Unifi, Inc. New (NYSE:UFI) Q3 2020 Earnings Call

0:00 Ladies and gentlemen, thank you for standing by, and welcome to the Unify third quarter conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1 on your telephone. We ask that you limit to one question and one follow-up question at a time. Please pause. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Mr.

0:47 A.J. Ecker, Vice President of Finance. Thank you. Please go ahead, sir.

0:53 Thank you, operator, and good morning, everyone. On the call today is Al Carey, Executive Chairman, Tom Cottle, President and Chief Operating Officer, and Craig Creosore, Executive Vice President and Chief Financial Officer. During this call, management will be referencing a webcast presentation that can be found at unifi.com and by clicking the third quarter conference call link. Management advises you that certain statements included in today's call will be forward-looking statements within the meaning of the federal securities laws. options that these statements are based on current expectations, estimates, and or projections about the markets in which Unify operates. These statements are not guaranteed the future performance and involve certain risks that are difficult to predict. Actual outcomes and results may differ materially from what is expressed, forecasted, or implied by these statements.

1:38 You are directed to the disclosures filed with the SEC on Unify's forms 10Q and 10K regarding various factors that may impact these results. Also, please be advised that certain non-GAAP financial measures such as adjusted EBITDA, adjusted net income, adjusted EPS, adjusted working capital, and net debt may be discussed on this call. Lastly, please be advised that in consideration of COVID-19 safety measures, the speakers today are utilizing multiple telephone lines. Efficiency for this call may be impacted. I will now turn the call over to Al Carey.

2:09 Well, good morning, everybody, and thanks for joining our call today. I'm going to open up with a few comments about our performance. and then I'm going to turn it over to Tom and Craig who will give you more of the specifics of our performance and then afterwards we're going to entertain some questions and I'm going to imagine it's going to take a little longer than normal due to this unusual time that we're operating in right now. So on Q3, I'd say that Q3 was a good one for us and Craig will point this out in the next few minutes as he presents. We delivered at or above our forecast on most of our important financial metrics, and we generated a significant improvement over last year's Q3 performance. But there were two highlights from the quarter that I'd like to mention. One was that we were pleased to see our U.S.

2:55 polyester textured yarn sales return to year-over-year growth, and it's been a long time coming. It indicates that these... Trade anti-dumping actions are finally showing up in the marketplace for us. I know we've spoken to you about this numerous times, but after December, when those anti-dumping regs were finally put in place, we began seeing a positive improvement to our U.S. sales. And then the other thing we were very excited about was Asia has performed well for six or nine months for us, but when they started the year in January, they were doing terrific. February came with the COVID-19 virus in China. We didn't anticipate much of a comeback in March, but I would say that it was a remarkable comeback for our team in March.

3:43 I really think our asset-light model in Asia served us well, and I think it's going to be an advantage moving forward. But all that being said, as we hit the last two weeks of the quarter, we saw a drop-off in sales, and that was directly attributed to the retail apparel stores being closed. and also automotive plants. Those are the two segments where we do a disproportionate amount of our business. We're staying close to every single customer. I can tell you that we're ready to begin shipping when they're ready to take the shipments. When they are ready to reopen the stores, we will be ready to serve them. However, forecasting volume and how fast it's going to come back will be tricky. If I were to bet, I'd say that production will come back ahead of consumer demand.

4:30 That's what happened in China. So it's likely to be a little uneven for a while. So what we've turned our primary attention to, our top priority for this time frame is going to be managing cash and working capital very carefully. We also have some new actions on cost reductions that's going to allow us to be more profitable when we come out the other end of this. So Craig will take you through these actions. I'm confident that we'll be in a good place at the end of I'd also like to tell you a little bit about another key event during the quarter, and that was we were able to conclude a search for the right leader to take the helm at Unifi.

5:21 That leader is Eddie Ingle. We announced that last week. is going to join us, but he had 30 years of experience in many key leadership roles at Unify. And most recently, he was the CEO of Endorama's global recycling business. So we're all delighted to have Eddie back at Unify. And our leadership team and also the employees, they were unanimously excited about hearing about Eddie's return. So it's a very positive thing for our company. And he'll start on July 1st, which is the beginning of our new fiscal year. The bittersweet news is that we also announced the planned retirement of our president and COO, Tom Cottle, after what I'd call an exemplary 40-year career at Unify. Now, the good news is that Tom's not going to leave us until June of next year, so you're going to hear from him in a few minutes.

6:12 He's going to be leading, over the next 12 months, he'll be leading some key strategic initiatives for our business, and I describe these initiatives as the ones that only Tom Cottle could get done He'll also be here to help Eddie in the transition coming back to Unify, which you'll hear from Tom in a few minutes. Going forward, here's what we expect from ourselves. I believe Unify can regain the top-line momentum that we saw in Q3 once this virus gradually diminishes. Then coming out of this timeframe, I think our strengths are going to be that we have a very flexible global supply chain that's going to serve our customers well. I like the fact we have an asset-light model in Asia and Europe. And then we have the ability to potentially fully utilize our assets in North America thanks to the anti-dumping pickup and our innovation.

7:02 We will be the most prominent producer of environmentally sustainable yarns that have tracing capabilities like no others have. And I believe that ESG is only going to become more important after the COVID-19 reduces. and I think that will bode well for the reprieve growth going forward. On the financial side, I'm confident in our cash position and our liquidity which will get us to the other end of this COVID-19 crisis successfully and my expectations are that we're going to be a better overall company going forward. Just a word about our people. I wanted to mention that before I get off. I think we're fortunate to have had a very, very small number of incidents of our 3,000 employees who have experienced the virus. None have been seriously ill and thank God, none have passed away. And other companies are not as fortunate as we have been.

7:59 I gotta tell you, in my 45 years of business experience, I've never seen a team that's more resilient as this one from top to bottom. They certainly don't flinch in a crisis. And I look at this leadership team that we have in place right now and while it's taken a year to get it right, It's a great blend of experienced veterans and also young people who have lots of potential. And I think the newest additions, which are CFO Craig Kreator and also now Eddie Ingle, who will be our new CEO, are going to lift our expectations even higher. And I've got to tell you, as the chairman, I feel very good about the leadership team that we've got in place. So with that, Let me turn it over to Tom Cottle, President and COO, and he's going to take you through some of the specifics of our performance in Q3.

8:47 Tom, take it away.

8:49 Thank you, Al, and good morning, everyone. Let's start with a quick business update as outlined on page three of the slide presentation. As Al noted, we started the quarter out strong and saw very positive momentum from the strategic actions that we've taken over those last few quarters. Even our operations in China, which had been closed for an extended period in the middle of the quarter, came back and made up significant lost ground. However, the economic impacts of the virus across the globe began to hit our volumes in late March. We are all working hard to prioritize the safety of our people, customers, and communities, as Al said. While our volumes have slowed and some of our assets are underutilized temporarily, many of our facilities continue serving essential markets.

9:44 But like many companies, our visibility over the near term is challenged. That doesn't prevent us from thinking proactively and protecting the balance sheet. For example, as outlined on page 4, we made the strategic decision to divest our 34% ownership We received $60 million in cash, improving our net debt by $60 million this week, and have applied approximately half of the proceeds to debt retirement and maintained the other half as cash reserves. We have a very positive relationship with Parkdale, and this transaction is a natural evolution of the joint ventures.

10:33 With this, we can focus our full efforts on expanding our leadership position in recycled and synthetic fibers while providing additional flexibility and liquidity for both long-term opportunities and short-term needs during the pandemic. Moving to slide five, let's talk about the things we're doing in terms of risk mitigation and safety. Our top priorities are to protect our employees and their families and to support our operations through the significant challenges we face today. We are keenly focused on ensuring the long-term financial health of the business and have taken steps to fortify our cash position and balance sheet. While it's not currently possible to estimate the full impact of COVID-19 could have on our business, Our leadership team took decisive action to mitigate risks as COVID-19 initially impacted our operations in Asia, and we continue to take action to stay ahead of the global spread.

11:38 Throughout the organization, we have restricted travel, maintained diligent sanitation and disinfection practices, and encouraged social distancing. Furthermore, I am proud of the work our team is doing in the fight against COVID-19. as we have participated in the supply chain for PPE necessary for our first responders, healthcare personnel, and military. Craig will walk you through a more thorough review of our balance sheet shortly, but I want to highlight some bright spots in our liquidity.

12:23 Cash flow generation for the last nine months continued positive trends seen in the first half of the fiscal year, improving to $32 million compared to a negative $1.5 million in the comparable period last year. Additionally, we have reduced capital expenditure levels to bolster our cash position as we focus our CapEx only on safety and maintenance activities at this time. We have also strategically reduced manufacturing operations to further support critical businesses and manage working capital. Given that economic outlook is evolving quickly, we will continue to review our plans and adjust as needed, being thoughtful about preserving liquidity.

13:11 The good news is we support a number of essential businesses today, and raw material levels remain very low. which would further aid our working capital and liquidity as we navigate this temporary period. Now turning to our third quarter results. Prior to the disruption caused by the pandemic, the consolidated business was performing in line with our expectations. The trade actions we took in 2019 began taking effect as higher textured yarn volumes drove stronger utilization and sales trend for our core polyester business. Total sales volume increased 6.5% on a year-over-year basis during the third quarter, primarily driven by Asia, despite pandemic impacts lingering for weeks in that region.

14:07 Lower polyester raw material costs led to lower average selling prices across the polyester, Asia and Brazil segments. while the pre-existing nylon and Brazil foreign exchange head would dampen overall revenue performance. In the U.S., we anticipated the recapture of domestic sales and market share with new duties in place and were hitting our target run rate prior to the pandemic, driving higher textured yarn production volumes during the March quarter, which helped our margin profile. We still believe that share recapture is attainable, But due to the ongoing pandemic, we can't be specific on the timing today.

14:53 Now I'll walk through our segment performance for the third quarter. Polyester began the March quarter showing great promise with anti-dumping volumes driving strong utilization and sales trends. However, COVID-19 impacts began in mid-March. Our Central American production has been shut down due to shelter-in-place ordinances in March. In the U.S., demand has been stifled by retail closures and we expect this to continue at various levels throughout our fourth quarter. Turning to our second largest segment, Asia, despite the significant shutdown in China in response to the COVID-19 outbreak, The Asian segment was able to recover quickly and restore its continued sales growth with a 28% increase in sales volume led by reprieve-branded products. While our relationships in China are strong and the region remains a powerhouse, we are continuing to expand our supply chain beyond China to remain nimble and service our customers' shifting demands.

16:08 Moving on to operations in Brazil, we began the quarter demonstrating positive momentum with raw material pressures stabilizing. These trends continued into February and it was not until March that Brazil began to show signs of disruption from the pandemic. The third quarter was also impacted by a significant weakening of the Brazil Real. We have since seen overall demand drop significantly within the Brazilian market, causing a reduction in production and a further weakening of the Brazilian currency. The nylon segment continues to remain pressured from recent customer shifts, but we remain supportive of our nylon business, and those assets remain important to our ongoing strategy, innovation efforts, and global expansion.

17:02 Looking at the quarters ahead, we are confident that our recent mitigation efforts and a focus on preserving cash are effective in weathering the current storm. We will continue to monitor demand levels, economic indicators, and conversations with our customers while prioritizing health, safety, and risk mitigation measures. I will now pass the call to Craig.

17:29 Thank you, Tom, and good morning, everyone. As Tom noted, our underlying financial results were significantly improved over the prior third quarter, and we continued solid momentum leading up to the pandemic. I'll provide more detail on the Q3 performance and then some context around our liquidity position to expand on some of Tom's remarks around the steps we are taking as we deal with the changes to our business environment. On slide six, we show an overview of operating income. Q3 fiscal 2019 operating income was $0.8 million and Q3 fiscal 2020 operating income was $3.1 million. The $2.3 million increase was generally driven by strong performance from our polyester Brazil and Asia segments combined with less severance charges and foreign currency transaction losses in Q3 fiscal 2020 compared to Q3 fiscal 2019.

18:27 Below the operating income line, we recorded a $45.2 million impairment charge in connection with selling our investment in Parkdale America Joint Venture, arriving at a net loss of $41.1 million and a loss per share of $2.23. Excluding the non-cash impairment charge, adjusted net income and adjusted EPS reached $4.1 million and 22 cents respectively. Therefore, on an adjusted basis, overall income performance was $5.6 million or 30 cents per share better than the prior year. Partial America's recent nine months performance was $0.8 million lower than the comparable year ago period. And we will just continue reporting equity income from Partial America in fiscal 2021. Now let's review sales performance by segment on slide seven.

19:24 Consolidated sales declined 5% from $180 million in Q3 fiscal 2019 to $171 million in Q3 fiscal 2020. Polyester segment revenue declined by 6.2% primarily due to lower average selling prices in connection with lower raw material costs. Nylon segment sales declined 19.6% due to the step-down in volumes that we experienced in fiscal 2020 as two significant customers transition programs to overseas production in calendar 2019. Brazil segment revenue was significantly pressured by the weakening of the Brazilian real, driving a sales decline of 16.1%.

20:12 Despite an extended Chinese New Year holiday amid government shutdowns, the Asia segment rebounded quickly and continued double-digit sales growth, reaching 18.6% more revenue and then Q3 fiscal 2019. Therefore, Q3 fiscal 2020 represented the tenth consecutive quarter of double digit sales growth for our Asia segment. Moving on to gross profit by segment on slide eight. Consolidated gross profit increased $1.6 million or almost 12% from $13.8 million to $15.4 million. For the polyester segment, A more favorable sales mix and raw material environment led to a gross margin improvement of 280 basis points.

21:01 Nylon results continue to be pressured by lower volumes and therefore weaker fixed cost absorption, pulling down the gross margin rate to 160 basis points. In Brazil, the sales mix was slightly better and raw material and pricing pressures were partially alleviated while the Brazilian real weakened. allowing for a significant improvement in gross profit and gross margin of $640,000 and 510 basis points respectively. For the Asia segment, the margin rate held steady at 11.9% and the previously mentioned sales growth drove a gross profit increase of over $700,000. We are proud of the Q3 fiscal 2020 results and we were excited about the momentum created at the beginning of the quarter from the combination of our global strategy and asset light model and the early signs of market share restoration in the U.S.

21:56 when we began hitting our targeted run rate for trade action related volumes. Now turning to slide nine, let me revisit a few of the points from Tom's discussion regarding how we are looking into the future, our liquidity position, and the steps we have taken to protect our business. The economic slowdown and decline in global demand places short-term pressure on our ability to generate cash. We are fortunate that our financial health remains significantly better than one year ago when we began taking cost reduction measures and better positioning the business to endure times like these. Our ABL credit facility remains a stable platform for supporting our liquidity needs, and the maturity date is not until December 2023.

22:44 as a result of the refinancing we completed late in 2018. We do expect some use of cash in the months of May and June 2020. However, the steps we have taken to reduce capital expenditures, limits on discretionary project , the receipt of cash from the sale of the Parkdale America investment, all give us confidence in dealing with these short-term pressures. We are confident we have a meaningful buffer if economic activity remains slow for an extended period of time. On March 29, 2020, net debt was $100.3 million, lower than both June 30, 2019 and March 31, 2019. Keeping in mind, the $100.3 million position was prior to the receipt of the $60 million for the sale of Parkdale America Investment.

23:38 That transaction allows some headroom for enduring the near-term challenges ahead. Moving beyond our liquidity position and the renewed strength of our balance sheet, the pandemic impacts on our business remain uncertain regarding severity and duration. Accordingly, we have suspended guidance at this time. Quite simply, the visibility of our customers has become cloudy, and we in turn do not have the same level of visibility we normally do when we provide future-looking guidance. As the pandemic impacts subside and the economy and global demand stabilize, we will again consider providing guidance in a more predictable environment. I will now pass the call to Tom for some closing remarks.

24:22 Thanks, Craig. I'd like to wrap up my prepared remarks today with a few big picture thoughts. It is important to understand that the medium to longer term underlying fundamentals that drive our business are still in place. Many industries are going to be reshaped by this pandemic experience. I think our industry will be as well, but in a positive way. Sustainability is here to stay. We already support the world's leading progressive brands, and we continue to have daily conversations with potential new customers that know they need to catch up with their competitors. The world today is difficult. but one of the positives that has emerged is the spirit of community.

25:08 We strongly believe that this collective spirit that gets us through these hard times is going to further accelerate sustainability trends. Our innovative performance fibers are the underlying input for some of the largest multinational consumer brands. Unified, diverse, global operations and growing asset-light model Allow the business to be agile and less capital intensive. Our business is sound, resilient, and more adaptable to demand shifts from many of our competitors. We have built a strong reputation over 50 years of meeting our diverse customer needs across the world. As a result, we remain confident in our leadership team and our business model.

25:57 as these inherent strengths will provide the business long-term stability and growth. Looking past the pandemic, we are optimistic with the recovery we have seen to date in our Asian business as the region emerged from the severe restrictions necessitated by COVID-19 outbreak. We are encouraged to see China's manufacturing begin to recover and our supply chain remain strong and nimble. We are continuously monitoring developments as we take the learnings we have seen in that region and look to leverage that for other affected areas as they reopen. We are evaluating different scenarios across the region to ramp up production carefully as demand returns.

26:46 Each region will require thoughtful execution, but we are confident in the restoration of demand The third quarter results reflect the underlying strength of our business. We remain committed to providing our customers with their needs while ensuring the safety of our workforce. The leadership team and I are committed to taking the necessary steps to navigate these near-term headwinds. We have a clear focus with the right strategy in place and a strong balance sheet to guide us through these uncertain times. We will now open up the line for questions. As a reminder, if you would like to ask a question over the phone, please press star 1. To withdraw your question, press the pound key.

27:45 Please stand by while we compile the Q&A roster. Your first question comes from Chris McGinnis from Sidoti and Company.

28:00 Good morning. Thanks for taking my questions and a nice quarter. Tom, I know we get your wisdom for about another year, but I did just want to say congratulations on the upcoming retirement and thanks for all the help over the years.

28:14 Thank you, Chris. I appreciate it. We appreciate your support.

28:19 Thank you. Just to, I think, think about the business and with the disruptions across the businesses and closures, you know, on the state levels, as we're starting to see some states open up, how are you, can you maybe just talk about the conversations you're having with your end customers as we're starting to see things maybe resume or get back to normal and just maybe provide a little bit of insight on that part of the market? Thanks.

28:48 Yes, Chris, this is Tom. You know, we really have a very strong relationship with our customers, and during these uncertain times, we are communicating with them on a daily basis, just so that we don't overproduce and build inventory. You know, there's not been a lot of cancellation of orders, but I would say there have been more deferrals, and they've been pushed out during these uncertain times. We're not getting a lot of surprises right now because we are communicating, I'd say over-communicating with our customer base right now, so that we're all in lockstep as we move forward.

29:39 Okay. And then just maybe your thoughts around, you know, does this change the supply chain at all and maybe, you know, move it to one region over another in, you know, longer term? I would say currently the U.S. and Central America regions

30:11 is probably a little stronger just because of PPE demands and some of the things that we're supporting our government needs in the healthcare industry and military and first responders. But, you know, I think when retail comes back, we'll see China crank up again, and we expect good things for our overall business around the globe.

30:38 Okay. Thank you. I'll jump back in with you. Appreciate it. Your next question comes from Daniel Moore from CJS Securities.

30:50 Craig, good morning. Congrats again on solid. It certainly results in a tough environment, and Tom, it echoed my sentiments. I'm sorry you have to deal with this for another four quarters, but congrats.

31:01 That's not a problem, Dan. I appreciate it.

31:05 Number one, even if maybe you want to – I know you probably want to stay away from Hard and fast numbers, but even directionally, in terms of volumes, if we look across the segments, Poly, Nylon, Asia, Brazil, maybe rank order the volume declines that we've seen so far in the quarter in any color as to progress in terms of opening back up, and how you see which of those might

31:39 You know, Dan, other than Central America, all of our plants are open for business and they are all operating at varying levels of demand right now. So, if that answers your question.

32:07 Yeah, I mean, obviously to the extent that you have any additional color as far as order of magnitude of volume declines would be helpful. If not, I'll go to the next one.

32:20 Dan, this is Craig. I might be able to just add some additional details there. I mean, in the U.S., we, as Tom mentioned, our facilities are up and running. We are continuing to serve The areas where there's more critical demand, that's definitely in the medical area, personal protection, those types of areas. Obviously, other parts of the business, the traditional apparel and auto are slower. In Brazil, for instance, we are running, but we are definitely facing lower demand levels in that country. And in China, after what is kind of a borderline heroic comeback that we had here in Q3, that business is up operational and our business there is doing well. However, we are suspecting and sensing and seeing slowdown because the ultimate end customers of a lot of the China production are the U.S. and in Europe and with both of those markets being slower in most of the areas that we service, we're seeing slower production there.

33:22 So I would just kind of reiterate that, as Tom mentioned, really only our El Salvador operation has been shut down, has been shut down for the last several weeks. We're currently unsure exactly when that will be allowed to come back online. That's a government-mandated shutdown in that country. It may be as early as later this month in May, but we're not exactly sure.

33:47 And my recollection... Yeah, go ahead. I was just going to add, and I would just say that as you speak to some of the retailers, they're waiting to open the stores. When they do, I've got to believe that Most retailers will want to order and begin the planning of what I call the back to school and the fall Christmas time frame. I don't think any retailer wants to be out of stock during that key period of time. It's when they do a disproportionate amount of their business. The question will be how do the consumers come back? How fast do they come back? Do they recover their jobs and spend again? So we're kind of watching that. We're ready to open and get moving. I would expect that fall Christmas orders start coming in.

34:34 The nylon business, as you mentioned, has been a negative for us because of some of the things that have happened with some of our customers moving offshore. One of the reasons we stay optimistic about that is we have an executive focused on getting our nylon business back through new customers and some new ideas. The other thing is some of our innovation. We've got two key pieces of innovation I'm real excited about. One is nylon. How do you do a reprieve nylon? The other one is the reprieve ocean plastic. Those two were getting tremendous interest from our customers before all this happened. Obviously, right now they're focused on getting back into business, but I expect those two to help us going forward.

35:17 That's very helpful. And if my two teenage daughters have anything to say, they'll be back in the stores sooner rather than later. Maybe just shifting gears, the decision to sell Parkdale, it had always been kind of deemed a nice strategic fit. Obviously applaud the decision to aggressively raise cash given the uncertainty. It sounds like you feel comfortable with your liquidity position. Just remind us, Craig, of your total liquidity right now and any plans to add additional sort of belts and suspenders around that liquidity position.

36:00 Yeah, I think, you know, it was a good decision that we made. It was really something that we felt, you know, it's really a logical extension, right? You have a joint venture relationship and you have two – You have two parties, and it really just made sense for one to eventually take over. It's really been a great relationship for Unify and Parkdale, something that's fanned over 20 years, and it really just came together very quickly during this quarter. It does provide us quite a bit of flexibility. In the slide presentation on page 9, we really didn't touch on that in the prepared comments, but we do show the liquidity update, where we were at as of the end of March.

36:45 Obviously, that information is before layering in there the additional proceeds that we got just the other day from the sale of the Parkdale investments. So we're feeling like we're in good shape from that perspective. Definitely, you know, the financial performance of the company had been improving. Very significant increases in cash flow for this nine months versus the prior nine months. Lots of costs being pulled out of the business appropriately. So prior to even us even knowing what the word COVID meant or coronavirus meant. So I think we were doing a lot of the right things at that point. But definitely where we're at now, plus some additional elbow room that we have from the Parkdale sale transaction, we feel like we're in very good shape from that perspective.

37:34 Got it. Central America, as I recall it, being somewhere in the 10-ish, 12-ish percentage of total revenue. Is that the ballpark, correct? It's a little lower than that, I believe. Okay, so high single digits.

37:49 Yeah. Got it.

37:50 And helpful. Lastly for me, I should probably wait until July and let Eddie answer this, but given the addition of the new CEO, any... Beyond the sale of Parkdale, any changes in strategic direction you might consider? You touched on nylon. It sounds like you're still excited about that. But maybe just subtle shifts in direction or things that he can add. If you have any color, that would be really helpful.

38:21 Sure. And I don't expect us to have a new strategy. The good news is that he's been here for 30 years and even up until two years ago. But I think the top priorities are going to remain. I think the idea is getting this asset-light Asian business really moving, which it seems to be doing, and get the North America assets fully utilized by taking advantage of a pickup in the anti-dumping volumes, but also taking advantage of some of these innovations on sustainable products. Those are the two things we've got to put a lot of focus on. And I think you'll see Eddie do a lot of what we're already doing, although I told him, bring all your new ideas. I mean, I remember when he was here a while back, he spent a lot of time on making sure that our inventories were at the appropriate levels, and I think he's going to be able to bring some new thinking to that and help us, because it's an area we could improve on. But I don't expect significant changes in the strategy, Dan. It's pretty much what we were talking about when we were together in your conference.

39:28 Understood. Okay. Great. Appreciate the color. Stay safe and look forward to the next update. Appreciate it. Thank you. To ask a question, please press star 1 on your telephone. There are no further questions at this time. I would now like to turn the call back over to management.

40:02 With no further questions, we'd like to thank everyone for participating today. Our next earnings release for the fourth fiscal quarter ending June 28, 2020 is tentatively scheduled for Wednesday, August 5, 2020 with a conference call to follow the next morning, Thursday, August 6, 2020 at 8.30 Eastern Time. Thank you for joining today's call.

40:26 Thank you, everyone. Ladies and gentlemen this does conclude today's conference. You may now disconnect.