Q2 2020 Earnings Call

Yep. Yep, and welcome to the second quarter 2020 Financial results conference call and webcast at this time. All participants are in a listen-only mode a question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press * 0 and your telephone keypad as a reminder. This conference is being recorded. It's not my pleasure to introduce your host Edinburgh president investor relations for table, please go ahead sir.

Good morning, and welcome to jabil second quarter of fiscal 2020 earnings call joining me on today's call our chief executive officer Mark Mondello and Chief Financial Officer. Mike. Please note that today's call is being webcast live and during our prepared remarks. We will be referencing slides.

To follow along with the discussion and view the slide that you will need to be logged in to our webcast on at the end of today's call both the presentation and a replay of the call will be available Thursday investor relations website.

During today's call. We may be using forward-looking statements including among other things those regarding the outlook for our business.

These statements are based on current expectations and assumptions involving risks and uncertainties that could cause actual outcomes and results to differ materially.

An extensive list of these risks and uncertainties are identified in our forward-looking statements and in our annual report on form 10-K for the fiscal year ended August 31st, 2019 and wage filings.

table disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information future events, or otherwise

Now before we begin, I'd like to take a few minutes to discuss the agenda and objective for today's call as a reminder on February 25th, 2020. We announced the Cove in nineteen outbreak would negatively impact our second-quarter results relative to the guidance that we had provided on December 17th, 2019. And as for Warrant, our second-quarter results were in fact below our initial range of expectations driven by approximately 53 million dollars in direct costs associated with labor supplies and supply chain and efficiency all caused by the disruptive impact of covet 19.

As customary Michael walk through our second-quarter results while also detailing the intercooler sequence of events that resulted in a material deceleration in earnings towards the end of the quarter.

Although demand remains strong in our manufacturing capacity continues to improve each day. The overall impact of nineteen on our business is still yet to be determined.

Consequently, we're going to deviate from our standard quarterly call format in two distinct ways.

First we're currently not in a position to provide third quarter or fiscal twenty guidance or outlooks for each of our end markets in fiscal twenty as usual. Second month following Mike's prepared comments. We will move directly into Q&A in an effort to efficiently address your questions.

We do however expect to resume to our normal Cadence of call in the future as Mark expressed in our press release on February 25th. Our first priority throughout this Global pandemic half the safety of our people it's simply makes sense to take care of our people and we believe it's in the best interest of shareholders too. I can speak on behalf of everyone in this room. When I thank all of those who jumped into action with a typical table energy the team Swift response and hard work allowed us to be in a position to report our second-quarter results today.

With that I'll now hand the call over to Mike. Thanks Adam. Good morning everyone. Thank you for joining us today, 19 outbreak before I cover Q2 results. I'd like to take a moment to walk you through the Dynamics that unfolded during the quarter.

We began to to with a stronger than anticipated start to the fiscal quarter as we moved into February to man. He'll but our ability to meet the man was greatly diminished as virus containment office rammed in China.

During the quarter we incurred approximately $53 in direct costs associated with the corporate nineteen outbreak and now like to provide you with the makeup of these costs.

First we incurred additional labor costs in Q2 during February. We strategically made the decision to compensate our employees who are restricted and quarantined these factors contributed to higher labor costs that we expected going into the quarter.

Second Factor utilization in China was negatively impacted in February due to travel disruptions and restrictions.

To add further context of the higher labor costs and lower utilization February began with the Chinese New Year holiday being extended by ten to fourteen days depending on location.

Most of the larger sites in China began to come back online later than anticipated and by February 14th. We were only operating at forty-five to fifty percent capacity. We bought it the quarter at Approximately 80% utilization in China.

Third during the quarter. We also incurred lost Revenue associated with both upstream and downstream supply chain disruptions, which impacted our worldwide footprint.

And finally in an effort to keep our employee base safe and healthy unanticipated costs to procure necessary supplies to keep our people saved items such as face masks and sanitizes the more meters and personal protection equipment.

I would like to highlight that February was an anomaly under normal circumstances. If demand diminished a variable cost would have been materially lower as we would have adjusted our costs to the demands and

Turning now to our Q2 Financial results net revenue for the second quarter was 6.1 billion. Gap operating income was 91 million month. Gap deliver loss per share was two cents.

Or operating income during the quarter $159.

Net interest expense during the quarter was $52 billion dollars a call tax rate for the quarter was 26.6% in line with expectations.

Or diluted earnings per share with fifty cents. It's worth noting that the additional costs associated with the outbreak negatively impacted our diluted earnings per share by approximately twenty-five cents off.

Now moving to a gap results.

As expected we incurred $30 in restructuring and Severance related charges in Q2 predominantly associated with the 2020 restructuring plan. We announced in September of last year this plan continues to remain on track and as a reminder as expected to result in an incremental cost savings benefit of 25 million dollars mainly in the second half of FY twenty also during the quarter. We incurred a one-time non-cash impairment charge of approximately twelve million dollars in connection with the sale of an investment in the optical networking segment.

Now turning to our second quarter segment results Revenue per our DMS segment was 2.3 billion.

From an End Market perspective the experience good demand and the health care and mobility and markets.

Newport EMS segment was three point eight billion dollars from an End Market perspective. We saw additional strength in the semi cab space while demanding the balance of the business came in largely as expected.

Turning now to our cash flows and balance sheet.

During Q2 total days of inventory came in at 70 days and increase of 13 days sequentially driven mainly by idle capacity and supply-chain constraints do to cope with nineteen months.

Hi inventory levels during the quarter. We're upset slightly by lower days of sales outstanding at the end of the quarter driven mainly by lower February sales.

Cash flows provided by operations was sixty-three million dollars in Q2 and net capital expenditures totaled 205 million dollars.

We exited the quarter with the total debt to call repeat level of approximately 1.7 times and cash balances of $697.

Table as over three billion dollars of global revolver credit facilities and at the end of Q2 over ninety percent of these facilities were available.

During Q2 we repurchased approximately 1.8 million shares for $72 as part of our two years $600 authorization. We announced in September and closing as always tables. Number one priority is the health and well-being of our employees. We are also focused on providing the best possible service to our customers. We take our responsibility as a global corporate citizen very seriously these values motivate our teams to take significant measures to prevent the spread of curved in nineteen and minimize disruption in this very challenging environment.

I'll now turn the call over to Adam. Thanks Mike, as we begin the Q&A session. I'd like to remind our call participants that per customer agreements. We will not address any customer or product specific questions. We appreciate your cooperation operator or now ready for Q&A.

Thank you for not asking you a question and answer session. If you'd like to be placed in the question queue, please press * 1 and a telephone keypad a confirmation told Will indicate your lines in the question Q. Let me press start to if you'd like to remove your question from a Q4 participants using speaker equipment may be necessary to pick up your handset before pressing star one. One moment. Please while we pull for questions. Our first question today is coming from Jim Suva from Citigroup. Your line is now live.

Thank you very much. If I heard correctly you gave some utilization rates and I believe do you say 80% was the quarter or as or as you sneeze and now and maybe you can update this as kind of where you stand now, cuz it's been a couple of weeks since the quarter has ended then I'll probably have a follow-up. Thank you.

Hey.

Jim maybe step me back to if we go back to Chinese New Year as people were were coming back to our factories in in China immediately. After that with various quarantine Protocols are factories mid-February. We're running probably between ten and 20% as we index through mid-February it moved to forty to fifty percent and I think Mike said in his prepared remarks as we exited the month, we were closer to 80% as we sit here in mid-march. Our China factories are actually near normal and we have some Pockets around the globe where factories are are suboptimal, but I would say from a utilization perspective sub-optimal by only five or 10% Most of that is is due to supply chain issues. Um in some odd way as we sit today, I think China is the least of our concerns dead.

But again as we look forward in terms of overall Global Factory utilization were able to accommodate all the demand that's in front of us as long as we can get parts.

Perfect. And then that was led exactly to my follow-up question was is now the concern kind of focused on you know, hey, it's great efforts to China is recovering is now is it kind of effort to keeping an eye of your other locations outside in case this spreads and it sounds like you kind of alluded to yes, but any thoughts on I guess that would be the the next thing that you're watching and working on.

Yeah, that's fair. You know if if you think about what Mike said, you know, we had this fifty million dollar hit to to quarter earnings in in Q2 that was broken out by again. We had one time quarantine infrastructure costs idle labor incremental labor costs. Largely around China the factory and efficiencies in China for it. Just kind of big big picture faith in efficiencies in China were largely do the labor shortages. That's mostly behind us now Factory and efficiencies globally, uh, not so much labor shortages, but supply chain strengths. And again, we've got some pockets of inefficiency but largely are footprints up and running. So what what else is really interesting in this gym is life, you know in in relatively short order our team garnered significant experience in dealing with Cove in nineteen at the very front end of this pandemic because of our presence in China Club.

And you know in terms of our actions and approach we've shared our experiences experiences openly with customers and competitors and our pick-up is ready and and actionable if if things get notably worse in North America and Europe.

Thank you so much for your details and I concur that the actions are taken to give her your people are first and foremost most important. Thank you so much. Yeah. Thanks Jim.

Thank you. My next question is coming from Adam Kendall from Raymond James. Your line is now live.

Okay. Thanks. Good morning, Mark. It sounds like obviously the supply and capacity size incrementally better. So I just wanted to touch on demand thinking the February release you had mentioned that there was no change in product issue orders. So I just was hoping for an update on that with the heart of the question being, you know, invest your fear would be how to mitigate potential negative leverage given done a good job getting utilization back. But if we have to order Cuts coming, how do you think about that for potential do you leverage? Yeah. Thanks Adam. If I if I if I might take the Liberty. Let me let me expand my answer in and and and talk about kind of both sides of the equation if I could add them one is is on the cost side. So again Mike and and during my boss wants to Jim talked about kind of what made up the 50 million. The fifty million in February was was not for a full month. So if I were to kind of extrapolate the 50 million dead

For February and a monthly run rate.

Okay, and just to clarify was that fifty million or so if I was related expenses excluded in the fifty cents of non-gaap eps know it's included in the $0.50 Adam. If God had an included it our EPS would have been seventy-five cents. Yeah, it would have been a pretty nice quarter. Okay, and then just as a follow-up Mike. Can you maybe update us on cash given the new forecast you have any seal around that you can still five hundred plus million for the year and also Capital allocation given obviously in a very new share price range. I think you previously were going to do 250 G5 actual physical 20 and three hundred fifty million in fiscal 21. Does it make sense to maybe change that William? So the second question first will continue to Monitor and I'll be thoughtful about our Capital allocation policy. Uh y cash is extremely important. The share price is absurdly cheap right now. So we're trying to balance that dead.

A much lesser extent relative to what we experienced in February as we see North America and Europe. We think the potential for North America and Europe is to get a bit worse wage. You see kind of all the social dislocation taking place and whatnot. So what we've done on the cost side is it's a really foggy kind of opaque landscape if you will but kind of like weighted average Blended average basis for the month of March. We're planning on about 10 to 20 million dollars of business disruption, uh, an interruption costs across our footprint. And for April, we think going to be much the same coming back to your specific question if I think about demand in and of itself this gets more difficult, but what I can tell you in terms of how we're budgeting and talking about the business internally in terms of costs and actions. We've haircut demand from March. We're going to haircut demand further for April.

And we'll we'll keep cash in mind. Of course from your first question. I think from a cash down point. We're pretty good. I think we had a great Bank facility transaction on January. We we I think we had a five hundred million City Senior Note 3 billion dollars of of bank credit facilities, and we've converted a lot of our short-term debt into long-term wage, but that so the timing is very opportunistic. It was it was it was lucky as well that it happened. Well before the club in nineteen outbreak started we we've been really good cash flow and free cash flow. Is it going to be in the $500 million range right now as it stands? Yes, probably the four to five hundred million dollar range. It's all about demand Adam right now while we're not seeing huge cuts from our customers that could change at any point in time. I think Mark talked about the social distancing dead.

Will have an impact going forward. We just don't know the magnitude and extent if it has this start understandable. Thank you very much.

Thank you for that question. Today is coming from Paul Casa from JP Morgan. Your line is not live. Hey guys, it's Paul Chun on for Casa. Thanks for taking our questions. So it's just a follow-up on customer demand and you know kind of haircuts your your baking in our those more on kind of faster product Cycle products and are these kind of being pushed out maybe you know a couple of months out or um, you know, if you could confirm if any of these products are being canceled it's too early to tell you know, I just think I think it's really prudent for us to to kind of haircut the business a little bit starting in in March April. So there's no there's not been an exact science to it. And even if we tried to take some type of fine scalpel and figure out, you know, what sector is what business it's impossible. So again,

My commentary was really around.

You know, we can stay absolutely nothing or we can try to kind of bring in to the to the to the heads of the leadership team and my commentary around demand is things are very murky. We are planning for them to soften a bit. And again, we're we're running internal costs and actions accordingly.

Gotcha, and then on on on kind of you know new customer discussions, are you are you seeing more preference for you know America's production or european or you know with intentions is kind of avoiding potential areas more sensitive to to tariffs. Are you seeing any Trend there now more customers motivated to do so, and then how does that kind of impact your operating margins longer-term. We I think we talked either the December car there September called the first half of this year. We are experiencing. I don't know ten to Fifteen million dollars in terms of bringing up additional capacity and places like Vietnam Penang and Mexico. That's still a cold. What I would tell you is, uh, those kind of costs are minimal and very finite in terms of how all this impacts our our our margins. Yep.

Terms of moving business around I don't think it has much of an impact long-term at all because of our Global footprint. So whether customers want to be served in China southeast Asia Mexico north of being us and and then and then you're up. We're in really really good position based on our footprint. I think today our footprint is is is well optimized great and then my last question, so if you could just talk about the the pricing environment, we know that flexes kind of focusing more on on that higher-margin business kind of turn away. Some of the lower margin one is that is that kind of creating a floor on margins for new business? What would kind of be the the alternative to flex besides table for like, you know scale volume. You talk about the Dynamics there and how that kind of benefits you guys. Thanks. Yeah. I don't know, you know if margins good for the industry. So I think if you know if wage

Flexes doing their thing and and I heard some of their comments earlier this week if if they're focused on on raising margins, I think overall that's good for this good faith industry.

Thanks guys.

Thank you for next question is coming from Mark Delaney from Goldman Sachs shorelines now live.

Yes, good morning. And thank you very much for taking the questions. First question was on the component availability topic wasn't sure if you could provide any context relative to some of the past. Disruptions via tariffs or type ledge or tsunami and it just you know, what you're seeing today and is you know some similarities with what you're seeing today versus some of those past example and you on that topic, are there any particular Ed markets or component types that you're most concerned about? Yeah. I think it's it's across the board. What I will tell you is is supply chain was was quite normal december-january. We started getting some fairly strong signals, especially around China and Asian suppliers that they were having a hard time with labor as the package people are coming back from Chinese New Year. We started hitting some real soft spot specific to supply chain late February.

About what's been amazing?

To me is is um between our scale and relationships and and our overall actions and activities with the supply base, uh in in in call it two weeks off, you know, our team has been deployed on the phones and uh, this could have been a very elongated deep divot. If you will we suck again finite in terms of when it'll get completely back to normal. That's TBD. And again, the good news is China is getting back to normal pretty quick survey of suppliers in Europe and North America. I think we I think we still have to go through that cycle a bit. But as I said in the opening of of Q&A, all of our Global factories are are running um near what I characterize normal utilization a few Pockets being off 5 to 10% but our supply chain team is doing a job.

wonderful job

Yeah, is it thanks for the details there Mark and I also wanted to follow up on your your comment about some of the hair cutting of the forecast. And do you think you're getting double orders and into that's why your hair cutting or potential and demand weakness into more just trying to proactively think about potential demand destruction. So just trying to think through how you guys are are managing that and you know, is there any sort of rough quantification about what percentage are cutting these workouts makes yeah, I'll stay away from percentages just because um, I don't even know that they make any sense, you know, we're we're off, you know, I think about I think about the current conditions Mark I think about the virus the associated fears the actions and then maybe in terms of demand I think about it should be appropriately about the possible in actions both by corporations and consumers say over the next three or four or five six months. We just don't know what that's going to be dead.

So but again to to take our demand signals, which today are holding reasonably well and just extrapolate that uh directly with with no haircut. I just don't think that makes any sense and and I'll go back to you know, just this week alone. If you look at what's happened in the US in terms of professional sports concerts group events and whatnot. Some way shape or form that's going to have to have an impact on on small businesses et cetera. So again, I think it's I think it's The Prudent thing to do and let's just hope that you know, this is this is finite and I think it will be temporary. It's just a matter of the definition of finite and temporary. Does this last three months or does it last, you know twelve to eighteen months but

What I do know is is you know, the team we have in place is probably the most experienced in the business the team's resilient proven. We've been through this before in a 708 those of us that have been around a long time around here for the tech wreck. And one thing our company knows how to do is is manage variable costs and customer care and tough times.

Thank you.

Yeah.

Thank you for thanks question is coming from Steven Fox with Fox advisors. Your line is now live. Thanks. Good morning. Thanks for taking my question mark I was wondering if you could share with us your travel policy going forward wage and whether it could affect ramping new programs and then secondly, could you talk about the precautions you're taking to prevent infection inside your plants on a global basis. And then I had a quick follow-up. Sure. Yeah, those are great questions. You know, I I our call today is a bit unique is Adam said and and in terms of structure form and content and I love to talk about the business but I think in times like this in many ways unless is is saying more especially I don't believe in saying a lot of stuff when we just don't have good Clarity but one is your questions are really good lead-in. I always talk on our calls about thanking our people and our number one priority in Adam and Mike both had this is the safety health and well-being of our folks and a special. Thanks to

To to everybody on our team we had you know, even though we we clicked fifty million dollars out of our core results. I got to acknowledge, you know, we had near perfect execution this past quarter wage. And that was that was split between taking just incredible care of our people great care of our customers all while reacting with I don't know how I'd say at speed and purpose to these disruptions is amazing. And um, if I think about um, uh, you know certain certain line items when we talk about speed and purpose page one is out of nowhere when folks were coming back from Chinese New Year our team in China set up quarantine centers, and and in quarantine space that was really wrong, right. We we immediately streamlined testing and protocols partnering with local hospitals. We went through what I would characterize as extreme Santa Santa's ation and disinfection wage.

In our Asian sites, and we're now doing that in our in our us and European sites are our HR team combined with our business partners and our technical folks have set up a a comprehensive education and awareness for all of our employees. Um, our travel restrictions have been I think a very fine balance between keeping our people safe and conducting business in a in a in a very very thoughtful way. We've had uh policies put in place in terms of reducing visits to our factories and then you know again, ugh, what I would characterize is jabil ingenuity, you know, we've we've been produced in our own surgical masks for our folks in Asia and and throughout the world if if needed to get an earlier Q&A questions Steve, I made the mention, you know, I think that really positions as well if things don't get worse in North America and Europe, that's a fantastic job.

if things do get worse in North America and Europe we

Already written The Playbook and again, it's it's it's ready to go and I'll say it again in some odd way as we sit here today. I'm trying is the least of our concerns. So that's kind of what we've been up to them that thanks for that. That's really helpful. And then just as a quick follow-up like you mentioned that credit line that's available. Have you tapped it in the current quarter? And could you just sort of talk about your plans to and whether there be any instructions on accessing that cash if you needed to we're not aware of any restrictions we Tap & Tap Out as required. Obviously, we moved funds around internationally globally renowned countries. So we do move funds around pretty efficiently. So no issues there at all steep.

Thank you. Good luck going forward.

Thank you. And next question is coming from roof about the area from Bank of America. Your line is not live. Hi, good morning everyone, you know as valuations have come in. Can you give us your thoughts on maybe grow inorganically your thoughts on m&a and you know, what are some of the things you look for in targets?

I think we start with we're always we're always in the market shopping that set it up by our our strategic team led by Courtney, So we're we've got our we've got our toes in the water constantly looking at m&a are strong strong preferences is small smaller deals that help us in terms of capability and and the line with our strategy we felt for the last 18 months that price tags on almost everything. We looked at were ridiculous and and therefore we've paired back of our m&a activity, you know, I I would never want prices to come down based on something like Cove in nineteen because of the impact it has on individuals and families and whatnot. And it really does look like it's a pandemic but if I think 19 aside, you know, I think I think what's happened in the last couple of weeks off.

It just felt to us like the market was overbought to begin with independent of of the virus. So if we can see prices get back to normal, I think our activity gym in a world of pickup. I you know, we're not out shopping for a big billion dollar deals, but there is some things we'd like to do in terms of uh, increasing capabilities. I will tell you that assuming we get to the other other side of this this virus, uh, you know stuff still needs to get built. I mentioned earlier our Factory optimization is exceptional. Let's remember that all our factories are are wrapped in a wonderful it Network. That's very unique and then when I think about both organic and Thursday route blue secular Trends in markets like 5G Healthcare Advanced handsets electric transport disruption and Retail machine learning job.

3D additive blah blah blah although demand

Might be software a bit of time though. Secular Trends haven't changed. I think they remain intact and that'll be really good for us. Okay. Thanks for that and Mark that in a sense maybe on the cost side. Can you remind us what are some of the costs that are under your control? And you know, how should we think about sg&a as a percent of sales office forward as you try and control some of these costs and I guess related to that you've talked about rationalizing your Mobility footprint. Can you just update us on on the status of that? Thanks. Okay. That was a little bit. Let me just think my way through that. So let me start with your sg&a question.

I think a hundred percent of the time when most all companies but I'll speak specifically for us when you go through a decade of of tremendous growth. I think you tend to get a little bit fluffy in terms of costs and overhead on a relative basis. We still run this company at at around 4% sg&a, which is which is uh, I think fabulous. I'd like to see that come down a little bit. So we are always watching costs when you have a catalyst like this. I think it it has a long sharp and our pencil the nice thing is is well before Cove in nineteen occurred Mike and I talked about I think it was on the September call about some restructuring for this year off was kind of to continue to shape and optimize our Factory Network. So in some odd way, uh, we're out in front of that already. We'll we'll use this opportunity to to liquid.

Can look at uhm at Apex infrastructure costs a little bit further in terms of headcount. But I feel I feel good about how we're position and I certainly feel really really good about our company's ability to react and act uh in a very kind of agile, uh a swift way. So overall I I feel good about about how we sit today.

Okay, thanks for that. And and then maybe just on the mobility rationalization of your footprint. Is that is that more or less done and and in any areas of this year next year that you want to highlight? I don't really want to get into capex at the moment. We're evaluating that and and Mike address some of that in his prepared remarks in terms of instead of instead of Mobility footprint. I think the way I would address your question if if if if I still May is Mike laid out a pretty good detail on the September call about the restructuring that we have in place that's going to plan. In fact, we're a bit ahead of plan and uh, we'll continue to see that through. Okay. Thanks for all the details and thanks for taking my questions. Appreciate it. Thanks for your poop.

Thank you.

Question today is coming from sharing across from across research your line. Is that live? Thank you very much for taking my question. Can you talk a bit about the strength? You saw in the beginning of the quarter? I realized life has changed since then, but I'm curious about your Cloud business. And if you you know saw some of the continuity of of strength from first quarter come through and second and then I have a follow-up. Thank you God they Shannon I think you know, the crazy thing is is December and January. I think we put this in the press release and I'm remember I know Mike just alluded to it, you know, we got off to a really nice start and and and the interesting part of that is is it was really kind of across-the-board. So our Cloud business is is operating slightly above plan the mobility of our business. The demand is is quite strong. And when I say demand is quite strong, I would take the Liberty to characterize that as jabil's demand and I think there's two components of that. Yep.

Overall in demand is holding pretty well in that market but uh the amazing work our teams done in that area. We continue to pick up some market share, which is also driving our demand and then when I when I look at our jobs outside of the business the the strength to the start of the quarter was kind of peanut butter to cross six or eight different sectors.

Great. Thank you. And then like I do question your I think one point seven times leverage just curious I guess a little bit back to the acquisition but then you know any thoughts of maybe Levering up a little bit give birth and where the stock price is at. I know you guys tend to be pretty conservative, but I'm I'm curious if the recent just location provides somewhat of a opportunity. Thank you. Welcome to New Jersey to Monitor and be thoughtful of that Capital allocation policies that I talked about earlier. We do have a an allocation methodology laid out and we will stick to that and as as opportunities come up will definitely go in and have a look.

Thank you.

Thank you. Next question is coming from that Sharon from Steve hold your line is now live. Yes. Thanks and good morning question regarding your commentary about the inventory home in working capital sounds like that's fairly under control in terms of the component issues that you've been seeing but should we expect to inventory levels to remain, you know, a fairly page here relative to the the progress you saw in in recent quarters, just because you and your customers May tend to be more conservative and want to keep some inventory tag. And yeah, I think as as the Tobin nineteen spreads in other parts of the world and supply-chain constraints, uh continued patience while we will see a little bit of a spike in inventory February was a bit of a perfect storm as well, uh movie we were running at 30% capacity that is highly unlikely in the rest of the world.

the stage now that could change

So there will be a little bit of a spike but not as much as February.

Okay, and and in terms of impact on on your free cash flow and you know, you've had some pretty fairly robust free cash flow targets for the year. I guess along the rest of your guidance that sort of off the table at this point. I wouldn't say it's off the table. We're still targeting that number remember when demand Falls and revenue goes down. I work in capital from a dollar standpoint actually improves. So there's a like nice little DMS Paradox that goes on with that type of business which gives a little bit of a little bit of a natural protection. Okay, great. And then as you look and and Mark you talked about relative strength on the mobility front and back up everybody's been looking forward to the next Generation cycles and product Cycles later this year any change in terms of things you're doing with customers in terms of pilot programs dead.

And and R&D and that sort of thing as you prepare for the end of the year know I'd say that's business as usual.

Okay, okay. Thanks very much, and thanks for all the details. Thanks, Matt.

Thank you. We reach out of our question-and-answer session. I'd like to turn the floor back over to management for any further it closing comments. Thank you for joining us. This now concludes our call got disconnected line at this time, and have a wonderful day. We thank you for your participation today.