Key Tronic Corporation (NASDAQ:KTCC) Q4 2023 Earnings Call Transcript

Key Tronic Corporation (NASDAQ:KTCC) Q4 2023 Earnings Call Transcript August 18, 2023

Operator: Good day, and welcome to the fiscal 2023 Fourth Quarter and Year-End Key Tronic Corporation Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Brett Larsen. Please go ahead.

Brett Larsen: Thank you. Good afternoon, everyone. I am Brett Larsen, Chief Financial Officer of Key Tronic. I would like to thank everyone for joining us today for our investor conference call. Joining me here in our Spokane Valley headquarters is Craig Gates, our President and Chief Executive Officer. As always, I would like to remind you that during the course of this call, we might make projections or other forward-looking statements regarding future events or the company’s future financial performance. Please remember that such statements are only predictions. Actual events or results may differ materially. For more information, you may review the risk factors outlined in the documents the company has filed with the SEC, specifically our latest 10-K, quarterly 10-Qs and 8-Ks. Please note that on this call, we will discuss historical financial and other statistical information regarding our business and operations.

Who is Danny/Shutterstock.com

Some of this information is included in today’s press release and a recorded version of this call will be available on our website. Today, we released our results for the quarter and year ended July 1, 2023. For the fourth quarter of fiscal 2023, we reported total revenue of $162.6 million, up 29% from $126.2 million in the same period of fiscal year 2022. For the full year of fiscal 2023, total revenue was $588.1 million, a company record and up 11% from $531.8 million for the fiscal year of 2022. Revenue for the fiscal year 2023 included new program ramps as well as increased demand from a number of long-standing customer programs. For the fourth quarter of fiscal 2023, our gross margin was 8.5% and operating margin was 2.6% compared to gross margin of 9.3% and an operating margin of 1.8% in the same period of fiscal year 2022.

Our gross margin in the fourth quarter of fiscal year 2023 continued to be adversely impacted by the strengthening of the Mexican peso relative to the US dollar. Roughly over $20 million of production costs are denominated in Mexican peso that were impacted. At the same time, we continue to see improvements in our production efficiencies, implemented strategic labor cost reductions, and have seen a gradual stabilization in the supply chain and labor markets. For the fourth quarter of fiscal 2023, our net income was $1.1 million or $0.10 per share, up from $1 million or $0.09 per share for the same period of fiscal year 2022. For the full year of fiscal 2023, net income was $5.2 million or $0.47 per share, up 53% from $3.4 million or $0.31 per share for the fiscal year 2022.

Turning to the balance sheet. We ended the fourth quarter of fiscal 2023 with total working capital of $198.3 million and a current ratio of 2.3:1. Our receivables increased by $15.8 million from a year ago, reflecting the growth in our revenue levels. At the same time, our DSOs were at 82.5 days, down from 92.5 days a year ago, which we believe reflects some improvement of certain customers with respect to disruptions from COVID-19 and other supply chain issues. At the end of fourth quarter of fiscal 2023, our inventory decreased by approximately $16.8 million or by 11% from the same time a year ago, primarily reflecting increased shipments and a concerted effort to drive inventory reductions. Our inventory turns increased to 3.7 times in the fourth quarter of fiscal year 2023, up from 2.9 times a year ago.

While the state of the worldwide supply chain still requires that we look out much further in the future than in historical periods, we attempt to carefully balance customer demand and the likelihood of successfully bringing in parts in time for planned production. In coming quarters, we expect to see our inventory levels continue to decrease at a slower rate, in line with revenue levels. Total capital expenditures were about $400,000 for the fourth quarter of fiscal 2023 and total CapEx for the year was $5.3 million. During the year, we also utilized the insurance proceeds from storm damage to modernize our operations, which should increase efficiencies in our Arkansas facility. While we’re keeping a careful eye on capital expenditures, we plan to continue to invest selectively in our production equipment, SMT equipment and plastic molding capabilities, utilized leasing facilities as well as make efficiency improvements to prepare for growth and add capacity.

We move into fiscal 2024 with a strong backlog and a pipeline of potential new business, our inventory more in line with our revenue levels, and we’re continuing to see improvement in the global supply issues and lower labor turnover. On the other hand, we’re seeing some softening in demand from several large customer, and one large customer is pausing production in this first quarter to resolve certain of their design issues. We also expect the stronger Mexican peso and our relatively high interest expense to constrain our bottom line. For the first quarter of fiscal 2024, we expect to report revenue in the range of $135 million to $145 million and earnings in the range of $0.05 to $0.10 per diluted share. Over the longer term, however, we believe that we are increasingly well positioned to win new EMS programs and continually and profitably expand our business.

That’s it for me. Craig?

Craig Gates: Okay. Thanks, Brett. Fiscal 2023 was a record-breaking year for Key Tronic. We’re pleased with our record annual revenue and strong earnings, driven by our successful ramp of new programs. As Brett noted, revenue grew 11% and earnings grew 53% from the prior year, despite facing many ongoing challenges with the supply chains and labor markets and despite higher interest expense and foreign currency pressures. During the year, we continued to see the favorable trend of contract manufacturing returning to North America. As a result, we continue to expand our customer base and won new programs involving a wide range of industries. Outdoor power equipment, battery management, automated sprinklers, biometric sensors, audio technology, automation, electric vehicles, power distribution, security devices, video and pinball machines, mining, safety and productivity, telecommunications, inventory control, clean energy, and distribution monitoring equipment.

Mobile logistics problems, the war in Europe and China-US geopolitical tensions continue to drive OEMs to examine their traditional outsourcing strategies. We believe these customers increasingly realize that they have become overly dependent on their China-based contract manufacturers for not only product but also for design and logistics services. Over time, the decision to onshore or nearshore production is becoming more widely accepted as a smart long-term strategy. As a result, we see opportunities for continued growth. As we’ve discussed in prior calls, we built Key Tronic to offer the ideal solution for customers as they move to respond to geopolitical pressures. Our facilities in Mexico represent a campus of 1.1 million square feet in Juarez, most of which is contiguously located in nine facilities acquired over time.

Our 3 US-based manufacturing sites have also benefited greatly from the macro forces driving business back to North America. Moreover, a growing number of political customers or political potential customers are actively evaluating a migration of their China-based manufacturing to our facility in Vietnam. In the coming years, we expect our Vietnam facility to play a major role in our growth. Our Shanghai plant has added capabilities in management, staff and systems that allow to serve Chinese customers directly. Shanghai has replaced the business that we moved to Vietnam, and while China growth has slowed and many companies have decided to take risk mitigation steps with their China manufacturers, the fact remains that many components must be sourced from China.

Our procurement group in Shanghai, which serves the entire corporation, is important for managing the China component supply chain on an ongoing basis. The combination of our global footprint and our expansive design capabilities is proving to be extremely effective in capturing new business. Many of our large and medium-sized manufacturing program wins are predicated on Key Tronic’s deep and broad design services. And once we have completed the design and ramped it into production, we believe our knowledge of a program-specific design challenges makes that business extremely sticky. We also invested in vertical integration and manufacturing process knowledge, including a wide range of plastic molding, injection, blow, gas-assist multi-shot as well as PCB assembly, metal forming, painting and coding, complex high-volume automated assembly and the design, construction and operation of complicated test equipment.

This expertise may set us apart from our competitors of a similar size. As a result, a customer looking to leave their contract manufacturer will find a one-stop shop in Key Tronic, which is expected to make the transition to our facilities much less risky and cobbling together a group of providers each limited to a portion of the value chain. We believe global logistics problems, China-US political tensions and heightened concerns about supply chains will continue to drive the favorable trend of contract manufacturing returning to North America as well as to our expanded Vietnamese facilities. Along with the records we set for revenue and strong earnings in fiscal 2023, we continue to see improvement across the metrics associated with business development, including a significant increase in number of active quotes with respective customers.

This unprecedented increase in demand for our unique mix of skills, location, people has powerful implications beyond the obvious revenue growth potential. In particular, we have been able to negotiate more favorable pricing terms and business parameters than in the past as well as to be much more selective in the new customers we bring on. While this shift in leverage will not manifest itself in the short term, its effect on our long-term performance should be profound. We move into fiscal 2024 with a strong pipeline of potential new business, and we’re seeing improvement in the global supply issues and lower labor turnover, which severely limited our production in prior periods. While we see some production delays and softness in demand in Q1 and we can expect higher interest rates and a strong peso to dampen our profitability in the near term, we’re very encouraged by our progress and potential for growth in fiscal 2024 and beyond.

In closing, I want to emphasize that the execution of our strategy was made possible not only by our investments in plants and equipment, but even more so the skills, local knowledge and talents of our people. I want to thank our exceptional employees for their dedication and hard work during this past year and our shareholders for their continued support. This continues — this concludes the formal portion of our presentation. Brett and I will now be pleased to answer your questions.

See also 10 Dividend Stocks with Over 8% Yield and 20 Most Dangerous Countries in Africa.

Q&A Session

Operator: [Operator Instructions] And our first question comes from Bill Dezellem with Tieton Capital. Your line is open.

Bill Dezellem: Thank you. Would you please walk through the size of each of the new wins this quarter?

Craig Gates: Yeah, it was a little bit over 10, close to five and close to three.

Bill Dezellem: Great. Thank you. And then relative to the design issue that you’re seeing with the customer, what is the size of the revenue impact that’s anticipated here in the third quarter — pardon me, in the third calendar quarter, your first fiscal quarter?

Craig Gates: We’re not quite sure yet depending on when we restart.

Bill Dezellem: Would a fair way to look at that be to just ask what was their revenue level either in Q4 or Q1 a year ago?

Craig Gates: Probably a fair way to look at it is to say that the numbers we’re projecting have zero for that product in Q1.

Bill Dezellem: And so what was — what was the number a year ago or in Q4?

Craig Gates: Number a year ago was also zero. And Q4, I guess I can’t tell you that number.

Bill Dezellem: And then, let’s actually circle back to Q4. You had a customer that was seasonally slowed or ended their production in Q4 that had been pretty significant in Q3. When will they be starting back up? And do we anticipate some revenue in Q1 from now?

Craig Gates: That revenue is zeroed out in Q1 in the projection we gave you.

Bill Dezellem: Okay. Great. Lastly, relative to Vietnam, you made a couple of positive comments in the opening remarks. Could you kind of provide a more in-depth update, what you’re seeing with Vietnam, please?

Craig Gates: We are seeing quite a few people stop by and visit now in preparation for making a decision. That shutdown entirely for almost two years during COVID, and now that’s ramping back up again. We’re seeing Vietnam is more and more in fashion for our procurement folks of our customers to think about. So we expect a bright future there. We have land nearby to grow. So we expect that we won’t have a problem expanding our facilities, and we do not see as of yet [denying] (ph) being overwhelmed with business. So everything looks pretty good so far.

Bill Dezellem: And how much business do you currently have in the Vietnam facility? And what is your approximate capacity, or said another way, kind of roughly when, what you see today might you need to expand that plant?

Craig Gates: About 30 there now, and we can probably double that, maybe a little bit more before we need to expand the plant. It always depends on if it’s just pure PCB or if it’s box build or somewhere in between.

Bill Dezellem: Right. Great. Thank you, Craig.

Operator: [Operator Instructions] And our next question comes from the line of George Melas with MKH Management. Please go ahead.

George Melas: Hey, good afternoon, guys.

Brett Larsen: Hi, George.

George Melas: Hey, Brett. I’m just trying to put numbers to the impact of the increased valuation of the peso versus the dollar. And I sort of see that year-over-year, the peso growing roughly 18% versus the dollar. And so — and tell me if I have it sort of directionally right. If your labor costs are roughly $20 million, then that’s sort of an increase of $2.5 million to $5 million. Is that roughly right?

Brett Larsen: Yeah, that is correct. And that $20 million we disclosed is actually not just labor, but it’s all our Mexican peso costs, which would, of course, include some lease and utilities and those types of things that are paid down in Mexico. But yes, directionally, you are correct.

George Melas: And do you have sort of a provision in your contracts to try to be able to pass that to the customer or is it just one of your arguments in sort of some kind of annual contract negotiation?

Craig Gates: George, the answer to that is yes and yes. So most of the contracts have a provision in there that allows us to increase our prices when we see this type of increased costs. But none of those provisions ever get tripped automatically when it results in a customer being forced to pay a higher price. So it always results in a discussion about what’s actually going to happen.

George Melas: Okay. So just to understand that you have a clause in the contract but you still need to bring it up to the customer. It’s not automatic. You need to bring it up to the customer and agree on some kind of increase.

Craig Gates: Correct.

George Melas: Okay. And so if you have a situation where you have a $4 million increase in cost, how much of that can you recoup? I guess it’s a matter of over time, but how much do you expect to recoup of that? And how much you have to eat up?

Craig Gates: I can’t really tell you, George, because it’s — there are ongoing negotiations with many customers.

George Melas: Okay. So a quick question on the SG&A. I’m a little confused by the SG&A because it seems to have increased quite a bit. I mean it usually is higher in the fourth quarter, but I’m just trying to understand SG&A progression during the year. And it seemed like it went from the high 5s to 7 and now 7.4. So I’m just trying to understand what that is and how to think about it going forward?

Brett Larsen: Yeah, there is some costs that have gone through SG&A during this fourth quarter. We saw something similar last quarter that relative to headcount and then there’s also some year-end incentive compensation that gets accrued.

George Melas: Okay. So what would be a good number for the first half of fiscal ’24?

Brett Larsen: I would — I don’t know that we get that finite in our projections. I would assume something fairly flat to what we did last year.

George Melas: Okay. But last year was meaningful. Last year, it was like $6 million in SG&A.

Brett Larsen: Yeah. You are comparing — so you’re comparing quarter-to-quarter?

George Melas: Yeah, I’m comparing…

Brett Larsen: No, I’m saying — yeah, I’m saying in total.

George Melas: In total for the whole year?

Brett Larsen: Yes, correct.

George Melas: Okay. Okay, great. Thank you. Got it. Okay, great. I’ll get back in the queue. Thanks a lot.

Craig Gates: Yep, bye.

Operator: Our next question comes from the line of Bill Dezellem with Tieton Capital. Please go ahead.

Bill Dezellem: Thank you. I’d like to pick up on Vietnam again. So if it’s approximately 50% utilized, is there anything about that plant that would not make the normal phenomenon where the last half of utilization is far more profitable than the first half? Is there anything about that that’s not accurate for this facility?

Craig Gates: No.

Bill Dezellem: And what is your — what’s your current prognosis in terms of filling that plant or bringing additional business on? Is the pipeline reasonably high confidence that you are going to be filling that quickly? Or talk to us a little bit about that, if you would, please.

Craig Gates: Well, I’m confident that a year, 1.5 years from now, it should be filling up nicely. In between there, you never know if you’re going to win a $10 million piece of business or a bunch of ones and it’s going to take a while. So I can’t really help you with the granularity with really what you want to know as far as how much by when. But it’s not — we are not in a case where next quarter, we’re going to say that, oh, we just put another $15 million in there because we won a piece of business. So it’s a ways further out than that.

Bill Dezellem: That’s helpful, Craig. Thank you. And then last quarter, you said that your revenues were going to be down sequentially because of the seasonality of one customer that had a lot of revenue in fiscal Q3. It turns out revenues were nearly flat. Would you please discuss how you made up that meaningful decline in volume?

Craig Gates: Well, during the year, we have continued to win a lot of programs. And as we talked, I was hoping that we would be able to grow through what we saw as an upcoming slowdown, a recession and also grow through the seasonality of one of the big programs, and we have seen significant growth out of our US operations, and that has been part of what offset the decline that we are expecting. We also didn’t see as much of a decline in Q4 as we were fearing due to recession. And we also saw some customers, existing customers our Juarez bump up their demand, and we were able to meet it with parts. So all three of those came together to help offset the slowdown in the seasonal product and the fact that we’re still able to run in the numbers we gave you for Q1 without any of that seasonal product continues to show what’s happening mainly in the US space and partly in Juarez.

As we talked, we’ve seen a number of our largest customers begin to forecast a slowdown due to the economy. So we are in this quarter’s projections, we actually included those forecasted slowdowns from the big customers. So I don’t know how much worse it’s going to get. We’re still probably less than 50% of our big customers pushing out, but if I knew the answer to that, I’d be Jamie Dimon.

Bill Dezellem: Okay. I’m going to ask you to be Jamie for a moment here. So I just saw today that the Atlanta Fed’s GDPNow cast — is forecasting a 5% GDP in the Q3 and that quantitative metric has actually been pretty accurate in the recent quarters, and it’s been an uptrend for the Q3. So would you — what insights would you have relative to what you’re seeing from your customers, whether it be the type of products or any other thread you might be able to pull through what you’re seeing relative to that quantitative metric that’s indicating economy is holding up?

Craig Gates: Well, my biggest indicator is how many of our top customers are pushing flat or pulling in. And right now, we don’t see — well, we see one large customer that has pulled in based on penetrating a new geographical market with their product. So if you kind of push that aside, as [Germaine] (ph) to this discussion, we see nobody pulling in. Those who are not pushing out are remaining flat. And we’re slightly below half of our large customers that are pushing out. Nobody is in panic mode. Nobody is freaking out and trying to cancel the next year’s production. But I don’t see our customers feeling as cheerful as the Fed thinks they should.

Bill Dezellem: And Craig, is there any common thread between the products that you are having forecast pushed out on?

Craig Gates: No, not really that I can discern. I’ve been looking at and thinking about it because I need to figure out if it’s going to spread or if it’s going to be contained or if it’s going to shrink. So I can’t find any type of thread and say, okay, this market is going to get hurt and this one is going to be okay.

Bill Dezellem: And relative to inventory levels, do you have any sense of whether these customers that are pushing out production, whether they are actually seeing a demand change or whether there’s just simply inventory adjustments taking place in the system now?

Craig Gates: Well, that’s — I’m not sure I can answer that question because I think — well, inventory as a result of forecast, so they could have been comfortable with $10 million in inventory a quarter ago and now they’re not because their forecast dipped. So the two aren’t really — they’re not really separable as variables. We see people who are exactly that. They used to be comfortable and wanted to carry X million because their forecast continued to look strong and now their forecast has gotten weaker and they’re trying to trim their inventories in relation to their forecasts. So it’s — that’s the way it works, is stuff starts slowing down as far as what’s passing through their channels, your sales guys get worried, they start dropping their forecasts and the procurement folks have to decide what they should be carrying inventory and then they drop their orders to us. So all three of that stuff just happens in the chain. It’s not unrelated.

Bill Dezellem: All right. I’m going to, kind of just one.

Brett Larsen: Go ahead, Craig.

Craig Gates: I didn’t say a word.

Bill Dezellem: All right. My apologies. I get to comment this from one different angle. We have seen a couple of cases where businesses are lowering their inventory levels simply because the supply chain and procurement is improving. And so they’re feeling more confident with lower levels of inventory. It has nothing to do with their end demand forecast. How does that enter into what your customers are doing?

Craig Gates: Okay. Now I understand what you’re asking. Sorry, it took me so long to get it.

Bill Dezellem: Craig. I actually was asking all the other pieces also. So you’re good.

Craig Gates: Okay. So I don’t think that is a very big factor in what we’re seeing. It’s — in fact, every one of the ones I know of are due to slow in sell-through rather than increased confidence in supply chain. The — and Brett’s writing me out notes and sticking them in front of me. So this just in, we do see — we’re getting a lot more freaked out about cost of capital as they should. So inventory levels are being scrutinized a lot harder by our customers since they cost so much more.

Bill Dezellem: And how can you use that to your advantage in terms of your inventories and/or accounts receivable?

Craig Gates: Well, part of the way we can use it is kind of the corollary to your question about people dropping inventories based on confidence in the supply chain. So the discussions go along the fact of, okay, we helped you, we brought in a lot of inventory, we shared in the cost, and now it’s time that we need to hack this inventory, and we should be able to, since the supply chain is getting better, so we aren’t going to go order [account] (ph) anymore. And if you still want us to, if you’re still nervous, you’re going to have to fund us to order an account for you. So it becomes more of a conversation on, you all are still nervous, and you’re making this decision that will cost Key Tronic money. We don’t think it’s justified. We’re happy to do it, but you’re going to have to back us financially. So that’s helping us in that respect.

Bill Dezellem: Has that process begun? And if so, kind of how has the outcomes come with that?

Craig Gates: Well, you saw that we had $16.8 million, I think it was a reduction in inventory, and that’s certainly a part of that number, and it should continue, albeit at a slower pace, but we should be continuing to drive inventory out of this business, partially due to the improvements that we’ve made in our ability in IT to manage this massive, massive beast of all these different part numbers and partly due to the fact that a lot of our customers have become a lot more cognizant and willing to discuss inventory turns as a part of business. And it has started, that’s where part of the $16.8 million came from.

Bill Dezellem: Excellent. Thank you for all of the perspective. And Brett, thank you for the newsflash.

Brett Larsen: You bet.

Operator: And our next question comes from the line of George Melas with MKH Management. Please go ahead.

George Melas: [indiscernible] Just to follow up on Bill’s question. You reduced your inventory partly because we use them. But I think you were suggesting that partly is because you were able to put some of that inventory on the customers’ book. Is that a right interpretation of what you said?

Brett Larsen: Yes.

George Melas: Okay. And how many customers or maybe, let’s say, what percentage of your customers are you able to have these discussions with some positive outcome?

Craig Gates: Actually quite a large amount.

Brett Larsen: I would say the majority, George.

George Melas: Really? Okay. That’s fantastic. That’s great to hear that. Okay. Quick question on the gross margin. For the last three years, it’s been roughly 8.1%, been consistently at 8.1%. And in the second half of this year, it was at 8.6%, partly because of higher revenue. But is there something structurally that should lead us to have gross margins in the high 8s or in the [9s] (ph)?

Craig Gates: Well, if you see the peso weaken, throw yourself a party because that’s what we’ll be doing. Had we had the peso at its historical values, this quarter would have been a massive, massive payoff for all of the work we put in. So that is the biggest single driver of what’s happening with gross margin right now. And it will normalize over time back into what we were hoping was 9 plus in GM as prices get passed through and other things happen. But as it goes up like this as quickly as it has, we haven’t been able to respond as quickly. So structurally, we continue to get more efficient. We’ll continue to drive debt out by driving inventory out, and we’ll continue to take on being able to take on a more positive class of customer versus 10, 15 years ago, five years ago. So all that is headed in the right direction, but the only thing that will pop it overnight will be a change in the peso valuation versus the dollar.

George Melas: Okay.

Craig Gates: And also back to Bill’s question, if GDP is going to go up to 5%, I don’t know what the Fed is going to do with the interest rate, but sure doesn’t feel like inflation has eased to me.

George Melas: And where do you see that? Is it labor cost? Or is it — no I think you’ve said have moderated or do you see continued inflation?

Craig Gates: It’s just inflation across the board. And when inflation is going pretty fast, we’re lagging because every price increase we pass through has to be an argument with our customer.

George Melas: Right, right. Quick question about the customers. It seems that over the last two years, you have better relationship with your customers in the sense that they don’t sort of try to be too down as much as possible, but there seem to be more of a partnership. The fact that they’re willing to discuss inventory issues and take some of that inventory on their books seems to be very positive. How could you characterize your relationship with your customers?

Craig Gates: Well, it all goes back to what we were talking about is, as we are better positioned versus our competitors and versus the tides, it is easier for us to pick the customers that share our moral standards and our outlook on life. And that, as we said, will continue to have an effect over time and has had an effect over the last couple of years as we went from being the, four, five years ago, the question was, why are you guys so heavy in America and why are you so light in China? And now the question is, God, how did you guys see all this coming to get yourself so heavy in America and ahead of the curve in Vietnam? So that makes the entire process of bringing on the kind of new customers we want and the relationship with the customers we have, and all of it just makes it so much easier than it was five years, 10 years ago when we were swimming against the tide.

George Melas: Great. That’s it for me. Thanks a lot.

Craig Gates: Okay. See you, George.

Operator: We will take our next question from the line of Bill Dezellem with Tieton Capital. Please go ahead.

Bill Dezellem: Thank you. I’ll try to make this short. Relative to your conversations with customers about the peso and changing the price, how long before those price adjustments tend to work their way through? And presumably, it’s not just a couple of week process?

Craig Gates: No, it’s probably more of a six-month process.

Bill Dezellem: So the conversations that you’ve been having over the last three-plus months, we’ll start to see the benefit later this calendar year and into the second half of your fiscal year?

Craig Gates: Yep. And those have to be very delicate conversations because there’s nothing worse for a customer than raising prices. And of course, the immediate response is, well, then we’ll go find somebody else. So we have to be very careful to make sure that we’re not going above the market as we try to pass through the increased costs we’ve seen. So there are very, in fact, there are none, where we walk in and say, take it or leave it.

Bill Dezellem: That’s helpful. Thank you.

Operator: This concludes today’s question-and-answer session. I will now turn the call back to Craig Gates for any additional or closing remarks.

Craig Gates: Okay. Thanks, everybody, for your interest, and we look forward to talking with you next quarter.

Operator: This concludes today’s call. Thank you for your participation, and you may now disconnect.