Unifi, Inc. New (NYSE:UFI) Q4 2020 Earnings Call

0:00 Ladies and gentlemen, thank you for standing by and welcome to the Q4 2020 Unify, Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker 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 keypad. If you require any further assistance, please press star then 0. I would now like to hand the conference over to your speaker today, A.J. Ecker, Vice President of Finance. Thank you. Please go ahead.

0:33 Thank you, operator, and good morning, everyone. On the call today is Al Carey, Executive Chairman, Eddie Ingle, Chief Executive Officer, Tom Cottle, President and Chief Operating Officer, and Craig Creatore, Executive Vice President and Chief Financial Officer. During this call, management will be referencing a webcast presentation that can be found at Unify.com and by clicking the fourth 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 Security's laws. Management cautions that these statements are based on current expectations, estimates, and or projections about the markets in which Unify operates. These statements are not guarantees of 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.

1:20 You are directed to disclosures filed with the FCC on unifying 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.

1:53 Well, good morning, everyone, and thanks for joining us. From my remarks, I'm going to use slide three in the presentation as a bit of a backdrop for my comments. So I'll start by telling you a little bit about the first three quarters of fiscal 2020. We feel we're progressing extremely well prior to the economic shutdowns from COVID-19, which coincided at the beginning of our fourth quarter. and we made very good progress on the four big priorities that we identified last summer. Those were terrific growth in our Asian business which is that asset light model and we began to pick up market share and sales in North America due to the anti-dumping regulations that we spoke about quite a bit and finally began to materialize.

2:40 Reprieve continued to have momentum from our customers since they were very focused on their ESG goals and we continued our cost reduction measures successfully. So that's the status going into Q4 and at that time was the beginning of the crisis, the pandemic and the parallel and automotive customers either shut down or were significantly curtailed operations at that time. And then we saw a corresponding significant drop off in sales and it negatively impacted our operating income as well. So with all that going on, our team decided let's control what we can control and our management team took on the task of protecting our liquidity and also prioritizing cash generation. And I think they did a very good job with both of those.

3:26 The sale of our share of the Parkdale joint venture allowed us to pay down a significant part of our debt. We generated cash during a quarter of significantly low demand and we reduced our operating costs and we took down inventory levels. So all of these moves, I believe, are going to set us up for becoming a stronger company once the COVID ends. Now, while sales were hit hard, we have seen sequential improvement every single month since March. April was the low point. May improved from April. June better than May, and July was the best, and even the first two weeks of August have seen another improvement. But it's difficult to accurately forecast how fast things are going to come back as far as the top line goes because of the uncertainties of the pandemic. But we're very confident that we're going to be able to get the top line and profit momentum to return to the momentum that we had through the first three quarters of 2020.

4:23 The last thing I'll say is I feel very good about the strong team that we've developed at Unify since last summer. Some of you may remember we went through quite a bit of change. In September, we had Craig Creatour joining us, and he's doing an excellent job in a short period of time. And Eddie Ingle has joined us on June 15th as our new CEO. And his return to Unifi has been applauded by all of our people. And it's not like we have a new CEO. He has a 30-year background at Unifi, which is really coming in handy already. And with all this going on, Tom Cottle is retiring. He's on the phone with us today and will be answering some questions. But he's retiring after an exemplary 40-year career at Unify.

5:09 But we get a chance to hang on to Tom for some time to take advantage of his experience and wisdom for the next year. So I believe we're very well positioned for the future. And I'll turn it over now to our new CEO, Eddie Ingle, to take you through some of the materials.

5:26 Thanks, Al, and hello, everybody. I'm very excited to be rejoining Unified at such a pivotal and unusual time for the company. And in the short time that I've been in the office, I've already settled back in to an organization that obviously I know so well and have quickly reconnected with the leaders and my friends and colleagues. It's almost like coming back home. I'm very grateful for the supportive handover of the reins by Tom. and his continued support for me as the CEO of the company. Over the last couple of months, I've asked many people, why did I return? And I returned to Unifi basically because of my steadfast belief in its people, its innovative mindset and in the core value that everything we do here at Unifi is for the good of tomorrow.

6:18 Among other things, prior to leaving Unifi, I was heavily involved in the process of introducing and growing our signature performance fiber reprieve. And today, more than ever, I believe sustainability is the cornerstone of Unifi's future growth. In our innovative culture, it makes us the partner of choice for leading global brands around the world who are seeking to meet their own sustainability goals. At Unifi, we take pride in our efforts to eliminate waste and wasted resources, and we'll continue to invest in expanding the reach of our innovative, sustainable solutions. Now, while this pandemic has created much uncertainty, I'm confident in one of UniFi's core strengths, and that is the ability to adapt.

7:09 Over the 30 years I've spent with the company, I've seen our people adjust to changing markets and very difficult circumstances, and in every instance, rise to the occasion. Time and time again, our people have proven their resiliency, and adjusted to evolving market dynamics. And history shows that after every crisis, we come out stronger. And it is because our people are flexible, nimble and have learned, like I said, how to adapt. Now you can see from our Q4 results, which Craig will describe in detail next, that the COVID-19 pandemic resulted in a 52% drop in sales. However, we see this as a temporary situation and there are many reasons why. First, The consumers are rapidly adapting to the new normal.

7:57 And in certain end markets are ignoring the pandemic and utilizing their new cash reserves to buy big ticket items. A prime example of this is the bounce back in the US car sales, which were down around 35% in April and 5% in May. But June 2020 sales beat June 2019 sales. So during this period, the automobile inventories grew and then quickly dropped to normal levels. as a result of the closure of plants. And we hope that these are signs of stabilization in the industry, but of course, we will continue to monitor these developments with our customers. In addition, in this market, we are seeing a renewed interest in some of our new innovative yarns made with reprieve as each automobile company tries to differentiate themselves in the market.

8:45 This is very much driven by innovation and the disruption and many more. And that, surprisingly, is translating into new demand for sustainable offerings with a plus-one performance or aesthetic benefit. Through this crisis, Unifi has been able to deliver on the most arduous of performance requests incorporated into our reprieve yarns, and I'm pleased to note that already in July, We've experienced an increase in our pounds sold into the automotive market. The second point I'd like to make is that consumers are finding new ways to buy products, especially in the sports apparel and comfort wear, with most retailers and brands reporting record online sales.

9:34 We have seen from the financial results of the leading sports and apparel brands that they too had a difficult June quarter. However, there is sentiment around a rapid recovery of that sales volume. At the beginning of July, we restarted our operations in El Salvador and once again began servicing the reopened branded apparel Central American markets from that facility. We also saw the demand both in China and Brazil beginning to claw their way back towards pre-COVID levels. And we are assuming that this is driven by the brands beginning to fill the supply chains as the consumer basically gets back to business. The third point I want to make is in the area of personal protective equipment or PPE. In the U.S., there has been a drive to build a stockpile of PPE, some of which was led by the U.S. government. However, much of it was also driven by the private sector.

10:26 While the first round of government programs are coming to an end in the production cycle, there are additional bids being offered to the market as we speak, and we are expecting our customers to win many of these programs, which should in turn benefit Unify. From the April to July period, just to give you a bit of color, We estimate that 10% to 15% of our North and Central America revenues were coming from some form of public or private PPE programs, which is up from an estimated 2% to 3% pre-COVID. Fourth point that has been a commercial focus of ours is the nylon business. The nylon business was impacted more severely than our polyester business. However, we did see some bright spots in the PPE market also.

11:12 Many of the protective, reusable masks sold in the market have been made using nylon, and we were quickly able to supply that new market. We also saw some benefit in the medical markets that our textured nylon and curved nylon yarns go into. It comes as no surprise that our ladies' hosiery business slowed down considerably during the quarter, as social gatherings were reduced, weddings canceled, and many of the opportunities to wear ladies' hosiery disappeared. This was offset in part by an increase in our stock markets, and in July, we've seen a slight increase for some of the apparel and footwear markets that non-on business sells into. Now, looking back several years, as the non-on market declined, some would say the non-on apparel market has been starved of innovation. However, there's a growing interest in our reprieve non-on offering, both in the U.S. and in Asia.

12:02 And I believe this is an indication of the consumer and brands remembering the softness The last point that I want to cover is around the consumer experience. For the April through June period, when our customers were the most fearful of the health of their business, their employees, and their customers, we stood by them, and our team delivered a customer experience of a second to none. I'm proud of our people for not getting distracted and letting our own equally different environments impact how we treated our customers. For that, I'd like to publicly thank them. Like most companies, our visibility beyond the near term, that being the next one to two months, remains restricted.

12:47 We are focused on controlling what is within our ability, and as Al has already pointed out, naturally we have reduced costs where possible, ensuring we have ample liquidity, as well as a strong balance sheet to weather these uncertainties. Visibility of volumes for our Q2 and Q4 period is narrow, But based on the recent uptick in volumes that we're seeing and the published reports from some of the brands, along with the belief that a vaccine could be available in the next six to nine months, we see no reason why our run rate for revenue and profitability should not return to normal pre-COVID levels by the end of our fiscal 2021. We do expect it to be a steady uphill climb as we move through the fiscal year, but we have the right balance sheet to protect us should the demand slip for some reason through this terrible event. And with that, I'll turn the call over to Craig.

13:40 Thank you.

13:41 Thank you, Eddie, and good morning, everyone. Like the rest of the team, I am excited to have Eddie at Unify and look forward to growing the business together. As Eddie noted, and as we forecasted in our call on May 1st, 2020, the COVID-19 pandemic has had a significant impact to demand around the globe and for the textile industry and especially apparel. In this environment of stifled demand, our U.S. operations are challenged by lower fixed cost absorption, but our model in Asia proved strong through its agility. Alan Eddy provided a great overview of fiscal 2020, and I would like to add just a few thoughts. Our efforts in fiscal 2020 were focused on improvements over fiscal 2019, which included a lower SG&A run rate, a better raw material cost environment, and the first signs of success from our recent trade actions.

14:33 Fiscal 2020 was shaping up to be a great year from an income statement perspective until demand and economic activity dropped quickly due to the COVID-19 pandemic. Despite the pandemic headwinds, we generated significant operating cash flows in both the fourth quarter and the full year of fiscal 2020. We then drove down net debt even further with our divestiture of the Partdale America business. Although we described this transaction in our last earnings conference call, it closed during the fourth quarter and is reflected in this quarter's financial results. Let's walk through that transaction briefly on slide five. We received $60 million in cash, improving our net debt by the same amount in Q4, and we applied approximately half of the proceeds directly to debt pay down.

15:23 The proceeds from this transaction allowed us to eliminate all borrowings on our APL revolver. With this transaction completed, we can focus our full efforts on expanding our leadership position in recycled and synthetic polyester and nylon fibers, while providing additional flexibility and liquidity for both long-term opportunities and short-term needs during this pandemic. While our joint venture relationship with Parkdale Incorporated has ceased after 22 years, We continue to have other business interactions with Parkdale, Inc. On slide 6, I will provide an update on our liquidity position. Compared to the end of fiscal 2019, our liquidity position has improved substantially, as noted by the following. The ABL Revolver balance was reduced to zero.

16:12 Total debt principal fell below $100 million. Cash and cash equivalents rose to $75 million. Revolver availability was $56 million, and we have not requested any changes or concessions to our debt covenants or repayment terms. This all results in a net debt position below $25 million, a level unseen in many years, and liquidity in excess of $100 million. After strong operating cash flow generation and the Parkdale divestiture, on June 28, 2020, Approximately 54% of our $75 million of cash were held by our domestic operations. This improved from 0% at the end of fiscal 2019.

17:00 This provides us reserves for weathering the rest of the economic uncertainty surrounding the pandemic. Now I'll turn to slide seven of the presentation and review the net sales performance for the fourth quarter. Consolidated net sales declined from $179.5 million in Q4 fiscal 2019 to $86.1 million for Q4 fiscal 2020, a 52.1% decrease, almost entirely a result of stifled demand for textile products amid the pandemic. The polyester segment experienced a revenue decline of 46.2%, primarily attributable to lower volume, including a price and sales mix decline of 16%. The average selling price decline primarily follows the year-over-year decline in polyester raw material costs.

17:51 The Asia segment experienced a revenue decline of 49.7%, of which 50.8% was attributable to lower sales volume. However, it had strong pull-through on filament programs during the fourth quarter, driving a sales mix benefit The Brazil segment experienced a stark decline in economic activity during the June 2020 quarter, along with heavy foreign exchange pressures, generating an overall revenue decline of 72.8%. Lastly, the nylon segment experienced a 56.6% revenue decline. We note that both the nylon segment and the polyester segment benefited from Fabric face mask and gown production from many customers.

18:39 However, this PPE demand was not enough to offset the decline in overall global apparel. On slide 8, we will discuss gross profit performance. Consolidated gross loss of $9.5 million in the fourth quarter of fiscal 2020 was due to a significant decline in demand, which led to weak fixed cost absorption for our capital intensive operations in the U.S. and Brazil. Conversely, the Asia segment demonstrated strength and agility in that region, contributing positive gross profit. Even though we quickly took numerous actions during the just completed quarter, including rolling production curtailments in the U.S. and Brazil, as well as temporary and permanent human power reductions, These actions could not overcome the full financial impact of volume reductions.

19:30 The polyester segment was impacted the most from COVID-19, as it is the largest and most asset-intensive segment. When production volume declines at levels we experienced in 2004, some costs can no longer be allocated to inventory. Therefore, cost of sales increased at a higher per unit rate compared to a normal production period. The polyester segment accordingly reported a gross loss of $9.4 million. The Asia segment showed strength in the quarter. Although sales volumes were significantly reduced, the segment experienced a richer sales mix with greater filament pull-through. The Asia segment achieved gross profit of $2.3 million.

20:16 For the Brazil segment, margins decreased as demand fell with the local economy and gross profit was $0.2 million. Lastly, the nylon segment was impacted similarly to the polyester segment, as the low sales volumes in Q4 did not allow for adequate fixed cost absorption, resulting in gross loss of $2.5 million. I will now pass the call back to Eddie to discuss our transition to reporting reprieve fiber sales on slide 9, along with our assumptions for fiscal 2021 on slide 10.

20:54 Thanks, Craig. We spent a great deal of time educating everyone on the value of Reprieve and how it aligns with so many sustainability goals present today. As stated earlier, I was integral in bringing Reprieve to life with the team more than a decade ago and spent much of my prior time at UniFi establishing the brand, the supply chain, and its growth. But in an effort to better align our reporting of sales growth for Reprieve, We are transitioning from reporting the proportion of premium value added, or PVA, sales as a percentage of consolidated revenue to reporting the proportion of reprieved fiber sales as a percentage of consolidated revenue. As you know, UniFi has long been a textile fibers leader, and reporting reprieved fiber sales allows for better tracking against our goal of growing the global share of reprieve used in apparel and other end markets.

21:52 Slide 9. provide the current and historical view of the pre-fiber and PBA sales percentages. Now turning to slide 10 of the presentation. As we look ahead, it is important to understand that the medium to longer term underlying fundamentals that drive our business remain in place. Barring no significant government shutdowns driven by a rise or resurgence in pandemic activities, we believe that the near term should exhibit the following. Certainly we will have pressure on immediate sales and profitability given the slow rate of recovery in our core end markets. Quarterly growth to be in line with most of our end markets. We do anticipate quarter over quarter sequential improvement in our results for fiscal 2021 and working capital to naturally increase as the recovery takes hold.

22:47 Looking past the pandemic and more long term, we believe sustainability is here to stay and the current environment will accelerate these trends as a younger generation demands accountability. We expect Reprieve to grow globally as companies work to meet existing and new sustainability goals. We already support the world's leading progressive brands and we continue to have daily conversations with potential new customers that recognize the immediacy of the situation and the benefits of Reprieve. As Craig mentioned, our recent trade actions are currently in place and should provide benefits to sales volumes and cost absorption in the U.S. for an extended period of time. We believe the sum total of these concepts should fuel a return to growth by the end of fiscal 2021.

23:38 I'm incredibly proud to be back at Unifi and look forward to leading this company towards achieving its growth potential. We have the right team, The right focus and the right footprint in place to drive long-term growth and shareholder value. And I'm looking forward to taking advantage of the opportunities that lie ahead for all of us. Thank you. Brandi, we will now open the line up for questions. At this time, if you would like to ask a question, please press star, then the number one on your telephone keypad. And your first question comes from the line of Dan Moore with CJS Securities.

24:14 Hi, good morning. It's actually Lee Jagoda for Dan.

24:19 Good morning, Lee.

24:22 So just starting, can you walk us through on both the polyester side and maybe on the Asia side, just the cadence of volume declines and the improvement you saw in April, May, and June, and maybe now into July? And then just following up on that, you know, how far below pre-pandemic levels from a volume standpoint are we in July versus, you know, again, prior?

24:47 I'll take that question, Lee. Thank you. As Adal said in his script, we did see significant shortfall in revenue in April. That was our worst month. And as we went into May, it improved. In June, it improved. And of course, we've seen an improvement in July. So every month since April, we've seen a significant improvement. And it's been across the board. I can point to the three regions that we sell into. I'll start with Brazil because That was down the most at 73%, as Craig pointed out. We're seeing that business bounce back to, I wouldn't say normal levels, but much closer to normal levels than we'd expected, and for a simple reason, in that the volatility in the exchange rate scared off some of the traders, and we were, being local, able to supply the increase in demand that occurred when the retail environment opened back up. In Asia, particularly in China, it's past the pandemic and business there has returned back to normal.

25:53 And that's why you saw our gross profit much stronger there than any other region. And we're seeing the volumes, of course, they are down, but they are also coming back. And July is significantly better than June in that region also. And I turn to the US. We have two parts of that business. We have the US and we have Central America. As I said in my statement, much of Central America was shut down throughout that April, May, June period and we saw in July a huge increase in our revenues there and it's been driven from our facility out of Central America. We had been shipping some yarn down to Central America from the U.S. but with our El Salvador plant opening back up again and the demand opening up as the supply chain Thank you very much.

27:14 Lee, this is Greg. I think

27:36 I think Eddie probably framed it up pretty well. I think we see what's ahead of us for the next few weeks. I think the wild card in that is the September. But again, all signs continuing to point positively. We definitely feel like we will make significant strides forward relative to the quarter we just completed, which again was a combination of obviously the lower sales, but as we mentioned both in the script and also in the release today, Thank you very much.

28:33 Fair enough. One more for me, and I'll hop back in here. Just, Eddie, from more of a strategic, high-level perspective, once the pandemic kind of gets past us and we get back to some sense of normalcy, what are the things on your list of things that you plan to do differently or better than predecessors to make this thing a better business?

28:55 Thank you for that question. Let me answer that by first of all telling you a bit about who I am. I am a numbers guy, but I'm not here on this call to talk about the numbers. Craig does a fantastic job of that. I'd like to describe three different points. I do have a growth mindset. I wasn't brought back in to maintain the business. So you will see over the coming years, as we look to the future, certainly the opportunity to grow, we're going to take any opportunities we find. And much of those opportunities will be organic, although there may be some M&A down the road. First of all, I'd like to stress we are a company that's going to grow. The second point is that innovation is at the core of Unify.

29:40 We are a technical company, we're a curious company, and my mindset fits in with that. We've seen our business grow not because we're growing commodities, but we're growing technical solutions and giving solutions to our customers. The last point I'd like to make for me personally is people development. Companies say people make the difference, and in our company it certainly is true. And we will be investing in our people in the coming years to make sure they reach their full potential. And all those three things, growth, innovation, people development, it's all going to be focused on one thing, and that is for the good of tomorrow, as we like to say at Unify. We want to grow this business. We want to do it in a profitable way, value creation, and give value to our customers.

30:27 And we're going to do that through the team that we have. Thank you.

30:32 Thanks very much. And again, to ask a question, please press star, then the number one on your telephone keypad. Your next question comes from the line of Marco Rodriguez with StoneGate Capital.

30:48 Good morning, guys. Thank you for taking my questions.

30:51 Hey, Marco.

30:52 Hey, I was wondering if you guys can talk a little bit about some of the – strategically reduced costs that you may have taken out here in this last quarter. If you can maybe talk through where those costs kind of came out by segment would be helpful.

31:12 Sure. Good question, Marco. I think it really was a combination of several things. I think there were some both temporary costs that needed to be taken out. As we talked about, we were able to do some rolling outages as customer demand dictated at various sites. You know, we have the benefit of we did not need to really completely shut down any sites here in the U.S. We were able to take that more strategically, piece by piece, group by group, department by department, line by line, and think about it that way. And really, it's a credit to Not only our management for being able to pull that off, but our workforce to be flexible in that regard.

31:57 We did have to make some permanent headcount reductions as well, and we just feel like that was necessary for the level of business that we were at. A lot of discretionary reductions as well, obviously doing the things that we needed to do to protect the balance sheet and to reduce discretionary spending. Some of those happened naturally because people weren't traveling as much. Some of them took more effort in moving some discretionary things around. And I would say finally, we also then, I know it's not a direct expense item, but we also took a more conservative approach to our capital spending during this just completed quarter. We did invest in areas we needed to, but really kept those focused. on maintenance and safety items.

32:46 And not only did that help us as we ended FY 2020, that sets us up nicely for not having a lot of the projected capital that we noted in the press release for FY 21, the $22 million. It is definitely more in the second half of the year rather than the first half. I'm going to ask Tom Cottle to add some comments to that for a better answer, Marco. So go ahead, Tom.

33:12 Marco, we were very careful as well that we did not impair our ability to service our customers through these efforts. But we did, we took out significant costs across all areas of the company and were able to maintain all of our facilities here in the U.S. running and able to meet our customer needs. We were very fortunate in that regard and we feel very proud of the fact that we were here to service our customers throughout this pandemic situation in our fourth quarter.

33:56 Got it. Very helpful. And I was wondering if maybe you can discuss a little bit of some of the dynamics between the retail customers. Presumably, obviously, this is a very difficult quarter for everybody involved, just given the fact that a lot of the brick-and-mortar places were shut and people were pausing maybe some of their spending. Obviously, it sounds like that is tiring to come back for you guys. But just kind of wondering, based on the conversation you're having with your clothing retailers, how is the pricing situation kind of looking? Are they trying to extract more pricing pressures from you guys, or are you Are you willing to work with them because they're important clients? Just any sort of color around the pricing dynamics would be helpful.

34:42 I'll take that call, thank you, with that question. It is interesting that much of the retail environment was shut down during the period of April and May. It started opening back up in June for many states in the U.S. Of course, China opened up much before that, and Brazil started opening up in July. At the same time, as they said in the script, as all of us did, we shopped more online, and that sort of opened up some of the opportunities to consume also. But going back to your question on pricing, we have actually not had a lot of pricing pressure right now. People have been really, really supportive of each other in this environment. And I'm sure it's going to happen, but right now, everybody's focused on making sure that they get The product they need when they need it more than anything else.

35:37 And we, as Tom said, we've been there to support them. But the pricing pressure has not been an issue right now. Thank you.

35:48 Got it. And then maybe, Eddie, if you can maybe talk about, I mean, I understand that you've been there just for a little bit of time and I heard your answer to the prior question in terms of your sort of your background and your outlook, but are there any things that you might be looking at from a sales and marketing position to maybe do something differently when marketing reprieve?

36:14 Yeah, thanks for the question. You know, we've been on the reprieve journey for over a decade now, and one of the things that keeps on coming up, and it's come up actually with more veracity in the last A couple of months, and that is around the circular economy. And you will see us invest in developing solutions, circular solutions for the brands so they can take more of their product and put it back into the system. You know, we've had a textile take-back program for quite some time, and I expect if we can, when we develop that further, it will add another layer of defensibility to the reprieve brand and also provide another much needed solution for the brands. So you'll hear more about that. I won't go into it too much detail on you, but expect that down the road. Hope that answers your question.

37:07 That's helpful. Thanks. And last quick question. Just from a cash flow perspective for fiscal 21, can you maybe kind of walk us through your expectations and assumptions for cash flow from ops and then maybe free cash flow?

37:23 Yeah, I think we are, Marco, we realized that we did take a lot of costs out of the business, especially in the second half of FY 2020. We will need to fund the recovery of our customers by increasing our investment in working capital, and specifically in accounts receivable. So we expect that to grow as the sales growth returns. We are continuing to keep up our Thank you. Thank you. It's a period that we are, you know, as we look out into FY21, at least on the near-term horizon, we don't see any sea bumps that would need us to, you know, take advantage of additional liquidity or credit that we have.

38:37 We like the position that we have. We like having nothing borrowed on the revolver, and at least in our early view, it looks like, you know, at least for the next few quarters at least, we should be able to keep that. So, I think you can expect us to continue to generate good working capital. We're very, very in FY20 with generating $53 million of cash flow from operations, keeping the capital spending at a reasonable level. So I think we're looking at all those factors and expecting that we should continue some of the good trajectory that we exited FY21. Thanks a lot, guys. I really appreciate the time. Thank you. Thanks, Marco. And again, to ask a question, please press star then the number

39:25 one on your telephone keypad. Again, that is star then the number one. And there are no further questions at this time. I would now like to turn the call back over to management for closing remarks.

40:01 Thank you, Brandi. With no further questions, we would like to thank everyone for participating today. Our next earnings release for the first quarter fiscal of September, that ends September 27, 2020, is tentatively scheduled for Monday, October 26, 2020, after the market. for the conference call to follow the next morning, Tuesday, October 27, 2020, at 8.30 Eastern Time. Thank you for joining today's call. This concludes today's conference call. You may now disconnect.