Q1 2020 Earnings Call

At this time, all participants are in listen only mode.

After the speakers presentation, there will be a question and answer session cost question during the session you'll need to press star one on your telephone keypad.

No my pleasure to turn the conference over to Karen Bauer, Vice President Investor Relations strategy and Treasurer.

Please go ahead.

Good morning, and welcome to the Badger meter first quarter 2020 earnings conference call I Hope Youre, all healthy and staying safe. We certainly appreciate you joining our call today.

On the call with me are Ken but of course, Chairman, President and Chief Executive Officer, and by Blackledge Chief Financial Officer.

The earnings release and related slide presentation are available on our website quickly I will cover the safe Harbor reminding you that any forward looking statements made during this call are subject to various risks and uncertainties. The most important of which are outlined in our press release NFCC filings the concept diverse and uncertainties really takes.

I knew meeting as we navigate this unprecedented global pandemic. So I encourage you to read them in detail.

On today's call, we will refer to certain non-GAAP financial metrics, our press release and the slides provide a reconciliation of the GAAP to non-GAAP financial metrics you.

I'll turn the call over to Ken.

Thanks, Karen and thank you for joining our first quarter earnings call I want to start off by thanking all of my Badger meter colleagues across the globe for their commitment to our customers and for their adaptability and resourcefulness as we navigate these truly unprecedented times.

Also congratulations to our Nogales, Mexico team for celebrating 40 years and operation This week.

[noise] business continuity, most notably in the water and wastewater utility sector has never been more critical during the quarter, we mobilized quickly to adapt to the various government orders social distancing procedures cleaning protocols and other steps to keep employees safe wall fulfilling customer requirements, our sales increased 3% in the quarter with municipal water sales up.

6% year over year as activity levels continued largely intact, we delivered year over year improvements in operating profit margins and robust free cash flow our balance sheet is in excellent shape to weather the uncertainty of the days ahead.

Bob will walk you through the details of the quarter and after that I'll come back and talk further about the market outlook in our recent actions to respond to current conditions.

Thanks, Ken and good morning, everyone.

Turning to slide four total sales for the first quarter were 108.5 million compared to 104.9 million in the same period last year, an increase of 3%.

Yeah municipal water overall sales increased 6%, which was largely driven by continued adoption of smart metering solutions, including large diameter three and four inch are you serious commercial meters residential ultrasonic meters and Orion LTM cellular radio endpoints.

Sales mix remains positive with increased sales of meters with radios as well as increased Beacon service revenue year over year.

Flow instrumentation sales declined 4% year over year sequentially improved from the prior quarter's 11% decline, but likely a short lived trend given covert 19 in the global industrial markets served.

Sales into the oil and gas market were down meaningfully partially offset by robust growth in H.B.A.C. markets.

Operating profit as a percent of sales was 14.8% an increase of 110 basis points from the prior years, 13.7%.

Taking a closer look at the drivers gross margin for the quarter was 39.9% up 130 basis points year over year and once again in the upper half of what we would call our normalized range of 36% to 40%.

Positive sales mix, notably the overall trends of radio adoption and higher Beacon service revenues and lower commodity costs were the primary drivers.

<unk> expenses in the seasonally high first quarter were 27.3 million an increase of 1.2 million over the prior year due to higher personnel in new product development costs.

<unk> as a percent of sales increased modestly from 25.2% from 24.9% last year.

Income tax provision in the first quarter of 2020 was 25.6% slightly higher than the prior years, 23.5% rate.

In summary, EPS was 41 cents in the first quarter of 2020, an increase of 11% from the prior years EPS of 37 cents.

Working capital as a percent of sales was 22.8% a significant reduction from 26.4% at year end, which helped drive an increase in free cash flow in the quarter to 28.6 million from 15.7 million in last year's comparable quarter.

The working capital reduction was across all components of primary working capital.

We are carefully monitoring customer cash receipts and supplier payment terms and do not expect any significant collectability or other issues as we move forward.

I'll take a minute to address liquidity, we ended the quarter with approximately 70 million of cash on the balance sheet and a net cash position of approximately 66 million.

We have 125 million dollar credit facility in place that is fully available.

We're taking temporary cost reduction actions to preserve cash in response to currently anticipated demand trends and have multiple contingency plans in place to make sure that we have ample liquidity under a wide range to potential economic scenarios.

With that I'll turn the call back over to Ken Thanks, Bob as Bob mentioned, we have taken action to adjust our cost structure with demand like many other industries overall activity in the end markets. We serve is beginning to slow as we exited March and into early April customers started the signal potential project delays deferral of orders and channel inventory Destocking.

Somewhat dependent on demand levels. There was also the potential for modest supply disruption cargo capacity constraints and related shortages of components over the next several months.

We would expect demand to be to be most impacted within.

Excuse me within the flow instrumentation product line given the various industrial end markets are globally, including oil and gas, which represents about 10% of that product line or 2% of consolidated revenue.

However in municipal water customers are paring back orders as well.

When these indicators we implemented temporary cost containment actions. These include reductions in discretionary spending of course travel, but also outside services non essential contractors hiring freeze and a reduction in the defined contribution portion of our aesop.

With regard to our employees our goal is to manage through this pandemic without eliminating jobs and remaining fair and equitable and are required actions.

It is important that we retain our talented team to quickly ramp back up to serve customers. When that time comes as such we temporarily reduced work schedules. The four day work weeks across all personnel and related compensation by 20% for U.S. employees.

While non U.S. employees are deploying similar type arrangements, all executive salaries have been reduced by 20%.

Our cover 19 response rapid response, the meat to lease daily as we continue to monitor the various developments across the globe.

Understanding their impact on our customers operations employees and the communities in which we operate.

Like others, we are at hearing district, W.H. show and CDC guidelines for social distancing cleaning and disinfecting protocols handwashing in personal protective equipment.

We believe these steps will be adequate to respond to the currently anticipated economic and business impact of the pandemic. However, if the effects of covert 19 on the global economy in Badger meter become more severe than we currently anticipate we are prepared to take additional cost actions.

Turning to the outlook, obviously, the ability to predict the impact of this pandemic on the economy or our business is impossible today.

The lengthen severity still highly uncertain. However, we do know that we just completed the record first quarter across all financial metrics. We also know that domestic municipal water sales growth over the past nine month average solidly in the mid single digits as we emerged from the innovation pause mid last year.

And that our bid pipeline is the strongest it has ever Ben.

As I noted in the release, we believe two likely long term trends coming out of this pandemic will favor our solutions, including including an accelerated transition to automated meter reading adoption and remote actuated flow restriction technology.

Our balance sheet is rock solid and when the timing is right. We will deploy capital on strategic tuck in acquisitions, we are well positioned to emerge from this crisis as the financially strong innovation leader that we have always been and build on our exceptional 115 year legacy.

That operator, please open the line for questions.

At this time I'd like to remind everyone in order to ask a question. Please press star followed by the number one on your telephone keypad and we'll pause for a moment, while we compile the Q and a roster.

And our first question comes from the line of Nathan Jones with Stifel. Go ahead. Please your line is open.

Good morning, everyone.

Nathan.

I would I guess I'd, just love to start off with questions on liquidity free cash flow, how you're looking at that clearly there's lot of cash on the balance sheet no debt, you've got a lot of access eat the revolvo.

Historically badges produced positive free cash flow and pretty much every quarter I think I counted one negative quarter over the last 10 years.

You guys component that you can produce positive free cash flow into 20, it's probably a little lot top to speculate about that for you given we don't know what the data thats going to be but just any any <unk> any short time kind of any kind as you can give us on what you think cats was going to look lucky.

Yeah. So this is Bob and I'll take that initially here. So I guess I'd start with your opening statement of our history of free cash flow generated and granted we're in unprecedented times, but ultimately we're confident in our ability to generate cash flow and so as we look out over the different scenarios that were looking at we see.

The that you know continuing into the future and believe the combination of our current positioning.

With cash on the balance sheet, our historic ability to generate cash flow and availability positions us well. Obviously, we also talked about cost actions, we have flexibility and nimbleness and our ability to respond.

Our ability to a we intimately understand our fixed and variable costs and we know the levers that need to be pulled in terms of different varying scenarios and so I think we remain confident in that but.

To sit here and predict a three month window or a nine month window with the uncertainty that were in is just a bit challenging I would just look to history and say that that that that has existed historically and that's where we're we're standing though.

Let's start with maybe we could talk a little bit about some of the scenarios I mean I know everybody.

And looking to see what happens under those circumstances, but maybe you could talk about the scenario you Ron.

What kind of revenue declined as the business take before I guess, the breakeven before it starts to burning cash.

Does revenue has to be down, 50% or something like that before you would run into liquidity issues. Just any color you can give us on the scenario analysis, you guys have running timely.

And so.

I'm sure Kennel jump in here, but let me let me just started and talk about obviously, we're running many scenarios, but I think the thing.

Or the scenario I'm hanging my head on most <unk>.

Yeah, We did we don't give guidance historically I don't think right now is the time to start giving guidance. So I think I'll, probably stay fairly high level in these comments, but we're really utilizing customer intimacy and regular and frequent contact with our customers across both product line. So that is talking to utilities on a daily basis and talking to flow instrumentation customer.

On a daily basis, not just here in the U.S., but globally and we're really trying to use that information to inform most likely scenario and effectively as we look at that most likely scenario, we're making decisions on an hourly if a daily if not hourly basis and the decisions that we've taken in terms of cost and.

Cash burn rate and preservation of cash to date are largely commensurate with our outlook on what the current outlook on that so bad severity and duration is.

So to get into again individual quarter by quarter revenue and margin performance. We don't do that in normal times and I don't think we're going to start doing that today yen and to add to that Nathan over the past couple of years I think I think everyone is recognized we've done a really really nice job of really tightening up our.

Processes, and making sure that we have great cash flow. So from all the points that Bob just brought up plus the procedures we have in place.

We feel pretty confident about our ability to continue to operate really well it as Bob pointed out just different difficult to put a guidance level on it but.

We feel we feel pretty comfortable.

Fair enough I, just think one dollar.

New product development and R&D day.

That's something you continuing to fund at the same level during the downturn here, if if any cuts in that and you need a load or is that just a you're going to go through the downtime without without hair cutting that at all.

We are we're not gonna haircut, our R&D department. So weve innovation has been our hallmark and it will continue to be so so the projects that we came into the you're planning to do remote control valve.

Continuing to build out our ultrasonic large meter size.

On the back of the success, we've had on the three and four inch continuing to improve our products and reduce costs. All those things are still in there now having said that every employee when I talked about being fair and equitable and our work schedules.

You know were sharing that across across the business, 100%. So we are working reduced hours in the a in the engineering department, but we've got no projects and we still expect to complete those on time, it's critically important for us I feel to continue to invest during the downturn because we came into this with a great amount of momentum in a lot of that was on the.

Back out the LTM radios, we did last year, the three and four inch meters. The the position that we've had we're not going to give up our innovation leader status, regardless of the Panda pandemic.

Hi, great. Thanks, very much for the color I'll pass it on.

Our next question comes in line of Richard Eastman with Baird Go ahead. Please your line is open.

Yes, thanks, Thanks, Ken.

Okay.

Just a couple things about.

As we kind of look.

Into into the spring here.

You know my thought is you know again.

Probably not.

Not see a lot of seasonal.

Improvements.

Certainly even in the water business, but I was just a question you know again, most water utilities at least have some ability to raise capital.

Some independence from municipality that they're in.

So how do you see all this kind of shaking out.

From your own availability of funds perspective from your customers themselves.

Yeah. So you know we we are very close with our customers we spend a lot of time talking to them in normal conditions and even more so now.

And one of the things that we're hearing is that budgets are not being caught.

Many of our customers customers are frustrated that they've been you know I would say our business on the utility side hasn't been slowing our business has been slowed by the pandemic. So many of our customers are definitely wanting to get out there and work in some of the places where the stay at home orders are a little tighter some of the places, perhaps where the meters in the basement.

People right now aren't really going in homes.

But several parts of the market are continuing to work and in some cases, even trying to go faster while they can't so it's really a mix of where people are but we're not seeing budget cuts and we're not seeing cancellations were seeing deferrals.

And generally sensing that people want to be working and that they will do so when they're allowed to.

So it's really the capacity that's possible.

Not to demand dumb enough for the budget.

The capacity and customer support is correct.

Fair enough.

Sure.

Well I don't look we'll see this infrastructure follow on stimulus, but it's still pretty money.

History there.

Infrastructure Bill I think in the past they've always including something for the S. our funds the state if our fund.

But.

After.

The structure.

Stimulus.

So so that's that's a hard question to ask because it's based on history. One thing I can tell you that we're we're hearing some positives about is around the whole am I infrastructure, and especially now if you can imagine in this heightened sense of social distancing cash flow from municipalities. The ability to have a am I and not have to go.

Go out and talk to your customers or allow your customers to be able to manage their water on a daily basis to know how much they're using so they can monitor it because they're all now at home instead of that work not having to go out to the utility the checkout. It other things a which you know we're very far down the line on releasing our remote remote control valve I'm sure you've.

Heard about some of the municipalities that turned the water on for all of their customers that had been turned off well that all has to be done manually today and then it'll have to be done manually to go back and when they want to shut it off again, our remote control valve would allow them to do that from from the desk downtown to turn it back on in a in a critical situation or to turn it back.

Off so I think there are certain things in the market today that we offer that are different than perhaps the last infrastructure Bill.

Okay very good and then just.

A quick couple two for for Bob.

As we've taken some of this.

Each and every cost actions here or on the compensation side and we hours how does this manifests itself here.

You know through the piano, if you're in terms of.

I'm trying to kind of model probably model out.

One would presume that we stepped down.

In dollars going forward.

What would be kind of order of magnitude your.

That that you might.

Suggests.

Well, so just just to be clear the reduction in the work week 32 hour work week the salary cuts that we mentioned in the prepared remarks right now are temporary so it's it's five weeks implemented beginning actually this week and extending through mid and back. So that will help you size. It I'm not going to get into what the actual costs are you can figure out the.

Executive piece of it just by looking at the proxy and taking that 20% aircraft, but realize its four or five weeks at the current time.

Okay.

As we've alluded to throughout obviously, we believe the current reductions are commensurate with facts and circumstances, but we'll be monitoring that weekly and as we've communicated not only externally, but internally we're reacting to.

The marketplace. So if that ends up needing to change it will but right now we're at that five week Mark to size. It for you right and Rick the way that we've designed this is to keep our entire workforce right. So so as much as things like I just talked about some of our customers are being slowed we are going to be we want to be ready to come out of this and ramp up.

Quickly so so this isn't.

Layoffs and those types of things, we're trying to make sure that were balance to keep our entire workforce, because frankly I couldn't be more pleased with the execution not just in Q1, but over the last couple of years since I've been here, we have currently <unk> and consistently executed really well and that's something that I'm, taking very serious to make sure we.

Preserved.

Yes, its seems very prudent and then maybe just last one for Bob.

The inventory in the channel, that's that's kind of sold them come off.

Speaking to the the water meter side and.

I'm just curious is that how big a problem is that.

Yeah, I don't see it as being significant as you know over the years, our business has shifted to much more of a direct model than a distribution model I think it's just a reality of the times in terms of how distributors behave and that's why it hits. The you know the wording in the press release, but as far as significance I got I would think of us being much more direct.

Distribution based.

Okay fair enough alright, thanks again.

You bet.

Our next question.

[noise] comes from the line of Ryan Connors with Boenning go ahead. Please your line is open.

Great. Thanks for taking my questions I'm sure I wanted to talk about your comments on no cancellations and so forth I mean, you're fairly sanguine. There in response to Rick's question on.

The coupling of water utilities from.

General account budgets and.

The problem is we we made the mistake in the last cycle of making that call that badger and others would be defensive because.

Because that would the those budgets are independent that turned out not to be the case.

And then obviously this situation is much more dire than done that was for state and local government revenue tax revenue. So.

Just wanted to kind of pro Bono further we're reading about you know police and fire being laid off and real.

Cuts into absolute bone for some of these local governments.

What gives you the confidence that that that won't have more lasting effect than say somebody well you know yet we still like am I, but we're look we're pushing that to 2023 or something like that we're just going to take a pause for a couple of years I mean, why would that not be happening to some extent.

Yeah. So.

If you look at.

The last downturn I would certainly assume you're referring to 2008 nine things are quite a bit different than how how we're operating back then there was no beacon revenue, which now is 4% of of our of our total revenue.

We weren't selling cellular radios. So there's there's a lot of things that are different in the space. Our am I customers are continuing to move forward. The bid the bid the bid pipeline is extremely strong theres one that.

That was deferred and a large one to be certain but but for the most back to feed the feedback that were getting is very positive that people still want to go forward with the am I not particularly in this environment, which is completely different than the last downturn I believe right.

And Ryan to your question what gives us the confidence I'm, not speaking necessarily to budgetary constraints and and funding, but as it relates to the feedback that we talked about earlier, that's informing our outlook as on a real time basis. The overwhelming commentary we're hearing from our utility customers is a.

Heavy desire to get back to work, meaning get past shelter in place and work from home a strong desire, where it's applicable to not miss the summer install season.

And the <unk> the number of marquee projects that we've we've talked about recently, primarily the two big ones. We've talked about those are moving forward on an uninterrupted and so yeah, we can all speculate and try to cascade.

Past practice onto current practice, but we're really trying to use the direct line up to the customer to inform our outlook and when you hear those things it just sounds different than perhaps what you're suggesting.

Yep.

Yeah, I guess I'm trying to probe I mean, you know I appreciate your comments about not giving guidance historically, but obviously, we're all going to have to try to go out and publish some kinda estimates on the company and.

It seems like you're just given a very sanguine estimate or take their which suggests do you think that those estimate cuts should be should be relatively.

Shallow and which is just surprising given that things look pretty dire I think we'd want to kind of cleared the decks and just assume the worst but that doesn't really seem to be the take your you're telling people that come away with.

Well as Bob pointed out before we haven't provided guidance all the other years. This would probably be the worst time to try to start I think being able to try to understand the impacts of the pandemic are difficult. What we do know about customers tell us and it it sounds like they they are not cutting budgets and they want to keep moving forward.

Okay.

No. My other question just conceptually with a this is big picture, but.

From a stock picking perspective, one of the ironies since we've come off the bottom is that you know.

It's been better to own names that aren't like Badger that bad has been very well managed financially strong balance sheet and now the fed and <unk> federal government are going to bail everybody out so that the names that have bounce the most have been highly levered.

Frankly, not companies of the quality of Badger I mean, so what are the unique dynamics is there any kind of government programs that you're looking at.

No because because again it seems like the names that are going to benefit most are kind of that the ones that need to help and badger clearly does not from a financial perspective any comments on that.

Well, one I can tell you that I'm extremely thrilled to be the CEO of badger and not needing that support in being here then probably the companies that you're talking about.

I think we have a great competitive position, we still serve great markets.

And were great Conservative execution type company that we're going to continue to be that long into the future right. So so we're not we're not viewing this for the next quarter. The next year. Our strategy remains the same and we're going to keep executing the way that we have.

Got it Okay and then just the last one who knows I was most of the stuff in the press release was.

Predictable in terms of talking about project pushouts or whatever but the one that jumped out to me was the component shortages I mean, I bet seem like something we we weren't expecting to see any any more color you can give us I know for competitive reasons, you probably don't want to.

Drill down too far there, but any anymore color on where exactly that's happening what types of things those are.

Yeah. So so compared to most we don't have as complex as supply chain as as most people, but you know we do get parts from Europe, and we do get parts from.

Asia and we do have a.

Supply chain that that.

We're doing we're really doing fine, but we can see that there are some potential cracks and logistics is backing up and I think we're gonna be better than most but I think given the current situation pointing out that there's some potential challenges. There I think is the prudent thing to do.

Which I don't view is being unique to badger meter and more or less being unique to anyone that's moving products through reports and using trucks and having a supply chain. That's not just us based so but it would be we'd be irresponsible and remiss. If we didnt I mentioned that as a potential risk as we talk about clarity and communication.

And and forward thinking.

Understood. Thanks for your time.

Yeah. Thanks.

Our next question comes on line of Richard Verdi with Coker and Palmer go ahead. Please your line is open.

Hi, Good morning, and thank you for taking my call and also thank you for the color. Thus far it's been very helpful. I just have one follow up question and that is looking back at the first quarter and comparing the month of March to the month of January and February can you just talk a little bit about what business trends look like in that month to month of March.

Compared to the first two months in the first quarter.

It was it was relatively flat I mean, we got off to a pretty good start to the quarter. We finished the quarter pretty strong I wouldn't say that there was any type of ramp up or ramp down I was pretty pretty constant.

Okay, all right that's good.

Very much.

Thanks.

And again as a reminder, if you'd like to ask a question. Please press star followed by the number one on your telephone keypad.

Our next question comes from the line of Fran Okoniewski from Friess Associates go ahead. Please your line is open.

Quick question.

Paliotti.

I think municipality.

Question.

We're having a hard time hearing you I don't know if you're on a cellphone, but where we were only picking up every fourth words, sorry sounds like I think I hedge and speaker I'm, sorry that better.

That's much better okay, sorry, I apologize.

I just wanted to follow up on the state in minutes municipality budgets.

Questions.

You know or is there anything structural that could happen in the coming months that we havent yet seen.

Perhaps where from what I understand.

The state municipal budgets need to be balanced at all times for perhaps certain funding initiatives.

Maybe we're not at that point, yet, but are there certain structural things that could change in the coming months that could.

It was sort of changed to tune a little bit in terms of 'em budget spending.

You're not seeing it now, but maybe folks could see it in the next quarter too.

Well I mean, I'm Gonna go back to the comment earlier about how we generally stay very close to our customers and we and we talk to them quite often.

The other thing about these utilities is most of the times their run by the same person for years and years and years who've been through several downturns.

So so when they're talking to us about their confidence in the budgets being maintained in those types of things.

That's a pretty strong indicator to me that that they're not anticipating something structural over the next couple of months that would that would significantly change that.

Yeah.

Okay, and I guess in terms of you know water infrastructure somebody else mentioned earlier that you know fire police other things were maybe being cut back.

Your vertical is a little bit more of a priority perhaps than some of the others.

Well. So so one thing I know there was a time in my life, where are used to work with a company that that also sold rescue tools and some of those things and I saw what happened in 2008, and nine and sure. They don't buy new fire trucks, but they still have enough fire trucks to put fires out and they maybe don't buying new equipment.

But they still but they still did a lot of the water infrastructure work that they needed to do because people still need clean drinking water people still need to move their wastewater. So.

You know it it is a little bit of a different space, where you're buying maybe equipment versus keeping your water you are essential water functions running.

Okay. Thank you.

Sure.

Our next question comes in line of Andrew Scalia from Berenberg Go ahead. Please your line is open.

Hey, guys.

I wanted to ask on you know kind of parsing out.

How you know discretionary versus Nondiscretionary spend.

And I remember you know if you go back last year, some customers were waiting for your new technology to come out.

And I'm wondering if there's still an element of customers here, you know kind of weighted and its crisis hit so they still need to upgrade is there is there a factor.

Is there something like that going on a dynamic where customers will be more likely to spend that you'd expected in environment like this.

Due to due to new technology that you guys had put out there.

Well I I think I think if I'm understanding your question correctly I, that's when I talked earlier about I think the adoption that we're going to see on on more am I would would go in line with what you're talking about the LTM.

Radio that we put out is very supportive of better technology, and we saw that momentum coming into this pandemic.

The remote control valve I think is going to provide provide fantastic benefits for customers that that that will have payback that they're going to want to do so so you know quantifying that Andrew I I don't I don't know that I can quantify but I do know that the newer technologies we've seen.

We've certainly seen customers value what they offer.

Yeah Okay.

And so and the gross margins were also very good in the quarter you almost broke 40%.

What yeah, so what I know you talked about but price pricing dynamics.

I guess what in there is there anything if there's anything in there that structural that that.

These gross margins could hang in there despite volume declines there can you talk a little more I guess about how you're thinking about that.

Yeah. So if we just think about our gross margin commentary not only for this past quarter, but really the last.

Seven quarters, where we've been in the upper half of that normalized range. It's really a story of mix and so I wouldn't do that is structural I would do that as being indicative of the products that are moving and we're selling.

So we've consistently talked about mix.

We've got copper when we talk about price cost were obviously talking about commodity cost and primarily in copper.

It was a year over year improvement as well as a.

Sustained improvement in that in terms of price at a cost advantage and quite frankly, probably goes under the radar a little bit, but we are we haven't yet anniversary. The L. T M product launch, which had a cost dynamic to it as well so that's part of the year over year improvement.

As we've consistently talked about probably the last five or six calls about how to model out again before the pandemic what that margin profile looks like we've kinda talked about a tightening of the normalized range, but not necessarily a continued expansion like I always use the phrased the the stairway to heaven.

And there's a variety of factors that bed bath that expansion down over time, but there were talking under normal conditions I think when we talk about a pandemic obviously the uncertainty the duration and severity of that will or will there will be determined and well well ultimately impact or could potentially impact margins.

Going forward, but ultimately theres, nothing onetime or unique or a discrete about what we experienced in Q1, nor I'm kind of the past quarters.

And presumably some of the cost actually that you're taking currently.

We're going to help your operating margin line, but even on a gross margin lie I guess was there anything.

I guess I guess that I.

I guess, you mentioned that constraints that that could impact it but.

There's something.

And those cost actions that help your gross margin.

Forward well clearly the the reduced work week in the the 20% salary cut is universal it's across the board again, very temporary but I would view that to be you know in response to talk to lower volume and to manage absorption versus you know a structural expansion.

Yeah, Okay, all right. Thanks.

With that there are no further questions in queue at this time I'd like to turn the call back over to our present [laughter].

Great. Thanks, everyone for joining our call today for your planning purposes, our second quarter columns tentatively scheduled for Thursday July 16th.

Please feel free to reach out to me with any follow up question. Thanks have a great day.

This concludes todays conference call you may now disconnect.

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