain.
Outside of China, you know, we have one or two CN is already where we're doing trials.
But ultimately is going to take some time so for us. The key is to continue to to drive cost down of the product, but also develop a product with with tariffs in mind.
Hopefully that answers but is there.
Do you think that long term.
By your supply chain.
Could be less dependent on China.
Yeah for sure what I'm, just going back to my second point, that's going to take some time, so I would say over the course of the next 12 to 18 months, we'd see some diversification and primarily on some of our larger type categories as forever, we're going to be doing that so for instance, wireless charging we've already got a pilot ongoing and buy in Vietnam, where potentially we can shift production.
But yes, we will be diversifying and put on production sites.
And then my second question.
There will be talking about.
Again, thank you, but the current environment and then projecting.
Sales for this year, but you talked about the currency.
Okay.
I have some incremental cost as far as airfreight.
Does that mean that.
Turning to stabilize there and then also what are your thoughts.
And then also.
Okay.
Potentially and then the some of the geography.
Hit harder so yes.
Supply chain and potentially demand.
Yes, So let me approaches in two different way so we staffed with the actual supply site. So we've been very fortunate our team really got ahead of us in Q1, Tom whereby we were able to secure the majority the vast majority of our demand our products for Q1, so well in Q1, we were not seeing a major impact.
From Thats, however, as we progress, particularly over the last two weeks, we have seen demand softening in our international.
Footprint in particular, so for instance, Italy as you would expect design knock down not not of impact from less retailers going or less consumers buying in retail we're seeing some softening in other areas as well so what we've done as we see good line of sight to Q1, we had a.
A decent line of sight to Q2, whereby we are seeing some softening in demand in our international space, but we ultimately felt a prudent that we cannot tell you what it's going to happen from basically from the into Q1 onwards.
It really is down to the krona virus and how it's impacting in our footprint from a retail perspective, but.
Without growing the buyers I will tell you the first half we got some good good line of sight too.
Our possibilities of of distribution. So it's really don't know ones on the second half and Thats why we felt the prudent to keep the revenue flash.
The last question I think we're.
Last year with about protecting consumers from harmful blue light and this year I think you've had some anti microbial element.
Which seems like your timing there really fortuna.
Can you talk about that it can you talk about.
With that product dock.
Yes. So it was it look you're not a was very fortuitous and we've seen really strong demand for that product.
We've been working really hard with the supply chain to.
To make sure that would have to surface that I will tell you. We're in a little bit of catch up mode with that and that's primarily because of the the IP and being able to integrate das solution into our screen protection, but we have good line of sight to be able to capture a majority of it in Q1, and we feel we feel strongly that we'd be on to do it in Q2.
But yes, the product is proving very very popular with both consumers and retailers.
Thanks for taking my question.
Thank you Tom Thanks, Tom.
Thank you and my last question comes from Jon Hickman from Ladenburg. Your line is now open.
Hi, John.
Thank you.
In the past your.
Revenues have fallen about 40% in the first half and 60%.
Second half do you still does that still how you see the year.
Given.
Your uncertainties.
Yes, it's a great question John.
If you'd asked me three weeks ago, we're very confidently told you we were kind of 37 38 front half with the balance in the second half of the year.
Given whats kind of transpired over the last three weeks and what we've seen in Italy in other parts of the world.
I think there's probably a shift.
Based on flat revenue guidance and what we're already seeing some nice growth in Q1, and a pretty good line of sight to Q2 that based on flat revenue, we'd probably see higher sales.
Certainly in the first half than we have historically and as Chris mentioned part of our guidance in the second half is just the uncertainty with regard to Corona virus and then also obviously fiveg and we expect that to be.
To be significant from a long term perspective is just very difficult given all the other things going on in the in the macro environment to be able to accurate accurately predict that which is why we've guided flat.
Okay, and then can you explain to me again why into higher airfreight costs.
Were you air Freighting instead of.
On the water, yes, yes so.
All of our factories kind of at the end of January they send their workers home for Chinese new year, which is typical with with Chinese factories.
The return of the of the workers was delayed by the Chinese government because of Corona virus and because of those delays production has been somewhat delayed in a number of our with a number of our categories and so in order to get product care customer demand, it's required us to spend some more on on.
Airfreight to be able to get the product here on time.
Okay I got it.
Thank you appreciate it.
Thanks, John Thanks, Joe.
Thank you and I'm showing no further questions I would now like to turn the call back over to Chris our CEO for closing remarks.
Thank you all for joining us for this quarter results. We look forward to update you know next call.
Thank you ladies and gentlemen, this concludes todays conference call. Thank you for participating you may now disconnect.
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