Kimball Electronics, Inc. (NASDAQ:KE) Q2 2023 Earnings Call Transcript

Kimball Electronics, Inc. (NASDAQ:KE) Q2 2023 Earnings Call Transcript February 7, 2023

Company Representatives: Don Charron – Chairman, Chief Executive Officer Jana Croom – Chief Financial Officer Ric Phillips – Incoming Chief Executive Officer Andrew Regrut – Vice President of Investor Relations

Operator: Good morning, ladies and gentlemen. Welcome to Kimball Electronics, Second Quarter Fiscal 2023 Earnings Conference Call. My name is Daily and I’ll be the facilitator for today’s call. All lines have been placed in a listen-only mode to prevent any background noise. After the completion of the prepared remarks from the Kimball Electronics leadership team there will be question-and-answer period. . Today’s call, February 7, 2023 is being recorded. A replay of the call will be available on the Investor Relations page of the Kimball Electronics website. At this time, I would like to pass the conference over to Andrew Regrut, Vice President of Investor Relations. Mr. Regrut, you may begin.

Andrew Regrut: Thank you, and good morning, everyone. Welcome to our second quarter conference call. With me here today is Don Charron our Chairman and CEO; Jana Croom, Chief Financial Officer; and incoming Chief Executive Officer, Ric Phillips. We issued a press release yesterday afternoon with our results for the second quarter of fiscal 2023. To accompany today’s call, a presentation has been posted to the Investor Relations page of our company website. Before we get started, I’d like to remind you that we will be making forward-looking statements that involve risk and uncertainty and are subject to our Safe Harbor provisions as stated in our press release and SEC filings, and that actual results can differ materially from the forward-looking statements.

All commentary today is focused on adjusted non-GAAP results. Reconciliations of GAAP to non-GAAP amounts are available in our press release. This morning Don will start the call with a few opening comments, Jana will review the financial results for the quarter and guidance for fiscal 2023, and Don and Ric will complete our prepared remarks before taking your questions. I’ll now turn the call over to Don.

Don Charron: Thanks, Andy, and good morning everyone. Let me begin by welcoming Ric to the Kimball Electronics family and congratulating him on his new role. Ric, we are thrilled to have you as a member of the team and feel very fortunate that an executive with your pedigree, depth of experience and track record of success will be leading our company. Recognizing that you don’t officially start until March first, we also appreciate you taking time out of your schedule to join us today. I know you’re excited to say a few words, and I’ll turn the call over in a moment after we review Q2 results, which were very good. For the fourth consecutive quarter, net sales were at an all-time high for the company, and operating margin expanded both sequentially and compared to the same period last year.

Our team continues to ramp-up production on new and existing programs, leverage our facility expansions in Thailand and Mexico, and begin to work down the backlog of open orders, resulting from pandemic-related global supply chain disruptions and component shortages. We expect improvement in sales and margin to continue for the balance of the year, as part of a stair-stepped fiscal 2023, and we are raising our outlook for full year sales and expect operating margin to be in the mid-to-upper end of the guidance range. Net sales in Q2 were $437 million, a 39% increase compared to the same period last year and 8% better than Q1, which was previously our best quarter. While overall conditions in the global supply chain continue to improve, the recovery has been gradual, with only modest increases in the availability of the high grade components needed for the applications we support.

A very rough estimate suggest net sales in Q2 were constrained approximately 10% from part shortages, so there was additional upside in the quarter that we could not realize. Similar to Q1, all three vertical markets reported robust double digit increases, with two of them posting all-time best. Net sales in the automotive vertical, our largest business were $200 million, a record high. This represents a 44% increase compared to Q2 last year, and 46% of total company sales in the quarter. There’s also an 8% sequential step up from Q1, with the growth fueled by the next generation electronic breaking system in Reynosa, a recent launch. This is our largest automotive program and is featured on some of the most popular pickup trucks and SUVs in North America.

We continue to see excellent opportunities in this vertical as our manufacturing capabilities align with industry growth from the electrification of vehicles. Features such as automated driver assist, lane departure warning and self-parking are available on today’s most popular cars and trucks, and we expect more functionality to be added as consumer adoption increases. More and more functionality resides in the steering modules that we manufacture and over 70% of our work in automotive is in electronic power steering, with three major market leading customers, who collectively provide steering systems to the car makers of many of the most popular brands in the world. Significant growth in content is coming from these customers, and we are strategically positioned to benefit.

It is important to note, it is essentially the same steering architecture to turn the wheels of a vehicle, regardless of whether it is powered by a motor, an internal combustion engine or a hybrid of the two. The steering applications we support are largely agnostic. As a result, our growth is not dependent on the type of vehicle produce, which is important as the industry continues to transition to electric vehicles. Second, as additional functionality is hosted in the Electronic Control Unit or ECU, our average selling price increases. This has been the case over the last decade, and we expect it to continue with new applications. Also, the physical size and space dedicated to the ECU within the vehicle is tight. So adding functionality increases the complexity of assemblies, also aligning with what we do well.

This business, our automotive business, is sticky. The automotive industry is highly regulated, requiring certifications, stringent validation protocols and carefully monitor change management systems. Selecting the right partner and the value chain is crucial and often requires high levels of investment and program life cycles that can span eight to 10 years in length. Consequently, program awards are frequently single sourced. Finally, it is important to stress that our growth in automotive is not solely tied to seasonally adjusted rates of vehicle production around the world. It is also driven by the increase in electronic content being added on a per-vehicle basis. Turning now to the medical vertical market, net sales were $125 million, a 39% increase compared to Q2 of last year and 29% of total company sales.

This is the third consecutive quarter for the business to post gains, well in excess of 30% versus the same period in the prior year, and it is a 9% step up in sales from Q1. We are very proud to have served customers in the medical industry for over 20 years, with applications supporting sleep and respiratory care, image guided therapy, in vitro diagnostics, drug delivery systems, automated external defibrillators and patient monitoring equipment. Future growth within the industry is expected to be fueled by macro mega trends, including an aging population, increasing access to affordable care and decreasing device sizes, connected drug delivery systems. We are strategically positioned to support this growth. Our current manufacturing capabilities extend beyond electronics and printed circuit board assemblies and includes, but is not limited to operations involving precision injection molded plastics, complete device assembly for drug delivery systems and sterilization and coal chain management.

While printed circuit board assemblies are important, there is a lot of value ad beyond them. The essence of our strategy is to grow the medical business at a faster pace, and expand to more aspects of the manufacturing solution. Our branding campaign of Kimball Medical Solutions highlights this full service of capabilities, so that customers recognize that our offering expands beyond electronic. Net sales in the industrial vertical market totaled $105 million, a 27% increase over the recasted second quarter of last year and 24% of total company sales. This result was also an all-time best for the company. As a reminder, public safety is now included in this vertical. A large part of the industrial business, which we call green & clean is in climate control, and we are well positioned within the value chain of all major brands for well-known heating and cooling products.

Also, for the last few years we have been building out a cluster in smart metering. It started in Europe and we now have a good grouping of customers with products that promote better consumption of water, gas and electricity by raising consumer awareness. So in summary, another very good quarter of financial results with record setting sales, improving margins and momentum that will build throughout fiscal 2023. In November, we were also honored by CIRCUITS ASSEMBLY for achieving the highest overall customer ratings in seven categories of service excellence. The awards are based solely on direct customer input, and an indication of outstanding achievement. I’d like to congratulate and thank our associates around the world for once again receiving this prestigious recognition.

I’ll now turn the call over to Jana to provide more detail on the financial results for Q2 and our guidance for the full year. Jana.

Jana Croom: Thank you, Don, and good morning, everyone. As Don highlighted, net sales in the second quarter were $437 million, a 39% increase over Q2 last year and an all-time record high for the company. Foreign exchange negatively impacted sales by 5%, so once again this quarter the year-over-year growth would have exceeded 40% at historical rates. The growth margin rate in Q2 was 7.8%, a 120 basis point improvement compared to the second quarter of fiscal 2022, with our record sales volume driving operating leverage versus a year ago, when production was more significantly constrained by part shortages. Adjusted selling and administrative expenses were $16.4 million compared to $13.5 million in Q2 last year, with the increase coming from added resources to support our significant growth, wage inflation and accounts receivable factor in fees.

When measured as a percentage of net sales, however, adjusted selling and administrative expenses were 3.7%, a 50 basis point improvement compared to Q2 a year ago. Adjusted operating income for the second quarter was $17.8 million, or 4.1% of net sales, which compares to last year’s Q2 adjusted results of $7.3 million, or 2.3% of net sales. Other income and expense was an expense of $3.3 million compared to expense of $200,000 in the second quarter of last year. With higher interest expense primarily accounting for the increase, an outcome of elevated debt levels and today’s interest rate environment. The effective tax rate in Q2 was 24.5% versus 23.7% in the second quarter of fiscal 2022. Adjusted net income in the second quarter of fiscal 2023 was $11 million or $0.44 per diluted share, compared to adjusted net income in Q2 last year, a $5.1 million or $0.20 per diluted share.

Now, turning to the balance sheet. Cash and cash equivalents at December 31, 2022 were $26.3 million. Cash flow used by operating activities in the quarter was $11.7 million, and cash conversion days were 103 days up from 81 days in the second quarter of last year, and 99 days in Q1. Once again this quarter, our cash flow and CCD results were driven by working capital increases to compensate for component part shortages, as well as our new product introductions as evidenced by our robust top line growth. We continue to see meaningful growth across our geographies and expect our inventory to normalize relative to higher levels of revenue overtime. Inventory ended the quarter at $487.5 million, up $183 million from a year ago, and $38 million from last quarter.

As Don noted earlier, we are continuing to see improvement in the global supply chain, but we are still purchasing materials not impacted by part shortages in advance so that we can fulfill customer orders once the components in short supply are received. From a growth perspective, our facility expansions in Thailand and Mexico continue to ramp up production, contributing meaningfully to top line growth. It is important to highlight that the increase in inventory is also heavily concentrated at these two facilities to support the higher volume and increasing capacity utilization. We continue to focus on turning inventory faster, measure his production day, sales on hand or PDSOH. Capital expenditures in the second quarter were $22.7 million, focused on completing the facility expansion in Poland, adding equipment in Mexico and capital needed for new productions across our entire footprint.

Borrowings on our credit facility at December 31 were $273.5 million, compared to $103 million a year ago and $232.5 million at the end of last quarter. Our short term liquidity available, represented as cash and cash equivalents, plus the unused amount of our credit facility totaled $79.8 million at December 31, 2022. On February 3, 2023 we entered into a $50 million short term credit facility to provide additional domestic liquidity to support additional equipment and working capital needs and coordination with our Mexico facility expansion, as well as supporting other customer growths. There were no shares repurchased in the second quarter of fiscal 2023. Since October 2015 under our Board Authorized share repurchase program, a total of $88.8 million has been returned to our shareholders, by purchasing $5.8 million of common stock.

We have $11.2 million remaining on the repurchase program. As Don noted earlier, we are raising our guidance for net sales in fiscal 2023 and expect full year results to be in the range of $1.7 billion to $1.8 billion, a 26% to 33% increase year-over-year. As a reminder, the original guidance for net sales was a range of $1.6 billion to $1.7 billion. Operating margin is expected to be in the mid to upper end of the range of 4.6% to 5.2% and capital expenditures are estimated to be in the range of $80 million to $100 million. So with that, I’ll now turn the call over to Don and Ric.

Don Charron : Thanks, Jana. As previously announced, I will be retiring at the end of February, so this will be my last earnings conference call and webcast as Chairman and CEO of Kimball Electronics. While I am planning on standing in the Jasper area for the foreseeable future and remaining a major share owner of the company, there will be a clean transfer of responsibility and authority to Ric as CEO, and Bob Phillippy, as our non-Executive Chairperson on March 1. It is with immense gratitude and pride that I say farewell, and thank you. I’ve been very fortunate throughout my career and I’m confident our global enterprise, our exceptional leadership team, the Board of Directors and Ric, with his track record of success and inspirational leadership will build on our legacy of award winning service to customers, the communities where we operate and our shareholders.

In my 24 years with the company, I’ve never been more excited about the future of Kimball Electronics. I’d now like to turn the call over to Ric and invite him to say a few words. Ric.

Ric Phillips : Thanks, Don. Let me start by congratulating you on your retirement. Today truly marks the end of an era for the company and your legacy is impressive, highlighted by countless achievements and a strong company culture focused on long term relationships. I feel very fortunate and humbled to be stepping into the role of CEO, and I cannot tell you how excited I am to join the Kimball Electronics family. The company has a rich history of excellence and is positioned for growth with near record levels of open order backlog, new program wins and increased capacity resulting from the recent facility expansions. The $2 billion annual revenue milestone is in the planning horizon, and I am confident the company will not only reach it, but grow well beyond.

I’d like to thank you, Don, the leadership team and the Board of the Directors for this opportunity. I look forward to leveraging my experience in cultural leadership and long term value creation to work closely with the Kimball Electronics team in writing the next chapter of our successes. In the near term I will be traveling to many of our facilities around the world to spend time with our people and to get fully up to speed on the business. I look forward to meeting and working with all of you. I would now like to ask Daily to open the lines for questions.

Q&A Session

Operator: . Our first question today comes from the line of Anja Soderstrom from Sidoti. Please go ahead. Your line is now open.

Anja Soderstrom: Hi! And thank you for taking my question. So first, congratulations Don the retirement. And Ric, welcome onboard!

Don Charron: Thank you.

Anja Soderstrom: In terms of the growth rate, it seems like you have some impact in the second quarter, some supply chain challenges. How should we think about that for the second half? Do you see things improving there? Was there something that was extra tough for the second quarter or what do you see in terms of supply chain and how she would think about the gross margin for the second half?

Don Charron: Yes, so we definitely continue to see gradual improvement, and we expect the same for Q3 and Q4. Obviously, we were constrained, still as I stated in – earlier in my comments, and it was roughly for about 10% that’s a really rough estimate, but still constrained. But we look at the incremental sequential growth from Q1 to Q2 and we’re encouraged by that. So a $31 million step up overall, and yeah, we know we need to make a couple of steps just like it in the second half of our year, to get to the run rate that our customers need us to be at. So, looking ahead at the part shortages and our expectation of continued gradual improvement, we think we’re going to see that gradual improvement and it’s going to result in two more nice steps in the second half of the year in terms of our revenue.

Anja Soderstrom: Okay, thank you. And, about the 5% headwind on the revenue from currency impact. How did that impact your EPS?

Don Charron: Well, we don’t get to that level of detail. It’s a little more complicated to get to the impact on the earnings per share or even the operating margin for that matter. Obviously, a 5% impact on the topline, you know in terms of the dollar strength in the period. As we’ve said in the past, typically when the dollar gets stronger, it’s a bit more of a headwind for us, just overall, and when at weekends, it becomes more of a tailwind for us. But it’s really hard to get to an exact number, and we certainly wouldn’t want to give you any sort of false sense or precision.

Anja Soderstrom: Okay, thank you. And then just in terms of the end marks, the auto you had a record quarter. How much of that is sort of backlog and how much is that driven by the new ramps of the new programs and how should we think about that growth in the coming quarters?

Don Charron: Yeah, well, you know the good news is, the bigger part now is the true growth from new programs. We mentioned €“ I mentioned, in my comments, the next generation breaking program, one of the largest programs the companies ever been awarded, that program was not in our revenue, the same quarter a year ago. So you know how hard we’ve been working to get to the point to ramp up that program. So that was significant new ad of business coming from a new program. We still have some catch up, we still have some backlog that we’re catching up on overall, but the bigger portion of what we see now in this quarter and ahead of us is actually ramping up new programs.

Anja Soderstrom: Okay. And just in discussions with your clients and given the sort of recessionary environment, how do you see their decisions cycles. Have they changed that? Do you see the outsourcing increasing or?

Don Charron: Well, certainly they €“ all of our clients remain committed to the outsourcing model, and in some cases even from pre-pandemic to now, it’s even increased in terms of how much they want to outsource. I think our execution during the last few years, during this pandemic has gained a lot of trust in the partnerships we have, and they’ve been willing to give us even more business. In terms of how they let’s say, sort of outsource to multiple partners. Some of our accounts, as you know are very large, and so their own risk mitigation strategies have them bringing on other partners besides Kimball to fulfill their needs, but €“ you know so we have an opportunity to gain more share of their wallet or their spend just through performance, and I think that’s something that’s really helped us here, coming out of the out of the pandemic.

In terms of what our customers are seeing, obviously we turned up the robustness on our sales and operations planning, just to make sure that we understand how they see 2023 calendar year forming up for their business, and that’s a key part of how we then set our business, not only capacity, but how we drive demand onto our suppliers, and I would say that there is some caution that’s factoring into the updated forecast that we’re getting from our customers, I think it’s prudent. But at the same time, I think they’re looking at their business, and 2023 and they are planning growth. They are planning growth for us and they are planning growth for themselves.

Anja Soderstrom: Okay, thank you. That was all from me.

Don Charron: Thank you, Anja.

Operator: Thank you. The next question today comes from the line of Jaeson Schmidt from Lake Street Capital. Please go ahead, your line is now open.

Jaeson Schmidt : Hey, guys! Thanks for taking my questions. And I also want to pass along my congrats to you Don on the news and the best wishes on the next chapter.

Don Charron: Thank you. I appreciate it.

Jaeson Schmidt : Yeah, definitely, I want to kind of follow-up on kind of your comments just now. I mean, you guys obviously are feeling more confident in fiscal ’23, but can you help us kind of recognize that confidence with the macro, which seems to have gotten more challenging? Are you just seeing such broad base strength or is it a couple programs or customers that are really giving you that confidence?

Don Charron: Yeah, I would say, you know yes to all the above. We too are cautiously optimistic, knowing and seeing what’s going on in the world in terms of forecasted economic growth. I do think that you know there’s a pent up demand picture. It’s probably more unique for us as a company and for the end market verticals we service. A lot of that has to do with the fact that the components that go into the stuff we build for our customers are not the same components that go into cell phones and computers. And so while those components have fully recovered, for the most part, you know some of the high grade material we use and high grade components we use are still lagging supply to demand. So we do have a €“ that sort of pent-up demand sort of piece of it, couples with again – we won a lot of net programs that are ramping up, that gives us a great deal of optimism.

The customers that we serve, they have a longer term horizon, but at the same time they have pretty good visibility, short term in terms of what their needs are going to be. They’re able to lay out their four, five, six quarter operating plan and what they see developing in their end markets, and they share that with us. Every month, we’re updating to our sales and operations planning processes. We’re updating those demands, and so coming out with an increase in our guidance for the top line is after a fairly thorough review of that demand profile being placed upon us. It’s after a very thorough review of component availability and how we see our success and the ramp ups of some of these programs, and so yeah, overall we’re cautiously optimistic.

We’re looking at what’s going on around us in the world, but we’re not alone. Our customers input is really huge in terms of how we see the future.

Jaeson Schmidt : Okay, that’s helpful. And I assume just based on that, you guys haven’t been seeing any significant issues from decommits or cancellations.

Don Charron: On the by-side Jaeson, is that where your question is aimed?

Jaeson Schmidt : Yeah.

Don Charron: Let me get the answer on both sides. On either side, we see some softening and we factor that in on the customer side in terms of demand input, they put on us. And you know yes, we still have shortages as I mentioned earlier that constrained our output in Q2. But it’s improving and I would say our suppliers are doing a better job of getting their arms around their backlog and being more consistent in their recovery plans. So overall that’s when we say we see the environment continuing to improve, albeit gradually it’s improving, all of those areas are improving with it.

Jaeson Schmidt : Okay, and then just the last one for me, and I’ll jump back into queue. Jana just following up on your comments on inventory, should we then expect current levels that start to be worked down this quarter or will they remain elevated here in the near terms?

Jana Croom: So my anticipation is that it’s going to take two quarters to work down the level of inventory, and then you’re going to start to see a normalized level right in terms of absolute dollars and better returns. And part of that as Don alluded to is just the timing of that final component coming through, and our ability to ship. So as he said, it’s definitely getting better, and it’s continuing to get better. My expectation is for fiscal year in 2023.

Don Charron: Maybe to build on that also, Jaeson, you know if you think back and I think you’ve been following us at least that long and more that six quarters now, that we’ve had, we’ve been in this sort of component shortage situation, that’s really hampered our ability to not only ship what our customers want us to ship, but to execute on some of our own operational plans. And so you now that seems like a long time. It seems even longer to us and our teams how long we’ve been working these shortages, and but it’s got our full attention in terms of having this inventory peak in dollars, start to work down from there. Days should get much better with our expectations of what will ship in Q3 and Q4. It’s got our full attention, and our teams are working on it, and we do expect as Jana said, you know to see some improvement over the next few quarters.

Jana Croom: And Jaeson, I don’t think our experience is too terribly different from our peers. I think we’re all carrying higher than normal inventory days. Some if it is customer directed. A lot of it for us is new product introductions, right building up and anticipation of, which is, what you would expect given our expansions in Thailand and Mexico, and then we’ll just continue to work the backlog down as that last golden screw comes through.

Jaeson Schmidt : No, that makes sense. I appreciate the color guys. Thanks a lot.

Don Charron: Thanks Jaeson.

Jana Croom: Thanks Jaeson.

Operator: Thank you. The next question today comes from the line of Hendi Susanto from Gabelli Funds. Please go ahead, your line is now open.

Unidentified Analyst: Good morning, and thanks for taking my question. This is Reno on behalf of Hendi today, and congratulations on a strong unfortunate retirement Don. I guess my third question is on your growth margins, so there’s, besides a supply chain, there’s headwinds of ramping up for the extension and ramping up new programs. So would you be able to share more color on how this headwind will subside. Do you still expect gross margins to return to its normal range exiting June fiscal year ’23?

Don Charron: Yes, we do. As we take the next two steps and if the stair stepped, fiscal year ’23 that we have, you know we do expect gross margins to get back to where they were, and that 9% and a little north 9% that’s our expectation. Especially as we get to the last step in the stair step plan. So, if you look at, if you do the math on the updated guidance, we have to have another couple of $30 million a quarter steps. So 430 to 460 to 490, however you do the round off in the math, that’s what we got to do, and as we do that, it will drive better utilization, better absorption, and we expect at that time, we’ll see gross margins that, or at historical levels, if you will, 9% a little north of 9%.

Unidentified Analyst: Thanks, pretty helpful. And then just my second question, you doubled manufacturing capacity in Mexico and Thailand. Do you have a milestone target of when the new capacity addition will be fully utilized?

Don Charron: As Ric mentioned in his comments, you know we can see the $2 billion in annual sales now in our planning horizon. You know as we get to that $2 billion number, we’ll be looking at where else is our footprint bulging if you will. We have a pretty good idea based on the awarded business we have right now, but we’ll dial that in a little tighter. We also have the Poland expansion coming online this summer. So, we are well position where we need to be, but we do have some plants that have done very well in terms of winning new business and approaching also full capacity. So hard to put an exact number to it in terms of the consolidated annual number that puts us at our capacity. It kind of depends where it ends up in our footprint. But I would say in the next two to three year plan. We’ll be looking at further footprint expansions to satisfy the needs we have from a capacity standpoint for the growth that we see that lies ahead.

Unidentified Analyst: All right, thanks, and that’s it for my question. Thank you.

Don Charron: Thank you. Say hi to Hendi.

Unidentified Analyst: Yeah, I will.

Don Charron: Okay.

Operator: Thank you. . And next question today comes from the line of Mac Furst from Singular Research. Please go ahead, your line is now opening.

Mac Furst: This is Mac of Singular Research. First of all, congratulations on the quarter, excellent! Congrats to Don and congratulations to Ric.

Don Charron: Thank you.

Mac Furst: Can you provide a little bit more color on the component shortage that has been going on for quite a while? When do you think this will €“ the situation will improve? Can you comment maybe on the region where you’re for the biggest problem? Can you maybe comment on the type of components that you’re struggling with obtaining?

Don Charron: Yes, so maybe starting with the automotive grade components, which typically have an entirely different manufacturing part number than any of their sort of similar parts that are served in other applications, consumer, computer, communications type products. So there, two factors really are happening and it’s the first is the capacity constraint itself. The second is, that the technology sort of range of those components is a bit behind the leading edge, maybe seven years to ten years in some cases. So when I said what we buy, and what we build into our products for our customers is very different than what’s in a computer or a cell phone. Those products typically have the leading edge technology incorporated into their designs.

In these long lived product life cycles of automotive, medical and industrial, you know they – the components are typically off that trailing edge as I said, by maybe as much as seven to 10 years. It is difficult for those component manufacturers to make capacity decisions. When to add capacity, when do they think they’ll work it off? They’ve all been burned in the past by adding too much capacity in the wrong technology range. So they’re cautious about that, and we’re very aware of that. And so we work very closely with our customers on what we see is the life of those components, and when designs need to change, etc. That’s ongoing work that hasn’t changed, but coming back to when do we see it getting better? You know, again, we saw some gradual improvement in Q1, more gradual improvement in Q2.

We expect the same in Q3 and Q4 and our expectations is by the time we conclude with Q4, we’re talking a lot less about part shortages and the constraints. That’s our view anyway, and we’re watching it very carefully, and our people are watching it very carefully, we’re working on it every day.

Mac Furst: All right, thank you very much. Thank you.

Operator: Thank you. . There are no additional questions waiting at this time, so I’d like to pass the conference back over to Don Charron for any closing remarks. Please go ahead.

Don Charron : Thank you. Thank you everyone for joining the call today. I wish you all the best and we’ll look forward to talking to you on our next call. Take care.