KVH Industries Inc (KVHI) 2021 Q4 法說會逐字稿

Good day, and welcome to the KVH Industries, Inc. Q4 2021 Year-End Earnings Conference Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Roger Kuebel. Please go ahead.

Thank you, Christine. Good morning, everyone, and thank you for joining us today for KVH Industries' fourth quarter results, which are included in the earnings release we published this morning. Before I introduce the others on the call, a couple of quick announcements. First, if you would like a copy of the earnings release, it is available on our website and from our Investor Relations team. If you would like to listen to a recording of today's call, it will be available on our website. If you're listening via the web, feel free to submit questions to ir@kvh.com.

Finally, this conference call will contain certain forward-looking statements that are subject to numerous assumptions and uncertainties that may cause our actual results to differ materially from those expressed in these statements. We undertake no obligation to update or revise any of these statements. We will also discuss certain non-GAAP financial measures, and you'll find definitions of these measures in our press release as well as reconciliations of these non-GAAP measures to comparable GAAP measures. We encourage you to review the cautionary statements made in our SEC filings, specifically those under the heading Risk Factors in our third quarter Form 10-Q filed on November 4, 2021, and our 2021 Form 10-K, which we expect to file tomorrow. The company's other SEC filings are available directly from the Investor Information section of our website.

Joining me on the call are the company's interim Chief Executive Officer, Brent Bruun; Chief Technology Officer, Bob Balog, and the newly appointed Chairman of the Board of Directors, Cathy Martine, who is going to say a few words now. Cathy?

Thank you, Roger. Good morning, everyone. As Roger said, I'm Cathy Martine, I would like to thank everyone who has dialed in this morning. Before we get to the results for the quarter, I wanted to share an update from the KVH Board of Directors. As you may have seen in our press release this morning, we announced a leadership transition. After more than 40 years at the company, most recently as our President, CEO and Chairman, Martin Kits van Heyningen is retiring from his executive and Board roles to make way for the next generation of leadership at KVH. We want to thank Martin for his service to the company and all that he has accomplished. The Board believes that KVH has a tremendous opportunity to create value.

In order to capitalize on that opportunity, we believe that KVH needs to focus on its core businesses and drive towards profitability. In addition to Martin's retirement today, we announced an organizational restructuring that aims to achieve this. We believe these actions will result in increased shareholder value. The Board has also engaged a nationally recognized executive search firm to help identify a new CEO. Our current COO, Brent Bruun, will assume the role of Interim Chief Executive Officer. Brent has been with KVH for almost 14 years, and he has a deep understanding of our businesses and our customers. The Board has full confidence in Brent and look forward to working more closely with him.

And with that, I will turn it over to him to walk through the highlights from the quarter. Brent?

Thank you, Cathy. Good morning, everyone. Thanks for joining us. Before I discuss the quarter and the year, I would like to thank Martin for his contributions to KVH, which are too many to name here. He has built an exceptional company and want to personally wish him all the best in his future endeavors. I'd also like to address the workforce reduction. This was an incredibly difficult, but necessary decisions.

As Cathy mentioned, in order for KVH to become a profitable, growing company, we need to have a focused strategy built around the businesses where we are a leader, particularly VSAT products, AgilePlans and our fiber optic gyros, all 3 of which grew in the fourth quarter. We also need to reduce costs and better align our expenses with our expected revenue from these businesses. The restructuring of our operations and associated headcount reduction is critical to achieving our goal. However, I know this doesn't make the news today any easier for our colleagues who are impacted. I want to thank all of them for their dedication to KVH and ensure everyone we are committed to doing everything we can to assist during this transition.

Turning to the fourth quarter and fiscal year results. While we achieved overall expectations, the quarter and the year proved that delivering profitability will require new initiatives, including becoming more focused. Our mobile connectivity segment continued to drive strong revenue. This was largely offset by a decline in our inertial business, due to a large part to supply chain issues, limiting our ability to fill orders in the fourth quarter and lumpiness in demand for our TACNAV products. I will address TACNAV in more detail shortly.

I'm going to run through some of the results before talking a bit more about our go-forward strategy, and then I'll turn it over to Roger, who will walk through the numbers in more detail. Revenue for the quarter was $43 million, which reflects a decline of $1 million from Q4 of last year. We increased our full year revenue by $13 million to $171.7 million. Our fourth quarter EBITDA was a loss of roughly $100,000, while EBITDA for the fiscal 2021 was $4 million.

Mobile connectivity 4Q revenue was $35.2 million, up from $29.9 million in the fourth quarter of last year. Our mobile connectivity revenue was $134 million for the full year, up $14.5 million versus fiscal 2020. Our new airtime subscribers were up 12% in Q4, which included a number of our legacy network subscribers, while VSAT airtime revenues rose 18% for the quarter and 14% for all of 2021. We completed the wind-down of our legacy satellite network in Q4. As a result, all of our VSAT subscribers are now on our global HTS network. We eliminated the legacy network operating costs, and we're seeing an increase in airtime ARPU for those customers on the HTS network in comparison to our legacy network. As anticipated, we have some legacy customers who we expect will migrate to the HTS network in conjunction with the leisure boating season this spring. Thanks to a mix of new and migrating customers, it was a strong quarter for VSAT terminals.

Shipments of our satellite TV systems were also solid, but delayed by supply chain challenges, which held us back from additional TracVision shipments. However, we entered 2022 with a strong VSAT and television antenna order backlog that we are working to fulfill. In the commercial market, we successfully expanded our satellite connectivity service that permits vessels to use KVH antennas and the HTS network while operating in Indian territorial waters. In addition, we can now offer satellite connectivity services to Indian flag vessels. This region is a critical area for the global shipping trade. We are also seeing continued strong demand across all markets for our ultra-compact TracPhone V30 VSAT system.

While shipments and airtime revenues continue to grow, we have also focused on improving our mobile connectivity gross margins. In order to boost revenue and improve margins, we increased price points on our hardware, our AgilePlans subscriptions and our leisure airtime rate plans. We will regularly evaluate prices for all products and services throughout 2022 and beyond and adjust as necessary based on market demand, our expense structure and our margin targets. We recently renegotiated our HTS network cost to help improve our airtime margins and we implemented new cost controls. These include changing our shipping terms for AgilePlans. The changes enable us to continue to offer standard shipping as part of the subscription cost, but shift excessive and expedited expenses to our customers in light of increased global shipping rates.

In our inertial navigation business, our Q4 fiber optic gyro revenue was $7.4 million, up $6.1 million in Q4 -- up from $6.1 million in Q4 2020. Total inertial and military revenue for the quarter declined 43%, due to a substantial reduction in TACNAV shipments year-over-year. For the full year, we grew FOG revenue 12% to $27.9 million, while overall FOG and TACNAV revenues were roughly flat at $36.9 million, again due to the decline in TACNAV sales versus the prior year.

As we did with our mobile connectivity products, we recently raised inertial navigation product prices to increase revenue and address higher component costs resulting from the ongoing supply chain challenges. Longer lead times for key inertial sensors, sensor components also limited what we could ship in Q4. And we anticipate that these challenges will continue through Q1 and Q2 of this year. Overall, we are positioned well as we enter 2022, with an inertial product backlog above $20 million.

On the military side of our business, we received modest revenue from sustaining TACNAV support, parts and service. As you know, TACNAV is a high-margin product. However, we ceased including TACNAV in our guidance some time ago, due to the uneven nature of the market and order timing. We anticipate receiving a significant new order for U.S. military vehicles, but it has been delayed. We now expect to receive it at the end of 2022 or more likely early '23. It is not included in our base revenue forecast for 2022.

So now, I'd like to talk about our path forward. As I mentioned earlier, our focus is on achieving sustained profitability. To summarize, we will continue to invest in businesses where we are a market leader and where we win, primarily VSAT products, AgilePlans and FOGs. Ensuring we are maximizing margins by increasing prices and doing a better job of managing costs where we can on these products is also critical. We're going to exercise more discipline around investments in our new product initiatives. This also means moving away from products or services that do not make strategic and financial sense for the company. For example, we're currently in discussions to sell the in-store radio assets of our KVH Media Group. We anticipate finalizing the sale within the next month.

We believe that the Internet of Things is important for the long term of commercial maritime operators. We have built our KVH Watch Solution using world-class software and dedicated KVH terminals to meet that need. However, the market demand has not matured at the speed we initially expected. As a result, we are eliminating the requirement in expensive dedicated terminals. We are instead integrating our flow and remote expert support capabilities into AgilePlans or other deployed VSAT terminals and future connectivity systems. In addition, we plan to offer our unique Cloud Connect service as a subscription feature in our next-generation terminals at some point after product launch. In keeping with our current conservative outlook, we are not including any revenue for IoT services in our 2022 forecast.

We are continuing to look for opportunities to reduce costs. Clearly, the organizational restructuring and workforce reduction was a significant step, but we're going to be aggressive in finding additional ways to improve margins. We will share more information here as it makes sense. We're going to stay focused on increasing shareholder value. I have confidence in the strength of our business and believe we can execute on the initiatives we have discussed today. Roger will walk through our guidance for 2022, which we'll see as a very achievable target.

Now I turn -- I turn the call back over to Roger for the numbers.

Thanks, Brent. As Brent mentioned earlier, our fourth quarter revenue came in at $43.1 million compared to $44.1 million recorded in the fourth quarter of 2020. Our consolidated gross profit margin was 32% for the fourth quarter, as compared with 39% in the fourth quarter of last year. Revenue from our mobile connectivity segment increased $5.3 million, with gross margin decreasing slightly from 33.8% to 33.2%. Revenue from our inertial navigation segment decreased $6.3 million year-over-year with gross margin decreasing from 49% to 24%. Service revenue for the fourth quarter was $27.2 million, an increase of $4 million or 17% from $23.2 million in the fourth quarter of last year.

By segment, service revenue and mobile connectivity increased by $4.4 million or 19%. This increase was primarily due to a $3.6 million increase in mini-VSAT broadband airtime revenue. Airtime revenue grew to $23.9 million, or approximately 18% over the fourth quarter of last year and the related gross margin was 35%.

As Brent mentioned, we shut down our legacy ArcLight network that happened at midnight on December 31. Virtually all costs associated with that network have ceased. And while we will have additional costs on our HTS network to service the customers who have migrated, we expect to see a margin improvement in our mini-VSAT services. We are continuing the migration and transition of legacy network customers who did not migrate by December 31. The monthly recurring charge associated with those customers was approximately $330,000. During January and February, we re-signed over 100 of these customers for just over $100,000 of recurring monthly charges. We expect to continue re-signing former legacy network customers throughout 2022, particularly in the spring as seasonal leisure customers commission their vessels for the summer. However, I should note that we are not expecting to re-sign all of them.

Product revenue for the fourth quarter was $15.9 million, a decrease of $5 million or 24% from $20.9 million in the fourth quarter of the prior year. By segment, our mobile connectivity product sales increased by $0.9 million or 12%, primarily due to an increase in TracPhone product sales. As Brent mentioned, a significant number of those VSAT product sales were for migrating customers. So, we're being cautious in terms of expecting that trend to continue.

Inertial navigation product revenue decreased approximately $5.9 million, or 43%. This decline was due to lower sales of our tactical navigation product line, which decreased by $7 million this quarter compared to last year's fourth quarter, in which we had a very large order. Within the FOG and OEM product lines of inertial nav, revenues increased by $1.2 million despite supply chain issues, which constrained sales. We estimate that in the fourth quarter, we could have sold $1 million to $2 million more without those constraints. Service revenue within inertial navigation segment decreased $0.4 million compared to the fourth quarter of last year.

Gross margin for the quarter was down $3.5 million. This was primarily due to lower TACNAV sales, which have strong gross margins. Mobile connectivity gross margin was up $1.6 million or 15%.

Operating expenses for the quarter were $18.9 million, down $9.5 million from the fourth quarter of last year. However, this drop is a result of the impairment charges for our KVH Media business unit of $10.5 million in the fourth quarter of 2020. If you adjust for the impairment charge, OpEx was up about $1 million, primarily due to higher salary expense and lower funded R&D.

At the operating income level, these changes in revenue, margins and operating expenses resulted in a loss from operations of $5.3 million, which was an improvement of $6.0 million compared with $11.3 million loss reported in the fourth quarter of 2021. Again, last year's loss was primarily driven by the impairment charge. Our mobile connectivity segment generated an operating profit of $1.0 million compared with an operating loss of $10.6 million last year due to the impairment charge while our inertial navigation segment had an operating loss of $1.4 million for the quarter compared with an operating profit of $4.1 million last year. Our unallocated loss was $4.9 million compared to last year's $4.8 million.

For the fourth quarter, our net loss was $4.1 million compared with a net loss of $11.6 million recorded in the same quarter last year. On a non-GAAP basis, which excludes impairment charges, amortization of intangibles, stock-based compensation, obsolete inventory recovery and other non-recurring costs such as unusual non-operating fees, foreign exchange transaction gains and losses, income from loan forgiveness, related tax effects and changes in our valuation allowance and other tax adjustments after those adjustments, we had a net loss of $3.1 million compared with a net gain of $1.3 million last year.

EPS for the fourth quarter was a net loss of $0.22 per share, compared with a net loss of $0.65 per share in the same period last year. Non-GAAP EPS loss for the fourth quarter was $0.17 per share, compared to a non-GAAP EPS profit of $0.07 per share last year.

Our adjusted EBITDA for the quarter was a negative $0.1 million, compared with a positive $3.5 million in the fourth quarter of last year. For a complete reconciliation of our non-GAAP measures, please refer to the earnings release that was published earlier this morning.

Total backlog at the end of the fourth quarter was $23.9 million, of which approximately $16.3 million is scheduled to be delivered during 2022. Backlog for our inertial navigation products and services at the end of December was approximately $20.3 million, of which approximately $12.7 million is scheduled to be delivered during 2022 and includes about $11.6 million for FOG products alone.

Net cash provided by operations was $1 million, compared to $0.2 million used in operations for the fourth quarter of last year. Capital expenditures for the quarter were $3.5 million, the majority of which was driven by AgilePlans shipments. Cash provided by financing activities was less than $0.1 million, resulting in an ending cash balance of approximately $24.5 million.

To give some additional color on the 2022 guidance we provided in our earnings release, we anticipate solid subscriber growth in our mobile connectivity segment as well as strong demand for our fiber optic gyro product line within our inertial navigation segment. While we continue to see good prospects for our TACNAV product line over the long term, it appears that 2022 may not have any large orders, and as a result, we will not include orders for large programs in our outlook for the year. Compared to 2021, mobile connectivity product revenue will likely be flat or slightly down due to the high volume of migration hardware sold in 2021 as well as a continuing shift to AgilePlans. For mobile connectivity Services, our year-over-year growth rate will be suppressed by the stranded legacy network customers who don't re-sign even though we expect to add more new customers to the network in 2022 than we did in 2021.

As we said in our earnings release, when taken all together, we expect consolidated annual revenue growth between 2% and 5% and adjusted EBITDA to be between 11 and $15 million. Importantly, we are targeting positive operating income for the second half of the year. However, please keep in mind that these estimates assume that the impact on our business of the current macro supply chain problems don't worsen in 2022.

This concludes our prepared remarks, and I will now turn the call over to the operator to open the line for the Q&A portion of this morning's call. Operator?

(Operator Instructions) We'll take our first question from Ric Prentiss with Raymond James.

A couple of questions. First, any thoughts on the mid-term guidance you gave recently on kind of where 2- to 3-year targets could be. Is that something still within the planned horizon? Obviously, you're looking for the new CEO, but just wondering, is that still something you feel you can deliver on?

I think we need to go back and sort of relook. We've been through a lot to sort of work through this exercise that we just concluded. And sort of the next thing we need to turn to is we're looking at the long-term plan. I wouldn't be at all surprised if we wind up sort of reaffirming that. But I think at the moment, we'd like to go back and sort of do a look and then get -- come back on probably at subsequent call to sort of kind of let people know where we think we are.

Okay. So not reaffirming today, you're going on to take a look at it and might still be able to pull it off.

Yes.

Okay. The second question, is there any value in the IP that you've created with all the autonomous vehicle projects and stuff you did with prototypes, et cetera?

I think we believe that there is. There's a lot of value in it, but we think that as far as when we sort of continue to sort of push it forward, it's something that we need to revisit and look at in terms of when the demand is going to be there. I think we don't want to get out in front of the demand in terms of what we develop and perhaps wind up with something that isn't what the market wants, when the demand actually evolves. But there is definitely a lot of value in the IP we've developed and maybe Bob Balog can comment a little bit on that.

Yes, not just value and we filed for intellectual property patents, things like that, but also value to the regular product line, the standard products as well, not just the autonomous applications. So, yes, extremely valuable to the company.

And still thinking that would get put into all the product line and improved margins on the product side? And what kind of margins would you think putting that into the real product line that can achieve?

Yes. We can't really get into that level of specifics right now. But as you know, we have solid margins as it is, and we would hope it would improve from there.

Yes. Okay. And last one for me is, what kind of time frame are you expecting the CEO process search to take? Is there kind of a date, time line that you're trying to get as you do a nationwide search?

I'll take that question. As I said, we've engaged the search firm. We're looking for the candidates to come into the process, but we're hoping to do that within 60 to 90 days.

That helps. And what are the key skill sets, attributes, specialties that you think are the top, say, 2 to 5 skills that you really want to see this new CEO bring in?

Well, clearly, global leadership and experience in global markets is Number 1, having experience in technology and telecommunications would be helpful as well, working through transitions of companies and making sure that the organization can be stabilized as a result of this transition. So we are looking at global experience, Number 1 in telecom and technology skill sets is Number 2.

(Operator Instructions) We'll take our next question from Chris Quilty with Quilty Analytics.

Well, clearly, Ric is (inaudible) candidate for CEO. So I want to follow up a little bit on the issue of the customer transition. And I don't know whether you can tell us how many people failed to upgrade. I mean, should we expect a discrete drop-off from Q4 to Q1 based upon the loss of certain subs, which may or may not come back on when winter is done and they realize they need to turn on service again?

Yes. Roger talked about the financial impact. So I mean, we're not going to go into the specific numbers, but many of the subs that remained were utilizing our V3 product at 37-centimeter and their ARPU is relatively low. And especially in December, they might have been suspended because these are more seasonal type of users. And a significant portion of the remaining subs were seasonal of that nature, and that's why we anticipate and we have seen many of them coming back to the HTS network.

Understand. And when we -- you talk about the network savings cost, which I think it was $5 million to $7 million net as you go into 2022. How does that play out in terms of where you expect margins? Are we still looking at a migration towards upper-30s? Or is it possible to get up into the 40s over the longer term?

We're getting -- over the longer term, I never -- that's definitely possible. In the shorter term, it will be in the mid- to high-30s range.

Understand. And you often give some statistics or highlights around AgilePlans shipments and percent of the overall mix. And I know last quarter, I think you had record shipments and I was just wondering whether there were any notables to call out here in Q4.

So they remain a very high percentage, sort of over 70% of commercial shipments. So it does remain a very high part. We had record shipments of VSAT products in Q4. I think Brent mentioned, some of those were migration, but we also obviously had a lot of new customers as well. So there's no change in terms of -- I would say, in terms of the trajectory and the success of that initiative.

And you still do expect a certain percentage of customers to purchase hardware outright, primarily on the higher-end models, the V11 and V7?

Yes. And in leisure marine in particular.

Okay. Shifting over to the inertial navigation. I guess it's been, what, about a year since you've moved into PIC production. Can you just give us a recap of where you sit there in terms of the cost, the transition and production volume?

So the transition, as I think you're aware, the old style product, we were drawing our own fiber. We just at the beginning of this year, finally shut down that fiber tower. So Q4 and Q1 are still sort of transition periods from a cost perspective in terms of that we still had the fiber tower that we're drawing. There's still sort of cutover issues with respect to that or cost, let's say, not issued the cost with respect to that. So I think we will start really seeing the benefit of that in Q2, but at this point -- but we are now sort of through that transition, and we expect to start seeing that as we now got all, but I think actually, there's one product where we still need to sort of get the PIC in, but all the other products have it.

Great. And I don't know whether you've made announcements internally around the headcount reduction, but should we think about that being across the board, across both business segments, or is it more heavily skewed towards one side than the other?

Well, the number of people is more heavily skewed toward mobile connectivity. But in terms of proportion, it's sort of proportionately, I would say, equal across the entire company. Although there are certain areas -- yes, I'll let Brent clarify that.

The answer is it's proportionate. We have a lot of shared resources in particular with engineering, finance, marketing. And when you look at the segment reporting, those costs are allocated. So all departments were impacted. So the answer -- the short answer is yes, it's pretty proportionate.

Great. And the TACNAV product line, obviously, it's the nature of it tends to be lumpy as we've seen over the years. Are there any plans to look at in any ways, migrating that portfolio to try to make it more broadly acceptable across non-major programs, in other words, cost reduction efforts, maybe using PIC or other technology to try to mainline it instead of shooting after a number of different elephant programs that have been problematic over the years?

It's not out of the question in the future, but right now, our focus is on the existing TACNAV product and separate from that our photonic integrated chip technology going into the gyros and there might be a crossover point in the future, but we're not there right now.

Yes. And my view on it is it's only problematic if you're relying on it. And we're just going to operate going forward that we're not relying on it. And if it happens, it's all upside, which is great because it's good margin. And if we get it, we'll take it.

How about a different tact of more directly partnering with a prime contractor that has the ability to drive sales into programs through political maneuvering or program management.

We're already aligned with the number of prime as it is. So I'm not sure there's further alignment to be had in the short term.

Okay. The KVH Watch program, if you can explain, I was under the impression that if someone already had a V3, V7 antenna that they could enable the service. And I think what I heard you say is the way the program was run, you would have to buy a separate dedicated antenna.

That was the original premise, and now we're changing the offering to be included in our existing products. So what you originally thought is what we're doing now.

And is there any -- is that just simply a software firmware upgrades that need to be done to enable that? Or are there any hardware changes that would need to happen to the existing installed base to enable it?

Yes. Really, the 2 pieces, the flow, which is really the data transport of the IoT can run right now over the existing terminals with the existing software. The remote intervention or the remote expert we're able to call in and use the high-speed channel will function perfectly fine on our existing terminals. The piece that's going to get migrated software-wise will be the Cloud Connect, which at the current time, was running on the dedicated terminal with some additional server hardware. That server hardware will be incorporated into the new products as a VM, so that it runs within the product structure itself without the additional hardware cost.

Understand. And I think was the original concept built around using a dedicated antenna and it's a dedicated operational LAN on the ship. So it was separate from sort of ship's traffic and that companies would want to have that protected network and it turned out that, that was not a major requirement.

Yes. That's based on the feedback that we've got from the market.

Yes. And I think we've got so much security designed into these products now that I feel comfortable we can come up with a solution that will satisfy any security concerns with doing that.

Great. And final question, just given some of the headcount reductions. How should we think about CapEx -- sorry, OpEx spending going into 2022?

OpEx?

Yes. Overall OpEx, I mean, I'm assuming R&D spending continues on its current trajectory, but overall, reductions, are they primarily going to benefit on the cost of product, cost of service side? Or are they more focused on the OpEx side?

It's on OpEx, and it's in all categories, SG&A as well as R&D.

We'll take our next question from Ryan Koontz with Needham.

It sounds like your ARPU is up reasonably well on AgilePlans. Could you comment at all on the types of contracts you're able to set up there? You [have] any changes there in terms of duration? And also comment on some of these customers that didn't migrate over? I assume they weren't -- a lot of them were not active contracts.

Yes. Well, first of all, the concept of contracts for AgilePlans is something we don't have. It's actually -- it's a month-to-month service. And that was part of what we anticipated could have been a risk to begin with that we could let someone out. The fact of the matter is it's made the product more acceptable in the market. And then if you sell your vessel or it's laid up, you can [de-install] the equipment and ship back into us and cancel your subscription at any time. So we're continuing on that path as it relates to Agile. And there's nothing really -- it's changed other than we are focused on increasing the ARPUs and we have had an increase in our ARPUs, in particular on the HTS network in comparison to our legacy ArcLight network. And your second question was...

Second question was about...

As far as the strategy, so we're not going through the exact numbers, but as I told Chris and Roger talked about in his numbers, it's not an overly material number, right? We had approximately stranded subs, which represented, what, [$100,000 to] $300,000 of monthly revenue. And we've already gotten back about half of that.

Well, $100,000.

Sorry, 1/3 of that. And we anticipate getting more back. Many of them were our leisure customers, many of them were used our V3, our 37-centimeter terminal. The V3 typically has lower ARPUs. And in the case of many of them, they were suspended where they weren't paying us anything and they just were a customer at the end of the year, but with a suspended service. So it shouldn't really -- it's not really a focus. We did a great job, if I do say so myself over the last 3 years, migrating the customer base we had in ArcLight and preserved our revenue line as it relates to airtime and the stragglers that were left at the end, we're continuing to focus on them and still try to get as many over as we can.

And just a quick follow-up on supply chain, if you don't mind. Just can you kind of characterize what sorts of issues running into there in terms of mostly semiconductors? Or is it just kind of across the board freight shipping still impacting things?

It's a bit of everything, but yes. Semiconductor is the biggest issue. Right, Bob?

Yes. When we were taking active involvement from the engineering side of procurement and evaluating substitute components, in some cases, we're undergoing minor redesigns to incorporate chips that are available. We're trying to stay as flexible as we can right now. (inaudible) some of the hardware and part procurement as well.

It appears there are no further questions at this time. And Mr. Kuebel, I will turn the call back to you.

Well, thank you, operator. I think I appreciate everyone joining the call this morning. Obviously, our press releases are out there. As I mentioned, the 10-K, we expect to file tomorrow. There's obviously a lot of detail in that. And we look forward to moving ahead and creating a lot of shareholder value here. Operator, I think you can discontinue the call.

This concludes today's call. Thank you for your participation. You may now disconnect.