Kimball Electronics, Inc. (KE) Q2 2022 Earnings Report, Transcript and Summary

00:03 Good morning, ladies and gentlemen. Welcome to Kimball Electronics Second Quarter Fiscal 2022 Earnings Conference Call. My name is Victoria and I will be your facilitator for today’s call. [Operator Instructions] Today’s call, February 8, 2022 is being recorded. A replay of the call will be available on the Investor Relations page of the Kimball Electronics website. 00:40 At this time, I would like to turn the call over to Andy Regrut, Head of Investor Relations. Mr. Regrut, you may begin.

00:48 Thank you, Victoria and good morning everyone. Welcome to our second quarter conference call. With me here today is Don Charron, our Chairman and CEO; and Jana Croom, Vice President, Chief Financial Officer. We issued a press release yesterday afternoon with our results for the second quarter of fiscal 2022. To accompany today’s call, a presentation has been posted to the Investor Relations page on our company website. 01:14 Before we get started, I’d like to remind you that we will be making forward-looking statements that involve risks and uncertainties and are subject to our safe harbor provisions as stated in our press release and SEC filings and that actual results can differ materially from forward-looking statements. 01:29 All commentary today is focused on adjusted non-GAAP results. Reconciliations of GAAP to non-GAAP amounts are available in our press release. This morning, Don will start the call with a few opening comments. Jana will review the financial results for the quarter and guidance for fiscal 2022, and Don will complete our prepared remarks before taking your questions. 01:51 I’ll now turn the call over to Don.

01:54 Thanks, Andy and good morning everyone. Q2 was another hard fought quarter for our company as global supply chain issues stemming from the COVID-19 pandemic persisted and adversely impacted our results. Component shortages continue to make it extremely challenging to obtain the materials needed to support customer demand. 02:16 While conditions improved modestly in December with sales accelerating, the lost absorption was significant once again this quarter as we remain committed to retaining our highly skilled workforce in anticipation of a strong second half to the fiscal year. 02:33 We continue to be well-positioned with record levels of backlog and we are reiterating our sales guidance for fiscal year 2022, although we expect to finish the year at the lower end of the range. We are revising our operating income margin guidance to reflect the difficult first half and our outlook for the balance of the fiscal year. 02:53 Our manufacturing facilities worldwide have been ramping up production with the expectation of running several lines at maximum capacity in the months and quarters to come. In many instances, we are the single source supplier for our customers so they share our eagerness for conditions to normalize so that we can both deliver on our contractual agreements. 03:17 We believe transparency builds trust and I'm proud to report our teams have faced these unprecedented times head on with customer collaboration at levels even higher than our award winning norm. 03:30 The partnerships we formed through this collaboration often lead to new opportunities. And I'm excited to announce our plans to expand the facility imposed in Poland. This is our third facility expansion in the last 15 months and is representative of our high level of success in winning new business. 03:49 Similar to Thailand and Mexico, the additional capacity is needed for programs with new and existing customers. We expect the expansion in Poznan to add approximately 40% to existing production square footage, and will leverage our team in Poland to support our customers based in Europe when the expansion is complete in early fiscal year 2024. 04:14 We are updating our guidance for capital expenditures in fiscal year 2022, which will include early investments in Poznan and additional capital related to a major win with a longstanding customer whose next generation electronic braking systems will support one of the most popular vehicles in the world. This investment is incremental to the current facility expansion in Reynosa and similar to Poland reflects the success we're experiencing in new business development activities. 04:43 With the expansions in Thailand, Mexico, and Poland, we will expand our square foot each in capabilities to support growth potential in excess of 2 billion of annual revenue. This is critical as we look at the strength of our funnel and newly awarded programs. 05:01 While we are disappointed in the first half, an outcome driven by the material shortages and the resulting lower forecast for operating income in fiscal year 2022, we fully anticipate returning to an annual run rate for operating income levels in a range of 4.5% to 5% of net sales as the supply chain normalizes. 05:24 In fact, we expect our second half to ramp up significantly throughout the period with a very strong finish to the fiscal year and operating income above that range as we work down the backlog of orders. 05:38 Turning back to the results for the second quarter, net sales were down 2% versus Q2 of last year. And while three of four vertical markets reported increases year-over-year, it was not enough to offset automotive, which was down 8% in the quarter when compared to the record sales level of Q2 last year. This represents the first quarterly decline in automotive in over a year, with the shortage of semiconductors largely responsible for the shortfall. 06:08 The impact of the pandemic on this industry has been well publicized with an estimated 7 million vehicles worldwide cut from production in calendar year 2021. While consumer demand exceeded the results they result in limited supply. OEMs are forecasting double-digit growth as the industry looks to recover and consumers are becoming increasingly more accustom to longer lead times and [higher sticker] [ph] prices. 06:39 These new industry dynamics combined with the megatrend to add electronic content to vehicles through advanced technologies and expanded operating systems, represent a meaningful organic growth opportunity for the automotive vertical market in the years to come. 06:55 As a reminder, many of the new applications that we support are largely the same for both electric and internal combustion engines and the stringent production standards in the automotive industry aligned very well with our core manufacturing competencies. 07:11 Sales in the medical vertical market increased 3% in Q2, a welcomed rebound to a business that has experienced ebbs and flows throughout the pandemic. The increase this quarter was driven by the launch and ramp up of new products. 07:25 Longer-term, we remain very positive on the growth opportunities in our medical business with megatrends in the healthcare industry, providing an excellent setup. This includes an aging population, increasing access and affordability to care, decreasing device sizes and connected drug delivery systems. 07:46 Additionally, our focus on medical markets as demonstrated by the launch of Kimball Medical Solutions should continue to drive growth in the medical vertical supporting our goal of 30% of our revenue coming from this space. 08:02 The industrial vertical market also finished the second quarter with sales increasing, up 6% similar to medical, we're glad to see industrial show some early signs of bouncing back from today's challenging operating environment. This is an encouraging step toward returning to growth in this business, which we commonly refer to as green & clean. 08:21 Climate control, smart metering, and new customer additions drove the increase in Q2 and represent the longer-term growth opportunities. As individual awareness of consumption and ultimately conservation of water, gas, and electricity increases in popularity in Europe and eventually the U.S. 08:43 And finally, sales and public safety were 10.8 million, a 3% increase compared to the second quarter of last year. So, in summary, a challenging quarter with very good work from our team in tough conditions. We are seeing signs of improvement as evidenced by the higher level of sales in Q2, compared to Q1, an 8% increase with December being the best month. 09:07 I'll now turn the call over to Jana to discuss Q2 results in more detail. She will also review our updated guidance for fiscal year 2022. Jana?

09:18 Thanks, Don, and good morning, everyone. Net sales in the second quarter were $315.3 million, a 2% decrease compared to $320.6 million in Q2 last year. Foreign exchange rates had a negligible impact on sales in the quarter. Our gross margin rate in Q2 was 6.6%, a 270 basis point decrease from the second quarter of last year. 09:50 Similar to Q1, the decline was driven by lower year-over-year volumes and the resulting loss absorption that Don mentioned in his opening comments. Higher material costs, increased freight, and higher wage inflation and other labor costs. This was partially offset by lower profit sharing bonus expense and lower depreciation rebuilding from a change in the estimated useful lives on surface mountain technology production equipment. 10:21 Adjusted selling and administrative expense were $315.5 million or 4.3% of net sales in the second quarter. This compares to adjusted selling and administrative expense in the second quarter of last year of $12.7 million or 4% of net sales. The increase was primarily due to non-recurring charges of roughly $1 million related to executive succession planning. 10:52 Adjusted operating income for the second quarter was $7.3 million or 2.3% of net sales. This compares to operating income of $17 million or 5.3% of net sales in the second quarter of fiscal 2021. With the decrease resulting from lower sales volume and the corresponding loss absorption. 11:17 Other income and expense was expense of $0.2 million in second quarter, which compares to income of $2.4 million in Q2 of fiscal 2021. This change was mainly due to the impact of FX gain loss due to foreign currency remeasurements. The effective tax rate in Q2 was 23.7%, compared to an effective tax rate of 19% in the second quarter of fiscal 2021. 11:49 The increase resulting from favorable mix of earnings last year in jurisdictions was tax rates lower than the U.S. Adjusted net income in the second quarter of fiscal 2022 was $5.1 million or $0.20 per diluted share, compared to adjusted net income in Q2 last year of $15.2 million or $0.60 per diluted share. 12:16 Now, turning to the balance sheet. Cash and cash equivalents at December 31, 2021 were $56.7 million and cash flow used for operating activities during Q2 was $48.3 million. Cash conversion days for the quarter were 81 days, up from 75 days in second quarter last year. 12:43 Inventory has increased over $40 million in the quarter and over $100 million year to date. This increase is a result of purchasing materials that are needed and available today so that we can quickly fill customer orders when parts impacted by the component shortage are received. 13:03 There is a notable correlation between this inventory build and the absorption rate, which adversely impacted our OI margin for the quarter. When the part shortage abates and we work down the backlog of open orders we will likely see inventory levels normalize. 13:20 Capital expenditures in the second quarter were $15.1 million, largely in support of our facility expansions in Thailand and Mexico, and to support new business awards. Borrowings on our credit facility at December 31, 2021 were $103 million, compared to $86.1 million at December 31, 2020 and $72.6 million at September 30, 2021. 13:53 Our short-term liquidity available represented its cash and cash equivalents plus the unused amount of our credit facility totaled $119.5 million at December 31, 2021. There were no shares repurchased in the second quarter of fiscal year 2022. However, as we look at our balance sheet and current capital allocation opportunities, we believe share repurchase continues to be an effective use of our capital, especially given the recent share price. 14:27 Since October 2015 under our board authorized share repurchase program, a total of $79.7 million was returned to our share owners by purchasing 5.3 million shares of our common stock. We have $20.3 million remaining on the repurchase program available for deployment. 14:50 As Don highlighted, we are reiterating our sales guidance for fiscal year 2022, although we currently expect to finish the year at the lower end of our range of $1.4 billion to $1.5 billion. Operating income margin is expected to be 3.75% to 4.25% of net sales. This compares to our original guidance of 4.5% to 5% of net sales. 15:20 As Don stated earlier, longer-term, we expect 4.5% to 5% OI margins. We are also updating our guidance for capital expenditures for fiscal year 2022 to a range of $70 million to $80 million, compared to our original guidance of $60 million to $70 million. This update includes the facility expansions in Thailand and Mexico and early investment in Poland, as well as the additional investment to support the new product wins, which we referenced earlier. 15:54 I'll now turn the call back over to Don.

15:58 Thanks, Jana. Before we open the line for questions, I'd like to share a few thoughts in closing. The first half of fiscal year 2022 was not for the faint of heart, with the ongoing pandemic, global supply chain issues, park shortages, and rising costs, creating an operating environment unlike any other in my career. But as I highlighted in my opening comments, our team has confronted these tough conditions head on, and we are forecasting a strong second half of the fiscal year. 16:30 With our backlog of open orders at record levels, up approximately 78% year-over-year. We expect the strength to continue into fiscal year 2023 as the parts shortage continues to improve. 16:46 During these unprecedented times, we've also been very successful in winning new business, which contributed to today's announcement of the facility expansion in Poland. We expect these investments will strengthen and add new capabilities to our package of value as a multifaceted manufacturing solutions provider and as we look to grow our business and approach the $2 billion revenue milestone in the coming years. 17:13 I'm also pleased to share that one of those expansions, the facility in Thailand is complete, and we recently celebrated the grand opening with the ribbon cutting ceremony. The $8 million project was completed on-time and on-budget and will add capacity and throughput to the second half of fiscal year 2022. 17:36 From a macro perspective, conditions are improving, but very slowly. Sales volumes are building with this December representing the best month of Q2, and while we expect this trend to continue, we run our business for the long-term and have made decisions to ensure stability in our workforce, so that when the disruptions abate and conditions normalize, and eventually they will, we will be in a position of strength to support our customers and a solid funnel of new awards. 18:07 Throughout this period, we have never lost sight that the health and safety of our people is our number one priority. We continuously monitor our protocols to ensure they evolve as new complexities from COVID-19 emerge. And I'm so proud of our team and their passion for doing the right thing. This is highlighted in our ESG report for 2021, which was recently published and is available on our corporate website. 18:33 The report demonstrates how our company has enhanced transparency regarding our policies, statements, and goals in human rights, supply chain transparency, occupational health and safety, diversity and inclusion, progress on environmental stewardship, and good governance. We are truly focused on creating quality for life. 18:58 With that, I'd like to open the lines for questions. Victoria, do we have any analysts with questions in the queue?

19:07 Thank you, Don. [Operator Instructions] And our first question comes from Anja Soderstrom from Sidoti. Please go ahead. Your line is open.

19:34 Hi, and thank you for taking my questions. My first question is going be about the improvement you saw in December in the supply constraints, how has that been trending since then and how confident are you in your second half outlook? It seems like some other of players, I think is going to be a little bit more prolonged challenging environment throughout the calendar year?

20:00 Well, Anja it's definitely dynamic. That's for sure. I think when the Omicron variant started to spread through our supply chain in our supply base, I think we did see a loss of momentum in the recovery work and lost a little wind that was developing in our sales to get to more of a confident position in terms of determining our outlook. 20:29 I would say that the Omicron variant though was disruptive in a much shorter period of time and didn't last as long as certainly the Delta variant did. We're obviously cautiously optimistic about the outlook. We definitely see some signs of recovery, but this isn't something that's going to get better overnight. We think it's going to be a gradual improvement over a long period of time. 20:56 Certainly, the rest of the calendar year, but some component categories already are showing some signs of improvement. That's encouraging. But if the outlook is still difficult to say with confidence what the outlook will be, certainly, it's looking better than it has in recent periods just because we feel like we're on the other side of the omicron variant spread and things that are getting better again. 21:27 So, I think our confidence in being able to talk about holding the lower end of our revenue guidance is really based on what we think is a pretty realistic view of the component recovery that we expect to happen during this quarter, this quarter being the third quarter of fiscal year 2022 and the fourth quarter of fiscal year 2022.

21:57 Okay. Thank you. And then, Jana you mentioned higher materials costs and increased wages, but aren’t you able to pass those law or is there a lag in that? And how do you see that developing?

22:12 So, we are able to recover higher material costs typically if the bill of materials is directed by our customers, but it's not an immediate recovery. And so, typically there is some lag although we're working diligently with our customers for that. 22:33 Wage inflation, I will say though is a partnership and it's really incumbent upon us as a company to continue to pursue automation and efficiencies to make sure that we are controlling that cost as part of our gross margin.

22:51 Thank you. And then, sorry?

22:57 No, go ahead Anja.

23:00 Okay. And then it seems like you're winning a lot of new businesses too on top of the sort of backlog you have. How would you sort of bucket your pipeline or backlog in terms of what's sort of like back ordered and what was new business wins?

23:22 Yes. I would say that the growth in inventory from the start of this fiscal year which is $104 million, I think is a proxy to how much backlog that we couldn't ship because of the component shortages. I'd say it's a proxy, it’s not an exact number because there is some ramp up material in that inventory growth number, but it's a proxy to, sort of look at, wow, okay, we grew inventory about $104 million since the start of the fiscal year. That's a lot of inventory, let's call it a dollar waiting on a dime so that we can ship it, build it, convert it, ship it to our customers. So that would give you a little bit of a sense for what the size of the order backlog is that's really related to component shortages. 24:17 In terms of our outlook, talking about holding the 1.4 billion number that's obviously going to mean that we got to ship somewhere around 800 million in the second half, ramping up through Q3 and finishing strong as we said earlier in Q4. 24:36 And in that ramp up, there's not only recovery of the backlog, but we're starting to ramp up brand new programs as we mentioned the next generation breaking program, which is a new win for us. So, there's definitely some new product introductions that are ramping between now and the end of this fiscal year and the parked shortages also impact us there. 25:04 So, I think as we talk about moving the company towards the next milestone of 2 billion in annual sales we'll be providing some updates later or maybe at the end of the fiscal year more appropriately when we see some of that start to materialize for us, but it is a part of our story that is really exciting. I mean, we have been very successful winning new business. And so our back, our order backlog really is a story of two things. Backlog that we should have already shipped, but also order backlog gets new business that's been awarded.

25:44 Yes. And that was actually going to be my last question about the expansion, it's very encouraging to see that you are already planning the third expansion in such short time, so you must have a very good momentum in your business wins. And do you see most of that coming from existing customers or do you have a new logos coming onboard or can you talk a little bit about the sales momentum you have?

26:11 It's definitely both Anja. The new awards are coming from existing customers and new customers. So, it's exciting to have both parts of our funnel hitting on all cylinders, so to speak. But we've been very successful growing our business with long standing customers who I think even we became even a greater trusted partner to them during this pandemic. And so, I think awarding business to us was the natural thing for them to do thinking about our performance over a long period of time and just looking and watching, observing our team stepping it up during this pandemic. 26:52 And so that's very encouraging to see, but we've also landed brand new customers, brand new to the Kimball portfolio that are ramping that is also very exciting for us. We're always looking to add new customers to the portfolio and we're very focused and the developments for these customers takes years, not months. So, when we're landing new customers, that work started in most cases, two to three years prior to that and longer in some cases. So it's very encouraging to know that – to see us winning this new business during the pandemic at a rate that's very exciting for us.

27:37 Okay. Just one follow-up on that. Are you also winning business from other competitors so that are moving over to you or is it just brand new programs?

27:50 You know, that's hard for us to see in all cases, obviously, every time we win a new piece of business, there's at least a couple of other competitors working pretty hard to win that same piece of business. So, I guess just by nature of the beast, we're winning business that our competitors are losing. I don't know that we could point to a big shift in market share during this period. 28:11 I think it will take a few years to see how that unfolds. Bear in mind, our focus on our four end market verticals kind of makes us unique in that regard because we're really not in the rest of the market, if you will. The EMS market that's tied to consumer communication in our computer based products. But I do think we're very solid. And as I said, every time we win a piece of business, we won that competition against at least two other competitors in the space, which is great news for us and our team.

28:49 Okay. Thank you. That was all from me. And I’m looking forward to see your [GEF] [ph] conference in March.

28:54 Yes, it's likewise, Anja, likewise.

29:00 Perfect. Thank you Anja for your question. Our next question comes from Mike Morales from Walthausen & Company. Mr. Mike Morales please go ahead.

29:12 Hey, good morning Don, Jana, and Andy, thank you for taking my question. So, to maybe clarify at the outset, is that auto contract win that you mentioned? Is that going to begin in 2024 with the expansion of the Poland facility or will it begin sooner that? Just trying to get a sense of when we might see the startup margin effect on that?

29:34 Yeah, I'm sorry, we weren't as clear as we should have been there Mike, but that program actually is ramping in the second half of this fiscal year. It's not tied to the Poland expansion. It's tied to the Mexico expansion So, maybe that, I guess we've got three expansions going on and they all have new business driving into it Mike, as you know, but that should have made it clear that that next generation breaking win is tied to the Mexico expansion. 30:06 We do pursue similar products and applications in Europe, but just to be clear on that point, it ramps in the second half of our fiscal year, is tied to a different expansion and [forward] [ph].

30:19 That's really helpful Don and I appreciate that clarity. And so, maybe if you'll allow me to speculate a little bit, was this maybe a case where like you said, Don, the conversations take years here and with a facility as full as Mexico was, sometimes it can be hard to actually sign that contract before the customer can see where their program is going to go. Is that similar to maybe what you saw here with this contract and why it’s being announced now knowing that the expansion is already underway?

30:48 Yes. Yes, there's no doubt Mike. I mean, that's, I think in maybe a previous call or the call before, even the last one, I mentioned that it's difficult to sell into a full facility when a customer really can't see any available floor space for their program. 31:06 [By the] [ph] same token for us, it's hard to make these large capital expenditures when you're not sure you're going to get the business. So, it is a test of the partnership and the collaboration with the customer. I would say in this case, a longstanding customer who's known as well for several decades, that conversation gets to the point rather quickly, but they are tied together and it's the same for what we're doing in Thailand and what we're getting starting to do in Poland. 31:43 Those factories, Thailand and Poland were also just very highly utilized, square footage utilization let's just say in the 90 plus percent range, hard to see any white space on the floor. So, we think we timed them very well. Seems like it's risky to be doing three facility expansions during this pandemic. But frankly, we've really studied the business case for each one and that business case obviously includes the growth coming from the customers, both existing and new and we feel like we've really got well-constructed business cases for all three of those expansions.

32:25 That's helpful. And it's good to see materialize. Maybe thinking about the – like you said down the conversations taking years here, certainly a conversation that began about a project like this three years ago was going to be very different from the discussions that you're having. Six months ago with how the world has changed. Have you seen your customers maybe their propensity to utilize a certain facility or a certain geography, has that shifted to wanting to spread that around to other facilities for example, if somebody wanted to use Mexico a lot in the past, would they now be more willing to have some of that in Poland some of that in Mexico, some of that in Thailand.

33:06 No, that's probably less likely, Mike. I think what we were seeing is much of the same trends that existed even before the pandemic that it's really – our customers preferences have evolved to an in-region solution. So, they would be less likely to put business in a plant that's not in the region. 33:28 So, it's Europe for Europe, North America for North America, and China for China, those are the big market centers, if you will that we serve. And then there are options that have in case our case a plant like Thailand, which is primarily an export facility and we have customers that are willing to have that lengthy supply chain geographically, so to speak and time zones. 33:55 They're willing to have that for the benefit that that facility provides. And certainly, that's the case for us in Thailand. We pretty much everything we produced in Thailand ships somewhere else in the world, primarily back to North America. Whereas if you look at our Mexico facility, Poland or Romania, most of what they produce stays in the region, Mexico for North America and yes, I would say Europe both Poland and Romania, in a similar fashion are primarily serving customers and plants, upstream in Europe.

34:36 Understood. Don, maybe switching gears a little bit to GEF. And particularly on these semiconductor markets that they serve. I think we’ve seen over time the demand back drop and visibility there seems to be very strong and now we're hearing more about efforts like [indiscernible] is taking to increase their domestic manufacturing capacity. All of that said, can you talk to GES’ performance recently and maybe how the sales pipeline has, sort of evolve with this backdrop of strength that we have?

35:10 Yeah. Well the semiconductor capital equipment space is an area that we've been working pretty hard from an overall business development standpoint, pretty much ever since we acquired the company three years ago. So, we've been at that pretty hard. The pandemic hasn't helped us at all as we look to collaborate with various different customers in that space with new ideas, and new technologies to solve their problems, provide solutions in the spaces where they operate, but we are gaining traction in our semiconductor business development and that's a long cycle as well. But as you know, there's a lot of capital flowing into the semiconductor space right now with capital expansions, planned by almost all the majors. 36:00 And, we look to participate in that investment cycle, which looks to maybe, it could last three to five years, who [indiscernible] experts and the analysts are things it's going to be quite a boom cycle just given the overall semiconductor shortage. So, we want to participate there, the business as we bought it was primarily focused on the manufacturing tools for smart mobile devices. And so that continues to be part of the growth story that we have with GES. 36:30 We're working hard to grow that business, grow it out of its seasonality that's been one of the challenges we've had ever since we acquired the company as it has a strong seasonality towards our fourth quarter of the fiscal year and we've talked about that in the past, as you know in these calls. But I think overall, we feel like we're well positioned with that business unit, especially as we get more traction and diversifying into the semiconductor CapEx market.

37:04 Great. And lastly for me, with all the growth expected in auto and the strong backlog that you mentioned, Kimball Medical Solutions certainly the implication there that it will have to generate some nice growth moving forward in order to remain around that target of 30% of sales. So, I guess the first question is, now that we're kind of over the peak of Omicron hopefully, have you seen elected procedures and programs tied to that sort of rebound as expected? And then can you speak to any additional growth opportunities or areas that you're excited about there? Thanks for taking the question.

37:40 Yes, Mike, the short answer is, yes. We're seeing these elective procedures scheduled procedures coming back and the customers we serve in that space are very bullish about the growth outlook there, just the backlog and that was created by the pandemic. 37:59 Of course, all of them wanting to gain market share as they recover the backlog as the industry let's say recovers the backlog. Our medical DCMS or diversified contract manufacturing services really is where that excitement starts to show as we think about – and this will be the former [indiscernible] acquisition we did five years ago. 38:26 We are servicing some market leaders in that business unit in this space and their leaders that have innovative products that we were awarded in some cases several years ago, but the pandemic just paused the launches all altogether. So, we're really excited about those instruments, producing those instruments that have been really slower by the pandemic because the care priority is changing. 38:56 So, we were excited about that part of our business. And we continue to win traditional EMS business in the medical space that we're really excited about as well. Not so much tied to elective procedures per se in the backlog recovery there, but just continuing to win new business with longtime customers that I know you know well. 39:18 And again, I said it earlier, I just try to say it and be a bit clear, more clear is, I really think during this time, which has been really a tough time for all of us, the past couple of years, I really think our customers have appreciated us even more through all of this, and we've been trusted partners for a long time and they've had experiences maybe with other supply partners that during the pandemic, maybe got a little bit rocky or rough. 39:53 I just think the way our teams have performed around the world and really sticking to it being in the fight and doing everything we can to solve these problems for our customers. It's much appreciated. I hear it over and over again from the executives of our customers telling me this. 40:12 And so, I know that's had an impact on their willingness to award us new business, just because they're so confident in us as a trusted partner. So, we're winning across the board, our Core EMS business leading the way, but there's some really exciting stuff coming for our medical DCMS services as well.

40:35 I appreciate all the insights. Thank you folks.

40:37 Thanks, Mike.

40:42 Perfect. Thank you Mike for your question. [Operator Instructions] At this time, there are no further questions, I now would like to pass pack over to Don Charron for any final remarks.

41:06 Thank you, Victoria. That brings us to the end of today's call. We appreciate your interest and look forward to speaking with you in the near future. If you have any questions in the interim, please feel free to reach out to Andy. Have a good day.

41:26 At this time, listeners may simply hang-up to disconnect from the call. Thank you and have a nice day.