Q2 2020 Earnings Call
[music].
Ladies and gentlemen, it's free standing by good day and welcome to the WD 40 company second quarter fiscal year 2020 earnings Conference call today's call is being recorded.
At this time all participants are in the listen only mode at the end of the prepared remarks, we will conduct a question and answer session registered to ask the question. It anytime during this call. Please press star one on your telephone keypad. Please make sure. He function is turned off to allow your signal to research equipment.
If at any time during the conference <unk> to meet an operator, Please press star zero and telephone keypad I would now like to turn the presentation over to your host for today's call Ms., Wendy Kelly Director Investor Relations in corporate Communications. Please proceed.
Thank you good afternoon, and thanks for everyone for joining us today.
On our call today, our WD 40 company, Chairman and Chief Executive Officer, Gary Bridge, Vice President and Chief Financial Officer, Jay Randall and President and Chief operating Officer, Steve Craft.
In addition to the financial information presented on today's call. We encourage investors to review our earnings presentation earnings press release and form 10-Q for the period ending February 29 2020.
These documents are available on our Investor Relations website at Investor that WD 40 company Dotcom.
Play and transcript of today's call will also be a man made available at that location. Shortly after this call.
On today's call, we will discuss certain non-GAAP measures the descriptions and reconciliations of these non-GAAP measures are available in our FCC filings as well as earnings presentation.
As a reminder, today's call includes forward looking statements about our expectations for the company's future performance.
Of course actual results could differ materially.
The companys expectations beliefs, and projections are expressed in good faith, but there can be no assurance that they will be achieved or accomplished please refer to the risk factors detailed and I actually see filings for further discussion.
Finally for anyone listening to a webcast replay or reviewing I've written transcript of this call. Please note that all information presented its current only as of today's date April 920 20.
The company disclaims any duty or obligation to update any forward looking information, whether as a result of new information teacher results or otherwise with that I'd now like to turn the call over to Gary.
Thank you Wendy good day, and thanks for joining us for today's conference call Jay Steve When do you know I had dialing in from ever 60 homes, where expect most of you are as well.
To begin I'd like to thank the tribe for their hard work and dedication to the company in these volatile and uncertain times.
Number one priority during these challenging times is the safety and will be about fraud.
Today, we will discuss some highlights from our second quarter.
At a complete discussion of our second quarter results. Please refer to the press release, we issued earlier today and out 10-Q, because a period ended February $20 20 to see this afternoon.
Today, we're going to talked mostly about the global health crisis caused by the code with 19 outbreak.
We currently find ourselves at the peak of uncertainty as it relates to this global health crisis and its effect on both our company and the global economy.
Jay and I were at the Holbrook WD 40 company during the global financial crisis in 2000 the night.
To give us without try.
We successfully navigate those difficult on stronger than when we include.
We realized that the difficult times, we are encountering during the 2000 <unk> fiscal crisis.
Patients today.
We were in a health crisis, which is impacting all parts of decline.
And affecting economies worldwide.
As a result, the outcome is very difficult to predict.
I have a gain confirmed in my mind that people are okay, but dealing with rich.
Struggle with uncertainty.
And while it is true that there's a lot. We don't know today, there was something that the health crisis is going to be.
Temporaries disruptive to our business and that we will likely be some short term Nick these impacts on our financial results.
We know that will probably faced some challenges in the coming weeks or months and we as we continue to walk right a global business through these volatile Apollo and uncertain times.
However.
Despite all this.
We also know that we're going to try what dedicated to our brains and two out he uses.
We have a famous brands that people can trust.
And which can bring certainty to both have customers and how easy to use is getting these uncertain times.
We remain committed to making up products easy to buy which is demonstrated by their availability over 62 unique trade channels.
We have a lawyer loyalty in use as bags in more than 176 countries and territories around the world.
We have acted to for the bullet proof that balance sheet. Thanks to the great work done Vijay him a finance team over the last couple of weeks.
For all these reasons I'm sure, where you are well positioned to navigate storm that's it unfolds from both a financial and operational perspective. This two will pass.
Now, let's talk about a long term growth aspirations as a reminder, at long term growth aspirations are guide posts not guidance and they have probably wrong and roughly right.
That long term growth aspirations to drive consolidated net sales to approximately 700 million and to do this well following L. 65, 30, 20 part business model.
Our long term targets S. too.
Very clear to us however, with the uncertain global economy, I could the timing of out 2025 aspirations might be to life.
During the second quarter, except for I use the Asia Pacific segment, a long term strategic drivers continue to perform mostly in line with our expectations.
Let's talk about the strategic initiatives number one is to grow the WD 40 multi use product.
[noise] tempo under this initiative is to grow WD 40, multi use product to approximately 530 million in revenue.
In the second quarter sales of WD 40, multi use product was 76 million down 3% compared to last year.
This decline was driven primarily by at 37% decline in Asia Pacific, which was partially offset by increased sales in the Americas, and EMA up 7% and 1% respectively.
The decline in WD 40, multi use product sales in Asia Pacific was driven primarily by a 74% decline in sales at WD 40, multi use product in China.
You did the disruptions related to the code that 19 outbreak.
As you know in China, many distribution channels and factories were closed and the greater population was placed in quarantine for several weeks starting in mid January.
These factors materially impacted our sales during the second quarter. Since we had a significant number of orders that were scheduled to ship to our customers in early February after Chinese new year holiday.
And those shipments could not take place due to the coded 19 outbreak in the country.
However.
In recent weeks, we've seen factory south to commence production and people begin going back to work.
Things are slowly returning to normal for out tribe members in China.
Everyone is back to where there's some tribe members are still working remotely.
Schools remain closed in many areas of China. So this month, we have some little tribe members in the Shanghai office, who have accompanied their parents to work.
We're happy to support this temporary working arrangement.
We expect we will encounter the volatility and disruption in other regions, where our global business operates due to the global crisis.
Strategic initiative number to.
Grows the WD 40 specialist protocol.
We remain optimistic about the long term opportunities for WD 40 specialist and believe we can grow the product line to approximately 100 billion the revenue.
In the second quarter sales of WD 40 specialist increased 10% to 8.9 million compared to last year.
We continue to move forward with their new packaging that we discussed with you last quarter, which we believe will give us a stronger brand presence for both WD 40, multi use product and WD 40 specialist aligning them as the blue and yellow brand with a little Waco.
Strategic initiative number three broadened product and revenue base.
Strategic initiative number three includes maintenance products like three in one WD 40 bike and GP 85.
But also includes homecare brands, such as spot shot and allow though in the Americas 1001 in EMA and Novak and solve all in Asia Pacific.
Our goal for the products under this initiative is to reach a combined revenue of approximately 70 million.
Global sales of the products included under this initiative were 12.8 million in the second quarter up 2% compared to last year.
Strategic initiative number for attract develop and retain outstanding tribe members.
We are putting the health safety and well being about tribe members and their families.
First during these difficult times, which show through in place orders in effect in most of the countries, where I've tried members live and work.
Many of them have been exclusively working from home for several weeks now.
Hi, T. teams around the world have done an exceptional job ensuring that everyone has their technology they need.
To complete the jobs remotely.
We call Esselte tried because we are a community of people with a shade purpose.
That is to help feed and defense each level.
During these difficult times I think that definition is particularly feet.
There was no better time than now to have an in highly highly engaged workforce.
During the second quarter, we took out by annual employee engagement survey and I'm happy to report that our overall global employee engagement score remains the it would be of many organizations at 23%.
Strategic initiative number five operational excellence.
The World is full of volatility ambiguity and then certainly more so now than I and others have ever seen in their lifetimes.
It is our commitment to maintain our operational excellence, which will help see us through the storm just as it has in other times of macroeconomic uncertainty.
From a financial perspective, we are an enviable position, we've always maintained a strong balance sheet.
And manage their funds wisely.
That completes the update of the strategic drivers, but like now pass the call to Steve who will discuss some operational highlights.
Thanks, Kerry and good afternoon.
I hope that you will during these challenging times <unk>.
The impact to the global health crisis, and our operations represents an unprecedented challenge that we're evaluating addressing daily.
Therefore today, rather than going through net sales results for the second quarter I'd like to talk with you about what is happening right now.
The details about our second quarter operational results. Please refer to the press release, we issued earlier today.
As you know the situation is dynamic and changes every day, but wouldn't be giving any numbers or any future protection is just a high level summary of what we know today.
What I can share with you is that in March despite the enormous disruption experienced in many countries due to covert 19 revenue levels were inline with what we have historically seen in a typical much well. This is good news I want to stress to the future remains uncertain.
First a bit about our supply chain as most of you know we outsource the manufacturing of our finished products to contract manufacturers all around the world. Many of our contract manufacturers had been trusted partners for so long that considered part of the tribe.
Yeah, but one of our top priorities is to ensure a business partners stay safe and healthy.
Upon as a following the recommendations set forth by governing agencies and are taking necessary precautions to ensure the safety of their employees.
Our supply chain is structured such that WD 40 company products are sourced manufactured in warehouses close to our customers and end users as possible.
Because we predominantly sourcing manufacture out products locally we expect to be able to minimize much of the supply chain risk. We will encounter during the current health crisis. However, I want to emphasize it each of our regions is being impacted by the own set of local challenges in an increasingly constrained supply chain environment.
In Europe the region, most negatively impacted by in March but it could be 19 outbreak of supply chain was able to produced 95% of on normal era. So production despite severe limitations on movement.
That is a wonderful testament to the resilience of our partners as well as to the hard work of our supply chain tried.
In addition in EMEA, we've built up some buffer inventory to be used in even to the hard Brexit.
The one for seamless extra inventory is coming in very useful to help us mitigate the supply chain disruptions, we are encountering any man.
Additional working capital that we invested is timely and when to help mitigate some of the <unk> risks associated with the current crisis.
In the Americas I've ever so lines continue to be operational and we are not experiencing any significant impact to our supply chain supply chain. This phone.
This has not been without considerable effort by tribe members, who pivoted many times to address issues as they have arisen over the past several weeks, we're closely monitoring all global supply chains in our supply chain tribe members are working hard around the world to ensure the raw materials are obtained production lines, a functioning orders are fulfilled and cost.
And there's an end users are getting the products they need.
Now, let's talk briefly about outright currently tribe members and 11 locations around the world on the mandatory work from home orders, we have three locations where tribe members have the option to work from home, but are not mandated.
Anyone to be 40 company office in the World is open the night in Shanghai and today.
As Gary mentioned earlier things are starting to return to normal in China. We expect an exceptional weeks will be challenging fraud tribe members all around the world, where they're trying to experience in China gives us some hope that we'll see the other side. It is health crisis soon.
Tribe members in China has been a wonderful resources, they've been able to share their health crisis learning moments with the rest of us.
Finally, some good news as you know at WD 40 company. We played infinite game, we are a financially strong company and we take a long term view I'm happy to be able to share. Some good news with you today.
First we are transitioning from a marketing distributor arrangement to a direct model in Mexico. We have recently hired a new tribe members and have opened a new office in the city of Monterrey.
Putting the foundation of on new direct marketing place has been underway for a very long time I want to thank the tribe members, who have worked tirelessly to make this happen. We're thrilled to share that in May we will begin to service on Mexican customers on a direct basis WD 40, multi use product in Korean won a number one number two brands in that category in Mexico.
We believe by transitioning to the direct model will be able to generate but faster topline growth as well as stronger gross margins over time.
Second E Commerce is the fastest growing retail channel in the world today and it is our fastest growing channel as well.
Two years ago, we committed to our global vision of becoming the category leader in digital in E Commerce, and we continue to make outstanding progress in this area.
Year to date E Commerce sales globally grew by 44% compared to last year.
We've also recently appointed a chief digital adviser from a leading consultancy, who will work with our global tried to continue our journey toward becoming global leaders in the digital space in all categories.
One third of the world's population observing stay at home orders were seeing what we believe is a seismic shift in online behavior and one that we believe may lead to a permanent behavioral shift in buying patterns.
Many 40 companies well positioned to benefit from the significant change in the landscape.
In addition, we're learning from the recent experience we had in China, well year to date date sales in China declined by 52% due to the health crisis E Commerce sales increased 39% over the same period.
Now, we'll turn the call over to Jay for an update on the financials.
Thank you Steve today, we reported net sales of $100 billion for the second quarter fiscal year 2020.
Down 1% compared to the second quarter of last year translation of our foreign subsidiaries results from their functional currencies to the U.S. dollar dislike favorable impact on sales in the second quarter on a constant currency basis sales would have been 99.7 million.
Two per cent compared to last year.
Net income for the second quarter was $14.3 million, a decrease of 10% compared to last year.
Diluted earnings per share for the second quarter with dollar and four cents compared to a dollar and 14 cents at the same period last year.
From a financial perspective, we're in an enviable position with a very strong balance sheet and a newly amended $150 million credit facility from which we recently elected to draw down $80 million and further strengthen our liquidity position.
We're focused on managing through this crisis to come out the other side as a much stronger business, let's start with a quick discussion about EUR 50, 530, 25 business model. The long term targets that we use to guide or business on todays call I'm going to focus primarily on the drivers for.
Our gross margin.
And the second quarter, our gross margin was 53.6% compared to 55.4% last year.
As for presents a decline of 180 basis points.
The major drivers of this decline were sales mix changes.
Higher warehousing and freight and other miscellaneous costs.
Impacts from sales mix changes and other miscellaneous costs in all three trading blocks negatively impacted our gross margin I heard and 20 basis points compared to the prior year period.
The unfavorable impacts in the Americas in EMEA were primarily due to unfavorable shifts in product and customer mix as well as higher miscellaneous costs.
In Asia Pacific Shortfalls in sales in China, a direct market, where we typically have higher gross margins negatively impacted the overall margin for Asia Pacific.
In addition, higher warehousing and inbound freight primarily in the amount negatively impacted our gross margin by 102 hundred 10 basis points.
Changes in major input cost negatively impacted.
Our margin by 10 basis points.
Trillium based specialty chemicals positively impacted our margin by 20 basis points period over period, However increased cost of aerosol cans negatively impacted our margin by 30 basis points and more than offset the gains we realize due to lower specialty chemical.
Costs.
Finally changes in foreign currency exchange rates negatively impacted our gross margin by 40 basis points.
These negative impacts to gross margin were offset by the favorable effects of price increases and lower discounts to our customers, which when combined positively impacted gross margin by 100 basis points in the second quarter.
Let's talk a little bit more about oil recently crude oil has plunged to multiyear lows.
Falling crude oil play prices will most likely be and net positive to our gross margin. However, it is extremely difficult to know the long term impact of these changes until we see it in our cost of goods, so what's which will take some time.
This is because we don't buy crude oil we instead by custom formulated.
Petroleum based specialty chemicals, which have complex cost drivers, including the manufacturing region fixed production costs and distinctive supply and demand characteristics. In addition.
The since the global <unk>.
Trillium market is based on the U.S. dollar when the price of oil fault. The dollar often strengthens and for products manufactured in countries outside the U.S. This can leave costs and other Ken currencies My chart.
Overall, we estimate only a small amount of the total costs to produce a can of.
WD 40, multi use product directly correlates to the price of <unk>.
Barrels of crude oil.
If oil stays near current levels for a considerable amount of time likely begin to see me a benefit.
In our cost of goods in about.
90 to 120 days.
Now a word about our balance sheet and our capital allocation strategy.
The Companys financial condition and liquidity remains strong believer efficient business model and the recent steps we've taken to strengthen our balance sheet leave us physician to manage our business through this crisis as it continues to unfold.
In March we amended our line of credit with the Bank of America to extend the maturity date to 2025 and to increase revolving commitment to $150 million.
At the end of March we had borrowed an additional $80 million on the revolving line of credit, bringing the balance of approximately 149 million, though we are already fairly well capitalized we decided to exercise an abundance of caution and draw on the remaining balance of our lighter credit to ensure.
Liquidity.
Time of unprecedented Echo go and economic uncertainty.
Yes, no need arises for these additional funds as we weathered the storm, we will simply repaying the debt and reversed and restore our available credit.
In addition to these steps we have elected to suspend the stock purchases, we've been making under our current share buyback plan.
We're doing this in order to preserve cash until we have a better idea of the long term financial impacts of this crisis.
We continue to return capital to our shareholders through regular dividends.
On March 17.
Our board of directors approved a quarterly cash dividend of 67 cents per share payable to shareholders.
Record on the close of business April 17th.
In fiscal year 2020, we expect to complete our investment of approximately 30 million in capital projects.
Primarily to.
Here are the proprietary machinery and equipment, we need to manufacture our next generation smartstrand delivery system.
With everything going on in the World, We believe investing in our future is more important now than ever before.
With that let's turn to fiscal year 2020 guidance.
The cobot 19 endemic has injected a measure of uncertainty into our business, which makes it very difficult for us to accurately forecast short term financial results for the company.
Therefore, today, where withdrawing the fiscal year 2020 guidance, which we last reiterated on January nine.
We are continuing to monitor the situation closely and we will update you when we can.
And that completes the financial overview now I'll turn it back to Gary.
In summary, what did you.
You had that at China subsidiary.
Materially impacted right because it 19 outbreak.
During the second quarter.
More importantly, you heard the.
Correct Troughing members in China.
That we expect we will continue to encounter volatility.
Aegions, where our global business operates due to the global health crisis.
You had that every employee engagement school remains than NZ of many organizations at 93%.
You had.
That we are transitioning from a marketing distributor arrangements Mexico.
You heard that we continue to make outstanding progress in the area of digital and E Commerce and that E. Commerce sales have grown 44% year to date.
Well I heard that we elected to make.
Agreement and recently drifted down a significant rainy day fund from this line to bulletproof balance sheet.
Go ahead that we ask the spending purchases under our current share buyback plan in order to preserve cash.
That we continue to return capital to asbestos through dividends.
You ahead that we withdrew have previously issued fiscal year, two that twentytwenty earnings guidance due to the rapidly evolving impact of the global health crisis, you heard that we are confident our long term growth Apple aspirations remain a realistic opportunity.
In closing.
I'd like to share with you acquired from my friend Simon saying.
Remaining calm.
In times of desperation.
Makes way for opportunity.
Thank you for joining us today, please stay safe we'd be pleased now to open the conference call to your questions.
Ladies and gentlemen.
I'd like to register a question [laughter] Star one new telephone keypad eats make sure. Your <unk> function is turned off until I see no to reach our equipment.
If your question has been entering and you would like to try your registration. Please press the pound key one moment. Please for the first question.
Your first question comes from Linda Bolton Weiser with <unk> Davidson Your line is open.
Yes, hi, Thank you for your commentary.
Gary and Jay and Steve.
So I guess I was most struck by steves comment.
It's a resolved so I guess.
You're kinda, saying that.
Sales were flat S. Not I met hard to believe given that.
But we've had a suspension of almost all and you know I'm not afraid to manufacture trees. So can you just kinda give us a little more color and also we've had a lot of investors ask us about a breakdown of your demand by end markets. So like how much is automotive how much would be.
You know high tech different manufacturing different end market demand do you think you could give a little color on all of that thanks.
Thanks Linda.
We were pleased with being on the hold up in much and I guess, what does a really reflect on our multiple trade channel multiple concrete <unk>.
So this strategy.
As far as trade channels are concerned all allow Steve just to give up at a high level view of the key channels that we operated.
Oh, thanks, guys.
So as Gary said when I mean, you know what are the big advantage of dutifully companies that we are diversified both point trade channel and by geography.
No one trade channel customer or geography.
It is oh.
<unk>.
And.
The biggest markets we operate in you know a run.
Automotive deal why hardware.
Thomas as we mentioned on the cool is a fast growing channel both in terms of percentage growth and also dollar volume.
To an industry as well being they tend to take the big for and.
The beauty is the diversification and so no one of those trade channels has done over there in weight on the rule.
Please.
So do you expect I mean are you seeing anything in your end markets that indicate that because the decline in China with quite significant.
So.
Well were in 15.
The impact on your results.
And.
That's going on in the right.
After the world versus what went on regarding coven 19 in China.
I can give you some color on that Linda the down.
Clan good shipments that we had.
That were too.
Go out to our customers straight off the substantial order book in place and as is customary.
Hi, now I'm kind of waits till often.
Do we use themselves.
And to take on that inventory you.
Because the hadn't happened.
We would have ship because the demand issue. It was our inability to ship the pool, the stopping downturn in China trying to stop <unk> shop, they around January 17th.
And was.
Out like three to get a well into February.
And we didn't we weren't able to ship what we had we are starting to ship present what is now.
So that's that's why there was a difference between time [laughter], if you think about.
In the World right now.
Most of the dominant trade channels that we operate in how functioning hardware home improvement grocery club mass merchant those trade channels, Oh operating albeit at a different level.
I'm sorry people are buying out I drove past my my local home improvement stores. This morning, and the packing what was 75% pool.
People to go in there to byproduct, probably WD 40, as well. So there were two different things went on between China and what's happening in the U.S.
Okay. Thank you good.
Thank you that's a good explanation.
So can you talk about.
Oh, just your innovation that you were planning to launch I think it once you were talking about June or July are you going to delay that are you still going to lunch or your major innovation.
Were still going ahead that youre youre, referring to Smile school to was minus one next generation. The first mockups loops that will be here in Canada in June and we're also moving ahead with the continued conversion all they are specialist product range into the new blue and yellow Red top trade press from out brand back.
Picture.
And we will continue to work on.
The rollout of snobs through a next generation around the world it'll probably take US 18 months and total to get it out there.
Yeah as wasn't the Pos, but not with full steam ahead.
Okay, and then just finally.
In terms of the gross margin I guess relative to at least my estimate it was kinda disappointing in the quarter and you mentioned I think mix issue with <unk> quite a big issue.
No. It seems like in many quarters mix seems to be an issue and I'm just wondering.
Is the idea that you're continuing to shift people toward.
Toward the smart straw ER and specialist, which is a you know a hard higher margin products is that still occurring and then if so what are these these I know it seems like almost like a recurring issue wouldn't mix that impacts or growth margin. Thanks.
Okay, all right Yeah touched summit.
I'll give it to Joe's if I can the mix issue in this quarter was the shortfall of sales in China.
We have a higher gross margins in China.
And because our sales fell into the gotta, they're completely that was the Houston Jay ill pass you pass on to you for the rest.
Yeah, Thanks, Gary Yeah, Linda <unk> that was.
A lot of what happened is in our direct the other is the other ship. We have is between our direct markets in our M.D. markets. There's a.
Shipped in the large bird and the margin depending on the volumes in any given period that go through those.
To.
Through distribution channels. So you know our R.M.D. markets are marketing distributor markets have a.
Quite a bit lower margin as a whole or a direct markets have a much higher margin.
And then and then when we see mixes between.
There's also even mixes between markets. So for example.
The there is much higher margin and in Europe. Then there is in the U.S. based on just the sophistication of.
The distribution channel and the size of the market.
Okay.
And can I just sneak in one last one.
Going back to look at your financial results back in the last recession in the all eight or nine period I think it was an 8% sales decline if if I'm not mistaken. So you you did have a sales decline.
You know I know you don't want to give guidance you're withdrawing your guidance, but would it be a bad idea for conservative analysts to put something like an 8% decline or something like that I'm, assuming we go into a recession. Thanks.
We ended the decline that was you mentioned for 2000 Tonight was primarily because all the strengthening of the U.S. dollar against the pound devalued some 25% don't think.
Oh in 2001 night.
And you know like I think right now if we would be.
Irresponsible for us to try and particularly predict the future until we get through.
What we have to get through now.
I think we'll have a better idea once the world stops to ramp up again.
So but in the U.S. and in 2000 than I have to pass sales went sideways.
Consolidated revenue went down but that was because all the the change in the exchange rate from the British pound right Jay.
Ah, Yes, actually we had Oh, we had a shortfall in the U.S. Oh, we actually in local currency or in source currency. We were a we had growth in in EMEA.
But it was wiped out because of the.
The headwind from foreign currency exchange.
Okay.
Alright. Thank you very helpful. Thanks, a lot.
Thank you.
Stay safe and thank you you too.
Again, if you might ask a question that star one I mean telephone keypad.
Our next question comes from the line of Dang away from Jefferies. Please proceed with your question.
Hi, Hi, guys I got cut off at the end of the of the prepared remarks. So forgive me. If this was a reset.
But did you indicate that the dividends. This is largely intact that you're not considering cutting that at this point.
Now, let's try to answer that.
No yeah, we did issue a dividend the board declared a dividend and we will excuse me, we will issue a dividend at the end of the month.
Right, but I'm, saying going forward in the second half of your given the uncertain outlook.
Oh I'm, you know that we make those dividends decisions on a quarterly basis.
Our policy it hasn't really changed in that is you know, we look first to they'll pay a dividend out at 50% of our of our earnings and.
And that that strategy continues.
Okay. Thank you and then go you mentioned I'm seeing your your local distribution channel that that things were still going into your channel just go.
Relatively intact, there and I assume that's with the with the home improvement market I was wondering if you're seeing similar things with both the construction commercial and then just industrial activity given the lack of commercial and industrial activity in auto activity. I was wondering I would assume you're seeing a significant declines in those distribution channels are too.
The channels to those end markets.
Then we're not seeing it yet it's probably too early but let me say this construction is it at least in California has been designated as an essential services as I go I Brown I see.
<unk> trucks out buildings out well whatever repair stores is still open.
The auto industry in itself in the manufacturing so I think that's huge consumption, but people are 16 cars.
But they look the order zones I riley's the use of bright part areas. The all Chinese people, they're all operate so.
He is getting done or at this time.
Okay. Thank you that that's actually very helpful. And then final question you indicated that the Capex I think if you get 30 million. This year Oh, we as soon as my right to model that starting next year. It goes back more towards the traditional level or is it going to stay at this kind of elevated level as you guys continue to roll things out.
Okay.
Ah we wouldn't expect it to a go back to very close to historical levels.
Once we actually once we complete the once we complete the up.
The project with the the innovation around our next generation Smart straw, we don't have any other significant a investments are but are you know begging for a lot of capital.
Is that project expected to be completed this year.
It'll be a there'll be some carryover into.
And to 21.
Yeah for 21.
Thank you very much.
You are quite welcome.
Ladies and gentlemen that does conclude our allotted time for questions.
Thank you for your participation on today's conference call and that's what you. Please disconnect your line.
[noise].