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00:02 Good day and welcome to the Q2 Fiscal 2022 Key Tronic Corporation Conference Call. Today's conference is being recorded. 00:15 At this time, I'd like to turn the conference over to Brett Larsen. Please go ahead, sir..

00:19 Thank you. Good afternoon, everyone. I am Brett Larsen, Chief Financial Officer of Key Tronic. I would 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.

00:38 As always, I would like to remind you that during the course of this call, we might make projections or other forward-looking statements regarding future events or the company's future financial performance. Please remember that such statements are only predictions. Actual events or results may differ materially.

For more information you may review the risk factors outlined in the documents the company has filed with the SEC specifically the latest 10-K, quarterly 10-Qs and 8-Ks. 01:10 Please note that on this call, we will discuss historical financial and other statistical information regarding our business and operations.

Some of this information is included in today's press release and a recorded version of this call will be available on our website. 01:29 Today, we released the results for our quarter ended January 1, 2022.

For the second quarter of fiscal 2022, we reported total revenue of $134.5 million compared to $128.3 million in the same period of fiscal year 2021.

01:49 Revenue for the second quarter of fiscal year 2022 related to customer reimbursements for tooling, equipment and other expenses increased approximately $10 million, when compared to the previous year. For the first six months of fiscal 2022, total revenue was $267.2 million, compared to $251.5 million in the same period of fiscal 2021.

02:20 During the second quarter of fiscal year 2022, the global supply chain, pandemic and transportation issues continue to disrupt production, including intermittent parts supply, factory downtime and over time expenses.

In addition, we had a seasonal closure for two-weeks at the end of December in our Mexico facilities that limited production time available for the quarter. 02:48 Legal costs related specifically to the SEC’s review of last year’s whistleblower complaint totalled approximately $0.7 million during the quarter.

For the second quarter of 2022, our gross margin was 7.3% and operating margin was 1.2%, compared to a gross margin of 8.3% and an operating margin of 2.1% in the same period of fiscal year 2021. 03:16 Note that revenue attributed to customer reimbursements during the second quarter of fiscal year 2022 did not contribute much to our gross margin.

For the second quarter of fiscal year 2022, net income was $0.6 million or $0.05 per share, compared to $1.6 million or $0.14 per share for the same period of fiscal year 2021.

For the first six months of fiscal year 2022, net income was $1.4 million or $0.13 per share, compared to $3.3 million or $0.30 per share for the same period of fiscal year 2021. 04:03 Turning to the balance sheet. We continue to maintain a strong financial position.

As a result of supply chain related production delays in the second 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 demand and the likelihood of successfully bringing in parts in time for planned production.

04:32 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 to be more in line with the expected revenue as efforts to mitigate the impact of supply chain issues begin to yield improvements and new production programs begin to ramp.

04:56 At the end of the second quarter, trade receivables were down about $3 million from the prior quarter, reflecting the timing of shipments and improved collections.

Our DSOs remained about 83-days, same as in the first quarter, which reflects both timing of shipments during the quarter and some delays in payments from customers, who were also impacted by the pandemic-related slowdowns and restarts in their respective markets.

05:25 Overall, our balance sheet has total working capital of $176.4 million and a current ratio of 2:1. This is down from the prior quarter, largely due to growing customer production requirements and on-boarding new programs. Total capital expenditures were about $1 million for the second quarter of fiscal 2022.

We're keeping a careful eye on expenditures during fiscal 2022 and expect our capital expenditures for the full-year will be around $6 million.

06:01 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 demand and new program launches, we expect the delays in the supply of key components will continue to limit production and adversely impact operating efficiencies.

06:32 For the third quarter of fiscal 2022, we expect to report revenue of approximately $130 million to $140 million and earnings of approximately $0.05 to $0.10 per diluted share.

We're working closely with our customers, key suppliers and employees to minimize the effects of delays attributable to the continued global pandemic, increased global freight and logistics costs, and limited availability of key components.

07:06 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 demand and costs, future supply chain disruptions during the rapidly changing COVID-19 environment, and other potential factors could significantly impact operations in coming periods.

07:34 In summary, we continue to see increased demand and new customer wins, improve our total backlog. However, supply chain disruptions and the pandemic continue to impact our business during the second quarter and remain risks in future periods.

However, we are encouraged by our growing backlog and by our prospects for future growth, new sales prospects and recently won programs continue to increase our customer demand to unprecedented levels for Key Tronic.

08:10 The overall financial health of the company appears strong and we believe that we are increasingly well positioned to continue to win new EMS programs and to continue to profitably expand our business over the longer term. 08:26 That's it from me, Craig..

08:27 Okay. Thanks, Brett. While we continue to face the stiff headwinds from worldwide supply chain challenges in the pandemic, we're pleased with the successful ramp of new programs and our expanding customer base in the second quarter of fiscal 2022.

During the second quarter, the industry continues to face persistent worldwide store shortages in the supply of key components, particularly for electronic parts. 08:53 These shortages have extended production timing and cause transportation cost to triple.

Had it not been for the supply chain issues, we believe burgeoning customer demand would have driven revenue for the second 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 industry-wide labor shortages. 09:29 In the face of all these challenges, we continued winning new customers and ramping new programs.

During the second quarter, we won new programs involving industrial robots, lighting control, disinfection, food production and energy management systems.

We also announced a significant new program win with one of the world's leading power equipment companies, for which we expect to begin manufacturing in the first quarter of fiscal year 2023 and once fully ramped could contribute approximately $80 million in annual revenue.

10:02 We were selected in large part, because of our design and manufacturing expertise to help them accelerate, introduction of new products, as well as to enhance their ability to increased product availability to fulfil demand. This new relationship represents an important expansion of our customer base.

10:25 We would not have won this many new programs without our design capabilities and our multi-region footprint, which is designed to be the ideal solution to our customer supply chain issues. During the second quarter of fiscal 2022, we saw a significant increase in production across our U.S.-based facilities.

In fact, over the last three quarters, our Midwestern facilities have one business, which we expect will result in an increase of over 35% in annual revenue generated by those facilities by this time next year. 10:57 Moreover, production at our new Vietnam facility continues to grow and we expect big savings from our Da Nang facility in the future.

As we've discussed on previous calls, the pressures on our customer base to lessen their Asian supply concentration remain very powerful.

Demand for North American production continues to grow with no foreseeable end of tariffs, intensifying political tensions between China and U.S., increasing Asian production costs and time to market and a weakening U.S. dollar. These factors have driven a significant increase in our business.

11:34 Key Tronic has emerged as the ideal answer to overconcentration of Asian supply and for onshore into North America, particularly for those companies with programs in the range of $5 million to $100 million. We provide everything needed to make supply chain diversification easy, less risky and less costly.

Our solution set provides companies with both local sources for low-volume products and low cost sources close to the geographic markets for higher-volume products. We also attract the companies that have been overly concentrated with an Asian source, and hence have more likely to have lost engineering control.

12:18 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 the capability. Our vertical integration can lessen the risk, time and cost involved in a transfer.

Moreover, after a decade of developing custom processes for a staggering array of products we can on board, just about any product imaginable. 12:48 Moving into the third quarter of fiscal 2022 significant uncertainty still surrounds the continuing disruptions to global supply chains for key components and the threat of the pandemic.

At the same time, we believe that these challenges will continue to force our customers to weigh carefully the degree, to which they concentrate their supply chain on any one region and see their design control to their outsource partner.

13:16 The recent macroeconomic events continue to force many companies to more fully recognize the significant impacts an elongated supply chain can have on both cost and availability, the risk of IP appropriation and the attractiveness of doing business with an outsourced partner who can minimize their risk and all of these factors.

These market trends and our capabilities should continue to power our growth over the long-term. 13:43 This concludes the formal portion of our presentation. Brett and I will now be pleased to answer your questions..

13:52 Thank you. [Operator Instructions] And our first question today comes from Bill Dezellem with Tieton Capital..

14:25 Hi. Thank you. So in the release, you noted the six new program wins, one of which was $80 million annual revenue, congratulations.

The other five, how would you characterize the size of those please?.

14:44 From $5 million to $15 million per year..

14:48 For all five of those..

14:51 Yeah..

14:53 Great. Thank you.

And then, would you characterize the supply chain situation in more detail than you did in your opening remarks, and maybe how it changed over the last quarter where you're at today? And I'd love to ask kind of when you see this returning to normal, but maybe just what you see coming maybe just the more appropriate question?.

15:23 Okay. There’s two sides to that question, and I want to be clear on that because it has important effects on our outcome. Beside that many people don't think about at least for our business is our customer’s understanding the situation. In the last year to a year and a half, we've gone from denial and anger.

It's almost like the five steps of morning, I guess, but we've gone from denial and anger to acceptance to a willingness to plan and deal with the situation that we face today.

So our customers as an average now are willing to give us much longer binding forecasts against, which we purchase components are willing to much more quickly agree to increases, I mean, short-term increases in component cost whenever we find some component on the gray market used to be probably two-thirds of that time that mining that we had done would go unfulfilled, because it took our customers a long time to decide if they wanted to spend an extra 5 times to the normal price of the component to get that component in, so that's going quite a bit better for us now.

17:04 So that's kind of the one side of the teeter-totter is how the customers are reacting and dealing with the component shortages. Then, actually there is another side of it. So it's a three-way teeter-totter that is how the customers are dealing with ongoing price increases.

We have been more successful in passing along price increases that are fair, but at the beginning of this, it was very hard to convince our customers they were fair. Now that this has become common knowledge and accepted, people have seen the inflation numbers, people are themselves having our time hiring staff and keeping it.

So that side of the equation too has gotten better not, because the situation has improved but because our customers understand and accept the situation more than they used to. 18:07 On the other side of the equation, the component availability, I'd say has stabilized, they had stabilized in a great place, excuse me, but it has stabilized.

So lead times are still and year to year and a half, they haven't continued to balloon like they were doing, and there are less although still quite a few surprises on a day-to-day basis when somebody causes and says, hey that shipment that was supposed to leave today, isn't going to leave for six months.

So I wouldn't say on the supply chain side, things have gotten better. But I'd say that they've stopped getting worse. 18:57 And as far as when I think this is going to turnaround. I don't really know, our politicians continue to do crazy stuff.

I think the most -- I don't know when it really gets under my skin is making all of the ships in LA Harbour go out and steam around the ocean, so they can improve the way it looks from the air, but there is just a number of examples where I am not sure what's going to happen because I can't see the logic behind it, a lot of what's going on.

19:29 So that's my answer Bill..

19:32 Thank you, Craig.

Do you see in the next, let's say three months between now and when we talk next that this is going to continue in this stabilized mode or do you feel like we are at a, a bit of a transition where we could see a modest improvement begin in the next three months?.

20:04 I think, you have to be optimistic to say it's not going to get any worse and is going to be stable for a while. I certainly wouldn't predict that it's going to get better in the next three months..

20:23 And your guidance with -- we're seeing revenues increase from the $135 to the -- to -- gosh, let me make sure I get your guidance here correctly the $130 to the $140, but the $135 or $134, you did this quarter did include some customer reimbursements, so that uptick that you're seeing is that coming about, because of components that were ordered many months ago and now is coming together? Or is this a function of products being built that don't have the same lead times?.

21:09 It is more of the combination of the three sided teeter-totter, which I’d started with that analogy, but I'm stuck with it. Where we're at for this quarter is for the first time since all this began the numbers we're projecting are all pretty much cleared in terms of parts showing up for plan.

The last probably four or five quarters, we were trying to get parts and firm. We believe we're going to get confirmed and we didn't get them confirmed. Whereas right now, we're able to look out probably two quarters and see that if we miss our numbers, it will be only because we got a surprise phone call.

Whereas in previous quarters, it could have been -- we got a surprise phone call or an anticipated confirmation did not come through.

So has that cleared you the difference?.

22:17 It is. So if I'm hearing this right, your guidance is more conservative this quarter, because you have been given, I’ll call them promises that the components will be there.

And the only reason you would miss the revenues is if those promises don't come through, whereas in prior quarters you had made some assumptions sometimes your assumptions were accurate, but if they weren't then that was a revenue risk?.

22:49 Yeah. I don't know if I'd call it more conservative because we're trying to run the same path that every time we give you a number, but the situation has changed, as I said previously, so maybe it's -- maybe there is less variability.

The standard deviation is probably decreased a little bit, even though we're still in the confidence or I don't know, whatever so that’s why I tried to give you a volume explanation because I don't fit it, I don't think just saying more or less, conservative is the right word, but anyway. That’s the situation..

23:26 No I think, I am understanding. Thank you. Let me switch, if I may to the U.S. facilities and you mentioned that they had a good sales increase.

How much were their sales up in this quarter versus the year ago fiscal Q2?.

23:49 Not much they've been pretty flat for a long time, probably three years..

23:55 And so this increase that you are anticipating and the business that they are winning, that's a meaningful change in what's happening with those facilities?.

24:09 Definitely..

24:10 Hey, I'll ask one more question and then get back in line. So what in your mind has changed leading to the -- what I think 35% or so anticipated revenue growth with the U.S.

facilities?.

24:34 Everything that we've talked about has come to fruition. So we took a year and half for people to decide that this Asian supply chain risk wasn't going to go away. It took people -- the first year, the Biden Administration realize that the Asian political situation was not an administration specific issue.

It was more an awakening of the economic uncertainties that are operating now. And it just takes time for people once they've made the realization to survey, the market, figure out that Key Tronic is standing there with open arms saying, yeah, we figured this was coming. Welcome aboard.

And then once they realize that it takes another couple of months for quoting and site tours and all that. So this is pretty much exactly what we hoped and thought would happened.

The real question we're asking ourselves is, does it continue at this pace or did we pick off a spike of people who are the most desperate to find an answer and it will go back to a more steady rate of growth. I think it's going to continue, but I'm biased..

26:10 No, that's helpful. We appreciate your perspective. I'll get back in line..

26:14 Okay..

26:18 [Operator Instructions] And our next question will come from Bill Dezellem with Tieton Capital..

26:36 All right. I guess I got in the back of a line of zero. So let me continue down the path, if we could, in a normal environment, assuming that one day, we do return to that and you have $130 million of revenues.

Would you agree with this math that essentially your SG&A and R&D would be similar, except you would not be paying $700,000 to Lauriers for the inventory SEC thing.

And you would have roughly 9% gross margins and otherwise and 25% tax rate and that would ultimately lead you to something like $0.23 a share has a pinpoint number, but let's just call it $0.20 to $0.25 a share of earnings in a quarter or working up between $0.80 and $1 per share for the full-year at the $130 level, is that occur essentially a correct assessment of the business model or am I missing some important swing factors?.

27:52 I'd say, you've got that pretty well, first out, the -- it's not something that you can say is going to happen for sure, because at 7% inflation, that means we have to be successful in passing all that through to our customers. If you continue to see McDonald's closed down, because they can't hire people.

We're not going to be able to get enough people to do it. So if you assume all that away and say we're back to normal, then your model is correct..

28:25 All right. I recognize there is some what used to be easy assumptions and they seem a little more lofty these days.

Let me take this one step further, I think, Brett, you had commented that you're at unprecedented demand and you were at greater than a $160 million of demand which would be meaningfully above the $130 million that I just used with my simple math, is it a correct assessment that there are some economies of scale, meaning that the business model, again assuming away all of those factors that are difficult at the moment to assume away, but that you would then have some leverage in the business model on the SG&A and R&D side and frankly, maybe even the gross margin side?.

29:26 I'd say that probably, maybe, but I'd also say that you don't even need to assume any of that to come up with profit numbers that are pretty startling. If you can get to $160 million a year -- I mean, a quarter in revenue..

29:44 Understood. No, I’m totally in alignment.

So I'll take the bait and ask what is it going to take to reach that $160 quarterly revenue run rate? Do we just need to wait for some time to pass because you've already ordered parts of these -- at these levels, and so it's just simply a matter of time or are there other factors that need to be taken into account?.

30:10 Remember, it's not just parts, its people. Yes, you can order people ahead of time. So that's the big issue is, what's going to happen with the labor supply in the States and in Mexico, as well as the componentry..

30:38 All right. Thanks for the reminder. It’s easy for me to be myopic on the one issue.

Let me -- anything else that you would like to add to that?.

30:50 No..

30:54 All right. Well, we will anxiously await you ordering the parts and finding the people to generate that $160 million of quarterly revenue..

31:05 Not quite as anxiously as I will be, but -- we will be in this together..

31:09 All right, I understand. Let's switch to Vietnam, if we could please. How are -- I haven't paid attention to Vietnam and their COVID lockdowns. I know they’re in the past had been pretty strict.

What's the update there and how are your existing and separately, your new customers or new prospective customers viewing moving product into the Vietnamese facility?.

31:44 Okay. I'm going to answer a question that you should ask too along with this. The Vietnam situation is still tightly locked down even though, they are have opened up the actual paperwork and testing and everything required to get in there is still really, really hard to get passed.

So it's going to be I think another quarter or so, depending on what happens with the next strain of COVID before we can actually start to unlock all of the potential of Vietnam. The programs that are they're running great.

We have won a couple of programs with our customers actually giving us business there without ever actually seeing the site other than on video tours. So we continue to believe that Vietnam has a really good future it's just so we can get people in there yet to add new business.

31:44 The question you didn't ask is the future of our Shanghai operation, which is also pretty encouraging. We have never really been able to crack the code of China business built in our Shanghai plant to stay in China. And over the last year, we've won a number of new pieces of business.

One of them, we announced in this six -- this quarter that are going to be built in Shanghai and shipped to a Chinese factory and we're one the business development was performed by people in our Shanghai facility.

So that's one of us about four new business wins there over the last three quarters that are hugely encouraging to us for the future of the Shanghai plant too..

33:55 Craig, what has changed to lead to that, because I have had historically been under the assumption that China was producing for somewhere else in the world.

Not, producing for China or I should say you're Shanghai facility?.

34:14 Yeah. That's been the case and we've had to make quite a few operational and procedural strategic structural changes to the way we run Shanghai to make it a viable competitor for Chinese business.

There are a lot of unique requirements for the Chinese market that you can’t fulfill from the states so we've made those changes took risk and it turned out to be successful..

34:56 Congratulations. Let me let me switch to a different angle on that I haven't thought of before, so apologies for this question maybe not being well thought out, but given the amount of business that we hear about moving away from China that seems as though it would lead to excess or at least additional capacity being available in China.

With that in mind, why have you won four different program wins with my theorized additional available capacity probably by Chinese firms?.

35:45 Well, I don't want to be flip, so I'll just say, it's a very good facility. We've been running it for over 20 years. It's backed by the design team here at corporate, so there are some attributes that our Shanghai facility has that are not all that common on the competition in the competitive landscape in China..

36:13 That's helpful.

And so is -- are these four wins for Chinese companies selling in China or are they for companies outside of China that want to build in China to sell in China?.

36:31 Both..

36:36 Excellent. I'm going to ask another question since the line didn't seem to be very long sorry, the queue, and you are welcome to kick me off if you would like here at any point.

The customer reimbursements that you referenced, I think this is the first time that we've seen that called out in one of your press releases, would you discuss kind of what the dynamics there are and what's different now?.

37:06 Well that's completely a result of new business wins that then require custom tooling to be made, designs to be completed and customer equipment to be purchased and all of that is reimbursed for us by our customers. So that's why there is not much profit on it, but it's a Harbinger of production to come..

37:40 So we should view this as a very favorable indicator of the future..

37:49 Of the long-term future, yeah, because these programs, they're big. So the $80 million one won't start production until late summer, but tooling is already being purchased and equipment is already being purchased that will be used in the ramp of that program at the end of the summer.

And that's not the only program that was in that bucket of reimburse tooling equipment..

38:23 And is it fair to say that any customer who is going to spend money on tooling ends up being pretty serious and I mean they're moving forward.

And I'm really trying to contrast this to, I think what’s pretty well known in the industry is as more program wins then actual new business that ramps somehow or just ends up disappearing?.

38:57 Well, for sure, if somebody plugs down $5 million for tooling, it means that they have every intention of using that $5 million of tooling..

39:09 Right. All right, stating the obvious, I guess. Thanks for being polite about that. Let me shift, if I could to the customer $80 million and there --.

39:27 Before you before you do that, there is, kind of, a foster child case that's going on that as another chunk of change in that, it’s actually $20 million of customer reimbursements last quarter in total.

And this is a customer who had for years purchased their product out of China and actually it had little to no manufacturing and engineering expertise. So that program will take us probably two years to move into our facility in Juarez. In that case the customer is actually backstabbed us for a lease on another 100,000 plus square feet.

We’ll be purchasing close to $10 million worth of specialized equipment to build that product and we'll spend a year learning with us how to build their product since they -- the people who knew how to build it have kind of drifted off as their production was more and more in China.

40:49 And this is kind of a foster child for a number of opportunities that we're in the midst of hopefully finalizing of companies like that. Who are in essence branding and ideation companies that need a partner to replace what has become too risky with their supply chains spread out across the world.

So that's why I say, it's a long-term upside when you see a big investment happening with us. It could be a two-year lag between the time they spend $10 million. At the time, we start cranking our product..

41:34 That's really helpful. Thank you. So, you mentioned you're hoping, this is one of the first and this sounds -- it sounds quite large, like you say if you're plugging down $10 million that's, you know, small number.

Are the additional opportunities that you were pursuing of the same size or is that one unusually large?.

42:06 I would say they tend towards that size..

42:11 To an essence, the ones that are, it's important enough to them to buy equipment on behalf of their contract manufacturer. Those are the customers that tend to be larger. And I would -- it sounds where it seems like they would also be stickier once they ramp..

42:38 Yeah.

They are for sure stickier and there are also, what's the right word -- it's very clear to them that what we've built here in the company starts to become their only answer, when they're looking for somebody who's interested in and $80 million project, somebody who has experience learning how to build everything from toilet bowl cleaners to slot machines, somebody who has a decade and a half of pulling projects out of Asia and moving them into the states, somebody who has a design team that can work with their ideation group to bring their designs into production.

Somebody who has experience in working with the Asian soon to be ex-source in re-gathering the data and expertise required to make the product. When you start checking off all those boxes and looking across the competitive landscape, you come up with Key Tronic and that's about it..

43:50 And so if that's the case as opposed to just a supplier, you become more of a partner.

Is that a fair speculation?.

44:03 You bet..

44:06 We look forward to seeing that develop and maybe that's a good segue to the $80 million win that you announced with the power equipment company this quarter.

Would you walk us through and how has that developed and why you were the one who is ultimately chosen?.

44:30 So it's -- that's a good foster child that company originally hired a consultant for try to help them find somebody because they were not having any like finding it on their own. They needed design skills in both metals and plastics.

They needed tooling, acquisition and design and try out skills, immediate commodity specialists that could deal in the world of metals and plastics and other things that I'm not going to mention, because it will give it away.

And by the time, I mean, it took a year for us and them to get to know each other well enough that we could lay out a winning proposition both for them and their end customer. So that will be a sticky program because there's, it's going to be rough to find somebody else like us to do that in the future..

45:48 And you said this one is going to begin in the summer..

45:54 Late summer..

45:59 Late in fiscal Q1..

46:01 Yeah..

46:03 And how would as you currently envision the ramp to take place.

How do you go? What's the slope of going from starting late Q1 to one year at a full $20 million per quarter run rate?.

46:22 Again god is punishing us by answering our prayers. So it's a steep ramp..

46:33 Since I just sit behind a desk and don't actually do any real work, there is a steep ramp mean that by the December quarter, you're at $20 million or is a steep ramp over the course of the year..

46:48 No, a steep ramp is over a quarter..

46:52 So literally is September quarter you could start the -- start producing albeit at a $20 million revenues from that customer in the December quarter..

47:05 So we're hoping..

47:08 Excellent. Well, I think I will leave it there, because that takes us pretty darn close to that 160 million that we talked about earlier. Thanks for taking all my questions..

47:19 You bet. Thanks, Bill..

47:23 And our next question comes come from George Melas with MKH Management..

47:30 Hey, guys..

47:33 Hey, George..

47:37 And thank you, Bill also for your great questions. It’s always pleasure to listen too. Just a quick question on CapEx. CapEx was relatively low this quarter and I think that you said you guys Brett, I think you said you expected to be $6 million this fiscal year, which I think it's a slight tick down from the previous forecast.

And on this strong revenue and revenue growth, it seems, CapEx is coming down.

So it's something is working right there? Can you sort of explain that?.

48:12 Yeah. I think we've mentioned previously, George, that we've got capacity and we're also as Craig mentioned being reimbursed for program specific equipment. So the combination of those two things, we're monitoring it closely, but our intent is to have less CapEx this year and see some revenue growth..

48:42 Okay. And you expect that to continue in fiscal ’23, was it too early..

48:49 That's too far, George, I mean typically we're spending $8 million to $10 million per fiscal year in CapEx. My expectation is that it would return to something close to that in the next fiscal year..

49:06 Okay. And then just to understand the reinvestment, reinvestment this quarter [Technical Difficulty] what have they been in the past few quarters, in the last three or four quarters..

49:29 Not that high. That was one of the reasons why we disclosed. The year-over-year change is that this quarter in particular was significantly higher than even some of the sequential quarters that we've just gone through..

49:47 Is it right that it was roughly $20 million and it's roughly $10 million higher than a year ago..

49:55 No. Let me -- it's roughly, it is $10 million higher than it was a year ago. In any one particular quarter will have $5 million to $10 million..

50:13 Okay.

Can you say just how much it was this quarter, just so we can understand that?.

50:19 Just over 15..

50:22 Okay.

So if we sort of normalize for that, it means that they were, we can see sort of the production delays and issues with being able to produce as we act that out?.

50:45 Yes..

50:46 Okay. That’s it from me. Thank you, guys..

50:51 Thanks, George..

50:53 Thank you. Our next question comes from Sheldon Grodsky with Grodsky and Associates..

51:00 Good afternoon, everybody. I have a few questions, but there'll be quickies.

When do you expect your legal expenses to disappear? If they have a will regarding the inventory issue?.

51:14 We have no comment on that..

51:19 Okay. Great. Okay.

I noticed that your average shares outstanding went down for the quarter, is that just because the stock price went down or did you buyback any shares?.

51:28 We did not buy back any shares..

51:32 Okay.

There was a big jump in inventories, I guess, partly because we're able to get something, but are you holding any inventory at this point?.

51:46 No, no, you want to buy. So we are not holding. This is all a result of being able to get all but one part and then we can build the product and all the rest of those parts sit there unused..

52:03 So there is a bad reason for having that, okay.

And one more question, when you're customer reimburses you for the equipment, is it going to be his equipment or equipment? When the project is done?.

52:19 It will be his equipment when the project is done. But historically, by the time the project is done, the equipment is all used up anyway..

52:29 Okay. That will be it for me. I just have a few quick issue..

52:31 Okay. Thank you..

52:33 Thank you..

52:35 Thank you. And that does conclude the question-and-answer session. I'll now turn the conference back over to you..

52:42 Okay. Thanks again, everybody for participating in today's call. Brett and I look forward to talking to you again next quarter. Bye-bye..

52:51 Well, thank you. And that does conclude today's conference. We do thank you for your participation. Have an excellent day..