Q1 2022 Key Tronic Corp Earnings Call
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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.
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.
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-Q10-K and eight case.
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.
A recorded version of this call will be available on our website.
Today, we released our results for the quarter ended October 2nd 2021.
For the first quarter of fiscal 2022 we reported total revenue of $132 $8 million.
Up 8% from $123 2 million in the same period of fiscal 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 continues to cause factory downtime overtime expense and increased transportation costs, which had an adverse impact on our margin and earnings in.
In the first quarter of fiscal 2022 gross margin was seven 6% and operating margin was one 6% compared to a gross margin of eight 1% and operating margin.
Two 3% for the same period same period of fiscal 2021.
For the first quarter of fiscal 2022, net income was $800000 what point 8 million.
Four seven cents per share compared to $1.7 million or 16 cents per share for the same period of fiscal 2020 one.
Earnings for the first quarter of fiscal 2022 were also impacted by the legal and other professional services expense related to the previously disclosed internal financial reporting investigation of approximately.
Point $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 decreased from the prior quarter.
We are carefully balancing customer new 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 increased 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 in 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 one.
This is largely due to growing customer production requirements and Onboarding new programs.
Nevertheless, we feel it is prudent to preserve cash and expand liquidity where possible.
This late you will recall that 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 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 unexpendable hours 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, SMT equipment, and plastic molding capabilities as well as make efficiency improvements in our facilities to prepare for growth and add capacity.
Despite growing customer and the customer demand and new product program launches, we expected delays in the supply of key components will continue to limit production and adversely impact operating efficiencies.
For the second quarter of fiscal 'twenty 'twenty. Two we currently expect to report revenue of approximately 125 million to $135 million and earnings of approximately three to eight cents per diluted share.
Which includes an estimated three to five cents of legal support expenses from the previously disclosed financial review and 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 minimum minimize the effects of delays attributable to the continued global pandemic increased global freight and logistics club 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.
<unk> 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 continues 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 continued to increase our customer customer demand to unprecedented levels for key tronic.
The overall financial health of the company appears 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.
Okay. Thanks, Brett.
While we continue to face stiff headwinds from worldwide supply chain challenges and the pandemic. We're pleased with our positive momentum moving into fiscal 2022.
We reported 8% year over year growth for the quarter and continued 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 costs transportation costs to triple.
Had it not been for the supply chain issues, we believe burgeoning customer demand would've 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 base 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 test equipment medical diagnostic products and pharmaceutical water treatment.
We would not have won this many programs without the opportunity in your first ramped programs in our U S plants and subsequently transferred 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 at our new Vietnam facility continues to grow doubling its work force from a year ago and generating profits.
We continue to expect big things from our <unk> facility in the future.
As we've discussed on previous calls the pressures on our customer base to lessen their Asian supply concentration remained very powerful.
Demand for North American production continues to grow with no foreseeable end of terrorists 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 over concentration 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 desert 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 enhance have lost engineering controls 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.
Moreover, 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 chain 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 do more fully recognize the significant impacts and elongated supply chain can have on both cost and availability.
The risk of IP appropriation and the attractiveness of doing business with an outsource partner, who can minimize their risks on all of 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 Brent I'll now be pleased to answer your questions.
Thank you.
To ask a question. Please signal by pressing star one on your telephone keypad and if you're on speaker phone. Please make sure. Your mute function is turned off to allow your signal equipment.
I wanted to ask a question and we'll pause for just a moment to allow everyone an opportunity to signal for questions.
Okay.
And we will hear first from Bill does Allen of Teton capital.
Thank you well, let me start with my normal with your three program wins.
What what size are each of those please.
First two are about 10 million in the third is about five.
And.
Would you give some perspective on kind of how these wins came about and as you do that to what degree are they are leaving a Chinese supplier.
To to circle back to the U S versus some other story.
Oh, I'd say, just about everybody who's talking us talking to us today.
Is trying to deleverage themselves on Asia I think are two out of three of these are examples of that.
The 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 up their production people, especially lay off their engineering people.
And now that the time has come.
Come to try and reverse all that they 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.
Set of circumstances.
Survived the issues that are happening today.
And.
The component issues.
At.
<unk> spoken halfway oven frankly, almost every company out there is talking about what are you expecting that you will have.
Am I am.
<unk> 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 your customers demand.
I don't have an answer to that.
I think anybody who tells you they do this is wrong.
We.
Our continually surprised by suppliers that call us up very late in the game and then the day the product was supposed to ship.
And tell us that they've been shorted by one of their suppliers, so they're not going to be able to supply us.
We are seeing a V.
Lead times of up to two years for a new Po for certain.
Ic's.
And.
We see nothing insight that says it's going to end soon and everything I read confirms that view.
Okay.
So.
You just said two years, which is quite.
Quite unusual.
I'm curious, but it's certainly an extension from I think the one year that you had mentioned in the past what proportion of your are your revenues would you say you're constrained by these.
Lead times of one one to two years.
What portion you mean, which I don't know how to answer that question because I'm not sure. What it is or are you asking which of our customers use.
Electrical components that are constrained.
I'm, specifically thinking you did about $130 million of revenues you could have done 160 plus million of revenues.
What proportion or percentage of those revenue numbers are currently constrained not by just components, but by components with lead times.
Of one to two years.
Almost every customer.
Has parts that have lead times, a year out or more.
Some customers are doing a better job of.
Reacting to.
Two 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, a forecasting out their requirements.
And some designs.
Have lent themselves to being quickly respond to take advantage of a component we can find in the marketplace.
As a replacement for one that we can't.
So there's an incredible amount of effort.
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 it just depends how far gone they are on how soon we're going to be able to help them.
That's oh, that's insightful. Thank you.
Let me take care.
Slightly different angle on this same topic.
What level of revenue are you currently buying parts for today.
And and recognizing that that doesn't equate to revenue because you just said that we have one year plus lead times.
That's a.
That's an interesting question to answer because what we've been able to do.
He is convinced a number of our customers that they should sign.
Sign up to covering us.
In the event that the.
The vast majority of the parts that we need for their products are available, but one or two of them are 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 youre going to need them for byproduct.
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.
Hmm.
Hello enough risk to 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 theirs.
Our bets on things that we're working right now that we think are 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're driving that amount of parts to support that amount of revenue I guess is 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 it.
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.
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.
We were actually buying at a higher level previously and that's why we have been.
It's so hard with inventory levels that are above where we want them to be.
So two quarters ago, we were probably by at around 160 billion.
Equivalent revenue worth of parts.
Because we thought we were going to be able to convince our customers too.
A P. P V for parts that we found on the gray market.
We thought that suppliers, we're going to miss their commitments by a reasonable amount, but not an unprecedented about.
But it just continues to get worse, rather than better so we backed off on what we're buying.
And.
I wanted to tie that to something that Brad had said relative to accounts receivable increasing sequentially I thought that was simply due to timing.
Of when business shipped in the quarter.
Does it have anything to do with where.
Customers.
Not being willing to follow up on 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.
Well, Brett said that was due to two reasons. He said one was as you say, but the second one you 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 that paying in time from one end to the other.
As far as the answer to your second part to your question when we asked for commitments from customers to pay for inventory that we cant complete we.
We don't get it with a handshake, we'd get it with a written agreement. So we haven't had anybody really.
<unk> on those agreements, although it does take more than just a email. It says hey, we missed pay up before they write you a check.
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 a 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 how would you reconcile what you were saying here today versus <unk> versus the annual letter.
Annually not seamless quarterly.
Things don't run flat, although you and I've had a number of discussions where you can't believes they don't run flat things don't run flat.
But though.
Did we lose you Bill Hey, Bill Nope I'm here I, just I just made a quip that it was easier to to run things are flat in a spreadsheet.
Yeah.
Yes.
Okay. So that's that's really the difference is is just looking at the full year versus our.
This quarterly fluctuations.
Yeah.
Excellent alright, thank you for the time.
Thanks Bill.
And we'll hear next from Sheldon Grodsky Grodsky associates.
Hi.
Oh, the Moralising hearing what you go through quarter.
Quarter after quarter, but I think you mentioned something today that I haven't heard before.
You mentioned something about.
You said something about some possible regulatory.
Or something like that.
If you can.
Elaborate on what that was.
Somebody at the FCC pissed off or some other regulator.
Oh, we have no comment on that other than what's been in our 10-K's 10-Q's yeah.
Continuing to go through our internal investigation.
Okay.
Thanks.
Or would you say will it ever.
Yes.
Sure.
Yeah.
It seems like it should be over by now.
Oh, that's that's that's a that's unfortunately, a rookie responses this situation as I've been 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.
Even though it didn't have an impact on net income.
This is the case.
Sure.
For raw materials.
I'll, let it go with that.
Thank you I appreciate it because I have strong opinions that I'm struggling to not express.
Uh huh.
Okay.
And we'll go next to George Melas with MK age management.
Hi, Greg Hi, Brad.
Hey, George.
Congrats for running their business.
Alright.
Great Great question, the internal investigation this quarter roughly.
Okay.
It seems to be a little higher next quarter, roughly 100000 or do you think.
Okay.
Yeah, we're expecting over time it will go down there there you know it's unfortunately, we're going to 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.
This media types that that's roughly 400.
Right.
Yes. It is.
Okay great.
And Craig you mentioned labor shortages.
Think that last quarter of last few quarters, though it has had eased somewhat but they seem to be.
I mean.
Yeah.
Yeah.
So is it mostly go away.
What's the nature.
Shortages.
Oh, we're okay in Vietnam, we're okay in China.
But the U S is horrible.
It says if we're in some different country that I don't recognize and Mexico is.
Tight, but not as tight as ive seen it in Mexico before.
Okay.
I mean, I don't know about you, but I've never driven down I 94, and not been able to get off of that exit because I wasn't sure Mcdonald's would be open.
Yeah.
Right right.
Yeah, I mean, yeah, I think there's like 6 million people, who have not quite right.
Do you think workforce.
I see.
We now.
On the inventory is there any way I used to.
Quanta.
How much of the inventory.
Backed by the customer.
And how.
How much is it that where you make bad.
Bring in.
Inventory.
Right.
With you at.
I'm not exactly sure how to ask the quake.
Yeah.
Now and how big do I have a couple of years ago.
George it's it's.
It's our business model and its the contract manufacturing business model industry as a whole.
No 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 business is covered by contracts.
Okay.
So then how much of your business is operated by tightening club, where after a certain period of time.
The customer pays you inventory that's basically in process.
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 horrible nurse in the supply chain instead of a 180 day period that we have to hold it.
The I guess, the new norm is that the amendment to the contract says that day that we would have been building and we cant build that's a day that were allowed to invoice for all the parts that are sitting in our dock.
Okay. Okay.
And how much of that.
So in that case.
Your inventory would shrink.
The cash would go up but you would still hold inventory for the customer, but it would be customer owned inventory.
Correct Yep.
And how much of that already happened.
Oh, what do we got probably.
30, 30, $35 $40 million Yeah Yep.
Wow.
Yeah.
And I can't I can't stress enough that people don't understand what's going on in this world It's unbelievable.
So that 35 to 40 million a work in progress that your customer has actually pay you for.
No that would be four components they have paid us for.
So it's inventory it's not whip.
Yeah.
Okay, all because you only media.
Golf carts.
The product line.
Okay.
Right right.
Start building until we had all the components on hand.
Yeah.
And that's it.
Yes, that's what I did last quarter.
All right.
It has increased substantially over the last year I don't have the exact numbers, but it.
It has grown significantly in the last year.
And I expect it to only grow further.
Okay.
More at risk of that.
Yeah.
You are so vertically integrated.
Right.
So do you have a much bigger ball.
Yes.
Yeah.
I wouldn't say that we're more at risk for it I wouldn't say that.
Our numbers in that respect or any bigger than our competitors.
A number of our customers are served by more than one contract manufacturer and these deals are not unique.
Okay.
Okay great.
On the gross margin.
I think your target is roughly 9%.
Is that.
But if you work your 206 million the undergrad.
<unk> been a target goal.
Yeah that target would we would target wouldn't go up but our performance would certainly exceed the target.
Okay.
Okay.
Thank you.
Yes.
[laughter].
So.
When do you think it could be.
It's a well.
Well to stick with the analogy, it's a moving target George.
Right now what's happening is that the cost of materials is going up so fast that we can't keep up with raising their prices to our customers quick enough.
As you can imagine 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 while 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 theres still arguments and they still take time.
So we're caught in a bit of a squeeze.
Until inflation abate, 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 in a few more parts would move us back to our target easily.
Okay.
Okay great.
So that's something that you.
You haven't had to do really well.
Yes.
Well.
Yes.
With new initiatives.
I've 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.
Yeah.
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 to when they say well, we're not accepting orders and if we do accept the order even though our party standard it will be at a noncancelable nonreturnable.
And if we decide to ship it to you it might be two years from now.
Never seen that.
Okay great.
And I've never seen have you ever seen have you ever see a situation where F 150 pickup trucks are parked in a parking lot wait for an IC.
Yeah, Yeah, no it's mindboggling Yep Yep.
Yeah.
You would see sort of this segment.
Some that are really willing to work with you.
You know.
As a part.
Yes.
Sure.
A more transactional.
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 and $80 million a year in revenue.
And each of these people have a whiteboard in your cubicle and on each of those white boards I draw round circle, when I put a dash 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've 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 in 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 trust.
You have to hang up the phone and talk to the next customer and know that he is their best friend and they can trust them as long as a day is.
So in answer to your question is yes.
There are significant differences in the ways customers have responded to this.
Ones, who have responded the ones who have the turns and their moral labs have been hurt the least.
And the ones that are the ones that are in the twos.
Have suffered the most not out of indicative this but because agility.
Determines how well this goes for you in this kind of a unprecedented situation and agility is hampered by an trustworthiness.
Yeah Yeah.
And.
Is there a way to say.
What proportion of your customers are in the.
Trustworthy category as opposed to not.
The nice the nice part about our businesses that are big customers.
I'm thinking just.
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 what together in one.
Crisis C staved off in.
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.
The majority of the revenue the majority of the revenue falls into these are good guys and you can trust them mode.
Yeah.
Okay. That's good to know.
Okay.
Thank you very much.
Alright, Thanks George.
And we will go to a follow up from Dalton.
So on capital.
Thank you I'd like to jump to Vietnam.
Would you.
I'll elaborate on your comments.
I know that you made that Vietnam has as you know showing nice signs and.
One day will be quite meaningful for you all and just provide some more some more detail behind that please.
We've had a number of.
Thanks.
So why haven't you get enacted.
Yeah.
Well Bill yes.
Are you getting an echo when I speak.
Yes, I am I'm going to put you on mute.
That makes it any difference.
Okay.
Sorry.
Okay desk.
Nope that didnt fixes.
Hum.
Well I'll ignore myself speaking, which is pretty easy to do.
Not went away.
So Vietnam.
Right before Covid hit and 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 and people going to work.
And very few customers are willing to put business into a plant they've never seen.
So that has slowed down.
Vietnam is growth, our Vietnamese plants growth, but even with that massive limiter.
They've managed to grow they've managed to win accounts that have never actually seen inside of their factory.
And they've managed to become profitable.
So we expect that when the limiters to visits and business are.
Overcome by vaccines or whatever is going to do it that.
They should return to a very rapid growth.
And.
Has the has the country reopened or are they still and isn't that a lockdown mode of kind of ive heard kind of conflicting.
Conflicting things.
They change very rapidly I think right now they're kind of open but.
They're very very reactive if they seeds.
Slight concentration or uptick in cases man they shut it right back down again.
And it's based on regions.
Great.
Okay, maybe that explains why I feel like I'm hearing different things. It just changes very quickly so with it now open.
Once again does this does this increase your I guess your confidence or pardon me comfort at having new new business move into that facility and B does it increase prospective customers.
Our interest and desire and putting new new business in that facility.
I don't think the customer's desire or interest as ever diminished.
They haven't been open vague.
Big enough long enough that we've seen people start to.
Scheduled trips there to review the factory.
Okay.
This maybe a silly question, but is that a review something that can be done via video.
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.
Right. Okay. Thank you and then Brad I don't want you to feel left out so relative to SG&A.
It was down versus last quarter by 800000, or so would you talk to us about how have you were able to do that.
Yeah, a couple of things one is we are.
Carefully managing.
New hires during this time that in.
The other is that there was some.
Performance based compensation that was accrued in and.
In the last quarter of last fiscal year.
Alright, well. Thank you both and thank you for all the detail behind that.
The logistics supply chain and all of the craziness out there really do appreciate it.
You bet.
And as a reminder, it is star one if anyone has a question at this time.
One more.
<unk>.
Yes.
And with no other questions in the queue I'll turn the call back to our presenters for any additional or closing comments.
Okay. Thank you again, everyone for participating in today's conference call.
Brett and I look forward to speaking to you again next quarter.
Yeah.
Okay.
This concludes today's call. Thank you for your participation you may now disconnect.
Yeah.
[music].
Okay.
Okay.
[music].