NN (NASDAQ:NNBR) Q2 2020 Earnings Call

0:00 and welcome to the NN, Inc. Second Quarter 2020 Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Mark Sherman. Please go ahead.

0:15 Thank you, Operator. Good morning, everyone, and thanks for joining us. I'm Mark Sherman, Vice President, Treasurer in Investor Relations. I'd like to welcome you to NN's Second Quarter 2020 Earnings Conference Call. The presenters this morning will be President and Chief Executive Officer Warren Beltman, and Tom DeBile, Senior Vice President and Chief Financial Officer. Anyone who needs a copy of the press release or the supplemental presentation, please contact Admiral Anthony McGregor at 212-371-5999. Before we begin, I'd ask that you take note of the cautionary language regarding forward-looking statements contained in today's press release, supplemental presentation, and in the risk factor section of the company's annual report on Form 10-K for the fiscal year ended December 31st, 2019, and when filed, the company's quarterly report on Form 10-Q for the three months ended June 30th, 2020.

1:13 Same language applies to comments made on today's conference call, including the Q&A session, as well as the live webcast. Presentation today will contain forward-looking statements regarding sales, margins, loan exchange rates, cash flow, and others. These statements should be used with caution and are subject to various risks and uncertainties, many of which are outside the company's control. Presentation also includes certain on-gap measures as defined by SEC rules. The reconciliation of such non-GAAP measures is contained in the tables in the final section of the press release and the supplemental presentation.

2:04 Warren and Tom will provide a business update and review of our results, and then we will open the line for questions. At this time, I'll turn the call over to Warren Beltman, President and CEO.

2:16 Thanks, Mark, and good morning, everyone. When we conducted our first quarter conference call in May, we indicated that our near-term focus was on four major areas. This morning, I would like to report out on that progress, on the progress that our team has made against those objectives. First, we established a goal of providing a safe work environment for our employees. All our manufacturing locations and offices operate to a standardized approach where employees and visitors pass certain predetermined criteria, including temperature checks, before they're admitted to one of our facilities. In addition, we provide personal protection to our employees and have been diligent in maintaining consistent employee communications on best practices to combat the COVID-19 virus. Unfortunately, we have had employees that have contracted the COVID-19 virus. When those situations have occurred, we have implemented our standard protocols, including employee tracing, disinfection of the appropriate areas and production area or facility shutdowns.

3:20 I would like to thank our leadership and employees for the discipline and the commitment that they have demonstrated in providing a safe working environment, as safe a working environment as possible. A second area of focus was meeting our customer requirements. Although we have instances where facility shutdowns were required, we were able to satisfy our customer volume requirements during the second quarter while maintaining a quality record consistent with our historical performance and strong reputation. Third, we had a focus on flexing our variable costs consistent with any reduction in sales volume and continuing to reduce our fixed overhead, including SG&A expenses. Our Q2 2020 sales were $150.4 million, down $71.2 million from Q2 2019 levels due primarily to the impact of the COVID-19 pandemic.

4:14 A reasonable estimate for our overall variable contribution from decremental sales is approximately 40% on each additional sales dollar. Consequently, we would expect a loss of approximately $28.5 million on this year-over-year sales reduction. Our reported Q2 2020 EBITDA and adjusted EBITDA only decreased $13.4 million and 16.4 million respectively from the same period a year ago. The 12 million plus favorable variance from the 28.5 million expectation is the result of a focus to reduce our fixed manufacturing costs and selling general and administrative expenses.

5:00 GAAP SG&A expenses decreased from 26.7 million in Q2 2019 to 21 million in Q2 2020 A decrease of $5.7 million. And Q2 2020 recorded SDNA includes approximately $2 million of expenses associated primarily with our strategic initiative process. It is encouraging to see the results of our cost-cutting efforts reflected in our financial performance, and our management team continues to focus on areas where we can better control costs without sacrificing service. The recent example is the appointment of Grant Thornton as our independent auditor during the second quarter. Grant Thornton has an excellent reputation for quality, and we expect that NN will experience a significant reduction in our annual audit-related service fees as a result of this new professional relationship.

5:59 It is also important to note that our employees have been true partners during this belt-tightening process. Our hourly teammates have experienced layoffs and reduced working hours as a result of significant customer volume reductions, while our salary personnel continue to work at reduced wages. In addition, all game-sharing and 401 matching contributions remain suspended. I appreciate the commitment that our employees have made to NN during this difficult time. The fourth goal that we discussed last quarter was to fortify our liquidity position. We increased our cash position from $79.2 million at the end of Q1 to $82.7 million as of June 30, due primarily to the generation of $1.3 million in free cash flow during the second quarter.

6:45 Our focus on liquidity was in three primary areas, maximizing our operating performance on lower sales volume, which I previously discussed, improving our working capital, which was down $30.7 million from a year ago, and working with our lenders to provide additional flexibility under our credit facility. Our working capital has reduced to the significant sales reduction during the second quarter. We have been able to remain at a reasonable day sales outstanding at 64.1 days during a period where many of our customers had desires to extend payment terms to maintain their own liquidity positions. Our inventory turns deteriorated during the quarter due to the time necessary to adapt the significant lower sales volumes. Tom will provide more detail on this in his presentation.

7:37 As it relates to our credit facility, we recently signed an amendment to our credit agreement which waives the existing leverage covenants for the second and third quarters and replaces it with a minimum liquidity covenant. We expect that this amendment will provide us the flexibility needed to continue our strategic initiatives process over the next five months if necessary. The strategic initiatives process is ongoing and is incorporated in the evaluation of a broad range of operational, financial, and strategic options with the goal of reducing leverage and enhancing shareholder value. As we have said before, we have a great company and really good businesses, and moreover, our organizational structure allows for good flexibility as we continue our strategic review and look to enhance shareholder value.

8:24 This is the extent of our comments regarding this process. As always, we appreciate your understanding and patience as we continue to pursue alternatives associated with this important initiative. Turning to page five, You can see that the impact of the COVID-19 virus had on our sales for the second quarter and year to date. On a consolidated basis, total revenue decreased 32.1% versus the prior year due primarily to issues associated with the coronavirus pandemic. Sales for our life sciences group were up 20.7% due primarily to the delay in elective orthopedic surgeries, especially those related to large joint replacement. Our mobile and power groups were negatively impacted by 48.3% and 27.1% respectively due to the significant number of automotive OEM facility shutdowns and lower demand for electrical components due to customer shutdowns in Mexico.

9:24 These same issues have caused company-wide sales to the six months ended June 30 to be down 19.5%. For the six-month period, life sciences sales were off prior year by 11.8%, power solutions was off 17%, and mobile solutions was off 20.6%. Now I'd like to turn it over to Tom Duvall so Tom can provide a more in-depth review of our financial performance for the quarter.

9:52 Tom? Thank you, Warren. Please turn to slide six, which includes our second quarter results on a gap Non-GAAP Excluding Special Items, and Total Adjusted Non-GAAP Basis. The special items include one-time unusual expenses and the integration non-op items are expenses related to the number of acquisitions and integration activities made over the past few years. A couple of points on the slide. The sales shortfall year over year related to the pandemic had a negative impact on our financial results. Despite the sales shortfall, we were able to flex the business due to the cost-cutting activities Warren had mentioned in his opening remarks.

10:41 It really shows that we were controlling our costs in a very difficult environment. The second point on this slide is that despite the sales shortfall, we were able to hit double-digit EBITDA margins on a reported non-GAAP-excluding special items and a total adjusted non-GAAP basis. Let's go to slide 7, which provides a detailed bridge between reported GAAP, non-GAAP excluding special items, and total adjusted non-GAAP. Let's focus our attention on the upper portion of the bridge. There were three tax-affected special items in Q2 2020. An asset write-down of $0.7 million, Fairfield move costs of $0.3 million as we sold the facility, and 0.6 million for severance agreements.

11:34 Two items impacted the second quarter tax expense. First, the NOL carryback provisions of the CARES Act provided a favorable impact of 1.8 million. And the second, the unfavorable annual tax rate impact of the prior quarter's non-deductible goodwill write-down impacted the tax precision by 4.7 million. In the prior year quarter, There were four tax-affected special items consisting of 0.3 million of asset write-down, Brazil VAT of 0.2 million, severance of 0.9 million, and divested businesses of 0.6 million. Now let's turn our attention to the lower section of the bridge.

12:19 The tax-affected non-operational adjustments relating to capacity and capabilities development, professional fees, and integration and transformation were down $1.4 million year-over-year. Tax-affected FX on intercompany reduced by $0.3 million year-over-year, and amortization of intangibles was down $0.3 million year-over-year. Turning to slide 8, networking capital at the end of the second quarter was $182.9 million compared with $213.6 million in the prior year, a decrease of $30.7 million. Working capital turns were 3.3 turns versus 4.2 turns in the prior year. The decrease in working capital turns related to the sales shortfall due to the pandemic.

13:11 DSO increased versus prior year by 1.8 days. Inventory turns decreased by 1.4 times. And the accounts payable days decreased by 0.7. We expect working capital turns to improve as volumes normalize in the next few quarters. Please turn to slide 9. Net debt at the end of the second quarter was $767.9 million versus $862.1 million in the prior year, a decrease of $94.3 million. Cash increased by $60.6 million as we increased the borrowing on our revolver. During the quarter, we amended our credit facility as Warren had mentioned.

13:57 Leveraged covenants were waived for Q2 and Q3. The amendment requires a minimum cash balance measured at month end and a minimum daily cash balance. The amendment allows us time for the businesses to recover due to the pandemic and continue our strategic review process. Although we have made good progress to improve our liquidity and implement cost reductions during the quarter, Our 10Q will show us as a going concern, given the uncertainty in the economic environment. Slide 10 shows our free cash flow for the quarter. Free cash flow was $1.3 million in the second quarter, 2020, compared to a cash use of $7.8 million in the prior year, a significant improvement.

14:47 Year-to-date, free cash flow is $0.2 million, versus a cash use of $24.6 million in the prior year. Again, a significant improvement. As mentioned on the bottom of this slide, it is the fifth consecutive quarter of positive net cash provided by operating activities. Slide 11 shows our capital spending, depreciation, and amortization trends. Cash capital expenditures were $4.4 million, or 2.9% of sales for the second quarter. The company anticipates capital spending to be in the range of about $30 million for 2020 in response to COVID. With that, I'll turn the call back to Warren.

15:51 Thanks, Tom. We have presented additional information for each of our operating groups starting with Life Sciences on page 15. As I indicated previously, Life Sciences Q2 revenue has been impacted by 60% reduction in elective orthopedic surgeries when compared to 2019. As a result, we have also seen a reduction in our backlog from 163 million at March 30, 2020 to 142 million at the end of the second quarter. In spite of the significant sales reduction, our recorded EBITDA and adjusted EBITDA were 22.4% and 25% respectively. Cost reduction efforts implemented in reaction to this sales impact helped to offset the contribution loss from reduced sales. We currently expect that our volumes over the remainder of 2020 will be flat to slightly down when compared to our second quarter results.

16:46 as our customers continue to react to reduced elective surgeries and focus on reducing existing inventory levels. A normalization of elective surgery demand to 2019 volumes is not expected to occur until sometime in Q2 2021. We will continue to focus on flex productivity and cost control over the remainder of this year. The mobile solutions group The Mobile Solutions Business Summary is included on page 14. The Mobile Solutions Group was hardest hit by the coronavirus pandemic in Q2 as OEM manufacturers in North America and Europe were shut down during most of April and May, causing a 48.3% reduction over the prior year levels.

17:33 June saw an improvement in sales as they rebounded to be over 50% greater than May levels. Despite the $38 million reduction in sales, the group posted positive GAAP and adjusted EBITDA of 9% and 10% of sales, respectively. The reduced variable contribution margin from lost sales was offset by approximately $6 million in indirect and SG&A wages and related benefits, along with significantly reduced travel costs. As we discussed last quarter, we expect that volumes will remain below capacity for the remainder of 2020. We currently expect that our China operations will perform at normalized volumes, North America will strengthen further at the beginning of Q4, and our European and Brazilian operations will experience reduced volumes due to COVID.

18:25 Overall, we expect sales for the balance of 2020 to be approximately 50% greater than our Q2 running rate. Our focus in mobile solutions will be on capex containment, working capital management, and flux productivity. Moving on to power solutions on page 15. Power second quarter sales decreased 27% year-over-year due primarily to lower sales caused by COVID-19, including the closure of customer facilities in Mexico for four to six weeks and delayed customer approvals for certain aerospace and defense programs. Power reported actual EBITDA of $5.8 million, or 15.4% of sales, and adjusted EBITDA of $6.2 million, or 16.5% of sales. Both were down from prior year levels due to reduction in sales.

19:17 During the first two months of Q2, Power experienced unfavorable variable margin performance versus our internal expectation, caused by production shutdowns and employee absenteeism due to COVID. Our variable margin performance improved during June 2020, and we expect that trend to continue through the balance of 2020. On the sales side, we expect that Q3 and Q4 sales will stabilize at levels slightly below those experienced in Q1 due to an improved backlog of aerospace and defense business and improved stability in the demand for our electrical components. As with other groups, our power management team will be focused on flex productivity, working capital management, and cost reductions.

20:03 Based on my commentary surrounding each of our three groups, we expect company-wide sales to improve over Q2 levels due to expected improvement in sales for both the mobile and power groups. Obviously, the uncertainty associated with the COVID pandemic will continue to have a dampening effect on each of our three business groups, through the remainder of 2020, causing our view of Q3 and Q4 sales to be approximately around the midpoint between Q1, which was slightly impacted by COVID, and Q2, which was significantly impacted by the COVID pandemic. Page 16 summarizes the goals that we have been operating to and that remain significant objectives for the remainder of 2020.

20:51 Safety of our employees and satisfying our customer requirements will remain of obvious importance. We will continue to adjust our variable costs with sales fluctuations and work to reduce our fixed and SG&A expenses. Improving our cash flow and maintaining our liquidity in these uncertain times is a major priority. Key tenets of that objective are reducing capital expenditures and working capital. Inventory will be a major focus in the second half, as we believe we have opportunities to reduce work in process and finished goods based on our current inventory turn metrics. Although a reduction in WIP and finished goods could result in lower earnings due to underabsorbed manufacturing burden, we believe the tradeoff for increased liquidity is a positive.

21:39 Lastly, we will continue to manage our cash position to our second half plan in order to comply with the liquidity requirement in our product facility. That concludes our prepared remarks and I will now turn the call back to the operator for questions. Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star 1 to ask a question. We will pause for just a moment to allow everyone an opportunity to signal for questions.

22:28 We will take our first question from Rob Brown from Lake Street Capital Markets. Please go ahead.

22:37 Good morning. First question is around sort of You give some pretty good color on the mobile and the power in particular in terms of some visibility or outlook. How is the visibility in those markets? Is it getting better sort of daily, day-to-day, just a sense of kind of what you're seeing in those markets and how sort of confident you are in the visibility at this point, which I'm sure is not great, but just want to get a sense of where you're at there.

23:10 Yeah. Rob, I gave some guidance as it relates to what happened in June. In a couple cases, in the mobile case as an example, we saw a significant uptick in the June period that was actually 50% greater than what we saw from sales volumes in May. So from a trend standpoint, it's going the right direction. As it relates to our outlook, I gave our view of that. As it relates to the reliability of that, normally, at least on the mobile side, the OEMs tend to have a pretty strong structure as it relates to their production schedules. So, at least in the short term, in a four- to six-week window, we feel relatively comfortable with the forecast. You know, as I've probably talked about in the past, we also work, you know, we establish our are sales forecasts based off a couple factors. One is what we're seeing from the customer as it relates to the releases that we get that are either firm or planned within a 12-week window. And then we also use IHS data as it relates to what IHS is predicting from a macroeconomic environment as it relates to overall automotive sales.

24:36 If we try and pair that and match that up with what we're seeing from the customer in order to get a balance in our forecasted outlook. As it relates to the power side, we use some of those same types of methodologies with using our customer demand and then try and understand what's going on in the construction and housing markets and on an overall basis within the economy to balance out our forecasts from an expectation standpoint.

25:08 Thank you. That's a great color. And then on the margin kind of profile, you did a pretty good job of maintaining the gross margin profile, but how do you sort of see that? Do you expect that to grow or just sort of stabilize here given your cost reduction efforts and really growth? It depends on revenue growth, but just maybe directionally on the gross margin. What's your thoughts?

25:35 As the sales expand over Q3 and Q4, as I indicated, I think that what we'll see is an improvement in the margins over Q2. As I indicated early in my comments, kind of a rule of thumb for us, when we see an incremental sales dollar, we start to associate 40% of that falling into our gross margins. and given the fact that the company has been very successful, our teams have done an excellent job of taking fixed costs and selling general and administrative expenses out of the business.

26:20 We expect the majority of that to carry over into the future. Now, just as a caution on that, we have had reduction in wages Our hope is that once we see a more firmer footing on the recovery in the economy, we hope to restore some of the wage cuts that we put in place in the April, I think, April timeframe. You know, our preference would be to do that sooner rather than later. So that would pull back the margin just a little bit. But I would tell you the impact from a 40% contribution margin on incremental sales, our view is, will offset that.

27:09 Okay, great. Thank you. I'll turn it over. Thank you. We will now take our next question from Daniel Moore from CJS Securities.

27:21 Warren and Tom, good morning. Thanks for taking questions.

27:24 Morning.

27:25 Yeah, good morning.

27:26 Great color on life sciences and understood as it relates to what's going on with elective surgeries. Did I hear correctly, I guess you'd expect Q2 to be the first opportunity, Q2 of next year to be the first opportunity to get back to pre-COVID levels? Is that the thought process at this point?

27:48 Yeah, yes. And the way that we look at it, that's when elective surgeries would essentially rebound to the 2019 levels. And based on our relationship with our customers, we typically, our volumes kind of crop up shortly thereafter. So we may have a one-quarter lag to that as it relates to the resurgence in the life sciences business volumes.

28:21 That's helpful. And then, you know, at this stage, you, from a longer-term perspective, as we look at 22 and beyond, what would be the expected growth rate, you know, for the market as well as for NM in that segment?

28:38 Yeah, our longer-term view is that the second half of 2021, you know, will be a return to 2019 types of volumes. What we've seen in this process in dealing with the COVID pandemic is some of our customers are looking at the timing of how they were going to introduce some new programs, which is always a positive for our business as it relates to inventory fill. They're looking at potentially deferring the implementation of some new programs in order to conserve their liquidity and their capex, which would soften the recovery just a little bit for us.

29:28 So as we look at 2022, we see that as a full return to volumes above where we were in 2019, and then probably a 7% or 8% annualized growth rate thereafter.

29:45 Got it, helpful. And then, don't want to push you on the process itself, but can you comment on your ability to conduct the strategic review over the last three months given COVID-19 and where that ability stands today?

30:05 Yeah, you know, not going to get too deep into the process. I just will tell you that certainly it's been a challenge. with the COVID and where the financial markets have been. Obviously, that's a big component of trying to work on a process like this. So it's been a challenge, and that's one of the reasons that, you know, it's been such an extensive process.

30:33 Understood. I think that's it for me. I'll jump back to any follow-ups. Thank you.

30:39 Thank you. Ladies and gentlemen, if there are any additional questions, please press the star followed by the one at this time. As a reminder, if you're using a speaker equipment, you'll need to lift the handset before making your selection. We will now take our next question from Steve Barger from KeyBank Capital Market. Please go ahead.

31:02 Good morning, guys. Good morning, Steve.

31:06 Good morning, Steve.

31:08 Good to see positive free cash flow year to date. Can you talk through the segments in terms of cash burn or cash generation in 2Q just to give us a sense for how you were able to manage the business in the trough quarter and just broadly what do you expect for the back half?

31:27 You know, Steve, on a segment-by-segment basis, you know, I think you take a look at at the EBITDA that each one of our groups has been generating and then the CAPEX associated with it. So I would tell you that in each individual case, our groups, I think, did as good a job as could be done in the second quarter in managing cash flow. And the most important components that they manage with our corporate team is CAPEX and Working Capital. And you can see from the results that we've had that our capital expenditures are down significantly from the historical runway. So we indicated last quarter that we had an extreme bias towards only spending maintenance type of CapEx, and that has been the focus of the team. I think that we've done a good job on that.

32:27 From a Working Capital standpoint, our view is that each one of our groups, can do a better job on the inventory side. We've seen our inventory turns go down. And part of the reason for that is the inability to flex some of the orders that we had. Some of the raw material that we order comes from overseas locations. You know, we're ordering directly from the mill in certain cases, and those orders have, you know, 10 to 12 week lead times associated with them. When the volumes dip as quickly as they did from a COVID standpoint, it was difficult for us to react. When I talk about the fact that we have significant inventory reduction goals in the second half of the year, I think that's true of all of our groups.

33:19 I know that the mobile and the power groups in particular are very focused on the WIP and the finished goods components, and we've targeted a significant reduction there, especially in the fourth quarter from a timing standpoint. and the same is true on the life sciences side, which actually tends to carry a little bit higher inventory levels than the other two groups. So that's an area that we're going to work on as well. As we look out into the future, you know, we're still going to control the CapEx. That's going to be a big piece of it. As this thing rebounds, we're very cautious as it relates to what the working capital demands on the business will be. You know, I gave you a rule of thumb as it relates to variable costs. The rule of thumb for us on working capital is, you know, in each group, it's a pretty tight range, I would tell you, between 20 and 23%.

34:12 But if we look at it, you know, to put sales dollars back in place costs us about 20 to 23% from a working capital standpoint. against an annualized sales dollar amount. So we're going to be working very hard with our customers to make sure that we're maintaining payment terms. Obviously, there's always pressure there. But I think that as we go through the year, our expectation is we're going to continue. The only thing that would prevent us at this point in time, based on the forecast that we see from a sales standpoint, we still expect to generate... Some positive cash flow. I don't think it's going to be a lot given the volumes.

34:58 The thing that could derail us from that certainly is the working capital, and we're going to have to manage that really hard.

35:06 Right. I think to be able to generate free cash flow this year would be a great accomplishment. As you've looked at how you're managing the business in a crisis situation, Are you finding areas where you can make structural improvements, whether it's in working cap or any of the other processes that can improve the cash flow profile of the business going forward?

35:30 Yeah, I would say yes. And I'm going to go back to a more generalized statement on that. This is a company and three businesses that are built around continuous improvement and getting better every day. So the moment you stop believing that you can't improve It really goes against the core philosophy that the company's built around. So our view is that, yes, there are significant opportunities for improvement. In a couple of our groups, we've established a targeted percentage of sales where our fixed costs, our indirect labor, and some of our other cost drivers need to be, and we're not there yet, and we know that we need to achieve those objectives. From an SD&A standpoint, there's still opportunities for us From a consolidation standpoint, the mobile and power group, as an example, are just getting started on what they can do from an efficiency standpoint.

36:28 Our IT teams are working very hard to try and improve the efficiency of the information that's delivered to our operating groups, and we think we can gain some efficiency there as well.

36:44 And shifting to life sciences, has the pandemic affected customer willingness to engage in outsourced manufacturing, or is it slowing inquiries down, or are you seeing accelerated opportunities for new business? Just how has this changed things, if at all?

37:00 Yeah, I would tell you initially, our customers really, as it relates to consolidation of the supply base, and outsourcing, it was kind of like, let's full stop right now. Let's understand what's going on in our industry. Let's understand where we need to set our inventory levels based on this new norm. So there was a suspension of that type of activity for a short period of time. But once everybody had an opportunity to react to the situation, and understand it as best we can today.

37:45 Our customers are now re-engaging with continued outsourcing and talking to us about consolidation of the supply base and we expect that that will continue and probably will pick up a little bit more speed at the beginning of next year.

38:00 Okay. If revenue in Life Sciences is flat sequentially in 4Q, can you drive some margin increase? Can you improve the decremental margin? And just how would you think about free cash flow for that segment specifically?

38:19 You know, I would tell you I'm not targeting what we do. We actually do target free cash flow by each division. I don't have a number off the top of my head for that right now. I would tell you, like I said, the focus is as it relates to margin improvement. Our expectation is we're trying to drive a full percentage point of sale of improvement through the balance of the year. And with the containment of cash flow, that will by default drive free cash flow from that business.

38:57 Yeah.

38:58 I don't know the exact number off the top of my head.

39:01 Okay. Yeah.

39:02 Tom, do you have any additional comment on that? I'm just going to ask Tom that.

39:09 No, I don't. I think you hit the point, Warren. I don't have that number off the top of my head either. Okay.

39:15 And so if 3Q revenue is somewhere between what you saw in 1Q and 2Q, given that sequential increase and your cost actions, first on mobile specifically, can you get back to a positive operating margin or on a consolidated basis, Can you get back towards the margin level of 1Q, or is that kind of a bridge too far from a revenue standpoint?

39:42 I'm trying to remember first quarter revenue for mobile.

39:48 200. Oh, for mobile, yeah.

39:50 Oh, I thought your question was mobile.

39:53 Mobile and then consolidated. So, yeah, let's talk mobile first. First quarter revenue was $70 million.

40:01 Yeah, so can we get back to that level of margin? I think that given what we're expecting in the second half of the year, probably be a little bit of a stretch because we're going to be below that from an overall sales standpoint. But obviously, we're expecting continued improvement over the balance of the year. And if you look at what we did in the first quarter, yeah, it was $69.8 million. We're going to be shy of that for the second half of the year. And if you use, from a guidance standpoint, some of the sales estimates that I provided and talk about this 40% decremental, you'll probably have a good estimate of where we think we're going to be. Okay.

40:48 I think that's it for me then. Thanks.

40:52 Thank you. That concludes today's question and answer session. Mr. Warren Beltman, at this time, I would like to turn the conference back over to you for any additional or closing remarks.

41:07 Yeah, thank you. I'd like to just thank everybody for participating today. You know, my overall view is that, you know, our teams did a great job for the second quarter to have positive free cash flow in this environment and to maintain our liquidity position over where we work. in the first quarter were, I think, significant accomplishments. I'd like to thank the whole team for that and appreciate the participation of the analysts and some of the shareholders that are listening today. So thank you for that and have a good day. Appreciate your time. This concludes today's conference call. Thank you for your participation. You may now disconnect.