Standard Motor Products (NYSE:SMP) Q3 2020 Earnings Call

0:00 Good day, everyone, and welcome to today's Standard Motor Products third quarter earnings call. At this time, all participants are in a listen-only mode. Later, you will have an opportunity to ask questions during the question-and-answer session. You may register to ask a question at any time by pressing the star and 1 on your touchtone phone. Please note this call may be recorded. It is now my pleasure to turn today's program over to Larry Sills. Please go ahead.

0:30 Well, good morning everybody and welcome to our third quarter conference call and we thank you all for attending. With me today, I have Eric Sills, President and CEO, Jim Burke, Chief Operating Officer, Nathan Iles, Chief Financial Officer, and myself, Larry Sills, Executive Chairman. Here's the agenda for today. Eric will begin by reviewing the highlights of the quarter. Then Jim will give a brief review of operations. Nathan will go into a more detailed review of the numbers. And then I will have a short wrap-up before we open it for questions.

1:20 So with that, let me turn it over to Nathan for the forward-looking statement. Thank you.

1:28 Okay. Thank you, Larry. Before we begin this morning, I'd like to remind you that some of the material we'll be discussing today may include forward-looking statements regarding our business and expected financial results. When we use words like anticipate, believe, estimate, or expect, these are generally forward-looking statements. Although we believe that the expectations reflected in these forward-looking statements are reasonable, they are based on information currently available to us and certain assumptions made by us, and we cannot assure you that they will prove correct. You should also read our filings with the Securities and Exchange Commission for a discussion of the risks and uncertainties that could cause our actual results to differ from our forward-looking statements. I'll now turn the call over to Eric.

2:10 Alright, thanks Nathan and good morning everybody and thank you for joining us today. I'd like to open by thanking all of our employees for going above and beyond in these difficult times. As part of an essential industry, we had to jump through many hoops to stay operational so that our people could come to work safely. And I'm just so appreciative of everyone whose dedication, intelligence, and skills led us through this unprecedented experience. And a special thanks goes out to the frontline employees at our factories and distribution centers who braved the situation, working countless hours to take care of our customers. These folks are the true heroes. Okay, so on to business. As mentioned on our last call, we came out of the second quarter experiencing strong demand, and I'm pleased to say that the trends continued throughout the third quarter.

2:58 Let me discuss each of the divisions separately, starting with engine management. Engine management sales were up 6.7% for the quarter, clawing back about a third of our sales shortfall from the first half. Consumer demand has been robust, which we believe reflects the deferred maintenance from the early days of the pandemic when cars were idled in driveways. But we're also experiencing a general surge in the aftermarket as a result of people staying at home and working on their vehicles. And we believe this has especially impacted the DIY sector. Good evidence of this is the strong performance of our wire and cable business. It fits older vehicles and is relatively easy to install, which are two hallmarks of DIY business. and while this line has recently been trending down 7% or so per year due to where it is in the life cycle, it spiked up 10% in the quarter, which we have to assume is a temporary phenomenon.

3:52 Customer orders for all of engine management have been consistently solid and this has continued into October. That said, our forecast remains low single-digit growth over the long term. Our temperature control division was up 25% in the quarter, driven by two dynamics. The first is related to timing. If you recall, preseason orders from our customers were very light this year. In fact, our first half was down almost 20%. And then it got hot out, creating a surge in demand across the country. These two factors combined for a very strong quarter, though year-to-date we are slightly behind last year. This is why we always suggest looking at temperature control on a full-year basis. There are often quarterly anomalies, but they typically balance themselves out.

4:41 Moving to earnings, we are pleased to report that the quarter set an all-time record for S&P. Jim and Nathan will provide some detail on the drivers, so I just want to take a moment to speak to COVID-related savings. As we have mentioned in the past, we put in place short-term cost reduction measures, ratcheting back various discretionary expenses, as well as cutting executive and board compensation. We do plan to assess what we've learned and identify areas where we believe the savings can be sustained. However, we do recognize that many of these reductions will, in fact, be temporary. We had also taken steps to conserve cash, including suspensions of both our quarterly dividends and our share repurchase plan. And we are pleased to reinstate both of these programs, as they are core aspects of how we return value to our shareholders.

5:34 So in summary, needless to say, it's been a roller coaster of a year. After a mediocre first quarter and a truly difficult second quarter, we were able to make up much of the lost ground with a very strong third quarter. We always experience a certain amount of volatility period to period, and while this year it has been substantially more exaggerated, it does show that our business tends to balance over time, and we do expect that to continue going forward. Before I hand this off, I would just like to make a few comments about the future. First, we are delighted but not surprised to see our industry once again show its resilience. The basic fundamentals are solid, and there are many favorable trends taking us forward. And while the crisis is certainly not over, we are confident that we are smarter now than we were before, our team grew stronger as a result of managing our way through it, and we are well-equipped to tackle whatever's thrown at us.

6:28 With that, I'll hand it over to Jim, who will talk about our operations. Jim?

6:33 Okay. Thank you, Eric. I will provide an overview of our business from an operational perspective. I plan to touch on the basics from supply chain, manufacturing, through distribution. As we have all experienced, the past six to seven months has been challenging and demanding. Our baseline was a 40% decrease in volume in April. This was followed by a relatively quick rebound in customer POS numbers in May and June that turned into increased orders to us in June and July. This momentum increased as we progressed through Q3 and remained steady. From a supply chain view, this meant working feverishly with our vendors to be able to meet our materials demand.

7:21 With a few exceptions, our vendors and supply team have been able to keep supply flowing to our factories. Turning to our manufacturing base, we face surging demand with a significant mixed shift towards older technology SKUs driven by our customer sales in the DIY channel. Early in the third quarter, we were hampered with a shortage of available labor, a combination of higher demand, and the COVID impact with high-risk employees out and disruptions from contact tracing. I'm happy to report that we have been able to secure additional manpower along with the return of our high-risk employees. What is the result of the surge in demand?

8:07 Production levels are significantly up in all our manufacturing facilities, generating favorable overhead absorption, which can be seen in our very strong Q3 gross margins. Engine Management was 31.5% and Temperature Control was 29.2%. These higher margins were generated from the surge in production volume, which we expect to level off. While this favorable momentum should carry into Q4, we expect sales and production to return to normal in 2021. Our longer-term gross margin targets would be engine management 30% plus and temperature control 26% plus. We are fortunate to have a substantial manufacturing footprint in North America, including three low-cost operations in Mexico, reducing our China exposure.

9:02 I will also note, on occasion, we have transferred production back to the U.S., the benefit of automating previous manual assembly processes. Quickly looking around the globe, our Poland operations, which is our coil manufacturing center of excellence, along with other switches and sensors, has steadily grown in size and value. Over the past year, we have approved added capacity for Poland to meet our increasing ignition coil demand. Our three China joint ventures, all in the temperature control product categories, recovered very early from the pandemic at the start of the year. All three JVs provide us a steady source of supply whereby we can control costs, quality, and lead times.

9:52 Finally, our North American distribution centers are our last touch point with our products. Our Q3 surge in demand presented challenges for our DC shipping performance. Similar to our manufacturing operations, we experienced a shortage of available labor to meet demand. The impact from this was slower turnaround time in our DCs to ship orders. During this period, our DCs were working six and seven days per week to keep up. Tremendous efforts were put forward by our DC employees to satisfy our customer needs. We have made great strides securing additional headcount, and I am happy to report that we are current again and meeting our shipping turnaround goals. In summary, we are very fortunate to be a resilient industry that pounced back so quickly. Unfortunately, this is not the same for many other industries that have suffered dearly. I commend our frontline heroes that were on the job six and seven days per week to satisfy the customer.

10:55 Customer satisfaction is ingrained in our S&P culture and we just do it. Congratulations and thank you to our 5,000 employees around the world. I will now turn the call over to Nathan.

11:09 Alright, thank you Jim. Looking now at the results in the P&L, our consolidated net sales in Q3 2020 were $343.6 million, up $35.9 million or 11.7% versus Q3 last year. Our net sales for the first nine months of the year were $845.9 million, down $50.8 million or 5.7%. By segment, our engine management net sales in Q3, excluding wire and cable sales, were $190.9 million, up $10.1 million, or 5.6%, but for the first nine months of the year, were down $40.5 million, or 5.7%, finishing at $498.2 million. The increase in sales during the quarter, we believe, was due to pent-up demand from earlier in the year and strong customer POS, But looking in total at the first nine months, the quarter increase only partially offsets declines we saw earlier in the year related to the economic slowdown caused by the pandemic.

12:07 Wire and cable net sales in Q3 were $38.7 million, up $3.5 million, or 10%, and for the first nine months were $105.6 million, down $2.9 million, or 2.6%. While the wire and cable business continues to be in secular decline, and we still believe it will decline 6% to 8% on an annual basis, Sales this year have been positively impacted by an increase in DIY sales as consumers stay at home during the pandemic. Our temperature control net sales in Q3 2020 were 110.4 million, up 22.1 million, or 25%. However, for the first nine months, sales were down 7.4 million, or 3.1%, versus last year, ending at 234.2 million. As Eric noted, temp control net sales in the quarter were driven by a very hot summer across most of the U.S., Aided by very light preseason ordering earlier in the year.

13:01 Net sales on a year-to-date basis in this segment are more in step with last year, down slightly from the first nine months of 2019. Our consolidated gross margin in Q3 2020 was 31.4% versus 29.9% last year, up 1.5 points. For the first nine months, it was 27.7% versus 28.9% last year, down 0.2 points. Looking at the segments, engine management gross margin in the third quarter was 31.5%, up 0.8 points from Q3 last year, while for the first nine months of 2020, it was down 0.3 points to 29%. Temperature control gross margin in Q3 2020 was 29.2%, up 3.2 points from 26% last year, and for the first nine months, it was up 0.5 points to 26%.

13:52 Margins for the quarter reflect the strong sales volumes we experienced in both segments and the positive impact of high fixed cost absorption resulting from the compression of production into just a few short months, as Jim alluded to earlier. On a year-to-date basis, gross margins in both segments more closely align with long-term trends, as engine management margins are really flat with last year, and temp control margins ended just slightly ahead of the prior year. Consolidated SG&A expenses in Q3 were $59.5 million down $0.4 million from Q3 2019 and came in 17.3% of sales versus 19.5% last year. For the first nine months, SG&A spending was $163.7 million down $16.8 million at 19.4% of net sales versus 20.1% last year. While our SG&A expenses in the quarter were roughly flat with last year, The improvement as a percentage of sales is reflective of the higher sales volumes we experienced this year. Lower SG&A expenses in the first nine months were helped by cost reduction plans put in place as a response to the impact of the pandemic and overall better leverage of expenses as a percentage of sales.

15:03 Our consolidated operating income before restructuring and integration expenses and other income net in Q3 of 20 was $48.3 million, or 14% of net sales, up 3.6 points from Q3 2019, and for the first nine months was 9.3% of net sales, up 0.5 points from last year. As we note on our gap to non-gap reconciliation of operating income, our performance resulted in third quarter 2020 diluted earnings per share of $1.59 versus $1.02 last year, and for the first nine months diluted earnings per share of $2.53 versus $2.51 in 2019. The increase in our operating profit for the quarter was mainly due to higher sales volumes, while the increase for the first nine months primarily reflects lower SG&A expenses across the company, which slightly more than offset the impact of lower sales volumes.

15:57 Turning now to the balance sheet, accounts receivable at the end of the quarter were $238 million, up $102.5 million from December 2019, and up $69 million from September 2019. The increase over year-end reflects seasonal patterns in our business, Well, the increase over last year reflects the strong sales we experienced in the third quarter, as well as the timing of those sales during the quarter as compared to last year. Inventory levels finished the quarter at 311.4 million, down 56.8 million from December 2019, and down 28.8 million from September 2019. The decrease from both year end and September last year mainly reflects the sharp recovery in sales we experienced in the third quarter, after having lowered production levels earlier in the year in response to general expectations of slowdown in sales.

16:46 Looking at the cash flow statement, it reflects the cash generated from operations in the first nine months of 2020 of $78.6 million as compared to a generation of $43.1 million last year. The increased cash generation during the first nine months of this year was driven mainly by timing, both of movements in inventory and accrued customer returns, and offset by an increase in accounts receivable stemming from strong sales during the quarter. We expect this timing around cash flows to normalize as sales and production levels stabilize. During the first nine months, we continued to invest in our business and used $13.2 million of cash for capital expenditures, which was higher than the $12.3 million used in the first nine months of 2019. Financing activities included $5.6 million of dividends paid and $8.7 million of repurchases of our common stock both of which occurred during the first quarter.

17:38 Financing activities also included 44.9 million of payments on a revolving credit facility. We finished the third quarter with total outstanding borrowings of 12 million and available capacity under our revolving credit facility of 238 million. Finally, as noted in our release this morning, the Board of Directors has approved a reinstatement of a quarterly dividend of 25 cents per share in common stock outstanding and we've also reinstated our share repurchase program which have remained authorizations from our board of directors in the amount of $11.3 million. Thank you for your attention and I'll now turn the call over to Larry to wrap up.

18:16 Larry, you're on mute.

18:21 Thank you. I just want to say a few words before we open for questions. As you saw in the release, come January 1st, I'm going to be moving from Executive Chairman to Chairman of the Board, and this reflects the fact that I'll be stepping back a bit from day-to-day activities, but I'll still remain closely connected to the company as Chairman of the Board. I believe this is an appropriate and proper move after 53 glorious years where I had the privilege of being part of the company's growth from roughly $20 million in our core business when I began to well over a billion dollars today.

19:14 And we still have many plans for future growth. I'm confident this is going to be a very seamless transition as all our major moves have been. We have in place what I believe is the strongest and deepest management team I can remember who proved themselves in how well we performed during this very difficult year. So I am very confident about the future. So I thank you for listening, and now we're going to move to questions. And so for this, I turn it over to the moderator. Thank you. At this time, if you would like to ask a question, please press the star and 1 on your touchtone phone. You may remove yourself from the queue at any time by pressing the pound key. Once again, that is star and 1 to ask a question.

20:12 We will pause for a moment to allow questions to queue. We'll take our first question from Scott Stember. Your line is open. Please go ahead.

20:27 Good morning, guys, and congrats on a really nice quarter.

20:30 Thank you, Scott, and good morning to you.

20:33 Can we talk about POS? In the release, Eric, you talked about very strong, particularly in engine management. Could you maybe just frame that up for us and maybe talk about the cadence throughout the quarter and frame that up against what we're seeing right now in October?

20:54 Sure.

20:55 Let me talk about the two divisions separately. Engine management, what we saw pretty consistent throughout the quarter was in the highest, I'd say around the high single digits, touching into even the low double digits, but really high single digits, and that continued throughout the quarter and has continued into October as well. On the wire and cable portion of it, we saw that in the beginning it did start to taper off slightly in the last couple months, still very much in the positives, but it's tapering off slightly, which probably is reflecting the fact that the DIY business is gonna at some point return back to normal. Temperature control was robust throughout. It roughly matched what our sales were, 25% or so POS throughout the entire summer, so we're very strong.

21:49 Got it, and just on the gross margins, You would never know that you had some inefficiencies on the distribution side and on the labor side just because of the demand with these strong numbers that you put up. Could you maybe quantify how much of an impact it has in the quarter? It sounds like it's mostly reversing itself in the fourth quarter, correct?

22:13 Yeah. Hi, Scott. This is Jim Burke. There's so many variables that are going on at one time that are in there. While we had inefficiencies that were there, volume makes up for a lot of that. So, you know, we gained leverage as a percent of sales that was there. I don't go into the individual details. We have cost savings that we implemented because of the COVID crisis, which offset a lot of that inefficiencies that were there, and volume really made up for a lot of it.

22:49 Got it. And then the last question, and then I'll jump back into the queue on the SG&A line. I know that there's definitely some moving pieces, and there's some things that were taken out, a lot of stuff that was taken out over the last couple of quarters. But can you give us an idea of what we should be looking for for the fourth quarter or You know, where that could come out. And then just, you know, when you talked about some stuff coming back next year, management comp or whether it's some of the other growth-related spending. Can you talk about that just broadly speaking for next year?

23:25 Yes. Yeah, Scott. So when you look at the SG&A line, obviously, like you said, there's a lot of moving pieces this year. We always talk about this line as being 75% fixed, you know, the rest variable. And, you know, we would see, you know, I think normalized I would say as we go through the fourth quarter into next year, obviously we'll be looking at costs that can be controlled, as Eric, you know, noted earlier in his remarks, looking at what that might be as we go forward, but really expect something more normal looking into the future at this point.

24:03 Okay. All right, that's all I have for now. Thank you.

24:07 Thank you, Seth. Again, that is star and one to ask a question. We'll take our next question from Daniel Imbrow. Your line is open. Please go ahead.

24:21 Yeah, thanks. Good morning, guys, and, yeah, congrats on the strong results. Thank you. I wanted to start on the temperature control side, Jim. You know, really impressive, both on the cost side and the demand side. Can you maybe talk about where inventory levels are as we exit the summer months? Obviously, that helps. The lack of preseason sales helps during Q, but how are we exiting this season, and how do you think that's going to impact restocking if we get normal weather trends next year in 2021? Well, good morning, Daniel.

24:49 This is Eric, and I'll tackle that. As we look at the inventory position on the majors, Distributors, where we have the visibility. We're actually pleased to see that their inventory really kind of held up throughout the season, which reflects the fact that they were ordering heavy from us and weren't able to replenish their shelf. So now that we're coming out of the season and looking at the fact that September and October actually continue to be somewhat strong, we assume their inventory is now dropping a bit. We don't have visibility yet of such recent inventory snapshots. That does, as you say, tend to bode well for next year's preseason, and so we'll see what comes, but I think it's a reasonable assumption.

25:41 Great. That's helpful. And then maybe following up, just thinking about that next year outlook, I know you guys aren't guiding yet, but Eric, as you think about demand being more resilient than we thought it would be this year, What are some of the puts and takes as we're thinking about maybe industry growth for next year? How do you see industry growth shaking out? Should there be a tailwind from seemingly a miles-driven recovery? Will there be growth in the aftermarket sweet spots? Any of the major factors you guys are looking at as you're thinking about what 2021 industry growth looks like?

26:11 I wish we had such a good crystal ball. At some point, we believe that the industry is going to return to some level of normal, especially within our categories, which are Non-discretionary hard failure type items. Can't really create demand on engine failure.

26:28 It is what it is.

26:29 So at some point we expect that to return to normal. We don't know when that will be because it has continued to be robust, which suggests that there is always a certain amount of unperformed maintenance out there, underperformed maintenance, and maybe that is being performed at a higher rate than historical. But once it does get back to normal, we expect that on the engine management side, it's going to go back to being a low single-digit business. And on temperature control, it's so weather-dependent that hot summers versus cool summers can move the needle up or down a few percentage points, and so we'll just have to track with the weather.

27:08 Got it. And then the third one from us, maybe focusing longer term, just There's been a lot of talk in the market around EVs lately, states like California trying to phase out the combustion engine. You guys have hard assets that are pretty aligned with the internal combustion engine. Can you just update us on how you're thinking that transition looks over time and maybe what are some of the levers you guys can pull to offset some of those headwinds if they do materialize in the next five plus years from growth in EVs that are less internal combustion engine heavy? Sure.

27:39 It's a great question, and it's one that we spend a lot of time discussing internally, as you can imagine. You give the timeline as five years. We think it's really going to be substantially longer than that as it relates to, I mean, first it needs to pick up in terms of the percentage of new car sales, and then there's obviously a substantial lag before it starts to impact the car park, and especially the sweet spot of that car park. So we do believe that we have really quite a few years before it has any significant implications. That said, we do believe that it is a when and not an if, and so we do need to prepare ourselves for that. As you look at our engine management business, certainly a significant portion of it is specifically targeting that combustion engine, but we are looking to broaden The offering to cover a lot of other aspects of that vehicle, and we're seeing that much more as we get into safety-related devices, whether it's the advanced stuff, the ADAS-type products, or some of the stuff that's been on vehicles for many years, such as analog braking systems and and tire pressure sensors and so on is becoming a bigger part of our offering and a lot of other body control parts. There's lots of electrical switches and sensors throughout the vehicle and we've really broadened our portfolio to pursue a lot of that.

29:07 As we look at the electric powertrain itself, we hope that there are gonna be some replacement parts opportunities. Right now it's frankly too early to tell because it's such a small part of the car park and it's essentially the other part of the car park that we're not really seeing those failures. But we do believe that it is going to be less than combustion engines. It's fewer moving parts and so that's why we do need to prepare ourselves for other product categories which we see plentiful other product opportunities. We move to our other division, so the temperature control division, and while there are some nuances on electric vehicles, They still basically have the same air conditioning system, so we will continue to enjoy that. Plus, there's a lot more cooling opportunities, and we're seeing that in battery cooling components that we can get into.

30:04 I would like to point out, just going back to the combustion engine side, that much of the sales growth that you're seeing out there for EVs is really hybrids, and they do still have a conventional powertrain on it, which we're enjoying so much. That's a long-winded answer to say that we do know we need to prepare ourselves, but we think we have a long lead time to get there.

30:25 That's great. Thanks so much, guys, and best of luck.

30:27 Thank you, sir. We'll take our next question from Brett Jordan. Your line is open. Please go ahead.

30:38 Hey, good morning, guys. Good morning, Brett. I guess just sort of looking at market share, I mean, some pretty strong numbers in the third quarter and a lot of disruption. Globally, do you think you guys had the opportunity to gain any share as a result of the pandemic? And I guess the follow-up to that question, given you're opening up your buyback and dividend, would be how are you thinking about the M&A environment? Has this event created any opportunities to buy? And as you look at some of these new categories, maybe expanding beyond internal combustion. Do you see yourselves being more active here in the near term?

31:22 I'll talk about market share and Jim can address the M&A question. For market share, as you know, Brett, we enjoy strong business relationships with really everybody out there. So we think that any market share movement would probably be more related to downstream market share shifts. We continue to enjoy pretty much unchanged relationships with all of our trading partners. Jim on M&A?

31:57 Yeah, and Brad on the M&A. You know, we have a formal team that's in place, and we're continuously monitoring opportunities that come up. Again, many of them come from our source of supply, be it our vendors or product categories that we may acquire out of a larger company, i.e., like we did with Pollock and Stone Ridge that was there. So I'd say the past year, things obviously have been very quiet with the whole COVID impact, but we continue to monitor. Nothing to speak of yet. I think the pipeline is relatively stable. But we're focused on engine management and temperature control in that area.

32:41 Okay. And I guess, Eric, to the market share question, I guess you're not seeing any bias to move away from import programs to North American supply chain partners or I guess even the inverse. Are you seeing buying groups pushing more to direct source out of Asia in this environment?

33:04 We have not really seen that over the course of this year. We do find ourselves, as you can imagine, having discussions with everybody about the security of our supply chain. And as Jim went through in his prepared remarks, it's been very secure and stable. So we think that our lesser reliance on the Far East does help us. but I wouldn't say that's yielded any real benefits to us this year.

33:33 Great. Thank you. Thank you. You're welcome. We'll take our next question from Robert Smith. Your line is open. Please go ahead.

33:46 Hi. Good morning and thanks for taking my questions. So basically my questions have been answered already. but I do want to discuss a certain point. So you guys have a really venerable history of the company over many years, 100 years or so. So looking at the historical record, I really think you should consider looking at a special dividend By the end of the year, to make shareholders whole, the dividends they missed this year, you would, again, on a startle record, show a decrease in the dividends for the year.

34:40 And you've been very judicious in paying the dividend and raising the dividend over the long span of years. And I would like you to consider This possibility, I know it's kind of late, I don't know about a board meeting or whatever, but I think you should consider this as far as a historical record. You certainly snap back very quickly, and I think you can well afford it, and it will provide your shareholders with some extra cash to spend during the holiday season. So all in all, I think that this is a suggestion that you could consider. and I hope you will. Thanks and as far as, I do have a question with Larry stepping back. I'm not sure whether he will be present on future earnings calls like this. If not, I certainly want to wish him all the best in his future and give him a big hug over the phone.

35:45 I'll answer the second one.

35:47 That's the easy one. I certainly plan to still be here, Bob, and look forward to it.

35:55 Okay, great. Wonderful.

35:58 As for your first question, I think Jim may be the right guy to do that.

36:02 Okay. Yeah. Okay, that came up. And, Robert, again, thank you for the question. Yes, it's a consideration. You know, our focus is really opportunities and what we first invest in the business with CapEx that we have there. Thanks, Tim, again. It's a question of historical record. That's how I look at it. Okay.

36:51 Thanks. All right. Thank you, Robert. We'll take our next question from Carolina Jolly. Your line is open. Please go ahead.

37:03 Hi. Thank you for taking my question. I'd also like to congratulate Larry on taking a business from $20 million to a billion. Very impressive. Just to focus on my question first, I know you do hard parts. and a lot of non-discretionary business. But do you have an understanding of what kind of the underlying do-it-for-me, do-it-yourself mix is? On top of that, there's just been a ton of do-it-yourself strength, especially in e-commerce. Does that affect your business in any way or how production is run?

37:44 All right. Well, good morning, Carolina. You're right, our products being more tailored for professional installation and not just because they're non-discretionary hard parts, but because they're more technical in nature, not just the ability to do the repair, but in a lot of cases, the ability to do the diagnostics. It's much more difficult for a DIY-type consumer, especially in the newer technologies. And so while we do believe there was an uptick over the course of the quarter, it's still the minority of how our products are sold. So yeah, that did create a bump. It's going to come back to normal.

38:32 We don't have total visibility of our DIY, DIF, and mix. We lose that visibility as it gets down through the channel. But it's still certainly less than half of how our products are sold. and therefore leading to your second question, if I understood it correctly, you broke up a little bit, had to do with the implications on e-tailing, is that correct?

38:54 Yes, just that we've seen significant strength in e-tailing, just seeing if that affects your business in any way.

39:00 Right, and so you're right, they are very related topics. We do not sell directly to any of the pure e-tail businesses and many more. and we've seen over the last few years a very slow increase of that and perhaps over the course of this year it accelerated slightly. but it's still a very small percentage of our business. I'm talking less than 10% of our business is sold that way.

39:48 Again, because it is professionally installed and so the name of the game is speed of delivery and having that inventory availability as close to the need as possible. And so we believe it will continue to be a minority part of our business.

40:08 Great. Thank you and congratulations on a great quarter.

40:11 Thank you. Thank you, Carolina. Once again, that is star and one to ask a question. It appears we have no further questions at this time. I will now turn the program back over to Larry.

40:37 Okay, everybody. Thank you very much. We appreciate your attendance.

40:41 Thank you very much. This does conclude today's program. Thank you for your participation. You may disconnect at any time.